India’s private sector capex likely to slow down due to tariffs, says Goldman Sachs

NEW DELHI: India’s private sector capital expenditure (capex) could take a backseat in the near future due to rising uncertainty around global tariffs, according to a recent report by Goldman Sachs.

The report highlighted that as tariff rates are yet to be finalised and are likely to remain in flux over the next few months, companies looking to invest in new projects may delay their plans.

It said, “We think capital expenditure in the private sector will take a back seat or get pushed out given the recent developments around tariffs. As tariff rates get negotiated and firmed up over the next few months, corporations planning new capex may defer”.

The report noted that these delays in fresh capex decisions pose a risk to the order inflow for companies in the capital goods and infrastructure sectors.

While India’s GDP growth has largely remained resilient to global shocks — barring the Global Financial Crisis (GFC) in 2008 and the Covid-19 pandemic — the impact on specific sectors like exports and ports has been more visible.

The report noted that India’s merchandise exports form a relatively small portion of its GDP — around 12 per cent — compared to China’s 19 per cent and Vietnam’s 82 per cent.

However, with the US being a major trade partner, accounting for 17.7 per cent of India’s exports and 6.2 per cent of imports in FY24, a slowdown in US GDP growth has historically had some bearing on India’s export momentum.

This effect is now being seen in port activity as well. The report anticipated that container traffic and overall port volumes may see a slowdown in FY26 and FY27, following a short-term frontloading of trade. Importers are expected to remain cautious in placing new orders amid tariff uncertainty and weak global demand.

It said, “We expect container and port volumes to slow (after possibly frontloading in the near term) over FY26-27E, with importers expected to remain cautious on order placements”.

Adding to the pressure is a slowdown in government capex growth. Over the last three years, India saw decent growth in gross fixed capital formation (GFCF), driven largely by public sector investments. However, with rising global uncertainty and a more cautious stance from both private and public sectors, this momentum is likely to soften.

Goldman Sachs believes this environment may weigh on the order books of capital goods and infrastructure companies, which rely heavily on strong capex trends. (ANI)