Real estate has a clutch of structural demand drivers: growing population, decreasing household sizes, urbanization, growing need for more built-up area per capita and improving construction quality.
We expect to see strong demand for construction materials, and thus capex in steel, cement and machinery. This will be led by cyclicality – low inventory following a decline in construction over 2012-21 lays the ground for strong growth in dwelling construction (commercial real estate as well).
Also forecasted is the strong capex growth in power generation (Rs 19 tn over FY24-30E, including Rs 10 tn in renewables, ex. hydro), and in transmission and distribution capacity. The investment areas like green hydrogen, defense, solar modules, robotics, data centers, and energy storage predicted to add 60-80 bps to India’s investment ratio.
As firms invest based on growth expectations, the overall pace of growth affects the investment-to-GDP ratio as well. We do not expect trend growth to rise beyond 7-7.5% - sufficient to push the investment ratio to 34%, 3.6pp above FY24, driven by 1.8 pp improvement each for households and corporates. However, the near-term slowdown is transient - driven by unintended fiscal and monetary tightening.
