Financial Strength of Unlisted Companies in India

Unlisted companies in India are experiencing a robust financial period, with significant improvements noted over decades.

• Debt burden at a 35-year low.
• High interest coverage and healthy profits being reported.

Characteristics and Investment Behavior

Unlisted companies play a crucial role in output, employment, and private investment, encompassing:

• Family-owned industrial groups.
• Infrastructure companies.
• Indian subsidiaries of global multinationals.

Despite strong financials, these companies show reluctance to expand capacity, with borrowing often aimed at refinancing older loans instead of new investments.

Investment Trends Among Corporate India

Analysis by Icra covering 8,000 unlisted and 4,500 listed companies reveals slowdowns in private capital expenditure, primarily among unlisted firms.

• Strong profits but weak investment appetite.
• Non-financial firms holding cash equivalent to 11% of their assets.
• Increasing reliance on passive income over core business activities.
• Physical assets like plants and machinery have declined, while financial assets have risen.

Comparison with Previous Slowdowns

Unlike the 2010s marked by overleveraged companies and stressed banks, the current scenario shows:

• Clean corporate balance sheets.
• Well-capitalized banks with low non-performing assets.
• Readily available credit yet hesitant private investment.

Challenges and Considerations

Several factors contribute to the reluctance in increasing private investment:

• Uneven demand, with slow urban consumption and rural recovery.
• Muted exports and margin pressures from cheap imports, particularly from China.
• Business heirs comfortable managing wealth rather than expanding capacity.
• Persistent issues like delays in land acquisition, environmental clearances, and litigation.
• Buoyant capital markets making financial investments more attractive than real sector investments.

Government's Role and Future Outlook

With private investment lagging, the government has taken on the burden of sustaining economic momentum, primarily through public capital expenditure in infrastructure.

The World Bank suggests India needs to raise investment to approximately 40% of GDP to achieve high-income status by 2047, necessitating a significant revival in private capital expenditure.

The challenge lies not in incentives or credit availability but in restoring confidence in demand, policy stability, and execution.