The real test after the boom

Summary: India’s capital-goods sector has enjoyed a dream run on the back of extraordinary capex and peak operating leverage, pushing valuations to historic highs. But that phase is ending. With efficiency gains largely priced in, investors must now look for businesses that can prove durable growth rather than just cleaner balance sheets. Every bull market eventually produces a story that feels too perfect, settled and convincing. Capital Goods investors are experiencing one right now. A sector long regarded as cyclical, low-margin and perennially sub-scale has become a market darling. Order books look full, balance sheets look pristine and margins compare with global peers. Stocks have doubled, valuations have tripled and the narrative almost writes itself: India is building, capex is booming and capital goods is where the action is. But clear narratives are often retrospective. What the market is celebrating today is not the beginning of a new era; it is the end of the easiest phase of this capex cycle. The real driver in the past Look beneath the sector’s newfound glow and the real driver emerges: a once-in-a-generation surge in government capital expenditure. Over the past decade, the government’s capex-to-GDP ratio has risen from below 2 per cent to above 3 per cent. As a share of total expenditure, capex has climbed from 10 per cent to over 22 per cent. Measured against net tax revenue, it has jumped from 20 per cent to more than 40 per cent. These changes did not unfold gradually. They happened within a short window between 2020 and 2025. The five years prior (2015–20) were marked by stagnation, with government capex growi

This article was originally published on January 01, 2026.