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Domestic consumption to pick up in 3QFY26, paving way for robust revival in the private capex: Report
India’s domestic demand is poised for a significant revival, with consumption expected to accelerate the private investment cycle starting in the third quarter of FY26, reports 24brussels. According to the latest EcoScope report from Motilal Oswal Financial Services, the Reserve Bank of India’s recent monetary easing, along with fiscal stimulus and regulatory reforms, has created favorable conditions for a robust revival in the private capex cycle.
The report highlights that the past few months have presented multiple challenges for India, largely due to geopolitical tensions and conflicts, resulting in foreign institutional outflows of USD 9 billion from July to September 2025. In response to these challenges, the RBI cut policy rates by 100 basis points to 5.5 percent and reduced the Cash Reserve Ratio (CRR) by 150 basis points, injecting approximately ₹9 trillion in liquidity through various operations. Additionally, the government has frontloaded capital expenditure and reduced income and GST tax rates, contributing to a notable 34 percent surge in auto sales in September 2025.
The Motilal Oswal report asserts that these developments signal the beginning of a turnaround in India’s domestic growth momentum. It noted that private capital expenditure typically complements consumption, albeit with a lag of two quarters, indicating that investment activity is likely to pick up in the latter half of FY26 as demand strengthens. The RBI has also raised its FY26 GDP forecast from 6.5 percent to 6.8 percent, with potential for it to reach 7 percent if U.S. tariff rates decrease to at least 25 percent by November.
The report further emphasizes that sectors such as power transmission and distribution, coal, telecommunications, oil and gas, ports, cement, airlines, defense, and electronics are already witnessing capacity expansions driven by structural factors. With India’s current capital expenditure-to-GDP ratio at approximately 30 percent—below its peak of 35 percent during 2004-2008—there is considerable room for growth. The study indicates that sectors like power and utilities contribute nearly 50 percent of India’s private capital expenditure, with a projected 11.6 percent year-on-year increase to ₹8 trillion for FY26. Core sectors with structural drivers such as power and oil and gas are anticipated to grow at a rate of 23 percent.
Notably, the report points out that this phase of growth is not being primarily financed through banking credit but rather through external funding, IPOs, Qualified Institutional Placements (QIPs), and corporate debt. For the first time in a decade, corporate debt issuance has outstripped repayments, signaling a robust appetite for private investment. With the RBI easing regulatory measures for banks and non-banking financial companies (NBFCs), credit flows are expected to accelerate, further bolstering the momentum for sustained recovery in private investment.
Private capital expenditure activity, the report concludes, is likely to serve as the next growth engine once consumption gains traction.
