Capex surge in India next decade as twin balance sheet issue solved: Birla

With the twin balance sheet problem of stressed loans and over-leveraged corporates behind India, the coming decade will see an upsurge in across many sectors, said Kumar Mangalam Birla, Chairman of Aditya Birla group.

“I believe, we have upon us a forthcoming decade of Mahotsav in India. The private sector is also firing on two-engines, the conventional and the new economy. I call it the ‘Double-engine growth’. Investors are excited about growth prospects in core sectors as well as sunrise sectors. In my view though, the word sunrise sector applies to the entire landscape in India, which includes both conventional sectors like cement, steel, power and auto and emerging areas like digital and renewables,” Birla said in a web post on the trends for the new year today.

On the rising valuations of startups, Birla said the world is awash in capital and there has perhaps rarely been a better time to be an entrepreneur, as everyone from angel investors to the public markets line up to back ideas. “The competition for investment opportunities and the Fear of Missing Out (FOMO) have driven up valuations of many fledgling to stratospheric levels,” he said.

“Historically, the key question for any new business was whether it fulfilled an unmet consumer need. A hallmark of some new businesses today is that they seek to use the brute force of capital, combined with smart technology and operations, to create new needs that you didn’t even know existed,” said he.

For example, Birla said a customer is receiving groceries at his doorstep in less than 10 minutes, a service that one cannot live without?

“Clearly many consumers think so. Ultimately, my own view is that at some stage unit economics will have to matter. And trusty old concepts like cash flows and gross margins will guide behaviour and actions. The only sustainable moat is the one based on intellect. Large waves of cheap capital will eventually erode all other entry barriers,” Birla said.

On the global economy, Birla said the speed and magnitude of the global bounce back has surprised everyone but also left some constituents unprepared. “From being the invisible wheels that oiled the global economy, the nuances of supply chains and the intricacies of multi-modal optimization have now become central to our discourse,” he said.

“Whiplash effects have come into force, with shortages in humble $1 semiconductors in Taiwan, and a fire in a lithography factory in Berlin, lengthening the queues for eager buyers of new cars in India. In messages reminiscent of the license era, hopeful car aspirants are now being put in long waiting lists as scramble to crank up production,” Birla said.

“On the one hand, container shortages in some parts of the world, combined with port pile ups elsewhere, reinforce the point that the physical world still matters. Despite all triumphant proclamations of software eating the world, the absence of sufficient truck drivers can bring sophisticated operations to a grinding halt. On the other hand, these whiplash effects have called into question a decade long shift towards increasing efficiency and finely tuned precision operations that optimized operating costs but took away room for margins of error. This is a stark reminder that in times of disruption (which we should increasingly expect with climate change), efficiency wins in the short term, but resilience translates to value in the long term. Nearshoring, reasonable inventory holding, multiple supplier alternatives and more sophisticated supply chain solutions are the near-term outcomes from this realisation, “ Birla said.

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