Indian Companies Are Sitting on Record Profits, But Not Building New Factories

Corporate India is making money, but it isn't spending on new factories the way it used to. Fresh data on thousands of companies shows that spending on physical assets like plants and machinery grew only modestly in the last year, while spending on projects still under construction actually fell. Meanwhile, money parked in financial investments grew twice as fast.

This is happening even though profits are booming. Net profits of listed non-financial companies rose sharply in the third quarter of this financial year and jumped even further in the fourth quarter. So companies clearly have cash to spend, but they are choosing to deploy it differently than in the past.

A big part of the answer lies in spare capacity. Indian factories are currently running at about three-quarters of their total capacity, only slightly above pre-pandemic levels. When existing plants aren't even being fully used, there is little reason to build new ones. Weak domestic demand and continuing global uncertainty, including tariff disputes and conflict in West Asia, have made businesses cautious about committing money to long-term expansion.

Instead of building, companies are buying. Acquisitions by non-financial companies hit a record level this year, with nearly 1,700 deals worth over ₹2 trillion. Investment by Indian firms into ventures abroad has also grown rapidly over the past two years, reversing a period before the pandemic when such outward investment was shrinking.

This marks a long-term shift in how corporate India uses its money. A decade ago, physical assets made up over 40% of total company assets, while financial investments were a much smaller share. Today, that balance has shifted substantially towards financial assets, showing companies increasingly prefer flexible, liquid, or strategic investments over fixed, long-term ones.

Experts note that this doesn't necessarily mean companies are just hoarding cash. Some of these financial investments include stakes in subsidiaries, mergers, and overseas units, reflecting how Indian companies are expanding their footprint globally rather than domestically.

Bank lending to industry has also picked up strongly this year, its fastest pace in over a decade, suggesting firms are borrowing, but again, not necessarily to build new domestic capacity.

Looking ahead, economists believe that easing global tensions and new trade agreements could eventually encourage more traditional capital spending. But for now, most expect financial investments and deal-making to continue leading the way, with a broader factory-building boom still some time away.