After years of aggressive saving, India's corporate sector has begun tapping into its substantial cash reserves. However, this spending is not directed towards building new factories or capacity. Instead, companies are prioritizing record shareholder rewards and strategic acquisitions, while the much-anticipated private investment revival remains elusive.
The Shrinking Cash Buffer
A detailed analysis of data from the Centre for Monitoring Indian Economy (CMIE) reveals a significant slowdown. For a common set of nearly 2,000 listed non-BFSI firms, cash and bank balances grew by a mere 1% year-on-year to approximately ₹5.4 trillion by September 2025. This marks the slowest pace of accumulation in eight years, a stark contrast to the pandemic era. Between September 2020 and 2024, median cash balances surged by nearly 15% annually due to heightened economic uncertainty.
While Indian corporate cash now represents nearly 5% of total assets—up from 3.5% in September 2017—it still lags behind global peers. A Morgan Stanley report from August 2025 noted that in 2024, the global median cash holding was 11% of assets, and the US median was 9%. "India Inc’s cash balances may look high in absolute terms, but they are far lower than cash buffers typically held by American and European companies," explained Ajitabh Bharti, executive director and co-founder of CapitalXB.
Where is the Money Flowing?
The deceleration in cash build-up signals a strategic shift. Experts indicate that firms are deploying liquidity for higher shareholder returns and selective inorganic growth. Dividend payouts soared to a decade-high of ₹3.5 trillion in the financial year 2024-25 (FY25), registering a 14% year-on-year increase, as per an analysis of Capitaline data.
Ajitabh Bharti attributes the moderated cash accumulation to companies setting aside funds for hefty future dividend payouts and inorganic expansion. He anticipates that while dividend growth in FY26 will mirror FY25's trajectory, corporate cash will be largely channeled into strategic buyouts and mergers. "While pharma has already seen sharp inorganic expansion this year, export-linked and consumer sectors are also likely to join the ranks next year," Bharti added.
This trend is corroborated by deal activity. According to PwC, 713 mergers and acquisitions were completed in the first half of 2025, a 23% jump from the same period a year earlier. Bharti also noted a rising interest in mid-sized overseas acquisitions aimed at boosting technological capabilities.
The Missing Capex Cycle
Interestingly, this appetite for deals coexists with a continued reluctance to announce new projects. Data from CMIE shows that new project announcements fell by 12% year-on-year to ₹8.6 trillion in the September quarter of FY26. The core reason, experts highlight, is persistently low capacity utilization in Indian manufacturing, which has averaged around 73% over the past two decades.
"Persistently low capacity utilization is a central reason why elevated corporate cash balances have not translated into a broad-based private capex cycle," said Sonam Srivastava, founder and fund manager at Wright Research PMS. She pointed out that even during growth phases, incremental demand has often been met through efficiency improvements rather than fresh capital investment.
Apurva Sheth, head of market perspectives at SAMCO Securities, emphasized that technology-driven efficiency, changing consumption habits, and the popularity of asset-light business models are further reducing the need for heavy capital expenditure. "This naturally lowers the appetite for large-scale capex even when financing conditions are supportive," he stated.
Bharat Arora, lead of strategy at Ambit Capital, set a clear benchmark for a turnaround, stating that a meaningful capex upcycle would require capacity utilization to sustain near the 80% level, indicating broad-based demand strength. In the absence of clearer demand signals and supportive global conditions, he expects corporate cash levels to remain elevated through FY26.
