India’s Capex Boom: Are Ancillary Stocks the Missing Piece?

It usually starts with a ribbon-cutting ceremony.

A new factory. A shiny power plant. A long-awaited railway line.

Camera flashes, ministers smile, and headlines trumpet a new milestone in India’s infrastructure journey.

But long before the spotlight, something quieter has been at work.

In an ordinary plant on the city’s outskirts, metal is moulded into castings.

Bearings roll off machines with surgical precision.

Switchgears are tested, packed, and shipped.

No fanfare, no headlines—just steady hands building the parts that make the big picture possible.

India’s capex boom is a story we all know.

But what’s often missed is the subtext—the silent ecosystem of ancillary industries keeping the momentum going.

And as the cranes keep rising and the grids keep expanding, these behind-the-scenes players may no longer stay in the shadows.

Yet, most investors are still busy chasing infrastructure behemoths. Between FY21 and FY25, private capex in India has grown at a 19.8% CAGR, touching ₹9,951 billion.

Add to that, the Centre’s contribution—₹10,184 billion in FY25, up from ₹4,263 billion in FY21—and it’s clear: India is laying down roads, power grids, and production lines like never before.

And while big-ticket spends often draw the spotlight, the real story may lie in the smaller components quietly enabling every milestone.

But what exactly is capex?

Capital expenditure, or capex, refers to the money spent to build or upgrade physical assets—like highways, factories, power grids, rail networks, and industrial plants.

It’s what governments and private companies invest when they want to expand production, modernize infrastructure, or kickstart new projects.

In India, this capex push is visible in everything from metro rail builds to defence manufacturing lines.

Think cables, castings, switchgear, bearings, brake pads—ancillary firms that make the capex machine move smoothly.

While marquee infra names steal the spotlight, it’s often the lesser-known ancillary players working quietly in the background—keeping the wheels turning and setting the stage for long-term gains.

Why Ancillaries Matter More Than Ever

India’s ₹29.6 trillion private capex between FY20 and FY24 isn’t just fuelling factories—it’s energising an entire ecosystem of support industries.

Ancillaries, often overlooked in favour of headline-grabbing original equipment manufacturers (OEMs), are the unsung backbone of this buildout.

And depending on where the capex is flowing—industrial, energy, or export-linked sectors—some ancillaries are better positioned than others.

• Industrial Backbone: Foundries, Forgings & Auto Components

From defence to railways to core manufacturing, the industrial engine needs constant feeding—and ancillary players are doing just that.

Foundries and forging units, for instance, bring in metallurgical depth that’s hard to replicate.

They supply critical castings and components that enable large-scale production to run on time.

Their technical edge creates pricing power, especially in defence and capital goods, where precision matters.

Auto components, too, are thriving on this momentum.

India’s auto ancillary industry, already the world’s third-largest, continues to outpace broader indices.

Why? Volume growth, localisation, and a growing EV ecosystem.

With domestic vehicle production surging and global demand for Indian parts rising, these suppliers enjoy scale, exports, and strong operating leverage.

• Powering the Grid: Electrical Equipment Makers

Capex in power is not just about adding generation capacity—it’s about transmission, distribution, and modern infrastructure.

Thanks to the energy transition and electrification push, ancillary manufacturers producing transformers, switchgear, and circuit breakers are seeing consistent demand.

Add in the government’s Production Linked Incentive (PLI) schemes and robust public utility orders, and these firms enjoy order book visibility and margin stability.

With rising import substitution and capex flowing into grid upgrades, this segment is set to benefit from policy tailwinds and structural demand shifts.

• Export-Linked Enablers: Packaging Firms with a Moat

On the export-facing side, packaging ancillaries are scaling alongside India’s pharma, FMCG, and consumer durables story.

These firms aren’t just slapping labels—they’re developing sustainable, patented, and backward-integrated solutions that support branding, logistics, and global compliance.

As exports rise and demand for eco-friendly solutions grows, firms offering flexibility, innovation, and reliability quietly command premium valuations.

And because the packaging is mission-critical to scaling distribution, these players provide non-cyclical growth even when broader industrial sentiment softens.

But Ancillaries Come with Baggage

Let’s not romanticise too much.

Ancillary businesses aren’t immune to risk.

In fact, their risks are tightly wound around their clients.

High dependency on OEMs means that a production delay or policy hiccup at a large client can disrupt the ancillary’s order book.

Many generate over 60% of revenue from just one or two customers.

Then there’s pricing power—or the lack of it.

Take, for instance, a mid-sized auto component supplier that relied heavily on a single two-wheeler OEM.

When the OEM temporarily cut production due to emission regulation changes, the supplier's topline shrank sharply in a single quarter—despite broader demand trends holding steady.

Many ancillary firms work under fixed contracts, limiting their ability to pass on cost hikes during input inflation cycles.

Add currency volatility for export-heavy firms, and your margin story starts looking fragile.

But here’s the investor takeaway: markets often price in these risks disproportionately.

That’s where undervalued gems can be found—particularly during temporary demand slumps.

Where Should Investors Look Now?

Here’s a quick framework to screen promising ancillaries:

• Order Book Visibility – Focus on ancillary firms with contracts linked to ongoing infra, power, and auto capex.

• Margin Profile – Look for companies with pricing power or backward integration—especially in packaging, castings, or electricals.

• Capex Correlation – Prioritise sectors with high linkage to private or public investment cycles.

• Customer Base Diversification – Fewer dependencies on one or two OEMs mean more stability during downcycles.

• Export/PLI Leverage – Ancillaries tied to India’s manufacturing exports or government incentives could see structural growth.

The takeaway? Don’t just follow the cranes and chimneys.

Track the companies supplying what goes inside them.

Sometimes, the most durable alpha is forged in the foundry, not the factory.

Sources and References:

1. ZEENEWS
   
2. TIMESOFINDIA