Overall market sentiment for railways, and major infrastructure companies in the road sector turned cautious, after the government kept its capex plans for fiscal 2026 flat, as compared to higher growth expectations pegged by investors and traders.
Capital expenditure of the government is expected to grow 9.8% YoY to Rs 11.2 lakh crore in FY26, as compared to the revised FY25 estimate, but largely the same as the budget estimate for FY25 earlier.
FY25 capex has been revised downward to Rs 10.2 lakh crore, as compared to the budget estimate of Rs 11.1 lakh crore for the last fiscal.
According to Incred Capital, the market was expecting a higher outlay of Rs 13-14 lakh crore, which remains under-delivered and is a minor negative for capital goods and infrastructure sectors.
Allocation under key heads such as railways, and roads remained flat, as compared to the revised estimate for FY25.
Outlook On Railway Companies
Allocations for key ministries, like railways, remained muted, compared to street expectations of upward revisions, given the muted growth seen in the previous budget as well.
If we go back to last year and check the key announcements in the railway sector, it hardly found a mention in the Budget 2024 speech.
This is starkly different from the pre-2017 scenario, when the Railway Budget used to be presented separately a few days ahead of the Union Budget.
In fiscal 2025, total capex for railways in the Budget estimate 2024-25 stood at Rs 2.65 lakh crore, same as the budget estimate for this fiscal.
Key railway stocks like Ircon International Ltd., Rail Vikas Nigam Ltd., and RITES Ltd., which were expecting a higher outlay, have reacted negatively.
It is important to highlight stocks in the Kavach space like Kernex and HBL Power Engineering as well, as there is no change in the outlay here either.
Outlook On Road Companies
Similar to the railway companies, budget allocation to the Ministry of Road, Transport & Highways remained tepid in Union Budget 2025. Investment in NHAI Ltd. stood at Rs 1.70 lakh crore, up 1% against the FY25 budget estimates.
Budgetary support for the National Highways Authority of India registered merely 0.65% growth as per budget estimate for FY25, as compared to 18.14% growth in FY24, which reinforced the government's stance of a more cautious approach on not intending to increase NHAI's debt.
"Weak growth in allocation for roads is also reflective of slower project awards in FY24/25," JM Financial said in its post Budget 2025 note. "Having said that, we expect highway awarding to pick up with relatively higher focus on HAM and especially BOT-Toll than in previous years."
The note states this is a negative for stocks like L&T, NCC, KEC International, Kalpataru Projects, PNC Infratech, GR Infraprojects, HG Infra, KNR Constructions, Ashoka Buildcon and Ceigall India, which are operating in the space.
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