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Budget 2025: Road Construction Stocks Drop as Capex Allocation Falls

CalenderPublished at February 3, 2025 by InfraJunction
Budget 2025: Road Construction Stocks Drop as Capex Allocation Falls

Government Reduces Capital Expenditure on Infrastructure

The Indian government has announced its capital expenditure, or capex, for the financial year 2025–26 in the Union Budget. The total amount set aside is Rs 10.2 lakh crore, which is 8.4% less than last year's allocation of Rs 11.1 lakh crore. This reduction has affected several companies in the road construction sector, causing their stock prices to drop.

Stocks of Major Companies Decline

The shares of Larsen & Toubro (L&T), NCC, IRB Infrastructure, Ashoka Buildcon, PNC Infratech, and Dilip Buildcon, the top infrastructure companies, fell after the announcement. Investors have reacted negatively to the reduction in capex allocation, which can ultimately slow infrastructure development.

Here's how the stocks of these companies traded on Saturday:

  • Larsen & Toubro (L&T): Crashed 4.64% to Rs 3,402, later trading at Rs 3,426.20, down 3.96%.
  • Ashoka Buildcon: Lost 1.73% at Rs 253.35, later trading at Rs 255.05, down 1.07%.
  • PNC Infratech: Lost 3.13% to Rs 309, later trading at Rs 309.35, down 3.03%.
  • IRB Infrastructure Developers: Declined 3.04% to Rs 55.58.
  • Dilip Buildcon: Loss was 3.77% to Rs 418.20.
  • NCC: Lost most, fell 7.27% to Rs 233.95.
  • HG Infra Engineering: Down 0.33% at Rs 1,276.65.
  • Afcons Infrastructure: Loses 0.87% to Rs 468.05.

Why Did the Government Reduce Capex?

While the government looks at continued infrastructure development, it also intends to look at fiscal consolidation by reducing the budget deficit and controlling overall expenditures. Capital expenditure, in previous years, had a steady growth curve, but the government is now slowing the pace of the rise.

Economic Survey Focuses Growth of Infrastructure

Before the budget announcement, the Economic Survey showed that capital investment in infrastructure had grown at an average rate of 38.8% per year from 2020 to 2024. Roads were among the key sectors benefiting from increased government funding.

Additionally, the National Monetisation Pipeline (NMP), a government initiative to attract private investment in infrastructure, raised Rs 3.86 lakh crore from private investors. Roads saw the most participation, highlighting the sector’s importance.

Need for More Private Investment

Despite all these efforts, there is still a huge gap in infrastructure funding. The government has been encouraging public-private partnerships (PPP) to bridge this gap. This means private companies will have more opportunities to invest in roads, bridges, and other infrastructure projects.

Previous Budget Had Higher Allocation

It allocated Rs 11.1 lakh crore for capex in last year's budget, which was 3.4% of GDP, besides providing Rs 1.5 lakh crore in long-term, interest-free loans to states for infra projects. This year, the allocation is lower, leaving investors a bit disappointed.

Government’s Efforts to Attract Investment

To attract more private funding for infra, the government has rolled out several measures:

  • Viability gap funding (VGF): It enables projects to be financially viable for private investors.
  • Enabling policies: Encourage ease of doing business.
  • Market-based financing: Companies can raise funds through bonds and other instruments.

The reduction in capital expenditure has affected road construction companies, causing their stocks to fall. While the government remains committed to infrastructure development, the pace of spending has slowed. To fill the investment gap, public-private partnerships will play a crucial role in the future.

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