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