Shares of capital goods companies, including infrastructure, defence and railway related stocks, are under pressure for the second straight trading day, due to Budget-related disappointments.
Siemens, Hitachi Energy India, Bharat Dynamics, Titagarh Rail Systems, Rail Vikas Nigam (RVNL), Hindustan Aeronautics (HAL), Thermax, ABB India, Bharat Electronics, Kaynes Technology India, Timken India and Larsen & Toubro, from the capital goods index tanked between 5 per cent and 10 per cent in Monday’s intra-day trade.
At 11:16 AM; the BSE Capital Goods, the top loser among sectoral indices, was down 4 per cent, as compared to the 0.5 per cent decline in the BSE Sensex. The capital goods index slipped 4.6 per cent in intra-day trade today. In two days, it has fallen 7.5 per cent after the finance minister presented the Union Budget 2025-26 in the Parliament on Saturday.
The capital expenditure (capex) target for FY26F increases marginally by 0.8 per cent to Rs 11.21 trillion from Rs 11.11 trillion, 10 per cent higher than the FY25RE of Rs 10.18 trillion. The market was expecting a higher outlay of Rs 13-14 trillion, which remains under-delivered and is a minor negative for capital goods and infrastructure sectors, according to analysts at InCred Equities.
Defence sector allocation increased by 9 per cent to Rs 6.8 trillion, including Rs 1.8 trillion for modernisation of military items, 10 per cent higher than the FY25RE of Rs 6.22 trillion. Military items include fighter jets, helicopters, warships, submarines, tanks, artillery guns, drones, rockets and missiles. A chunk of the outlay has been allocated for buying weapons, systems and equipment from domestic suppliers to achieve the self-reliance goal. The allocation in FY26F includes a revenue expenditure of Rs 3.11 trillion and a pension outlay of Rs 1.6 trillion. The defence budget accounts for 1.9 per cent of the India’s GDP in FY25F, the brokerage firm said. Also Read: BPCL, IOC shares slide up to 7% on Budget disappointment, oil price rise
Also Read
The ministry of road transport and highways (MoRTH) saw its allocations of Rs 2.72 trillion for 2025-26, which is largely unchanged from the previous year. The flattish allocation is largely due to the government's likely focus on build-operate-transfer (BOT) methods, as well as its focus on other sources including asset monetisation, noted ICICI Securities.
The traditional ‘capex-focused’ industries such as Defence Services, Railways, and Roads/Transports witnessed 13 per cent and flat growth each, respectively in FY26BE allocation. Ministries related to industries that are focused on maritime activities such as fisheries, Jal Shakti, and Ports grew 157 per cent, 72 per cent and 31 per cent YoY. Clearly, the government is slowly shifting its capex focus from traditional sectors to other sectors with untapped potential and of strategic import, analysts at Elara Capital said.
“Expecting a lower nominal GDP growth of 10 per cent in FY26 which is mirrored by the growth in capex, sends a signal about lack of growth levers in the upcoming fiscal. However we argue that at Rs 11.21 trillion, capex allocation is substantial; moreover the multiplier effect of the increased capex activity undertaken over the years should start reflecting in the domestic economy,” according to JM Financial Institutional Securities.
However, Sunil Damania, Chief Investment Officer, MojoPMS, does not believe the Finance Minister has prioritised consumption over capital expenditure (capex). If we analyse the total capex—which includes central government spending, grants provided to state governments, and investments by central public sector enterprises—it is projected to reach Rs 20 trillion by FY2026. For an economy with a size nearing Rs 350 trillion, this level of capex is highly significant and supportive of growth, Damania said.
