The all-important capex announcement for FY25-26 turned out flat at ₹11.2 lakh crore. This is a 1 per cent increase from last year’s budgeted amount and a 10 per cent increase from the revised FY24-25 estimate. This implies that the government capex will have expanded by 12 per cent in the last two budget years.

The background expectations heading into budget announcement were mixed. So far since Covid, the capex drive has been a strong support to economic expansion. The headline capex had expanded significantly from 4 lakh crore in FY20-21 to 11 lakh crore in FY24-25 which is a significant 28 per cent annual CAGR. The government capex increased from 2 per cent of nominal GDP in FY21 to 3.5 per cent in FY24. The brute force expansion combined with the downstream multiplier impact, may have led to hopes and expectations of a continuation of the effort to drive growth.

But a slowdown in capex announcement was indicated at several instances. The FM in July 2024 budget speech noted that the significant infrastructure investment of the last five years should be ‘conjoined’ with other priorities and fiscal consolidation. The economic survey released a day earlier also noted that importance of infrastructure building but noted that public spending must be complemented by private partnerships. The slowdown in capex could also be inferred from the actual spending achieved till Dec-2024 at 62 per cent compared to 67 per cent the previous year. But this could be owing to elections in the early part of the year.

The indications for the future of capex growth should also be subdued gauging from the fiscal deficit glide path. The government aims for a fiscal deficit of 4.4 per cent for FY25-26 which is much below the 4.8 per cent achieved last year. The contraction started from 6.7 per cent in FY22-23.

At a time when private capex growth has been lackluster, the government capex announcement failed to enthuse investors. The policy pivot from capex to consumption played out for investors long on consumption-oriented stocks but not for investors in capex-related stocks.

Amongst the infrastructure sectors, railways sector witnessed the largest declines. The PSU stocks IRCON and RVNL declined by 9 per cent in the day while Railtel declined by 6.8 per cent. Titagarh and Jupiter Wagons also declined by around 6 per cent. This despite allotment to railway sector while remaining flat at 2.5 lakh crore, is nearly double the allotment in FY23 budget.

Defense sector also witnessed a sharp decline in the day despite a 5 per cent increase in capital outlay for defense to 1.8 lakh crore. Bharat Electronics, Hindustan Aeronautics, Mazagaon Dock, Cochin Shipyard, and Bharat Dynamics declined by around 4 per cent in the day. Government focus on ship building in the current announcement failed to enthuse Mazagon and Cochin Shipyard.

Roads and highways sector which has the highest allocation of 2.7 lakh crore remained flat and the sector declined only marginally. KNR Construction and HG Infra declined by 0.5 and 0.4 per cent while J Kumar declined by 1.9 per cent. PNC Infra declined the most by 5 per cent.

Steel and Cement, the support sectors to infrastructure also displayed modest declines. While cement companies declined by 2-3 per cent (Ultratech, Ambuja and Shree) steel companies declined by 1 per cent in the day.

Overall, investors are adopting to shift in government policy; from high capex to high consumption focus. While the former is top-down growth driver and comes with tangible results on growth. However after a strong thrust in last 5 years by the government, it is now up to the private sector to play its part.