Capital goods sector expects Union Budget 2024 to have higher allocations towards railways, power

File photo

Heavy industrial machinery companies in the country will be closely watching the government's capital expenditure plans in the upcoming Union Budget, anticipating higher allocations for the railway and power sectors. The industry projects a significant increase in order conversions by the second quarter of this fiscal year, following a slowdown during the Lok Sabha elections.

Key infrastructure segments, including roads, railways, airports, seaports, waterways, and logistics, are expected to offer substantial opportunities for capital goods and engineering firms such as Larsen & Toubro (L&T), Bharat Heavy Electricals Limited, ABB India, and Siemens India.

Companies linked to domestic private capex are still awaiting finalisation of large orders, according to a research report from Motilal Oswal released earlier this month. The brokerage expects the government to remain focused on areas such as renewables, transmission, production-linked incentive schemes for various segments and defence, where significant policy changes have already been announced in the past few years.

"The government has been focused on enhancing public investment, particularly in infra and railways. This will continue to receive attention, There will be a slight increase in the railway budget because of the need to upgrade existing equipment," said Suman Chowdhury, chief economist and head of research, Acuité Ratings and Research, adding that the recent accident will ensure greater focus on safety.

Capital goods makers are likely to see revenue rise 9-11 percent in fiscal 2025, led by continued significant outlays towards the railways (including metros), defence, and conventional and renewable energy sectors. This compares with an expected 13 percent growth in fiscal 2024, according to a report from ratings agency Crisil, published on June 24.

"The allocation to the railway budget may exceed that to the road budget," said Elara Securities analyst Harshit Kapadia.

In fiscal 2024, spending by the government on railways grew a strong 28 percent on-year, and on defence by 10 percent. Conventional sectors increased capex spend by 6-8 percent and investments in renewable capacity rose by a healthy 18 percent, according to Crisil.

Capital goods companies have been facing sluggish exports in most geographies due to factors such as inflation, geopolitical worries and economic slowdown. The silver lining for companies is much stronger demand in the domestic market, offsetting weakness in exports, brokerage Motilal Oswal added in its report.