Moneycontrol Pro Panorama | Infra slowdown bites; should we worry?

Infra

Dear Reader,

The year 2026 has started on a sombre note for India’s infrastructure sector. The eight key infrastructure sectors’ growth rate, which comprise two-fifths of the Index of Industrial Production, slowed compared to a year-ago. From highways and railways to crude oil, natural gas, and refinery products -- all have recently experienced contractions, contributing to the overall slowdown in the core sectors.

One may recall that the Economic Survey 2026 had emphasised that the slowdown in infrastructure construction is worrisome. It attributed this partly to rising revenue deficits and increased spending on social schemes in some states, which are crowding out crucial infrastructure projects. It also raised red flags on India Inc unwilling to take more risks and participating in long-term infrastructure projects.

A report by JM Financial Services states that overall capex activity is moderating. Infrastructure orders in January declined by 14.8 percent year-on-year (yoy) and tenders declined by 4.8 percent yoy.

Rating agency ICRA projects road awards by the Ministry of Road Transport & Highways (MoRTH) at 7,250-7,750 km for FY2025-26, largely in line with 7,538 km of road awards for FY2024-25 but the lowest in five years. The result: a slowdown in the pace of construction in roads sector to a decadal low.

Media reports suggest that the increased infrastructure allocation in the Union Budget for 2026 compared to the previous year is yet to pan out into robust tendering activity. Besides roads, tendering activity in railways and power generation too has been lukewarm. A sharp drop in sale of construction equipment in recent months also shows some pain on the ground.

The infrastructure sluggishness is beginning to hurt the performance of companies catering to the sector. In its recent note, Nuvama Research highlighted that the revenue of the top-14 construction companies decreased by 4 percent year-on-year (yoy) in Q3 FY26. The downtrend was moderated by the better performance of building construction firms. However, “most engineering procurement construction (EPC) companies have lowered their revenue and margin guidance for FY26E”, it stated.

The report also portrays a rise in debt on the books of construction firms. The increase in working capital needs due to slowing construction and increase in the debt/equity ratio is sure to impact cash flows and participation in new projects.

If this trend continues, the strain could spill over to industrial goods production. Note that capital goods are the last to bear the brunt of a slowdown in economic activity and the last to recover in the upcycle, too. For investors, there are ample cues in the underperformance of infrastructure and capital goods stocks in the past two quarters.

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