Capex concerns: Execution will be key for capital goods, infra firms; long-term story remains intact, say market experts

Similarly, Nuvama analysts noted that this marks the second consecutive year of weak capex outlay. FY25’s revised estimate was up just 5% from FY24, and FY26’s budgeted outlay shows only a similar 5% rise over FY25’s initial estimate.

While increased allocations for some segment like metro rail are positives, lower spending on roads, railways, urban infrastructure, and housing remains a concern and asset monetisation will be key to meeting long-term infrastructure goals, they say.

Focus has moved to execution, say experts

While the FY25 spending has seen a slowdown due to elections and slow growing economy, many of the market experts Moneycontrol spoke to said that it appears that these segments have moved to an execution phase.

"Even with a measured approach, capex will still grow by over 10% from last year’s realized levels, with the focus now shifting to execution," said Pranav Haridasan, MD & CEO, Axis Securities.

Additionally, the Rs 4.3 lakh crore in grants to states -- around 40% of the total capex allocation -- will further aid infrastructure investment, he added.

In a similar context, Fisdom’s Nirav Karkera said that the government cannot keep on deploying funds year after year without ensuring the previous year's allocations have been fully utilised.

The government’s commitment to capex remains intact and the key focus now shifts to how well ongoing projects are executed and whether private sector capex steps up to fill the gap left by subdued government spending, says Karkera.

While capital goods and infra stocks took a beating on Saturday, a large section of the market feels that the current bleak outlook is exaggerated.

Alchemy Capital’s Alok Agarwal believes that capex allocations remain strong, emphasising that the overall spending trend is still upward. “Market participation may be lower, but capex continues to increase as a percentage, reaching Rs 14.6 trillion over a 15-month period -- an unprecedented level,” he says.

Many market experts are of the view that the expectation was already in place for the government would miss the capex targets. So, while the markets may have shown some disappointment on the revised numbers during the trading session on Saturday, the long term view for sectors has not changed.

The big question – impact on stocks

On impact on stocks, Motilal Oswal Financial Services’ Siddharth Khemkha says there could be some disappointment as the numbers are slightly below market expectations. He, however, believes that sectors like infrastructure and power remain attractive for investment.

“In the short term, sector rotation is expected. Consumer-focused sectors like FMCG were under-owned due to the economic slowdown and weak demand, while infrastructure and capex-related stocks were over-owned. As a result, there will be a shift from investment-heavy sectors to consumption sectors in the near term,” says Khemkha.

Prabhudas Liladher’s Amit Anwani concurs adding that while sentiment may not surge, it will readjust. “Last year, there was hype around capex growing at 13-15%, so this year, expectations have moderated. However, the government remains focused on key areas for FY26, and those sectors will see growth,” he says.

Khemkha adds that long-term investors will likely return to capex-related sectors as the capex story remains intact. “Private capex is (also) expected to pick up, reinforcing long-term growth prospects,” he says.

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