Maharashtra's capex may take a hit on welfare politics: How will infra, cement, other players fare?

Among all the listed players, the Maharashtra government had awarded key orders to these companies, as shared by Emkay Global: GR Infra ( Rs 5,300 crore), J Kumar (Rs 6,000 crore), HG Infra (Rs 4,100 crore), Ashoka Buildcon (~ Rs 4,000 crore), Welspun Enterprises (Rs 3,800 crore) and Afcons Infrastructure (Rs 3,500 crore).

However, there is some concern about delay in projects awards, noted analysts at Emkay Global. If the number of orders available to bid for goes down, these EPCs will face topline pressure.

As the previously awarded infrastructure projects kick-start, the demand for cement will rise. According to a report by Prabhudas Lilladher, cement prices in Mumbai remained flat in November, with demand subdued due to the Maharashtra Assembly elections. The absence of government projects has also impacted volumes.

“However, dealers anticipate an improvement in demand in December, driven by the formation of a stable government focused on infrastructure development,” said the brokerage. Cement companies which have a heavy base in Maharashtra are among those expected to benefit from rising demand. However, if the infrastructure theme fails to play out in a substantial manner, the cement sector, which is already seeing low demand, will face further pressures.

With the election-related uncertainty, even the real estate sector is lagged. However, real estate developers’ key issue was not slacking demand, instead it was launching new projects, as approval from government authorities would take time.

With consolidated centre and state politics, the sentiment for realty players with a focus on Maharashtra regions is bolstered. Real estate firms have a strong launch pipeline skewed towards H2FY25, in track to meet their full FY25 guidance.

Lodha, DLF, or Oberoi Realty are all expected to see gains on approval. As a second-order effect, the demand for sectors closely linked to real estate and infrastructure, such as pipes, steel, or paint shall also rise.

Maharashtra's capex

While positive on the policy front, this victory could put pressure on the fiscal situation in Maharashtra. The state will move to implement the pre-election promises, which includes raising the aid on the Ladki Bahin scheme from Rs 1,500 to Rs 2,100 per month.

This change is likely to increase the budget allocation by 40 percent, from Rs 46,000 crore (1.1 percent of the GSDP) to Rs 64,400 crore (1.5 percent of the GSDP), according to Emkay Global. In comparison, the state’s entire allocation towards agricultural spending is Rs 35,600 crore for FY25.

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If the current promises are implemented, Maharashtra’s fiscal deficit is likely to widen to 4.8 percent of GSDP, significantly higher than earlier estimates of 2.6 percent, according to estimates by analysts at Elara Capital.

With committed expenditure (salaries, pension, and interest payments) already accounting for 55 percent of revenue, only 26 percent of revenue is available for discretionary spending, including capex, noted Emkay Global. Maharashtra’s capex is already relatively low, and this will further dampen it.

“The rising trend of welfare politics doesn’t bode well for state’s fiscal consolidation path and shall likely challenge the pace of capital expenditure as resources have to be diverted for freebies,” added Elara Capital.

This bodes as a concern for the state, as data from Ministry of Statistics and Programme Implementation (MoSPI) shows that Maharashtra’s GSDP growth is likely to fall to 5.5 percent, down from 10.9 percent in FY24.

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