Public sector rail and defence stocks have skyrocketed up to 77% in the past month, driven by expectations of continued capital expenditure (capex) and fiscal discipline from Finance Minister Nirmala Sitharaman. These stocks, often dubbed “Modi stocks” due to their ties to infrastructure and capex, are leading the current market rally.
With a higher-than-expected dividend from the RBI, Goldman Sachs estimates capex growth could rise by 21% year-on-year. The final Budget for FY25, set to be presented on July 23, is expected to increase capital expenditure to Rs 11.8 lakh crore from the budgeted Rs 11.1 lakh crore.
Recent gains include Mazagon Dock Shipbuilders up by over 77%, RVNL by 51%, and Cochin Shipyard, HUDCO, RCF, NBCC, BEML, and IRCON all seeing at least a 30% increase. The Indian Railways’ capex has grown at an 18% compound annual growth rate (CAGR) from FY15 to FY24 and is expected to continue rising.
Amit Goel of Pace 360 highlights that railway capex could increase by 76% over the next five years, reaching Rs 2.55 lakh crore. This will focus on dedicated tracks for coal and mineral transport, improving port connectivity, and reducing congestion.
The Budget is also expected to emphasize infrastructure development, particularly in roadways and highways, with a projected CAGR of 11.4% in capex from 2021 to 2026. Support for lower-income groups and the agricultural sector may also be increased, with attention on key ministries and policies related to infrastructure, manufacturing, defence, railways, and power.
Mihir Vora of TRUST Mutual Fund and Nimesh Chandan of Bajaj Finserv Asset Management both expect policy continuity, potential rural economy support, and tax benefits for lower income brackets in the upcoming Budget.
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