Rail, defence: Analysts bet on select capex-related PSUs after Budget 2025

Stocks to Buy After Budget 2025: Budget 2025 fine print showed the Government has shifted its focus away from the 'traditional' capex drivers, such as railways, roads to 'other sectors'

PSU stocks to buy, Budget 2025: Investors offloaded stocks of most public sector undertakings (PSUs) over the past two days after Union Budget 2025-26 fell short of pushing the growth pedal via the 'traditional' capital expenditure (capex) channels.

 

The Nifty PSE index is among the top losers at the bourses, slipping 6.2 per cent in the last two days as against 0.6 per cent fall in the Nifty 50 during the period, data shows.

 

India Budget 2025, which was tabled in the Parliament on Saturday, February 1, 2025, pegged the budgeted estimate (BE) for capex in financial year 2025-26 (FY26) at Rs 11.2 trillion. This is around 10.1 per cent higher than the revised capex estimate (RE) of Rs 10.18 trillion in the ongoing financial year FY25 and flat as against the budgeted estimate of Rs 11.11 trillion. 

 

 

Budget 2025 fine print showed the Government has shifted its focus away from the 'traditional' capex drivers, such as railways, roads and transport, and defence services, to 'other sectors' with untapped potential and strategic importance.

 

As a strategy, analysts suggest investors to add 'diversified' infrastructure/industry-related stocks rather than betting on 'monoline' stocks.

 

"The government, while delivering a consumption booster, hasn't shifted its focus away from capex. This time, sectors like power, renewables, ports, and airports – something that doesn't need much government financing support – has been the focus area. Thus, investors could use the recent correction in PSU stocks to buy diversified infrastructure/industrial companies," said Pawan Parakh, fund manager at Geojit Financial Services.

 

Budget 2025: The fine print

The FY26 BE for Defence Services stands at Rs 1,59,500 crore, up 13 per cent from the FY25 RE. The FY26 BE allocation towards Road transport and Highways is at Rs 2,72,500 crore, down 0.1 per cent from FY25 RE, while that for Railways is flat at Rs 2,52,000 crore versus the FY25 RE. 

 

On the flipside, the FY26 BE allocation for the Housing & Urban Affairs sector stands at Rs 42,100 crore, up around 48 per cent from the FY25 RE; Power sector saw a rise of 21.4 per cent in FY26 compared with the revised estimate of FY25; Fisheries, Jal Shakti, and Ports sectors' FY26 BE grew 157 per cent, 72 per cent, and 31 per cent year-on-year.

 

That apart, in the run-up to the Budget, monthly capex data for December 2024 indicated that capital spending rose from 46 per cent of FY25 BE in November, 2024, to 62 per cent in December, 2024. This sharp pickup raised hopes of meeting the annual target of Rs 11.11 trillion in FY25. However, the downward revision in BE FY25 capex allocation has dented sentiment across related sectors.

 

PSU stocks: What should investors do now?

Given the backdrop, Anirudh Garg, partner and fund manager at Invasset PMS, said short-term headwinds, including policy execution risks and global macro uncertainties, could keep PSU stocks under pressure.

 

"Investors should, thus, adopt a staggered approach, focusing on select PSUs with strong order books, robust cash flows, efficient capital allocation, and attractive valuations," he suggested.  

 

Amnish Aggarwal, director – institutional research, PL Capital, too, advised investors to adopt a stock-specific strategy.

 

"Investors should remember that the Government has been adopting a policy to exceed budgetary allocations if the need arises. The overall capex should, thus, remain healthy and execution should improve in FY26. That said, as many of the PSU stocks had been re-rated massively in the past two-three years, room for re-rating was limited," he said.    

 

Elara Capital remains 'overweight' on new government capex themes such as maritime and ports over roads and railways.

 

Within PSUs, it expects BHEL, Mishra Dhatu Nigam (Midhani), Cochin Shipyard, Garden Reach Shipbuilders, Mazagon Docks, Hindustan Aeronautics, Bharat Electronics, and Bharat Dynamics to do well. BEML, RNVL, RITES, and Ircon International, it said, could underperform in the backdrop of muted railway capex.