- Government capex jumps 12% to Rs 12.21 lakh crore – a rare fiscal stimulus.
- Railways, roadways and defence allocations rise 10‑18%, fuelling long‑term demand.
- State transfers surge 29%, unlocking regional project pipelines.
- Sector‑specific incentives for data‑centres, EMS and SMEs could crowd‑in private money.
- Construction leaders like L&T, NCC and Afcons are positioned for order‑book expansion.
- Historical capex cycles suggest a multi‑year earnings uplift for infrastructure firms.
You’ve been waiting for a signal that could turbo‑charge your portfolio – the budget just gave it.
Why India's 12% Capex Jump Reshapes the Construction Sector
The 2026‑27 Union Budget announced a capital expenditure (capex) target of Rs 12.21 lakh crore, a 12 percent increase over the revised estimate for 2025‑26. Capex, the money a government spends on physical assets such as roads, bridges and defense hardware, is a leading indicator of future economic activity because it creates jobs, fuels demand for raw materials and lifts private sector confidence.
Three megatrends converge:
- Infrastructure‑led growth: The budget earmarks larger shares for railways (+10 %), roadways (+8 %) and defence (+18 %). These subsectors are capital‑intensive and have long project cycles, guaranteeing a steady flow of orders for contractors.
- State‑level empowerment: A 29 percent boost in central‑to‑state transfers means state governments can fast‑track regional highways, urban transit and water‑resource projects, expanding the addressable market for mid‑tier firms.
- Private‑capex multiplier: Targeted incentives for data centres, electronic manufacturing services (EMS) and small‑medium enterprises (SMEs) are designed to attract private money, creating a virtuous loop where public spend unlocks private investment.
How Rail, Road, and Defence Spending Ripple Through Peer Stocks
Construction powerhouses such as Larsen & Toubro (L&T), Afcons Infrastructure, NCC Limited, PNC Infratech, HG Infra Engineering and KNR Constructions stand to benefit directly. Their order books are already weighted heavily toward government contracts. For instance, L&T derives roughly 30 % of revenue from defence and infrastructure projects. A 12 % uplift in overall capex could translate into a 3‑5 % incremental revenue lift for L&T alone, assuming order‑to‑cash conversion stays consistent.
Peers with a higher proportion of state‑level contracts—like NCC and PNC—could see an even sharper earnings boost because the 29 % rise in state transfers is likely to be funneled into road and bridge projects in tier‑2 and tier‑3 cities. Meanwhile, specialist contractors in the data‑centre ecosystem, such as Afcons, may capture a share of the private‑capex wave as hyperscale players expand their footprint across India.
Historical Capex Cycles: Lessons from 2014‑19
India’s last major capex‑driven rally occurred after the 2014 budget, which raised infrastructure spending by roughly 11 percent. Over the subsequent three years, the construction index outperformed the broader NIFTY by an average of 4.2 percentage points annually. Earnings per share (EPS) for L&T rose 12 % YoY in FY 2017, driven largely by defence contracts awarded in 2015‑16.
The pattern is repeatable: a fiscal stimulus → order‑book expansion → higher utilization → improved margins. However, timing matters. Companies that secured early‑stage contracts (pre‑award) captured the upside faster than those reliant on late‑stage project wins.
Technical Outlook for L&T and Peers
From a chart perspective, L&T’s 200‑day moving average (200‑DMA) has recently found support near INR 2,200, while the 50‑DMA is trending upward, indicating bullish momentum. Relative Strength Index (RSI) sits at 58, suggesting room for further upside before overbought conditions emerge.
Key technical levels to watch:
- Break above INR 2,400 could trigger a 20‑day moving‑average crossover, a classic bullish signal.
- Failure to hold the INR 2,200 support may invite a short‑term correction toward INR 1,950.
Similar patterns appear in NCC and Afcons, where price action respects their respective 200‑DMA baselines, reinforcing the sector‑wide bullish bias.
Investor Playbook: Bull vs. Bear Scenarios
Bull Case: The capex boost materializes into concrete project awards within 12‑18 months. State governments efficiently allocate transferred funds, and private‑capex incentives attract sizable foreign direct investment (FDI) in data‑centres and EMS. Construction firms see order‑book growth of 8‑10 %, margins improve as economies of scale kick in, and EPS accelerates 12‑15 % YoY. In this environment, buying on dips and adding to positions in L&T, NCC and Afcons could yield 20‑30 % total returns over the next 18 months.
Bear Case: Delays in land acquisition, regulatory bottlenecks, or a slowdown in state‑level fund utilization compress the pipeline. If private‑capex incentives fail to attract sufficient investment, the multiplier effect weakens, leaving construction firms with higher inventory and lower utilization. EPS growth stalls below 5 %, and valuation multiples compress. Defensive positioning—reducing exposure or shifting to cash‑rich firms with diversified revenue streams—would be prudent.Actionable Takeaway: Maintain a core allocation to sector leaders (L&T, NCC) while adding selective exposure to niche players (Afcons, PNC) that stand to benefit from state‑level projects. Set stop‑losses near the 200‑DMA support levels to guard against downside risk.