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Government goes full throttle on capex

ICICIdirect Research 04 Feb 2023 DISCLAIMER

What's Buzzing: 

The Union government has decided to go the distance on capital expenditure. 

Context: 

The government maintained its focus on capital expenditure with a budgeted growth of 33% in FY2024BE to Rs 10 lakh crore. The bulk of the increase continues to be from (1) (Railways (51%), (2) Roads and Highways (25%) and (3) Defence (growth of 8.5%). In others category, segments like Housing (PM Awaas Yojana), Water (Jal Jeevan mission) has seen a growth in outlay to the tune of ~66% YoY, 17% YoY respectively. The Budget has also focused on accelerating the green energy spectrum in order to reduce the carbon footprint. The major areas being Green Hydrogen and providing assistance of Rs 8300 crore to the Ladakh Renewable project enabling investment of Rs 20000 crore, which will have a multiplier effect across the capex value chain. 

Our Perspective: 

Massive increase in allocation towards capex will increase order inflows across sectors such as power T&D, water, railways, road. On a broad basis, companies in the EPC and products segments are expected to benefit. Also, the increased allocation in the sub segment of railways will augur well for railway EPC companies, wagon manufacturers, bearing companies, etc. The PLI of Rs 20000 crore announced before Budget and investments to be made in renewable capacity for viability of green hydrogen ecosystem will involve strong capex in the manufacture of electrolysers and putting up new generation and transmission infra for renewable power.

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