Union Budget 2026: Steady capex, policy support to drive next phase of infra growth

Finance Minister Nirmala Sitharaman is set to present her ninth consecutive Union Budget on Sunday, February 1, 2026 and the market players are expecting a sustained government focus on infrastructure-led growth, with higher or steady capex allocations across railways, roads, defence, power, housing and urban development.

Market participants believe that policy measures such as risk guarantee funds, asset monetisation, tax incentives and procedural reforms could support credit growth, revive stalled projects and improve execution, though risks remain around the pace and timing of spending.

"We expect an increase in budgetary allocations towards infrastructure development schemes in critical sectors such as railways, defence, power and data centres, which will be positive for corporate credit growth of banks," Nirmal Bang Institutional Equities. "We expect policy support for housing construction and urban infrastructure to continue, including progress."

Maintain or modestly raise MoRTH capex from FY26 base Rs 2.87 lakh; keep NHAI borrowings minimal, rely on GBS and monetisation, said Nuvama Institutional Equities, expecting budget allocation to remain flat YoY. "Higher budgetary allocation vital for healthy order inflows," it said.

A possible risk guarantee fund could be introduced to boost infrastructure financing and revive stalled projects. States have also requested increased allocations of interest-free infrastructure loans, said Nomura in its report. "Risk guarantee fund to boost infra financing to revive stalled projects, and tax incentives and/or accelerated depreciation for data centres, targeted support for AI/robotics."

Emkay Global Financial Services is expecting asset monetization and privatization for fiscal efficiency, with a low-friction method to step-up public spending. It sees higher capex and infra spending positive for commercial vehicles and related players including Ashok Leyland, Tata Motors, Craftsman Automation, Bharat Forge and more.

To continue with higher capex outlays towards infrastructure into railways, roads and highway, defence and transfers to states, just as private investments, on aggregate, remain uneven and face global uncertainty. A strong supply-side response will be important to attract fresh investments and improve the ease of doing business, said Radhika Rao, Senior Economics at DBS Bank.

"India’s score as well as ranking on the World Bank’s Logistics Performance Index – which considers customs, infrastructure, logistics competence and timeliness, amongst other factors – improved post pandemic, compared to the prior five years. The scope and breadth of the existing PRAGATI platform can be expanded to strengthen ownership of ministries and states," she said.

Budgetary allocation for railways is projected to rise by 10 per cent, benefiting manufacturing, defence, green energy, and EPC contractors. Capital Goods remain caught in ITC's eligibility maze, which penalises capital formation. The budget aims to eliminate these distortions and align incentives with GST's original design principles, said Choice Institutional Equities.

Infrastructure and Real Estate remain key, given their role in economic growth, employment, and investment momentum. Policy focus on renewables, power, transmission, and transport infrastructure supports medium-term demand. However, risks centre on the pace and timing of spending; slower public outlays or delayed private capex could affect near-term execution, it said.

Choice has picked UltraTech Cement (Target Price: Rs 15,210), Sobha (Target Price: Rs 1,840) and Smartworks Coworking Spaces (Target Price: Rs 630) from the sector.

Motilal Oswal is expecting higher and strong capex allocation; revamped National Infra Pipeline 2.0 of around Rs 1.5 lakh crore; greater focus on defense capex; procedural reforms - lower compliance burden, faster approvals etc. It is also expecting higher railway and railway capex

"We expect that greater emphasis will be placed on sectors like defense, critical minerals, power, electronics, infra and higher growth in affordable housing," it added. Motilal Oswal has been chosen to be a key beneficiary of the event. L&T, ABB, Siemens, Hitachi, Siemens, Energy, KEC, KPI Green, BEL, HAL, Bharat Dynamics, HG Infra, PNC Infra, IRB Infra, GR Infra among its top picks from the space.

With the government intensifying its focus on holistic infrastructure development—particularly highways, railways, and urban infrastructure—companies operating in these segments are well positioned to benefit from significant growth opportunities, said Axis Securities.

It sees the budget to be positive for KEC International, J Kumar Infraprojects, Ahluwalia Contracts, RITES, GR Infra, Rail Vikas Nigam and Titagarh Rail Systems. It is also positive on midcap opportunities like Elecon Engineering, Company, Praj Industries, Jain Resource Recycling and Acutaas Chemicals.

Anand Rathi sees increased budgetary allocation and spending towards infrastructure. Policy easing and tax sop in real estate to boost demand for residential and commercial projects. Focus on enhancing farmers income to help in enhanced spending for better irrigation. It sees election bound states like Tamil Nadu, Uttar Pradesh and West Bengal to get major share of infra projects.

Anand Rathi has picked Mayur Uniquoters, JK Cement, Birla Corp,  Waaree Energies PNC Infratech, Ashoka Buildcon, Dilip Buildcon  and Ahluwalia Contracts as its top picks from the sector.

Following the CAGR of 26 per cent in capex over FY 22-24, capex growth slowed in FY25 to 11 per cent YoY due to general elections related delays. FY26 saw reversal of this trend with Centre frontloading the capex in H1FY26 that saw capex at 40 per cent YoY, said BofA Securities.

"Capital spending has normalized over the last two months tracking 28 per cent YoY FYTD. We expect capex slightly overshooting the budget number on account of additional spending on defense with the FY26RE at Rs 11.4 lakh crore. We expect capex to grow broadly in line with nominal GDP (9 per cent) in FY27 keeping the capex to GDP ratio broadly at 3.2 per cent," it adds.