L&T, RVNL, KEC International: What construction and infra players expect from Budget 2026 and what the outlook is

Market participants, as well as industry bodies and experts, are sharing their projections on the capital allocations and expectations for key sectors such as construction and infrastructure, hotels, agriculture, the steel sector, railways, real estate, and defence, among others.

With regard to construction space, L&T's Chief Financial Officer (CFO), R. Shankar Raman, recently said that they were anticipating a 10% increase in capital expenditure (capex) outgo in the upcoming budget for FY27.

Amid concerns about sagging private capital expenditure growth, Raman said that he does not fear a "crowding out" of resources because of the high spending by the state. The ample liquidity in the system will support such investments.

Crowding-out effect

The crowding-out effect suggests that higher government spending can reduce private sector investment. This usually happens because increased government borrowing or higher taxes can push up interest rates, making loans more expensive for businesses and individuals. As a result, disposable income falls and private investment may slow, raising concerns about the overall impact of government involvement in the economy.

"If India is to become a developed economy by 2047, infrastructure has a big role to play, and I think the government is seized of this. I am hopeful that they will allocate adequate resources in the budget to be able to do that," Raman told PTI recently.

Pointing to the over ₹11 lakh crore commitment for capital expenditure in the FY26 budget, Raman said the new document to be presented by Finance Minister Nirmala Sitharaman in a few weeks will continue on the same lines.

"They will possibly go for a 10% increase...that is what I am anticipating, but that's at a personal level," Raman said.

There is already a jump in the way large infrastructure projects are getting conceived, Raman said, underlining that "infrastructure has miles to go".

Raman, however, rued that sometimes, projects are handed over to the lowest bidder, who may not be the best equipped technically, and this leads to execution delays.

Raman said the government has recommended all departments adopt a "qualitative-based pricing mechanism" under which weightage is also given to the timely completion of a project and other aspects.

As long as the "balance" between the price of a bid and other aspects like an entity's ability for timely completion is followed, good companies will bag contracts, the CFO added.

Manpower shortages

When asked about the manpower shortages, which the country's largest engineering, procurement and construction company has been flagging for some time now, Raman said the challenges continue.

Availability of alternatives makes construction a less favoured occupation, and moreover, with the government promising employment for up to 125 days, people think twice before uprooting themselves from their native place, Raman added.

COVID-19 pandemic changed mindset

Raman said the pandemic changed people's mindset, as they found it difficult to reach homes in times of crisis after the lockdowns, which has also caused some shift in thinking.

"The best antidote to that would be to take projects closer to their places of residency, which means you will have to go deeper into the country, which is what I think the government is doing, which is what all of us are also trying to do," the CFO said.

On the private capital expenditure front, he said companies across sectors like automobile, construction equipment, steel, minerals and metals, semiconductors and electronics are investing at present.

The CFO welcomed the government's openness to discuss suggestions from the industry and all important stakeholders in the budget-making process and called it a sign of a mature system of governance.

Revenue growth expectations in FY27

Suprio Banerjee, Vice President & Co-Group Head at ICRA Ltd, expects 8-10% revenue growth for the construction sector in FY2027, which is slightly better than the 6-8% revenue growth expectations in FY2026.

Road-focused construction entities will continue to witness muted performance; however, construction entities focused on urban infrastructure, irrigation and the energy segment should register healthy growth.

While the competitive intensity in the construction sector continues to remain high, the operating margins, supported by operating leverage benefits and stable commodity prices, are likely to keep the margins at stable levels at around 10.3-10.8% in FY2026e and in FY2027p.

ICRA expects the cash conversion cycle to remain at similar levels in FY2025 as in FY2026e, which is expected to keep the borrowings range bound and keep the coverage indicators at adequate levels. The outlook on the sector continues to be 'stable', driven by expectations of steady growth in operating income, moderate leverage and comfortable coverage metrics, Banerjee added.

How infra stocks have fared

Shares of L&T have gained nearly 16% (as of Wednesday, January 7, closing level) over the past 12 months, while NBCC (India) has rallied over 29%. Rail Vikas Nigam has slipped over 14% in the past year, and Ircon International has fallen 14%.

KEC International shares have declined by over 31% during the period.