Why Did L&T, IRB Infra, and Siemens Stocks Fall?
In a surprising turn of events, stocks of major infrastructure players like L&T, IRB Infra, and Siemens have taken a hit, dropping by as much as 7%. The sudden decline comes after the Union Budget shifted its focus away from capital expenditure (capex)-led growth. This unexpected change has sent shockwaves through the infrastructure sector, leaving investors wondering what’s next for these industry giants.
Union Budget: A Shift Away from Capex-Led Growth
The Union Budget for FY2025-26 has been met with mixed reactions, particularly from sectors dependent on robust capital expenditure growth. Infrastructure companies like L&T, IRB Infra, and Siemens are seeing significant downturns due to the government’s focus on lower capex growth. This is in stark contrast to previous years when the government pushed for higher investments in infrastructure, helping drive the expansion of the capital goods sector.
Motilal Oswal, a renowned brokerage firm, has raised concerns about the implications of the Union Budget on the infrastructure industry. With a revised estimate of 7.3% capex growth for FY25, followed by a 10% forecast for FY26, the expectations are far lower compared to the 30% capex growth seen between FY21-24. The shift has caused a ripple effect on companies linked to government spending, which directly impacts their stock valuations.
How Does This Affect L&T, IRB Infra, and Siemens?
L&T Stock Drops 4%
L&T (Larsen & Toubro), one of India’s largest and most diversified engineering companies, saw its stock fall 4% to Rs 3,313. The downturn is largely attributed to the government’s slower approach to capex growth. As one of the key players in infrastructure development, L&T is highly sensitive to government spending, and any delay in capex growth can hamper its future prospects.
IRB Infra Falls Over 5%
IRB Infrastructure, a leader in the toll road and highways sector, also experienced a dip of over 5%. The government’s reduced emphasis on infrastructure spending has negatively affected the company’s outlook, particularly when it comes to road construction and maintenance projects, which are vital to IRB’s business model.
Siemens Faces a 7% Decline
Siemens, a global technology powerhouse, saw its stock drop by 7%. The company is heavily involved in sectors like automation, energy, and transportation, which rely on strong capex growth. With the government’s budgetary cuts, Siemens is expected to experience slower growth in these areas, leading to a markdown of its stock value.
What’s Behind the Falling Stock Prices of L&T, IRB Infra, and Siemens?
Downgrades and Target Price Cuts
The recent downgrade of major infrastructure stocks has contributed to the sharp decline in stock prices. Motilal Oswal has downgraded several companies, including Hitachi Energy, Thermax, and Siemens, signaling a challenging year ahead for the infrastructure sector. The brokerage firm has lowered its valuation multiples for these companies to account for the reduced government capex and weaker private sector investment in infrastructure.
What Does the Union Budget Mean for Infrastructure Companies?
While the Union Budget has maintained a total capex outlay of Rs 11.2 lakh crore, which is consistent with the estimates for FY25, the revised capex for the fiscal year has been reduced to Rs 10.2 lakh crore. This reduction has raised alarms within the infrastructure sector, as it signals slower growth in key areas like railways, roads, and defense.
The allocation for defense saw an uptick, increasing by 13% to Rs 1.8 lakh crore, but this boost is not enough to offset the stagnation in other key infrastructure sectors. The government’s move to focus more on income tax relief, estimated at Rs 1 lakh crore, has redirected attention toward consumer stocks, especially in the discretionary sector, rather than infrastructure-heavy industries.
Should Investors Be Worried About the Future of Infrastructure Stocks?
The recent drop in stock prices has left many investors questioning the future of infrastructure companies like L&T, IRB Infra, and Siemens. The lower-than-expected capex growth could lead to slower inflows for these companies, making it challenging for them to maintain the growth rates they’ve seen in previous years. However, experts suggest that it may not be all doom and gloom.
Is It Time for Investors to Be Selective?
Motilal Oswal suggests that investors should now be more selective when it comes to capital goods stocks. Companies that are less reliant on government capex and have diversified their growth strategies could weather the storm better than others. Infrastructure companies that have already adapted to changing market conditions and have explored alternative growth avenues may offer better long-term prospects.
What Lies Ahead for L&T, IRB Infra, and Siemens?
The outlook for infrastructure stocks like L&T, IRB Infra, and Siemens depends largely on how the government’s capex plans evolve over the next few years. While the short-term outlook appears challenging, these companies may find new avenues for growth as they adapt to the changing landscape. As for investors, it’s crucial to focus on the companies that can sustain growth despite the slowdown in government spending.
Conclusion: Should You Sell or Hold Your Stocks?
With the Union Budget signaling slower capex growth and infrastructure stocks facing downgrades, investors must be cautious. It’s a good time to reassess your portfolio and consider diversifying into other sectors that are less impacted by government spending. But don’t panic—companies that have diversified and created alternate growth streams might still offer strong returns in the long run.
Stay updated with all the insights.
Navigate news, 1 email day.
Subscribe to Qrius