An additional windfall of Rs 58,000 crore from the Reserve Bank of India (RBI) over and above the budgeted estimate may prompt the government to increase capital expenditure (capex). Companies including ACE Construction, Ashok LeylandNSE -1.50 %, Escorts, L&T, Sandhar Technologies and Tata MotorsNSE -1.76 % are dependent on the government’s capital expenditure and hence may be benefited.
Economist believe that since the RBI’s payout is non-recurring in nature, it may be deployed in capital expenditure rather than revenue expenditure. The capital expenditure of the Union government dropped 27.5 per cent year-on-year to Rs 63,000 crore in the first quarter of the current fiscal owing to the general elections and muted tax collections. The gross tax collection of the government grew 1.4 per cent to Rs 4 lakh crore in the quarter.
The drop in the capital expenditure was more prominent in the road sector where the government spent just 1 per cent of the budgeted expenditure during the first quarter compared with 37 per cent in the year-ago quarter. This leaves room for the government to improve investments in the sector.
The increased allocation to the road sector will benefit heavy commercial makers like Ashok Leyland and Tata Motors. Over the past two fiscals when the capex in the sector was high, tippers reported the largest growth in the CV segment. ACE Construction and Escorts are supplier of the construction equipment for various infrastructure projects and Sandhar Technologies supplies to heavy construction equipment maker such as JCB and Tata Hitachi. India’s largest infrastructure company Larsen & Toubro has maintaining its order inflow guidance of 10-12 per cent for the current fiscal. An increased spending of the government will support the company’s projection.