Nirmala Sitharaman backed consumption over capex. But guess who's making billions
Four months after Finance Minister Nirmala Sitharaman's Union Budget appeared to pivot policy focus towards consumption, the real winners in the market have emerged from an unlikely corner: capital goods.
ADVERTISEMENT Despite a budget speech that dialed back aggressive infrastructure spending in favour of easing middle-class tax burdens and supporting household demand, capital expenditure stocks have not only held their ground but have outperformed. The BSE Capital Goods Index has soared 10% since Budget Day, trouncing the Nifty India Consumption Index, which managed a muted 3% rise, and even outperformed the Nifty 50's 5% climb.
The rally in capital goods stocks has added a staggering Rs 1.85 lakh crore in market value. Leading the pack is Hitachi Energy India, with a 54% surge. Defence heavyweights like Bharat Dynamics (up 49%), BEL (33%), and HAL (26%) have also posted stellar returns. Other notable gainers include Schaeffler India, BHEL, Kaynes Tech, SKF India, GMR Airports, Suzlon Energy, and Inox Wind—all of which have clocked double-digit gains.
Meanwhile, the consumption story hasn't lived up to the Budget's optimism. The Nifty India Consumption Index has underperformed broader markets. Varun Beverages and Colgate-Palmolive have posted double-digit declines.'The mix of cheaper starting prices, accelerating earnings, and stronger order pipelines explains why capital goods stocks have outperformed consumption,' Anoop Vijaykumar, Head of Equity at Capitalmind Mutual Fund told ET Markets.He pointed to multi-year high order books at engineering firms and the RBI's OBICUS survey showing manufacturing capacity utilisation at 75.4% in Q3 FY25—the highest in six years—as signs that the industrial engine is firing on all cylinders.
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'Policy support for railways, defence, renewables and the PLI 2.0 schemes has not slowed; these programmes are multi-year and continue. Meanwhile, the consumption complex faces a softer near-term backdrop: rural volumes are only just turning positive, urban discretionary demand is normalising after two strong years, and the sector entered Budget season on richer valuations,' Vijaykumar added.
ADVERTISEMENT Dhiraj Relli, MD & CEO of HDFC Securities, echoed the sentiment, calling the capital expenditure revival a "multi-year" phenomenon. 'Between FY21 and FY25E, private sector capex has grown at 19.8% CAGR. The momentum is likely to intensify in FY26, driven by domestic manufacturing, continued government infrastructure initiatives, and healthy corporate balance sheets,' he said.On the flip side, Relli flagged that consumption faces headwinds from 'sluggish urban demand, delayed rural recovery, and persistent inflation.' While tax reductions and early signs of rural revival offer a glimmer of hope, margin pressure and steep valuations may limit upside.
ADVERTISEMENT So is the capex story here to stay? Vijaykumar believes it is. 'The central government has already budgeted over Rs 11 lakh crore of infrastructure spending for FY26, while states and CPSEs have pencilled in similar growth. Private sector intent is also strengthening with new project announcements rising in double digits,' he said. With healthy corporate balance sheets and a banking system ready to fund fresh investments, 'the investment cycle is broadening rather than peaking.'Venugopal Manghat, CIO – Equity at HSBC Mutual Fund, is selectively bullish within capex. 'We like power, manufacturing and defence over roads and railways. Ongoing liquidity infusion by RBI, expected rate cuts, and regulatory easing should support NBFCs and banks,' he noted.On the consumption front, Manghat is cautious on staples. 'The sector has seen disruption from tech and new formats. With higher disposable incomes, households are shifting toward aspirational and discretionary spending,' he said. He sees greater opportunity in small-cap consumer discretionary plays, citing low penetration and a large unorganised-to-organised transition in the space.
ADVERTISEMENT The scorecard since the Budget is clear: while policy seemed to back the consumer, the market has placed its bets on industrial India. And for now, capex is delivering the returns.
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