PSU stocks tumble up to 8% as Budget 2025 lowers FY25 capex to ₹10.18 lakh crore

Union Budget 2025: State-owned stocks, including those in the railway and defence sectors, are trading with significant losses in today’s trade, February 1, due to the government’s decision in the Union Budget 2025-26 to reduce the revised capital expenditure (capex) estimate for FY25 to ₹10.18 lakh crore.

The cut is attributed to slower capital spending during the first half of the fiscal year. For FY26, Nirmala Sitharaman, in her budget for 2025-26, raised the capex target to ₹11.2 lakh crore, which is lower than expected. Industry insiders were expecting the government to raise the capex allocation to ₹11.5 lakh crore, up from ₹11.1 lakh crore a year ago.

Amid this backdrop, the BSE PSU index, a barometer of public sector enterprises’ performance, tumbled 4% in trade, reaching 3.65% to the 17,718 level, as PSU companies, typically key beneficiaries of government capex initiatives, were impacted. FY25 capex stands at ₹5.13 lakh crore, 46% of the budgeted ₹11.1 lakh crore for Apr-November 24.

Concurrently, PSU bank stocks have also tumbled in trade, as expectations arise that low capex will impact their corporate lending business. Additionally, banking stocks were further impacted as the Union Budget 2025 raised gross market borrowings by 5.7% to ₹14.8 lakh crore for FY26 to finance a fiscal deficit of 4.4%, up from the ₹14.1 lakh crore target set for FY25.

Sandeep Nayak, ED & CEO of Retail Broking Centrum Broking, said, “The continuation on the path of fiscal discipline with a fiscal deficit for FY26 pegged at 4.4% of GDP is a positive for the economy. Capital expenditure spending at marginally less than last year’s estimate is a mild negative. On the reforms front, a simplified tax code to be unveiled should bring more cheer to taxpayers.”

“Insurance FDI increased to 100%, which is a big positive. The budget has focused on increasing the disposable income of the middle class with an increase in the taxable income limit to ₹12 lacs from the existing Rs. 7 lacs. It is a ‘middle class sukino bhavantu’ budget, which should boost consumption. Revival of urban consumption will have a positive multiplier effect on the economy, helping mitigate the effect of the slowdown seen in the last couple of quarters,” added Nayak.

Railway, defence stocks hit hard

Multibagger railway stocks such as Ircon International, Rail Vikas Nigam, IRFC, and Indian Railway Catering are currently trading with losses of up to 9%. Likewise, defence-related stocks including Bharat Dynamics, Mazagon Dock Shipbuilders, Bharat Electronics, Cochin Shipyard, and Hindustan Aeronautics are down by up to 5%.

Banking stocks such as Bank of India, Indian Bank, Union Bank, Punjab National Bank, Central Bank, SBI, and Bank of Maharashtra are currently trading with losses ranging from 1.5% to 3%.

According to the Budget document, the allocation for the railways sector has remained unchanged at ₹2.55 lakh crore for FY26. This figure was also ₹2.55 lakh crore in the previous financial year. Global brokerage firm PhillipCapital had expected the budget allocation for railways to be between ₹2.8 lakh crore and ₹2.9 lakh crore for FY26.

For the defence sector, the government has allocated ₹6,81,210 crore in the budget for 2025-26, up from last year’s outlay of ₹6,21,940 crore. The total capital outlay has been pegged at ₹1,92,387 crore

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