Power, Defence and Railway Stocks: Riding High on Government Push and Capex Boost

PSU stocks in the Indian stock market have shown remarkable performance, emerging as significant wealth generators. Some have recorded impressive returns of up to 800% in less than a year, largely driven by increased capital expenditure (capex) and government-led initiatives favouring PSU companies. The recent election victory of the Ruling party, forming the government at the centre for the third time, has further fueled this rally, underscoring political stability and policy continuity. Defence, power, and railway stocks have particularly stood out, with analysts remaining optimistic about their future growth prospects despite the significant rally.

Government Support and Capex Impact

Increased capital expenditure and government initiatives have been pivotal in driving the surge in PSU stocks. Robust order acquisitions from the private sector and Ltd liquidity due to substantial government holdings have created a supply-demand imbalance, pushing stock prices higher. Government-led initiatives, including significant capital outlays and reforms, have enhanced the attractiveness of PSU stocks to investors, creating substantial growth opportunities.

Defence Sector: Indigenisation and Growth

The Indian defence sector has undergone significant transformations over the past four years, driven by government initiatives to establish a robust domestic defence ecosystem. The Ministry of Defence (MoD) has implemented several measures to boost domestic production, including a positive indigenisation list for over 400 defence items, increasing the FDI limit from 49% to 74%, and encouraging foreign OEMs to set up manufacturing and maintenance entities in India. The government has planned a capital outlay of Rs. 8.3 trillion for domestic defence procurement over the next few years.

Some of the key beneficiaries are Bharat Electronics Ltd, Hindustan Aeronautics Ltd, Mazagon Dock Shipbuilders, Bharat Earth Movers Ltd

Power Sector: Surge in Capex and Demand

The power sector has seen a strong surge in capex across both power generation and transmission & distribution segments. Significant investments are earmarked for thermal and renewable energy projects. Power consumption grew by 8%-10% in FY22–24, raising concerns about potential peak power shortages. To address this, the government plans to add 80 GW of thermal capacity by 2032, with 30 GW under construction and an additional 44-45 GW of projects expected to be awarded by FY27.

India’s ambitious plans to achieve 500 GW of installed capacity by FY32, up from the current 200 GW, highlight the need for a robust transmission network. The transmission system is planned for about 537 GW of renewable energy capacity, necessitating a substantial Rs. 4.8 trillion capex over FY23–27. This investment is expected to drive demand for T&D equipment, with Rs. 3.1 trillion allocated to inter-state transmission and Rs. 1.7 trillion to intra-state transmission.

Some of the key beneficiaries are Bharat Heavy Electricals Ltd, Kirloskar Pneumatic, Kirloskar Oil Engines, Larsen & Toubro, Hitachi Energy, Siemens, Transformers and Rectifiers, Lakshmi Machine Works and Thermax

Railways: Fast-Track Growth and Investments

The railway sector is experiencing significant growth, with substantial opportunities in rolling stocks, line construction, and railway station development. The National Rail Plan aims to spend Rs. 9.2 trillion during FY26E–31E, up from Rs. 5.8 trillion during FY21–26E. Major business opportunities arise from both passenger and freight sides, including the procurement of Vande Bharat trains and metro capex.

India’s metro rail projects present a massive investment pipeline of Rs. 3 trillion. The metro network has expanded significantly, with 803 km operational in 15 cities and 445 km under implementation. An additional 1,475 km of projects are in the planning and approval stages, projected to entail Rs. 3 trillion in investment over the next five years

Some of the key beneficiaries are RVNL, IRCON, Rites, Titagarh Rail Systems, Jupiter Wagons, IRFC, Texmaco Rail, Railtel and Oriental Rail Infra.

Conclusion

The surge in PSU stocks, particularly in the defence, power, and railways sectors, is driven by increased capex and government initiatives. Political stability and policy continuity following the NDA govt election victory have further fueled this rally. Despite the significant gains, investors remain optimistic about the future growth prospects of these sectors, supported by substantial investments and strategic reforms. As India continues to enhance its infrastructure and manufacturing capabilities, PSU stocks are poised for sustained growth and resilience amidst evolving market dynamics.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.