On February 1, 2025, shares of state-owned Oil Marketing Companies (OMCs) in India, including Hindustan Petroleum Corporation Ltd. (HPCL), Bharat Petroleum Corporation Ltd. (BPCL), and Indian Oil Corporation Ltd. (IOC), declined by up to 5%. This downturn followed the Union Budget 2025 announcement, which reduced the liquefied petroleum gas (LPG) subsidy allocation for the financial year 2025-26 to ₹12,100 crore, down from ₹14,700 crore in the previous year. The budget also did not provide the anticipated compensation for OMCs selling LPG below market rates, leading to concerns about their profitability.
On February 1, 2025, shares of state-owned enterprises (PSUs) in India experienced significant declines, with some falling up to 8%. This downturn followed the Union Budget 2025 announcement, which reduced the capital expenditure (capex) allocation for the fiscal year 2025-26 to ₹10.18 lakh crore, down from the previous estimate of ₹11.1 lakh crore.
Impact on Key Sectors
The capex reduction has adversely affected sectors heavily reliant on government spending, including railways, defense, and banking. Notable declines were observed in the following stocks:
- Railways Sector:
- Ircon International: Down 9%
- Rail Vikas Nigam: Down 9%
- Indian Railway Finance Corporation (IRFC): Down 9%
- Indian Railway Catering and Tourism Corporation (IRCTC): Down 9%
- Defense Sector:
- Bharat Dynamics: Down 5%
- Mazagon Dock Shipbuilders: Down 5%
- Bharat Electronics: Down 5%
- Cochin Shipyard: Down 5%
- Hindustan Aeronautics: Down 5%
- Banking Sector:
- Bank of India: Down 3%
- Indian Bank: Down 3%
- Union Bank of India: Down 3%
- Punjab National Bank: Down 3%
- Central Bank of India: Down 3%
- State Bank of India (SBI): Down 2%
- Bank of Maharashtra: Down 2%
Government’s Capex Allocation
Finance Minister Nirmala Sitharaman announced a capex allocation of ₹10.18 lakh crore for FY25, attributing the reduction to slower capital spending during the first half of the fiscal year. For FY26, the capex target was set at ₹11.2 lakh crore, which was lower than industry expectations of ₹11.5 lakh crore.
Market Reaction
The BSE PSU index, a barometer of public sector enterprises’ performance, tumbled 4% to 17,718, reflecting investor concerns over reduced government spending. PSU companies, typically key beneficiaries of government capex initiatives, were impacted by the cut.
Analyst Perspectives
Analysts have expressed concerns that the reduced capex allocation may affect the growth prospects of PSUs, particularly in infrastructure-dependent sectors. The lower-than-expected capex could lead to subdued corporate earnings and may dampen investor sentiment in the short term.
The reduction in capital expenditure announced in Budget 2025 has led to a decline in PSU stocks, particularly in the railways, defense, and banking sectors. Investors are closely monitoring the government’s fiscal policies and their potential impact on the growth and profitability of state-owned enterprises.
