Budget 2026's Big Push for Capital Goods Manufacturing
The Indian government is preparing a significant incentive package for the capital goods sector. According to reports, the upcoming Union Budget for 2026 could announce schemes worth up to ₹23,000 crore. This move aims to strengthen domestic manufacturing and reduce reliance on imports.
The proposed incentives will focus on two main areas. These are construction equipment and the automobile value chain. The government wants to build a more resilient domestic ecosystem for high-value capital goods.
Construction Equipment Sector Set for Major Boost
A substantial part of the incentive package targets construction equipment. Plans include a ₹14,000-16,000 crore programme for this sector.
The focus will be on localising production of high-end machinery. This includes tunnel boring machines and various types of cranes. Currently, India imports about 50% of the sector's components by value. Major suppliers are China, Japan, South Korea, and Germany.
The government now emphasises domestic production of critical parts. Key components include hydraulics, undercarriages, electronic control units, sensors, and telematics systems.
Automobile Value Chain to Receive Separate Support
A separate ₹7,000 crore scheme is proposed for the automobile industry. This initiative aims to develop resilient global value chains.
Incentives will support local manufacturing of advanced technologies. These include advanced driver assistance systems, 360-degree cameras, and various sensors.
The scheme expects to encourage production with at least 50% domestic value addition. This could create new export opportunities for Indian manufacturers.
Subsidies for procuring capital goods are also likely. Critical items include moulds and power tools for auto component manufacturing.
Three Stocks to Watch Closely
Against this backdrop of potential policy support, investors should monitor specific companies. Here are three stocks that could benefit from the government's initiatives.
BEML Ltd: Positioned for Infrastructure Growth
BEML operates in three main business segments. These are mining and construction, defence and aerospace, and rail and metro systems.
The company has a strong product portfolio through its Earth Movers Division. It manufactures a wide range of heavy equipment. Products include bulldozers, hydraulic excavators, wheel loaders, and hydraulic cranes.
BEML's strategic move into tunnel boring machines adds a new growth dimension. The company seeks partnerships with global design firms for TBMs with diameters from 6 to 16.5 metres.
This positions BEML to tap rising demand from metro rail and underground projects. The company also leverages its nationwide after-sales service network.
Financially, BEML has shown steady performance. Over five years, revenue grew at 5.9% while net profit increased at a 35.7% CAGR. The company maintains five-year average ROE of 7.2% and ROCE of 12.7%.
CG Power and Industrial Solutions Ltd: Electronics Specialist
CG Power is a major engineering company involved in control solutions and power management. Its products serve various industrial applications, including railway transportation.
The company manufactures critical electronic control units for modern electric locomotives. These ECUs manage and coordinate key locomotive subsystems.
CG Power also provides automatic electrical control panels for industrial equipment. These maintain consistent power supply and manage voltage variations automatically.
The company's capabilities in ECU design, control systems, and power electronics align well with government priorities. With emphasis on local production of electronic components, CG Power stands to benefit.
Financially, the company has achieved 14.2% revenue growth over five years. Its five-year average ROE stands at 32.7% with ROCE reaching 85.2%.
Larsen and Toubro Ltd: Construction Giant
L&T has a diverse presence across engineering, construction, manufacturing, and technology services. It ranks among India's top five construction companies.
The company possesses deep expertise in complex infrastructure projects. This includes underground construction using advanced materials like Steel Fibre Reinforced Concrete.
Through its subsidiary LTCEL, the company provides mechanization and automation solutions. It leverages expertise in hydraulics, mechanical, electrical, and electronics engineering.
L&T's construction and mining business distributes and supports hydraulic excavators and dump trucks. These are manufactured by Komatsu India and other global equipment makers.
The proposed ₹14,000-16,000 crore incentive for construction equipment could significantly benefit L&T. The company's focus on indigenising high-end machinery positions it well for growth.
Financially, L&T has maintained solid performance. Over five years, revenue grew 12% while net profit increased at 11.7% CAGR. The company's five-year average ROE is 13.9% with ROCE at 18.2%.
Market Outlook and Investment Considerations
The Indian electrical equipment market shows strong expansion potential. According to industry estimates, incremental growth could reach ₹6,44,533 crore during FY24-FY28. This represents a CAGR of 14.3%.
The construction equipment market also promises robust growth. Valued at $7.2 billion in FY23, it could grow at around 15% CAGR over the next five years. Rising infrastructure investments and increasing mechanisation support this projection.
If the government implements the ₹23,000 crore incentive package, companies in these segments should receive a substantial boost. However, investors must conduct thorough due diligence before making decisions.
Key factors to evaluate include company fundamentals, corporate governance standards, and stock valuations. The potential policy support creates opportunities, but careful analysis remains essential.
Remember: This information serves educational purposes only. It does not constitute investment advice or stock recommendations. Always consult financial experts before making investment decisions.
