India Infra: ₹12.2 Trillion Budget Capex Looks Good on Paper — The Execution Gap Is Where the Money Is Lost

15 Jun 2026·9 min read·Free Report

30-second version

1.The Union Budget 2026-27 raised capital expenditure to ₹12.2 trillion — up ~11% over FY26's ₹11 trillion revised estimate — with roads and railways together absorbing roughly ₹5.8 trillion. L&T's order inflow for FY26 came in at ~₹3.62 lakh crore, a 20% YoY jump, and KEC International crossed ₹25,000 crore in order book by March 2026. These are real numbers, but the critical metric is execution velocity, not order book size — and that's where the divergence between headline capex and ground reality bites.
2.DIIs have been net buyers of infra-linked PSUs and EPC names through Q4 FY26 and early FY27, adding to NTPC, Power Grid, and L&T. FIIs turned marginally net sellers in the capital goods sub-index in May 2026 — a reversal from the aggressive accumulation seen post-Budget 2025. Institutional positioning is now bifurcated: domestic money is chasing execution quality (L&T, KEC), while foreign flows are rotating into asset-heavy regulated utilities (Power Grid, NTPC) where earnings visibility is higher.
3.L&T trades at ~30x trailing earnings against a 5-year average of ~26x — a 15% premium that only makes sense if FY27-28 EBITDA margin recovery to 9.5%+ materialises. KEC at ₹514 sits 46% below its 52-week high of ₹947, pricing in a lot of the margin pain already. Power Grid at ~₹286 is at 2.8x book versus a 5-year average of ~2.5x — not cheap, but the regulated 15.5% ROE makes it the most defensible name in this space if capex momentum stalls.

01What's happening

The Union Budget 2026-27, presented in February 2026, locked in ₹12.2 trillion in capital expenditure — the highest ever nominal figure — with NHAI getting ₹1.68 trillion, Indian Railways ₹2.65 trillion, and a significant push toward power transmission infrastructure. The government explicitly committed to staying at budgeted capex and divesting non-strategic assets to fund it, a signal that fiscal consolidation is being attempted without cutting the capex line. On the ground, however, Q1 FY27 (April-June) execution is tracking roughly 18-20% of the annual budget, consistent with the historical pattern where the first quarter accounts for only a fifth of the annual target — the real test is always Q3 and Q4. L&T reported FY26 consolidated revenue at approximately ₹2.37 lakh crore with order book at ₹5.65 lakh crore as of March 2026, giving it a book-to-bill ratio of around 2.4x — healthy, but the mix is shifting toward more international and defence orders which carry different margin profiles. KEC International, which derives ~65% of revenue from power transmission EPC, saw its EBITDA margins compress from ~8% in FY24 to closer to 6.8-7% in FY26 due to commodity cost volatility in aluminium and steel, and its stock has been more than halved from its 52-week high. NTPC commissioned roughly 3,300 MW of new capacity in FY26 and is targeting 5,000 MW in FY27, with its renewable energy subsidiary NTPC Green Energy now holding a project pipeline exceeding 20 GW. Power Grid's regulated asset base (RAB) crossed ₹2.6 lakh crore in FY26, and with the government's ₹1.2 lakh crore investment in intra-state and inter-state transmission announced in Budget 2026, the pipeline of projects to be capitalised into RAB over FY27-29 is the clearest earnings visibility in the sector.

02Why this matters for your portfolio

The structural case for Indian infrastructure over a 2-3 year horizon is not about whether the government will spend — it will — but about which companies can convert that spending into free cash flow without destroying working capital. The India infrastructure cycle is now in year four of a sustained upswing, and the companies that have survived the earlier low-margin tender wars of 2019-22 are operating with cleaner balance sheets: L&T's net debt-to-equity at the standalone level is below 0.1x, and Power Grid's regulated model means its cash flows are effectively sovereign-backed. The earnings growth that is genuinely not priced in is at the second-tier EPC level — companies like KEC where the stock has de-rated sharply but the order book is at record levels, meaning FY27-28 revenue is largely locked in and margin recovery from input cost normalisation would produce significant operating leverage. For a retail investor building a 3-year infrastructure allocation, the risk-reward is clearest in the combination of a regulated utility anchor (Power Grid or NTPC for yield and visibility) plus one high-quality EPC name at a cyclical low (KEC, not L&T which is already priced for recovery). The opportunity size is concrete: if NTPC executes its 5,000 MW FY27 addition, it adds roughly ₹9,000-10,000 crore to its regulated equity base, growing EPS at ~12-14% without any re-rating. The IRFC angle is different — it is a pure financing vehicle for railway capex, and its ₹2.65 trillion railway allocation directly translates into loan book growth of 12-15% annually, but the stock at ₹97.93 is already pricing in a permanent 15% NIM compression from the July 2025 railway ministry directive capping spreads.

03Valuation check

Current multiples vs. 5-year averages. Verdict based on trailing twelve months earnings.

043 stocks worth watching

Fundamentally sound names with a clear thesis. Not buy/sell recommendations.

05Contrarian take

The bear case — what the bulls are missing

Here's what the bulls are missing: the ₹12.2 trillion capex headline is a gross allocation, not a net disbursement, and the Centre's historical track record shows 85-90% utilisation in good years — meaning the effective capex hitting EPC order books is closer to ₹10.5-11 trillion. More specifically, NHAI has shifted aggressively toward HAM (Hybrid Annuity Model) and TOT (Toll-Operate-Transfer) structures rather than straight EPC, which means the upfront revenue booked by road EPC players is lower per project, the equity commitment is higher, and the IRR pressure from rising borrowing costs (NHAI's bond yields rose 40 bps between October 2025 and April 2026) is squeezing project viability. KEC's international segment — now 35% of revenue and the segment management has been citing as the growth engine — carries USD/EUR receivable exposure of approximately ₹4,200 crore as of Q4 FY26; a 3% INR appreciation against the USD, which is plausible given RBI's current FX posture, shaves roughly ₹126 crore off reported EBITDA, erasing nearly a quarter of the margin recovery the street is modelling for FY27. L&T's GCC (Gulf Cooperation Council) exposure has grown to over 25% of its infrastructure segment order book — this is a concentration risk that gets zero airtime in analyst calls but becomes material if Saudi Aramco or UAE sovereign capex programmes slow in a $70-75/barrel crude environment, which is exactly where Brent has been trading since March 2026.

06Sources

Primary sources only · No broker reports

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