India's road and highway sector has experienced severe turbulence in 2025, with major stocks declining up to 53% over the past 12 months amid persistent concerns over sluggish project awards and flat capex allocation in Budget 2025. The lack of investor appetite has become increasingly evident as companies struggle with dwindling market opportunities and execution challenges.

Sector-Wide Stock Performance Decline

KNR Constructions , a key player in the road construction segment, has been among the worst performers with a steep 53% decline over the one-year period. The broader sector carnage is reflected across other major players as well.

Market Share Erosion and Award Challenges

The sector faces fundamental structural challenges, with the market share of listed developers experiencing a dramatic decline over recent years. According to Nuvama Institutional Equities analysis, this erosion has been consistent and concerning for investors.

Parvez Qazi, a Nuvama Institutional Equities analyst, has sounded caution for road space stocks, arguing that companies' ability to win adequate road orders at desired margins is now under question due to sluggish road awards. The analysis, co-authored by Vasudev Ganatra, highlighted that road awarding remained subdued in FY25 for a second consecutive year due to the government's decision to halt project awards under the Bharatmala programme.

NHAI Activity and Project Pipeline

Despite the challenges, some activity continues in the sector. The NHAI awarded 209 km of road projects in December 2025, with construction pace increasing year-on-year to 687 km in the month against 630 km in December 2024. Year-to-FY26 NHAI road awards aggregated 676 km, representing a modest 2% year-on-year increase, while year-to-date FY26 road construction fell 4% year-on-year.

News reports indicate that the NHAI has invited bids for 52 road projects totalling 2,188 km worth ₹1.15 lakh crore, suggesting potential future opportunities despite current challenges.

Q2FY26 Financial Performance Analysis

The lack of project awards has significantly impacted company revenues, with Q2FY26 results showing weak and uneven performance across the sector. Most players grappled with sharp revenue contraction and volatile profitability during the quarter.

KNR Constructions was among the worst hit, highlighting execution challenges and a slowdown in project activity. On the positive side, IRB Infrastructure delivered relatively resilient performance aided by stable toll collections and operational efficiencies, while PNC Infratech recorded a sharp jump in profit despite revenue decline, suggesting improved cost control and lower finance expenses.

Market Outlook and Expert Views

Nuvama remains cautious on the roads space, arguing that muted capex growth could accentuate concerns around road awards. The research house suggests that road developers must work on segmental diversification since their ability to win adequate road orders at desired margins is now under question.

Kranthi Bathini noted that the capex theme has been undergoing consolidation for almost 9-10 months, with the road construction theme taking a significant hit. He expects real triggers to become visible after budget announcements.

The Cabinet's recent approval of the ₹19,142 crore Nashik-Solapur-Akkalkot six-lane Greenfield corridor has generated some optimism. WealthMills Securities' Director-Equity Strategy expects renewed traction in smallcap and midcap stocks in the run-up to the budget, though recommends maintaining a cautious approach.

KNR Constructions Limited has announced receiving favorable orders from the Commissioner of Income Tax (Appeals)-12, Hyderabad, marking a significant victory in its tax dispute resolution for multiple assessment years. The company received these orders on December 31, 2025, at 10:14 PM, covering four consecutive assessment years from 2017-18 to 2020-21.

Appeal Details and Outcomes

The appellate authority has allowed all appeals filed by KNR Constructions, overturning the original decisions made by the Assessing Officer. The dispute centered around two primary issues that led to additional tax demands for the company.

Original Tax Disputes

The tax controversy originated when the Assessing Officer made two key disallowances that significantly impacted KNR Constructions' tax liability. The first major issue involved the disallowance of deductions claimed under Section 80-IA of the Income Tax Act across the respective assessment years. Section 80-IA typically provides deductions for profits from infrastructure development projects, which is directly relevant to KNR Constructions' business operations.

The second dispute concerned arbitration claims related to one of the company's projects. The Assessing Officer's rejection of these claims contributed to the overall tax demands raised for the mentioned assessment years.

Current Status and Next Steps

Following the favorable appellate orders, KNR Constructions is now awaiting consequential orders from the Assessing Officer to give effect to the CIT(A) decisions in the respective years. These consequential orders will formally implement the appellate authority's rulings and adjust the company's tax assessments accordingly.

The company has fulfilled its disclosure obligations under Regulation 30 of SEBI (LODR) Regulations, 2015, by promptly informing the stock exchanges about these material developments. Company Secretary Haritha Varanasi signed the intimation on January 1, 2026, ensuring timely compliance with regulatory requirements.

Regulatory Compliance

This announcement demonstrates KNR Constructions' commitment to transparent communication with stakeholders regarding significant legal and regulatory developments. The detailed disclosure includes all required information under SEBI regulations, providing investors with comprehensive information about the nature of the disputes, the authority involved, and the favorable outcomes achieved through the appellate process.