New Delhi, Jan 28 The Union Budget 2026 will place greater emphasis on sectors like defence, critical minerals, power, electronics, infra and higher growth in affordable housing, a report said on Wednesday, adding that policymakers balance growth priorities with fiscal discipline amid global uncertainty.
With limited anticipation of big-ticket announcements, even selective measures could deliver positive market sentiment, said Motilal Oswal Financial Services Ltd in its ‘India Strategy’ report.
The forthcoming FY27 Union Budget has to strike a deft balance of sustaining growth momentum and maintaining fiscal consolidation, even as it also needs to address near-term challenges emanating from unprecedented geopolitical flux.
“In our discussions, we sensed that investors do not expect large substantive measures as the FM grapples to address multiple variables – thus setting the base lower for some positive surprise,” the report mentioned.
The scope of influence of the budget has become relatively narrower over the years, owing to a flurry of extra-budgetary steps – hence, equity markets will be assessing it for targeted, selective measures to drive growth in certain sectors and to assuage investor sentiments, it added.
The government has been steadfast on the path of fiscal consolidation, with the fiscal deficit easing from Covid induced high of 9.2 per cent to 4.4 per cent for FY26E (estimated).
“We believe that government will largely maintain its fiscal rectitude and do not expect major deviation from this path. However, given that FY27 will mark a transition to debt/GDP as a targeted fiscal marker and that overall consumption is yet to recover fully and sentiment is improving unevenly, a scenario of pragmatic, minor fiscal stretch is not completely ruled out,” the report noted.
Equity market will likely support such move, especially if it is well-targeted towards productive capex or consumption boost, rather than low multiplier-laden transfer payments or administrative expenses.
Given that the FY26 Union Budget was more tilted towards stimulating middle-class consumption (through personal income tax forbearance of Rs 1 lakh crore), and its effects are yet to play out fully, “we believe that the FY27 Union Budget’s approach to stimulating consumption will be selective”.
“Consequently, the budget is likely to focus more on capital expenditure, especially in sectors deemed to be strategically important owing to prevailing geopolitical compulsions,” it said.
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