Sipu Jha
By Siddhartha KhemkaAs India approaches the FY27 Union Budget, expectations are centred on striking a fine balance between fiscal consolidation and sustaining economic growth. This budget is likely to be less about short-term giveaways and more about long-term opportunities emerging from higher capital expenditure (capex), strategic sectoral priorities and structural reforms. Budget 2026 could mark a defining shift in India’s fiscal framework, while laying the foundation for a durable and investment-led growth cycle in India’s evolving economic landscape.The government is expected to target a gross fiscal deficit of 4.3% of GDP in FY27, marginally lower than 4.4% in FY26. More importantly, India is moving toward using the debt-to-GDP ratio as the primary fiscal anchor, with a stated goal of reducing it to around 50% by FY31 from about 56% currently. This signals a strong commitment to discipline and aligns India with global fiscal best practices. For investors, this means limited chances of big income tax cuts or populist spending. The budget is expected to be anchored around a nominal GDP growth assumption of ~10.1%, enabling the government to support growth priorities without materially straining fiscal finances.The biggest positive from a market perspective is the continued focus on capital expenditure. The Centre’s capex is expected to grow by about 10.3% YoY to nearly ₹12.4 trillion, staying close to 3.1% of GDP. Unlike earlier cycles where roads and railways dominated, this budget is likely to widen the capex net. Higher allocations are expected for defence and allied industries, power, nuclear energy, electronics manufacturing, critical minerals and select labour-intensive sectors impacted by global trade disruptions. Revenue expenditure, subsidies and non-essential spending are likely to remain tightly controlled, reinforcing the capex-led growth model.
Defence sector and allied industries stocks:
Defence is emerging as one of the strongest beneficiaries of Budget 2026. With defence capex expected to rise sharply (~15% over the planned FY26 base of ~₹1.8tn), and recent approvals by the Defence Acquisition Council already touching multi-year highs, the order pipeline looks robust. Listed players such as Hindustan Aeronautics, Bharat Electronics and Bharat Dynamics are well placed to benefit. The growing ecosystem of defence start-ups, drones (including agri and surveillance drones) and indigenisation under “Make in India” adds a multi-year structural tailwind.
Infrastructure, power and manufacturing stocks:
While traditional infrastructure remains important, the focus is shifting toward power, nuclear and manufacturing-linked infrastructure. Power sector reforms, grid expansion and energy transition themes continue to offer opportunities. Large diversified infrastructure players such as Larsen & Toubro remain key beneficiaries of sustained public capex.Electronics manufacturing, especially mobiles and allied components, continues to stand out under the PLI framework, while newer schemes such as rare-earth magnets and critical minerals signal the next phase of industrial policy. We expect players like NMDC and Vedanta could be key long –term beneficiaries.
Financials & Credit Intermediation stocks:
Financials are likely to gain indirectly from fiscal discipline, macro stability and steady credit growth expected under Budget 2026, as these factors support consumption and investment demand. Banks, NBFCs and asset/wealth managers remain key beneficiaries of both retail credit expansion and capex financing.On the public sector front, we anticipate continued evolution of the government’s disinvestment and PSU strategy, shifting from outright asset sales toward business revamps and selective stake monetization; this includes the anticipated restructuring of IDBI Bank, potential stake changes in LIC, and consolidation of smaller PSU banks to create larger, more robust entities akin to SBI and HDFC.Well-capitalised lenders such as SBI offer a combination of balance-sheet strength and stable growth outlook, while large private and diversified financial institutions (Chola Fin, Groww) with strong asset quality and distribution reach remain attractive plays on the broader economic recovery.
Digital Services Stocks:
Digital technologies that integrate advanced tech into agriculture, healthcare, and related social sectors, should remain key pillars of reform-oriented allocation. The Budget is expected to focus on agri-technology, rural digital infrastructure and sustainability initiatives aimed at improving long-term productivity and market access for farmers. Investors can benefit from continued demand for digital platforms, IT services and fintech solutions driven by higher penetration and affordability. Leading names such as HCL Technologies and Paytm are well placed to ride ongoing digital transformation trends, supporting long-term earnings visibility.
Consumption stocks:
With the government focused on fiscal discipline and capex growth instead of tax giveaways, direct support to private consumption could be limited. However, broader GST reforms, labour reforms, digital adoption incentives and targeted PLI schemes still underpin growth in consumption-linked sectors. Infrastructure push and supply-chain incentives signal a favourable long-term backdrop for Electric Vehicle (EV) players. Our preferred picks in this segment are M&M and TVS Motors. Further, scalable digital businesses with robust user-base growth and improving monetization including E-commerce ecosystem players (delivery/logistics platforms) like Eternal and Delhivery could be key beneficiaries of increased consumer demand.(Siddhartha Khemka is Head of Research, Wealth Management, Motilal Oswal Financial Services Limited)(Disclaimer: Recommendations and views on the stock market, other asset classes or personal finance management tips given by experts are their own. These opinions do not represent the views of The Times of India)
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