The upcoming Union Budget 2026 is set to focus on maintaining fiscal prudence and giving priority to strategic sectors with heavy capital expenditure, according to a report. The report, from investing platform smallcase, highlighted that the defense sector is expected to be the primary beneficiary, as nearly 40% of respondents emphasized the sector for increased allocations. This emphasis is driven by factors such as indigenization, modernization, export potential, and sustained government spending.
Infrastructure emerged as the second-highest priority, with around 29% of respondents in a pre-budget survey of over 50 investment managers showing confidence in public capital expenditure and long-term growth multipliers. Equity managers also expressed optimism in India’s medium-term equity outlook, showing a strong preference for capital expenditure-led sectors and anticipating short-term market volatility.
The majority of managers surveyed remained optimistic about Indian equities in the medium term, with over 82% expecting the Nifty 50 to surpass 25,000 by the end of FY27. Additionally, 43% projected the index to range between 25,000 and 27,500. In terms of inflation expectations, more than 85% of respondents forecasted FY27 inflation to be in the range of 4-5% or below 4%.
The report also highlighted that manufacturing accounted for approximately 18% of sectoral responses, supported by expectations of ongoing policy support driven by Production-Linked Incentives (PLI). Moreover, responses indicated a focus on targeted support for consumption and agriculture sectors, rather than broad-based assistance, with each sector cited by around 7% of respondents.
Looking ahead to the Budget, nearly 80% of managers anticipated short-term market volatility, attributed to event-based positioning, policy surprises, and global cues. However, most expect this volatility to be temporary as markets realign with fundamental factors. On the taxation front, the survey suggested expectations of incremental relief rather than significant tax cuts. Respondents highlighted the likelihood of targeted relief or simplification for salaried individuals, as opposed to substantial corporate tax reductions.
The report indicated that corporate taxes are expected to remain stable, with a continued emphasis on incentives linked to capital expenditure and compliance. Selective measures to bolster urban and rural demand were favored over broad fiscal stimulus, aligning with the government’s commitment to fiscal discipline.
