Budget 2026 Expectations: India’s upcoming Union Budget 2026 is expected to walk the tightrope between fiscal caution and aggressive capital spending, with defence and infrastructure emerging as the most likely winners. A new report by investing platform Smallcase, based on inputs from over 50 investment managers, suggests that policymakers may double down on sectors tied to long term capacity building rather than short term stimulus.
The findings point to a clear preference for capex-driven themes, alongside expectations of near term market swings around Budget announcements.
Defence Seen As Primary Focus Area
According to the report, nearly 40 per cent of respondents identified defence as the sector most likely to receive higher allocations. This optimism is rooted in expectations around indigenisation, modernisation of armed forces, export potential, and consistent government spending in the space.
The survey indicates that market participants view defence not just as a strategic necessity but also as a structural economic opportunity. Increased domestic manufacturing capabilities and global export ambitions are seen as key drivers that could influence Budget priorities.
Infrastructure Close Behind In Allocation Expectations
Infrastructure ranked second in the survey, with close to 29 per cent of investment managers expecting meaningful allocations. Confidence in public capital expenditure and its multiplier effect on the economy appears to be driving this sentiment.
Respondents indicated that sustained spending on roads, railways, logistics, and urban infrastructure could remain a core part of the government’s growth blueprint. The belief is that infrastructure continues to be one of the most effective ways to stimulate long-term economic expansion while maintaining fiscal discipline.
Equity Outlook Remains Strong Despite Volatility Concerns
The report also captured optimism about India’s equity markets over the medium term. More than 82 per cent of participants expect the Nifty 50 to end FY27 above the 25,000 mark, with 43 per cent projecting it in the 25,000 to 27,500 range.
At the same time, nearly 80 per cent of managers anticipate short-term volatility around the Budget period. This is attributed to event-based positioning, possible policy surprises, and global market cues. However, most believe such fluctuations will be temporary, with markets eventually reverting to fundamentals.
Manufacturing, Consumption And Agriculture Get Selective Attention
Manufacturing accounted for around 18 per cent of sectoral responses, largely due to expectations of continued policy support through production-linked incentives. Meanwhile, consumption and agriculture were cited by roughly 7 per cent each, suggesting expectations of targeted support rather than broad-based fiscal expansion.
Inflation expectations remain stable, with over 85 per cent of respondents projecting FY27 inflation to stay within the 4 to 5 per cent band or lower.
Taxation Changes Likely To Be Incremental
On the taxation front, the survey indicates that sweeping changes are unlikely. Most respondents believe there is limited room for major corporate tax cuts. Instead, there may be selective relief or simplification measures aimed at salaried individuals.
Corporate taxation is expected to remain largely stable, with the focus continuing on incentives linked to capital expenditure and improved compliance. Respondents also expect measured steps to support both urban and rural demand without deviating from the government’s broader fiscal discipline.
