By Karmrath News Desk
As the Union Budget for 2026-27 approaches, market participants are closely assessing how fiscal priorities could influence the trajectory of benchmark indices such as the Nifty and Sensex. Expectations remain calibrated, with analysts pointing to selective areas that could support sentiment even as broader optimism stays restrained.
Capex Continuity and Limited Tax Changes in Focus
Joseph Thomas, Head of Research at Emkay Wealth Management, believes the government’s capital expenditure stance is unlikely to change materially, even amid growth constraints. He said: “Despite constraints that may arise from projected lower nominal GDP growth, the budget is likely to retain its allocation to public capex more or less intact. For the same reasons, there may not be any major tax overhauls likely in the budget.”
From the perspective of equity markets, incremental positive surprises could still emerge. Pankaj Pandey, Head of Research at ICICI Securities, noted: “A higher-than-expected allocation for capital expenditure, either by the Centre or through the states, could come as a positive surprise for the markets. Some incentives aimed at the capital markets could also help improve sentiment and provide relief.”
Ajit Mishra, Senior Vice President of Research at Religare Broking, highlighted the possibility of targeted relief rather than broad-based measures. He said: “There could be selective measures for export-oriented sectors that are under pressure due to tariff-related issues. Some tinkering with taxes, such as changes related to securities transaction tax or aspects of double taxation, could provide marginal cheer, but overall, the Budget is unlikely to be a major driver for markets.”
Investor expectations around capital market taxation have also been articulated by Naveen Vyas, Senior Vice President at Anand Rathi Global Finance, who said: “There are expectations of a reduction in Securities Transaction Tax (STT) and long-term capital gains (LTCG) tax to help boost investor confidence, attract higher FII inflows, and improve overall market participation.”
Sonam Srivastava, Founder and Fund Manager at Wright Research PMS, underlined the importance of policy intent over headline numbers, stating: “The signal matters more than the size.”
Sectoral Expectations: Defence, Railways in Spotlight
A sector-wise assessment by Bank of America Securities suggests continuity in government priorities. The brokerage said: “The government’s focus is likely to remain intact for defence, railways related to safety, signalling and rolling stock, and shipbuilding.”
On the fiscal path, the brokerage added: “For FY27, the government is expected to broadly maintain the current deficit, with a modest reduction to 4.3 per cent of GDP. Capital expenditure targets are likely to grow in line with nominal GDP.”
However, Bank of America Securities also cautioned that not all infrastructure segments may see strong budgetary support. It said: “Roads, non-core railway segments and housing, which together account for 47 per cent of FY26 budgeted capital expenditure, could see muted allocations.”
Morgan Stanley Flags Market Skepticism Ahead of Budget
Global brokerage Morgan Stanley has flagged a cautious market stance ahead of the Budget. In its strategy note, the firm said: “The stock market appears to be approaching the Union Budget 2026 with scepticism and could be dealing with both volatility and upside risk post-budget, if history is a guide.”
It added that investor focus would be on core fiscal parameters: “For the market, the key things to watch are the extent of fiscal consolidation, capex, and sector-level actions. Of particular interest will be capital market reforms to encourage a revival in foreign portfolio flows.”
On spending priorities, Morgan Stanley said: “In terms of mix of spending, the defence sector is expected to show higher growth of 12-15 per cent, while core infrastructure capex could grow 8-10 per cent,” and further noted, “Expenditure growth is likely to be tilted in favour of capex and social infrastructure related spending.”
The brokerage also outlined its expectations on fiscal consolidation: “We expect the government to target the fiscal deficit at 4.2 per cent of GDP in FY2027 versus the target of 4.4 per cent of GDP in FY2026. This will likely be the shallowest pace of consolidation since FY2023.”
Reiterating its overall assessment, Morgan Stanley said: “As of now, the market appears to be approaching the Budget with scepticism and could be dealing with both volatility and upside risk post-budget, if history is a guide.”
Signals Over Surprises for Nifty, Sensex
Taken together, expert commentary suggests that markets are not positioning for sweeping announcements from Budget 2026. Instead, continuity in capital expenditure, fiscal discipline, and selective capital-market reforms are being watched as key signals that could influence sentiment in the Nifty and Sensex.
While targeted measures may offer incremental support, analysts broadly expect the Budget to serve more as a directional guidepost rather than an immediate trigger for a sustained market rally.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Karmrath. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.