Budget 2026-27: SBI Securities Expert Outlines Key Expectations and Market Implications
As the financial year 2026-27 (FY27) approaches, anticipation is building around the upcoming Union Budget. In an exclusive interaction with Mint, Sunny Agrawal, Head of Fundamental Research at SBI Securities, provided a detailed analysis of what investors and the economy can expect. Agrawal emphasized that the Budget could pivot on three core pillars: fiscal consolidation, capex-driven growth, and enhancing the ease of doing business. However, he cautioned that a post-Budget rally in equity markets is contingent on measures aimed at attracting capital from both Foreign Institutional Investors (FIIs) and domestic investors.
Top Three Budget Expectations for FY27
Agrawal outlined his primary expectations for Budget 2026, grounded in the current geopolitical climate:
- Capex-Driven Growth Push: The Government of India is likely to increase capital expenditure by 10-12% for FY27, based on the revised target for FY26. This could push the annual capex spend beyond the ₹12 trillion mark, serving as a significant economic booster. Any substantial increase from this threshold would further amplify growth prospects.
- Fiscal Consolidation: The government is expected to continue its glide path for reducing the fiscal deficit as a percentage of GDP. For FY26, the deficit was pegged at 4.4%, and this trend is likely to persist into FY27, aligning with broader economic stability goals.
- Ease of Doing Business: In light of global trade uncertainties, Agrawal anticipates policy support for export-focused sectors. This may include measures to attract Foreign Direct Investment (FDI), bolstering the Make in India initiative, and correcting the inverted customs duty structure to foster a more business-friendly environment.
Investor Positioning and Portfolio Strategy
With volatility often spiking in the pre-Budget period, Agrawal advised investors on how to navigate their portfolios. He noted that the Union Budget's role as the sole reform window has diminished over the years, with reforms now being a continuous process. Budget documents, however, remain crucial for gauging the government's focus areas over the next 12 months. A post-Budget rally, he explained, depends on several factors:
- The December-quarter earnings season and overall growth outlook.
- Whether the Budget meets market expectations without introducing major negatives for investors.
- Clearance of external headwinds, such as the Indo-US trade deal.
Overall, given the current market setup, Agrawal believes that equity markets could rally post-Budget if there are effective measures to attract capital from FIIs and domestic investors.
Tax Relief and Fiscal Discipline
On the topic of personal income tax, Agrawal suggested that after significant tax breaks in the previous Budget, the focus in 2026 might shift to making the new tax regime more attractive incrementally. Minor benefits, such as an increase in the standard deduction limit, are likely, but without derailing fiscal discipline.
Sectoral Focus for Investors
Agrawal highlighted sectors that investors should monitor in the run-up to the Budget. These include:
- Sectors expected to report strong December-quarter results, such as NBFCs, Public Sector Banks, mid-sized private banks, Auto, Auto Ancillary, Metals, OMCs, and Consumer Discretionary.
- Sectors typically in an uptrend ahead of budgets, like Real Estate, Housing Finance, Railways, and Defence, which rely heavily on government spending or policy support.
Fiscal Deficit Projections
Regarding fiscal deficit, Agrawal noted that the market is pricing in the FY26 target of 4.4% of GDP, which is likely achievable despite a shortfall in indirect tax collections, mitigated by lower expenditure in some ministries. For FY27, he expects the government to target a deficit closer to 4.2-4.4% of GDP, with an anchor towards the Debt/GDP ratio.
Divestment Targets Amid Revenue Challenges
Amid potential revenue shortfalls, Agrawal discussed divestment prospects. The strategic divestment of IDBI Bank is in an advanced stage and could boost the FY27 divestment kitty, though the FY26 target might be missed due to weak market sentiments. In the next fiscal, the government may monetize assets and stakes in listed companies through Offer for Sale (OFS) or ownership transfers, and could announce strategic acquisitions of unlisted Public Sector Undertakings by listed entities.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions.
