ICICI Securities Foresees Budget 2026 Delivering Positive Surprises for Key Sectors
As the Union Budget 2026 approaches, domestic brokerage ICICI Securities anticipates a favorable outcome for lenders and industrial stocks. The firm expects the budget to emphasize higher capital expenditure while reducing spending on non-development areas. Increased divestment efforts and a lack of tax stimulus are also part of the forecast, setting a pragmatic tone for fiscal management.
Manufacturing Takes Center Stage in Budget Priorities
Analysts Vinod Karki and Bhavesh Talreja from ICICI Securities highlight that after last year's surprises with tax stimulus and GST cuts, the Union Budget for FY27 will likely tighten spending. Instead, it will concentrate on developmental sectors like manufacturing and infrastructure. This shift reflects a strategic move to bolster economic foundations.
Domestic manufacturing remains a critical focus area, especially in today's globally inward-looking policy environment. Elevated geopolitical risks further underscore this priority. With recent Trump tariff announcements, labor-intensive manufacturing activities such as textiles and jewellery, which face US tariffs, could receive continued support from the government.
Budget allocations through the Production Linked Incentive scheme and other central initiatives are expected to prioritize local manufacturing in high-value and strategic sectors. These include automobiles, space, energy, defence, semiconductors, research and development, pharmaceuticals, chemicals, and electronics. The PLI scheme for electronics, in particular, may see an extension or a revamped version due to its strong performance since inception.
Fiscal Constraints Shape Budgetary Decisions
Despite these ambitions, fiscal constraints and a focus on reducing the debt-to-GDP ratio will likely cap growth in capital expenditure outlay for FY27. It may not exceed the nominal GDP growth rate. In 2025, the government allocated ₹11.21 lakh crore for the infrastructure sector, indicating a baseline for future investments.
Revenue shoring measures are becoming crucial as tax collections have slipped in FY26 so far, despite earlier concessions. The recent hike in excise duty on tobacco products appears as an attempt to boost revenue receipts. Against this backdrop, ICICI Securities suggests that disinvestment and asset monetization could regain focus, while dividend payouts may see limited upside after sharp rises since FY23.
Debt Management and Market Implications
Focus on reducing the debt-to-GDP ratio is paramount. Even with the RBI cutting interest rates by 125 basis points to 5.25%, bond yields have remained high at around 6.6%. Markets anticipate a large increase in bond supply, particularly from state governments expected to borrow about ₹5 trillion in Q4 FY26.
In this scenario, any positive surprise, such as lower-than-expected debt-to-GDP or fiscal deficit-to-GDP levels, could help lower bond yields and interest rates. Budgeted at 4.4% for FY26, managing these levels is key. Keeping government bond issuance in check would reduce the risk of crowding out private borrowers, thereby supporting private sector investment and improving overall credit growth.
Investment Outlook and Recommendations
Amid these budget expectations, ICICI Securities advocates an overweight stance on lenders and industrial stocks. The focus on manufacturing, industrials, and credit growth warrants this position, suggesting potential gains for investors aligned with these sectors.
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.
