TRUST Mutual Fund CIO Mihir Vora Shares 2026 Budget, Market, and Earnings Outlook

Mihir Vora, the Chief Investment Officer at TRUST Mutual Fund, recently shared his insights on several key economic topics. In an interview, he outlined his expectations for the upcoming Union Budget 2026, discussed the impact of a delayed India-US trade deal, and provided his outlook for the domestic stock market and Q3 earnings.

Union Budget 2026 Expectations

Vora expects the Union Budget 2026 to adopt a pragmatic approach. He believes it will balance growth with fiscal prudence. Key areas of focus include:

Fiscal Deficit: The government will likely follow a moderate consolidation path. The FY27 target could be around 4.2% of GDP. Slower nominal GDP growth and potential expenditure pressures, such as the 8th Pay Commission, may limit aggressive tightening.
Capital Expenditure: Infrastructure spending should remain a priority. However, the pace of increase might moderate. Sectors like roads, railways, defence, and renewable energy are expected to receive attention.
Taxation: Major tax changes are unlikely. The government will probably maintain stability after recent income tax and GST reforms. Rationalisation of capital gains tax structures could be considered.
Sectoral Incentives: Possible extensions or expansions of PLI schemes, especially in electronics, green energy, and semiconductors. Support for rural and agricultural sectors may also see enhancements.
Disinvestment: A renewed push for strategic divestments could boost non-tax revenues.

Overall, Vora anticipates the Budget will reinforce policy continuity and investor confidence without major surprises.

Impact of Delayed India-US Trade Deal

A delayed India-US trade deal beyond March 2026 is more of a sentiment dampener than a systemic risk, according to Vora. In 2025, lack of progress on trade and high US tariffs on Indian exports contributed to foreign investor apathy. This was one reason India underperformed global peers.

However, the Indian economy relies more on domestic demand than exports. While a trade deal would be a positive catalyst for sectors like pharmaceuticals, textiles, and manufacturing, a delay is unlikely to derail the market's longer-term trajectory. Vora expects a deal will eventually materialise, potentially triggering a relief rally and improving India's standing in global portfolios.

2026 Stock Market Outlook

Vora expects 2026 to be a better year for the Indian stock market compared to 2025, though with cautious optimism. While the Nifty delivered a 10% return in 2025, marking the 10th consecutive year of positive returns, it was India's worst relative performance versus emerging and world markets since 1994.

This underperformance stemmed from global investors preferring markets like the US, China, Japan, Taiwan, and Korea, which have significant AI plays. Foreign sentiment also suffered due to the delayed India-US trade deal. Domestic investors remained strong buyers, but foreign investors were sellers for most of the year.

The setup for 2026 appears more favourable. Valuations have corrected to reasonable levels, domestic liquidity remains strong, and macro fundamentals are robust. The RBI's rate cuts and surplus liquidity stance support growth. With inflation at multi-year lows and GDP growth projected at 6.8–7.3% for FY26, the backdrop for equities looks positive.

Markets will likely be earnings-driven and selective, with leadership rotating across sectors. India remains a stock-picker's market, and while volatility may persist, the underlying trend is constructive.

Global Macro Risks and Domestic Market

Global factors present a mixed bag of positives and negatives for the domestic market. On the positive side, global growth is expected to hold near trend, with disinflation broadening. The US Federal Reserve has cut rates three times in 2025 and may ease further in 2026, supporting global liquidity and risk appetite. Commodity prices, especially crude oil, have softened, easing inflationary pressures for India.

Risks remain, however. The US faces a "jobless boom" scenario, which could affect global sentiment. Elevated fiscal deficits and rising debt in the US are eroding trust in the US Dollar. Bond yields stay high despite rate cuts due to inflation fears. These factors could weigh on India's export sectors, particularly IT services and manufacturing.

Europe's growth remains sluggish, and China's recovery is uneven. Geopolitical tensions, including the US-China tech rivalry and Middle East instability, could trigger risk-off episodes, impacting foreign flows into India. While India's domestic economy is relatively insulated, global macro developments will continue to influence market sentiment and capital flows.

Q3 Earnings Expectations

Q3 FY26 earnings are expected to be steady with overall growth of 10%. This growth will likely be led by domestic sectors and global commodities. The festive season and GST-driven consumption boost should reflect in improved topline and profit growth.

Banking: The sector is poised for a strong quarter. Credit growth shows signs of green shoots, driven by retail and MSME demand. Net interest margins may take a quarter or two to improve, and asset quality remains stable. Private sector banks are expected to lead performance.
IT Services: Q3 is seasonally weak due to furloughs, and the demand environment remains subdued. Revenue growth may be flat to marginally positive. Profit growth could be modest, with investor focus on management commentary for FY27 demand and deal pipelines.

Other sectors like autos and consumer discretionary may benefit from festive demand and tax cuts. Metals could see improvement due to better global prices.

DII and FII Dichotomy

The divergence between domestic and foreign institutional investors has been stark. In 2025, DIIs were consistent net buyers, supported by strong SIP flows and a deepening domestic savings pool. In contrast, FIIs were net sellers, withdrawing nearly $18-20 billion over the year.

This dichotomy reflects both structural and cyclical factors. Structurally, India's domestic investor base has matured, providing stable capital. Cyclically, FIIs were deterred by high US interest rates, India's premium valuations, the delayed US trade deal, and lack of exposure to global themes like AI.

Despite FII outflows, the market remained resilient due to strong DII support. This shift underscores India's growing self-reliance in capital markets. While FII participation is desirable, the market is no longer overly dependent on foreign capital. India's underperformance in 2025 has reduced its premium versus other emerging markets. If sentiment improves, particularly with a US trade deal and Fed easing, FII flows could reverse, providing additional upside.

Assessment of India's Macro Picture

India's macro fundamentals are strong, according to Vora. The country enjoys high real growth and ultra-low inflation, creating a goldilocks scenario. Real GDP growth is robust, and inflation is exceptionally low. The current account deficit has narrowed, and the fiscal deficit is manageable.

However, the sharp drop in inflation has led to weaker nominal GDP growth, impacting tax revenues and corporate topline growth. This makes fiscal consolidation more challenging and may affect budgetary planning. The weakness in nominal GDP is not a structural concern; it stems from favourable base effects and policy-driven disinflation. Inflation is expected to normalise toward 4% in FY27, restoring nominal GDP growth to double digits.

Demand indicators remain strong, and corporate earnings are recovering. India's macro picture is healthy, and the temporary softness in nominal GDP is not a red flag. It represents a high-quality problem reflecting successful inflation management.