Budget 2026: The Great Capex vs Consumption Debate Returns
With Union Budget 2026 just around the corner, the perennial discussion about capital expenditure versus consumption support has taken center stage once again. Investors face a critical decision about their portfolio mix ahead of this major financial event. The choices made could significantly impact overall returns.
Finance Minister's Fiscal Roadmap Awaited
Finance Minister Nirmala Sitharaman will present the government's fiscal roadmap for the upcoming financial year on February 1. According to analysis from Axis Securities, one of the primary challenges for Budget 2026 will involve balancing capex-led growth with adequate consumption support.
The government has already established a high benchmark for public investment. The current fiscal year's capital expenditure stands at ₹11.21 lakh crore. Estimates suggest this figure could expand further next year. Axis Securities projects capex might reach ₹12–13 lakh crore, representing a 10–15% year-on-year increase.
Public Investment Crowding in Private Capital
Public capital expenditure has successfully attracted private investment across several key sectors. Infrastructure, power, and manufacturing have all benefited from this trend. Capacity utilization rates have climbed steadily, while order books continue to swell with new projects.
Akshat Garg, Head of Research & Product at Choice Wealth, observes that markets have already priced in this narrative quite aggressively. Capex themes now appear richly valued, leaving limited room for additional upside potential.
Macro Environment Turns Favorable for Consumption
Meanwhile, macroeconomic conditions are becoming increasingly supportive for consumption growth. December 2025 saw consumer price inflation at approximately 1.66%. The Reserve Bank of India has reduced the repo rate to 5.25%. Both factors improve prospects for better rate transmission and EMI relief, which should boost discretionary spending.
Additional measures like income tax cuts and GST relief are further stimulating demand revival across the economy. Harshal Dasani, Business Head at INVasset PMS, suggests investors should expect the Budget to maintain capex momentum while employing targeted measures to revive mass consumption, all without compromising fiscal discipline.
Potential Consumption Support Measures
Axis Securities believes the government might support consumption through several strategic channels. Rural infrastructure and agriculture support could receive attention. Employment and skilling programs might see increased funding. Targeted welfare spending could help address uneven rural demand and moderating urban consumption.
Akshat Garg from Choice Broking notes that consumption sectors offer fresher alpha opportunities. A Budget nudge—whether through deeper income tax slabs, PLI extensions for consumer goods, or amplified rural schemes—could potentially ignite a virtuous economic cycle.
According to Garg, consumption-focused sectors like automobiles, FMCG, and real estate typically respond more nimbly to policy changes. These sectors often deliver earnings improvements faster than the slower-burn effects of capital expenditure projects.
Investment Strategies for Budget 2026
This complex backdrop demands a nuanced investment approach. The question is no longer about whether capex or consumption will dominate. Instead, investors must consider how to position portfolios if 2026 becomes a blended year featuring steady public investment alongside policy-assisted demand revival.
Harshal Dasani recommends a barbell positioning strategy for investment portfolios. "Capex-linked themes still offer multi-year visibility because public spending continues to attract private investment," he explains. "Infrastructure projects like roads, railways, and industrial development have strong economic multipliers."
Dasani adds that 2026 could potentially become the year when consumption re-emerges as a leadership theme. This would require the Budget to deliver credible, execution-friendly measures around income support, employment generation, and targeted tax rationalization.
The risk, according to Dasani, lies in markets already pricing in a "perfect" continuation of capex trends. The real upside surprise would come if consumption breadth improves without compromising fiscal discipline.
Therefore, Dasani suggests the right approach involves not choosing between capex or consumption, but owning quality franchises on both sides. Investors should maintain a bias toward companies with strong balance sheets and clear earnings visibility.
Specific Sector Recommendations
Meanwhile, Akshat Garg recommends increasing exposure to quality consumption proxies. Leading automobile original equipment manufacturers represent one such category. FMCG bellwethers with strong market positions offer another opportunity. Select real estate companies with robust balance sheets could also benefit from consumption revival.
"Retain a capex core for portfolio stability, but let consumption themes drive the overall tilt," Garg advises. "This pragmatic approach captures both steady growth and potential surprise tailwinds throughout 2026."
Disclaimer: This story serves educational purposes only. The views and recommendations expressed belong to individual analysts or broking firms, not Mint. Investors should consult certified experts before making any investment decisions.
