Budget 2026 Expectations: Expert Insights on Stock Market Cheers and Policy Continuity
As India prepares for Budget 2026, financial experts are weighing in on potential announcements that could boost market sentiment. Divam Sharma, the co-founder and fund manager at Green Portfolio PMS, emphasizes that a Budget focused on policy continuity and measures to address the visible slowdown in the investment cycle will cheer the Indian stock market. In an exclusive interview, Sharma outlines key expectations and provides analysis on current market trends.
What Budget Announcements Can Cheer the Stock Market?
According to Sharma, the stock market would be cheered by a Budget that signals policy continuity while addressing the visible slowdown in the investment cycle. He highlights several specific measures that could have a positive impact:
- Reviving Government Capital Expenditure: A clear push toward reviving government capital expenditure, especially in EPC, infrastructure, and core manufacturing, would be a strong positive, given recent moderation in project awarding and execution.
- Targeted Support for Export-Facing Sectors: Targeted support for export-facing sectors under pressure from global trade disruptions, such as fisheries and select agri-exports impacted by US tariffs, would improve earnings visibility for mid-cap companies operating in these segments.
- Fiscal Discipline Without Growth Sacrifice: Markets would further welcome fiscal discipline without growth sacrifice—a credible glide path on deficit reduction combined with sharper allocation efficiency rather than headline-heavy spending.
- Improving Liquidity for MSMEs: Any steps to improve liquidity for MSMEs, expedite GST refunds for exporters, and simplify compliance would directly improve cash flows and profitability.
- Stability on Tax Policy: Finally, stability on tax policy and capital gains, along with incentives for domestic manufacturing and energy transition, would reinforce investor confidence.
In summary, Sharma notes that markets are looking less for populism and more for execution clarity, capex revival, and earnings support.
Geopolitical Risks and Market Volatility
With geopolitical risks increasing significantly, Sharma believes it is very likely that the market remains volatile given the enormity of events that are concurrently taking place. While the macros are unpredictable and fragile, he points out that earnings recovery is finally becoming visible. For example, the IT sector has been able to diversify its source of growth from North America to the European region, aiding in robust growth guidance. At the same time, small- and mid-cap stocks have undergone a deep correction, with the median stock price decline among companies with a market capitalisation below ₹3,000 crore exceeding 50%, significantly resetting valuations and improving risk-reward dynamics in select pockets.
Views on Q3 Earnings So Far
Sharma describes Q3 earnings as reflecting a mixed but gradually improving picture. While the macro environment remains uncertain and global cues continue to be volatile, earnings recovery is becoming more visible across select sectors rather than being broad-based. Key observations include:
- Financials: Have remained a key stabiliser, supported by steady loan growth and relatively controlled asset quality.
- IT Sector: Is showing early signs of revival, aided by diversification of demand beyond North America and improving deal pipelines, even though margins remain under pressure.
- Steel Companies: Are facing earnings headwinds, with softer realisations and higher input costs compressing margins despite stable volumes.
- Solar and Renewable Energy Players: Have delivered strong growth, driven by robust order books, capacity expansion and policy support, making them clear outperformers this quarter.
- Small and Mid-Cap Earnings: Remain uneven, reflecting the sharp correction already seen in stock prices.
Overall, Q3 earnings point to selective strength rather than a broad earnings upcycle, with stock-specific opportunities emerging as valuations reset.
Expectations from RBI Policy and Macroeconomic Indicators
Sharma expects the RBI to hold firm on the current repo rate of 5.25%. He notes that the RBI appears comfortable with the ongoing disinflation trend, which gives it greater flexibility to stay supportive of growth. Current macro indicators point to steady domestic momentum, with healthy GST collections, strong e-way bill generation and resilient consumption data indicating that economic activity remains intact. While global uncertainties persist, India’s internal demand conditions look stable, reducing the urgency for any aggressive policy response.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
