Budget 2026–27: Defence likely to see 20%-25% rise in capital outlay; govt capex may cross ₹12L cr: Rajkumar Singhal, CEO, Quest Investment Managers

The "new emerging order of realpolitik", characterised by aggressive tariffs, has introduced opaque uncertainty that has "ravaged" global market sentiment, Singhal opines.

As regards Budget FY27, the expert said that allocations should prioritise sectors that offer high growth multipliers and bolster national self-reliance.

The central expectation for the FY27 Budget is a pivot toward an "even keel" stance that balances growth support with a new long-term fiscal anchor. We expect the government to transition from a headline deficit target to a medium-term debt-to-GDP objective, targeting a central debt level of approximately 50% by FY31.

For the immediate fiscal year, we anticipate a gross fiscal deficit (GFD) target between 4.2% and 4.4% of GDP, supported by a nominal GDP growth assumption of 10.1% to 11%.

While fiscal consolidation continues, it will likely be at a slower pace to accommodate strategic spending, including initial provisions for the 8th Central Pay Commission, which could impact the deficit by 20–30 bps.

Allocations should prioritise sectors that offer high growth multipliers and bolster national self-reliance.

Defence is a primary candidate for enhanced support, with expectations of 20–25% growth in capital outlay to drive indigenisation in high-tech areas like UAVs and anti-drone systems.

Infrastructure must remain a priority to lower logistics costs, with total government capex likely crossing ₹12 lakh crore.

Strategic support is also vital for the MSME and export sectors, possibly through expanded credit guarantees or interest subvention, to help them navigate a challenging global trade environment.

Finally, the insurance and pension sectors require a significant fillip; with insurance penetration falling to 3.7% in FY25, reforms are essential to achieve the "Insurance for All by 2047" goal.

The Indian equity market is currently in a corrective phase following a period of extended consolidation, marking one of its most difficult starts to a year since 2020. We are seeing a broad-based weakness where nearly 70% of Nifty 500 stocks have posted losses as the market prices in a fundamental shift in growth dynamics.

1. Aggressive FII Outflows: Foreign Institutional Investors have been persistent sellers, rotating capital toward global markets that are more direct beneficiaries of AI-led rallies while reacting to India's high relative valuations.

2. US Trade Tariff Shocks: The implementation of steep tariffs—ranging from 50% to 500% on certain Indian exports—has created an "economic shock" for export-sensitive sectors like auto components and chemicals.

3. Earnings Downgrade Cycle: Corporate earnings growth has slowed to single digits across major indices, and margins are undergoing a mean reversion as competitive intensity increases.

There is little doubt that global performance would have been significantly more stable and supportive of emerging market assets.

The "new emerging order of realpolitik", characterised by aggressive tariffs, has introduced opaque uncertainty that has "ravaged" global market sentiment.

For India, these tariffs acted as a sudden brake on an export engine that reached a record $825 billion in 2024-25. Had trade barriers remained unchanged, the India VIX would have likely stayed suppressed, and the rupee would have avoided the extreme pressure that saw it touch 92 per USD in early 2026.

Driven by the theme of Atmanirbhar Bharat and global energy shifts, the following sectors are positioned for robust growth:

1. Renewables & Green Hydrogen: Propelled by the national goal of 500 GW capacity by 2030 and higher allocations for solar schemes like PM Kusum.

2. Electronics & Semiconductors: Fuelled by the expansion of PLI schemes and the move toward accounting for over 23% of industrial capex by 2030.

3. Electric Vehicles (EV): Projected to reach 40%+ penetration across segments by 2030 as infrastructure and battery technology mature.

4. Aerospace & Defence: Set for execution-led earnings growth as the government prioritises modernisation drives and large-scale indigenous high-tech programmes.

5. FinTech & Specialised AI Services: Moving from pilot stages to becoming the core "flywheel" that drives efficiency in banking, logistics, and retail.

1. Strengthening Banking Governance and Liquidity: We expect the introduction of a Banking Governance Bill to overhaul the framework of public sector banks, reinforcing board independence to enhance competitiveness.

Additionally, to address the widening mismatch between credit growth and deposit mobilisation, the government may consider a higher threshold for TDS on bank interest income for retail depositors and provide banks access to longer-tenor refinance facilities to ensure stable funding for productive sectors.

2. Customs and Indirect Tax Simplification: A comprehensive revamp of the customs duty structure—rationalising the current 8-slab structure into 4 slabs—will materially support manufacturing competitiveness.

Combined with this, amending the definition of Input Service Distributor (ISD) to reduce interpretational ambiguity would lower litigation costs and improve the "ease of doing business" for the service sector.