Budget 2026-27: From simplifying buyback taxation to a major lift to capex, here is what market experts expect

This will be the ninth consecutive time Sitharaman will present the Union Budget.

Morgan Stanley

According to Ridham Desai, the Managing Director of Morgan Stanley and the head of Morgan Stanley's Indian Equity Research team, and Nayant Parekh, the Equity Strategist at the global investment firm, wrote in a recent note that the upcoming Budget is going to be about reducing the deficit, focusing on the government capex, the debt calendar, and capital market reforms to boost foreign flows.

They note that the market is expecting modest fiscal consolidation to protect growth, flat-to-higher capital spending as a percentage of GDP, and some more tax incentives for manufacturing.

They added that too much contraction may be negative for the earnings outlook, even as it helps macro stability and depresses long-term interest rates.

A moderate consolidation should help financials, particularly if further supplemented by regulatory easing and liquidity from the RBI.

A major lift to capex (to, say, 3.5% of GDP) could create an upside surprise for Industrials.

At the sector level, the Budget could focus on agriculture, housing, defence, electronics, textiles, leather goods, and food processing, the experts said.

Capital market reforms

Analysts at Morgan Stanley note that there has been growing concern about the negative Balance of Payments (BoP) and FPI selling.

• Broadening the base of foreign portfolio investors to allow more pools of capital to access Indian stocks;

• Simplifying buyback taxation, which currently threatens to distort capital structures and thus hurt long-term flows into the capital markets; and

• Further enhancing the tax benefits at Gift City.

Canara Robeco Asset Management Company

Shridatta Bhandwaldar, CIO (Chief Investment Officer) – Equities at Canara Robeco Asset Management Company Limited, said that their expectations from the Budget are limited. In recent years, it has tended to excite markets but rarely deliver major changes, as taxation and strategic decisions increasingly occur outside the Budget.

"Most sector-specific taxation tweaks -- such as those related to life insurance -- have already been addressed, while changes to mutual fund taxation appear unlikely, as past hikes hurt sentiment without meaningfully boosting revenues. We believe defence capex is likely to see an increase, given the current geopolitical environment," Bhandwaldar added.

"We hope the government avoids aggressive fiscal tightening. With weak demand, subdued private capex and stagnant household incomes, government spending remains critical. That said, divestment targets could be raised to compensate for lower tax collections. The last Budget marked a pivot towards consumption and revenue expenditure; this one should avoid any further tightening," the expert added.

Mirae Asset Investment Managers (India) Pvt. Ltd

India’s fiscal consolidation story remains intact, though the pace is likely to moderate, says Basant Bafna, Head – Fixed Income, Mirae Asset Investment Managers (India) Pvt. Ltd.

The government remains committed to a steady fiscal consolidation path, with the debt-to-GDP ratio expected to ease from the current levels of nearly 56% to close to 50% over the next five years, supported by strong growth.

This growth is expected to be driven by steady government capital expenditure with tailwinds accruing on account of GST rationalisation.

However, near-term revenue pressures persist, and bridging this gap may require greater reliance on disinvestment and asset monetisation.

"Overall, the government appears committed to consolidation over populism, balancing growth-oriented spending with fiscal discipline," Bafna added.