Global investment banks praise Budget 2026-27 for capex, flag concerns on higher market borrowings

Global investment banks have given a thumbs up to the proposals announced in the Union Budget 2026-27 presented by Finance Minister Nirmala Sitharaman on Sunday, February 1. While they have hailed government's focus on capital expenditure and manufacturing, but they have raised a red flag over higher than anticipated gross borrowings.

Finance Minister Sitharaman on Sunday while announcing Budget for 2026-27 increased the capital expenditure to ₹12.2 lakh crore from ₹11.11 lakh crore and pegged fiscal deficit at 4.3% of GDP in FY27, lower than 4.4% in FY26. The government's gross borrowings are estimated at ₹17.2 lakh crore.

Global investment bank Jefferies in a note said that FY27 Budget has moderated fiscal deficit reduction, implying higher government spending. Government's focus on ease of doing business is visible for global capability centres (GCCs) and other corporate and individual taxpayers.

Robust capex growth (especially in Defence) is a positive but slightly higher deficit (10–15 bps above expectations) may pressure yields and will be a negative for NBFCs/PSU banks, Jefferies added.

Goldman Sachs that tax assumptions in the Budget seen achievable and lower GST share will be offset by higher excise. Divestment targets are optimistic, but net market borrowing remains elevated and the Reserve Bank of India is likely to stay a net bond buyer in FY27.

CLSA said that while revenue budgeting appears conservative, higher-than-expected gross borrowing may pressure bond yields going ahead.

Good growth in defence and railway capex along with a jump in rural employment guarantee spending were the key positives, but other key sectors did not get any near-term growth push. The hike in STT may hurt equity market liquidity but a lower tax rate for buybacks could be a positive for few stocks, CLSA said.

Nomura said that Budget's focus on capex and manufacturing is a positive, but a slower pace of fiscal consolidation and higher market borrowing are disappointing.

See overall budget assumptions as credible and estimate a fiscal impulse of 0.6 percentage points in FY27, implying a slight positive boost to growth.

The budget should be neutral for monetary policy but it will likely revive concerns on managing large bond supply and borrowing numbers are a clear negative for bonds, Nomura added.

Citi in a not said that Budget announcements focus on strategic manufacturing. In-line fiscal deficit target at 4.4% of GDP in FY26 and 4.3% in FY27.

Gross tax revenue assumption looks credible, divestment target has been increased, and dividends assumptions are marginally higher. Lower subsidies account for half of total spending compression (0.30% of GDP) in FY27, Citi said.

GSec issuance at ₹11.7 trillion (net) and ₹17.2 lakh crore (gross) for FY27 suggests continued dependence on OMOs, especially as there are no measures to improve incremental demand. We still expect RBI to preserve rate cut space at the Feb meet and remain proactive on liquidity, Citi added.