New Delhi: As the countdown to Union Budget 2026 begins, expectations are building around a sharper push for growth-driven sectors. A report on Wednesday suggested that the government is likely to focus more on defence, critical minerals, power, electronics and infrastructure, while also aiming for higher growth in affordable housing. At the same time, policymakers are expected to carefully balance these priorities with fiscal discipline, especially amid ongoing global uncertainty.

Market eyes selective measures amid global uncertainty

With expectations of major big-ticket announcements remaining muted, even targeted policy measures in the upcoming Union Budget could lift market sentiment, according to Motilal Oswal Financial Services Ltd in its ‘India Strategy’ report. The brokerage noted that the FY27 Budget will need to carefully balance sustaining growth momentum with fiscal consolidation, while also responding to near-term challenges arising from unprecedented geopolitical flux.

“In our discussions, we sensed that investors do not expect large substantive measures as the FM grapples to address multiple variables – thus setting the base lower for some positive surprise,” the report mentioned.

Budget impact seen limited; focus on fiscal consolidation

The report noted that the overall influence of the Union Budget has narrowed over the years due to several extra-budgetary measures taken by the government. As a result, equity markets are likely to look for targeted and selective steps that can boost growth in specific sectors and help improve investor sentiment.

It also highlighted that the government has remained committed to fiscal consolidation, with the fiscal deficit narrowing from the Covid-induced high of 9.2 per cent to an estimated 4.4 per cent for FY26.

“We believe that government will largely maintain its fiscal rectitude and do not expect major deviation from this path. However, given that FY27 will mark a transition to debt/GDP as a targeted fiscal marker and that overall consumption is yet to recover fully and sentiment is improving unevenly, a scenario of pragmatic, minor fiscal stretch is not completely ruled out,” the report noted.

Equity market will likely support such move, especially if it is well-targeted towards productive capex or consumption boost, rather than low multiplier-laden transfer payments or administrative expenses.

Given that the FY26 Union Budget was more tilted towards stimulating middle-class consumption (through personal income tax forbearance of Rs 1 lakh crore), and its effects are yet to play out fully, “we believe that the FY27 Union Budget’s approach to stimulating consumption will be selective”. “Consequently, the budget is likely to focus more on capital expenditure, especially in sectors deemed to be strategically important owing to prevailing geopolitical compulsions,” it said. (With IANS Inputs)