Union Budget 2026 Expectations: What Investors and Markets are Watching

Ahead of Union Budget 2026, markets are stable but cautious, with easing volatility, mixed sectoral performance, clear tax-related expectations, and strong global cues shaping investor positioning, depending on market conditions.

Overview of Investor Sentiment Ahead of Union Budget 2026

Investor sentiment ahead of the Union Budget 2026 reflects caution rather than excitement. Domestic equity markets have opened largely flat, with headline indices showing marginal movement. The Nifty index began the session just above 25000, while the Sensex opened slightly above 82000, indicating that investors are avoiding aggressive bets before the budget announcement.

Market volatility has eased noticeably, with the volatility index cooling to the range of 13.5 to 14, suggesting reduced fear but continued alertness. Options data also points to balanced positioning, indicating neither strong bullishness nor panic selling. This data-driven calm suggests investors are waiting for clarity from budget announcements, depending on market interpretation of fiscal and policy signals.

Tax Policy Expectations and Market Implications

As Budget 2026 approaches alongside the rollout of the new Income Tax Act, 2025, markets and taxpayers are looking for targeted policy actions that go beyond simplification and directly impact incomes and confidence. Key expectations include:

• Review of the 30% Tax Slab: Experts suggest shifting the 30% slab under the new tax regime to an income of ₹40 lakh to better reflect current earning levels and inflation.

• Insurance Claims Reforms: IRDAI data shows around 69% of complaints in FY25 were claims-related, highlighting the need for stronger regulation and faster settlements.

• Insurance Penetration Concerns: Insurance penetration fell to 3.7% in FY25, raising concerns over trust and long-term financial protection.

• LTCG exemption: Including Section 80D (health insurance deduction up to ₹40,000–₹50,000) and increasing the LTCG exemption from ₹1.25 lakh to ₹2 lakh.

Clear action on tax slabs and insurance reforms could boost household spending, restore trust in financial products, and improve market sentiment across banking, insurance, and consumption-led sectors.

What is the Sector-Wise Expectations from the Union Budget 2026?

As Union Budget 2026 approaches, industry leaders and market experts expect the government to use targeted allocations and policy incentives to balance growth, infrastructure expansion, and fiscal discipline across key sectors.

• Healthcare: Industry leaders have called for raising public health expenditure to 2.5% of GDP, improving infrastructure in tier 3 and 4 cities, offering incentives for hospital expansion, and resolving GST inversion issues in the MedTech sector, while continuing support through lower GST on medical devices.

• Railways: Higher budget allocation is expected for infrastructure upgrades, passenger safety, and modernisation, with added focus on women’s safety through better surveillance, lighting, and secure coaches across the rail network.

• Defence: Higher budgetary allocation is anticipated, with defence stocks already rising 3–6% in expectation. Continued focus on indigenisation and capital expenditure could further support sector growth.

• Technology and Advanced Sectors: Experts expect a higher share of capital expenditure to be directed toward AI, GenAI, space, robotics, and advanced health infrastructure, alongside greater private sector participation using shared public infrastructure.

• Automotive and Tyres: Policy continuity, support for rural incomes, and duty rationalisation, especially for EVs, are expected to sustain demand and strengthen localisation of green technologies.

• Core and Strategic Sectors: Greater emphasis is likely on defence, critical minerals, power, electronics, infrastructure, and affordable housing, as the government aims to drive long-term growth while managing global economic uncertainty.

Overall, sectoral performance is likely to remain sensitive to budget announcements and subsequent policy execution.

What are the Expectations Related to the Equity Market from the Union Budget 2026?

Equity markets are entering Budget 2026 with expectations of fiscal discipline and sustained capital-led growth rather than short-term stimulus. With a targeted fiscal deficit of 4.3% of GDP in FY27 and a clear roadmap to reduce the debt-to-GDP ratio to ~50% by FY31, investor sentiment is anchored around macro stability and long-term earnings visibility.

• Capex momentum: Central government capex expected to rise ~10.3% YoY to ₹12.4 trillion (~3.1% of GDP)

• Defence upside: Defence capex likely to grow ~15%, supporting companies with strong order pipelines

• Financials support: Stable macro framework aids steady credit growth and capex financing

• Selective consumption: EVs, digital platforms, and logistics gain from structural reforms

Overall, markets view Budget 2026 as structurally positive for long-term equity growth.

What are the Expectations Related to the Debt & Bond Market from the Union Budget 2026?

Investors from bond markets are closely watching how Budget 2026 balances higher capital expenditure with fiscal consolidation. With the 10-year government bond yield around 6.66%, expectations of disciplined borrowing and limited room for rate cuts are already priced in. Here are some insights:

• Fiscal consolidation: Targeted debt-to-GDP reduction from ~80% toward ~50% by 2030

• Borrowing discipline: Rationalised G-Sec issuance may help contain upward pressure on yields

• Corporate bonds: Stable sovereign yields influence corporate spreads and fixed income returns

Overall, a credible fiscal roadmap could keep bond markets relatively stable while supporting long-term debt sustainability.

Which Global Factors Influence the Budget Expectations?

Global markets are offering mixed cues ahead of the budget, influencing overall expectations. US equity indices remain near record highs, supported by selective buying in technology and AI stocks, while commodity markets are volatile. Gold has reached record levels amid safe-haven demand, and oil prices have risen to multi-month highs amid geopolitical tensions, raising inflation concerns. Asian markets show mixed trends, reflecting regional economic divergence.

Key global factors influencing budget expectations include:

• Strong US equity markets, led by technology and AI stocks

• Record-high gold prices (nearly 1.8 lakhs as of Jan’26) driven by safe-haven demand and a weaker dollar

• Rising crude oil prices due to geopolitical tensions and supply constraints

• Volatility in commodity markets affecting inflation expectations

• Mixed performance across Asian markets

How Investors Can Position Portfolios Ahead of Budget 2026

Ahead of Union Budget 2026, many investors are choosing balanced portfolio positioning rather than event-driven speculation. Diversification across asset classes and sectors remains a common strategy to manage uncertainty.

Rather than reacting to pre-budget noise, investors may focus on aligning portfolios with long-term goals, risk tolerance, and asset allocation discipline, depending on market volatility and individual investment horizons.

How Should Investors Read Budget Signals?

Budget-day moves grab headlines, but seasoned investors care more about where policy is headed and how quickly it’s put into action. Budget announcements provide intent, but actual outcomes unfold over time through spending, reforms, and economic performance.

Expectations from the Union Budget should therefore be viewed as part of a broader macroeconomic narrative, depending on how domestic policy interacts with global trends.

Disclaimers:

The information herein is meant only for general reading purposes, and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data, and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision.
The sector(s)/stock(s)/issuer(s) mentioned in this Blog do not constitute any research report/recommendation of the same and the Fund may or may not have any future position in these sector(s)/stock(s)/issuer(s).
Mutual Fund Investments are subject to market risks, read all scheme-related documents carefully.

Source:

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.