On many occasions in the past, the stock market has reacted negatively in a kneejerk response to the Budget, only to recover once its real content is digested. The immediate market reaction to the 2026 Budget was negative since it did not offer any tax relief, which a section of the market was expecting. Worse, the finance minister increased the STT on F&O trades, spooking sentiment. However, the market will soon realise that the growth orientation of the Budget is a significant long-term positive. Once this realisation sinks in, the market is likely to recover.
Finance Minister Nirmala Sitharaman presented her record ninth consecutive Budget against the backdrop of heightened geopolitical tensions in a turbulent world. Despite headwinds from Trump-era tariffs and a fractured global trade system, she had the advantage of a robust Indian economy clocking the fastest growth rate among large economies. The average annual GDP growth during FY22–26, factoring in the estimated 7.4 per cent growth for FY26, stands at an impressive 8.1 per cent, aided partly by the low base of the Covid year FY21.
Inflation, the fiscal deficit and the current account deficit are under control. Even though the US–India trade deal is still hanging fire, the mega India–EU trade agreement has come as a shot in the arm for the economy. Despite these tailwinds, pressure points such as sustained portfolio outflows of $18 billion in 2025, a steadily depreciating rupee, weak FDI inflows and the absence of any significant private capex have acted as headwinds constraining sustained growth. The task before the finance minister was to address these challenges and facilitate durable expansion. Credit must be given to her for rising to the occasion with a growth-oriented and fiscally prudent Budget.
This Budget reflects a long-term vision that combines growth orientation with fiscal discipline. The finance minister has delivered what the economy needs at this juncture. Despite multiple headwinds, including Trump tariffs, the Indian economy continues to perform strongly. The 7.4 per cent GDP growth rate projected for FY26 makes India the fastest-growing large economy in the world for the fourth year in a row. The challenge is to sustain this pace amid geopolitical tensions and a fractured global order. A 7 per cent growth target for FY27 appears achievable, provided fiscal prudence is maintained.
With 7 per cent real GDP growth and inflation of around 3.5 per cent, nominal GDP growth of roughly 10 per cent in FY27 is achievable. This would mark a significant improvement over the estimated 8.1 per cent nominal growth in FY26. From a market perspective, this is encouraging, as 10 per cent nominal GDP growth has the potential to deliver 15 per cent earnings growth in FY27, triggering a modest rally after the initial negative reaction, which is unlikely to last beyond a couple of days. The government has stayed firmly on the fiscal consolidation glide path, achieving a fiscal deficit target of 4.4 per cent of GDP for FY26 and aiming for 4.3 per cent in FY27. The debt-to-GDP ratio is projected at 55.6 per cent for FY27. There is no compromise on fiscal discipline, which remains the defining feature of this Budget.
One proposal that unsettled the market was the increase in Securities Transaction Tax on F&O trades. STT on futures was raised from 0.02 per cent to 0.05 per cent, while STT on options premium was increased from 0.10 per cent to 0.15 per cent. This move should be seen not as a revenue-raising measure but as an attempt to discourage retail participation, especially when 92 per cent of retail traders were reportedly losing money in the F&O segment. While sentimentally negative in the short run, this is a welcome step. Similarly, the decision to treat share buybacks as capital gains, applying the same tax treatment to all shareholders and imposing additional tax on promoters, is positive from a retail investor’s perspective and will discourage misuse of buybacks.
Another significant development, apart from the Budget, is the sharp correction in gold and silver prices. The speculative boom in precious metals appears to have been punctured, at least in the near term, and this could redirect investor interest back towards equities. After the initial disappointment over unrealistic expectations of tax relief fades, markets are likely to refocus on fundamentals. If continued FII selling drags markets lower in the near term, domestically driven large-cap stocks will emerge as attractive buys. DIIs are expected to step in, lending resilience to the market. Given pockets of overvaluation in midand small-cap stocks, investors should remain selective, opting for fairly valued growth names. In essence, like the government, investors would do well to take a long-term view and remain invested, ignoring short-term market gyrations.
