New Delhi: The Union Budget 2026 is likely to place stronger emphasis on defence, critical minerals, power, electronics, infrastructure and affordable housing, as the government looks to support growth while staying committed to fiscal discipline, according to a report by Motilal Oswal Financial Services Ltd.
The report said policymakers face a complex task this year, as global geopolitical tensions, uneven recovery in consumption and market volatility shape the broader economic environment.
Limited expectations, room for positive surprise
Investors are not expecting major, headline-grabbing announcements in the upcoming budget. However, even selective and well-targeted measures could improve market sentiment.
The report noted that expectations are deliberately low, as the finance ministry is balancing several competing priorities. This creates space for small but meaningful steps that could positively surprise markets, especially if they support long-term growth.
Fiscal discipline remains a key priority
The government has steadily reduced the fiscal deficit from a Covid-era high of 9.2 percent to an estimated 4.4 percent in FY26. The report expects this path of fiscal consolidation to continue in FY27.
That said, FY27 is an important transition year, as the government shifts focus towards a debt-to-GDP ratio as a key fiscal anchor. With consumption yet to recover fully, a limited and carefully planned fiscal stretch cannot be ruled out.
Markets may welcome targeted spending
Equity markets are likely to support a modest fiscal stretch if the spending is focused on productive areas such as capital expenditure or measures that boost consumption sustainably.
The report cautioned that markets would be less supportive of spending on low-impact transfers or higher administrative expenses, which offer limited economic benefits.
Capex likely to take centre stage
The FY26 Budget focused on boosting middle-class consumption through income tax relief, the full impact of which is still unfolding. As a result, the FY27 Budget is expected to take a more selective approach to consumption support.
Instead, higher capital expenditure is likely, especially in sectors considered strategically important due to current geopolitical challenges. This includes defence, energy security, infrastructure and key manufacturing areas, which could drive long-term economic strength and investor confidence.
