­­­­­­­­­­Moneycontrol Pro Weekender | The Sunday Budget: Low hopes, high stakes

Finance Minister Nirmala Sitharaman

Dear Reader,

Whatever the finance minister does tomorrow, the Budget will have created history, for the simple reason that it’s the first time it’s being unveiled on a Sunday. That much, at least, is assured. Needless to say, we rose to the occasion by pointing out the many virtues of a Sunday Budget.

The plethora of brokerage reports on the forthcoming Budget all have one thing in common — Expectations this time around are rather low. That’s because the government doesn’t really have much firepower left. Taxes have been cut and revenues have been affected, with nominal GDP growth softer than earlier hoped and tax buoyancy looking strained. Fiscal space is limited, and analysts are whispering about potential revenue shortfalls that make big-ticket giveaways a long shot. Instead, the playbook points to continuity: sticking to capex momentum, targeted reforms, and perhaps some clever moves to keep the growth engine humming without lighting fireworks.

One such move could be the shift to targeting government debt to GDP instead of focusing on just getting the fiscal deficit down. That gives the government flexibility. As the Economic Survey said, “The Government’s medium-term goal to achieve a debt-to-GDP ratio of 50 ± 1 percent by FY31 reflects a deliberate effort to strengthen overall debt sustainability while preserving policy flexibility in an uncertain global environment.” It gives leeway to adjust the deficit in a particular year depending on circumstances. But there’s another, and more important, flexibility — the Survey says “sustained high growth has historically delivered a favourable interest rate–growth differential, keeping the debt-to-GDP ratio stable, while undertaking fiscal consolidation when warranted”. It adds that is particularly true when the state undertakes capex.

But while all that is fine, the fact remains that bond yields are elevated and the rupee is making new lows, even though the dollar is weak. Against the macro backdrop of strategic flexibility lies the immediate reality of financial market pressures. We wrote about what the bond market should expect from the Budget and on the impact on equities as well as bonds. We looked at 5 triggers that could ignite a post-Budget market rally, 3 risks that could trigger a post-Budget sell-off, and what’s priced in and what could move the markets. On the rupee, we wrote here and here. And we wrote that the lack of liquidity and the rupee weakness “are just symptoms of the underlying problem of tariffs and changing contours of global trade which makes it treacherous for India”.

There’s another reason why expectations about the Budget are muted — the way GDP and consumer price inflation is calculated are both going to change in February. This will make them better yardsticks, but nobody is sure what the new numbers will be. And since the Budget numbers have to make assumptions about growth and inflation, shouldn’t they change when the new numbers are out? Wouldn’t it have been better to bring out the new series before the Budget?

Another wrinkle is the 16th Finance Commission recommendations, which directly influence the Budget's arithmetic — particularly on revenue receipts (via tax devolution to states, which reduces the Centre's net share), grants-in-aid outflows, and overall fiscal consolidation path. Since we do not know these recommendations yet, there’s some uncertainty although continuity is likely to be maintained.

While we have many more stories on the Budget in the links below, the corporate earnings season is likely to have a bigger and more persistent effect on equity markets than Budget tweaks and announcements — Do take a look at our analysis of Q3 corporate results in the ‘Stocks’ section below.

Tomorrow at 11 AM, FM Sitharaman takes the podium. Low expectations might just set the bar for a pleasant surprise: steady execution on capex, smart targeting of AI and manufacturing enablers, and credible fiscal maths could spark that post-Budget rally we're all hoping for.

A Sunday Budget deserves a Sunday soundtrack. Borrowing from Daniel Boone’s ‘Beautiful Sunday’ for the occasion, we could sing: 'Hey hey hey, it's a beautiful day / The Finance Minister's coming our way / With capex plans and schemes on display / Let's hope the deficit doesn't stray!'

Stay tuned and keep those notifications on.

Cheers,

Manas Chakravarty

In case you missed them, here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity, and forex markets:

Stocks

Acutaas Chemicals, Dixon Technologies, Dabur, Swiggy, Mas Financial, Tata Motors, JSW Steel: Why you should look at this infrastructure bellwether, IDBI Bank disinvestment – How much could a potential bidder pay for the bank? ITC, CSB Bank, L&T, Mahindra Finance, TVS Motor Company, Godrej Consumer, Bharat Electronics, Bikaji Foods, EU-India FTA: Sectoral shake-up – Who gains, who loses? India–EU FTA: Not much impact on India’s mass passenger vehicle market, Bruised but Not Broken: These stocks are worth a bet amid the market weakness, Asian Paints, Marico, Tata Consumer, DCB Bank, Axis Bank, IndusInd Bank, Shriram Finance, Kotak Mahindra Bank, Urban Company, JSW Steel

Budget Snapshot

How states are messing up the sovereign’s debt market standing Will the Budget drive capex in data centres -- the next big opportunity?

Budget 2026 — Can FM address India’s AI paradox?

The steady improvement in India’s energy mix

Why time is now the biggest creditor risk

Markets

What’s in store for Indian investors as the Fed presses pause button?

Why Japan’s yen intervention could rattle global markets

Is silver's record rally running out of steam?

India is still a structural overweight: BlackRock’s Samara Cohen on markets, AI and investor participation

Physical or electronic bullion, where does the money lie?

Financial Times

Emerging markets make roaring start to 2026 as dollar slides

How shopping chatbots might transform retail

Investors bet on ‘hot’ US economy heading into mid-term elections

Trying to change our minds about gold

Companies & Sectors

Waaree’s bet on clean energy value chain

Big realty firms Q3 results show some cracks in luxury home sales

Banks’ Q3 struggle: Deposits trail loans, CASA falls, PSBs worse off

Economy & Policy

The Economic Survey's delayed gratification delusion

What's the change in India Inc that the Economic Survey wants to see?

Economic Survey 2026 sows the seeds of urea price reforms to tackle fertiliser overuse

What will India’s inflation trajectory look like, going forward? Economic Survey dives in

Financial regulation needs a different approach, says Economic Survey

Economic Survey urges microfinance lenders to move beyond impact washing

IIP growth surges to 7.8%, giving Budget room to tackle debt, boost employment

Can NEP 2026 add spark to power reforms?

RBI’s state finance report flags a problem politicians don’t want to name

Pro Economic Tracker

Tech & Startups

Startup Street| 2025 was a boring year for VC investments, and that’s good news

Persistent Systems sets sights on Europe acquisitions in push towards $5 billion revenue by FY31

Geopolitics & Geoeconomics

Trade as Strategy: Why the India–EU FTA belongs to today’s age of geoeconomics

Is Trump going soft on China while targeting US allies?

Others

Can BJP break Mamata's grip on Bengal in 2026?

Personal Finance: Why you must think about retirement planning