Budget offers long-term promise, little near-term earnings boost, say analysts

Budget offers long-term promise, little near-term earnings boost, say analysts

• Budget delivers macro stability but offers limited near-term earnings catalysts
• Capex-linked sectors may see earnings support; most sectors remain restrained
• Higher securities transaction tax on derivatives seen as direct earnings drag

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The Union Budget has delivered macro stability at a time when markets were craving reassurance. Fiscal consolidation remains intact, inflation pressures are contained, and headline growth assumptions look credible. But that very discipline is also why expectations around corporate earnings remain restrained. Analysts continue to project Nifty 50 and broader market earnings growth of around 15%, largely unchanged after the Budget.

The reaction has been one of cautious optimism tempered by short-term disappointment, as the focus remains on long-term structural priorities even as fiscal discipline is maintained with a 4.3% deficit target. Only select pockets are expected to see earnings support in the near term, primarily those linked to the capex multiplier such as infrastructure, capital goods, cement, railways and PSU banks. For others, analysts say the Budget felt underwhelming due to the lack of big-bang measures to accelerate private investment or cushion the economy against global slowdowns.

Ashish Gupta, CIO of Axis Mutual Fund, noted that the absence of any relief on persistent FII selling was a mild disappointment, reinforcing the view that corporate earnings will continue to be shaped more by business fundamentals than fiscal measures. With earnings already under scrutiny, he says, the coming quarter’s results will be critical in determining whether companies can defend margins amid currency and cost pressures.

Seshadri Sen, Head of Research, Emkay Global, highlights that with revenues under strain and much of the spending space already absorbed by capex commitments, there was little room for demand-side stimulus this cycle. Continued capex supports medium-term growth, but at the margin, it does little to lift near-term earnings momentum.

Nominal GDP growth for FY27 is expected at roughly 9 to 10%, driven largely by real activity rather than price gains. Strategists argue that this arithmetic matters: when nominal growth stays moderate, it limits the scope for a sharp acceleration in corporate revenues and profits, irrespective of Budget optics.

Macro comfort, not an earnings trigger

The first-order impact of the Budget is macro reassurance. By opting for a slower pace of fiscal consolidation and keeping capital expenditure growing, the government has ensured that policy does not turn restrictive at a delicate point in the earnings cycle. This matters because earnings momentum was already uneven. While global brokerages see this policy stance as broadly supportive, even the more constructive assessments stop short of calling it an inflection point. Morgan Stanley, for instance, says the policy mix should “support F2027 earnings,” particularly through sustained capex and manufacturing initiatives such as semiconductors and critical minerals.

The emphasis, however, is on support — not acceleration. That nuance runs through most global views. HSBC’s analysis, while not framed around earnings forecasts, underlines realistic growth assumptions and balance-sheet credibility. By anchoring nominal GDP growth and avoiding fiscal slippage, the Budget helps protect profitability via stability, rather than drive upgrades. Barclays is more blunt, arguing that higher borrowings and the absence of tax relief leave markets with few immediate earnings catalysts, despite sector-specific spending promises. The common thread is clear: macro comfort reduces downside risk, but does not create upside surprise.

Why earnings still refuse to re-rate

If macro risks are capped, why does earnings optimism remain muted? Domestic brokerages point to a more grounded reality. The earnings cycle has already cooled, marked by repeated downgrades and rising dependence on a narrow set of companies to deliver index growth.

Motilal Oswal noted that markets are likely to “quickly shift focus from the Budget to corporate earnings,” as the fiscal proposals do not materially change the earnings path already in play. Ambit Capital goes further, arguing that “an acceleration in earnings growth is unlikely,” citing weak tax buoyancy and a moderating profit cycle. Elara Capital echoes this, saying the Budget “offers no fillip to FY27 earnings,” with new-age initiatives such as AI and data centres unlikely to move the needle in the near term.

Emkay Global, for instance, sees capex continuity and sector-specific support as constructive, but flags low tax buoyancy and higher borrowings as constraints that could cap earnings upside, especially for rate-sensitive sectors like banks and NBFCs.

Where earnings clearly take a hit

If most Budget measures are neutral for profits, one stands out for its clarity. The sharp hike in securities transaction tax on derivatives is widely seen as a direct earnings drag. JM Financial estimates that lower F&O volumes could translate into meaningful PAT cuts for brokers and wealth managers in FY27, making it one of the few proposals with a clear, immediate earnings consequence. Axis Direct also flags the move as a near-term headwind for trading-led businesses, even as it remains constructive on capex-linked sectors over time.