Daily Voice: Budget may see 11–13% capex increase, RBI to prioritise liquidity support in Feb, says Equentis' Jaspreet

Jaspreet Singh Arora is the Chief Investment Officer at Equentis Wealth Advisory Services

• Union Budget likely to be reform-oriented, though within tight fiscal constraints
• Budget may see 11–13% capex increase
• RBI to prioritise liquidity support and rate transmission over outright monetary easing in Feb
• Markets not expecting a massive giveaway this year

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Jaspreet Singh Arora, the Chief Investment Officer at Equentis Wealth Advisory Services expects a “continuity budget” that reinforce what’s already working.

"It implies a 11-13% boost in capital expenditures and a push to make India a manufacturing powerhouse through better incentives for AI and semiconductors besides a major push for sunrise industries like defence, electronics, AI, nuclear energy, and critical minerals through PLI schemes," he said in an interview to Moneycontrol.

According to him, the Reserve Bank of India (RBI) is more likely to prioritise liquidity support and rate transmission over outright monetary easing in its February policy. Recent actions already point in this direction, he said.

What are the biggest challenges for equity markets in the short term? Do you think Donald Trump poses the biggest challenge for the global economy?

President Trump’s uncertain and aggressive tariff policies and geopolitical ambitions represent the foremost short-term threat to equity markets, sparking widespread global trade disruptions and eroding investor confidence. This has triggered relentless FII selling, with over Rs 40,000 crore offloaded from Indian markets in January 2026 alone.

This outflow is further aided by sharp rupee depreciation to record lows near 91.97/USD, which spikes importer hedging costs, clouds earnings visibility, and intensifies the capital flight from India Inc. The interplay of tariff jitters and currency weakness creates a vicious cycle, stifling fresh inflows and amplifying volatility. Domestic DII inflows provide a stabilizing force alongside an earnings uptick, though its sustainability remains a key monitorable.

Do you expect the Union Budget to be reform-oriented under the Finance Minister?

Yes—the Union Budget is likely to be reform-oriented, though within tight fiscal constraints. The government is expected to pause further fiscal consolidation (keeping the deficit near 4.4% of GDP) and re-orient spending toward capex and development outlays, with capex growth in the low-teens and higher allocations for defence, infrastructure, energy transition, electronics, and critical minerals.

Beyond fiscal math, reforms are likely to focus on deregulation, ease of doing business, PSU disinvestment, credit-guarantee schemes, and PLI extensions into areas like AI, robotics, and semiconductors. The emphasis is on crowding in private investment rather than announcing large tax giveaways. Overall, we expect a pragmatic, reform-led budget aimed at medium-term productivity and investment rather than short-term stimulus.

What do you think could be the core focus areas of the Union Budget, considering current domestic and global factors?

India is entering FY27 from a position of solid growth- 7.4% real GDP growth in FY26E and stable inflation of around 2%. We expect a “continuity budget” that reinforce what’s already working. It implies a 11% to 13% boost in capital expenditures and a push to make India a manufacturing powerhouse through better incentives for AI and semiconductors besides a major push for sunrise industries like defence, electronics, AI, nuclear energy, and critical minerals through PLI schemes.

The government’s priority is long-term health and thus aims to bring debt down debt-to-GDP ratio from 81% currently to about 50% by FY31, with the fiscal deficit to 4.4% of GDP in FY27.

Do you expect the Finance Minister to announce additional measures for sectors affected by tariffs?

Markets are not expecting a massive giveaway this year, instead we are expecting a more targeted relief. The budget will likely offer tax credits and incentives specifically for MSMEs and export heavy sectors that are feeling the squeeze of Trump tariffs.

However, the budget is only a part of larger equation. To protect domestic businesses from tariff wars, the government is already pursuing a "diversify and defend" strategy. This includes fast tracking trade deals with partners like the UK and Oman, and much anticipated EU agreement often called the "mother of all trade deals" to structurally reduce our dependence on USA. In addition to this Export Promotion Mission (outlay of Rs 25,060 crore) are being introduced to mitigate the tariffs impact.

Is this the right time to accumulate stocks in the IT sector?

Yes, this is an opportune time to accumulate IT sector stocks. Recent corrections have brought Nifty IT valuations to a reasonable P/E of around 27x, down from peaks of 37x in December 2024 and below 3-year average of 29x. Despite Q3FY26's anticipated seasonal softness, results for large cap IT and select mid-caps have fared better than street estimates.

AI-driven deal ramp-ups are gaining pace, enterprise tech refresh cycles are picking up, and analysts now forecast 6-8% USD revenue growth into FY27, significantly ahead of prior consensus estimates of 3-4%. With the cyclical slowdown bottoming out, furlough impacts fading, and demand from the US and Europe holding firm despite tariff uncertainties, CY2026 is poised to mark the beginning of a recovery phase for Indian IT services players.

What could be the possible outcome of the US Federal Reserve meeting scheduled for next week?

The Fed’s current stance shows a growing confidence in the US economy’s ability to grow steadily, even as inflation hovers slightly above that 2% goal. Because growth remains so solid, price pressures aren't cooling as fast as some hoped, with projections suggesting they could linger through 2028.

At the same time, the job market is proving incredibly resilient, with unemployment likely holding steady at around 4.5%. While this means immediate rate cuts are off the table, most experts still see at least two cuts coming later this year once inflation finally turns a corner.

Do you think the RBI is likely to focus more on liquidity support and rate transmission rather than monetary easing in its February policy meeting?

RBI is more likely to prioritise liquidity support and rate transmission over outright monetary easing in its February policy. Recent actions already point in this direction. Current market assumptions point to only a terminal 25 bp cut, with limited marginal benefit from further easing. Despite ~125-bp of cumulative cuts, 10-year G-sec yields have barely declined, indicating weak transmission.

Over the past few weeks, the RBI has stepped up open market operations (OMOs) and conducted variable rate repo (VRR) and reverse repo (VRRR) auctions to manage tight system liquidity. It has also used USD/INR swap windows to offset liquidity drains caused by forex market interventions.

At the same time, India’s 10-year G-sec yield has remained sticky around 6.6–6.7%, barely easing despite cumulative policy rate cuts, reflecting weak transmission and heavy government bond supply. With large Centre and State borrowings ahead (~Rs 29.7 trillion in FY27E), the RBI’s most effective tools are likely to be liquidity injections, OMOs, and corridor fine-tuning, with only a modest, final rate cut as a secondary option.