Daily Voice: Budget no catalyst; earnings growth key for equities in 2026, says Naveen Kulkarni

Naveen Kulkarni is the Chief Investment Officer at Axis Securities PMS

• Budget may play a limited role in bringing FII flows back to India
• Expect the budget to be balanced between consumption oriented themes and capex spending
• Key concern for equity markets will be earnings growth in 2026

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The government has already made critical announcements before the budget in terms of reducing GST rates to push consumption spending, and that has started to have an impact. Thus, the budget may play a limited role in bringing FII flows back to India, said Naveen Kulkarni, the Chief Investment Officer at Axis Securities PMS in an interview to Moneycontrol.

He expects the budget to be balanced between consumption oriented themes and capex spending.

According to him, the key concern for equity markets will be earnings growth in 2026. "This needs to pick up, as any negative surprise could weigh on market sentiment," he said.

Do you think the Union Budget 2026 can play a significant role in bringing FII flows back to India?

Union Budgets have not been a major market moving event in the recent years. While the expectations run high before the budget, triggers post budget have often been limited.

The government has already made critical announcements before the budget in terms of reducing GST rates to push consumption spending, and that has started to have an impact. Thus, the budget may play a limited role in bringing FII flows back to India.

Will the budget focus more on a capex and infrastructure push, adhere to a fiscal consolidation path, and stay away from broad-based consumption giveaways?

Capex and infrastructure push will remain critical as they have been but there is not enough room to push the spending beyond the nominal GDP growth rate. We expect the budget to be balanced between consumption oriented themes and capex spending.

Do you expect economic growth to exceed 7.5 percent in the current fiscal year?

GDP growth rate of 7.5% is an excellent number to begin with. Such a pace of real GDP growth would be very impressive. Achieving 7.5% growth rate in FY26 would therefore be a positive outcome, with the focus then shifting to FY27. If this growth trajectory is maintained, India could emerge as the top investment destination globally.

Do you expect the US Federal Reserve to announce a pause in the monetary easing cycle at its January meeting?

At present there is an overwhelmingly high probability that the Federal Reserve will pause the rates in the January meeting. The current inflation scenario on personal consumption remains at elevated levels which is a cause of concern. Thus, the Federal Reserve in all likelihood will pause rate cuts in January meeting.

Has the Q3 earnings performance of any sector surprised you?

The Q3 earnings season has largely been in line with expectations, with no major negative surprises reported so far. The Q2 FY26 earnings season was also broadly in line with expectations, and consensus estimates for FY27–28 have remained stable. Q3 is following a similar trend, with most large companies reporting results broadly in line with expectations.

BFSI companies have delivered in-line numbers, while the IT sector has reported results that are in line to marginally better. Other sectors are also showing a similar pattern. Thus, FY27 is expected to be a good year with double-digit early teens earnings growth for NIFTY 50 stocks but the broader market could see an improvement in earnings trajectory that could exceed NIFTY 50 earnings growth.

Do you think geo-economic confrontation will be a key risk in 2026?

Geo-economic confrontation has already been a key risk and is largely factored into stock prices. However, the more critical driver for markets will be earnings growth. FY25 and FY26 were not particularly strong from an earnings growth perspective, with corporate earnings expanding in single digits.

The key concern for equity markets will therefore be earnings growth in 2026. This needs to pick up, as any negative surprise could weigh on market sentiment. The current expectations are of double-digit earnings growth in 2026 as the base is low. If earnings growth trajectory undershoots then Indian equities will derate further.