Daily Voice: Budget support likely for realty; small caps to rebound, says Pankaj Pandey

Pankaj Pandey is the Head of Retail Research at ICICI Direct

• Real estate sector may receive maximum support in Union Budget
• Real estate sector has the ability to create millions of jobs directly and indirectly
• Small caps likely to make a comeback this year

Did our AI summary help?

"Real estate sector may receive the most support owing to its 7-8% GDP contribution, correlation with other allied industries (such as cement, steel, building materials), and being the second largest employer after agriculture," said Pankaj Pandey, the Head of Retail Research at ICICI Direct, in an interview with Moneycontrol.

According to him, affordable housing, which has been under stress, may get relief measures such as expanding the definition of affordable housing in terms of value and unit sizes.

He expects Small Caps to make a comeback this year. "With the small-cap index down ~6% in CY25 and ~13% from its all-time high, odds (86% probability) are in favour of small caps resuming the up move and delivering healthy double-digit returns in CY26," he said.

Which sectors do you expect to receive the most support from the government in the Union Budget 2026?

Real estate sector may receive the most support owing to its 7-8% GDP contribution, correlation with other allied industries (such as cement, steel, building materials), and being the second largest employer after agriculture. Affordable housing, which has been under stress, may get relief measures such as expanding the definition of affordable housing in terms of value and unit sizes.

Other measures such as increasing home loan interest deduction limit, increasing credit access for developers, incentives for first-time buyers, single window clearances, grant of infrastructure status, incentivising GCCs, promoting rental housing, etc.

Do you expect the government to announce concrete measures in the Budget to boost employment, especially as many experts have flagged this as a key risk?

Real estate’s ripple effect on more than 200 other allied industries, such as cement, steel, building materials, services, logistics, etc., has the ability to create millions of jobs directly and indirectly. Thus, measures here could boost employment generation objectives.

Similarly, the Indian Textile sector, employing ~45 million people, is currently reeling under the pressure of high tariffs imposed by the US on Indian textile exports. Any measures could support textile exports, including relief schemes/ tax concessions for setting up new units and permanent removal of 11% cotton import duty to reduce cost pressure, thereby aiding employment objectives.

Do you see the market emerging from the consolidation phase of the past year, or do you expect consolidation to continue due to global factors?

Given the fluid situation across trade tariffs and geopolitical tensions, we do expect the first quarter to witness a consolidation unless these issues witness some stabilisation. However, we expect investors to focus on corporate earnings and macro-economic growth as we move further in CY26.

Do you continue to favour private sector banks over PSU banks, or are you taking a strong, broad-based view on the entire banking sector?

The banking sector is benefiting from benign asset quality trends, structurally lower credit cost, and greater balance-sheet resilience following a multi-year clean-up. Importantly, increasing focus on the RAM (Retail, Agriculture, MSME) segment and improved loan granularity are reducing earnings volatility. Combined with comfortable capital positions and disciplined growth, this shift is supporting more sustainable RoA.

Thus, we continue to remain instrumental in the banking sector, with a slight tilt towards PSU banks and mid-cap private banks.

Are you bullish on the auto and metal sectors for the current year?

Auto and Metals have been the top-performing sectors with Nifty Auto up 21% and Nifty Metals up 36% over the last 1 year. Most of the investable stocks have moved up; hence, the sector is not a blanket buy anymore. However, there are select pockets which we continue to like, such as the Passenger Vehicle domain in autos (backed by longevity of growth) and ferrous players in the Metals (earnings supported by imposition of safeguard duty).

Do you expect a pickup in momentum in mid- and small-cap stocks, given their underperformance relative to benchmark indices?

Yes, we expect Small Caps to make a comeback this year. Interestingly, analysing the data for the last 2 decades, it has been observed that there exists a low probability (14%) of small caps correcting in two consecutive years. Therefore, with small cap index down ~6% in CY25 and ~13% from its all-time high, odds (86% probability) are in favour of small caps resuming the up move and delivering healthy double digit returns in CY26E.

Do you see the possibility of a continuation of the federal funds rate cut cycle in the January meeting?

The Federal delivered its third consecutive 25-basis-point rate cut in December, but the probability of another rate cut in January seems quite low, considering their projection of just 1 rate cut in CY26. The Fed has lifted its expectations of growth for 2026, which, along with the uncertainty regarding the inflation trajectory, will make it difficult for them to cut rates in the coming meeting.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.