Daily Voice: Railways, defence capex likely to rise sharply in Budget 2026, says Spark’s Devang Mehta

Devang Mehta is the Deputy Managing Director & CIO – Equity NDPMS at Spark Capital Private Wealth Management

• Devang Mehta foresees a significant increase in both railway and defence capital capex in Budget 2026
• Projections suggest railway capex could reach Rs 2.7-2.9 lakh crore, a 10-12 percent rise, and defence spending is also increasing due to geopolitical pressures

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Devang Mehta, the Deputy Managing Director & CIO – Equity NDPMS at Spark Capital Private Wealth Management foresees a significant increase in both railway and defence capital expenditure (capex) for India's upcoming Budget 2026-27, driven by ongoing infrastructure modernization, national security needs, and the government's focus on self-reliance.

Projections suggest railway capex could reach Rs 2.7-2.9 lakh crore, a 10-12 percent rise, and defence spending is also increasing due to geopolitical pressures.

Meanwhile, the December-quarter (Q3 FY26) earnings season is widely expected to build a strong base for subsequent quarters. He is optimistic that the current earnings season marks an inflection point after a period of market consolidation and valuation resets in 2025.

Do you think the key factor to watch in the Union Budget will be the government’s strategy to narrow the fiscal deficit?

The government's strategy to narrow the fiscal deficit is indeed a key factor in the Union Budget, as it is central to maintaining macroeconomic stability and attracting investor confidence.

Lower deficit reduces government borrowing, which prevents "crowding out" of private sector investment and frees up resources for productive capital expenditure (capex). The government has consistently signaled its commitment to a glide path of fiscal consolidation, aiming for a target of 4.4% of GDP for FY26.

Do you foresee an increase in railway and defence capital expenditure in the Budget?

Market participants foresee a significant increase in both railway and defence capital expenditure (capex) for India's upcoming Budget 2026-27, driven by ongoing infrastructure modernization, national security needs (especially along borders), and the government's focus on self-reliance, with projections suggesting railway capex could reach Rs 2.7-2.9 lakh crore, a 10-12% rise, and defence spending also increasing due to geopolitical pressures.

Do you believe metals will emerge as a dominant sector in FY27? Do you see a potential entry into a commodity supercycle?

The outlook for the metals sector in FY27 is generally positive, driven by a combination of strong domestic demand in India, a global push for the energy transition, and supply-side constraints.

The global shift to clean energy, including electric vehicles (EVs), solar panels, and upgraded power grids, is creating significant demand for industrial metals such as copper, aluminum, lithium, and nickel. Gold and silver are expected to continue their strong performance into FY27, supported by ongoing geopolitical uncertainty, central bank purchases, and their role as a hedge against inflation and currency volatility.

Unlike past broad-based super cycles, this one is characterized by "structural divergence," where assets linked to monetary credibility (precious metals) and structural scarcity (specific industrial metals) are set to outperform, while others like oil might face a supply surplus and muted demand growth.

Do you view the Trump narrative, rising US debt, and ongoing geopolitical tensions as the biggest challenges for equity markets, despite expectations of an earnings recovery and continued support from consistent DII inflows?

Markets generally thrive on predictability, which the Trump administration's policy shifts can disrupt. The potential for new tariffs (on items like semiconductors or all imports from specific countries) and trade wars creates supply chain uncertainty, impacts corporate margins, and can trigger significant sector volatility.

The rapid growth of public-sector debt and wide deficits in the US is a persistent concern for investors. While a US government default is considered extremely unlikely, concerns revolve around high debt levels increasing future borrowing costs, limiting fiscal flexibility.

Geopolitical instability, such as the conflict in Ukraine, tensions between the US and Venezuela, and China-Taiwan dynamics, remains a major market factor.

Expectations are a double-digit or "mid-teen" corporate earnings per share (EPS) growth for the fiscal year 2027 (FY27), a significant rebound from a muted FY25 and FY26. The sustained domestic support reflects a structural shift where the Indian capital market is becoming less vulnerable to foreign shocks and more responsive to domestic capital. While the DII inflows and earnings recovery provide a strong foundation for a positive 2026, a sustained, broad-based market rally will also depend on the eventual return of FIIs, who remain net sellers.

Are you betting big on new-age companies that are expected to have a long runway ahead in terms of market size and opportunity?

The market is maturing, and investors are prioritizing companies that demonstrate a clear path to profitability and strong cash flow visibility. Profitable new-age tech companies have generally performed well in the stock market, while many loss-making are still struggling.

We like a number of sectors which are still small in size but have huge opportunity size. Along with this, we also like sectors where there is no perfect competition. This monopolistic, duopolistic or oligopolistic advantage leads to good pricing power, moat and superior ROE’s. Sub sectors of economy benefiting from discretionary consumption, finacialisation of savings including capital market plays and capital expenditure oriented proxy plays are preferred for long term wealth creation.

Do you anticipate a major correction in global markets in 2026 if AI turns into a bubble?

Market sentiment is sharply divided, with the main points of debate centering on whether current AI investment is a speculative bubble similar to the dot-com era or a foundational infrastructure build-out.

Many investors pinpoint persistent inflation as the most significant potential trigger for a correction. The massive capital expenditure required for AI infrastructure is driving up costs for chips and energy, which could keep inflation above central bank targets. If central banks are forced to hike rates to cool inflation, it would increase borrowing costs and reduce the appetite for speculative tech stocks.

Will the December-quarter earnings season help build a strong base for subsequent quarters and the broader markets?

The December-quarter (Q3 FY26) earnings season is widely expected by analysts to build a strong base for subsequent quarters and the broader markets, supported by strong domestic demand, government policy support, and broad-based growth across several key sectors. Analysts are optimistic that the current earnings season marks an inflection point after a period of market consolidation and valuation resets in 2025.

The earnings momentum is expected to be fueled by robust domestic demand, falling interest rates, easing liquidity, and government initiatives like GST cuts, which have boosted consumption.