Daily Voice: Union Budget must reassure markets on growth support without sacrificing fiscal discipline, says INVasset’s Anirudh Garg

Anirudh Garg is the Partner and Fund Manager at INVasset PMS

• Union Budget must reassure markets on growth support without sacrificing fiscal discipline
• Broad, consumption-oriented stimulus in Budget cannot be completely ruled out
• Sub-10 percent earnings growth outcome for FY26 cannot be ruled out

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Market expectations from the Union Budget are centred on continuity rather than surprise, according to Anirudh Garg, Partner and Fund Manager at INVasset PMS. The key requirement, he said in an interview with Moneycontrol, is reassurance that growth support will continue without compromising fiscal discipline.

He believes sustained capital expenditure—particularly in infrastructure, manufacturing, and the energy transition—remains the most important driver of market sentiment, as it directly enhances earnings visibility and encourages private investment.

Garg also noted that a sub-10 percent earnings growth outcome for FY26 cannot be ruled out, especially if global uncertainties persist and margin pressures remain in select sectors. However, even if growth moderates below 10 percent, it would still reflect a resilient earnings cycle, supported by structural domestic drivers rather than cyclical excesses.

Is the India–EU deal still attractive at a time when India is facing tariff and heightened geopolitical concerns?

The India–EU trade deal remains attractive even amid tariff pressures and heightened geopolitical uncertainty. In fact, the current global environment arguably increases its strategic value. With supply chains being reshaped and protectionist tendencies rising in parts of the world, a deeper trade partnership with the EU offers India diversified market access and reduced dependence on a few trading blocs. The agreement is expected to ease tariff barriers across several key export categories, improving competitiveness for Indian manufacturers and service providers.

Beyond tariffs, the deal also provides regulatory alignment, clearer trade rules and long-term visibility, which are especially valuable during periods of geopolitical stress. While short-term disruptions and negotiations may create noise, the structural benefits of stable access to one of the world’s largest consumer markets remain intact. From a medium- to long-term perspective, the India–EU deal continues to be a strategically sound and economically relevant pillar for India’s trade ambitions.

Do you expect significant investment inflows into India following the India–EU deal?

Meaningful investment inflows are likely over time, but they are unlikely to be immediate or front-loaded. The India–EU deal primarily improves long-term visibility by reducing tariff uncertainty and aligning standards, which is a key prerequisite for cross-border capital commitments. For European companies, clarity on market access and regulatory stability makes India more attractive as a manufacturing base and as a gateway to other emerging markets.

That said, investment decisions tend to follow execution rather than announcements. Capital inflows will depend on how quickly the agreement translates into on-ground ease of doing business, faster approvals and sector-specific incentives.

Manufacturing, clean energy, pharmaceuticals and technology services are likely to see the earliest interest. Over the medium term, the deal could support a steady rise in foreign direct investment rather than a sudden surge, anchoring India more firmly into global supply chains at a time when diversification away from concentrated geographies is a priority.

What are your key expectations from the Union Budget that could help market sentiment?

Market expectations from the Union Budget remain centred on continuity rather than surprise. The key requirement is reassurance that growth support will continue without compromising fiscal discipline. Sustained capital expenditure, particularly in infrastructure, manufacturing and energy transition, remains the most important sentiment driver, as it directly supports earnings visibility and encourages private investment.

Beyond spending, clarity on tax stability and incremental reforms to improve ease of doing business could further strengthen confidence. Measures that simplify compliance, support MSMEs and enhance manufacturing competitiveness would be viewed positively.

The Budget does not need to be overtly expansionary to lift markets; consistency, predictability and a clear medium-term roadmap are far more important. If the Budget reinforces the capex-led growth strategy while keeping fiscal metrics credible, market sentiment is likely to remain constructive.

Do you completely rule out the possibility of consumption-oriented stimulus in the Budget?

A broad, consumption-oriented stimulus cannot be completely ruled out, but it is unlikely to be aggressive or front-loaded. The current policy backdrop favours fiscal prudence, especially with growth holding up and inflation largely under control. Rather than large direct spending measures, any support for consumption is more likely to be targeted and indirect, aimed at easing pressure on specific segments without materially stretching the fiscal balance.

Possible measures could include selective tax rationalisation, tweaks in duties, or targeted incentives for lower-income and middle-income groups where marginal propensity to consume is higher. Such steps would help support demand without altering the overall fiscal stance.

The emphasis is expected to remain on structural growth drivers rather than short-term stimulus. In that sense, the Budget may lean more toward nudging consumption gradually rather than delivering a headline-grabbing boost.

Do you strongly believe that job creation and income growth are essential to spur demand, and that interest rate cuts and GST reductions alone may not be sufficient?

Job creation and income growth are central to sustaining demand over the medium term, and policy tools like interest rate cuts or GST reductions can only play a supporting role. Lower borrowing costs and tax relief may improve affordability at the margin, but they do not replace the impact of steady employment and rising wages on consumption behaviour. Households tend to increase discretionary spending only when income visibility improves and job security feels stable.

In the current environment, uneven income growth across segments has led to pockets of strong consumption alongside areas of softness. A durable demand recovery will require broader employment generation, particularly in manufacturing, services and MSMEs. Without that, the impact of monetary easing or indirect tax tweaks is likely to be limited and short-lived. Structural measures that expand the employment base and raise real incomes are therefore essential for translating macro stability into sustained consumption-led growth.

Do you think India could end up with earnings growth of less than 10% in FY26?

A sub-10% earnings growth outcome for FY26 cannot be ruled out, particularly if global uncertainties persist and margin pressures remain in select sectors. After a strong post-pandemic rebound, earnings growth is naturally normalising and becoming more dependent on underlying demand rather than operating leverage. Export-oriented segments may face headwinds from tariff pressures and slower global growth, which could moderate overall profit expansion.

However, such an outcome would reflect normalisation rather than deterioration. Domestic-facing sectors like banking, infrastructure, capital goods and manufacturing continue to show healthy momentum and could provide stability to aggregate earnings. Even if growth moderates below 10%, it would still represent a resilient earnings cycle supported by structural domestic drivers rather than cyclical excess.