Daily Voice: Union Budget to address geopolitical complexities within fiscal constraints, says Gautam Duggad

Gautam Duggad is the Director & Head of Research, Institutional Equities at Motilal Oswal Financial Services

• Budget to make earnest attempt to address geopolitical complexities within fiscal constraints
• FM to definitely create some space for higher capex
• Expect strong allocation towards defense, energy infrastructure, nuclear power in budget

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"Union budget will make an earnest attempt to address the geopolitical complexities within the constraints of the fiscal space," said Gautam Duggad, Director & Head of Research, Institutional Equities at Motilal Oswal Financial Services in an interview to Moneycontrol.

He believes that the FM will definitely create some space for higher capex, more importantly sectors of strategic importance for nation’s security, sovereignty and self-sufficiency. He expects strong allocation towards segments like defense, energy infrastructure, and nuclear power.

If the budget is able to channelize expenses in right areas such as productive capex or demand stimulation rather than transfer payments or administrative expenses, the market will respond positively and may even be accommodative of a mild but pragmatic fiscal stretch, he said.

Do you think the India–EU Free Trade Agreement represents a significant opportunity for India’s manufacturing sector?

The India-EU FTA opens up a large economy (GDP of around US$20 lakh crore) and high-income market for Indian manufacturing sector. India’s manufactures have definitely made a strong improvement in past few years in terms of global acceptance of its product quality delivered at cheaper cost economics.

In segments like automobiles, auto ancillaries, EMS, specialty chemicals Indian companies have been getting good global traction and post the India-EU FTA this will likely improve. Moreover, certain labour-intensive sectors such as textiles, apparels, leather, footwear, agriculture etc. the benefits are likely to accrue more as the tariff reduction will place Indian goods at par with several competing countries.

Which three sectors are likely to benefit the most from the India–EU deal?

The detailed document is still awaited, however based on the release till date, it appears that labour intensive sectors should be key beneficiaries. Moreover, among larger sectors autos, capital goods on product side and IT on services side should emerge key beneficiaries.

Are you confident that the Union Budget can address near-term challenges arising from the current geopolitical uncertainty?

Union budget will make an earnest attempt to address the geopolitical complexities within the constraints of the fiscal space. We believe that the FM will definitely create some space for higher capex, more importantly sectors of strategic importance for nation’s security, sovereignty and self-sufficiency. We expect strong allocation towards segments like defense, energy infrastructure, nuclear power etc.

Which announcements in the Union Budget could potentially trigger a sharp rally in equity markets?

Based on our interactions with several institutional investors, we sense that the expectations are not very high from the Union Budget given that the scope of influence of the budget has become narrower over the past several years’ of extra-budgetary measures. Hence, the base of expectations is relatively lower.

Within this framework if the budget is able to channelize expenses in right areas such as productive capex or demand stimulation rather than transfer payments or administrative expenses, the market will respond positively and may even be accommodative of a mild but pragmatic fiscal stretch.

In addition, if there are any direct measures helping capital markets such as lower LTCG or some other tax relief, the markets should move positively.

Do you expect a continued strong focus on capital expenditure in the Union Budget, given that the current fiscal year’s record capex of Rs 11.21 lakh crore has not yet meaningfully stimulated private sector investment?

As mentioned earlier, we do expect a shift in dial toward higher growth in capex this year and the ratio of capex to revenue expenditure is expected to improve from ~29.3% in FY26E to 30.5% in FY27E. The private capex will pick up decisively once the demand is seen to be improving more broadly and capacity utilization picks up.

Based on the Q3 earnings announced so far, are you confident about strong earnings rebound over the next few quarters?

Earnings growth have started to pick up and in Q3FY26 we expect a 16% YoY PAT growth for the broad MOFSL universe of around 350 stocks. This growth is expected to be strongest in past 8 quarters. The earnings season till date (covering around 54% of the profit pool) has in fact been somewhat ahead of MOSL estimates with aggregate PAT for 154 reporting companies growing at 15.4% versus our pre-season estimates of 13.8%.

Do you expect banks and financial institutions to lead the market in the period ahead?

BFSI is a large and core part of the markets and have somewhat underperformed. Within BFSI our portfolio is more tilted towards Non-banks with focus on NBFCs, capital market plays and insurance.