Budget 2026: Steady policy, constructive equities and a carry-led fixed-income playbook

Rajesh Iyer of LGT Wealth India shares Budget analysis

• Budget reinforces India’s long term growth machinery through sustained infrastructure investment, disciplined fiscal management, targeted sectoral support
• In uncertain global environment, India delivers a Budget that keeps its compass steady

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The Union Budget 2026–27 arrives at a time when global macro conditions are becoming increasingly unpredictable. With rising developed market bond yields, firming commodity prices, geopolitical tensions, and muted capital inflows pressuring the rupee, the government has opted for a strategy of continuity rather than spectacular. The Budget continues to prioritise fiscal credibility and productive investment, reinforcing India’s medium-term growth foundation while acknowledging near-term global and domestic challenges.

The Budget presents a thoughtfully balanced strategy that blends ambitious growth aspirations with fiscal discipline. In her ninth consecutive Budget, Finance Minister Nirmala Sitharaman outlined a comprehensive policy framework designed to support economic expansion while safeguarding macroeconomic stability.

With a strong emphasis on infrastructure development, advanced manufacturing, semiconductor and critical mineral ecosystems, MSME credit enhancement, and energy transition, the government aims to build a more resilient, competitive, and future-ready Indian economy some of them with a focus on employment generation. Amid persistent global uncertainties, India’s approach of driving growth through sustained capital expenditure alongside targeted sectoral interventions positions the economy to maintain long-term momentum and progress steadily toward fiscal consolidation.

A Capex-Led Commitment to Growth

The centrepiece of the Budget is once again public investment. % Capital expenditure growth is estimated to be higher than nominal GDP growth which means sustained commitment—strengthened further through higher transfers to states—keeps infrastructure at the heart of India’s expansion strategy. Whether it is transportation networks, logistics corridors waterways or urban development, the capex cycle remains the government’s primary lever to anchor long term growth and crowd in private investment.

A Carefully Managed Fiscal Path

Fiscal consolidation continues along the expected trajectory. A fiscal deficit targeted at 4.3% of GDP, accompanied by realistic revenue assumptions, signals discipline without undermining momentum. While subsidies, pensions, and interest costs remain heavy components of expenditure, the government has resisted the temptation to widen the deficit or make aggressive changes to tax structures. The approach appears intentional: maintain credibility, avoid policy surprises, and create an environment where private investment can revive sustainably.

Support for Emerging Sectors

The Budget reinforces India’s ambition to be a leader in modern, technology driven industries. Incentives for data centres, AI, semiconductor ecosystems, and electronics manufacturing indicate a long term, strategic push toward future ready sectors. In parallel, targeted measures for MSMEs—including the Rs 10,000 crore SME Growth Fund—aim to ease credit frictions, improve liquidity, and support scale up potential in smaller businesses.

A Challenging but Navigable Global Backdrop

India’s policy choices sit in contrast with a more uncertain global environment. As global yields rise and risk appetite gets distributed between high yield developed market bonds and the booming AI investment cycle, emerging market allocations face tougher competition. Domestic capital flows remain resilient, but muted foreign inflows have kept the rupee under pressure despite a stable current account.

In this context, the Budget’s decision to stay the course—prioritising stability and continuity—may ultimately prove more valuable than bold, short-term moves.

Equities - Short-term expectation Vs Long-term bias

For equity markets, since the government preferred to focus on continuity and consolidation Vs street expectations of tax cuts which did not fructify and so has led to a near-term sentiment drag. However, reduced buyback taxation provides some relief, and the possibility of a higher than anticipated RBI dividend, aided by currency movements, offers fiscal breathing space.

Given consumption stimulus still expected to result in earnings and domestic growth the long term equity valuations remain constructive while the steady stream of IPOs and QIPs could keep markets range-bound during the short-term.

Bonds Market Dynamics and the Road Ahead

Given the borrowing outlook and the evolving global rate environment, fixed income positioning in FY27 should remain measured and opportunity driven. Duration exposure will need to be selective and closely aligned with the borrowing calendar, rather than expressed through broad or aggressive long duration bets. At the same time, the rise in high yielding segments offers an attractive opportunity for carry based allocation, not for duration extension.

Market volatility—whether triggered by global rate swings or temporary supply pressures—should be treated as a buying opportunity rather than a structural risk. With elevated non-SLR yields, supportive liquidity conditions developing over the year, and improving credit deposit dynamics ahead, investors who maintain flexibility can extract meaningful carry without compromising risk discipline.

In sum, FY27 policy signals point toward a carry led fixed income strategy, supported by tactical duration calls and disciplined credit selection.

To conclude..

We believe that the Union Budget 2026–27 is neither flashy nor reactionary—and that is precisely why it stands out. It reinforces India’s long term growth machinery through sustained infrastructure investment, disciplined fiscal management, and targeted sectoral support. For markets, the absence of surprises means stability in the near term and resilience in the medium to long term.

In a global environment marked by uncertainty, India has delivered a Budget that keeps its compass steady.