Union Budget 2026 Analysis: Fiscal Prudence and Top 9 Stock Picks for Investors

The Union Budget 2026, presented by Finance Minister Nirmala Sitharaman, has set a clear path for India's economic trajectory by balancing fiscal discipline with targeted growth initiatives. The government has focused on maintaining a stable tax regime while aggressively pushing for infrastructure development and emerging technologies. For the stock market, the budget presented a mixed bag of sentiments, characterized by a commitment to fiscal consolidation and a surprising hike in transaction taxes for the derivatives segment.

Finance Minister Nirmala Sitharaman maintained fiscal discipline by lowering the fiscal deficit target to 4.3 percent of GDP for FY27, down from 4.4 percent in FY26. This projection is based on a nominal GDP growth of 10 percent and a tax revenue growth of 8 percent. While the broader market indices saw a 2 percent correction following the announcement, analysts believe the long-term structural story remains intact, with a shift from liquidity-driven returns to earnings-driven compounding.

Strategic Capital Expenditure and Infrastructure Focus

As anticipated by market participants, the government increased capital expenditure by 9 percent, reaching Rs 12.2 lakh crore. This allocation is designed to provide a significant boost to infrastructure and defence sectors. The budget also emphasized employment generation and allocated substantial funds to emerging segments such as data centres, artificial intelligence, tourism, and MSMEs. This continued focus on capital expenditure is expected to support the ongoing investment cycle in the country.

However, the market did not receive any incremental growth stimulus beyond what was already in the pipeline. The government had previously announced several policy measures, including GST rationalization and personal income tax relief. Furthermore, the Reserve Bank of India (RBI) had already supported growth in 2025 by reducing the repo rate by 125 basis points and implementing a 100 basis-point cut in the Cash Reserve Ratio (CRR).

The STT Impact and Market Reaction

A key point of disappointment that weighed on market sentiment was the increase in Securities Transaction Tax (STT) on futures and options (F&O). Financial experts suggest that this move will not only affect domestic brokerages but also impact Foreign Institutional Investors (FIIs) who utilize the F&O segment for hedging purposes. The absence of direct measures to stabilize capital flows or currency also contributed to the 2 percent correction in benchmark indices on the Sunday following the budget.

Ashish Gupta, CIO at Axis Mutual Fund, described the budget as a mixed bag for capital markets. While the stability of the tax regime is a positive, the increase in certain STTs and the government's borrowing programme caused some near-term discomfort. Despite this, the outlook for equities over the medium term remains largely unchanged as the government stays committed to fiscal prudence.

Sectoral Highlights: Biopharma and Electronics

The budget introduced the Rs 10,000 crore Biopharma Shakti mission, which aims to boost biologics, biosimilars, and clinical research. This initiative is expected to benefit major healthcare players and contract research organizations. Additionally, the government proposed increasing the Electronics Components Manufacturing Scheme outlay to Rs 40,000 crore for FY26-27, a significant jump from the previous fiscal year, aimed at strengthening India's position in the global electronics supply chain.

Expert Stock Recommendations Post-Budget

Leading analysts from top brokerages have identified several stocks that are well-positioned to benefit from the budgetary allocations and policy shifts. These picks span across healthcare, manufacturing, IT, and infrastructure.

Apollo Hospitals Enterprises (Target: Rs 9,015): The company is set to benefit from regional medical tourism hubs and the Biopharma Shakti mission. With plans to add 3,660 beds over five years and its HealthCo segment nearing EBITDA breakeven, the outlook remains positive.

Mahindra & Mahindra (Target: Rs 4,521): M&M is positioned to gain from the Rs 1 lakh crore infrastructure capex and the revival of 200 industrial clusters. The company's focus on farm mechanization and SUV expansion supports long-term growth targets.

Biocon (Target: Rs 460): As a leader in biologics and biosimilars, Biocon aligns perfectly with the Biopharma Shakti mission. The acquisition of Viatris’ biosimilar business and new product launches like insulin aspart are expected to drive an earnings revival.

Larsen & Toubro (Target: Rs 4,500): L&T remains a core proxy for India's capex cycle. Budgetary support for advanced infrastructure and chemical parks will expand EPC opportunities in hydrocarbons, defence, and data centres.

Focus on Technology and Hospitality

Indian Hotels (Target: Rs 830): As the largest player in India's hospitality sector, IHCL is poised to benefit from the government's push for tourism and favorable demand-supply dynamics in both business and leisure segments.

Tata Consultancy Services (CMP: Rs 3,675): TCS continues to be a core partner for global clients in their AI and cloud journeys. The company's renewed focus on mega-deals and M&A strategy positions it well for the "intelligence-first" shift mentioned in the budget.

Sai Life Sciences (Target: Rs 1,160): This integrated CRDMO is a direct beneficiary of the proposed NIPER upgrades and the network of 1,000 accredited clinical trial sites. The company is expected to see a 39 percent PAT CAGR over FY25-28.

Syrma SGS Technology (Target: Rs 920): With a robust order book of Rs 6,400 crore, Syrma is a primary beneficiary of the increased outlay for electronics manufacturing. The company projects over 30 percent growth in revenue for FY27.

Zensar Technologies (Target: Rs 830): Zensar's focus on AI-driven solutions and operational efficiency aligns with the budget's emphasis on semiconductors and simplifying the tax landscape for Global Capability Centres (GCCs).

Market Impact and Technical Outlook

While the fundamental picks focus on long-term growth, technical analysts have also flagged several stocks for short-term opportunities. NTPC, BPCL, and Indus Towers show strong bullish momentum on the charts. NTPC, for instance, has seen a breakout above a long-term wedge, supported by robust volumes and a P/E ratio of 14x.

Analysis of the Fiscal Roadmap

The Union Budget 2026 reflects a realistic approach to policy and fiscal prudence. By shifting focus slightly from supply-side capex-led stimulus toward supporting domestic consumption, the government is attempting to broaden the base of economic growth. Harish Krishnan, CIO at Aditya Birla Sun Life AMC, notes that while elevated borrowing levels may cause near-term market discomfort, the conservative expectations in the budget leave room for potential upside.

The transition from "digital-first" to "intelligence-first" is a significant thematic shift. This move, coupled with the rationalization of taxes for IT giants, suggests that the government is keen on making India a global hub for AI and semiconductor design. For investors, the key lies in identifying companies with strong execution capabilities and disciplined capital allocation.

Conclusion

In summary, the Union Budget 2026 reinforces India's commitment to becoming a developed economy by 2047. While the STT hike on derivatives created a temporary hurdle for market sentiment, the underlying focus on infrastructure, healthcare, and technology provides a fertile ground for long-term wealth creation. Investors should look beyond the immediate volatility and focus on sectors aligned with the government's structural priorities, such as biopharma, electronics manufacturing, and core infrastructure. The next phase of market growth is expected to be driven by earnings compounding rather than just liquidity, making stock selection more critical than ever.