Union Budget 2026: Capex Push, Tax Hopes & Sector Bets

A High-Stakes Budget Amid Global Volatility

With the Union Budget for 2026-27 set to be presented on February 1, Finance Minister Nirmala Sitharaman faces the critical task of balancing fiscal prudence with targeted economic stimulus. The budget arrives at a challenging time, marked by a languishing rupee and significant foreign investor outflows totaling $19 billion in 2025. Investors and industry leaders are looking for a clear roadmap that shields vulnerable sectors, stabilizes capital flows, and maintains India's growth momentum against a backdrop of global uncertainty and an unresolved US trade deal.

The Push for Capital Expenditure

A broad consensus among economists suggests a continued focus on infrastructure-led growth. BofA Securities projects capital expenditure allocations to grow to ₹12.5 lakh crore, or 3.2% of GDP, in FY27. The government's focus is expected to remain on strategic areas such as defence, railways, and shipbuilding. While spending on roads and housing might be more subdued, flagship programs like the Pradhan Mantri Awas Yojana (PMAY) will remain a priority, with allocations having already increased to ₹78,126 crore in FY26. The overarching goal is to leverage infrastructure development as a catalyst for reviving private sector capital expenditure.

Spotlight on Strategic Sectors

Defence and Manufacturing: There is a strong case for higher, more structured defence spending to support the 'Atmanirbhar Bharat' and 'Make in India' initiatives. The manufacturing sector is viewed as a key pillar of economic resilience, with the Economic Survey 2025-26 projecting an optimistic GDP growth of 7.4%. To realize this vision, building a domestic battery ecosystem, from mining to advanced materials, is seen as essential. Stocks like Bharat Electronics (BEL), Hindustan Aeronautics (HAL), and MTAR Technologies are in focus.

Renewable Energy's Next Phase: The energy sector is at a pivotal point, moving from capacity addition to building a resilient, integrated power ecosystem. Industry stakeholders are seeking policies that support grid reliability, energy storage deployment, and domestic manufacturing. Key demands include extending the Production-Linked Incentive (PLI) scheme to cover the entire solar value chain—including polysilicon, ingots, and wafers—and providing viability gap funding for grid-connected Battery Energy Storage Systems (BESS). Rationalizing GST and import duties on critical components is also a major expectation to ease working capital pressure and reduce project costs.

Data Centers and Digital Infrastructure: India's data center sector is experiencing significant investment momentum, with hyperscalers committing over $17 billion. Despite generating 20% of global data, India hosts only 3% of global data center capacity, a gap that presents a massive growth opportunity. Companies like Bharti Airtel (Nxtra), Adani Enterprises (AdaniConneX), and RailTel are positioned to benefit from government incentives and rising demand for cloud and AI infrastructure.

Market and Investor Expectations

Market participants are not anticipating sweeping reforms but are looking for targeted, selective measures. A key demand is the rationalization of the Securities Transaction Tax (STT), which continues to increase trading costs. There is also a push to reduce equity capital gains tax rates. For foreign portfolio investors, any potential relief on capital gains tax could be a significant positive for equities.

Analysts expect consumption stimulus to be selective, given that the effects of last year's ₹1 lakh crore personal income tax relief are still unfolding. The focus is likely to remain on capital expenditure due to geopolitical compulsions.

Corporate Focus: Reliance Industries Ltd.

Market expert Deven Choksey has identified Reliance Industries Ltd. (RIL) as a top stock pick for 2026, projecting a potential upside of 50-60% over the next two years. This optimism is driven by several factors. The anticipated separate listings of Jio Platforms and Reliance Retail between 2026 and 2027 are expected to unlock significant shareholder value. The company's FMCG business has already achieved a top-line revenue of ₹20,000 crore, marking it as a fast-growing player.

Furthermore, RIL's aggressive expansion into the renewable energy sector is a major long-term growth catalyst. The company's Q2FY26 results showed robust performance, with a 14.6% YoY increase in EBITDA to ₹50,367 crore, led by strong contributions from its O2C, Jio, and Retail businesses. This financial strength, combined with strategic growth initiatives, positions RIL to benefit from the government's broader economic agenda.

Conclusion: A Budget for Resilience and Growth

The Union Budget 2026 is expected to be a carefully crafted document aimed at navigating immediate economic challenges while laying the groundwork for long-term growth. The emphasis will likely be on strengthening domestic manufacturing, modernizing infrastructure, and advancing the green energy transition. For investors, the budget will provide crucial signals on the government's priorities, identifying sectors and companies poised to lead the next phase of India's economic expansion.