Budget 2026: Capex can cross ₹12 trillion; minor income tax benefits possible, says Sunny Agrawal of SBI Securities

Budget 2026: Sunny Agrawal, Head of Fundamental Research at SBI Securities, said the upcoming Budget for the financial year 2026-27 (FY27) could focus on fiscal consolidation, capex-driven growth and ease of doing business. However, he expects a post-Budget rally only in case of measures to attract capital from FIIs and domestic investors. In this interaction with Mint, Agrawal shares his expectations on divestment, the possibility of tax tweaks in Budget 2026 and sectoral bets ahead of the mega event. Edited excerpts:

Given the tough geopolitical environment, what are your top three Budget expectations?

1. Capex-driven growth push: Government of India may increase the capex spend by 10-12% for FY27E on the revised target of FY26E. For FY27E, the annual capex spend target can exceed the ₹12 trillion mark. Any significant jump from the ₹12 trillion mark can act as a big economic boost.

2. Fiscal consolidation: Likely to continue the glide path of fiscal deficit as a % of GDP, which was pegged at 4.4% for FY26E.

3) Ease of doing business: Support for export focused sector in the backdrop of heightened uncertainty in global trade, coupled with measures to attract FDI. Policy support for Make in India & likely correction in the inverted customs duty structure.

Volatility tends to be high in the run-up to Budget. How should investors position portfolios?

Over the last few years, the importance of the Union Budget as the only window for reform measures has reduced significantly, and reform measures have become round the clock process. Budget documents help investors to get an idea of the broader areas where the focus of the government is likely to be over the next 12 months. Post-budget rally is subject to multiple factors, like:

(a) Dec-qtr. earnings season and growth outlook,

(b) Whether the Union Budget meets the Street's expectations, coupled with no major negative developments for various set of investors

(c) Clearance of headwinds like the Indo-US trade deal, etc.

Overall, looking at the current market set-up, if there are measures to attract capital from FIIs and domestic investors, equity markets may rally post-Budget.

Is there scope for personal income tax relief without derailing fiscal discipline?

After the big bang tax break to taxpayers in the last Union Budget, this time the budget may continue to focus on making the new tax regime incrementally attractive. Minor tax benefits, like an increase in the standard deduction limit, are likely to be offered.

What are the top sectors that should be on investors' radar in the run-up to the Budget?

Sectors which are likely to report strong Dec-quarter results, like NBFCs, Public Sector Banks, Mid-sized private banks, Auto, Auto Ancillary, Metals, OMCs, Consumer Discretionary, etc., are likely to remain under focus till the Budget. Sectors which are usually in a strong uptrend ahead of budgets are Real Estate, Housing Finance, Railways, Defence, etc., which are primarily dependent on government spending or government policy push.

What fiscal deficit number is the market pricing in for FY26, and what is your base-case estimate?

FY26E fiscal deficit target of 4.4% of the GDP is likely to be achieved on the back of a likely shortfall in the indirect tax collection, which will be mitigated through lower expenditure in a few ministries. We expect for FY27E, the government may target a number closer to 4.2-4.4% of the GDP with an anchor towards the Debt/GDP ratio.

Do you see a higher divestment target this year amid revenue shortfall?

Divestment of IDBI Bank is in advance stage and should help the government in boosting its FY27 divestment kitty, while the FY26 target may be missed due to weak market sentiments. Similarly, next fiscal, the government may monetise its assets and stake in listed companies through OFS or ownership transfer. The government may announce the strategic acquisition of unlisted Public Sector Undertakings by the listed entities, a payout akin to divestment.

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