Budget 2026: From capex push to LTCG tweak— 5 key announcements retail investors should watch

Union Budget 2026: Amid all the geopolitical noise, investors' focus is on the mega-policy event— the Union Budget 2026 for the financial year 2026-2027 (FY27), which the Finance Minister Nirmala Sitharaman will present on February 1.

Market participants expect the government to announce measures that can propel economic growth without compromising on fiscal prudence.

Expectations are high that the Finance Minister will announce measures to boost consumption, support manufacturing, and accelerate economic growth. Markets will cheer a Budget that prioritises structural growth over short-term populism.

Let's take a look at five key announcements retail investors should watch

1. Government's focus on fiscal consolidation

An increased focus on fiscal consolidation will be a long-term positive for the economy and markets, as it will boost investors' confidence, attract foreign investments, improve sovereign credit ratings, and support the currency.

India aims to narrow the fiscal deficit and bring central government debt towards 50% of gross domestic product (GDP) by FY31.

"From an investor’s perspective, the key focus areas in this Budget will be fiscal discipline, continuity in capital expenditure, and policy stability. Markets will closely watch the government’s commitment to its fiscal deficit roadmap, as that has a direct bearing on bond yields, currency stability, and overall sentiment," said Gaurav Bhandari, the CEO of Monarch Networth Capital.

2. The capex roadmap

Fiscal consolidation is important. So is government capital expenditure. Over the last few years, government capital expenditure has been the key driver of the Indian economy's growth.

Sustained focus on infra projects will cheer the market mood.

"Sustained capex allocation towards infrastructure, defence, power, and manufacturing remains critical for long-term growth," said Bhandari.

3. LTCG rationalisation

Investors will also look for stability in taxation, particularly around capital gains and personal taxes, as any surprises could impact flows.

In the Union Budget 2024, the government increased the long-term capital gains (LTCG) tax to 12.5%, while also increasing the exemption limit to ₹1.25 lakh from ₹1 lakh.

The market is expecting rationalisation of LTCG tax and an increase in the exemption limit.

"If a person is selling equity based on mutual fund units after 5-7 years, ₹1.25 lakh tax exemption is a low threshold,” said Mihir Tanna, Associate Director of Direct Tax at SK Patodia and Associate LLP.

Bhuvaneshwari A., Managing Director (MD) and CEO of SBICAP Securities, told Mint that the government should rationalise the LTCG tax regime for PAN-linked retail investors, as a calibrated behavioural nudge.

"Rewarding longer holding periods with reduced tax rates incentivises financial discipline, broadens participation, and supports market stability. With the right thresholds, such a move can be revenue-neutral while structurally aligning household savings with India’s long-term growth," Bhuvaneshwari told Mint.

4. Divestment plans

The focus will also be on the divestment plans as they will reduce the government's borrowing needs and increase liquidity in the system, boosting market sentiment.

"Government borrowing programs and PSU divestment targets (e.g., via stake sales in banks or energy firms) will influence liquidity. Strong divestment (potentially ₹50,000-60,000 crore) could reduce borrowing needs, supporting equity markets by freeing up capital," said Vinit Bolinjkar, the head of research at Ventura.

5. Push on infra, job creation

According to the global investment bank Morgan Stanley, the government will focus on sustained capital expenditure to support job creation, targeted social sector spending, and a renewed push on structural reforms.

Major announcements on these fronts will be a long-term positive for the economy.

According to Bolinjkar, capital expenditure outlay, projected at ₹12-13 lakh crore (10-12% YoY growth), will drive multipliers in roads, railways, and urban infrastructure, benefiting related sectors, such as capital goods, infrastructure and power. This could also drive demand for other related stocks such as cement, steel and building materials.

Apart from the above five key announcements, investors will also focus on other investor-specific announcements.

According to Bolinjkar, clarity on transfer pricing, safe harbour rules, and exemptions for IFSC units in GIFT City could attract more FDI and FPI investments.

Extensions of startup tax holidays to 2030 and MAT (Minimum Alternate Tax) exemptions for foreign firms might spur venture capital inflows, said Bolinjkar.

Investment strategy ahead of Budget

The Indian stock market is witnessing heightened volatility ahead of the Union Budget. Experts say investors, who are pursuing safety and value, should consider defensives, mixed with strategic long-term bets.

According to Santosh Meena, the head of research at Swastika Investmart, the most attractive pockets of value currently appear to be large-cap private banks and select public sector undertakings (PSUs).

"Private lenders like HDFC Bank, Kotak Mahindra Bank, and Federal Bank have seen their valuations moderate significantly, offering a favourable entry point relative to their historical averages," said Meena.

"Despite the recent pullback in broader markets, the structural story for PSUs remains intact; stocks like ONGC, BEL, and Hindustan Copper are compelling due to their alignment with energy security, defence indigenisation, and industrial demand," Meena said.

According to Prashanth Tapse, Senior VP (Research), Mehta Equities, gradual accumulation is best directed towards domestic growth and policy-backed sectors that offer high earnings visibility and are relatively insulated from US tariff actions and volatile FII flows.

"Segments such as infrastructure, capital goods, railways and defence continue to benefit from a strong government capex pipeline, multi-year order backlogs, and improving execution capabilities, providing confidence in medium-term revenue and margin sustainability," Tapse said.

Tapse underscored that balance sheet strength and order book quality should remain key selection criteria rather than thematic exposure alone.

"Investors should remain cautious in the near term on export-oriented sectors, particularly those with high dependence on the US and global trade cycles. Tariff uncertainties, potential demand moderation, and pricing pressures could weigh on earnings visibility, making risk-reward less favourable until there is greater clarity on global growth and trade policy direction," Tapse said.

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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.