Puneet Sharma, CEO and Fund Manager at Whitespace Alpha, expects the upcoming Budget 2026 to maintain focus on infrastructure development while steering clear of broad-based consumption incentives. Speaking in an interview with Moneycontrol, Sharma outlined his expectations for fiscal policy direction and market outlook.

Budget 2026 Strategy and Fiscal Approach

Sharma advocates for a focused fiscal approach centered on three key pillars. He believes the Finance Minister should double down on capital expenditure and infrastructure push, which has proven to be one of India's most effective policy tools in recent years.

"The government has already done a fair bit on GST rationalisation and middle-class tax relief. At this stage, the more effective way to support consumption is through job creation and income growth driven by infrastructure spending and private capital expenditure, rather than additional fiscal handouts," Sharma explained.

Foreign Portfolio Investment Outlook

Addressing the multi-year low in Foreign Portfolio Investment holdings, Sharma attributes this decline primarily to global factors rather than fundamental issues with India. High US bond yields, strong dollar, geopolitical uncertainty, and relative market underperformance have pushed foreign money to the sidelines.

"This has also made India structurally under-owned in global portfolios today. From that lens, I actually see this as an opportunity rather than a concern," he noted. Sharma expects gradual FPI return as US rates stabilize and global risk appetite improves, though the reversal may not be immediate.

Banking Sector and Credit Growth Prospects

Sharma maintains positive outlook on the banking sector, expecting healthy double-digit credit growth to continue. He projects a 10.00-12.00% credit growth environment as achievable for the next couple of years, supported by retail lending, MSME demand, and corporate capital expenditure revival.

"What makes banks particularly attractive right now is the combination of clean balance sheets and reasonable valuations," Sharma observed.

IT Sector Recovery Assessment

Regarding IT sector prospects post-Q3 results, Sharma adopts a cautiously optimistic stance. While Q3 results showed early stabilization signs with improved deal wins and reduced guidance cuts, he expects gradual rather than sharp recovery.

"Global tech spending is still in a slow recovery phase. Clients remain cautious, discretionary budgets are tight, and revenue growth is still in low single digits," he explained. Despite near-term measured growth, Sharma emphasizes the sector's structural strength, particularly in AI and digital transformation opportunities.

India's Economic Resilience

Sharma expresses confidence in India's stability despite potential geopolitical and tariff-related shocks. He highlights India's domestic growth engine as a key strength, noting that internal consumption and investment continue supporting growth even during global uncertainties.

"India's macro fundamentals are much stronger than in the past — forex reserves are healthy, inflation is under control, fiscal discipline is improving, and the banking system is in good shape," he stated. While acknowledging that tariff uncertainties may hurt market sentiment, Sharma believes they won't materially alter India's long-term economic fundamentals or earnings trajectory.

Economic experts have recommended a strategic approach for fiscal consolidation in the upcoming budget, suggesting the government reduce the fiscal deficit to 4.0% of GDP in 2026-27 while maintaining growth momentum through sustained capital expenditure. The recommendations come amid concerns over revenue shortfall and the need to support private investment.

Economic Projections and Revenue Estimates

The nominal GDP magnitude for 2025-26 is estimated at ₹357.14 lakh crore. Applying a nominal growth rate of 9.5%, the figure for 2026-27 is projected at ₹391.10 lakh crore. However, revenue collection has shown concerning trends during the current fiscal year.

For the period April to November 2025-26, the Centre's gross tax revenues have shown growth of only 3.3% compared to the budgeted full-year growth of 10.8%, according to Controller General of Accounts data. While GTR growth may improve in the remaining four months, it would still fall short of budgeted expectations.

Fiscal Consolidation Strategy

The experts suggest reducing the fiscal deficit-to-GDP ratio to 4.0% in 2026-27, representing a 40 basis points decline. This would limit the fiscal deficit magnitude to ₹15.83 lakh crore, which appears achievable with appropriate adjustments.

The revenue shortfall may be partially offset by:

• Two newly introduced measures relating to central excise tax on tobacco and tobacco products
• Health Security and National Security Cess
• Higher dividends from the Reserve Bank of India
• Potential cuts in revenue expenditures

Budget Estimates for 2026-27

The experts have provided detailed estimates for various fiscal aggregates, assuming a tax buoyancy of 1 and nominal GDP growth rates for certain components.

To accommodate the proposed fiscal deficit reduction of 0.4 percentage points of GDP, the revenue expenditure-to-GDP ratio would need adjustment from 10.7% in 2025-26 to 10.3%, while increasing the capital expenditure-to-GDP ratio by 0.1 percentage points.

Investment and Consumption Outlook

The real gross fixed capital formation-to-GDP ratio has remained relatively stable at approximately 33.6% on average during 2022-23 to 2024-25, with a marginal increase to 33.8% in 2025-26 according to first advance estimates. Despite extensive GST rate reductions and sustained repo rate cuts providing policy support for consumption expenditure growth, private investment has not shown significant pickup.

The experts emphasize the need to explore reasons behind sluggish private investment and suggest that investment sentiments may improve after global supply bottlenecks ease and global growth picks up. They recommend the Centre continue supporting growth by maintaining capital expenditure momentum while facilitating more sectoral-level interventions in the upcoming budget.