Finance Minister Nirmala Sitharaman will present the Union Budget 2026 for the financial year 2026-2027 (FY27) on February 1, with market participants anticipating measures that can drive economic growth without compromising fiscal discipline. Expectations center on announcements to boost consumption, support manufacturing, and accelerate economic growth, with markets favoring structural growth initiatives over short-term populist measures.

Fiscal Consolidation Takes Center Stage

Increased focus on fiscal consolidation represents a long-term positive for the economy and markets, as it boosts investor confidence, attracts foreign investments, improves sovereign credit ratings, and supports currency stability. 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, CEO of Monarch Networth Capital.

Capital Expenditure Roadmap

Government capital expenditure has served as the key driver of India's economic growth over recent years. Sustained focus on infrastructure projects will support market sentiment, with continued capex allocation towards infrastructure, defence, power, and manufacturing remaining critical for long-term growth.

Long-Term Capital Gains Tax Rationalization

Investors seek stability in taxation, particularly around capital gains and personal taxes. In Union Budget 2024, the government increased long-term capital gains (LTCG) tax to 12.50%, while raising the exemption limit to ₹1.25 lakh from ₹1.00 lakh. The market expects rationalization 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 and CEO of SBICAP Securities, emphasized that the government should rationalize the LTCG tax regime for PAN-linked retail investors as a calibrated behavioral 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."

Divestment Plans and Market Liquidity

Divestment initiatives will reduce government borrowing needs and increase system liquidity, boosting market sentiment. "Strong divestment (potentially ₹50,000-60,000 crore) could reduce borrowing needs, supporting equity markets by freeing up capital," said Vinit Bolinjkar, head of research at Ventura.

Infrastructure and Job Creation Push

Morgan Stanley expects the government to focus on sustained capital expenditure to support job creation, targeted social sector spending, and renewed structural reforms. Major announcements in these areas will provide long-term economic benefits.

Additional investor-focused measures may include:

• Clarity on transfer pricing and safe harbour rules
• Exemptions for IFSC units in GIFT City to attract FDI and FPI investments
• Extension of startup tax holidays to 2030
• MAT exemptions for foreign firms to spur venture capital inflows

Investment Strategy Recommendations

Experts recommend defensive strategies amid heightened market volatility. Santosh Meena, head of research at Swastika Investmart, identifies large-cap private banks and select public sector undertakings as attractive value opportunities.

"Private lenders have seen their valuations moderate significantly, offering a favourable entry point relative to their historical averages. Despite recent market pullbacks, the structural story for PSUs remains intact," Meena explained. The FMCG sector provides necessary defensive hedging with earnings visibility and stability during volatile periods.

As India approaches Union Budget 2026, financial inclusion experts are advocating for a transformative shift toward gender-intentional design in financial systems to accelerate women's economic empowerment. This approach goes beyond traditional schemes and rebates, focusing on embedding women's needs and realities into the core architecture of financial products, services, and policies. The objective is to ensure financial systems work effectively for women at scale, moving from isolated initiatives to comprehensive systemic change.

Gender-Disaggregated Data as Foundation for Better Design

Gender-disaggregated data emerges as a critical priority for understanding how women engage with financial services and identifying persistent gaps. This data provides essential evidence for designing suitable products, improving fairness in credit scoring, creating responsive policies, and setting meaningful gender targets. Currently, the RBI Financial Inclusion Index tracks access, usage, and quality of financial services across India but does not reveal how effectively women are being served.

Experts propose incorporating a Gender Intentionality Index within the existing FI Index to address this gap. This enhanced framework would measure key indicators including:

• Account ownership patterns
• Credit access and utilization
• Social security enrollment rates
• Workforce diversity metrics
• Digital usage behaviors

Early implementation of gender-disaggregated approaches has shown promising results:

Women Agents as Social Infrastructure

While India's Digital Public Infrastructure has delivered significant gains in financial access through digital identity, instant payments, and direct benefit transfers, substantial opportunities remain in building financial resilience. The focus shifts to greater uptake of credit, pensions, and microinsurance through trusted, well-trained women agents operating as financial intermediaries at the community level.

Women agents function in various capacities as Bima Vahaks, Vitta Sakhis, and UPI Didis, serving as critical links in achieving India's financial inclusion goals by 2030. Their effectiveness stems from community presence, trusted relationships, and ability to explain complex financial and insurance products, enabling informed decision-making and effective claims support.

Evidence-Based Performance Advantages

Data from Jan Dhan Plus demonstrates that women agents consistently outperform their male counterparts while building stronger trust across multiple financial services. Maharashtra's UMED–State Rural Livelihood Mission provides concrete evidence of how BC Sakhis can complement Digital Public Infrastructure as social infrastructure, delivering higher transaction volumes and broader service coverage.

Strategic Priorities for Budget 2026

To realize the vision of "Insurance for All by 2047," experts recommend the upcoming Union Budget prioritize several key areas:

The proposed approach aligns with the Panch Jyoti framework for the next phase of financial inclusion, emphasizing data-driven action to strengthen women's financial resilience. This comprehensive strategy positions women not just as beneficiaries but as essential infrastructure enabling broader participation in India's evolving financial ecosystem.