Indian equity markets are entering Union Budget 2026 with a markedly different sentiment compared to previous years. Market participants are displaying measured optimism, moving away from the broad-based participation that characterized earlier phases driven by liquidity and macro stability. The forthcoming budget is expected to reinforce a market environment where returns are increasingly driven by company-specific fundamentals rather than index momentum.

Policy Shift: From Consumption to Production

A significant transition is anticipated in policy emphasis, moving from stimulating consumption to enabling production. This reflects a broader economic pivot from a 'Buy India' approach to a 'Build India' agenda. While previous budget focused on boosting household spending through tax reforms, GST rationalization, and income support measures, the policy narrative is expected to shift towards capital expenditure as the primary growth engine.

The objective centers on converting gains from higher disposable incomes into sustained supply-side expansion, positioning India for durable growth rather than cyclical consumption-led spurts. This strategic shift emphasizes continuity in manufacturing policy, strengthening domestic manufacturing capabilities, expanding infrastructure capacity, and creating higher-quality employment opportunities.

Capital Expenditure Framework

Capital expenditure is expected to be anchored around three interlinked priorities:

Key sectors anticipated to benefit from policy continuity include roads, railways, defence manufacturing, logistics, and renewable energy. Urban infrastructure and affordable housing may also receive support through targeted allocations and incentives.

Sectoral Opportunities and Policy Support

Production-linked incentive programmes are expected to deepen, with attention extending to newer segments such as semiconductors value chain and data centre infrastructure. Sustained policy support for agriculture remains critical, both to ensure rural stability and to secure raw material availability for the industrial ecosystem.

Infrastructure spending is anticipated to remain elevated, reflecting the government's intent to strengthen physical and digital backbones that support industrial growth. This approach aims to create a favorable environment for acceleration in private capital expenditure.

Market Impact and Company Differentiation

The market impact of these policy priorities is unlikely to be uniform across sectors or companies. As policy support becomes more targeted, differentiation at the company level is expected to sharpen significantly. Key factors that will determine success include:

• Execution capability
• Balance sheet strength
• Capital efficiency
• Earnings visibility

In this environment, index-level performance may mask significant dispersion in stock-level outcomes, making individual company analysis increasingly important.

Financial Sector Outlook

Fiscal discipline will serve as the market's primary barometer, with investors closely monitoring commitment to the consolidation path. This approach should keep bond yields stable and funding costs predictable. Within the financial sector, differentiation is expected to persist, with institutions demonstrating improved asset quality, conservative underwriting standards, and strong capital positions better positioned to navigate the selective market phase.

While credit growth opportunities exist, especially alongside a capex-led recovery, markets are likely to reward balance sheet resilience and disciplined risk management rather than aggressive growth strategies alone.

Investment Strategy Implications

The forthcoming Union Budget is expected to reinforce a market environment where returns are shaped by alignment with policy priorities, balance sheet strength, and execution quality. As markets move into an earnings-driven phase, investors may benefit from focusing on businesses capable of converting policy intent into cash flows and profitability, rather than relying on broad-based rallies driven by sentiment or liquidity.

India's clean energy transition has reached a pivotal moment as the country prepares for Budget 2026. With non-fossil fuel capacity crossing 260 GW and growing at 22.6% year-on-year, renewables now account for over 50% of the installed power mix. However, achieving the ambitious targets of 500 GW renewable capacity by 2030 and net-zero emissions by 2070 requires sustained fiscal support, particularly for emerging sectors where economics remain challenging.

CBG Sector Requires Immediate Fiscal Intervention

The compressed bio-gas sector under the Sustainable Alternative Towards Affordable Transportation (SATAT) initiative faces significant implementation challenges. Despite targeting 5,000 CBG plants by 2023-24, progress has been uneven with concerning operational statistics:

Rising capital costs present a major hurdle, with plant capex increasing substantially over recent years:

Enhanced Financial Assistance Framework

The current Central Financial Assistance structure requires immediate revision to address cost inflation. The CFA should be enhanced from ₹4 crores per 4.8 TPD to at least ₹6 crores per 4.8 TPD, removing the upper cap that currently discourages larger projects above 12 TPD.

Budgetary allocation presents another critical challenge. The initial ₹800 crores earmarked for Phase I (FY 2021-26) has been exhausted, while the additional ₹180 crores announced in September 2025 supports barely 10 plants. With over 1,000 plants expected by 2030, a cumulative allocation of around ₹10,000 crores is essential.

Addressing Economic Viability Gaps

CBG faces significant pricing disadvantages compared to ethanol. While ethanol enjoys roughly 120% premium over fossil petrol, CBG trades at an 85% discount on energy-equivalent basis. Market development assistance for organic manure requires revision to ₹3-3.5 per kg for five years to stabilize unit economics during scale-up.

The inverted GST structure creates additional challenges, with CBG output taxed at 5% while plant machinery attracts 12%, leading to blocked input tax credits. Aligning GST rates with wind and solar at 5% would improve project viability significantly.

Green Hydrogen Manufacturing Capabilities

The National Green Hydrogen Mission targets 5 million tonnes annual production by 2030, requiring enhanced domestic electrolyser manufacturing capabilities. Targeted customs duty exemptions for patented components and materials not manufactured domestically can reduce capital costs and accelerate localisation.

Integrated renewable-hydrogen projects merit special incentives to improve economics through reduced transmission losses and clustered industrial ecosystems around hydrogen hubs.

Battery Storage Infrastructure Development

Battery Energy Storage Systems remain critical for managing renewable intermittency and ensuring grid stability. Current fragmented GST rates across BESS components inflate project costs, requiring uniform 5% GST alignment with other renewable infrastructure.

The viability gap funding introduced for 4 GWh storage capacity in Budget 2023 should extend to larger capacities, as scaling storage infrastructure is essential for reliably integrating 500 GW renewables into the grid.

Carbon Credit Market Integration

Emerging carbon and renewable gas markets present additional revenue opportunities. The proposed Renewable Gas Certificate framework and carbon credit trading system can provide supplementary income streams. Allowing CBG-linked certificates and carbon credits for domestic and international trading under Article 6.2 of the Paris Agreement would strengthen project economics further.

Budget 2026 represents a crucial opportunity to convert clean energy ambitions into executable frameworks. Addressing structural and fiscal gaps through enhanced financial assistance, rationalized taxation, and scaled allocations will strengthen India's clean energy value chains while attracting private investment for the energy transition.