Vikas Khemani, Founder and CIO of Carnelian Asset Management & Advisors, has outlined comprehensive expectations for Budget 2026, emphasizing the need for sustained capex execution, enhanced R&D investment, and meaningful tax reforms to maintain India's growth trajectory. Speaking on market valuations and policy priorities, Khemani presents a measured outlook for India's economic prospects amid global uncertainties.

Capex Allocation Expected to Exceed ₹11 Lakh Crore

Khemani expects the government's capex allocation to surpass the previous ₹11.11 lakh crore benchmark, supported by higher tax collections and continued focus on capacity building. He emphasizes that government capex extends beyond direct budgetary allocations through SPV-led projects and PPP models.

"More than allocations, the real challenge today is execution capacity," Khemani noted, highlighting that India faces greater constraints in project implementation than in securing financing across private sector, PPP, and government-led initiatives.

SIP Growth and Financial Market Dynamics

With SIP contributions reaching ₹30,000-31,000 crore, Khemani acknowledges the positive trend in household savings financialization while noting structural challenges. He points out that household exposure to financial assets remains in single digits, with potential to reach 15-20.00%.

The shift toward SIPs, combined with new tax regimes, has reduced attractiveness of bank fixed deposits, creating challenges for the banking system. Banks' loan-to-deposit ratios are approaching peak levels, potentially constraining credit flow despite RBI rate cuts.

Equity Market Outlook for 2026

Khemani maintains an optimistic stance on India's equity markets, drawing parallels to the recovery pattern seen in 2022-2023. He views current Nifty PE ratios of 20-21 times as reasonable, neither expensive nor cheap.

"Fundamentally, there is nothing negative from a directional perspective," Khemani stated, citing strong monetary stimulus, supportive fiscal measures, robust government spending, and healthy GDP growth as positive factors.

Key Budget 2026 Expectations

Khemani has outlined four specific policy recommendations for the upcoming budget:

R&D Investment Initiative: Implementation of a CSR-like mechanism requiring companies to contribute a fixed percentage of profits toward research and development, supporting long-term nation-building objectives.

Capital Markets Tax Reform: Elimination of double taxation by removing either STT or capital gains tax, addressing the current burden on investors and market participants.

Dividend Taxation Relief: Revision of dividend taxation structure, suggesting either zero tax or a flat 10.00% rate instead of the current maximum marginal rate applied after corporate tax payments.

Export Sector Support: Provision of incentives, rebates, and credit support for sectors directly impacted by tariff uncertainties, particularly textiles and export-oriented segments, to prevent permanent damage and job losses.

Economic Fundamentals and Growth Prospects

Khemani emphasizes that India's long-term growth story remains intact, supported by multiple positive indicators including strong GST collections, pickup in private capex, and healthy insurance premium collections. He expects 2026 to outperform 2025, contingent on global conditions evolution.

The current market environment represents a "tug of war between strong domestic macros and global concerns," which historically tends to resolve favorably over time. Khemani notes India's significant underperformance versus other emerging markets creates opportunities for capital deployment, with the current vintage potentially delivering strong outcomes similar to the successful 2022 investment cycle.

R. Dinesh, Executive Chairman of TVS Supply Chain Solutions and former President of the Confederation of Indian Industry, has outlined a comprehensive vision for Budget 2026, emphasizing the need to consolidate recent economic gains and accelerate India's growth trajectory. According to Dinesh, the upcoming budget presents an opportunity to develop measurable outcomes and effective delivery mechanisms while building on significant policy reforms.

Economic Formalization Shows Strong Progress

Recent tax and policy reforms have demonstrated substantial impact on India's economic formalization. The GST system has shown remarkable growth, with collections more than doubling over a four-year period.

Dinesh notes that this growth represents "clear evidence of deeper formalization of the economy" rather than merely revenue expansion. The GST reforms implemented in September 2025 have simplified what was previously a complex system.

Infrastructure Investment Maintains Momentum

Infrastructure spending has continued its upward trajectory, with investment rising 11% to reach ₹11.11 lakh crore, maintaining capital expenditure at 3.4% of GDP. Dinesh emphasizes that as this scale of spending continues, the focus must shift from capacity creation to debottlenecking and efficiency gains.

The PM Gati Shakti data, announced in the previous budget, now provides visibility to investors and users as a planning tool. This system helps identify where removing bottlenecks can deliver the quickest returns across ports, airports, connectivity infrastructure, and first- and last-mile logistics networks.

Global Supply Chain Integration Strategy

To enhance India's integration into global supply chains, Dinesh proposes creating mechanisms for Indian companies to acquire overseas manufacturing capacity. He suggests establishing a dedicated sovereign-backed vehicle or a focused fund under the National Investment and Infrastructure Fund.

The automotive aftermarket presents a significant opportunity, with India currently holding approximately $3 billion of an estimated $300 billion global market. A ₹1 lakh crore fund for R&D and innovation, provisioned in the previous budget, is now being operationalized to enable Indian companies to acquire overseas intellectual property and technology capabilities.

Employment Generation and Skill Development Focus

The Employment Linked Incentive (ELI) scheme provides a foundation for job creation by linking employment generation with formalization and skilling. Dinesh advocates for prioritizing specific sectors that offer high employment potential.

He recommends focused certification and upskilling through National Skill Training Institutes (NSTIs), with a target of enabling at least 100,000 jobs in logistics and tourism sectors. This approach would translate policy intent into measurable outcomes.

MSME Support and Industry Collaboration

Micro, small and medium enterprises continue serving as the backbone of job creation, supported by multiple schemes with increased funding. Dinesh suggests coordinated cross-functional collaboration with industry bodies such as CII and sectoral Centres of Excellence to improve connectivity with MSMEs.

This collaboration would help align initiatives more closely, enable large corporates to support MSMEs, and translate policy intent into measurable growth and employment outcomes.

Business Process Reforms and Global Competitiveness

Dinesh emphasizes evaluating policies through two key lenses: ease of doing business and cost of doing business. As India integrates more deeply into the global economy, he calls for benchmarking processes such as mergers, demergers, and acquisitions against global best practices to achieve world-class timelines.

The finance minister's recent references to customs and trade facilitation reforms are particularly relevant as global supply chains continue reconfiguring. Beyond rate rationalization, Dinesh advocates for deeper digitization and technology-led processes that speed up approvals and clearances to strengthen India's competitiveness.