Atul Parakh, CEO of Bigul, expects the upcoming Union Budget to present significant risks for investors, advising a cautious approach rather than anticipating any pre-Budget market rallies. His analysis suggests that current market sentiment remains subdued due to foreign portfolio investor outflows, global uncertainties, and Budget-related anticipation.

Historical Market Pattern Continues

The Indian stock market has demonstrated a consistent pattern of weakness ahead of Union Budget announcements. Historical data reveals that Nifty 50 has delivered negative returns in January during four of the last five years, with 2024 being the sole exception. This trend reflects typical profit-booking behaviour and policy uncertainty that characterises the pre-Budget period.

Parakh anticipates this cautious trend will continue in January 2026, though selective opportunities may emerge following the Budget announcement. The market expert notes that pre-Budget rallies are unlikely, with volatility and selective buying in growth themes like infrastructure being more probable scenarios.

Budget 2026 Expectations and Fiscal Priorities

The expert does not expect major income tax cuts or significant changes in GST structure, as the government maintains focus on controlling fiscal deficit. Tax collections are projected to grow in line with economic expansion, but large tax relief measures appear unlikely given current fiscal priorities.

The FY27 Budget is expected to prioritise capital spending, with government capex projected to rise by approximately 10% year-on-year while remaining close to 3.1% of GDP. This investment-led growth strategy focuses on defence, infrastructure-related manufacturing, power, nuclear energy, electronics, pharmaceuticals, and critical minerals.

Sector-Specific Opportunities

Parakh identifies three key sectors positioned to benefit from Budget 2026 policies. Defence sector expectations centre around proactive capital expenditure following recent strategic developments, providing structural tailwinds for the industry. Infrastructure investments are anticipated in futuristic areas including artificial intelligence, green hydrogen, and advanced semiconductor manufacturing to enhance global competitiveness.

Textiles sector may receive targeted financial support to offset tariff-related pressures, given the significant impact of recent tariff changes on industry performance. The expert recommends aligning investment strategies with capex-driven themes including defence, infrastructure, capital goods, power, and manufacturing-linked public sector undertakings.

Trading Strategy and Risk Management

For traders and investors, Parakh emphasises treating the Union Budget as a high-risk event requiring careful positioning. He specifically advises against buying naked options due to expensive premiums that typically deflate immediately after Budget announcements, potentially causing losses even with favourable market movements.

Key Trading Guidelines:

• Avoid pre-Budget positioning in volatile instruments
• Consider defensive sectors like FMCG if participation is necessary
• Focus on policy-driven themes including Defence, Railways, and Rural consumption
• Maintain cash positions until post-Budget clarity emerges
• Wait for decisive breakout from current consolidation zone

The expert's primary recommendation centres on capital preservation, suggesting investors sit with cash positions during the Budget speech and deploy funds only after policy direction becomes clear. This approach prioritises risk management over speculative positioning in an inherently uncertain environment.

Tax policy experts have presented comprehensive recommendations for Budget 2026 to enhance India's mergers and acquisitions environment, particularly with the Income-tax Act, 2025 scheduled for implementation from April 1, 2026. The suggestions aim to address existing regulatory gaps and improve the ease of doing business for M&A transactions.

Fast-Track Demerger Tax Neutrality

A primary recommendation involves extending tax neutrality to fast-track demergers under Section 233 of the Companies Act, 2013. Currently, the Income-tax Act, 2025 provides tax neutrality only to NCLT-approved demergers under Sections 230 to 232, excluding fast-track demergers that enable small or closely held companies to undertake demergers without court approval.

The finance ministry's rationale for excluding fast-track demergers centers on concerns about potential valuation manipulation without court oversight. However, experts argue this approach contradicts the ease of doing business agenda, forcing genuine taxpayers to choose between transaction efficiency and tax benefits.

Contingent Consideration Clarity

Experts emphasize the need for clear taxation guidelines on earn-out, profit-linked, or contingent consideration arrangements that have become increasingly common in M&A transactions. These arrangements tie part of the sale consideration to achieving specific profitability or financial milestones.

The current legal framework lacks clarity on:

• Taxability of contingent payments
• Timing of taxation for such arrangements
• Treatment of milestone-based considerations

Foreign Company Merger Anomalies

The recommendations address existing inconsistencies in foreign company merger taxation. While foreign companies enjoy capital gains tax exemptions on direct or indirect share transfers during mergers with other foreign companies, shareholders of the amalgamating company face potential capital gains liability on share swaps.

This creates an anomaly compared to domestic mergers, which provide exemptions at both company and shareholder levels.

Capital Gains Tax Rate Concerns

The recent capital gains tax regime rationalization introduced higher long-term capital gains tax rates, which experts suggest adversely impacts investor returns and exit efficiency. The increased rates potentially drive investors toward jurisdictions with more favorable tax regimes.

Key concerns include:

• Reduced post-tax returns for investors
• Decreased competitiveness with other investment destinations
• Impact on foreign capital attraction

Experts recommend reducing capital gains tax rates, suggesting restoration of the earlier 10.00% rate to improve India's competitive position in attracting foreign investment.

Strategic Implementation Timeline

With the Income-tax Act, 2025 set for April 1, 2026 implementation, Budget 2026 represents the final opportunity to incorporate these amendments before the new framework takes effect. The recommendations aim to position India as a preferred destination for cross-border M&A activities while maintaining regulatory integrity and supporting corporate growth objectives.