As Finance Minister Nirmala Sitharaman prepares to unveil Union Budget 2026 on February 1, investment strategists are intensively debating the optimal portfolio mix between capital expenditure and consumption themes. The upcoming fiscal roadmap presents investors with crucial positioning decisions that could significantly influence portfolio returns in the coming year.

Budget 2026 Capex Projections and Market Dynamics

The government has established substantial public investment targets, with current FY26 capex budgeted at ₹11.21 lakh crore. Market estimates suggest further expansion for the subsequent year, with projections indicating potential growth to ₹12-13 lakh crore.

According to Axis Securities, one of the key challenges for Union Budget 2026 will be balancing capex-led growth with consumption support. Public capex has successfully crowded in private investment across infrastructure, power, and manufacturing sectors, with capacity utilization climbing and order books expanding.

However, Akshat Garg, Head of Research & Product at Choice Wealth, notes that markets have extensively front-run this capex narrative, leaving capex themes richly priced with modest upside potential remaining.

Consumption Theme Gains Momentum

The macroeconomic backdrop is becoming increasingly supportive for consumption-focused investments. Key indicators demonstrate favorable conditions for demand revival.

These conditions improve prospects for rate transmission and EMI relief, potentially feeding into discretionary demand. Additionally, income tax cuts and GST relief measures are further supporting demand revival.

Axis Securities believes the government may support consumption through several targeted measures:

• Rural infrastructure and agriculture support programs
• Employment and skilling initiatives
• Targeted welfare spending to address urban consumption moderation
• Measures to counter uneven rural demand patterns

Investment Strategy Recommendations

Harshal Dasani, Business Head at INVasset PMS, expects the Budget to protect capex momentum while using targeted measures to revive mass consumption without compromising fiscal discipline. He recommends a barbell positioning strategy for portfolios.

Dasani's Rationale: "Capex-linked themes still have multi-year visibility because public spending keeps crowding in private investment—roads, railways and industrial build-out have strong multipliers. But 2026 could also be the year consumption re-enters leadership if the Budget delivers credible, execution-friendly measures around income support, employment, and targeted tax rationalization."

Garg from Choice Wealth emphasizes that consumption themes offer fresher alpha potential. He suggests that Budget measures such as deeper income tax slabs, PLI extensions for consumer goods, or amplified rural schemes could ignite a virtuous cycle.

Sector-Specific Positioning

Consumption-focused sectors demonstrate nimble responsiveness to policy changes, potentially delivering earnings improvements faster than capex's gradual impact. Key sectors identified include:

Garg recommends increasing allocation to quality consumption proxies while retaining capex core positions for portfolio stability. His strategy involves letting "consumption drive the tilt" to capture both steady growth and potential surprise tailwinds through 2026.

Risk Assessment and Market Outlook

Dasani highlights a key market risk: current pricing may already reflect expectations of perfect capex continuation. He suggests that upside surprises will emerge if consumption breadth improves without compromising fiscal discipline.

The investment approach centers on owning quality franchises across both themes, with emphasis on balance sheet strength and earnings visibility rather than making binary choices between capex and consumption strategies.

As Budget 2026 approaches, the consensus among analysts points toward a nuanced approach that acknowledges both themes' potential while positioning for policy-driven shifts that could favor consumption revival alongside sustained public investment momentum.

India's Union Budget has transformed from a simple revenue and expenditure statement into a powerful tool for economic reform, crisis management, and institutional change over nearly eight decades. This evolution reflects the nation's journey through wars, economic crises, liberalisation, technological advancement, and governance reforms.

Foundation Years: Building a New Nation

Independent India's first Budget was presented by R.K. Shanmukham Chetty on November 26, 1947. The inaugural budget reflected the priorities of a nascent nation facing immediate challenges.

This budget established the foundation for security, administration, and economic stabilisation as core governmental priorities.

Crisis and Reform Milestones

The 1973-74 Budget, presented by Yashwantrao B. Chavan, earned the notorious label 'Black Budget' due to economic stress, high inflation, and global oil shocks. With a fiscal deficit of ₹550.00 crore—considered substantial for that period—it highlighted the limitations of a tightly controlled economic system.

A significant shift occurred in 1983-84 when Finance Minister Pranab Mukherjee introduced performance-based federalism, allocating central grants to states based on performance rather than population or negotiation. This marked an early attempt to link public spending with accountability measures.

The Liberalisation Era

The most transformative moment came with the 1991-92 Budget presented by Manmohan Singh during a severe balance-of-payments crisis. This epochal budget marked India's decisive turn towards Liberalisation, Privatisation, and Globalisation (LPG). Key reforms included:

• Dismantling of industrial licensing
• Easing of trade controls
• Welcoming foreign investment
• Initiating public sector reform

The 1997-98 'Dream Budget' by P. Chidambaram applied Laffer Curve logic to reduce personal and corporate tax rates while explicitly recognising information technology as a growth engine, catalysing India's IT boom.

Institutional Strengthening and Digital Foundations

The 2003-04 Budget introduced the Fiscal Responsibility and Budget Management (FRBM) framework under Jaswant Singh, legally binding future governments to deficit and debt targets. This shift from discretionary to rules-based budgeting enhanced fiscal transparency through mandatory policy statements.

Pranab Mukherjee's post-global financial crisis budgets (2009-12) supported the Aadhaar rollout and early direct benefit transfer pilots, establishing the groundwork for the JAM (Jan Dhan–Aadhaar–Mobile) architecture that would later transform governance delivery.

Modern Era: GST and Beyond

The 2017-18 Budget under Arun Jaitley preceded the Goods and Services Tax rollout, creating the GST Council as a landmark institution for consensus-driven federal decision-making. This represented a significant advancement in cooperative federalism.

Recent budgets have emphasised infrastructure development and tax reform. The 2020-21 Budget introduced the National Infrastructure Pipeline and an alternative personal income tax regime. The 2021-22 'once-in-a-century' Budget prioritised capital expenditure, healthcare, and asset monetisation over short-term consumption stimulus during the pandemic response.

Current Trajectory

The 2025-26 Budget deepened tax reform by raising the no-tax income threshold under the new regime and announcing a new Income Tax Bill. It revised TDS/TCS thresholds and proposed regulatory decriminalisation through Jan Vishwas Bill 2.0, signalling a shift toward trust-based governance.

The Union Budget 2026 is scheduled for presentation on February 1, continuing the post-2017 tradition. The upcoming budget is expected to build on recent themes of capital expenditure, tax simplification, and trust-based governance while addressing emerging challenges including global uncertainty, climate financing, and job creation.