As global markets face trade wars and geopolitical uncertainties, India enters Budget season from a position of relative strength. A Balasubramanian, MD & CEO of Aditya Birla Sun Life AMC, outlines key priorities for Budget 2026, emphasizing policy continuity, bond market development, and domestic funding mechanisms as essential elements for sustained growth.

India's Strategic Position Amid Global Challenges

Balasubramanian highlights India's historical resilience during global crises, noting that the country has consistently emerged stronger when faced with sanctions, trade wars, or geopolitical risks. He emphasizes India's current "sweet spot" position, particularly on the fiscal front where the country stands out among global economies facing fiscal challenges.

The Make in India initiative, launched in 2017, has evolved significantly from the initial debate of "make in India for India" versus "make in India for the world." Today, India produces a large number of goods domestically for both local consumption and exports, demonstrating the success of this strategic approach.

Real Asset Creation and Capital Allocation

India's focus on creating tangible hard assets distinguishes it from other economies. Over recent years, nearly ₹11.00 lakh crore has been allocated towards building India's manufacturing capability, incentivizing manufacturing companies while improving self-sufficiency across multiple sectors.

The government's capital expenditure has targeted several key areas:

• Defence manufacturing and self-sufficiency
• Renewable energy infrastructure
• Roads, ports, and airports development
• Rural infrastructure investment
• Inland water transport and logistics

Balasubramanian notes that these sectors can absorb significantly more capital to become not only self-sustainable but also strong suppliers to global markets. The focus on real asset creation contrasts with other economies where capital expenditure largely revolves around areas like AI.

Market Valuations and Investment Outlook

Regarding market valuations, Balasubramanian observes that Indian equity markets have undergone a necessary correction over the past two years. The Nifty and Sensex have generated single-digit returns, while small and midcap segments have experienced significant underperformance, effectively correcting excess valuations from earlier periods.

The market has undergone what he describes as a "time-value correction," positioning it for potential momentum return driven by earnings recovery and government-led reforms. Various economic measures, including interest rate cuts and GST reductions, are expected to reflect in corporate earnings over the coming years.

Budget 2026 Expectations

Balasubramanian outlines three key expectations for Budget 2026:

Policy Continuity: The budget should demonstrate continuity in tax provisions that have contributed to India's growth story. Current tax incentives should be maintained to support ongoing economic momentum.

Bond Market Development: Fixed income as an asset class requires attention to create a vibrant bond market comparable to India's equity market. Both capital market asset classes must work together to fund future growth, making India more self-sufficient in meeting its funding needs.

Domestic Funding Mechanisms: Strengthening domestic funding capabilities will reduce dependence on external capital flows and support sustained economic growth.

Foreign Investment and Currency Dynamics

Despite some foreign institutional investor outflows, Balasubramanian remains optimistic about future inflows. He notes that many private equity investors who invested in India have exited with substantial profits, creating strong potential for their return. With the rupee-dollar rate around 93.00 and expected interest rate reductions, India is likely to become more attractive among emerging markets.

The country's alignment with the Viksit Bharat vision, maintaining growth visibility of 7.50% to 8.00%, strong corporate earnings visibility, and a robust investment environment should naturally attract foreign institutional investors without requiring additional taxation-led initiatives.

Balasubramanian concludes that India's quiet achievements in fiscal consolidation, real asset creation, and capital market maturity have established a strong foundation for sustained growth, positioning the country advantageously amid global economic challenges.

Source: https://economictimes.indiatimes.com/markets/expert-view/etbudget-boardroom-budget-2026-should-focus-on-continuity-bond-market-development-and-funding-indias-growth-internally-a-balasubramanian/articleshow/127126609.cms

As policymakers prepare for Budget 2026 amid complex global challenges including geopolitical uncertainty and trade tensions, market experts anticipate a measured approach focusing on growth support and macro stability. Niraj Kumar, CIO and Chief of Business Transformation & Strategy at Generali Central Life Insurance, expects the government to prioritise capital expenditure and policy continuity over dramatic reforms while maintaining targeted sectoral support.

Budget 2026 Expectations and Fiscal Strategy

Kumar anticipates Budget 2026 will reaffirm policy continuity and strengthen the ongoing agenda of growth and macroeconomic stability. The government is expected to maintain fiscal consolidation as a key priority, with medium-term targets aiming to reduce the fiscal deficit to 4.20% in FY27E.

The slower pace of fiscal consolidation compared to previous years is expected to create more room for capital expenditure growth. Sectoral support will likely be calibrated and targeted, focusing on infrastructure, MSME credit, manufacturing, and strategic areas rather than broad-based stimulus measures.

Market Outlook and Earnings Recovery

Despite geopolitical uncertainties, Kumar maintains a structurally favourable outlook for 2026. He expects the December quarter earnings to mark the commencement of earnings recovery after several quarters of weakness. The recent fiscal and monetary stimulus is anticipated to create broad-based earnings growth across multiple sectors.

Domestic Investment Flows and Market Stability

Domestic SIP inflows are expected to remain a strong stabilising force in 2026, building on the momentum from 2025 when annual contributions surpassed ₹3.00 lakh crore and monthly inflows consistently stayed above $3.00 billion. This sustained momentum highlights the structural strength of domestic liquidity, supported by rising financial awareness and disciplined retail participation.

The combination of time correction, broader market decline, and more reasonable valuations, alongside expectations of accelerating growth from Q3 FY26, should help moderate foreign institutional investor outflows and create a more balanced tone for foreign participation.

Currency and Economic Growth Projections

The Indian government has projected economic growth of 7.40% in fiscal 2025-26, with nominal GDP expected to grow by 8.00% in the current fiscal, compared to 9.70% last year. Kumar believes India will remain one of the fastest-growing major economies globally, despite headwinds from geopolitical tensions and trade fragmentation.

Regarding currency concerns, the rupee's movement toward the 90-91 range has been driven by heightened uncertainty and elevated gold prices, which have worsened the trade balance, expanding the trade deficit to over $40.00 billion. However, Kumar notes that RBI intervention through dollar sales and swap auctions should help smooth volatility.

Sector Recommendations and Investment Strategy

Kumar expects financials to be well-positioned for strong performance in 2026, supported by moderating interest rates, gradual regulatory easing, and accelerating loan growth. Within this sector, microfinance appears to have moved past its most difficult phase, with growth momentum improving.

For precious metals, which performed strongly in 2025, Kumar recommends maintaining a 10-15% portfolio exposure depending on risk appetite, while suggesting some profit-taking after the recent rally. He believes precious metals should remain part of core portfolios as a hedge against inflation and currency debasement amid ongoing geopolitical uncertainties.