Veteran investors believe the upcoming Union Budget is unlikely to deliver significant tax relief, as the government has already undertaken substantial tax reforms and is now focused on reviving economic growth through alternative measures.

Investors' Budget Outlook

Speaking at a CNBC-TV18 event in Mumbai on January 13, prominent investors shared their expectations for Budget 2026. Raamdeo Agrawal, Chairman and Co-founder of Motilal Oswal Financial Services, and Manish Chokhani, Director at Enam Holdings, both emphasised that the scope for further tax cuts appears limited given recent policy changes.

"There is no question of raising the tax rate, because otherwise they would not have brought down the GST from 28 percent to 18 percent. It's quite a budget in itself," Agrawal said, adding that the government has already "opened the hands".

Tax Reform Assessment

The investors highlighted the extensive tax reforms already implemented by the government. Key changes include substantial reductions in both direct and indirect taxes, creating limited room for additional relief measures.

Chokhani reinforced this view, stating: "They have already cut your direct taxes. They have already cut your indirect taxes. So, there is nothing to look forward to on that side."

Focus on Credit Revival and Growth

Agrawal emphasised that reviving credit growth remains critical for economic recovery. He noted that credit flow had been curtailed earlier, possibly to control inflation, but now needs restoration to drive growth.

"They've got to get it back to 40 to 50 percent credit flow. That will give you 11 to 12 percent nominal growth and then it's all evergreen," Agrawal explained. He stressed that raising taxes would not help if economic growth remains weak, stating: "If the economy is not growing, any kind of tax rate is nominal."

Asset Monetisation Strategy

Chokhani suggested that the next phase of resource mobilisation may come from public sector asset sales. He drew parallels to the privatisation drive during the Vajpayee era from 2000-03, which helped revive business sentiment.

"The resource-raising exercise must come now from the public sector. If some of those assets go cheap through private hands, like it started in 2000–03 in the Vajpayee era, it re-ignites animal spirits," Chokhani said.

Private Sector Challenges

Both investors acknowledged current challenges facing private sector investment. Chokhani noted that companies remain cautious amid global uncertainty: "The private sector is clearly not opening the purse strings. They are very uncertain about what's happening in the world right now."

Additional cost pressures from recent labour reforms have also impacted corporate expenses. "Even the labour codes which have come have increased the accounting costs for companies. So, you need to give a profit fillip to the private sector," Chokhani observed.

Capital Gains Perspective

On capital gains taxation, Chokhani termed it a "red herring" that creates unnecessary friction, particularly for foreign investors. He emphasised that returns matter more than marginal tax changes: "I'd rather make a 25 percent gain and pay a 12.5 percent tax than make a 12 percent gain and pay a 10 percent tax."

The investors concluded that markets ultimately depend on business growth rather than tax adjustments, with the real focus needing to be on reviving entrepreneurial confidence and economic momentum.

As Finance Minister Nirmala Sitharaman prepares to present Union Budget 2026 on February 1, market analysts are tempering expectations for a broad-based pre-Budget rally. Current market performance reflects cautious sentiment, with Sensex dropping more than 250 points (0.3%) to close at 83,627.69 and Nifty 50 falling around 58 points (0.22%) to end at 25,732.30 on January 13.

Historical Pre-Budget Market Performance

Market data reveals a consistent pattern of cautious trading ahead of budget presentations. The performance leading up to Budget 2025 exemplifies this trend:

"Historical trends indicate that the Indian market typically underperforms in January preceding a budget, with the Nifty falling in four of the last five years due to profit-booking and policy uncertainty," said Santosh Meena, Head of Research at Swastika Investmart.

Selective Rally Expected Over Broad-Based Movement

Analysts emphasize that any pre-Budget positioning will likely be sector-specific rather than market-wide. Swapnil Aggarwal, Director at VSRK Capital, noted that investors can expect selective pre-Budget positioning rather than a broad-based rally.

Siddharth Maurya, Founder & Managing Director at Vibhavangal Anukulakara, explained that pre-Budget periods are characterized by higher market volatility rather than straight-line upward moves, as markets attempt to price in fiscal spending expectations. He identified potential buying opportunities in government focus areas including infrastructure, manufacturing, and consumption sectors.

"The market shall have to await the Budget measures to ensure that concerns on growth are dealt with and fiscal discipline is seen," Maurya concluded, noting that broad-based moves purely on expectation are unlikely.

Sector-Specific Investment Opportunities

Analysts have identified several sectors positioned to benefit from anticipated government policy focus:

Infrastructure and Defense

Expectations for sustained high allocation to support 'Make in India' initiatives make these sectors attractive:

Renewables and Critical Minerals

The global shift toward green energy and energy security has brought focus to companies like National Aluminium Company, Tata Power, and GMDC.

Rural and Consumption Themes

Anticipated fiscal stimulus to address rural distress creates opportunities across multiple segments:

• Agricultural Inputs: UPL, Dhanuka Agritech, Fertilisers And Chemicals Travancore, Coromandel International
• FMCG Defensive Plays: Hindustan Unilever, ITC
• Auto and Rural Demand: Mahindra & Mahindra
• Financial Services: State Bank of India, HDFC Bank for credit growth exposure

Investment Strategy Recommendations

Experts recommend measured approaches rather than aggressive positioning. Narender Agarwal, Founder & CEO at Wealth1, advised that any Budget rally will likely be measured rather than euphoric, emphasizing the importance of focusing on fundamentally strong businesses rather than pure expectation-based investments.

Tushar Badjate, Director of Badjate Stock & Shares, suggested viewing the Budget as an opportunity to align portfolios with India's long-term growth themes rather than focusing solely on short-term volatility. "A growth-oriented Budget, backed by strong economic momentum, can support broader market participation and set the stage for sustained returns beyond the Budget event," he noted.

Aggarwal concluded that while volatility may persist in the near term, incremental buying could emerge in sectors where policy continuity and earnings visibility are expected, though markets are unlikely to price in aggressive outcomes ahead of actual Budget announcements.