As Budget 2026 approaches, market expectations are gravitating toward capital market tax relief, but industry experts argue for a broader perspective beyond Long-term Capital Gains (LTCG) and Securities Transaction Tax (STT) discussions. With geopolitical tensions and global market uncertainties weighing on investor sentiment, the focus is shifting toward domestic growth levers that can provide sustainable economic support.

Privatization as Primary Priority

Ajay Srivastava of Dimensions Corporate Finance Services presents a clear agenda for the upcoming budget. His primary recommendation centers on privatizing Public Sector Undertakings (PSUs) as the most critical reform needed. Srivastava criticizes the current approach to government capital expenditure, arguing that excessive spending has failed to deliver proportionate economic returns despite heavy investment in infrastructure projects.

"Money is being spent, but not efficiently. Multiple layers of expenditure are not translating into real economic mileage," Srivastava explains, highlighting concerns about infrastructure quality despite substantial government spending.

Consumption and Private Investment Focus

Market expert Sunil Subramaniam takes a macro-oriented approach, suggesting that while markets might welcome LTCG or STT removal for short-term gains, these measures do not address fundamental growth drivers. He identifies two critical areas requiring attention: boosting private consumption and enhancing private capital expenditure.

Subramaniam emphasizes that government capital expenditure has remained consistent, and marginal increases are unlikely to meaningfully alter the growth trajectory. The real challenge lies in encouraging consumer spending, which has remained weak despite income support measures and tax relief in recent years. He believes a consumption revival would naturally stimulate higher private investment levels.

Policy Framework Recommendations

Several strategic initiatives could help achieve double-digit growth levels, according to expert recommendations:

• Expanding the Production Linked Incentive (PLI) framework
• Incentivizing public-private partnerships
• Offering targeted support for private capital expenditure
• Addressing persistently low inflation concerns

Subramaniam also raises concerns about low inflation levels, particularly affecting the rural economy. "We need a bit of reinflation to boost nominal GDP," he notes, cautioning that aggressive rate cuts may not support healthy earnings growth.

Foreign Investment and Domestic Capital Concerns

Srivastava expresses strong criticism regarding tax benefits extended to foreign investors, arguing that substantial concessions have been provided to international entities, including Middle Eastern sovereign funds, with limited long-term capital inflows. "Capital exits tax-free, while domestic companies remain starved," he states, highlighting the disparity in treatment between foreign and domestic investors.

The expert suggests that promoters seeking government support should face higher accountability standards, warning that overly comfortable conditions can suppress risk-taking behavior and fail to revive genuine entrepreneurial spirit.

Promoter Stake Sales Trend Analysis

A significant concern highlighted involves the trend of promoter stake sales, with data from Prime Database and Motilal Oswal revealing substantial divestment activity.

Srivastava interprets this trend as reflecting deeper confidence issues within the business community. "If promoters themselves are selling shares, it tells you they don't believe in their own businesses anymore," he argues. Rather than reinvesting capital into expansion or capacity building, promoters appear to be directing funds toward personal assets instead of productive capital expenditure.

Policy Recommendations and Market Outlook

To address these challenges, experts suggest implementing tougher policy measures:

• Tightening norms around promoter exits
• Encouraging institutional investors to be more selective
• Discouraging mutual funds from purchasing shares from promoters unwilling to invest in their own companies

Srivastava believes such measures would send strong signals about government expectations for corporate behavior and investment commitment.

While markets may respond positively to tax relief measures, the real test for Budget 2026 lies in its ability to revive consumption patterns, attract private investment, and improve public spending quality. The focus on fundamental growth drivers rather than traditional tax cuts represents a shift toward addressing structural economic challenges that could provide more sustainable long-term benefits for the Indian economy.

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.