The Union Budget 2026-27 overall seemed to be incremental rather than transformative as lots of long-term focus areas for the government like infrastructure, defence, semiconductors, nuclear, critical minerals, rare earth, tourism have been further built upon taking forward the earlier work and announcements in these areas along with labour-intensive sectors.
The major positives were:
1. Raising the outlay for the Electronics Component Manufacturing Scheme to Rs. 40,000 crore
2. Setting up a Rs. 10,000 crore fund to create champion SMEs to boost the economy
3. Dedicated rare earth corridor to support the mineral-rich states of Odisha, Kerela, Andhra Pradesh and Tamil Nadu
4. Biopharma Shakti with an outlay of Rs. 10,000 crores over the next 5 years to develop India as a global biopharma manufacturing hub
5. Tax holiday till 2047 for any global company providing cloud services to global clients using Indian data centers
6. Target of Rs. 80,000 crores via disinvestment of PSUs
7. Boost for IT sector (software development services, IT-enabled services, KPOs, contract R&D services) by having safe harbor margin of 15.5 per cent and increasing threshold for availing safe harbor from Rs. 300 crore to Rs. 2,000 crore
8. Nominal GDP growth projection set at 10 per cent which seems realistic
9. Reduction of tax on share buybacks for minority shareholders is a welcome move and also has potential of increasing earnings per share if the companies prefer to do share buyback over dividend payouts, which will be positive for the long term from valuation perspective
10. Measures to boost corporate and municipal bond markets seemed encouraging, but the fine print on how these will be implemented will give indication of how beneficial or not this is finally in the near-term.
The government has kept the fiscal consolidation glide path intact, targeting a fiscal deficit of 4.3 per cent of GDP for FY27 (vs 4.4 per cent in FY26) while clearly operationalising a shift in focus toward debt-to-GDP, with central government debt projected to decline to ~55.6 per cent in FY27 and a medium-term goal of ~50 per cent by FY31.
Capital expenditure has been raised to ₹12.2 lakh crore (~9 per cent YoY), reinforcing the infrastructure- and manufacturing-led growth strategy without resorting to populist fiscal slippage. This capex is, however, not enough given India’s growth requirements and government seems to be clearly hinting to the corporate sector to drive up their capex to fill in the balance.
However, the negative developments in the near-term for the markets include:
1. Gross borrowings set at Rs 17.2 trillion which was above the expected Rs 16.5 trillion: This can have some near-term pressure on yields but no major impact expected due to no meaningful deterioration in macro or fiscal stability (although fiscal deficit of 4.3 per cent was tad higher than expectation of 4.2 per cent)
2. STT increase in F&O was meaningful and completely unexpected by the markets: This is likely to hit the F&O volumes and would also reduce the arbitrage returns thereby making short-term debt products relatively more attractive. This could also reduce liquidity in markets at a broader level.
3. No STT reduction in cash equity: With government and SEBI focused on increasing cash market volumes relative to derivatives market volumes, some reduction in cash equity STT would have helped reduce some of the liquidity impact from increase in F&O STT as well as been positive for cash market development and even be positive for overseas money and FPIs that are cash market and real money investors. But absence of this even despite the surprising increase in F&O STT was even more surprising
4. No change in Capital Gains taxation: This had started becoming an expectation from some of the market participants. No reduction in this despite F&O STT going up is a negative especially since STT was originally introduced when capital gains tax was low to zero. So ideally, there should be some linkage of the capital gains taxation levels and STT levels.
5. No announcements or benefits on personal income tax side. Nothing positive for India’s middle class
Overall, the budget remains supportive of India’s medium-term macro and ratings narrative and long term infrastructure push but negative for capital markets in the near-term and from market development perspective.
Rishi Kohli is CIO JioBlackRock AMC. Views are his own.
 "STT hike, bond market boost: 10 positives and 5 negatives of Budget 2026")
