Defence, semi-conductors, rare earths : Where to invest after Budget 2026

Real sinals are embedded in the Budget document-policy continuity, withdrawal of customs duties on manufactured goods, and a clear shift towards strategic sectors like defence, semiconductors

The Union Budget 2026–27 may not have delivered an immediate market rally, but investment experts believe it reinforces India’s long-term economic positioning at a time when global uncertainty is reshaping capital flows.

 

According to insights shared by multiple smallcase managers, the current market phase calls for patience, disciplined investing and a longer-term perspective, rather than chasing short-term momentum.

 

Why markets may remain volatile in the near term

 

Market sentiment has turned fragile as global growth moderates, earnings recovery takes time and policy recalibrations begin to play out. Several investors, particularly those who entered markets during the post-pandemic bull run, are now experiencing their first prolonged period of subdued returns.

 

 

Divam Sharma, CEO and Co-founder of Green Portfolio, said Indian markets are moving into a more mature growth phase.

 

According to him, nominal GDP growth stabilising near 10% should be viewed as a sign of economic normalisation rather than weakness.

 

" For a large section of investors, this is the first prolonged phase of weak earnings and subdued sentiment. Indian markets are no longer in an ultra-high growth phase. Nominal GDP growth has settled closer to 10%, which is a sign of maturity—not stress.”

 

He added that valuation resets and drawdowns, especially in smallcaps, are consistent with historical market behaviour and should be viewed as part of a longer wealth-creation cycle rather than a breakdown of the India story.

 

Budget signals: Beyond headlines and short-term reactions

 

While investor attention initially focused on the hike in derivatives taxes and the absence of major tax relief measures, market experts say the deeper signals lie in policy continuity and capital formation.

 

Sanjit Singh noted that the Budget emphasises strategic sectors such as defence manufacturing, semiconductors, rare earths and domestic industrial capacity building. He added that the government appears willing to prioritise long-term economic outcomes over short-term market popularity while maintaining fiscal discipline.

 

Where investors should focus

 

Experts believe Budget allocations provide clear clues about sectors likely to see sustained earnings visibility over the next few years.

 

Defence and strategic manufacturing

 

Increased capital expenditure on defence across aircraft, heavy vehicles, engines, research and equipment signals a multi-year capability building cycle. This is expected to benefit defence ecosystem companies, ancillaries and specialised engineering firms.

 

Manufacturing and supply chain localisation

 

Government incentives across semiconductors, electronics, chemicals, textiles and capital goods point to deepening manufacturing supply chains. Investors are likely to find opportunities in companies linked to component manufacturing and industrial infrastructure.

 

Energy transition and resource security

 

The Budget balances renewable energy investments such as rooftop solar and nuclear power while also strengthening energy security through coal gasification initiatives. This creates investment opportunities across clean energy, equipment suppliers and infrastructure players.

 

Infrastructure and logistics

 

Continued spending on ports, waterways and logistics is expected to drive demand for capital goods, shipbuilding and commercial vehicle segments, strengthening India’s broader industrial growth cycle.

 

Global uncertainty strengthening India’s investment appeal

 

Market strategists say global capital is undergoing structural shifts due to de-dollarisation trends, supply chain realignments and rising resource nationalism. In this environment, India’s focus on self-reliance and domestic manufacturing is positioning it as a preferred diversification destination for global investors.

 

Experts also highlighted rising interest in commodities such as gold and critical metals, suggesting global markets may be entering a structural inflation and resource scarcity phase rather than a temporary cycle.

 

India–US trade agreement adds momentum

 

The recently announced India–US trade agreement is viewed as another positive trigger. Managers believe the deal could reduce trade uncertainties, support foreign capital inflows and stabilise currency markets.

 

Sectors expected to benefit include clean energy, artificial intelligence, data centres, nuclear power, oil and gas and critical minerals. 

Experts also noted that the renewed interest in gold, shortages in critical metals and persistent commodity inflation suggest the world is entering a new structural phase, rather than just another short-term market cycle.