Goldman Sachs anticipates near-term valuation risks due to the hike in securities transaction tax (STT) on futures and options announced in the Budget 2026-27. However, it remains constructive on Indian equities over the medium term, supported by a recovery in earnings growth.
“Overall, the softer fiscal drag in the budget, along with steady capex spending was largely in-line with our expectations, and supports our fundamentally constructive view on Indian equities driven by earnings growth recovery to mid-teens. We do however anticipate near-term risk on valuations,” Goldman Sachs said.
In the Budget 2026, STT on futures contracts was increased from 0.02% to 0.05%, while STT on options premium was raised from 0.10% to 0.15%. STT on the exercise of options was also increased to 0.15% from 0.125%.
Goldman sees FY27 Budget reinforcing fiscal discipline and capex focus
Along with that Goldman Sachs said that it believes Union Budget for FY27, sent two key messages- fiscal discipline and continued support for infrastructure spending.
The finance minister reaffirmed the government’s commitment to bring central government public debt down to around 50% of GDP, plus or minus 1%, by FY31. This compares with a target of 55.6% of GDP in FY27.
In line with this approach, the government continued on the fiscal consolidation path, announcing a marginal 10 basis point reduction in the fiscal deficit to 4.3% of GDP in FY27 from 4.4% in FY26.
Even as fiscal consolidation continues, the budget signalled the government’s intent to sustain infrastructure investment. After shifting focus towards consumption support in FY26 through income tax and GST rate cuts, the FY27 budget has retained the public capex target at 3.1% of GDP.
Defence, roads and railways anchor FY27 capex allocation: Goldman Sachs
Goldman Sachs noted that despite fiscal consolidation over the past six years, the quality of government spending has improved, with capital expenditure forming a larger share of total spending. The capex-to-current expenditure ratio is estimated to rise to around 0.3 in FY27.
Capital expenditure across major ministries is largely driven by higher defence spending, which is budgeted to increase by about 17% year-on-year over the FY26 revised estimates, well above the assumed nominal GDP growth of 10%. Spending on roads and railways is budgeted to grow at around 8% and 10% year-on-year, respectively.
Transfers to states for capital expenditure remain strong, with capex loans to states budgeted to rise nearly 33% year-on-year to 0.6% of GDP. Overall, spending on defence, railways and roads together accounts for around 2% of GDP.
Data centres, nuclear power among key medium-term opportunities: Goldman
Over the medium-term, Goldman Sachs see rising opportunity in areas of strategic importance and new infrastructure, including digital infrastructure/data centers, biotech, transportation corridors, nuclear power and critical minerals.
Goldman Sachs belives that even though there was no new consumption stimulus announced in the Budget 2026, consumption revival could sustain on lagged effects of policy easing from last year like GST 2.0 and others.