The brokerage firm Nuvama in its report on Union Budget 2025-2026 has laid out its expectations highlighting the balancing act the government faces between fiscal prudence and boosting consumption in the face of an economic slowdown.
According to the brokerage firm, the Budget 2025 reflects an effort to stick to the fiscal glide path while offering targeted support for demand, especially through measures like tax cuts for the middle class.
The firm in its report added that the Budget for the fiscal year 2026 has been framed against the backdrop of two main objectives – maintaining fiscal discipline and fostering demand. As per the brokerage house, the Union Finance minister, Nirmala Sitharaman’s proposed measure is aimed to keep the fiscal consolidation intact while giving a boost to the consumption.
The Gross Fiscal Deficit for FY26 is targeted at 4.4% of GDP, which is a reduction from the previous year’s 4.8%. Despite a slightly optimistic fiscal math, the brokerage highlighted that the government remains intact to reduce India’s debt to GDP ratio by 6% to 7% by FY31.
Furthermore, the brokerage in its report notes that the fiscal impulse from an aggregate demand perspective remains mildly contractionary. Although there is a consumption push, the government’s allocation for capex has grown only 10%, highlighting a more cautious approach to infrastructure spending.
The brokerage firm also pointed out that core capex, covering areas like roads, railways, and defense, is projected to grow at a modest 3% YoY, the same as FY25.
Tax revenue and fiscal projections
As per the brokerage firm, the tax revenue projections for FY26 appear moderately optimistic. The government has forecast gross tax revenue to grow 10.8% YoY, slightly lower than FY25 11.2% growth.
However, when factoring in the announced Rs 1 trillion income tax cuts, the growth rate of GTR is expected to accelerate to 13.4%. According to the brokerage firm, this assumption could be optimistic particularly when considering the economic weakness.
Moreover, the firm noted that the direct taxes are expected to moderate in FY26, with a forecasted 13% growth. Similarly, the indirect taxes are projected to grow by 8% in line with the growth rates seen in FY25.
Modest push for consumption, but capex slows
Although, there is a consumption push in the budget, the brokerage firm in is report notes that government spending on capex is relatively restrained. The total spending is expected to grow by 7.4%, marking the fifth consecutive year of below-nominal GDP growth.
The brokerage further in its report highlights that the central government expenditure, especially in the core sectors like roads, railways, and defence is expected to remain subdued, with allocations growing only 3% YoY.
According to the brokerage analysis, in a broader outlook, government spending points to a shift away from large infrastructure projects, indicating a slowdown in public investment.
The brokerage firm noted in its report that while rural spending is expected to increase, it will be largely driven by the factors of the government’s Jal Jeevan Mission, with other schemes like MNREGA and PM Kisan remaining largely flat.
Sectoral outlook
From an equity market perspective, the brokerage believes that the fiscal policies outlined in the budget are likely to weigh on corporate growth and the overall economic trajectory.
The brokerage firm highlighted that the fiscal tightening measures, for instance, the reduction in market borrowings and subdued capex growth could drag on growth in the coming year.
Moreover, it pointed out a defensive bias in portfolio strategies. The brokerage firm in its report noted out of focusing on quality stocks and sectors like consumption, private banks, insurance, chemicals, pharma, and telecom as these are expected to benefit from the consumption push and the government’s focus on easing business regulations.
On the flip side, the brokerage pointed a cautious note when it comes to industrials, metals, power, and PSUs, which are likely to face headwinds due to slower capex and a weakening global economic environment.