Brokerage Expectations for India’s Union Budget 2025-26

India's central government is anticipated to leverage the upcoming Union Budget 2025-26 to drive economic growth, possibly through income tax reductions. However, a substantial rise in capital expenditure is unlikely, according to multiple brokerage reports.

Since the last Union Budget announcement on July 23, 2024, India's major stock indexes have declined by roughly 7%, weighed down by concerns over slowing economic expansion, corporate earnings, U.S. trade policies, and continuous foreign investor outflows.

Both the Nifty 50 and Sensex are poised for their fourth consecutive month of declines in January, marking their longest losing streak in over 23 years.

BOOSTING CONSUMPTION

Citi suggested that addressing the cyclical slowdown in the domestic economy while maintaining macroeconomic stability could be the two main priorities of the Union Budget 2025-26.

According to Phillip Capital, consumer staples and agricultural input firms stand to gain from increased government spending on rural welfare schemes and a potential rise in income tax exemption limits.

Additionally, fertilizer, insurance, and healthcare sectors could benefit from greater fertilizer subsidies, capital infusions into state-owned insurance firms, and possible tax reductions on life and health insurance, the brokerage added.

Jefferies noted that any increase in welfare spending could positively impact cement companies and rural recovery, identifying Bharti Airtel, Ultratech Cement, and TVS Motor as potential beneficiaries.

SIGNIFICANT INCOME TAX REDUCTIONS

Both Citi and Jefferies believe that a meaningful income tax cut for individuals earning between 1 million to 2 million rupees ($11,600-$23,200) annually could help stimulate demand.

Jefferies also expects tax reductions to boost the consumer discretionary sector, potentially benefiting companies like Jubilant FoodWorks, Devyani International, Trent, V-Guard, Havells, and Maruti Suzuki India.

FOCUS ON JOB CREATION

Axis Securities predicts that the government will use the budget to enhance job creation and support employment-generating industries, which could be beneficial for infrastructure and consumer-driven companies.

Several brokerages also indicated that an increased emphasis on employment could positively impact manufacturing, construction, and textile industries.

EXPANSION OF PLI SCHEME FOR ELECTRONICS

Jefferies highlighted the success of production-linked incentive (PLI) programs in specific sectors, particularly electronics, suggesting that this could lead to further expansion into sub-component manufacturing.

Companies such as Syrma SGS, Kaynes Tech, and Amber Enterprises could be among the key beneficiaries of this extension.

LIMITED CAPITAL EXPENDITURE GROWTH

Analysts anticipate the government will target a 10% increase in capital expenditure (capex) for the 2026 fiscal year, following a slower-than-expected 6% rise in the current financial year.

Jefferies cautioned that surpassing a 10% capex increase might be difficult due to growing social spending commitments.

A potential shortfall in capex could negatively impact engineering, procurement, and construction firms like Larsen & Toubro, as well as the broader industrial sector, the brokerage added.