Budget 2026: With the Union Budget 2026 around the corner, domestic brokerage ICICI Securities expects it to provide a positive surprise for lenders and industrial stocks amid expectations of higher capital expenditure, lower spending on non-development areas, increased divestment and no tax stimulus.

Focus on manufacturing

ICICI Securities analysts Vinod Kakri and Bhavesh Talreja said that after surprising last year on tax stimulus and GST cut later in the year, the Union Budget for FY27 is likely to limit spending and instead focus on developmental areas, like manufacturing and infrastructure.

Domestic manufacturing also remains a key focus area amid an increasingly inward-looking policy-making environment globally, accompanied by elevated geopolitical risks. Amid the Trump tariff announcements, ICICI Securities said that labour-intensive manufacturing activities such as textiles and jewellery, impacted by US tariffs, could witness continued support.

Budget allocations through Production Linked Incentive (PLI) and other central schemes are likely to prioritise local manufacturing in high-value and strategic sectors such as automobiles, space, energy, defence, semiconductors, R&D, pharmaceuticals, chemicals, and electronics. The PLI scheme for electronics, in particular, may see an extension or a revamped version, given its strong performance since inception, the brokerage opined.

However, given the fiscal constraints and focus on reducing the debt/GDP ratio, the growth in capex outlay for FY27 may not exceed the nominal GDP growth rate.

In 2025, the government allocated ₹11.21 lakh crore for the infrastructure sector.

Aim to shore up revenue

Amid tax concessions provided over the year, the trends so far signal that tax collections have slipped in FY26 so far. The recent hike in excise duty on tobacco products seemed an attempt to shore up revenue receipts.

Against this backdrop, ICICI Securities sees other measures, such as disinvestment and asset monetisation, could be back in focus. It sees a limited upside in dividend payout, which has risen sharply since FY23.

Focus likely on reducing debt/GDP

Despite the RBI cutting interest rates by 125 basis points to 5.25%, bond yields have remained high at around 6.6%. This is mainly because markets expect a large increase in bond supply, especially from state governments, which are likely to borrow about ₹5 trillion in Q4 FY26.

In this scenario, where investors are factoring in higher government borrowing, any positive surprise, such as lower-than-expected debt-to-GDP or fiscal deficit-to-GDP levels (budgeted at 4.4% for FY26), could help bring bond yields and interest rates down, said the brokerage.

Additionally, keeping government bond issuance in check would reduce the risk of crowding out private borrowers, supporting private sector investment and improving overall credit growth.

Amid these Budget expectations, ICICI Securities says focus on manufacturing, industrials and credit growth warrants an overweight stance on lenders and industrial stocks.

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