Union Budget to focus on continuity; HAL, Waaree, IndiGo among Anand Rathi's top picks

Anand Rathi Share & Stock Brokers expects the forthcoming Union Budget for FY27 to reinforce policy continuity, with no major surprises anticipated. The macro-fiscal backdrop is stronger than a year ago, supported by improved revenue visibility, buoyant non-tax revenue, and a medium-term fiscal consolidation framework anchored to debt-to-GDP rather than just the fiscal deficit.

The government is likely to balance gradual consolidation with continued emphasis on capex, manufacturing incentives, and ease of doing business, while containing revenue expenditure. The FY27 fiscal deficit is expected at approximately 4.2% of GDP.

This approach aligns with the glide path required to achieve a central government debt-to-GDP ratio of about 50% by FY31, assuming nominal GDP growth near 10%. Finance Minister Nirmala Sitharaman shall table its union budget on Sunday, February 1, it noted.  

Macro and Fiscal Context

India has made significant progress on fiscal consolidation, with the fiscal deficit declining from pandemic-era highs to an estimated 4.4% of GDP in FY26. This improvement has been achieved without sacrificing growth-supportive expenditure, especially capex. For FY27, the fiscal stance is expected to remain pragmatic, said Anand Rathi.

A key structural shift is the transition of the fiscal anchor from a headline deficit target to a medium-term debt-to-GDP framework. The government's objective is to reduce debt from about 56% of GDP in FY26 to 50% by FY31, requiring a gradual pace of consolidation. This allows fiscal policy to remain broadly neutral to growth, provided nominal GDP growth holds near 10%, the brokerage firm said.  

Revenue Outlook

According to Anand Rathi, the revenue outlook for FY27 is stronger, with the impact of income tax threshold increases and GST rationalisation that weighed on FY26 collections largely behind. No major fresh tax cuts are expected in the upcoming Budget.

Direct taxes are expected to be the main driver of revenue growth in FY27, supported by wage growth, formalisation of employment, and recovery in corporate profitability. I-T and corporate tax collections are projected to grow broadly in line with nominal GDP, with direct taxes expected to increase by about 10-11% year-on-year.

Indirect taxes are likely to grow at a more moderate pace due to ongoing GST rationalisation and customs duty restructuring, which could weigh on headline growth in the first half of FY27. Non-tax revenues are expected to remain a key fiscal buffer, with robust dividends from the RBI and central public sector enterprises, it said.  

Expenditure Strategy

The FY27 Budget is expected to preserve improvements in the quality of government spending. The capex-to-GDP ratio is likely to be maintained at around 3.2%, with absolute capex rising about 13% year-on-year to roughly Rs12.6 trillion. Capex will remain the primary growth lever, concentrated in Defence (with emphasis on indigenisation); Railways and logistics- Roads and highways; Telecom and digital infrastructure; long-term capex loans to states, it said.

Revenue expenditure growth is expected to remain moderate, with continued rationalisation of subsidies, greater state participation in social sector schemes, and limited expansion in large entitlement programmes. This restraint is expected to improve expenditure efficiency and create space for capital spending.

Overall, the FY27 Union Budget is expected to reinforce policy continuity, with a focus on gradual fiscal consolidation, capex-led growth, manufacturing and export competitiveness, and improved quality of government spending. For markets, this points to a stable macro-fiscal environment supportive of medium-term growth, with near-term attention on borrowing dynamics and rate transmission, says Anand Rathi.

It has picked UPL, Sharda CropChem, Max Healthcare, KIMS, Indraprastha Medical, Ashok Leyland, ZF Commercial Vehicles, Astral, Supreme Industries, Cera, Kajaria, Greenply, Greenpanel, Mayur Uniquoters, Solar Industries, Hindustan Aeronautics, TD Power, JK Cement, Birla Corp, PG Electroplast, Polycab, V-Mart, GCPL, Mrs Bector Food, PNC Infratech, Waaree Energies, L&T Finance, Poonawalla, Indian Hotels, InterGlobe Aviation, Fine Organic Industries Jubilant Ingrevia and Aptus Housing as its top picks across all sectors.