Budget 2026 & stock market: Sector-wise expectations by BofA Securities

BofA Securities said the Union Budget for FY27, scheduled for February 1, 2026, comes at a time when the finance ministry is reasonably well-placed to meet its FY26 fiscal deficit target of 4.4 per cent of GDP, despite low nominal GDP growth and deep tax cuts across personal income tax and goods and services tax. The foreign brokerage said expenditure trends have staged a strong comeback, with capital expenditure execution picking up sharply and lower energy prices providing room to contain subsidy outgo.

For FY27, BofA Securities expects the government to broadly maintain the current deficit, with a modest reduction to 4.3 per cent of GDP. It added that capital expenditure targets are likely to grow in line with nominal GDP, which it expects to rebound to 10.1 per cent year on year in FY27.

The report "FY2027 Budget preview: Shifting gaze from deficits to debt" was authored by BofA's India & ASEAN Economist Rahul Bajoria and India Economist Smriti Mehra.

Unlike FY25, FY26 has seen a sharp surge in capital expenditure during the first half, although trends are expected to normalise in the second half, according to the brokerage. It anticipates a mild overshoot in FY26 capital expenditure, led by additional defence spending of about 2 per cent over Budget Estimates. BofA Securities expects FY27 capital expenditure allocations to rise to Rs 12,50,000 crore, or about 3.2 per cent of GDP. With energy prices easing, subsidy bills are likely to remain broadly flat in FY27, it said.

Within capital expenditure, the brokerage expects the government to retain focus on strategic areas such as defence, railways and shipbuilding, while allocations for roads, non core railway segments and housing are likely to remain subdued in FY27. BofA Securities said it does not expect the government to budget for the Eighth Pay Commission in FY27, and believes it will be implemented in phases during FY28 and FY29, with an annual fiscal cost of about Rs 2,40,000 crore to Rs 2,80,000 crore, split across the two years.

At the sector level, BofA Securities said FY27 capital expenditure growth is likely to remain modest at about 9 per cent YoY, reflecting slower tax collections and a gradual policy pivot from investment towards consumption.

Defence, railways, road sectors

BofA said the government’s focus is likely to remain intact for defence, railways related to safety, signalling and rolling stock, and shipbuilding, while roads, non core railway segments and housing, which together account for 47 per cent of FY26 budgeted capital expenditure, could see muted allocations.

Consumption

On consumption, the brokerage said policy over the past 12 to 18 months has clearly shifted towards reviving demand. Any incremental stimulus, including rural focused schemes, would be positive for consumer staples and discretionary companies. It added that following the recent sharp increase in cigarette taxation, clarity on the National Calamity Contingent Duty and other cesses could act as a swing factor.

Automobile

For automobiles, BofA Securities said it does not expect major budgetary measures after the recent goods and services tax cut boost, although any rural or consumption push would support the sector. It said electric vehicle related measures could focus on expanding charging infrastructure and localising supply chains.

Healthcare

In healthcare, the brokerage said key industry asks include an extension of the production linked incentive scheme for active pharmaceutical ingredients or the reintroduction of tax incentives for new facilities, restoration of weighted research and development deductions to support innovation, and customs duty cuts on high end medical equipment, which would benefit hospitals.

Oil & gas

On oil and gas, BofA Securities said excise duties on auto fuels such as petrol and diesel could be increased, which could adversely impact marketing margins of oil marketing companies.