Quote on Union Budget 2025-26 - Boosts consumption, fiscal prudence and capex by Amnish Aggarwal, PL Capital
Below the Quote on Union Budget 2025-2026 - Boosts consumption, fiscal prudence and capex by Amnish Aggarwal, PL Capital
The Union Budget 2025–26 is crafted as a bold statement of fiscal consolidation and long?term structural reforms. GOI has maintained fiscal deficit at 4.4% for FY26 with absolute reduction in Primary and revenue deficits in a scenario of slowdown in consumption demand and govt capex. Govt has not only provided for 10% increase in capex (Rs11.2trn) but central schemes like PM Awas, Rural Drinking Water and solar Rooftop scheme have seen sharply higher allocations than FY25RE. The focus on domestic manufacturing has been sustained with higher allocations under PLI, Renewable energy and Semiconductor ecosystem. Budget has also provided relief to middle class by lowering tax rates in the new regime with hint of new direct tax code introduction shortly. Continued thrust on capex and more money in the hands of people will likely boost domestic consumption. A notable positive for financial markets is the absence of any new taxes on equity markets, such as Securities Transaction Tax (STT) or Long-Term Capital Gains Tax (LTCG), boosting investor sentiment. The budget incentivizes domestic manufacturing, energy transition, and urban development while ensuring compliance-driven revenue growth without new tax burdens. Hopes of broad-based economic recovery will support markets and provide double digit returns in CY25. we recommend investments in Consumers (staples and Discretionary), Travel and Tourism, EMS, Hospitals and Pharma, Capital Goods and select auto stocks.
* Fiscal Consolidation Without Growth Compromise: The budget sets 4.4% fiscal deficit target for FY26, signaling fiscal consolidation while maintaining investment momentum with capital spending rising by 10% to Rs.11.2 lakh crore. This is a delicate balance, ensuring credibility in debt management while not derailing growth.
* Higher-than-Expected Gross Market Borrowing to push bond yields momentarily: Gross market borrowings of Rs.14.82 lakh crore (higher than the Rs.14.5 lakh crore expected by the market) along with Rs.2.5 lakh crore switches exert short-term pressure on bond yields. However, expectations of an imminent rate cut, supportive OMO operations, and upcoming RBI policy clarity should stabilize yields between 6.7-6.75%.
* Capex as the Primary Growth Engine: With an outlay of Rs.11.21 lakh crore (up 10% YoY), the budget continues its capex-led growth model. Effective capital expenditure at Rs.15.48 lakh crore ensures multiplier effects, particularly in infrastructure, nuclear power logistics, and energy transition. The shift towards public-private project execution signals an effort to crowd in private capital rather than relying solely on government-led investments..
* Broad-Based Consumption Recovery: The restructured personal income tax regime, raising the nil tax slab to Rs.12 lakh and rationalizing slabs, enhances disposable incomes and revives urban consumption. Sustaining rural demand is targeted through increased Kisan Credit Card limits, direct farm support, and rural infrastructure spending.
* Private Capex Acceleration Through Business-Friendly Reforms: By enhancing ease of doing business via tax certainty (new income tax code, safe harbor rules), revamping the corporate M&A framework, and liberalizing FDI in insurance (100%), the budget lays a roadmap for private sector-led capex revival. Monetization of core assets via National Monetization Pipeline (NMP 2.0) supports this shift.
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