Budget 2026 Emphasizes Steady Reform Path and Fiscal Discipline

Leading investment expert Nilesh Shah of Kotak Mahindra Asset Management has characterized the Union Budget 2026 as a blueprint for continuity. His analysis suggests the government is prioritizing a steady, reform-oriented path focused on long-term economic strength rather than short-term populist measures. This approach is seen as a positive signal for investors seeking stability and sustainable growth in the Indian market.

A Commitment to Fiscal Prudence and Growth

The budget underscores a strong commitment to fiscal prudence, a key factor monitored by global credit rating agencies and foreign investors. By keeping the fiscal deficit in check, the government aims to maintain macroeconomic stability. This stability is crucial for controlling inflation and ensuring that the Reserve Bank of India has room to manage interest rates effectively.

Perhaps the most significant highlight, as pointed out by Shah, is that the government’s capital expenditure (capex) is budgeted to exceed its net market borrowing for the first time. This is a landmark development. It means the government is funding its long-term infrastructure spending more from its own revenues or other sources, rather than relying heavily on borrowing from the market.

This move is designed to prevent the government from crowding out private companies from the debt market, potentially leaving more capital available for corporate investment. High capital expenditure on infrastructure like roads, railways, and ports creates a multiplier effect, boosting demand for materials like steel and cement and improving logistics efficiency for all businesses.

Policy Continuity and Execution in Focus

Nilesh Shah emphasized that the budget prioritizes the continuation of existing reform policies and their effective execution. For investors, policy predictability is invaluable. It allows businesses to plan long-term investments without fear of sudden, disruptive changes in the regulatory or tax environment.

The increased focus on skilling the workforce and boosting manufacturing aligns with this theme of execution. Programs to enhance skilling aim to bridge the gap between available jobs and the talent pool, improving productivity. Simultaneously, continued support for manufacturing initiatives like the Production Linked Incentive (PLI) schemes is intended to strengthen India’s position in global supply chains and create jobs.

Navigating New Challenges for Investors

The budget also introduced measures that present new considerations for the investing community. The hike in the Securities Transaction Tax (STT) on certain derivatives transactions will increase trading costs for frequent traders and speculators in the futures and options segment. While this may dampen speculative activity, it could encourage a greater focus on long-term equity investment.

Another notable change is the new tax framework for Sovereign Gold Bonds (SGBs). The budget has proposed altering the tax treatment on the interest earned from these bonds and potentially on capital gains. This change may affect the post-tax returns of SGBs, which were previously considered a very tax-efficient way to invest in gold. Investors will need to recalculate their expected returns from SGBs compared to other gold investment avenues like physical gold or gold ETFs.

In summary, the Union Budget 2026, through the lens of experts like Nilesh Shah, projects a vision of steady, fiscally responsible growth. The landmark capex funding shift and emphasis on reform execution are clear positives for the economy’s foundation. However, investors must adapt to the new cost structures introduced by changes in financial transaction taxes and gold bond taxation. The overall message is one of stability with a careful eye on building future capacity.