Indian equity markets are expected to remain stock-specific ahead of the Union Budget for FY27, as investors track potential policy signals around capital expenditure, fiscal consolidation and sector-focused measures, according to Motilal Oswal Financial Services (MOFSL).
In its India Strategy report titled “Union Budget FY27: Not-so-high expectations”, MOFSL said expectations from the forthcoming budget remain limited, with investors not anticipating large, broad-based announcements.
“The scope of influence of the budget has become relatively narrower over the years, owing to a flurry of extra-budgetary steps,” MOFSL said, adding that markets will look for “targeted, selective measures to drive growth in certain sectors and to assuage investor sentiments”.
MOFSL said the government is likely to stay committed to fiscal consolidation. The brokerage expects the fiscal deficit to ease further to about 4.3 per cent of GDP in FY27, from 4.4 per cent in FY26.
“The government has been steadfast on the path of fiscal consolidation,” the report said. However, MOFSL added that a limited fiscal stretch cannot be ruled out if it is aimed at productive spending.
“Equity market will likely support such a move, especially if it is well-targeted towards productive capex or consumption boost,” it said.
Higher focus on capital expenditure
According to MOFSL, the FY27 Union Budget is expected to shift focus back towards capital expenditure after the previous budget leaned more towards supporting middle-class consumption.
“We expect that greater emphasis will be placed on sectors like defence, critical minerals, power, electronics, infrastructure and affordable housing,” MOFSL said.
The brokerage expects higher allocation for central government capital expenditure, along with a renewed push under infrastructure and defence spending.
Stocks likely to benefit
MOFSL said capital goods and engineering companies are among the key beneficiaries if capex expectations are met. It expects higher spending on infrastructure projects such as roads, railways, power transmission and defence manufacturing.
Stocks such as Larsen & Toubro, ABB, Siemens, Hitachi Energy, Siemens Energy and KEC International were named as beneficiaries of higher infrastructure and power sector spending.
In the defence space, MOFSL expects continued focus on indigenisation to benefit Bharat Electronics, Bharat Dynamics and Hindustan Aeronautics.
In the cement sector, MOFSL expects demand to improve on the back of higher government capex and a possible increase in allocation to affordable housing schemes. Housing accounts for a significant portion of cement demand, the brokerage noted. It prefers UltraTech Cement, JK Cement and Dalmia Bharat in the sector.
The brokerage also sees opportunities in utilities and renewable energy-linked stocks if the budget extends support to solar manufacturing, rooftop solar schemes and power sector reforms. Stocks such as Tata Power, NTPC, NTPC Green, Waaree Energies and Premier Energies were highlighted.
In oil and gas, MOFSL said policy measures such as removal of customs duty on LNG imports and reforms in upstream taxation could benefit the gas value chain.
It named Indraprastha Gas, Mahanagar Gas, Gujarat Gas, Petronet LNG and GAIL as likely beneficiaries. Upstream companies such as ONGC and Oil India could gain if cess and tax-related changes are announced.
In financials, MOFSL expects targeted steps to improve credit flow to MSMEs, microfinance institutions and affordable housing lenders. Stocks such as Aadhar Housing, Home First, Aavas Financiers, Can Fin Homes and PNB Housing Finance were cited as potential beneficiaries if credit guarantee schemes and housing incentives are introduced.
Sectors with limited expectations
MOFSL said several sectors are unlikely to see major budget-driven triggers. Automobiles, IT services, metals, telecom and retail are expected to see no material announcements.
In real estate, MOFSL said policy support may favour developers focused on affordable housing, but some large players may not react meaningfully. “Likely losers: DLF, Oberoi Realty,” the brokerage said.
Overall, MOFSL said investors may remain selective ahead of the Union Budget, with stock-specific moves driven by expectations around capital expenditure, infrastructure spending and targeted sector reforms, rather than broad-based stimulus measures.
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