Budget 2026 seen as low-impact event: Emkay on next bull run; Budget stocks to watch

Emkay Global on Wednesday said Budget 2026 is expected to be a low-impact event for the Indian stock market, with limited scope for further positive impulses. The brokerage said growth stimulus is already in place, and while some reforms may be announced, most measures are likely to have only long-term impact. It added that the composition of capital expenditure will be a key factor to watch.

Emkay said railways, defense, auto ancillaries, and electronics manufacturing services are likely to benefit, while jewellery, life insurance, and housing finance may face marginal headwinds. The brokerage said it remains constructive on broader markets for 2027 but noted that short-term pressures on the rupee need to ease before the next bull run can begin.

Among stocks to watch in Budget 2026, Emkay said any tobacco-related clarification on tax heads and removal of the National Calamity Contingent Duty may benefit ITC. The brokerage said any cut in customs duty on edible oil will be positive for food and soap companies such as Britannia Industries Ltd, Nestlé India Ltd, Bikaji Foods International Ltd, Gopal Snacks Ltd, Godrej Consumer Products Ltd, and Hindustan Unilever Ltd. A policy push for critical minerals is seen benefiting GMDC.

Emkay said any reduction in securities transaction tax or long-term or short-term capital gains tax rates will be positive for brokerage stocks. An increase in customs duty on gold may be negative for jewelry players such as Titan, Kalyan Jewellers, and Senco Gold. A focus on capital expenditure is likely to benefit commercial vehicle and auto ancillary companies such as Ashok Leyland, Craftsman Automation, and Bharat Forge. Any correction in the inverted duty structure for electric vehicle components is seen benefiting Ather, Ola Electric, TVS Motor, Bajaj Auto, and Hero MotoCorp.

Exports-linked production-linked incentives for mobile phones and positive reinforcement in information technology hardware incentives may benefit Dixon Technologies. Any upward revision in incentive allocation for white goods may support Amber Enterprises and LG Electronics.

On the fiscal front, Emkay said the fiscal deficit to GDP ratio is expected to remain flat year-on-year at 4.3 per cent for FY27, indicating no fresh fiscal impulse. It noted that multiple stimulus measures implemented over the past 12 months are expected to support consumption through 2026.

The brokerage said pressure on long-term bond yields, with the spread between the ten-year government security and the repo rate widening by 126 basis points, limits the scope for further fiscal easing. Revenue growth is also expected to be constrained by the full-year impact of goods and services tax rate cuts and low nominal GDP growth. It added that pay commission awards are assumed to take effect from FY28 and will not impact this budget.

Emkay said limited fiscal headroom is expected to constrain capital expenditure, projecting 7 per cent year-on-year growth under its base case and up to 10 per cent in a best-case scenario if the government relaxes fiscal targets or boosts non-tax revenue through asset monetization and privatization.

It added that the government is likely to focus selectively on defense and railways, while investments in the power ecosystem are expected to be driven more by private participation. Given this backdrop, Emkay said it prefers selective exposure to capital goods companies in defense, railways, and power, while avoiding road builders and engineering procurement construction-focused firms.

On taxes and reforms, Emkay said capital market taxation is expected to remain unchanged, with short-term capital gains at 12.5 per cent and long-term capital gains at 20 per cent plus surcharge. Corporate and dividend taxes are also expected to remain stable. Buyback taxation may be reconsidered, which would be positive for the technology sector. Personal income tax is likely to remain stable after the FY26 cuts for lower-income groups.

The brokerage said further reforms are likely to be incremental, focusing on corporate investment, foreign direct investment, exports, and fiscal efficiency. Measures such as production-linked incentive expansion, customs duty rationalisation, foreign direct investment liberalization, and asset monetisation may be pursued. Electronics manufacturing services, textiles, pharma, and capital goods are expected to benefit.

Emkay said the overall budget impact on individual sectors is likely to be limited. Railways, defense, auto ancillaries, and electronics manufacturing services are seen as key beneficiaries, while jewelry may face pressure if gold import duties rise. Life insurance and housing finance may see marginal negatives if the government further pushes the new tax regime.