- Capex is projected at ₹12‑13 lakh crore – a 10‑15% YoY rise, but markets may have over‑priced the rally.
- Inflation easing to ~1.6% and the RBI’s 5.25% repo rate create fertile ground for consumer spending.
- Barbell portfolios – solid capex cores plus quality consumption satellites – could capture both steady growth and surprise upside.
- Auto, FMCG and select realty names are positioned to benefit first from any consumption‑friendly policy tweaks.
- Historical patterns suggest a shift from pure infrastructure focus to a blended approach every 5‑6 years.
Most investors ignored the fine print in last year’s budget. That was a mistake.
Why the Capex Surge Still Holds Multi‑Year Visibility
India’s public‑investment target for FY26 sits at a staggering ₹11.21 lakh crore, and analysts now expect the Union Budget to push that range to ₹12‑13 lakh crore – a 10‑15% year‑on‑year jump. This isn’t just a number; it signals continued crowding‑in of private capital across roads, railways, power and heavy‑manufacturing. Capacity utilisation is climbing, order books are swelling, and the multiplier effect of infrastructure spending (each rupee of public spend typically generates ₹2‑3 of private activity) remains robust.
For investors, the upside lies in the durability of earnings visibility. Companies that supply raw materials, construction equipment, and engineering services enjoy multi‑year contracts tied to government tenders. Their balance sheets tend to be less volatile because cash flows are anchored to sovereign commitments.
How Consumption Signals Are Gaining Alpha Potential
The macro backdrop, however, is turning increasingly friendly for household spend. December 2025 CPI inflation eased to about 1.66%, and the Reserve Bank of India trimmed the repo rate to 5.25%. Lower financing costs translate into tangible EMI relief for borrowers, freeing disposable income for discretionary purchases.
On top of that, the government is expected to roll out targeted income‑tax cuts, GST relief on select goods, and rural‑infrastructure schemes that could lift agricultural wages. Those levers, if executed, create a virtuous cycle: higher rural demand fuels auto sales, FMCG turnover, and realty footfalls, while the urban consumption tide steadies.
Sector Ripple Effects: Auto, FMCG, Realty and Beyond
Analysts argue that consumption‑driven sectors react more nimbly than the slow‑burn capex themes. A modest extension of the Production‑Linked Incentive (PLI) scheme for consumer durables or a deeper tax slab for middle‑income earners can spark immediate earnings pops for leading auto OEMs, FMCG bellwethers and financially sound realty developers.
Key points for each segment:
- Auto: Lower EMIs and rural income support boost vehicle registrations, especially two‑wheelers and entry‑level cars.
- FMCG: GST concessions on essential items improve margins, while rural purchasing power fuels volume growth.
- Realty: Targeted welfare spending on affordable housing and infrastructure upgrades raises land values and project pipelines.
These themes offer quicker alpha – often within a single fiscal quarter – compared with the multi‑year gestation of infrastructure contracts.
Historical Parallel: 2019‑20 Budget Lessons
When the 2019‑20 Union Budget emphasized capex, the market initially rallied, but earnings momentum lagged until the second half of FY21, when consumption‑oriented reforms (tax cuts, GST simplifications) took effect. Investors who had a balanced exposure to both infrastructure and consumer staples outperformed those who were over‑weight on capex alone by roughly 4‑5% annualised returns.
That pattern repeats roughly every five to six years: a phase of heavy public‑spending focus followed by a corrective tilt toward demand‑side stimulus. Recognizing this cycle can help you pre‑position before the budget’s policy mix crystallises.
Investor Playbook: Barbell Strategy for 2026
Given the dual narrative, the smartest tilt is a barbell – a solid capex core for ballast and a quality consumption satellite for tilt.
- Capex Core: Allocate ~55‑60% of equity exposure to firms with strong order‑book visibility, high debt‑service coverage, and proven government‑contract execution (e.g., major construction conglomerates, power‑equipment manufacturers, steel producers).
- Consumption Satellites: Deploy ~30‑35% to high‑margin auto OEMs, FMCG leaders with robust distribution networks, and financially prudent realty developers focused on affordable housing.
- Cash/Short‑Term Instruments: Keep ~5‑10% in liquid assets to capture any surprise budget announcements – such as deeper tax cuts or unexpected rural welfare outlays – that could trigger short‑term rally in consumer stocks.
Risk considerations:
- Markets may have already priced a “perfect” capex continuation; upside now hinges on consumption breadth widening without fiscal strain.
- Execution risk on rural schemes – delays can blunt the consumption tailwinds.
- Global monetary tightening could re‑inflate borrowing costs, eroding the EMI‑relief benefit.
Bottom line: Don’t pick capex vs consumption. Own quality franchises on both sides, favour balance‑sheet strength, and let the budget’s consumption nudges provide the upside catalyst.