You ignored the budget’s sector cues? That mistake could cost you dearly.
Key Takeaways
- Nearly 40% of portfolio managers expect defence spending to be the top beneficiary of the FY27 budget.
- Infrastructure follows closely, with 29% flagging it as a key growth driver.
- More than 80% forecast the Nifty 50 ending FY27 above 25,000; 39% see it crossing 27,500.
- Inflation is expected to stay in the 4‑5% band, supporting a stable monetary backdrop.
- Short‑term volatility around the budget is likely, but fundamentals should re‑assert quickly.
Why the Union Budget FY27 Is a Bullish Catalyst for Indian Equities
The FY27 budget, slated for February 1, is projected to maintain fiscal prudence while sharpening its focus on capital‑expenditure (capex)‑led growth. This dual‑track approach—tight deficit discipline paired with targeted spending—creates a favorable risk‑reward balance that most portfolio managers view as a green light for equity upside.
Capex, the government’s outlay on long‑term assets such as roads, bridges, and defense hardware, acts as a multiplier for the economy. Every rupee spent on infrastructure typically generates multiple rupees of private‑sector activity, higher employment, and improved logistics. The budget’s continued emphasis on capex signals that the government intends to keep the growth engine humming, even as it reins in the fiscal deficit.
Defence: The New Engine of Nifty’s Upside
Defence emerged as the clear front‑runner in a survey of 50+ smallcase managers, with almost 40% naming it the sector most likely to benefit. Several forces are at play:
- Indigenisation under Atmanirbhar Bharat – The “Make in India” push for defense gear reduces import reliance and creates a domestic supply chain that can capture higher margins.
- Modernisation of armed forces – New procurement cycles for aircraft, naval vessels, and missile systems translate into multi‑year revenue streams for manufacturers.
- Export potential – India’s growing defense exports to Southeast Asia and Africa open new foreign‑currency earnings.
- Steady government allocations – Historically, defense allocations have risen in line with GDP, providing a predictable demand base.
Historically, a budget‑driven surge in defense spending has lifted stocks like Hindustan Aeronautics and Bharat Electronics, delivering double‑digit returns in the 2‑year horizon. The current sentiment suggests a repeat, especially as the sector’s earnings visibility improves.
Infrastructure’s Role as a Growth Multiplier
Close behind defence, 29% of managers flagged infrastructure as the next big beneficiary. The government’s “National Infrastructure Pipeline” (NIP) continues to allocate over ₹10 trillion for projects ranging from highways to smart cities. Key implications include:
- Higher order downstream demand for cement, steel, and construction equipment.
- Improved logistics that lower input costs for manufacturers, boosting margins.
- Regional development that fuels consumption in tier‑2 and tier‑3 cities, expanding the domestic market.
When the NIP was launched in 2019, the Nifty infrastructure index outperformed the broader market by 3‑4% annually for three consecutive years, reinforcing the historical precedent.
Manufacturing, Consumption & Agriculture: The Secondary Themes
Manufacturing attracted roughly 18% of votes, buoyed by production‑linked incentive (PLI) schemes that reward scale and export orientation. However, the survey shows consumption and agriculture lagging at about 7% each, indicating that the budget will likely deliver targeted, rather than sweeping, stimulus in these areas. Investors should therefore prioritize capex‑heavy themes over broad‑based fiscal easing.
Macro Assumptions: Inflation, Taxes & Liquidity
Over 85% of respondents expect FY27 inflation to stay within the 4‑5% band, or even dip below 4%. Such a trajectory aligns with the Reserve Bank of India’s medium‑term target, suggesting that monetary policy will remain accommodative without triggering a rate‑hike cycle.
On taxation, the consensus points to stability—no major corporate tax cuts are anticipated. The likely focus will be on simplifying tax compliance for salaried individuals and offering selective relief to stimulate urban and rural demand. This limited fiscal stimulus underscores the budget’s emphasis on structural, rather than demand‑side, growth.
Investor Playbook: Bull vs. Bear Cases
Bull Case: If the budget delivers robust defence allocations and accelerates infrastructure projects, earnings in those sectors could surge 15‑20% YoY. Coupled with low inflation and steady liquidity, the Nifty 50 could comfortably breach the 27,500‑30,000 corridor by FY27 end. Portfolio managers should increase exposure to defence OEMs, infrastructure builders, and PLI‑beneficiary manufacturers.
Bear Case: Should policy surprises trigger a fiscal‑deficit scare, or if global risk sentiment sours, the short‑term volatility could deepen, dragging the Nifty below 25,000. In that scenario, defensive holdings—consumer staples, high‑quality banks, and export‑oriented pharma—may act as a buffer while the market digests the budget’s details.
Regardless of the immediate turbulence, the consensus is clear: capex‑driven sectors will anchor medium‑term upside. Positioning now, with a focus on defence and infrastructure, aligns with the majority of seasoned portfolio managers.