With markets grappling with global uncertainty, shifting FII flows, and a mixed earnings recovery, investors are closely watching the Union Budget 2026 for policy direction and growth cues.
In this edition of ETMarkets Smart Talk, Rahul Singh, CIO–Equities at Tata Asset Management, shares his expectations from the upcoming Budget, the outlook on valuations and foreign flows, and where opportunities are emerging across sectors and asset classes.
He believes the government has limited room for fiscal stimulus and is likely to prioritise capital expenditure and customs duty rationalisation, while major changes to capital gains taxation appear unlikely.
Singh also discusses earnings trends, the evolving commodity theme, and how investors should approach mid and smallcaps in the current market environment. Edited Excerpts –
Q) Thanks for taking the time out. It looks like there is some nervousness on D-Street – is it because of the budget or geopolitical concerns? How should investors decode?
A) FIIs do not have only India to invest in. In mid-2024, India's valuations were at an 80–90% premium to other emerging markets. After that, we saw earnings growth slow down, and other economies benefited either because of participating in the AI theme or because China recovered post-stimulus. So global capital followed there.
Now growth is coming back in India and the valuation premium has come down to 50%. It’s still at a premium but much lower than 2024.
We have reached a point where if emerging markets start getting flows — which is possible given the uncertainty in the US macro environment — India will get its share.
Now an FPI does not have to sell India to buy China. India will not get a disproportionate share of the EM flows, but the selling intensity can decline.
We look much better than we did a year and a half ago. Valuations were expensive. Are we at absolute rock-bottom valuations where one should put 100% into equities? I would not say that.
But we are much better positioned than we were in July 2024. A lot of thematic froth in manufacturing, defense, and capital goods has gone away.
Q) What are your expectations for Budget 2026 from a market and economic perspective?
A) The budget has limited room to create further fiscal impulse. So, it is likely to contain a judicious mix of capex and likely rationalisation of customs duty structure.
It is unlikely to be any major changes in the capital gains tax. Given that the fiscal targets are now going to be based on long-term Debt/GDP targets, it will be interesting to witness the changes in the budget’s priorities.
A) While gold and silver remain important, focusing only on these two commodities may be limiting. The world today is seeing geopolitical tensions and supply disruptions that impact a much wider set of commodities.
Commodity price movements are no longer restricted to gold, silver, or crude oil, but are extending into metals and other commodities as well.
Investors should therefore look beyond just gold and silver and consider a broader range of commodities when approaching this theme.
Q) Which sectors are likely to remain in the limelight in the Budget?
A) We could see some focus on reforms in the customs duty structure, which would also be in sync with the recent developments on the FTA.
There could be some consideration and fiscal support for the SMEs and in sectors that have been negatively impacted by the ongoing tariff wars with respect to the US.
Power sector reforms are on the agenda for the Budget session and specific provisions of the same can be included in the budget.
Q) The December quarter earnings are underway – what is your take on the earnings which have so far?
A) The growth has just started in different pockets, and the earnings season has been either in line or better than expectations, including in challenged sectors like IT services. We have not witnessed any downward earnings revision as a result so far.
GST cuts have been structurally positive, but the demand revival will probably come by fiscal 2027 and not really this year. In the last quarter, we saw the starting signs of GST cuts working in the insurance and auto sectors.
Last year, Nifty 50 earnings per share growth was in the 3% range. This year, it is likely to be in the 7–8% range. And next year (FY2027), the expectations are around 15%.
Q) Hiring has taken a back seat in the Indian Technology sector. What is your take on the service space amid rupee depreciation, rise of A,I and global slowdown?
A) IT downgrades have stopped, even though there are no strong upgrades. There will be no drag on corporate profitability for IT companies. That is a relief, though not a growth driver.
Q) How should one play the small & midcap theme?
A) Mid and smallcap valuation premium (vs. Nifty50) has come down materially since mid-2024. This is providing opportunities to re-enter mid/smallcap segments selectively.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
