Indian equity markets opened the week with a cautious tone on Monday as investors continued to assess the impact of the Union Budget 2026–27 and its implications for market dynamics. After a sharp sell-off during the special Budget Day session on Sunday, benchmark indices showed tentative signs of recovery, though volatility remained elevated throughout the session.

The BSE Sensex and NSE Nifty 50 traded higher in early trading, supported by buying interest in select large-cap banking, infrastructure, and energy stocks. However, overall market sentiment stayed subdued as traders weighed the Budget’s policy shifts against near-term growth prospects.

Market Reaction to Union Budget 2026–27

The Budget, presented by Finance Minister Nirmala Sitharaman, elicited a strong reaction from the markets, particularly following a surprising increase in Securities Transaction Tax (STT) on futures and options. This change triggered significant derivative market repositioning and contributed to Sunday’s sell-off. Investors remain focused on how the higher trading costs will influence liquidity and brokerage income in the near term.

Despite negative market sentiment initially, analysts believe that the Budget’s broader economic thrust may support longer-term corporate earnings and investment trends.

Key Budget 2026–27 Highlights

The Union Budget 2026–27 outlined several major policy priorities aimed at bolstering India’s growth trajectory, with significant emphasis on manufacturing, infrastructure, fiscal discipline, and regulatory reforms. Notable Budget highlights include:

1. Capital Expenditure and Fiscal Discipline
The government raised capital expenditure to ₹12.2 lakh crore for FY27, a strong infrastructure-led push intended to boost connectivity and economic activity. The fiscal deficit is targeted at 4.3 % of GDP, with a debt-to-GDP ratio of 55.6 %.

2. Manufacturing and Strategic Sectors
A renewed focus on domestic manufacturing was a central theme. The India Semiconductor Mission 2.0 received an enhanced outlay, and production-linked incentives were expanded, including a ₹40,000 crore PLI scheme for electronics manufacturing. Other initiatives support biopharma manufacturing under the Biopharma SHAKTI programme and chemical parks to strengthen industrial ecosystems.

3. Infrastructure Connectivity
The Budget announced plans for seven high-speed rail corridors, connecting major city clusters to improve mobility and reduce travel times. In addition, the development of 20 new National Waterways and dedicated freight corridors aims to enhance logistics capabilities and reduce supply-chain bottlenecks.

4. Tax and Regulatory Changes
While income tax slabs remain unchanged, compliance reforms including the implementation of the New Income Tax Act, 2025 are expected to simplify filings and reduce burdens on taxpayers. Several TCS (Tax Collected at Source) rates on overseas transactions have been rationalised, and customs duty exemptions were introduced on select medicines and strategic imports. The sharp STT increase on derivatives was one of the most market-sensitive measures of the Budget.

5. MSME and Growth Funds
To support small and medium enterprises, a ₹10,000 crore SME Growth Fund was announced, complemented by an additional top-up to the Self-Reliant India Fund. These measures are designed to provide capital and scaling support to competitive domestic champions.

Sectoral Stock Movement and Trends

Banking and Financials: Major banks such as HDFC Bank and ICICI Bank provided support to the indices, reflecting confidence in credit growth and fundamental balance sheets.

Capital Markets: Brokerages and capital-markets linked stocks remained under pressure due to the STT hike, as higher trading costs could dampen short-term volumes.

Infrastructure and Capital Goods: Stocks in infrastructure and capital goods showed resilience, driven by the Budget’s emphasis on capex and project execution.

Technology and Midcaps: Technology and broader midcap stocks saw mixed action, with sector-specific drivers influencing individual performance amid broader market uncertainty.

Market Outlook

Analysts expect volatility to continue as markets further digest the Budget’s implications alongside global cues and macroeconomic data releases. While short-term trading costs and regulatory shifts pose near-term headwinds, the Budget’s long-term focus on infrastructure, manufacturing, and regulatory reform may reinforce corporate India’s capacity to deliver sustained growth.