Market participants are seeking modest relief measures such as raising the LTCG exemption threshold from Rs 1.25 lakh to Rs 2 lakh or extending Section 87A rebates to small capital gains.
However, Goldman Sachs and Jefferies see limited scope for tax concessions, citing weakening tax buoyancy and currency pressures after the rupee depreciated more than 5 percent in 2025.
Manish Chokhani, Director at Enam Holdings, offered a more optimistic view, saying the Budget “won’t bring tax shocks,” but added that large PSU asset sales could act as a growth lever similar to reforms seen in the early 2000s.
Even the absence of adverse tax changes could trigger short-term relief buying. But any fresh tightening risks deepening FPI disengagement and raising questions about whether the Budget can revive foreign flows at all.
2) Sector Allocation Shortfalls Could Hit High-Expectation Trades
Investor positioning through 2025 has leaned heavily into defence, infrastructure, railways and clean energy, driven by expectations of sustained government spending support. Any disappointment on allocations to these sectors could trigger sharp reversals in these crowded trades.
Vikas Gupta, CEO of OmniScience Capital, said growth in allocations will be closely scrutinised. “If budget allocation from last year is less than 8% growth, it is likely to be viewed negatively,” he said.
Industry expectations remain elevated. Defence spending rose 9.5 percent to Rs 6.81 lakh crore in FY26 and industry bodies such as FICCI have called for raising the share allocated to capital procurement to 30 percent from 26 percent. Railways are projected to seek allocations of Rs 2.5 to 3 lakh crore, while clean energy stakeholders are pushing for expanded incentives for renewables, storage and transmission infrastructure.