In this edition of ETMarkets Smart Talk, Shravan Sreenivasula, Executive Director – Investment Solutions Group at Avendus Wealth Management, shares his views on what the Union Budget needs to deliver to support growth and investor confidence.
He explains why a continued capex push, along with targeted tax relief measures, could play a crucial role in boosting disposable incomes, crowding in private investment and stabilising markets, while also offering guidance on precious metals, sectoral opportunities and the outlook for small and midcap stocks. Edited Excerpts –
Q) It looks like there is some nervousness on D-Street – is it because of Budget or geopolitical concerns. How should investors decode?
A) The nervousness on D-Street is a combination of both Budget-related caution and elevated geopolitical uncertainty. It is fairly common for market participants to reduce activity ahead of the Budget to avoid adverse moves that could go against existing positions, leading to lower volumes and higher sensitivity to news flow.
At the same time, geopolitical risks remain elevated. President Trump’s statements and policy announcements across multiple countries, including India, have kept global markets on edge, adding an external layer of uncertainty.
Investors should view the current volatility as part of a normal pre-Budget and global risk-adjustment phase. Staying disciplined, avoiding knee-jerk reactions and focusing on post-Budget clarity and earnings visibility will be key in navigating this period.
Q) What are your expectations from Budget 2026 from a market and economic perspective?
A) From a macro standpoint, we would expect the government to continue prioritizing economic stability. A marginal reduction in the fiscal deficit from the FY26 level of 4.4% would be important, along with adherence to the medium-term debt glide path. Government debt currently stands at around 56% of GDP and fiscal credibility remains a key market anchor.
The assumption of 10.1% nominal GDP growth for FY26 now appears optimistic and is likely to be missed. To revive growth momentum, the Budget should lean on higher government expenditure while incentivizing private sector capacity creation. Policy support aimed at crowding in private capex will be crucial.
On capital expenditure, the FY27 Budget estimate should meaningfully grow over the FY26 level of INR 11.21 trillion. Support to industry could come through a combination of accelerated depreciation, time-bound lower corporate tax rates for select sectors, incentives linked to employment generation and continued steps to improve ease of doing business.
On the consumption side, while the previous Budget surprised positively on direct taxes, there is further scope to enhance disposable incomes, through higher standard deductions, rationalization of surcharge thresholds, differentiated limits for married couples and broader ease of living measures.
Additionally, labor-intensive sectors impacted by global tariffs and trade disruptions may require targeted funding and policy support to protect employment and competitiveness.
One area of concern would be any attempt to curb the surge in precious metals through higher taxation or increased customs duties, which could disrupt market sentiment and investment flows in the asset class.
Q) There are 2 precious metals which have not lost their sheen even in 2026 – Gold & Silver. We have seen some volatility – how should one play this theme?
A) The de-dollarization theme has gathered momentum in the second half of 2025, providing a strong tailwind to precious metals.
After an exceptional rally of 162% in 2025, silver has gained a further 62% in 2026. Gold, too, has risen 25% in 2026, following a sharp 74% rally last year.
Trading activity underscores the intensity of this momentum. On peak days, the top three silver ETFs together record turnover of over INR 12,000 crore, while the top three gold ETFs trade upwards of INR 4,000 crore.
For context, this is comparable to, or even higher than, the turnover in the most actively traded individual stocks, which typically see volumes of around INR 4,000 crore.
Clearly, momentum remains firmly in favor of precious metals. However, given the sharp run-up, our view is that investors who entered early should consider booking partial profits.
Those without existing exposure may either stay on the sidelines or initiate positions only with strict stop-loss discipline. For fresh allocations, we currently prefer gold over silver.
Q) Which sectors are likely to remain in limelight in Budget?
A) Several sectors are expected to remain in focus in the upcoming Budget. Financials, particularly banks, housing finance companies and select NBFCs (including gold finance), could benefit from continued emphasis on credit growth, housing and financial inclusion.
Capital goods and infrastructure-linked segments may stay in the spotlight given the government’s sustained focus on capex. Defence is also likely to attract attention amid ongoing indigenization and higher allocation towards domestic manufacturing.
On the consumption side, themes such as quick commerce and home-building-related sectors could remain relevant, supported by urban demand, housing activity and ancillary spending.
Q) How should one play the small & midcap theme?
A) Nearly 78% of stocks in the small cap index and about 50% in the mid cap index are currently in a bear market, defined as a correction of over 20% from recent peaks. Despite this correction, valuation multiples for both indices remain above their long-term averages.
That said, the risk-reward in the space is meaningfully better today than it was a few weeks ago. Investors should begin selectively exploring opportunities, focusing on quality businesses with strong balance sheets, earnings visibility and reasonable valuations.
However, it is still premature to take broad-based exposure across the segment. A bottom-up, stock-specific approach is likely to work better than a blanket allocation at this stage.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)