Budget 2026 Expectations: What investors want from the Budget?

31 Jan 2026 , 05:34 PM

Indian investors (retail, HNI, and institutional) have a lot of positive expectations from the upcoming Union Budget to be announced on 01-February 2026. The nature of expectations are varied. Investors want a more conducive investment environment, less of regulation, more tax-friendly investment policies, economic policies that encourage equities, and more focus on investor safety. Above all, investors want more options to participate in. Here are some broad expectations of investors from the Union Budget 2026-27.

• MAKE THE RIGHT MACRO NOISES

Like it or not, the Indian markets love a budget that makes the right macro noises. For instance, a budget that is growth oriented, puts more money in the hands of people, encourages big-bang reforms, gives a boost to capital expenditure and keeps fiscal deficit in check will be a preferred mix. All of these may not be practical, but if the government can make an effort to achieve most of these ideas, that would be good enough.

In a financial market like India, that is still largely dependent on government-oriented reforms, the right macro noises from the budget will add value. FPIs will love it too.

• PUT MORE MONEY IN THE HANDS OF THE PEOPLE

The government has put more money in the hand of the people in a variety of ways in the last few years. It has introduced the new tax regime (NTR), which has cut down tax outgo sharply. Ahead of the festive season last year, the government made drastic cuts to GST rates and also rationalized it for most products. More money in the hand of people, means more consumption and a virtuous growth circle.

More money in the hands of people, not only boosts consumption, but also leaves them with surplus for investments. That is what the government should be aiming at.

• GIVE FPIS COMFORT ON TAXES AND REGULATION

One of the things that FPIs really appreciate is consistency and clarity on taxation and regulation. Constant changes, multiple interpretations are never going to make FPIs comfortable to commit money to India. An example is the issue of form versus substance taxation, which was applied in the case of Cairn India and Vodafone, and is now being applied on Tiger Global for its sale of Flipkart stake. The issue is not of right or wrong but of consistency. The sooner, the government sends out the message, the better it is.

This has been one of the reasons for persistent FPI selling in recent years. In 2025, FPIs sold equities worth $18.8 Billion. The budget must send out a clear and consistent message.

• INVESTORS WANT TO SEE OBVIOUS SECTOR BENEFICIARIES

As of now one thing is clear that the defence spending will go up. More insourcing means; the order flows to Indian defence companies will get a boost. But investors need a more comprehensive picture from the budget. Will critical mineral companies get a boost in the budget? How will the PLI allocations impact stocks? What is the outlook for EMS companies after the Union Budget? The markets will look at clear beneficiary baskets.

Normally, the budget has created traditional winners like railways, fertilizer stocks etc. This time, the markets are expecting a more comprehensive sectoral beneficiary basket.

• TWEAK TAXATION ON DIVIDENDS AND BUYBACKS

Taxation of dividends has always been an issue as it results in double taxation. Firstly, it is a post-tax appropriation and investors also pay peak rates of tax on dividends. This hits HNI investors and promoters quite hard. Also, now buyback proceeds are treated as Other Income and taxed. However, the cost of buyback is treated as a loss and can only be written off against capital gains. This dichotomy has made buybacks unattractive. It is time to make dividends tax-free in the hands of investors and also revert to the old buyback tax system.

Dividend double taxation has been a major bone of contention and it is time to change that. On buybacks, the virtual absence of buybacks in the last one year says everything. Small tweaks can make equity investing attractive to investors.

• MAKE LONG TERM CAPITAL GAINS TAX MORE RATIONAL

When STT was introduced, the idea was to bring it in as an alternative to LTCG. Now, there is LTCG and there is also STT. Considering the revenue potential of STT, it is doubtful if the government would look to scrap it. However, the government can tweak the LTCG bit. For instance, the basic annual exemption can be raised from ₹1.25 lakhs to ₹2.50 lakhs. Also, the tax rate of 12.5% can be applied up to holding period of 5 year. Beyond 5 years, LTCG can be made tax-free, so as to encourage investors into equities for long term planning.

The combination of STT and LTCG has been an irritant for Indian capital markets. It is time to make them more rational, and give an indirect boost to equity investing.

• BRING TAX SAVING BACK FOR INVESTMENTS

ELSS plans lost their lustre after the new tax regime was introduced. ELSS was a great way to plan for taxes and also invest for the long term. With Section 80C gone in the NTR, demand for ELSS has gone down. It is time to bring ELSS into NTR to encourage equity cult in India. Also, the Finance Ministry can look at introducing a new concept of DLSS as a debt fund equivalent so that people can onboard tax saving even with a conservative mindset.

ELSS was a great product to save tax and also build a long-term investment mindset. That is being frittered away. It is time to bring it back as it would benefit investors in a big way.

• TIME TO BE FAIR TO DEBT FUNDS TOO

Tax treatment of debt funds has really become unfavourable in recent years. Today, a pure debt fund with more than 65% in debt, does not get LTCG benefits even if it is held for a longer period. It is still taxed at peak rate. Debt funds are about allocation and are an essential complement to equities. It is time to tweak the taxation of debt funds, cut tax rates, and bring back indexation. Also, the ₹1.25 lakh limit for exempt capital gains can be extended to debt funds too.

Debt funds have a big role to play in ensuring that investors balance growth and stability. That is being missed out. The budget can rectify this imbalance.

• MORE OPTIONS TO INVEST IN GOLD AND SILVER

With the government halting the issue of sovereign gold bonds (SGB), the Indian investors have lost out on a lucrative and secure instrument. Obviously, the government has its own reasons. Gold and silver ETFs are available, but investors fear they could shut fresh flows at any point of time. Physical gold and silver are still too cumbersome. The budget must seriously look at instruments to tap the vast holdings of gold and silver by Indian households. It can also become a source of funds for the government.

Indian households are sitting on about 34,000 tonnes of gold and a massive pile of silver. It is time for the government to adeptly monetize these holdings.

 

Summary At a macro level, it is time for the government to give Indian investors more options to invest in and participate in a wide array of assets. Broad-based capital market reforms and regulatory consistency will also keep the institutional investors interested in the story. What the government must serious address in this budget is the rather skewed taxation system pertaining to investment instruments. That is forcing people to focus on few investment options at the cost of balanced asset allocation.