Stock Market Strategy for Union Budget 2026: Key Sectors and Stocks Likely to Benefit from Budget 2026

India’s Finance Minister Nirmala Sitharaman is set to reveal the much-awaited Union Budget 2026 on Sunday, February 1, 2026.

India’s annual budget document is not only a mere financial statement of the Federal government, but also an important policy/vision document for the mid to long term. The budget will be presented amid a mixed background of structural local tailwinds and cyclical global headwinds. The market is expecting a thrust on infra-CAPEX, structural & process reforms, fiscal prudence and no major tweaks/cuts in direct Taxes, including LTCGC & STT (Long Term Capital Gains Tax). But the government may recalibrate import duties (tariffs)-indirect taxes after major recalibrations in GST last September. 

Overall, the budget/planning focus would be to ensure India continues to be the fastest growing major economy in the world, led by robust private consumption, resilient government investment & consumption, stable export and political & policy stability. India is a major beneficiary of 6D (demand, development, demography, deregulation, digitilisation and democracy).

The mantra of reform & perform has transformed the economy from the fragile five to the fastest five over the last 10-years. As per economic survey which mention that amidst global uncertainties, the Indian economy has maintained robust momentum, with the First Advance Estimates placing real GDP growth at 7.4% for FY 2025-26. As a result, this may provide adequate fiscal buffers without aggressive fiscal stimulus and revenue sacrifices.

Ahead of Sunday, February 1, 2026, the market is traded within a strong rangebound, indicating market participants going light into the event.  But if there is any major surprise, either positive or negative, the market will move accordingly. Sunday, being an official holiday for most of the DIIs and FIIs, it would be interesting to see participation from the institution on Sunday. Impact would be seen on Monday as well as FII/DIIs will return after the digestion of the budget fine print.

Sector Outlook: Key Themes and Potential Beneficiaries

Defence and Shipbuilding  

• A sharp increase in allocations (potentially 10–15 per cent) is anticipated to support indigenisation and self-Reliance. 
• Sectors like defence equipment, Aerospace and naval shipbuilding stand to gain from higher R&D and procurement. 
• Stocks such as HAL, BEL, Bharat Dynamics, and Garden Reach Shipbuilders could see positive triggers, as the push for a global defence industrial power intensifies.

Infrastructure and Capital Goods  

• Continued emphasis on the National Infrastructure Pipeline (potentially NIP 2.0), urban development, Logistics, and power grid expansion remains central. 
• Higher outlays for roads, highways, Railways, and housing could boost execution in capital goods and Construction. 
• Beneficiaries may include L&T, Grasim, Siemens, ABB, and UltraTech Cement, with InvITs potentially gaining from policy clarity on monetisation and tax incentives to unlock private capital.

PSUs, Energy, and Renewables  

• PSUs in coal, power, mining, and renewables are likely to benefit from sustained allocations and reforms in the energy transition. 
• The push for efficient capex and private participation in power transmission and renewables aligns with long-term sustainability goals.
• Coal India, NTPC, NMDC, and PFC could see momentum from capex continuity and green energy focus, including nuclear and critical minerals. 

Consumption, Housing, and Discretionary  

• While fiscal limits constrain major tax relief, modest boosts for rural demand, affordable housing, and discretionary segments are possible through higher deductions or parity in home loan benefits. 
• Consumer durables, automobiles, and housing-linked plays like Titan could benefit from any consumption revival measures, supported by resilient private final consumption expenditure.

Manufacturing, Electronics, and Emerging Themes  

• Incentives under PLI schemes, export support, AI infrastructure, data centres, and electronics manufacturing may receive extensions or enhancements to counter global trade disruptions. 
• MSME and labour-intensive sectors could see targeted aid for job creation and competitiveness.

Banking and Financials  

• Credit growth and financial inclusion remain supportive, though no dramatic changes are expected. 
• Banking stocks may act as hedges amid broader macro stability.
• The government may announce PSBs Merger 2.0 (PSU Banks consolidation from the existing 12 to 4).
• SBI, PNB, BOB, Indian Bank, Canara Bank and Union Bank may see momentum.

Disclaimer: The article is for informational purposes only and not investment advice.