India’s $360 billion stock rout raises stakes for Modi’s Budget

Indian stocks are on track for their worst start to a year in a decade, piling pressure on Prime Minister Narendra Modi’s administration to deliver fresh catalysts for economic growth in the upcoming budget.

Attention is focused on whether the government increases defense spending and speed up share sales in state-run companies to bolster revenues after last year’s income-tax cuts and reductions in consumption levies.

Indian markets are under pressure across assets, with stocks, the rupee and bonds all weakening, leaving investors banking on the budget to reset sentiment. Equities are down about 4% this year, with the NSE Nifty 50 Index off to the worst start to a year since 2016. Global funds remain net sellers of shares, while heavy bond issuance continues to weigh on debt markets. Local stocks have wiped out around $360 billion in market value so far this month, according to data compiled by Bloomberg.


“The budget is likely to aim at stimulating the economy, which means additional measures to boost consumption and push domestic manufacturing,” said Abhishek Banerjee, chief executive of LotusDew Wealth and Investment Advisors.

Here’s a look at specific themes and related stocks to watch on Feb. 1:

State-run Companies

A key theme this year is the government’s push to accelerate share sales in the fiscal year beginning April 1, The administration must reduce its stake in Life Insurance Corp., the country’s largest insurer, to comply with public shareholding norms and has already secured regulatory relief. With the deadline approaching, a stake sale may be considered in the fiscal year ending March 2027. Shares of IDBI Bank Ltd. are also likely to be in focus as its long-delayed divestment gathers pace.

Defense

India’s push to expand domestic defense manufacturing is creating clear local winners. The NSE’s defense index has more than tripled over the past three years, supported by a sector budget nearing 7 trillion rupees in fiscal 2026 and expected to grow 10%–15%, according to Nirmal Bang Institutional Equities. State-run Bharat Electronics Ltd. has been a key beneficiary, with its shares rising more than fourfold over the same period, while missile maker Solar Industries India Ltd. and defense component maker MTAR Technologies Ltd. are also on investors’ radar.

Roads and Railways

The government has led the push for infrastructure capital expenditure through the roads and railways sectors, both of which are expected to receive higher allocations in the budget. These sectors have also utilized a substantial portion of last year’s outlays. Modernization of the nationwide railway network — with a focus on safety, speed and passenger comfort — is likely to remain a key priority.

India’s biggest engineering firm Larsen & Toubro Ltd. and state-run BEML Ltd. are among key players to watch.

Brokerages and Exchanges

Shares of capital market infrastructure firms — brokerages, exchanges, and service providers — slumped last year in line with broader market weakness. Any potential revision of capital gains tax rates in the upcoming budget may have a direct impact on markets and warrants close attention, according to Citigroup Inc. strategists.

Bourse operators BSE Ltd. and Multi Commodity Exchange of India Ltd. will be key stocks to gauge sector sentiment, while top discount broker Groww’s parent Billionbrains Garage Ventures Ltd. will also be in focus.