Reading between the lines of Budget 2026: What it signals for markets, growth and key sectors

The Union Budget 2026-27 marks a significant moment as the first budget prepared in ‘Kartavya Bhawan’. Rooted in the philosophy of ‘Kartavya’ (Duty), this year’s financial statement is built on three pillars: accelerating economic growth, fulfilling the aspirations of the people, and ensuring inclusive development under Sabka Sath, Sabka Vikas.

This blog breaks down the complex Budget announcements into a clear and actionable outlook. From significant changes in capital market taxation to the strategic push for infrastructure and technology, it provides a comprehensive guide to what the Union Budget means for the economy and various sectors.

1. The market headline: A sharp rise in STT

The most critical talking point for the capital markets is the revision of the Securities Transaction Tax (STT). The government has moved to rationalise taxes on derivative trading.


Futures: The STT on futures has been raised to 0.05% from the present 0.02%.

Options: The STT on options premium has been hiked to 0.15% from the previous rate of 0.1%.

While this move aims to curb excessive speculative volumes in the derivative segment, it increases the transaction cost for traders significantly. However, on the flip side, the government has offered relief to minority shareholders regarding share buybacks, proposing that buybacks be taxed as capital gains.

Negative impact: This hike is expected to reduce trading volumes, leading to lower revenue generation for intermediaries.

Key companies affected: This serves as a dampener for exchanges and brokerages, specifically affecting BSE, MCX, Angel One, and HDFC Asset Management Company.

2. Taxation: Relief for travellers and corporates

Beyond the markets, the budget offers welcome relief in direct taxes, aiming to simplify compliance and put money back into the hands of taxpayers.

TCS on foreign travel slashed: In a move that will boost the tourism and hospitality sector, the Tax Collected at Source (TCS) on overseas tour packages has been cut to a flat 2%, down from the previous slab of 5% to 20%. This reduction comes without any threshold, significantly lowering the upfront cost for international travellers.

Positive impact: This improves affordability and boosts outbound travel demand.

Key companies affected: This is a direct positive for Thomas Cook (India) Ltd, EaseMyTrip, and IXIGO.

New Income Tax Act: A new Income Tax Act, 2025, is set to come into effect from April 2026, promising simplified rules and redesigned forms to ease compliance for ordinary citizens.

IT sector safe harbour: To reduce litigation and transfer-pricing risks for the IT sector, a single safe harbour margin of 15.5% has been proposed. Furthermore, the threshold for availing this has been raised significantly from Rs 300 crore to Rs 2,000 crore.

Positive impact: This reduces transfer-pricing risk and improves compliance certainty.

Key companies affected: Major IT giants like TCS, Infosys, and Wipro stand to benefit from this stability.

3. The "growth connectors": Infrastructure and logistics

The government continues its heavy lifting on the supply side with a massive capital expenditure (Capex) target of Rs 12.2 lakh crore for FY 2026-27, up from Rs 11.2 lakh crore in the previous estimates.

High-speed rail: Seven new high-speed rail corridors will be developed between major cities to act as "growth connectors".

Positive impact: This ensures strong long-term order inflows for railway EPC companies.

Key companies affected: Look for traction in IRCON, RVNL, KEC International, Ashoka Buildcon, and NCC Limited.

Container manufacturing: A dedicated scheme with an outlay of Rs 10,000 crore has been announced to strengthen domestic container manufacturing.

Positive impact: Strengthens domestic manufacturing capabilities in logistics.

Key companies affected: Beneficiaries include Texmaco Rail and Container Corporation of India.

Rare earth corridors: To secure raw materials for the future, the government announced rare earth corridors in Odisha, Tamil Nadu, Kerala, and Andhra Pradesh.

Positive impact: Ensures dedicated corridors and revenue assistance for mining rare earth magnets.

Key companies affected: GMDC, NLC India, and Midwest.

4. Technology and innovation: The digital leap

This budget doubles down on establishing India as a global hub for high-tech services and manufacturing.

Data centres: To attract global digital infrastructure, foreign cloud service providers and data centres will be given a tax holiday until 2047. This is expected to unlock significant global capital inflows into domestic data centre development.

Positive impact: Improved post-tax returns are likely to unlock significant global capital inflows and capacity expansion.

Key companies affected: Domestic developers like Anant Raj, Adani Enterprises, Reliance Industries, and Techno Electric and Engineering are well-positioned.

Semiconductors: The launch of the India Semiconductor Mission (ISM) 2.0 focuses on the entire value chain, including equipment, materials, and full-stack IP.

Positive impact: A structural positive offering capital subsidies to strengthen the domestic value chain.

Key companies affected: Kaynes Technology, CG Power and Industrial Solutions, along with design partners like TCS, Infosys, and HCL Group.

AVGC: Recognising the potential of the Animation, Visual Effects, Gaming, and Comics sector, an Indian Institute of Creative Technologies will be set up to establish creator labs in schools and colleges.

Positive impact: Creates a long-term talent pipeline for the digital and gaming ecosystem.

Key companies affected: This supports players like Nazara Technologies.

5. Sectoral spotlights: Manufacturing and pharma

BioPharma Shakti: A new scheme with an outlay of Rs 10,000 crore has been launched to build an ecosystem for the domestic production of biologics and biosimilars. This is a structural positive for the pharmaceutical industry, encouraging innovation and exports.

Positive impact: Higher investments in clinical trials and regulatory capacity will improve innovation and exports.

Key companies affected: Biocon, Dr Reddy’s Laboratories, Lupin, and Aurobindo Pharma.

EV and energy transition: To support the green transition, the budget announces the deployment of 4,000 electric buses. Additionally, customs duty exemptions on capital goods used for manufacturing lithium-ion cells have been extended, supporting the localisation of the EV supply chain.

Positive impact: Provides incremental demand visibility for buses and supports localisation of batteries.

Key companies affected: Bus manufacturers like JBM Auto and Olectra Greentech, and battery makers like Exide Industries and Amara Raja Energy & Mobility.

MSMEs: A Rs 10,000 crore SME Growth Fund has been proposed to nurture future champions in the Micro, Small, and Medium Enterprises sector.

Positive impact: Expands low-risk lending opportunities and improves asset quality.

Key companies affected: SBI, Bank of Baroda, AU Small Finance Bank, and SIDBI-linked NBFCs.

6. Fiscal discipline

Despite the push for growth, the government has maintained fiscal prudence. The fiscal deficit for 2026-27 is estimated at 4.3% of GDP, continuing a consolidation path from the 4.4% estimated in the revised estimates of the current year.

The outlook

This budget clearly attempts to balance long-term structural growth with immediate compliance relief. While the hike in STT may dampen sentiment in the derivatives segment, the reduction in TCS for travellers, the continued Capex push, and specific incentives for the IT, Semiconductor, and BioPharma sectors provide a robust framework for sustained economic activity. The focus remains strictly on capacity building whether through physical infrastructure like rail corridors or digital infrastructure like data centres.

(The author, Apurva Sheth, is Head of Market Perspectives and Research at SAMCO Securities)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times.)