Budget 2026 comes at a precarious time for markets, says Radhika Gupta

As India heads into a crucial Union Budget, market participants are weighing whether policy measures can stem recent capital outflows and revive investor confidence. Speaking to ET Now, Edelweiss Mutual Fund MD and CEO Radhika Gupta said the Budget is arriving at a particularly delicate juncture, with global uncertainties, tariff concerns, and volatile asset class movements shaping investor sentiment.

On whether the Budget can reverse foreign outflows, Gupta struck a cautious tone.

“I do not know if this budget can do too much to turn outflows into inflows outside of long-term capital gains on FPIs. But it is coming at a very tricky time. It is coming at a time when you have done a lot already in the previous financial year to bring back growth. You are probably seeing some signs of that in earnings, but you also have what I call a tariff threat that has been looming over the last one year. A trade deal that is not done. So, it is a very precarious time. So, I actually want to know what rabbits are going to be pulled out of the hat this year. It is a very-very tricky time.”

She added that the absence of major elections could give the government more room to increase capital expenditure.

“The good thing is you might have less revenue expenditure and more capital expenditure this year, as you said, because they can afford to get away with it. You also do not have any major elections this year. So, this might be a time when you can dial up capex, which you did not last year.”

ET Now highlighted the growing challenges for capital markets, noting that despite an 8% rise in the Nifty between last budget and this one, recent performance has lagged global peers. The channel also pointed to concerns around capital inflows, the rupee, and sharp moves across asset classes, underlining the need for a multi-asset investment strategy.Gupta agreed that recent months have been unsettling for investors across the board.“The month of January itself has been really spooky for investors and not just for equity investors, even for bond investors. So, if you look at the corporate bond index, that is down over the last month. And just when you thought gold and silver were okay till the end of the month, you had the last day of the month where silver apparently has had its largest move in the last 200 years, actually more than the Hunt brothers crash. So, you have also seen very-very volatile asset class movements ahead of you.”

With limited fiscal headroom and the need to support growth, the focus is expected to remain on capital spending. Gupta said defence, infrastructure, and manufacturing are likely to remain priority areas.

“I think people will want to continue to see defence. I think both the whole Atmanirbharta defence theme has to continue and carry on. Infrastructure push which has been outlined in the last few budgets will continue. PLI has to be expanded.”

She also stressed the importance of job creation and technology-linked sectors.

“Another big theme of the past few budgets has been the whole element of jobs, and we have a young demographic. We are seeing a number of challenges in the job market. I mean, IT salaries have not grown in the last 20 years. So, is there a scope for PLI and AI, PLI and some of the technology-linked sectors? I think that you cannot get away jobs from this whole thing.”

On manufacturing and the effectiveness of policy support, Gupta described the Production-Linked Incentive (PLI) scheme as a mixed bag.

“I think PLI has been a mixed bag. It has worked in some sectors. So, it has worked in electronics. It has worked in mobile phones. It has been difficult in textiles. It has been patchy in chemicals. So, PLI has been a mixed bag, but it has been a positive experiment.”

She added that structural reforms will remain key going forward.

“Labour and land has always been a question mark. This year we have done work on labour. Now, what you can do in terms of land reforms, MSME credit, those are some of the spaces perhaps you may want to look at.”

Gupta also ruled out major changes to capital gains taxation this year, suggesting the government’s policy levers are more limited compared to the previous budget.

“I do not think capital gains is going to get tinkered this year. I do not think you can do very much with that. So, the levers you have in hand are much lower this year. I feel last year you had a lot of tools that you could use, direct tax, indirect tax, all of that has been exhausted.”