If one were to purely go by the stock market reaction, the budget would have looked like a major disappointment. The Nifty corrected nearly 500 points and the Sensex corrected by over 1,550 points in the special trading session on Sunday to trade the markets on Budget Day. However, the market reaction appears to be overly influenced by the spike in STT, which we will discuss separately later on. There were several granular positives for the market in the Union Budget, which were glossed over under the optics of STT. 

In a sense the hike in STT was not exactly called for. The equity markets and equity mutual funds were spared the impact of the STT hike. However, the STT on futures was hiked from 0.02% to 0.05% of the notional value of the transaction. Effectively, that is an increase of 150% in absolute terms. The STT on options was increased from 0.10% of the premium value to 0.15% of the premium value. That is again an increase of 50% in absolute terms. The impact will surely be felt on trader volumes and even on retail volumes. However, the overall impact my be more sentimental than structural. Now for the budget intricacies. 

The Union Budget did make some significant announcements on the macroeconomic front, and here is a gist of these announcements. 

1. Gross tax revenues for FY26 have been lowered in the Revised Estimates (RE) from ₹42.70 trillion to 40.80 trillion (one trillion is one lakh crore). For FY27, the government has budgeted an 8% growth in tax revenues to ₹44.00 trillion.
2. One of the key factors in the above calculation is that the tax revenue growth has been assumed at 8% while the nominal GDP growth is assumed at 10%. That is a conservative tax buoyancy ration assumption of 0.8x, the lowest in the last 10 years.
3. On the revenue front, the government has projected ₹3.16 trillion to come from dividends from the RBI and the PSU banks. That is slightly larger than the ₹3.04 trillion that the revised estimates have pegged. RBI dividends will be high for third year.
4. The rather surprising number is the hike in the disinvestment target for FY27 to ₹80,000 crore. Ironically, the government has fallen short of the disinvestment target in all the years since 2020. This is obviously factoring in the IDBI divestment in FY27.
5. The one thing that apparently disappointed the markets was the rise in the gross market borrowings from ₹14.6 trillion to ₹17.2 trillion. This was one of the reasons most of the banks and financials took a hit as it is indicative of a spike in bond yields.
6. On the positive side, the government has protected fiscal deficit at 4.4% of GDP for FY26. For FY27, the fiscal deficit has been pegged at 4.3%. This is higher than the expected 4.2%, but appears to be good progress in a tough year.
7. For the first time, the Union Budget also gave guidance on the total debt to GDP ratio. For FY27, this ratio of debt to GDP is slated to come down from 56.5% to 55.6%. The government targets to reduce this ratio to 50% by 2030; with minor aberrations.
8. We finally come to the all-important aspect of capex spending. For FY27, the central capex is pegged at ₹12.22 trillion, which is 11.5% higher than the RE of FY26. However, that is just the central capex. If you add the grants given to states for asset creation and the capex by central public sector undertakings (CPSEs), then the total capex for FY27 comes to ₹21.98 trillion. This is 5.6% of the GDP and marks a growth of 19.6% over the previous year. That makes the numbers look a lot more impressive. 

Here is what investors need to know about key changes to the direct tax rules in the Union Budget 2026-27. 

1. There are no changes to the basic income tax rates, standard deductions, or any changes to the capital gains tax rate or to the various exemptions under the old tax regime (OTR). It is largely status quo on the personal tax front.
2. The STT on Futures has been raised from 0.02% to 0.05%, while STT on options has been raised from 0.10% to 0.15%. This hike is likely to make trading more expensive and also impact the performance of mutual funds and portfolio management services.
3. Tax collection at source (TCS) on foreign remittances was a major irritant. The TCS has been reduced from 5% to 2% for remittances abroad under LRS for education or medical support. For all overseas tour programs, the TCS is standardized at just 2%.
4. There is an interesting change on the taxation of Sovereign Gold Bonds (SGB). Currently, the SGBs are tax free if held till maturity, irrespective of whether they are bought at the RBI counter or from the secondary markets. The budget has made a change that the full capital gains tax exemption will only apply to SGBs bought directly from the RBI.
5. There are some interesting changes on the corporate tax front. All foreign companies providing cloud services through India-based data centres to global customers will get a tax holiday till year 2047. For IT services, safe harbour margin will be 15.5%. 

The tax announcements were largely disappointing, but with the base exemption raised to ₹12.75 lakhs last year (including standard deduction), not much could be expected. Let us now turn to the sectoral implications of the Union Budget. 

This is one of the key beneficiaries of the Union Budget 2026-27. The budget has allocated about ₹39,000 crore for electronic components and there is also an allocation of ₹10,300 crore under the India AI Mission. These moves are likely to be value accretive for EMS (electronic manufacturing services) companies like Dixon Technologies, Kaynes Technology, Syrma SGS etc. Also, the tax holiday up to 2047 for data centre companies in India will be positive for the semiconductors and the EMS space. 

There are several big benefits for the steel sector from the Union Budget. Firstly, the seven high-speed rail corridors will give a boost to steel demand. Metro projects in urban areas have got an allocation of ₹28,740 crore, and this must be seen in conjunction with the overall infrastructure central outlay of ₹12.22 trillion by the government. Also, the proposed 20 new waterways for connecting mineral rich areas will not only create demand but also strengthen the steel supply chain ecosystem. India is already the second largest producer of steel in the world after China. This budget will encourage Indian steel industry to deepen its impact and also its profitability. 

This sector has not been one of the most favoured sectors in the market, but the budget does have some positives for this space. The integration of the Agri Stack Portals and the ICAR package will be a big positive for the FMCG space, which still relies largely on the rural market for its growth. Agriculture and allied sectors have got an allocation of ₹1.52 trillion in the budget. Other measures like the creation of large-scale clusters for vegetable production, digital public infrastructure in agriculture and a thrust on natural farming will have indirect benefits for the FMCG space.  

Like steel, the cement sector is another candidate that benefits from higher infrastructure spending. The enhanced infrastructure outlay of ₹12.22 trillion will give a thrust to the cement sector. The Infrastructure Risk Guarantee Fund will help to kickstart several big infrastructure projects on a fast track. There is also a capital outlay of ₹2.78 trillion for railways and ₹2.19 trillion for defence capex. Both are likely to spur demand for cement. Also, the allocation of ₹1 trillion for urban challenge growth will favour cement demand. The capital outlay for transport and highways has been increased to ₹2.72 trillion, another big positive for the cement sector. 

The auto sector had several benefits, especially for the electrical vehicles (EV) space. In order to lower the cost of critical EV batteries, the budget has offered duty exemption on capital equipment for lithium-ion manufacturing. To boost manufacture of automobiles and auto components, there is an allocation of ₹5,940 crore under the Production Linked Incentive (PLI) scheme. In addition. The ₹10,000 crore SME Fund will also help auto component MSMEs to expand the footprint. 

The budget has taken several steps to boost the power sector in India. The restructuring of PFC and REC will be a boost for the power sector. The basic customs duty exemption for goods imports for nuclear power plants has been exempted up to 2035. BCD exemption has also been expended to lithium-ion cells manufacture for EVs and power storage. These are early days, but the carbon capture utilization and storage (CCUS) with an outlay of ₹20,000 crore could also be a gain for the power sector. There are also duty exemptions for inputs that go into solar glass (sodium antimonate).  

Finally, let us turn to the budget implications for the banking sector. It was a mixed bag. The government is appointing a high-powered committee to take a complete relook at the banking business and suggest measures to make banking in tune with the future. The last major such evaluation was done by the Narasimham Committee on Banking Reforms, which was more than 30 years ago. However, banks did react negatively to the spike in gross borrowings to a level of ₹17.3 trillion. However, as most of these additional funds are to be raised through small savings, the impact on borrowing rates may not be too high. 

To sum up, it was a budget that had a lot of subtle positives. The STT hike may be a sentiment dampener, but in the overall scheme of things it is quite insignificant. That is the good news!