Budget 2026: Key Investment Themes to Watch Across Defence, Railways and Consumption

Mumbai | January 28

As Finance Minister Nirmala Sitharaman prepares to present Union Budget 2026, market participants are moderating expectations of large spending surprises. Experts broadly expect fiscal discipline to remain intact, with incremental increases focused on execution-heavy sectors rather than sweeping policy shifts.

Market experts noted, that constrained fiscal space is likely to push the government towards accelerating structural reforms and crowding in private investment, rather than expanding headline outlays.

With expectations centred on execution rather than big announcements, here are the key themes to watch as Budget 2026 approaches:

Defence:
Defence is expected to remain a core theme in Union Budget 2026, though market expectations are measured this year.

Analysts are pencilling in an 8–10% increase in defence capital outlay, a level the market sees as comfortable given the government’s fiscal constraints and emphasis on execution over aggressive expansion.

Recent geopolitical developments continue to support the case for sustained defence spending over the medium term. However, investors remain cautious, with order execution and contract finalisation timelines emerging as the key monitorable rather than headline allocation numbers.

Defence stocks, which have delivered a strong multi-year rally, have seen valuations correct by around 15–20% from recent highs, reflecting concerns over stretched execution schedules and delayed inflows from large contracts.

According to Amit Anwani, Vice President and Lead Analyst – Capital Goods at PL Capital, investor attention is likely to remain on decisions by the Defence Acquisition Council (DAC) and the pace of contract closures, which will determine earnings visibility beyond Budget Day.

Railways:

Railways is expected to see steady, calibrated growth in Budget 2026, with industry estimates pointing to a ~5% increase in capital outlay, taking allocations closer to ₹2.65 lakh crore.

Incremental spending is likely to be directed towards signalling systems and track upgrades, supporting the expansion of semi-high-speed rail corridors and network safety.

Execution momentum in the sector remains strong. In FY26, Indian Railways has already utilised over 80% of its ₹2.52 lakh crore capital outlay by December, reflecting continued progress across rolling stock, station redevelopment and safety infrastructure projects.

With visibility on ordering and execution largely intact, rail-linked stocks are expected to remain in focus.

Companies such as RVNL, IRCON International and Jupiter Wagons are likely to track developments around fresh allocations, tender flow and execution timelines post-Budget.

Infrastructure

Infrastructure remains the government’s primary growth lever, with public capital expenditure for FY26 at ₹11.2 lakh crore, led by roads, railways and defence.

A high capital expenditure (capex) of around ₹12.4 trillion is expected, focusing on roads, railways, and urban development to drive economic growth and job creation.

Analysts expect Budget 2026 to reinforce execution and project completion, rather than significantly expand headline capex numbers.

Road transport is likely to see high single-digit growth, while spending on power and industrial infrastructure is expected to remain steady, supported by grid expansion and transmission upgrades.

Companies such as Larsen & Toubro, Siemens India, ABB India and BHEL are seen as key beneficiaries, backed by strong order books.

Automobiles:

With income-tax relief already announced and GST rationalisation supporting affordability, analysts expect Budget 2026 to back a gradual recovery in auto demand, particularly in mass and two-wheeler segments, while rural consumption remains a key volume driver.

Auto exporters may also benefit from continued support under the global value chain localisation initiative. Stocks such as Maruti Suzuki, TVS Motor, Eicher Motors, Bajaj Auto and Hero MotoCorp remain on investor radar.

In parallel, automakers are also seeking tax relief for strong hybrids, which currently fall under a ~40% GST bracket, with companies such as Maruti Suzuki and Toyota Kirloskar Motor advocating a lower tax rate to accelerate adoption.

Electric Mobility

India’s EV ecosystem has moved beyond pilot stages, with annual EV sales crossing 2.3 million units. Sustaining momentum will depend on charging infrastructure expansion and policy continuity.

A major focus area for the sector is expected to be electric vehicles, where industry players are seeking a fix to the inverted duty structure. Currently, finished EVs attract 5% GST, while key raw materials and components are taxed at 18%, leading to working capital blockages and higher costs for manufacturers such as Tata Motors and Mahindra & Mahindra. The industry is pushing for duty rationalisation to improve liquidity and cost competitiveness.

The PM E-DRIVE scheme, with an outlay of around ₹10,900 crore, is expected to remain the backbone of EV adoption.

Key demands include extending incentives to private inter-city electric buses and trucks and granting priority sector lending status to EVs to lower financing costs, especially for rural and first-time buyers.

Consumption:

Consumption trends have shown early signs of recovery, led by rural demand amid easing inflation and welfare transfers. Urban demand, however, remains uneven.

In Budget, FMCG and retail companies are seeking stable import duties and measures that protect purchasing power in price-sensitive segments to sustain margins and volumes.

Semiconductors & Electronics:

For semiconductors, the focus is shifting decisively towards implementation. While policy frameworks are in place, India continues to import nearly all the chips it consumes.

Industry participants expect Budget 2026 to prioritise faster project execution, testing infrastructure and incentives for mature-node manufacturing. Stocks such as Moschip Technologies, Tata Elxsi and SPEL Semiconductor could see increased interest.

Real Estate

Housing sales have weakened over the past four quarters, with demand concentrated in premium and luxury segments.

Analysts expect Budget 2026 to refocus on affordable and mid-income housing through extensions to PMAY and possible tax or duty rationalisation.

While Prestige Group and Oberoi Realty may benefit in the premium segment, Godrej Properties and Puravankara remain key affordable-housing plays.

Chemicals & Fertilisers:

The fertiliser sector is expected to see attention on long-pending reforms, including uniform taxation, faster input-tax credit refunds and simplified licensing. While food subsidies are likely to continue, analysts expect a gradual shift towards farm infrastructure and productivity-linked spending.

Stocks such as FACT, RCF and Coromandel International are likely to track policy signals closely.

For Budget related updates Follow PL Capital.