Budget Expectations: Axis picks 26 stocks from 8 sectors to watch out for

The Union Budget is arguably the most significant economic document presented by the Indian government each year, outlining its financial plans, revenue generation, and expenditure allocations for the upcoming fiscal year. Axis Direct's pre-budget expectations for the FY27 Union Budget, projecting a fiscal deficit between 4.2% and 4.4% of GDP while balancing growth and fiscal discipline, offer a crucial lens through which to understand India's economic priorities and challenges.

**Background Context and the Essence of Budgeting**

At its core, the Union Budget is the Annual Financial Statement of the Government of India, mandated by **Article 112 of the Constitution**. It details the government's estimated receipts and expenditures for a particular financial year, which runs from April 1st to March 31st. The preparation of this document is a comprehensive exercise involving various ministries, departments, and, importantly, consultations with industry bodies and experts. The concept of 'fiscal discipline' refers to the government's commitment to managing its finances prudently, ensuring that its spending does not significantly exceed its revenues, thereby keeping borrowing and public debt under control. A high fiscal deficit can lead to increased government borrowing, which can 'crowd out' private investment, push up interest rates, and fuel inflation. India has historically grappled with managing its fiscal deficit, especially after economic reforms in 1991 and during periods of global economic volatility or domestic crises like the COVID-19 pandemic, which necessitated significant government spending and a temporary relaxation of fiscal targets.

**Axis Direct's Projections and the Focus on Capex-led Growth**

Axis Direct's projection of a 4.2-4.4% fiscal deficit for FY27 suggests a continued trajectory towards consolidation after the elevated deficits during the pandemic years (e.g., 9.2% in FY21). This target aligns with the government's stated commitment to fiscal prudence. The emphasis on 'capex-led growth' is particularly noteworthy. Capital expenditure (capex) refers to government spending on creating productive assets like roads, railways, ports, power plants, and other infrastructure. Unlike revenue expenditure (which includes salaries, subsidies, interest payments), capex has a multiplier effect on the economy, creating jobs, boosting demand for raw materials, and enhancing long-term productivity and competitiveness. The government has consciously shifted its focus towards increasing capital expenditure in recent budgets, recognizing its potential to drive sustainable economic growth and create a robust foundation for India's ambition to become a developed nation by 2047.

**Key Stakeholders and Their Roles**

Several key stakeholders are involved in and affected by the Union Budget. The primary stakeholder is the **Government of India**, specifically the **Ministry of Finance**, which is responsible for drafting and presenting the budget. The **Reserve Bank of India (RBI)** plays a crucial, albeit indirect, role; its monetary policy decisions (interest rates, liquidity management) must align with the government's fiscal policy to ensure overall macroeconomic stability. Financial institutions like **Axis Direct** act as market analysts, providing insights and expectations that influence investor sentiment and market behavior. **Investors** (both domestic and foreign) closely scrutinize budget announcements for policy signals, tax changes, and sectoral allocations, which guide their investment decisions. Finally, **citizens and businesses** are the ultimate beneficiaries or bearers of budget policies, experiencing the impact on inflation, employment, public services, and taxation.

**Significance for India and Historical Context**

The Union Budget is a critical instrument for India's economic management. A balanced budget with fiscal discipline enhances India's credibility with international rating agencies and foreign investors, leading to stable capital inflows and lower borrowing costs. The focus on capex is vital for addressing India's infrastructure deficit, which is crucial for improving logistics, boosting manufacturing, and enhancing India's export competitiveness. Historically, concerns over fiscal profligacy led to the enactment of the **Fiscal Responsibility and Budget Management (FRBM) Act in 2003**. This Act aimed to institutionalize financial discipline, mandating targets for reducing the fiscal deficit and revenue deficit to specific levels by certain dates. While the targets have been revised over time due to various economic exigencies, the FRBM Act remains a cornerstone of India's fiscal policy framework, reinforcing the importance of projections like those made by Axis Direct.

**Future Implications and Broader Themes**

The FY27 budget, guided by these expectations, will likely reinforce India's commitment to a growth-oriented yet fiscally prudent path. A sustained focus on capital expenditure could lead to a virtuous cycle of investment, job creation, and increased economic output. This aligns with broader themes of **'good governance'** and **'economic reforms'**, aiming to make India a more attractive investment destination and improve the ease of doing business. The budget's allocations will also reflect the government's priorities in social sectors, potentially impacting education, health, and rural development, thereby contributing to inclusive growth. Furthermore, India's budget strategy has implications for its global standing, signaling its economic stability and growth potential to international partners and multilateral organizations. The challenge will be to navigate global economic uncertainties and domestic pressures while adhering to fiscal targets and ensuring the effective implementation of capex projects to realize their full potential.

In essence, the upcoming budget is not just an accounting exercise; it's a strategic document that will shape India's economic trajectory, investment climate, and social welfare for years to come, reflecting a careful balance between short-term demands and long-term aspirations.