Budget 2025 Expectations: Focus To Be On Capex, Consumption And Jobs, Says UBS

The upcoming Union Budget for fiscal 2026 is expected to focus on capital expenditure, consumption, and job creation, according to a note released by UBS Securities India Pvt.

The brokerage, however, expects the government’s capex will be “within fiscal boundaries”.

The government may also allow some income tax adjustments for middle-class households, according to UBS. This move is expected to encourage people to spend more, thereby boosting consumption. It may also result in creation of more jobs, it added.

On the gross tax revenue front, UBS expects a growth of about 11.5%-12% year-on-year in fiscal 2026. This, it said, “is in line with the improvement in nominal GDP growth to 10.5% YoY in FY26E (versus 9.7% YoY in FY25, as per first advance estimate)."

The report forecast the non-tax revenue to normalise. The government may lower its divestment targets to Rs 30,000 crore in the upcoming fiscal. This is because, so far this fiscal, it has managed to rake in just about Rs 9,000 crore, while it had targeted to garner Rs 50,000 crore by disinvesting stakes in public sector companies, it added.

According to the report, the budget is not expected to introduce any changes to tax policy, particularly for capital markets.

Meanwhile, UBS India strategist Anubhav Agarwal thinks the impact of the budget on the markets would be muted. This, he said, could happen if the government limits capex and consumption so as to contain fiscal deficit at less than 4.5% of GDP in FY26.

The report pointed to the importance of domestic orders for core infrastructure companies due to limited opportunities overseas, especially in the Middle East.

"If FY26 capex is budgeted at around Rs 11 lakh crore (similar to the FY25 budgeted capex), it would be negative for L&T and core infrastructure companies, in our opinion," it said.

The UBS report added that "companies exposed to private, emerging infrastructure and power value chains are relatively better placed" as private sector capex growth was in double-digits.