India's economy is gearing up for the most significant event of the fiscal year - Union Budget 2026. The budget is expected to influence not only GDP growth trends but also household finances and overall equity market sentiment.
Market sentiment, in particular, hinges on several factors, including the tax structure. According to Anand Rathi Group Founder Anand Rathi, reducing transactional taxes such as the Securities Transaction Tax (STT) and lowering personal income tax rates would help trigger a market rally. He flagged a key friction point in the current tax regime - the overlap of STT with the reintroduced capital gains tax.
Rathi argued that to boost investor confidence, the government should rationalise capital gains tax and reduce personal income tax in the upcoming budget. He also pointed out that STT was originally introduced as a substitute for capital gains tax. However, even after capital gains tax was reinstated - at a higher rate - STT continues to remain in place.
Easing these tax burdens, Rathi said, would encourage greater retail participation, improve domestic investors' net returns, and lift overall market sentiment.
Beyond taxation, Rathi highlighted strong GDP growth as a crucial driver for the markets. If GDP remains robust, he said, equities will reflect that strength despite geopolitical risks.
He also noted that Budget 2026 may present certain challenges and suggested that the government shift its reform focus to the income tax side, similar to how it streamlined the indirect tax system through GST.
Rathi further emphasised the need for higher capital expenditure to sustain India's infrastructure momentum. "The government needs to increase its capex continuously for an infrastructure push. It should raise the capex allocation by at least 15%," he said.
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