The Union Budget 2025-26 has reinforced our belief that the government listens, thinks, and acts as per the evolving needs of the economy. Budget 2025 is crafted as a bold statement of fiscal consolidation and long‐term structural reform. Through this Budget, Finance Minister Nirmala Sitharaman is aiming to boost growth on one side, while on the other side, ensuring that benefits of increased public spending and tax rationalisation percolate across the economy. With major tax reforms, the Budget also caters to the needs of the middle class, which constitutes a majority of India's population.
A balancing act
The government has introduced a major reduction in personal income taxes. This, and likely introduction of new direct tax code, will improve the disposable income in hands of the middle class and boost consumption in the economy. The focus on consumption, which includes consumer durables, travel and tourism, and auto, will revive growth at the grass root level and is a big positive for the companies in this sector.
While the taxes were rationalised, the government has retained the path of fiscal consolidation with reduction in fiscal deficit from 4.8 per cent of the gross domestic product (GDP) in financial year 2024-25 (FY25) (revised estimate; RE) to 4.4 per cent in FY26 (budgeted estimate; BE). This will return fiscal deficit to pre-pandemic levels. The momentum in capital expenditure is maintained at Rs 11.21 trillion (up 10 per cent from FY25RE). Overall, the budget's macro narrative is one of calibrated optimism. It seeks to drive sustainable growth through a balanced mix of fiscal prudence, tax simplification, and structural reforms, while simultaneously investing in the critical areas of infrastructure, human capital, and digital transformation.
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Auto wins big
We expect the auto sector to be the biggest beneficiary of the tax rationalisation and the PLI-boost of Rs 2,818 crore. Within the auto sector, stocks like Maruti Suzuki, M&M and Eicher Motor will be the biggest beneficiary. We also expect a large chunk of the mutual fund portfolio to get rebalanced in favour of domestic consumption names. This is on the back of the government’s thrust on capex and consumption.
Interest rate reduction
While the government has delivered on its promise to boost the economy, the Reserve Bank of India (RBI) is expected to ease interest rates and deliver as the second (read double) engine of growth. Going forward, rate cut will be a big positive for NBFCs and gold finance companies.
Ease of Doing Business takes centre stage again
The key element was the FM reinforcing the government's commitment to enhancing 'Ease of Doing Business' and simplifying tax and laws. It also proposed significant reforms, which includes the establishment of a High-Level Committee for Regulatory Reforms.
At a macro level, India remains the world's growth hub, and I truly believe this is India’s golden decade. So, we reiterate that this is the time to invest in the markets. India’s capital markets today are not only a reflection of our nation’s economic health but a powerful engine for growth. A young, tech-savvy population, supportive policy environment, and rising middle class combine to create a market with immense, unprecedented potential. Just like we see the Trumponomics playing an important factor in the growth of America, Modinomics is to India for further growth and broader market trends.
It is important to note that in 2025, investors will make money, albeit at a slower pace. Right stock picking will be key to creating wealth. While other factors like Trump's policy moves, Fed's interest rate decisions, and ensuing currency outlook will be important determinant of market moves, I believe Union Budget 2025 has done its job well.
Disclaimer: Amisha Vora is Chairperson and Managing Director, PL Capital Group.
