As the Union Budget 2026-27 approaches, expectations are shifting towards long-term structural reforms rather than major tax reliefs, according to a new report released on Tuesday. With last year already delivering significant tax slab expansion and GST rate cuts, analysts believe the upcoming Budget will focus more on strengthening economic foundations and sustaining growth momentum.
Budget 2026 likely to prioritise structural economic reforms
The report suggests that the government now has limited space for fresh tax concessions, as major relief measures were already rolled out in the previous Budget. Instead, policymakers are expected to push structural changes that improve productivity, investment flow, and long-term stability.
Global geopolitics and US tariff tensions hit sentiment
Nifty gives up recent gains and trades sideways
Domestic demand and macro indicators remain resilient
Despite global pressures, India’s domestic demand outlook remains strong, supported by improving macro fundamentals and policy-led tailwinds, according to PL Capital’s India Strategy Report.
Interest rate cuts and tax relief support consumption
Low inflation and GST rationalisation improve sentiment
Amnish Aggarwal, Co-Head Institutional Equities at PL Capital, said the combined effect of income tax cuts, a 125 basis points repo rate reduction, normal monsoons, and decade-low inflation is expected to support economic momentum into next year.
Nifty EPS expected to grow at 14.8% CAGR till FY28
Despite near-term caution, the brokerage remains optimistic about medium-term earnings growth. Nifty earnings per share (EPS) are projected to grow at a CAGR of 14.8 percent between FY26 and FY28, reflecting improving fundamentals.
Nifty valued at discount to long-term average
Brokerage sets 12-month target at 28,814
PL Capital values the Nifty at a 3 percent discount to its 15-year average P/E, revising its 12-month target to 28,814, slightly lower than its earlier estimate of 29,094.
Earnings estimates revised, large caps still preferred
The brokerage has marginally revised earnings projections, cutting FY26 and FY27 estimates while slightly raising FY28 numbers.
FY26, FY27 EPS cut; FY28 raised
Large caps expected to outperform in near term
Large-cap stocks have already delivered 16–17 percent returns over the past year, and the report expects them to continue outperforming smaller peers amid ongoing uncertainty.
These sectors may outperform in coming months
PL Capital expects domestically driven sectors to perform better over the near to medium term, supported by improving demand conditions.
Banks, NBFCs, autos and defence in focus
Rural demand outpacing urban recovery
The report also noted that consumer staples have begun to see a gradual pickup in demand after inventory rationalisation ended in mid-November, while rural demand remains stronger than urban demand.
Outlook remains cautious but constructive
While global risks remain elevated, the report maintains a constructive outlook for Indian markets, backed by strong domestic fundamentals and policy support.