FY27 Budget: Fiscal Prudence Meets Growth Push, Says Jefferies

The fiscal deficit has been pegged at 4.3 per cent of GDP, a modest 10 basis point reduction from FY26, lower than market expectations of a sharper consolidation.

The slightly higher-than-expected deficit, along with an incremental borrowing requirement of around Rs 1.4 trillion year-on-year, could exert upward pressure on bond yields, posing near-term challenges for NBFCs and PSU banks, the report noted.

Capital expenditure remains a key pillar, with overall government capex projected to grow 11 per cent in FY27. Defence capex has been budgeted to rise 17 per cent, while roads and railways spending is set to increase 8 per cent and 11 per cent, respectively. This is expected to benefit capital goods, infrastructure, cement, and defence-linked companies.

The electronics and data centre ecosystem received a significant boost. The government announced a 20-year tax exemption for cloud service providers, likely to accelerate data centre capacity expansion in India. In addition, allocation for the Electronics Components Manufacturing Scheme (ECMS) was raised sharply to Rs 400 billion, supporting domestic component manufacturers, although the mobile PLI scheme was not extended.

In the financial services space, an increase in UPI and RuPay incentive allocation is seen as positive for digital payments companies. However, the hike in Securities Transaction Tax (STT) on futures and options is expected to act as a sentiment negative for brokers and exchanges, with limited impact on trading volumes.

For the energy and renewables sector, subsidy allocation for rooftop solar and solar pumps under the KUSUM scheme was increased to Rs 270 billion in FY27, supporting domestic solar manufacturers. Excise duty on petrol and diesel remained unchanged, easing concerns around oil marketing company margins.

The real estate sector stands to benefit from tax incentives for data centres and relaxed safe harbour norms for global capability centres (GCCs), which should support office demand and REITs. However, a rise in bond yields could weigh on sector valuations.

In consumer sectors, the budget maintained status quo on tobacco taxation and gold import duties, providing relief to cigarette and jewellery companies. Textiles received a modest boost through a new integrated programme focused on self-reliance and value addition.

The pharma and healthcare segment saw the announcement of the Biopharma SHAKTI scheme with an outlay of Rs 100 billion over five years, alongside higher health ministry allocations and customs duty exemptions for select drugs.

Overall, Jefferies noted that while the pace of fiscal consolidation has moderated, the FY27 Budget reinforces the government's growth focus through sustained capex, targeted sectoral incentives, and structural reforms aimed at improving ease of doing business.

- ANI