Budget 2026 should prioritise capex, avoid sharp fiscal deficit cuts: Bernstein’s Venugopal Garre

The upcoming Union Budget 2026 should continue to focus on government-led capital expenditure and may avoid sharp cuts to the fiscal deficit, Venugopal Garre, Managing Director and India Head of Research at Bernstein, said.Garre said the current economic setup allows the government to maintain a higher fiscal deficit if spending supports growth. With inflation low and private investment not accelerating sharply, he said public spending still has a role to play. “This is a time when government should be still doing the heavy lifting,” Garre said.

He added that even modest fiscal consolidation over time would be sufficient to improve debt metrics. Garre said reducing the fiscal deficit by 10–15 basis points (bps) annually could bring central government debt down without constraining growth. “Please don’t cut it. Keep it at 4.4,” he said, referring to the fiscal deficit level.

Also Read | Budget 2026 expectations muted; fiscal path and bond market key for stocks, says Axis AMC CIOOn capital expenditure, Garre said he expects growth of at least 10% in the coming budget, with room for more if private investment is encouraged. He said incentives such as accelerated depreciation could help businesses expand capacity without large projects.

Garre also said some changes to capital gains taxation could be considered. He said limited tweaks, especially for long-term equity investments, may help stimulate private investment without a large revenue impact.
On sector views, Garre said he remains neutral on listed metal companies, citing valuation levels and earnings expectations. He said he is not positioning for a strong rerating in the space despite recent price movements.He also said defence spending could see higher allocations and may continue to rise over the next few years, while real estate appears to be in a mid-cycle phase, with earnings adjustments largely understood by the market.

Also Read | Budget 2026 unlikely to move markets in a big way: Samir Arora

On equities more broadly, Garre said he does not expect a sharp or sustained correction in Indian markets. He said domestic flows and stable macro conditions reduce the risk of a major valuation reset. “I’m neutral in India, but I’m not a seller,” he said.

For the full interview, watch the accompanying video

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