Mihir Vora, chief investment officer at TRUST Mutual Fund, expects the Union Budget 2026 to strike a balance between growth and fiscal prudence. He anticipates a continued focus on infrastructure spending and a moderate path of fiscal consolidation. In an interview with Mint, Vora shared his views on the implications of a delayed India-US trade deal for the Indian economy, his outlook for the domestic stock market in 2026, his assessment of India’s macroeconomic environment, and his expectations from the ongoing Q3 earnings.
Focus is shifting to the Union Budget now. What are your key expectations?
The Union Budget 2026 is expected to be pragmatic, balancing growth with fiscal prudence. Key expectations include:
Fiscal deficit: A moderate consolidation path is likely, with the FY27 target around 4.2% of GDP. Slower nominal GDP growth and potential expenditure pressures (eg, 8th Pay Commission) limit the scope for aggressive tightening.
Capital expenditure: Continued focus on infrastructure spending is expected, though the pace of increase may moderate. Sectors like roads, railways, defence, and renewable energy are likely to receive priority.
Taxation: Major tax changes are unlikely. The government is expected to maintain stability after the recent income tax and GST reforms. However, rationalization of capital gains tax structures could be considered.
Sectoral incentives: Possible extensions or expansions of PLI schemes, especially in electronics, green energy, and semiconductors. Support for the rural and agri sectors may also be enhanced.
Disinvestment: Renewed push for strategic divestments could be announced to boost non-tax revenues.
Overall, the Budget is expected to reinforce policy continuity and investor confidence without major surprises.
Is a delayed India-US trade deal beyond March a serious risk for markets?
A delayed India-US trade deal beyond March 2026 is more of a sentiment dampener than a systemic risk.
In 2025, the lack of progress on the trade front and the continuation of high US tariffs on Indian exports contributed to foreign investor apathy. This was one of the reasons India underperformed its global peers.
However, the Indian economy is driven more by domestic demand than by exports.
While a trade deal would certainly be a positive catalyst—especially for sectors like pharmaceuticals, textiles, and manufacturing—a delay is unlikely to derail the market’s longer-term trajectory.
The expectation remains that a deal will eventually materialize, and when it does, it could trigger a relief rally and improve India’s standing in global portfolios.
In summary, while the delay is a short-term headwind for sentiment and foreign flows, it is not a serious risk to the economic fundamentals.
Do you expect the new year to be better than the last year for the Indian stock market?
Yes, we expect 2026 to be a better year for the Indian stock market compared to 2025, though with cautious optimism.
While the Nifty delivered a respectable 10% return in 2025—marking the 10th consecutive year of positive returns—it was India’s worst relative performance versus emerging markets and world markets since 1994.
This underperformance was largely due to global investors’ preference for markets like the US, China, Japan, Taiwan and Korea – all with significant Artificial Intelligence plays in their stock market.
Foreign sentiment was also dampened by the overhang from the delayed India-US trade deal.
Domestic investors continued to be strong buyers of equities, but foreign investors remained sellers for most of the year. However, the setup for 2026 is more favourable.
Valuations have corrected to more reasonable levels, domestic liquidity remains strong, and macro fundamentals are robust.
The RBI’s rate cuts and surplus liquidity stance are supportive of growth.
With inflation at multi-year lows (CPI at 0.25% YoY in October 2025), and GDP growth projected at 6.8–7.3% for FY26, the backdrop for equities remains positive.
Markets are expected to be earnings-driven and selective, with leadership rotating across sectors.
India remains a stock-picker’s market, and while volatility may persist, the underlying trend is constructive, supported by domestic liquidity, sustained consumption and supportive policies.
How do you see the global macro risks affecting the domestic market?
Global factors are quite relevant and are a mixed bag of pluses and minuses.
On the positive side, global growth is expected to hold near trend (nearly 2.8% in 2026), with disinflation broadening across both developed and emerging markets.
The US Federal Reserve has already cut rates three times in 2025 and is expected to ease further in 2026, which should support global liquidity and risk appetite.
Commodity prices, particularly crude oil, have softened, easing inflationary pressures for India.
However, risks remain. The US faces a “jobless boom” scenario—rising unemployment despite decent output—which could affect global sentiment.
Furthermore, continued elevated fiscal deficits and rapidly rising debt in the US are leading to an erosion of trust in the US Dollar.
Bond yields continue to be high in spite of rate cuts as inflation expectations run higher on fears of money-printing by the US.
These factors could weigh on India’s export sectors, particularly IT services and manufacturing.
Europe’s growth remains sluggish, and China’s recovery is uneven, with domestic demand still tepid.
Additionally, geopolitical tensions, including the US-China tech rivalry and Middle East instability, could trigger risk-off episodes, impacting foreign flows into India.
Overall, while India’s domestic economy is relatively insulated, global macro developments—especially US monetary policy, oil prices, and geopolitical events—will continue to influence market sentiment and capital flows.
What are your expectations for Q3 earnings? How may sectors like IT and banking perform?
Q3 FY26 earnings are expected to be steady with overall growth of 10%.
This would be led by domestic sectors and global commodities. The festive season and GST-driven consumption boost are likely to reflect in improved topline and profit growth.
Banking: The sector is poised for a strong quarter. Credit growth is showing signs of green shoots (nearly 12% YoY as of mid-December), driven by retail and MSME demand.
Net interest margins (NIMs) will take a quarter or two to show improvement, and asset quality remains stable.
Overall, banks are entering an earnings upcycle, and private sector banks are expected to lead the performance.
IT services: Q3 is seasonally weak due to furloughs, and the demand environment remains subdued.
Revenue growth is expected to be flat to marginally positive in constant currency terms.
Profit growth may be modest, and investor focus will be on management commentary regarding FY27 demand and deal pipelines.
Other sectors like autos and consumer discretionary are expected to benefit from festive demand and tax cuts. Metals may see improvement due to better global prices.
DIIs have been bullish, but FIIs’ selling remains unabated. How do you see this dichotomy?
The divergence between domestic and foreign institutional investors has been stark. In 2025, DIIs were consistent net buyers, supported by strong SIP flows and a deepening domestic savings pool.
In contrast, FIIs were net sellers, withdrawing nearly $18-20 billion over the year, including nearly $2.6 billion in December alone. This dichotomy reflects both structural and cyclical factors.
Structurally, India’s domestic investor base has matured, providing a stable source of capital.
Cyclically, FIIs were deterred by high US interest rates, India’s premium valuations, the delay in the US trade deal and the lack of exposure to global themes like AI.
Despite FII outflows, the market remained resilient due to strong DII support. This shift underscores India’s growing self-reliance in capital markets.
While FII participation is desirable for breadth and depth, the market is no longer overly dependent on foreign capital.
The stark underperformance of India in 2025 has removed the premium that India has traditionally had versus other emerging markets.
India’s relative overweight in global portfolios has also reduced. So, if sentiment toward India improves – particularly with a US trade deal and Fed easing, FII flows could reverse, providing additional upside.
What is your assessment of India’s macro picture?
India’s macro fundamentals are strong. We have high real growth and ultra-low inflation – a Goldilocks scenario.
Real GDP growth is robust (nearly 7% for FY26), and inflation is exceptionally low (CPI at 0.25% in October, 0.71% in November).
The current account deficit has narrowed, and the fiscal deficit is manageable.
However, the sharp drop in inflation has led to weaker nominal GDP growth, which has implications for tax revenues and corporate topline growth.
This has made fiscal consolidation more challenging and may affect budgetary planning.
That said, the weakness in nominal GDP is not a structural concern. This is largely due to favorable base effects and policy-driven disinflation (eg, GST cuts).
Inflation is expected to normalize towards 4% in FY27, which should restore nominal GDP growth to double digits.
Demand indicators remain strong, and corporate earnings are recovering.
India’s macro picture is healthy, and the temporary softness in nominal GDP is not a red flag. It is a high-quality problem that reflects successful inflation management.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
