Kotak Securities: FY27 Budget Outlook and Market Impact Kotak Securities anticipates that the FY27 Union Budget will prioritize **macroeconomic stability** and **growth-supportive investment** over aggressive fiscal tightening or broad-based populism. Fiscal & Revenue Projections * **Slower Fiscal Consolidation:** The firm expects a deliberate moderation in the pace of fiscal consolidation. The gross fiscal deficit (GFD) is projected to settle at **4.3% of GDP** in FY27, only a marginal reduction from the estimated 4.4% in FY26. This reflects a conscious choice to utilize limited fiscal space to support capital spending. * **Revenue Reliance:** The government is expected to rely on robust tax buoyancy (projected gross tax revenue growth of **9%** in FY27) and a significant surplus transfer from the Reserve Bank of India (RBI) to manage the deficit. * **Limited Populism:** Following prior tax relief measures, the scope for large, market-pleasing fiscal stimulus or outright populist giveaways is considered low, especially given prevailing fiscal constraints and high committed expenditure. Expenditure Focus * **Sustained Capital Expenditure (Capex):** Capex will remain a policy anchor, with projected growth of **9%** in FY27. This focus on long-term capacity building will likely include a strong emphasis on defense spending (projected **20%** growth) and continued support for state capex programs. * **Restrained Revenue Spending:** Revenue expenditure growth is projected to be contained at a modest **5%**, underscoring the shift in policy preference toward investment-led growth. Market Implications * **Bond Market Pressure:** The need for higher gross market borrowing, driven by elevated redemptions, is expected to persist. This substantial supply pipeline will likely keep **pressure on bond yields**, maintaining caution in the fixed-income market. * **Muted Equity Response:** Amid a volatile global backdrop marked by geopolitical and trade uncertainty, the equity market is expected to witness **muted announcements**. Sectoral focus will likely remain on beneficiaries of sustained public capex, such as **infrastructure** and **defence**. Overall market sentiment around the budget may be subdued through the coming year.