Whalesbook
The Post-Budget Market Pulse
Equity markets experienced a significant downturn on Sunday, February 1, 2026, immediately following the presentation of the Union Budget 2026-27 by Finance Minister Nirmala Sitharaman. The benchmark Sensex and Nifty indices saw sharp declines, with analysts pointing to an increase in the Securities Transaction Tax (STT) on commodity futures and options as a primary driver of the sell-off, raising trading costs and dampening sentiment. [16, 17, 19, 22, 24] The government aims to maintain fiscal prudence, projecting a fiscal deficit of 4.3% of GDP for FY27, while significantly increasing capital expenditure (capex) to ₹12.2 lakh crore. [3, 12, 19] This fiscal stance signals a continued focus on infrastructure-led growth, balancing expenditure with consolidation goals.
Catalyzing 'Make in India' and Strategic Sectors
Central to the budget's industrial policy are customs duty exemptions designed to enhance domestic manufacturing capabilities. The aerospace and defence sectors are set to benefit from basic customs duty waivers on raw materials and components for aircraft manufacturing, including those for civilian training aircraft and defence MRO (maintenance, repair, and overhaul) operations. [2, 5, 20, 31, 32] This initiative aims to reduce production costs and foster greater self-reliance. Complementing this, the budget extends exemptions to solar glass raw materials, such as sodium antimonate, and capital goods for manufacturing Battery Energy Storage Systems (BESS), vital for India's renewable energy transition. [5, 6, 11, 15, 20, 25, 28] Furthermore, goods for nuclear power projects will receive customs duty exemptions until 2035, providing long-term certainty for this strategic energy sector. [5, 31, 32]
Export Competitiveness and SEZ Dynamics
Measures to boost India's export performance include an increase in the duty-free import limit for inputs used in seafood processing for export, raised to 3% from 1% of Free On Board (FOB) value. [4, 5, 8, 32] Similar duty-free import provisions are being extended to the leather export sector. [4, 8] In a move to support domestic industry, a special one-time measure will allow eligible manufacturing units in Special Economic Zones (SEZs) to sell goods to the domestic tariff area at concessional duty rates. [3, 8, 32] Additionally, exemptions are proposed for select components used in the manufacturing of microwave ovens, potentially influencing consumer electronics costs.
Economic Outlook and Sectoral Trajectory
The budget's overarching objective appears to be strengthening India's position as a global manufacturing hub, aligning with the 'Make in India' and 'Atmanirbhar Bharat' (self-reliant India) initiatives. [2, 5, 20, 23] The strategic duty exemptions aim to de-risk investment, lower input costs, and enhance the cost-competitiveness of domestic industries. The confluence of these budget proposals, coupled with recent developments like the EU-India Free Trade Agreement removing duties on aircraft goods, positions certain sectors for growth, though market participants remain cautious amid immediate tax adjustments. [33] The focus on long-term energy security, indigenous defence capabilities, and export promotion suggests a strategic direction aimed at sustainable, albeit volatile, economic expansion.