Union Budget 2026: Sector-Wise Highlights & Key Announcements

Finance Minister Nirmala Sitharaman presented the Union Budget 2026–27 in Parliament on 1st February 2026, marking her ninth consecutive Budget. This time, the Budget was framed around sustaining economic growth, strengthening domestic manufacturing, and maintaining fiscal discipline amid global uncertainty. 

After the announcements, the Budget immediately impacted stock market behaviour. Equity benchmarks turned volatile through the session, as market participants reacted to tax changes, sector-specific incentives, and capital expenditure signals. Let’s take a look at the key sectors in focus, major budget allocations, and the overall impact of Union Budget 2026 on the stock market.

Stock Market Reaction to Union Budget 2026

Union Budget 2026 triggered sharp swings in the Indian stock market during the special Sunday trading session. Equity benchmarks moved between gains and losses as investors reacted in real time to policy announcements, tax changes, and fiscal signals.

Positive Start During the Speech

Markets opened on a positive note as trading began during the Finance Minister’s speech. At 11:06 AM, the NSE Nifty gained 95.30 points (0.38%) to 25,415.95. It showed early optimism around continued government spending and sector support.

Sharp Sell-Off After STT Announcement

Market sentiment turned sharply negative after the announcement of a higher Securities Transaction Tax (STT) on derivatives. Selling intensified soon after. By 12:28 PM, the Nifty dropped 534.25 points (2.11%) to 24,786.40. Intraday volatility increased as traders adjusted their positions.

Weak Close Despite Intraday Recovery Attempts

Benchmarks failed to recover meaningfully by the end of the session. The Nifty 50 ended at 24,825.45, lower by 495.20 points (1.96%). The close reflected sustained pressure after the tax-related announcements.

Sector-Level Divergence

Sector performance stayed mixed through the day. Some healthcare, pharmaceutical, and IT stocks showed relative resilience. In contrast, stocks with higher exposure to derivatives activity and valuation sensitivity saw sharper declines. 

Top Sectors in Focus After Union Budget 2026

Union Budget 2026 placed clear emphasis on sectors linked to manufacturing, infrastructure, technology, pharma, MSME, and healthcare. Let’s take a look at the budget allocation and major announcements across key sectors, and how these measures shaped sector-level focus after the Union Budget 2026.

Union Budget 2026 Update for Manufacturing Sector

Union Budget 2026 reinforced manufacturing as a core growth pillar, with policy continuity around capex, domestic value chains, and export competitiveness. The announcements focused on lowering input costs, improving logistics, and encouraging private participation.

• Capital expenditure for FY27 was raised to ₹12.2 lakh cr., supporting demand for industrial goods, machinery, and construction-linked manufacturing
• Customs duty exemptions were extended for capital goods used in battery energy storage systems, easing costs for energy-linked manufacturing
• A ₹10,000 cr. outlay was announced to start domestic container manufacturing over five years, reducing import dependence and supporting logistics manufacturing
• Specialised toolrooms were proposed across industrial clusters to enable high-precision component manufacturing at scale, especially for MSMEs
• SEZ manufacturing units were allowed a one-time concessional duty route to sell into the domestic market, addressing capacity utilisation issues amid global trade disruptions

Budget 2026 Update for Defence and Aviation Sector 

Union Budget 2026 included several measures aimed at supporting domestic manufacturing and maintenance in the defence and aviation ecosystem.

• The Union Budget 2026 allocated a record ₹7.85 lakh cr. to defence, the highest-ever outlay for the sector.
• The allocation marks a 15.19% increase over the previous year and accounts for around 2% of the estimated GDP for FY27.
• Capital expenditure rose to ₹2.19 lakh cr., up from ₹1.8 lakh cr. in FY26, highlighting a focus on modernisation.
• Around 75% of capital acquisition (₹1.39 lakh cr.) was earmarked for domestic procurement, strengthening defence indigenisation.
• The Budget increased funding for new aircraft, ships, submarines, UAVs, drones, and smart weapons, along with emergency procurement needs.
• Defence spending now forms 14.67% of total Union government expenditure, the highest among all ministries.

Electronics & Semiconductor Equipment Sector

The electronics and semiconductor ecosystem saw one of the clearest policy signals in Budget 2026, with a sharp focus on building end-to-end domestic capabilities rather than only chip fabrication.

• India Semiconductor Mission (ISM) 2.0 was announced, with emphasis on indigenous semiconductor equipment, specialised materials, and Indian-owned IP
• The outlay for the Electronics Component Manufacturing Scheme was increased to ₹40,000 cr., up from ₹22,919 cr., reflecting scale-up ambitions
• Policy support was extended to fabless startups to ensure “Designed in India” chips integrate into global supply chains
• Customs duty rationalisation was announced for key electronic inputs to lower manufacturing costs and improve competitiveness
• Electronics manufacturing continued to align with broader goals around data centres, AI infrastructure, and digital public platforms

Information Technology & Digital Services Sector

Union Budget 2026 introduced several structural measures aimed at reducing tax friction, improving certainty, and positioning India as a global digital and data services hub. The announcements focused more on long-term competitiveness than short-term incentives.

• All software development, IT-enabled services, knowledge process outsourcing, and contract R&D activities were consolidated under a single category called Information Technology Services
• A uniform safe harbour margin of 15.5% was announced for IT services, replacing multiple thresholds and reducing transfer pricing complexity
• The turnover threshold to avail safe harbour benefits was increased from ₹300 cr. to ₹2,000 cr., expanding coverage to more mid-sized IT firms
• Safe harbour approvals will shift to an automated, rule-based system, reducing litigation and compliance uncertainty
• A long-term tax holiday until 2047 was announced for global cloud service providers using Indian data centres, strengthening India’s data centre and digital infrastructure ecosystem

Union Budget 2026 Update for Pharmaceutical Sector

The pharmaceutical sector received targeted policy support, with a clear shift towards innovation, research infrastructure, and advanced manufacturing rather than volume-led expansion.

• A dedicated Bio-Pharma Strategy was announced to strengthen India’s position as a global biopharma development hub
• ₹10,000 cr. was allocated under the Biopharma SHAKTI initiative to support research, clinical trials, and high-value drug development
• Expansion of NIPER institutions and the creation of 1,000 clinical trial sites were proposed to improve research capacity and regulatory readiness
• Customs duty exemptions were announced for select raw materials and inputs to support pharmaceutical manufacturing and exports
• Additional support was extended for traditional medicine through increased allocation to the AYUSH ministry and the announcement of three new All India Institutes of Ayurveda.

Union Budget 2026 Update for the Healthcare Sector

Union Budget 2026 strengthened healthcare through capacity building, workforce expansion, and medical tourism. The focus stayed on long-term system readiness rather than short-term spending boosts.

• Five regional medical tourism hubs will be developed through public–private partnerships, covering hospitals, diagnostics, education, and post-care facilities
• One lakh allied health professionals will be added over five years to address workforce gaps in diagnostics, nursing, and rehabilitation
• A dedicated programme will train 1.5 lakh caregivers to support elderly care, long-term care, and post-acute services
• NIMHANS 2.0 will be set up in North India, alongside upgrades to national mental health institutes to expand access to mental healthcare. Emergency and trauma care capacity in district hospitals will increase by 50%

Infrastructure, Railways & Logistics

Infrastructure remained a central pillar of Union Budget 2026, with higher capital allocation and a clear push toward multi-modal connectivity and asset monetisation.

• Capital expenditure for FY27 was raised to ₹12.2 lakh cr., the highest-ever level
• Railways received a capital allocation of ₹2.77 lakh cr., focused on rolling stock, safety systems, and network expansion
• Seven new high-speed rail corridors were announced to improve inter-city connectivity
• Twenty national waterways will become operational over the next five years to lower logistics costs
• An Infra Risk Guarantee Fund was introduced to attract private capital by reducing construction-phase risks
• Incentives were announced for municipal bonds and REITs to support urban infrastructure financing

Union Budget 2026 Update for MSMEs and SMEs

Union Budget 2026 positioned MSMEs as critical drivers of employment, manufacturing scale, and export growth. The measures focused on financing access, compliance ease, and capacity building.

• A ₹10,000 cr. SME Growth Fund was announced to support expansion and job creation
• Investment limits for non-residents in listed companies were raised, improving capital access for growing enterprises
• Specialised toolrooms will be set up across industrial clusters to help MSMEs manufacture high-precision components
• A one-time concessional duty window was allowed for SEZ units to sell into the domestic market, improving capacity utilisation
• Simplified tax and compliance processes were introduced to reduce working capital pressure, especially for smaller firms

Textiles, Leather & Labour-Intensive Sectors

Union Budget 2026 continued its focus on labour-intensive industries to support employment, exports, and MSME participation. The measures aimed to modernise clusters, improve raw material access, and strengthen global competitiveness.

• A comprehensive textile sector programme was announced, combining multiple existing schemes under a single framework to improve execution and scale
• Samarth 2.0 was introduced to support advanced skilling across textile and apparel value chains.
• A National Fibre Scheme was announced to improve self-reliance in natural and man-made fibres and reduce import dependence
• Existing textile clusters will receive targeted support to upgrade technology and expand production capacity
• Leather exporters received support through duty-free imports of specified inputs, improving cost competitiveness in export markets
• Labour-intensive sectors such as handloom, handicrafts, and village industries were aligned with branding and market-access initiatives under broader rural development programmes

Union Budget 2026-27: Other Sectors in Focus 

Union Budget 2026 included several targeted announcements across additional sectors, extending the policy impact beyond core manufacturing and services.

Renewable Energy & Green Infrastructure

• Customs duty exemptions were extended to capital goods used in battery energy storage systems
• Full duty exemption was announced for sodium antimonate, a key input for solar glass manufacturing
• All imports for nuclear power projects were exempted from customs duty until 2035 to support carbon-free baseload power
• A ₹20,000 cr. carbon capture and utilisation scheme was announced for high-emission industries such as steel and cement

Telecom

• Allocation to the Ministry of Communications increased to ₹73,990 cr., driven by capital infusion and network expansion for BSNL
• Spending will support BharatNet, spectrum costs, and nationwide telecom infrastructure upgrades

Sports & Creative Industries

• The sports goods manufacturing sector received a first-time allocation of ₹500 cr., supporting domestic production
• The AVGC and Orange Economy segments received policy backing through content creator labs in schools and colleges to build long-term talent pipelines

Tourism & Cultural Infrastructure

• Fifteen archaeological sites will be developed as cultural destinations
• Medical and eco-tourism initiatives complemented broader infrastructure and services sector investments

Taxation Updates Introduced in Union Budget 2026–27

Securities Transaction Tax (STT) Update

• STT on futures trades increased to 0.05% from 0.02%.
• The change applies to transactions in the derivatives segment.
• The revision increases trading costs for futures contracts and influenced market sentiment on Budget Day.

New TCS Threshold for Overseas Medical Treatment

• TCS of 2% now applies on overseas medical treatment remittances exceeding ₹10 lakh. Earlier, TCS applied once remittances crossed ₹2 lakh.
• The higher threshold reduces upfront tax collection on large medical expenses.

Indirect Tax & Customs Duty Updates

• The Budget exempted basic customs duty on aircraft parts and components, including raw materials used for defence-sector MRO, to support domestic aviation manufacturing.
• The government extended duty exemptions to select critical and life-saving medicines, including drugs for rare diseases, to improve treatment affordability.
• The Budget continued duty support for electronics and semiconductor manufacturing by reducing duties on key inputs and capital goods, aiming to lower import dependence.
• A one-time concessional customs duty was allowed for eligible SEZ units to sell goods in the domestic market, helping address capacity utilisation challenges.

Union Budget 2026: Top Gainers

On 1st February 2026, equity benchmarks corrected sharply after the STT hike on futures and options, with the Nifty50 slipping below key levels. Even as equity benchmarks remained under pressure, select stocks ended the session in the green. The table below shows a snapshot of these gainers.

Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.

Budget 2026: Top Losers

The Budget Day session on 1st February 2026 also saw sharp selling in several stocks as markets reacted to higher transaction costs, valuation concerns, and near-term uncertainty around policy impact.

Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.al purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.

What Does the Union Budget 2026 Signal for the Stock Market?

The Union Budget 2026 provided a mix of macro-level signals, sector-specific policy direction, and fiscal targets that shaped how the stock market interpreted the announcements.

Fiscal Discipline and Borrowing

The government set the fiscal deficit for FY27 at 4.3% of GDP, slightly lower than the 4.4% target for FY26. It also announced gross market borrowing of ₹11.7 lakh cr. for FY27. These numbers highlighted continued focus on fiscal consolidation while supporting economic activity through spending.

Capital Expenditure Focus

The Budget raised capital expenditure to ₹12.2 lakh cr. for FY27, compared with ₹11.2 lakh cr. in the previous year. This increase reinforced public investment as a key growth driver. Sectors linked to infrastructure, manufacturing, transport, and logistics remained in focus due to this allocation.

Clear Sector-Level Direction

The Budget outlined targeted policy measures for manufacturing, electronics and semiconductors, IT services, pharmaceuticals, healthcare, MSMEs, and labour-intensive sectors. These announcements offered clearer visibility on government priorities rather than immediate earnings impact, leading to mixed reactions across sectors.

Impact of Tax and Trading Cost Changes

The increase in Securities Transaction Tax (STT) on futures and options influenced intraday market movement. Higher trading costs led to profit booking and sharper volatility, especially in derivatives-linked stocks.

Market Volatility and Stock-Specific Moves

Equity benchmarks turned volatile on Budget Day, moving between gains and losses before closing lower. Some stocks showed resilience despite broader market weakness, while others faced selling pressure. The response remained stock- and sector-specific rather than broad-based.

Overall Market Takeaway

Union Budget 2026 pointed to a balance between fiscal discipline and public investment-led growth. Stock market behaviour suggested that participants weighed short-term tax changes against longer-term structural priorities, resulting in selective movement across sectors instead of a uniform market trend.

Frequently Asked Questions on Union Budget 2026