Union Budget 2026 Explained: Key Highlights & Market Impact

Last Updated on Feb 4, 2026 by Durga Mishra

Finance Minister Nirmala Sitharaman presented her ninth consecutive Union Budget in Parliament on 1st February 2026 for FY 2026-27. As with every Budget Day, the announcements quickly shaped stock market behaviour. Despite being presented on a Sunday through a special trading session, the Budget triggered sharp moves across equity markets. The Nifty 50 ended the day down nearly 2%, while most sectoral indices closed in the red. Nifty IT was the only major index that finished with gains, supported by clarity on tax and policy measures for the sector.

In this blog, we cover the key Union Budget 2026 announcements and track how the stock market reacted at different stages during the Budget speech.

Stock Market Reaction to Union Budget FY 2026-27

The Union Budget 2026 witnessed sharp 1D movements in the Indian equity market during the special Sunday trading session. Stock prices fluctuated as investors responded to policy announcements, tax changes, and updates on government spending. Here’s the timeline on investors’ sentiment during the budget speech –

• Early Optimism During the Speech: Markets started the session on a firm note while the Finance Minister delivered the Budget speech. The NSE Nifty rose 95.30 points, or 0.38%, to 25,415.95. The initial rise reflected expectations of policy continuity and sustained public investment.
• Selling Pressure After STT Revision: Market sentiment weakened after the announcement of a higher Securities Transaction Tax (STT) on derivatives. Selling activity increased across large-cap stocks. By 12:28 PM, Nifty declined 534.25 points, or 2.11%, to 24,786.40. Volatility picked up as traders recalibrated positions.
• Indices Close Lower: Despite brief stabilisation attempts, benchmarks ended the session in the red. The Nifty 50 settled at 24,825.45, a decline of 495.20 points, or 1.96%. The close highlighted continued pressure following the tax-related measures.
• Uneven Sector Performance: Sector-level movement remained mixed through the day. Select stocks in healthcare, pharmaceuticals, and IT showed relative stability. In contrast, stocks more sensitive to derivatives trading and valuation concerns faced stronger selling pressure.

Top Sectors in Focus After Union Budget 2026

Union Budget 2026 highlighted several sectors that align with the government’s focus on capital investment, domestic production, and supply-chain resilience. Manufacturing stood out as a key priority, supported by higher public spending, cost-relief measures, and policy continuity.

Union Budget 2026-27 for Manufacturing Sector

Union Budget 2026 kept manufacturing at the centre of the government’s growth strategy. The announcements focused on higher public spending, lower input costs, and measures to support domestic production and capacity utilisation.

• Higher Public Spending: Capital expenditure for FY27 increased to Rs. 12.2 lakh cr., supporting demand for industrial goods, machinery, and construction-linked manufacturing. The higher capex allocation continued to anchor manufacturing activity through infrastructure and public works.
• Support for Energy Storage Manufacturing: Customs duty exemptions were extended to capital goods used in battery energy storage systems, reducing input costs for manufacturers linked to clean energy and power storage.
• Boost to Domestic Container Manufacturing: A Rs. 10,000 cr. outlay was announced to develop domestic container manufacturing over five years. The move aims to reduce import dependence and strengthen manufacturing linked to logistics and ports.
• Precision Manufacturing Enablement: The Budget proposed the setup of specialised toolrooms across industrial clusters. These facilities will help manufacturers, especially MSMEs, produce high-precision components at scale.
• Capacity Utilisation Relief for SEZ Units: SEZ manufacturing units received a one-time concessional duty option to sell goods in the domestic market. This measure addresses underutilised capacity caused by global trade disruptions.

Electronics & Semiconductor Equipment Sector

Union Budget 2026 placed strong emphasis on building a full electronics and semiconductor ecosystem in India. The focus moved beyond chip fabrication to include equipment, materials, design capability, and supply-chain depth.

• Semiconductor Ecosystem Expansion: The government announced India Semiconductor Mission (ISM) 2.0, extending policy support to semiconductor equipment, specialised materials, testing, packaging, and Indian-owned design IP. The move aims to strengthen end-to-end domestic capabilities.
• Higher Allocation for Components Manufacturing: The outlay for the Electronics Components Manufacturing Scheme increased to Rs. 40,000 cr., up from Rs. 22,919 cr. earlier. The higher allocation reflects the intent to scale domestic production of electronic components.
• Support for Fabless and Design-Led Firms: Policy measures encouraged fabless semiconductor companies, focusing on “Designed in India” chips that integrate into global supply chains rather than only domestic fabrication.
• Input Cost Rationalisation: The Budget announced customs duty rationalisation on key electronic inputs, lowering manufacturing costs and improving cost competitiveness for electronics manufacturers.
• Linkage with Digital Infrastructure: Electronics manufacturing support aligned with broader investments in data centres, AI infrastructure, and digital public platforms, reinforcing demand for advanced electronic hardware.

Union Budget 2026-27 for Pharmaceutical Sector

Union Budget 2026 offered targeted support to the pharmaceutical sector, with a clear shift towards research, innovation, and advanced manufacturing. The focus stayed on strengthening long-term capabilities rather than expanding volume-led production.

• Biopharma-Focused Policy Direction: The Budget announced a dedicated Bio-Pharma Strategy to position India as a global hub for advanced drug development, biologics, and complex therapies.
• Funding for Research and Innovation: An allocation of Rs. 10,000 cr. under the Biopharma SHAKTI initiative was announced to support drug discovery, clinical research, and high-value pharmaceutical development.
• Expansion of Research Infrastructure: The government proposed the expansion of NIPER institutions and the setup of 1,000 clinical trial sites to improve research depth, regulatory readiness, and approval timelines.
• Customs Duty Relief on Key Inputs: Select raw materials and inputs used in pharmaceutical manufacturing received customs duty exemptions, aimed at lowering production costs and supporting exports.
• Support for Traditional Medicine Systems: Budget 2026 increased allocation to the AYUSH ministry and announced three new All India Institutes of Ayurveda, strengthening institutional support for traditional healthcare systems.

Union Budget 2026-27 for Information Technology & Digital Services Sector

Union Budget 2026 introduced structural changes aimed at reducing tax uncertainty and improving long-term clarity for India’s IT support and services industry. The measures focused on compliance simplification rather than short-term incentives.

• Unified Classification for IT Services: The Budget grouped software development, IT-enabled services, knowledge process outsourcing, and contract R&D under a single category called Information Technology Services. The change reduces ambiguity in tax treatment across service lines.
• Simplified Safe Harbour Framework: A uniform safe harbour margin of 15.5% replaced multiple earlier thresholds. The revision standardised transfer pricing norms for IT service providers.
• Expanded Eligibility for Mid-Sized Firms: The turnover limit to qualify for safe harbour benefits increased from Rs. 300 cr. to Rs. 2,000 cr., extending coverage to a larger base of mid-sized IT companies.
• Automated Compliance Process: Safe harbour approvals will shift to an automated, rule-based system, reducing litigation risk and manual assessments in transfer pricing cases.
• Data Centre-Led Digital Push: A tax holiday until 2047 was announced for global cloud service providers using Indian data centres. The move strengthens India’s position as a digital infrastructure and data services hub.

Union Budget 2026-27 for the Healthcare Sector

Union Budget 2026 focused on strengthening healthcare capacity through workforce expansion, infrastructure development, and medical tourism. The measures aimed to improve long-term service delivery rather than short-term spending.

• Medical Tourism Infrastructure: The Budget proposed five regional medical tourism hubs through public–private partnerships. These hubs will integrate hospitals, diagnostics, education, and post-treatment care facilities.
• Workforce Capacity Expansion: The government announced the addition of one lakh allied health professionals over five years to address gaps in diagnostics, nursing, and rehabilitation services.
• Caregiver Training Programme: A dedicated plan to train 1.5 lakh caregivers was introduced to support elderly care, long-term care, and post-acute healthcare services.
• Mental Healthcare Infrastructure: The Budget announced the setup of NIMHANS 2.0 in North India, along with upgrades to national mental health institutes to expand access to specialised mental healthcare.
• Emergency Care Strengthening: Emergency and trauma care capacity in district hospitals will increase by 50%, improving response capability in critical care situations.

Infrastructure, Railways & Logistics

Union Budget 2026 kept infrastructure spending at the centre of public investment, with a clear push towards transport connectivity, logistics efficiency, and private capital participation.

• Higher Capital Outlay: Capital expenditure for FY27 was raised to Rs. 12.2 lakh cr., marking the highest-ever allocation. The increase supported continued spending on roads, railways, ports, and urban infrastructure.
• Railway Network Expansion: Railways received a capital allocation of Rs. 2.77 lakh cr., focused on rolling stock upgrades, safety systems, and capacity expansion across key routes.
• High-Speed Rail Corridors: The Budget announced seven new high-speed rail corridors to improve inter-city travel and reduce transit time between major economic centres.
• Inland Waterways Development: The government proposed making 20 national waterways operational over the next five years, aimed at lowering logistics costs and easing pressure on road and rail transport.
• Private Capital Participation: An Infrastructure Risk Guarantee Fund was introduced to reduce construction-phase risks and attract private investment into large infrastructure projects.
• Urban Infrastructure Financing: Incentives for municipal bonds and REITs were announced to support funding for urban transport, housing, and civic infrastructure projects.

MSMEs and SMEs: Union Budget 2026-27

Union Budget 2026 positioned MSMEs as a key pillar for employment generation, manufacturing depth, and export growth. The measures focused on improving access to capital, easing compliance, and strengthening production capability.

• Dedicated Growth Capital: The Budget announced a Rs. 10,000 cr. SME Growth Fund to support expansion, capacity building, and job creation across small and mid-sized enterprises.
• Improved Capital Access: Investment limits for non-resident investors in listed companies were raised, helping MSMEs tap a wider pool of long-term capital.
• Manufacturing Capability Support: Specialised toolrooms will be set up across industrial clusters to help MSMEs manufacture high-precision components and reduce dependence on imports.
• SEZ Capacity Relief: A one-time concessional duty window allowed eligible SEZ units to sell goods in the domestic market, improving capacity utilisation during global trade disruptions.
• Compliance Simplification: The Budget introduced measures to simplify tax and regulatory processes, easing working-capital pressure and operational burden for smaller firms.

Textiles, Leather & Labour-Intensive Sectors

Union Budget 2026 continued its focus on labour-intensive industries, with measures aimed at improving competitiveness, upgrading skills, and supporting exports. The announcements centred on modernising clusters and strengthening domestic supply chains.

• Unified Textile Programme: The Budget proposed a consolidated framework by merging multiple textile schemes. This approach aims to improve execution, reduce overlap, and scale up support across the textile value chain.
• Skilling and Workforce Support: Samarth 2.0 was introduced to expand advanced skill training in textiles and apparel. The programme focuses on improving productivity and employability across manufacturing hubs.
• Raw Material Security: A National Fibre Scheme was announced to improve the availability of natural and man-made fibres. The move seeks to reduce import dependence and stabilise input supply for textile producers.
• Cluster Modernisation: Existing textile clusters will receive targeted support to upgrade technology, expand capacity, and improve energy efficiency, helping firms compete in global markets.
• Leather Export Competitiveness: The Budget allowed duty-free imports of specified inputs for leather exporters, lowering production costs and supporting export-oriented manufacturing.
• Rural and Artisan Linkages: Labour-intensive segments such as handloom, handicrafts, and village industries were aligned with branding and market-access initiatives under broader rural development programmes.

Other Sectors in Focus After Union Budget 2026

Beyond core manufacturing and services, the Union Budget 2026 introduced targeted measures across several supporting sectors. These updates extended policy impact to energy, telecom, tourism, and creative industries.

• Renewable Energy & Green Infrastructure: Customs duty exemptions continued for capital goods used in battery energy storage systems, lowering setup costs for grid-scale and renewable-linked storage projects. A Rs. 20,000 cr. programme was announced for carbon capture and utilisation, targeting high-emission sectors such as steel and cement.
• Telecom: The Ministry of Communications received Rs. 73,990 cr., driven by capital infusion and network expansion plans. Funding will support BharatNet rollout, spectrum-related costs, and nationwide telecom infrastructure upgrades, including BSNL revival efforts.
• Sports & Creative Industries: The sports goods sector received a first-time allocation of Rs. 500 cr., supporting domestic production and cluster development. Policy backing continued for AVGC and Orange Economy segments, including 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 to boost tourism-linked economic activity. Tourism initiatives aligned with healthcare and sustainability goals, complementing investments in medical tourism hubs and eco-tourism circuits.

Union Budget 2026–27: Key Taxation Updates

Union Budget 2026: Top Gainers

On 1st February 2026, stock markets moved sharply after key Budget announcements, with indices reacting to changes in taxes and sector-level measures. Despite the broader market decline, a few stocks closed at higher levels. Below is a snapshot of the top gainers on Budget Day.

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.

Union Budget 2026: Top Losers

On 1st February 2026, several stocks declined during the Budget Day session as markets reacted to higher transaction taxes, valuation concerns, and near-term policy uncertainty. 

What Does Union Budget 2026 Indicate for Indian Equity Markets?

Union Budget 2026 sent mixed signals to the stock market, combining fiscal discipline with continued public spending. Market reaction reflected a balance between long-term policy direction and short-term cost concerns.

• Focus on Fiscal Stability: The government set the fiscal deficit for FY27 at 4.3% of GDP, slightly lower than 4.4% in FY26. Gross borrowing stood at Rs. 11.7 lakh cr., showing an effort to manage finances while supporting growth.
• Public Spending Remains Strong:  Capital expenditure increased to Rs. 12.2 lakh cr., up from Rs. 11.2 lakh cr. last year. This kept infrastructure, manufacturing, transport, and logistics in focus, as these sectors depend heavily on government spending.
• Clear Sector Priorities:  The Budget outlined targeted measures for manufacturing, defence, electronics, IT, pharmaceuticals, healthcare, MSMEs, and labour-intensive sectors. These steps improved policy visibility but did not lead to immediate, broad market gains.
• Tax Changes Drove Volatility:  The rise in STT on futures to 0.05% increased trading costs. This triggered profit booking and sharper intraday swings, especially in derivatives-linked stocks.
• Selective Market Response:  Markets turned volatile on Budget Day and closed lower. Some healthcare, pharma, and IT stocks held up better, while metals, financials, and FMCG stocks faced pressure. The reaction stayed stock- and sector-specific rather than market-wide.
• Overall Takeaway:  Union Budget 2026 reinforced long-term growth through public investment while keeping fiscal control in place. Stock market moves showed short-term volatility, with investors focusing more on sector-level impact than on a broad market trend.

Conclusion

Union Budget 2026 triggered high volatility in the stock market, with stocks reacting differently to tax changes, sector-specific announcements, and higher capital spending. The mixed movement showed that Budget reactions remain stock- and sector-specific rather than broad-based.

Such phases highlight the importance of doing independent research before making decisions. Using tools like the Tickertape Stock Screener, which offers over 200 filters, can help analyse stocks based on fundamentals, valuations, and sector exposure, especially during periods of policy-driven market volatility.

Frequently Asked Questions on Union Budget 2026

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Durga Mishra

A content strategist with 5+ years in organic growth and SEO, combined with 4 years of hands-on investing experience. I write about stock markets, investment strategies, and emerging trends, breaking down complex ideas while keeping a pulse on what matters to investors.

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