Societe Generale’s Kunal Kundu reviews India’s FY27 Union Budget, presented on 1 February 2026, set against geopolitical strains, trade uncertainty, currency weakness, and scepticism about growth measures. The note says the budget keeps policy continuity and aims for fiscal consolidation.
The budget targets a fiscal deficit of 4.3% of GDP, but the note says capital expenditure could be reduced again if revenues do not improve. It also notes modest allocations to employment generation schemes, with actual spending lower than allocations.
Budget Focus Areas And Execution Risks
The budget sets out six focus areas, and the note raises concerns about execution and implementation gaps that could affect the ability to meet targets. It also points to measures linked to data centres and Global Capability Centres, and added support for the nuclear energy programme.
Given the emphasis on fiscal consolidation, we see a risk that the government may cut capital expenditure to meet its 4.3% deficit target if revenues disappoint. This creates uncertainty, so traders could consider strategies that profit from rising market volatility, such as buying options on the India VIX index. We saw a similar pattern back in FY24, when planned spending was trimmed mid-year to manage the deficit.
This potential capex cut directly threatens companies in the infrastructure and capital goods sectors. Buying put options on major construction and engineering firms, or on an infrastructure-focused index, could be a prudent way to hedge against this risk in the coming weeks. The market will be watching monthly tax collection figures very closely for any sign of weakness.
The budget’s modest allocation for employment generation, a concern we’ve flagged since 2024, suggests continued weakness in domestic consumption. Recent labour data from late 2025 showed urban unemployment ticking up to 7.8%, supporting the view that consumer discretionary sectors could face headwinds. This could warrant looking at put options on select automobile or retail stocks.
Currency Volatility And Sector Positioning
The note also points to currency weakness, which we’ve seen with the rupee depreciating over 2% against the dollar in the final quarter of 2025. This trend benefits export-oriented IT and pharmaceutical companies, making their call options attractive. Their dollar-denominated revenues translate into higher rupee profits, providing a cushion against domestic slowdowns.
On the positive side, the specific focus on data centres and Global Capability Centres (GCCs) creates a targeted opportunity. The GCC sector expanded its office leasing by nearly 15% in 2025, and this new policy support should accelerate that growth. We could look at buying call options on specific technology and commercial real estate companies poised to benefit from this tailwind.
