India’s $360 billion stock trade raises the stakes for Modi’s Budget

Indian shares are on track for their worst start to a year in a decade, increasing pressure on Prime Minister Narendra Modi’s government to deliver new catalysts for economic growth in the upcoming budget.Attention is focused on whether the government will increase defense spending and accelerate stake sales in state-owned companies to boost revenues after last year’s income tax cuts and consumer tax cuts.

Indian markets are under pressure in terms of assets, with equities, the rupee and bonds all weakening, leaving investors relying on the budget to reset sentiment. Share prices are down around 4% this year, with the NSE Nifty 50 Index having seen its worst start to a year since 2016. Global funds remain net sellers of equities, while heavy bond issuance continues to weigh on debt markets. Local stocks have wiped out about $360 billion in market value so far this month, according to Bloomberg data.

“The budget is likely to focus on stimulating the economy, which means additional measures to boost consumption and boost domestic production,” said Abhishek Banerjee, CEO of LotusDew Wealth and Investment Advisors.

Here’s a look at specific themes and related stocks to watch on February 1:

State-owned enterprises

A key theme this year is the government’s push to accelerate share sales in the fiscal year starting April 1. The government must reduce its stake in Life Insurance Corp., the country’s largest insurer, to meet public shareholding standards and has already provided regulatory relief. As the deadline approaches, a sale of shares may be considered in the fiscal year ending March 2027. The shares of IDBI Bank Ltd. are also likely to be the center of attention as the long-delayed divestment gathers pace.

Defense

India’s efforts to expand domestic defense production are creating clear local winners. The NSE’s defense index has more than tripled in the last three years, supported by a sector budget of nearly Rs 7 trillion in fiscal 2026, and is expected to grow 10-15%, according to Nirmal Bang Institutional Equities. The state-owned Bharat Electronics Ltd. was a major beneficiary; its shares rose more than fourfold in the same period, while rocket maker Solar Industries India Ltd. and defense components maker MTAR Technologies Ltd. are also on the radar of investors.

Roads and railways

The government has led the way in infrastructure investment through the road and rail sectors, both of which are expected to receive higher allocations in the budget. These sectors also utilized a significant portion of last year’s expenditure. Modernizing the national rail network – with an emphasis on safety, speed and passenger comfort – is likely to remain a top priority.

India’s largest engineering firm Larsen & Toubro Ltd. and the state-owned company BEML Ltd. are among the most important players to keep an eye on.

Brokers and exchanges

Shares of capital markets infrastructure companies – brokers, exchanges and service providers – fell last year in line with broader market weakness. Any possible revision of capital gains tax rates in the upcoming budget could have a direct impact on markets and deserves close attention, Citigroup Inc. strategists said.

Exchange operators BSE Ltd. and Multi Commodity Exchange of India Ltd. will be key stocks to gauge sector sentiment, while Billionbrains Garage Ventures Ltd, the parent of top discount broker Groww, will also be in focus.