For FII's, we can't stop the sell off, we offered nothing

 

There is little to celebrate in the fiscal math. There is nothing to be bullish about FII's. Earnings will take time to motivate FII's, and the buyback hammer will look for more re-adjustment in portfolios.  This budget does not create confidence instantly, but increases the volatility in the market.  best time to pick and choose rather than going blindly. Sunday, we saw the market and now wait for the week to see where we head.  We can't run the show of the Indian capital market on SIP and retail money. Even a risk free retun earns 4.5 for  FII's. We are just assuming falling interest rates will get inflows back to India, well china and other markets are looking ahead to attract FII's. Outlook does not exite FII's.  India needs to understand that capital market is too under competetion with other countries just like trade agreements.

Gone are the days when one used to expect tax cuts in budgets, reduction in gas cylinder prices,  reforms in 80cc and reduction in capital gain tax.  The new budget mechanism speaks loudly that we don’t expect big announcements as expected in the last 10 or 15 years. You will not find a galloping market but a real fight for earnings to let the market grow and, more importantly, investors' wealth to grow.

For FII’s, this budget is of no value. They will not find this market to be attractive compared to other markets. We lack confidence in our own maths. INR will be deprecated more and more rupees will flow out of India. STT is another pinch where FII’s and institutional players will have to cough up more. Gold will look super interesting now.

The financial performance of the Union Government in FY 2025–26, as reflected in the Revised Estimates, raises uncomfortable questions about the quality of fiscal consolidation underway in India.  It’s a balanced budget and focuses more on job creation. The time has come to focus on being an entrepreneur rather than just being a salaried person. The budget is balanced and focused on job creation.  Revenue receipts and net tax collections are under pressure, signalling an economic slowdown well before it becomes visible in headline GDP data. FII's now also lost the NRI gateway for deploying money in India. Now the NRI can come directly. On one side, it's okay, but on the other side, it will fuel redemption.

There have been cuts in many places. Revised revenue receipts for FY 2025–26 have been scaled down by ₹78,086 crore, while net tax collections are lower by a substantial ₹1,62,748 crore. These revisions are not marginal adjustments; they point to a clear slowdown in underlying economic activity, weaker consumption, and subdued profitability across segments of the economy. In response, the government has opted for expenditure cuts totalling ₹1,00,503 crore, with capital expenditure alone bearing a reduction of ₹1,44,376 crore. This is particularly concerning because public capex has been positioned as the primary engine of growth in recent years.

While the headline narrative highlights a controlled fiscal deficit and macro stability, a closer examination of the numbers reveals that this outcome has been achieved largely through sharp expenditure compression, rather than through durable revenue strength or economic buoyancy.

Despite optimistic headline numbers, Budget Estimates for FY 2026–27 reveal continued fiscal compression.

Lower Allocations in FY27 (BE) vs FY26 (RE)

• Crop Insurance Scheme
• Urea Subsidy
• PM Garib Kalyan Anna Yojana
• Aircraft & Aero Engines (Defence)
• Naval Dockyard Projects
• Air Force Projects
• National Security Technology
• LPG Connections for Poor Households
• Estimated nominal GDP growth for FY27: 10%, lower than the current fiscal year

Key Takeaways

• The fiscal deficit target of 4.4% has been achieved primarily through aggressive expenditure cuts, not through revenue strength.
• Critical sectors—health, education, agriculture, social welfare, and SC/ST/OBC scholarships—have borne the brunt of fiscal consolidation.
• Capital expenditure credibility is weakened, given that ₹1.44 lakh crore of capex was cut in FY26 itself, raising doubts over the sustainability of the ₹17.15 lakh crore capex headline for FY27.
• Sharp weakness in revenue and tax receipts signals an underlying economic slowdown.
• Cuts to essential schemes like drinking water and housing, amid ongoing public health concerns, raise serious policy questions.

These focus on direct cash to adult women via DBT:

• Madhya Pradesh: Mukhyamantri Ladli Behna Yojana — ₹1,500/month, ~1.27-1.29 crore beneficiaries.
• Maharashtra: Mukhyamantri Majhi Ladki Bahin Yojana — ₹1,500/month.
• Karnataka: Gruha Lakshmi Scheme — ₹2,000/month to the female head of household.
• Tamil Nadu: Kalaignar Magalir Urimai Thogai Thittam — ₹1,000/month.
• Others in states like Jharkhand (Maiyan Samman Yojana, up to ₹2,500/month), Assam, West Bengal, etc.

As of 2025-26 estimates, 12 states collectively allocate ~₹1.68 lakh crore annually for such women's UCT schemes (up sharply from just 2 states in 2022-23). This reflects political popularity, especially post-elections, but raises fiscal concerns (e.g., state debt increases in MP/Maharashtra, some allocations slashed in FY26 budgets). Hence, the announcement of Rs1.46lakh cr given to the state is given for this purpose only.

Supporters will argue that “tough choices” are necessary. But tough choices usually demand confronting structural issues—tax buoyancy, employment creation, widening inequality—not quietly withdrawing the state from sectors that lack immediate market visibility. Are the government freebies pinching?

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Many Reforms for NRI's - Budget 2026-27

The Union Budget presented on February 1, 2026 (FY 2026–27) introduced several measures aimed at easing investment, simplifying compliance, and reducing transaction frictions for Non-Resident Indians (NRIs). The reforms span capital markets, taxation, remittances, and disclosures, making India a more attractive destination for overseas Indian capital.

1. Easier Equity Investments via PIS: NRIs and other Persons Resident Outside India (PROIs), including PIOs, can now invest more freely in Indian listed equities through the Portfolio Investment Scheme (PIS):

·        Individual investment limit per company increased from 5% to 10%

·        Aggregate overseas individual limit raised from 10% to 24%

This significantly enhances NRIs’ ability to build meaningful equity stakes in Indian companies and deepens foreign participation in domestic markets. Equity products like PMS & AIF will find a huge boost.

2. Simplified TDS for NRI Property Sales:  To reduce procedural complexity in real estate transactions. TDS on the sale of immovable property by NRIs will now be deducted by the resident buyer using PAN only. TAN registration is no longer required. This streamlines compliance, cuts paperwork, and accelerates transaction timelines. This reform primarily benefits resident buyers (easing their side), but has strong positive ripple effects for NRIs selling property

3. Sharp Reduction in TCS under LRS: Tax Collected at Source (TCS) rates under the Liberalised Remittance Scheme (LRS) have been substantially lowered:

·        Education and medical treatment abroad: from 5% to 2%

·        Overseas tour packages: from 20% to 2%

These changes reduce cash-flow strain for NRIs and their families funding overseas education, healthcare, or travel. This reform primarily benefits resident Indians funding overseas needs but has significant positive implications for NRIs (especially those with family in India or planning visits/returns). Huge relief for middle-class families sending kids to foreign universities or funding treatments (e.g., in US, UK, or Gulf countries). Reduces financial strain, especially with rising education/medical costs.

Benefits for NRIs indirectly:

• Easier for resident relatives to send money abroad to NRIs (e.g., for family support, property maintenance, or investments).
• NRIs planning to remit back to India or fund family needs face less friction when routing through LRS.
• Encourages more cross-border family financial support without a heavy tax drag.

4. Additional Relief Measures

Extended timelines to update income tax returns, including in certain post-reassessment cases, upon payment of additional tax

One-time disclosure schemes for foreign assets, targeted at small taxpayers, students, and returning NRIs, to encourage voluntary compliance

Conclusion:

While tax rates remain largely unchanged, the 2026–27 Budget focuses on reducing friction, improving ease of doing transactions, and attracting long-term NRI participation in India’s economy. The cumulative impact is a more investor-friendly and compliance-light framework for overseas Indians. Aligns with the government's goal to make India more open, support global mobility, and reduce "unfriendly" tax perceptions on overseas spending. Timely amid rising global education/medical/travel costs. It makes overseas aspirations more achievable for Indians and supports NRIs' family connections.

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Total Return Swaps on Corporate Bonds Announced in Budget is a game-changer

A total return swap is a financial derivative contract between two parties: the "total return payer" (often the asset owner, like a bank) and the "total return receiver" (an investor).

A TRS on a corporate bond, the payer transfers the total economic performance of the bond—including interest payments, fees, and any capital gains or losses—to the receiver. In exchange, the receiver makes periodic payments based on a fixed or floating rate (e.g., based on benchmarks like SOFR plus a spread).

 

At the end of the swap's term, the receiver may also pay for any depreciation in the bond's value or receive compensation for appreciation.

 

Importantly, the receiver gains exposure to the bond's returns without actually owning or funding the asset outright, while the payer retains the bond on their balance sheet but transfers the associated risks.

 📌 Why This Proposal is Significant

This proposal means enabling such swaps in the domestic market to boost liquidity, allow synthetic exposure to corporate bonds, and facilitate better risk management tools like hedging credit and market risks.  Improved bond liquidity via swaps, easing secondary market trading and reducing holding costs

India's corporate bond market stood at approximately ₹53.6 trillion (about USD 640 billion) as of FY 2024-25, growing at a 12% CAGR from ₹17.5 trillion in FY 2014-15. NITI Aayog targets expansion to over ₹100 trillion by 2030 to fund infrastructure and business needs.

Who Benefits?

Introducing TRS on corporate bonds offers several advantages, benefiting various stakeholders in the financial ecosystem:

• Investors (e.g., hedge funds, institutional investors): They can gain leveraged exposure to corporate bonds without the need for full upfront capital or ownership, allowing for efficient portfolio diversification and higher potential returns with minimal cash outlay.

 

This is particularly useful for achieving large positions while managing operational costs and bypassing transfer restrictions.

• Banks and Financial Institutions (as TRS payers): They can transfer credit and market risks off their balance sheets synthetically, freeing up capital for other uses while still holding the assets. This helps in regulatory capital relief and hedging portfolios.

• Corporate Issuers: Deeper markets through TRS could lead to increased demand for bonds, encouraging more issuances (including by lower-rated entities), better pricing, and access to long-term funding at lower costs.

This supports sectors like infrastructure and MSMEs by channelling savings into productive areas. Overall, the TRS enhances liquidity, price discovery, and risk management tools (e.g., credit derivatives), making the bond market more resilient and attractive to foreign investors. ₹100 crore incentive for large muni bonds FM proposes a ₹100 crore incentive for a single municipal bond issuance exceeding ₹1,000 crore, while continuing the existing AMRIT incentive scheme for smaller/medium issuances (up to ₹100 crore).

Sectors likely to be impacted: Municipal finance, Bond market, Urban infrastructure, Construction & engineering, Public sector finance/NBFCs. 

In India, this could help close the long-term credit gap, boost economic growth toward "Viksit Bharat" goals, and reduce reliance on bank lending. 

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NRI investments become more attractive.

Finance Minister Nirmala Sitharaman on Sunday announced a proposal to double the individual shareholding limit for persons resident outside India (PROI) from 5 per cent to 10 per cent, and raise the combined ceiling from 10 per cent to 24 per cent, alongside opening a direct equity investment route for overseas individuals through the Portfolio Investment Scheme (PIS)

📌 Current Regulatory Framework

Under existing foreign investment rules (Foreign Exchange Management Act / RBI/SEBI framework):

• An individual Non-Resident Indian (NRI) or PIO is allowed to invest in equity of an Indian listed company up to 5% of the company’s paid-up capital.
• The aggregate holding by all NRIs/PIOs together is capped at 10% of the paid-up capital of that company.

• This essentially doubles the permissible individual stake that a PIO (and, under the proposal, all foreign individuals) can hold directly in Indian listed companies.
• At the same time, the overall cap for combined holdings of all overseas individuals could be raised (e.g., from 10% to 24%) — though that broader combined limit is part of the wider reform discussions rather than the specific PIO cap itself.

📌 Why This Proposal is Significant

1. Attracting Capital Inflows

• India has experienced periods of capital outflows from equity markets in recent times, and broadening investor eligibility while increasing caps is aimed at making Indian equities more attractive to global individual investors.

2. Levelling the Playing Field

• The proposal would extend benefits previously available mainly to NRIs/PIOs to a wider class of foreign individual investors, encouraging diverse global participation in Indian markets.

3. Potential Corporate Governance/Coverage Effects

• Higher individual stakes by foreign investors might enhance liquidity and market depth, but also raise monitoring and regulatory compliance considerations (e.g., ensuring that combined beneficial holdings don’t inadvertently breach thresholds that trigger open-offer requirements).

Conclusion:

It's good that India acknowledges the value of investments and the limitations of NRIs. It's high time to keep the global political situation in mind to open the gates for NRIs to invest. The NRIs’ investments now plays pivotal role for the financial advisors, and it's an opportunity to grow.

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