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

Market Overview - Indian markets are experiencing significant pressure across various assets, with stocks, the rupee, and bonds all weakening, leading to a decline of approximately 4% in equities this year, marking the worst start since 2016 [1][8] - Local stocks have lost around $360 billion in market value this month, as global funds remain net sellers of shares and heavy bond issuance continues to impact debt markets [1][8] Government Budget Focus - The upcoming budget is expected to aim at stimulating the economy through measures to boost consumption and enhance domestic manufacturing [2][8] - A key theme is the government's initiative to accelerate share sales in state-run companies, particularly the Life Insurance Corporation, to comply with public shareholding norms [5][8] Defense Sector - India's push to expand domestic defense manufacturing is yielding significant local winners, with the NSE's defense index having more than tripled over the past three years [5][8] - The defense sector budget is nearing 7 trillion rupees for fiscal 2026, with expected growth of 10%-15%, benefiting companies like Bharat Electronics Ltd., which has seen its shares rise more than fourfold [5][8] Infrastructure Investment - The government is prioritizing infrastructure capital expenditure, particularly in the roads and railways sectors, which are expected to receive increased budget allocations [6][8] - Key players in this sector include Larsen & Toubro Ltd. and BEML Ltd., focusing on modernization efforts for the nationwide railway network [6][8] Capital Market Infrastructure - Shares of capital market infrastructure firms, including brokerages and exchanges, have declined in line with broader market weakness [7][8] - Potential revisions to capital gains tax rates in the upcoming budget may significantly impact market sentiment, with BSE Ltd. and Multi Commodity Exchange of India Ltd. being key stocks to monitor [7][8]