The Union Budget of India, presented on February 1, 2026, focuses on investment-led growth, with infrastructure spending planned at Rs 12.2 lakh crore and government support for manufacturing, biopharma, and digital infrastructure. The market witnessed volatility following the announcement. Additional tax measures were introduced, such as increases in Securities Transaction Tax (STT) on derivative instruments, specifically to 0.05% for futures (from 0.02%) and 0.15% for options, which will increase the overall cost of trading and may prompt investors to reassess portfolio positioning.
There was no substantive change to the current capital gains tax structure. The Budget did not announce any modification to existing LTCG or STCG rates.
Budget 2026: Key Financial Impacts
The proposal maintains fiscal discipline, with public capital expenditure of Rs 12.2 lakh crore directed toward domestic infrastructure, MSME support, semiconductors (Rs 40,000 crore for ISM 2.0), and biopharma (Rs 10,000 crore under the SHAKTI programme).
The proposal increases the Securities Transaction Tax (STT) on derivatives effective April 1, 2026. Futures STT rises from 0.02% to 0.05%, and options STT increases to 0.15%. This may affect trading volumes in derivatives.
There were no announced changes to the taxation of debt mutual funds or to capital gains taxation for equity and debt investments. The existing tax framework remains unchanged. The government’s borrowing programme, along with coordination with the RBI, may influence bond market dynamics depending on liquidity and yield movements.
Market reactions following the announcement reflected volatility, particularly in segments linked to derivatives and capital markets. However, the Budget speech did not specifically mention market movements or public sector bank mergers.
What is Portfolio Rebalancing?
Portfolio rebalancing is the process of realigning the asset allocation of an investment portfolio, such as equities (shares/stocks), debt (bonds), and gold, to predetermined targets to counter drift caused by market movements. For example, if a portfolio becomes overweight in equities after a rally, an investor may sell a portion of equities and increase allocation to bonds to restore the intended risk level.
This disciplined approach helps maintain risk alignment and may support long-term portfolio stability.
In India, common rebalancing strategies include:
- Threshold-based strategy: Rebalancing when an asset class deviates from target weight by a specified range (e.g., 5–10%).
- Calendar-based strategy: Rebalancing at fixed intervals (monthly, quarterly, or annually).
- Cash flow-based strategy: Allocating new investments toward underweight asset classes to reduce tax impact.
In India, mutual funds and exchange-traded funds (ETFs) are regulated by the Securities and Exchange Board of India (SEBI). Certain hybrid or asset allocation funds rebalance automatically in line with their stated investment objectives.
When Budgets Trigger Rebalancing
Major budget changes can alter taxation or spending priorities, which may affect sectoral performance and investor sentiment.
The increase in STT in Budget 2026 raises transaction costs for futures and options trading, which may influence derivative participation. The Budget’s emphasis on infrastructure, manufacturing, and digital infrastructure may benefit companies in those sectors over time.
If an investor’s portfolio allocation deviates significantly from its intended mix, for example, 60% equity and 40% debt shifting to 70% equity after a rally, rebalancing may be considered to restore the original allocation.
Budget announcements can create short-term volatility, which may accelerate portfolio drift, particularly for leveraged or derivatives-heavy portfolios.
Sectoral Shifts from Budget 2026
Budget 2026 focuses on:
- Manufacturing (chemical parks, rare earth corridors)
- Infrastructure (high-speed rail, waterways)
- Digital infrastructure (tax holiday for data centres until 2047)
Potential implications may include:
- Infrastructure: Supported by Rs 12.2 lakh crore capex.
- Capital Markets: STT hike may affect derivative trading activity.
- Manufacturing: Supported by semiconductor and biopharma allocations.
- Debt Markets: Influenced by borrowing programmes and fiscal stance.
The Budget speech did not provide stock index targets or sector-specific investment recommendations.
Rebalancing Strategies Post-Budget
- Drift Evaluation: Assess your current equity:debt:gold allocation versus target allocation (e.g., 60:30:10). Consider rebalancing if deviation exceeds your tolerance band.
- Tax-Efficient Rebalancing: Use fresh cash flows to increase allocation to underweight assets rather than selling appreciated assets where possible. Hybrid funds may automatically rebalance as per mandate.
- Selling Overweight Positions: Trim overweight positions to restore allocation discipline rather than reacting to short-term movements.
- Use of Derivatives: Be mindful that STT has increased on futures and options, raising transaction costs.
- Diversification: Allocation ranges such as 40–60% equity, 20–40% debt, and 5–15% gold are commonly referenced, but should align with individual risk profiles.
Risks and Other Considerations
Frequent rebalancing may increase transaction costs and tax liabilities. Investors should consider capital gains implications before executing adjustments.
Market timing around Budget announcements can increase risk. Emotional reactions to short-term volatility may negatively affect long-term returns.
Inflation, global economic conditions, and RBI policy decisions will continue to influence asset performance.
Personal factors, including age, risk tolerance, investment horizon, and financial goals, should guide rebalancing decisions. Investment decisions should be made independently or in consultation with a registered financial advisor.
Long-Term Perspective
Budget 2026 reinforces fiscal consolidation and infrastructure-led growth. While short-term volatility may occur, long-term portfolio outcomes depend on disciplined asset allocation and consistent review.
Monitoring corporate earnings, RBI policy developments, and broader macroeconomic indicators may help investors stay aligned with their financial objectives.
Tools such as SIP calculators and portfolio trackers can assist in evaluating allocation decisions over time.
*The article is for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
