Dhiraj Relli, MD & CEO of HDFC Securities, discusses the market's reaction to Budget 2026, highlighting short-term volatility due to unexpected tax changes, the cautious stance of foreign institutional investors, and promising investment opportunities in sectors like consumption, banking, and telecom. He advises investors to focus on value investing and SIPs amid current market conditions.
The recent Budget 2026 announcement has stirred significant reactions in the Indian stock markets. To understand the implications and future outlook, Dhiraj Relli, Managing Director and CEO of HDFC Securities, shares his expert views on market volatility, foreign institutional investor (FII) participation, and investment strategies.
The immediate market response to Budget 2026 was marked by volatility and some disappointment, primarily due to unexpected tax changes. Notably, the increase in Securities Transaction Tax (STT) on Futures and Options (F&O) was an out-of-the-box move that caught many by surprise. This led to a near-term negative reaction in the markets over the last couple of days.
However, when analyzing the budget in detail, it is evident that it is a growth-oriented budget with positive measures across various sectors. The initial negative sentiment is expected to subside within a few days as the market digests the details.
Moving forward, the market will look for positive cues such as strong earnings growth in the next quarter and developments in international trade relations, particularly between India and the US, to regain momentum.
A key concern is the participation of Foreign Institutional Investors (FIIs) in the Indian markets. Despite expectations, FIIs have not yet returned in significant numbers post-budget. Their investment decisions are influenced by factors such as liquidity, return potential, taxation, and dollar returns.
Over the past one to two years, dollar returns from Indian markets have been negative, which discourages FIIs from investing heavily. Additionally, FIIs have alternative investment opportunities in their home and other foreign markets that may offer better returns.
Dhiraj Relli suggests that until Indian markets demonstrate decisive earnings growth, FIIs are unlikely to make a strong comeback. However, he believes that most negative news, including the recent budget-related concerns, is already priced into the market, limiting further downside.
For investors, especially retail and high-net-worth individuals, the current market environment is not a time for despair but an opportunity to invest wisely. The last 25 years have shown a shift in investor behavior, with greater resilience to volatility and a focus on long-term value investing.
Despite recent underperformance in mid-cap and small-cap stocks, the overall returns in the last year have been better than fixed deposits and tax-efficient. This indicates that the market is still rewarding patient investors.
Dhiraj Relli advises investors to continue investing regularly through Systematic Investment Plans (SIPs), focusing on value opportunities that arise during market corrections.
Several sectors stand out as attractive investment opportunities based on the budget and current economic conditions:
Consumption Sector: The government has focused on boosting consumption, especially in urban and rural markets, through tax reliefs and GST reforms. Low-cost discretionary sectors are expected to benefit.
Capital Markets: Asset management companies remain a good alternative for investment.
Banking Sector: Both public sector and private banks are expected to see earnings growth of 12-15% in FY27 after a period of subdued growth. The sector is recovering from credit-related challenges.
Telecom Sector: This sector also presents good investment potential.
Investors focusing on these sectors are likely to achieve better returns in the medium to long term.
Budget 2026 has introduced some unexpected elements causing short-term volatility, but the overall outlook remains positive with growth-oriented measures. FIIs are cautious and unlikely to return in force until earnings growth is evident. Investors should adopt a disciplined approach, focusing on value investing and SIPs, and consider sectors like consumption, banking, and telecom for better returns.
Dhiraj Relli's insights provide a comprehensive guide for navigating the current market landscape and making informed investment decisions.
