At the same time, policy support has been strong, including rate cuts, liquidity infusion, banking reforms and tax stimulus. He believes this combination makes a growth turnaround highly likely over the next year, provided there are no major global shocks.
Desai believes India’s Union Budget 2026 has been well thought out and conservative, even though market sentiment turned negative after the surprise increase in securities transaction tax (STT).
According to him, the Budget should be seen as a realistic statement of income and expenditure rather than an attempt to paint an overly optimistic picture.
He noted that the government has assumed modest growth in tax revenues while budgeting for higher spending, which reduces the risk of negative surprises during the year.
Desai pointed out that the government has taken a cautious stance on revenue assumptions, including corporate taxes, while allowing room for higher expenditure. This approach increases the chances of actual numbers beating Budget estimates as the year progresses—something that typically supports equities, bonds and the currency.
He believes the Budget continues the policy direction seen over recent years, without overstretching fiscal assumptions, and addresses several long-term priorities such as artificial intelligence, services, defence and tax simplification.
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One of Desai’s key observations was the sharp gap between India’s macro fundamentals and market behaviour. “Is this the biggest disconnect I am seeing between the macro and the market. The macro looks pretty good.”
While recent data—especially from sectors like automobiles—suggests a recovery in growth and stable macro conditions, markets appear to be pricing in much larger problems.
According to him, markets across equities, bonds and currency are reflecting excessive pessimism, even though India’s underlying economic conditions remain relatively strong compared with other large economies.
One of the most significant takeaways from the budget, according to Desai, is the push towards making India a hub for Artificial Intelligence (AI). He argued that the budget addresses four of the five key ingredients for a thriving AI ecosystem: energy, data centers, supply chain, and skills.
The tax holiday for data centers, in particular, has made India “one of the most attractive places on the planet” for such investments. Combined with India’s unique advantage of “skill at scale at pretty low wages,” Desai believes investors will soon “wake up to the next big AI trade, which is India.”
For the entire discussion, watch the accompanying video
