As the government prepares to present the Union Budget 2026-27, data from 2010-2022 shows that markets often trade lower ahead of the event due to fear of policy surprises, though post-budget rebounds are common — with an average 1.36 per cent gain in the following week, according to market watchers.
This pre-budget weakness is attributed to elevated volatility, as seen in the average 2.65 per cent intraday trading range on budget day itself, they said.
Over the past 15 years, the average return for Nifty one week before the budget has been negative at -0.52 per cent, with the index closing higher only on 8 occasions.
This pattern aligns with broader trends, where Nifty posted negative returns in the month preceding the budget in four out of the last five years, including a drop in January 2025.
"For the Union Budget 2026, expectations centre on balancing fiscal prudence with growth stimulus amid global headwinds like US tariffs under President Donald Trump," said Rahul Sharma, Director, Head - Technical and Derivative Research, JM Financial Services Ltd.
Key anticipations include increased capital expenditure on Infrastructure, Defence, and Railways to shield the economy from external shocks, with a hike in defence allocation.
Industry bodies seek boosts for MSMEs, manufacturing, green energy, AI and exports through incentives like faster GST refunds and investments in logistics.
"Fiscal deficit is projected at 4.4 per cent of GDP, with emphasis on job creation, rural demand, and sustainable development to propel India toward a $5 trillion economy," he mentioned.
However, several risks could impact market reactions. Budget day volatility remains high, with possible potential sell-offs if stimulus falls short or fiscal targets slip, potentially raising bond yields and tightening liquidity.
Geopolitical tensions, currency fluctuations, and global trade disruptions pose external threats, while domestic execution delays in policies could erode investor confidence, said analysts.
Overvaluation concerns, FII outflows, and an AI bubble burst are additional headwinds that might derail Nifty's rally toward 29,000 in 2026.
"Investors are advised to maintain cash positions until post-budget clarity emerges, focusing on sectors like defence and PSU Banks for selective opportunities," said Sharma.
CareEdge Ratings expects fiscal deficit to GDP to be contained at 4.4 per cent in FY26.
"Fiscal deficit is likely to be budgeted at 4.2-4.3 per cent in FY27. We expect gross borrowing to be in the range of Rs 16-17 trillion in FY27 and net borrowing likely at Rs 11.5-12 trillion," the report mentioned.
(With inputs from IANS)
