Union Budget 2026: Historical Caution Grips Markets as Investors Brace for Volatility
As India prepares for the Union Budget for the fiscal year 2026-27, investors are once again bracing for heightened market volatility. Historical trends strongly indicate that caution tends to dominate market sentiment in the days leading up to this crucial policy event. The Union Budget has long served as a major market-moving trigger, significantly shaping sectoral leadership and influencing short- to medium-term trends based on the government's fiscal priorities and policy direction.
Budget-Week Performance: A Pattern of Restraint
According to Rahul Sharma, Director and Head of Technical & Derivative Research at JM Financial Services, the pre-Budget phase has historically been a period of restraint rather than optimism. He emphasized that the Nifty 50 index has consistently shown caution in the week ahead of the Budget, primarily driven by investor uncertainty and profit-booking activities.
"The Nifty 50 index has historically exhibited caution in the week leading up to India's Union Budget announcements, reflecting investor uncertainty and profit-booking. Over the past 15 years, the average return for Nifty one week before the budget has been negative at -0.52%, with the index closing higher only on 8 occasions," Sharma stated.
He further added that this trend mirrors broader market behavior, with Nifty delivering negative returns in the month preceding the Budget in four of the last five years, including January 2025. Data spanning from 2010 to 2022 reveals that markets often drift lower ahead of the event due to fears of policy surprises, even though post-Budget rebounds are common. Historically, the week following the Budget has seen an average gain of 1.36%, while Budget day itself has been marked by sharp swings, reflected in an average intraday range of 2.65%.
Technical View: Near-Term Downside Potential
Ravi Singh, Chief Research Officer at Master Capital Services, believes that for the upcoming week, the weekly chart and candlestick pattern suggest further downside in the near term. "Immediate support is placed near 24850, and a break below this level could drag the index toward 24600. On the upside, resistance is seen at 25250, while sustained strength above this could lead to a recovery toward 25500. Until then, a sell-on-rise strategy remains preferable," he predicted.
Investor Expectations and Underlying Risks
For the Union Budget 2026, scheduled to be presented on February 1 by Finance Minister Nirmala Sitharaman, expectations revolve around balancing fiscal discipline with growth support amid global headwinds. These include trade-related pressures under US President Donald Trump. Key anticipations encompass higher capital expenditure on infrastructure, defence, and railways, along with a potential increase in defence allocation to cushion the economy against external shocks.
Industry bodies have sought targeted measures for MSMEs, manufacturing, green energy, artificial intelligence, and exports. Specific requests include faster GST refunds and higher investments in logistics. The fiscal deficit is projected at 4.4% of GDP, with continued emphasis on job creation, rural demand, and sustainable growth as India progresses toward its $5 trillion economy ambition.
However, significant risks remain. Budget-day volatility could intensify if growth stimulus disappoints or fiscal targets slip, potentially pushing bond yields higher and tightening liquidity. External factors such as geopolitical tensions, currency volatility, and global trade disruptions also pose substantial challenges. Additionally, domestic policy execution delays could weigh on market sentiment. Concerns around valuations, foreign institutional investor outflows, and the risk of an AI-led market correction add to the list of headwinds that could slow Nifty's broader trajectory.
Market Behavior Insights: Patience Over Prediction
Apurva Sheth, Head of Market Perspectives and Research at SAMCO Securities, noted that the data clearly highlights a familiar behavioral pattern around the Budget. "Markets tend to turn cautious ahead of the event. On average, backward returns are marginally negative, indicating profit-booking and risk reduction as uncertainty peaks. The post-Budget phase is where conviction returns, as forward returns improve meaningfully once policy clarity emerges," Sheth explained.
Sheth added that historically, patience has mattered more than prediction, with investors benefiting from waiting for clarity rather than reacting to Budget-day headlines. As February 1 approaches, history suggests that while nerves may dominate the lead-up, the real opportunity for Nifty often emerges only after the Budget dust settles.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
