Budget 2026: High-Risk Event Demands Investor Caution, Says Bigul CEO Atul Parakh
As the Union Budget 2026 approaches, market experts are sounding notes of caution. Atul Parakh, CEO of Bigul, has characterized the upcoming budget as a high-risk event for investors. In the pre-budget period, Parakh does not foresee any significant market rallies. Instead, his advice to investors is clear: stay on the sidelines, hold cash on Budget day, and deploy capital only after policy changes become clear.
Historical Market Trends and Current Sentiment
The Indian stock market has historically exhibited caution in the run-up to the Union Budget. This trend is expected to continue in January 2026. The Nifty 50 has frequently delivered negative returns in January ahead of the budget, a pattern observed in four of the last five years, with 2024 being the sole exception.
Current market weakness is attributed to several factors:
- Foreign Portfolio Investor (FPI) outflows
- Prevailing global economic uncertainties
- Heightened anticipation and anxiety surrounding budget announcements
This environment makes pre-budget rallies unlikely. Investors should brace for volatility, with selective buying opportunities possibly emerging in growth-oriented themes like infrastructure only after the budget presentation.
Key Expectations from Union Budget 2026
Parakh outlines a budget focused on fiscal consolidation and long-term growth over short-term populism. Major expectations include:
Fiscal Prudence: The government is expected to maintain its focus on controlling the fiscal deficit. Consequently, major income tax cuts or significant GST changes are not anticipated. Tax collections are projected to grow in line with the economy, but large-scale tax relief measures appear unlikely.
Capital Expenditure Focus: The central theme of the FY27 Budget is projected to be capital spending. Government capital expenditure is expected to rise by approximately 10% year-on-year, remaining close to 3.1% of GDP. This underscores a clear policy preference for investment-led growth over boosting short-term consumption.
The investment focus will likely target sectors critical for India's long-term strategic and economic strength:
- Defence
- Infrastructure and related manufacturing
- Power and nuclear energy
- Electronics and pharmaceuticals
- Critical minerals
Sectors Poised for Growth and Investor Strategy
Parakh identifies three key sectors for investors to monitor closely:
Defence: In the aftermath of geopolitical events, policy emphasis is likely to shift towards proactive capital expenditure, providing a structural tailwind for the defence sector.
Infrastructure: Expectations are high for increased investments in futuristic areas like Artificial Intelligence (AI), green hydrogen, and advanced semiconductor manufacturing to enhance global competitiveness.
Textiles: This sector, significantly impacted by tariff pressures, is likely to receive targeted financial support to offset these challenges.
Given this backdrop, Parakh advises investors to align their portfolios with capex-driven themes. This includes sectors like defence, infrastructure, capital goods, power, and manufacturing-linked Public Sector Undertakings (PSUs). He maintains a cautious stance on consumption-led investments, as the budget is unlikely to trigger an immediate consumption boom through tax relief or subsidy expansion.
Fiscal Health: Impact on Bond Yields and Equity Markets
Government borrowing and the fiscal deficit remain paramount concerns influencing both bond yields and equity markets. The government's commitment to fiscal consolidation, evidenced by the FY26 fiscal target of 4.4% set in the previous budget, is expected to anchor bond yields and support the stability of the Indian Rupee (INR).
While gross borrowings might be slightly higher than expected, the net borrowing figure of ₹11.5 trillion is broadly in line with market expectations, which should prevent undue upward pressure on yields. The government's medium-term goal to reduce the debt-to-GDP ratio to 50% by 2031 offers further structural reassurance.
For equity markets, strong fiscal discipline lowers the risk of crowding out private investment, provides room for accommodative monetary policy, and helps maintain interest from foreign investors. Increased infrastructure funding through institutions like NaBFID, coupled with overall fiscal prudence, creates a favorable macro environment for both fixed-income and equity investors.
Trader's Playbook for Budget Day
From a trader's perspective, Parakh emphasizes that the Union Budget is a high-volatility event. Key recommendations include:
- Respect Market Volatility (India VIX): Avoid buying naked options as expensive premiums may deflate rapidly post-budget speech, leading to losses even on correct directional calls.
- Wait for Breakouts: The market is currently in a consolidation zone. It is prudent to wait for a decisive breakout rather than attempting to guess the direction prematurely.
- Defensive Positioning: If participation is necessary, consider defensive sectors like Fast-Moving Consumer Goods (FMCG) or policy-driven themes such as Defence, Railways, and Rural consumption.
- Capital Preservation is Key: The most important rule is to protect capital. Given the expected volatility during the budget speech, sitting on cash and waiting for clarity to emerge is a perfectly valid and smart strategy.
In summary, the approach for Budget 2026 should be one of patience and prudence. Investors are advised to safeguard their capital during the high-risk event, observe the policy announcements, and make calibrated investment decisions based on the emerging clarity in the post-budget period.
