Budget 2026: Navigating Market Volatility with Historical Insight
The Union Budget has long stood as a pivotal force influencing the Indian stock market, frequently sparking sharp price fluctuations and amplifying investor apprehension. Budget Day is synonymous with heightened volatility, a perception firmly supported by decades of market data. Examining the past 25 years of Budget sessions held on February 1 reveals that the Indian equity market experienced movements exceeding 1% on 16 occasions, underscoring how uncommon subdued reactions on Budget Day truly are.
Beyond Headlines: The Real Market Narrative
While policy announcements capture media attention, financial analysts contend that genuine opportunities often emerge not from immediate Budget Day reactions but from comprehending the broader market dynamics surrounding the event. Apurva Sheth, Head of Market Perspectives and Research at SAMCO Securities, emphasizes this perspective.
"Union Budget days tend to attract disproportionate attention, but historical data suggests that the real market story often unfolds after the Budget rather than on the day itself. Budget day itself is rarely the opportunity. Historically, patience pays. Volatility before the Budget often creates positioning opportunities, while the period after the Budget has delivered more consistent returns. For investors, reacting less and positioning better has mattered far more than predicting Budget headlines," Sheth explained.
A Rare Trading Session and Anticipated Swings
The Union Budget 2026 is set to be presented in Parliament by Finance Minister Nirmala Sitharaman on February 1 at 11 am. Although this date falls on a Sunday, Indian stock exchanges will operate as usual, marking an uncommon Budget Day trading session. In light of historical patterns, market participants are preparing for significant intraday movements, as the Budget remains a crucial catalyst for investor sentiment.
Pre-Budget Market Behaviour: A Pattern of Caution
Market activity preceding the Budget consistently follows a recognizable trend. Historical data indicates that the Nifty 50 often displays wariness in the week leading up to Budget announcements, reflecting underlying uncertainty and profit-booking activities. Rahul Sharma, Director and Head of Technical & Derivative Research at JM Financial Services, noted the persistence of this trend over extended periods.
"Over the past 15 years, the average return for Nifty one week before the budget has been negative at -0.52%," Sharma stated.
The data further shows that during this 15-year span, the Nifty closed higher in the week before the Budget on merely eight occasions. This aligns with broader patterns, where the index recorded negative returns in the month preceding the Budget in four of the last five years, including a decline in January 2025. Between 2010 and 2022, markets frequently traded lower ahead of the event due to apprehensions about policy surprises, even though post-Budget recoveries were common, with an average gain of 1.36% in the following week. Elevated uncertainty is also mirrored in the average 2.65% intraday trading range observed on Budget Day itself.
Nifty 50: Decoding Budget Day Trends
A detailed examination of Budget Day performance over the last decade reinforces the pattern of volatility without clear directional consistency. In the previous Budget session on February 1, 2025, Indian indices witnessed sharp oscillations before concluding weakly. The Nifty ended down 0.11%, marking the third consecutive Budget where the index closed in negative territory but with a movement of less than 1%. In 2024 and 2023, the Nifty closed 0.15% lower and 0.2% lower, respectively.
Conversely, 2022 saw the market finish 1.4% higher, while 2021 delivered a robust 4.7% rally on Budget Day. Volatility was prominently displayed in earlier years as well, with the market declining 2.5% in 2020 and 1.1% in 2019. Looking further back, the Nifty was nearly flat in 2018, down 0.1%, following a 1.8% rise in 2017 and a 0.6% fall in 2016.
Long-Term Budget Day Performance Overview
Over a 25-year period, the market closed lower on Budget Day on 15 occasions, with the most severe decline of 5.8% recorded in 2009. Among the ten positive Budget sessions, gains surpassed 4% twice—once in 2021 and earlier in 2001. In 2021, indices surged by 4.7%, while the last instance of a comparable rally occurred in 2001 when the market advanced over 4% on Budget Day.
Strategic Guidance for Investors
Given this historical context, experts advocate for caution over impulsive Budget Day trading decisions. Sharma warned that volatility remains elevated and risks persist across multiple dimensions.
"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. 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," Sharma advised.
Expectations for Union Budget 2026
Anticipations for the Union Budget 2026 centre on balancing fiscal discipline with growth support amidst global challenges such as U.S. tariffs, geopolitical uncertainty, and trade disruptions. Key expectations include:
- Higher capital expenditure on infrastructure, defence, and railways
- Support for MSMEs, manufacturing, green energy, AI, and exports
- A fiscal deficit projected at 4.4% of GDP
- A focused emphasis on job creation and stimulating rural demand
Disclaimer: The views and recommendations presented above are those of individual analysts or broking companies, and not of Mint. Investors are advised to consult with certified experts before making any investment decisions.
