As the Union Budget 2026 approaches, the Indian stock market is experiencing significant turbulence, with benchmark indices witnessing a notable decline during the month of January. The market has faced downward pressure in 11 out of the 15 trading sessions so far this month, resulting in a month-to-date loss of over 3% for key indices. This pre-Budget correction is attributed to a combination of factors including Budget-related anxieties, an uncertain geopolitical landscape, and subdued corporate earnings from India Inc.
Market Performance and Current Levels
The BSE Sensex concluded Thursday's trading session at 82,307, marking a decline of 3.4% compared to its closing level in December. Similarly, the broader NSE Nifty 50 index has retreated by 3.28% during the same period, currently trading below the 25,300 mark. The correction has been more pronounced in the broader market segments, with the Nifty Midcap 100 index dropping 4.2% and the Nifty Smallcap 100 index plunging 5.8% in January alone.
Navigating Market Headwinds
The Indian equity markets are currently navigating through a perfect storm of challenges, ranging from potential Trump tariffs and escalating trade war fears to persistent selling by foreign institutional investors. Amid this backdrop, investors are grappling with the crucial question of how to position their portfolios ahead of the Budget announcement and identify sectors that offer value following the recent steep correction.
Analyst Recommendations for Budget 2026
In light of the sharp pre-Budget market correction, financial analysts are advising investors to adopt a cautious yet strategic approach. They suggest combining defensive sector rotations with selective long-term investment opportunities to balance safety and growth potential.
Banking Sector Opportunities
Analysts remain particularly bullish on the banking space, especially large private sector lenders. Santosh Meena, Head of Research at Swastika Investmart, noted that leading private banks such as HDFC Bank, Kotak Mahindra Bank, and Federal Bank have seen their valuations moderate significantly, creating attractive entry points relative to their historical averages.
PSU and Manufacturing Prospects
Despite the recent pullback in broader markets, Meena believes the structural story for public sector undertakings remains intact. He recommends stocks like ONGC, Bharat Electronics Limited (BEL), and Hindustan Copper as compelling investment options due to their alignment with national priorities including energy security, defence indigenisation, and industrial demand growth.
Defensive Sector Allocation
For portfolio stability during this period of heightened volatility, analysts suggest allocating capital to defensive sectors. The Fast-Moving Consumer Goods (FMCG) sector, in particular, can provide a necessary defensive hedge with its characteristic earnings visibility and stability. Balaji Rao Mudili, Research Analyst at Bonanza, echoed this view, noting that while defensive sectors like FMCG and pharmaceuticals offer valuation safety, the primary growth engines for India's GDP are expected to be banking (BFSI) and manufacturing.
Defence Sector Focus
Within the manufacturing space, the defence sector has emerged as a key area of focus. Mudili highlighted that higher allocation expectations in the Budget, driven by border security requirements and indigenisation efforts, could benefit defence stocks. The government's push toward import substitution and Make in India initiatives, coupled with global geopolitical tensions, creates a favorable environment for this sector.
Disclaimer: This analysis is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms and not of Mint. Investors are advised to consult with certified financial experts before making any investment decisions.
