With just 8 days left for Union Budget 2026, expectations are running high across Dalal Street. However, despite the buzz around February 1, the stock market today remains choppy due to cautious optimism rather than outright excitement.
If we look at the record of the last 10 years, January and February have often spoilt the mood of investors’ portfolios. Over the last 10 years, the Nifty and Sensex have delivered negative returns in January on 8 occasions. January is not even over yet, and the Nifty has already slipped by more than 1.8%, and investor anxiety is rising over the possibility of a deeper correction. Currently, geopolitical tensions are at their peak, and in such an environment, pressure on the market is not entirely unexpected. But will the upcoming budget bring a fresh new optimism in the market?
The broader market is already grappling with multiple headwinds. India’s fiscal deficit has already touched nearly 62% of the FY26 target, limiting room for aggressive spending announcements. At the same time, global risks such as US tariff uncertainties, high bond yields, and geopolitical tensions are weighing heavily on the sentiments.
How Budget Announcements Move Stock Markets
Budget announcements tend to move markets sharply in the short term, and stocks react to headlines like tax changes, allocation numbers, or sector mentions. Many a time, initial Rallies or sell-offs fade within days.
“It is also important to remember that conditions preceding the Budget this time have been very different from before. Over the past year, investors have had to deal with rising geopolitical tensions in Iran & Venezuela, ongoing trade conflicts, and multiple global shocks that have kept uncertainty elevated. From wars and supply-chain disruptions to shifting global trade alliances and volatile commodity prices, a lot has happened. Because of this, markets are far more sensitive to global developments than domestic policy headlines right now,” said Vinayak Magotra, Product Head & Founding Team at Centricity WealthTechWhy a Pre-Budget Rally Looks Weak This Time
“A broader market rally ahead of the Budget appears unlikely. There has been persistent and aggressive FII selling that has clearly weighed on sentiment, with last year witnessing withdrawals of nearly Rs. 3 lakh cr and the current year beginning on a similarly defensive note,” said Vinayak.
“The positioning data, with FIIs heavily net short in index futures, indicates that rallies are being actively sold into, especially at higher levels. This is also visible in the sharp correction across key large-cap names such as Reliance, L&T and TCS, which suggests that the market is struggling to find strong institutional support at elevated valuations. In this environment, expectations of a traditional pre-Budget rally look weak.” He further added,
Key Triggers That Could Lift the Market
While a broad rally seems unlikely, certain budget announcements could still spark short-term excitement, like Capital gains tax cuts, especially on long-term equities, could boost sentiment in mid-cap and small-cap stocks. Any Capex push for defence, railways, infrastructure, green energy, AI, and space sectors. Rural support measures, which could aid consumption-linked stocks and relief on broking or transaction costs, improving market participation.
“Any signal around rural income support, agriculture spending or fertiliser subsidies tends to move these stocks quickly. Overall, the budget can trigger sector-specific moves, but markets will quickly shift focus back to fiscal deficit, government capex, earnings and global cues.” Vinayak said.
How Should Investors Position Themselves Now?
“Investors should align portfolios with their long-term asset allocation and risk tolerance, rather than trying to predict budget outcomes. Event-driven, short-term trades are best avoided, as expectations are often priced in and immediate market reactions can be volatile and misleading. Portfolio decisions should ultimately reflect individual objectives.
and discretion, with any budget-related volatility used for rebalancing rather than “Speculation,” said Vinayak.
What would be considered a ‘market-friendly’ budget in 2026?
A lot of expectations and speculation are naturally running high, but a truly market-friendly budget would be one that does not bring any negative surprises.
“From a policy perspective, the Budget can offer support to certain sectors such as infrastructure, renewables, manufacturing and possibly defence, given the government’s continued emphasis on capex and self-reliance amid the geopolitical uncertainties. Export-orientated sectors may also benefit if the government looks to provide some support around the delay in India-US trade negotiations, which at this stage could prove more impactful for markets than incremental fiscal announcements.” Vinayak explained.
“In contrast, capital market-specific relief, such as rationalisation of STT or capital gains taxes, could improve sentiment at the margin but may not be sufficient to reverse the prevailing cautious stance unless accompanied by a broader macro trigger.” He further added.
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