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Below the Quote on Technical Outlook for Budget 2026 by Mr. Rahul Sharma, Director, Head - Technical & Derivative Research, JM Financial Services Ltd

Nifty Performance and Union Budget 2026 Outlook:

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. This pattern aligns with broader trends, where Nifty posted negative returns in the month preceding the budget in four out of the last five years, including a drop in January 2025. For instance, data from 2010-2022 shows that markets often trade lower ahead of the event due to fear of policy surprises, though post-budget rebounds are common with an average 1.36% gain in the following week. This pre-budget weakness is attributed to elevated volatility, as seen in the average 2.65% intraday trading range on budget day itself.

For the Union Budget 2026, set to be presented on February 1 by Finance Minister Nirmala Sitharaman, expectations center on balancing fiscal prudence with growth stimulus amid global headwinds like U.S. tariffs under President Trump. Key anticipations include increased capital expenditure on Infrastructure, Defence, and Railways to shield the economy from external shocks, with a hike in defence allocation. Industry bodies seek boosts for MSMEs, Manufacturing, Green Energy, AI, and exports through incentives like faster GST refunds and investments in logistics. Fiscal deficit is projected at 4.4% of GDP, with emphasis on job creation, rural demand, and sustainable development to propel India toward a $5 trillion economy.

However, several risks could impact market reactions. 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.

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