Why Share Markets Face Pressure Before the Union Budget

New Delhi: With the Union Budget 2026-27 just a few days away, market watchers are once again observing a familiar trend. Historical data from 2010 to 2022 reveals that the share markets often trade under pressure ahead of the budget announcement, mainly due to uncertainty around sudden government policy changes.

Experts note that this pre-budget period is marked by increased volatility. On average, intraday market fluctuations on the budget day have been around 2.65 percent. Additionally, the Nifty index has recorded an average negative return of 0.52 percent during the week before the budget in the last 15 years, closing higher only eight times in this period.

This pattern has continued in recent years as well. In four of the last five years, including January 2025, the Nifty experienced a decline in the month preceding the budget.

Market Recovery Post-Budget

Despite the pre-budget weakness, the market generally recovers after the budget is presented. Analysts report an average gain of 1.36 percent in the week following the budget announcement. This recovery is often driven by clarity on fiscal policies and government spending priorities.

Expectations from Union Budget 2026

Rohit Sharma, Head of Technical and Derivatives Research at JM Financial Services, expects the Union Budget 2026 to balance fiscal discipline while promoting economic growth. The budget is likely to address global challenges such as tariff policies, similar to those implemented by the US administration.

Experts anticipate a focus on increased capital expenditure in infrastructure, defence, and railways to shield the economy from external shocks. An increase in the defence budget is also expected. Industry bodies are urging the government to support sectors like MSMEs, manufacturing, green energy, artificial intelligence, and exports. Measures such as faster GST refunds and enhanced logistics investment may be introduced to boost these areas.

Risks and Recommendations for Investors

While the fiscal deficit is projected at around 4.4 percent of GDP for the upcoming financial year, challenges remain. Market volatility on the budget day may rise, especially if the budget fails to meet expectations or fiscal targets deteriorate, potentially triggering selling pressure. Rising interest rates and liquidity constraints could further impact market sentiment.

Additional risks include geopolitical tensions, currency fluctuations, disruptions in global trade, and delays in policy implementation, all of which may affect investor confidence.

Experts also warn that high market valuations, foreign institutional investor (FII) sell-offs, and the bursting of an AI-related bubble could derail the Nifty’s rally towards the 29,000 level this year.

Investors are advised to maintain some cash reserves until the post-budget environment stabilises and to focus on select sectors such as defence and public sector banks for safer investment opportunities.

According to Care Ratings, the fiscal deficit for FY 2026 is expected to remain near 4.4 percent of GDP, with a slight improvement to 4.2-4.3 percent in FY 2027. The government’s total borrowing is estimated between ₹16-17 lakh crore, with net borrowing around ₹11.5-12 lakh crore during this period.