As India approaches the Union Budget for FY26-27, scheduled for February 1, historical data reveals a consistent pattern of market caution in the pre-Budget period. The Union Budget has traditionally served as a major market-moving trigger, influencing sectoral leadership and shaping short- to medium-term trends based on fiscal priorities and policy directions.

Historical Performance Analysis

According to Rahul Sharma, Director and Head of Technical & Derivative Research at JM Financial Services, the pre-Budget phase has historically been characterized by restraint rather than optimism. The data presents a clear picture of market behavior during this period.

Sharma noted that this trend reflects broader market behavior, with Nifty delivering negative returns in the month preceding the Budget in four of the last five years, including January 2025. The data from 2010 to 2022 shows that markets often drift lower ahead of the event due to fears of policy surprises, despite common post-Budget rebounds.

Technical Outlook

Ravi Singh, Chief Research Officer from Master Capital Services, provided technical analysis for the upcoming week. The weekly chart and candlestick pattern suggest further downside potential in the near term.

Singh indicated that a break below the 24850 support level could drag the index toward 24600, while sustained strength above 25250 could lead to a recovery toward 25500. Until then, a sell-on-rise strategy remains preferable.

Budget 2026 Expectations

The Union Budget 2026, to be presented by Finance Minister Nirmala Sitharaman, is expected to balance fiscal discipline with growth support amid global headwinds. Key expectations include:

• Higher capital expenditure on infrastructure, defense, and railways
• Potential increase in defense allocation
• Targeted measures for MSMEs, manufacturing, and green energy
• Focus on artificial intelligence and exports
• Faster GST refunds and higher logistics investments

The fiscal deficit is projected at 4.4% of GDP, with continued emphasis on job creation, rural demand, and sustainable growth as India moves toward its $5 trillion economy ambition.

Market Risks and Challenges

Several risk factors could impact market performance around the Budget announcement:

• Budget-day volatility if growth stimulus disappoints
• Fiscal target slippages potentially pushing bond yields higher
• Geopolitical tensions and currency volatility
• Global trade disruptions
• Domestic policy execution delays
• Valuation concerns and foreign institutional investor outflows

Expert Perspective on Market Behavior

Apurva Sheth, Head of Market Perspectives and Research at SAMCO Securities, emphasized the behavioral pattern around Budget events. "Markets tend to turn cautious ahead of the event. On average, backward returns are marginally negative, indicating profit-booking and risk reduction as uncertainty peaks. The post-Budget phase is where conviction returns, as forward returns improve meaningfully once policy clarity emerges," Sheth explained.

Sheth added that historically, patience has proven more valuable than prediction, with investors benefiting from waiting for clarity rather than reacting to Budget-day headlines. As February 1 approaches, historical patterns suggest that while market nerves may dominate the lead-up period, real opportunities for the Nifty often emerge only after policy clarity is established post-Budget.

The Nifty 50 faced intense selling pressure on January 23, declining 241 points or 0.95% to close at 25,049. The benchmark index opened higher above 25,300 but failed to sustain those levels, losing all gains within the first hour and extending its fall throughout the trading session to hit an intraday low of 25,025.

Weekly Performance and Technical Breakdown

The index recorded its most significant weekly decline since September, shedding 2.51% or 646 points for the week. This marked a decisive break below the 200-day Exponential Moving Average (EMA), with the index now trading below all key moving averages.

The index violated its rising trendline support and formed a long bearish candle on both daily and weekly charts, signaling continued weakness. Momentum indicators also flashed sell signals across daily and weekly timeframes, with the daily RSI standing at 29.12 and the MACD maintaining bearish crossovers with weakness in the histogram.

Market Volatility and Uncertainty

Adding to the cautious market undertone, India VIX surged 6.3% to close at 14.19, marking a fresh seven-month closing high. The volatility index rallied 24.8% for the week, extending its uptrend for the fourth consecutive week and signaling elevated market uncertainty ahead of the budget week.

Technical Outlook and Key Levels

Market experts suggest that if the index sustains below the 200-day DEMA at 25,163, a break below 24,900 (the week's low) cannot be ruled out, followed by 24,600 as a crucial support zone. In case of a bounce back amid likely consolidation, the 200-day DEMA is expected to act as an immediate hurdle, followed by 25,300-25,350 as a crucial resistance zone.

Weekly options data indicates the Nifty 50 is likely to trade within a broad range of 24,500-25,500, with immediate resistance at 25,200-25,300 and support at 25,000-24,900. Ahead of the monthly F&O expiry on Tuesday, market volatility is expected to remain elevated.

Bank Nifty Under Pressure

The banking index witnessed heavier selling pressure than the benchmark, declining 727 points or 1.23% to 58,473. Bank Nifty formed a long bearish candle on both daily and weekly charts, falling 2.7% for the week and marking its biggest weekly correction since August.

The index decisively slipped below the 50-day EMA and its trendline support at 58,800 in a single session, reflecting strong selling pressure. Technical analysts suggest the index has entered a 'sell on rise' phase, with immediate support at 58,000 and resistance in the 58,800-58,900 zone.