Budget 2026 Stock Market Expectations: How Sensex and Nifty Have Performed on Budget Days in the Past & more related news here

Markets tend to respond positively when the budget focuses on growth, infrastructure spending and fiscal stability. (AI image)

By Somil Mehta,The Union Budget is one of the most important events for the Indian stock markets. Every year on February 1, investors closely watch how Sensex and Nifty react to announcements on taxes, government spending, reforms and fiscal discipline. There is always excitement, speculation and nervousness surrounding Budget Day. But history shows that market reactions on Budget Day are often mixed and unpredictable.If we look at market behavior over the last decade, one thing becomes clear: Budget Day is rarely a one-way exchange. While some budgets have sparked strong protests, many others have seen muted or even negative reactions.Markets tend to respond positively when the budget focuses on growth, infrastructure spending and fiscal stability. For example, in 2017, Finance Minister Arun Jaitley avoided large tax increases and provided relief to the middle class. This was well received by investors. The Sensex rose around 1.7%, while the Nifty gained around 1.8%, making it one of the best Budget Day performers in that period.Another notable year was 2021, when Finance Minister Nirmala Sitharaman presented the budget in the wake of the COVID-19 pandemic. The focus was clearly on economic recovery, increased capital spending, healthcare and infrastructure. Markets responded strongly to this growth-oriented approach. The Sensex rose over 2%, while the Nifty rose nearly 2.7%, marking one of the strongest Budget Day rallies in recent years.However, not all Budgets have been market-friendly. In 2016, the announcement of higher taxation on dividends disappointed investors. The Sensex closed lower on the day, reflecting concerns over the impact on corporate profitability and investor returns. In 2018, long-term capital gains tax on listed stocks and equity mutual funds was introduced, taking markets by surprise. The indices closed modestly lower, but fell sharply by ~6.8% over the next few sessions. Similarly, 2023 saw a virtually flat market reaction. While the Budget maintained fiscal discipline, it did not announce any major reforms that could excite traders in the short term.

Excellent budget performance

The July 2024 budget also provoked a cautious response from the market. The changes related to capital gains taxation surprised some investors. Although the market reaction was not severe, both Sensex and Nifty ended the day slightly lower, showing how unexpected fiscal measures can affect sentiment even if the overall economy remains stable.An important point that investors often overlook is that Budget Day performance does not always indicate the next market move. In several cases, markets that rose on Budget Day corrected in the following weeks, while some Budgets that initially disappointed investors later sparked strong medium-term rallies once the impact of policies became clearer. Historically, post-budget volatility has been common and returns a month after the budget have often been mixed.On the other hand, sudden tax changes or a lack of reform momentum can weaken sentiment.As we approach the Union Budget 2026, market conditions are already volatile. Stock indices have corrected from recent highs, foreign portfolio investors have been net sellers and global factors such as interest rates, geopolitical tensions and trade policies continue to influence sentiment. In such an environment, Budget Day volatility is almost inevitable.For investors, history offers an important lesson: Don’t make excessive bets based solely on Budget Day expectations. Short-term reactions can be misleading. A diversified portfolio, focusing on quality stocks, and aligning yourself with long-term themes tend to work better than trying to predict market movements in one day.In conclusion, the Union Budget often sets the tone but does not decide the direction of the market in a single day. As Finance Minister Nirmala Sitharaman prepares to present Budget 2026, investors should be cautious, watch policy intent closely and remember that sustainable returns are built over time, not in a single trading session.(Somil Mehta is head of retail research at Mirae Asset ShareKhan).(Disclaimer: Any recommendations and views on the stock market, other asset classes or personal finance management tips provided by experts are their own. These views do not represent the views of The Times of India)