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Budget 2026 Jitters: Sensex, Nifty Tumble Amid Pre-Event Volatility

Introduction: A Volatile Start to Budget Day

Indian equity markets experienced significant volatility during a special trading session on February 1, held for the presentation of the Union Budget 2026-27. Despite opening with strong gains, the benchmark Sensex and Nifty indices pared all advances to slip into negative territory as investors booked profits at higher levels and turned cautious ahead of Finance Minister Nirmala Sitharaman's speech. The session highlighted the market's classic pre-budget nervousness, where uncertainty often outweighs initial optimism.

The Day's Trading Action

Markets began the day on a strong footing, with sentiment seemingly buoyed by expectations. The BSE Sensex climbed 457 points, or 0.55 percent, to reach an intra-day high of 82,726.65. Similarly, the NSE Nifty 50 advanced 120.25 points, or 0.47 percent, to touch 25,440.90. However, the optimism was short-lived. By around 11:45 AM, just after the Budget speech began, a wave of profit-taking emerged, pulling the indices sharply from their peaks. The Sensex fell to 82,230.75, marking a decline of 39.03 points, while the Nifty slipped to 25,291.60, down by 29.05 points.

Key Drivers of the Market Decline

The reversal in market sentiment was driven by a combination of factors that are typical of Budget days.

1. Widespread Profit Booking After an initial surge of up to 0.5 percent, investors chose to lock in gains rather than carry positions through the uncertainty of the Budget announcements. This behavior is common when markets rally into a major event, as traders prefer to reduce risk.

2. Historical Budget Day Volatility Indian markets have a long history of sharp fluctuations during the Union Budget presentation. Data from the last 15 years shows that the Nifty 50 has witnessed intra-day swings of 2–3 percent on 14 of those occasions. Ponmudi R, CEO of Enrich Money, noted, "Markets are likely to remain highly volatile, with sharp moves possible in either direction depending on key announcements around fiscal policy, capex push, sector-specific incentives, and the fiscal deficit target."

3. Rising Investor Anxiety The India VIX, a gauge of expected market volatility, rose over 4 percent to 13.96. A higher VIX reading indicates increased nervousness among investors, often leading to cautious trading and amplified short-term market fluctuations.

Broader Headwinds Weighing on Sentiment

Beyond the immediate Budget-day dynamics, several broader factors contributed to the cautious mood.

  • Persistent Foreign Outflows: Foreign Portfolio Investors (FPIs) have been consistent sellers of Indian equities. In January 2026 alone, they sold shares worth $1.97 billion (₹35,890 crore). Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, highlighted that the short-to-medium-term strategy for many FIIs has been to 'sell India' and reallocate funds to other markets.

  • Weak Global Cues: Overseas markets offered little support. Wall Street closed lower after the nomination of a reportedly hawkish candidate to succeed the Federal Reserve Chair. This weakness spilled over into Asian markets, with major indices in China, Australia, and Japan ending in the red.

  • Currency and Commodity Pressures: The Indian rupee has been trading near its record low of 92 against the US dollar, raising concerns about capital outflows and imported inflation. Additionally, Brent crude prices hovering near $10 per barrel act as a headwind for India, a major energy importer.

Economic Survey and Sectoral Expectations

While the Economic Survey 2026-27, tabled earlier in the week, projected a robust GDP growth of 6.8-7.2 percent for FY27, this positive long-term outlook was overshadowed by immediate market anxieties. Meanwhile, various sectors have pinned their hopes on specific administrative and policy measures from the Budget.

Sector/GroupKey Expectations from Budget 2026
Corporate IndiaAdministrative reforms, simplification of TDS, and reduced tax litigation.
Middle ClassHigher basic tax exemption limit and an enhanced standard deduction.
Real EstateGranting of industry status and extension of the Credit Linked Subsidy Scheme.

Market Analysis and Outlook

Analysts believe the market is likely to remain in a consolidation phase until there is clear direction from the Budget. The Nifty 50 has been finding support near its 200-day EMA, around the 25,150–25,200 zone. According to technical analysts, a decisive move above the 25,450–25,500 hurdle is needed to trigger a fresh rally towards 25,700–26,000. Conversely, a slip below the 25,100 support level could lead to further declines.

Dr. Vijayakumar stated that while domestic fundamentals remain strong, with nominal GDP growth expected around 10 percent, headwinds from geopolitical issues and FII selling could cap the upside unless the Budget provides a significant positive trigger.

Conclusion

The market's performance on Budget day was a classic display of caution triumphing over initial optimism. The sharp reversal from intra-day highs underscores the high-stakes nature of the event for investors. With profit-booking, historical volatility patterns, and negative global cues at play, traders opted for a defensive stance. The true market direction will now depend on the substance of the Finance Minister's announcements, particularly on fiscal discipline, capital expenditure, and sector-specific policies.

Frequently Asked Questions

The market fell primarily due to widespread profit booking at higher levels, historical volatility associated with Budget days, and rising investor nervousness, as indicated by an increase in the India VIX index.
The India VIX is a volatility index that measures market expectations of near-term fluctuations. Its rise above 4% to 13.96 signifies increased investor anxiety and the anticipation of sharp market swings.
Negative cues from global markets, including a fall in US stocks following the nomination of a hawkish candidate for Federal Reserve Chair and weakness in major Asian indices, contributed to the cautious sentiment in India.
The Economic Survey 2026-27 projected India's GDP to grow between 6.8% and 7.2% in the financial year 2027, providing a stable macroeconomic backdrop.
Corporate India is primarily seeking administrative reforms rather than major tax policy changes. Their key expectations include simplifying compliance, rationalizing TDS rates, and reducing the burden of tax litigation.

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