Budget 2026 Preview: Will Capex Push Nifty Past 25,500?

Introduction

Indian equity markets are poised for a higher opening in a special trading session, with all eyes on the upcoming Union Budget for 2026. Investors are looking for clear signals on the government's commitment to growth through capital expenditure and potential relief for key sectors. While domestic sentiment remains constructive, a mixed global backdrop and cautious positioning from foreign investors set the stage for a crucial week.

Global Cues and Domestic Flows

The setup is influenced by a weaker closing on Wall Street, where major indices like the Dow Jones, S&P 500, and Nasdaq Composite ended in the red. This cautious global sentiment is compounded by volatility in the cryptocurrency market. Back home, institutional activity presents a mixed picture. Provisional data from the NSE shows that Foreign Portfolio Investors (FPIs) turned net buyers on Friday, purchasing equities worth ₹2,251.37 crore. However, this comes after a month of significant selling, with FPIs offloading nearly ₹38,740 crore in January 2026. In contrast, Domestic Institutional Investors (DIIs) were net sellers on Friday to the tune of ₹601.03 crore. Analysts suggest FIIs are waiting for directional cues from the Budget before committing fresh capital.

Decoding Budget Expectations

Market participants are not anticipating major populist announcements. Instead, the focus is on policy continuity and fiscal discipline. Experts believe the government will maintain its emphasis on public capital expenditure to support economic growth. According to Emkay Wealth Management, the budget is likely to keep its public capex allocation intact despite potential constraints from lower nominal GDP growth. This view is echoed by Morgan Stanley, which expects expenditure growth to favor capex and social infrastructure.

Taxation and Sectoral Focus

On the taxation front, sweeping changes are unlikely. However, there are expectations for targeted relief measures. Analysts at Religare Broking suggest selective support for export-oriented sectors, while Anand Rathi Global Finance points to investor hopes for a reduction in Securities Transaction Tax (STT) and Long-Term Capital Gains (LTCG) tax to boost market participation. Sectors like defence, railways, and shipbuilding are expected to remain a priority, according to Bank of America Securities, which anticipates continued government focus in these areas. However, allocations for roads and housing might be more muted.

Historical Market Behavior Around Budgets

Contrary to popular belief, Budget day itself is often not a major market mover. Historical data since 2010 reveals a pattern of cautious pre-budget trading and more decisive trends in the week following the announcement. The market tends to de-risk ahead of the event, leading to muted or slightly negative returns. The real impact unfolds once policy clarity emerges.

This data suggests that post-budget, as uncertainty fades, markets focus on fundamentals like earnings and liquidity, leading to more consistent returns. Bank Nifty, in particular, tends to react more strongly once there is clarity on the government's borrowing plans and fiscal deficit targets.

Technical Outlook for Nifty 50

The Nifty50 index has shown resilience, forming a strong bullish candle on the weekly chart after finding support near its 50-week EMA. According to Kotak Securities, as long as the index trades above the 25,200 mark, the sentiment remains positive. The immediate upside targets are seen at 25,500, with a potential extension towards 25,600-25,675. Conversely, a slip below 25,200 could trigger weakness, pulling the index down to the 25,000-24,900 support zone.

Nifty Bank Levels to Watch

For the Nifty Bank, the 60,000–60,100 zone acts as a crucial resistance area. A sustained move above this level could propel the index towards 60,400 and then 60,800, as per SBI Securities. On the downside, strong support is placed in the 59,400–59,300 range. A decisive break below this support could increase selling pressure, potentially dragging the index towards 58,700.

Market Strategy and Conclusion

Given the backdrop of budget expectations and technical setups, analysts advise a cautious but constructive approach. Ajit Mishra of Religare Broking suggests that investors should continue a "buy-on-dips" strategy, focusing on quality large-cap stocks. The medium-term outlook for Indian equities remains positive, supported by stable macroeconomic fundamentals. The upcoming Union Budget will be a key directional guidepost, providing clarity on the government's fiscal path and growth priorities for the year ahead. The market's sustained trajectory will likely depend more on the policy signals it sends rather than any single announcement.

Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not the publication. Investors should consult with certified experts before making any investment decisions.