Sensex, Nifty's pre-Budget correction a blessing in disguise? Here's what 15-year data shows

Ahead of the Union Budget each year, market sentiment often turns cautious, with investors trimming positions and volatility rising across indices. But historical data from the past 15 years suggests that such pre-Budget corrections in the Sensex and Nifty may actually set the stage for stronger gains after the event.

Whenever either benchmark has corrected by more than 3% a month before the Budget, it has typically been followed by a rebound across one-week, one-month and three-month periods after the announcement.

Looking specifically at benchmark performance, the Sensex has closed in positive territory in the week following the Budget on 11 out of the past 15 occasions, delivering an average gain of 2.10%. It has ended the week in the red only four times, with an average loss of 2.05%, SBI Securities said in a note.

From a three-month perspective, the Sensex has closed higher nine out of 15 times, with an average gain of 6.77%. On the remaining six occasions when the index declined, the average loss stood at 5.28%.

The Nifty has displayed a similar trend. In the week following the Budget, the index has closed positive 12 out of 15 times, posting an average gain of 2.04%, while it has ended negative only three times, with an average loss of 2.65%.

Over a three-month horizon, the Nifty has closed higher on nine out of 15 occasions, with an average gain of 7.40%. In the six instances where it ended lower, the average loss was 5.46%.

Both the Nifty and Sensex have consistently delivered relatively strong performance when market sentiment was weak in the run-up to the Budget. The data indicate that declines leading up to the event have often created conditions for a recovery once the Budget uncertainty passes.

In the broader markets, the Midcap Index is currently down 5% month to date, while the Smallcap Index has declined over 7% month to date. Over the past 15 Budget cycles, the Midcap Index fell more than 5% one month before the Budget on three occasions: February 29, 2016, February 1, 2019 and February 1, 2025. Historical trends show that, unlike large caps, midcaps tend to recover gradually, with meaningful improvement usually visible over a three-month period rather than within the first week or month after the Budget.

The Smallcap Index has shown a slightly different pattern. It was down more than 5% one month before the Budget on four occasions: July 10, 2014, February 29, 2016, February 1, 2019 and February 1, 2025. Post-budget performance for smallcaps has been mixed. In 2016 and 2019, the index recovered after the pre-Budget fall, while in the other two instances the recovery extended beyond three months.

Last year offered another example of this variability. The Smallcap Index had declined 10.81% one month before the Budget, fell another 13.43% in the month following the announcement, and was still down 3.13% even three months later.

Broader markets have also shown notable resilience following the Budget. In the week after the announcement, both the Midcap and Smallcap indices closed positively 11 out of 15 times, recording average gains in the range of 3.1% to 3.3%. They have ended negatively only four times, with average losses between 2.7% and 3%.

Over a three-month period, the Midcap Index has delivered positive returns on 10 occasions, with an average gain of 8.67%. It has closed lower five times, with an average loss of 7.77%.

The Smallcap Index, however, has displayed greater variation. It has posted gains seven times over three months following the Budget, with an average rise of 14.54%. On the other eight occasions, it ended lower, with an average decline of 8.77%. Despite this inconsistency, broader markets have relatively outperformed the benchmark indices over longer timeframes.

The Union Budget 2026, set to be presented on February 1, is expected to strike a balance between fiscal prudence and growth support amid global headwinds, including concerns around U.S. tariffs under President Trump. The government is likely to focus on higher capital expenditure in infrastructure, defence and railways to cushion the economy from external shocks, with a possible increase in defence allocation.

Industry bodies are seeking targeted measures to support MSMEs, manufacturing, green energy, artificial intelligence and exports, including faster GST refunds and greater investment in logistics. The fiscal deficit is projected at 4.4% of GDP, with policy emphasis expected to remain on job creation, boosting rural demand and promoting sustainable development as India moves toward its $5 trillion economy goal.

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