D-St stocks have lagged before Budget historically; will 2026 be different?

January is likely to remain a phase of consolidation, with investors balancing earnings visibility, global cues, and budget-related expectations, analysts said

India is gearing up for one of the biggest economic events of the year, the presentation of the Union Budget for the financial year 2027 (FY27). For stock market investors, though, the month going into the budget has been a rather dull one.

 

Since 2003, the MSCI India Index has fallen 1 per cent, on average, during the month leading up to India's budget release, a Bloomberg report said, adding that the distribution of the returns is negatively skewed. There were only two instances of gains of more than 3 per cent versus nine declines of a similar magnitude.

 

 

Back home, the benchmark Nifty50, and the broader Nifty500 indices, too, have declined in January ahead of the budget presentation on February 1.

 

The 50-stock index, for instance, fell 0.58 per cent in January 2025, 0.03 per cent in January 2024 (interim Budget), 2.45 per cent in 2023, 0.08 per cent in 2022, and 2.48 per cent in 2021. Similarly, the NSE 500 index fell 3.5 per cent in 2025, 3.3 per cent in 2023, 0.5 per cent in 2022, and 1.8 per cent in 2021. CY-2024 was the only year when it rose 1.9 per cent.

 

"Historically, the month preceding the Budget tends to be low on directional conviction as investors avoid making aggressive bets in hopes of getting policy clarity later," Anirudh Garg, partner and fund manager at INVasset PMS, explained.

 

This year, too, analysts believe the movement in January is going to be stock selective. January is likely to remain a phase of consolidation, with investors balancing earnings visibility, global cues, and budget-related expectations, Garg said. 

 

As a strategy, analysts said investors should make "balanced bets" ahead of such key events. The focus, they said, should be on businesses with predictable cash flows, pricing power, and low sensitivity to short-term policy noise.

 

"Maintaining some liquidity is prudent, not as a bearish call, but as dry powder to act on post-budget volatility. Guide your positions by balance rather than bravado," Garg noted.

 

Notably, the Nifty is up 0.04 per cent, so far in January, while the Nifty500 is up 0.61 per cent. The Nifty index hit a new high of 26,373.2 on January 5, 2026.

Sectors to eye  

Meanwhile, Bloomberg's trend report highlighted that capital goods and information technology (IT) sectors have acted as relative defensives ahead of the budget. The S&P BSE Capital Goods Index has posted gains of 1 per cent on average since 2003.

 

On the contrary, the real estate and power stocks have remained persistent underperformers, down 1 per cent and 3 per cent on average, respectively. Consumer-facing sectors such as automobiles and staples have largely traded in a narrow range.

 

Capital expenditure remains the key growth driver, anchored by fiscal discipline, Anirudh Garg of INVasset noted. Infrastructure, manufacturing and formalisation benefit from sustained spending, while financials and manufacturing themes tend to gain once clarity emerges on borrowing, capex funding and policy support for scale and efficiency, he said.

 

This year, Budget 2026 is likely to shift focus towards manufacturing and capital goods, following the significant tax relief extended to consumers and the middle class in the previous year, said G Chokkalingam, founder of Equinomics Research.

 

He noted that the last Budget prioritised welfare measures, including substantial income tax concessions and off-budget goods and services tax reductions that benefited the middle class.

 

The government's agenda, now, Chokkalingam added, would be focused on growth-oriented measures, with a strong emphasis on manufacturing, capital expenditure and reducing import dependence amid global tariff tensions and risks to goods exports. Attention on the defence sector could also be on the government's radar, he said.

 

In this backdrop, he suggested investors focus on manufacturing- and defence-oriented stocks, particularly in large-cap and quality mid-cap names. He, however, cautioned that stress in the small- and mid-cap segment may persist at least until March, driven by factors such as heavy promoter stake sales, and large fund mobilisation through initial public offerings.  =====  (Disclaimer: The views and investment tips expressed by the analysts in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.)