January 29, 2026
4 mins read
Ahead of Budget 2026, market strategy reflects cautious optimism anchored in structural growth and policy continuity. With limited expectations of major announcements, investors are focusing on execution quality, balance-sheet strength, and disciplined buy-on-declines strategies amid a consolidation phase.
In advance of the Union Budget for 2026, the Indian equities market has now moved into a discipline-based environment, where expectations will no longer be driving markets.
As such, instead of trying to anticipate potential policy surprises, market participants will be concentrating on how previously implemented policies, fiscal priorities, and execution capabilities can provide visibility into future earnings.
Given the current conditions, capital preservation, selective building of positions, and focusing on execution-oriented opportunities will become the highest priorities for investors.
The focus will continue to be on identifying sectors and companies that can convert a continuation of current policy into sustainable cash flows, allowing them to weather volatility while continuing to align themselves with longer-term structural growth.
The stock market acts prior to the Union Budget based on many different, overlapping influences that affect sentiment, liquidity, and positioning. Collectively, the nature of these factors will determine if markets consolidate, correct, or continue moving upward.
Fiscal discipline, policy continuity: The government has demonstrated a commitment to being fiscally responsible, which prevents forming anticipations for large spending or tax initiatives, which serves to both mitigate downside risk and limit speculation on upside momentum.
Derivative position gauging and rollover statistics: Determining the conviction of positions held by traders prior to the Budget is conducted through the use of pre-Budget rollover statistics. If higher roll costs are being incurred but rollover statistics remain stable, traders are actively managing positions rather than panickedly exiting.
International geopolitical and macroeconomic uncertainty: International macroeconomic conditions, such as tariff disputes, geopolitical instability, and global interest rate risk affect capital flows and the ability of investors to take risk.
Therefore, although domestic fundamentals may be strong, the factors mentioned above will increase volatility in equity markets.
The Indian equity market has shown varied historical behavior in response to the Union Budget. Historically, the budget has been characterised by high initial market volatility, followed by a return to longer-term fundamental trends.
Short-term volatility around announcements: On Budget Day, the market frequently experiences large intraday price swings, particularly as traders react to headline policy announcements. These price swings usually reverse quickly when further details are provided.
Lack of effect of incremental policy changes: Budgets geared toward the status quo (i.e., continuing prior policy) typically elicit minimal market reaction. Therefore, incremental changes in taxation or government spending will usually affect only a small number of industries without having a broad market impact.
Post-Budget focus on corporate earnings execution: After the initial market reaction, market participants will next focus on how the budget policy translates into corporate earnings. Companies with sound balance sheets and strong execution capabilities will generally outperform the market over time, regardless of the prevailing sentiment on Budget Day.
The risk management process becomes particularly important during pre-budget periods, given heightened market uncertainty that can lead to larger price movements without clear direction. Combining technical analysis discipline with prudent allocation decisions enables an investor to navigate periods of uncertainty with greater confidence and consistency.
Establishing key support and resistance levels: Major support levels provide a framework for defining risk. If an investor only holds their positions while the index is above a specific support level, they can help to eliminate emotional or instinctive business decisions and minimise any potential drawdown from sudden corrections.
Using gradual accumulation rather than lump-sum investments: Entering a position gradually through phased entry reduces the impact of timing on investment strategy due to the volatility typical of these types of markets. Accumulating near key support levels allows an investor to take part in potential recoveries without over-committing capital in uncertain price environments.
Maintaining diversification and liquidity buffers: Diversifying across multiple sectors and maintaining cash reserves help to improve the resiliency of an investment portfolio. Maintaining sufficient cash reserves allows an investor to respond to emerging opportunities or protect against unexpected shocks without having to sell other investments to raise cash.
Source: All information collected from PDF and PPT shared by Bajaj Broking client side.
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In Budget 2026, expectations for the MSME sector centre on policy continuity rather than new incentives. The focus is likely to remain on sustained capital expenditure, infrastructure execution, and Make in India initiatives, which indirectly support MSMEs through higher order flows, localisation requirements, and stable demand conditions rather than direct fiscal handouts.
The Budget can benefit MSMEs by sustaining infrastructure-led growth, encouraging domestic manufacturing, and maintaining credit flow through banks and financial institutions. Continued emphasis on execution in sectors such as defence, railways, roads, and energy creates subcontracting opportunities for MSMEs, while fiscal discipline and policy stability improve visibility for long-term business planning.
Key trends from Budget 2025 likely to carry forward include GST rationalisation benefits, income tax relief supporting domestic consumption, continued Make in India and PLI-led manufacturing focus, and an execution-driven capex approach. These trends collectively support MSMEs by strengthening demand, improving cash flows, and integrating them into larger industrial and infrastructure value chains.
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