Sensex, Nifty’s pre-Budget correction a blessing in disguise? This is what 15 years of data shows

Every year before the Union Budget, market sentiment tends to turn cautious, with investors cutting back on positions and increasing volatility in the indices. But historical data from the last fifteen years suggests that such pre-Budget corrections in the Sensex and Nifty can actually set the stage for stronger gains afterwards.Whenever one of the benchmarks has undergone a correction of more than 3% a month before the budget, it has typically been followed by a recovery for periods of one week, one month and three months after the announcement.

Looking specifically at the benchmark performance, the Sensex has closed positive 11 out of the last 15 times in the week after the Budget, delivering an average gain of 2.10%. The country ended the week in the red just four times, with an average loss of 2.05%, SBI Securities said in a note. From a quarterly perspective, the Sensex has closed higher nine times out of fifteen, with an average gain of 6.77%. On the other six times the index fell, the average loss was 5.28%.

The Nifty has shown a similar trend. In the week after the budget, the index has closed positive 12 out of 15 times, with 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 period, the Nifty has closed higher nine times out of fifteen, with an average gain of 7.40%. In the six cases where the price ended lower, the average loss was 5.46%.

Both the Nifty and the Sensex have consistently delivered relatively strong performances when market sentiment has been weak in the run-up to the Budget. The data shows that the declines leading up to the event have often created the conditions for recovery once budget uncertainty passes. In the broader markets, the Midcap Index is currently down 5% month to date, while the Smallcap Index is down over 7% month to date. In the last fifteen budget cycles, the Midcap Index fell by more than 5% three times one month before the budget: on February 29, 2016, February 1, 2019 and February 1, 2025. Historical trends show that midcaps, unlike large caps, tend to recover gradually, with meaningful improvement typically visible over a three-month period rather than within the first week or month after the budget.

The Smallcap Index shows a slightly different pattern. One month before the budget, interest rates fell by more than 5% four times: on July 10, 2014, February 29, 2016, February 1, 2019 and February 1, 2025. Post-budget performance for small caps was mixed. In 2016 and 2019, the index recovered from the pre-budget decline, while in the other two cases the recovery took longer than three months.

Last year provided another example of this variability. The Smallcap Index had fallen 10.81% a month before the budget, fell another 13.43% in the month after the announcement and was still down 3.13% even three months later.

Broader markets have also shown remarkable resilience post-Budget. In the week following the announcement, both the Midcap and Smallcap indices closed positive 11 out of 15 times, with average gains between 3.1% and 3.3%. Only four times have they ended negatively, with average losses between 2.7% and 3%.

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

However, the Smallcap Index shows greater variation. It has posted seven gains in the three months after the budget, with an average increase of 14.54%. On the remaining eight occasions it finished lower, with an average decline of 8.77%. Despite this inconsistency, broader markets have relatively outperformed benchmark indices over time.

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

Industry bodies are seeking targeted measures to support SMEs, manufacturing, green energy, artificial intelligence and exports, including faster GST refunds and greater investments in logistics. The fiscal deficit is estimated at 4.4% of GDP, with policy focus expected to remain on creating jobs, boosting rural demand and promoting sustainable development as India moves closer to its $5 trillion economy target.

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