As the Union Budget 2026-2027 approaches amidst heightened market volatility, historical data from the Indian stock market provides valuable insights for investors looking beyond immediate reactions. An in-depth analysis by SBI Securities, covering the last 15 Union Budget cycles including both interim and full budgets, sheds light on typical post-Budget behavior across indices, sectors, and volatility measures.
Benchmark Indices: A Bias Towards Post-Budget Gains
Historically, Indian stock market benchmark indices, the Sensex and Nifty 50, have demonstrated a tendency to recover after the Budget announcement. The Sensex has closed higher in the week following the Budget on 11 out of the last 15 occasions, delivering an average gain of 2.1%. Over a three-month horizon, the index ended in positive territory nine times, with an average gain of nearly 6.8%. Similarly, the Nifty 50 has risen in 12 of the last 15 post-Budget weeks, with average gains of just over 2%.
This trend gains particular significance in years when markets enter the Budget period on a weak footing. SBI Securities notes that whenever the Sensex or Nifty corrected more than 3% in the month leading up to the Budget, it was followed by a strong rebound across one-week, one-month, and three-month periods. With both benchmarks down over 3% month-to-date ahead of the current Budget, historical patterns suggest the possibility of a relief rally.
Sudeep Shah, Head of Technical and Derivatives Research at SBI Securities, commented: "Markets have historically responded positively post-Budget, especially when sentiment was weak heading into the event. Both Nifty 50 and Sensex have delivered strong one-week and three-month returns in a majority of instances, with particularly sharp rebounds whenever pre-Budget corrections exceeded 3%." He added that broader markets have, on average, outperformed benchmark indices, though recovery patterns differ.
Small-Cap and Mid-Cap Markets: Faster Upside, Slower Healing
Midcap and smallcap indices have historically outperformed benchmarks in the immediate post-Budget phase, but with higher volatility. In the week after the Budget, both midcap and smallcap indices closed higher in 11 out of 15 instances, delivering average gains of over 3%.
However, recovery trajectories diverge over longer periods. Midcaps have shown more consistency, posting positive three-month returns in 10 of the last 15 Budget cycles. Smallcaps, on the other hand, display mixed outcomes, with sharp gains in some years and prolonged drawdowns in others. SBI Securities highlights that smallcap recoveries often extend beyond three months, emphasizing the importance of stock selection rather than broad-based exposure.
Sectoral Trends: Pharma and Financials Stand Out
Among sectors, pharma and financial services have emerged as relatively resilient Budget plays. The pharma index has delivered positive returns in the week following the Budget in 14 out of 15 instances, with an average gain of 3.2%. Over three months, pharma posted gains in two-thirds of the observed cycles, while losses, when they occurred, were relatively shallow.
Financial services have also shown a favorable post-Budget bias, rising in 11 of the last 15 post-Budget weeks and delivering double-digit average gains over a three-month horizon in positive cycles.
In contrast, auto and realty sectors have underperformed historically. Both sectors recorded more negative than positive outcomes in the one-month and three-month post-Budget windows, reflecting sensitivity to demand conditions, interest rates, and execution risks.
Volatility Cools After the Event
One of the most consistent trends highlighted by Shah is the behavior of India VIX. Market volatility has fallen on Budget Day in all 15 observed instances, with an average decline of over 9%. This suggests that while expectations and speculation drive pre-Budget nervousness, the event itself tends to reduce uncertainty.
The Takeaway
History indicates that the Union Budget is less about immediate fireworks and more about post-event recalibration. While benchmarks have shown a clear tendency to rebound, broader markets and sectors demand a selective approach. For investors, the data reinforces a familiar lesson: sentiment may swing sharply around Budget Day, but disciplined positioning often pays off after the dust settles.
