Markets Dip Short-Term Around Budget Despite Long-Term Strength

In general, the equity markets of India experience difficulties one month before and one month following a Union Budget announcement. However, statistically, Indian equities have produced substantial total returns over lengthy periods. Analysis of all Union Budgets in India indicates that there were negative returns received pre-Budget in 10 years and post-Budget for 7 of the previous 14. The average return received pre-Budget was -0.4%, and the average return post-Budget was -0.50%. 

Earnings received in three-month and six-month timeframes demonstrate a constant history of growth, as evidenced by a minimum increase of 10-11 times in the three-month period preceding and at least 9-11 times in the post-six-month timeframe.

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Historical Short-Term Weakness

The benchmark stock market indices of Sensex and Nifty experience declines during the one-month period directly surrounding each Union Budget announcement. Investors react to the Budget announcement in a knee-jerk fashion and overreact when responding to the economic results of each Government when presented with the Union Budget.

A week before each budget, there is a build-up of excitement based on media reports and industry reports, particularly in the context of new Government policies and procedures. Reaction of the markets after each Union Budget was announced typically returned toward the pre-announcement trend unless surprises occurred.

Stronger Long-Term Performance

The market averaged a 3.1% return over the three months prior to a budget announcement compared with the average return of 1.2% over the three months following a budget announcement. By contrast, during the six months prior to a budget announcement, the average return was 8.0%, and during the six months following, the average return was 6.0%. 
Longer periods are less influenced by budget events and are more likely to be influenced by global events and liquidity. The next union budget on February 1, 2026, will focus on a fiscal deficit of approximately 4.3% of GDP, infrastructure (including railways and capex), etc, as per news reports.