Ending a three-session gaining streak, Indian benchmark indices closed lower on Friday as investors turned cautious ahead of the Union Budget 2026, to be presented by Finance Minister Nirmala Sitharaman on February 1. The NSE Nifty 50 declined 0.39%, or 98.25 points, to settle at 25,320.65, while the Sensex slipped 0.36%, or 296.59 points, to end at 82,269.78.

For the month, the benchmark indices have fallen up to 3%, marking their worst January performance since February 2025, when markets had dropped more than 5%. The sell-off reflects growing investor caution ahead of the Budget, with participants seeking clarity on fiscal consolidation, taxation measures and government spending priorities.

Worst January performance since 2021

Data shows that January returns ahead of the Union Budget have been largely volatile over the past decade. This year, the Sensex fell around 3%, while the Nifty50 declined over 2.5%, marking one of the weakest January performances in recent years. This follows losses of 0.99% on the Nifty and 1.28% on the Sensex in January 2025, and marginal declines of 0.07% and 0.72%, respectively, in January 2024.

Historical data indicate that this was the worst January performance for the Sensex since 2021, when the 30-share index fell 3.3% and the Nifty dropped 2.74% during the same month. A sharper pre-Budget correction was last seen in January 2016, when the Nifty plunged 5.02% and the Sensex fell 4.93%.

In contrast, markets saw strong pre-Budget rallies in 2017 and 2018, with the Nifty gaining 4.67% and 5.67%, respectively, driven by optimism around reforms and growth. Since 2019, however, sentiment has remained cautious, with both indices posting largely muted or negative January returns.

Will volatility persist post-Budget?

According to analysts, markets are likely to remain cautious in the near term, with volatility persisting as investors balance pre-Budget positioning against global headwinds.

“Investors traded cautiously ahead of the Union Budget 2026 scheduled for February 1, with markets set to remain open on Sunday. As per our expectations following the Economic Survey, the upcoming Budget is likely to be realistic yet ambitious in its outlook, with a clear focus on “Swadeshi,” which appears both inevitable and necessary in the current global landscape,” said Siddhartha Khemka - Head of Research, Wealth Management, Motilal Oswal Financial Services.

Key data points to watch next week include auto monthly sales numbers, January GST collections and trends in metal prices following the sharp correction seen today. Overall, markets are expected to remain focused towards budget related announcements, and global cues, he added.

Vinod Nair, Head of Research, Geojit Investments, said that with geopolitical risks and global tariff pressures on the rise, the Union Budget is keenly awaited for cues on growth support and fiscal discipline. He added that while a deal to avert the latest U.S. government shutdown has provided temporary relief, global markets remain cautious ahead of the appointment of a new Federal Reserve Chair, as a more hawkish stance could tighten liquidity conditions and weigh on emerging markets.

Market sentiment remained subdued amid lingering concerns over geopolitical tensions and global trade developments, said Ajit Mishra – SVP, Research, Religare Broking. “Uncertainty ahead of the Union Budget, coupled with continued weakness in the Indian rupee, further added to the negative bias and kept participants on the sidelines,” he said.

Ponmudi R, CEO of Enrich Money, noted that sectoral participation remained selective, with FMCG, healthcare, media, consumer durables and select PSU banks outperforming, indicating measured optimism ahead of the Budget. However, overall sentiment stayed cautious as investors balanced pre-Budget positioning against persistent global headwinds.

On technical front, the immediate resistance for the Nifty is placed in the 25,450–25,500 zone, where the index has failed to sustain a decisive close despite multiple attempts over the past six sessions, said Sudeep Shah, Head – Technical and Derivatives Research, SBI Securities.

He said a clear breakout above this zone could open the door for a move towards 25,650, followed by 25,800 in the near term. On the downside, the 200-day EMA zone of 25,200–25,150 is expected to act as a strong support.

For Bank Nifty, Shah said the immediate resistance for the index is seen at 60,000–60,100, a key supply zone. A sustained move above this level could push the index towards 60,400 and 60,800, while the 20-day EMA zone of 59,400–59,300 is likely to provide support on the downside.

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