Budget to Budget : One Market, Many Stories Beneath the Surface
As India approaches Union Budget 2026, investors are reassessing how markets have behaved since the previous Budget—and the verdict is anything but straightforward. Headline indices suggest calm, but beneath the surface, the market has been defined by sharp leadership changes, uneven participation, and growing global divergence.
While PSU banks and metals delivered standout gains, large pockets of the market struggled to keep pace. Smallcaps slipped, defensives lost favour, and India gradually ceded relative leadership to global peers. With confidence narrow and risk appetite selective, investors are now looking to the upcoming Budget for signals that can broaden participation and reset market momentum.
Here’s What Happened Today and Why Traders Reacted
As Budget discussions intensified, traders remained cautious, choosing patience over aggression. Volumes stayed selective, with activity largely concentrated in sectors that have already proven resilient over the past year.
Traders reacted to a combination of factors:
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Lack of broad-based earnings momentum
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Persistent foreign selling in secondary markets
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Absence of fresh domestic policy triggers ahead of the Budget
This resulted in a market that moved sideways rather than decisively, reinforcing the view that policy clarity—not speculation—will dictate the next leg.
Also Read : Fertiliser Stocks Brace for Budget 2026 — Will Policy Finally Catch Up With Expectations?
Domestic Markets Delivered Modest Returns but Hid Deep Divergences
Between the last Union Budget and now, benchmark indices posted only modest gains, masking a widening performance gap within the market. Midcaps managed to outperform, but smallcaps slipped around 0.5 percent, reflecting tighter liquidity and rising risk sensitivity among investors.
This uneven performance highlighted a key trend: capital gravitated towards balance-sheet strength and policy-backed themes, while speculative and lower-visibility segments lost favour. The result was a market that advanced in parts but failed to lift all boats.
PSU Banks and Metals Emerged as the Clear Market Leaders
Sectoral performance revealed a striking concentration of leadership. Nifty Metal surged 43.4 percent, while the PSU Bank index rallied 45.1 percent, making it the strongest-performing segment of the market between Budgets.
Banking and financials held firm, supported by improving asset quality and earnings visibility:
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Nifty Bank gained 20.7 percent
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Nifty Finance rose 18.2 percent
Autos advanced nearly 15 percent, aided by resilient demand and pricing power, while commodities gained 21 percent. For investors, the message was clear: policy alignment and earnings certainty mattered more than growth narratives alone.
Defensives and Export Sectors Lost Their Shield
In contrast, several traditionally defensive and export-oriented sectors struggled. FMCG stocks declined 12.5 percent, reflecting urban demand fatigue and margin pressures. IT stocks dropped 9.6 percent, weighed down by global tech slowdown concerns and currency volatility.
Real estate corrected sharply by 17.9 percent, impacted by higher interest rates and cautious homebuyers. Pharma, often seen as a safe haven, delivered muted gains of just 1.8 percent. These moves underscored how risk aversion reshaped sector preferences, even within defensive spaces.
Global Markets Pulled Far Ahead as India Lagged in Dollar Terms
India’s underperformance became more pronounced when viewed in dollar terms. While the Sensex and Nifty 50 returned a modest 0.3 percent and 1.8 percent, global peers delivered significantly stronger gains.
The Nasdaq climbed 20.7 percent, the S&P 500 rose 15.4 percent, and Japan’s Nikkei surged 37 percent. Emerging markets also outperformed, with Brazil and South Korea delivering exceptional rallies. Even China-linked indices posted gains exceeding 30 percent, highlighting how India lost relative momentum during the period.
FII Behaviour Shows Long-Term Interest but Short-Term Caution
Foreign institutional investor behaviour reflected this cautious stance. While FIIs continued to invest in primary market issuances, secondary market flows remained largely negative and volatile.
Heavy selling episodes in late 2024 and early 2025 overshadowed brief inflow phases. This divergence suggests that global investors remain interested in India’s long-term story, but are hesitant to take broad exposure amid valuation concerns and global uncertainty.
Domestic Investors Quietly Became the Market’s Backbone
Domestic institutional investors played a crucial stabilising role, absorbing supply during periods of sustained FII selling. Strong mutual fund inflows and long-term savings helped cushion volatility and prevent sharper drawdowns in headline indices.
This growing reliance on domestic capital marks a structural shift in Indian markets, where local investors increasingly act as shock absorbers during global risk-off phases.
Stock-Level Churn Redefined Market Leadership
At the stock level, leadership changed dramatically. Largecaps such as Shriram Finance and Muthoot Finance nearly doubled, while metal majors like Hindalco and Vedanta delivered strong returns. PSU banks such as Canara Bank and Union Bank also featured prominently among top gainers.
On the other side, once-favoured names like Siemens, Trent and ITC corrected sharply, losing between 30 and 46 percent. IT majors TCS and Wipro also lagged, reinforcing how earnings visibility drove capital rotation.
What’s Different as Markets Head Into Budget 2026
Compared with the previous Budget, markets now face:
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Narrower leadership
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Lower risk tolerance
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Greater sensitivity to policy signals
The strong rally in PSU banks and metals contrasts with exhaustion in consumption, IT and real estate. Investors are increasingly looking to the Budget for directional clarity rather than stimulus surprises.
What This Means for Investors Going Forward
For investors, the Budget-to-Budget journey reinforces the importance of selectivity. Broad market exposure delivered limited returns, while targeted sector and stock positioning made the difference.
The upcoming Budget could either deepen current divergences or act as a catalyst to restore breadth and confidence across market segments.
The Bottom Line: Can Budget 2026 Restore Market Breadth?
Between two Budgets, Indian markets told a story of contrasts—PSU banks surged, smallcaps struggled, and global peers raced ahead. As Budget 2026 approaches, the key question is whether policy signals can revive risk appetite, broaden participation, and help India regain relative leadership.
For investors, this Budget is not just about announcements—it is about whether confidence can once again spread beyond a narrow set of winners and reshape the market’s next chapter.
