As India gears up for the 2026-27 Union Budget, stock markets are bracing for familiar turbulence. Data spanning 2010-2022 paints a clear picture: the Nifty averages -0.52% returns in the week prior, succeeding positively just 8 out of 15 instances. This stems from investor caution over potential policy pivots that could upend sectors.

Budget day brings peak drama, with 2.65% average intraday volatility. Pre-event dips reflect profit-booking and uncertainty, but history shows recovery—1.36% average gains in the following week. The last five years echo this, with Nifty down in four pre-budget months, notably January 2025.

Analysts like Rahul Sharma from JM Financial expect the government to prioritize fiscal discipline while spurring growth, navigating Trump-era tariffs. Key thrusts: infrastructure, defense, and rail capex to fortify against external shocks. Defense allocations may surge, alongside MSME aid, manufacturing revival, green tech, AI, and export incentives through GST streamlining and logistics upgrades.

Projections peg fiscal deficit at 4.4% of GDP, fueling ambitions for a $5 trillion economy via employment, rural consumption, and sustainability. CARE Ratings aligns, eyeing 4.2-4.3% by FY27 with borrowings in the 16-17 lakh crore range.

Challenges persist: elevated valuations, FII outflows, AI hype burst, geopolitical risks, rupee swings, and policy execution lags. Disappointing announcements could trigger sell-offs, rate hikes, and cash squeezes. Investors are urged to stay liquid, eyeing defensive plays in defense and public sector banks until dust settles post-budget.