For four years now, January on Dalal Street has followed a predictable beat. Since 2023, foreign portfolio investors (FPIs) have used the pre-Budget weeks to retreat, seeking safety elsewhere. This year is no different.
FPIs have been on a selling spree since November, with sharp outflows of over ₹36,000 crore so far in 2026 against ₹78,027 crore a year ago.
The trend shows these overseas investors pivoted to selling after two months of sustained buying. The pattern seen first in 2023 repeated in 2024 with FPIs offloading shares in January despite previous inflows. In 2025, the trend intensified with FPIs offloading equities for three consecutive months between January and March.
In contrast, domestic institutional investors (DIIs) have transitioned from secondary players to the primary engines of the capital markets. Propelled by a steady stream of retail systematic investment plans (SIPs), they continue to pour liquidity into Indian equities. Does this suggest the Union Budget has become a mere domestic event?
“The Union Budget remains one of the most critical domestic events, not just for equity markets but for the entire financial ecosystem, as it sets the direction for long-term policy goals while outlining milestones for sustained economic growth,” highlights Ajit Mishra, SVP, research, Religare Broking.
He further noted that FPI selling in recent years, including ahead of the budgethas largely been driven by valuation arbitrage rather than any loss of the Budget’s relevance.
Domestic investors’ resilience stands in stark contrast to the retreat by foreign investors, who are being driven away by heightened geopolitical tensions, global trade concerns, tepid Q3 earnings, and elevated valuations.
Calibrated show
So what’s in store for this year? With uneven global growth and moderating consumption, a tighter fiscal strategy is required, which naturally lowers market expectations. The government faces a strict fiscal glide path, leaving little room for a significant expansion in capital expenditure. “One of the key challenges for Budget 2026–27 is balancing capex-led growth with consumption support,” notes an Axis Direct report.
Mishra noted that with the government committed to maintaining the fiscal deficit around 4.3–4.4%, the scope for large populist measures is limited without risking fiscal credibility. “After several years of strong growth, infrastructure spending is expected to moderate as execution capacity peaks,” he added.
Rather than headline-grabbing measures, experts believe the market is prioritizing a Budget rooted in fiscal prudence and tax certainty, a strategy that would serve as a crucial buffer against an increasingly uncertain global backdrop.
The central government’s fiscal situation remained stretched in FY26, mainly due to weak tax collections. Tax collections remained muted during April-November 2025 and constituted 54.7% of FY26 budgeted estimates, which was significantly lower than the average value of 59.5% during the last four years, according to a JM Financial report.
Similarly, the fiscal deficit during the first eight months of FY26 (budget estimates) stands at 62.3%, which is stretched compared to the last four years, it added.
Policy overdrive?
This uncertainty has left investors on edge. They are unsure whether the upcoming Budget announcements could be the catalyst that breaks the current deadlock and sets the market’s path for next month.
Historical data supports this hesitation, as Budget Day rallies have been rare; performance remains largely mixed with no consistent pattern of ‘pre’ or ‘post’ Budget gains. “The Budget could spark a recovery if meaningful tax relief is extended to investors—such as on STT or LTCG,” Mishra said. “Or lead to consolidation if fiscal discipline remains the overriding priority.”
Given that the Budget is primarily aimed at setting long-term growth policies, it is unlikely to alter the short-term market trajectory. In the near term, the market will take cues from corporate earnings, trade developments, and the evolving geopolitical landscape, he added.
