For stock market investors, January’s message is familiar: expect turbulence before the Union budget and don’t be surprised if calm returns soon after.
Despite improved data access over the years and clearer communication from policymakers, budget-related volatility persists in the days leading up to the event. What moves markets is less about the fine print and more about interpretations and reactions to the announcements.
That process is already under way. The India Vix, or volatility index, has already jumped around 8% during the first five trading days of 2026. While the fear gauge hovers near 10, around a multi-year low, January is shaping up to be a month of heightened volatility, suggesting that market swings could intensify as budget day approaches. The Union budget is likely to be tabled on 1 February this year.
Historically, the India Vix edges higher ahead of the Union budget as investors price in uncertainty around policy decisions and spending priorities. Once the budget is presented on the first day of February and expectations are recalibrated, volatility typically cools—unless there is a sharp negative surprise.
This pre- and post-budget pattern has been consistent since the pre-covid years.
According to Bloomberg data, the India Vix surged 48.85% in January 2020, before moderating to a 33.78% rise in February after the budget. Similar trends have played out repeatedly between 2019 and 2025. In 2025, for instance, the volatility index rose 12.46% in January but fell 14.38% in February as investors digested the budget outcomes.
In simple terms, a rising Vix signals growing uncertainty and wider expected market swings, while a falling index points to easing anxiety, improving confidence, and stabilising sentiment. To be sure, in the December-February months, the Vix has scaled down from 22-23 levels in 2021 to the current level of around 10—indicating overall levels of volatility have reduced even if swings around the extant levels continue. While some analysts look at the index, others keep an eye on the swings.
On Wednesday, the fear gauge was trading at 10.04, up 0.2% in a range-bound market. The Nifty 50 was down 0.10% at 26,153.40, while the Sensex declined 0.13% to 84,952.63
From extremes to calm
After the tariff announcements last year and during Operation Sindoor, India Vix again spiked to the 22-23 range, noted Sudeep Shah, head - technical and derivatives research at SBI Securities.
Since then, volatility has steadily cooled, with the gauge hitting 8.7 in January 2026, near the lower end of its historical range, signalling subdued volatility, he highlighted.
Analysing the last 15 Union budgets since 2014 (including interim and final), Vix has risen nine times one week ahead of the Budget, with an average gain of 8.94%, while it declined six times with an average fall of 7.54%. Post-budget, once euphoria fades, Vix has fallen on 11 occasions with an average loss of 8.82%, while rising only four times, Shah said.
India Vix is not signalling any meaningful volatility expansion at this stage and is expected to stay below the 12 mark till Budget, said Kkunal Parar, vice president - technical research and algo at Choice Equity Broking. That said, it may be premature to rule out a sudden spike, as volatility expectations typically begin building at least a week in advance, he added.
Past data shows that volatility rises before every budget, as investors reposition in anticipation of policy and earnings surprises, according to an ICICI Securities report dated 1 January. “…upcoming events could lead to a sharp spike in volatility and bigger price swings,” the report highlighted.
January volatility is not driven by the budget alone. According to Shrikant Chouhan, head of equity research at Kotak Securities, the month also sees the markets assessing December quarter business updates and earnings numbers for cues on festive and year-end performance.
Global signals, especially from US markets, continue to shape risk appetite and overall sentiment for domestic equities.
Sectors that tend to heat up pre-budget
Budget expectations also tend to concentrate activity in specific pockets of the market, particularly those linked to government spending and policy direction, Chouhan pointed out.
“Historically, we often see increased activity and buying interest in sectors such as railways, defence, agriculture, and NBFCs.”
Markets typically build expectations around higher capex allocation for railways and defence, fuelling speculative interest. In agriculture, investors look for support measures, while demand-boosting initiatives tend to benefit NBFCs.
Auto, CPSE and IT in the past have seen relatively stronger trends during the pre-budget volatility phase, according to Shah of SBI Securities.
- Over the last 15 Union budgets (including interim and final), the auto index has ended positive eight times a month before the budget, delivering an average gain of 3.8%, while on seven occasions it declined with an average loss of 3.75%, driven by expectations around tax relief, demand incentives and sector-specific announcements.
- CPSE stocks have closed higher seven times with an average gain of 5.52%, but fell eight times with an average loss of 4.66%, largely due to divestment, capex and dividend-related expectations.
- IT has been the strongest performer, rising nine times with an average gain of 6.23% and declining six times with an average loss of 4.19%, as investors position for currency moves, global cues, and defensive exposure ahead of the budget, Shah said.
Many market experts view January’s volatility as an opportunity rather than a risk. The preferred approach should be to selectively accumulate quality stocks and sectors during market swings while keeping a medium- to long-term investment horizon in focus.