Union Budget 2026: Volatility looms over D-St amid tariff threats; BEL, HAL, ITC top picks

Union Budget 2026: Finance Minister Nirmala Sitharaman is reported to table the Union Budget for financial year 2026-27 on February 1, Sunday. In the run-up to the important economic event, the Indian stock market is ready for a volatile ride on the back of persistent FIIs flows, Trump tariff concerns and geopolitical uncertainty.

Nifty50 index has dropped more than 550 points or 2 per cent from its 52-week high, while volatility gauge India VIX has spiked sharply to 10.5-11 levels, reinforcing the cautious outlook. Market experts BELieve that investors should look at largecap stocks for valuation comfort with a focus on themes like defence, capital goods, utilities, infra, cement, NBFCs and more.

Some meaningful investment narratives could be looked upon for portfolio positioning for the upcoming union budget 2026, said Dr Ravi Singh, Chief Research Officer at Master Capital Services, citing defence sector, infrastructure, capital goods, renewables, power and energy as key themes which deserve front attention.

Utsav Verma, Head of Research at Choice Institutional Equities is positive on themes like aerospace & defence, building materials, capital goods, cement, consumer discretionary, hospitals, NBFCs, oil & gas, pharma and realty. "We remain neutral on banking, ER&D services, IT Services," he said.

According to Santosh Meena, Head of Research at Swastika Investmart said that the market focus is sharpening on sectors likely to benefit from a government push for economic growth, ahead of the Union Budget 2026. From the infra space, HG Infra and L&T are top picks due to strong order books, while the defence sector offers opportunities in Bharat Electronics Ltd (BEL), Hindustan Aeronautics Ltd (HAL), and Mazagon Dock as they benefit from localization policies, he said.

Renewables and Critical Minerals are gaining traction, with stocks like NALCO, Tata Power and GMDC Ltd in focus. Agricultural inputs are a key area to watch, with stocks like UPL Ltd, Dhanuka Agritech, FACT and Coromandal positioned to gain from farm support schemes. FMCG giants like Hindustan Unilever Ltd (HUL) and ITC Ltd are defensive bets, while Mahindra & Mahindra (M&M) serves as a strong proxy for both auto and rural demand. Financials- SBI and HDFC Bank, remain foundational holdings to play," Meena adds.

Somil Mehta, Head of Alternate Research at Mirae Asset ShareKhan suggested that investors should focus on sectors that offer stability while also benefiting from long-term government spending. Besides pharma, he said that defence stocks such as BEL and HAL are well placed. Infra-linked themes remain attractive. Gold ETFs continue to act as an effective hedge on the asset allocation side.

After the GST rationalization, discretionary spending is likely to grow and with the RBI supporting with rate cuts shall further aid credit off take. With this backdrop, we believe that realty, cement, lending companies and consumer discretionary spending stocks should be looked at from an investment perspective, said Jatin Gedia, Vice President of Technical Research at Teji Mandi.

Gedia has picked Godrej Properties, Prestige Estates, UltraTech Cement Ltd, Ambuja Cement Ltd, Power Finance Corporation Ltd, (PFC), Titan and Voltas as his preferred stocks. The Budget is likely to provide an impetus to drive the private sector towards capital expenditure, he said.

According to the experts, traders may expect jolts of volatility in the run-up to the Union Budget. Historical trends indicate that the Indian market typically underperforms in January preceding a budget, with the Nifty falling in four of the last five years due to profit-booking and policy uncertainty amid the geopolitical concerns.

Markets are likely to stay choppy ahead of the Union Budget due to ongoing FII outflows, concerns around US trade policies, and expectations from the RBI on interest rates. A defensive portfolio mix may be prudent, with a bias towards large-cap equities, select thematic plays, and gold." said Mehta from Mirae Asset Sharekhan.

Volatility ahead of the Union Budget 2026 comes as no surprise and is a phase of equity markets. As the Budget approaches, investors and market participants actively reposition their portfolios based upon expectations related to budget allocations, announcements, taxation and sector specific bets, said Singh from Master Capital.

Verma from Choice said that the market performance is a function of growth in earnings. "With Q3FY26 earnings are around the corner, the market volatility would mainly be driven by surprises and shocks in earnings delivery of the individual stocks, and overall demand supply environment. We remain hopeful for a structural demand recovery over FY26E–FY27E in the event of a reversal of high US Tariffs."

Commenting on the technical chart of Nifty, Gedia from Teji Mandi said that the Nifty has been range bound between 25,700 - 26,300 since the last three months while the broader market has witnessed decent price correction. He believes that the volatility is likely to rise on the back of quarterly result announcements and near the Union Budget announcement.