All Down! As Budget Nears, Markets Have Little Room for Cheer

Sensex, Nifty Down: Edward A. Murphy's law, 'Anything that can go wrong will go wrong,' seems quite relevant for India's Dalal Street right now. With little to no optimistic factors driving the markets up, stability appears a faraway picture for investors. Subdued corporate earnings and weak macro data had already kept the market under pressure, and now with the Union Budget, the Fed’s interest rate decision and the monthly expiry all happening this week, the volatility is only getting worse.

India's Volatility Index has surged to a nearly six-month high. Since the start of this year, Vix has skyrocketed by nearly 25%. As for benchmark indices— Sensex and Nifty—have plunged by around 4%, pointing to even more fluctuations in the upcoming week.

Analysts are expecting the volatility index to rise further towards the 21 mark, which could exacerbate selling pressure across broader markets.

Trump, tariffs & market turmoil

Trump's tariff play was not a new trigger for markets. However, the president-elect's recent move of imposing 25% trade tariffs on Colombia has sent tensions across emerging markets. This came after the South American nation refused to accept deported immigrants returning via US military planes.

While Columbia, only recently, took a U-turn on its policy stance, the event was enough to tell the world that Trump wouldn't back down on his tariff policies. This, eventually, dampened the investor sentiment.

Previously, his ruling on the H-1B visa had sparked uncertainty among investors. On top of that, the strengthening dollar, with the index holding steady above 108 and the 10-year US bond yield staying above 4.5%, has kept the trend of FII outflows going.

As of now, FIIs have sold off over Rs 70,000 crore this month alone. This has pushed the Nifty 50 index closing at a nearly 7-month-low with a drop of 13% from its all-time-high. Even the Nifty small-cap index crashed, recording its worst monthly trajectory since the Covid-19 pandemic.

"Domestic equities are struggling as foreign investors continue to pull out and DII have tried to fill the gap, but their efforts have not been enough to offset concerns about slowing economic activity, weaker corporate earnings and a depreciating currency," Vikas Jain, head of research at Reliance Securities said.

The overall outlook is getting more blurry owing to the uncertainty present around the Fed's interest rate decision, with many expecting a significant cut unlikely in the near term.

And out of all the aspects pushing the markets into the red territory, the IT index seems to be the worst hit. With China's DeepSeek garnering heightened attention as against market leader OpenAI, the reaction of India's IT space has not been a good one. On Monday, Nifty IT declined by nearly 3.4%, losing over 1,463 points.

Budget to bring in any hope?

"Equity markets will try to rule out bad news in the budget. No news is likely to be good news. There could be some positives for housing, capital-intensive sectors and consumption but gross budgetary support must be meaningful," Ankita Pathak, chief macro and global strategist at Ionic Wealth by Angel One.

Some are hoping the upcoming budget will give a boost to the FMCG sector, which has seen the most significant drawdown. Technically, sectors like metals and media are expected to bear the brunt of increased volatility.

Metal stocks could face headwinds from declining global commodity prices, while the Media sector, being highly sensitive to market sentiment, may witness sharp corrections, Hardik Matalia, Derivative Analyst at Choice Broking said.

"Investors are advised to exercise caution and focus on safer sectors like FMCG and Pharma, which typically provide stability during periods of market uncertainty,” he added.