Why Are Markets Nervous Ahead of Budget 2026?

As the Union Budget comes closer, the mood feels very different from earlier years. This time, the market is not chasing big promises or dramatic policy shifts. What people really want is a sense of comfort. A feeling that things are under control and moving steadily, even if slowly. The current phase is not easy.

Foreign investors have been selling consistently. Global interest rates are in a declining trend, geopolitical tensions refuse to settle, and valuations across emerging markets look reasonable given the forward earnings outlook. India is no exception. Domestic investors have played a crucial role in absorbing these flows, but sustained FII selling still signals caution at a global level.

"Growth has also cooled a bit. India continues to stand out among major economies, but the pace is clearly lower than what we saw earlier. Corporate earnings reflect this reality. For nearly six quarters now, profit growth has struggled to move beyond single digits. Cost pressures, uneven consumption, and selective demand are visible across sectors. When earnings slow, markets naturally turn more sensitive to policy direction," said Ajay Kumar Yadav CFPCM, Group CEO & CIO ( chief investment officer) , Wise Finserv.

The global backdrop has not helped either. Trade disruptions, tariff-related uncertainties, and protectionist policies have affected exports and supply chains. On the domestic front, the RBI has already done its part by easing rates to support liquidity. With monetary levers largely in motion, the spotlight has now shifted to fiscal policy.

"That said, it would be unfair to ignore how far India has come on the reform front. The new tax regime has settled in and simplified personal taxation. GST 2.0 has improved compliance and strengthened collections. These changes have created a strong base. What the economy now needs is a measured push that lifts confidence and demand, without stretching the fiscal balance," commented Ajay Kumar Yadav.

One aspect that needs to be addressed right away is the taxation imposed on debt mutual funds. The elimination of indexation has turned these products into unattractive investments, primarily for senior citizens who depend on regular and certain income. The reintroduction of indexation would mean that investors will be taxed on actual gains only, thereby exempting them from the tax on gains that are merely due to inflation.

In addition, it would also encourage the shift of household savings from the traditional forms to financial assets and thus, the bond market would get more liquidity.
If a broad corporate tax cut is difficult given fiscal realities, targeted incentives can still deliver results. Linking benefits to job creation, capacity expansion, and incremental investment ensures that support translates directly into economic activity and employment.

"This Budget does not need to make noise. It needs to send a signal of steadiness. In a period marked by slower growth, subdued earnings, and global uncertainty, consistency will matter more than ambition. A few sensible, well-judged measures can rebuild confidence and reinforce India's long-term economic path," commented. Ajay Kumar Yadav.

Another practical step would be rationalising GST on mutual fund distribution. A reduction to 5% can make a real difference, particularly in tier-2 and tier-3 cities. Mutual fund penetration in India depends heavily on personal guidance and last-mile reach. A more viable distribution framework would encourage new distributors, improve investor access, and strengthen financial inclusion.