Budget-to-Date Performance: Sector Selection, Not the Index, Drove Market Returns

Overview: A Clear Shift Toward Sector Rotation

The Indian equity market’s journey from 1 February 2025 to 30 January 2026 highlights a decisive shift away from a broad-based index rally toward a sector-rotation, driven market. While headline indices delivered modest gains, alpha generation was concentrated in select sectors, underlining the growing importance of sector allocation over passive index exposure.

During this period, the Nifty 50 advanced by 7.53%, reflecting steady but unspectacular benchmark performance. However, beneath the surface, sectoral returns diverged sharply, rewarding investors who aligned portfolios with policy tailwinds, cyclical recovery themes, and balance-sheet strength.

Sector Leaders: Where the Market Created Alpha

PSU Banks and Metals Dominate

PSU Banks (+44.87%) emerged as the strongest-performing sector in the Budget-to-date period. The rally reflects:

• Improved asset quality
  
  
• Strong credit growth
  
  
• Better capital adequacy
  
  
• Renewed investor confidence in state-owned lenders
  
  

Close behind, Metals (+43.86%) benefited from global commodity recovery trends, resilient domestic demand, and improving margins, cementing their position as a key cyclical outperformer.

Defence and Cyclicals Gain Momentum

A notable standout has been Nifty India Defence (+31.35%), signalling sustained institutional interest in strategic, policy-backed sectors. Increased visibility of defence spending, order inflows, and long-term indigenisation themes have kept the sector firmly in focus.

Other sectors that comfortably outperformed the benchmark include:

• Commodities (+21.20%)
  
  
• Auto (+13.64%)
  
  
• PSE (+12.86%)
  
  
• Oil & Gas (+12.56%)
  

These gains highlight the market’s preference for cyclicals, infrastructure-linked themes, and government-aligned sectors post Budget 2025.

Sector Laggards: Defensive and Consumption Themes Under Pressure

In contrast, several traditionally defensive and consumption-driven sectors continued to underperform:

• IT (-9.89%)
  
  
• FMCG (-12.84%)
  
  
• Realty (-18.12%)
  

Weak global demand cues, margin pressures, and valuation headwinds weighed on IT and FMCG stocks. Meanwhile, Realty stocks struggled amid tighter financial conditions and selective recovery in demand.

The divergence underscores that index-level stability masked significant internal dispersion, making sector selection the primary driver of returns.

Key Market Takeaways

• The post-Budget market phase has been decidedly sector-specific, not index-led
  
  
• Cyclicals and PSU-linked themes dominated performance
  
  
• Defensive sectors failed to provide downside protection
  
  
• Active sector allocation outperformed passive strategies
  

Market Outlook: Strategy Over Simplicity

As the Budget-to-date performance clearly shows, returns have been shaped by where investors were positioned, not by where the index moved. With leadership rotating rapidly across sectors, selectivity and theme-based exposure remain critical for navigating the current market cycle.

Going forward, investors should continue to track policy direction, earnings momentum, and sector-specific triggers, as broad-market moves may remain limited while opportunities emerge beneath the index surface.