MumbaiI: Ahead of the Union Budget, stock markets are likely to be volatile in the 'action-packed' week, which will witness monetary policy and other economic data, experts have said.

Markets, however, are expected to open the week firm after RBI's surprise move to cut the cash reserve ratio (CRR) by 0.75 percentage point to infuse liquidity in the system and positive cues from the U.S. markets, analysts added.

The BSE barometer Sensex last week fell by 0.75 per cent to end at 17,503.24 points. However, the barometer had gained over 350 points on Friday on global cues.

"The CRR cut was ahead of our expectations and driven by that Monday will see a gap-up opening in the stock market. However, we may not see a fresh rally in the market till the Budget gets over," Way2Wealth COO Ambareesh Baliga said.

Markets expect that the Union Budget to be presented on Friday will increase the tax exemption limit for personal income in line with inflation levels, which would provide a limited boost to consumption spending, experts said.

The Budget is expected to give a push to reforms like the Direct Tax Code (DTC) and the Goods and Services Tax (GST), which would support the market sentiment, they said.

However, rising subsidies and ballooning fiscal deficit may play spoilsport for the mood, they added.

On the Budget expectation, Emkay Global said, "We hope that the budget will be far less populist than the past. Given that the next Union election is in 2014 there is a possibility tighter budget for FY'13 followed by more populism in FY'14."

Analysts said that investors will keenly watch industrial output data, inflation numbers and the Economic Survey for 2011-12 to be released this week.

"The markets will react on an event-to-event basis through the week. RBI policy and Budget will give direction to the market. Monday will see a gap-upward opening and bank stocks are likely to outperform after the CRR cut," Geojit BNP Paribas Financial Services AVP Gaurang Shah said.