NEW DELHI: India’s equity market crashed on the Budget Day as the central government’s decision to increase the securities transactions tax (STT) on derivatives trading spooked investors. The domestic benchmark indices, Nifty 50 and Sensex, fell nearly 3% each intraday on Sunday amidst a widespread sell-off.
The 30-share index Sensex plummeted 2,370 points, or 2.88%, crashing below the 80,000-mark to hit an intraday low 79,899. Similarly, the 50-share NSE Nifty tanked 749 points, or 2.95%, to a low of 24,572. The market pared some losses and at close, the Sensex was down 1,547 points (1.88%) at 80,723 while Nifty50 settled at 24,825.45, down 495 points (1.95%).
This marks the sharpest Budget-day drop in years, barring the 2.5% COVID-induced crash in 2020. In the Nifty50 pack, more than a dozen stocks fell over 4% each with Adani Ports, BEL, Hindalco, SBI, ONGC, Jio Finance and Coal India emerging as the biggest laggards.
Finance Minister Nirmala Sitharaman proposed the move to raise STT on Futures to 0.05% from 0.02%. STT on options premium and exercise of options will also be raised to 0.15% from the present rate of 0.1% and 0.125%, respectively.
Market experts warned that the increase in STT could dampen high-frequency trading and foreign inflows as it increases upfront trading costs.
Aakash Shah, Technical Research Analyst at Choice Equity Broking said that the increase in STT, especially in futures and options, is likely to act as a marginal negative for foreign portfolio investor (FPI) flows in the near term, particularly for high-frequency and derivative-focused global funds. As per post-Budget updates, STT on futures has been raised from 0.02% to 0.05%, and on options premium from 0.10% to 0.15%, which meaningfully increases transaction costs for active strategies.
“Recent data already shows that FPIs have been cautious — with equity outflows of over Rs 41,000 crore in January 2026 alone, reflecting global risk-off sentiment, elevated US bond yields, and currency pressures. In this context, a higher STT further reduces post-tax returns, making India relatively less competitive for short-term and derivative-oriented foreign flows,” added Shah.
Feroze Azeez, Joint CEO at Anand Rathi Wealth stated that the increase in STT on futures and options significantly raises transaction costs for derivatives traders, particularly impacting high-frequency traders, arbitragers and Hedgers (thereby impacting their strategies).
“This could lead to lower derivative volumes and near-term volatility in the markets. While the move is positive from a government revenue perspective, brokerage houses may see pressure on transaction-led earnings, and markets could face some immediate downside as participants adjust to higher costs,” said Azeez.
STT is a direct tax levied by the Centre on the purchase and sale of securities listed on stock exchanges. The tax was introduced under the Finance Act of 2004 to simplify the collection of taxes from the stock market and curb tax evasion, which was common due to underreporting of capital gains. The current decision is likely to have been taken to curb speculative trading as more than 90% of retail investors continue to lose money while trading in futures & options (F&O).
The Union Budget 2026-27 also proposes that buyback for all types of shareholders will be taxed as Capital Gains. It requires promoters to pay an additional buyback tax, making the effective tax 22% for corporate promoters and 30% for non-corporate promoters.