The Indian equity markets witnessed a sharp sell-off on Budget day as Finance Minister Nirmala Sitharaman's fiscal roadmap for 2026-27 failed to match D-Street's high expectations.
The benchmark indices opened deep in the red, reflecting nervous sentiment on Dalal Street, which logged its worst budget day in six years. The Nifty 50 index slipped 2.96 per cent to 24571.75, while the BSE Sensex fell 2.88 per cent to 79,899.42, declining by 1,047.81 points or 1.27 per cent.
What's Behind The Nervous Sentiment?
1. Increase in STT for F&O
The sharp fall came immediately after the Finance Minister announced higher Securities Transaction Tax (STT) rates on derivatives trading in the Budget. The move was aimed at curbing speculative trading in the high-volume futures and options segment.
The announcement triggered intense selling, especially in stocks linked to trading, broking, and market participation, as investors reassessed the cost of trading in the derivatives segment. Budget day Live Updates here.
The hike in STT on futures and options (to 0.05 per cent from 0.02 per cent) marks a significant increase in costs for traders in the derivatives segment.
"STT on options premium and exercise of options are both proposed to be raised to 0.15 per cent from the present rate of 0.1 per cent and 0.125 per cent, respectively," Sitharaman said.
STT is a tax levied on the value of securities transactions carried out on recognised stock exchanges in India. It applies to trades in equities, equity mutual funds, and derivatives such as futures and options.
The tax is collected at the time of the transaction, irrespective of whether the investor makes a profit or incurs a loss.
"This is a meaningful jump, not a marginal tweak, and it is likely to have a direct dampening effect on F&O volumes, particularly among high-frequency traders, proprietary desks, and cost-sensitive strategies," Aakash Shah from Choice Equity Broking said.
"Overall, while the move may support near-term tax collections, it risks reducing liquidity and market depth in the derivatives segment, at a time when regulators are already seeking to balance speculation control with maintaining India's competitiveness as a global trading destination," he added.
2. Confusion Over Defence Budget
While markets expected a major push for the defence sector during the speech, the lack of an immediate large-scale announcement sent defence stocks into the red.
However, a document released by the Finance Ministry shortly after Sitharaman's speech clarified the figures: the defence budget has been pegged at Rs 7.84 lakh crore up from last year's allocation of Rs 6,81,210 crore. The total capital outlay stands at Rs 2,19,306 crore. The revenue expenditure has been put at Rs 5,53,668 crore, which includes Rs 1,71,338 crore for pensions.
3. Public Sector Banks Tumble
Shares of public sector banks (PSUs) tumbled after Sitharaman proposed setting up a high-level committee to review the banking and financial sector. This panel will conduct a comprehensive review of the entire banking sector, including banks and non-banking financial companies.
The sector was further dampened by the absence of an announcement regarding the expected hike in Foreign Institutional Investor (FII) limits.
4. Capex
Nirmala Sitharaman announced an increase in capital expenditure to Rs 12.2 lakh crore, aiming to sustain the momentum in infrastructure development and support economic growth. While this marks an 8.9 per cent rise from the Rs 11.21 lakh crore allocated in the previous financial year, it fell short of some aggressive analyst estimates.
According to Crisil, the Rs 12.2 lakh crore budget outlay is in line with expectations, albeit lower than the likely need.
5. Volatility in metals
The budget was presented amid volatility in metals.
MCX gold February futures fell 7.12 per cent to Rs 1,39,000 per 10 grams around 10 am on an intraday basis. Meanwhile, MCX silver March futures dipped 9 per cent to Rs 2,65,652 per kg.
"The sharp fall in gold and silver ETFs looks scary on the screen, but it's more of a sentiment shock than a story-breaker. Precious metals had run up sharply over the last year, and what we're seeing now is a mix of profit-booking, global volatility and reaction to macro cues. ETFs tend to exaggerate moves on such days, both up and down," said Akshat Garg, Head Research and Product, Choice Wealth.
Furthermore, there were no major surprises in January GST numbers and a weak rupee. The gross Goods and Services Tax (GST) collections reached Rs 1,93,384 crore in January 2026, from Rs 1,82,094 in January 2025.
