Indian stock markets experienced a significant drop on Budget Day due to investors’ negative response to the government’s decision to increase the Securities Transaction Tax (STT) on futures and options trading. The benchmark indices Sensex and Nifty saw their largest Budget-day decline in six years, both closing around 2% lower in a special trading session on February 1. The Sensex concluded at 80,723, while the Nifty settled at 24,825, marking a loss of 495 points or nearly 2%.
Markets displayed notable weakness throughout the day, with the Sensex plummeting by almost 3,000 points at one point to reach an intra-day low of 79,899.42. Similarly, the Nifty also experienced a sharp decline to a low of 24,572 before a slight recovery. “The market’s response has been negative, mainly due to low expectations, limited outlays, and the negative sentiment caused by the increased Securities Transaction Tax (STT) for futures, prompting an immediate reaction,” noted an expert.
The sell-off followed Finance Minister Nirmala Sitharaman’s announcement of higher STT rates during her Budget 2026 speech. The tax on futures trades was raised to 0.05% from 0.02%, while STT on options premium was increased to 0.15% from 0.1%. These substantial hikes led to extensive selling, particularly in stocks associated with trading and financial activities.
The broader market also faced significant pressure, with the Nifty Midcap 100 index declining by 2% and the Nifty Smallcap 100 dropping by 2.7%, indicating that the selling was not confined to large-cap stocks. Investor apprehension surged as India VIX, a measure of market volatility, surged by nearly 12%, reflecting heightened nervousness.
