01 February,2026 08:39 PM IST | Mumbai | Tarun Verma
Traders react after Nifty and Sensex tumbled significantly on Budget day. (Pic/PTI)
As soon as the Union Finance Minister Nirmala Sitharaman began presenting the Union Budget 2026, Nifty and Sensex, in the early hours of trade, appeared volatile.
Once FM Sitharaman announced the increase in Securities Transaction Tax (STT) on Futures and Options (F&O) transactions, the market indices tumbled altogether.
Sitharaman said STT on futures will increase by 150 per cent, from 0.02 per cent to 0.05 per cent, while STT on options transactions will rise by 50 per cent, from 0.10 per cent to 0.15 per cent.
The announcement of a hike on STT by the FM created panic within the stock market. With many investors beginning to square off their positions, the market experienced a sudden dip around 12.30 pm.
Amid a sharp sell-off, the Nifty closed at 24,825.45 on Sunday, down 1.96 per cent. The Sensex also ended significantly lower, settling at 80,722.95, a decline of 1.88 per cent.
Marking one of the worst Budget-day declines in years, investors reacted to key policy announcements and broader economic concerns. Considering that the Budget did offer a major boost to some of the sectors, such as health, technology, defence and solar energy, it was a setback for value investors and traders.
CA Praveen Tejwani, a value investor and an auditor at a global financial institution while decoding the sudden fall in the indices on Sunday asserted, "The increase in Securities Transaction Tax (STT) on F&O trades signals a clear policy intent to rein in excessive speculation particularly among retail investors while safeguarding the integrity of India's capital markets."
"Although the immediate market reaction reflects discomfort with higher transaction costs, the move should be viewed in a broader structural context. By making high-frequency and short-term derivative trading more expensive, the Budget encourages more prudent risk-taking and longer-term capital allocation, thereby offering greater protection to retail investors," Tejwani added.
CA Amber Joshi, who works as a finance associate in Mumbai highlighted, "The market was already trading at stretched valuations and was due for a healthy correction. Expectations were high from the Union Budget for select PSU and railway-linked stocks such as RVNL, IRFC and IRCON International, but the lack of specific announcements for these sectors dampened investor's sentiment."
"This triggered panic selling, especially among retail investors. Apart from the hike in Securities Transaction Tax (STT), heavy selling by foreign institutional investors (FIIs) further added pressure, accelerating the market's downward move throughout the budget day," added Joshi.
Another major reason for indices experiencing a massive increase on the Budget Day was lower amplification of large-cap stocks, including Reliance Industries and State Bank of India. RIL on Sunday closed at Rs 1,347.00, experiencing a decline of 3.47 per cent, while SBI closed at a lower circuit of Rs 1,018.20, signifying a dip of 5.47 per cent.
While the exact reason behind the sudden hike in STT is not clear, experts suggest it could be aimed at curbing speculative activity.
Under the new budget proposals presented by the Union Finance Minister Nirmala Sitharaman, STT on futures will surge from 0.02 per cent to 0.05 per cent, while the STT on options will rise from 0.10 per cent to 0.15 per cent.
