Mumbai/New Delhi: Indian equity markets suffered a severe downturn on Sunday following the presentation of the Union Budget 2026–27 by Finance Minister Nirmala Sitharaman — logging one of the steepest Budget-day declines in recent history.
Benchmark indices swung violently from early gains into a broad-based sell-off, with sharp losses in key indices and sectors.
The BSE Sensex sank as much as 1,843 points (around 2.2%) to settle near 80,722, while the NSE Nifty50 slid over 590 points (2.3%) to close around 24,825, wiping out nearly ₹9–10 lakh crore in market capitalisation in a single session.
Markets in Red despite Initial Optimism
Equity benchmarks initially opened mixed as the Finance Minister outlined the fiscal roadmap, with early strength seen on optimism over infrastructure spending and long-term growth themes. However, sentiment quickly soured on key tax and regulatory announcements flagged by investors.
Securities Transaction Tax (STT) Hike Hits Trading Sentiment
The principal catalyst for the sell-off was the announcement of an increase in Securities Transaction Tax (STT) on equity derivatives, particularly on futures and options (F&O) trading — a segment that drives a large share of daily turnover and liquidity on Dalal Street. Under the new budget proposals, STT on futures has been raised to 0.05% from 0.02%, and on options to 0.15% from 0.10–0.125% — an effective jump of more than 50% in some cases.
Market participants said derivatives traders, hedgers and arbitrageurs reacted sharply to the higher transaction cost outlook, prompting heavy selling pressure across stocks tied to financial market activity, including brokerage and exchange counters.
Brokers and exchange-related names led declines, with several seeing double-digit percentage drops as the impact of the tax hit valuations tied to turnover and volumes.
Lack of Expected Tax Breaks Deepens Disappointment
Another dimension to the negative market reaction was the absence of much-anticipated capital gains tax relief or major policy measures aimed at spurring near-term demand for equities.
Investors had partially priced in hopes of eased taxation before the budget, and their absence contributed to risk-off sentiment, particularly among foreign institutional investors (FIIs).
Broad‐Based Sell-off Across Sectors
The downturn was not limited to derivatives-linked names. Heavyweights dragged the broader market lower: financials, banking, metals, energy, and industrial stocks all traded deep in the red, indicating risk aversion across asset classes.
Market breadth was weak, with significant selling in mid-cap and small-cap segments reflecting widespread de-risking.
Investor Wealth and Capital Flows
Estimates from market data showed millions of crores of investor wealth erased intra-day, while FIIs continued net outflows built up over recent weeks.
Analysts said the STT increase adds a near-term cost headwind for tactical trading strategies and may dampen speculative participation in derivatives markets, at least in the coming sessions.
Market Outlook and Strategy Post-Budget
While the immediate reaction was negative, some experts emphasised that long-term structural themes in the Budget — such as infrastructure push, capex outlays and sectoral incentives — may support equities over the medium term.
However, they cautioned that near-term volatility is likely to persist as markets digest the cost implications of higher transaction taxes and reset valuation models.
Strategies for investors suggested by analysts included focusing on sectors with strong policy tailwinds, maintaining diversified portfolios, and adopting cautious positioning rather than aggressive short-term trading amid elevated uncertainty.