India’s benchmark indices, the Nifty 50 and Sensex, tumbled on Sunday after the Union Budget announced a steep hike in securities transaction tax (STT) on derivatives trading. The move, aimed at curbing excessive speculation in the futures and options (F&O) segment, disappointed investors who were hoping for stronger measures to attract foreign capital.
Finance minister (FM) Nirmala Sitharaman, in her 2026–27 Budget speech, detailed the changes:
• STT on futures contracts raised from 0.025% to 0.05%.
• STT on options premium increased to 0.15% from 0.10%.
• STT on exercise of options lifted to 0.15% from 0.125%.
Beyond the technical implications of the STT increase and buyback tax shift, market sentiment and prominent investor commentary amplified the negative reaction. Following the announcement, the Sensex plunged 1,564.84 points, while the Nifty 50 dropped 495.20 points with derivatives tax increases—futures STT doubling and options STT rising significantly—cited as a major catalyst for selling pressure and heightened trading costs.
On Sunday, 1763 stocks advanced, 2373 declined and 180 remained unchanged on Bombay Stock Exchange with advance decline ratio of 0.74 indicating a negative closing.
The Budget has meaningfully raised transaction costs in the derivatives market, with the sharpest impact on a per-trade basis. STT on futures contracts has been doubled to 0.05% from 0.025%, resulting in a 100% increase in STT per futures trade. In options, STT on the premium leg has been increased to 0.15% from 0.10%, implying a 50% rise in STT per option trade. For example, on an options premium of ₹1,00,000, STT rises from ₹100 to ₹150, directly increasing the cost per trade by ₹50. Meanwhile, STT on exercise of options rises to 0.15% from 0.125%, translating into a 20% increase (₹125 to ₹150 per ₹1,00,000 exercised).
Overall, for high-frequency and short-tenure derivatives strategies where margins are thin, the Budget introduces a 20%–100% jump in STT per trade, materially raising breakeven thresholds and reducing the economic viability of high-churn trading models. Traders must now recalibrate their breakeven thresholds. The higher levy is expected to deter high-frequency traders due to increased transaction costs. The Budget explicitly positions this as a “course correction” in the F&O segment. Retail participation has exploded, especially in short-duration options.
Brokers and retail traders expressed concern that higher transaction taxes will erode liquidity and compress trading profitability, especially in high-frequency and short-duration strategies, contributing to one of the steepest intraday market declines in recent years. Several market participants, including seasoned fund managers, publicly flagged that the STT hike and changes in buyback taxation have spooked sentiment, tempering initial optimism around fiscal prudence and long-term Budget priorities.
Samir Arora of Helios Capital expressed strong disappointment with the recent budget, predicting that the market will fall a lot more and the rupee will depreciate by another percent tomorrow due to the unexpected hike in Securities Transaction Tax (STT). He emphasised that the issue isn't about anticipated measures not materialising, but rather the introduction of unwelcome changes like the STT increase, which he sees as unnecessarily harming the market when it wasn't required at all. Echoing similar sentiments, Porinju Veliyath questioned the intent behind a second STT hike, especially when trading profits are already taxed at 40%, suggesting it could deliberately irritate traders and further dampen market sentiment.
Meanwhile the income tax (I-T) department had to clarify on X that the Budget 2026's STT hike, raising rates on futures to 0.05% from 0.02% and on options premiums to 0.15% from 0.10%, while leaving other STT rates unchanged. It justifies the increase by highlighting the massive scale of derivatives trading—over 500 times India's ₹300 lakh crore in volume terms—to curb excessive speculation, and links to an official FAQ for details.
The Union Budget 2026 proposes a fundamental reset of India’s share buyback taxation, but the move raises questions about policy consistency and capital allocation incentives. While the government has shifted buyback taxation to a capital gains framework—with rates of 22% for domestic company promoters and 30% for others—this follows barely a year after the October 2024 rule change that taxed the entire buyback amount as income from other sources at slab rates. Although the latest proposal offers partial relief by taxing only the profit portion, the frequent changes underscore regulatory uncertainty and weaken the credibility of buybacks as a stable capital-return mechanism.
More importantly, the reform completes the dismantling of the earlier buyback arbitrage. Under the previous regime, companies paid a buyback distribution tax (BDT) of around 23%, allowing shareholders to receive proceeds tax-free. The new structure shifts the burden entirely to shareholders, exposing promoters and large investors to effective tax rates of up to around 35.9%, far higher than the 10–15% capital gains tax applicable on open-market sales. This creates a clear disincentive for promoters to participate in buybacks, undermining their role as a signalling tool for undervaluation and disciplined capital allocation. As legal experts have noted, buybacks have become economically inferior for high-bracket shareholders, reducing their strategic relevance.
The market response to these changes is unambiguous when viewed year-on-year. Listed companies executed buybacks worth ₹38,735 crore in 2022, which rose further to ₹48,452 crore in 2023, before moderating to ₹13,539 crore in 2024. In sharp contrast, 2025 buyback issuances have collapsed by nearly 95%, with only eight offers worth about ₹916 crore, excluding the ₹18,000-crore Infosys programme. This dramatic fall highlights how swiftly corporate behaviour has adjusted to the altered tax incentives. Even marquee buybacks are seeing muted promoter participation, as higher personal tax incidence makes tendering shares economically unattractive. The policy has not merely removed a tax arbitrage but has effectively rendered buybacks a marginal capital-return tool in India, raising broader concerns about capital allocation efficiency and regulatory predictability.
Defence stocks slumped on 1st February after the Union Budget’s capex allocations fell short of market expectations. The Nifty Defence index dropped 5.09% to 7,767.75, mirroring the broader sell-off in afternoon trade.
FM Sitharaman set FY27 defence expenditure at ₹5.94 lakh crore versus ₹5.68 lakh crore in FY26, with capital outlay up 21% y-o-y and modernisation spend rising 24%. Despite these increases, investors had anticipated a sharper boost following last year’s Operation Sindoor. Key defence names saw heavy declines: Bharat Dynamics (-10.02%), Paras Defence (-8.06%), Mazagon Dock (-6.93%), HAL (-5.25%), BEL (-5.27%), alongside losses in Garden Reach Shipbuilders and Engineers (-8.75%), Data Patterns (-7.52%), Cochin Shipyard (-6.34%), and BEML (-5.98%).
In the Union Budget 2026, Ms Sitharaman announced a landmark tax holiday until 2047 for foreign companies establishing data centres in India to provide global cloud services. Indian customers will access these services through domestic reseller entities, ensuring local compliance. The move is positioned as a major step to strengthen India’s digital ecosystem and attract global investment in cloud infrastructure. Following the announcement, shares of Anant Raj (+5.30%), E2E Networks (+8.20%), and Netweb Technologies (+5.12%) rallied, reflecting investor optimism about India’s emergence as a global data centre hub.
India’s Semiconductor Mission 2.0 received a strategic boost with a revised budget of ₹40,000 crore under the electronics components manufacturing scheme focused on scaling the domestic electronics ecosystem. The integration of dedicated rare earth corridors in four states will catalyse local processing, ensuring the raw materials needed for high-tech manufacturing are readily available. Following the announcement, shares of Syrma SGS Technology (+0.82%), CG Power and Industrial Solutions (+2.20%), SPEL Semiconductor (+4.98%) and Kaynes Technology India (+2.44%) surged.
The trend of the major indices on Wednesday’s trading is given in the table below.
On NSE, 30 securities advanced and closed at a new 52-week high whereas 210 securities sank to close at their new 52-week lows. Nifty IT was the only gainer. Nifty PSU Bank, Nifty Metal and Nifty Energy were among the biggest losers.
Cochin Shipyard (CSL) secured a new order from Polestar Maritime Ltd for the construction of two Green Tugs with 60‑tonne bollard pull capacity. The contract falls under the Green Tug Transition Programme (GTTP) of the Ministry of Ports, Shipping and Waterways. This marks another key step in India’s push toward sustainable maritime operations, reinforcing CSL’s role in green shipbuilding.
Godrej Properties (-3.81%) acquired an 8.5 acre land parcel in Mahalunge, Pune, with an estimated ₹2,000 crore revenue potential. The project will comprise ~2.1 million sq. ft. of group housing development. Strategically located near the upcoming Pune Inner Ring Road, with strong connectivity to Hinjewadi–Balewadi IT/BFSI hubs.
Solar Industries India (-2.09%), along with its subsidiary, announced export defence orders worth ₹830 crore, awarded by international clients. It includes supply of defence products to overseas entities over four years.
HBL Engineering (-2.90%) secured a ₹575 crore contract (inclusive of 18% GST) from the Integral Coach Factory (ICF), Chennai. The order involves the supply, testing, and commissioning of On board KAVACH equipment (Version 4.0). As per disclosed terms, the project is scheduled for completion within 12 months.
V.S.T Tillers Tractors (+1.17%) reported January 2026 combined sales of 5,257 units, up 54% y‑o‑y from 3,416 units last year. Power tillers: 4,810 units, a sharp rise from 3,105 units. Tractors: 447 units, up from 311 units. YTD (Apr–Jan FY26): Total sales rose to 46,868 units vs. 31,432 last year. Power tillers formed the bulk at 42,184 units. Tractor sales stood at 4,684 units.
Escorts Kubota (+3.21%) delivered a strong January 2026 performance in agri machinery, but faced softness in construction equipment: Tractors: Sales rose 46.9% y o y to 9,799 units (vs. 6,669 last year). Acccording to the company higher tractor sales were due to positive rural sentiment, rabi sowing progress, better water availability, GST cuts, subsidies, and supportive policies. From April–January FY26 - Total tractor volumes up 16.3%, with domestic sales up 15.1% and exports up 46.6%. Construction equipment: Sales fell 3.7% y o y to 524 units (vs. 544 last year), reflecting demand softness and slower infra execution.
Mahindra & Mahindra (-1.98%) kicked off 2026 a good performance across auto and farm segments. Total auto sales: 104,309 vehicles in January, up 24% y o y, driven by SUVs, tractors, and commercial vehicles.
Utility vehicles (SUVs): 63,510 units sold domestically, up 25% y o y. Passenger vehicle sales matched this figure. Commercial vehicles: Domestic CV sales rose 22% to 27,656 units; exports up 5% to 3,577 units.
Farm equipment: Domestic tractor sales surged 46% to 38,484 units; total tractor sales (incl. exports) up 47% to 40,643 units. Tractor exports jumped 72% to 2,159 units. Trucks & buses: Combined sales rose 40% y o y to 3,065 vehicles. Cargo volumes up 49%, passenger vehicles up 30%.
Aegis Logistics (+4.34%) reported Q3 FY26 consolidated net profit of ₹176.8 crore, up 42.2% y‑o‑y from ₹124.3 crore. Revenue stood at ₹1,725.4 crore, reflecting only a 1.1% increase over ₹1,707 crore last year.
Strides Pharma Science (+1.65%) posted Q3 FY26 net profit of ₹202 crore, a sharp rise from ₹88 crore last year, marking a 129% y‑o‑y jump. Revenue stood at ₹1,194.6 crore, up 3.6% y‑o‑y from ₹1,153.6 crore.
Moschip Technologies (-7.72%) reported Q3 FY26 revenue of ₹149.3 crore, up 18.5% y‑o‑y from ₹126 crore, reflecting healthy topline growth. However, net profit declined sharply by 60.8% to ₹4.3 crore, compared with ₹11 crore last year.
Bharat Dynamics reported a sharp decline in Q3 FY26 performance. Net profit fell 50.3% to ₹73 crore, compared with ₹147 crore last year. Revenue from operations dropped 32% y‑o‑y to ₹566.6 crore, down from ₹832 crore.
Clean Science & Technology (-6.15%) posted Q3 FY26 net profit of ₹45.8 crore, down 30% y o y from ₹65.6 crore. Revenue stood at ₹220 crore, reflecting an 8.7% decline compared with ₹241 crore last year.
Sun Pharmaceutical Industries (+0.93%) reported Q3 FY26 revenue of ₹15,520.5 crore, up 13.5% y‑o‑y from ₹13,675.4 crore. Net profit stood at ₹3,368.8 crore, reflecting a 16.0% increase over ₹2,903.4 crore last year.
Procter & Gamble Hygiene and Health Care (+1.32%) reported Q3 FY26 net profit of ₹301.5 crore, up 12.3% y o y from ₹268.6 crore. Revenue from operations stood at ₹1,262 crore, reflecting a 1.2% increase over ₹1,247.6 crore last year.
Welspun Corp (+1.01%) reported Q3 FY26 consolidated revenue of ₹4,532 crore, up 25.4% y o y from ₹3,613 crore. Despite strong topline growth, net profit declined 32.8% to ₹453 crore, compared with ₹674 crore last year.
AIA Engineering (+0.19%) posted Q3 FY26 net profit of ₹294.4 crore, up 13.6% y‑o‑y from ₹259.2 crore. Revenue stood at ₹1,066 crore, remaining flat compared to last year’s ₹1,066 crore.
Exide Industries(-1.54%) posted Q3 FY26 net profit of ₹257 crore, up 4.9% y o y from ₹245 crore. Revenue from operations stood at ₹4,029 crore, reflecting a 4.7% increase over ₹3,848 crore last year.
The top gainers and top losers of the major indices are given in the table below:
