CDSL in Budget 2026: New Powers, Foreign Investor Boost, and an STT Hurdle

Budget 2026 Unlocks New Growth Avenues for CDSL

The Union Budget 2026, presented by the Finance Minister, has laid out a series of financial sector reforms that are set to directly impact India's market infrastructure institutions. For Central Depository Services (India) Ltd (CDSL), the budget brings a mix of significant operational enhancements, measures to deepen capital markets, and a potential challenge in the form of higher transaction costs. The proposals collectively aim to strengthen the financial ecosystem, with depositories like CDSL poised to play an even more critical role.

Easing the Path for Foreign Retail Investors

A standout announcement for CDSL is the significant liberalization of rules for foreign investors. The budget proposes to permit individual Persons Resident Outside India (PROI) to invest in listed Indian companies through the Portfolio Investment Scheme (PIS). More importantly, the investment limit for an individual PROI is being doubled from 5% to 10%, while the aggregate limit for all individual PROIs is being raised to 24% from the current 10%. This move is expected to attract a new wave of foreign retail participation in Indian equities. For CDSL, this translates directly into a higher number of demat accounts from foreign nationals and an increase in transaction volumes, bolstering its core revenue streams.

A Deeper Bond Market Promises More Business

The government's continued focus on deepening the domestic debt market is another major positive. The budget introduced a market-making framework for corporate bonds, along with derivatives on bond indices and total return swaps. Additionally, incentives were announced to encourage municipal bond issuances exceeding ₹1,000 crore. A more liquid and vibrant bond market leads to greater issuance and trading of debt instruments. As these securities are held in dematerialized form, it expands the universe of assets under custody for CDSL, diversifying its business beyond equities and strengthening its market position.

New Responsibility: A Key Role in Tax Compliance

Perhaps one of the most strategic developments for CDSL is a proposal that enhances its operational scope. The budget announced a plan to enable depositories to accept Form 15G and Form 15H directly from investors and furnish them to the relevant companies. This measure streamlines a cumbersome process for investors holding securities in multiple companies. It positions CDSL not just as a keeper of records but as a crucial facilitator in the tax compliance ecosystem. This new function could evolve into a new service offering, adding a valuable layer to its operations and strengthening its relationship with millions of investors.

Key Budget 2026 Announcements Impacting CDSL

The STT Hike: A Potential Headwind for Market Volumes

While most announcements were favorable, the budget also proposed a hike in the Securities Transaction Tax (STT). The STT on futures is proposed to be raised to 0.05%, and on options premium and exercise, it is proposed to be raised to 0.15%. Higher transaction costs can deter high-frequency trading and reduce overall market volumes. While CDSL's revenue is more closely tied to annual issuer charges, corporate actions, and delivery-based transactions rather than speculative trading, a general slowdown in market activity is a potential concern for the entire capital market ecosystem.

Market Outlook and Investor Sentiment

Overall, the Union Budget 2026 is a net positive for CDSL. The structural reforms aimed at attracting foreign capital and deepening the domestic bond market provide clear, long-term growth drivers. The new role in tax compliance further cements its indispensable position in India's financial infrastructure. While the STT hike is a negative, its impact on CDSL is likely to be less pronounced compared to stock exchanges. The budget reinforces the government's commitment to building a robust and efficient capital market, a vision in which CDSL is a cornerstone.

Conclusion: A Clear Path for Growth

The Union Budget 2026 has handed CDSL new opportunities to expand its market and enhance its services. By opening the doors wider for foreign retail investors and fostering a more dynamic debt market, the budget directly supports the growth of CDSL's core business. The added responsibility of managing tax compliance forms further integrates it into the financial lives of investors. While navigating the potential impact of the STT hike, CDSL is well-positioned to capitalize on the forward-looking reforms outlined in the budget.