Budget 2026 Market Crash: Sensex Plunges 1547 Points as STT Hike Rattles Investors\n\nIndian equity indices witnessed a historic and volatile session on February 1, 2026, as the Union Budget presentation triggered a sharp sell-off across Dalal Street. The session, which took place on a rare Sunday trading day, saw the benchmark Sensex and Nifty 50 indices plummeting nearly 2 percent. The primary catalyst for this downturn was the unexpected announcement by Finance Minister Nirmala Sitharaman regarding a significant hike in the Securities Transaction Tax (STT) on derivatives trading. While the day began with a ritual of curd and sugar, the market's reaction turned sour as the details of the budget proposals were unveiled, leading to an erosion of nearly 10 lakh crore in investor wealth.\n\n## A Volatile Sunday Session for Dalal Street\n\nThe trading day started with a sense of cautious optimism, with the Sensex even touching an intraday high of 82,691 in early trade. However, this sentiment was short-lived. As the Finance Minister began her ninth consecutive budget speech, the market started to swing between gains and losses. The volatility index, India VIX, surged by over 4.5 percent, reflecting the heightened uncertainty among traders. By the time the speech concluded, the initial gains had evaporated, replaced by a wave of heavy selling that dragged the Nifty below the crucial 24,600 level intraday before a minor recovery toward the close.\n\n## The STT Hike: A Major Blow to Derivatives Trading\n\nThe most significant dampener for market participants was the proposal to increase the STT on Futures and Options (F&O) transactions. The government aims to curb excessive speculation in the derivatives segment, which has seen explosive growth in recent years. The Finance Minister proposed to raise the STT on futures contracts from 0.02 percent to 0.05 percent. For options, the tax on premiums was hiked from 0.1 percent to 0.15 percent, while the tax on the exercise of options was increased to 0.15 percent. This move is expected to significantly raise impact costs for high-frequency traders, hedgers, and retail participants, potentially leading to a contraction in trading volumes.\n\n## Benchmark Indices and Market Capitalization Erosion\n\nAt the closing bell, the BSE Sensex stood at 80,722.94, down by 1,546.84 points or 1.88 percent. Similarly, the NSE Nifty 50 ended at 24,825.45, shedding 495.20 points or 1.96 percent. The broader markets faced even steeper declines, with the Nifty Midcap 100 falling 2.23 percent and the Nifty Smallcap 100 declining 2.73 percent. The total market capitalization of BSE-listed firms dropped to approximately 450 lakh crore, marking a loss of 10 lakh crore in a single session. This sell-off was widespread, with the advance-decline ratio heavily skewed in favor of the bears.\n\n## Sectoral Performance: IT Stands Alone in a Sea of Red\n\nAmong the various sectoral indices, the Nifty IT index was the sole survivor, managing to close in the green with a modest gain. Stocks like Wipro, TCS, and Infosys provided some support to the index as investors sought refuge in defensive plays. In contrast, almost every other sector faced intense selling pressure. The Metal and PSU Bank sectors were the hardest hit, reflecting concerns over global commodity prices and domestic borrowing plans. The Capital Goods and Oil & Gas sectors also saw significant declines as investors recalibrated their expectations based on the budget's fine print.\n\n| Sector Index | Percentage Change |\n| :--- | :--- |\n| Nifty PSU Bank | -5.82% |\n| Nifty Metal | -4.14% |\n| Nifty Energy | -3.36% |\n| Nifty Infrastructure | -2.98% |\n| Nifty IT | +0.38% |\n\n## PSU Banks and the Borrowing Pressure\n\nPublic Sector Undertaking (PSU) banks experienced a sharp correction, with the index tumbling over 5.5 percent. The primary concern for this sector was the government's massive gross borrowing target of 17.2 lakh crore for the financial year 2026-27. Such high borrowing levels typically lead to a rise in bond yields, which can result in mark-to-market losses for banks holding large portfolios of government securities. Major laggards in this space included State Bank of India (SBI), Bank of Baroda, and Canara Bank, all of which saw their share prices drop significantly during the session.\n\n## The Commodity Meltdown: Gold and Silver Crash\n\nParallel to the equity market rout, the commodity markets witnessed a dramatic collapse in precious metal prices. Silver prices crashed by nearly 9 percent on the MCX, extending a downward trend that has seen the metal fall 36 percent from its recent peaks. Gold prices also slipped by 3 percent, trading around 1.47 lakh per 10 grams. This meltdown was attributed to a combination of global factors, including a stronger US dollar and the appointment of a hawkish Federal Reserve leadership in the United States. Metal stocks like Hindustan Zinc and NALCO reacted sharply to these movements, falling between 10 percent and 14 percent.\n\n## Infrastructure and Capex: The Long-Term Silver Lining\n\nDespite the immediate negative reaction from the markets, the budget continued its focus on long-term structural growth. The Finance Minister announced a capital expenditure (Capex) outlay of 12.2 lakh crore for FY27, a 12 percent increase from the previous year. The focus remains steadfast on infrastructure, defense manufacturing, semiconductors, and data centers. While the market was disappointed by the lack of immediate relief in capital gains tax, analysts suggest that the continued push for investment-led growth could provide a solid foundation for the economy in the coming years.\n\n| Instrument | Old STT Rate | New STT Rate |\n| :--- | :--- | :--- |\n| Equity Futures | 0.02% | 0.05% |\n| Options Premium | 0.10% | 0.15% |\n| Options Exercise | 0.125% | 0.15% |\n\n## Market Impact and Investor Sentiment\n\nThe hike in STT is viewed as a sentiment-driven blow that increases the friction of trading. Brokerage firms and exchanges like BSE Ltd and Angel One saw their shares tumble by over 7 percent as investors feared a drop in lucrative derivative volumes. Furthermore, the lack of changes to the existing income tax slabs and the absence of relief for Long-Term Capital Gains (LTCG) left retail investors disappointed. The market breadth remained weak, with over 2,300 stocks declining on the BSE, highlighting the systemic nature of the sell-off triggered by the budget announcements.\n\n## Analysis: Balancing Fiscal Prudence with Market Friction\n\nFrom an analytical perspective, the Union Budget 2026-27 appears to be a balancing act between fiscal discipline and the need for aggressive infrastructure spending. By keeping the fiscal deficit target at 4.3 percent of GDP, the government has signaled its commitment to macro-stability. However, the decision to target the F&O segment through higher taxes suggests a regulatory intent to redirect capital from speculative trading toward long-term investments. While this may cause short-term pain and liquidity issues in the derivatives market, the long-term impact on the broader economy will depend on how effectively the allocated Capex is utilized.\n\n## Conclusion\n\nThe Budget Day of 2026 will be remembered for its high volatility and the STT bombshell that rattled Dalal Street. While the immediate reaction was one of disappointment, leading to a 1,547-point drop in the Sensex, the underlying focus on infrastructure and fiscal prudence remains intact. Investors are now looking toward global cues and the stabilization of the rupee to determine the market's next move. As the dust settles, the focus will likely shift back to corporate earnings and the implementation of the government's ambitious 12.2 lakh crore investment plan.