Budget 2026: Motilal Oswal Faces STT Hike Amid Capex Tailwinds

Union Budget 2026, presented by Finance Minister Nirmala Sitharaman, has created a dual narrative for Motilal Oswal Financial Services (MOFSL). While the government's strong emphasis on capital expenditure and financial market reforms aligns with MOFSL's own pre-budget expectations, a significant hike in the Securities Transaction Tax (STT) presents a direct headwind for its core broking business.

The STT Challenge: A Direct Hit on Broking Revenue

The most immediate and concerning announcement for the brokerage industry is the upward revision of STT. The budget proposes to increase STT on futures contracts to 0.05% from 0.02%. Furthermore, STT on options premium and the exercise of options will both be raised to 0.15%.

This move directly increases the cost of trading for retail and institutional clients, potentially dampening trading volumes, especially in the high-frequency and derivatives segments. For a firm like MOFSL, whose capital markets business is a significant revenue contributor, this could squeeze margins and impact profitability. The increased transaction cost may deter active traders, a key client base for the broking vertical.

Capital Market Deepening: A Structural Positive

Counterbalancing the STT hike are several long-term positive measures aimed at deepening India's capital markets. The budget introduced a market-making framework for corporate bonds, along with derivatives on corporate bond indices and total return swaps. These initiatives are designed to enhance liquidity and participation in the debt market, creating new product and advisory opportunities for MOFSL's investment banking and wealth management divisions.

Furthermore, the government has eased the path for foreign investment. The investment limit for individual Persons Resident Outside India (PROI) under the Portfolio Investment Scheme has been doubled from 5% to 10%. The overall limit for all individual PROIs is also up from 10% to 24%. This relaxation is expected to boost foreign portfolio inflows, which in turn increases assets under advice (AUA) and could partially offset the volume impact from the STT hike.

Capex Push Aligns with MOFSL's Investment Thesis

In line with MOFSL's pre-budget analysis, the government has continued its strong focus on public infrastructure. The Finance Minister announced an increase in the capital expenditure outlay to ₹12.2 lakh crores for FY 2026-27. This substantial allocation reinforces investment themes in sectors like infrastructure, defence, and manufacturing.

This provides a significant tailwind for MOFSL's Asset Management Company (AMC) and wealth advisory businesses. The sustained capex push creates a clear and durable investment narrative that can be used to guide client portfolios and launch new thematic funds, driving growth in assets under management (AUM).

Impact on Key Business Verticals

Broking and Distribution: This segment faces the most direct challenge. The STT hike will test the resilience of the business, forcing a greater focus on value-added services beyond pure execution to retain clients. However, increased foreign inflows and overall market buoyancy from the capex theme could provide a cushion.

Asset & Wealth Management: This vertical is a clear beneficiary. The budget's focus on infrastructure and manufacturing provides strong, long-term investment themes. Deeper bond markets also allow for more sophisticated product offerings for high-net-worth clients, potentially boosting AUM and fee income.

Investment Banking: The outlook is positive. Reforms in the corporate bond market will spur more issuances, creating advisory mandates. The new, more complex taxation on share buybacks will also require corporate clients to seek expert advice, opening another revenue stream.

Housing Finance: The budget's focus on developing Tier 2 and Tier 3 cities as economic regions, coupled with the overall economic growth impetus, provides an indirectly positive environment for the housing finance sector, supporting loan growth.

Conclusion: A Test of Diversification

Union Budget 2026 presents a classic case of policy-driven divergence for Motilal Oswal Financial Services. The direct tax on transactions will undoubtedly pressure the broking business, a traditional stronghold for the company. However, the government's simultaneous push to reform capital markets and fund long-term growth through massive infrastructure spending provides powerful tailwinds for its increasingly important asset management, wealth, and investment banking verticals. MOFSL's diversified business model will be critical in navigating these cross-currents, with its growth-oriented segments expected to mitigate the challenges faced by the transaction-focused broking arm.