Sensex Crashes 1,547 Points on Budget Day 2026 as STT Hike Rattles Markets

Indian benchmark equity indices, the Sensex and Nifty, experienced a sharp decline during a special trading session on February 1, 2026. The sell-off was primarily triggered by Finance Minister Nirmala Sitharaman's proposal to increase the Securities Transaction Tax (STT) on derivatives. This move, aimed at curbing excessive speculation in the futures and options (F&O) segment, led to widespread profit booking and a significant erosion of investor wealth.

Reversing early morning gains, the BSE Sensex crashed by 2,370.36 points or 2.88 percent during the day, sliding below the psychological 80,000-mark to hit a low of 79,899.42. The barometer eventually settled at 80,722.94, marking a final drop of 1,546.84 points or 1.88 percent. Similarly, the NSE Nifty tanked 495.20 points or 1.96 percent to settle at 24,825.45. At its lowest point in the session, the Nifty had tumbled 748.9 points to 24,571.75.

Massive Wealth Destruction on Dalal Street

The sharp sell-off resulted in BSE-listed firms erasing approximately 11,00,000 crore in market capitalization. Market breadth remained heavily negative as 2,296 shares declined compared to 1,673 shares that advanced, while 158 shares remained unchanged. The volatility index, India VIX, surged by over 12 percent to reach 15.10, indicating heightened nervousness among market participants.

Banking and heavyweights were among the hardest hit. State Bank of India (SBI) saw its share price tank by 5.61 percent, while Adani Ports lost 5.53 percent. Other major laggards included Bharat Electronics, ITC, Tata Steel, UltraTech Cement, and Reliance Industries. Conversely, defensive sectors like IT and Pharma saw some buying interest, with Tata Consultancy Services (TCS), Infosys, and Sun Pharma ending the day as gainers.

The STT Bombshell on Derivatives

The primary catalyst for the market downturn was the proposed hike in STT. The Finance Minister announced that the STT on futures contracts would be raised to 0.05 percent from the current 0.02 percent. Furthermore, the STT on options premiums and the exercise of options is proposed to be raised to 0.15 percent from the existing rates of 0.1 percent and 0.125 percent, respectively.

Analysts suggest that this increase is structurally negative for the capital market ecosystem. Higher transaction costs are expected to reduce trading volumes and dampen short-term momentum. This change particularly impacts high-frequency traders and derivative-focused global funds, potentially making the Indian market less attractive for short-term foreign portfolio investors (FPIs).

Sectoral Performance and PSU Bank Slump

The PSU Bank index emerged as the worst-performing sectoral index, falling over 4 percent. All 12 constituents of the index ended in the red, led by Bank of India and Bank of Baroda, which fell 7 percent and 6 percent, respectively. The decline followed the government's plan to set up a new committee to review the banking and finance sector, which created uncertainty among investors.

Impact on Capital Market Intermediaries

The hike in STT is expected to have a cascading effect on the revenue streams of broking companies, stock exchanges, and asset management companies. Shares of Multi Commodity Exchange (MCX) fell more than 11 percent, while other brokerage-linked stocks like Angel One also saw significant declines. Investors are concerned that shrinking derivative volumes will pressure the near-term earnings visibility of these entities.

Technical Analysis and Market Outlook

From a technical perspective, the Nifty formed a long bearish candle on the daily charts and is currently trading below its 200-day Simple Moving Average (SMA). Experts believe the short-term market texture remains volatile. The zone of 25,000 for Nifty and 81,300 for Sensex will now act as crucial resistance levels. As long as the indices trade below these levels, weak sentiment is likely to prevail.

On the downside, support is expected around 24,600 to 24,650 for the Nifty. If these levels are breached, the index could slide further toward 24,300. For Bank Nifty, the immediate support is seen at the 57,700 mark, with a sustained move below this level potentially intensifying the correction toward 56,500.

Market Impact and Investor Sentiment

The Budget 2026 announcements have shifted the market focus from growth prospects to the rising cost of trading. While the government aims to curb speculation, the immediate impact has been a sharp reduction in liquidity and a rise in the cost of hedging. FPIs, who had already pulled out over 41,000 crore in January 2026, may remain cautious due to compressed post-tax returns.

Conclusion

The 2026 Budget Day will be remembered for the significant correction in the Indian equity markets. While certain sectors like Biopharma and Shipping received positive mentions, the overarching sentiment was dampened by the STT hike. Investors are advised to adopt a level-based trading strategy as the market navigates through this period of high volatility and structural tax changes. The focus will now shift to corporate earnings and global cues to determine the next leg of the market movement.