Budget 2026 STT Hike Sparks Market Crash, Wipes ₹10 Lakh Crore

A 'Black Sunday' on Dalal Street

The special Sunday trading session for the Union Budget 2026 turned into a day of intense selling for Indian equity markets. Investor sentiment soured dramatically after Finance Minister Nirmala Sitharaman announced a significant increase in the Securities Transaction Tax (STT) on futures and options (F&O) contracts. The proposal, aimed at curbing speculative trading, triggered a widespread sell-off that wiped out nearly ₹10 lakh crore in investor wealth in a single day.

The STT Hike Proposal

During her budget speech, the Finance Minister detailed the proposed changes to the STT structure for derivatives. The announcement marked a substantial increase in trading costs, catching many market participants by surprise. The key changes included raising the STT on futures contracts by 150% and on options premiums by 50%. This move directly impacts high-frequency traders, arbitrageurs, and retail investors who have increasingly participated in the F&O segment.

Carnage in the Markets

The reaction to the announcement was swift and severe. The BSE Sensex, which had touched an intraday high of 82,727, plunged nearly 3,000 points to a low of 79,899.42. It eventually closed at 80,723, down 1,546 points or 1.88%. Similarly, the NSE Nifty 50 fell from a high of 25,442 to an intraday low of 24,572, before closing at 24,825, a drop of 495 points or 1.96%. The sell-off led to a massive erosion in market capitalisation, with BSE-listed companies losing a collective ₹9,72,657.25 crore.

Volatility Spikes

Market volatility, as measured by the India VIX, surged by nearly 12%, reflecting the heightened anxiety among investors. The market breadth was overwhelmingly negative, with over 2,300 stocks declining on the BSE compared to around 1,700 that advanced. The intense selling pressure indicated a broad-based retreat from equities as traders and investors rushed to cut their exposure.

Sectoral and Stock-Specific Impact

The downturn was widespread, but some sectors bore the brunt of the sell-off. The Nifty PSU Bank index was the worst performer, plunging nearly 6%, followed by the Nifty Metal index, which fell 4%. Financial services and banking indices also declined over 2%. The only sectoral index to end in the green was Nifty IT.

Stocks directly linked to market activity, such as brokerages and exchanges, faced intense selling pressure. Shares of BSE Ltd and Angel One tumbled as much as 13.5%. Heavyweight stocks also contributed significantly to the indices' fall. Reliance Industries and State Bank of India (SBI) were among the top draggers, with SBI falling over 5.5%. Metal stocks like Hindustan Zinc, Hindalco, and NALCO also saw sharp declines due to profit-booking and the broader negative sentiment.

Analyst Perspectives

Market analysts described the market's fall as a knee-jerk reaction to the unexpected STT hike. Many pointed out that investors were hoping for relief on capital gains taxes, but the budget offered none. Instead, the increased transaction costs in the derivatives market acted as a major negative trigger. Shripal Shah, CEO of Kotak Securities, noted that the steep increase in STT could dampen derivatives activity and reduce trading volumes, as higher costs would discourage participation. The government's objective appears to be curbing excessive trading rather than purely revenue generation.

The Road Ahead

While the budget contained positive announcements for sectors like infrastructure, manufacturing, and electronics, these were overshadowed by the STT hike. Analysts advise investors to remain selective and focus on sectors with strong policy visibility. Somil Mehta of Mirae Asset Sharekhan suggested that investors should maintain a cautious approach in the near term and focus on structural growth stories. The absence of capital gains tax relief combined with the STT increase creates near-term headwinds, potentially leading to continued volatility as the market digests the new cost structure for trading.