Union Budget 2026: NSDL Set for Growth Amidst Capital Market Reforms and Digital Integration

The Union Budget 2026-27, presented by Finance Minister Nirmala Sitharaman, has introduced a series of structural reforms aimed at deepening India's financial markets and enhancing the ease of doing business. For National Securities Depository Ltd. (NSDL), India's largest depository by asset value, the budget serves as a catalyst for operational expansion and digital integration. By focusing on the 'Reform Express' and a robust financial sector, the government has laid out a roadmap that directly impacts Market Infrastructure Institutions (MIIs) like NSDL.

Streamlining Depository Protocols for Ease of Living

One of the most direct impacts on NSDL comes from the proposal to simplify tax compliance for retail investors. The Finance Minister proposed to enable depositories to accept Form 15G and Form 15H from investors and provide them directly to the relevant companies. This move positions NSDL as a central hub for tax-related documentation, reducing the compliance burden on individual shareholders who previously had to submit these forms to every company in their portfolio. This integration is expected to enhance the value proposition of NSDL's digital services and improve investor engagement.

Expansion of Foreign Investment Limits

The budget has proposed a significant revision to the Foreign Exchange Management (Non-Debt Instruments) Rules. Specifically, the investment limit for individual Persons Resident Outside India (PROI) in listed Indian companies is set to increase from 5% to 10%. Furthermore, the overall investment limit for all individual PROIs will be raised to 24% from the current 10%. As the primary custodian of dematerialized securities, NSDL stands to benefit from the anticipated surge in foreign individual participation, which will likely drive the opening of new demat accounts and increase transaction volumes.

Deepening the Corporate and Municipal Bond Markets

To mobilize capital efficiently, the Union Budget 2026 has introduced a market-making framework for corporate bonds, including total return swaps on corporate bond indices. Additionally, the government has incentivized the issuance of municipal bonds with a 100 crore grant for single issuances exceeding 1,000 crore. These measures are designed to shift the Indian financial landscape from a bank-led model to a market-led model. For NSDL, this expansion into diverse asset classes beyond equity provides a stable, recurring revenue stream from settlement and custodial services.

Impact of Securities Transaction Tax (STT) Revisions

The budget proposed an increase in the STT on futures to 0.05% and on options premium to 0.15%. While this measure is intended to curb excessive speculation in the derivatives segment, its impact on NSDL is nuanced. While NSDL primarily handles the delivery-based cash segment, any shift in market sentiment or overall trading volumes across the exchanges can influence the broader ecosystem. However, the government's focus on long-term investment over short-term speculation aligns with NSDL's core strength in asset custody.

Digital Transformation and Subsidiary Synergy

NSDL's subsidiaries, NSDL Database Management Limited (NDML) and NSDL Payments Bank Limited (NPBL), are well-positioned to leverage the budget's push for AI and digital infrastructure. The launch of 'Bharat Vistar', a multilingual AI tool, and the focus on AI applications as force multipliers for governance, complement NSDL's existing e-governance and KYC solutions. The increased safe harbor threshold for IT services to 2,000 crore also provides a more favorable tax environment for NSDL's technology-driven verticals.

Financial Performance and Budgetary Context

NSDL has demonstrated robust financial health leading up to the budget, with a 18.9% YoY increase in total income in the second quarter of FY26. The company's leadership in the unlisted issuer equity segment (73% market share) and its extensive network of 294 depository participants provide a strong foundation to absorb the new regulatory changes.

Market Sentiment and Analyst Outlook

Market analysts view the budget as a net positive for MIIs. The focus on 'Vikasit Bharat' and the strengthening of the financial sector through a high-level committee on banking suggest a long-term commitment to market stability. NSDL's role in ensuring the safety and integrity of the depository system remains central to this vision. The company's ability to innovate, such as its pioneer work in blockchain-based bond issuance, aligns with the government's goal of using cutting-edge technology for better governance.

Conclusion

Union Budget 2026 provides a balanced mix of regulatory easing and market expansion that favors National Securities Depository Ltd. By centralizing tax documentation and opening doors for higher foreign participation, the government has reinforced NSDL's position as a critical pillar of India's financial infrastructure. As the 'Reform Express' maintains its momentum, NSDL is expected to play a pivotal role in transforming India's capital market aspirations into performance.