Indian Markets Rebound: Sensex Surges 944 Points as Investors Cheer Budget Capex

Indian equity benchmarks staged a significant recovery on Monday, February 2, 2026, as investors shifted their focus toward the government's long-term growth initiatives. The rally followed a volatile special trading session on Sunday, where markets had reacted sharply to the hike in Securities Transaction Tax (STT) on derivatives. By the closing bell on Monday, the SENSEX had climbed 944 points to settle at 81,666, while the NIFTY50 advanced 263 points to close at 25,088.

The Budget Day Hangover and Monday Recovery

The market movement on Monday represented a decisive bounce back from the previous day's slump. On Sunday, February 1, the SENSEX had plunged over 1,500 points following Finance Minister Nirmala Sitharaman's announcement of higher STT for futures and options trades. However, as the market reopened for the new week, participants began to weigh the structural benefits of the Union Budget 2026-27 against the immediate tax implications. Analysts noted that the initial knee-jerk reaction to the STT hike was replaced by optimism regarding the government's sustained commitment to infrastructure and manufacturing.

Heavyweight stocks led the charge, with Reliance Industries, ICICI Bank, and HDFC Bank providing significant support to the indices. The intraday high for the NIFTY50 reached 25,108, marking a clear psychological victory for the bulls who managed to reclaim the 25,000 level. The recovery was broad-based, with buying interest visible across almost all major sectoral indices, suggesting that the market had largely priced in the tax changes.

Capex: The Primary Growth Engine

A central pillar of the positive sentiment was the government's aggressive capital expenditure target. For the fiscal year 2026-27, the budget increased the capex outlay to 12.2 lakh crore, up from 11.11 lakh crore in the previous year. This 10.9 percent growth is seen as a vital signal for steel-intensive segments, construction, and heavy engineering. The government's focus remains on the vision of Viksit Bharat 2047, with continued investments in transport, railways, and energy.

Global investment banks, including Jefferies, highlighted that the budget moderated the pace of fiscal deficit reduction to allow for higher government spending. By pegging the fiscal deficit at 4.3 percent of GDP for FY27, the government has balanced the need for growth with fiscal prudence. This approach has been welcomed by analysts who believe that front-loading capex will provide strong demand visibility for the industrial sector over the next 12 to 18 months.

Sectoral Performance: Auto and Infrastructure Lead

The NIFTY Auto index was the standout performer on Monday, gaining over 2 percent. This was followed closely by the Metal, FMCG, and PSU Bank indices, which rose between 1 percent and 2.3 percent. The infrastructure sector also saw a boost, supported by the budget's proposal to set up a risk guarantee fund and introduce schemes for the enhancement of construction equipment manufacturing.

On the other hand, the information technology and healthcare sectors faced mild selling pressure. Despite the budget's long-term tax initiatives for cloud services, some IT majors like Infosys and TCS ended the day as laggards. The broader market also participated in the rally, with the NIFTY Midcap 100 rising 1 percent and the NIFTY Smallcap 100 advancing 0.64 percent.

Key Budget 2026-27 Financial Metrics

The STT Factor: Why the Market Looked Past It

The hike in STT on derivatives was the primary cause of Sunday's crash. STT on futures increased from 0.02 percent to 0.05 percent, while STT on options premiums rose from 0.10 percent to 0.15 percent. While this move increases the cost of trading for retail and institutional participants in the F&O segment, the revenue secretary clarified that the rationale was to curb speculative trade and protect retail investors from excessive losses.

By Monday, the market narrative shifted toward the fact that these tax changes do not impact the core earnings potential of India Inc. The focus returned to corporate earnings growth and the structural reforms announced in the budget. Experts suggested that while the STT hike might impact trading volumes in the short term, it does not alter the long-term investment thesis for the Indian equity market.

Corporate Earnings Impact: Latent View Analytics

Individual stock movements were also driven by quarterly earnings reports. Latent View Analytics shares surged 9.53 percent to hit an intraday high of 458 on the NSE. This was the stock's biggest single-day gain in nearly two years. The company reported a net profit of 50 crore for the third quarter of FY26, marking a 19 percent increase from 42 crore in the same period last year. This performance served as a reminder that fundamental business growth remains a key driver for stock prices, independent of broader market volatility.

Defence and Manufacturing: A Long-term Play

The defence sector saw mixed reactions over the two days. While some stocks like Bharat Electronics (BEL) were initially dragged down on Sunday due to high expectations, they recovered on Monday. The budget allocated 7.85 lakh crore to the defence sector, a 15 percent increase from the previous year. This outlay is intended to support the indigenisation of defence equipment and strengthen domestic manufacturing capabilities.

Furthermore, the budget introduced a 15 percent safe harbour on costs for related-party data center service arrangements. This move, combined with a tax holiday until 2047 for foreign cloud service providers using India-based data centers, positions the country as a competitive destination for global hyperscale capacity. These structural shifts are expected to drive capital inflows into the digital infrastructure space.

Market Movement Comparison

Market Impact and Analysis

The overall market breadth remained neutral on Monday, with 1,551 shares closing higher and 1,639 shares ending lower on the NSE. This indicates that while the large-cap indices performed well, the broader market is still digesting the various nuances of the budget. The increase in the threshold for availing safe harbour for IT services from 300 crore to 2,000 crore is a significant move for the technology sector, even if the immediate stock price reaction was muted.

Analysts believe that the budget provides continuity in fiscal prudence while maintaining a thrust on reforms. The net market borrowing of 11.7 lakh crore was in line with expectations, which helped stabilize the bond markets and, by extension, equity sentiment. The introduction of Total Return Swaps and a Market Making Framework for Corporate Bonds further signals the government's intent to deepen the financial markets.

Conclusion

The recovery on February 2 suggests that the Indian markets have accepted the new tax realities and are now looking forward to the execution of the budget's growth-oriented proposals. The focus on capital expenditure, manufacturing, and digital infrastructure provides a clear roadmap for the upcoming fiscal year. Investors will now turn their attention to the remaining Q3 corporate earnings and global cues to determine the next leg of the market's trajectory. As the fiscal deficit continues its downward path toward the 4.3 percent target, the long-term outlook for macroeconomic stability remains intact.