Stock Market Crash Today: Why Sensex and Nifty Plunged After Budget 2026

Indian equity markets witnessed a volatile and bruising session on Sunday, February 1, 2026, as Finance Minister Nirmala Sitharaman presented the Union Budget for the fiscal year 2026-27. What began as an eagerly awaited special trading session quickly turned into a sharp sell-off, with the benchmark BSE Sensex and NSE Nifty 50 indices crashing nearly 2 percent. The primary trigger for this sudden downturn was the government's proposal to significantly increase the Securities Transaction Tax (STT) on futures and options (F&O) trading.

At the close of the special session, the BSE Sensex fell 1,546.84 points, or 1.88 percent, to end at 80,722.94. The NSE Nifty 50 dropped 495.20 points, or 1.96 percent, to finish at 24,825.45. During the peak of the intraday volatility, the Sensex had plummeted nearly 3,000 points to a low of 79,899.42, while the Nifty 50 slipped to 24,572. This marked one of the most severe Budget-day reactions in recent years, resulting in a massive erosion of investor wealth totaling approximately Rs 9.72 lakh crore.

The Securities Transaction Tax (STT) Shocker

The most significant factor behind the market's negative reaction was the unexpected hike in STT rates for the derivatives segment. Finance Minister Nirmala Sitharaman proposed to raise the STT on futures from the current 0.02 percent to 0.05 percent. For options, the tax on premiums and the exercise of options is proposed to be raised to 0.15 percent from the previous rates of 0.1 percent and 0.125 percent, respectively.

Market participants noted that while these percentage increases might seem small, they represent a 150 percent hike for futures and a 50 percent hike for options. For high-frequency traders, hedgers, and arbitrageurs who operate on thin margins, these changes significantly increase the cost of doing business. The derivatives segment accounts for a substantial portion of the daily turnover on Indian exchanges, making the market highly sensitive to any changes in transaction-based levies.

Impact on Derivatives and Trading Costs

STT is a government-imposed levy on every buy and sell transaction in the equity market. Unlike income tax, it is collected at the time of the transaction, regardless of whether the investor makes a profit or a loss. The abrupt increase in these costs intensified concerns among traders, leading to aggressive selling as participants reassessed the viability of their short-term strategies.

Industry experts suggest that the government's objective appears to be curbing excessive speculative trading rather than purely maximizing revenue. Reports from the Securities and Exchange Board of India (SEBI) have previously highlighted that nearly 90 percent of individual traders in the derivatives segment incur losses. By raising the cost of entry and operation, the government aims to nudge investors toward long-term capital formation and systematic investing.

Erosion of Investor Wealth and Market Capitalisation

The sell-off was broad-based, affecting almost every sector of the market. The total market capitalisation of all listed companies on the BSE decreased by approximately Rs 9.72 lakh crore, falling to Rs 450.15 lakh crore. This massive wipeout reflects the deep sense of disappointment among investors who were also hoping for relief in capital gains taxation, which did not materialize.

Performance of Key Indices and Heavyweights

Heavyweight stocks across various sectors weighed heavily on the benchmarks. Reliance Industries, a major index heavyweight, declined by approximately 2.5 percent. The State Bank of India (SBI) saw a sharper decline of nearly 5.3 percent, contributing significantly to the fall in the Nifty PSU Bank index, which plunged 5.6 percent. The Nifty Bank index also ended 2 percent lower as investors worried about the impact of higher transaction costs on banking operations and treasury income.

In the broader market, risk aversion was even more pronounced. Small-cap stocks dropped about 3 percent, while the mid-cap index fell roughly 2 percent. This broad-based retreat indicates that the selling pressure was not restricted to just the top-tier companies but was a systemic reaction to the Budget proposals.

Brokerage and Exchange Stocks Under Pressure

Stocks directly associated with market activity and trading volumes bore the brunt of the STT announcement. Shares of BSE Ltd tumbled by as much as 8.1 percent, reaching an intraday low of Rs 2,517.30. Angel One, a prominent retail brokerage, fell 8.6 percent to Rs 2,284.70. Other market intermediaries, including Billionbrains Garage Ventures (the parent company of Groww), also saw declines of over 5 percent.

The rationale behind this specific sell-off is the fear that higher transaction costs will lead to a moderation in trading volumes. If derivatives activity cools down, the revenue generated by exchanges and brokerage firms from transaction fees and commissions is likely to be impacted. Analysts suggest that any additional revenue the government gains from higher STT could be partially offset by lower overall volumes.

Capital Expenditure and Fiscal Targets

Beyond the STT hike, the market was also reacting to the government's capital expenditure (capex) targets. The Finance Minister announced a capex outlay of Rs 12.2 trillion for the fiscal year 2027. While this is a 9 percent increase from the previous allocation of Rs 11.2 trillion, it fell short of market expectations, which were pegged at a double-digit increase of 10 percent to 15 percent.

Changes in Buyback Taxation and PROI Limits

Another significant policy shift was the proposal to tax share buybacks as capital gains for shareholders. Previously, companies paid a buyback tax, making the proceeds tax-free for investors. The new proposal aims to treat buybacks similarly to dividends, effectively increasing the tax burden for promoters and large shareholders. This move is seen as a structural clean-up to address tax arbitrage but adds to the near-term headwinds for the market.

On a more positive note, the government permitted Individual Persons Resident Outside India (PROI) to invest in listed Indian companies through the Portfolio Investment Scheme. The investment limit for an individual PROI was doubled from 5 percent to 10 percent, with an overall limit for all individual PROIs raised to 24 percent from the current 10 percent. This is intended to attract more foreign retail participation in the Indian equity markets.

Sectoral Winners and Losers

While the overall market sentiment was negative, certain sectors showed resilience. IT stocks gained slightly as the market reassessed the impact of buyback tax changes on cash-rich tech firms. Pharma stocks also advanced following the announcement of a Rs 10,000-crore outlay for the domestic biologics and biosimilars ecosystem. The electronics sector received a boost with the outlay for the Electronics Components Manufacturing Scheme being increased to Rs 40,000 crore.

Conversely, the Realty and Defence sectors faced significant selling. The Nifty India Defence index ended with a 5 percent cut, with some stocks falling up to 10 percent, despite an 18 percent increase in the defence capital outlay. Realty stocks plunged as the Budget lacked big-ticket announcements for the housing sector, leading to a 4.6 percent drop in the Nifty Realty index during the session.

Expert Analysis and Market Outlook

Market experts view the Budget as a mix of long-term structural positives and short-term tactical negatives. Narendra Solanki of Anand Rathi Share and Stock Brokers described the market movement as a knee-jerk reaction to the STT hike, especially since hopes for capital gains tax relief were already priced in. Shripal Shah of Kotak Securities cautioned that the steep increase in derivatives tax could dampen activity and raise impact costs for various market participants.

For investors, the consensus strategy is to remain selective and focus on quality sectors with strong policy visibility, such as infrastructure, manufacturing, and digital themes. While the increase in STT and the absence of capital gains relief create near-term pressure, the government's commitment to fiscal consolidation and infrastructure spending provides a stable macroeconomic framework for the long term. Diversification and a cautious approach are recommended as the market navigates this post-Budget volatility.