Benchmark stock market indices ended sharply lower on Budget day as investors reacted negatively to key announcements made during the Union Budget speech by Finance Minister Nirmala Sitharaman. Both Sensex and Nifty saw heavy selling through the session, with losses deepening after the speech.
The S&P BSE Sensex fell 1,546.84 points to close at 80,722.94. The NSE Nifty50 also closed in the red, losing 495.20 points to end at 24,825.45. This marked one of the worst Budget day performances for the market in recent years, reflecting weak investor confidence.
Market participants pointed to three main reasons behind the sharp fall. These include the proposed hike in the securities transaction tax on derivatives, the lack of strong measures to attract foreign investors, and continued foreign institutional investor outflows from Indian equities.
Vinod Nair, Head of Research at Geojit Investments Limited, said the 2026 Budget focuses on balancing growth and stability by using the strength of consolidated government finances built through reforms over the past one to three years.
“These measures may result to a modest near-term total receipt, which has led to low stock market expectations for further tax and non-tax reforms,” Nair said.
One of the biggest factors that hit market sentiment was the proposed increase in costs related to futures and options trading. The Budget proposed a hike in the securities transaction tax on derivatives, which led to selling pressure, especially in stocks that see high F&O activity.
Anu Tiwari, Partner and Head of Fintech and FSRP at Cyril Amarchand Mangaldas, said the move was not entirely unexpected. “Increase in the securities transaction tax (STT) on futures and options (F&O) trading was expected, given recent policy concerns qua high frequency traders, and enforcement trends,” she said.
Nair added that while the Budget has an optimistic growth outlook, markets were not convinced. “Despite external challenges, the budget is structured around a nominal GDP growth target of 10% higher than in FY26. This optimistic outlook is driven by an anticipated rise in domestic demand, supported by the long-term multiplier effect of the implemented reforms. However, this forecast must navigate external challenges such as tariffs and geopolitical tensions, amidst a low inflationary environment,” he said.
The Budget also announced support for several sectors, including data centres, global capability centres, semiconductors, biopharma, rare earth elements, and manufacturing. Traditional sectors such as textiles, aquaculture, and MSMEs were also included, as they have been affected by global protectionist trade policies.
However, these announcements were not enough to lift market mood. “Despite these measures, the market's reaction has been negative, primarily due to low expectations, limited outlays and the negative bias created by the increased Securities Transaction Tax (STT) for futures, triggering a knee-jerk response,” Nair said.
Another major concern for investors was the lack of meaningful incentives for foreign portfolio investors. Foreign investors have already pulled out around $23 billion from Indian equities since the start of 2025. The absence of fresh steps to attract these investors added to worries around liquidity and future inflows.
Foreign portfolio investor outflows from Indian markets also rose to a five-month high in January, further weakening sentiment. This sustained selling pressure has made the market more sensitive to negative triggers, especially on key event days such as the Budget.
With the Nifty recording its worst Budget day performance in six years, market experts believe volatility could stay high in the near term as investors assess the impact of higher trading costs, global risks, and foreign fund flows on market direction.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)
