Finance Minister Nirmala Sitharaman took full ownership of one of the most talked-about moves in the Budget 2026-27, a sharp increase in Securities Transaction Tax (STT) on the Futures & Options (F&O) segment, saying the government simply couldn’t stand by while small investors get hurt by rampant speculative trading.
It wasn’t a muted defence. In her post-budget remarks, Sitharaman called what many retail traders treat as a thrill or quick money gamble “satta,” the Hindi word for risky, speculative bets. She underscored that a major chunk of losses in the derivatives market has come from this sort of trading and that the government’s hands were forced.
“We are touching only the futures and options segment… speculation is highly risky, and many people with limited funds face heavy losses,” she said, emphasising that the hike was meant to act as a deterrent rather than a punitive levy.
What Changed And By How Much
This Budget more than doubled the STT on futures contracts from 0.02% to 0.05%. Options taxes were also pushed higher: premium and exercise STT have been lifted to 0.15% from previous levels of 0.1% and 0.125%, respectively.
That’s not a small tweak. Traders who build strategies around tight cost structures now face a noticeably larger friction cost on every position they take in F&O, one of the liveliest segments of the Indian markets.
Why the Government Says It’s Necessary
Behind the terse numbers lie the government’s stated concerns about systemic risk. Revenue officials highlighted that the changes are narrowly focused on derivatives trading, leaving other parts of the market untouched. The stated goal: dampen speculative behaviour and prevent “unsophisticated” investors from burning cash in high-velocity trades.
Data from regulator SEBI regularly cited in government discussions has shown that a very high percentage of retail traders in F&O end up losing money. That narrative underpins the rationale for this STT reset and sits at the heart of the finance ministry’s message: protect small investors by making rampant speculation less attractive.
Immediate Market Reaction: Pain, Not Acceptance
But markets didn’t take it in stride. Shares of brokerages and exchanges entities deeply tied to derivatives volume sold off sharply on live Sunday trading after the announcement. BSE Ltd., Angel One, Groww, and others saw steep falls as traders digested the higher cost of doing business.
For context: in this segment, derivatives activity often drives a large share of revenues for brokers and exchanges. Cutting into that with higher transaction costs quickly translates into concerns about lower volumes and thinner liquidity.
Market veterans warned that if traders pull back because of higher STT, liquidity could contract, and not just in derivatives. Studies and trader feedback make a clear point: derivative markets support cash market activity, and a slowdown in one often ripples into the other.
Beyond Retail Losses—Foreign Flows and Liquidity
There’s another angle that’s now dominating conversations: foreign portfolio investors (FPIs). The STT increase hits returns for short-term and derivative-oriented strategies, and that’s come at a time when global capital is already scanning for the most efficient markets.
Some analysts argue that higher frictional costs could nudge global funds toward other Asian markets, especially when fixed income yields abroad look more attractive. And that’s without accounting for the broader global risk-off sentiment that’s already been influencing asset flows.
On the Street—A Sense of Unease
Industry voices reflect uneasiness. Brokers and market players see this as more than a tax story; it’s about market mechanics. Higher trading costs aren’t just a line item. They affect the strategies that keep Indian markets deep and liquid, especially in derivatives, where speed and narrow spreads matter.
One executive put it bluntly: tightening trading costs when the goal is to deepen liquidity and attract global flows feels like sending mixed signals at a crucial moment for India’s financial markets.
