Markets Slide on Budget Day — What’s Dragging Sensex, Nifty Lower? 5 Key Reasons
Dalal Street witnessed a classic Budget-day rollercoaster on February 1, as benchmark indices Sensex and Nifty swung from strong early gains to deep losses within hours of the Union Budget 2026 presentation. What began as a hopeful rally ahead of Finance Minister Nirmala Sitharaman’s ninth Budget quickly turned into a broad-based sell-off as traders booked profits and reacted to key announcements.
Ahead of the 11 am Budget speech, optimism lifted sentiment. The Sensex touched an intra-day high of 82,726.65, up 457 points or 0.55 percent, while the Nifty rose to 25,440.90, gaining 120 points. However, the mood shifted rapidly as volatility spiked.
By around 12:30 pm, the Sensex had fallen to 80,931.41, down 1,338 points from the day’s high, while the Nifty dropped to 24,826.25, losing nearly 500 points. At one stage, the Sensex was down about 650 points and the Nifty slipped below 25,100, keeping markets firmly in the red. All 16 major sectoral indices were trading lower, highlighting the broad nature of the decline.
Profit Booking at Higher Levels Triggers the First Wave of Selling
The first and most immediate reason behind the fall was profit booking. Markets had rallied in recent sessions and even on Budget morning, prompting investors to lock in gains once the speech began.
Short-term traders often prefer to reduce risk on event-heavy days like the Union Budget, where policy surprises can swing markets sharply. As indices rose up to 0.5 percent in early trade, many participants chose to exit positions rather than carry exposure through uncertainty.
This selling pressure snowballed as more traders joined the profit-booking cycle, pulling indices off their highs and accelerating the intraday decline.
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Budget Day Volatility Lives Up to Its Reputation
Budget day has historically been one of the most volatile trading sessions in the Indian market calendar, and 2026 was no exception.
Data shows that in 14 of the last 15 Budgets, the Nifty 50 has witnessed intra-day swings of 2–3 percent. Such volatility is driven by real-time interpretation of policy announcements, tax changes, fiscal numbers, and sector-specific incentives.
Ponmudi R, CEO of Enrich Money, summed up the mood well:
“Markets are likely to remain highly volatile, with sharp moves possible in either direction depending on key announcements around fiscal policy, capex push, sector-specific incentives, and the fiscal deficit target.”
As the speech progressed and details emerged, traders adjusted positions rapidly, leading to sharp price movements.
India VIX Spike Signals Rising Nervousness
Another major signal came from the India VIX, often called the market’s “fear gauge.” The index jumped over 17 percent to 15.66, indicating a surge in investor uncertainty.
A rising VIX typically reflects expectations of larger market swings. When volatility expectations climb, traders become cautious, hedge positions more aggressively, or reduce exposure.
This environment tends to amplify price moves on both sides. On Budget day, it added to the nervousness already present due to policy announcements and global cues, reinforcing the downward pressure on equities.
STT Hike on Futures Hits Capital Market Stocks Hard
One of the key policy triggers was the increase in Securities Transaction Tax (STT) on futures from 0.02 percent to 0.05 percent. This directly impacts derivatives traders by raising transaction costs.
Capital market-related stocks reacted immediately. Shares of BSE and Angel One fell up to 10 percent, while the Nifty Capital Markets index crashed around 6 percent.
Higher STT can reduce trading volumes, especially in the derivatives segment where margins are sensitive to cost structures. For many active traders and brokers, this announcement changed near-term profitability calculations, leading to swift selling in related stocks.
PSU Bank Stocks Emerge as the Worst Hit
Public sector bank stocks saw sharp selling, dragging the PSU Bank index down more than 4 percent, making it the worst-performing sectoral index of the day.
Bank of India and Bank of Baroda led the losses with declines of 7 percent and 6 percent, respectively. UCO Bank and Punjab & Sind Bank fell relatively less but still closed lower. Notably, all 12 constituents of the PSU Bank index ended in the red.
The selling reflects investor caution around rate sensitivity, government borrowing implications, and broader risk-off sentiment on a high-volatility day.
Stock-Specific Action and Market Breadth Show Mixed Undertones
Despite the headline decline, market breadth remained positive at one point, with about 2,041 shares advancing versus 1,566 declining and 150 unchanged. This suggests selective buying interest beneath the surface.
Among Nifty50 stocks, Hindalco Industries, Coal India, and State Bank of India were major laggards, falling up to 5 percent. On the other hand, Max Healthcare Institute and Mahindra & Mahindra managed gains of up to 3 percent, showing that investors were still rotating into selective defensives and themes.
Technical Outlook: Key Levels to Watch After the Budget
From a technical perspective, analysts see crucial support zones holding for now. Anand James, Chief Market Strategist at Geojit Investments, noted that the Nifty has managed to stay above key support.
“The 25,180 region has held ground so far, preventing a potential fall to 24,715–24,650–24,580. Expect swings and attempts to test both ends of the 25,180–25,400 band. Oscillators permit further upside, with 25,580–25,800 in sight, but weak momentum raises questions on sustainability.”
This suggests that while downside risks exist, the market is not yet in a breakdown mode.
Here’s What Happened Today and Why Traders Reacted
In summary, today’s decline was driven by a mix of:
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Profit booking after recent gains
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Typical Budget-day volatility
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Sharp rise in India VIX
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STT hike on futures
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Heavy selling in PSU banks
For traders, the day was about managing risk amid fast-moving information. For investors, it was a reminder that policy days can create noise even when long-term fundamentals remain intact.
What This Means for Investors Going Ahead
For long-term investors, Budget-day corrections often prove temporary if macro fundamentals remain supportive. Short-term traders, however, may continue to see sharp swings as markets digest fiscal numbers and policy signals.
Investors may consider staying selective, avoiding panic selling, and focusing on fundamentally strong sectors. Volatility can create opportunities, but only for those with discipline and a clear strategy.
Budget-day drama may fade, but how policies translate into growth will ultimately decide the market’s next move.
