Markets Recoil After Budget Shock—Sensex and Nifty Tumble Deep

There was no happy Monday morning on Dalal Street. After a bruising Budget-weekend session, Indian equity benchmarks opened with a sombre tone on Feb 2, 2026, reflecting the simmering unease triggered by the Union Budget 2026. The sense of disquiet wasn’t random; it was the culmination of systemic policy tweaks and broader macro pressures that have spooked traders and investors alike.

By the end of the special Sunday session, the BSE Sensex had surrendered roughly 1,546.84 points, dropping nearly 1.9% to around 80,722, and the Nifty 50 slid about 495 points, close to a 2% fall—settling near 24,825. These are sharp moves, especially against the backdrop of what would usually be one of the calmer periods in the trading calendar.

This isn’t just a one-off blip. On the day of the Budget (Feb 1), markets logged their steepest Budget-session slide in six years, with volatility (India VIX) surging double digits and heavyweights across sectors bleeding red.

What Dented the Rally

At the heart of the sell-off is a policy surprise in Budget 2026: a higher Securities Transaction Tax (STT) on futures and options. The government’s decision to raise STT on derivatives was met with an abrupt mood shift, especially among traders and institutions who see this as a direct hit on liquidity and profitability.

Add to that the absence of expected tax breaks on capital gains, and markets were forced into a reality check that was sharper than most had priced in pre-budget. When you combine those elements, it’s clear why equity markets screeched to a halt and peeled back hard after initially positive pre-budget expectations.

Broader Sentiment: Flat Start, But Clouds Loom

Data from early trade indicators, including GIFT Nifty futures, pointed to a muted or flat start for benchmarks on Monday, barely off from the previous close even as global markets hinted at risk-off tendencies.

International cues were mixed. Asian shares mostly drifted lower, while precious metals retraced after a dramatic sell-off late last week, and the U.S. dollar gained ground ahead of major central bank decisions, adding to risk aversion among cross-border investors.

Corporate Focus: Stocks in Spotlight

Amid this market stress, several individual names drew attention:

• BEL (Bharat Electronics) and HAL (Hindustan Aeronautics) were among the frontline stocks in focus, particularly with defence allocations in the Budget and mixed reactions to sectoral commentary.

• ITC remained under the spotlight as recent excise duty hikes lifted cigarette prices, pressuring sentiment around the stock.

• Other names like Hero MotoCorp, Anant Raj, and Adani Green were also mentioned as key stories to watch, with third-quarter earnings and Budget implications shaping the discourse.

Macro Caveats: Currency, Bonds and Foreign Flows

Outside equities, the rupee’s slide towards the 92-per-dollar mark underscored the cautious mood. Traders eyed Reserve Bank of India (RBI) intervention as a possible buffer, but the currency remained spotty amid risk-off flows.

Foreign Portfolio Investors (FPIs), already selling aggressively over recent sessions, are a key fly in the ointment for markets, with outflows intensifying on the back of weak sentiment and rising global yields.

Why This Matters

A sharp sell-off like this, especially tied to fiscal policy changes, is more than a momentary dip it reshapes expectations for sectors like derivatives trading, liquidity flow, and risk pricing. Given the market’s dynamic over the past year, characterized by ebbing returns and heightened volatility, Monday’s activity feels more like a psychological inflection point than just another red day on the charts.

Investors and traders will be parsing every Budget line item for longer-term signals, but right now, the message from Dalal Street is clear: policy surprises can override broader macro positives, at least in the short term.