Sensex Slumps Over 1,000 Points, Nifty Breaks 25,000: Why Did Markets React So Sharply to the Budget?
Indian equity markets witnessed intense volatility on Budget day, with benchmark indices slipping deep into the red as investors reacted to key taxation changes announced in Union Budget 2026–27. The Sensex fell over 1,000 points at one stage, while the Nifty dropped below the crucial 25,000 mark, reflecting broad-based selling pressure.
The immediate triggers were proposals to tax share buybacks as capital gains for all shareholders and a sharp increase in Securities Transaction Tax (STT) on futures and options. These measures directly affect trading economics and investor returns, leading to a swift negative reaction from market participants.
While the Budget maintained a strong push on capital expenditure and growth, traders focused on the near-term cost implications, especially in the derivatives segment where India sees some of the world’s highest retail participation.
STT Hike on Derivatives Becomes the Biggest Sentiment Drag
The most talked-about announcement was the hike in STT on futures to 0.05% from 0.02%. Additionally, STT on options premium and exercise was proposed to be raised to 0.15% from earlier levels.
This effectively raises transaction costs for traders, especially high-frequency participants, arbitrageurs, and hedgers who operate on thin margins.
Higher costs can reduce trading volumes and speculative participation, which in turn impacts liquidity. Brokerage firms and exchange-linked stocks also face pressure as their revenues are closely tied to trading turnover.
Market experts noted that while the move may boost government revenue, it creates short-term headwinds for capital market activity.
Sensex, Nifty and Bank Nifty Snapshot: How the Indices Actually Traded
Markets remained highly volatile through the session as investors reacted to Budget announcements and taxation changes.
Latest Index Levels (Feb 1, 2026):
-
BSE Sensex: 80,948.42 (down 1,321.36 points, -1.61%)
-
Nifty 50: 24,908.35 (down 412.30 points, -1.63%)
-
Nifty Bank: 58,584.50 (down 1,025.95 points, -1.72%)
The Nifty slipped below the psychological 25,000 mark, while Bank Nifty underperformed due to weakness in PSU and large private banks. The fall reflects risk-off sentiment after higher STT on derivatives and buyback taxation changes.
Gainers: IT and Select Consumption Stocks Show Resilience
Despite the broad sell-off, some frontline stocks managed to stay in the green, mainly from IT and consumption themes that benefited from tax clarity and defensive positioning.
Top Gainers
| Stock | Price | % Gain |
|---|---|---|
| Wipro | ₹242.34 | +2.30% |
| TCS | ₹3,194.20 | +2.25% |
| Max Healthcare | ₹977.50 | +2.16% |
| Titan | ₹4,054.40 | +1.94% |
| Infosys | ₹1,658.40 | +1.06% |
IT stocks found support after safe-harbour tax rule changes and simplified compliance measures announced in the Budget.
Losers: PSU, Metals and Energy Stocks Bear the Brunt
The biggest pressure was seen in PSU banks, metals, energy and capital market-linked stocks.
Top Losers
| Stock | Price | % Loss |
|---|---|---|
| ONGC | ₹254.55 | -5.37% |
| Hindalco | ₹911.50 | -5.31% |
| SBI | ₹1,021.10 | -5.21% |
| Bharat Electronics | ₹429.10 | -4.43% |
| Coal India | ₹422.00 | -4.25% |
Capital market stocks like BSE and MCX also remained highly active and volatile due to concerns over lower derivatives volumes after the STT hike.
Buyback Tax Overhaul Alters Corporate Capital Allocation
Another major change was the decision to tax buybacks as capital gains for all shareholders. Earlier, buybacks were often used as a tax-efficient method of returning cash to shareholders compared to dividends.
The new framework reduces that arbitrage and may influence how companies plan capital returns. Promoters and investors alike will now reassess buyback strategies.
While the move is seen as improving tax fairness and protecting minority shareholders, markets reacted negatively as it potentially reduces one attractive shareholder reward mechanism.
Broader Market Weakness Reflects Risk-Off Mood
Selling was not limited to a few stocks.
• Nifty Midcap index fell around 1.6%
• Smallcaps declined about 2%
• PSU banks, metals, oil & gas, and energy stocks dropped 2–3%
• Only IT and consumer durables showed relative resilience
Heavyweights like SBI, ONGC, Coal India, Hindalco, and Bharat Electronics were among the major losers.
At the same time, select IT names such as TCS, Infosys, and Wipro saw gains, helped by Budget measures that improved tax clarity and safe-harbour rules for the sector.
Capex Push and Growth Signals Offer a Counterbalance
Despite the market fall, the Budget retained a strong growth orientation.
Key positives include:
• Capital expenditure raised to ₹12.2 lakh crore
• High-speed rail corridor development
• ₹10,000 crore MSME equity fund
• ₹10,000 crore biopharma hub scheme
• Semiconductor Mission 2.0
• Defence allocation growth
• Incentives for data centres and cloud investments
These measures support infrastructure, manufacturing, and digital economy themes. Analysts believe capex-led growth can sustain credit demand and benefit banks and infrastructure companies over the medium term.
Global and Institutional Factors Also in Play
Foreign investor flows remain a key variable. While there were instances of FII buying, foreign portfolio investors have been net sellers recently amid global uncertainties and valuation concerns.
Bond markets are watching the higher gross borrowing target of ₹17.2 lakh crore, which could keep yields mildly elevated.
At the same time, structural reforms in corporate bonds, REITs, municipal bonds, and foreign investment norms aim to deepen capital markets and attract long-term capital.
Here’s What Happened Today and Why Traders Reacted
Today’s market reaction was driven by immediate cost and sentiment factors rather than long-term fundamentals.
Traders reacted to:
• Higher STT raising derivatives trading costs
• Buyback taxation changes
• Profit booking after recent gains
• Elevated valuations in some sectors
• Usual Budget-day volatility
The sell-off reflects short-term adjustment to policy changes rather than a shift in India’s growth outlook.
What This Means for Investors and Portfolios
For short-term traders, higher transaction costs may lead to reduced F&O activity and more cautious positioning. Brokerage and exchange-linked stocks could remain under pressure.
For long-term investors, the bigger picture remains intact. The Budget emphasizes capex, manufacturing, defence, digital infrastructure, and ease of doing business. These themes continue to support India’s structural growth story.
Market corrections on policy days are not unusual. Once the impact of STT changes is fully priced in, attention may return to earnings growth and economic momentum.
Investors may benefit from staying selective, focusing on fundamentally strong sectors, and avoiding panic-driven decisions.
The near-term may remain volatile, but the medium-term narrative still leans toward growth and investment-led expansion.
