Sensex Slides Over 2,200 Points Amid F&O Tax Hike in Union Budget 2026

Indian equities witnessed sharp swings during the special Budget 2026 session on 1 February, following Finance Minister Nirmala Sitharaman's proposals on derivatives taxation. The BSE Sensex fell as much as 2,200 points to 80,068, while the NSE Nifty dipped 2.16% to 24,773 before partially recovering.

The sell-off was largely driven by an increase in Securities Transaction Tax (STT) on Futures and Options trades. STT on futures rose to 0.05% from 0.02%, while the levy on options premium increased to 0.15% from 0.10%, prompting heavy unwinding of F&O positions. Broader markets were hit harder, with the Nifty Midcap 100 down 2.7% and Nifty Smallcap 100 falling 3.4%. BSE shares themselves dropped as much as 10% intraday.

Sectorally, public sector banks and metals led declines, reflecting broad risk aversion. Market participants noted that while headline indices recovered slightly, volatility remained elevated throughout the session.

Budget 2026 Tax and Corporate Measures

Beyond derivatives, the Budget included several proposals affecting listed companies and investors:

Corporate tax & MAT: Effective tax on share buybacks by promoters at 22%; MAT rate cut to 14% from 15%, with brought-forward MAT credit allowed until 30 March.

Customs & duties: Exemptions extended for essential drugs, nuclear project goods, lithium-ion battery manufacturing inputs, solar glass, and aircraft repair materials. Exemptions on locally produced items removed to encourage domestic sourcing.

Exports & SEZs: Relief for leather and seafood exporters, extended timelines, higher duty-free input ceilings, and one-time sales facilitation from SEZs to domestic markets.

Market Implications

Gold and silver ETFs mirrored international declines, while foreign investment measures-including higher Portfolio Investment Scheme limits for NRIs-could expand non-resident participation, raising the individual cap to 10% and aggregate to 24%. Analysts view this as a move to deepen India's capital markets and enhance long-term investment.

Despite the intraday turbulence, the Economic Survey 2026-27 projected GDP growth of 6.8-7.2% for FY27, with medium-term potential at 7%, highlighting stable macro fundamentals. Investors are thus navigating a mix of higher trading costs on derivatives and long-term growth optimism.