Union Budget 2026 for Stock Markets?
Indian equity markets witnessed sharp volatility on February 1, immediately after Nirmala Sitharaman presented the Union Budget 2026 in the Lok Sabha. Benchmark indices reacted negatively to select policy measures, even as some sector-specific announcements triggered buying interest.
The Sensex slipped nearly 1,547 points (1.9%) to close at 80,722.94, while the Nifty 50 declined over 495 points (2%) to settle at 24,825.45.
Market experts believe the Budget sent mixed signals, with positives for select sectors but concerns around higher trading costs and lack of foreign investor incentives.
What Worked for the Markets in Budget 2026
Despite the broader sell-off, the markets showed intermittent recovery during the session, driven by a few favourable announcements.
1. Buyback Taxation Tweaked
One of the key positives was the reclassification of share buybacks as capital gains for shareholders, though promoters will continue to face an additional buyback tax.
Amit Gupta, Partner at Saraf and Partners, noted that this change restores balance. Earlier, buybacks were treated as dividends to prevent misuse by promoters. Reverting to capital gains taxation is expected to reduce ambiguity and improve tax efficiency for investors.
This move benefited IT stocks, which are frequent users of buyback programs. Shares of Wipro and Tata Consultancy Services rose around 2%, while Infosys, LTIMindtree, and Persistent Systems also closed higher.
2. Tourism, Textiles & Medical Tourism Get a Push
Tourism-related stocks rallied after the government announced plans to develop 15 archaeological sites, including Sarnath and Hastinapur, into global cultural destinations.
Additionally, the TCS rate on overseas tour packages has been reduced from 5–20% to 2%, regardless of transaction value—boosting travel companies such as Easy Trip Planners.
Other sectoral positives included:
- Jewellery stocks, after customs duty on gold and silver imports remained unchanged
- EMS stocks, supported by a ₹40,000 crore sectoral outlay
- Hospital stocks, following the proposal to create five medical tourism hubs
- Textile companies, aided by plans to set up mega textile parks via a challenge-mode framework
- Fisheries and semiconductor stocks, which also ended the session in the green
What Dragged the Markets Lower
1. STT Hike on Futures & Options
The biggest disappointment for traders was the increase in Securities Transaction Tax (STT) on derivatives.
- STT on futures raised to 0.05% from 0.02%
- For every ₹1 lakh futures trade, STT rises from ₹12.50 to ₹20
- STT on options sales increased to ₹10 from ₹6.25 per ₹10,000 contract
Experts warn that the uniform STT structure does not distinguish between hedging and speculative trades, making risk management more expensive for genuine investors.
Shripal Shah, MD & CEO of Kotak Securities, said the move could dampen derivative volumes, indicating that the government’s intent appears to be volume moderation rather than revenue generation.
As a result, capital market stocks fell sharply. MCX dropped nearly 12%, while Angel One and BSE declined over 8% each.
2. Pressure on PSU Banks
PSU bank stocks came under selling pressure, dragging the Nifty Bank index lower. Concerns emerged after the government announced the formation of a high-level committee to review the banking sector, raising fears of possible PSU bank mergers.
Historically, such mergers tend to create short-term operational and valuation challenges, according to BFSI analysts.
3. No Big Relief for Foreign Investors
Market sentiment was further hurt by the absence of major incentives for foreign investors, who have already pulled out nearly $23 billion from Indian equities since early 2025.
Experts believe higher trading friction, combined with global uncertainty, may continue to delay FII inflows.
4. Defence Stocks Disappoint
Defence stocks declined after FY27 defence spending projections failed to exceed expectations. While total defence expenditure was pegged at ₹5.94 lakh crore, analysts felt the pace of capital expenditure growth was modest.
Although defence capex rose 21% year-on-year, the allocation did not deliver a strong upside surprise for listed defence manufacturers.
Bottom Line
Union Budget 2026 delivered selective positives for IT, tourism, healthcare, and textiles, but higher STT, PSU bank concerns, and lack of FII incentives weighed heavily on overall market sentiment. Near-term volatility may persist as investors reassess costs and sectoral opportunities.
👉 You can follow official Budget documents and announcements on the Union Budget portal.
