Why Sensex Ended Lower on Budget Day | All You Need to Know About Derivatives Tax Triggered Sell-Off

Stock markets fell sharply on Budget day after govt raised Securities Transaction Tax on futures trading. Sensex closed down nearly 1.9%, Nifty lost almost 2%. While Budget supported growth sectors, higher trading costs triggered knee-jerk sell-off.

Markets react sharply to Budget 2026 proposals

Indian stock markets ended sharply lower on the day of the Union Budget presentation after investors reacted negatively to higher taxes on derivatives trading. The fall came even as the government highlighted support for several growth sectors.

The benchmark BSE Sensex and NSE Nifty slipped nearly 2 per cent on Sunday, February 1, after Finance Minister Nirmala Sitharaman proposed an increase in the Securities Transaction Tax (STT) on futures and derivatives.

Sensex and Nifty see steep intraday fall

The 30-share BSE Sensex reversed early gains and dropped sharply during the afternoon session. It fell as much as 2,370.36 points, or 2.88 per cent, slipping below the 80,000 mark to touch 79,899.42.

By the end of the session, the Sensex recovered slightly but still closed down 1,546.84 points, or 1.88 per cent, at 80,722.94.

The NSE Nifty also saw heavy selling pressure. It fell 495.20 points, or 1.96 per cent, to close at 24,825.45. During the day, it dropped nearly 3 per cent to hit a low of 24,571.75.

STT hike triggers negative market reaction

The sharp fall came after Sitharaman announced a rise in STT on futures contracts from 0.02 per cent to 0.05 per cent. Market participants said this move raised trading costs and hurt sentiment, especially among derivatives traders.

Experts said the increase led to a quick and emotional sell-off, even though the Budget included several growth-focused measures.

Expert view on Budget impact

Vinod Nair, Head of Research at Geojit Investments Ltd, told News Agency PTI that the Budget supports sectors affected by global trade pressure and protectionist policies. These include data centres, global capability centres (GCCs), semiconductors, biopharma, rare earth elements and manufacturing.

He added that traditional sectors such as textiles, aquaculture and MSMEs have also received support. However, he said the market reacted negatively due to limited spending outlays and disappointment over the STT hike.

Sensex performance on Budget days under Modi government

Since the Narendra Modi-led NDA government came to power in 2014, the Sensex has ended lower on eight out of the 15 Budget presentation days. These include two interim Budgets before the 2019 and 2024 general elections.

Last year, on the Budget day, the Sensex ended almost flat, rising just 5.39 points to close at 77,505.96.

On July 23, 2024, the Sensex fell 73.04 points. During the interim Budget on February 1, 2024, it declined by 106.81 points.

Mixed market history over the years

In 2023, the Sensex gained 158.18 points on Budget day. In 2022, it jumped 848.4 points, while in 2021 it saw a strong rally of over 2,300 points, or 5 per cent.

However, in 2020, the index fell sharply by nearly 1,000 points. In 2019, it gained modestly on February 1 but declined after the full Budget in July.

In 2018, the market ended slightly lower, while in 2017 it posted solid gains. Earlier, in 2016, the Sensex fell on Budget day when the Budget was still presented on February 28.

Why Budget day timing matters

The Budget presentation date was moved to February 1 in 2017. This change allowed Parliament to complete approvals by March and start Budget implementation from April 1.

Earlier, Budgets were presented at the end of February, delaying implementation until May or June.

Market outlook remains cautious

Despite the fall, analysts said markets may stabilise once investors assess long-term benefits of sectoral support and policy clarity. However, short-term volatility may continue due to higher trading costs and cautious global cues.

(With inputs from agencies)