Mumbai (Maharashtra) [India], February 1 (ANI): The domestic equity markets witnessed heavy selling pressure on Sunday as stocks fell sharply during Finance Minister Nirmala Sitharaman's Union Budget 2026 speech, with investors reacting strongly to a steep increase in Securities Transaction Tax (STT) on futures and options (F&O) trades.

The benchmark indices opened deep in the red, reflecting nervous sentiment on Dalal Street. The Nifty 50 index slipped to 24,953.05, down by 367.60 points or 1.45 per cent, while the BSE Sensex fell to 81,221.97, declining by 1,047.81 points or 1.27 per cent.

The sharp fall came immediately after the Finance Minister announced higher STT rates on derivatives trading in the Budget. The move triggered intense selling, especially in stocks linked to trading, broking, and market participation, as investors reassessed the cost of trading in the derivatives segment.

Securities Transaction Tax is a small levy charged by the government on every buy or sell transaction in the stock market, including shares, futures, and options. While it may appear modest, STT directly increases the cost of trading, particularly for frequent traders, hedgers, and arbitrageurs.

In Union Budget 2026, the government proposed a significant hike in STT on futures and options trades. For futures contracts, STT has been increased from 0.02 per cent to 0.05 per cent, more than doubling the earlier rate. For options, STT on the premium has been raised from 0.1 per cent to 0.15 per cent. Additionally, STT on the exercise of options has also been increased to 0.15 per cent.

Market participants said the announcement came at a time when markets were already facing volatility and selling pressure. The sudden increase in transaction costs added to investor anxiety, leading to a broad-based sell-off.

Shripal Shah, Managing Director and CEO of Kotak Securities, said the sharp hike in STT could have a cooling effect on derivatives trading. 'The steep increase in STT on futures and options, coming on top of last year's hike, is likely to raise impact costs for traders, hedgers, and arbitrageurs. This could cool derivative activity and lead to a reduction in volumes,' Shah said.

He added that the government's intent appears to be moderation of trading volumes rather than revenue maximisation. According to him, any potential revenue gains from higher STT could be offset by a decline in derivative volumes due to higher costs.

With markets already under pressure, the latest Budget proposal is seen as adding further downside risk in the near term. (ANI)