Union Budget 2026: Why did the stock market see a bloodbath on Budget Day

As soon as the Union Finance Minister Nirmala Sitharaman began presenting the Union Budget 2026 Nifty and Sensex in the early hours of trade appeared volatileOnce FM Sitharaman announced the increase in Securities Transaction Tax STT on Futures and Options FampO transactions the market indices tumbled altogetherSitharaman said STT on futures will increase by 150 per cent from 002 per cent to 005 per cent while STT on options transactions will rise by 50 per cent from 010 per cent to 015 per centThe announcement of a hike on STT by the FM created panic within the stock market With many investors beginning to square off their positions the market experienced a sudden dip around 1230 pmAmid a sharp selloff the Nifty closed at 2482545 on Sunday down 196 per cent The Sensex also ended significantly lower settling at 8072295 a decline of 188 per centMarking one of the worst Budgetday declines in years investors reacted to key policy announcements and broader economic concerns Considering that the Budget did offer a major boost to some of the sectors such as health technology defence and solar energy it was a setback for value investors and tradersWhat experts sayCA Praveen Tejwani a value investor and an auditor at a global financial institution while decoding the sudden fall in the indices on Sunday asserted The increase in Securities Transaction Tax STT on FampO trades signals a clear policy intent to rein in excessive speculation particularly among retail investors while safeguarding the integrity of Indiarsquos capital marketsAlthough the immediate market reaction reflects discomfort with higher transaction costs the move should be viewed in a broader structural context By making highfrequency and shortterm derivative trading more expensive the Budget encourages more prudent risktaking and longerterm capital allocation thereby offering greater protection to retail investors Tejwani addedCA Amber Joshi who works as a finance associate in Mumbai highlighted The market was already trading at stretched valuations and was due for a healthy correction Expectations were high from the Union Budget for select PSU and railwaylinked stocks such as RVNL IRFC and IRCON International but the lack of specific announcements for these sectors dampened investors sentimentThis triggered panic selling especially among retail investors Apart from the hike in Securities Transaction Tax STT heavy selling by foreign institutional investors FIIs further added pressure accelerating the marketrsquos downward move throughout the budget day added JoshiLargecap stocks tumbleAnother major reason for indices experiencing a massive increase on the Budget Day was lower amplification of largecap stocks including Reliance Industries and State Bank of India RIL on Sunday closed at Rs 134700 experiencing a decline of 347 per cent while SBI closed at a lower circuit of Rs 101820 signifying a dip of 547 per centWhy did the government increase STTWhile the exact reason behind the sudden hike in STT is not clear experts suggest it could be aimed at curbing speculative activityNew taxation scheme on futures and optionsUnder the new budget proposals presented by the Union Finance Minister Nirmala Sitharaman STT on futures will surge from 002 per cent to 005 per cent while the STT on options will rise from 010 per cent to 015 per cent