Markets tumble as Budget hikes securities transaction tax, Sensex, Nifty fall nearly 3%

Equity markets came under heavy pressure on Sunday after the Union Budget proposed an increase in the Securities Transaction Tax (STT) on commodity futures and introduced new tax rules on share buybacks, moves that investors fear could raise trading costs and slow short-term market activity. The announcements dampened sentiment during the Finance Minister’s speech, triggering broad-based selling across sectors.

After a volatile start and brief recovery in early trade, benchmark indices quickly lost ground. The BSE Sensex plunged 2,370 points, or 2.88 per cent, to 79,899 , slipping below the key 80,000 mark. The NSE Nifty fell 748 points, or 2.95 per cent, to 24,571, reflecting weakness across frontline stocks.

Finance Minister Nirmala Sitharaman said the STT on commodity futures would be raised to 0.05 per cent from 0.02 per cent. She also announced that share buyback proceeds will now be taxed as capital gains , reducing the earlier tax advantage for investors.

The Securities Transaction Tax is a levy charged on every buy or sell transaction executed on stock exchanges, including shares, futures, and options. Though the rate appears small, it directly increases the cost of every trade. For traders, brokers, and foreign portfolio investors who execute large volumes daily, even a marginal hike can significantly affect profits. Higher costs often lead to lower trading volumes, reduced liquidity, and increased volatility, which explains the sharp market reaction.

Market experts said the hike is particularly unfavourable for derivatives and high-frequency traders who depend on thin margins. Aakash Shah, Technical Research Analyst at Choice Equity Broking, noted that the higher STT could act as a near-term negative for foreign portfolio investor flows, especially funds focused heavily on futures and options trading.

Among Sensex stocks, Bharat Electronics fell over 6 per cent , while State Bank of India, HCL Tech, Tata Steel, and Asian Paints were among the major losers. Defensive counters such as Sun Pharma, Kotak Mahindra Bank, and Tata Consultancy Services managed modest gains. Exchange data showed foreign institutional investors had purchased equities worth Rs 2,251 crore on Friday, offering limited support to sentiment.

With global cues also weak and transaction costs rising, and the recent fall of the Indian rupee due to foreign portfolio investor (FPI) outflows, analysts expect continued volatility in the near term, as traders reassess strategies and adopt a cautious approach.