Market Performance: Budget Day Ends With Sharp Volatility
Budget Day usually brings nerves. This time, it brought a jolt.
On Sunday, February 1, the Indian stock market reacted sharply during intraday trade after Finance Minister Nirmala Sitharaman delivered her ninth consecutive Union Budget. While the speech focused on economic growth and fiscal discipline, one announcement instantly changed the mood.
The Sensex plunged over 2,300 points from the day’s high.
The Nifty 50 slipped to 24,571.75.
The trigger was clear and immediate, a sharp hike in Securities Transaction Tax (STT) on futures and options. As soon as derivatives taxation was addressed, selling pressure intensified across the broader market.
This wasn’t a slow reaction. It was sudden, fast, and decisive.
What Budget 2026 Changed for Markets
Budget 2026 carried several stock-market-relevant announcements. Some expanded access. Some tightened costs. Together, they reshaped sentiment in a single session.
Capital Expenditure Gets a Bigger Push
The government reaffirmed its focus on growth through spending.
Capex increased to ₹12.2 lakh crore for FY27
Previous allocation: ₹11.2 lakh crore in FY26
This continued emphasis on infrastructure and public spending formed the backbone of the Budget’s growth narrative.
STT on Futures and Options Raised: The Key Market Trigger
The most market-sensitive announcement came from the tax front.
The Finance Minister proposed a significant increase in STT on derivatives:
STT on futures raised to 0.05% from 0.02%
STT on options increased to 0.15% from 0.01%
That’s a hike of more than 50% in both segments.
The reaction was instant. Futures and options are among the most actively traded instruments in Indian markets. Any change in transaction costs directly impacts volumes, participation, and short-term sentiment. That impact showed up immediately on the indices.
Foreign Investors Get Direct Access to Indian Stocks
While derivatives saw higher costs, equity access for foreign investors widened.
The Budget proposed allowing individuals resident outside India to invest directly in Indian equities through the Portfolio Investment Scheme. Earlier, such access was largely routed via FPIs or specific NRI channels.
To support this shift, ownership limits were also revised:
Individual ownership limit raised from 5% to 10%
Combined cap increased from 10% to 24%
This move aims to broaden participation, improve price discovery, and deepen shareholding patterns across listed companies.
PIO Investment Limit Raised to 24%
Another notable step was the expansion of the Persons of Indian Origin (PIO) category.
Overall PIO investment cap increased from 10% to 24%
This aligns PIO participation with broader foreign investment limits and opens the door for higher cumulative holdings in Indian equities. The intent is to encourage deeper market participation from the global Indian diaspora.
Public Sector NBFCs Set for Restructuring
The Budget also addressed structural changes in the financial sector.
The government proposed restructuring public sector NBFCs, with a focus on consolidation and efficiency. Entities such as:
Power Finance Corporation (PFC)
Rural Electrification Corporation (REC)
were mentioned as part of a broader plan to create stronger, larger financial institutions.
The stated objective is to expand credit flow, improve technology adoption, and enhance operational efficiency through consolidation.
Income Tax Announcements: What Changed and What Didn’t
On the personal taxation front, changes were procedural rather than structural.
ITR Revision Window Extended
Deadline for revising income tax returns extended from December 31 to March 31
Applicable with payment of a nominal fee
A staggered filing schedule was also proposed:
ITR 1 and ITR 2: deadline remains July 31
Non-audit business cases and trusts: extended till August 31
No Change in Capital Gains Tax
No announcement on LTCG
No announcement on STCG
Capital gains taxation remained untouched in Budget 2026.
Bond Market Reforms Take Centre Stage
Beyond equities, the Budget laid out steps to deepen India’s bond market.
Municipal Bonds Get a ₹100 Crore Incentive
To encourage large-scale municipal bond issuance:
₹100 crore incentive proposed
Applicable for a single municipal bond issue exceeding ₹1,000 crore
This aims to push larger cities toward market-based funding and diversify financing options beyond traditional bank lending.
Total Return Swaps on Corporate Bonds Introduced
The Budget proposed the introduction of:
Total return swaps on corporate bonds
This allows investors to gain exposure to bond returns without directly holding the underlying securities, potentially improving liquidity and participation.
Review of FEMA Non-Debt Instrument Rules
The government also announced a review of:
Foreign exchange management non-debt instrument rules
The intent is to better align foreign investment regulations with evolving capital market needs.
Company Details: No Stock-Specific Announcements
Budget 2026 did not include company-specific earnings data such as:
Revenue
EBITDA
EBITDA margins
Net profits
All announcements were policy-level and market-wide, impacting participation, taxation, and structure rather than individual company performance.
Summary: A Budget That Moved Markets Instantly
Budget 2026 was a clear reminder of how sensitive markets are to policy signals.
Higher STT on futures and options triggered sharp intraday declines
Foreign investment access widened, with higher ownership limits
PIO caps raised to 24%
Public sector NBFC restructuring outlined
Municipal bonds and corporate debt markets received fresh incentives
No change in capital gains taxation
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