The Indian domestic indices Sensex and Nifty saw a sharp and unsettling sell-off during the special Budget trading session today (Feb 1).
The key reasons behind this plunge was due to investors reacting to a series of tax changes and policy changes announced by Finance Minister Nirmala Sitharaman during her Budget speech in the parliament.
What began as a cautious trade suddenly turned into a steep decline The benchmark indices slipped deeper into the red as the Budget speech progressed and intensified after it concluded.
During intraday trade, the Sensex crashed more than 1,600 points, while the Nifty slipped below the 25,000 mark. Midcap and smallcap stocks also came under pressure.
Let’s take a look at the key reasons why the markets fell during the Budget speech –
Markets crack as Budget speech concludes
The sharpest fall came around midday, shortly after the Finance Minister wrapped up her Budget address.
The Sensex was down 1,649 points at 80,619 in the intraday trading session, while the NSE Nifty had fallen 481 points to 24,838. The sharp fall came after several Budget announcements, especially those linked to market-related taxes and capital market policies. though there is some recovery intra-day.
5 reasons why the market is falling today
Higher STT on derivatives rattles traders
One of the biggest triggers for today’s market fall was the government’s decision to raise the Securities Transaction Tax (STT) on futures and options trading.
The Finance Minister Sitharaman announced that STT on futures has been increased to 0.05% from 0.02%, while STT on options trading has been raised to 0.15%.
This is seen as a move that directly increases trading costs for market participants, especially high-frequency traders and derivatives-heavy investors.
Capital market stocks plunge sharply
The impact of the STT hike was most visible in the Nifty Capital Markets index, which slipped nearly 7%.
Almost all stocks in the index were trading in the red during the session. MCX was the worst hit, plunging as much as 18%, while Angel One and BSE slipped into lower circuits, falling around 10% each. Nuvama also declined over 9%.
Broader market underperforms benchmarks
The broader market also saw a sharp plunge. The Nifty Smallcap 250 index fell around 1%, while the Nifty Midcap 100 slipped about 0.8%.
Sector-wide selling adds to pressure
Most sectoral indices traded in the red as selling pressure spread across the board during the Budget session. The Nifty Metal index was the worst performer, falling around 4%. Nifty PSU Bank slipped over 4%.
Other key sectors also saw losses. Nifty Financial Services declined about 1%, Nifty FMCG fell 1%, Nifty Media slipped 1%, and Nifty Realty dropped around 1.4%. Even relatively defensive pockets like IT, Pharma, Auto and Consumer Durables traded lower, with losses ranging between 0.2% and 1%, showing the depth of today’s sell-off.
Tax changes on buybacks add to investor unease
Adding to market nervousness was the Finance Minister’s announcement that buyback proceeds for all categories of shareholders will now be taxed as capital gains. This removes a tax-efficient route that many companies and investors relied on, particularly in large-cap stocks.
The Budget also proposed reducing the Minimum Alternate Tax (MAT) rate from 15% to 14%, while treating MAT as a final tax.
Several factors combined to push markets sharply lower during today’s special Budget trading session. The increase in STT on futures and options raised concerns about higher trading costs. The absence of major announcements for sectors like defence and PSU banks disappointed expectations. Capex allocation for FY27 came in lower.