Indian equity markets saw a historic and volatile trading session on Sunday, February 1, 2026, as the Union Budget announcements triggered a sharp sell-off. The benchmark Sensex plunged 1,547 points, or 1.88 percent, to close at 80,722.94. The Nifty 50 index also tumbled 495.20 points, or 1.96 percent, ending below the key 25,000 level at 24,825.45.^[1][2][3][4] This market reaction followed Finance Minister Nirmala Sitharaman's ninth consecutive Budget presentation.^[5][6][7] ### Derivatives Tax Hike Rattles Investors The primary reason for the market's downturn was an unexpected hike in the Securities Transaction Tax (STT) on derivatives trading.^[1][2][3] The STT on futures contracts increased to 0.05 percent from 0.02 percent.^[2][3][8] Additionally, the tax on options premium and the exercise of options rose to 0.15 percent from previous rates of 0.1 percent and 0.125 percent, respectively.^[8] This move makes derivative trades more expensive for investors.^[3] Investor wealth eroded by nearly 10 lakh crore during the session.^[1] Brokerage stocks felt a significant impact, sliding almost 12 percent due to fears that higher costs would cool activity in the busy F&O markets.^[4][8] Oil and gas shares also plunged for the second consecutive trading session.^[2] The India VIX, a gauge of market volatility, rallied 7.11 percent to 14.60.^[2] ### Global Cues and Special Trading Day Markets were already facing weak global cues from Friday, January 30.^[9] US markets closed lower due to renewed Federal Reserve policy uncertainty and mixed corporate earnings reports.^[9] The Dow Jones Industrial Average fell 0.85 percent, the S&P 500 declined 0.52 percent, and the Nasdaq Composite dropped 0.66 percent.^[9] Concerns about a new Federal Reserve chair nominee stirred fears of a hawkish interest rate policy.^[9] Indian stock exchanges, including the NSE and BSE, along with commodity markets, held a special live trading session on Sunday, February 1.^[9][10][11] This rare event allowed real-time reactions to the Budget announcements.^[7][10][12] The session marked only the second time since independence that markets opened on a Sunday for the Budget.^[9] ### Key Budget Highlights and Sectoral Impact Despite the market sell-off, the Union Budget 2026-27 included several growth-oriented measures. Finance Minister Sitharaman emphasized infrastructure development and economic stability.^[13] The government plans to increase capital expenditure (CAPEX) by 10-15 percent, aiming for ₹12-12.5 lakh crore, with a focus on roads, railways, and urban development. R^[14]ailways alone received a capital allocation of ₹2.9 lakh crore. The^[4] Budget also proposed a ₹10,000 crore investment for the biopharma sector. The ^[4][13]government launched India Semiconductor Mission 2.0 and announced a tax holiday for data centers until 2047. Defen^[15][8]ce spending is set for a higher capital outlay to boost domestic production. The B^[14][11]udget also aims to expand the country's ₹25,060 crore Export Promotion Mission. Expecta^[16]tions for the Budget also included increased spending on agriculture, potentially rising to ₹1.5 lakh crore. ### Inve^[14]stor Sentiment and Future Outlook Market watchers generally view the Union Budget 2026-27 as positive for long-term economic growth. They poin^[3]t to its focus on fiscal discipline and structural reforms. Some expe^[3]rts believe the immediate market fall on Sunday was a "knee-jerk reaction." Kranthi B^[3]athini, Equity Strategist at WealthMills Securities, expects continued negativity on Monday but also some "bottom fishing" at lower levels. Anita Ga^[3]ndhi, Institution Head at Arihant Capital Markets, noted investor disappointment, especially concerning the STT hike. She said ^[3]this impacted short-term traders and led to near-term nervousness. However, ^[3]NSE CEO Ashish Chauhan expressed confidence that the market would absorb the STT hike. FIIs wer^[4]e net sellers of ₹394 crore on January 29, 2026, while Domestic Institutional Investors (DIIs) were net buyers of ₹2,639 crore. Overall net i^[17]nstitutional flow remained positive at nearly ₹2,245 crore. The Budget also^[17] announced plans to review the foreign exchange management framework. It will increas^[18]e the individual foreign investment limit from 5 percent to 10 percent, and the combined cap from 10 percent to 24 percent, to enable foreign investors to take larger stakes in Indian companies. Crypto taxation^[18] remained unchanged, disappointing some industry participants. Sectors such a^[8]s defence, infrastructure, PSU banks, and agriculture-related stocks are expected to remain in focus. The Budget's em^[11][19]phasis on biopharma, semiconductors, and data centers also highlights potential growth areas. The market's fo^[8][13]cus is likely to shift back to corporate earnings and the implementation of the government's ambitious investment plans as the dust settles.

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