Market gives thumbs down to Budget 2026: Sensex logs worst performance since 2021

The Indian equity market witnessed one of its sharpest Budget day sell-offs in recent years, with the BSE benchmark Sensex plunging as much as 2,827 points intraday as investors reacted nervously to key policy and tax announcements in the Union Budget 2026.

Recovering part of the steep losses, the Sensex eventually closed 1,547 points, or 1.88%, lower at 80,723. The Nifty50 also staged a partial rebound after hitting an intraday low of 24,571, but still ended the session down nearly 2% at 24,825. Overall, the market capitalisation of all BSE-listed companies declined by ₹9.72 lakh crore to ₹450.61 lakh crore.

The pain was even more pronounced in the broader market, where selling pressure intensified. The Nifty Midcap 100 declined 2%, while the Nifty Smallcap 100 slumped 2.7%, reflecting widespread risk aversion among investors.

Volatility spiked sharply, with the India VIX surging nearly 13%, signalling heightened nervousness and uncertainty over the policy impact on market liquidity and returns.

Market sentiment turned decisively negative during finance minister Nirmala Sitharaman’s Budget speech, particularly after the proposal to raise the Securities Transaction Tax (STT) on futures and options. The move sparked aggressive selling across market segments, especially among traders and stocks with high derivatives exposure.

Fourth-worst Budget day performance in two decades

Data tracking Sensex movements on Budget days over the past two decades show that the 2026 Budget ranks as the fourth-worst performance in percentage terms. The absolute point decline of 1,547 points in 2026 is the largest among the worst-performing Budget days.

The steepest fall was recorded in 2009–10, when the index plunged 5.83% amid concerns over fiscal slippage during the global financial crisis.

The second-worst Budget day decline came in 2007–08, when the Sensex fell 4.01%, followed by a 2.43% drop in 2020–21, as markets reacted to sweeping tax changes and rising global uncertainty.

STT triggered sell-off

The sell-off deepened further after the government unveiled a new taxation framework for share buybacks, proposing that buyback proceeds for all categories of shareholders would once again be taxed as capital gains. While the measure aims to curb tax arbitrage and provide relief to minority shareholders, investors reacted cautiously, viewing it as a hit to corporate capital allocation flexibility.

The Union Budget 2026–27 proposed hiking the STT on derivatives, raising STT on futures to 0.05% from 0.02%, and on options (premium and exercise) to 0.15% from 0.1% and 0.125%, respectively.

Amit Majumdar, Group Chief Strategy Officer at Angel One Ltd, said the move is unlikely to materially alter long-term market behaviour.

“India’s retail participation and broader financialisation are still at a relatively early stage. Marginal changes in transaction costs do not change the long-term behaviour of capital market participants,” Majumdar said.

Anand James, Chief Market Strategist at Geojit Investments, said the STT hike is equity-positive as options trades become more expensive. “Obviously, at a portfolio level, the hit to the derivatives segment could lead to rebalancing and drag the equity segment in the near term. But it is hard to say that the hike alone will dissuade the speculative interest tied to the derivatives market, especially options.”

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