The Indian stock market experienced a volatile session following the presentation of the Union Budget 2026, with benchmark indices Sensex and Nifty registering a sharp decline on Sunday, February 1st. The Nifty fell by 1.96%, marking its worst budget-day decline in six years. The Sensex settled at 80,722.94, a loss of 1,546.84 points or 1.88%, while the Nifty closed at 24,825.45, down by 495.20 points or 1.96%. This "Budget-day selloff" was largely attributed to concerns surrounding a hike in the Securities Transaction Tax (STT) on futures and options, coupled with already weak foreign investor sentiment.
The proposed increase in STT on derivatives, the first in two years, triggered worries about increased trading costs and reduced market participation. Pranav Haridasan, MD and CEO of Axis Securities, noted that this hike, combined with higher capital gains taxes from the previous year, raised overall transaction costs, impacting both foreign investors and domestic traders. Revenue Secretary described the STT increase as modest relative to overall turnover, aimed at mitigating systemic risks.
Despite the market's negative reaction to the budget, Goldman Sachs remains optimistic about the long-term prospects of Indian equities. While acknowledging near-term risks to valuations exacerbated by the STT hike and weak foreign sentiment, the firm maintains a "fundamentally constructive view". They anticipate an earnings growth recovery to the mid-teens, supporting their positive outlook.
Goldman Sachs believes that the budget's softer fiscal drag and steady capital expenditure spending align with their expectations. Although no new consumption stimulus was announced, they suggest that consumption recovery could be sustained by the lagged impact of policy easing from the previous year. The prioritization of defense spending in the budget reinforces their overweight view on the sector. They also see rising opportunities in areas of strategic importance and new infrastructure, including digital infrastructure, data centers, biotech, transportation corridors, nuclear power, and critical minerals.
The market weakness reflected concerns around the STT hike on futures and options, a global sell-off in metals, and domestic selling on low volumes in anticipation of foreign outflows. Sectors that declined the most included BSE PSU Bank (5.60%), metal (3.85%), energy (3.14%), and infrastructure. Conversely, information technology, pharmaceuticals, financials, and consumption-oriented stocks held up relatively better.
Other analysts echoed the sentiment that the market's reaction might have been a knee-jerk response, given the budget's continued prioritization of infrastructure and manufacturing while maintaining fiscal discipline. Vinod Nair, Head of Research at Geojit Investments Limited, stated that the budget supports sectors affected by global trade tariffs and focuses on emerging areas of development such as data centers, GCC, semiconductors, biopharma, and rare earth elements.
The Union Budget 2026 aims to boost infrastructure growth and economic stability with strategic measures. While the increase in STT has dampened near-term market sentiment, some experts believe the impact on long-term investors will be limited. The focus on infrastructure, manufacturing, and specific sectors like biopharma, semiconductors, and textiles suggests a continued commitment to long-term economic growth, which could eventually outweigh the initial negative reactions to the budget.