It was a dramatic Sunday for the stock market. As the Union Budget 2026 speech unfolded, benchmark indices tumbled, with the Sensex plunging over 1,000 points and the Nifty falling below the 25,000 mark. By 12:30 PM, the sell-off had peaked: the Sensex was down 1,150 points (1.4%), while the Nifty had shed over 2% to 24,790.
However, the panic was short-lived. Around 1:00 PM, the markets began a slow but steady recovery as investors started buying the dip, helping indices trim their losses to below 1% as the initial shock of the tax announcements faded.
Let’s break down the key sectoral announcements that triggered this rollercoaster session.
STT Shock Sends Capital Markets Tumbling
The historic Sunday trading session turned volatile after Dalal Street reacted sharply to the Budget 2026 tax measures, particularly the hike in Securities Transaction Tax (STT). Both the Sensex and Nifty corrected more than 1% during mid-session, reflecting concerns over higher transaction costs.
The government’s proposal to increase STT by over 50% on futures (0.02% → 0.05%) and from 0.01% → 0.15% on options created immediate market anxiety. Despite the Budget’s long-term focus on infrastructure, manufacturing, and digital growth, the absence of capital gains tax relief added to short-term uncertainty.
Capital Market Stocks Bear the Brunt
Capital market-linked stocks experienced one of their sharpest one-day declines in months. Key moves included:
- BSE: down nearly 15% intraday
- IIFL Capital Services: down 17.5%
- Groww: down 14%
- Angel One: down 13%
These declines reflected fears of lower futures-and-options turnover, which forms a significant portion of revenue for exchanges and brokerage firms.
FPI Sentiment Under Pressure
The STT hike also raises questions about foreign portfolio investor (FPI) behaviour. While long-only, fundamentals-driven FPIs may remain largely unaffected, derivative-focused and high-frequency global funds could become more cautious.
FPIs have already shown equity outflows of over Rs 41,000 crore in January 2026, influenced by global risk-off sentiment, rising US yields, and currency volatility. Higher transaction costs reduce post-tax returns, potentially making India less competitive than other Asian markets like Taiwan and Korea.
IT Stocks Rally on Tax Holiday Announcement
In contrast to capital market stocks, IT services companies gained momentum following the announcement of a tax holiday until 2047 for foreign companies providing cloud services via Indian data centres.
Shares of Coforge, TCS, Infosys, Persistent Systems, and Wipro rose more than 2% each. The long-term policy clarity and duration of the tax holiday provide a significant tailwind, positioning India as a regional hub for cloud and digital infrastructure.
Pharma Stocks Surge on Biopharma Shakti
The ‘Biopharma Shakti’ initiative, with an outlay of Rs 10,000 crore over the next five years, aims to make India a global centre for biologics and biosimilars.
Investors responded positively, expecting:
- Increased domestic production capacity
- Stronger export potential
- Long-term growth visibility for high-value pharmaceutical segments
Railway Stocks Gain Momentum
Railway-related companies also benefited from infrastructure-focused announcements:
- Quadrant Future Tech: +3%
- Jupiter Wagons: +1.87%
- IRFC & RITES: +1.2%
- RailTel: +1.08%
Markets are optimistic that the government’s transport and logistics modernisation plans will benefit the railway ecosystem.
Balanced Strategy for Investors
Union Budget 2026 triggered a swift and dramatic market reaction, largely due to the STT hike and absence of capital gains tax relief. Yet, the intra-day recovery indicates that long-term investors still see strong structural growth opportunities in India.
Sectors likely to benefit from policy support include:
- IT and digital services
- Pharmaceuticals and biopharma
- Railways and transport infrastructure
- Semiconductors and manufacturing
For investors, the takeaway is clear: adopt a balanced, selective approach, focusing on resilient, policy-backed sectors, and long-term fundamentals while managing short-term volatility triggered by tax changes.
*The article is for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
