Goldman Sachs: STT, fears of Monday FPI selling drive worst Budget-day selloff in 6 years

Goldman Sachs in its latest note said concerns over higher Securities Transaction Tax (STT) on futures and options, along with fears that foreign portfolio investors would intensify selling on Monday, triggered the sharpest Budget-day selloff in six years.

The foreign brokerage said Indian equities saw a volatile session on Budget announcements, with the Nifty falling 2 per cent, marking its worst Budget-day decline in six years. PSU banks, metals, energy, infrastructure and mid and smallcap stocks declined the most, while information technology, pharmaceuticals, financials and consumption-oriented stocks held up relatively better.

“We think the market weakness reflects a combination of concerns around the rise in securities transaction taxes on futures and options segments, global metal selloff on Friday, and domestic selling on low volumes in anticipation of foreign outflows on Monday,” Goldman Sachs said.

In the Budget 2026, the STT on options premium was raised from 0.1 per cent to 0.15 per cent. On futures, STT was raised to 0.05 per cent in the Budget 2026, signaling the government’s intent to moderate excessive speculative activity in the derivatives market.

Nifty plunged 748.9 points, or 2.95 per cent, to hit a low of 24,571.75, before recovering part of the losses later in the session. It eventually settled the day at 24,825.45, down 495.20 points or 1.96 per cent.

Goldman Sachs said that while it remained constructive on Indian equities, it anticipated near-term risks to valuations, given already weak foreign sentiment, which was further catalysed by the unexpected timing of the STT hike.

“Overall, the softer fiscal drag in the Budget, along with steady capex spending, was largely in line with our expectations and supports our fundamentally constructive view on Indian equities driven by an earnings growth recovery to the mid-teens. We do however anticipate near-term risk on valuations,” it said.

Across sectors, Goldman Sachs said no new consumption stimulus was announced, but consumption recovery could sustain on the lagged impact of policy easing from last year. On capital expenditure, it said the prioritisation of defence spending reinforced its overweight view on the sector.

Net-net, the brokerage said policymakers continued to prioritise macro and market resilience over near-term growth spurts. This was evident in steady fiscal consolidation and the timing of the STT hike, which was likely aimed at curbing derivatives market speculation, even at the cost of near-term equity upside.

“Over the medium term, we see rising opportunity in areas of strategic importance and new infrastructure, including digital infrastructure and data centres, biotech, transportation corridors, nuclear power and critical minerals,” Goldman Sachs said, adding that it retained its constructive view on Indian equities and expected high-teen full-year returns driven by an underlying earnings recovery.