STT hike: Why Futures & Options caught Centre's attention this Budget

The government's decision to hike the Securities Transaction Tax (STT) in the Union Budget 2026-27 has put the spotlight on the futures and options (F&O) segment. Sharing the rationale behind the move, Revenue Secretary Arvind Shrivastava said the increase applies only to F&O trades, underlining that STT rates across other segments have been left untouched.

In a post-Budget media briefing on Sunday, Shrivastava said the move was aimed at curbing excessive speculation in the derivatives market. "When you look at the volume of transactions in futures and options -- whether relative to GDP or to the size of the underlying securities market -- it is largely in the realm of heavy speculation, which often results in losses for small retail investors," he said.

He added that the government's intent is to discourage speculative behaviour and address systemic risks in the derivatives space. "The increase in the rate is essentially in that direction. Even after the hike, STT rates will remain modest when compared with the sheer volume of transactions taking place," Shrivastava noted.

A study by capital markets regulator Sebi showed that over nine out of 10 individual traders in the equity futures and options (F&O) segment continue to incur significant losses.

Meanwhile, domestic equity benchmarks slid sharply after the Budget presentation, as broad-based selling across most sectors -- except IT -- pulled the indices lower. Some analysts largely attributed the decline to the hike in STT on F&O.

Feroze Azeez, Joint CEO at Anand Rathi Wealth, said, “The increase in STT on futures and options significantly raises costs for derivatives traders, especially high-frequency traders, arbitragers and hedgers. This could lead to lower derivative volumes and near-term volatility. While the move is positive from a government revenue standpoint, brokerage firms may see pressure on transaction-driven earnings, and markets could face some immediate downside as participants adjust."

AR Ramachandran, part-time Sebi-registered research analyst at Tips2trades, said the hike has weighed on sentiment at a time when Indian equities have already underperformed global peers. "An increase in STT in futures and options has clearly dented market sentiment in the short term. Measures such as incentives for long-term investors or minor tax relief for foreign institutional investors could have had a more positive market impact. Broader markets may remain subdued to bearish in the near term," he said.

Offering a nuanced view, Anand James, Chief Market Strategist at Geojit Investments, said the move could have mixed implications. "On the face of it, this is equity-positive as options trading becomes more expensive. However, at a portfolio level, pressure on the derivatives segment could trigger rebalancing and weigh on equities in the near term. It is difficult to conclude that the hike alone will deter speculative interest in the derivatives market, especially in options," he said.