Union Budget 2026 triggers sharp selloff in stock market: Will the correction extend on Monday?

Union Budget 2026 disappointed equity investors as market participants reacted to the Finance Minister’s announcement of an increase in Securities Transaction Tax (STT) on futures trading to 0.05% from 0.02%, making derivative trades marginally costlier. The sentiment was further weighed down by the government’s decision to tax share buyback proceeds as capital gains for all categories of shareholders.

At the end of the day, the benchmark NSE Nifty 50 index closed 495.20 points, or 1.96%, lower at 24,825.45. Likewise, the BSE Sensex settled 1,546.84 points, or 1.88%, down at 80,722.94 on February 1, 2026. Other major indices on the NSE including Nifty Next 50, Nifty Bank, Nifty Financial Services and Nifty Midcap Select also plummeted more than 2% on Sunday.

Market watchers believe that the Union Budget 2026-27 is positive from a longer-term economic growth perspective, especially with its continued focus on fiscal discipline and structural reforms. Some also see Sunday’s fall as a knee-jerk reaction.

Kranthi Bathini, Equity Strategist, WealthMills Securities said, “Market may remain negative on Monday also. However, some bottom fishing is expected at lower levels.”

Sharing her view on the Union Budget and market outlook, Anita Gandhi, Institution Head, Arihant Capital Markets said, “There has been a fair amount of disappointment when compared to market expectations. The increase in STT rates on futures and options has particularly impacted short-term traders, who were hoping for some relief or stability on the taxation front. This has led to near-term nervousness and profit booking in the markets, which is reflected in the current negative sentiment.”
Gandhi further added that while the budget reinforces the government’s commitment to sustainable growth, the absence of immediate catalysts for the equity markets and the added cost burden on derivatives trading have dampened short-term enthusiasm. The current market reaction appears more sentiment-driven, and as clarity improves, focus is likely to shift back to fundamentals and earnings growth.

Dhiraj Relli, MD & CEO, HDFC Securities said, “Today’s market reaction stems primarily from the revised Securities Transaction Tax framework. The immediate correction appears to be a knee-jerk response.”

Overall, 2,073 settled the day in red on the NSE, while 1,057 ended in black. In the Nifty50 index, Wipro, Max Healthcare Institute, TCS, and Cipla gained somewhere between 1% and 2.50%. On the other hand, BEL, Hindalco, ONGC, State Bank of India, and Adani Ports plunged more than 5%.

Apurva Agarwal, Founder, Universal Legal, said, “Union Budget 2026 reflects a complex but deliberate shift in India’s legal, tax, and regulatory landscape. While markets reacted sharply in the short term, particularly to the increase in the Securities Transaction Tax on derivatives, the larger intent of the budget appears to be structural reform rather than headline-driven relief.”