Dalal Street is likely to begin the week on a flat to cautious note following a sharp sell-off during the special trading session held on Sunday. Investor sentiment weakened after the Union Budget for FY 2026–27 fell short of market expectations, particularly on issues related to foreign investment and rising trading costs.

Gift Nifty futures were trading near 24,869 levels early Monday, indicating that the Nifty 50 may open close to Sunday’s closing level of 24,825.45. On Sunday, benchmark indices declined nearly 2%, marking the steepest Budget day fall in percentage terms in the past six years.

One of the key triggers for the sell-off was the proposed hike in the Securities Transaction Tax on equity derivatives. Futures and options trading plays a significant role in market liquidity, and higher transaction costs are expected to dampen short-term trading activity. Market participants fear that the move could weigh on volumes and sentiment in the near term.

Another major concern was the absence of measures to attract foreign portfolio investors. Analysts highlighted that no relaxation in capital gains rules or other incentives were announced, despite sustained foreign selling and a weak rupee. Since the start of 2025, overseas investors have sold nearly $23 billion worth of Indian equities, adding persistent pressure on stock prices.

Continuous FII outflows remain a key overhang for markets. While domestic institutional investors have provided some support, experts believe this may not be sufficient to fully offset foreign selling in the short run, especially as traders reassess positions amid higher derivatives costs.

Sentiment was further impacted by the higher gross borrowing target announced in the Budget. Analysts warn that increased government borrowing could push bond yields higher, which typically hurts interest-sensitive sectors such as banking, real estate and infrastructure, while also reducing the relative attractiveness of equities.

With limited positive triggers and lingering concerns around foreign flows, trading costs and borrowing, market volatility is expected to stay elevated. Investors are likely to remain cautious until clearer signals emerge from global markets or foreign fund flows stabilise.