Benchmark stock indices ended sharply lower on Budget day as investor sentiment turned cautious following key announcements in the Union Budget speech. The S&P BSE Sensex plunged 1,546.84 points to close at 80,722.94, while the NSE Nifty50 dropped 495.20 points to settle at 24,825.45. This marked one of the weakest Budget day performances for Indian markets in recent years.

Market participants attributed the sell-off to three key factors: the proposed hike in securities transaction tax (STT) on futures and options trading, the absence of strong measures to attract foreign portfolio investors, and continued FPI outflows from Indian equities.

Experts noted that the increase in derivative trading costs triggered heavy selling in stocks with high F&O participation. While the move was largely anticipated due to regulatory concerns around high-frequency trading, it nevertheless created immediate pressure on market sentiment.

Although the Budget maintained an optimistic nominal GDP growth target of around 10% for FY27 and announced sectoral support for data centres, global capability centres, semiconductors, biopharma, rare earth elements, manufacturing, textiles, aquaculture and MSMEs, investors remained unconvinced. Limited outlays, low near-term expectations and higher transaction costs overshadowed these announcements.

The lack of meaningful incentives for foreign investors further added to concerns. With foreign portfolio investors having withdrawn nearly $23 billion from Indian equities since the start of 2025, and January witnessing the highest monthly outflows in five months, market liquidity remains under pressure.

As the Nifty recorded its worst Budget day performance in six years, analysts expect near-term volatility to remain elevated. Higher trading costs, global uncertainties and persistent foreign fund outflows are likely to continue influencing market direction in the coming sessions.