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Indian benchmark indices tumbled to their intraday lows during Sunday’s special trading session
Why is the Indian stock market falling?
Indian equity markets saw a sudden and sharp intraday selloff on Sunday, February 1, shortly after Finance Minister Nirmala Sitharaman presented her ninth consecutive Union Budget, outlining steps aimed at boosting growth while maintaining fiscal discipline.
The Sensex plunged more than 2,300 points from the day’s high, while the Nifty 50 slipped to 24,571.75 following the announcement of a hike in the Securities Transaction Tax (STT).
The Sensex crashed 1,547 points, or 1.88%, to close at 80,722.94, while the Nifty 50 dropped 495 points, or 1.96%, to close at 24,825.45.
Why is the stock market falling?
The primary trigger behind the abrupt market fall is the proposed increase in STT.
STT is a tax imposed by the Indian government on the purchase and sale of securities traded on recognised stock exchanges in India.
In her Budget speech, the Finance Minister proposed a sharp increase in STT on Futures and Options (F&O) transactions. She announced that STT on futures would be raised to 0.05% from the existing 0.02% — an increase of more than 50%. For options, STT on the premium and on the exercise of options is proposed to be raised to 0.15% from the current 0.1% and 0.125%, respectively.
Feroze Azeez, Joint CEO, Anand Rathi Wealth Limited, said: The increase in STT on futures and options significantly raises transaction costs for derivatives traders, particularly impacting high-frequency traders, arbitragers and Hedgers (thereby impacting their strategies). This could lead to lower derivative volumes and near-term volatility in the markets. While the move is positive from a government revenue perspective, brokerage houses may see pressure on transaction-led earnings, and markets could face some immediate downside as participants adjust to higher costs.
“I propose to raise the STT on Futures to 0.05% from the present 0.02%. STT on options premium and exercise of options are both proposed to be raised to 0.15% from the present rate of 0.1% and 0.125%, respectively,” the FM said.
Market experts believe the move could dampen trading activity. Shripal Shah, MD & CEO, Kotak Securities, said, “The steep increase in STT on futures and options, coming on top of last year’s hike, is likely to raise impact costs for traders, hedgers, and arbitrageurs. This could cool derivative activity and lead to a reduction in volumes. The intent appears to be volume moderation rather than revenue maximisation, as any potential revenue gain could be offset by lower derivative volumes.”
What Do Analysts Say?
Sonam Srivastava of Wright Research PMS further explained that this matters less for immediate flows and more for structure, from a market’s perspective.
“ PROI investors tend to be long-term, often with personal or economic links to India, and their capital is typically stickier than hot money flows. Increasing the aggregate cap from 10% to 24% meaningfully expands headroom, especially in mid- and large-cap names where foreign ownership limits often become binding constraints. Over time, this can improve liquidity, reduce volatility at the margin, and support better price discovery,” she added.
On the other hand, Seema Srivastava, Senior Research Analyst at SMC Global Securities, highlighted that higher foreign participation can lower the cost of capital for Indian companies, support better price discovery, and reduce volatility over the long term.
“The move also signals regulatory confidence and openness, enhancing India’s attractiveness as a global investment destination and potentially driving sustained FPI inflows and valuation re-rating across sectors,” Srivastava said.
February 01, 2026, 12:42 IST
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