India's stock markets commenced the special Sunday trading session on a relatively stable note, with benchmark indices showing a flat-to-positive trend in early hours. The Sensex briefly touched an intraday high near 82,726 points, while the Nifty approached the 25,357 mark, reflecting cautious optimism among investors ahead of key fiscal announcements.
Budget Announcements Trigger Market Downturn
However, market sentiment deteriorated rapidly following the unveiling of Union Budget 2026-27, as targeted tax increases and unmet expectations weighed heavily on investor confidence. The indices swiftly moved into negative territory, erasing early gains and highlighting the budget's immediate impact on financial markets.
Key Factors Driving Market Volatility
The downturn was primarily fueled by several budget provisions that directly affect trading costs and sectoral dynamics:
- Derivatives Tax Hike: Budget 2026 introduced significant increases in securities transaction tax (STT) on futures and options. The STT on futures doubled to 0.05% from 0.02%, while the tax on options premiums rose to 0.15% from 0.1%. These changes aim to curb excessive speculation in derivatives markets but are expected to substantially raise costs for retail and institutional traders, potentially reducing F&O volumes. Companies like BSE, Groww, Nuvama Wealth, and Angel One may face negative impacts due to reduced trading activity.
- Higher Government Borrowing: The budget's elevated borrowing plans could strain systemic liquidity and push up bond yields. This scenario might adversely affect banks' treasury incomes and increase market borrowing costs, creating near-term sentiment headwinds for financial institutions. While the banking sector maintains strong fundamentals with robust balance sheets and improving asset quality, stocks such as State Bank of India, Bank of Baroda, and Punjab National Bank could experience temporary pressure.
Sector-Specific Budget Impacts
Beyond broad market effects, Budget 2026 introduced measures with varied implications across industries:
Positive Developments for Select Sectors
- Construction Equipment: A dedicated program to boost domestic production of construction machinery benefits companies like Action Construction Equipment and Escorts Kubota, which manufacture cranes, forklifts, and earthmovers.
- Technology and Data Centers: Anant Raj and Technoelectric stand to gain from a tax holiday until 2047 for foreign cloud providers utilizing Indian data centers, potentially driving demand for their Delhi-NCR facilities and positioning India as a global digital hub.
- Electronics Manufacturing: Amber Enterprises and Dixon Technologies are poised to benefit from a Rs 40,000 crore allocation aimed at strengthening local chip fabrication and PCB assembly capabilities.
- Pharmaceuticals: The "Biopharma Shakti" program, with a proposed outlay of Rs 10,000 crore, aims to enhance local production of biologics, biosimilars, and innovative drugs. This initiative supports companies like Biocon and Sun Pharma in expanding R&D and offering cost-effective treatments for conditions such as diabetes, oncology, and immunology.
- Mining and Minerals: NMDC and GMDC are set to gain from dedicated Rare Earth Corridors in states like Odisha and Andhra Pradesh, along with import duty exemptions on capital goods for critical mineral processing. These measures could boost mining activities for applications in electric vehicles, renewables, and defense sectors.
Market Outlook and Investment Perspectives
Analysts maintain a cautiously optimistic view on select stocks, with buy ratings on companies like Amber Enterprises, Dixon Technologies, BSE, Biocon, Sun Pharma, SBI, Bank of Baroda, Punjab National Bank, and NMDC. However, investors are advised to monitor evolving budget implications and market reactions closely, as near-term volatility may persist amid adjusting to new fiscal policies.
Disclaimer: Investment recommendations and market views expressed by experts are their own and do not represent the opinions of any media organization. Readers should consult financial advisors before making investment decisions.
