Budget 2026 Fallout: Indian Stock Markets Brace for Cautious Opening
Indian stock market benchmarks, the Sensex and Nifty 50, are likely to witness a cautious to mildly negative opening on Monday, February 2, as investors continue to process key announcements from Budget 2026 alongside weak global cues. The absence of market-friendly tax relief measures and the sharp increase in Securities Transaction Tax (STT) on derivatives are expected to weigh heavily on early trading sentiment, particularly affecting high-beta and futures & options (F&O) heavy counters.
Analyst Insights on Market Sentiment and Global Factors
According to Aakash Shah, Technical Research Analyst at Choice Equity Broking, "Indian equities are likely to see a cautious to mildly negative opening on Feb 2 as investors digest key Budget announcements alongside weak global cues." He further elaborated that pressure from a stronger US dollar, weakness in cryptocurrency markets, and mixed US futures may cap any sharp upside in Indian benchmarks. Recent trading sessions have also witnessed sustained selling by Foreign Institutional Investors (FIIs) amid a global risk-off positioning environment.
Mayank Jain, Market Analyst at Share.Market, echoed this sentiment, advising investors to prepare for volatility when markets open. "The market is still trying to balance the bad news of the trading tax (STT) hike against the good news of the government’s growth plans," he noted.
Critical Technical Levels for Traders to Monitor
From a technical perspective, markets are currently in a consolidation-to-corrective phase, with key levels determining the immediate direction. Shah highlighted specific zones for the Nifty 50:
- Immediate Support: 24,500 to 24,400. The 24,500 strike currently holds the maximum Put Open Interest (OI), significantly increasing its importance as a key floor for the index.
- Immediate Resistance: 25,000 to 25,100. This zone acts as a stiff "supply wall" on recovery attempts, with significant Call Open Interest suggesting sellers will defend this range aggressively.
A decisive move above 25,150 could potentially open a path toward 25,550. Conversely, Shrikant Chouhan, Head of Equity Research at Kotak Securities, stated, "We are of the view that the short-term market texture is volatile, and volatility is likely to continue in the near future. Hence, level-based trading would be the ideal strategy for day traders." He noted that as long as the Nifty trades below 25,000 and the Sensex below 81,300, weak sentiment may persist. Further correction could test 24,650–24,600, with 24,300 as a potential downside if selling intensifies.
Market Reaction on February 1: A Sharp Decline
On Sunday, February 1, markets reacted sharply after Finance Minister Nirmala Sitharaman announced a steep hike in STT on derivatives. The STT on futures was raised to 0.05% from 0.02%, and on options to 0.15% from 0.01% earlier.
The fallout was significant:
- The BSE Sensex fell 1,547 points (1.88%) to close at 80,722.94.
- The Nifty 50 declined 495 points (1.96%) to settle at 24,825.45.
- Nearly ₹10 lakh crore in investor wealth was wiped out as total market capitalisation fell from ₹460 lakh crore to ₹450 lakh crore.
Broader markets were also hit hard, with the BSE MidCap index down 1.91% and the SmallCap index falling 1.61%. Sectorally, the Nifty PSU Bank index plunged 5.57%, the Metal index dropped 4.05%, and indices for Oil & Gas, Financial Services, Auto, FMCG, and Realty fell over 2%. The Nifty Bank ended 2% lower at 58,417.20.
Ajit Mishra of Religare Broking explained the sentiment-driven reaction: "The negative market reaction to the STT hike is largely sentiment-driven and linked to higher transaction costs, especially in the derivatives segment, which contributes significantly to daily volumes." He added that brokerage and exchange stocks faced disproportionate pressure due to concerns around liquidity and trading profitability.
Long-Term Fundamentals Remain Supportive Despite Volatility
Despite the immediate volatility, analysts believe the broader economic and earnings outlook remains intact. Budget 2026's fiscal discipline, a record ₹12.2 lakh crore capital expenditure plan, and an infrastructure-led growth strategy continue to support the long-term equity narrative.
Divam Sharma of Green Portfolio PMS noted, "While short-term market reactions may be influenced by macro factors and liquidity conditions, consistent capex-led growth can support higher long-term equity valuations, especially for cyclical and capital goods stocks." He emphasized that such growth may help restore investor confidence once short-term noise subsides.
As markets open on Monday, traders are likely to remain cautious near resistance levels, while long-term investors may view declines as opportunities in fundamentally strong sectors. The initial reaction may remain muted or weak, but technical supports and robust macro fundamentals could limit deeper downside, potentially setting the stage for stabilization after the Budget-induced shock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
