Key Takeaways
- The Finance Minister’s STT hike hit equity F&O, pulling Sensex and Nifty lower on Feb 1.
- GIFT Nifty opened above 24,800, hinting at a possible rebound for the broader market.
- Foreign Institutional Investors (FIIs) sold ₹588 cr, while Domestic Institutional Investors (DIIs) sold ₹682 cr, signaling short‑term nervousness.
- Global cues – a hawkish Fed‑nominee and a dip in oil – are adding volatility to Asian markets.
- Technical charts show the Nifty holding near its 200‑day moving average, a classic support level.
You missed the budget’s hidden tax trap—today’s market moves hinge on it.
Why the Budget‑Day STT Hike Could Cripple Equity F&O
The Union Budget announced an increase in Securities Transaction Tax (STT) on equity futures and options. STT is a levy on every trade, usually a few basis points, but even a modest rise erodes the profitability of high‑frequency and leveraged strategies. Traders who rely on thin margins see their cost‑base swell, prompting a swift pull‑back from the order books. The result was an intraday slip of the Nifty below 24,600 and a closing gap of 1.96%.
Historically, similar tax hikes have acted as a catalyst for short‑term sell‑offs. In 2018, a 0.05% rise in STT on derivatives led to a 2% dip in the Nifty within two sessions, before fundamentals re‑asserted themselves. The pattern repeats: tax‑driven cost pressure → reduced liquidity → price correction → stabilization as investors re‑price risk.
How GIFT Nifty’s Early Surge Signals a Potential Rebound
While the cash market lagged, GIFT Nifty—a pre‑market indicator traded on the NSE’s Global Index Formation Trading platform—settled around 24,879, comfortably above the previous close. GIFT Nifty’s 0.2% rise is more than a statistical fluke; it reflects overnight positioning by institutional players who anticipate a bounce once the tax shock wears off.
Technical analysts note that the index is now testing its 50‑day moving average (≈24,750). A decisive break above this level often precedes a sustained rally, especially when supported by volume. If the index holds above 24,900, we could see the Spot Nifty recover 1‑1.5% by week’s end.
Asian Market Ripple Effects on Indian Equities
Asian equities opened mixed, mirroring Wall Street’s cautious tone after the Fed‑nominee announcement. The South Korean Won, Malaysian Ringgit, Japanese Yen and Taiwan Dollar all weakened, signalling a risk‑off bias in the region. For Indian exporters, a weaker Asian currency basket can improve competitiveness, but the immediate impact is capital outflow as investors rotate into safer havens.
Comparatively, peers such as Tata Consultancy Services and Reliance Industries showed resilience, with their stock prices staying within a narrow band. Their diversified revenue streams and strong balance sheets cushion them from short‑term macro shocks, making them attractive defensive bets.
What the Fed‑Nominee Shock Means for Global Liquidity
U.S. President Donald Trump’s nomination of former Fed Governor Kevin Warsh, perceived as hawkish, sent the Dollar Index higher and Treasury yields up. The 10‑year yield rose to 4.25%, while the 2‑year nudged to 3.52%. Higher U.S. rates increase the cost of capital worldwide, pressuring emerging‑market equities, including India’s.
For Indian investors, the key takeaway is that capital may become more expensive, and foreign inflows could dwindle if the Fed tightens aggressively. This environment favors sectors with strong cash flows and low debt—think consumer staples, utilities, and high‑margin IT services.
Fund Flow Signals: FIIs vs DIIs After the Budget
On Feb 1, FIIs sold equities worth ₹588 cr, while DIIs sold ₹682 cr. The net outflow of over ₹1,200 cr reflects heightened caution. However, historical patterns show that such sell‑offs are often temporary; after a budget‑induced shock, DIIs typically re‑enter within a week, attracted by lower valuations.
Moreover, the sectoral composition of the outflows is telling: financials and auto stocks bore the brunt, whereas IT and pharma saw relatively lighter selling. This re‑allocation hints at a tactical shift toward lower‑beta, higher‑dividend segments.
Investor Playbook: Bull vs Bear Cases
Bull Case: If GIFT Nifty sustains above 24,900 and the Nifty holds its 200‑day moving average (≈23,800), a rally of 1–1.5% is plausible. Investors should consider buying on dips in high‑quality names like HDFC Bank, Infosys, and Hindustan Unilever, targeting a 3‑month upside.
Bear Case: Should the STT hike dampen F&O volumes for an extended period and global rates continue rising, the Sensex could slip another 2–3% in the next ten days. In that scenario, defensive positioning—gold, sovereign bonds, and cash‑rich large‑caps—would preserve capital.
Regardless of the path, keep an eye on the 50‑day and 200‑day moving averages, monitor fund flow trends, and stay agile to rotate between growth and defensive themes as the market digests the budget’s tax implications.
Stay disciplined, manage risk, and let the data guide your trades today.