- STT on futures & options jumped, inflating trading costs and pressuring derivative volumes.
- Capex for FY27 surged to ₹12.2 lakh crore, spotlighting infrastructure, steel, cement and rail projects.
- FPIs continue to bleed, offloading over $23 bn of Indian equities despite budget promises.
- Defence spending rose 18%, offering a niche upside for domestic manufacturers.
- Long‑term fundamentals remain robust; the real play is picking sector beneficiaries, not chasing volatility.
You just watched the Sensex tumble over 1,200 points – and the real story isn’t the drop.
Why the STT Surge Is Sending Derivatives Traders Running
The Union Budget 2026 introduced a higher securities transaction tax (STT) on futures and options, lifting the levy by a few basis points. For a market already jittery from global headwinds, that extra cost is a blunt instrument that bites into the profitability of high‑frequency and retail speculators alike. STT is a tax levied on each trade; a rise directly shrinks net returns, especially for short‑term positions that turn over daily.
Helios Capital’s Samir Arora warned that “the issue was not unmet expectations, but a negative shock investors weren’t prepared for.” Mirae Asset Sharekhan’s Somil Mehta echoed this, noting that higher STT compresses liquidity, widening bid‑ask spreads and potentially triggering a cascade of margin calls in leveraged accounts.
Sector impact: brokerage houses, proprietary trading desks, and exchange‑linked funds are the first to feel the squeeze. Their operating margins, already thin from competitive fee wars, could see a 0.5‑1% dip, translating into lower earnings guidance for publicly listed brokers such as Zerodha and ICICI Direct.
How the Budget’s Capex Boost Reshapes Infrastructure, Steel & Cement
While the tax shock grabbed headlines, the budget’s crown jewel is a double‑digit jump in capital expenditure – from ₹10 lakh crore in FY26 to ₹12.2 lakh crore for FY27. That ₹2.2 lakh crore infusion targets rail corridors, urban development, manufacturing clusters, semiconductors and clean energy.
Infrastructure‑linked equities stand to benefit. Companies like Larsen & Toubro (L&T), Adani Ports, and UltraTech Cement could see order books swell as the government fast‑tracks highway and rail projects. Historically, a 10% capex rise in India has lifted the average earnings growth of the top‑10 construction firms by 3‑4% over the subsequent two fiscal years.
Steel producers such as JSW Steel and Tata Steel also gain; increased demand for rails and bridges fuels higher steel consumption, supporting price stability in a sector that often suffers from global oversupply.
Foreign Portfolio Investor Exodus: Why the Budget Didn’t Change the Narrative
FPIs have sold more than $23 bn of Indian equities in the past twelve months, and the budget offered no tangible relief on capital‑gains tax or repatriation limits. The only bright spot was a modest increase in investment limits for overseas investors, but that pales against the higher STT and unchanged tax on short‑term capital gains.
Without a clear post‑tax return upside, foreign money is likely to stay on the sidelines, keeping the equity premium elevated. Analysts compare this to the 2018 “Make in India” budget, where similar FPI outflows persisted until the government introduced a 10% tax rebate on foreign‑held equities – a move absent this year.
Historical Parallels: Past Tax Hikes vs Market Resilience
India’s 2013 securities tax hike on derivatives caused a brief but sharp sell‑off, wiping out roughly 800 points from the Sensex within a week. However, the market rebounded within three months as the fiscal year progressed and capex projects materialised. The lesson: tax‑driven volatility can be short‑lived if structural growth drivers stay intact.
Similarly, the 1991 tax reforms spurred an initial panic but ultimately unlocked a decade of high‑growth equities, driven by deregulation and investment liberalisation. Investors who focused on fundamentals – banks, consumer staples, and exporters – outperformed speculative traders.
Investor Playbook: Bull and Bear Scenarios Post‑Budget
Bull Case: Investors cherry‑pick capex beneficiaries – L&T, UltraTech, Power Grid, and defence OEMs like Hindustan Aeronautics. Coupled with a stable fiscal stance, these names could enjoy 12‑15% EPS growth over FY28, delivering robust total returns even if derivative volumes stay muted.
Bear Case: Continued STT pressure erodes broker margins, FPI outflows deepen, and the rupee slides further. In this scenario, high‑beta derivative‑focused stocks and small‑cap speculative plays could underperform, dragging the broader index down 5‑7% year‑to‑date.
Strategic tilt: Maintain a core of quality large‑cap fundamentals while keeping a modest tactical exposure (5‑10% of portfolio) to high‑yielding infrastructure bonds that benefit directly from the capex surge.