The Union Budget 2026, presented by Finance Minister Nirmala Sitharaman, triggered a sharp fall in stock markets. The Sensex dropped more than 2,300 points, and nearly ₹10 lakh crore in market value was wiped out within hours of the announcement.
At first, the reaction seemed confusing. The Budget did not introduce major policy changes, stuck to fiscal discipline, and kept most spending allocations close to last year’s levels. Yet, markets turned volatile, with heavy selling seen in exchange and brokerage-related stocks.
The main reason for the sell-off was not government spending, but changes in capital market taxes—especially higher costs for derivatives trading.
Fiscal Discipline Remains the Focus
Budget 2026 continues the government’s steady approach to reducing the fiscal deficit rather than increasing spending sharply.
The fiscal deficit for FY27 has been set at 4.3% of GDP, slightly lower than last year. Capital expenditure has been raised by 9% to ₹12.2 lakh crore, showing continued focus on infrastructure-led growth. The debt-to-GDP ratio is expected to fall from 56.1% to 55.6%, with a long-term goal of reaching 50% by FY31.
Defence spending stands at ₹7.85 lakh crore, while education and healthcare allocations remain at 2.46% and 1.96% of GDP, largely unchanged from previous years.
Infrastructure Spending Continues
The Budget once again prioritises investment in long-term assets rather than short-term consumption.
Major spending has been directed towards highways, railways, logistics, digital infrastructure, and urban development. The communications budget of ₹73,990 crore focuses mainly on reviving BSNL and expanding BharatNet. Transport and logistics projects such as freight corridors and waterways remain key focus areas.
While infrastructure investment supports jobs and growth, its real impact will depend on how well and how quickly projects are executed.
No Direct Tax Relief for Individuals
For individual taxpayers, Budget 2026 brings ease in procedures but no reduction in taxes.
Income tax slabs and rates under the new regime remain unchanged. The highest tax rate of 30% continues to apply to income above ₹24 lakh, meaning salaried individuals will see no change in take-home pay.
However, the government has extended the deadline for filing revised returns to March 31, reduced TCS on foreign remittances and overseas travel to 2%, and simplified TDS rules for NRI property transactions. These steps make compliance easier but do not lower tax liability.
STT Hike Hits Market Sentiment
The most market-sensitive announcement was the increase in Securities Transaction Tax (STT) on derivatives.
STT on futures trades has been raised from 0.02% to 0.05%, while options trades now attract 0.15%, up from 0.10%. Given that derivatives volumes in India run several times higher than the country’s GDP, even small tax hikes significantly impact trading economics.
Predictably, stocks linked to exchanges, brokerages, and market infrastructure came under pressure as investors priced in lower trading volumes and thinner margins. For active traders seeking stock recommendations for short term, this shift in cost structure becomes a crucial variable in strategy selection.
Changes Affecting Buybacks and Gold Bonds
The Budget also made changes that affect investors outside the equity market.
Tax exemption on redemption of Sovereign Gold Bonds (SGBs) will now apply only to bonds bought directly from RBI and held till maturity. Bonds bought from the secondary market will attract capital gains tax from April 1, 2026.
In addition, share buybacks will now be taxed as capital gains for all shareholders. This removes the earlier tax advantage buybacks had over dividends. Promoters will face higher tax rates, bringing buyback taxation closer to dividend taxation.
Support for Strategic Sectors
Budget 2026 continues to support sectors seen as important for long-term growth.
A ₹40,000 crore allocation under India Semiconductor Mission 2.0 aims to boost domestic manufacturing and supply chains. Rare earth exploration corridors have been announced in Odisha, Andhra Pradesh, and Tamil Nadu.
To attract global investment in digital infrastructure, foreign companies running data centres in India will get tax exemptions until 2047. High-speed rail corridors, freight routes, and MSME support measures were also announced, though their impact will be seen over several years.
A Budget of Continuity
Overall, Budget 2026 avoids major reforms or populist announcements. Spending on education and healthcare remains limited, regional development allocations stay modest, and there are no major changes in direct taxes or labour laws.
The focus remains on fiscal discipline, infrastructure development, and gradual policy changes.
Market Takeaway
The post-Budget sell-off reflects short-term anxiety around higher trading costs, not a deterioration in India’s economic fundamentals. For long-term investors, the Budget leaves the broader growth narrative intact.
In the near term, volatility may persist, especially in market-linked stocks. This is where disciplined analysis—preferably guided by a SEBI registered stock trading advisor—becomes essential, particularly for traders navigating short-term opportunities in a changing cost environment.
Ultimately, markets have delivered a sharp reminder: even modest policy tweaks in high-volume segments like derivatives can trigger outsized reactions, even when the macro picture remains stable.
