The benchmark equity indices witnessed a sharp sell-off during the special trading session on Sunday following the presentation of the Union Budget 2026 by Finance Minister Nirmala Sitharaman. While the speech remained broadly market-friendly at the macro level'maintaining the fiscal deficit glide path at 4.4% in FY26 and 4.3% in FY27, raising capital expenditure to around Rs 12.2 lakh crore, and reiterating a declining debt-to-GDP trajectory'the positives were overshadowed by a key negative for markets.

The sharp increase in Securities Transaction Tax on derivatives emerged as the primary trigger for the sell-off. STT on futures was raised from 0.02% to 0.05%, while the levy on options was increased to 0.15%. The move sparked aggressive unwinding in stocks linked to capital market sector, with brokerages, exchanges and other high-beta F&O counters bearing the brunt of the selling during the single special session.

Market opened on a mixed note, but failed to sustain early gains as the Budget speech progressed. Indices slipped into negative territory after investors digested the higher transaction costs. The Sensex fell below the 80,750 level, while the Nifty slipped under 24,850, dragged down by selling pressure in PSU banks, metal and energy stocks.

The S&P BSE Sensex tumbled 1,546 points or 1.88% to 80,722.94. The Nifty 50 index dropped 495.20 points or 1.96% to 24,825.45.

Bharat Electronics (down 6.02%), State Bank of India (down 5.31%) and Reliance Industries (down 3.77%) were major Nifty drags today.

In the broader market, the BSE 150 Mid-Cap index declined 1.91% and the BSE 250 Small-Cap index slipped 1.61%.

The market breadth was weak. On the BSE, 1,759 shares rose and 2,375 shares fell. A total of 182 shares were unchanged.

The NSE's India VIX, a gauge of the market's expectation of volatility over the near term, surged 10.72% to 15.10.

Stocks in Spotlight:

Shares of data centre and artificial intelligence-linked companies surged after the Union Budget 2026 unveiled long-term tax incentives aimed at attracting global cloud service providers to India.

E2E Networks jumped 7.90%, while Anant Raj rose 5.44%. Netweb Technologies India gained 5.10%.

Under the budget proposal, any foreign company providing cloud services to customers worldwide using data centre infrastructure located in India will be eligible for a tax holiday extending up to 2047. In addition, the government announced a safe harbour margin of 15% on cost for data centre services provided from India by related entities, offering greater tax certainty for multinational groups.

Shares of companies operating in the Indian capital market dropped after Finance Minister Nirmala Sitharaman announced an increase in the Securities Transaction Tax (STT) on both futures and options. Following the news, broker stocks tumbled, with Billionbrains Garage Ventures (Groww) down 5.11%, Nuvama Wealth Management sliding 7.28% and Angel One falling 8.61%. The only listed stock exchange, BSE was down 8.12%.

GAIL (India) fell 2.90% after the company reported 19.5% drop in standalone net profit to Rs 1602.57 crore on a 2.5% fall in gross sales to Rs 34,075.81 crore in Q3 FY26 over Q3 FY25. The muted revenue performance was driven primarily by lower realizations and volumes in LPG and liquid hydrocarbons, partially offset by resilient transmission income and higher 'other' revenues.

Bajaj Auto fell 1.11%. The company's standalone net profit increased 18.68% to Rs 2,502.81 crore on 18.84% jump in revenue from operations to Rs 15,220.33 crore in Q3 FY26 over Q3 FY25.

Sun Pharmaceutical Industries rose 0.95%. The company has reported 16.03% rise in consolidated net profit to Rs 3,368.81 crore on a 13.49% increase in revenue to Rs 15,520.54 crore in Q3 FY26 over Q3 FY25.

VST Tillers Tractors advanced 1.17% after the company reported a 53.89% surge in total sales to 5,257 units in January 2026, up from 3,416 units sold in January 2025.

Meesho fell 4.97% after the company's consolidated net loss widened to Rs 490.68 crore in Q3 FY26, compared with a loss of Rs 37.43 crore in Q3 FY25. Net sales rose 31.32% YoY to Rs 3,517.60 crore in Q3 FY26 from Rs 2,678.64 crore in the year-ago quarter.

Steel Strips Wheels (SSWL) advanced 0.78% after the company reported a net turnover of Rs 480.03 crore for January 2026, marking a 17.32% year-on-year (YoY) increase compared to Rs 409.16 crore recorded in January 2025.

R R Kabel rose 0.69% after the company reported growth in profit and revenue for the December quarter. On a consolidated basis, net profit rose 72.4% YoY to Rs 118.2 crore in Q3 FY26, compared with Rs 68.6 crore in Q3 FY25.

Relaxo Footwears fell 3.60% after the company reported a 19.6% decline in net profit to Rs 26.54 crore, despite a 0.2% rise in net sales to Rs 668.03 crore in Q3 FY26 over Q3 FY25.

Escorts Kubota added 3.38% after the company's Agri Machinery Business in January 2026 sold 9,799 tractors registering a growth of 46.9% as against 6,669 tractors sold in January 2025.

Union Budget 2026:

Union Finance Minister Nirmala Sitharaman used the Union Budget 2026 to underline a reform-heavy path built around fiscal consolidation, job creation and sharper global competitiveness. The Centre reiterated its medium-term debt sustainability goal, with the FRBM roadmap indicating a steady decline in the debt-to-GDP ratio and projecting central government debt at around 55.6% in BE 2026-27 versus 56.1% in RE 2025-26, framing the glide towards a sub 50% target by 2030 as a policy anchor rather than a hard statutory number. On the deficit side, the government stuck to its consolidation track, with the fiscal gap seen at 4.4% of GDP in RE FY26 and budgeted to narrow to 4.3% in BE FY27, a sequence that keeps the post pandemic promises on course while still giving room for capex-driven growth.

On the expenditure and borrowing front, the Budget raised capital expenditure to about Rs 12.2 lakh crore for FY27, signalling another year of heavy public investment in infrastructure, especially in emerging tier 2 and tier 3 growth centres that are starting to look more like mini metros than satellite towns. To fund the gap, the Centre plans net market borrowing of Rs 11.54 lakh crore through dated securities, with the balance coming from small savings and other sources, in line with the glide path indicated in the Budget 2025 26 speech. That combination'slower deficit, still high capex and a calibrated borrowing programme'is meant to keep bond yields contained while nudging the baton from public to private capex over the medium term.

Markets, however, zeroed in on the tax tweaks. On the indirect side, the Finance Bill, 2026 sharply increased the Securities Transaction Tax (STT) on derivatives: STT on futures goes up from 0.02% to 0.05% of the traded value, while STT on options rises from 0.10% to 0.15% of the premium (and from 0.125% to 0.15% when options are exercised). That makes high-churn F&O strategies more expensive at the margin and nudges some speculative volume off the table, even as it modestly boosts revenue. On the direct tax side, the Income-tax Act, 2025 is slated to take full effect from 1 April 2026, with fresh slab structures, harmonised surcharge rules and a cleaned up TDS/TCS and penalty framework, all aimed at reducing litigation and making the law more 'plain English' for taxpayers.

The Budget also delivered compliance relief via Tax Collected at Source (TCS) rationalisation under the LRS and travel bucket. TCS on overseas tour packages has been pared down to a flat 2%, replacing the earlier structure that included higher 5'20% slabs and thresholds. Similarly, TCS on remittances under the Liberalised Remittance Scheme for education and medical treatment drops to 2% from 5%, with a higher trigger threshold, easing the cash flow pinch on families sending children abroad or paying for medical procedures. Alongside, the Bill tightens the architecture for revised and updated returns'allowing revised returns up to the end of the assessment year (or 12 months in the new Act), with a modest fee if filed late'while keeping the extended 'updated return' window of up to four years, albeit at a steep additional tax to discourage strategic under reporting.

For cross border and enforcement issues, the Budget has carved out a targeted Foreign Assets of Small Taxpayers Disclosure Scheme, 2026. The scheme ring fences smaller cases'undisclosed foreign assets and income up to defined ceilings'into a one time, time bound window where taxpayers can come clean by paying 30% tax plus a 100% penalty on that tax on previously untaxed foreign assets or income, or a flat Rs 1 lakh fee in benign cases where foreign assets bought out of already taxed income were not reported in the foreign asset schedule. In return, declarants get immunity from further tax, penalty and prosecution under the Black Money Act on the declared items. The exact opening and closing dates will be notified separately, but the policy signal is clear: clean up small legacy foreign asset issues before the information exchange net tightens further.

On the business tax side, several structural tweaks stand out. First, supply of manpower is now explicitly included in the statutory definition of 'work' for TDS purposes, putting manpower contracts clearly under the contractor TDS net at the familiar 1%-2% slabs depending on the payer's status. Second, the Minimum Alternate Tax (MAT) regime has been recalibrated. To encourage companies to shift to the new regime, set-off of brought forward MAT credit to be allowed to companies only in the new regime. Set-off using available MAT credit to be allowed to an extent of 1/4th of the tax liability in the new regime. MAT is proposed to be made final tax. There will be no further credit accumulation from 1st April 2026. The rate of final tax to be reduced to 14% from the current MAT rate of 15%. The brought forward MAT credit of taxpayers accumulated till 31st March 2026, will continue to be available to them for set-off as above.

For non-resident and digital economy players, the government has doubled down on India as a data and cloud hub. Any foreign company that provides cloud services to customers globally by using data centre services from India to be provided Tax holiday till 2047. A safe harbour of 15% on cost to be provided if the company providing data centre services from India is a related entity.

A safe harbour to non-residents for component warehousing in a bonded warehouse at a profit margin of 2% of the invoice value. The resultant tax of about 0.7 percent will be much lower than in competing jurisdictions. Exemption from income tax for 5 years to be provided to any non-resident who provides capital goods, equipment or tooling, to any toll manufacturer in a bonded zone. Exemption to global (non-India sourced) income of a non-resident expert, for a stay period of 5 years under notified schemes. Exemption from Minimum Alternate Tax (MAT) to all non-residents who pay tax on presumptive basis.

The Budget also rationalises a few smaller but high friction levies. On the collection side, TCS rate for sellers of specific goods namely alcoholic liquor, scrap and minerals will be rationalized to 2% and that on tendu leaves will be reduced from 5% to 2%. On capital markets, the long criticised buyback tax is being redesigned. Buyback for all types of shareholders to be taxed as capital gains. Promoters to pay an additional buyback tax, making effective tax 22% for corporate promoters and 30% for non-corporate promoters.

Beyond taxes, the Budget leans hard into manufacturing, logistics and services as growth engines. Customs schedules have been overhauled to remove rate clutter, cut or eliminate basic customs duty on a basket of critical minerals and components for electronics, clean tech, batteries, telecom and shipping, and amend rates for shipbuilding, airports and select agri linked products, all with an eye on domestic value addition and supply chain resilience. Infrastructure plans'from PPP pipelines, a new asset monetisation plan and multimodal connectivity under PM Gati Shakti to continued support for Jal Jeevan, urban challenge funds and maritime corridors'are meant to keep the public investment cycle humming even as the deficit comes down. On the services and social side, the government has layered in measures such as a fresh Rs 10,000 crore fund of funds for startups, expanded skilling and research allocations, and sector specific pushes in tourism, medical tourism and urban livelihoods, framing the entire package as an attempt to deliver both hard infrastructure growth and more inclusive, employment rich development.

Global Markets:

On Friday, U.S stocks witnessed some profit taking, with technology shares remaining in a funk, even as investors largely approved of President Donald Trump's pick of Kevin Warsh to lead the Federal Reserve.

The S&P 500 fell 0.43% to finish at 6,939.03, its third straight down day. The Dow Jones Industrial Average pulled back 179 points, or 0.36%, to settle at 48,892.47. The tech-heavy Nasdaq Composite underperformed, dropping 0.94%, to end the day at 23,461.82. All three indexes fell more than 1% at session lows.

Warsh's selection was likely to ease concern about Fed independence because of his experience as a Fed governor and strong stance at times against inflation. While he is likely to push for lower rates in short term as Trump wants, the financial markets view him as someone who wouldn't always follow the president's direction and maintain credibility for monetary policy.

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