- Immediate market reaction
- Why exchanges like NSE, BSE and MCX were hit
- Why brokerages and depository stocks fell
- Why higher STT is negative for capital market companies
- The bigger picture
- Disclaimer
In Union Budget 2026, the government proposed a sharp increase in Securities Transaction Tax (STT) on derivatives. STT on futures has been proposed to be raised to 0.05 percent from the current 0.02 percent.
STT on options premium and exercise of options has been proposed to be increased to 0.15 percent from the existing 0.1 percent and 0.125 percent respectively. This means futures and options trading will now become significantly more expensive for traders and investors.
Immediate market reaction
The announcement triggered a strong negative reaction in the stock market, especially in shares linked to capital market infrastructure. Stocks of exchanges and brokerages fell sharply, with several names correcting by up to 10 percent in a single session.
Shares of BSE saw a steep fall of up to around 10 percent as investors feared a slowdown in trading volumes. Brokerage stocks like Angel One, 5 paisa and other listed broking firms also declined sharply.
Market-linked institutions such as CDSL also came under pressure as lower trading activity could mean slower growth in demat accounts and transactions. Overall, capital market stocks were among the worst hit on Budget Day.
Why exchanges like NSE, BSE and MCX were hit
Exchanges such as BSE and MCX earn a large part of their revenue from transaction fees linked to trading volumes. The F&O segment contributes a major share of total volumes in Indian markets.
When STT increases, trading becomes costlier, especially for active traders and high-frequency participants. If trading volumes fall, exchange revenues also fall. This is why investors quickly sold exchange stocks after the announcement.
Why brokerages and depository stocks fell
Brokerages depend heavily on F&O activity for brokerage income, platform fees and interest income. Higher STT increases the total cost per trade, which can discourage frequent trading.
Lower trading activity directly impacts brokerage revenues and profitability. Depositories like CDSL are also affected indirectly. Fewer trades and slower account activity can reduce transaction-based income and growth expectations.
This is why brokerage and capital market infrastructure stocks reacted negatively.
Why higher STT is negative for capital market companies
Higher trading costs reduce participation: When costs rise, many traders reduce their activity or exit the market. This lowers overall participation in the derivatives segment.
Lower liquidity in the market: F&O markets provide liquidity to the overall stock market. Lower volumes can reduce liquidity and widen bid-ask spreads.
Pressure on earnings and growth: Exchanges, brokers and depositories depend on high volumes for growth. A slowdown in volumes can hurt future earnings visibility.
Impact on market sentiment: Sudden tax hikes create uncertainty. Investors worry about further regulatory or tax changes, which affects valuations of capital market stocks.
Reduced global competitiveness: Higher transaction taxes can make Indian markets less attractive compared to global peers, especially for institutional and foreign investors.
The bigger picture
The STT hike aims to curb excessive speculation in derivatives.
However, markets have clearly taken the view that higher taxes could slow down trading activity and hurt the earnings of capital market companies. This is why stocks linked to exchanges, brokerages and market infrastructure fell by up to 10 percent after the Budget announcement.
Going forward, the real impact will depend on how much trading volumes adjust in the coming months and whether traders absorb the higher costs or cut back activity.
Disclaimer
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