02/02/26, Market News

 Even as traders debate the intent behind the finance minister's decision to hike Securities Transaction Tax (STT), the move is projected to generate about Rs 10,000 crore in additional tax revenue, while triggering an estimated Rs 10 lakh crore erosion in market capitalisation — albeit largely on paper — on Budget day.

The sharp hike in STT announced in the Budget has spooked market participants and drawn strong criticism from traders and brokers, who say the measure will significantly raise transaction costs, hurt derivatives activity and weigh on brokerage revenues that are heavily dependent on futures and options volumes.

While a section of the market believes the move is aimed at discouraging excessive retail speculation in derivatives, others argue that the impact will be far more as the additional cost will disrupt high-frequency trading (HFT) models and institutional trading strategies.

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The equity benchmark indices Sensex and Nifty staged a sharp recovery on Monday, amid value buying in blue-chip oil & gas, banking and auto shares.

After opening on a weak note, tracking a broad-based sell-off during a special trading session held for the Union Budget on February 1, the markets pared losses and moved into positive territory.

The Sensex rallied 943.52 points or 1.17 percent to settle at 81,666.46. During the day, it surged 1,009.31 points or 1.25 percent to a high of 81,732.25.

The Nifty climbed 262.95 points or 1.06 percent to end at 25,088.40. During the day, it advanced 282.65 points or 1.13 percent to 25,108.10.

On February 1, the benchmark indices had declined 2 percent after Finance Minister Nirmala Sitharaman proposed an increase in the Securities Transaction Tax (STT) on derivatives.

Tata Motors Passenger Vehicles, Adani Ports and Special Economic Zone and Asian Paints were among the top gainers in the Nifty50 pack, rising up to 2 percent, while Shriram Finance and Max Healthcare Institute were among the major laggards, declining up to 3 percent. Market breadth was negative as about 1282 shares advanced, 2116 shares declined and 142 shares unchanged.

The broader market also mirrored the positive sentiment. Both Nifty Midcap 100 and Nifty Smallcap 100 ended with healthy gains. Bank Nifty also managed to settle in the green.

Sudeep Shah, Head - Technical and Derivatives Research at SBI Securities, said "Market breadth remained favourable as well. The advance/decline ratio tilted decisively in favour of bulls, with 310 stocks from the Nifty 500 universe closing in positive territory. This broad-based recovery suggests improving sentiment and a possible attempt by the market to stabilise after recent volatility."

Key factors behind market rise

1) Value buying: Value buying was seen after the sharp correction seen in the previous session. On February 1, benchmark indices had logged their biggest percentage fall on a budget-day trading session in six years as investors assessed the implications of the Union Budget for 2026-27.

Navy Vijay Ramavat, Managing Director, Indira Securities, noted "once the initial shock passed after budget, markets recovered quickly in today's session, showing that the sell-off was driven more by sentiment than fundamentals."

2) Decline in crude oil prices: Brent crude, the global oil benchmark, fell 4.14 percent to USD 66.45 per barrel. Lower crude prices tend to ease inflationary pressures and improve India's trade balance, providing support to equity markets.

3) Budget announcements: Investor sentiment was also aided by budget announcements which focused on long-term growth. The finance minister announced measures to boost manufacturing, offered long-term tax incentives for global data centres and outlined support for agriculture and tourism. The Rs 53.5 lakh crore Union Budget for 2026-27 signalled continued fiscal consolidation alongside sustained infrastructure spending.

Ms. Bhuvaneshwari A., MD & CEO, SBI Securities, noted "Union Budget 2026 strikes a strong balance between growth and macro-economic stability, with continued fiscal consolidation improving the estimated fiscal deficit to 4.3% from 4.4% current year and reinforcing investor confidence. The sustained push on capex-led growth across various sunrise sectors such as semiconductors, data centres, critical minerals, electronics, biopharma, infrastructure, shipping and railways strengthens the foundation for long-term capital formation and competitiveness."

On the markets side, the calibrated increase in STT on futures and options seeks to curb excessive speculation while encouraging healthier cash market participation. With GDP growth projected at a robust 10%, the Budget reinforces India's position as a compelling destination for long-term investment and capital market growth," she added.

Manoj Dhanotiya, Founder & CEO, Micro Mitti, said "Union Budget 2026 acknowledges a structural reality that India can no longer ignore. Over 45 percent of India's startups, nearly 60 percent of MSMEs, and close to 70 percent of new employment are already coming from Tier 2 and Tier 3 cities. With a capital expenditure outlay of over Rs 12 lakh crore, renewed focus on regional connectivity, MSME compliance support, and digital infrastructure, the Budget is quietly repositioning these cities as India's primary growth and wealth-creation engines. This is not decentralisation by policy alone, but by economic logic. The future of India's real estate, entrepreneurship, and domestic capital formation will be built in Bharat, not just in metros."

4) Rupee rises: The rupee gained 42 paise to close at 91.51 against the US dollar on Monday, a day after the Union Budget 2026-27 was presented, largely as crude oil prices retreated from their elevated levels. Forex traders said the Reserve Bank of India (RBI) seemed to be defending the 92 per dollar level with a lot of resolve. At the interbank foreign exchange market, the rupee opened at 91.95 against the US dollar, then gained some ground to touch an intraday high of 91.45 and a low of 91.95 against the greenback. At the end of the trading session on Monday, the rupee was quoted at 91.51 (provisional) against the greenback, registering a gain of 42 paise from its previous close.

5) Buying in largecaps: Strong buying was seen in blue chip stocks. Index heavyweighte Reliance Industries was up more than 3 percent. Tata Motors Passenger Vehicles, Adani Ports and Special Economic Zone, Hindalco Industries advanced up to 6 percent.

Nitin Shahi, Executive Director, Findoc, said "value buying emerged in quality large cap, stocks, infrastructure, energy stocks. Lower crude price lowers inflation concerns, supporting broader recovery.

6) Decline in India Vix: The fear gauge or the volatility index declined more than 8 percent to 13.86 level. A decline in India vix depicts reduced uncertainity among investors.

Technical outlook

Rupak De, Senior Technical Analyst at LKP Securities, said "After a sharp fall, the Nifty has seen a strong bounce, which is a normal market reaction. However, the broader trend remains weak. As long as the index stays below the 200-DMA, sentiment is likely to remain negative, and any bounce should be used to exit leveraged long positions or to create short positions. On the upside, immediate resistance is placed at 25,200, while on the downside, support is seen around 24,900."

Report by Parash Bist for MoneyControl

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