Why did the markets crash 2,500 points after the Union Budget 2026?

Synopsis: Indian markets are trading lower amid Budget-led disappointments, higher STT on derivatives, muted capex growth, PSU bank weakness, global risk-off sentiment, stable GST numbers, a weak rupee, and lingering US-India trade uncertainty.

The Nifty 50 is currently trading around 25,070, down nearly 1% from its previous close of 25,320.65. During today’s session, the index slipped to a low of 24,571.75. Meanwhile, the Sensex has declined to about 81,683, after touching a day’s low of 79,899.42, reflecting broad-based selling pressure across the market.

Increase in STT for F&O (Derivatives Tax)

One of the surprises in Budget 2026 is that the government has raised the Securities Transaction Tax (STT) on futures and options (F&O) trades. Higher STT increases the cost of trading derivatives, which worries traders and reduces trading volumes.

The government has proposed an increase in the Securities Transaction Tax (STT) on derivatives trading. Specifically, STT on futures transactions has been increased to 0.05% from the earlier 0.02%, while STT on options trades has been raised to 0.15% from 0.10% of the premium value. This move makes derivatives trading costlier and has implications for overall market liquidity and short-term trading activity. Stocks like BSE, Angel One, and Groww are down following the announcement.

Capex for FY27 Lower Than Estimates

Capital expenditure for FY27 has come in below market expectations, leading to some disappointment on the Street. According to Crisil, the proposed capex of Rs. 12.2 lakh crore works out to 3.1% of Crisil’s GDP estimate for the next fiscal year. 

Notably, this ratio remains unchanged from the budgeted capex-to-GDP level for the current fiscal, suggesting limited acceleration in government spending intensity. Crisil adds that grants-in-aid for capital creation could contribute an additional 1 percentage point, partially supporting overall public investment.

In the Union Budget 2026, Finance Minister Nirmala Sitharaman set capital expenditure for FY27 at Rs. 12.2 lakh crore, compared with Rs. 11 lakh crore in FY26. While this reflects a year-on-year increase in absolute terms, investors were hoping for a sharper push in capex to drive growth, which explains the muted market reaction.

PSU Banks Tumble

PSU banks have underperformed, partly because some investors were hoping for measures like higher FII limits, privatisation steps, or value‑unlocking incentives. None of which came as major announcements today. 

This has resulted in selling pressure, particularly from foreign investors who are already cautious. The Nifty PSU Bank index has slipped 7%, as continued selling keeps public sector banking stocks under pressure. Stocks like Bank of Baroda, Indian Bank, Union Bank, and Bank of India fell as there were no major announcements.

Volatility in Metals & Global Sentiment

Stocks in metals are under pressure because global demand for metals is uncertain, and broader international markets have been shaky. This overseas risk‑off mood drags Indian indices lower, especially in the run-up to key budget announcements.

Investors watch global commodity and trade sentiment closely, and recent volatility is keeping domestic markets cautious. Stocks like Hindustan Zinc, Vedanta, and Hindustan Copper are significantly down. 

GST Numbers Not a Major Surprise

While GST collections for January showed about 6.2 % growth which is healthy. The numbers were in line with expectations and didn’t excite markets. Investors were hoping for a strong uptick that could indicate faster economic consumption or business activity, but this wasn’t the case.

Overhang of US‑India Trade Negotiations

Uncertainty around US‑India trade negotiations (especially with tariff threats and negotiations still ongoing) has been a lingering concern. This creates an overhang for markets, particularly export‑linked sectors. Traders prefer clear outcomes, and policy ambiguity before such deals can keep markets subdued.

Rupee Still Weak

The Indian rupee remains relatively weak against the US dollar (nearing 92 levels), putting pressure on market sentiment. A weak rupee makes imports costlier and reflects foreign capital outflows, hurting investor confidence. Analysts point to ongoing FII selling and global risk sentiment as reasons behind this weakness.

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