- FiM Nirmala Sitharaman defended the increase in STT on derivatives as a measure against speculation
- STT on futures rose from 0.02% to 0.05%, with a sharper hike on options trades in Union Budget 2026
- Domestic investors helped stabilise markets amid foreign institutional investor outflows, says Sitharaman
Finance Minister Nirmala Sitharaman on Tuesday defended the sharp increase in Securities Transaction Tax (STT) on derivatives, saying the move was aimed at curbing speculative excesses and was not prohibitive in nature. Speaking at the NDTV Profit Conclave, Sitharaman described the hike as “a pill to solve speculative tendencies” in the futures and options (F&O) segment.
“The STT increase was for deterrent purposes,” she said, adding that the government's intention was to discourage malpractice rather than disrupt genuine market activity. The comments come after the Union Budget 2026 raised STT on futures from 0.02% to 0.05%, while taxes on options trades were increased even more sharply, triggering a sell-off in equities and concern across the broking ecosystem.
Markets Resilient Despite FII Pullback
Sitharaman pushed back against fears of lasting damage to market sentiment, noting that domestic participation has helped cushion volatility. “The market survived due to the retail space amid FII outflows,” she said, highlighting the growing role of local investors in stabilising Indian equities at a time when foreign capital flows have turned uncertain.
She also flagged a broader shift in global capital movements. “Fund flows are being used as a geopolitical tool now,” the finance minister said, underlining the need for policymakers to remain vigilant as global investors increasingly respond to geopolitical developments rather than just economic fundamentals.
Striking a cautious note on financial sector expansion, Sitharaman said India “cannot be over ambitious in the banking and finance space,” stressing the importance of balance between growth and stability. She added that the government has been closely assessing capital expenditure trends, signalling continued focus on ensuring productive use of resources.
What STT Means for Traders
STT is a tax levied on the purchase or sale of securities traded on recognised stock exchanges, including equities and derivatives. Introduced in 2004, it is collected at the time of transaction, making it a transparent source of revenue. While higher STT raises trading costs—especially for high-frequency and speculative strategies—the government believes the revised rates will help cool excesses without choking market depth.
Sitharaman's remarks suggest that the policy thrust remains focused on market discipline and financial stability, even as global volatility and geopolitical risks reshape capital flows.
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