- The Union Budget 2026 increased STT on futures from 0.02% to 0.05% and options premiums to 0.15%
- STT hike targets curbing speculation in derivatives but raises trading costs for frequent traders
- Bernstein expects softer sentiment and volume impact, especially affecting market-makers and HFT firms
The Union Budget 2026 brought a major surprise for market participants as Finance Minister Nirmala Sitharaman announced a sharp hike in the Securities Transaction Tax (STT) on derivatives trades. The move, aimed at curbing excessive speculation in the futures and options (F&O) segment, triggered a sharp sell-off in equities and raised concerns across the broking and exchange ecosystem.
As per the Budget proposal, STT on futures has been increased from 0.02% to 0.05%. The impact is even steeper in options, where the tax on option premiums will rise from 0.1% to 0.15%, while STT on the exercise of options will be hiked to 0.15%.
What Is STT And How Does It Impact A Trader?
STT is a tax levied by the government on the purchase or sale of securities traded on recognised stock exchanges in India. Introduced in 2004, STT applies to equity shares, equity derivatives such as futures and options, and equity-oriented mutual funds. The tax is collected at the time of the transaction itself, making it a simple and transparent source of revenue for the government.
In the case of derivatives, STT is charged on the contract value for futures and on the option premium or exercise value for options. Any increase in STT directly raises trading costs, especially for high-frequency and short-term traders, which is why changes in STT tend to have an immediate impact on market volumes and sentiment.
Bernstein: Sentiment To Remain Soft Across Derivatives Value Chain
Bernstein views the STT hike as another regulatory step to slow down speculative activity in the derivatives segment, while also helping the government augment revenues. According to the brokerage, higher transaction costs are likely to dent sentiment across the derivatives trading value chain, leading to some volume impact in the near term.
Bernstein highlights that market-makers and high-frequency trading (HFT) firms are expected to face a disproportionate hit, as profitability in such businesses is highly sensitive to transaction costs. For firms like Nuvama, which have exposure to these activities, the STT hike could act as a drag on earnings.
On the insurance front, Bernstein noted that the sector received limited attention in the Budget speech. There were no major changes to sector dynamics or tax rates for savers, and notably, no mention of insurance commissions—an issue that had featured prominently in the Economic Survey.
ALSO READ: BSE Shares Hit Lower Circuit As Nirmala Sitharaman Makes Key F&O Announcement
Equirus: Negative for Exchanges and Brokers
Equirus Research believes the proposed STT hike is structurally negative for exchanges and broking firms, given the expected decline in derivative volumes. The brokerage pointed out that a significant portion of revenues for several listed players comes from F&O trading, making them vulnerable to any slowdown in activity.
BSE, for instance, generated nearly 60% of its revenues from equity derivatives in first half of this fiscal. Angel One derives around 75% of its broking revenues from the F&O segment for the nine months ended FY26. Nuvama Wealth is also likely to see an adverse impact, as its asset services revenues are closely linked to derivatives activity.
According to Equirus, higher STT increases the cost of frequent trading, which could discourage retail participation and lower churn, directly impacting revenue visibility for brokers and exchanges.
Market Reaction: Sharp Sell-Off Post Budget
Markets reacted swiftly and negatively to the STT announcement. India's benchmark indices fell nearly 3% during the special Budget session on Sunday, extending losses for the second consecutive day. The Nifty 50 slipped below the 24,600 mark, while the Sensex plunged over 1,000 points.
The Nifty 50 was down 2.96% intraday at 24,571.75, while the Sensex declined 2.88% to 79,899.42. The broader market also remained under pressure, with the Nifty Midcap 100 falling 1.83% and the Smallcap 250 index slipping 2%. Volatility spiked sharply, with the India VIX rising over 10%, reflecting heightened uncertainty.
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