What is the STT hike and why did markets drop?

The budget raises the securities transaction tax on futures and options, lifting the cost of trading and hedging. Liquidity providers and short-term traders pulled back, widening spreads and raising volatility. That adjustment drove a near-2% fall in indices. Markets may stabilise once participants reprice strategies and liquidity normalises across key contracts.

What are the main spending priorities in India Budget 2026?

Capital spending rises to ₹12.2tn with emphasis on transport, power, and digital infrastructure. Priority sectors include semiconductors, rare earths, data centres, and defence manufacturing. The package also introduces a 2047 cloud tax holiday to attract hyperscale investment, aiming to deepen supply chains and reduce import dependence over time.

How does the 4.3% fiscal deficit target affect investors?

A 4.3% target signals steady consolidation while funding growth. If borrowing stays orderly and capex executes well, macro risk should ease and support equity valuations. Investors should watch yields, tax buoyancy, and spending efficiency to judge sustainability. Credible delivery could keep currency and flows relatively stable.

Where are the potential beneficiaries for UK portfolios?

Look at firms linked to infrastructure build-outs, power equipment, logistics, defence supply chains, semiconductor materials and tooling, and data centre ecosystems. UK investors can use India-focused funds and diversified EM strategies, while assessing liquidity, derivatives usage, and tracking error under the new trading cost environment.

What indicators should I monitor post-budget?

Track F&O volumes, bid-ask spreads, and open interest for liquidity trends. On fundamentals, follow project awards, policy notifications, and earnings guidance for infrastructure, tech, and defence. Watch domestic fund flows, ETF creations, and bond yields to gauge risk appetite and the credibility of the fiscal consolidation path.

Law and Government

India Budget 2026 on February 02: Capex Up, STT Hike Triggers Market Drop

ByHuzaifa Zahoor February 2, 2026

India Budget 2026 raises capital spending to ₹12.2tn, targets a 4.3% fiscal deficit, and increases STT on F&O trades, triggering a near-2% slide in the Nifty 50. The plan prioritises semiconductors, rare earths, data centres, and defence, alongside a 2047 cloud tax holiday aimed at hyperscale players. For UK investors, the mix is clear: higher long-term growth intent with near-term market pressure. We outline the market impact, policy priorities, and where opportunities and risks may emerge.