STT hike on Futures dampen stock market sentiment; Sensex, Nifty crash nearly 2 pc

Benchmark stock indices Sensex and Nifty dived sharply by nearly 2 per cent on Sunday after Finance Minister Nirmala Sitharaman proposed a hike in the Securities Transaction Tax (STT) on derivatives.

Reversing the early gains, the 30-share BSE Sensex plunged by 2,370.36 points or 2.88 per cent to slide below the 80,000-mark at 79,899.42 in afternoon trade after the announcement of a hike in STT on futures contracts to 0.05 per cent from 0.02 per cent.

The barometer later settled at 80,722.94, down 1,546.84 points or 1.88 per cent. The 50-share NSE Nifty tanked 495.20 points or 1.96 per cent to settle at 24,825.45. During the day, it tumbled 748.9 points or 2.95 per cent to 24,571.75.

Stock exchanges held a special Budget Day trading session on Sunday in view of the budget presentation for the next financial year.

"Market unease is centred on the increase in STT on F&O, particularly the sharper hike on futures," said Pranav Haridasan, MD and CEO, Axis Securities. He noted that higher capital gains taxes last year had already raised transaction costs.

Futures are a margined, risk-managed product and not typically the main source of retail excess, raising questions on whether higher STT will deliver the desired outcome or weigh on liquidity and participation, Haridasan added.

From the 30 Sensex firms, State Bank of India tanked 5.61 per cent, while Adani Ports lost 5.53 per cent. Bharat Electronics, ITC, Tata Steel, UltraTech Cement and Reliance Industries were among the laggards.

Tata Consultancy Services, Infosys, Sun Pharma and Titan were the gainers.

Among indices, BSE PSU Bank fell the most by 5.60 per cent, followed by metal, commodities, energy, capital goods, utilities, industrials and power. IT and BSE Focused IT were the top gainers.

On the BSE, 2,375 stocks declined, 1,759 advanced and 175 remained unchanged.

"The increase in STT is likely to act as a marginal negative for foreign portfolio investor flows in the near term," said Aakash Shah of Choice Equity Broking.

Foreign institutional investors bought equities worth Rs 2,251.37 crore on Friday, according to exchange data.

"The proposed increase in STT is a dampener in the short term but may augur well in the long run," said HDFC Securities MD and CEO Dhiraj Relli.

Vinod Nair of Geojit Investments said the Budget supports sectors affected by global trade tariffs and focuses on emerging areas such as data centres, semiconductors, biopharma and manufacturing, while also helping MSMEs and traditional sectors.

However, he noted that low expectations, limited outlays and the STT hike triggered a knee-jerk negative market reaction.

Asian and European markets were closed on Sunday due to holidays, while US markets ended lower on Friday.

Raj Gaikar of SAMCO Securities said higher transaction costs could reduce volumes, dampen momentum and impact liquidity, creating pressure on broking firms, exchanges and AMCs.

Ponmudi R of Enrich Money said initial optimism faded quickly as investors digested higher transaction costs and the lack of strong measures to revive foreign inflows.

On Friday, the Sensex declined 296.59 points to 82,269.78, while the Nifty fell 98.25 points to 25,320.65.