India’s stock markets witnessed a sharp sell-off on Sunday, February 1, 2026, following the presentation of the Union Budget 2026 by Finance Minister Nirmala Sitharaman. The benchmark Nifty 50 index plunged nearly 2% to close at 24,825.45, while the Sensex shed over 1,500 points, reacting negatively to a significant hike in the Securities Transaction Tax (STT) on futures and options (F&O). While the immediate market sentiment turned bearish, the budget outlined a long-term vision with the launch of the Semiconductor Mission 2.0 and aggressive India manufacturing incentives aimed at securing global supply chains.
STT Hike on Derivatives: Curbing Speculation
The most defining moment for traders in the Nirmala Sitharaman speech was the announcement of a steep increase in taxes on derivative trading. The Finance Minister proposed raising the STT on futures from 0.02% to 0.05% and on options premiums to 0.15% from the previous 0.1%. This move is explicitly designed to curb excessive speculation in the F&O segment, which regulators have long flagged as a risk for retail investors.
Market analysts labeled the STT hike derivatives announcement as a "sentiment dampener" for high-frequency traders and proprietary desks. "The immediate reaction is a repricing of risk," said Aakash Shah, a senior analyst at Choice Equity Broking. "While this increases the cost of trading significantly, the government’s intent is to channel household savings from speculative instruments into productive asset classes like long-term equity delivery."
Semiconductor Mission 2.0: A Strategic Leap
Beyond the market volatility, the budget introduced substantial structural reforms. A highlight was the launch of the Semiconductor Mission 2.0 (ISM 2.0). Building on the success of the first phase, ISM 2.0 shifts focus from assembly to the upstream ecosystem—specifically producing semiconductor equipment, materials, and designing full-stack Indian Intellectual Property (IP).
The government has allocated an additional ₹1,000 crore for FY27 specifically for this mission, with a broader outlay for the Electronics Components Manufacturing Scheme increased to ₹40,000 crore. This ensures that India moves up the value chain, reducing dependency on global imports for critical tech components. Industry leaders have welcomed this as a necessary step to make India a sovereign hub for chip manufacturing.
Manufacturing Incentives and Biopharma Shakti
The Union Budget 2026 continues its heavy lifting on the supply side. To further the "Make in India" initiative, Sitharaman announced the "Biopharma Shakti" mission with a massive outlay of ₹10,000 crore. This initiative aims to make India a global hub for complex biological drugs and biosimilars.
Additionally, a new SME Growth Fund with a corpus of ₹10,000 crore was unveiled to support auto-component manufacturers. These India manufacturing incentives are targeted at creating "national champions" in strategic sectors. By focusing on scalable SMEs, the government is attempting to build a robust auxiliary ecosystem that supports large-scale industrialization.
Fiscal Discipline and Borrowing
Despite the populist pressure often associated with budgets, the government adhered to fiscal prudence. The fiscal deficit target has been maintained, signaling a commitment to macroeconomic stability. However, the Indian stock market crash suggests that investors were hoping for more direct consumption boosters rather than supply-side reforms. The tax changes on buybacks—now treated as dividend income—further soured investor mood, adding to the selling pressure across large-cap IT and consumption stocks.
Nifty 50 Forecast: What Lies Ahead?
Following the sharp correction, the Nifty 50 forecast remains cautious in the near term. The index breached the psychological support of 25,000, closing at 24,825. Technical analysts suggest that the market may consolidate as it digests the higher transaction costs.
"The knee-jerk reaction to the STT hike is expected, but the long-term story remains intact," noted a strategy report from Angel One. "Sectors like defense, infrastructure, and renewables, which received continued support in the budget, are likely to outperform once the volatility settles." Investors are advised to look past the temporary Indian stock market crash and focus on sectors benefiting from the new capex allocations, particularly in electronics and specialized manufacturing.
