Budget 2026: Capital market stocks tumble after FM raises STT on derivatives

markets

• Government hikes STT on derivatives, raising costs for traders and investors
• Capital market stocks fell; BSE dropped nearly 10% after announcement.
• Diversified revenue streams help brokerage firms absorb the STT impact better.

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Capital market stocks witnessed a sharp sell-off after the government announced an increase in the securities transaction tax (STT) on derivatives in the Union Budget.

Under the proposal, STT on futures has been raised to 0.05 percent from the current 0.02 percent. STT on options premium and exercise of options has been increased to 0.15 percent from the existing 0.1 percent and 0.125 percent, respectively. The higher levy significantly increases trading costs in the futures and options segment for traders and investors.

Following the announcement, shares of BSE fell sharply by nearly 10 percent amid concerns of a potential slowdown in trading volumes. Brokerage stocks such as Angel One, 5paisa and other listed broking firms also came under heavy pressure.

Market-linked institutions including CDSL declined as well, as lower trading activity could impact demat account additions and transaction volumes. Overall, capital market stocks emerged among the worst performers on Budget Day.

Outlook

The increase in STT directly affects broking companies by raising transaction costs in the high-volume derivatives segment, which contributes significantly to their revenues through brokerage commissions.

Shashank Udupa, SEBI-registered research analyst and fund manager at Smallcase, said the move represents a major setback for the rapidly expanding capital market ecosystem.

“This will not only curb retail participation in the futures and options segment but will also lead to lower trading volumes. The impact will be felt across profitability metrics for capital market players,” he said, adding that prolonged pressure on volumes could result in cost rationalisation measures across exchanges and broking firms.

Market participants said the hike creates a structurally challenging environment in the near term for pure-play broking companies and exchanges, particularly those heavily dependent on options volumes and high-frequency retail participation. Margin pressure and slower client activity could weigh on quarterly earnings.

However, over the medium to long term, analysts believe companies with diversified revenue streams may be better positioned to absorb the impact. Businesses with exposure to wealth management, advisory services, mutual fund distribution, asset management and institutional broking are likely to face lower earnings volatility.

Aakash Shah of Choice Broking said firms with a higher contribution from advisory, portfolio management services, mutual fund distribution and investment banking could be relatively insulated from fluctuations in derivatives volumes.

While valuations across capital market stocks have corrected sharply following the announcement, visibility on volume recovery remains limited. Until clarity emerges on the regulatory stance and stability returns to derivatives activity, analysts expect capital market stocks to remain range-bound to weak, with selective opportunities confined to well-diversified franchises rather than businesses heavily dependent on futures and options trading