FM Sitharaman plays down FII outflow fears over STT hike, says India investments can’t hinge on F&O trades

FM reiterated that the intent of the STT hike was retail investor protection.

• Sitharaman says STT hike won't trigger foreign investor outflows from India
• STT hike aims to protect retail investors, not influence foreign fund behavior
• Gold price volatility linked to global risks, not domestic policy changes

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Finance Minister Nirmala Sitharaman on February 2 sought to calm concerns that the Budget’s increase in Securities Transaction Tax (STT) on equity derivatives could trigger foreign institutional investor (FII) outflows, asserting that investment decisions in India are driven by a broad set of macro and structural factors rather than a single tax change.

Responding to questions on whether the STT hike could lead to foreign funds pulling money out of Indian markets, the finance minister said such concerns were overstated. “Every reason cannot be attributed to the STT change announced in the Budget,” she said during a media interaction, adding that the government cannot be expected to remain a mute spectator when retail investors are consistently losing money in the futures and options (F&O) segment.

She added that derivatives trading alone should not determine global investors’ appetite for India. “Only F&O cannot be the criterion to decide on investments in India,” Sitharaman said, signalling that long-term capital flows are guided by growth prospects, policy stability and economic fundamentals rather than short-term trading costs.

STT hike and foreign investor concerns

The finance minister’s comments come amid market apprehension that higher transaction taxes on equity derivatives could dent trading volumes and weigh on sentiment among foreign investors, particularly hedge funds and proprietary trading firms that are active in the F&O segment.

She reiterated that the intent of the STT hike was retail investor protection, not influencing foreign fund behaviour. The Union Budget for 2026–27 proposes to increase the STT on equity futures from 0.02 percent to 0.05 percent, while the tax on options premium has been raised from 0.1 percent to 0.15 percent.

In a post shared earlier by the Income Tax Department, the government flagged the scale of derivatives activity, noting that the total volume of transactions in the futures and options segment is more than 500 times India’s gross domestic product, emphasising concerns over excessive speculation.

Gold volatility reflects global stress

Meanwhile, Sitharaman addressed volatility in gold prices, attributing it to global economic and geopolitical uncertainty rather than domestic policy factors.

She said price swings in gold were a natural response to the current global situation. “There is a natural tendency to store value in gold when there is no trust in a single currency,” she said, pointing to heightened global risks and uncertainty in major economies.

Gold prices have remained elevated and volatile in recent sessions, reflecting safe-haven demand amid global uncertainty. As of January 29, 2026, the price of 24-carat gold in India was around Rs 1,78,850 per 10 grams, according to Moneycontrol data, with bullion seeing sharp intra-day swings. Analysts have attributed this to geopolitical tensions, sustained global risks and concerns over currency stability, which have reinforced gold’s appeal as a store of value.