PSU banks, capital market stocks swing sharply after Budget measures

markets

• PSU bank stocks fell as govt announced higher borrowing and bond supply targets
• Capital market stocks fell due to STT hike on derivatives, increasing trading costs.
• BSE, Angel One, and MCX stocks fell due to reduced trading volumes.

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PSU banks and capital market stocks witnessed sharp volatility after the Union Budget 2026 outlined a higher government borrowing programme and announced an increase in securities transaction tax (STT) on derivatives.

Even as the government reaffirmed its fiscal consolidation path, the market reaction reflected concerns around bond supply pressure and higher trading costs.

On the fiscal front, the government pegged the fiscal deficit for FY26 at 4.4 percent of GDP and set a target of 4.3 percent for FY27. The debt-to-GDP ratio for FY27 was projected at 55.6 percent, with a roadmap to bring it closer to 50 percent, plus or minus one percentage point, by FY31.

PSU banks under pressure

PSU bank stocks declined sharply after the government announced a higher borrowing target. Market participants had expected measures such as consolidation of state-run banks and relaxation in foreign shareholding limits, which were absent from the Budget.

India’s plan to issue a record volume of government bonds in the year starting April 1 also weighed on sentiment, as higher supply could pressure yields and impact treasury income of state-owned lenders.

Shares of major banks, including State Bank of India, fell, with the NSE Nifty PSU Bank Index dropping as much as 5.6 percent.

Nandish Shah, Deputy Vice President at HDFC Securities, said PSU banks were rattled by elevated government borrowing targets, which raised concerns over rising yields and potential mark-to-market losses on bond portfolios.

Capital market stocks hit by STT hike

Capital market stocks also came under heavy selling after the government announced a hike in securities transaction tax on futures and options.

The increase in STT raised trading costs at a time when market sentiment was already fragile and derivatives activity had weakened. Industry estimates suggest derivatives volumes are nearly 30 percent lower from their 2024 peak levels.

Dhruv Chopra, Managing Partner at Dewan PN Chopra & Co, said the immediate consequence of the tax hike is higher transaction costs, which act as a disincentive for derivatives trading, particularly among retail investors.

He added that the move is aimed at curbing excessive speculation and protecting retail participants from market volatility that has driven sharp swings in equity and commodity prices in recent months.

The impact was reflected across capital market stocks that depend heavily on trading volumes. Shares of BSE fell nearly 13–13.5 percent, while Groww and Angel One declined around 13.5 percent each. MCX dropped more than 17 percent, hitting a lower circuit, while Nuvama Wealth Management fell about 9 percent.

Chopra noted that nearly 60 percent of BSE’s revenue comes from equity derivatives, while around 75 percent of Angel One’s broking revenue is linked to futures and options. Nuvama also has meaningful exposure, with roughly 25 percent of its revenue derived from derivatives activity. According to him, the sharp correction in these stocks reflects investor concerns over the potential impact of lower trading volumes on revenue visibility and profitability of capital-market intermediaries.