Budget 2026: Good and Bad for Stock Market, Analysts React

Indian stock markets witnessed a steep fall on February 1 after the Union Budget 2026 was presented in Parliament by the Finance Minister. Analysts highlighted the factors that unsettled investors, along with the announcements that encouraged selective buying during the trading session.

The Sensex tumbled nearly 1,547 points, or about 1.9 percent, to close at 80,722.94, while the Nifty 50 slid over 495 points, close to 2 percent, ending the day at 24,825.45.

What’s good in the Union Budget for the markets?

Despite the sharp decline in benchmark indices, markets did witness intermittent recovery driven by a few favourable policy announcements.

The Finance Minister proposed that share buybacks will be taxed as capital gains for most shareholders, while promoters will continue to pay an additional buyback tax.

Tax experts welcomed the move, noting that the earlier framework treated buyback proceeds as dividends to prevent misuse by promoters. The return to capital-gains treatment was seen as a positive step that could ease concerns among taxpayers and corporates.

Following the announcement, IT stocks — known for frequent buyback programmes — gained during the session. Shares of major software companies closed higher, while several mid-tier IT firms also ended in positive territory.

1. Tourism stocks:

Shares of travel-related companies jumped after the Budget unveiled a host of measures aimed at boosting the tourism sector.

The Finance Minister proposed the development of 15 archaeological and heritage sites, including major religious and historical centres, into vibrant cultural destinations as part of a broader push to strengthen heritage tourism.

She also announced a reduction in tax collected at source on overseas tour packages to 2 percent from the earlier rates, irrespective of the transaction amount.

2. Jewellery stocks:

Jewellery stocks surged after customs duty rates on gold and silver imports were kept unchanged.

Electronics manufacturing services stocks also advanced after the government announced a ₹40,000-crore allocation for the sector.

Alongside this, hospital stocks moved higher after the Budget proposed the creation of five medical tourism hubs across the country. Textile companies gained on plans to modernise the sector and set up mega textile parks under a challenge-mode framework.

Shares linked to fisheries and semiconductor manufacturing also registered gains during the session.

What’s bad in the Union Budget for the markets?

On the negative side, the Finance Minister raised the securities transaction tax on futures to 0.05 percent from 0.02 percent, disappointing market participants who had been hoping for relief.

STT on F&O increased:

The increase in STT on futures and options raised trading costs for market participants, analysts said, making hedging strategies more expensive and potentially discouraging derivatives activity.

Experts warned that higher transaction costs could lead to lower volumes in the futures and options segment, as the move appeared aimed more at moderating speculative trading than maximising revenue.

Following the announcement, capital-market-linked stocks fell sharply during the session.

1. Banking stocks:

Public sector bank shares declined, dragging the banking index lower amid concerns over potential consolidation and higher government borrowing.

Analysts pointed to the formation of a high-level committee to review the banking sector, noting that any push toward mergers among state-run lenders could weigh on near-term performance, as bank consolidations typically involve transitional challenges.

2. No major incentive to woo foreign investors:

Markets were also unsettled by the lack of fresh measures to attract overseas investors, who have continued to pare holdings in domestic equities.

Market watchers said that at a time when India needs stronger foreign inflows and deeper liquidity, higher trading costs and limited incentives could dampen sentiment further.

3. Defence stocks:

Defence stocks slipped after capital-expenditure announcements for the sector fell short of market expectations.

The Budget pegged defence spending for FY27 at ₹5.94 lakh crore, up from ₹5.68 lakh crore in the previous year.

While defence capital expenditure rose sharply year-on-year and allocations for modernisation increased at a faster pace, analysts said the numbers were not strong enough to trigger a sustained rally in defence-related counters.