The Indian stock market staged a strong rebound on Monday, February 2, 2026, shaking off much of the sharp sell-off triggered by the Union Budget 2026-27 announcements from the previous day. The Sensex (S&P BSE Sensex) surged 943.52 points, or 1.17%, to close at 81,666.46, while the Nifty 50 climbed 262.95 points, or 1.06%, to end at 25,088.40. This recovery came after a bruising budget day session on Sunday, February 1, where markets had plunged amid concerns over higher Securities Transaction Tax (STT) on futures and options.
The dramatic drop on Budget Day saw the Sensex tumble 1,843.43 points, or 2.23%, to 80,722.94, and the Nifty shed 593.45 points, or 2.33%, to 24,825.45—marking one of the steepest Budget-day declines in recent years. The sharp negative reaction stemmed primarily from Finance Minister Nirmala Sitharaman’s proposal to hike STT rates specifically on derivatives trading, aimed at curbing excessive speculation in the futures and options (F&O) segment.
Experts point to a combination of factors fueling Monday’s bounce-back. Value buying in large-cap stocks provided immediate support, as investors scooped up discounted blue-chip names after the prior session’s heavy losses. A notable easing in global crude oil prices added further relief, with signs of de-escalating geopolitical tensions between the US and Iran helping calm broader risk sentiment.
Vinod Nair, Head of Research at Geojit Investments Limited, highlighted the budget’s overall continuity in policy direction. He noted the clear focus on growth alongside fiscal prudence, which has bolstered confidence in medium- to long-term corporate earnings prospects. “A sharp decline in global crude oil prices has also offered some relief,” Nair said while cautioning that near-term mood could remain guarded due to upcoming Q3 earnings that may fall short of estimates and persistent global uncertainties.
Ponmudi R., CEO of Enrich Money—a SEBI-registered online trading and wealth tech firm—described the session as a measured rebound. “Participants continued to recalibrate positions following the over 2 percent decline witnessed during the Union Budget 2026-27 session,” he explained. While selective value buying in large-caps delivered stability, overall sentiment stayed cautious amid elevated volatility. “Near-term market direction remains dependent on global macro cues, clarity on budget execution, and a revival in institutional risk appetite,” Ponmudi added.
At the heart of the initial market turmoil was the government’s move to discourage overheated F&O activity. The volume of options and futures transactions has ballooned to more than 500 times India’s GDP, prompting authorities to view it as overly speculative. To address this, the budget proposed targeted STT increases exclusively on derivatives:
STT on futures raised to 0.05% from the existing 0.02%.
STT on options premium hiked to 0.15% from 0.1%.
STT on exercise of options also increased to 0.15% from 0.125%.
Other STT rates, including those on equities, remained unchanged. The Securities Transaction Tax is a modest government levy applied to every buy or sell transaction in the stock market, covering shares, futures, and options. Though small individually, these hikes directly elevate trading costs for frequent traders, hedgers, arbitrageurs, and retail participants active in derivatives.
The rationale behind the adjustment emphasizes protecting retail investors from excessive speculation while promoting more sustainable, long-term investment behavior. Market observers suggest the changes could reduce high-frequency trading volumes over time, potentially stabilizing the ecosystem even if short-term volatility persists.
Despite the recovery, caution lingers. Analysts stress that ongoing global tensions, upcoming earnings seasons, and the practical implementation of budget measures will shape the trajectory ahead. The rebound reflects resilience in India’s equity markets, supported by strong fundamentals in select sectors like banking, auto, and infrastructure, but participants are watching closely for sustained momentum.
This partial snapback underscores how quickly sentiment can shift in response to policy tweaks, with value hunters stepping in to capitalize on dips. As India navigates post-budget dynamics, the focus now turns to execution and external cues for the next leg of market movement.
