STT hike in F&O: What market participants need to know on Monday, February 2

Benchmark stock indices, the S&P BSE SENSEX and the NSE's NIFTY50 index, dived sharply by nearly 2% on Sunday, logging their worst decline in six years on a Budget day, following the announcement.

Investors' wealth eroded sharply by ₹9.40 lakh crore on Sunday, tracking a sharp decline in equities. Market capitalisation of BSE-listed companies eroded by Rs 9,40,581.75 crore to ₹4,50,61,658.60 crore ($4.90 trillion) in a single day.

STT hike details

Finance Minister Nirmala Sitharaman on Sunday proposed an increase in the Securities Transaction Tax (STT) on derivatives, a move aimed at curbing excessive speculation in the futures and options (F&O) segment.

In her Budget speech for 2026-27, Sitharaman said the STT on futures contracts would be raised to 0.05% from 0.02%.

"STT on options premium and exercise of options are both proposed to be raised to 0.15 per cent from the present rate of 0.1% and 0.125%, respectively," she said.

What is STT in the F&O segment?

STT (Securities Transaction Tax) is a small tax charged by the government every time you trade in the stock market.

In the F&O (Futures & Options) segment, STT is charged only when you sell, not when you buy.

Why do traders care about STT?

STT directly reduces your profit (or increases your loss).

High-frequency traders, option sellers, and arbitrage strategies feel it the most because they trade often.

What did the FM say?

Finance Minister Nirmala Sitharaman on Sunday said the government is not against derivative trade but wants small investors, who are facing huge losses, to stay away from the speculative F&O market.

"This nominal increase is purely aimed at speculation, only to deter them, to discourage them. We are not against it (F&O trade), but small investors are facing losses, so how can we be quiet? So it (STT hike on F&O) is to deter such investments," Sitharaman said.

The hike in STT is aimed squarely at high-volume derivative trading, rather than the cash equity market, and is expected to increase transaction costs for active and short-term trading strategies.

STT hike may weigh on FPI participation

Market experts believe that the move could help discourage excessive speculative activity and promote a more balanced market structure.

However, some caution that it may weigh on foreign portfolio investor (FPI) participation in the near term.

Ashishkumar Chauhan, MD & CEO, NSE, said that the budget 'deepens financial markets through calibrated measures and higher STT on derivatives to curb excess speculation'.

"The recalibration of STT is designed to encourage investor focus on long-term equity participation, thereby fostering healthier liquidity and more sustainable market dynamics," Sundararaman Ramamurthy, MD and CEO at BSE, said.

What are market experts saying?

Rahul Singh, CIO - Equities, Tata Asset Management

In the wake of higher STT on futures & options and no relief on capital gains, corporate earnings growth in the coming quarter and FY27 will become even more critical for the equity market outlook over the next 12-18 months.

Saurabh Mukherjea, Co-Founder & CIO at Marcellus Investment Managers

The Union Budget 2026–27 is directionally positive for India’s long-term economic health, even though markets have reacted nervously in the short term. The increase in Securities Transaction Tax on F&O trading is a necessary corrective. Over the past few years, speculative derivatives trading activity has destroyed large amounts of household capital, and this move should help redirect savings towards consumption and productive investment.

Anitha Rangan, Chief Economist, RBL Bank

While the increase in STT has been a dampener for equity, it should recover with the growth focus. For the debt market, the gross borrowing number may be slightly higher, and supply absorption, especially from banks, will remain the key focus. However, fiscal consolidation and realistic assumptions are positive that budget numbers are achievable.”