India's Market in Turmoil: Budget Tax Hike Sparks Panic, Trade Deal Ignites Frenzy!

India's stock market is a battlefield! A shocking STT hike on Budget Day triggered a massive sell-off, wiping out Rs 11 lakh crore. But a US trade deal ignited a furious rally. Is this the calm before the storm, or a new bull run?
By Newsroom | Markets, India |

The Indian stock market is in a state of anxious flux, characterized by sharp swings and persistent uncertainty. While fleeting moments of optimism emerge, the underlying tremors of investor caution and the specter of sudden drops keep the markets on edge. Just a day ago, the Sensex saw a dip of 108 points, and the Nifty dipped below 25,727. This follows a recent period of dramatic declines, most notably the significant sell-off around the Union Budget 2026, where the Sensex crashed over 1,500 points on Budget Day, and the Nifty plunged below 25,000 and even 24,850 at one point.

What is truly unsettling is the sheer volatility. Within a single trading session, the Sensex has swung by over 1,345 points (February 2) and even 2,073 points (February 3). This isn't just about gradual declines; it's about seismic shifts that leave investors scrambling. The question on everyone's mind is: what is driving this erratic behavior, and can the market find stable ground, or are we destined for more "Monday Mayhem" like the one that saw the Sensex crash over 1,700 points in a single day?

The Ghost of Budgets Past and Trade Deal Dreams

The recent past of the Indian stock market is a narrative of sharp reversals. The Union Budget 2026, presented on February 1st, triggered a particularly severe downturn. A key catalyst identified for this crash was the proposal to hike the Securities Transaction Tax (STT) on Futures and Options trading, which spooked traders and led to aggressive selling.

Read More: Asian Markets May Open Higher as Big Companies Talk Deals

Stock market remains cautious as Sensex down 108 points, Nifty dips below 25727 - 1

"Market sentiment turned sharply negative during Finance Minister Nirmala Sitharaman’s Budget speech, particularly after the proposal to increase the Securities Transaction Tax (STT) on Futures and Options, which triggered aggressive selling across the market." (Business-Standard, Feb 1)

This wasn't an isolated incident. Just weeks prior, around January 12th, the market experienced another significant fall, with the Sensex tumbling over 600 points. This was attributed to a confluence of factors, including selling pressure, weak technicals, and a broader shift towards risk-off positioning ahead of the Q3 earnings season. Concerns around global trade and tariff developments also played a role, keeping investors cautious.

However, amidst this turbulence, a new narrative has emerged: the India-US trade deal. The finalization of this deal appears to have injected a dose of optimism, leading to significant rallies. On February 3rd, the Sensex zoomed 2,073 points, and the Nifty ended at 25,728, with 28 out of 30 Sensex stocks closing higher.

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"Bulls took over Dalal Street on Tuesday as Indian equity benchmarks, the Sensex and Nifty, surged following the finalisation of the landmark India–US trade deal." (Business-Standard, Feb 3)

This juxtaposition of a devastating Budget Day sell-off and a powerful post-trade deal rally highlights the market's sensitivity to specific policy announcements and geopolitical developments. But how sustainable is this optimism? And are the underlying issues that caused the previous falls being adequately addressed?

Stock market remains cautious as Sensex down 108 points, Nifty dips below 25727 - 2

Whispers of AI and Global Anxieties

While domestic factors like the Budget and trade deals grab headlines, global undercurrents are also subtly shaping market sentiment. The latest reports suggest that Asian stocks are on shaky ground, hinting at a cautious start for the Indian market.

  • AI Disruption Fears: A global sell-off in software stocks, driven by concerns over artificial intelligence (AI) disrupting the industry, is poised to weigh on India's own IT stocks and potentially limit broader market gains.

  • Global Trade Tensions: As highlighted in the past, concerns around global trade, including tariff developments, have consistently kept investors on edge. Any escalation or new development in this arena can quickly dampen market spirits.

  • Profit Booking at Higher Levels: A recurring theme in the market's declines has been profit booking. When indices reach certain highs, investors tend to cash in their gains, especially amidst an uncertain global backdrop, leading to sharp corrections.

Read More: Nifty 100-DMA Breach: Rally or Ruthless Trap? Experts Warn of Economic Crossroads!

This multifaceted environment raises critical questions:

  • How significant is the impact of AI fears on the Indian IT sector, which is a major contributor to the market?

  • What specific global trade developments are investors closely monitoring, and what would be the trigger for a significant downturn?

  • Is the current "sell-on-rise" and "buy-on-dips" phase a sign of a healthy correction, or does it indicate deeper structural issues?

The STT Scare and the Return of the Bulls?

The Securities Transaction Tax (STT) hike proposal during the Budget 2026 was a stark reminder of how quickly policy can impact market sentiment. The immediate aftermath saw a significant erosion of market capitalization, with an estimated Rs 11 lakh crore wiped out on Budget Day alone.

Stock market remains cautious as Sensex down 108 points, Nifty dips below 25727 - 3

"The benchmark Nifty index witnessed heightened volatility on Union Budget Day, recording an intraday swing of 869 points, which was its widest trading range since June 04, 2024." (Business-Standard, Feb 1)

Read More: India Says US Trade Paper Changes Match What Was Agreed

The market's reaction to the STT hike underscores a crucial point: the ease with which capital can flow in and out, and the sensitivity of traders to transaction costs.

  • STT Hike Impact: The increase in STT on Futures and Options trading directly impacts active traders and institutional investors, leading to immediate selling pressure.

  • Broader Market Sell-off: The decline wasn't limited to large caps; MidCap and SmallCap indices also saw sharp drops, up to 3%.

Despite this Budget-induced shock, the market has shown remarkable resilience, particularly after the India-US trade deal.

EventDateSensex Movement (Approx.)Nifty Movement (Approx.)Key Drivers
Budget Day Sell-offFeb 1, 2026Down 1,550 ptsBelow 24,850STT Hike, Budget announcements
Post Budget RecoveryFeb 3, 2026Up 2,073 pts25,728India-US Trade Deal finalized
Recent CautionFeb 4, 2026Down 108 ptsBelow 25,727Muted Asian markets, AI fears

This recovery, driven by the trade deal, raises the question of whether the market is now in a new leg of a bull run, as some experts suggest.

Read More: Trade Deal Sparks Indian Market Surge! But Is It a Trap?

Stock market remains cautious as Sensex down 108 points, Nifty dips below 25727 - 4

"Experts, firmly believe FM Sitharaman’s Union Budget ushers a ‘new leg to the bull market’." (Livemint, Feb 1)

However, the recent dip on February 4th, however small, serves as a cautionary reminder. Are the gains post-trade deal sustainable, or is this just a temporary reprieve before the next wave of uncertainty?

What's Next? Navigating the Fog of Uncertainty

The current market environment is a complex interplay of positive catalysts and lingering concerns. The India-US trade deal has undoubtedly provided a much-needed boost, with Foreign Institutional Investors (FIIs) potentially returning and the rupee showing signs of strengthening.

However, the shadow of the Budget 2026 and its implications for taxation, particularly the STT hike, remains a talking point. Furthermore, the volatility seen in recent weeks, with dramatic intra-day swings and sharp corrections, points to underlying investor anxiety.

Read More: India's January Inflation Rate is 2.75% with New Measuring System

  • Key Levels to Watch: Analysts are closely watching levels like 25,722, 24,500 for Nifty support and 25,370, 25,575 for resistance. Any sustained break below these could signal further downside.

  • Investor Sentiment: The prevailing sentiment has often been described as cautious, with participants adopting a "wait-and-watch" approach, particularly ahead of earnings seasons or significant policy events.

  • Sectoral Performance: While the overall market shows swings, certain sectors like IT have faced headwinds due to AI fears, while PSU Banks and Metals have seen significant declines at times.

The path forward for the Indian stock market is far from clear. The resilience shown post-trade deal is encouraging, but the ghosts of recent sharp falls, driven by policy decisions and global uncertainties, linger. Investors are left to ponder whether the optimism fueled by the trade deal will override the apprehension sown by the Budget and the specter of future global disruptions. The market remains a volatile arena, demanding constant vigilance and a critical eye on the forces shaping its trajectory.

Sources:

  1. BusinessToday: https://www.businesstoday.in/markets/story/stock-market-today-gift-nifty-down-25-points-key-levels-for-nifty-sensex-nifty-bank-514497-2026-02-04

  2. BusinessToday: https://www.businesstoday.in/markets/stocks/story/sensex-nifty-fall-sharply-why-stock-market-is-falling-today-511431-2026-01-19

  3. The Economic Times: https://economictimes.indiatimes.com/markets/nifty-crash

  4. The Financial Express: https://www.financialexpress.com/market/5-reasons-why-markets-are-falling-today-nifty-plunges-below-25000-sensex-crashes-1600-points-intra-day-4126988/

  5. Business-Standard: https://www.business-standard.com/amp/markets/news/stock-market-live-february-2-nse-bse-sensex-nifty-gift-nifty-q3-results-budget-2026-stt-hike-share-market-today-1260202000871.html

  6. Moneycontrol: https://www.moneycontrol.com/news/business/markets/market-volatile-during-budget-2026-sensex-falls-500-pts-from-days-high-nifty-below-25-300-3-key-reasons-behind-sharp-market-decline-13802623.html

  7. India Today: https://www.indiatoday.in/business/budget/story/share-market-union-budget-2026-live-updates-bse-sensex-nifty-50-trading-stock-market-news-2861074-2026-02-01

  8. India Today: https://www.indiatoday.in/business/market/story/sensex-nifty-tumble-key-reasons-why-stock-market-is-falling-today-2850467-2026-01-12

  9. Livemint: https://www.livemint.com/market/stock-market-news/stock-market-today-budget-2026-live-updates-sensex-nifty-share-market-latest-news-gold-rate-silver-rate-1-february-2026-11769887904402.html

  10. Business-Standard: https://www.business-standard.com/markets/news/stock-market-live-updates-february-1-union-budget-2026-nirmala-sitharaman-speech-sensex-nifty-share-market-today-1260201000671.html

  11. Business-Standard: https://www.business-standard.com/markets/news/stock-market-live-updates-february-3-nse-bse-sensex-nifty-gift-nifty-today-q3-results-india-us-trade-deal-trump-1260203001391.html

  12. India Today: https://www.indiatoday.in/business/market/story/sensex-nifty-today-will-stock-market-crash-again-nse-bse-opening-stt-fii-outflows-2861615-2026-02-02

  13. Business-Standard: https://www.business-standard.com/markets

  14. Enrich Money: https://enrichmoney.in/nifty50-bank-nifty-sensex30-news-research-analysis-chart

  15. The Economic Times: https://economictimes.indiatimes.com/markets/stocks/live-blog/bse-sensex-today-nifty-50-stock-market-live-updates-gift-nifty-budget-2026-meesho-bajaj-auto-share-price-01-feb-2026/liveblog/127830905.cms?from=mdr

  16. Scanx Trade: https://scanx.trade/stock-market-news/stocks/sensex-drops-770-points-nifty-settles-below-23-100-as-market-sentiment-remains-cautious/30710923

  17. The Economic Times: https://economictimes.indiatimes.com/markets/stocks/news/why-stock-market-is-down-today-sensex-falls-over-600-pts-nifty-slips-below-25000-5-reasons-behind-the-drop/articleshow/122738938.cms?from=mdr

  18. The Economic Times: https://economictimes.indiatimes.com/markets/stocks/news/why-is-stock-market-falling-today-sensex-sheds-over-2180-points-in-5-days-nifty-down-2-5-5-key-factors-behind-the-sharp-drop/articleshow/126430040.cms?from=mdr

  19. The Times of India: https://timesofindia.indiatimes.com/business/india-business/stock-market-crash-today-why-has-nifty50-bse-sensex-crashed-in-the-last-5-trading-sessions-january-09-2026-top-reasons-explained/articleshow/126431275.cms

Read More: India Stocks Set for Explosive Surge: Morgan Stanley Predicts Historic Re-rating!

Frequently Asked Questions

Q: Did the Union Budget 2026 cause a market crash?
Yes, the proposed Securities Transaction Tax (STT) hike on Futures and Options during the Budget 2026 speech triggered aggressive selling, causing the Sensex to crash over 1,500 points and wiping out an estimated Rs 11 lakh crore.
Q: What sparked the market rally after the Budget crash?
The finalization of the India-US trade deal injected massive optimism, causing the Sensex to surge by over 2,000 points and most stocks to close higher.
Q: Are AI fears impacting India's IT stocks?
Global sell-offs in software stocks due to AI disruption fears are poised to weigh on India's IT sector, potentially limiting broader market gains.
Q: What are the key support and resistance levels for the Nifty?
Analysts are closely watching Nifty support at 25,722 and 24,500, with resistance seen at 25,370 and 25,575. A break below these levels could signal further declines.