Shares of BSE Ltd are under pressure on Monday, February 2, extending losses from Sunday’s special Budget session, after Union Budget 2026 confirmed a sharp hike in Securities Transaction Tax (STT) on derivatives.
What triggered the sell-off?
The key trigger was the government’s decision to raise STT on futures contracts from 0.02% to 0.05%, effectively more than doubling transaction costs for futures traders. In addition, STT on options premium and exercise has been increased to 0.15%, with changes set to take effect from April 2026.
Because derivatives (F&O) volumes are a critical revenue driver for stock exchanges, the move sparked concerns over:
- Lower trading activity in futures and options
- Reduced exchange revenues
- A near-term hit to earnings visibility
This led to a sharp sell-off in BSE shares during Sunday’s session, where the stock plunged over 11%, followed by continued weakness today.
Why higher STT worries the market
Higher STT directly increases the cost of leveraged and high-frequency trading, making frequent futures trades less attractive. This is particularly negative for:
- Retail derivatives traders
- High-frequency and algorithmic traders
- Proprietary trading desks
Any sustained decline in F&O volumes could impact transaction fee income for exchanges like BSE.
What brokerages are saying
Jefferies
Jefferies said the STT hike appears largely manageable and is being viewed more as a sentiment negative than a structural issue. Industry checks suggest:
- Around a 5% potential impact on trading volumes
- A ~4% earnings impact for platforms such as BSE and Groww if volumes fall by that extent
Bernstein
Bernstein noted that derivatives are likely to bear the brunt of the budget changes, while insurance remains largely unaffected. The brokerage added:
- Higher STT could soften sentiment across the derivatives value chain
- Profitability of high-frequency trading may compress, which could impact firms like Nuvama due to a smaller profit pool
- Insurance remains a non-event, with no commission or tax changes announced
Citigroup
Citigroup said the STT hike is likely to act as a near-term sentiment overhang for capital markets stocks. However, it expects:
- Only a marginal decline in F&O volumes in the near term
- Limited long-term behavioural impact, based on past STT hike experiences
Citigroup added that while Angel One and Groww could see mild topline pressure due to higher F&O exposure, the impact on players like BSE and Nuvama is expected to remain limited over time.
Why BSE remains volatile
Despite brokerage views suggesting limited long-term damage, markets are reacting sharply because:
- The STT hike was larger than expected
- Derivatives revenues are highly sensitive to volume changes
- Investors are factoring in short-term uncertainty ahead of the April 2026 implementation
Bottom line
BSE shares are down as investors digest the STT hike on futures and options announced in Budget 2026, which has raised concerns over near-term derivatives volumes and exchange revenues. While global brokerages see the impact as largely sentiment-driven and manageable, the stock is likely to remain volatile until there is clearer evidence on how trading volumes respond to the higher tax regime.
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