Budget 2026: STT Hike and Tobacco Tax Shock Sink Nifty; Over ₹9 Trillion Wiped Out

What began as a hopeful special Sunday trading session ended in a full-blown rout for Indian equities. While the Union Budget 2026 focused on long-term manufacturing, it dealt two immediate blows to market sentiment: an increase in the tax on derivatives and a tax overhaul for the tobacco industry.

The benchmark BSE Sensex plummeted 1,546.84 points (1.88%) to settle at 80,722.94, while the NSE Nifty 50 crashed 495.20 points (1.96%) to close at 24,825.45. The intraday volatility was extreme, with the Nifty swinging over 800 points from its morning high.

The "Vice Tax" Double Whammy

The tobacco sector, often seen as a defensive pocket, became the epicenter of the sell-off alongside brokerages. The Finance Minister announced a significant shift in cigarette taxation, effective February 1, 2026:

• GST Hike: The base GST on tobacco products was raised from 28% to 40%.
• New Excise Duty: A fresh basic excise duty was introduced, ranging from ₹2,050 to ₹8,500 per 1,000 sticks depending on length.

Impact on Key Stocks:

• ITC Ltd: The FMCG giant and index heavyweight saw one of its worst sessions, crashing around 10% intraday before closing with deep cuts. Analysts estimate the tax hike could force price increases of over 25% to protect margins.
• Godfrey Phillips India: Plummeted over 17% as investors feared a sharp contraction in cigarette volumes.
• VST Industries: Slipped nearly 5% following the tax notification.

Also read: Big Thrust On Bio-Pharma, Rs 10,000-Cr Plan To Make India Global Hub

STT Hike Spooks Traders

Adding to the pressure was the surprise hike in the Securities Transaction Tax (STT) to curb "speculative" F&O trading:

• Futures: STT raised from 0.02% to 0.05%.
• Options: STT on premiums raised from 0.10% to 0.15%.

This move sent BSE Ltd and Angel One down by 10% and 9.9% respectively, as the market braced for a drop in high-frequency trading volumes.

Sectoral Bloodbath

• PSU Banks: The Nifty PSU Bank index slumped 6%. Bank of India and Bank of Maharashtra led the laggards, falling 6.5% and 5% as the market reacted to a higher-than-expected government borrowing target of ₹17.2 trillion.
• Defence: Despite a ₹7.84 lakh crore allocation, stocks like BEL (-10%) and HAL (-4.3%) saw massive profit booking as the numbers failed to exceed the high "pre-budget" expectations.

Defensive Gainers

Amidst the carnage, the Nifty IT index was the lone survivor.

• Pharma: Sun Pharma (+1.2%) and Max Healthcare (+3.3%) gained on the back of the ₹10,000 crore Biopharma Shakti mission.
• IT: Wipro (+3.1%) and TCS (+2.5%) saw buying as investors shifted capital toward "safer" export-oriented sectors.

Also read: No Change in Tax slabs, Capex Up...Key Takeaways From Budget 2026