Impact of STT Hike on F&O Trading
The Indian stock market witnessed a significant decline in brokerage-linked and exchange-related companies after Finance Minister Nirmala Sitharaman proposed an increase in the Securities Transaction Tax (STT) on derivatives in the Union Budget 2026-27. The move is aimed at curbing excessive speculation in the futures and options (F&O) segment.
According to Sebi guidelines on F&O trading, over 90 per cent of retail investors’ trades in the F&O segment lead to losses. The capital markets regulator has also taken steps earlier to reduce volumes and has repeatedly cautioned retail investors against excessive exposure to derivatives trading, underscoring the need for responsible investing.
STT Hike: A Measure to Curb Excessive Speculation
The proposed STT increase is likely to raise transaction costs across the derivatives market, affecting both retail and institutional participants. Hedging strategies may also be impacted, as the current STT framework does not differentiate between types of users or the purpose of derivatives usage.
Market participants, such as Ashish Singhal, Co-founder of trading and investment platform Lemonn, believe that the taxation change could impact hedging as well as speculative activity. ‘The proposed taxation on F&O is expected to raise transaction costs across the derivatives market, affecting individual investors as well as institutional participants such as AMCs, corporate hedgers, and portfolio managers who rely on these instruments for hedging and risk management,’ Singhal said.
Brokerage Stocks Feel the Heat
Following the announcement, brokerage stocks witnessed heavy selling pressure. On the BSE, shares of Multi Commodity Exchange tanked 11.60 per cent to close at Rs 2,232.15 apiece, while Angel One plunged 8.61 per cent to settle at Rs 2,320. IIFL Capital Services declined 8.06 per cent to finish at Rs 303.80.
Shares of Billionbrains Garage Ventures, the parent company of Groww, fell 5.11 per cent to close at Rs 168. Anand Rathi Share and Stock Brokers declined 2.03 per cent to settle at Rs 567 on the bourse. On the NSE, shares of BSE Ltd ended 8.12 per cent lower at Rs 2,570 per share.
Broad Market Implications
The broader equity market also came under pressure, with the 30-share BSE Sensex plunging 1,546.84 points, or 1.88 per cent, to settle at 80,722.94, while the NSE Nifty dropped 495.20 points, or 1.96 per cent, to close at 24,825.45.
Addressing a post-Budget conference, Sitharaman said the government is not against derivatives trading but wants to discourage excessive speculation, particularly by small investors facing heavy losses. ‘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.
Way Forward for Investors
Industry executives, however, indicated that diversified business models could help mitigate the impact of higher derivatives trading costs. Amit Majumdar, Group Chief Strategy Officer at Angel One Ltd, said the firm has strengthened its revenue mix beyond F&O trading.
‘We have transformed Angel One into a diversified franchise spanning wealth, credit, asset management and soon insurance, adding steady, diversified revenue streams,’ Majumdar said. ‘In Q3 FY26, F&O brokerage contributed about 44 per cent of our gross revenue, while interest income from client funding and our broader platform accounted for around 33 per cent, with the rest coming from cash and commodity broking, depository, distribution, and other income streams. This diversified mix reinforces the resilience of our model and gives us confidence that the broader trajectory of our business remains firmly intact,’ he added.
As the Indian stock market continues to evolve, it is essential for investors to stay informed about the latest developments and trends. By understanding the implications of the STT hike and other market-moving factors, investors can make more informed decisions and navigate the markets with confidence. For more information on stock market analysis and investment strategies, visit our website.
