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Informist, Sunday, Feb. 1, 2026

 

By Eshitva Prakash

 

MUMBAI – Benchmark equity indices are expected to open sharply lower Monday, with technical analysts seeing the likelihood of a steep correction in the week ahead as a hike in the Securities Transaction Tax is likely to lead to foreign investment outflows, which have already been weighing on the market. Analysts have also said that the Budget's failure to provide any relief in income tax slabs and to target lingering issues of weak consumption will add to the weakness in the equity market. However, a few players may benefit from capital outlay plans for textiles and artificial intelligence-related projects, analysts said.

 

On Sunday, the Nifty 50 settled at 24825.45 points, slumping almost 2%, the steepest single-day fall in over nine months. Support for the 50-stock index is seen at 24400 points, and it may face resistance at 24900 points, said Rupak De, technical analyst at LKP Securities. The analyst said that since the Nifty 50 closed below its 100-day moving average, it is up for further correction. Despite a special trading session on Sunday, which is a holiday in international equity markets, trading was at an elevated volume and foreign portfolio investors were also involved, the analyst suggested. He expects a sell-off on Monday, when most other foreign investors return to the Indian equity markets in force.

 

Finance Minister Nirmala Sitaraman proposed raising the Securities Transaction Tax on futures contract transactions to 0.05% from 0.02% and that on options premium and exercise of options to 0.15?ch from 0.1% and 0.125%, respectively. While capital gains tax was left largely untouched, the sharp hikes in Securities Transaction Tax on derivatives could hurt volumes and market liquidity, said Madhavi Arora, chief economist at Emkay Global Financial Services. However, the retail segment has been resilient to such hikes earlier, the analyst said.

There are other views on the impact of this hike. If the government is deterring futures and options trading for retail investors, it may be beneficial for mutual fund investments, Amnish Aggarwal, research analyst at PL Capital, said. Additionally, foreign participation may increase in cash markets and they may rotate to this market rather than taking their money out, according to Jatin Gedia, vice-president of technical research at Teji Mandi Investment Technologies.

 

"This was not a good Budget," Pravin Bokade, head of research at IDBI Capital, said. "If you keep increasing the tax burden on investors, how do you expect investors to continue trading," he said. The economy as a whole is not good for the consumer as even after a cut in goods and services tax rates, he doesn't see a lot of increase in demand, he said. This implies that spending is lower in an environment of muted demand, the analyst said. "The Budget should have focussed on consumption and capital expenditure utilisation plans," he said.

 

"The market's reaction has been negative to the Budget, primarily due to low expectations, limited outlays and the negative bias created by the increased Securities Transaction Tax for futures, triggering a knee-jerk response," Vinod Nair, head of research, Geojt Investments, said in a note. The analyst noted that the Budget supports sectors affected by global trade tariffs and focuses on data centres, semiconductors, bio-pharmacueticals, rare earth elements, and manufacturing. It extends support to traditional sectors like textiles, aquaculture, and micro, small, and medium enterprises, which have been impacted by global protectionist trade policies, Nair added.

 

Analysts expect a benefit for data centre companies such as Anant Raj in the coming financial year. "The 100% tax holiday for data centres until 2047 is a '1,000-pound gorilla' move," Raamdeo Agrawal, chairman and co-founder of Motilal Oswal Financial Services, said in a note. He finds the move similar to the software boom of the 90s. "We are already adopting artificial intelligence, now we are building the artificial intelligence factory of the world, firing up massive capital expenditure in power, cables, and infrastructure," he said.

 

Analysts are also bullish on the growth prospects for the textile sector and expect a quick recovery. "India's tariff-impacted textile sector and its entire value chain have received support from an array of schemes announced in Union Budget," said Gautam Shahi, director of Crisil Ratings. "The proposed establishment of textile mega-parks, coupled with initiatives such as the National Fibre Scheme, Textile Expansion Employment Scheme, Tex Echo Initiative, Samarth 2.0, and the Mahatma Gandhi Gram Swaraj Initiative should enhance its long-term global competitiveness," he said.

 

Other than stocks impacted by the Budget, investors will also focus on metal stocks, with analysts expecting further correction on the back of declining prices of precious metals. Investors will also track a slew of December quarter earnings on Monday.  End

 

Edited by Avishek Dutta

 

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