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The Indian stock market came under heavy selling pressure during a special trading session on Sunday, February 1, as metal stocks once again emerged as the major drag. PSU banks also joined the sell-off, causing key indices to snap their three-day gaining run.

The Nifty 50 slumped nearly 2% to the 24,825 level, marking its biggest intraday correction in recent times, while the S&P Sensex tanked 2.17% to 80,484. Broader markets witnessed even sharper losses, with the Nifty Midcap 100 plunging 2.24% and the Nifty Smallcap 100 index falling 2.73%.

The broad-based sell-off was triggered after the government proposed to hike the securities transaction tax (STT) on equity futures to 0.05% from 0.02%, according to the Budget presented in Parliament on Sunday. The tax on options premiums and on the exercise of options would be increased to 0.15%.

Though the measures aim to curb speculative activity, some experts believe they could discourage foreign participation in the near term. Foreign investors, who have already remained net sellers, have withdrawn up to $22 billion since last January, a trend that has also pushed the Indian rupee to multiple record lows.

Apart from the STT hike, the government will tax buyback proceeds for all types of shareholders as capital gains, Sitharaman said.

Another factor that spooked the market was the increase in the government borrowing limit to ₹17.2 trillion, which triggered a widespread sell-off across banking stocks, especially state-owned banks.

Markets had expected the government to announce major reforms in response to higher US tariffs, but the measures fell short of expectations, further impacting sentiment.

Ponmudi R, CEO of Enrich Money, said, "Initial optimism faded quickly as higher transaction costs driven by the increase in Securities Transaction Tax (STT) on equity derivatives—and the lack of strong measures to revive foreign capital inflows weighed on sentiment and near-term liquidity expectations."

"While the Budget reaffirmed long-term intent through record infrastructure spending and a manufacturing push, the market response signalled near-term disappointment, with participants choosing to book profits and reassess risk amid fiscal and policy clarity gaps," he further added.

Hindustan Copper emerged as the top laggard, falling 12.6% to ₹599.3 apiece and extending its losing streak to a second day, resulting in a cumulative drop of 21%. It was followed by Multi Commodity Exchange, Bharat Dynamics, IIFL Finance, Hindustan Zinc, Angel One, Muthoot Finance, and Garden Reach Shipbuilders, all falling between 9% and 12%.

All 12 constituents of the Nifty PSU Bank finished lower, with Bank of India leading the losses with an 8.3% decline. This was followed by Indian Bank, Bank of Maharashtra, Bank of Baroda, Union Bank of India, and State Bank of India, which fell between 5.5% and 7.5%.

According to Trendlyne, over 120 stocks closed the special trading session with losses exceeding 3%.

In a broad-based sell-off, a few stocks bucked the trend, with Global Health emerging as the top gainer, rallying 6.3% to ₹1,120 apiece. Tech and EMS stocks such as Anant Raj, Netweb Technologies, and Amber Enterprises gained 5.3%, 5.1%, and 5%, respectively.

Vardhman Textiles finished the session 4.6% higher at ₹452.2 apiece. Other Nifty 500 constituents, including Action Construction, IFCI, Aegis Vopak Terminal, Bharti Hexacom, Aster DM Healthcare, Delhivery, Escorts Kubota, Affle, 3i Infotech, and Timken India, all surged over 3%.

Disclaimer: We advise investors to check with certified experts before making any investment decisions.

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