The stock market went on a rollercoaster ride as finance minister Nirmala Sitharaman taxed its buoyancy but maintained the path of fiscal prudence, cut customs duties and offered more relief to individuals under the new tax regime.

The Sensex crashed by nearly 1,278 points in a knee-jerk reaction as Sitharaman increased both the short-term capital gains (STCG) tax and long-term capital gains (LTCG) tax on equities and hiked the securities transaction tax (STT) on futures and options trades.

The bellwether index then recouped all these losses to trade in the green and subsequently settled with minor cuts as tax reliefs and reductions in customs duties led to a rally in consumer durables and FMCG stocks.

The 30-share gauge ended at 80,429.04, a drop of 73.04 points or 0.09 per cent after tanking 1277.76 points to a day’s low of 79,224.32.

At the NSE, the broader Nifty dipped 30.20 points or 0.12 per cent to 24,479.05 after losing 435.05 points and slipping to 24,074.20 during intra-day trades.

Titan led the list of gainers in the Sensex pack as Sitharaman cut the import duties on gold and silver to 6 per cent. While Titan surged by 6.63 per cent, ITC was the second-biggest gainer, rising by 5.52 per cent as there was no change in the taxes on cigarettes.

Titan and ITC were followed by Adani Ports, NTPC, Infosys, Hindustan Unilever, HCL Technologies and Sun Pharma, which rose by up to 2.83 per cent.

On the losing side were Larsen & Toubro, Bajaj Finance, State Bank of India, Axis Bank and HDFC Bank, falling by up to 3.10 per cent after the budget retained the capex at ₹11 lakh crore.

For the stock markets, which have been tasting record highs, the biggest takeaway were the hikes in the STCG and the LTCG, effective from Tuesday.

For an investor putting money in equity markets, the long-term threshold is a period of one year from the date of purchase. If shares are sold within one year, it invites the STCG, and if they are liquidated after one year of the purchase, the LTCG applies.

For the LTCG, there was an exemption of ₹1 lakh in each fiscal for the sale of shares or equity mutual funds. This limit has now been raised to ₹1.25 lakh.

Market circles said the STCG and LTCG hikes would adversely hit investor sentiment in the near term and cool down speculative activity, particularly from retail investors.

Some experts felt that the increase in the STCG would be a blessing in disguise as it would bring stable long-term inflows into the market.

According to Mitesh Jain, partner at Economic Laws Practice, the LTCG tax rate has been raised from 10 per cent and is now a uniform 12.5 per cent for all asset classes, including listed shares and securities, whereas for unlisted financial assets it has come down from 20 per cent.

On the other hand, the STCG tax rate has been increased to 20 per cent for listed shares and securities from 15 per cent.

The other big move was raising the STT on options trading from 0.062 per cent to 0.1 per cent and on futures from 0.0125 per cent to 0.02 per cent.

Nithin Kamath, founder and CEO, Zerodha, said in a post on X that the proposals would cool down the markets.

“We collected about Rs 1500 crores of STT last year, @zerodhaonline. If the volumes don’t drop, this will increase to about Rs 2500 crores at the new rates,” he posted.

“The long-term capital gains tax has been increased from 10 per cent to 12.5 per cent, and the short-term capital gains tax has been increased from 15 per cent to 20 per cent. Both will be applicable from today. If the idea was to cool down the activity in the markets, this might just do the trick.”

As for the exemption limit for LTCG tax being raised to Rs 1.25 lakh from ₹1 lakh, market experts felt that it was too little in the context of the changes in the LTCG and the STCG.

In hindsight, indications of higher taxes on F&O trading and stock market investments were available on Monday in the Economic Survey, which said the significant increase in retail investors in the stock market called for careful consideration.

“This is crucial because the possibility of overconfidence leading to speculation and the expectation of even greater returns, which might not align with the real market conditions, is a serious concern,” the Survey had said.

The next step could now be taken by the Securities and Exchange Board of India (Sebi), which could tighten the rules relating to F&O investment in the weeks ahead.

Calling it a “double whammy” on the stock market, Nilesh Sharma — president and executive director, SAMCO Securities, said that at a time when the equity indices were at an all-time high, the government had tried to take a share out of the growth and the profits earned by the investors from the capital market.

“It has imposed a double whammy kind of taxation by increasing both the STT rates on derivatives and an increase in STCG and LTCG,” he said.

“The government has not announced any major changes for the individual taxpayers except a slight change in the tax slabs and a minor increase in the standard deduction. This too is, however, applicable only in the new tax regime, leaving nothing for the taxpayers who have opted for the old tax regime.”

Experts said that with a key event over, the markets would now focus on the fundamentals, corporate earnings and possible interest rate actions from global central banks. In such a scenario, any big rally was likely to be capped.

“Although the initial market response to changes in securities transaction tax (STT) on futures and options, along with adjustments in short-term and long-term capital gains taxes, was mixed, the market has since shown resilience,” Gurpreet Sidana, CEO, Religare Broking Ltd, said.

“Investors are demonstrating confidence in the long-term outlook, using the budget as an opportunity to accumulate quality stocks. This optimism reflects a broader belief in the budget’s potential to drive sustainable market growth and economic stability.”