The Sunday Slump
Brokerages attributed the indices falling sharply to the union budget proposal to raise the securities transaction tax on futures and options
On Episode 788 of The Core Report, financial journalist Govindraj Ethiraj talks to Gautam Khattar, Principal Price Waterhouse & Co LLP, Uday Ved, Partner at KNAV as well as Jairaj Purandare, Chairman of JMP Advisors in an excerpt from an extensive discussion (Available here on our youtube channel). Our reporters were also on the ground to gather responses to the Union Budget 2026 from industry leaders.
SHOW NOTES
(00:00) The Take
(04:21) A Sharp Correction
(06:32) The Big Infrastructure Push
(08:39) Responses to the Union Budget from Industry Leaders
(14:53) Tax and the Union Budget
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NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on feedback@thecore.in.
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Good morning, it's Monday, the 2nd of February, and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital
The Take: The Sunday Slump
It was the worst budget day performance in the markets in six years. Perhaps the market should remain shuttered on Sunday.
A Monday opening may have allowed investors more time to digest the announcements in the union budget 2026, but the gates were open and the market sank like a stone, even as Finance Minister Nirmala Sitharaman announced a higher securities transaction tax on futures trades. The immediate sell-off raises the larger question of whether this was purely a reaction to the trading tax or was there a more profound void in the union budget that prompted such a negative response. It is increasingly clear that this was not the big bang budget many had anticipated, particularly given the global turmoil.
Instead, it was a collection of announcements like the budgets of old, some new and welcome, others merely building on the past. Amongst noteworthy items, a continued infrastructure push with plans to spend around Rs 12.2 trillion in infrastructure, which is about a 9% increase from last year. The Minister also proposed several exemptions and customs duties across sectors, including critical minerals, nuclear energy, batteries, defence and aviation, electronics, among others.
She said these exemptions were aimed at supporting domestic manufacturing, boosting exports, simplifying tax rates and removing old-day duty exemptions that were no longer needed. Could all of this provide the leg-up to companies fighting to regain a foothold in tariff-barred US markets? We'll have to wait and see. In its post-budget reaction, Moody's ratings characterised the roadmap for the next financial year as tactical rather than a breakthrough.
Their reference was financial. They referred to the fiscal deficit, which was projected to narrow to 4.3% from 4.4%, but the rating agency felt that this would not be enough to shift India's credit profile. A Moody's official told Reuters that despite a lengthening track record of deficit consolidation, this deficit is still wider than what it was prior to COVID.
The Finance Minister's ninth budget was a catch-all affair. There were fresh perspectives on health and tourism-linked employment, including a plan to train 150,000 caregivers, a nod to India's ageing population, which now exceeds 150 million. Similarly, tourism saw some interesting investment pledges, including the development of Buddhist temple circuits in India's northeast.
The CEO of the government's planning body, Niti Ayog, described it as a services budget, highlighting that the speech could be viewed as an extension to the previous two years, thus a policy of continuation, in a conversation he had with CNBC TV18. Continuity was, however, not what the markets were expecting. While some argue that steady steps are the best medicine for a fragile global system, what is clearly needed in these times are moves that are exponential.
On the other hand, for smaller enterprises, the budget offers several gestures, including for credit, and it remains unclear how these make it substantially easier to navigate the daily grind of compliance and logistical hurdles. The budget did emphasise the next-generation manufacturing thrust, focussing on semiconductors, renewables, and biopharmaceuticals. But once again, it seemed to lack the big-bag intent required to lure massive foreign investment amidst rising geopolitical tensions.
On the individual and corporate tax front, it was silenced, not surprising given that a new income tax act is slated to kick in on April 1. There were tax holidays for data centre investments by foreign direct investors, as well as friendlier tax regimes for global capability centres, all of which were expected, though welcome. International travellers returning to and into India received a minor consolation. The duty on personal items and parcels has been halved to 10%.
Shopping overseas and bringing goods back may be more satisfying, provided, of course, one can ignore the depreciating rupee. Ultimately, the Sunday session proved that, while you can force the markets to work on a weekend, you cannot force them to cheer for incrementalism. And that brings us to the top stories and themes, which is really the union budget and some of the conversations we've been having with various experts, both in Mumbai and Delhi.
A Sharp Correction
The stock markets show a very sharp correction on Sunday, with the indices falling sharply after having begun the day on a positive note, which also goes to show people do work on Sundays when required to. Brokerages attributed the decline largely to the union budget proposal to raise the securities transaction tax on futures and options, which also is aimed at curbing excessive trading in the derivative segment.
Analysts feel the higher tax on futures and options could act as a short-term drag for capital markets, though it may benefit the market in the long run by promoting stability, which is what government officials explained formally as a motivation for increasing the tax when asked as much in a conference after the union budget. Now, if the government had reduced long-term capital gains, as many were expecting, things would have been quite different in the stock markets and they may have swung in the other direction. Now, that's, of course, a possibility, and we don't know.
The specific proposal securities and transaction tax on futures will be raised from 0.02 to 0.05%. The tax on options premiums will increase from 0.1 to 0.15%, while STT on the exercise of options will go from 0.12% to 0.15%. And given all of this and perhaps more, the Sensex was down 1,547 points to 80,723. The NSE Nifty 50 was down 495 points to 24,825. Broader markets were also down.
The Nifty Mid Cap 100 was down 2%. The Nifty Small Cap 100 was down 2.7%. The India VIX, which is the fear gauge, was up nearly 12%. Elsewhere, the budget also attempted to woo overseas nationals into local equities, even as global funds continue to sell.
The ceilings for persons resident outside India, that's Indians living abroad for business, education or professional reasons, and classified as non-residents under the Foreign Exchange Management Act, has been doubled to 10% of a company's paid-up capital, while the combined limit for all such investors has gone from 10% to 24%, the Finance Minister said. Now, whether this is reason enough for overseas Indians to bite is not clear as they usually tend to follow returns.
The Big Infrastructure Push
The Government will spend something like Rs 12.2 trillion or about $133 billion on infrastructure in the next financial year, which is an 11% increase.
India, of course, has been increasing its infrastructure spend after the Covid-19 pandemic as an approach to overall economic growth, including job creation. Now, the debt-to-GDP ratio is expected to decline from the currently budgeted 56.1% to 55.6% next year, which corresponds to a fiscal deficit target of 4.3%, slightly lower than the 4.4% this year. Now, specifically on infrastructure, a pet peeve of mine, it takes almost 24 hours to cover a shorter distance of Mumbai to Bangalore, while Mumbai to Delhi, which is longer by about 300 kilometres, takes 16 hours or so.
So, the Government has announced seven high-speed rail corridors, though the first such project, the Mumbai-Ahmedabad high-speed rail, is a few years behind schedule. So, let's see when these other seven come up. Elsewhere, defence expenditure is up by more than 21%, not at all surprising given the rising tensions at the borders.
India is also doubling its outlay on electronics manufacturing to about Rs 40,000 crore, following the success of the Apple experiment, if you want to call it that, in manufacturing iPhones and exporting at scale. And then there are biopharma hubs, red-earth corridors, textile parks, more container manufacturing, and efforts to revive 200 legacy industrial clusters, amongst other such boosts. Now, reviving an industrial cluster or building a new one is a good idea, but amongst the factors of production that include land, labour, and capital, land is prohibitively expensive all over India and is refusing to slow down.
So, the Government has to find innovative ways of reducing land cost, else manufacturing, whether large or small, will always find it challenging and sending factories to far-flung places is not a solution in itself. Elsewhere, a 20-year tax holiday is on offer for data centres, there is some fine print, of course. There were no explicit measures to boost consumption or corporate investment in the economy.
Perspectives from Industry Leaders
The core report spoke to several industry leaders to get a sense on how they read the Union budget. My colleague Shubhangi Bhatia started by speaking to Rajiv Memani, President of the Confederation of Indian Industry.
“The union budget that is being presented by the Honourable Finance Minister, I would say the things that CII has been focussing on, first is to focus on the macroeconomic fundamentals and particularly linking the fiscal deficit to the debt to GDP ratio. I think that is being retained, that is very positive. The second is we focus on reforms that have been laid out and these proposals that they have broken up into six categories, I think that has been very positive, to focus on reforms, focus on manufacturing, focus on simplification.
We wanted some sectors to be clearly identified, I think the focussing on the seven strategic sectors, I think that has been very positive. The championing of MSMEs, particularly the fund, the incremental fund that has been created to provide equity support, I think that has come out very positively. On the infrastructure side also, the allocation has gone up, again that is positive, particularly I think we have been recommending on high speed rails and others, that has been very positive.
And I think for the first time we saw a lot of focus on the middle income area, so a lot of focus on IT services, a lot of focus on tourism, a lot of focus on people who are getting into those areas and those jobs. From a tax standpoint, I would say a lot of focus on simplification, I think some of the things that have been introduced in terms of safe harbours, benefits on data centres, some issues that were there for electronics manufacturing, I think they have been sorted out. On the customs duty, I think there has been some rationalisation of imports on certain areas of CAPEX where massive CAPEX is going to happen, particularly in terms of nuclear power, encouraging MROs and others, I think there also the benefits have been provided.”
Shubhangi also spoke to Chandrajit Banerjee, Secretary-General of the CII, and this is what he said.
“This was a very excellent budget, a very prudent budget, which shows the macroeconomic stability of India. It shows that our economic fundamentals are strong and it also focusses on macroeconomic stability going forward. The fiscal prudence, the focus on our fiscal deficit, the focus on our debt to GDP ratio, these are all very good features.
The focus on infrastructure, the focus on the state capex, which will cloud business private sector investment, is going to be a very, very strong feature coming out of the budget. And lastly, I would think the focus which is being given to the people-friendly budget, reforms-orientated budget, these are very, very strong features for us to be on the course of a fixed budget.”
My colleague Maitrayee Iyer also spoke to figures from industry to get their perspective of the Union budget in Mumbai. She first spoke to Rishi Bagla, Chairman of the CII Western Region and also Chairman of BG Electricals and Electronics India.
“I would have liked to have a little bit more on accelerated depreciation, because private capex needs to come in and kick in in a very big way. Accelerated depreciation would have helped it. It's something that has not happened.
I would have loved to have it. On the individual side, I would say that a little more tweaking on the personal income tax side would have given a little bit more money, especially to the middle income group, which would have helped them in the present scenario. Because since the rupee is going down, we could see some inflation going forward.
So, I would have liked some more money in the hands of the middle income group.”
Maitrayee also spoke to Vineet Agarwal, Senior Executive VP and Group Head, JSW Group, on his takeaways.
“The one major expectation as far as taxation is concerned and from this budget was a scheme for customs basically because there are a lot of other schemes have come for GST and other schemes but for customs this was expected but there is a small thing which has come out is that some custom violations you can pay small fees and then close your cases rather than paying penalties but a larger scheme was required.As far as what we have achieved this time is basically continuation of the taxation policies and other continued policy of the government regarding decriminalisation of the business basically so ease of doing business, in the line of ease of doing business a lot of income tax provisions have been decriminalised that's one thing and some small relief has been given to the individuals like non-requirement of 10 for payment of TDS on purchase of propertyfrom NRIs or reduction of TCS on foreign tours or funder emissions for education and medical purposes but these are small things some extension of written filing has been given but there is no major big bang which were expected from they were in fact they were not expected from taxation policies also so I think it is a continuation of the existing policies.”
And we also heard from Ramesh Nair, CEO of Mindspace REIT, about what stood out for him. The big focus in any Union budget is, of course, part B, which covers taxes.
“Three, four big announcements when it comes to the real estate sector. I think the biggest announcement was three, four big announcements when it comes to the real estate sector. I think the biggest announcement was the creation of specialised reeds for recycling PSU and garment assets.
The other big announcement was a big tax holiday for data centres till 2047. There was also talk about tax reforms for the IT and IT services sector. IT services and GCCs are the biggest contributors for office demand in India.
It was nice to hear the finance ministers speak about high speed rail network between cities like Mumbai, Pune, Hyderabad and Chennai. That's definitely a welcome announcement. And lastly, infrastructure push in tier two and tier three cities with a population of over five lakhs.
That's again a good move. This government is always focused on real estate as a sector over the years. We have seen them focus on reeds, on real estate capital markets, on affordable housing, on industrial warehousing logistics.
So over the years, many good announcements have been done. This is again the right direction in the right way.”
Tax and the Union Budget
Now, there was not much expected on the direct tax front since the New Income Tax Act is coming into play two months from now.
The big question is what were the expectations that we were going in with and to what extent did the budget deliver and what was the unfinished agenda across direct and indirect taxes. I spoke with, in a special edition, Uday Ved Partner Tax Services at KNAB, Jairaj Purandare, Chairman of JMP Advisors and Gautam Khattar, Partner at PricewaterhouseCoop, LLC, for their takeaways from the Union budget.
INTERVIEW TRANSCRIPT
Jairaj Purandare: I think in particular, the finance minister had a really challenging task this year, given what's been happening around the world. I think it is in genuinely VUCA times that we are existing today, with what's happening in the geopolitical scene, as well as the tariff wars, etc. But I think full compliments to her that she's managed to come up with a budget, which is quite prudent, and maintaining the macroeconomic factors that we all consider to be important.
And this is particularly so because, as many people may understand, the real GDP growth is a good 7.4%, but the nominal GDP growth, which is very important to the budget process, has been much lower in the last couple of years, and this year, particularly low. She hasn't made a reference to it, but I think it's very important. Tax collections have been very encouraging this year.
That's also, of course, made her job difficult. And in addition, despite a lot of requests coming in, there's not been too much private sector capex investment. So I think very difficult situation, but nonetheless, come up with a pretty stable picture of the economy.
Fiscal deficit limited to 4.4% on a glide path to 4.3% next year. Capex spend projected at 12.2 lakh crore rupees, that's a lot. GDP growth, as we all know, 7.4%, moderate inflation, and moving on to also a debt-to-GDP ratio as a measure. I think several initiatives taken in that context, and touched on various different sectors, including infrastructure, you can talk of high-speed rail corridors, but a lot of focus on tourism, a lot of focus on sports as well. Various initiatives taken, like setting up a high-level banking committee, I think that's going to add some real good value, including focussing on the corporate bond market. Big deal of focus, I think, on manufacturing and to figure out how we can come up with more jobs.
So there has been a particular degree of time spent, even in a budget speech, on sectors which can produce more jobs. I think coming to some of the tax amendments, lots of what has been done is really to rationalise. We have a new income tax law coming into force, but they've tried to make sure that they come up with some provisions which rationalise things.
So buyback tax, for example, has been oscillating between taxation of the company and taxation of the individual. Last year, it was being taxed as a dividend. They've gone back to taxing the buyback proceeds as capital gains, but for smaller investors, non-promoters, at a lower rate as capital gains.
So that's really good and advantageous. I think some interesting things are some long-term changes made. So for example, they're talking of foreign companies getting a tax holiday right through till 2047, if they invest in data centres in India.
This is something which is happening big around the world. Billions and tens of billions of dollars being invested in data centres and I think they're trying to incentivise that to be set up in India in a big way. That's one big, big change.
I think in the context of electronics and semiconductors in particular, they're also saying that if a foreign specialist comes into India for a period of as much as five years, he would be not taxed in India on his foreign sourced income. So typically, as you may know, you become a resident if you come in within the second or third year, but here they're granting that exemption from foreign taxation for a good long period of five years. The other thing is also in terms of tool manufacturing and in the context of electronics again.
So there's focus, particularly in this budget, she's focused on a few key sectors, which I think the government feels are more relevant to them. And tool manufacturing in a bonded warehouse is going to be exempt right through to 3031 financial year. So that's, you know, longer term thinking, which is, I think, very encouraging.
The other thing I noted was that the gift city holiday, which was for 10 consecutive years out of the first 15 years, has actually be extended to 20 years out of the first 25 years, when you start looking at some of the fine print. And that's, you know, really looking forward into the future. And it would be fantastic if we can actually come up with greater certainty, greater stability in terms of some of the changes being proposed.
TCS, you know, we've been talking to the government for a few years now. And they finally rationalised that you want an audit trace, you don't need to collect 20% tax, 2% is enough. So on medical education, as well as overseas tours, the TCS has been reduced to just 2% now.
Govindraj Ethiraj: Okay, Uday, you want to go next?
Uday Ved: I think Jayraj really covered the broad spectrum very well. I will possibly add a few things to what Jayraj said.
Buyback, he said is a very welcome step, because there was first tax on capital gains, and then moved to dividend, then now it's payable by the company back to shareholders, it was going back and forth, right. And now by saying that the tax on the buyback will be on the small shareholders call, will be as capital gain. So that reduces the tax rate straight from your normal rate of 30 or going up to 39% to 12 and a half percent plus surcharge may go maximum up to 14 or 15%.
So that's a significant reduction. And this will really encourage the buyback of shares of the listed companies. Having said that, the promoter's tax is the same like a normal tax.
And interestingly, when one sees the definition of promoter, when you go to the fine print, it says the promoter is defined under the Companies Act, or a resident or a person who owns more than 10% in the company. So there could be a situation where somebody is holding 15%, as an example, in the company, and still not a promoter is notified, it will still be subject to the normal tax. And I think that's a welcome step.
I'm seeing this 10% limit being applied across various regulations, be it FEMA, on the outbound control, or even in the SEBI context. I think the important part is a promoter is specifically defined to include for the purpose of buyback. A person who owns more than 10% will be a normal tax of 22% or 30% as the case may be, depending on whether you're a company or an individual.
Govindraj Ethiraj: So Uday, you had also said earlier, when we spoke just before the budget, you talked about rationalisation of TDS. You said there are so many types of TDS, and it's a logistical challenge to manage all of that. So where does this budget address that, if so?
Uday Ved: I would believe that's an unfinished agenda. In fact, there are some 35 or 37 kind of sections which are applicable to various TDS rates ranging from whatever, 0.1% to 1% to 2%, 5%, 10%, so on and so forth. In fact, there has been a good rationalisation, as I mentioned in the past, on the GST front, right?
So you have the whole objective of TDS. I have a different view on TCS, but a TDS certainly is to have that your track record is maintained, right? There are other ways to do it, but surely TDS brings that more in the non-resident context.
So there could have been just three rates, 2%, 5%, and 10%. That was an ask even last year, when the New Income Tax Act 2025 came into force. Of course, now effective from April 1, 2026.
But I would have believed that that would have really paved the way for doing most in 2% and 5% bracket, extremely rare in 10%. Again, the transaction between the two residents. See, if it is a non-resident, I can understand that the payments are going outside the country and you need to collect the tax.
The objective of TDS is not only to track, but more important to collect the tax, because once funds go outside the country, then you don't have control over it. But within the country, there are various mechanisms, GST, transparency, technology has been used. It's a lot of compliance burden, which could have been avoided by putting this.
This is an ask for last almost two years, I would believe, which in my view is an unfinished agenda.
Govindraj Ethiraj: Gautam, your takeaway on the indirect tax side?
Gautam Khattar: On indirect taxes, I would say there is continuity of some of the themes, which is Make in India, trade facilitation, and incentivising exports. So, if I could just quickly cover these three buckets. If you look at Make in India, sectors such as aerospace and defence, there are customs exemptions for manufacturing of aircrafts, so parts which are going to come in for manufacturing aircrafts and even parts which are going to be used in those aircrafts and even the MRO ecosystem.
So, from a defence perspective, larger incentive given, there are conditions that those imports should be by PSU. Also, there are exemptions on the civil side of the aerospace and defence where parts for manufacturing have been given exemption from customs duty. So, that's one sector.
Also, if you look at some other sectors such as minerals, incentives given for rare earth operations. So, that's very important and also nuclear power where exemptions have been enhanced. Also, fourth is the energy sector where a lot of incentives are given around EV, EV batteries rather, which is going to be used for mobile phones or electric vehicles.
Those exemptions have been extended. So, effectively, they have looked at some of these sectors, which I said are core sectors and focused on making India. So, that has been a continuous endeavour which is going on.
Export competitiveness, interesting to see because we've seen the US tariffs hitting some of these sectors and therefore, if you look at sectors such as marine, textiles, leather, including footwear, all these three sectors which are export orientated and have had this impact of US tariffs, they have been incentivised to an extent that the raw material which they get are getting duty concessions now provided the finished product is exported out. So, again, export incentivisation and competitiveness is something which has been a very interesting theme.
Third, as I said, trade facilitation. There are various trade facilitation programmes. You know, there were duty deferrals for 15 days.
Now, that has been extended to 30 days, which clearly helps the working capital needs of a lot of businesses. From a certainty perspective, there is a concept of advanced ruling which was there for three years. Now, that three years has been extended to five years.
And interestingly, globally, it has been three years. So, India has taken that additional step to increase this to five years. So, as I said, these three themes, both make it India export incentives and trade facilitations have been there.
I'll just quickly touch upon one more aspect. On SEZs, we heard policy announcement. This is something which has been asked and the industry has been looking forward to this.
However, we need to wait for the fine print because these are for the policy statement, how changes happen. What is proposed is a one-time scheme as it was mentioned for allowing SEZ to sell to the domestic market at a concessional rate. Today, when SEZs sell into the domestic market, it is import and full duties of person as if they're import from outside India are limited.
So, there is going to be a concession. There is going to be a cap on what extent these sales can be made to the domestic market. However, we have to wait for the fine print to see how this works out.
