Domestic investors turn net sellers for 2nd straight session as STT hike rattles market

Domestic institutional investors (DIIs), who bought a record ₹8 lakh crore worth of shares last year and have consistently absorbed foreign selling, turned net sellers for the second consecutive trading session on Sunday. DIIs sold equities worth ₹683 crore during the session, following a sale of ₹601 crore on Friday. This took their total selling over the two days to nearly ₹1,300 crore.

Sunday’s selling marked the first instance since 27 June 2025 that DIIs remained net sellers for two consecutive sessions. In contrast, overseas investors purchased equities worth about ₹1,600 crore over the last two trading sessions, according to data compiled from exchanges. The average daily buying by DIIs over the past three months stands at ₹3,800 crore.

The selling pressure comes in the wake of the government’s proposal to increase taxes on equity derivatives, which unsettled market sentiment. DIIs, along with retail investors and high-net-worth individuals, have otherwise been playing a strong counterbalancing role to persistent selling by foreign portfolio investors (FPIs).

The proposal to raise the securities transaction tax (STT) on equity futures to 0.05% from 0.02% triggered sharp volatility in the market. The benchmark Nifty 50 index fell nearly 2%, marking its worst Budget-day decline since 2020. Shares of BSE Ltd plunged about 8%, while capital-market-linked stocks such as Angel One and Nuvama Wealth Management declined between 7% and 9%.

Market participants said the move is aimed at curbing speculative trading after a surge in retail participation made India the world’s largest derivatives market by contracts traded.

“The measured increase in STT on futures and options reflects a clear intent to curb excessive speculation, fostering a more stable market and encouraging sustainable participation from long-term retail and institutional investors,” said Vishal Kampani, Vice Chairman and Managing Director of JM Financial Ltd.

According to a Ministry of Finance official, the higher STT on equity futures and options is expected to generate approximately ₹15,000 crore in additional annual revenue for the government.

So far in 2026, local institutional investors — including mutual funds and insurance companies — have bought equities worth ₹68,538 crore. In comparison, foreign portfolio investors have sold around ₹30,000 crore worth of equities so far this year, after offloading a substantial ₹1.7 lakh crore in 2025.