Opinion | Markets, Myopia And The Budget: Reading Budget 2026 Without Exuberance Or Angst

Alan Greenspan, the former US Fed chief, attributed exaggerated share market valuations to irrational exuberance, not warranted by micro and macro fundamentals. As a corollary, another economist in the US quipped

that there is always a greater fool out there, with one buying despite knowing valuations are exaggerated and selling successfully to another diehard optimist at double the price, and so on till the cookie crumbles.

Much the same happened on February 1, 2026, but in the reverse direction, when the Finance Minister, Nirmala Sitharaman, presented her ninth continuous Budget. The bellwether Sensex fell by 1,100 points, disappointed by the lack of any big-ticket reforms or announcements in general, and by the small hike in Securities Transaction Tax (STT) on the F&O segment from the extant 0.02 per cent to 0.05 per cent.

Come to think of it, it was a reformist move, given the fact that Indian bourses are witnessing far larger trading volumes in the derivatives segment rather than in the cash segment. The small STT hike would definitely apply the brakes on the gambling instincts of middle-class investors. Truth be told, she should have come down harder on the day-trading aspect of our bourses, given its ruinous impact on middle-class investors, similar to the damage caused by online gaming apps, which were rightly banned.

Her rationalisation of the buyback taxation regime has been misunderstood by the market as tinkering. The Budget proposes that all buybacks will now be taxed as capital gains, replacing the dividend-like treatment introduced in 2024. To further disincentivise promoters from using buybacks to reduce tax liability, Sitharaman announced an additional buyback tax on promoters. The change will push the effective tax burden to 22 per cent for corporate promoters and 30 per cent for non-corporate promoters.

The government believes this will reduce distortions and ensure more uniform treatment of shareholder payouts. Prior to the 2024 reforms, buybacks were resorted to almost like annual dividends, given that the buyback tax was paid by the company and not by shareholders. It is perfectly rational to shift the tax burden to shareholders, if only to adhere to one of the key canons of taxation — tax the beneficiaries.

More importantly, every Budget cannot be expected to announce a big-ticket reform or two. There are off-Budget announcements that often make a significant difference to the economy and the tax landscape. The Dussehra-eve GST reforms, hailed as second-generation indirect tax reforms, cut tax rates on a vast number of goods, including white goods and consumer durables. In a globalised world, the Budget itself does not hold sway over the domestic economy.

The sporadic Israel-Palestine war and American bombardment of Iran shake up the world like nothing else does. And since POTUS Trump was inaugurated for a second term last year, the world economy has been on tenterhooks and in turmoil. His punitive tariffs have wreaked havoc on Indian exports, and what has been hailed as the mother of all FTAs may yet prove to be a mirage as implementation unfolds. For one, each member of the European Union has to ratify the FTA, and the agreement itself has stringent quality standards which Indian exporters may find difficult to fulfil.

Our bourses are even today driven by FPIs (foreign portfolio investments), despite domestic institutions asserting themselves more. This has had a disastrous effect on the INR-US dollar exchange rate, with the Indian rupee lying battered at Rs 92.

The neighbour’s attitude is also an off-Budget mover and shaker. To wit, when Pahalgam happened in May 2025, the markets tanked; but when the Narendra Modi government hit back at Pakistan, declaring that any terror act would hereafter be treated as an act of war, the markets gave their thumbs up. So let us wait for the fine print to sink in and for knee-jerk reactions to end. Tomorrow may be another day.

The writer is a senior columnist. He tweets @smurlidharan. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect News18’s views.