This is a Mint Premium article gifted to you.Subscribe to enjoy similar stories.
The steep hike in securities transaction tax (STT) effective 1 April is beginning to eat into index futures and options volumes, analysts said. In 16 trading sessions on NSE through 24 April, the average daily turnover (ADT) of Nifty and Bank Nifty futures plunged 33% from a similar period in March to ₹24,860 crore, a development analysts attribute primarily to the tax increase.
The Union budget for 2026-27 raised STT on equity futures by 150% to 0.05% on notional turnover, and on equity options by 50% to 0.15% on premium turnover.
The other factor seen to have a smaller impact is the uncertainty whipped up by the West Asia war. As indices swing wildly through the day, some retail investors stay away, while proprietary traders, or brokers who trade on their own books, tend to ramp up trading.
NSE enjoys 99.8% market share in equity futures and almost 75% in equity options as of March end, with BSE holding the rest.
In the case of index options, the combined ADT of NSE and BSE fell 24% in 16 trading days of April over the comparative period to ₹90,104 crore.
"The STT hike has impacted index futures and - to a lesser extent- index options volumes by increasing the breakeven point for trader and investor to generate profits, which in turn is reflected in the widening bid-ask spreads on index F&O (futures and options)," said Rajesh Baheti, managing director of Crosseas Capital, one of the country's largest arbitrage and jobbing firms.
Baheti said the fall in volumes would have been more "severe" were it not for the West Asia conflict, which has increased market volatility and thereby trading interest among seasoned participants in derivatives trading.
Higher trading interest reflects in rising equity cash volumes on NSE, which dominates the segment with a 93% share. The ADT in equity cash—in contrast to index options and futures—rose by 8.35% to ₹1.34 trillion during 16 sessions of April from the same period last month, as the STT on equity cash delivery remained unchanged at 0.1%.
While STT on equity futures and options is collected from the seller when cash-settled, the levy is collected from buyer and seller in equity cash on the volume-weighted average price.
However, the greater impact has been felt on equity futures, where STT is collected on the notional value (total contract value) compared with options wherein the levy is on premium or actual traded value, which is way smaller.
"To my mind, a larger part of the volumes fall is attributable to the STT hike and a lesser portion to retail staying away because of confusing signals from the war," said SK Joshi, consultant at Khambatta Securities.
Agreed Kruti Shah, quant analyst at Equirus Securities, adding it was not possible to "quantify" the impact of the war and STT hike on participation.
"Small traders are getting confused by often conflicting statements made by the warring sides. At one time, markets get buoyant on hopes of a resolution, and at another, despondency sets in when talks fall apart. Best, according to some, is to stay at the sidelines," said Shah.
Retail investors, prop traders and foreign investors tend to dominate trading share both on cash and derivatives markets.
Individual or retail investors accounted for 33.4% of gross turnover share in equity cash with prop accounting for 30.9% , with domestic institutional investors, foreign investors and others accounting for the rest during FY26, per NSE data.
Similarly in equity options, prop held 50.7% and individuals 37.5% share of turnover in the previous fiscal. In equity futures, prop held 31.9%, foreign investors 27.5% and individual traders 17% in FY26.
BSE doesn't provide such data.
Cash ADT on NSE in 16 sessions of April at ₹1.34 trillion was 27% higher than ADT in the whole of FY26. Similarly , combined index options' ADT at ₹90,104 crore was 29% higher than ADT for FY26. However, index futures' ADT at ₹24,860 crore on NSE was 16.4% less than the FY26 ADT.
This shows the rise in volatility in April, thanks to the war, aided index options and cash volumes more than in futures where STT outgo was much higher.
The benchmark Nifty plunged 12% from 25178.65 a day before the war began on 28 February to a 52 week low of 22182.55 on 2 April. From here, the markets recovered 11% to an intraday high of 24601.7 on 21 April, only to slip 3% to 23897.95 on Friday.
Ram Sahgal is a deputy editor at Mint. He has over 20 years of experience in journalism, with previous roles at The Intelligent Investor, Bombay Times, The Economic Times, and The New Indian Express. Between his media roles, he briefly worked at a commodities exchange before returning to his true passion, business journalism. Ram graduated in liberal arts from St Xavier’s College, Mumbai, where he studied films, which explains his move to Bombay Times, where he covered the film industry during the rise of Sunny Deol and Sanjay Dutt. He took a leap of faith to transfer to The Economic Times, and thanks to his restless mind, later moved to cover the commodities beat. Over the past three years, Ram has been tracking the stock markets at Mint. His focus areas include writing about market infrastructure institutions, brokerages, derivatives, and related regulations. His hobbies include spotting trains and understanding the locomotives that power them. In his free time, he takes his octogenarian mother out for drives and goes to the cinema with her on weekends. If he has a dream, it is to write a screenplay for a movie. For now, he enjoys viewing market data on NSE and BSE, observing the shifting mood of Mr Market, and conversing with market experts.