Why the Sensex Plunged 1,500 Points and How to Shield Your Portfolio From a Deeper Slide

If you looked at your portfolio on February 1st, you likely saw a sea of red wiping out nearly ₹10 Lakh Crore of investor wealth in a single session. The truth is, while the Finance Minister spoke of long-term growth, the immediate “tax tax” on traders sent the “Common Man” running for the exit.

The Shocking Reality: Why the Sensex Lost 1,500 Points

The market didn’t just “dip”; it suffered its worst Budget Day performance in six years. While the session started with a ritual of curd and sugar, it ended with a bitter pill for Dalal Street. The Sensex tanked 1,546 points to close at 80,722, while the Nifty slipped below the psychological 25,000 mark.

The primary culprit? A shocking hike in Securities Transaction Tax (STT). The government increased the tax on Futures by 150% (from 0.02% to 0.05%) and on Options by 50%. For a Retail Investor, this means the “cost of doing business” just skyrocketed.

Budget 2026: The Anatomy of the Crash

Metric	Pre-Budget Status	Budget 2026 Reality	Market Impact
Sensex Level	82,200+	80,722	-1,88% (1,546 pts)
STT on Futures	0.02%	0.05%	Massive sell-off in Broking
STT on Options	0.1%	0.15%	Volume concerns for Exchanges
Capital Gains (LTCG)	Expected Cut	Status Quo	Disappointment selling
FII Activity	Neutral	Net Sellers (₹588 Cr)	Liquidity crunch

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Also Read: Why Your F&O Profits Just Shrank and How to Blueprint a Winning Strategy Under New STT Rules

How to Protect Your Portfolio: The Defensive Blueprint

Here’s the catch: The crash wasn’t about the economy failing; it was about liquidity and leverage getting expensive. If you want to survive the post-budget volatility, you need a new game plan.

1. The “Safety First” Sector Rotation

When the market bleeds, money flows to “defensives.” In 2026, the Nifty IT index was the only one to end in green. Why? Because the Budget changed buyback taxation—proceeds are now taxed as Capital Gains rather than income. This makes IT giants like TCS and Infosys more attractive for returning cash to shareholders. Move your capital from high-beta PSU banks to steady-cashflow IT and Pharma.

2. Stop “Averaging Down” in Broking Stocks

Shares of Angel One, BSE Ltd, and MCX crashed between 8% and 12% in a single day. The truth is, their revenue model is tied to trading volumes. With the STT hike designed to “curb speculation,” these volumes will likely drop. Don’t try to catch these falling knives until the new volume data settles in April.

3. Use “Tax-Loss Harvesting” Before March

With the market down, you might be sitting on “notional losses.” You can strategically sell these underperforming stocks to offset the Short-Term Capital Gains (STCG) you made earlier in the year. This reduces your tax liability, effectively letting the government “pay” for part of your loss.

💡 Pro-Tip: The “VIX” Warning

Keep a close eye on the India VIX (Volatility Index). If it stays above 18, avoid taking fresh “naked” option positions. Use hedged spreads to limit your downside, as the STT hike means you can no longer afford to be wrong on both direction and cost.

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Why the “Common Man” Should Still Be Bullish

Despite the 1,500-point carnage, the long-term story isn’t broken. The government raised Capital Expenditure (Capex) to a record ₹12.2 Lakh Crore. This money will eventually flow into Infrastructure, Railways, and Defense stocks.

The 150% STT hike is a “filter”—it’s designed to push the retail trader away from the “casino” of F&O and back toward long-term investing. The market is currently “pricing in” the pain of the traders, but the “gain” of the investors is hidden in the capex numbers.

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The Bottom Line

The Sensex drop was a “knee-jerk” reaction to increased transaction costs and the lack of LTCG relief. To protect your portfolio, stop acting like a high-frequency trader and start acting like a fund manager. Rebalance toward IT and Manufacturing, keep some cash on the sidelines for the next dip, and remember: the market always overreacts to tax news before returning to fundamentals.