STT Hike Equity Derivatives Impact: Index Futures Turnover Decline 44 Per Cent Since March 2026

STT Hike Equity Derivatives Impact: Index derivatives activity has been easing since March 2026, as higher Securities Transaction Tax (STT) and a gradual fall in market volatility both weighed on trading. The shift followed the STT hike that came into effect from April 1, 2026, and coincided with a cooling in volatility after March’s geopolitical stress driven by the US–Iran conflict. India VIX, which had surged during that period, has since come down as global uncertainty eased.

According to NSE’s June 2026 edition of Market Pulse, “both the STT revision and the easing of market volatility may have contributed to the moderation in equity derivatives trading activity.”

March 2026 saw higher uncertainty, with India VIX hitting a peak of 28.91 on March 30. Since then, volatility has come down gradually, with the VIX easing more than 44 per cent to 12.87 by May-end.

India VIX is widely used as a gauge of expected near-term market volatility, and a decline typically signals calmer trading conditions and lower anticipated swings in the Nifty.

Index Futures Take The Hardest Hit

Equity derivatives activity slowed between March and May 2026, with index products seeing the sharpest impact after the revision in STT, according to NSE data.

The change in tax structure came into effect from April 1, after being announced in the Union Budget earlier this year. STT on futures was increased from 0.02 per cent to 0.05 per cent, a 150 per cent rise in the rate, making it the most significant increase among segments. In comparison, the options premium tax was raised from 0.1 per cent to 0.15 per cent, while the tax on exercise of options moved up from 0.125 per cent to 0.15 per cent.

The STT hike was only applicable on derivatives, and not on cash equity delivery. The aim was to curb excessive retail speculation in derivatives.

The impact was more visible in futures, especially index futures, which are commonly used for short-term directional trading and hedging. With higher transaction costs, these high-frequency index trades were the first to see reduced activity.

As a result, equity futures average daily turnover (ADT) fell from Rs 7,86,942 crore in March 2026 to Rs 4,40,752 crore in May 2026, a decline of about 44 per cent in index futures. Stock futures were more stable in comparison, easing from Rs 27,09,243 crore to Rs 25,56,313 crore, or around 6 per cent.

Likewise, index options average daily premium turnover (ADPT) declined from Rs 16,24,668 crore in March to Rs 11,12,872 crore in May, down about 32 per cent. Stock options, however, increased from Rs 1,57,389 crore to Rs 1,64,850 crore, a rise of about 5 per cent.

Cash Market Turnover Simultaneously Rise

While derivatives activity declined, the cash equity market continued to strengthen.

ADT in the cash segment rose 5 per cent month-on-month to Rs 1.40 lakh crore in May 2026. This was also 13 per cent higher than March levels, marking the third straight monthly increase and taking turnover to its highest level in nearly two years.

The rise in cash market ADT came even as active investors fell 4 per cent month-on-month to 1.09 crore in May 2026. That suggests trading remained highly concentrated, with investors trading more than Rs 1 crore contributing around 92 per cent of total turnover, though they made up just 2.60 per cent of the active investor base.