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Indian benchmark indexes erased gains on Sunday after a hike in the securities transaction tax on derivatives announced in the federal budget raised concerns about higher trading costs.

The Nifty 50 was down 1.94% at 24,832.1, while the BSE Sensex lost 1.8% to 80,834.11 as of 12:35 p.m. IST.

They were up 0.25% ahead of the budget presentation.

Forty six of the Nifty 50 constituents declined, with heavyweights such as Reliance and SBI losing 2.5% and 5%, respectively.

All 16 major sectors traded lower. The broader small-caps and small-caps were down 3% and 2%, respectively.

Exchange operator BSE fell 10%, while Angel One and Groww lost 9% each after the finance minister announced a proposal for higher securities transaction tax on derivatives trading.

"The steep increase in STT on futures and options is likely to raise impact costs for traders, hedgers and arbitrageurs," said Shripal Shah, managing director and chief executive at Kotak Securities.

This could cool derivatives activity and lead to a reduction in volumes, Shah said.

"The increase in STT on derivatives is a negative for markets as it can reduce liquidity. Furthermore, lack of relief on STT for cash market investments and measures to attract foreign investments were the big negatives," said Ambareesh Baliga, an independent market analyst.