“I like this budget for ONE major reason: increasing the STT on derivatives. Derivatives are a poison x cocaine, eating away at the roots of our youth. Its destructive effect will be felt by generations. It is a pure wealth transfer from the traders to specialist F&O brokers, who have been big winners from this drug and arms trade. (Not their fault),” the founder of GQuant FinXray said in a tweet.According to him, the F&O segment in India does not add value to the country but cannot be stopped.
“F&O adds zero value to India. It extracts inestimable value. It cannot be stopped, but it can be taxed heavily. Kudos to the Finance Minister,” Sharma said.
The government’s decision to hike securities transaction tax (STT) on derivatives triggered a sharp sell-off in brokerage and exchange stocks during the special live trading session over the weekend. Shares of BSE, Groww (Billionbrains Garage Ventures) and Angel One fell as much as 13.5%.
“I propose to increase the STT on Futures to 0.05 percent from the current 0.02 percent. Both are proposed to be increased to 0.15 percent from the current interest rate of 0.1 percent and 0.125 percent respectively,” FM Sitharaman said in her Budget speech. Balasubramanian, Managing Director and CEO of Aditya Birla Sun Life AMC, echoes a somewhat similar sentiment.
Vishal Kampani – Vice Chairman and Managing Director of JM Financial said the measured increase in STT on futures and options reflects a clear intention to curb excessive speculation, promote a more stable market and encourage sustainable long-term participation of retail and institutional investors.
Other side of the spectrum
Sandeep Nayak, MD & CEO at Centrum Finverse termed the STT hike as the only notable disappointment from today’s budget, especially since there is no corresponding relief in capital gains tax.
Bhupinder Singh, founder of InCred Group, said the sharp rise in STT on futures and options has “understandably unsettled the markets” and could weigh on trading volumes at a delicate time. “Predictability and active participation are critical for deep capital markets, so continued engagement between government and market participants will be critical,” he opined.
Estimated impact
Deciphering the impact, Lemonn co-founder Ashish Singhal said the current STT framework does not distinguish between different categories of users or the purpose of using derivatives; true hedging activities are subject to the same higher costs as speculative trading. According to him, this uniform treatment could discourage some investors from adopting prudent hedging strategies, effectively increasing their exposure to market risk and making portfolio protection more expensive.
Calculating this, this analyst said that for every Rs 1 lakh of futures sold, traders will now pay Rs 20 in STT instead of the previous Rs 12.50. For an option contract sale of Rs 10,000, the STT increased from Rs 6.25 to Rs 10, he added.
(Disclaimer: The recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of The Economic Times.)
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