STT hike on F&O turns into a ‘dampener’

The provision to raise the Securities Transaction Tax (STT) in the latest annual Budget, aimed at curbing volumes in the futures and options segment, is likely to be a “dampener” for the markets, brokerages said on Sunday.“The proposed increased STT in F&O is a dampener for capital market entities in the short term, but may augur well in the long term,” HDFC Securities’ managing director and chief executive Dhiraj Relli said in a statement.

The move to hike the STT on the F&O segment was attributed as one of the key reasons that led to a sharp correction in the equity markets right after the budget speech by Union Finance Minister Nirmala Sitharaman. Specifically, the stocks of brokerages and exchanges were trading in the red after the speech.According to studies by SEBI, over 90 per cent of the retail investors’ trades in the F&O segment lead to losses, and the capital markets regulator has also taken steps to reduce the volumes in the past. Sitharaman announced the STT hikes, saying the move will “provide reasonable course correction” in the F&O segment in the capital market and generate additional revenues for the Government.

She announced a proposal to raise the STT on Futures to 0.05 per cent from the present 0.02 per cent, while the STT on options premiums and exercise of options will be raised to 0.15 per cent from the present rate of 0.1 per cent and 0.125 per cent, respectively.Kotak Securities’ managing director and chief executive, Shripal Shah, said the steep increase in STT is likely to raise impact costs for traders, hedgers, and arbitrageurs.