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STT tax hike: Following the announcement of a hike in securities transaction tax (STT) on the equity derivatives segment of the Indian stock market, capital market stocks witnessed a sharp slide of up to 14% in intraday deals on Sunday, February 1.

The government proposed to raise the STT by more than 50% on futures to 0.05% from 0.02% and to 0.15% from 0.01% on options, raising concerns of a reduction in volumes.

Thus, capital market stocks started to fall like ninepins, with stock exchange platform BSE emerging as one of the worst-impacted stocks amid a 15% decline. IIFL Capital Services' share price slumped 17.5%, while the recently-listed Groww shares lost 14% and Angel One 13%.

The impact was also visible on the broader Indian stock market indices, as BSE Sensex and Nifty 50 declined up to 2.9%.

Decoding the impact of STT on the derivatives segment, Shripal Shah, MD & CEO, Kotak Securities, said that the steep increase in STT on futures and options, coming on top of last year’s hike, is likely to raise impact costs for traders, hedgers, and arbitrageurs. This, he said, could cool derivative activity and lead to a reduction in volumes.

The intent appears to be volume moderation rather than revenue maximisation, as any potential revenue gain could be offset by lower derivative volumes, he added.

Divam Sharma, Co-Founder and Fund Manager at Green Portfolio PMS, however, do not see the STT hike meaningfully altering the business models of brokerages in the near term.

"At this stage, the move is unlikely to create a lasting deterrent for investors who actively participate in the F&O segment, given the strong liquidity and structural growth in market participation," he opined.

However, it does underline the regulator’s intent to keep leverage and speculative excesses in check while ensuring orderly market development, he added. "Over time, such calibrated steps can help balance market depth with investor protection."

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