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Stocks of capital-market-related companies such as exchanges and discount brokers have been hit hardest by the steep hike in securities transaction tax (STT). Listed companies aren’t the only ones that will bear the brunt — the valuation of NSE’s upcoming initial public offering (IPO) will also be affected as it is the dominant exchange in equity derivatives trading.

Discount brokers primarily provide the execution platform for placing trades, generally at a flat fee per order. This fee is currently ₹20 per order at leading discount brokers such as Angel One Ltd, Billionbrains Garage Ventures Ltd (Groww) and Zerodha. They depend more on brokerage income from futures and options (F&O) than full-service brokerages such as Motilal Oswal Financial Services Ltd, ICICI Securities, Nuvama Wealth Management Ltd and 360 One Wam Ltd.

Note that full-service brokerages provide research services that allow them to earn more brokerage from the cash market than discount brokers, and that most of them also have diversified business models with wealth management and asset management verticals.

On 1 February, shares of BSE Ltd, Angel One and Groww plummeted 5-9%, while the Nifty 50 was down 2%, reflecting fears that higher STT would result in less trading activity in the derivatives segment.

While it is difficult to estimate the impact on trading activity, the tax hike is substantial. STT on futures has been increased from 0.02% of futures sales turnover to 0.05%, and from 0.10% to 0.15% on the premium value of options. Put simply, a trader will have to shell out ₹5,000 (up from ₹2,000 earlier) to sell futures worth ₹1 crore. While STT is on the value of contract in futures, it applies only to the premium in options. So, to sell options with premiums worth ₹1 crore, the STT increases to ₹15,000 from ₹10,000 earlier.

Let’s understand the rationale for such a steep hike. The government’s actual STT collection from 1 April 2025 to 11 January 2026 is about ₹45,000 crore and is likely to fall short of the ₹78,000 crore pencilled in for FY26. But the higher STT rate is likely to reduce derivatives trading volume further in FY27, which would offset the gains from the higher tax rate. However, the government is likely to argue that the steep hike is meant to disincentivize traders from F&O trading rather than maximize STT revenue.

Whatever the rationale, the fact remains that hiking STT will hurt the earnings forecasts of stock exchange company BSE Ltd and discount brokers Angel One and Groww.

BSE Ltd is likely to be affected less than the discount brokers because of two factors: their different revenue models and BSE’s market-share gains.

BSE levies 0.0325% (or ₹3,250 per one crore) as transaction charges on the premium value of options, while Angel One and Groww charge flat brokerage fees of ₹20 per order, irrespective of the premium value.

BSE earned ₹624 crore as derivatives transaction charges in the September quarter (Q2FY26) or 58% of its total revenue at ₹1,068 crore. As BSE’s revenue is linked to the premium value of options, average daily premium turnover (ADPT) becomes an important metric to track.

Here, ADPT can increase even if trading activity falls in general as ADPT is linked to the underlying value of the contract. So, if the stock price and future price go up to offset the decline in volume, the option premium or ADPT may be affected less.

There is empirical evidence that suggests this. Even after Sebi introduced a series of measures such as increasing the contract size, stricter margin requirements, and rationalizing the number of weekly expiries, which that took full effect in Q4FY25, BSE’s ADPT increased 83% year-on-year in Q2FY26 to ₹15,000 crore. Consequently, its derivatives transaction charges rose 80% year-on-year.

BSE has also been gaining market share. While a year-on-year comparison is more relevant as Sebi’s more stringent rules took effect in Q4FY25, quarter-on-quarter numbers show BSE’s ADPT remained flat, whereas NSE’s ADPT fell 16%.

For Angel One and Groww, the composition of equity brokerage revenue in derivatives and cash is important. Angel One saw 85% of its equity brokerage come from derivatives and the remaining 15% from cash, while for Groww it was 75% and 25%, respectively. Angel One’s derivatives revenue declined 11% year-on-year on fewer orders, but Groww saw this increase 6% due to market-share gains.

While the Budget proposals could still have an incremental negative impact for all these companies, BSE is best placed as its earnings have been more resilient in the past to the Sebi’s F&O curbs, and it operates in a duopoly. Angel One, thanks to its larger share of broking income from equity derivatives, is worse off than Groww.

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