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The increase in the Securities Transaction Tax (STT) on speculative trading announced in the union budget has emerged as a major spoiler for stockbroking companies.
New-age brokers like Groww, Zerodha, Dhan, and even players like Angel One could see a dip in their futures and options (F&O) volumes as the tax that the government collects from such trades has been increased manifold.
STT is levied by the government on every purchase and sale of securities — including shares, futures, and options. It is deducted upfront at the time of the trade, regardless of whether the investor makes a profit or loss.
In her budget speech, finance minister Nirmala Sitharaman said that the taxes have been increased, “To provide reasonable course correction in the F&O segment… and generate additional revenues for the government.”
Thus, the STT on futures will rise to 0.05% from 0.02% at present, and on options premiums and exercise of options it will rise to 0.15% from 0.1% and 0.125%, respectively.
Players like Groww and Angel One derive a significant chunk of their revenues from F&O trades. During its third quarter results presentation, Groww said that equity derivatives accounted for 53% of its overall revenues for the quarter. For Angel One, the brokerage income from F&O trades for the December quarter stood at 44%.
Stock market experts pointed out that the move will have a major impact on high-frequency traders.
“Trading volumes are highly sensitive to the STT. The level of STT also affects whether traders trade more in cash equities, futures, or options. There's a lot of concern that Indian options volumes have exploded; I don't think it would be a stretch to say that STT is a big factor in this,” Nithin Kamath, chief executive officer, Zerodha had posted on Linkedin about five months back.
Industry insiders feel the impact will be more on arbitrage funds and less on retail traders.
Deepak Shenoy, chief executive, CapitalMind AMC, pointed out that returns on arbitrage funds will fall by about 0.5% next year due to the increased tax. The STT will impact foreign portfolio investors as well, he added.
Prices of major listed stock brokers like Groww and Angel One fell after the announcement. On the BSE, Angel One fell 8% and Billionbrains Garage Ventures, which runs Groww, dropped 5%. Overall, the BSE fell 1.8% to close at 80,722.9.
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STT is levied by the government on every purchase and sale of securities — including shares, futures, and options. It is deducted upfront at the time of the trade, regardless of whether the investor makes a profit or loss.
In her budget speech, finance minister Nirmala Sitharaman said that the taxes have been increased, “To provide reasonable course correction in the F&O segment… and generate additional revenues for the government.”
Thus, the STT on futures will rise to 0.05% from 0.02% at present, and on options premiums and exercise of options it will rise to 0.15% from 0.1% and 0.125%, respectively.
Players like Groww and Angel One derive a significant chunk of their revenues from F&O trades. During its third quarter results presentation, Groww said that equity derivatives accounted for 53% of its overall revenues for the quarter. For Angel One, the brokerage income from F&O trades for the December quarter stood at 44%.
Stock market experts pointed out that the move will have a major impact on high-frequency traders.
“Trading volumes are highly sensitive to the STT. The level of STT also affects whether traders trade more in cash equities, futures, or options. There's a lot of concern that Indian options volumes have exploded; I don't think it would be a stretch to say that STT is a big factor in this,” Nithin Kamath, chief executive officer, Zerodha had posted on Linkedin about five months back.
Industry insiders feel the impact will be more on arbitrage funds and less on retail traders.
Deepak Shenoy, chief executive, CapitalMind AMC, pointed out that returns on arbitrage funds will fall by about 0.5% next year due to the increased tax. The STT will impact foreign portfolio investors as well, he added.
Prices of major listed stock brokers like Groww and Angel One fell after the announcement. On the BSE, Angel One fell 8% and Billionbrains Garage Ventures, which runs Groww, dropped 5%. Overall, the BSE fell 1.8% to close at 80,722.9.