This Budget brought key changes to STT charges on F&O trades and I believe every individual should know about it.
๐ช๐ต๐ฎ๐ ๐ถ๐ ๐ฆ๐ง๐ง ๐ฎ๐ป๐ฑ ๐๐ต๐ฎ๐ ๐๐ฎ๐ ๐๐ต๐ฒ ๐ต๐ถ๐ธ๐ฒ?
- Government levy charged on trades executed on recognised exchanges like the NSE and BSE which is called Securities Transaction Tax (STT).
- It applies to equities, futures & options
- But the changes are only for F&O -
1) It raised STT on futures to 0.05% from 0.02%, a 150% jump
2) Options premium STT increased to 0.15% from 0.1%
3) Options exercise STT moved up to 0.125%
๐ช๐ต๐ ๐๐ต๐ฒ ๐๐ผ๐๐ฒ๐ฟ๐ป๐บ๐ฒ๐ป๐ ๐ฟ๐ฎ๐ถ๐๐ฒ๐ฑ ๐ฆ๐ง๐ง?
- In FY25, 91% of individual investors in Indiaโs equity F&O segment lost money
- Total losses touched a record โน1.06 lakh crore, up 41% year-on-year
- Nirmala Sitharaman in her speech specified that wants to stop the satta and speculation which goes on in the market.
- Government wants to add friction to frequent trading without touching long-term investing
๐ฃ๐ฟ๐ผ๐ฏ๐น๐ฒ๐บ ๐ถ๐ ๐บ๐ฎ๐ฟ๐ธ๐ฒ๐๐ ๐ฑ๐ผ๐ปโ๐ ๐๐ฒ๐ฝ๐ฎ๐ฟ๐ฎ๐๐ฒ โ๐๐ฝ๐ฒ๐ฐ๐๐น๐ฎ๐๐ถ๐ผ๐ปโ ๐๐ผ ๐ฒ๐ฎ๐๐ถ๐น๐
โ Derivatives arenโt just for speculation, they are used by traders and arbitrageurs to manage risk.
โ When costs rise sharply, participation drops not just from gamblers but from liquidity providers.
โ Thin-margin strategies become unviable almost overnight.
๐๐ผ๐๐ฒ๐ฟ ๐ฑ๐ฒ๐ฟ๐ถ๐๐ฎ๐๐ถ๐๐ฒ๐ ๐๐ผ๐น๐๐บ๐ฒ๐ ๐ต๐ฎ๐๐ฒ ๐ฎ ๐พ๐๐ถ๐ฒ๐ ๐ฏ๐๐ ๐ฝ๐ผ๐๐ฒ๐ฟ๐ณ๐๐น ๐๐ฝ๐ถ๐น๐น๐ผ๐๐ฒ๐ฟ
โ Arbitrage between futures and cash weakens
โ Cash market volumes take a hit
โ Spreads widen and price discovery becomes less efficient
๐๐น๐ผ๐ฏ๐ฎ๐น ๐ถ๐ป๐๐ฒ๐๐๐ผ๐ฟ๐ ๐๐๐ฎ๐ฟ๐ ๐ฝ๐ฎ๐๐ถ๐ป๐ด ๐ฎ๐๐๐ฒ๐ป๐๐ถ๐ผ๐ป
โ Lower liquidity means a higher liquidity premium
โ Higher premium means higher cost of capital
โ And gradually, they start looking for some other market.
๐๐ผ๐ฟ๐ฒ๐ถ๐ด๐ป ๐ถ๐ป๐๐ฒ๐๐๐ผ๐ฟ๐ ๐ฎ๐ฟ๐ฒ ๐ฎ๐น๐ฟ๐ฒ๐ฎ๐ฑ๐ ๐๐ต๐ผ๐๐ถ๐ป๐ด ๐ฐ๐ฎ๐๐๐ถ๐ผ๐ป
โ Equity outflows crossed โน41,000 crore in January alone amid global sentiment.
โ Elevated US bond yields and AI-led capital flows toward the US, Taiwan and Korea.
โ The STT hike further erodes post-tax returns for derivative-heavy foreign strategies
โข High-frequency and arbitrage trades take the hardest hit as many such strategies simply stop making economic sense.
๐๐ผ๐ ๐๐ต๐ถ๐ ๐ฎ๐ณ๐ณ๐ฒ๐ฐ๐๐ ๐ฆ๐๐ผ๐ฐ๐ธ ๐๐ฟ๐ผ๐ธ๐ฒ๐ฟ๐?
โ BSE earns around 60% of its revenues from equity derivatives
โ Angel One derives nearly 75% of broking revenues from F&O
โ Lower volumes directly hit revenues, scale and investment appetite
๐๐ผ๐ป๐ด ๐๐ฒ๐ฟ๐บ ๐๐๐ผ๐ฟ๐ ๐ฟ๐ฒ๐บ๐ฎ๐ถ๐ป๐ ๐ถ๐ป๐๐ฎ๐ฐ๐
- This move is to curb hyper-short-term trading without disrupting long-term capital flows.
- Long term investors look for fundamentals, growth prospects and corporate profitability which remains strong.