STT hike effect on markets to subside soon

Mumbai: Markets are used to tweak in taxation and the adverse impact of the steep hike in securities transaction tax (STT) will not last long, leading bourses said. NSE, the largest stock exchange, feels that the move to curb volumes will not have any impact on its upcoming initial public offering (IPO) plans, its Managing Director and Chief Executive Ashish Kumar Chauhan said.

"What has been raised is the STT has been increased in a minor way. Broadly, markets are used to having STT on options and this time it has also been increased on futures but broadly, I do not see any large impact on the IPO of NSE or otherwise asset valuations in the stock market going forward," Chauhan told.

Rival BSE's Managing Director and Chief Executive S Ramamurthy said markets react in a "bit adverse" way whenever any such changes are proposed by the government and exuded confidence that gradually things will settle down. "This is not the first time that STT is increased. When any such move is announced, the market reaction is a bit adverse to start with and then it stabilises," he said. The proposal to increase the STT on futures and options will also encourage long-term equity investments, he said, adding that it may also lead to a shift of money from the arbitrage funds to banks' fixed deposits as the returns one stands to make get on par.

The moves 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 after the Budget speech by Union Finance Minister Nirmala Sitharaman.

It can be noted that as per studies by Sebi, over 90% of 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.