Transaction tax hiked to curb 'speculation' in F&O, but its volumes were already down, Pg1

Key Highlights:

• Indian stock markets declined by 2% on Budget day 2026-27 due to the proposed hike in Securities Transaction Tax (STT) on futures and options (F&O) trading.
• The BSE Sensex fell by 1.9% to 80,722.94 points, marking the second-largest Budget day fall since 2014.
• Nifty 50 also closed 2% lower at 24,825.45 points, with the India VIX spiking by 13% to 15.10, indicating increased market volatility.
• The government aims to collect Rs 73,700 crore from STT in 2026-27, up from the revised estimate of Rs 63,670 crore for the current fiscal year.

Detailed Insights:

• The STT on futures is proposed to increase from 0.02% to 0.05%, while the STT on options premiums and exercising of options will rise to 0.15% and 0.125% respectively.
• The Revenue Secretary stated that the STT hike aims to discourage speculative tendencies in the F&O segment.
• The market reacted negatively to the STT proposal, compounded by continuous Foreign Portfolio Investor (FPI) outflows, impacting investor confidence.
• FIIs have already withdrawn $4 billion from Indian shares in January, adding to the net outflows of almost $19 billion in 2023.
• A SEBI study indicated that individual traders' losses in equity derivatives increased by 41% to Rs 1.06 lakh crore in 2024-25, raising concerns about retail investor participation.

Key Concepts Involved:

• Securities Transaction Tax (STT): A tax levied on the purchase and sale of securities listed on stock exchanges.
• Futures and Options (F&O): Derivative instruments that allow parties to trade an asset at a predetermined price and future date.
• Foreign Portfolio Investor (FPI): An investor that invests in a country's assets without directly managing them.