Players differ on securities transaction tax impact

The markets have turned nervous and extremely choppy over the past four trading sessions, (except Wednesday's smart recovery on short covering) ahead of the introduction of the Securities Transaction Tax (STT) from October 1.

The capital markets will move into a new regime, with STT being levied on all transactions carried on the stock exchanges and the short term capital gains tax being reduced from 30 per cent to 10 per cent.

While the impact of the change is already visible in the benchmark BSE Sensex shedding 154 points in the last four trading sessions from 5616 on September 22 to 5462 on September 28, market participants differ on the actual impact of STT on the total turnover at the bourses and on the market trend.

All delivery-based trades in the equity cash segment will attract a 0.15 per cent tax, but the levy will be split equally between the buyer and the seller.

For day-traders and arbitrageurs, the tax will be 0.015 per cent but they will be allowed to take credit for the tax against business tax on profits. For derivative traders, the tax will be 0.01 per cent and they too will be allowed to take credit for the tax against business tax on profits.

The total turnover at the BSE over the past one week has been in the range of Rs 1,599 to Rs 2,149 crore and between Rs 3,379 to Rs 5,950 crore on the NSE.

A dealer with a local brokerage firm said: "There won't be any major sell off post-STT and the stock prices should not be impacted as investors don't buy and sell for tax purposes alone".

Amit Rathi, managing director, Anand Rathi Securities said: "The impact of STT is already being factored in, as the Sensex has corrected a bit in the last one week. In terms of its impact on volumes, the relatively lower rates of tax in the derivatives segment will not affect the speculative volumes."

Rathi reasoned that in the cash markets, the additional transaction tax will not have a huge impact the impact cost is already high in the current market favourites, the mid-cap stocks. In the frontline stocks, the renewed interest among the FIIs will compensate for any kind of a initial sell off, post October 1.

Atul Suri, CEO of Marathon Capital Advisory said: "With the introduction of STT, the action will shift to delivery-based transactions. So the speculative volumes will definitely take a hit".

Suri reasons that due to the squeeze in the spread for arbitrageurs, total volumes will decline 15 to 20 per cent in the initial period.

However, the chief administrative officer of a foreign broking firm said: ''The imposition of STT would impact the market marginally, some retail investors could book gains. But I don't see institutional investors reacting to the imposition of STT, as they are long term players''.

Deven Choksey, managing director, KR Choksey Securities said, "No major reaction is expected. Volumes will not be impacted much, and even if there is an immediate sell off to avail of the short term capital gains tax, the money will finds its way back into the system."