Futures and options segment hit new highs in April despite STT hike

From April 1, the centre increased the STT on sales of futures and option (F&O) contracts by 25 per cent

Trading turnover for the futures and options (F&O) segment hit a new record in April even as the government increased securities transaction tax (STT). The average daily turnover (ADTV) for the derivatives segment stood at Rs 242 trillion (notional value for options), up 2.6 per cent month-on-month (MoM) and 2.3 times year-on-year (YoY).

From April 1, the Centre increased the STT on sales of F&O contracts by 25 per cent with the STT on options increased from Rs 5,000 crore to Rs 6,250 per Rs 1 crore, while that on futures increased from 0.01 per cent to 0.0125 per cent, translating into Rs 1,250 per Rs 1 crore. Market players said the increase in ADTV was on the back of buoyancy in the market and the real impact of the STT hike will only be felt when market conditions deteriorate.

In April, the Nifty50 rose 4.1 per cent, while the Nifty Midcap 100 and Nifty Smallcap 100 index jumped 5.9 per cent and 7.5 per cent, respectively. The ADTV for the cash market segment rose 4 per cent MoM but was down 25 per cent YoY.

“The impact of an increase in STT on trading volumes would depend on various factors, such as the prevailing market conditions and investor behaviour. In general, an increase in STT could potentially lead to a decrease in trading volumes for several reasons, primarily due to higher transaction costs. This increase in transaction costs may discourage some investors from trading or lead to a reduction in their trading activity, particularly in short-term or high-frequency trading strategies where transaction costs play a significant role in profitability,” Ravi Kumar, co-founder and chief executive officer, Upstox, had told Business Standard in a recent interview.