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 on Sunday.
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 PTI.
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.
Sitharaman announced the STT hikes, saying the move is aimed to "provide reasonable course correction" in the F&O segment in the capital market and generate additional revenues for the government.
Accordingly, she announced a proposal to raise the STT on futures to 0.05% from the present 0.02% and STT on options premium and exercise of options to be raised to 0.15% from the present rate of 0.1 per cent and 0.125%, respectively.
If the volumes go down, entities like brokerages and bourses that depend on the transactions for revenues may see a dent in their toplines, which led to the investor unease.
The BSE scrip closed the session 10% down at the end of trade on Sunday.
Both Chauhan and Ramamurthy welcomed other announcements in the Budget presented by Sitharaman earlier in the day.
Chauhan called it a fiscally disciplined and growth-oriented Budget, while Ramamurthy said it looks as capital formation along with the fiscal discipline.
The proposals on infrastructure building and also futuristic technologies like artificial intelligence were lauded by Chauhan.
Ramamurthy mentioned the Budget's efforts to encourage investments in municipal bonds and deepen the corporate bond market, and added that the public capital expenditure will help the country in the long term by having the desired multiplier effects.
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