Securities Transaction Tax cut not deep enough to deliver volumes

The finance minister’s move to reduce Securities Transaction Tax (STT) by 20%, from 0.125% to 0.1%, on cash delivery transactions comes as a dampener for the market as the segment accounts for a negligible portion of the total securities business.
The move, which will bring down transaction cost from Rs 125 per Rs 1 lakh worth of transaction to Rs 100 would benefit only those investors who contribute about 4-5% of the total market turnover, including cash and derivatives trades on NSE and BSE together.“This (reduction) is insignificant,” said Kishor P Oswal, MD, CNI Research.
The expectation was that STT could be totally abolished, or at least reduced across the board, including for derivatives trades, which account for about 90% of the total turnover on the bourses, and intra-day trading that contributes over 60% of daily cash portion of the total turnover. “The small cut was disappointing. We were expecting at least 50% reduction in STT, across the board,” said a leading broker Motilal Oswal.
Market players said that a cut in the STT in non-delivery based transactions was important to bring back some volumes lost due to bad market conditions.
Budget 2012
Budget News 2012