STT on F&O trades hiked: Here is how it will increase your costs per trade

Finance Minister Nirmala Sitharaman, on Sunday, February 1, in her Budget speech, announced major changes in Securities Transaction Tax (STT). The Finance Minister announced a hike in STT for futures trade from 0.02% to 0.05% and raised the STT on options trade to 0.15%.

Soon after the announcement, NIFTY Capital Markets index, which tracks companies associated with capital markets, fell by over 6% to 4,365 on Sunday afternoon. The benchmark indices fell more than 2% as a primary reaction to the news, but later recouped the majority of the losses to trade with nearly 1% losses.

The announcement came in sharp contrast to the broader expectations of the abolishment of STT in the current budget. Following the development, shares of BSE Ltd plunged 10% to ₹2517 apiece, followed by Angel One down 10%, 360 One down by 10%, Groww dropped 8.7% and Nuvama plunged 8.1%.

Here is the revised cost per trade of NIFTY50

The increase in STT is expected to bring the breakeven costs per trade higher for F&O traders. For example, a earlier ₹325 per lot trade had a breakeven cost of 5 points (₹325/65). After the revision of STT to 0.05%, the breakeven cost has increased to 12 points (₹812/65).

Similarly, the STT on options premium is also hiked from 0.10% to 0.15%, thereby increasing the breakeven cost of options trade. For example, a NIFTY call option with a premium of ₹100 would earlier attract a STT of ₹9.75 per trade (₹6,500* 0.15%) vs ₹6.5 (₹6,500* 0.10%) earlier.

Additionally, the hike is also expected to impact commodity futures and options volumes as well.

The hike in STT is broadly negative for market participant companies, as the hike in STT is expected to impact volumes in the F&O segment. The broking and exchange houses are expected to be the primary casualties with a drawdown in volumes. While the AMC companies like HDFC AMC, ICICI Pru AMC, and 360 One will also witness higher operating costs as they use derivatives for hedging purposes.