Budget 2026: Shankar Sharma Cheers Derivatives STT Hike, Calls F&O a ‘Poison’ for Investors
The government’s recent decision to increase the Securities Transaction Tax (STT) on derivatives has created a buzz in the financial world, igniting mixed feelings among investors. Notably, ace investor Shankar Sharma has publicly supported this move, describing it as vital in promoting a healthier market environment.
Shankar Sharma’s Perspective on STT Hike
Despite the hike causing a sharp sell-off in markets, with brokerage and exchange stocks plummeting during the weekend trading session, Sharma expressed his approval. He stated on social media:
– “I love this Budget for ONE major reason: hiking of STT on derivatives. Derivatives are a poison like cocaine, eating away at the roots of our youth. Its destructive effect will be felt by generations. It’s a pure wealth transfer from the traders to F&O specialist brokers, who have been massive winners of this drug + gun trade.”
Sharma contends that the Futures & Options (F&O) market adds zero value to the Indian economy. He believes it cannot be eliminated but emphasizes that it should be heavily taxed to mitigate its negative effects:
– “F&O adds zero value to India. It deducts inestimable value. It can’t be stopped but it can be taxed the hell out of. Kudos to the Finance Minister,” he added.
Market Reactions to the STT Increase
The increase in STT has led to significant volatility in the market. During the trading session, stocks of companies like BSE and Angel One dropped as much as 13.5%.
– STT Changes:
– Futures: Increased from 0.02% to 0.05%
– Options Premium: Increased from 0.10% to 0.15%
– Exercise of Options: Increased from 0.125% to 0.15%
While the immediate impact appears negative, some financial experts believe this change may encourage a shift towards long-term investing. A Balasubramanian, CEO of Aditya Birla Sun Life AMC, noted:
– “The increase in STT on derivatives may impact trading but it should be looked at as an encouragement to gradually shift towards cash markets and long-term investing.”
Vishal Kampani from JM Financial echoed this sentiment, stating that the increase reflects a desire to curb excessive speculation, fostering stability.
Criticisms from the Industry
On the other hand, the STT hike has drawn criticism. Sandeep Nayak, MD & CEO at Centrum Finverse, labeled it a disappointment without any corresponding relief in capital gains taxation. Bhupinder Singh from InCred Group remarked that the abrupt increase could disrupt market stability:
– “Predictability and active participation are vital for deep capital markets, so ongoing engagement between the government and market stakeholders will be key.”
Impact on Investors and the Market
Analysts are dissecting the potential ramifications of this new STT regime. Ashish Singhal, co-founder of Lemonn, expressed concerns regarding the uniform treatment under the current STT framework:
– “Genuine hedging activities are subjected to the same higher costs as speculative trading, which could discourage some investors from employing prudent hedging strategies.”
This means that for every ₹1 lakh worth of futures sold, traders will pay ₹20 in STT instead of the previous ₹12.50. Similarly, for a ₹10,000 options contract sale, the STT has risen to ₹10 from ₹6.25.
Conclusion
The Budget 2026 proposal to hike STT on derivatives has sparked a significant discussion in the investing community. While Shankar Sharma heralds it as a necessary step toward greater financial responsibility, the immediate market reaction indicates a complex balancing act ahead. As the landscape shifts, both investors and policymakers must adapt to these changes, emphasizing a more sustainable and long-term investment strategy in India’s financial ecosystem.