Nirmala Sitharaman's Pre-Budget Consultation: Experts Suggest Higher STT On High-Frequency Traders

Now the Finance Minister Nirmala Sitaraman has been chairing pre budget consultation meetings and the financial market players. They have represented their views and brought them before the finance minister on many of the suggestions that are being offered there in those meetings include this one to hike the STT for high frequency trades. Let's find out what these representations have been about. What is really the push at this stage? My colleague Ankur Mishra has been tracking these meetings. He's joining us here in the Mumbai newsroom. Ankur, do tell us about the STT requirement, the hike that industry is asking for. Tell us more about that and all that you're hearing about the meetings that the finance ministers had as pre budget consultations. Move on. Yes, in a meeting held with Finance Minister, capital market industry representatives have suggested increasing STT meaning securities transaction tax on high frequency traders that is done in FNO. We also try to understand whether or not there was any suggestion for discouraging retail participants in FNO through taxes. But we have been informed through sources that there was no such discussion which happened between finance minister and financial sector representatives. In fact, a suggestion was given to launch Jan Nivesh campaign for creating financial inclusion awareness. That was one of the suggestions which was given by the capital market industry. Remember, there was a comment which was given by Reserve Bank of India Governor Shaktikanta Das on increased volumes of future and options and he mentioned that RBI and Sebi are monitoring the same. As far as the volumes of FNO is concerned, if you talk about last five years, it has increased over 23 times. There was also a study by Securities and Exchange Board of India which had mentioned that retail incurs over 90% of losses or the times of trade which is done in FNO. So All in all, the wide anticipation was that there will be some taxes which will be levied to discourage the retail investors in future and option. But for now, the industry has suggested the tax increase of tax in STT for high frequency traders. Indeed that is what is being asked to the finance minister. Whether or not its going to work, let's find out and discuss it. PV Subramaniam is CEO at subramani.com. Subra, Always good to get in your perspective. Like my colleague was saying, asset managers urging the finance minister to hike STT on high frequency FNO trades, at least the ones that run over 1000 crore rupees. But tell us, is this going to work to curb the participation, retail participation in FNO trades people in Dream 11? It is five times more than the number of mutual fund investors. People will go where there is action, even if they have to pay a higher price. People will go. People go to Bitcoin where the taxation is ruthless, right? So I don't think these things will change. Remember STT was brought, they said because we are bringing in STC, we are because we are bringing in STT, we are removing long term capital gains, then still clean long term capital gains. Games came back. Now will they increase STTI? Do not know. Will it dissuade people from going there? Tobacco warning does not stop people from smoking. So the guy who wants to do will still go higher. Tax will not deter them initially. Maybe one week after that, things will be back to normal. Subra, the finance minister herself, had warned that the rapid increase that we are seeing in retail FNO trade could negatively impact investor sentiment. It could impact household finances. The RBI has been at pains to talk about FNO retail trade. It has been on the rise. Can you help us understand? You said there is heightened activity over there, but why? Honestly, if you think tobacco smoking is bad, they should ban tobacco, right? Does it happen? No. The government makes a lot of money in STT. The government makes a lot of money in all these activities. So will it go? No, it will not go if there is a vested interest in everybody making money. So it will not go. Why is there heightened activity? Because people like to come here. It's a lot of a punting thing. Look, FNO, it's supposed to be a hedge for people who want to buy gold or oil or things like that. But what happens largely is it is treated as a speculative thing. So every retail guy comes and plays the FNO market. It is good fun. So people come, have fun, lose money. 90% is the number of players who will lose money in that. And I think that data is wrong. It could only be higher than 90, definitely not less than 90. Why is there so much interest? I have no clue. It's just like Dream 11. Everybody comes and puts ₹49.59 rupees, 109 rupees, whatever it is. Mostly it is a house which makes money. So the house makes money, the government makes money, the broker makes money, the retail investor doesn't. But he still keeps coming back for more and more. Don't ask me why I don't do an FNO trade, but as a broker, it's a fantastic thing. We all make money because people come and do FNO. If we have to plug the problem at the source, you're saying raising STT is not going to be the answer to this? Can we curb retail activity in derivative derivatives in any other way? Why is it rising so rapidly is a question that I am still asking. But for the government to have to intervene, at least this request being put out to the finance minister to raise STT in a way suggests that many other ways may not succeed. What do you think would plug the problem? If it is a problem, it is not a problem. Anybody who tells you it's a problem does not want a solution. They just want to regulate it better. Are you saying that there should be no F&O? Can they ban F&O? No, the answer is no, they can't. They won't because a lot of FI is do it. The other side of when so many retail people are losing money, who is making money? Institutions are making money, people who write the options are making money, so it's not going away in a hurry. Yes, you can increase government revenue. Is the government increasing the STT? Or if it does, I don't know whether it will, but if it does, is it meant to curb the activity? No, it is not meant to curb the activity. It is meant to increase the government revenue. This is exactly like tobacco tax. You keep increasing the tobacco tax, this tobacco consumption go down and there is no but the government revenue goes up. So largely, if you ask me, if STT goes up, whether it is for equity shares or for F&O, the chances are it is going up because the government revenues have to go up, not because they want lesser number of people coming into it. That's not the, that may be the state objective, but that is not the real objective you're pointing out. Subrah. There are several large firms that use customized algo trades as well in the Indian markets. At a time that we are trying to attract that much more foreign investments in our markets. Would a higher STT in that sense at least be a deterrent in growing that part of the business for our markets? If you look at it from outside retail investors for the larger cause of the markets, you did speak about how this benefits the government, but tell us about the growth in the markets from this kind of activity by raising STT. Is that going to be a deterrent at all for them to kind of put in more money? Like you said its for fun, but they do make profits right? Yeah, but we come look at it this way. When oil prices go up people say oh I'll be more careful, I will not you, I will use carpool etcetera. Given give them a week or 10 days and their life is back to normal. Petrol price has gone from 100 to 103 or 103 to 106 does not really stop consumption of petrol. F&O consumption will not stop. 95% of the market is F&O and trading delivery business is today very, very small. It is abysmal. So you are you trying to tell me by increasing 5 paise on the on STT or two paise on STT, is it going to stop? No, it's not going to stop. Will it be a deterrent? It should, but I don't think it. I don't see it as a deterrent because I don't see volumes going down. Over the last five years, the volumes have gone up dramatically. It will only keep going up as more and more players come. You know, it's so simple. People are consuming something and they see an ad, they stop it. They go do the deal and come back. They just continue to consume the same podcast or a YouTube video they're watching. They're watching a YouTube video. Somebody says this transaction is good, deposit, go there, do it, come back. That's it. It is as simple. Access is very simple. All you need is an account. So people are doing it. If they lose money, do they stop doing it? No, they give delivery of something else, hoping that tomorrow it's like lottery ticket. I don't think it's a big dissuador. People who are addicted to it will keep coming back to it. The number of people doing it is only increasing. It's not coming down. Looking at the same time, the rise in SI PS as well, something you as a financial planner would definitely suggest. Of course with the kind of focus areas that depend on what your goals in life are. So SI PS are growing something that you would load at the same time this is happening as well. Are they two different kinds of retail investors or does it kind of make the case for someone who's doing SIPS to also be doing this? What is something that you've observed in the demographics of the investors, the retail participants in F&O? That's very difficult to say whether the same guy is doing both because SIPS are very slow way of making money, which people don't like. F&O people think overnight they will make a lot of money. So the quick key, the quick thing is F&O, the longer duration thing. Boring thing is the SIP is the same guy doing both. I don't know the brother doing F&O and the sister doing SIP. We don't have enough data. We have not captured enough data to know whether more women are doing SIP. Even if we have the data, it is only 3-4 years old to sue to say more women are doing SIP, more men are doing F&O. We don't have that kind of data. So yes, both are increasing, but let us face it, like I said, dream level 20,00,00,000 players, mutual funds, 4 1/2 crore players, Team 11 is much younger, right? But that is the attraction. You can put 49 rupees ₹59 and hope to get something. And what are you losing? You're losing only ₹59. So same thing with F&O, people are losing money, but more, more and more players are coming into play. So I don't see the dramatic reduction in volume immediately. Maybe some reduction in volume margins will come down because they will have to play a bigger shape to make money because of the Sgt. But I don't see the, I don't see this as a deterrent to reduction in volume. Yes, there will be a reduction in volume maybe for 15 days one month but after that. So as a retail investor, Subra, we are going into the next budget. The finance minister is looking at doing various things for various parts of industry and beyond. If you are a retail investor, what was your wish list for the budget from the finance minister? Now forget my wish list Vikram 2014 to 2024, Every budget I have ended up paying more tax. So my wish list could be different. But the truth is there is there need not be any wish list because look at long term capital gains and equities, it is 10%, looks very normal. But remember it is 10% without indexation that can hurt you dramatically after 10-15 years where if inflation is six 7%, you're just playing paying in inflation tax. That could be very, very harsh. Are we going to wish it away? No, but thanks to Sam Petrura, we know there will be no inheritance tax or well tax or gift tax. We have to be happy for that. But at the higher levels, be ready to pay a little more tax. At the lower levels, maybe to get a little bit of the vote bank, that could be some increase in limit from 7,00,000 to 8,00,000 or 9,00,000 or something like that. Some change in ATC perhaps, but I don't see anything dramatic happening. Those who pay taxes will start paying more taxes. I'm sorry, it's just sound very bearish. But I don't have any great expectation from the budget because I've not seen any great things happening in the budget over 10 years. At the same time, let me tell you, it has become easier to earn money. It is easier to travel infrastructure as a happened. So many people find it easier to earn money. I heard a lot of stories about people being able to reach their job work. I mean they're able to carry their produce to the market easily because the roads have improved blah, blah, blah. All that has happened. So maybe peoples income will increase. But taxation wise, I don't expect any social infrastructure. You're saying we've made moves, but on the taxation front, not so much. And perhaps that's going to be an ask of the finance minister. Well see exactly how it goes. But this representation on raising STT to be able to control the kind of activity, retail activity we are seeing in FNO and derivatives is something that has been asked what happened on that front. We are watching, but thanks, Subra for joining us with your perspective on this. Appreciate it.