STT hike: Brokers to seek deferment, citing RBI's reprieve and market 'doldrums'

"The RBI deferment comes as a major reprieve, given the doldrums the market is in because of the West Asia crisis," said K Suresh, national president of the Association of NSE Members of India (ANMI). "Now, we will request the ministry of finance to temporarily hold back imposition of the hike in securities transaction tax on equity futures and options, given the drop in volumes it could lead to, given the extant conditions."

In the FY27 budget presented on 1 February, the government proposed to increase the STT on equity futures to 0.05% from 0.02% and on options premium and exercise of options to 0.15% from 0.1% and 0.125%, respectively, from 1 April. The Finance Act, 2026, notified on 31 March, gives effect to the budget proposals.

"Volumes on account of the STT hikes could dip by 10-15%," Suresh said. "Given the steep fall in the markets since the start of the Iran war, the government could consider temporary deferment, like the RBI's postponement of rules for funding capital market intermediaries."

Days after finance minister Nirmala Sitharaman proposed the hike in the STT, the central bank effectively barred banks from lending to proprietary traders, among other directions, on 13 February. This resulted in ANMI requesting the banking regulator, through capital markets regulator Securities and Exchange Board of India, to reconsider the move, considering that proprietary traders are the major liquidity providers in the derivatives and cash segments of the exchanges.

Market share

Prop traders held a 63.54% share of the equity derivatives turnover on the BSE and a 59.2% share on the National Stock Exchange in the 11 months ended February, according to Sebi data. Retail investors, high net worth investors, mutual funds and banks held the rest.

The NSE had a 71.8% market share in equity options as of February end, based on premium turnover, with the BSE holding the rest. In equity futures, the NSE held a 99.8% share as of the same date.

The RBI said in a press release on Monday that it was extending the effective date of amendment directions on capital market exposure by three months to 1 July after having received representations from banks, capital market intermediaries and industry associations seeking an extension of the effective date and also flagging operational and interpretational issues for clarification.

"The RBI or any regulator shouldn't breach the pact with the citizen without providing adequate reasoning/rationale,” senior securities lawyer Chirag Shah said. “It is not advisable to sit in an ivory tower and be preachy. A three-month extension makes it worse and keeps the Sword of Damocles hanging."

In free fall

The benchmark Nifty 50 index has declined 11.3% since the Iran war started on 28 February, led by foreign portfolio investors selling a record ₹1.22 trillion in the secondary market. As the war continues, the market outlook has been further clouded due to the heavy rollover, or carry forward, of short positions, according to Axis Securities, which noted that any bounce could likely be sold into.

Rollovers happen on the last Tuesday of every month or the prior session if a holiday falls on a Tuesday, as in the present case, when the markets were closed for Mahavir Jayanti.

"For April, rolls suggest heavy short aggression with 77.77% of Nifty positions being carried forward against the three-month average of 68.23%," said Rajesh Palviya, senior vice president (research) at Axis Securities. "In context of the heavy rolls, any pullback could be sold into unless short covering happens."

The combined average daily cash market turnover on the NSE and the BSE was little changed at ₹1.21 trillion in FY26 from the preceding fiscal, according to exchange data. The combined average daily premium turnover of index options, the most popular equity derivatives product on the exchanges, was up 28% at ₹700 billion in FY26.