STT Hike to Slash Derivatives Volumes by 30%, Sparking Liquidity Fears

• The recent Budget's sharp increase in Securities Transaction Tax (STT) on equity derivatives is projected to reduce trading volumes by up to 30%.
• Market participants, including brokers and fund managers, warn of increased transaction costs and negative repercussions for market liquidity and participation.
• The hike in STT on futures is seen as a move to offset reduced STT collections from options, where turnover has declined.
• Experts like Radhika Gupta emphasize the critical role of a liquid derivatives market for attracting global capital and overall market health.
• Concerns are raised about the impact on Foreign Portfolio Investor (FPI) flows, potentially making India less competitive for derivative-focused global funds.

Why It Matters: Increased STT on derivatives is expected to significantly reduce trading volumes and raise concerns about market liquidity.