Image for representational purposes only.
| Photo Credit: PTI

Benchmark BSE Sensex declined for the fourth day in a row on July 24 due to selling in financial and banking shares and the government’s move to hike securities transaction tax and short term capital gains tax.

The 30-share BSE Sensex declined 280.16 points or 0.35% to settle at 80,148.88 with 19 of its components closing lower and 11 with gains. During the day, it tumbled 678.53 points or 0.84% to 79,750.51.

The NSE Nifty dropped 65.55 points or 0.27% to 24,413.50.

From the Sensex pack, Bajaj Finserv declined by 2% after its first-quarter earnings failed to cheer investors.

Bajaj Finance, Hindustan Unilever, Kotak Mahindra Bank, Adani Ports, Axis Bank and State Bank of India were the other big laggards.

However, Tech Mahindra, ITC, NTPC, Tata Motors and Sun Pharma were among the gainers.

Conglomerate ITC surged to 52-week highs before closing higher by 0.42% in its second straight day of gains after the budget proposed no new tax on tobacco products.

“The budget event has gone by leaving a mixed bias while reshuffling of capital gain tax is only a short-term negative surprise. The broad market seems to be losing momentum due to lack of further traction,” Vinod Nair, Head of Research, Geojit Financial Services said.

Key benchmark indices ended marginally lower in volatile trade on July 23 as the government proposed to hike the securities transaction tax on futures & options in the Budget for 2024-25.

In Asian markets, Seoul, Tokyo, Shanghai and Hong Kong settled lower. European markets were trading lower. The US markets ended marginally lower on Tuesday.

Foreign Institutional Investors (FIIs) offloaded equities worth ₹2,975.31 crore on July 23, according to exchange data.

Global oil benchmark Brent crude jumped 0.75% to $81.62 a barrel.

Union Finance Minister Nirmala Sitharaman.
| Photo Credit: PTI

Finance Minister Nirmala Sitharaman on July 23 proposed to increase the rate of securities transaction tax (STT) on futures and options (F&O) trade to discourage retail investors’ participation in the risky instrument.

“It is proposed to increase the rates of STT on the sale of an option in securities from 0.0625% to 0.1% of the option premium, and on sale of a futures in securities from 0.0125% to 0.02% of the price at which such futures are traded,” she said in the Union Budget speech.

This came after the Economic Survey flagged concerns over rising retail investors’ interest in derivative trading. The survey stated that speculative trade has no place in a developing country.

It also pointed out that the sharp increase in retail investor participation in F&O trading is likely driven by humans’ gambling instincts.

“Derivatives trading holds the potential for outsized gains. Thus, it caters to humans’ gambling instincts and can augment income if profitable. These considerations are likely driving active retail participation in derivatives trading,” according to the Economic Survey 2023-24.

Recently, Sebi chief Madhabi Puri Buch also cautioned investors against heavy bets on F&O. Before that, Ms. Sitharaman and Chief Economic Adviser V, Anantha Nageswaran flagged the growing risk of F&O trading for retail investors.

F&O trading continues to grow in popularity, and market experts believe that this is driven by the potential for profit and the rising trading volumes. Experts said investors who lack understanding or risk appetite should avoid derivatives trading.

The segment’s popularity is evident from its massive growth, with the monthly turnover in the F&O segment reaching ₹8,740 lakh crore in March 2024, compared to ₹217 lakh crore in March 2019.

At the same time, the average daily turnover in the equity cash segment was ₹1 lakh crore, while the F&O segment saw an average daily turnover of about ₹330 lakh crore.

Futures and Options trading involves contracts that derive their value from an underlying asset, such as stocks or commodities. Futures contracts obligate the buyer and seller to transact at a predetermined future date and price, while options give the holder the right, but not the obligation, to buy or sell the asset at a set price within a specific period.

These financial instruments are used for hedging risks, speculating on price movements, and arbitraging price differences. However, they come with significant risks, including leverage risk and market volatility, which can lead to substantial losses.

Futures and Options trading is largely being utilised as a speculative tool for quick profits in the stock market. However, the reality is that most retail investors are losing money.

A study by the Securities and Exchange Board of India (Sebi) revealed that 89 per cent of individual traders in the equity F&O segment suffered losses, with average losses of Rs 1.1 lakh in FY22.

Additionally, there was an exponential increase in the F&O segment participation during the pandemic, with the total number of unique individual traders increasing by over 500% from 7.1 lakh in FY19 to 45.24 lakh in FY21, the study noted.

Earlier, Buch stated that the capital markets regulator is “compelled” to warn against speculative bets in the F&O segment because it has become a “macro issue”, affecting the broader economy now.

Household financial savings are going into the speculative bets, belying the expectations of being used for capital formation, and the youth is losing tonnes of money in such trades, she stated.

Last month, the Sebi board approved stricter norms for the entry of individual stocks in the derivatives segment. The proposal is aimed at weeding out stocks with consistently low turnover from the F&O segment of the bourses.

Photo illustration purpose only.
| Photo Credit: The Hindu

India’s net direct tax collections grew 17.7% in 2023-24 to hit ₹19.58 lakh crore, marginally surpassing the revised estimates for the year, thanks to a surge in personal income taxes whose share of the tax kitty rose to 53.3% from 50.06% in the previous year while corporate taxes’ contribution dipped to 46.5% from 49.6%.  

Provisional data released by the Finance Ministry on Sunday also showed that the uptick in net tax collections over the final fortnight of the financial year was driven by personal income tax (PIT) and securities transaction tax (STT) collections, while the net corporate tax kitty shrank a little. PIT and STT receipts also grew at almost double the pace of corporate taxes last year.

As of March 17, net direct taxes had risen 19.88% to ₹18.9 lakh crore, with PIT and STT accounting for 51.4% of the receipts and corporate tax yielding ₹9.14 lakh crore. By March 31, PIT and STT inflows had increased by ₹73,000 crore, lifting their full-year tally to ₹10.44 lakh crore.

Although gross corporate tax collections increased from ₹10.98 lakh crore as of March 17 to ₹11.32 lakh crore by the close of the financial year, the net tax receipts from corporates, calculated after adjusting for refunds, dropped from ₹9.14 lakh crore on March 17 to ₹9.11 lakh crore.

The gross direct tax kitty for 2023-24 stood at ₹23.37 lakh crore, reflecting a growth of 18.5% over the ₹19.72 lakh crore tally in 2022-23. Of this, gross PIT and STT receipts accounted for ₹12.01 lakh crore, rising ₹76,000 crore between March 17 and 31.

Prior to refunds, gross PIT and STT collections grew 24.3% while gross corporate tax collections grew 13.06% in 2023-24. After adjusting for refunds, however, corporate tax receipts reflected only a 10.26% growth over 2022-23 figures. On the other hand, net PIT and STT receipts rose 25.33%, almost two and a half times quicker than corporate taxes’ growth.

“The Budget Estimates [BE] for direct tax revenue in the Union Budget for 2023-24 were fixed at ₹18.23 lakh crore which were revised, and the Revised Estimates [RE] were fixed at ₹19.45 lakh crore. The provisional direct tax collections [net of the refunds] have exceeded the BE by 7.40% and RE by 0.67%,” the Ministry said in a statement.

The Finance Ministry also noted that tax refunds made in 2023-24 rose 22.74% to ₹3.79 lakh crore from ₹3.09 lakh crore issued in the previous financial year.