The stocks of brokerages continued to slide and even underperformed the broader market on Monday, following the government’s decision to hike the securities transactions tax (STT) on the sales of options and futures by up to 25 percent, each.

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The move, which will increase the cost of trading, especially those in the high frequency trading segment, however unlikely to impact trading volume drastically.

According to market participants, the derivative volume has increased over four-fold post pandemic. Moreover, 90 percent of the derivative volume takes place in the options segment, predominantly in index options.

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While shares of Geojit Financial Services slid as much as 4.1 percent on Monday, others like IIFL Securities and ICICI Securities saw their stocks falling anywhere between 2.4 percent to 5.4 percent. With Monday’s fall, shares of IIFL have corrected nearly 9 percent over the last two sessions.

That compares with two-day loss of about 4 percent clocked by Geojit Financials and ICICI securities. The benchmark Nifty50 on the other hand ended Monday’s session in the green. ICICI Securities and Angel One witnessed market cap erosion to the tune of Rs 534 crore and 471 crore, respectively, since the announcement.

However, analysts at ICICI Securities do not expect major impact on trading volumes from increase in STT, though there could be some impact in the long run. “We have not seen any drop in volumes post the imposition of STT while it continued to grow exponentially,” the brokerage wrote in a note.

STT was first introduced in the Finance Bill 2004 with a standard rate of 0.01 percent for both futures and equity, which was later brought down to 0.01 percent for futures and 0.05 percent for options.

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Notably, stocks in the broking space have been huge underperformers so far this year. While shares of Arihant Capital Markets have given up 44 percent of their value, IIFL Securities has come off as much as 24.3 percent between January and now.

In an interview to CNBC-TV18, Prakarsh Gagdani, CEO at 5paisa said, "The impact of the increase in STT will be limited. It will be limited to small and retail investors who come with less capital and any change in the cost have an impact on their trading strategy or their profitability. As far as small retail investors are concerned there will be an impact. On the large retail traders who are mostly sellers of the option, there I see a very limited impact."

First Published:Mar 27, 2023 5:04 PM IST