Budgets are special occasions for market players, not so much from the point of view of how and how much they impact price trends but how many of the wishes from the wish list put forth by the market players the finance minister will fulfil.
The pre-election budget is the most special of them all. This is the time when the wish list maker has the highest probability of ‘seek and thou shalt get’ coming true. With springing eternal in my heart, here goes:
1) STT/CTT: The securities transaction tax (STT) is quite simply the biggest expense that a trader incurs. Many a time, the market maker, scalper or floor specialist makes a little more money than the STT paid! While I would not grudge the government its share of pie, the treatment of STT itself could make a world of difference to traders.
When introduced, STT was imposed as an advance tax and not as a levy. What is the difference? If the trader has a below taxable level income/loss-making year, STT as an advance tax would be refunded, just like your tax deducted at source (TDS). If the finance minister can keep the STT constant but change it to an advance tax, the trading community would get ample cause to cheer.
2) The derivatives segment of the market should be made even more vibrant, in a regulated, controlled and organised fashion. All advanced capital markets have at some point of time experimented with curbs on select market activities (banning short sales temporarily, curbing derivatives, raising margin barriers etc.) but have reverted back to some sort of Laissez-faire (minimal control) system of trade.
Derivatives definitely are steroid shots. But they cannot be wished away. Derivatives traders provide the much desired liquidity and efficient price discovery mechanism that result in narrower bid/offer spreads on market quote screens. Based on the present exchange turnover, if the bid/offer spreads were to widen by merely two-tick prices, the inefficiency in price discovery would take away lakhs of crores of rupees annually from traders’ pockets, curb trading volumes, turnover taxes, stamp duties and even employment.
Instead of raising entry barriers to derivatives trading, step up efforts to educate the market participants about the pitfalls of leveraging.
3) Long-term investments create wealth scientifically. Short-term trading is an art form. Unfortunately, we in India, tend to look at short-term trading with a jaundiced eye. We call it ‘gambling’, ‘speculation’ and a variety of uncomplimentary names. Yet, the western markets recognise it as an art and hold organised competitions, championships that impart respectability to the profession.
It would be wonderful if our capital market education includes live trading lessons in the classrooms, so our boys and girls can unfurl the tricolor in the international trading championship events held abroad regularly. Think of it as the Himalayan rally, once held in India ultimately, India would not just be a tourist destination but a trading championship destination. The forex inflows could be sizable. The US has understood this aspect and is leading the pack, it’s time India to catch up.
4) The Indian capital markets are now far beyond equities alone. We have commodities and currencies too. Unfortunately, the bond market remains a laggard. If this market was to be re-energised, investors would have a wonderful additional avenue for investing their capital.
What can be better than sovereign bonds in safety, reliability and trust? Allowing state governments and municipal corporations to raise money via bonds (muni bonds) would permit citizens to participate pro-actively in the nation-building process. The municipal corporations could spend the additional amounts on improving basic amenities and infrastructure like roads, bridges, public toilets and public transport system. It would also reduce the pressure on the Central government finances by a significant margin.
5) A society is as humane as it is caring for its elderly citizens. Unfortunately for senior citizens, they are financially unviable and hardest hit by real effective inflation rates. It would be wonderful if the tax exemption threshold is raised for every tax payer, but the hike must be far higher for the senior citizens and even higher for the super senior citizens (80 years and above).
Realistically speaking, how many 80 years+ tax payers are existing in the country? Giving them a generous extra inch in leeway would be a very welcome measure.
While we are at it, can you kindly consider exemption from STT, commodities transaction tax (CTT), exchange transaction taxes, stamp duty, Securities and Exchange Board of India (SEBI) turnover fees and exit loads in mutual funds for senior and super senior citizens please?
6) A substantial amount of our precious forex reserves are spent in bullion import. Gold exchange-traded funds (ETFs) have been a welcome whiff of fresh air. We now have broad-based and sectoral indices in the ETF basket, but silver ETFs still remain elusive.
The ETFs would be an ideal situation wherein the investors’ appetite is satiated and the government is frugal with forex outgoes. Since broadbasing the commodity markets is on the anvil, can we set the ball rolling for industrial metals ETFs too?
7) Online payments have helped expand the capital markets. However, not everyone is able to bank online. Investors relying on cheque payments have to wait for two working days to utilise their own funds. The process of clearing cheques, preferably on the same day must be put in place at the earliest. The investor participation will rise sizably.
8) For implementing the physical delivery settlement in the futures and options (F and O) stocks, it is important that the facility of stock lending and borrowing be made simple and rapid. Lenders of stocks to short sellers be treated separately by the Income Tax authorities when it comes to capital gains computations. This will make the F and O trading deeper and broader based over time.
Hope that the finance minister will consider as many of the above requests as possible.
(The writer heads Bhambwani Securities Pvt Ltd and is the author of 'A Traders Guide to Indian Commodity Markets')
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Updated Date: Jan 22, 2019 12:37:13 IST