NSE: see more degrowth in F&O volumes after tax hike in April
TL;DR
NSE warns that a 150% STT hike on F&O trading from April 2026 may further reduce volumes, as higher costs could deter investors and impact market liquidity, amid concerns over retail losses and regulatory scrutiny.
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NSE: see more degrowth in F&O volumes after tax hike in April
NSE Anticipates Further Decline in F&O Volumes Post-STT Hike
The National Stock Exchange (NSE) has expressed concerns that the recent 150% increase in Securities Transaction Tax (STT) on equity futures and options (F&O) trading, announced in the Union Budget 2026, could lead to further degrowth in derivatives volumes. The tax hike, effective April 1, 2026, raises STT on futures from 0.02% to 0.05% and on options from 0.10% to 0.15% (premium) and 0.125% to 0.15% (exercise). While the NSE acknowledges market expectations of a potential review of the policy, it cautions that the immediate impact on trading activity remains uncertain.
The government's move aims to curb speculative trading, particularly among retail investors, who have seen significant losses in the F&O segment. According to SEBI data, 91% of individual traders incurred losses in FY25, prompting regulators to prioritize risk mitigation. The NSE management highlighted that futures are critical for hedging by long-term investors, and higher transaction costs could deter genuine participants, reducing liquidity.
Market reactions to the budget announcement were severe, with the BSE Sensex and Nifty 50 plummeting over 1.9% on the day of the announcement. Brokers like Zerodha and Angel One saw their shares drop 5–9%, as F&O trading constitutes a major revenue stream for such firms. Analysts estimate that active traders could face significantly higher costs. For example, a ₹10 lakh futures contract now incurs an additional ₹300 per trade, while options traders face a 50% increase in premium-based STT.
Despite historical resilience—past STT hikes did not cause sustained volume declines, the NSE notes that current market conditions, including high retail losses and regulatory scrutiny, may amplify the impact. The exchange is advocating for policy reconsideration, emphasizing that derivatives remain vital for risk management. However, with foreign institutional investor (FII) outflows already at $19 billion in 2025, the sector faces compounded challenges.
While the NSE remains hopeful for a future review, it acknowledges that the April implementation will likely test the segment's stability, with long-term implications for market depth and investor behavior.
