Amit Gupta, CIO–PMS Equities at Motilal Oswal Private Wealth Limited, believes the move is aimed squarely at curbing excessive speculation, particularly low-margin, high-frequency trades that dominate near-expiry activity in the F&O segment.
In this ETMarkets Smart Talk, Gupta explains why the STT hike is unlikely to hurt long-term investors, how it could improve market quality over time, and what valuations, earnings visibility, and currency levels mean for the return of foreign investor flows. Edited Excerpts –
Kshitij Anand: Yes, we did see a knee-jerk reaction where the Sensex slipped by more than 2,000 points and the Nifty 50 fell below the 25,000 mark. I am sure you saw all the action on a Sunday—not the Sunday you were probably looking for, but certainly an adventurous one. As Naveen rightly pointed out, much of the action will likely play out in the coming week, starting Monday, when foreign portfolio participation begins. How will the steep increase in STT on F&O change trading behaviour for proprietary traders, given that you track these trends very closely?
Amit Gupta: This issue has been around for some time. Excessive leverage and speculation are things the government has always been keen to curb. SEBI has released several papers over time on how to address this. Contract values were increased over the years, but that did not really stop the activity. We have also seen that excessive speculation leads to significant losses for many participants in the market.
I believe the STT increase is a direct attack on high-frequency trades, particularly low-margin, high-frequency trading. If you recall, near expiry we used to see extremely high volumes, often at very low option premiums. As we know, most of the derivatives volume comes from options. An increase in futures STT is fine, but in options, many participants trade at ₹2 or ₹3 premiums. From the seller’s perspective, writing out-of-the-money options can make sense because large index moves are less frequent. But from the buyer’s perspective, this becomes more speculative.
If the intent is to target these areas, it will obviously impact volumes there. It is not that every broker is involved in such activity—only a few participants engage heavily in this. So, I think this is a very targeted move aimed at those segments. That is how I see it.
Kshitij Anand: For long-only FIIs, what matters more now—valuations, earnings visibility, or currency stability? It feels like everything is coming into play at the moment.
Amit Gupta: Valuations and earnings are undoubtedly very important for everyone, including overseas investors. They continuously assess the kind of earnings India is delivering. That was also one of the primary reasons other markets performed better at times, as valuations relative to earnings matter.
There are phases when the currency depreciates to a level where it becomes very attractive for foreign investors. Even if the index does not generate strong returns, a modest currency appreciation can still result in good overall returns. I think we may be approaching that stage now. We have seen continuous outflows, and many factors—such as Japanese bond yields, trade tariffs, and other global developments—are already being factored into the currency. My sense is that we are getting close to a level where FII money could start coming back in, as they may find the USD–INR level attractive.
Kshitij Anand: Naveen gave it a four out of five. Amit, quickly from your side.
Amit Gupta: If someone was expecting sixes to be hit like in a T20 match, it was never going to be that kind of Budget. My sense is that this is a difficult pitch—more like playing in South Africa or Australia—where you have to stay balanced and prepared going forward. Beyond the Budget as well, we will continue to see announcements depending on how the geopolitical scenario evolves.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)