The stock markets in general and foreign portfolio investors in particular got a shot in the arm on Monday following announcements by the finance minister. In a major move in the Indian capital market, Budget provided a level playing field to foreign institutional investors (FIIs) by permitting them to submit an appropriate collateral besides cash in form of bank guarantee, fixed deposits and securities for trading in derivatives market.
The proposal to treat income from derivatives trading as a business income than a speculative income has also come as a bonus to the markets, which put the marginal rise in Securities Transaction Tax across all category on the back seat. This step is expected to improve liquidity and help players to manage their tax efficiently.
As a result the S&P CNX Nifty bounced from red to end the day at 2,103.25, up 42.35 points or 2.05%. While the Nifty futures ended at 2,111.65, up 55.45 points from its previous close.
The surge comes following the government initiatives to boost liquidity in the futures and options segment. So far, FIIs had to pay cash as upfront margins, unlike the domestic participants, that were allowed to submit collateral in fixed deposit, bank guarantee as well as securities.
| A SHOT IN THE ARM |
• Budget provided a level playing field to FIIs by permitting them to submit an
appropriate collateral
• The proposal to treat income from
derivatives trading as business
income and not speculative income has
also come as a bonus to the markets
• This step is expected to improve
liquidity |
Gurunath Mudlapur, head of strategy and research, Khandwala Securities, said: “This comes as a big boost in the capital market and liquidity is expected to rise in the F&O markets, as FIIs are assumed to take speculative positions following the permission to submit collateral in form of bank guarantee, fixed deposits and securities.”
Ajay Mahajan, president-financial markets, YES Bank, said: “This has a huge off-setting ability for hegders, that will help them to manage tax efficiently as well as boost liquidity in the derivative markets.” So far players recording any gains or losses were not able to off-set their losses or gains as their income was considered speculative.
But hereon gains or losses in the derivative markets will be liable for short-term gains or losses which can be off-set against other business transaction, added Mr Mahajan.
For example: If a player in the future markets gains in Tata Steel contract and faces a loss in Infosys Technologies contract, he can now off-set his loss in Infosys as against the gains in Tata Steel, to nullify their business taxes. As a results, the intra-day trading is also expected to gather pace, added Mr Mudlapur.
