Mumbai, July 21: The markets got almost all it had asked for on a budget tax review. Finance minister P. Chidambaram realigned turnover tax rates in a way that promises to trigger a Thursday light-up — the sparks of which were seen in the dying hours of trading today.
Chidambaram, who made the announcement while replying to a debate on the budget in the lower house of Parliament, said instead of the proposed 0.15 per cent transaction tax on securities, day traders and arbitrageurs in the stock market will now have to pay securities transaction tax at the rate of 0.015 per cent and will get credit for such payments against business tax on profits.
The original tax will now apply only to trades where securities are delivered. The 0.15 per cent rate will also apply to traded units of equity-oriented mutual funds. However, the bond market will be exempt from the proposed tax as also mutual funds that are not equity-oriented. Traders in the derivatives segment will pay tax at the rate of 0.01 per cent and will also get credit against business profit tax.
In this year’s budget, the finance minister had proposed to impose the 0.15 per cent transaction tax on purchases of all securities. For delivery-based transactions, Chidambaram said the 0.15 per cent tax remained but it would be shared equally by buyers and sellers.
The news perked up the equity market, with the sensex gaining 36 points. However, the rally in the bond market was curtailed by worries on the inflation front, tardy monsoon and the possibility of a rise in global interest rates.
In the equity market, a sharp rally was seen during the last 10 minutes of trade with operators and retail investors going into buying mode. Apart from raising volumes, Chidambaram’s gesture may also lead to a short-term rally in the equities market.
The 30-share BSE sensex, which was trapped in a small range of about 40 points most of the day, breached the 5000-mark as it rose to an intra-day high of 5041.19 before closing at 4993.76 against Tuesday’s close of 4957.88, a net rise of 35.88 points or 0.72 per cent.
Although the turnover on BSE dropped to Rs 1,494.37 crore from over Rs 1,569 crore on Tuesday, analysts feel it will rise as the suspense over transaction tax is now over. Day-traders were active, while foreign institutional investors bought in a few counters.
Technology shares gained today with Wipro and Satyam rising by 1 and 2 per cent, respectively. Most of the steel counters were in demand and Tisco gained over 3 per cent. Reliance, SBI, Maruti and ONGC also recorded marked gains.
Analysts feel that even as concerns over the transaction tax have been addressed, the slack monsoon is weighing on the markets, as reflected in the weak numbers in the ACC and M&M counters.
In the bond market too, this was one factor that saw government security prices giving up some of their gains.
The government security prices had risen close to 60 paise after Chidambaram announced that transactions in bonds will be exempt from the transaction tax. Inflation and the global interest rate scenario kept the bond market under pressure.
Earlier in the day, government security prices were teetering on Fed chairman Alan Greenspan’s statement that interest rates in the US may go up again, albeit at a measured pace. Dealers say, bond prices dipped by over 50 paise.
However, Chidambaram's gesture saw bond prices recovering from their troughs and posting a huge rally, albeit shortlived as other worries began to set in.