Securities transaction tax casts shadow over discount brokers

Stocks of capital-market-related companies such as exchanges and discount brokers have been hit hardest by the steep hike in securities transaction tax (STT).

- Manish Joshi

Listed companies aren't the only ones that will bear the brunt—the valuation of NSE's upcoming initial public offering (IPO) will also be affected as it is the dominant exchange in equity derivatives trading. Discount brokers primarily provide the execution platform for placing trades, generally at a flat fee per order. This fee is currently ₹20 per order at leading discount brokers such as Angel One Ltd, Billion-brains Garage Ventures Ltd (Groww) and Zerodha.

They depend more on brokerage income from futures and options (F&O) than full-service brokerages like Motilal Oswal Financial Services Ltd, ICICI Securities, Nuvama Wealth Management Ltd and 360 One Wam Ltd.

Full-service brokerages provide research services that allow them to earn more brokerage from cash market than discount brokers.

Substantial hike

On 1 February, shares of BSE Ltd, Angel One and Groww plummeted 5-9%, while Nifty 50 was down 2%, reflecting fears that higher STT would result in less trading activity in the derivatives segment.