Abolish STT

Another budget is upon us, and this time, it will be presented by a man who has come to be recognised as the messiah of Indian economic reforms. Why am I calling him a messiah? Well, Chidambaram, you would certainly agree, has been instrumental in putting reforms back on track, and the results are there for all to see. The markets have responded well and have found an upward trajectory, which has taken them very close to their lifetime highs. I am looking forward to them going past their highs very soon.

What will really help the markets in breaching their lifetime highs and moving even further? The immediate trigger lies in what the FM will come up with in his budget. Our cover story in this issue details a whole lot of things that we expect from him which will help the markets in maintaining their upward momentum. Here, I would like to touch upon one point in particular – the abolition of the Securities Transaction Tax (STT), which is presently being levied. From Dalal Street in Mumbai (as the world knows the Indian capital market) to North Block in Delhi, almost any circle even remotely connected to the markets is discussing rather loudly the probability of the FM introducing a tax on commodity transactions rather than doing away with the existing Securities Transaction Tax (STT).

Taxes, by their very nature, have always been a strongly repelling force. Whatever eats into your income is never welcome. On the other hand, even a slight indication of a release from the shackles of taxation has always met with a good response. Let me substantiate my point by giving you two diametrically opposite examples. In 2003, the then Finance Minister Jaswant Singh had exempted dividends from taxation in the hands of shareholders. This move went a long way in paving the way for a bull run that extended from that period until 2007. In contrast to this, when Chidambaram came up with the idea of the Securities Transaction Tax, it more or less spelt doom for traders by eating into a part of their earnings. The ultimate result was a virtual drying up of volumes. In fact, it has been widely believed that money has moved on to other asset classes from equities, particularly commodities, following the introduction of this tax.

We have been talking a lot about how to pump up volumes and retail participation in the markets. The introduction of newer taxes will not help but only hurt the market sentiment. Though it is being claimed that the introduction of a Commodities Transaction Tax (CTT) on the lines of the STT will help in creating a level playing field, will it really help? In our opinion, it will certainly NOT. In fact, many believe that this would lead to money moving out from this segment too and finding its way to other attractive geographical destinations. Rather, in order to create a level playing field, the FM should abolish the STT and refrain from introducing any new tax. This will surely help in boosting volumes and bringing a whole new set of players waiting on the sidelines into the market. I am sure good sense will prevail on our FM, from whom a whole lot is being expected this time around.

In this issue, we also tell you about the five best Equity Linked Savings Schemes (ELSS) to invest in. These could get you the best of both worlds – a higher return on your investment as well as the benefits of tax savings. Our recommendations this time include IDFC, on which we present a detailed analysis, along with the cooler company Symphony as our Choice Scrip and Tata Group firm Tinplate as our Low Priced Scrip recommendation.

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V B Padode
Editor-in-Chief