Nikhil Kamath News: Nikhil Kamath’s Budget Wish: Eliminate TWU, Make Industry More Efficient

“We should encourage people to diversify using better strategies that have an element of derivatives so that they can have stronger portfolios and streamlining that tax rate will go a long way,” said Nikhil kamath, co-founder and CIO, Zerodha.

Do you have high expectations for what will come within the budget? Do you think this will be the next big driver for the markets?
This is the most worrying time of the year for me because there is so much going on overnight during the budget, where you can’t really control and wake up with a positive shock or surprise. Either way, there is a lot of volatility in the market and it’s very worrying and a lot of people are making a lot of money or losing money. But anyway, it’s a tough time.

There is a lot the government can do to change our industry and make it a little bit more efficient to make the little guy, the retail investor, and the speculator profitable. We have a long wish list, but I would start with something like the Security Transaction Tax, STT. As an industry, we have talked about this for a long time and repeatedly. They said they would rationalize it and remove it, but the problem here is for a retail investor who trades Rs 5 lakh in his account 10 times a day with some leverage.

Also read: Advice for retail investors – adjust your expectations for 2022

If he is trading a derivative contract, the STT component alone makes it so much harder for him to be profitable at the end of the day. I don’t think this is fair compared to other parts of the world and some kind of streamlining will go a long way and help the ecosystem become more robust.

If the cost of doing business in India decreases further, it will only encourage more foreign participants to come to the country and trade on our exchanges, invest in our economy and the pie will increase overall. This is a change that was long overdue and something is happening around it. Another big thing that we hope for is the tax on derivatives which occurs at the highest level. For example you manage a portfolio of 10 stocks and you use Nifty futures contracts to hedge that portfolio or use an options strategy to hedge that portfolio, on the long only portfolio you end up paying a tax on the gains in 15% short-term capital plus 16 -17% surcharge on the hedging component. If you end up paying taxes at 42-43%, it discourages people from pursuing more robust strategies like risk hedging. I don’t think it’s fair.

We should be encouraging people to diversify using better strategies that have a derivative element so that they can have stronger portfolios, rationalizing this tax rate again will go a long way. As long as people tax their income at a reasonable rate, many more people will be paying taxes and doing things the right way. This will discourage any dabba or CFT type markets which are a big deal in India today.

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