Archive for July 9th, 2009

Tax relief likely to boost commodity trading

Growth in commodity trading over equity trading has been evident in recent years. Some market observers said removing tax on commodities trading, while retaining tax on securities transactions, may accelerate growth.


Jagannadham Thunuguntla, equity head of SMC Capital, said the Budget proposal could turn the focus of traders and arbitrageurs to commodities from equities. This may push up share of trading volumes significantly in commodities.

Trading Share

In 2007, the share of equities in the overall financial market transactions was 82 per cent and that of commodities was 18 per cent.

This year the share of equities market has reached 63 per cent, but the share of commodities has shot up to 37 per cent.

Ajit Day, who owns equity brokerage and commodity trading outfits, said the impact of removal of commodity transaction tax will be minimal as the rate of tax was much lower than that in the equities market.

“Commodities’ derivatives market is still in its formative stage and dominated by speculative transactions. The linkages between spot market and derivatives commodity market are thin; there are many regulatory issues to be resolved too. So the growth of the two markets is strictly not comparable,” he added.