Did you expect the stamp duty waiver. What would be the impact of this move?

RHP: To be very frank, this was the last thing we expected to be announced. The secondary debt market was limping because of the levy of this rather high stamp duty on transfer of debt instruments. Just imagine, an investor had to pay one per cent interest, which was higher in some states, as stamp duty. In addition to this, there was the cost of brokerage and the cost of transfer of paper. So, a large part of thereturns that an investor hoped to garner from investment in debt instruments never fructified. This also put pressure on a corporate or institution, to offer very high rates of interest in order to offset the cost of stamp duty payable by an investor. In a demat environment, brokerage charges are going to be driven down and the cost on transfer of paper would be removed. With stamp duty too gone, there is a major incentive for investors to flock to the secondary debt market. For a retail investor, he now gets the flexibility to exit from a debt instrument and would hence like to invest here rather than in the conventional instruments of the past. For a corporate, it enables it to raise more funds from the market by attracting a large pool of retail investors.

What are the implications of the move on the debt market as a whole?

First of all, a debt instrument would now be liquid. This is the best thing that could have happened to the debt market. One would see banks taking an active interest inopening investor accounts in their capacity as depository participants. One expects banks to start floating bonds as these could be treated as tier-II capital. Now there would be a scope for banks like the State Bank of India to raise even up to Rs 10,000 crore worth of bonds as there would be investor appetite for these.Another major impact which will be witnessed will be in the case of bonds floated by public sector units. The Reserve Bank of India has already announced that the repos facility would be extended to public sector unit (PSU) bonds which are in demat form. A corporate entity can now invest in a PSU bond and be able to sell in the repos market when required. This will provide immense liquidity to a corporate. With the cost of holding bonds going down for an investor, corporates would be encouraged to issue more debt instruments at rates attractive for them.

Debt securitisation also would receive a major boost as now debt could be securitised and traded freely without attracting any stampduty.

How would the tax sops for the mutual funds industry impact the debt markets?

Following the tax surcharge of 10 per cent, an investor would now get a reduced rate of return on his investment in a debt instrument floated by, say, an institution. In other words, if an instrument is giving a 14 per cent rate of return the effective rate of return would be just about 10 per cent (33 per cent tax). In the case of mutual funds, a debt-oriented scheme would be paying a 10-per cent tax on dividend.

This would mean that while there would be no tax payable by an investor if investing in a debt-oriented mutual fund scheme, he would have to pay tax on investment in corporate debt instruments. Mutual funds would thus stand to attract a large part of the retail debt investments. On the other hand, these funds too would need to trade these instruments and the stamp duty waiver on transfer would see them active in the secondary debt market in a big way.

Would all this lead to an increase in the sizeof the debt market. If so to what extent?

The secondary corporate debt market today is about Rs 30,000 crore. We expect this to double each year in the coming two years. The secondary debt market in turn will become bigger if not the same size as the equity markets in terms of investor interest and trading interest.

What could NSE and NSDL do now to facilitate to grab the opportunity thrown up in the budget?

The National Stock Exchange (NSE) will work with full rigour to promote the retail debt segment which we had been planning for sometime. We will straight away look at offering our trading systems to corporates for marketing their debt issues just in the same manner as is being planned for equity instruments. The depository would undertake a major marketing initiative by writing to all corporates apprising them of the issues and the advantages that this move brings for them.

Does the budget have anything for growth of the infrastructure sector, which you have outlined as imperativefor growth of the economy?

Apart from the Rs 1 per litre levy on diesel, part of which would go in for setting up roads in the country, there is no thrust on infrastructure, which brings us back to the issue that a budget is a highly hyped up affair as it does not do much to inject growth into the economy.

By when would one see NSE terminals abroad? There is no mention on derivatives trading?

Terminals would have to be launched through V-Sat connectivity as leased lines would be very expensive for trading mmbers. This issue would have to be sorted out. We are extremely disappointed about the lack of any mention on the introduction of derivatives in the country.