The hike in the Securities Transaction Tax (STT) will not have a meaningful impact and the markets will adjust to it, believes Shiv Sehgal, President & Head, Nuvama Capital Markets. He tells Ananya Grover on the sidelines of Nuvama‘s two-day India conference that India is going to be an alpha play in the next 12-18 months. Excerpts:
How are you looking at the market now that an interim deal has bee signed with the US?
In the last 12 to 15 months, India has gone through a painful consolidation for a multitude of factors but I think the revival in credit, growth, earnings trajectory is going to provide a foundation from here for the next bull run. This thesis that India has not participated in the AI rating that has happened in the US and especially in pockets in Asia, is slightly being overblown in terms of expectations.
From 2021 to 2024, India was going through a phase when China looked non-investable and a lot of the flows that should have gone to emerging markets had come to India. Now multiples have kind of come down.
MSCI India has underperformed emerging markets, so valuations have now come back to historical norms, which is also providing a margin of safety now to clients, especially foreigners. My sense is that foreigners will start nibbling back into the country, going forward.
Sehgal on modern-day valuations
Are India’s valuations expensive?
Historically, India has always traded at a premium and that I feel will continue because the rest of the world is going through stagnation of growth. In 2026 alone, this India will contribute 18% of total global GDP growth. Our earnings trajectory will always remain high. Of course, there was a lot of froth in the SMEs and stocks in the mid cap and small caps. That has been cleaned out – a healthy cleansing of the system.
What will be the impact of STT hike?
The market don’t like uncertainty, so it reacted negatively. It was not expected but given the volumes that we have seen, especially in index options and futures in India, is more than the US. They want to curb the speculation element from retail side. But by default, historically it is seen that India has an amazing ability to absorb any change within 1 or 2 quarters. Fast forward 6 months from now, the market would have adjusted to it.
Sehgal on how HFTs look at Indian market?
Does it make any difference to the earnings of HFTs and how they look at the Indian market?
There is an impact to the entire ecosystem but the maximum impact is the market makers. Because their cost of doing business goes up. Their margins go down because of the increment in the STT. They will also have to adjust.
When I speak to the largest HFTs in the region, India for them is profitable by a factor of 1-5 versus the next best market which is Korea. While this STT increment will bring down margins, it still remains a very profitable trade for them. For them, what is more important is how does retail react because that is what they are trading against and other smaller players.
So, it depends exactly how the rest of the market adjusts and what they do for the largest players to have an impact. My view is there will be some impact, not a meaningful impact.