Commodity market is slowly booming in India and to put the breaks; FM had proposed commodity transaction tax or CTT which is going to come into effect from 01 June 2013. However one can expect an additional month for updation of the software. To an extent it is good for equity market as commodity market was rising at the expense of Indian commodity market as equity market is already paying the securities transaction tax or STT. Moreover black money entering in commodity market will be checked and thus speculation will be curtailed to a great extent.
The tax rate under the new arrangement, sellers will have to pay 0.01 per cent tax, that is, Rs 10 for a transaction value of Rs 1 lakh. The current transaction cost (without any tax) is less than a third of this and this means that we may see some commodity tradres shift to the equity segment as they were lured by lower transaction charges.
The impact of such announcements is for a limited period and this is the reason post CTT announcement ; we saw Financial technology and MCX stocks come under pressure we went short on these stocks and gained approx 30% in value. However moment it was clear that Financial Technology and MCX are at reasonable valuation we initiated a buy for delivery tips subscribers and again we are close to gaining 30%. Thus in a market a news has a limited value and one ahs to be dynamic in approach.
Only worry which market regulators are worried is that post CTT; the Indian commodity exchanges will become 350 per cent more expensive due to the CTT and that a bulk of the trade will shift to unofficial channels or move outside India or may be we may have another set of dabba trading initiated in commodity segment.