Securities Transaction Tax Hike's Initial Impact: F&O ADTO Sees Consecutive Decline Amid MTF Rebound

Derivatives Activity Cools Down Following Budget Measures

The Indian government's recent Budget implemented a significant increase in Securities Transaction Tax (STT) on futures from 0.02% to 0.05% (a 150% jump) and on options premium/exercise from 0.10%/0.125% to 0.15%. The aim behind this move was to curb excessive speculative churn in derivatives and steer flows toward the cash market.

According to CareEdge Ratings, the overall Average Daily Turnover (ADTO) across F&O and equity stood at Rs 487.2 lakh crore in April, a 31.9% year-over-year (YoY) increase given the lower base in April 2025. However, ADTO dropped sequentially by Rs 30.5 lakh crore from March.

A combination of factors, including higher transaction costs from the new STT regime, exchange holidays clashing with key NSE expiry sessions, and lingering global uncertainty, may have contributed to the sequential decline in ADTO. F&O was particularly affected, as experts had warned before April.

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In contrast, the cash market ADTO rose 35.5% YoY to Rs 1.44 lakh crore and improved sequentially, supported by higher investor participation and sustained Margin Trading Facility (MTF) activity.

Key Statistics:

The shift from expensive derivatives leverage to cash leverage is evident, with the average MTF book standing at Rs 1.14 lakh crore in April 2026, marking a 1.6% sequential increase, equivalent to roughly Rs 8,600 crore of fresh leveraged exposure. This was the first monthly uptick after two consecutive months of decline.

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In contrast, the year-on-year picture remains strong, with the MTF book surging 60% compared to April last year. NSE continues to dominate with over 96% market share, its book touching Rs 1.10 lakh crore (a rise of 61% YoY).

This rebound after March's Rs 9,600 crore shed suggests that retail investors are not abandoning leveraged equity bets entirely, but rather becoming more selective amid volatility. The book remains below January's Rs 1.20 lakh crore peak, signaling caution, not capitulation.

Zerodha's Nithin Kamath had predicted this dynamic months ago, highlighting MTF's explosive 5x growth over four years (to over Rs 1.1 lakh crore) due to higher F&O margins and STT costs pushing participants toward cash market leverage. However, he also flagged the risks: hidden interest, brokerage costs raise breakevens, and a sharp correction could amplify pain.

This is the first full month of the new STT regime, and the early read is that derivatives frenzy has cooled as intended while cash and MTF have picked up some slack. Overall market activity remains healthy YoY, but momentum has moderated.

CareEdge noted that ongoing global uncertainties, Middle East geopolitics, and potential crude oil spikes remain key risks for FY27. RBI's deferred regulatory changes (now July) could add another layer of uncertainty later.