As per the latest analysis by the World Bank, the turnover ratio of the Indian stock market had fallen from 143 in 2008 to 58 in 2018. To be sure, while the the ratio had managed to move up in the last five years, it is still quite low compared with the earlier highs.
The turnover ratio, which is a universally accepted parameter to gauge trading volumes, is the total value of the shares traded in a specific period divided by the average market capitalisation of that period.
This assumes significance as market participants have been lobbying hard with the government to bring down the overall cost of trading in equities in India, which, they feel, is adversely affecting investors’ interest in the stock market.
Incidentally, the World Bank study comes close on the heels of a recent analysis by the Association of National Exchanges Members of India (ANMI) that highlighted the fact that that India had very high trading costs due to huge margin requirements, especially in the derivatives segment.
Separately, as part of their pre-budget recommendations to the government, capital market participants had sought rationalisation of the securities transaction tax (STT) apart from bringing back certain exemption benefits that were available earlier.
In 2007-08, government stopped treating STT as tax paid and treated it as an expense that led to double taxation for the gains assessed under business income. Further, while long-term capital gains (LTCG) tax was made nil while introducing STT in 2004, the transaction tax was not done away with when LTCG was reintroduced in 2018.