Our Bureau

Coimbatore, March 1

THE derivative market has got a shot in the arm with the Government deciding to treat income from derivatives trading as a non-speculative income, a former President of the Coimbatore Stock Exchange (CSX) has said.

The tax proposals relating to select industries such as textile and sugar and investment in infrastructure projects would give a boost to the companies involved in these activities, according to Mr K. Annamalai, former CSX President.

Reacting to the Budget proposals, he said the announcement on enhanced capital subsidy under the Technological Upgradation Fund (TUF) would motivate the large textile mills to go for modernisation and expansion. In Coimbatore district itself, a few mills have chosen to establish new spinning capacity and processing facilities in the Perundurai industrial estate in Erode district. He expected the fresh investments to add substantially to growth in the topline and bottomline of the textile industry.

He said the concessions to the sugar industry would also have a positive impact on the financial performance of sugar mills, particularly those who have a substantial debt burden since they could seek lower interest rates on their loans. The investment envisaged on infrastructure projects such as ports, and roads would give a boost to industrial units in sectors such as cement, steel and infrastructure projects.

Mr Annamalai said the decision to treat income from derivative trading as a non-speculative income will contribute to an increase in trading volume in the derivative market since it provided for setting off of derivative income/loss against normal income/loss. He, however, expressed fear that the increase in securities transaction tax for day traders from 0.015 per cent to 0.020 per cent would affect the trading volume and would lead to reduction in spread and increase in the transaction cost.

He hoped that investments in equities, in both primary and secondary markets, would qualify for deduction in taxable income up to Rs 1 lakh. If this happened, the stock market would firm up further.

(This article was published in the Business Line print edition dated March 2, 2005)
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