Assocham's tip to arrest market volatility

Industry chamber Assocham on Tuesday suggested that the government should create a sovereign fund out of the money collected through Securities Transaction Tax and use the corpus to arrest volatility in the stock market, fuelled especially by FIIs.

"The fund can be raised from Security and Transaction Tax, imposed on daily trading of capital markets," it said.

STT is levied at the rate of 0.12 per cent for every transaction in cash for the delivery of shares. Transactions in derivatives trading attract a lower STT of around 0.017 per cent.

"Since the capital market has grown tremendously with an average turnover scaling to Rs 90,000 crore (Rs 900 billion) per day and contributing about Rs 108 crore (Rs 1.08 billion) per day to exchequer in the form of STT, a time has come when 1/4th of which can be used for setting up of the proposed fund," it said.

The proposed fund has become necessary to shield the capital markets from unusual swings or panic conditions since their market direction is determined by the entry or exit of the FIIs, it said.

At present, there is hardly any domestic institutional support or a prominent market player who has the resources and reach to moderate wild swings in capital markets, it added.

FIIs have put in over Rs 71,900 crore (Rs 719.00 billion) so far this year in the country's bourses, the highest ever investment made in rupee terms in a single year. The huge inflow has led to appreciation of rupee.