India's $36 Billion Arbitrage Fund Sector Faces Impact from Equity Derivatives Tax Hike

India's government has raised the securities transaction tax (STT) on equity derivatives to curb speculative trading, impacting the country's $36 billion arbitrage fund sector. These funds, which profit from price differences between spot and futures markets, face higher operational costs that may reduce investor returns. While arbitrage spreads are typically narrow, some experts suggest capital outflows could widen spreads, partially offsetting lower yields. The sector grew rapidly amid market volatility and foreign investor exits in 2024.