The BSE Sensex on Friday ignored a global market rally and crashed 560 points after the government declined to give any tax relief for foreign portfolio investors (FPIs).
With this, the Sensex has fallen 818 points in the last two days, largely on the FPI tax worries. On Friday, led by a sell-off in auto and banking stocks, the 30-share index plunged 560.45 points or 1.44 per cent to settle at 38,337.01. It hit an intra-day low of 38,271.35 and a high of 39,058.73, swinging 787 points. Similarly, the broader NSE Nifty fell 177.65 points or 1.53 per cent to 11,419.25.
However, other Asian markets rallied as comments from a top Federal Reserve official were pounced on by investors as indicating that the US central bank will unveil a deep interest rate cut at the end of the month. In Asia, Shanghai Composite Index, Hang Seng, Kospi and Nikkei ended up to 2 per cent higher. Bourses in Europe were also trading higher in early sessions.
The selling spree was triggered after Finance Minister Nirmala Sitharaman on Thursday declined to remove or relax the applicability of the new surcharge on the super rich on FPIs, but advised those staring at an increase in tax outflows to shift to the corporate structure where the Budget hasn’t made any change in tax treatment. On a net basis, FPIs sold equities worth Rs 1,404.86 crore Thursday. FPIs have sold equity worth over Rs 7,700 crore in July so far. According to tax experts, such a shift by FPIs using the trust structure would have been easier if the government had given them a one-time waiver from capital gains tax.
According to Jagannadham Thunuguntla, head of research, Centrum Broking, “Indian capital markets are in capitulation mode, as there has been clear dearth of good news. The continuous corporate defaults, high-tax regime, weak earnings season and fragile economy are not helping the already-delicate sentiment. With the crisis deepening and widening, markets are eagerly looking forward if policy makers can talk-up the markets with market-friendly tone.”
“Going forward, Fed’s policy holds key to revive the market sentiment if they can provide delight with 50 bps rate cut,” he said.