After a shaky start,Dalal Street and the rupee staged smart gains on Monday after the government postponed controversial rules on foreign taxation by a year,helping soothe worries about capital inflows.
The Sensex,which at one point of time during the day was down around 320 points,reversed the fortunes to settle the day at 16,912.71,a rise of 81.63 points from its last close with investors cheering Finance Minister Pranab Mukherjees decision to defer the General Anti-Avoidance Rules (GAAR). Recouping from sharp early losses,the rupee,too,gained an impressive 56 paise at 52.91/92 against dollar,to snap four-day losing string as hopes of strong fund flows got a boost from the announcement.
Within minutes of the government deferring GAAR,markets started recovering from the steep losses it had suffered in the early trade in tune with global stocks. The Sensex had lost nearly 500 points in the last three sessions of the last week as fears over capital outflows intensified.
GAAR was intended to be introduced from April 1,2011,and thankfully,it has been deferred by one year. There also seems to be an intent to shift the onus of proof from the tax payer to the tax department,which again is very welcome, said Ketan Dalal,joint tax leader,PwC India.
Dipen Shah,head of Fundamental Research,Kotak Securities,said,The Finance Ministers clarification has given some relief to the markets. The other impact of the clarifications was on the rupee,which appreciated against the USD immediately after the announcement. Markets will now await initiation of the reforms process,which is necessary for the markets to sustain and move up from the current levels. The NSE Nifty also early logged a low of 5,017.80 before springing back to conclude at 5,114.15,a gain of 27.50 points. Forex dealers said steps announced by the Reserve Bank regarding FCNR and export credit also lifted the rupee sentiment. The unit opened weak at 53.63/64 and logged an intra-day low of 53.76 on early fall in local equities. The currency bounced back to a high of 52.85 before concluding at 52.91/92.
Momentum unlikely to sustain: experts
While Finance Minister Pranab Mukherjees announcement to defer General Anti-Avoidance Rule (GAAR) by a year lifted the market sentiments,experts say that the enthusiasm may not be sustainable.
The provisions under the regulations had become a big drag on the markets,leading to a situation where the foreign investors have been staying away. Foreign institutional investors (FIIs) invested Rs 42,879 crore before March 16,2012,(the day the Union Budget for 2012-13 was presented) in the markets,while,post Budget,till May 4,they had put in only Rs 1,351 crore.
Market participants,however,do not see the return of the pre-Budget like inflow of foreign money.
Its (deferment of GAAR) a sentiment booster for the time being,but I do not see much gain because of this, said the head of a global investment banking firm.
Pankaj Pandey,head of research at ICICIdirect.com,said,There are no feelers of a QE3 and if that does not happen then there wont be big inflows.
Sigh of relief
* The Sensex had lost nearly 500 points in the last three sessions of the last week as fears over capital outflows intensified
* Within minutes of the government deferring GAAR,markets started recovering from the steep losses it had suffered in the early trade in tune with global stocks
* Recouping from sharp early losses,the rupee gained 56 paise,to snap four-day losing string