The benchmark Sensex of the Bombay Stock Exchange on Monday fell 134 points, or 0.7%, to end at nearly two-week low of 19,293 as a proposed bailout of Cyprus rattled global markets and local investors adopted a cautious stance ahead of Reserve Bank of India’s (RBI’s) monetary policy review on Tuesday.
The Nifty also fell by 37 points, or 0.6%, to 5,835.
“The news on Cyprus needing to be bailed out and resorting to taxation on deposits for funding the bailout is negative for market sentiment,” said Gautam Sinha Roy, vice-president, equities, Motilal Oswal Securities. “Cyprus is a routing centre for offshore investments due to its low-tax regime. These investments could be affected by the new tax. This tax also sets a dangerous precedent for countries needing to be bailed out, especially in the euro zone.”
The condition for Cyprus’ bailout is that all bank deposits in the country will be levied a one-time tax. Cyprus has tax treaties with many nations, making it attractive for investors.
Brokers also said funds turned cautious and investors offloaded part of their positions before the RBI policy meeting. ICICI Bank dropped by 1.5%, SBI by 0.6% and HDFC by 1%.