India’s equity and currency markets slumped sharply on Monday rattled by anxieties over retrospective taxation of foreign funds as analysts flagged concerns over an “elusive” recovery mirrored by weak corporate earnings.
The benchmark 30-share BSE Sensex tanked 556 points or nearly 2% to close at 27,886.21, its steepest fall since March 27. The National Stock Exchange’s (NSE) 50-share Nifty index fell 158 points or 1.8% to close at 8,448 points.
The Sensex has now fallen by 1,160 points or 4% in the last four trading sessions.
The rupee fell 55 paise, its sharpest fall in 2015, closing at 62.91, the lowest in more than a month.A rocky restart to Parliament’s budget session and uncertainty surrounding the land acquisition bill also pulled down the markets.
About 100 foreign funds are reported to have been served with notices to pay taxes for past years. This has spooked investors although the government has maintained that the notices were for taxes not paid till March 2015.
Tax experts say foreign institutional investors (FIIs) may be asked to pay nearly Rs 40,000 crore in past tax dues.
Finance minister Arun Jaitley in the budget for 2015-16 had proposed to scrap minimum alternate tax (MAT) — a tax on corporate income — on capital gains made by FIIs. The government has maintained that FIIs were asking for “retrospective exemption” of MAT, which it said was not acceptable.
Separately, UBS Securities India Pvt Ltd, the Indian arm of Switzerland-based UBS AG, cut its Nifty target for December 2015 to 9,200 points from 9,600 earlier, reflecting poor corporate earnings.
“Recovery is yet elusive,” UBS said in a research report on Monday, in a clear sign that analysts now believe that actual corporate performance has fallen short of the sentiment-driven market expectations, after the new government rode to power in a landslide poll victory last year.
UBS said that low oil prices, “reforms newsflow” and the Reserve Bank of India’s (RBI’s) two interest rate cuts had aided the bull run that helped equity markets vault more than 15% since May last year.
“Hereon, actual earnings and macro data points will matter increasingly. The reality of a slow growth recovery is now being acknowledged and earnings estimates for 2015-16 have been cut 6-7% over the last six months,” Gautam Chhaochharia, head of India research at UBS, said in the report.
Besides, political opposition to the land acquisition bill has created a perception that the government may not be able to push through the legislation.
“I would not say that the environment is not there, but the energy of the new government is getting mixed up,” said Tata Power MD Anil Sardana. “But there should be more action from state governments on important issues like the land bill,” he said.
A large number of infrastructure projects have remained stuck because of unclear land buying rules.