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Tax treaty scare rattles Sensex

business Updated: Jun 20, 2011 22:35 IST
HT Correspondent
HT Correspondent
Hindustan Times
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The Sensex plunged by 556 points or 3.1% intra-day on Monday as uncertainties on the global economy were compounded by sudden fears that the government is renegotiating with Mauritius a double-taxation avoidance agreement (DTAA) that has been vital in bringing huge foreign investment inflows into the country.

The government was quick to deny the speculation triggered after a remark from a Central Board of Direct Taxes (CBDT) official. The country’s premier stock market benchmark recovered somewhat but still ended 2% (363 points) below Friday’s close at a four-month low of 17,506.6.

The broader Nifty at the National Stock Exchange fell by 108 points to close at 5,257.9.

The market was already nervous over domestic inflation, high interest rates and the toll they are taking on industrial growth.

“The confidence in the market is so fragile that any undertone or bad news creates jitters,” said Pankaj Pandey, head of research at “Markets feared that a change in the DTAA would reduce the quantum of inflow into India as a lot of money comes through Mauritius.”

The markets opened weak under pressure from the global markets that have been trading weak on account of a dragging debt crisis in Greece. On top of this hung a misleading remark by a CBDT official that representatives from India and Mauritius will meet soon to work out the details of a new taxation agreement.

While Reliance Industries continued with its losing streak and fell by 3.9%, Anil Dhirubhai Ambani Group stocks — Reliance Communications and Reliance Infrastructure fell by 7.9% and 6.1% respectively after the Bombay Stock Exchange decided to replace the two stocks from the list of 30 stocks that form the Sensex with effect from August.

Some see the market turning attractive at the current levels.

“The markets were fairly valued and with the fresh corrections they look even more attractive,” said Sanjay Sinha, CEO, L&T Mutual Fund.