Market sinks on Portuguese bank woes, GAAR announcement

Financial markets across the globe plunged on apprehensions over the financial position of Portugal’s Banco Espírito Santo, SA (BES).

For the Nifty and the Sensex, the fall was accentuated when the market’s expectation that the General Anti Avoidance Rules (GAAR) would be implemented only after FY16 was belied after the Government reiterated that they would commence in the next fiscal year. GAAR is a tool to curb tax avoidance.

The Nifty closed at 7,460 (down 108 points or 1.43 per cent) while the Sensex closed at 25,024 (down 348 points or 1.37 per cent). Both FIIs and domestic institutional investors offloaded net equities worth ₹723 crore and ₹45 crore, respectively. Market capitalisation of over ₹1.72 lakh crore was eroded. Retail investors on the BSE, however, bought net equities worth ₹241 crore.

Meanwhile, a statement from Portugal’s Central Bank (Banco de Portugal) on Friday said that BES holds a sufficient capital buffer “to accommodate possible negative impacts arising from its exposure to the non-financial arm of Espírito Santo Group”.

Alex Mathews, Head, Research, at Geojit BNP Paribas Financial Services, said: “In the second half, the markets plunged deeper into the red on news that the Government reiterated that GAAR will be applicable from April 1, 2015.

Also the concerns on the health of Portugal’s top listed bank kept the Bank Nifty under pressure. Investors selectively bought defensive sector stocks such as IT, Pharma and FMCG, and sold Old Economy stocks.”

Barring IT, FMCG and pharma, all the broader and sectoral indices closed significantly in the red. Volatility was down 1.52 per cent and the volatility index — India Vix — closed at 15.7225.

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