Mauritius tax treaty talk sends Sensex reeling

It was a four-month low for the Sensex on Monday when it ended the day down 363 points at 17,506.63.

The benchmark stock indices took a tumble falling by as much as 3.1 per cent each during the day's trading session, triggered by talks that India's Double Tax Avoidance Agreement (DTAA) with Mauritius was under review.

There was a host of factors dragging down the market, and the DTAA issue was the last straw.

“News has been negative for a while now. FIIs are now just looking for any excuse to withdraw funds,” said an analyst with a broking firm on condition of anonymity. FIIs were net sellers on the exchanges for Rs 512 crore; DIIs were net buyers at Rs 863 crore.

The Nifty closed at 5,257.90, 108.5 points below its previous close. During the day's trading session, Sensex lost about 550 points while the Nifty lost close to 170 points.

Retail investors were net buyers for Rs 69 crore on the BSE. Retail investors are confused, said a broker. “All indications are that things are leading to a correction and how sharp it will be nobody knows,” said Mr Ashish Chaudhary, a retail investor.

“There was heavy sell-off in the markets as the Nifty went below its support levels of 5350-5300,” said Mr Alex Mathew, Head of Research, Geojit BNP Paribas Financial Services. “Another factor was the low-level support by way of put options. The Nifty Put-Call ratio was well below 1.2 in the last two sessions and at one time below was 0.47 in the intraday trading session on Monday providing not enough support to the market,” he added. (This low put call ratio signifies that the market has topped out.)

“There is negative news everywhere with rising interest rates and high inflation pressure. The review of the DTAA will be seen as a big structural deterrent and could reduce the attractiveness of the Indian markets,” said Mr Nirakar Pradhan, Chief Investment Officer, Future Generali India.

Nearly 40 per cent of foreign direct investment and a large proportion of private equity funds are routed through Mauritius-registered entities.

“The India-Mauritius tax treaty provides that capital gains arising in India from the sale of securities can only be taxed in Mauritius, and since the island nation does not tax capital gains, it leads to zero taxation. India is estimated to lose over $600 million a year in revenues on account of the double tax avoidance treaty with Mauritius,” said Mr D.K. Aggarwal, CMD- Sanlam Investments & Advisors India Ltd and SMC Comtrade.

India now wants to review this agreement.

Of the Sensex stocks, except for Bharti Airtel (up by 2.3 per cent), HUL (0.3 per cent) and Hero Honda (0.16 per cent) all the others stocks ended the day in the red. Reliance Communication, Reliance Infrastructure and Tata Motors declined the most by 7.8, 6.0 and 5.1 per cent, respectively. RIL was down 3.8 per cent.

GTL and GTL Infra which fell by 62 and 43 per cent respectively.

All of the BSE indices closed in the negative with the banking and capital goods indices falling the least at 0.5 and 1 per cent respectively. The worst performers were the Oil & Gas and Realty indices which declined by 3.4 and 4 per cent respectively.

There were 2,286 declines on BSE and 554 advances.

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