The euphoria on the stock markets appears to be waning as the imposition of minimum alternate tax (MAT) on FPIs, lack of reforms, poor corporate earnings, and rising oil prices are threatening to impact growth recovery. Foreign institutional investors (FII) have dumped stocks worth almost R6,500 crore so far this month and the selloff has dragged the Sensex down 8% in the last three weeks—the rupee dipped to a 20-month low on Thursday, reducing the chances of a rate cut at the June 2 RBI meeting.
India is among the worst performing markets this year and the earnings season has been lacklustre, and macroeconomic data has not picked up as expected after almost a year of the Modi government. Foreign investors are reducing their overweight position in India and buying into other emerging markets.
Fuelled by the hope rally, India was considered as a better bet among emerging markets amid expectations that the government would push through business to revive the ailing economy. But unseasonal rains, forecast of below normal monsoon with the stalemate on the passage of key economic Bills have spooked foreign investors.
However, in a move aimed at calming them, the government announced setting up of a high-level panel to examine the issue of minimum alternate tax (MAT) on FIIs. The Income Tax department has sent notices in 68 cases to FPIs for payment of R603 crore towards MAT. The setting up of the committee has got a thumbs-up from the stock market as the BSE Sensex closed 508 points up on Friday.