The government seems to have missed the trees for the branches as an aggressive hunt for pennies has not only caused reputational damage but also inflicted financial market losses. If not addressed, this could spiral into a larger financial issue for Indian money and equity markets.
Fearing retrospective tax demands of R602.83 crore ($100 million at current exchange rate) by the government, FPIs have net sold shares worth $1.76 billion in the cash markets since April 15, Bloomberg data showed. This excludes $2.6 billion of purchases on April 21 – the day of Sun Pharma block deal.
Moreover, Indian markets lost R6.43 lakh crore in market value ($102 billion based on current exchange rate). The rupee has lost nearly 2% in a fortnight to a four-month low.
Experts said the confusion over MAT is the prime reason for outflows, which if unchecked, could lead to further decline in equities and negatively impact the equity fund raising pipeline and the government’s record R69,500 crore disinvestment programme. Over two dozen IPOs are in queue, with a potential to raise over R18,000 crore, official data and estimates suggest.
Foreign investors have been the biggest drivers of Indian equities for the last 11 years. Overseas selling intensified in the last fortnight as a result of retrospective tax demand filed by the Income Tax department against 68 FPIs on last year’s gains from the securities market.
Benchmark indices have lost about 8-10% since early March and Sensex is trading below its 200-day moving average (DMA) for the first time since September 2013 – when Narendra Modi was officially announced as BJP’s prime ministerial candidate.
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