Global jitters, weak GDP data drag Sensex down 587 points

Sanjeev Sharma

Tribune News Service

New Delhi, September 1

Driven by global jitters and weak domestic GDP data, the BSE Sensex today saw a huge selloff by 587 points to close at a 1-year low, wiping out over Rs 2 lakh crore in investor wealth.

The Sensex plummeted by 587 points to close at over one-year low of 25,696 points as the weak GDP growth numbers of 7% for the first quarter intensified the selling pressure from foreign investors.

August has been a disastrous month with FIIs selling shares worth Rs 16,877 crore more than they sold during the global financial crisis in 2008. The last previous monthly record was Rs 15,347 crore in October 2008.

Wanting to stem the outflows, Finance Minister Arun Jaitley by late evening announced the acceptance of the AP Shah panel report, which said that Minimum Alternate Tax (MAT) will not apply to FIIs prior to April 1, 2015.

The imposition of MAT had riled foreign investors and was seen as an irritant in a volatile global environment when emerging markets like India desperately need capital inflows. The tax department had sent notices to 68 FIIs, demanding Rs 602.83 crore as MAT dues of previous years. This had created a big controversy with FIIs moving the higher court challenging the MAT demand.

The government has accepted the recommendation of the committee to clarify the inapplicability of MAT to FIIs and has decided that an appropriate amendment to the Income-tax Act will be carried out. Through the amendment, the government proposes to clarify that MAT provisions will not be applicable to FIIs not having a place of business or permanent establishment in India, for the period prior to April 1, 2015.

Jaitley had in his Budget for 2015-16 exempted FIIs from the levy from April 1 but the contentious issue was the retrospective cases. Foreign investors have invested around $20 billion in Indian stocks in the past year and $28 billion in bonds.

Dhananjay Sinha, Head- Institutional Research, Emkay Global Financial Services, said the GDP data release reflects worsening of growth impulse. Sinha said the significant decline in commodity prices have not aided in improving the growth dynamics in India or abroad due to weak demand conditions.

The view is that a quick turnaround in the economy and investments may not be imminent. “Continued decline in export growth coupled with domestic restraints such as fiscal tightness, rising NPAs, low private investment sentiment etc. precludes a quick turnaround in the economy in the near term. We do not still anticipate a quick turnaround in private investments,” Sinha added.