Markets recover after Tax Treaty clarification

The Indian equity markets recovered elegantly from the days low as the Finance ministry's sources clarified the news related to the Mauritius Tax Treaty, that the timeline on the talks is yet to be decided. CBDT too has clarified that Mauritius expressed willingness for talks on tax treaty three months back and that India is yet to start talks with Mauritius on it. However, it seems the markets have taken the reason to correct and the Nifty was struggling hard to hold its 5,300 mark. Pressure is still being witnessed on heavyweights TCS, ONGC, Reliance Industries, NTPC, Infosys, BHEL, HDFC, HDFC Bank, Wipro and SBI though these stocks recovered from day's low.

On  the sectoral front Consumer Durable (CD) is showing some resistance, helping the markets from further slide, while most of the sectoral indices have shed close to 1%. Realty is the biggest loser, followed by IT, Power and TECk. On the global front, cues remained mix; Asian markets are trading mixed while, most of the European indices are trading in the positive territory. Back home, market breadth continues to be extremely negative; there were 451 shares on the gaining side against 2,090 shares on the losing side while 74 shares remained unchanged.

The BSE Sensex is currently trading at 17,638.06, down by 232.47 points or 1.30%. The index has touched a high and low of 17,925.17 and 17,314.38 respectively. There were just 3 stocks advancing against 27 declines on the index.

The broader indices recovered a bit but continue to be negative; the BSE Mid cap and Small cap indices plunged by 2.33% and 2.54% respectively. 

The only sectoral index gainer was Consumer Durables (CD) up 0.31%, while the top losers were Realty down by 2.28%, IT down by 2.10%, Power down by 1.90%, TECk down by 1.88% and Metal down by 1.78%.

The only gainers on the Sensex were Bharti Airtel up by 1.22%, Hero Honda up by 0.39% and ICICI Bank up by 0.01%.

On the flip side, Reliance Infra down by 6.12%, RCom down by 5.78%, Sterlite Industries down by 2.72%, Cipla down by 2.54% and JP Associates down by 2.51% were the top losers.

Meanwhile, India will restart negotiations with Mauritius on revamping the three-decade-old bilateral double tax avoidance agreement (DTAA). Following a request from Mauritius for renegotiations of DTAA India decided last week to proceed in the matter. DTAA has reportedly been used to launder black money as investments in the country.

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.

More than 40% of total foreign direct investments (FDIs) to India originate from Mauritius. Authorities here suspect most of these investments are nothing but treaty shopping to avoid paying tax. India is estimated to lose over $600 million a year in revenues on account of the DTAA with Mauritius. Earlier talks on the treaty through a joint working group were held in 2008 but had failed following Mauritian government's insistence to continue with the existing agreement. India has been insisting on taxing all gains made by a Mauritian company here.

The S&P CNX Nifty is currently trading at 5,296.05, down by 70.35 points or 1.31%. The index has touched a high and low of 5,377.40 and 5,195.90 respectively. There were just 6 stocks advancing against 44 declines on the index.

The major gainers of the Nifty were Bharti Airtel up by 1.37%, Sun Pharma up by 1.10%, Axis Bank up by 0.83%, PNB up by 0.78% and Hero Honda up by 0.49%.

On the other hand, Reliance Infra down by 5.97%, RCom down by 5.83%, Grasim down by 3.85%, RPower down by 3.29% and HCL Technology was down by 3.02%.

The Asian markets continue to trade mixed, Shanghai Composite was down by 0.92%, Hang Seng declined by 0.66%, KLSE Composite was lower by 0.11%, Seoul Composite lost 0.52% and Taiwan Weighted plunged by 1.22%.

On the other hand, Jakarta Composite gained 0.42%, Nikkei 225 was up by 0.03% and Straits Times was higher by 0.25%.

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