indianexpress.com :: Wall St chill gets colder: In global fall, Sensex slips over 5 percent

Wall St chill gets colder: In global fall, Sensex slips over 5 percent

ENS ECONOMIC BUREAU

Posted online: Tuesday, March 04, 2008 at 0042 hrs IST

MUMBAI, MARCH 3
Global concerns, especially economic woes in the US, have started haunting the markets again. Dalal Street tumbled today as the global sell-off in equities prompted Indian investors to rush to the exit door. The BSE Sensex plunged 901 points, or 5.12 per cent, to 16,677.88, registering its second biggest single day point loss — it fell 1,408 points on January 21. It was also the Sensex’s second biggest single day fall in percentage terms. The broader CNX S&P Nifty fell 270.50 points or 5.18 per cent at 4,953.

Analysts said investors across the world reacted nervously to a steep decline on Wall Street on Friday after disappointing economic and corporate news renewed worries about a US recession. Asian markets, which opened before Indian markets, closed with heavy losses, setting the stage for a downtrend in India. Analysts said some proposals in the Union Budget added to the selling pressure.

Amitabh Chakraborty, president-equity, Religare Securities, said, “The market started on a negative note following the sharp fall in overseas market on Friday. Budget proposals have rattled many of the foreign funds and arbitrageurs. The market is clearly trying to find a bottom, and taking cues from overseas.” The market is upset with the hike in short-term capital gains tax from 10 per cent to 15 per cent, change in the tax treatment on Securities Transaction Tax (STT) and other measures like farm loan waiver.

Credit environment in the US has deteriorated significantly. Valuations in India are still relatively high. “We believe the market is trying to anticipate FY2009 earnings estimate, where risk to downgrade looms large. Fourth quarter results due in April hold the key,” Chakraborty said.

According to a leading BSE broker, weak global markets were dragging Indian stocks down with Budget measures adding to the selling pressure. The Dow Jones industrial average fell 2.51 per cent on Friday following a series of bad news including poor quarterly results from American International Group Inc and Dell Inc and weaker-than-expected results on the Chicago purchasing managers index, which painted a dreary picture of the manufacturing sector.

Japan’s benchmark Nikkei 225 index plunged 4.5 per cent to close at 12,992.18. Hong Kong’s Hang Seng index fell 3.1 per cent to close at 23,584.97. In other markets in the region, the Korea Composite Stock Price Index fell 2.3 per cent to 1,671.73, while Australia’s benchmark S&P/ASX200 index slid 3 per cent to 5,405.8. Markets in China, however, bucked the trend.

Marketmen fear that the change in tax treatment of the STT in the Budget may impact arbitrage volumes on the bourses. STT will now be treated like any other deductible expenditure against business income for the assessee. This is against the current practice whereby an assessee gets 100 per cent rebate for STT paid against the tax liability for the year. A fall in arbitrage will result in decline in liquidity on the bourses.

Further, traders, domestic funds and some foreign institutional investors (FIIs) are likely to be hit by a hike in short term capital gains tax on sale of shares to 15 per cent from 10 per cent, which amounts to a massive 50 per cent hike in the tax rate. Another fallout of the hike may be that some traders and funds may advance their sales of equities before the higher short term capital gains tax becomes applicable from April 1.

Reliance Industries (RIL), the largest company in terms of market value, led the bear rout and fell 6.24 per cent. The BSE Mid-Cap index was down 4.11 per cent while the BSE Small-Cap was down 4.05 per cent. Both these indices outperformed the Sensex.

The BSE Bankex fell 6.7 per cent. “The interest cost provision in market stabilisation bond used by the RBI to sterilise rupee has also been doubled in the Budget, leading to speculation of the government’s intention to keep high interest rates, which is perceived to be negative for the banking sector and the economy,” said a fund manager.

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Wall St chill gets colder: In global fall, Sensex slips over 5 percent ENS ECONOMIC BUREAU Posted online: Tuesday, March 04, 2008 at 0042 hrs IST MUMBAI, MARCH 3 Global concerns, especially economic woes in the US, have started haunting the markets again. Dalal Street tumbled today as the global sell-off in equities prompted Indian investors to rush to the exit door. The BSE Sensex plunged 901 points, or 5.12 per cent, to 16,677.88, registering its second biggest single day point loss — it fell 1,408 points on January 21. It was also the Sensex’s second biggest single day fall in percentage terms. The broader CNX S&P Nifty fell 270.50 points or 5.18 per cent at 4,953. Analysts said investors across the world reacted nervously to a steep decline on Wall Street on Friday after disappointing economic and corporate news renewed worries about a US recession. Asian markets, which opened before Indian markets, closed with heavy losses, setting the stage for a downtrend in India. Analysts said some proposals in the Union Budget added to the selling pressure. Amitabh Chakraborty, president-equity, Religare Securities, said, “The market started on a negative note following the sharp fall in overseas market on Friday. Budget proposals have rattled many of the foreign funds and arbitrageurs. The market is clearly trying to find a bottom, and taking cues from overseas.” The market is upset with the hike in short-term capital gains tax from 10 per cent to 15 per cent, change in the tax treatment on Securities Transaction Tax (STT) and other measures like farm loan waiver. Credit environment in the US has deteriorated significantly. Valuations in India are still relatively high. “We believe the market is trying to anticipate FY2009 earnings estimate, where risk to downgrade looms large. Fourth quarter results due in April hold the key,” Chakraborty said. According to a leading BSE broker, weak global markets were dragging Indian stocks down with Budget measures adding to the selling pressure. The Dow Jones industrial average fell 2.51 per cent on Friday following a series of bad news including poor quarterly results from American International Group Inc and Dell Inc and weaker-than-expected results on the Chicago purchasing managers index, which painted a dreary picture of the manufacturing sector. Japan’s benchmark Nikkei 225 index plunged 4.5 per cent to close at 12,992.18. Hong Kong’s Hang Seng index fell 3.1 per cent to close at 23,584.97. In other markets in the region, the Korea Composite Stock Price Index fell 2.3 per cent to 1,671.73, while Australia’s benchmark S&P/ASX200 index slid 3 per cent to 5,405.8. Markets in China, however, bucked the trend. Marketmen fear that the change in tax treatment of the STT in the Budget may impact arbitrage volumes on the bourses. STT will now be treated like any other deductible expenditure against business income for the assessee. This is against the current practice whereby an assessee gets 100 per cent rebate for STT paid against the tax liability for the year. A fall in arbitrage will result in decline in liquidity on the bourses. Further, traders, domestic funds and some foreign institutional investors (FIIs) are likely to be hit by a hike in short term capital gains tax on sale of shares to 15 per cent from 10 per cent, which amounts to a massive 50 per cent hike in the tax rate. Another fallout of the hike may be that some traders and funds may advance their sales of equities before the higher short term capital gains tax becomes applicable from April 1. Reliance Industries (RIL), the largest company in terms of market value, led the bear rout and fell 6.24 per cent. The BSE Mid-Cap index was down 4.11 per cent while the BSE Small-Cap was down 4.05 per cent. Both these indices outperformed the Sensex. The BSE Bankex fell 6.7 per cent. “The interest cost provision in market stabilisation bond used by the RBI to sterilise rupee has also been doubled in the Budget, leading to speculation of the government’s intention to keep high interest rates, which is perceived to be negative for the banking sector and the economy,” said a fund manager.