Sensex back above 37000 on buzz about likely rollback of tax hike on FPIs
The market rallied after media reports suggested that the government is likely to roll back recently-imposed higher tax on foreign portfolio investors (FPIs).
The short-covering rally pushed the S&P BSE Sensex higher by more than 600 points while the Nifty closed above 11,000 and posted its biggest 1-day gain in 3-months.
The final tally on D-Street – the S&P BSE Sensex rose 636 points or 1.74 percent while the Nifty50 closed 176 points higher at 11,032.
The market rallied after the buzz of likely roll-back of a higher tax on foreign portfolio investors (FPIs), as reported by Reuters quoting a government official.
Reacting to the news report, the S&P BSE Sensex rallied by more than 500 points while the Nifty50 is hovering near its crucial level of 11000.
Last week, senior bureaucrats in the prime minister’s office (PMO) met top finance ministry officials to discuss the foreign portfolio investment (FPI) surcharge, which has roiled the market.
The market has witnessed a vertical fall since the Budget Day, after the government proposed a higher tax surcharge on “individuals and trusts” earning more than Rs 2 crore and Rs 5 crore respectively per annum. Once implemented, the move could adversely impact foreign portfolio investments (FPIs) that are set up as non-corporate vehicles.
The average market capitalisation of the BSE-listed companies fell from Rs 151.35 lakh crore on the Budget Day, July 5, to Rs 138.37 lakh crore on August 5, wiping out Rs 12.98 lakh crore of investor wealth.
A large part of the selling can be attributed to foreign institutional investors (FIIs), which have pulled out more than Rs 13,000 crore from Indian equity markets, while they were net buyers in the debt segment for over Rs 8,000 crore, Securities and Exchange Board of India (SEBI) data shows.
Experts feel that clarity on FPI tax structure would give much-needed direction to markets. “On the immediate term, some clarity on the 'super rich tax' and its applicability for FPIs would provide a great amount of direction to the market.
A similar note, clarity around the government’s proposal on overseas borrowing is also key, as it would provide more room for private borrowers.
The introduction of the surcharge on higher income brackets announced in the Budget by finance minister Nirmala Sitharaman has led to a brisk selloff by FPIs.
Small & midcaps have been the worst hit. The S&P BSE Midcap index is down 9 per cent while the S&P BSE Smallcap index has plunged 13 per cent since July 5.
More than 50 per cent of the BSE500 stocks have fallen in double digits. As many as 283 stocks, or 56 per cent of the names, have fallen 10-60 per cent since the Budget Day.
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