Battered Sensex loses 630 points, corporate India doesn’t see any signs of a pick-up

MUMBAI: Indian stocks tumbled on Tuesday as the government’s inability to get moving on its reforms agenda brought back unwelcome memories of the policy paralysis that was the bane of the previous government. This came amid a global slump as Greek assurances on debt repayment didn’t seem to inspire much confidence — equities across the world took a hit while bonds plunged in most markets.

The BSE Sensex fell 2.29 per cent to close at 26,877 points on Tuesday, as the solace provided by Finance Minister Arun Jaitley on minimum alternate tax (MAT) late last week seemed to wear off. The index, which had risen 908 points in the previous two trading sessions, succumbed to profit-booking on Tuesday. The Nifty fell 2.38 per cent to end at 8,126 points, below its key 200-day moving average (DMA).

The drop erased two-thirds of the gains made on Friday and Monday. The rupee weakened again, ending at 64.20 against the dollar on concerns over foreign investors pulling out of India.

Shares fell across the board with crucial legislation getting delayed due to opposition in Parliament.

The government has failed to avoid bills related to the proposed goods and services tax (GST) and changes in the land acquisition law being referred to House committees for review. “The referral of land acquisition and GST bills to committees made markets suffer,” said Ajay Bodke, head, investment strategy and advisory, Prabhudas Lilladher.

“Investment community sentiments are adversely impacted due to delays in crucial economic reforms solely led by the Opposition’s obstruction in Parliament.”

Market participants remained cautious ahead of vital economic numbers, which were released after the close. Consumer price inflation (CPI) eased to a four-month low of 4.87 per cent in April, while industrial output growth slowed to 2.1 per cent in March.

Investors also fretted about Greece’s precarious financial condition, which weighed on global financial markets, despite the country preparing to pay 750 million euros to the International Monetary Fund (IMF).

“Bond yields have hardened across the global markets. Concerns regarding payment by Greece, worries over the effectiveness of European quantitative easing and the possibility of the US Fed hiking interest rates earlier than expected hurt sentiments,” said Sanjay Kumar, head of investments at PNB MetLife Insurance.

The land acquisition Bill has been referred to a joint committee of Parliament, while the GST bill has been referred to a select committee of the Rajya Sabha. Analysts said the government has been forced to make the compromises, delaying reforms.



“If the GST bill is not passed in the Rajya Sabha and gets delayed, the markets will obviously be disappointed,” said Sanjay Dongre, fund manager at UTI Asset Company.

“GST (when implemented) will add almost 1-2 per cent to India’s GDP.” The levy, which will remove barriers between states and turn India into a common market, is currently scheduled to be imposed on April 1 next year but several approvals need to be in place before that can happen. Foreign institutional investors (FIIs) seemed to be unmoved by the government saying that the MAT levy would be reviewed by a committee and tax officials being instructed to avoid the overzealous pursuit of demands on this count. Overseas funds remained sellers on Tuesday to the tune of Rs 1,329 crore, according to provisional exchange data. Foreigners have sold shares worth more than Rs 12,500 crore since mid-April. Domestic institutional investors (DIIs) have picked up some of the slack, buying shares worth a net Rs 1,331 crore.

Overseas investors have been switching to greener pastures with India losing sheen.

“FIIs, which were long on India and short on China and South Korea, are seen reversing their market trade, while making adjustments to the portfolio,” said

Nilesh Shah, managing director and CEO at Kotak AMC. Shares of metal and capital goods companies were the worst hit sectors on the Sensex. Tata Steel fell 6.29 per cent to Rs 353, while Bhel dropped to Rs 222.