Mumbai: The Sensex slumped over 550 points or nearly 2% while the broader Nifty fell 157 points lower as markets fell for the fourth straight session on Monday. The rupee also weakened sharply towards 63 per dollar, a level not witnessed since March 13, 2015.
The trigger for the sharp selloff was a downgrade by global investment bank UBS, which lowered its December 2015 Nifty target, from 9,600 to 9,200. This was the first downgrade of Indian markets in many years.
“The revised target reflects our view of the growth recovery being slower than expected, as is playing out in quarterly corporate results. It does reflect possibility of near-term consolidation and even profit-taking, given limited absolute upside from current levels near-term,” said UBS Head of India Research Gautam Chhaochharia.
Monday’s decline was led by market heavyweight Reliance Industries, which slumped 4.6% despite posting record quarterly profits on Friday. Analysts said RIL may not be able to sustain its profitability in the coming quarters as crude prices head lower.
TCS, India’s biggest outsourcer, reported a surprise decline in revenues on Thursday, leading to a selloff across IT stocks. Infosys, Wipro and HCL Tech – frontline IT companies that are yet to report numbers – saw huge selloff for the fourth straight day.
Analysts are also worried about overseas investments, which have been a driving force behind the rally in Indian equities over the last 18 months. Foreign investors on Friday sold Indian shares worth a net Rs 675 crore after Finance Minister Arun Jaitley said they should not look to the Indian government to provide relief from a ruling requiring them to pay taxes on years of previously untaxed capital gains.
US and European investor groups are upset with the Minimum Alternate Taxation (MAT) measure, which would apply levies for past years at a higher rate than they had been subject to in the past. Tax experts say the foreigners may owe $8 billion or Rs 40,000 crore.
Many foreign investors have been receiving notices requesting their MAT calculations for financial year 2011-2012. The tax office has said it would also apply the tax to previous years.
“A lot of ambiguity on tax issues for overseas investors. I think there is a bit of uneasiness,” said Samir Gilani, head, investment advisory at Radner Capital Advisors.
“I think we have got a fairly good chance to revisit the lows hit in March.”
The Sensex ended at 27,886, down 556 points, while Nifty settled at 8,448.