Further fall likely

Further fall likely
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Highlights

Further fall likely. A sell-off in the stock markets triggered by a Rs 40,000 crore MAT demand from the income tax (I-T) department a couple of weeks ago continued to depress the Indian stock markets in the second week straight.

It’s better for investors to refrain from making fresh bets till markets bottom out

The Indian stock markets continued their slide for the second consecutive week to end at three-month lows on the back of worries regarding corporate earnings, fears of sub-par monsoon and lingering tax uncertainties that the FIIs are facing in the form of minimum alternative tax (MAT) on capital gains made by them in the past few years. After two weeks of losses, the 30-share Sensex on Friday ended at 27438, slightly below 27499, where it started the year 2015. Thus the entire gains attained by the markets have been wiped out with Narendra Modi's reign remaining no longer a bullish story.

A sell-off in the stock markets triggered by a Rs 40,000 crore MAT demand from the income tax (I-T) department a couple of weeks ago continued to depress the Indian stock markets in the second week straight. Consequently, FIIs were persistent sellers of equities during the last week. Seeing prices of forward group equities sinking further down, bull operators too joined them in selling, leaving no scope for small and marginal investors to even book their small losses as prices of a vast majority of traded scrips fell steeply and swiftly down.

Besides the MAT issue, failure of the Modi-led government in getting crucial land acquisition and other reforms bills or amendments passed was yet another issue that marred the market sentiments last week. A fall in the Indian currency against the US dollar, rise in crude oil prices and poor Q4 numbers were some of the other factors that kept the prospective buyers at bay. A preliminary forecast for the current year's monsoon predicting lesser rains due to El Nino effect was also seen as a matter of anxiety amongst the stock markets fraternity.

What major bull operators and big investors feared was, due to MAT ambiguity, poor corporate number season and a big question mark on ensuing monsoon besides failure of the Modi-led government in implementing economic reforms would cause a rating downgrades in near future and that could cause further damages to the markets resulting in the BSE Sensex likely crashing down to 23K mark. It was this fear that kept the markets under sustained pressure whereas the bear operators saw a rare opportunity in pressing fresh sales, in weakened morale of the markets.

The BSE Sensex last week plunged to a low of 27345 on the last trading day and closed at 27438, where it was down by 1004 points as compared with previous week's closing and only about 90 points higher than the worst of the week. The weekly close being just close to its weekly low and that too with a loss of over 1000 points, is a sign of weakness in the markets and therefore, they are most likely to go further down in the week opening today that has yet another negative factor awaiting in the form of end of the derivative contracts on Thursday.

The only small relief that the markets can expect is from the damage-control exercise taken up by the government in the matter of MAT on FIIs as the junior finance minister has clarified that the MAT is applicable to only FIIs that hail from the countries which have not signed double taxation avoidance treaty with India. According to the sources in the finance ministry, the amount that can be levied is just Rs 600 crore involving 68 FIIs. If the same is true then there could be a relief to the FIIs but they are still not going to stay longer in the Indian stock markets for yet another and more important reason and that is in the form of an interest rate hike by the US's central bank, the Federal Reserve, likely to be announced in June, this year.

The markets are thus bracing for more pains in near future despite the longer term trend still continuing to be bullish and are likely to drift further down in this week too, except in case a sudden positive change happens and helps them from going further down. Investors must not forget that the Indian stock markets are more dependent on FIIs rather than domestic institutional investors and also individual investors and therefore, if they decide to sell more, than there could be a disaster in the markets. Therefore, it would be in their own interest if the prospective buyers refrain from making fresh bets at least till the markets indicate that they have bottomed out.

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