Key benchmark indices further extended recovery in mid-morning trade as market took solace from the so-called grandfathering of investments made in India from Mauritius before 1 April 2017 in the amended bilateral India-Mauritius tax treaty. At 11:23 IST, the barometer index, the S&P BSE Sensex, was down 51.69 points or 0.2% at 25,720.84. The Nifty 50 index was currently down 8.20 points or 0.1% at 7,879.60. As per the amendments to the bilateral India-Mauritius tax announced by India's finance ministry after trading hours yesterday, 10 May 2016, with effect from 1 April 2017 capital gains tax will be levied on sale of shares in India from a resident of Mauritius.
There will be a benefit of 50% reduction in tax rate during the transition period from 1 April 2017 to 31 March 2019 subject to the Limitation of Benefits Article, whereby a resident of Mauritius (including a shell/conduit company) will not be entitled to the benefit of 50% reduction in tax rate if it fails the main purpose test and bonafide business test. A resident is deemed to be a shell/ conduit company, if its total expenditure on operations in Mauritius is less than Rs 27 lakh (Mauritian Rupees 1,500,000) in the immediately preceding 12 months. Taxation in India at full domestic tax rate will take place from financial year 2019-20 onwards.
Market participants are concerned about possible slowdown in future equity inflows into India in the aftermath of amendments to the bilateral India-Mauritius tax treaty. Mauritius is the top source of foreign funds into India.
The Sensex declined 27.47 points or 0.1% at the day's high of 25,745.06 in mid-morning trade. The barometer index lost 363.29 points or 1.4% at the day's low of 25,409.24 at the onset of the trading session, its lowest level since 9 May 2016. The Nifty dropped 0.50 points at the day's high of 7,887.30 in mid-morning trade. The index lost 106.90 points or 1.35% at the day's low of 7,780.90 at the onset of the trading session, its lowest level since 9 May 2016.
In overseas stock markets, Asian stocks witnessed a mixed trend. US stocks registered broad based gains yesterday, 10 May 2016, as oil prices rallied.
Closer home, the market breadth indicating the overall health of the market was negative. On BSE, 1,083 shares fell and 999 shares rose. A total of 105 shares were unchanged. The BSE Mid-Cap index was currently up 0.22%. The BSE Small-Cap index was currently up 0.17%. Both these indices outperformed the Sensex.
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IT stocks declined. HCL Technologies (down 0.82%), TCS (down 0.02%), Infosys (down 0.38%), Tech Mahindra (down 0.01%) and Wipro (down 0.06%) edged lower.
Capital goods stocks were mixed. Bharat Heavy Electricals (Bhel) (down 0.78%), L&T (down 0.12%), Thermax (down 0.22%), and Siemens (down 0.25%) declined. BEML (up 0.35%), ABB India (up 0.67%), Havells India (up 0.17%) and Crompton Greaves (up 0.16%) gained.
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