After General Anti-Avoidance Rules (GAAR) and changes ub the I-T Act that had spooked investor community bringing down key indices to three-month low levels last week, markets have set all eyes on Parliament.
Moving the Finance Bill, 2012, which contains GAAR provisions, for consideration and passage in the Lok Sabha, Mukherjee deferred GAAR to 2013-14 and fixed the onus of proof from tax payer to the I-T Department that soothed the nerves of foreign investors.
Within minutes of government deferring GAAR, markets started recovering from the the steep losses it had suffered in the early trade in tune with global stocks.
Global stocks took a severe knock after France and Greece poll results cast a shadow on eurozone's ability to overcome crisis.
The benchmark Sensex, which at one point of time during the day was down close to 320 points, dramatically reversed the fortunes to settle the day at 16,912.71, a rise of 81.63 points from its last close,
"Post the clarifications by Finance Minister on GAAR, markets recovered fast.... This clarification has given some relief to markets. The other impact was on the INR, which appreciated against dollar immediately after the announcement. Markets will now await initiation of the reforms process, which is necessary for the markets to sustain and move up from the current levels," said Dipen Shah, Head of Fundamental Research, Kotak Securities
Government's other steps, which soothed the nerves of investors, included halving the capital gains tax for private equity investors to 10 per cent and relaxing the norms for arrest of persons involved in violation of Customs Act.
Investors were frightened by the GAAR provision that put the onus on investors to prove that arrangements were not at aimed at tax avoidance. Also, foreign investors feared GAAR rule could apply to holders of Participatory Notes (P-Notes), the instrument through which foreign entities not registered in India could invest in the stock markets, issued by FIIs.