The Indian Express (Delhi Edition)
Spooked by Mauritius tax treaty, FPIS dump `8,000 cr in equities
TWO DAYS after a revision in the India-mauritius tax treaty was made public, foreign portfolio investors (FPIS) Friday dumped domestic stocks worth nearly $1 billion on apprehensions of greater scrutiny — leading to a fall of over 1% in domestic equity benchmark indices.
The sell-off in the stock market was also on account of weak global cues as higher US retail inflation dampened hopes of early rate cuts by the Federal Reserve and rise in the US 10 year yield.
On Friday, FPIS offloaded equities worth `8,027 crore on a net basis, provisional data from the BSE showed. However, domestic institutional investors (DIIS) purchased shares worth `6,341.53 crore, preventing a crash.
The Sensex plunged 793 points, or 1.06% to close at 74,244,9. The index fell 849 points during intraday trades. The broader nifty settled 234.4 points, or 1.03%, lower at 22,519.4.
India has signed a protocol amending the Double Taxation Avoidance Agreement (DTAA) with Mauritius to plug treaty abuse for tax evasion or avoidance.
“Indian equity benchmarks fell sharply on Friday, driven down by global market mood, as high US consumer price inflation data damaged the potential of an early rate cut by the Federal Reserve. Meanwhile, the Mauritius government's decision to alter its double taxation avoidance agreement (DTAA) with India has impacted market sentiment,” Asit C Mehta Investment Intermediaries Ltd said in a note.
The amendment to the Indiamauritius treaty was signed on March 7 at Port Louis but was made public on April 10. This recent amendment, however, does not clarify if the past investments will be grandfathered.
The DTAA was a major reason for a large number of FPI and foreign entities to route their investments into India through Mauritius. Mauritius remains India’s fourth largest source of FPI investments, after the US, Singapore, and Luxembourg. FPI investment from Mauritius stood at `4.19 lakh crore at the end of March 2024, which is 6% of the total FPI investment of `69.54 lakh crore in India.
The domestic stock market traded lower on Friday tracking global indices, especially the US equity indices, after the marginally higher US retail inflation rate has been quite hurriedly interpreted by many market participants as a potential impediment to early Fed rate cuts, said Joseph Thomas, Head of Research, Emkay Wealth Management.
In December last year, the US Federal Reserve had signalled three rate cuts in 2024.
“Uncertainty around the timing of Fed’s rate cut has again increased, as hotter than expected CPI print gave support to FOMC (Federal Open Markets Committee) views (in the minutes) that more evidence is needed to see if the inflation is coming down on durable basis,” said a Bank of Baroda report.