Benchmarks witness bloodbath on P-note worries; Nifty breaches 8,400 mark

Monday turned out to be a disappointing session of trade for the Indian equity indices which got pounded by around two percentage points on concern over stricter norms for participatory notes coupled with slump in Chinese stock market. After a negative opening, the domestic bourses never looked in recovery mood and ended the trade near intraday lows, breaching their crucial support levels of 27,600 (Sensex) and 8,400 (Nifty). Selling was both brutal and wide-based as none of sectoral indices on BSE could manage a green close. Counters which featured in the list of worst performers included capital goods, metal and banking.

Sentiments remained down-beat amid fears that the government may accept Supreme Court-appointed, Special Investigation Team (SIT) recommendations of stricter norms for participatory notes (P-notes) on markets. Government tried to control the damage with Finance Minister Arun Jaitley saying the government will not react in a knee-jerk manner on a report by a special investigations team that suggested greater oversight of money laundering in stocks. Jaitley, however, said the government would apply its mind on the recommendations in due course and would avoid any decision that could hurt investor sentiment. But, government’s attempt to soothe the sentiments remained unheard and the major bourses kept their southward moment at the end to post their worst intraday fall in over a month.

Selling got intensified after European counters made a sluggish start with CAC, DAX and FTSE were trading lower in early deals as the IMF and European Commission has said that representatives of Greece's creditors will begin talks in Athens on a third bailout package to the debt-swamped Greek government. All the Asian equity markets ended lower after Chinese shares recorded their single-biggest drop in 5 1/2 years to end over 8% lower on Monday as investors booked profits while the sluggish economy also weighed on investor sentiment.

Back home, investors also remained concerned about the Monsoon Session of Parliament resuming with continuation of the stand-off between the government and the Opposition and the Rajya Sabha getting adjourned for the day. Softening commodity prices and disappointing quarterly earnings also weighed down sentiments. Depreciation in Indian rupee too dampened the sentiments. Rupee was trading at 64.17 per dollar at the time of equity markets closing compared with its previous close of 64.04. Selling in metal counter too dampened the sentiments tracking sharp fall in global commodity prices and fears that demand from China, the world's largest consumer, would continue to remain muted. Additionally, shares of upstream oil companies tumbled after crude oil prices declined.

The NSE’s 50-share broadly followed index Nifty declined by over one hundred and sixty points to end below the psychological 8,400 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex declined by over five hundred and fifty points to end below its crucial 27,600 mark. Broader markets too struggled to get any traction during the trade and ended the session with a cut of over a percentage point. The market breadth remained in favor of decliners, as there were 1,070 shares on the gaining side against 1,751 shares on the losing side while 104 shares remain unchanged.

Finally, the BSE Sensex plunged by 550.93 points or 1.96% to 27561.38, while the CNX Nifty declined by 160.55 points or 1.88% to 8361.00.

The BSE Sensex touched a high and a low 28117.65 and 27529.57, respectively. The BSE Mid cap index was down by 1.38%, while Small cap index was down by 1.07%.

The top losing sectoral indices on the BSE were Capital Goods down by 2.80%, Infrastructure down by 2.75%, Metal down by 2.29%, Bankex down by 2.28% and Power down by 2.26%, while there were no gainers on the BSE index.

The top gainer on the Sensex was Bajaj Auto up by 0.41%. On the flip side, Tata Steel down by 5.17%, Hero MotoCorp down by 4.84%, Hindalco down by 4.40%, Axis Bank down by 4.34% and ONGC down by 4.12% were the top losers.

Meanwhile, the Supreme Court-appointed special investigation team (SIT) headed by Justice M B Shah (retd)  has recommended enacting tough laws to curb betting in cricket, bring donations to education and religious bodies under tax net, monitoring unusual rise in stock prices and most importantly regulating P-Notes. The SIT suspects that the P-note route is being used for the purpose of tax evasion and has also asked Sebi to compulsorily identify real owners of foreign funds coming through the controversial P-Note route and also prosecute those using equities for tax evasion.

With half of the Rs 2.7 lakh crore overseas investments using P-Notes coming through tax havens of Cayman Islands, Mauritius and Bermuda, the SIT, tasked with curbing black money, urged Sebi to ensure that it is able to track the actual beneficiary of the P-Note investments and called for restrictions on transfer of the instrument. The Securities and Exchange Board of India (Sebi) is likely to review the regulations governing participatory notes (P-notes). Sebi had in the past raised concerns on the misuse of P-notes.

The panel has suggested measures to ensure donations by cheques to prevent black money generation in education sector, religious bodies and charities, and sought prosecution of those donating and accepting unaccounted money under the anti-corruption law.  For this, the panel said it would require legislative change which is necessary because now-a-days donation to educational institutions, which are in demand, is rampant.

Regarding present measures taken by the market regulator, the panel has said that it is not enough for Sebi to ban individuals and companies from stock markets and the regulator needs to initiate prosecution proceedings and take all necessary 'preventive and punitive' actions. To prevent misuse of exemption on Long Term Capital Gains (LTCG) tax for money laundering, the panel has suggested a slew of measures such as having an 'effective monitoring mechanism' by Sebi to study such unusual rise of stock prices. 

The CNX Nifty touched a high and low 8,492.20 and 8,351.55 respectively.

The top gainers on Nifty were Tech Mahindra up by 2.14%, Zee Entertainment up by 0.63%, Bajaj Auto up by 0.44% and Asian Paints up by 0.18%. On the flip side, Tata Steel down by 5.60%, Hero MotoCorp down by 5.16%, Hindalco down by 4.85%, Axis Bank down by 4.22% and Cairn down by 4.12% were the top losers.

European Markets were trading in the red; UK's FTSE was down by 0.15%, Germany’s DAX was down by 1.35% and France’s CAC was down by 1.46%.

Asian markets closed in red on Monday with China stock markets plunging over 8%, marking their biggest one-day drop in more than eight years, raising questions about the government’s ability to prevent a crash. Investors are worried about a possible withdrawal of stock market support by Beijing, and signs of a sharper slowdown in China’s economy. Japanese policymakers must be mindful of the potential negative impact that China’s economic slowdown could have on Japanese exports. Japan’s central bank Deputy Governor Hiroshi Nakaso warned of the risk that an expected interest rate hike by the US Federal Reserve could heighten global market volatility and hurt emerging markets vulnerable to capital outflows. He added that while China’s economy is expected to stabilize on stimulus measures taken so far, its slowdown may be prolonged by the huge slack in output and the property market. Japan’s Corporate Services Price Index (CSPI) fell to a seasonally adjusted annual rate of 0.4%, from 0.6% in the preceding month. Singaporean Industrial Production fell to an annual rate of -4.4%, from -1.7% in the preceding month.

Indonesia’s foreign direct investment (FDI) grew at the fastest pace since 2013 on yearly basis in the second quarter - a bright spot in an otherwise weak economic outlook. Annual growth in Southeast Asia’s largest economy was only 4.71% in the first quarter, the slowest since 2009, and Bank Indonesia predicted second quarter growth to be just as weak as domestic consumption wanes and exports fall. Last year was an election year, which tended to reduce investment and consequently its contribution to economic growth. But in April to June Indonesia recorded 92.2 trillion rupiah of realized FDI, up 18.2% from a year ago, and accelerating from 14% growth in the prior three months.