Benchmarks trim losses after making a gap-down opening

After making a gap down start, benchmarks have pared their initial losses but continue to trade in red in morning deals. Sentiments were under pressure on reports that India will start imposing capital gains tax on investments from Mauritius starting next year. Further, cautiousness was there in the markets with the government’s statement that drought has affected nearly a quarter of the country's population and has left an impact on over 1.5 lakh villages. Besides, depreciation in Indian rupee against dollar too weighed down sentiments. The rupee depreciated by 17 paise to 66.84 against the US dollar in early trade today on account of increased demand for the greenback from importers amid appreciation in the American currency overseas. However, foreign portfolio investors (FPIs) bought shares worth a net Rs 328.59 crore on May 10 2016, as per provisional data released by the stock exchanges that kept supporting the sentiment. 

On the global front, US markets ended higher on Tuesday after the Chinese government moved to stimulate the world's second-largest economy. Asian markets were trading mostly in red as investors shrugged off an overnight rally in global stocks. Caution also prevailed in the markets after the Japanese yen strengthened and crude oil prices slipped in Asian trades.

Back home, all the sectoral indices on the BSE were trading in red led by Realty, Auto, PSU, Consumer Durables and Oil & Gas. The market breadth on BSE was negative in the ratio of 510: 960, while 78 scrips remained unchanged.

The BSE Sensex is currently trading at 25599.14, down by 173.39 points or 0.67% after trading in a range of 25409.24 and 25643.08. There were 4 stocks advancing against 26 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index was down by 0.38%, while Small cap index lost 0.41%.

The top losing sectoral indices on the BSE were Realty down by 0.98%, Auto down by 0.73%, PSU down by 0.70%, Consumer Durables down by 0.63% and Oil & Gas down by 0.62%, while there were no losers. 

The top gainers on the Sensex were Axis Bank up by 1.33%, NTPC up by 0.78%, Asian Paints up by 0.45% and Maruti Suzuki up by 0.09%. On the flip side, Bharti Airtel down by 2.35%, Dr. Reddys Lab down by 1.96%, Tata Motors down by 1.83%, Adani Ports &Special down by 1.54% and BHEL down by 1.52% were the top losers.

Meanwhile, India has finally concluded the long-negotiated amendments to the existing Double Tax Avoidance Convention with Mauritius. The changes will have an impact on foreign investors who route their investments from these two countries to avoid paying capital gains tax in India. The tax department has said that India will get the right to tax capital gains on investments channelled through Mauritius under an amended tax treaty it signed with the island republic on 10 May in Port Louis.

The amendment to the 1983 India-Mauritius treaty, which will come into force on 1 April 2017, seeks to tax short-term capital gains on investment from the small island nation. Till now, companies, many of which were just shell companies, were exempt from such a levy. The new clause will also be applicable to the India-Singapore treaty. However, in a relief to existing investors, shares acquired before 1 April 2017 will not be taxed by Indian authorities.

The amended treaty has also provided a two-year transitionary phase wherein the capital gains will be taxed at concessional tax rate of 50% of the existing tax rate; the full domestic tax rate will be applicable from 2019-20, provided the limitation of benefit clauses have been adhered to. But, under the amended treaty, only those Mauritius-based companies that have a total expenditure of more than Rs 27 lakh in the preceding 12 months will be able to benefit from the tax treaty. Interest arising in India to Mauritian resident banks will be subject to withholding tax in India at the rate of 7.5 per cent in respect of debt claims or loans made after March, 31, 2017. However, interest income of Mauritian resident banks in respect of debt-claims existing on or before this date will be exempt from tax in India.

Union Revenue Secretary Hasmukh Adhia has said that though no estimate is available of how much additional tax revenue can be raised following the amendment, but it will be significant. He further said that the amendment has been designed to curb treaty abuse, tax evasion and round-tripping of funds-the practice of money stashed away overseas by Indians returning home through tax havens such as Mauritius in the garb of foreign capital.

Though, the new amendments will shut the door on investors using Mauritius and Singapore to avoid paying taxes in India, but as per the data available over the years, the Mauritius route has become less preferred and the share in the total assets held by foreign institutional investors of those from Mauritius has been continuously falling, so is the case with participatory notes, another popular mode used for round-tripping.

The CNX Nifty is currently trading at 7841.70, down by 46.10 points or 0.58% after trading in a range of 7780.90 and 7850.65. There were 9 stocks advancing against 42 stocks declining on the index.

The top gainers on Nifty were Zee Entertainment up by 3.57%, Hindalco up by 2.06%, Axis Bank up by 1.27%, NTPC up by 1.21% and Grasim Industries up by 0.93%. On the flip side, Bharti Airtel down by 2.07%, Bharti Infratel down by 1.87%, Tata Motors down by 1.83%, Dr. Reddys Lab down by 1.72% and Tata Motors - DVR down by 1.48% were the top losers.

Asian markets were trading mostly in red, Hang Seng decreased 130.76 points or 0.65% to 20,111.92, KOSPI Index decreased 6.57 points or 0.33% to 1,975.93, Taiwan Weighted decreased 2.31 points or 0.03% to 8,153.98 and FTSE Bursa Malaysia KLCI decreased 1.05 points or 0.06% to 1,634.79.

On the flip side, Shanghai Composite increased 17.46 points or 0.62% to 2,850.05, Jakarta Composite increased 23.6 points or 0.5% to 4,786.71 and Nikkei 225 increased 47.8 points or 0.29% to 16,612.99.