Domestic indices trade under pressure amid Iran-Israel conflict worries

Indian equity benchmarks made negative start on Monday tracking sell-off on the Wall Street Friday as well as weakness in Asian counterparts today, amid widespread selling on concerns about inflation, uncertainty about the likely timing of interest rate cuts, and rising geopolitical tensions in the middle-east where Iran launched retaliatory attack on Israel. Sensex and Nifty are trading deeply in red with cut of a percent each in early deals, while broader indices - BSE Mid & Small cap are underperforming larger peers with cut of around 2 percent. Traders were concerned with a private report that exporters are in a wait-and-watch mode as they expect air freight volume to Europe to rise 10-15%, logistics and insurance costs to rise and engineering exports demand to Europe to get impacted following Iran's attack on Israel.

Market participants largely overlooked positive macro-economic data. The government data showed that India's retail inflation eased to 4.85 per cent on an annual basis in March as against 5.09 per cent in the previous month. Also, data provided by the Ministry of Statistics and Programme Implementation (MoSPI) showed that the Index of Industrial Production (IIP) in India rose 5.7 per cent in February as against 3.8 per cent in January. In stock specific development, TCS is trading slightly up in overall weak market after it reported a net profit of Rs 12,434 crore, up 9.1 per cent year-on-year (Y-o-Y). 

The BSE Sensex is currently trading at 73504.61, down by 740.29 points or 1.00% after trading in a range of 73315.16 and 73727.44. There were 3 stocks advancing against 27 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index fell 1.64%, while Small cap index was down by 2.27%.

The top losing sectoral indices on the BSE were Utilities down by 2.48%, Power down by 2.16%, PSU down by 1.75%, Basic Materials down by 1.63% and Realty down by 1.62%, while there was no gainer on the BSE sectoral front.

The few gainers on the Sensex were TCS up by 0.70%, Bharti Airtel up by 0.08% and Titan Company up by 0.06%. On the flip side, Tata Motors down by 2.97%, Bajaj Finserv down by 2.00%, Tata Steel down by 1.99%, SBI down by 1.73% and Bajaj Finance down by 1.63% were the top losers.

Meanwhile, the Income Tax Department has said the amended India-Mauritius protocol on double taxation avoidance agreement is yet to be ratified and notified by the department. India and Mauritius on March 7, 2024, signed an amendment to the DTAA and included a principal purpose test (PPT) in the pact which aims to curtail tax avoidance by ensuring that treaty benefits are only granted for transactions with a bona fide purpose.

There were concerns that foreign portfolio investments coming via Mauritius would face increased scrutiny by tax authorities. Also, there were apprehensions that past investments could be covered by the amended protocol. The I-T department said some concerns have been raised on the India Mauritius DTAA amended recently.  It stated ‘In this context, it is clarified that the concerns /queries are premature at the moment since the Protocol is yet to be ratified and notified u/s 90 of the Income-tax Act, 1961. As and when the Protocol comes into force, queries, if any, will be addressed, wherever necessary.’  

Historically, Mauritius has been a preferred jurisdiction for engaging in investments in India due to the non-taxability of capital gains from the sale of shares in Indian companies until 2016. In 2016, India and Mauritius signed a revised tax agreement, which gave India the right to tax capital gains in India on transactions in shares routed through the island nation beginning April 1, 2017. However, investments made before April 2017 were grandfathered.

The CNX Nifty is currently trading at 22294.10, down by 225.30 points or 1.00% after trading in a range of 22263.55 and 22373.55. There were 6 stocks advancing against 44 stocks declining on the index.

The top gainers on Nifty were ONGC up by 2.41%, Hindalco up by 1.94%, TCS up by 0.64%, Nestle up by 0.31% and Bharti Airtel up by 0.12%. On the flip side, Tata Consumer Products down by 3.05%, Tata Motors down by 3.00%, BPCL down by 2.82%, Adani Enterprises down by 2.54% and Adani Ports & SEZ down by 2.25% were the top losers.

Asian markets are trading mostly in red; Nikkei 225 slipped 396.43 points or 1% to 39,127.12, Taiwan Weighted lost 237.92 points or 1.15% to 20,498.65, Hang Seng declined 122.35 points or 0.73% to 16,599.34, Straits Times fell 34.6 points or 1.08% to 3,182.31 and KOSPI was down by 20.75 points or 0.77% to 2,661.07. On the other hand, Shanghai Composite strengthened 36.52 points or 1.21% to 3,055.99.