Like the unexpected monsoon which wreaked havoc in North and West India, the Supreme Court verdict on participatory notes weighed heavily on the Indian equities, dragging BSE Sensex over 550 points. In a loud and clear message, traders gave thumbs down to government policies which are making it tougher for the companies to raise money from overseas market.
Kick-starting the week on a bearish note, Dalal Street succumbed to a heavy selling on Monday over negative impact of SIT recommendation of stricter norms for P-Notes. Investors turned cautious after the Supreme Court-appointed SIT last week suggested Sebi to come up with regulations on collection of beneficial ownership details of P-note holders.
P-Notes are offshore derivate contracts used by foreign institutional investors (FII) to invest in the Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India - SEBI.
Let's look at what makes Indian equities so prone to the downside risk:
P-Notes crackdown: The Supreme Court crackdown on P-notes may adversely impact the country's investment climate. Given the market sensitivity to the amendments in rules on participatory notes, any unfavourable changes in the norms may leave Indian equities in state of limbo.
MAT worries: Lack of clarity over the controversial MAT is another concern of foreign investors. With the Supreme Court due to hold a hearing about the legality of the tax, markets are likely to react to the development.
Tepid earnings: Given the weak results reported by the Indian Inc this earnings season, there is no respite for the market as it may dampen optimism over the health of Asia's third biggest economy.
Logjam over policy reform: Doubts over the government's ability to get key bills, such as GST and Land Acquisition, passed amidst a continued Parliamentary logjam also marred investor's sentiment.
Anticipated Fed rate hike: Steady economic growth in the US strengthend the Fed's goal for policy tightening in the coming months. Increase in interest rate will strengthen dollar against rupee, prompting foreign investors to pull back money from Indian equities and invest in dollar-denominated securities.
Continued slowdown in China: With the recent economic indicators presenting a mixed picture of Asia's biggest economy, investors remained cautious about the health of global economy. Recent, Gre-exit episode also affected the India's growth story.