NEW DELHI/KOCHI:The benchmark 30-share BSE Sensex plunged 550 points on Monday on fears of clampdown on Participatory Notes and the rout in Chinese stocks, but analysts suggested caution saying the sentiment would remain subdued in short-term till clarity emerges on the tricky issue of P-Notes. Further, weak earnings numbers posted by Indian companies for the June quarter will drag the stock markets down, they said.
The 30-share BSE Sensex slipped below the 28,000-mark to settle at 27,561.38, a steep fall of 550.93 points, or 1.96 per cent, lower than its last close.
The 50-share NSE Nifty slipped below the 8,400-mark to settle at 8,361, down 160.55 points.
The rupee also fell by 12 paise to close at a new 6-week low of 64.16 per dollar.
A major slump in Shanghai stocks on concerns that the Chinese economy, the world’s second largest, is heading for a sharp slowdown also contributed to domestic markets crash. Hong Kong’s Hang Seng closed 3.09 per cent lower while Japan’s Nikkei slumped 0.95 per cent. European markets slid for the fifth day.
P-Notes are offshore derivative instruments used by foreign investors to invest in Indian equity markets but not keen on registering with the capital market regulator Sebi.
C J George, managing director of Geojit BNP Paribas, reckoned the government to go slow on the P-Notes issue as clarified by Finance Minister Arun Jaitley in Delhi. Speaking to reporters in Delhi, Jaitley tried to soothe market nerves by saying that investors should not fear any “knee-jerk” reaction from the government on the SIT report.
“It is too early to say what view the government would take. But it will certainly not take any such action in a knee-jerk reaction, particularly one which has any adverse impact on investment environment,” Jaitley said.
Alex K Babu, MD, Hedge Finance, said the government would not do anything that would impact the sentiment of big FIIs. “Big foreign brokerages are in the business of P-Notes. They sell the P-Notes’ products to their clients abroad. Even if they follow the strict KYC norms, they may not disclose the identity of clients to Indian authorities as these brokerages are headquartered in the US or Europe.”
A Supreme Court appointed Special Investigation Team (SIT) entrusted with the task of suggesting measures to curb black money recommended Sebi that the watchdog should do more to identify real owners of P-notes and restrict their transfer. The committee suspects that many tax evaders from India are using this route to deploy their black money into Indian stock markets.
P-Note investments are currently worth Rs 2.75 lakh crore. Even a partial unwinding of this will spook the market. In October 2007, Sebi, tried to put curbs on P-Notes, but following pressure from FIIs, the steps were relaxed.
For investors looking for one-year perspective, it’s better to adopt a wait and watch policy, said Babu. However, for a 3-5 years perspective, investors can look to buy in a small manner, he said.