Indian Stocks End Two-Day Gain After Mauritius Tax Treaty Rework

  • Sensex pares intraday slump of 1.4% after knee-jerk response
  • Bharti, Tata Motors, Healthcare companies drag Sensex lower

Indian stocks fell for the first time in three days on concern a reworked tax agreement with Mauritius may curb inflows from some foreign investors. 

Bharti Airtel Ltd., the nation’s biggest mobile-phone company, was the worst performer on the S&P BSE Sensex. Drugmakers Dr. Reddy’s Laboratories Ltd. and Lupin Ltd. lost at least 1.3 percent. Bharat Heavy Electricals Ltd., a power-equipment maker, dropped to a one-week low. Tata Motors Ltd., owner of Jaguar & Land Rover, fell to a one-month low.

The Sensex dropped 0.7 percent at the close in Mumbai, paring losses of as much as 1.4 percent at the start of trading. The nation redrew its tax treaty with Mauritius to prevent investors using the island nation as a shelter to avoid levies. At least 10 percent of the 22.25 trillion rupees ($333 billion) global funds had in stocks, bonds and derivatives at the end of March came via tax shelters including Mauritius, data from the regulator show.

Holders of these derivatives issued abroad, known as participatory notes, “are the most at risk,” Andrew Holland, chief executive officer of Ambit Investment Advisors Pvt., said in an interview with Bloomberg TV India in Mumbai. “There won’t be a major impact on the rest of the market at this moment. Investors need clarity on how this is going to work since the move was not expected.”

The changes mean companies routing funds into India through Mauritius after March 31, 2017, will have to pay short-term capital gains tax at half the rate prevailing during the 24-month transition period. The full rate, currently at 15 percent, will kick in from April 1, 2019, the Finance Ministry said after markets closed on Tuesday.

While the Sensex retreated at the start of the session, it came within a whisker of erasing losses around noon amid optimism the new treaty won’t impact foreign investment flows. Investor focus shifted back to earnings and global equities, which showed signs of stabilizing in recent days after a selloff last week that erased some $1.3 trillion of value.

“The market has put aside Mauritius concerns for now as the change will happen over four years,” Chakri Lokapriya, Mumbai-based chief investment officer at TCG Advisory Services Pvt., said by phone.“Investors are focusing on near term factors like global cues and local earnings.”

Earnings in the world’s fastest-growing major economy seem to be recovering after the worst run since the global financial crisis. Seven out of 13 Sensex firms that have posted March-quarter results so far beat or matched estimates.

Asian Paints Ltd. climbed to a nine-month high after group sales beat analyst estimates. Fourth-quarter sales rose to 39.2 billion rupees, compared with the 38.6 billion rupees estimate in a Bloomberg News survey.

Foreigners bought $58 million of shares on Tuesday, taking the year’s purchases to $1.8 billion. They purchased $585 million of shares in April, adding to the $1.4 billion inflow in March, which was the most in three years.

The Sensex has slid 2 percent this year and trades at 15.8 times 12-month projected earnings versus 11.4 for the MSCI Emerging Markets Index.

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