Key Indian equity indices lost over 1.8 percent on Monday, with investor mood spooked by proposals to regulate foreign funds better, even as lingering worries over retrospective taxes and a crash in Chinese markets further fuelled the fall.
In a development reminiscent of the moves in October 2007 to regulate the participatory note, or P-Note, route of overseas funds investing in Indian stocks, the markets mood was hit after a special probe team wanted better regulation of such instruments.
The investors were anxious to know if the government will indeed accept the suggestions of the special investigative team appointed by the Supreme Court on this matter, sending the markets crashing.
The frantic sell-off in the Chinese bourses, coupled with the issue of retrospective tax on capital gains and the containment of the central bank's powers in terms of fixing key rates also subdued the Indian equity markets on Monday.
These factors led the barometer 30-scrip sensitive index (Sensex), of the Bombay Stock Exchange (BSE), to close 551 points in the red on Monday.
The S&P BSE Sensex, which opened at 28,117.65 points, closed at 27,561.38 points, down 550.93 points or 1.96 percent from the previous day's close at 28,112.31 points. The index had a high of 28,117.65 points and a low of 27,529.57 points during intra-trade.
The wider 50-scrip Nifty of the National Stock Exchange (NSE) also closed deep in the negative territory. It closed 160.55 points or 1.88 percent down at 8,361 points.
A similar development in October 2007 over P-Notes had seen the biggest intra-day fall in stock indices in absolute terms. The fall then was over 1,750 points.
"Domestic factors like the SIT's recommendations on the P-notes and further clarity on the Shah committee's report on minimum alternate tax (MAT) unnerved the markets," Anand James, co-head, technical research desk, Geojit BNP Paribas, told IANS
"Both the issues relate to the foreign investments in the equity sector. The Foreign Institutional Investors (FIIs) have been net buyers since July 13. The developments on P-notes and MAT coupled-with the Chinese market fall had a negative effect on the Indian exchanges."
James pointed out that the government's draft financial code which proposes to clip the Reserve Bank of India's (RBI) autonomy impacted banking and other interest rate-sensitive stocks.
The code, if implemented, will undermine RBI's ability to rein in inflation. This will also discourage investors in taking risks. RBI has been viewed by many as an anchor of financial stability.
Apart from the domestic issues the rout in Chinese exchanges had a negative impact on Indian markets.
"The enormous erosion of investors wealth in the Chinese markets had a rub-off effect across Asia. As most of the emerging markets (EM) funds that invest in China also hold portfolios here," Vaibhav Agarwal, vice president and research head, Angel Broking told IANS.
The continuous slide in the Chinese markets in the last two months has eroded nearly 40 percent of the stock value and caused panic. More importantly, the inability of the Chinese government, fund houses and brokerage firms to arrest the fall led to a global sell-offs.
Monday's Chinese markets crash led the MSCI (Morgan Stanley Capital International) EM (emerging markets) to a two-year low.
Sector-wise, capital goods, banks, automobile, metal, oil and gas, information technology (IT) and healthcare stocks came under intense selling pressure.
The BSE S&P capital goods index plunged by 289.07 points, the bank index receded by 259.21 points, automobile index declined by 216.58 points, metal index tanked by 113.21 points and oil and gas index was lower by 87.59 points.
Major Sensex gainers during Monday's trade were: Bajaj Auto, up 0.41 percent at Rs.2,507.70.
The major Sensex losers were: Tata Steel, down 5.17 percent at Rs.251.40; Hero MotoCorp, down 4.84 percent at Rs.2,605.65; Hindalco Inds, down 4.40 percent at Rs.104.25; Axis Bank, down 4.34 percent at Rs.555.75; and ONGC, down 4.12 percent at Rs.271.40.
Among the Asian markets, Japan's Nikkei was down 0.95 percent. China's Shanghai Composite Index declined by 2.44 percent, and Hong Kong's Hang Seng lost by 3.09 percent.
In Europe, the London FTSE 100 index inched down by 0.16 percent, while the French CAC 40 fell by 1.43 percent. Germany's DAX Index was lower by 1.43 percent at the closing bell here.