Mohnish is online now !!!

Was that just a fall or more than that???

On 18^th May we saw the biggest fall on the Sensex in absolute terms. It was mainly justified by following three reasons:

1)                 Taxation issue relating to FII misinterpreted

2)                 Panic in LME (London metal exchange) reflected in India

3)       General fear of US inflation and Global stagflation

The drama began with Finance Minister’s Statements on the draft CBDT Circular which indiacated that the FII’s, which are right now assessed as investors and charged under Capital Gains (Either short Term – 10% or Long Term – Nil) will be assessed as Trader and the income will be considered as Business income. The charge on the same is 41%. That was all for triggering the markets towards South….

Then the next day Finance Minister gave clarification (After Close of Market Hours) that till now there is no FII assessed as a trader and most of them don’t have Permanent Establishments in India. Further few of them are covered under DTAA, so there is no reason to panic for.

Was that just Finance Minister’s irresponsible statement or more than that???

This issue has raised certain questions in my mind…

Ø       Why our Finance Minister came up with a comment on CBDT Circular in front of media?

Ø       When there was no seriousness of the circular (As no FII is assessed as trader as of now), why it was talked so publicly?

Ø       Finance minister came up with the clarification on the circular after the close of market hours, where on the day of fall market was nearly down by 500 points for most of trading time. I feel he could have come up with clarification on the issue much earlier.

Couple of weeks back SEBI issued an order where country’s top most retail brokers were asked to freeze their business on account of some evidences of manipulations. That time the Market digested the issue very nicely and it closed positively with some intra day Volatility of nearly 500 points.

The Markets was not in the mood to come down on account of high Liquidity and the Long term India Growth Story. Even the concerns of rising crude prices and bearish global interest outlook did not affect the market considerably.

There was need of something big to stop it or rather pull it down. The market saw a threat from the SEBI’s order on the Brokers but sustained, but this time the trick played well and the FII Tax issue dragged the markets down.

Has the objective Achieved??? Or is there anything more to come?

You can mail your comments and opinions on mail[at]mohnishkatre.com

Date: 19.05.06