Indian stock market loses momentum – Major indices shed

by khalid on 04/04/2012 · 0 comments

Indian stock market has lost its momentum. The market was slightly range bound during last couple of days. The major index Nifty has plunged below 200 – day moving average (DMA) breaking below the crucial technical support in afternoon trading on 29th, March’12. Technology outsourcing stocks like Infosys, power stocks and capital goods stocks have mainly dragged the major indices.


Reasons behind the plunge

Indian stock market has been showing volatile pattern for last couple of days. The global cues as well as some other factors are responsible for this plunge.

Tax provisions – Recent tax provisions to tax-indirect investment and combat-tax evasion are the main reasons for this sell-off. Foreign investors are not happy with the provisions. In fact, overseas brokerage firms are complaining at these tax provisions. The foreign investors are selling off their stocks in large volume. NSE data revealed that net provisional purchase, as of 27th March’12, was of about 8.6 million USD, while the volume of net sales was almost 18.4 million USD.

Traders’ confusion – Traders are confused about the recent tax provisions to tax-indirect investment and combat-tax evasion. They are concerned about foreign selling and indecision over taxation for the participatory notes. These are the most popular
derivative-instruments, which are used by the foreign investors to purchase Indian stocks. The market may continue to drift down even if Reserve Bank of India cuts interest rate in April’12. Indian financial institutions have sold stocks worth 3 billion rupees.

Year ending – The fiscal year of 2011-2012 is about to end. This fact has ended up in huge profit booking, especially in blue chip equities.

F&O expiry – The stock market is headed towards the expiry of March F&O and that also has contributed to the choppiness or volatility of the market.

Global cues – Global market cues are also responsible for this plunge. The US indices were down by almost 0.6%; while European indices have touched 3-week low. Each of the European indices was down by about 1%. Most of the Asian stock markets were down. Almost all Asian markets were down by about 0.76%.

According to the market analysts, April would be cruel for the Indian stock market. It would be very crucial, but tough month for the foreign investors. Foreign institutional investors (FII), the key driver of Indian stock market, are likely to sell off, unless Indian government makes the tax provisions clear.

Kavin Matthews is a Financial Consultant & Analyst and writes finance related articles. Follow Matthews on : Facebook | Twitter | Google+


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