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The sell-off triggered after reports that India will push for removal of tax concessions in the tax treaty with Mauritius, which has agreed to begin talks for revising the double taxation avoidance agreement, Central Board of Direct Taxes chairman Prakash Chandra said.
The India-Mauritius tax treaty provides that capital gains arising in India from the sale of securities can only be taxed in Mauritius, and since the island nation does not tax capital gains, it leads to zero taxation.
Talks on the treaty were last held in 2008 but had failed following Mauritian government's insistence to continue with the existing agreement. India is estimated to lose over $600 million a year in revenues on account of the DTAA with Mauritius.
However, according to the government sources there is nothing concrete as of now on the Double Taxation Avoidance Agreement. No dates have been fixed between the two governments to discuss the tax issue.
India is yet to start talks with Mauritius on tax treaty. In 2008, the Mauritius government had refused to discuss the double taxation issue. However, it has shown willingness to start preliminary talks.
Over 40 per cent of FDI in India comes from Mauritius route. Some of the listed companies with investments via Mauritius include S Kumars, FirstSource, KS Oils, GTL Infra and GTL. All these counters were down sharply
Shares of GTL and GTL Infrastructure plunged on market rumours of promoters selling pledged shares, FCCB defaults, delay in loan payment to Punjab National Bank.
However, Manoj Tirodkar , CMD, GTL, has announced that the company's pledged shares have not been sold and the large investors are still with him. He rubbished FCCBs default rumour clarifying that the FCCBs are not due until November 2012.
He also added that loan payments to Punjab National Bank are as per schedules. He is expected to approach the SEBI to check the sharp fall in stock prices of GTL and GTL Infrastructure.
"The company continues to conduct its business in normal course and is focusing on growing the business. In GTL, the promoters hold 52.71 per cent of the equity capital of the company.
The promoters have pledged only 12.85 per cent of the equity capital of the company, which was already intimated to the stock exchanges, as part of our regular disclosures.
The company would like to confirm that neither promoters nor entities relating to promoters have sold any shares, including the shares that have been pledged," the company said in announcement to the stock exchanges.
GTL plunged 57.56 per cent to Rs 144.25 on the BSE and GTL Infrastructure fell 36.70 per cent to Rs 18.80 per share. Selling pressure was seen in stocks S Kumars, FirstSource and KS Oils amongst others.
At 1:25 pm; National Stock Exchange's Nifty was at 5289.85, down 76.55 points or 1.43 per cent. The broader index touched a high of 5377.40 and low of 5195.90 in trade so far.
Bombay Stock Exchange's Sensex was at 17627.30, down 243.23 points or 1.36 per cent. The 30-share index hit a high of 17925.17 and low of 17314.38 intraday.
BSE Midcap Index was down 2.41 per cent and BSE Smallcap Index moved 2.52 per cent lower.
Amongst sectoral indices, BSE Realty Index was down 2.53 per cent, BSE Oil&gas Index fell 2.05 per cent and BSE Power Index declined 1.93 per cent.
Reliance Communications (-7.04%), Reliance Infrastructure (-5.69%), Grasim (-4.44%), Cipla (-3.93%) and Cairn India (-3.92%) were the major Nifty losers.
Shares of Reliance Communications and Reliance Infrastructure were under pressure after reports that the duo will be replaced by Sun Pharmaceutical and Coal India from the Sensex beginning August 8.
Bharti Airtel (2.29%), Hero Honda (0.83%), Axis Bank (0.72%), Sun Pharmaceuticals (0.67%) and Punjab National Bank (0.26%) were the only gainers.
Market breadth was negative on the BSE with 2081 declines against 459 advances.
