Rumour on tax treaty spooks Sensex by 364 pts

That apart, the government announcement this morning that it will resume talks with Mauritius on the double taxation avoidance agreement (DTAA) treaty spiked the popular BSE Sensex by about 560 points in early trade. As much as 35 per cent of India’s FDI (foreign direct investment) and FII (foreign institutional investors) inflows are routed through Mauritius.

All sectoral indices were in the red, while the decline in the stock market was quite broad-based. BSE Oil & Gas, Auto, Realty, IT, Power, Metal, Healthcare and TECk indices dropped 2-4 per cent. BSE Sensex and S&P CNX Nifty hit their lowest level in more than 18 weeks.

A clarification by finance ministry sources to the effect that timeline on the talks was yet to be decided led to a smart recovery from the day’s lows, but was not enough to salvage the damage completely. FII outflow totaled Rs 2458.12 crore in the seven trading sessions from 9 June 2011 to 17 June 2011. The Sensex was down 364 points or 2.04 per cent to 17,506.63 points, which was its lowest closing level since February 10, 2011. The NSE Nifty was down 108  points or 2.02 per cent to settle at 5,257.90, alsoits lowest closing level since February 10, 2011.

The market breadth, indicating the health of the market, was extremely weak with as many as 2,298 shares on BSE declined while 551 shares advanced and a total of 72 shares remained unchanged.

There was no solace on the global front either. The Asian markets had a mixed day, with the Hang Seng, Seoul and Taiwan shaving off around a percent each and the Nikkei and Straits Times edging higher.

The European markets were also in the doldrums in mid-day trades, with the FTSE, DAX and CAC losing more than percent in continuation of their seven-week slide after the euro-zone finance ministers delayed a final decision on emergency loans to Greece.

The indications from Wall Street are also gloomy, with pre-market trading suggesting that the Dow could open lower by 70 points later in the day.