Mumbai, May 4: Nervous investors, on the edge over the proposed anti-avoidance rules, today ran for cover after the government announced a possible review of the tax treaty with Mauritius, leading to the Sensex plunging below the psychological level of 17000 for the first time in three months.
At the end of the day, the Bombay Stock Exchange bellwether ended at 16831.08 points, a fall of 320 points, or nearly 2 per cent.
A falling rupee added to the investor agony ' the Indian currency flirted with the Rs 54-level before an RBI intervention saved the day.
The Sensex had reported losses for two days running, and the mood soured further after minister of state for finance S.S. Palanimanickam said in the Lok Sabha that the Centre was considering a review of the tax treaty with Mauritius to raise revenues.
Most foreign institutional investors (FIIs) route their investments through Mauritius taking advantage of the existing double taxation avoidance treaty.
The minister's statement comes at a time investors have been an apprehensive lot over the proposed GAAR (general anti-avoidance rules). Though there is lack of clarity from the Centre on GAAR, things are expected to get clearer when the budget is discussed in Parliament next week.
This apart, a weakening rupee has also made life difficult for the equity investor. A depreciating rupee erodes the gains of FIIs who bring in the dollars. The Indian currency hit an intra-day low of 53.92 to the dollar, though intervention by the RBI saw it later closing with a small loss of six paise at 53.48.
The 30-share Sensex opened lower at 17066.84 on weak global cues and it fell to an intra-day low of 16776.72 after which it ended at 16831.08. The index was last seen at this level in the last week of January.
Weak market conditions and the fluctuating rupee even forced auto parts maker Samvardhana Motherson Finance Ltd to defer its Rs 1,665-crore initial share sale that remained under-subscribed on the last day today.
The RBI today announced some measures to prop up the rupee. The central bank said that the interest rate ceiling on foreign currency non-resident or FCNR (B) deposits of banks has been raised from 125 basis points above the corresponding Libor rates to 200 basis points for maturity period of 1 year to less than 3 years and to 300 basis points for maturity period of 3 years to 5 years.