Sensex slumps on GAAR jitters...Nifty ends below 5200

It was a sea of red on Dalal Street on Monday as the key equity benchmarks lost altitude amid sustained selling pressure. Sentiment was hit by media reports that the proposed General Anti-Avoidance Rules (GAAR) could affect FII investments through participatory notes (P-notes), which runs into billions of dollars. The GAAR comes into effect from April 1. FIIs are worried that the Government could raise tax demands as a result of these new provisions. Under the proposed GAAR, the country's income tax department will have the power to deny individuals and entities the benefits of any tax avoidance treaty. Market insiders warn that fresh P-note issues could be hit badly from April until there is clarity on the matter. The BSE Sensex ended at 17,053, down 309 points or ~1.8% over the previous close. It had earlier touched a day’s low of 17,021 and a day’s high of 17,377. It opened at 17,377. The NSE Nifty settled at 5,184, down 94 points or 1.8% over the previous close. It earlier touched a day’s low of 5,175 after opening at day’s high of 5,275. The INDIA VIX on the NSE sky rocketed by 15% to close at 26.74. It hit days high of 27.45. It hit a low of 24.40. Among the BSE sectoral indices, the Realty index was the top loser, down 3.5%, while the Power index lost 2.5%. The Banking index was down 2.4% and the Metal index ended lower by 2.1%. The BSE Mid-Cap index lost 1.6% while the BSE Small-Cap index ended fell by 1.4%. Out of the 50 stocks in the Sensex index there was not a single gainer on the Sensex index. Notable losers on the Sensex were ICICI Bank, Sterlite, Cipla, Tata Power, DLF, NTPC, BHEL, Bajaj Auto, Hindalco and Bharti Airtel. The NSE Nifty and the BSE Sensex ended near day's lows on the back of heavy offloading in Realty sector after reports stated that the state government of Maharashtra was planning to increase stamp duties in the city by as much as 160 times for residential and commercial properties. Shares of HDIL, DB Realty, Indiabulls Real Estate and Godrej Properties were among the top losers among the real estate space. Among the other major laggards were Power, Banking, Metals and PSU stocks. Even the broader indices witnessed all round selling. The sentiment was also hit by news that the Government has ordered a CBI inquiry into the Army chief Gen V. K. Singh's allegation that he was offered a Rs 140mn bribe by a lobbyist. Both houses of Parliament were rocked today after the opposition MPs created a ruckus over the sensational disclosures made by the Army chief. The undercurrent was subdued as most Asian markets struggled for direction today. European benchmarks also declined in a choppy session as an encouraging report on German business confidence was offset by worries over the state of the Spanish economy. In the currency market, the Rupee erased early gains and fell to its lowest in more than two months, pressured by oil payments and subdued shares. It was quoted at 51.3650 per dollar, weaker than last week's close of 51.22. The drop in the Rupee was halted on speculation that the RBI would intervene to smoothen volatility. The central bank is suspected to have sold dollar on two occasions last week to shore up the currency. High and sticky crude oil prices are adding to the long list of headwinds even as incremental economic growth remains elusive for many of the world's leading economies. While inflation is not an issue for the developed economies, it is starting to turn into a sore point in the emerging markets. Slowdown in the matured markets is also having an adverse impact on emerging markets, especially those that are heavily reliant on external trade. For India, the main issue is lack of confidence, both among consumers as well corporates. Though it has moderated from the peak of last year, inflation remains one of the big drawback. The RBI has done its bit to ease the pressure on liquidity but the cash crunch still persists. The Government hasn't helped by failing to rein in wasteful spending, particularly those on fertiliser and fuel subsidies. The Union Budget has also not addressed the issue of fiscal consolidation despite the Finance Minister's best efforts. All eyes will be on next month's RBI policy meeting and quarterly corporate earnings. While the FY12 results may have been discounted by now, the markets are interested in knowing what India Inc. thinks about the coming financial year. The RBI finds itself in a very tricky position and may not slash rates as aggressively as it was likely to do earlier. Trading this week will be choppy due to the F&O expiry. Keep a close eye on the rupee and crude oil. Also watch out for the Government’s borrowing calendar for H1 FY13. Investors should stick to a defensive strategy for the time being given the uncertainties over a whole host of macro-economic factors - both domestic and global. The main equity benchmarks might correct in case there is no rate cut on April 17. Already, the extent of the RBI's rate cuts for FY13 has been scaled back post the Union Budget.