Sensex ends 3-day fall on tax proposal delay

Indian stocks rebounded yesterday from their lowest level in four months as the finance minister delayed a tax avoidance rule by a year after the plan stoked concern that foreign fund flows to the $1.1tn market will decline.India’s rupee retreated, reversing earlier gains, on speculation policy makers will struggle to attract capital inflows needed to offset the nation’s current- account deficit.India is grappling with the fastest inflation and widest fiscal deficit among the largest emerging economies, as well as a record trade gap that’s weakened the rupee.The Bombay Stock Exchange (BSE) India Sensitive Index rose 0.5 to 16,912.71 at close, erasing an intraday drop of 1.9%. The index rallied after a 3-day drop.Foreigners were net sellers of Indian shares in April for the first time this year on concern the government’s proposal to introduce the General Anti-Avoidance Rule to curb evasion of taxes by companies through misuse of tax treaties would apply to their holdings of shares. GAAR will be deferred until the fiscal year beginning April 2013, and steps will be taken to ensure the rule is applied objectively, Finance Minister Pranab Mukherjee told lawmakers in New Delhi yesterday.“Investors now have a timeframe and they can plan ahead, and hopefully after one year there will be an equal playing field for all foreign investors,” Juergen Maier, fund manager at Raiffeisen Capital Management, said from Vienna. The money manager has about $1.1bn of emerging-market assets.Policy reversals, including the suspension of plans to allow overseas retailers to open supermarkets, have clouded the outlook for investment. Standard & Poor’s last month reduced India’s credit outlook to negative, taking the nation a step closer to junk status.Offshore funds have still poured a net $8.9bn in local stocks this year, a record for the period, on optimism the Reserve Bank of India will ease monetary policy to revive growth.Asia’s third-biggest economy grew 6.1% in the December quarter, the least in almost three years, as costlier credit and inflation hurt consumer spending and investment.Foreign funds bought a net Rs5.13bn ($95.4mn) of local stocks on Friday, a fourth straight day of purchases, according to the data compiled by the nation’s market regulator. They withdrew a net $102.6mn in April.“At least now we do not have to worry about foreign fund outflows,” Samir Arora, founder of Singapore-based hedge fund Helios Capital Management Pte., said by phone yesterday. “The GAAR clarity will assuage concerns. It was the right thing to do.”India VIX, which measures the cost of protection against losses in the S&P CNX Nifty Index, plunged 4.3% to 20.22, ending a four-day advance. The Nifty climbed 0.5% to 5,114.15 and its May futures settled at 5,125.95. The BSE 200 Index added 0.6%.The rupee declined 0.4% to 53.1462 per dollar in Mumbai, according to data compiled by Bloomberg. Its one-month implied volatility, a measure of exchange-rate swings used to price options, fell 35 basis points, or 0.35 percentage point, to 10.65%.The shortfall in the current account, the broadest measure of trade, reached $19.4bn in the three months through December, according to central bank data. That was the most since at least 1949.Six-month onshore currency forwards were trading at 55.07 a dollar, compared with 54.70 on Monday, and offshore non-deliverable contracts were at 55.16 from 54.83.