The Telegraph
Since 1st March, 1999
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Thursday thud

May 18: If Monday’s Mayhem was bad, Terror Thursday was a massacre: the sensex plunged by 826 points ' its worst one-day fall in history ' as stocks sank in a swelling tide of fear over the government’s plan to slap harsher taxes on a growing tribe of carpetbaggers who aim to skim profits off a surging market.

At the end of a torrid day of trading, the 30-share index stood at 11391 points ' a fall of 826 points, or 6.76 per cent. The previous biggest one-day fall was 570.42 points on April 28, 1992. All the 30 shares that make up the index slumped with ACC, Hindalco and Tata Steel getting battered the most and ceding over 10 per cent each.

India also caught the chill from the weakness in other parts of Asia, which wilted in the face of a rising prospect that interest rates in the US would go up farther, making emerging markets less attractive for foreign investors.

“The tax department’s circular on the differential treatment for the traders and investors and no specific clarification as to the status of foreign institutional investors (FIIs) spooked the market. It was felt that the FIIs would also be categorised as traders and they would have to pay taxes at much higher rates, which will definitely see big foreign money going out of the country,” said an analyst.

The finance ministry scrambled to allay fears that its new tax assessment criteria for a new litmus test to distinguish between investment and trading incomes would not hurt FIIs, but the damage was already done.

Traders have to pay a 41 per cent tax on the profits they make from short-term investments on the bourses. Profits from investments are treated as capital gains and taxed at a lower rate, 10 per cent.

The market crash today signalled a two-year denouement for the Congress after its shock Lok Sabha election victory. Two years ago ' on May 17, 2004 ' the market had tumbled 565 points, which had been the biggest fall in recent memory.

But the government chose not to react to the precipitous fall in the sensex. “Everyday movement in the stock markets does not require a comment,” finance minister P. Chidambaram said.

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