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Since 1st March, 1999
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Left hook to a staggering market
Mohammad Kaif applauds M.S. Dhoni after he struck a four in the first ODI against West Indies that India won at Kingston. (Above) A stockbroker reacts in Mumbai as the sensex continued its plunge on Friday. (AFP/PTI)

May 19: The stock market stumbled for a second day with the sensex plunging by another 453 points as investors continued to dump shares.

Fishing in troubled waters, the Left added its own dose to the negative global factors that drove the market down by over 800 points yesterday.

CPM politburo member Sitaram Yechury, whose comments had triggered the mayhem of May 17, 2004, demanded reimposition of the long-term capital gains tax that was scrapped in July 2004 and a review of the double tax avoidance treaty with Mauritius.

After Thursday’s 826-point fall, the market drew little comfort from the finance ministry’s clarification yesterday that the 41 per cent tax on the so-called carpetbaggers ' investors who were skimming profits off a surging market ' would not be extended to foreign institutional investors (FIIs).

The sensex yo-yoed by nearly 900 points today, closing down 4 per cent at 10,938.61 as panicky investors joined large funds in hammering blue chip stocks, including ONGC, Reliance and Infosys.

If the market continues to plummet, it could precipitate a payments crisis. On Friday, there was a surge in margin calls 'investors have to back their trades with a part payment ' and this exacerbated the selloff.

The CPM, a key ally of the Manmohan Singh-led government, warned the government against the machinations of FIIs, sparking fresh anxiety in the market.

“The unprecedented fall in the stock market yesterday has once again underlined the volatile nature of the asset price boom taking place in India over the last two years,” Yechury said.

“The CPM calls upon the government to be vigilant against the pressures and machinations of foreign institutional investors who have wreaked havoc in several developing countries by precipitating currency crises in the past,” Yechury said.

“The sensex was rising because of a very favourable tax regime in India. There is a need to reintroduce long-term capital gains tax.”

Mauritius has a treaty with India that confers tax exemptions on firms operating from the island nation. Most FIIs are registered there.

Yechury urged the government to abandon plans to relax currency regulations any more “which would further imperil the stability of our financial system”.

The government has set up a committee to look into the possibility of making the rupee freely convertible. The committee is due to produce a road map by the end of July.

Some FIIs were still bullish about investment opportunities. Siddharth Mathur, strategist at JP Morgan, said: “The Indian economy continues to be very strong and the investors can continue to be bullish on the fundamentals. There is very little to be concerned about the economy, which will continue to grow above 7 per cent for the next 3 to 4 years.”

Data from the Securities and Exchange Board of India indicates that the FIIs have sold a gross of Rs 12,891.40 crore worth of shares over the past five days while purchasing shares worth Rs 10,025.80 crore in the same period. This meant a net outflow of Rs 2,866 crore.

Some 910 FIIs are registered with the capital market regulator and they together invested $10.7 billion in 2005.

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