If we analyse the fact that whether Mauritius is responsible for the fall in the Indian stock market courtesy news of reconsideration of existing double tax avoidance treaty; and we will realise that the correction was long over due as there was no strength in the market.
The DAAT was just an excuse and market was just holding up despite number of negative news. We can say that it was last straw on the back of the camel or last nail in the coffin. This treaty will take some time to come and thus investors are not worried as in the long term it is beneficial.
Moreover, India has double taxes and treaty with many other countries and some of the large participatory notes are not through Mauritius, but they come in via Spain, Singapore among others. So, I think that is not the big reason, but the big cause had been inflation, interest rates and series of earnings' downgrade and the market still managed to hold up.
Thus actually speaking the market was looking for the excuse and it came in the form of Mauritius reports. Markets are cautious because commodity prices are causing raw material price escalation, and inflation plus high interest rates. Also, the new capex flow has almost collapsed because most of the private sector players are unwilling to take up projects at such high interest costs because of tightening of CRR by RBI. Now home loans are also becoming costlier
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