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After bull ride, bear hug for Narendra Modi sarkar

Despite GST Bill passage and easing of FII tax concerns, Sensex tanks 723 points; traders say sell-off sparked by slump in NSE index futures listed on Singapore bourse, now trading at a discount to domestic NSE index futures

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The massive 723 points fall in Sensex on Wednesday, the second-biggest since Narendra Modi government took charge on May 26, 2014, amid foreign investors' concerns over India's reform process, is likely to sound the alarm in the BJP camp, a couple of weeks before the government's first anniversary.

While the 50-share NSE Nifty crashed by 227.80 points (2.74%) to close below 8,100-mark at 8,097, the 30-share Sensex succumbed to selling pressure and dropped below the 27,000-mark, settling 722.77 points (2.63%) lower at 26,717.37, the lowest in nearly five months. This is the biggest single-day fall in last four months after 855 points plunge on January 6.

The across-the-board selloff saw several blue-chip stocks plummet as investors rushed to the respective sell counters. Among the big losers were IOC (which dropped 7.6%) ICICI Bank (4.95%), Bharat Heavy Electricals Ltd (6.2%), Maruti (4.2%), ONGC (4%), Cipla (4%) and ITC (2.5%).

Despite the passage of the GST Bill in the Lok Sabha, growing concerns over the Bill's future, and other reforms facing strong political opposition, along with the lack of clarity on tax issues on foreign portfolio investors in the country have forced investors to dump stocks.

Quoting dealers, Reuters reported that the sell-off was initially sparked by a slump in NSE index futures listed on the Singapore exchange, which are now trading at a discount to domestic NSE index futures.

Algorithmic trading accounts for a third of the total volume on Indian cash shares and more than half of the volume in the derivatives segment, analysts said.

On Wednesday, India VIX, a volatility index based on prices of Nifty options, surged as much as 13.3%, and it shows market's expectation of volatility over the near term. India VIX futures attract traders who are willing to bet on volatility.

Market officials pointed out to dna that the drastic fall shadowed two big positive developments of passage of GST Bill in Loksabha and a High Court stay order on tax demand on the foreign portfolio investor Aberdeen Global Emerging Markets. Some quarters of the markets were hoping that the Bombay High Court's move to stay the income-tax department's decision to impose minimum alternate tax (MAT) on Aberdeen would give a boost to the market, while some others discounted any sharp rally, saying that the court had issued a stay on technical grounds.

"A conclusion on the tax issue on FPIs can only be drawn once the court gives its final verdict," said a leading foreign stock broker.

In the one year that Narendra Modi-led government has been in power, the stock market has had a roller-coaster ride. From all-time high in the month of March on hopes of a pick-up in business activity, the Nifty is down over 10% in the last two months.

Some brokers are cautiously optimistic, while some believe that Modi government is going to go full throttle with reforms.

Shankar Sharma, chief global trading strategist at First Global, said he is very optimistic on the market as far as the small and the midcap segments are concerned. "But I am neutral on the large cap segment," he said.

Sanjay Dutt, director, Quantum Securities, believes the time is ripe for investors to start buying, albeit slowly. "I have no second thought about the medium to long-term outlook on the current regime which is reform-driven," he said.

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