Did Jayant Sinha's Clarification on MAT Trigger a Sensex Rebound? Analysts Differ

Fund manager-turned politician Jayant Sinha, now Minister of State for Finance in PM Narendra Modi's government, on Wednesday tried to assuage foreign investors' sentiments, hit by tax demands of Rs 40,000 crore on incomes made in previous years.
  52-year-old Mr Sinha, who has worked with McKinsey & Company, Omidyar Network and Courage Capital, spoke to top notch investment firms such as Goldman Sachs, Morgan Stanley and Citi and clarified that those foreign investors who are based in jurisdictions that have tax treaties with India will not be subject to Minimum Alternate Tax on capital gains.
India has Double Taxation Avoidance Agreements with countries like Singapore and Mauritius, which are major hubs for foreign flows in to the country.
Mr Sinha also said that foreign investors should be "rest assured" that the government was acting to make it possible to invest with confidence, and would back a stable tax policy.
  His clarification led to a rebound in BSE Sensex, which had shed nearly 4 per cent or 1,400 points in five straight sessions between April 15 and 21, analysts said. The Sensex rose over 550 points from its day's low to end 214 points higher yesterday.

Very good and clear conference call with FIIs by @jayantsinha. Main reason for turning around the market sentiment yesterday," tweeted Singapore-based fund manager Samir Arora.

Mr Sinha, however, stuck to the government's stated stance that tax notices sent to FIIs have been issued after a judicial ruling and could only be reversed by the Supreme Court. This means foreign investors not covered by tax treaties will have to take the legal route.

Some analysts say that the rebound on Wednesday could have been because of short covering, a strategy used by short sellers to close their positions by buying stocks.
  These analysts maintain that the damage done by tax notices cannot be undone so quickly. They point to data, which shows that foreign investors were net sellers of Indian stocks even on Wednesday. FIIs sold cash shares worth Rs 910 crore net yesterday taking their selling streak to a sixth straight day. (Tuesday was a positive number because of buying in to Sun Pharma block deal, analysts say) The market selloff, triggered by tax notices to FIIs, has resulted in huge value destruction for investors. This will likely weigh on the investor confidence.

The selloff in equity markets resumed on Thursday. The Sensex, which opened higher, closed down 155 points at 27,735, while the broader Nifty ended below 8,400, falling 31 points.

Understanding MAT
FIIs have previously paid nothing on long-term gains in the country, but many firms recently received notices requiring them to pay the MAT on past income. Finance Minister Arun Jaitley has exempted FIIs from paying MAT on capital gains made after April 1, 2015, but he has maintained that he will not intervene in tax notices sent for previous years.
MAT is meant for those companies that do not pay any tax because they are allowed to claim certain exemptions and deductions from their profits and is charged at around 20 per cent. Market participants, prominent tax lawyers and even government officials have opposed the income tax department's decision to impose MAT on foreign investors.

(With inputs from agencies)