Sensex trims losses; Mauritius tax treaty weighs

REUTERS - Indian shares recovered from initial sharp falls to post mild losses on Wednesday, as investors were relieved that imposition of capital gains taxes on investments coming from Mauritius, will apply only from next year and not to existing holdings.

Many investors had also seen the changes to a three-decade-old treaty with Mauritius as inevitable as governments get tougher on tax havens across the world.

India said on Tuesday it would tax capital gains on foreign investments from Mauritius made from April 2017 at 50 percent of the domestic rate for two years, and at the full rate thereafter.

Mauritius has accounted for a third of the $278 billion in foreign equity investments into India since 2000.

Nonetheless, analysts said foreign investors would need a period of adjustment as they consider their options.

"The announcement concerning the Mauritius-India treaty has likely affected the sentiment in the stock markets because of significant foreign fund flows into India from the country," said Bernard Aw, market strategist at IG in Singapore.

Though initially, Singapore-listed NSE futures slumped more than 1 percent, shares in Mumbai were sturdier, with the broader NSE Nifty down 0.18 percent to 7,872.10 as of 10.49 a.m..

The benchmark BSE Sensex was down 0.37 percent at 25,675.98.

A few blue chips with bigger foreign investments were largely lower, with HDFC Bank and State Bank of India losing 1 percent each.

Oil explorers fell tracking weakness in global crude prices on record U.S. inventories.

Bharat Petroleum Corp Ltd was down 1.4 percent while Oil and Natural Gas Corp Ltd fell 2.31 percent.

Among the gainers, Zee Entertainment Enterprises Ltd rose 6.47 percent after posting about 13 percent rise in March-quarter profit.

(Reporting by Aastha Agnihotri in Bengaluru; Additional reporting by Nichola Saminather in SINGAPORE; Editing by Rafael Nam and Sherry Jacob-Phillips)