FIIs face the flak for Sensex tumble

New Delhi: CPI-M politburo member Sitaram Yechuri said on Friday that the fall of the Sensex has clearly exposed the Indian stock market's dependence on Foreign Institutional Investors (FIIs).

"Sensex kept going high due to a favourable tax regime in India. There is no long term capital tax. Only salaried middle class are paying taxes while there is no tax on dividends and as a result huge benefits are reaped by the FIIs," Yechuri said.

"With government’s decision to bring new tax regime, the FIIs pulled pack their money and hence came the fall," Yechuri claimed.

A lot of wealth got erased as the markets remained volatile for the fourth day. Analysts said that only long-term investors can survive such tumultous markets and advised day traders to abstain from trading until the markets stabilise.

Hemendra Kothari of DSP Merrill Lynch expects the volatility in the markets to continue because of the fears of inflation.

"I personally feel this kind of volatility will remain. We have to see what is happpening to interest rate in dollars," Kothari told CNBC-TV18.

"The rising interest rates have a direct bearing on the equity markets across the world and we are no exception to that," he added.

A correction may later come in the market which still shows a good buying opportunity for investors. However, he said, only long-term investment strategy will be beneficial.

"If they are seeing three years of point-of-view, they buy now, or when 200 points up, or 1000-2000 points even. They will make money. If they are looking at 15 days and one month, volatility is like speculation," he added.

Bloodbath was witnessed at Dalal Street for the fourth consecutive day. On Friday, Sensex plunged 450 points closing at 10,938, the biggest weekly loss since May 2004 that is of over 10 per cent.

Investors confidence has shaken seeing the fall and most of them have been advised to invest lower money in the market.

The Nifty closed at 3246, down over 142 points, which is a loss of over 4 percent.

The Midcap index fell a little over 200 points to close the day at 4581.

The top losers on the Nifty were Nalco, Tata Tea, Cipla and GSK Pharma.