Expect Indian shares to correct even if RBI cuts rate:

Indian shares may continue to drift lower even if the Reserve Bank of India cuts interest rates in April, as uncertainty on taxation of foreign portfolio investment from some destinations is weighing on the rupee as well as equities, said Bank of America.

Foreign brokerages have started complaining at recent Indian provisions to tax indirect investments and combat tax evasion, saying they are couched in ambiguous language and could also be used to target overseas market investors.

The views are split on a possible rate cut by the RBI in April as oil prices remain higher even as the country's economic growth is slowing.

Dollar demand from oil companies and a slowdown in foreign institutional investment flows in March have resulted in a 3.5 percent depreciation of the rupee.

While foreign investors are yet to turn heavy sellers of Indian stocks, historically the rupee's depreciation has been negative for the market, according to strategists.

"Looking at all periods of sharp rupee depreciation (more than 3 percent in a month), markets were negative on 75 percent of the occasions and fell by an average of 4.2 percent," said BofA in a note.
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