India plans to impose capital gains tax on investments routed through Mauritius from Apr '17. A similar tax treaty with Singapore may be in the pipeline. Mauritius and Singapore are the source of the bulk of FII investments in India since 2000.
The revised treaty should help reduce 'round-tripping' of Indian 'black' money sent abroad through 'hawala' channels and routed back through Mauritius to turn them into 'white' money investments without paying taxes. However, there is concern that some FIIs may withdraw their investments from India.
The following remarks were made in the previous mid-week update on the daily bar chart pattern of Nifty: "Some more correction is likely. Expect the rising 50 day EMA to provide some downside support - as it had done in the past two months."
The index dropped below the 7700 level intra-day on Fri. May 6, but received good support from its rising 50 day EMA. On Mon. May 9, the index bounced up strongly above its 200 day EMA into bull territory on the back of FII and DII buying.
On the next two days, the index failed to overcome resistance from the 7900 level, and pulled back to the 200 day EMA in early trading today before value-buying by DIIs took the index to a close near 7850.
Technical indicators are in bullish zones. MACD is moving sideways below its falling signal line in positive zone. RSI is above its 50% level, but turning down. Slow stochastic has risen sharply above its 50% level.
However, all three indicators are showing negative divergences by touching lower bottoms in May '16 while the index touched a higher bottom (marked by blue arrows).
That may encourage bears to step in and try to push the index down towards 7500-7600. Whether that can happen or not will depend on what stance the FIIs take.
On longer-term weekly chart (not shown), Nifty received good support from its rising 20 week EMA and has closed above all three EMAs in a long-term bull market. Weekly technical indicators are looking bullish. Dips can be used to add/enter.