Sensex
Sensex gains 1,200 points in two days. Picture: A man looks at a screen across a road displaying the Sensex on the facade of the Bombay Stock Exchange (BSE) building.Reuters

Domestic benchmark indices are headed to register their worst yearly performance in four years this year, as foreign investors offloaded shares aggressively mainly due to fading confidence over the government's ability to pass key reforms and fears over the interest rate hike in the US.

With just three trading days left this year, the BSE S&P Sensex has fallen 1,660 points, or over 6%, in 2015 following a nearly 30% gain last year when investors' optimism on the Narendra Modi government was at its peak.

However, 2015 saw the Sensex reaching an all-time high of 30,024 points in March, driven by positive expectations over the NDA-led government's first full year Budget and rate cut announced by the Reserve Bank of India (RBI).

But after March, stock markets faced the wrath of foreign investors as the government raised their wariness by asking them to pay retrospective tax on gains made in previous years. In April, the government had asked foreign institutional investors (FIIs) to pay a Minimum Alternate Tax (MAT) on long-term capital gains from equities earned during previous years.

Finance Minister Arun Jaitley had said FIIs were liable to pay MAT to the tune of Rs 40,000 crore. Later, the government allayed the fears of FIIs saying the notices were sent to a few overseas investors.

Sensex also witnessed its worst one-day losses on 24 August after Chinese authorities surprised global markets with a steep devaluation of the country's currency. The equity index dropped 1,624.51 points, or 5.94%, that day.

Since September, both the benchmark indices remained under, amid heightening concerns over monetary tightening in the US and the Modi government's failure to pass key reform bills — the Land Acquisition Bill and the Goods and Services Tax (GST) Bill. But, in the end, when the US Federal Reserve actually raised policy rates in December, markets did not witness any volatility as the focus shifted to the future rate hike path.

However, the government's inability to pass the GST Bill in the Rajya Sabha in the past two Parliament sessions failed to lift sentiments. Markets were also rattled by the BJP-led alliance's defeat in the Bihar assembly elections, as it weighed on expectations of the government's reforms.

While poor monsoon rainfall fuelled investors' worries, falling crude oil prices offered some respite as it led to a sharp fall in inflation, which allowed the RBI to cut repo rate by 125 bps this year.

"Indian equity markets actually benefitted from low global commodity prices, and the volatility was less in comparison to the other emerging markets, and 2016 promises to be an exciting year," Business Today quoted Alka Banerjee, Managing Director, Global Equity and Strategy Indices, S&P Dow Jones Indices, as saying.

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