Sensex spurts on GAAR relief...But anxiety prevails

The main Indian stock indices ended with handsome gains on Tuesday, almost managing to reverse the previous day’s losses. The sentiment in the Indian market perked up in the afternoon trades after a Finance Ministry official was quoted as saying that the Government will not target Participatory Notes (PNs) across the board under the new GAAR regulations. Monday’s sharp fall had come amid fears that FIIs from Mauritius and investments made through PNs will be taxed from April 1 when the proposed GAAR comes into effect. PNs will be taxed under GAAR if they fail in one out of four tests, according to reports. The tests include Lack of Commercial Purpose test, Bonafide Purpose test, Misuse & Abuse test and Abnormality test. The Government is planning to introduce short-term capital gains tax on equity derivative products sold overseas, stoking concerns that FII inflows into the domestic assets will be adversely hit. The proposed new regulations would come through the introduction of the so-called General Anti-Avoidance Rule (GAAR) next month, according to reports. Finance Minister Pranab Mukherjee in his budget presented on March 16 for FY13 proposed to introduce GAAR in order to counter aggressive tax avoidance schemes. He said that it would be ensured it was used in appropriate cases. FIIs sold Rs. 1.35bn worth of Indian shares on Monday, their first net selling in 11 sessions, according to provisional NSE data. Overseas portfolio investors, routing their investments via countries like Mauritius, currently do not pay any tax on short-term capital gains. The BSE Sensex ended at 17,257, up 205 points or ~1.2% over the previous close. It had touched day’s low of 17,061 and a day’s high of 17,366. It opened at 17,209. The NSE Nifty settled at 5,243, up 59 points or 1.1% over the previous close. It earlier touched a day’s low of 5,184 and day’s high of 5,278. The INDIA VIX slumped by 6.3% to close at 25.05. It hit days high of 27.13. It hit a low of 24.32. Among the BSE sectoral indices, the Consumer Durables index was the top gainer, up 2%, while the FMCG index gained 1.6%. The Realty index was up 1.6% and the Teck index ended higher by 1.2%. The BSE Mid-Cap index ended almost unchanged while the BSE Small-Cap index ended marginally lower by 0.2%. Out of the 50 stocks in the Sensex index, notable gainers were DLF, Cipla, Sterlite, HUL, Bharti, HDFC, L&T and Tata Motors. While, Maruti, BHEL, Coal India, NTPC, Sun Pharma and Bajaj Auto were major gainers. Markets will also keep an eye on the Government's H1 FY13 borrowing calendar to be released today. The market is expecting net borrowing to be around Rs. 3.7 lakh crore. Liquidity remains fairly tight with banks' borrowing from the RBI under the LAF touching new high yesterday. So, any indication from the RBI on OMOs could sooth the bond market. Equities globally rallied after comments from Federal Reserve Chairman Ben Bernanke indicated that interest rates in the US will stay exceptionally low for a long time to support growth and boost jobs. Encouraging reports on German business confidence and South Korean consumer confidence coupled with Germany's readiness to boost the euro area rescue funds have also aided the sentiment across Asia today. In Asia, the Shanghai Composite index in China closed in the negative zone while the Nikkei in Japan was the top gainer, the Nikkei index gained 2.3%. The Hang Seng in Hong Kong was up 1.8%. The Kospi in Seoul and the Straits Times in Singapore were up ~1% each. European stock indices were trading higher, tracking overnight gains on Wall Street and in Asia after Federal Reserve Chairman Ben Bernanke indicated that US the central bank will continue its easy money policy. The FTSE index in UK was up 0.3%, DAX index in Germany was up 0.6% and CAC index in France was up 0.4%.