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Friday, September 07, 2012

Market may surge in early trade


The market may surge in early trade on rally in Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 49 points at the opening bell. Asian shares jumped Friday after the European Central Bank (ECB) unveiled an expansive bond-buying plan to stabilize markets, and as investors looked ahead to a U.S. jobs report with optimism. Closer home, NMDC said after market hours on Thursday that pursuant to approval of the board, the company has incorporated a Joint Venture Company between NMDC and Jharkhand State Mineral Development Corporation Limited (JSMDC) by the name of Jharkhand National Mineral Development Corporation Limited (JNMDC) on August 06, 2012. NMDC is holding 60% of equity in JV Company, namely JNMDC. Bharat Electronics turns ex-dividend today, 7 September 2012, for final dividend of Rs 10.80 per share for the year ending 31 March 2012 (FY 2012). Key benchmark indices edged higher in choppy trade on Thursday, 6 September 2012 as world stocks rose on hopes that the European Central Bank (ECB) will announce a bond-market intervention at its policy meeting later in the global day. The BSE Sensex advanced 32.93 points or 0.19% to settle at 17,346.27 on that day, its highest closing level since 4 September 2012. Foreign institutional investors (FIIs) bought shares worth net Rs 166.58 crore on Thursday, 6 September 2012, as per the provisional data from the stock exchanges. FIIs sold shares worth net Rs 158.90 crore into the secondary equity markets on Wednesday, 5 September 2012, as per data from Securities & Exchange Board of India (Sebi). FIIs had bought shares worth net Rs 301.60 crore from the secondary equity markets on Tuesday, 4 September 2012. Earlier, FIIs had sold shares worth Rs 228.80 crore into the secondary equity markets in two sessions on 31 August 2012 and 3 September 2012. The stock market remains open for short duration of 1-1/2 hours on Saturday, 8 September 2012, as the Bombay Stock Exchange is testing its disaster recovery site. Trading will start at 11:15 IST and end at 12:45 IST. Trades done on 8 September 2012 will be settled on Tuesday 11 September 2012 as a separate settlement, the National Stock Exchange (NSE) said in a circular issued on Friday 24 August 2012. Advance tax data for the 2nd installment due on 15 September 2012 could provide cues on the likely corporate earnings for Q2 September 2012. Finance Minister P. Chidambaram Wednesday, 5 September 2012, said that India is making consistent efforts to check the abuse of a double-taxation-avoidance pact it has with Mauritius. "An investor routing his investments through Mauritius into India does not pay capital-gains tax either in India or in Mauritius. Mauritius thus became an attractive route for investments by third-country residents into India through treaty abuse," Mr. Chidambaram said in a written reply in Lok Sabha. Efforts are on to find "mutually acceptable solutions for addressing India's concerns," he added. India has in the past said it is considering a review of the treaty in an effort to boost tax revenue. An India-Mauritius joint working panel was set up in 2006 to put in place adequate safeguards for preventing the misuse of the double-taxation-avoidance agreement between the two countries. India, in the past, has said that Mauritius was unwilling to cooperate on this issue. Mauritius says it has taken India's concerns seriously. Traditionally, Mauritius has accounted for nearly 40% of India's foreign investment. Under the avoidance of double taxation treaty, companies that invest through Mauritius do not have to pay tax in India but only have to pay tax in the island. But capital gains tax is close to zero in Mauritius, making it a popular investment hub. India wants to renegotiate the double taxation treaty with Mauritius to check round-tripping, in which money is moved out of one country to another and brought back under the garb of foreign capital, taking advantage of tax breaks. Meanwhile, a committed appointed by the government to review the controversial general anti-avoidance rules (GAAR) early this month suggested deferring the implementation of anti-avoidance rules by three years. "Where Circular No. 789 of 2000 with respect to Mauritius is applicable, GAAR provisions shall not apply to examine the genuineness of the residency of an entity set up in Mauritius," the committee said. The committee has also recommended that the government should abolish the tax on gains arising from transfer of listed securities, whether in the nature of capital gains or business income, to both residents as well as non-residents. The panel has said the government might consider increasing the rate of Securities Transaction Tax (STT) appropriately to make the proposal tax neutral. At present, short-term capital gains on equities are taxable at the rate of 15%. Holding period of less than one year is considered as short term. There is no long term capital gains tax on sale of shares. Business income is taxed at 30%. Distinguishing capital gains and business income depends on several factors, and disagreements have resulted in numerous litigation cases between the Revenue Department and taxpayers, the committee said in its report. Indian private sector services business expanded at the fastest pace in six months in August, driven by the strongest growth in new business since February and increasing optimism about the future, a survey showed on Wednesday, 5 September 2012. The HSBC Purchasing Managers' Index for services business, based on a survey of about 400 private-sector companies, rose to 55 in August from 54.2 in July, marking nearly a year of uninterrupted monthly growth. Services, including government services like railway transport, make up nearly 60% of India's economic output. The services data come close on the heels of the HSBC manufacturing PMI Monday, which showed manufacturing activity grew at its slowest pace this year in August due to a second consecutive monthly fall in export orders. HSBC India Composite Output Index was at 54.3 in August, little changed from July's 54.4. India's annual exports fell 14.8% to $22.4 billion in July, while imports fell 7.6% to $37.9 billion, leaving a trade deficit of $15.5 billion, the trade ministry said in a statement on Monday. India's gross domestic product (GDP) rose 5.5% in Q1 June 2012, data released by the government last week showed. The services sector grew 6.9%, industry grew 3.6% and agriculture sector grew 2.9%. Manufacturing output rose 0.2% while mining sector grew 0.1% in Q1 June 2012. India's economy has slowed sharply over the past year due to weak industrial activity as high interest rates crimped demand and made it hard for corporates to finance expansion plans. Uproar over coal blocks allocation issue paralysed proceedings of Parliament for the 12th consecutive day on Thursday, drowning most of the Monsoon Session which ends today, 7 September 2012. As soon as Parliament met for the day, BJP members were on their feet in both Houses and raised slogans demanding Prime Minister Dr. Manmohan Singh's resignation over the coal block allocation issue. Lok Sabha and Rajya Sabha were adjourned for the day following the ruckus in the Parliament. The Central Bureau of Investigation (CBI) early this week registered five separate cases against certain private companies, their directors and unknown public servants in connection with the allegations related to getting coal blocks allocated on the basis of misrepresentations and false claims in the applications, presentations and connivance/lack of due diligence on part of public servants. Promoters of some of these companies have allegedly sold their stakes in an irregular manner after allocation of coal blocks, CBI said in a statement issued on 4 September 2012. A preliminary enquiry to examine the irregularities, if any, in the allocation of coal blocks during the period 2006-09 was registered on a reference from CVC, in June this year. The Comptroller and Auditor General of India last month issued a report that said the government had lost as much as Rs 1.86 lakh crore in potential revenue because it awarded 57 coal blocks to private companies between 2004 and 2011 without competitive bidding. The report has created a furore, with opposition political parties stalling proceedings of the Parliament and demanding the resignation of Prime Minister Dr. Manmohan Singh. Dr. Singh last week denied allegations of impropriety in coal-block allocations and termed "clearly disputable" the Comptroller and Auditor General of India's (CAG) observations that the process followed to allot them deprived the government billions of dollars in revenue. In its report on the allocation of coal blocks, CAG said the government lost a maximum of Rs 1.86 lakh crore by allocating licenses for 57 coal-mining blocks between 2004 and 2011 to state-owned and private companies without a transparent auction. Dr. Singh said the CAG's calculation of about Rs 1.86 lakh crore of financial gain to private parties can be questioned on a number of technical points. Dr. Singh also said since that the coal blocks were allocated to private companies only for captive purposes for specified end-uses, it will not be appropriate to link the allocated blocks to the price of coal set by CIL. Dr. Singh said it is true that the private parties that were allocated captive coal blocks could not achieve their production targets. This could be partly due to cumbersome processes involved in getting statutory clearances, an issue which the government is addressing separately, Dr. Singh said. Dr. Singh said that the government has initiated action to cancel the allocations of allottees who did not take adequate follow-up action to commence production. Moreover, CBI is separately investigating the allegations of malpractices, on the basis of which due action will be taken against wrongdoers, if any, Dr. Singh said. Trade Minister Anand Sharma on 23 August 2012 said that a deadlock in parliament over allegations of irregularities over the allocation of coal blocks is delaying the government's move to push ahead with reforms to stimulate economic growth. The government has very limited time to take economic reform measures given that assembly elections in Gujarat and Himachal Pradesh (HP) are scheduled in December this year. It will difficult for the government to enact controversial measures close to the assembly polls. After elections in Gujarat and HP, assembly elections are planned in a total of 10 states during the period from March 2013 to January 2014. The next general election is due in May 2014. Reserve Bank of India (RBI) governor D Subbarao last week said India's inflation is still a challenge, but its growth story remains intact. "India has no space for a policy response to a crisis, we are more vulnerable," Subbarao said at an event in Cornell University in the United States. The country, he said, had room to react through monetary policy to the 2008-09 crisis, but this time around a litany of challenges--including moderating growth, persistent and high inflation, stress on balance of payments and twin deficits in the country's current account and fiscal budget--have left the central bank little room to negotiate the global slowdown. He noted that despite the depreciation of the Indian rupee by nearly 20% since last August, there has been no improvement in the country's current account deficit. He blamed the government's policy of fuel subsidies for protecting consumers from the effect of global commodity price rises. He noted despite higher prices, imports of oil into the country continue to increase due to rise in consumption, as consumers are protected from these price hikes. He added investors still should be confident of India's growth story and look at the positives including its attractive demographics, its growing middle-class and high savings rate. But he acknowledged there was a lot left to be done by various stakeholders to make the growth story happen. "India needs to grow at 10% for the next 15 years just to catch up," he said. RBI last cut rates by 0.5 percentage point to 8% from 8.5% in April, its first move to reverse a 20-month rate-tightening cycle. It then held rates steady in June and at its last rate-setting meeting on July 31, saying that a cut would exacerbate inflationary pressures. The RBI is scheduled to undertake a mid-quarter review of the monetary policy on 17 September 2012. A late pick-up in monsoon rains in August month will lead to a recovery in yields in summer-sown crops including rice and oilseeds, lessening the severity of a drought in several parts of the country following scanty rains for much of this year's June-September monsoon. Prolonged rains would also improve the prospects for winter-sown crops due to better soil moisture. An El Nino weather event, which usually disrupts rainfall, is expected to emerge at the tail-end of the monsoon in September. Farm Secretary Ashish Bahuguna late last month said the El Nino may not impact rainfall in September due to build-up of another weather phenomenon called the Indian Ocean Dipole. Rice sowing picked up in August 2012 following revival of monsoon rains. According to data released by the Ministry of Agriculture, rice was sown in a total area of 347.10 lakh hectare (lh) till 31 August 2012, compared with 329.19 lh as on 24 August 2012. Rice sowing has exceeded the normal area of 331.85 lh for the summer sown crop by this time of the year. Cumulative sowing of oilseeds totaled 167.15 lh till 31 August 2012, compared with 164.29 lh as on 24 August 2012. Sowing of oilseeds remains lower than the normal area of 168.36 lh by this time of the year. Sowing of cotton totaled 112.83 lh till 31 August 2012, compared with 111.53 until 24 August 2012. The normal cotton sowing area of 106.91 lh for the cotton crop by this time of the year has already been surpassed. Cumulative sowing of coarse cereals totaled 167.87 lh till 31 August 2012, compared with 165.34 lh until 24 August 2012. Sowing of coarse cereals remains lower than 196.77 lh of normal area for the crop this time of the year. Sowing of pulses totaled 97.70 lh till 31 August 2012, compared with 88.30 lh until 24 August 2012. Sowing of pulses remains lower than 101.31 lh of normal area for this time of the year. Sowing of jute and mesta totaled 8.78 lh until 31 August 2012. Sowing of jute and mesta remains lower than 9 lh of normal area for this time of the year. The monsoon rains--which make up around 70% of India's annual rainfall--are crucial to the nation's agriculture sector and broader economy. More than 60% of the country's farmland is rain-fed. The timing, distribution and quantity of rainfall are all important for crops. The four-month southwest monsoon season that starts from June accounts for almost 70% of total annual moisture that Indian soil receives in a year. Finance Minister P. Chidambaram last week said that the proposed direct-tax code (DTC) may require a fresh look. The DTC, which aims to simplify tax procedures and improve compliance, was placed in parliament more than a year ago, and the government had earlier said it would implement it on April 1, 2013. The DTC has already undergone several changes. Mr. Chidambaram also said tax laws needed to be friendly but firm. Mr. Chidambaram said the government will be able to achieve its indirect tax revenue target of Rs 5.05 lakh crore for the current fiscal year that began April 1. Meeting the target is crucial for the government, which is struggling to control its fiscal deficit as heavy spending is straining its finances. Weakening tax revenue amid a sharp slowdown in the economy has put further stress on the government's financial health. Authorities will also begin a campaign to improve compliance to tax laws and widen the service tax net, Mr. Chidambaram said. Mr. Chidambaram last month said that the goods and services tax (GST) is a more effective and efficient substitute for a plethora of indirect taxes. The Finance Minister said that he is hopeful that the GST Bill would be passed before the end of the current financial year. The Finance Minister further said that though there are still some issues relating to GST and its Network (GSTN) to be resolved, yet they are not insurmountable. Union Minister of Commerce, Industry & Textiles Mr. Anand Sharma said 16 August 2012 that the government will come out with announcements pertaining to industrial environment that will address the subdued sentiment in the industry. Speaking after the fourth meeting of the Government-Industry Task Force Mr. Sharma said that there is a shared concern over the declining industrial production, particularly the manufacturing sector. Asian stocks rose on Friday after the European Central Bank (ECB) announced an unlimited bond-buying program to reduce the borrowing costs for the region's most indebted nations, boosting demand for riskier assets. Key benchmark indices in China, Hong Kong, Indonesia, Japan, South Korea, Singapore and Taiwan rose by between 0.67% to 2.32%. South Korea's debt rating was upgraded by Fitch Ratings to AA-, the same as Saudi Arabia and one level higher than Japan and China, 10 days after a similar move by Moody's Investors Service. The decision yesterday is the second in less than two weeks to cite South Korea's relatively strong position to cope with financial turbulence. South Korea's sovereign debt rating was raised by Moody's one step to Aa3 on Aug. 27, the same ranking as China and Japan, citing the country's “strong fiscal fundamentals” that allow room to cope with domestic risks and external shocks. Asian indices followed gains in European and U.S. stocks on Thursday after ECB President Mario Draghi yesterday said policy makers agreed to an unlimited bond-purchase program as they try to regain control of interest rates in the euro area. The program will target sovereign bonds with maturities of one to three years in its most ambitious plan yet to save the euro. The central bank also forecast a deeper economic contraction for 2012 than it did three months ago. Euro-area gross domestic product will drop 0.4% this year compared with an earlier 0.1% projection, it said. An upbeat private-sector jobs report also brightened sentiment in U.S. trading, one day before the release of the more closely watched monthly nonfarm payrolls report. The August US non-farm payroll report will be released today, 7 September 2012. The Federal Open Market Committee (FOMC) holds a two-day meeting on US interest rates on September 12-13. Election for a new president in the United States, the world's biggest economy, is scheduled on 6 November 2012. The Bank of England on Thursday kept its main interest rate at a record low 0.50% and decided to maintain the amount of special funds used to help stimulate Britain's recession-affected economy. "The Bank of England's Monetary Policy Committee voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5 per cent," it said in a brief statement issued following the BoE's latest monthly policy meeting. It added that its amount of Quantitative Easing (QE) stimulus would stay at £375 billion ($597 billion, 473 billion euros). The results of a detailed audit on the capitalisation needs of Spain's banks are expected in mid-September 2012. Germany's constitutional court will decide on 12 September 2012 whether the European Stability Mechanism (ESM) -- the proposed permanent successor to the euro-zone's current emergency lender viz. the European Financial Stability Mechanism -- violates German law and the Maastricht Treaty's 'no bailout' clause.