Volatility continued as key benchmark indices regained strength after hitting fresh intraday lows in mid-morning trade. Gains in most Asian stocks supported domestic bourses. Data showing continuation of buying of Indian stocks by foreign funds on Tuesday, 7 August 2012, underpinned sentiment. Union Finance Minister P Chidambaram on Monday, 6 August 2012, said he intends to shortly unveil a path of fiscal consolidation. The market breadth was positive. The barometer index, BSE Sensex, was up 44.20 points or 0.25%, off close to 35 points from the day's high and up about 40 points from the day's low.
Index heavyweight and cigarette maker ITC edged higher. Another index heavyweight Reliance Industries (RIL) extended initial gains. Bharti Airtel tumbled on poor Q1 results. Realty stocks declined. Most auto stocks extended recent gains.
The market edged higher in early trade. It trimmed gains in morning trade. It regained strength after hitting fresh intraday low in mid-morning trade.
Most Asian stocks rose for a third day on Wednesday as speculation that central banks will take steps to spur growth and better-than-forecast U.S. corporate earnings boosted the outlook for the economy.
Foreign institutional investors (FIIs) bought shares worth Rs 815.94 crore on Tuesday, 7 August 2012, as per provisional figures on the stock exchanges. FIIs bought shares worth Rs 564.70 crore from secondary equity markets on Monday, 6 August 2012, as per data from Securities & Exchange Board of India (Sebi). FIIs bought shares worth a net Rs 1364.50 crore from the secondary equity markets in four trading sessions from 1 to 6 August 2012. The inflow this month comes on the top of substantial purchases last month. FIIs bought shares worth net Rs 9691 crore from the secondary equity markets in July 2012.
At 11:20 IST, the BSE Sensex was up 44.20 points or 0.25% to 17,645.98. The index rose 77.57 points at the day's high of 17,679.37 in early trade, its highest level since 22 March 2012. The index rose 3.84 points at the day's low of 17,605.62 in morning trade.
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The S&P CNX Nifty was up 16.15 points or 0.3% to 5,352.85. The Nifty hit high of 5,361.40 in intraday trade, its highest level since 3 April 2012. The Nifty hit a low of 5,338.70 in intraday trade.
The market breadth, indicating the overall health of the market, was positive. On BSE, 1248 shares rose and 1025 shares fell. A total of 107 shares were unchanged.
From the 30-share Sensex pack, 20 stocks rose and rest of them fell. Jindal Steel & Power, Hindalco Industries and Sterlite Industries gained by between 2.11% to 2.46%. GAIL (India), TCS and ONGC shed by between 0.93% to 2.23%.
Index heavyweight and cigarette maker ITC rose 0.08% to Rs 261.25. The stock had hit a record high of Rs 262.05 in intraday trade on 2 August 2012. The company reported 20.21% growth in net profit to Rs 1602.14 crore on 15.34% growth in net sales to Rs 6652.21 crore in Q1 June 2012 over Q1 June 2011. Despite series of tax hikes, ITC's performance in cigarettes business remains robust and displays pricing power for the company.
Index heavyweight Reliance Industries (RIL) rose 0.82% after taking a breather on Tuesday. The stock had jumped 5.71% on Monday following reports that benchmark Singapore gross refining margins (GRM) have strengthened from the 2nd week of July 2012 to average at $8 a barrel from $6.7 a barrel in the quarter ended June 2012. Oil Minister Jaipal Reddy on Tuesday, 7 August 2012, said the government may approve RIL's new investment plan for the D6 block in Krishna-Godavari basin as the country continues to face an acute shortage of natural gas. He said the D6 block is producing only 29 million standard cubic meters a day of gas compared with an expected 80 mmscmd in the current financial year through 31 March 2013.
RIL and its partners are struggling to raise production from their D6 block, India's largest gas find so far. The field produced 104.40 billion cubic feet of gas during April-June 2012, down 33% from a year earlier due to reservoir complexity and natural decline. While RIL holds a 60% stake in the block, UK's BP PLC owns 30% and Canada's Niko Resources the remaining 10%.
Most auto stocks extended recent gains. Tata Motors gained 0.9%, with the stock extending recent strong gains. Tata Motors' total sales (including exports) of Tata commercial and passenger vehicles rose 15% to 73,491 vehicles in July 2012 over July 2011. The company's domestic sales of Tata commercial and passenger vehicles rose 18% to 68,627 units in July 2012 over July 2011. Cumulative sales (including exports) during April-July 2012 rose 2% to 2.62 lakh units from the year ago period.
Ashok Leyland was flat. The company's total sales jumped 25% to 9,785 units in July 2012 over July 2011. The company's light commercial vehicle (LCV) Dost which was launches last year clocked sales of 2,803 units in July 2012. Ashok Leyland's commercial vehicles sales, excluding LCV Dost, declined 11% to 6,982 units in July 2012 over July 2011.
Mahindra & Mahindra (M&M) rose 1.24% ahead of its Q1 results today, 8 August 2012. The company on 1 August 2012 announced 19% growth in total auto sales to 47,059 units in July 2012 over July 2011. Domestic auto sales jumped 15% to 42,799 units in July 2012 over July 2011. The Passenger Vehicles segment (which includes the UVs and Verito) has registered a growth of 27%, having sold 22,011 units in July 2012, as against 17,312 units during July 2011, M&M said in a statement.
The company on 1 August 2012 said its total tractors sales declined 1.02% to 16,521 units in July 2012 over July 2011. Domestic tractor sales declined 1.29% to 15,495 units in July 2012 over July 2011. Exports rose 3.32% 1,026 units in July 2012 over July 2011.
M&M and Telephonics Corporation (Telephonics) on 1 August 2012 announced the formation of a joint venture (JV). The JV to be called Mahindra Telephonics Integrated Systems will provide the Indian Ministry of Defence and the Indian civil sector with radar and surveillance systems, identification friend or foe (IFF) devices and communication systems. In addition, the JV intends to provide systems for air traffic management services, homeland security and other emerging surveillance requirements.
But, car major Maruti Suzuki declined 0.25%. Maruti on 1 August 2012 said it total sales rose 9.2% to 82,234 units in July 2012 over July 2011. Domestic sales rose 6.8% to 71,024 units and exports jumped 27.4% to 11,210 units in July 2012 over July 2011.
Maruti on 31 July 2012 said the management remains concerned about the safety and security of its employees and hence it is not in a position to take a decision on restarting operations as the Manesar plant in Haryana. The management will announce its decision to this effect only when it is assured of employee safety, Maruti said in a statement. The labour violence which rocked the plant on 18 July 2012 led to nearly 100 injured and one fatality. Maruti on 21 July 2012 declared lock-out at unit.
Two wheeler makers gained. Bajaj Auto rose 0.43%. The company on 2 August 2012 said its total sales declined 5% to 3.44 lakh units in July 2012 over July 2011. Motorcycle sales declined 3% to 3.08 lakh units in July 2012 over July 2011. The company sold 5,600 units of Pulsar 200 NS and 14,400 units of Discover 125 ST in July 2012. Bajaj Auto's commercial vehicles sales dropped 23% to 35,292 units in July 2012 over July 2011.
Bajaj Auto's exports declined 13% to 1.25 lakh units in July 2012 over July 2011. The company said there has been partial recovery in exports to Sri Lanka and Egypt and it expects further recovery in exports this month.
The company at the time of Q1 June 2012 results last month said that it has undertaken proactive measures like rationalizing the end-user cost of vehicles in Sri Lanka and with these measures the company expects normalcy in exports to resume by end of Q2 September 2012. Bajaj Auto lost exports of about 20,000 units in Sri Lanka in Q1 June 2012 due to introduction of import barriers by that country. The company also lost export of about 25,000 commercial vehicles in Q1 June 2012 due to restrictions by importing countries and due to political unrest in Egypt, Bajaj Auto said in a statement.
Hero MotoCorp rose 0.23%.
Realty major DLF fell 0.87% on profit booking after gaining 2.96% on Tuesday triggered after company's consolidated net profit rose 38.3% to Rs 292.79 crore on 15% decline in revenue to Rs 2329 crore in Q1 June 2012 over Q4 March 2012. The company at the time of announcing its Q1 results said it remains committed to its objective of consolidating its operations by focusing on the core and divesting the non-core. Through the outsourcing of construction, the company remains focused on faster execution of the projects and shall follow a product mix that envisages high visibility projects which would result in better value addition. DLF said it remains fully committed to achieve the divestment target of its non-core assets. The company realised Rs 369 crore from divestment of non-core assets in Q1 June 2012. DLF said it booked 1.34 million square feet (msf) sales in the quarter versus 2.3 msf in the corresponding quarter. Leasing volumes were reported at 0.29 msf during the quarter. The company had 48 msf of projects area under construction at the end of the quarter.
Among other realty stocks, HDIL, Unitech, and Sobha Developers fell by between 0.33% to 1.61%.
Tulip Telecom rose 2.53% after the company tied up Rs 400 crore through debt and internal accruals for redemption of outstanding foreign currency convertible bonds. Tulip Telecom announced that it tied up Rs 400 crore through rupee denominated debt and internal accruals for redemption of outstanding Existing foreign currency convertible bonds (FCCBs) (due for repayment on 26 August 2012).
Punj Lloyd fell 2.89% after the company reported consolidated net loss of Rs 13.37 crore in Q1 June 2012, higher than net loss of Rs 12.25 crore in Q1 June 2011. On a consolidated basis, Punj Lloyd's net sales rose 20.4% to Rs 2706.82 crore in Q1 June 2012 over Q1 June 2011. As on 7 August 2012, Punj Lloyd Group has an order backlog of Rs 26206 crore. This is the total value of unexecuted orders as on 30 June 2012, and new orders received after that day, Punj said in a statement.
Union Finance Minister P. Chidambaram on Monday, 6 August 2012, said that a path of financial consolidation will be unveiled shortly. He made it clear that the burden of fiscal correction must be shared fairly and equitably by different classes of stakeholders. The Finance Minister said that the poor must be protected and others must bear their fair share of the burden. Obviously, adjustments must be made both on the revenue side and on the expenditure side, he said. The Finance Minister said the government has asked Dr. Vijay Kelkar, Dr. Indira Rajaraman and Dr. Sanjiv Misra to assist the government in formulating the path of fiscal consolidation and said he expects the work will be completed in a few weeks.
Government finances are under pressure as expenses exceed revenue, mainly because of subsidies doled out for cheaper supplies of food, fuel and fertilizer. The subsidy expense was 2.4% of GDP in the last fiscal year. The government aims to bring it down to 2% of GDP this year, and reduce fiscal deficit to 5.1% from 5.75%. The oil ministry has already sought Rs 32800 crore in cash subsidy from the finance ministry to compensate retailers who sell diesel and cooking fuel at government-set discounted rates.
Mr. Chidambaram said that price stability is an important objective and that the government will work with the Reserve Bank of India to ensure that inflation is moderated in the medium term. Sometimes it is necessary to take carefully calibrated risks in order to stimulate investment and to ease the burden on consumers, Mr. Chidambaram said adding that the government will take appropriate steps in this regard.
The key to restart the growth engine is to attract more investment, both from domestic investors and foreign investors, Mr. Chidambaram said. "Since investment is an act of faith, we must remove any apprehension or distrust in the minds of investors. We will improve communication of our policies to potential investors", Mr. Chidambaram said. The aim will be to remove the perceived difficulties in doing business in India, including fears about undue regulatory burden or regulatory over-reach. Public sector enterprises which have large cash balances will be encouraged to restart investment. Proposals pending with the Foreign Investment Promotion Board will be processed and decisions taken expeditiously, Mr. Chidambaram said.
The government intends to work with manufacturers and exporters and implement appropriate short term and medium term measures to reverse the trend of sluggish growth in manufacturing and exports which are two key drivers of the economy, Mr. Chidambaram said. The government intends to find practical solutions to the problems that impede higher production or output in the coal, mining, petroleum, power, road transport, railway and port sectors. The Cabinet Committee on Economic Affairs will examine the issues affecting each sector and take decisions that will lead to quantitative growth in these sectors, Mr. Chidambaram said.
The government aims to raise the level of investment to 38% of the GDP that was achieved in 2007-08, Mr. Chidambaram said. The Finance Minister said that Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and other schemes will be converged to meet the challenge of drought.
The government intends to fine tune policies and procedures that will facilitate capital flows into India, Mr. Chidambaram said. Clarity in tax laws, a stable tax regime, a non-adversarial tax administration, a fair mechanism for dispute resolution, and an independent judiciary will provide great assurance to investors, Mr. Chidambaram said. The government has recently appointed two committees -- one to examine anti-avoidance tax proposal viz. the General Anti-Avoidance Rules (GAAR) legal provisions and guidelines and the other to review taxation of the IT sector and Development Centres. Mr. Chidambaram said he has also directed a review of tax provisions that have a retrospective effect in order to find fair and reasonable solutions to pending as well as likely disputes between the Tax Departments and the Assessees concerned.
In the next few weeks, the government will announce a number of decisions to attract more people to invest in mutual funds, insurance policies and other well-designed instruments, Mr. Chidambaram said.
Prime Minister Dr. Manmohan Singh last month decided to refer the issue of implications on FIIs and portfolio investors of the amendment made to the Income Tax Act relating to the taxation of non-resident transfer of assets where the underlying asset is in India to the Expert Committee on anti-avoidance tax proposal viz. the General Anti-Avoidance Rules (GAAR). "It is necessary to have clarity on the tax liability of portfolio investors and foreign institutional investors as a result of this amendment particularly when the investment is made through a registered stock exchange in accordance with SEBI guidelines and purely in the form of portfolio investment", the Prime Minister's Office (PMO) said in a statement issued on 30 July 2012. Any clarification needs to be harmonised with the GAAR guidelines and will have to address any residual concerns outside of GAAR, the PMO said.
Dr. Singh last month constituted an expert committee on anti-avoidance tax proposal viz. the General Anti-Avoidance Rules (GAAR) to undertake stakeholder consultations and finalise the guidelines for GAAR by 30 September 2012.
The government will unveil industrial production data for June 2012 on Thursday, 9 August 2012. Industrial production grew 2.4% in May 2012. Industrial production declined 0.9% in April 2012.
The India Meteorological Department (IMD) last week said the El Nino weather pattern is likely to reduce rains again in the second half of the June to September monsoon season. The IMD said rains over the entire June to September season are now expected to be less than 90% of long-term average. This is lower than IMD's previous forecast of 96%. Monsoon rains are considered deficient -- a drought in layman's terms -- if they fall below 90% of a 50-year average. Between June 1 and August 1, rainfall was about 19% below normal. The IMD expects normal rains in August -- a critical month for summer crops. It expects rainfall to be 5-6% below average in September due to the possibility of El Nino. The weather office said rainfall during August-September is expected to be 91% of the long-term average.
The rainfall distribution has been erratic this year as major crop- growing regions such as Maharashtra, Karnataka, Gujarat, Punjab and Haryana have received scanty showers threatening the prospects of summer crops. A panel of Indian ministers last week approved steps to contain the impact of a near-drought situation. The steps include providing a diesel-price subsidy to farmers, increasing the subsidy on seed supplies and removal of the import tax on oilmeals.
Insufficient rainfall could lead to higher food inflation. There will be an impact on foodgrain output, but it is too early to give any estimate, Farm Minister Sharad Pawar last week. Mr. Pawar said the government will raise subsidies for the supply of various seeds for alternate crops in affected areas.
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. A bad monsoon will have a larger impact on inflation than on growth as agriculture output constitutes a relatively small portion of India's economy, Indian central bank officials said on 1 August 2012, in a conference call following the release of its monetary policy review on 31 July 2012. The Reserve Bank of India (RBI) kept its key policy rate viz. the repo rate unchanged at 8% after first quarter review of Monetary Policy 2012-13 in an effort to keep a lid on inflation and inflation expectations. The RBI, however, lowered banks' statutory liquidity ratio, or the part of deposits that must be invested mainly in government bonds, by a percentage point to 23% to ensure that liquidity pressures do not constrain the flow of credit to productive sectors of the economy.
Principal adviser to the Planning Commission Pronab Sen last month said slowing investment due to weak confidence in the economy is hurting growth. Mr. Sen said Indian companies aren't facing any shortage of funds. Many of them are sitting on piles of cash and aren't even repatriating overseas borrowings, he added.
The government should take steps to meet the fiscal deficit target set out in the budget and that would improve sentiment and revive investments, Mr. Sen said. He said the government should scale back its spending and slash subsidies on fuels, food and fertilizers to help check its budget deficit.
Slowing growth in investment remains a cause for concern for India. Investment makes up 35% of India's economic activity.
A comprehensive Land Acquisition, Rehabilitation and Resettlement Bill is among the 31 Bills the government has lined up for consideration and passing during the monsoon session of Parliament, which begins today, 8 August 2012. Among the other bills include those on Forward Contracts, Banking laws, whistle-blowers and women's reservation as also the Prevention of Bribery of Foreign Public Officials bill. The monsoon session of Parliament will conclude on September 7.
Hamid Ansari has been re-elected as India's vice-president. A nominee of the ruling Congress-led alliance, the 75-year-old Ansari defeated opposition-backed rival Jaswant Singh by 252 votes for the largely ceremonial post. An electoral college of members of parliament elects the vice-president, who also acts as chairperson of the Rajya Sabha. Of the 736 votes cast, Ansari got 490 votes while Jaswant Singh got 238. Eight votes were declared invalid.
An India-Mauritius joint panel will discuss a series of proposals to review the double taxation avoidance treaty between the two nations on 22-24 August in Mauritius. India has been looking to negotiate the double taxation avoidance agreement with Mauritius for the past few years to check so-called round tripping and other potential abuses. Round tripping entails moving money out of one country to another, and getting it back under the garb of foreign capital. Capital gains tax is close to zero in Mauritius and almost 40% of investments into India come through the island nation. Under the bilateral agreement, capital gains from sale of securities can be taxed only in Mauritius. The India-Mauritius joint working group will also discuss the inclusion of a so-called limitation of benefit clause, similar to the Singapore tax treaty with India, to ensure only genuine Mauritius-based companies are benefited. India's tax agreement with Singapore says that only those companies that spend a minimum of $200,000 (about Rs 1 crore) in Singapore can avail the benefits of the treaty.
Sanctity of tax residency certificates issued by a country to companies operating in its jurisdiction to enable the firms to claim tax benefits under various treaties is another issue between India and Mauritius. While India in this year's national budget said the certificates are a necessary but not sufficient condition, Mauritius wants those issued by it honoured. Draft guidelines issued by Indian government for implementing the controversial anti-avoidance tax proposal viz. the GAAR state that GAAR provisions should be invoked on a foreign institutional investor (FII), if it chooses to take a treaty benefit, but would not in any case be invoked in the case of the non-resident investors of the FII. The draft guidelines suggested that the onus of proving wrongdoing should be on the authorities.
Investors' focus is currently on Q1 June 2012 earnings. Tata Motors and Ranbaxy Laboratories unveil quarterly results tomorrow, 9 August 2012. State Bank of India, Sun Pharmaceuticals Industries, Siemens and BPCL announce quarterly results on Friday, 10 August 2012. ONGC announces Q1 results on Saturday, 11 August 2012. Tata Steel and Coal India unveil Q1 results on 13 August 2012. Hindalco Industries, Reliance Infrastructure and IDFC will unveil Q1 results on 14 August 2012.
Most Asian stock markets rose to a three-month high on Wednesday (August 8, 2012), supported by expectations that policymakers will soon decisively address the euro zone fiscal crisis and declining global growth. Key benchmark indices in Indonesia, Taiwan, Japan and South Korea rose by between 0.15% to 0.87%. Key benchmark indices in China, Hong Kong and Singapore fell by between 0.09% to 0.44%.
China is due to release a slew of July data including inflation, industrial production, retail sales and inflation tomorrow, 9 August 2012, which investors will comb through to gauge the health of the world's second-largest economy.
The Bank of Korea is set to consider cutting rates for a second month tomorrow, while the Bank of Japan starts a two-day policy meeting today.
German factory orders declined much more than consensus forecast in June, as sales to euro area countries slumped amid recession-like conditions across most of the region. German factory orders fell at a seasonally-adjusted rate of 1.7% in June, as domestic orders dropped 2.1% and orders from within the eurozone fell 4.9%, the Economics Ministry reported Tuesday.
Germany's Federal Constitutional Court will announce a decision on lawsuits challenging the country's participation in the permanent euro-zone rescue fund, the European Stability Mechanism, and the fiscal pact on 12 September 2012. The court held a public hearing earlier this month to examine complaints that participation in the fund and the fiscal pact violated German law by taking some authority over the national budget away from parliament.
Italy's economy contracted for a fourth straight quarter in the three months ended June, as a protracted eurozone debt crisis continued to take its toll on bigger European nations. Italy's economy contracted by 0.7% in the second quarter of 2012, Rome-based national statistics institute Istat said in a preliminary report on Tuesday.
Ratings agency Standard & Poor's on Tuesday revised Greece's outlook to negative, saying the debt-ridden euro zone country could need more help from its international creditors. "Following delays in implementing budgetary consolidation measures and a worsening Greek economy, we believe Greece is likely to require additional financing for 2012 under the EU/International Monetary Fund (IMF) program," S&P said in a statement. "We are revising the outlook on the long-term ratings on Greece to negative, reflecting the possibility of a downgrade if Greece fails to secure the next disbursement of the EU/IMF Program," S&P said.
Trading in US index futures indicated that the Dow could fall 13 points at the opening bell on Wednesday, 8 August 2012. US Stocks extended gains on Tuesday, on expectations that the European Central Bank will soon take action to combat the euro zone's debt crisis.
Election for a new president in the United States, the world's biggest economy, is scheduled on 6 November 2012.
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