Key benchmark indices fell for the second day in a row after the Economic Survey 2013-14 presented by Finance Minister Arun Jaitely as precursor to tomorrow's Union Budget 2014-15 stated that the fiscal situation of the central government is worse than it appears. The barometer index, the S&P BSE Sensex, hit its lowest closing level in more than a week. The 50-unit CNX Nifty hit over 1-1/2-week closing low. The Sensex fell 137.30 points or 0.54%, off close to 239 points from the day's high and up about 80 points from the day's low. The market breadth indicating the overall health of the market was weak, with more than two losers for every gainer on BSE. The BSE Mid-Cap index fell 1.44%. The BSE Small-Cap index dropped 1.82%.
The Economic Survey 2013-14 said that the fiscal situation of the central government is worse than it appears, given the acceleration of inflation from 2006 to 2014. These inflation shocks effectively reduced the value of outstanding debt. This has harmed the interests of households but has reduced the debt burden of the government. These inflation shocks are unlikely to recur in the future, the survey said. According to the survey, a fresh thinking on a responsible fiscal policy framework is required. This should feed into a new FRBM Act. The modified act needs take into account business cycles and to have penalties that are strong enough so that it cannot be ignored, the survey said.
The survey has suggested fiscal consolidation through higher tax-GDP ratio, shifting subsidy programmes away from price subsidies to income support and a simple, predictable and a stable tax regime consisting of a single-rate goods and services tax (GST), fewer exemptions in direct taxes and a transformation of tax administration.
Hindalco Industries rose after US based aluminum major Alcoa Inc reported better-than-expected Q2 June 2014 earnings on Tuesday, 8 July 2014. Auto stocks declined. Tata Motors fell as the stock turned ex-dividend today, 9 July 2014, for dividend of Rs 2 per share for the year ending March 2014. Most bank shares edged lower. Real estate stocks declined.
The S&P BSE Sensex lost 137.30 points or 0.54% to settle at 25,444.81, its lowest closing level since 30 June 2014. The index slumped 217.34 points at the day's low of 25,364.77 in late trade. The index jumped 101.86 points at the day's high of 25,683.97 in early trade.
The CNX Nifty fell 38.20 points or 0.50% to settle at 7,585, its lowest closing level since 27 June 2014. The index hit a low of 7,551.65 in intraday trade. The index hit a high of 7,650.10 in intraday trade.
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The total turnover on BSE amounted to Rs 3827 crore, lower than Rs 4295.79 crore on Tuesday, 8 July 2014.
The market breadth indicating the overall health of the market was weak, with more than tow losers for every gainer on BSE. On BSE, 2,088 shares declined and 891 shares rose. A total of 88 shares were unchanged.
The BSE Mid-Cap index lost 132.85 points or 1.44% to settle at 9,077.36. The BSE Small-Cap index shed 183.86 points or 1.82% to settle at 9,944.15. Both these indices underperformed the Sensex.
The S&P BSE Auto index (down 2.43%), the S&P BSE Power index (down 1.69%), the S&P BSE Realty index (down 1.60%), the S&P BSE Capital Goods index (down 1.47%), the S&P BSE Healthcare index (down 1.44%), the S&P BSE IT index (down 1.31%) and the S&P BSE Teck index (down 1.22%), underperformed the Sensex.
The S&P BSE Oil & Gas index (up 0.84%), the S&P BSE FMCG index (up 0.81%) and the S&P BSE Consumer Durables index (up 0.45%), outperformed the Sensex.
Among the 30 Sensex shares, 19 fell and the remaining shares rose.
Auto stocks declined. Ashok Leyland (down 6.11%), Escorts (down 3.61%), Bajaj Auto (down 3.12%), Maruti Suzuki India (down 2.70%), Mahindra & Mahindra (down 2.54%), TVS Motor Company (down 2.13%), Eicher Motors (down 1.91%) and Hero MotoCorp (down 1.53%), edged lower.
Tata Motors fell 2.46% to Rs 456.90 as the stock turned ex-dividend today, 9 July 2014, for dividend of Rs 2 per share for the year ending March 2014.
Domestic passenger car sales increased 14.76% to 1.6 lakh units in June 2014 over June 2013. Motorcycle sales climbed 9.63% to 8.76 lakh units in June 2014 over June 2013, according to data released by the Society of Indian Automobile Manufacturers (Siam). The total two-wheeler sales rose 12.99% to 12.61 lakh units in June 2014 over June 2013. Sales of commercial vehicles were down 9.03% to 51,119 units in June 2014 over June 2013, Siam said. Vehicle sales across categories registered an increase of 12.15% to 15.78 lakh units in June 2014 over June 2013, it added.
Most bank shares edged lower. IDBI Bank (down 5.11%), Canara Bank (down 3.33%), Yes Bank (down 2.33%), Union Bank of India (down 1.61%), Federal Bank (down 1.22%), Kotak Mahindra Bank (down 0.96%), Bank of India (down 0.74%), Punjab National Bank (down 0.71%), ICICI Bank (down 0.66%) and Axis Bank (down 0.49%), edged lower.
IndusInd Bank fell 1.65% to Rs 543.40. The stock hit high of Rs 561.95 and low of Rs 539.90. The bank's net profit rose 25.74% to Rs 421.06 crore on 20.6% rise in total income to Rs 2873.68 crore in Q1 June 2014 over Q1 June 2013. The result was announced during market hours.
IndusInd Bank's ratio of gross non-performing assets (NPA) to gross advances stood at 1.11% as on 30 June 2014 as against 1.12% as on 31 March 2014 and 1.06% as on 30 June 2013. The ratio of net NPAs to net advances stood at 0.33% as on 30 June 2014 same as 0.33% as on 31 March 2014 and 0.21% as on 30 June 2013.
However, State Bank of India (up 0.19%) and HDFC Bank (up 0.02%), edged higher.
Bank of Baroda rose 0.37% to Rs 834.40. The bank announced after trading hours today, 9 July 2014, that it has issued fixed rate Senior Unsecured Notes amounting to $250 million on 8 July 2014 under Regulation-S by way of tapping/re-opening of its Senior Unsecured Notes of $750 million originally issued on 23 January 2014 and maturing on 23 July 2019. The notes are issued to meet the present/future long term funding requirement at the overseas centres of the bank.
Coal India fell 2.97% to Rs 365.65. The Economic Survey has suggested that restructuring of Coal India (CIL) needs to be pushed through swiftly with a view to raise coal output to feed fuel-starved power plants. The survey has also suggested allowing commercial coal mining by the private sector. A Bill to amend the Coal Mines (Nationalization) has been pending in the Rajya Sabha since 2000 and its passage needs to be expedited to permit private-sector entry into coal mining. In view of the deceleration in the coal prices in the global market, the government needs to have a stable long-term coal-mining policy to attract private-sector mining once the Act is amended, the survey notes. Since mining involves huge sunk cost, the government should allow only limited number of large domestic companies with proven track record to compete with CIL and also to bring in the latest technology and skills, according to the survey.
Hindalco Industries rose 1.21% to Rs 170.90 after US based aluminum major Alcoa Inc reported better-than-expected Q2 earnings. Alcoa on Tuesday, 8 July 2014, said its profits surged in the second quarter as the company's portfolio transformation continues accelerating. Excluding the impact of special items, net income was $216 million, or $0.18 per share in Q2 June 2014, more than double sequentially and nearly triple year-over-year.
Alcoa also increased its 2014 growth estimate for the North America commercial transportation market. Hindalco's unit Novelis Inc directly competes with Alcoa in the North American markets.
Claris Lifesciences gained 3.31% to Rs 168.60 after the company after market hours on Tuesday, 8 July 2014, said that the US Food and Drug Administration (USFDA) has found the company's finished dosage plant and the active pharmaceutical ingredient (API) plant as acceptable after an inspection.
Real estate stocks declined. Peninsula Land (down 5.79%), Anant Raj (down 4.62%), Parsvnath Developers (down 4.62%), D B Realty (down 4.48%), Prestige Estates (down 4.2%), HDIL (down 3.71%), Indiabulls Real Estate (down 2.23%), Phoenix Mills (down 1.63%), Oberoi Realty (down 1.54%), DLF (down 0.92%), Godrej Properties (down 0.81%) and Sunteck Realty (down 0.36%), edged lower.
With respect to the real estate sector, there are expectations that the government will take steps towards providing the long awaited industry status to the real estate sector and provide boost to low cost housing in the Budget. Industry status will help easier access to bank lending for real estate developers. There are also expectations that the tax benefit with respect to interest payment on housing loans will be raised. At present, a maximum deduction of Rs 1.5 lakh is allowed on taxable income towards interest on housing loan.
Indiabulls Real Estate clocked a highest turnover of Rs 101.33 crore on BSE. Aban Offshore (Rs 93.63 crore), MCX (Rs 88.72 crore), Indiabulls Housing Finance (Rs 82.03 crore) and State Bank of India (Rs 73.47 crore), were the other turnover toppers on BSE in that order.
Indiabulls Infrastructure and Power reported highest volumes of 9.57 crore shares on BSE. Indiabulls Real Estate (1.19 crore shares), Unitech (1.14 crore shares), Cals Refineries (79.57 lakh shares) and South Indian Bank (69.84 lakh shares), were the other volume toppers on BSE in that order.
A bout of volatility was witnessed as key benchmark indices regained positive terrain after slipping into the red for a brief period after opening higher. Volatility continued as key benchmark indices recouped almost entire intraday losses after a sudden slide in morning trade. The Sensex and the 50-unit CNX Nifty, both trimmed losses after hitting their lowest level in more than a week. Key benchmark indices moved in a narrow range ahead of the presentation of Economic Survey for 2013-14. Key benchmark indices once again slipped into the red in early afternoon trade after the Finance Minister tabled Economic Survey for 2013-14 in parliament. Key benchmark indices trimmed intraday losses in afternoon trade. Key benchmark indices once again slipped into the red after regaining positive zone in mid-afternoon trade. Key benchmark indices extended losses in late trade.
The Sensex has fallen 655.27 points or 2.51% in two trading sessions from a record closing high of 26,100.08 on 7 July 2014. The Sensex has risen 31.03 points or 0.12% in this month so far (till 9 July 2014). The Sensex has gained 4,274.13 points or 20.19% in calendar year 2014 so far (till 9 July 2014). From a 52-week low of 17,448.71 on 28 August 2013, the Sensex has risen 7,996.10 points or 45.83%. From a record high of 26,190.44 on 8 July 2014, the Sensex has fallen 745.63 points or 2.85%.
In the foreign exchange market, the rupee edged higher against the dollar. The partially convertible rupee was hovering at 59.76, compared with its close of 59.78/79 on Tuesday, 8 July 2014.
The Economic Survey 2013-14 predicated a recovery in India's economic growth in 2014-15. It has forecast 5.4% to 5.9% growth in GDP in 2014-15, compared with 4.7% expansion in 2013-14. The survey also states that there are downside risks to the economy arising from a poor monsoon, the external environment and the poor investment climate. Despite some measures undertaken to address structural constraints, reversion to a GDP growth rate of around 7% to 8% is unlikely before 2016/17, according to the survey.
The survey recommends that the government needs to move towards a low and stable inflation regime through fiscal consolidation, establishing a monetary policy framework, and creating a competitive national market for food. The survey also discusses the need for revamping some of the social sector schemes such as MNREGA, NRHM, SSA, etc. The survey calls for putting public finances on the sustainable path through fiscal correction, a new Fiscal Responsibility and Budget Management (FRBM) Act with teeth, better accounting practices, greater transparency and improved budgetary management. It argues that improvements on both tax and expenditure are needed to obtain high quality fiscal adjustment. The survey recommends fiscal consolidation through higher tax-GDP ratio than merely reducing the expenditure to GDP ratio.
According to the survey, government expenditure reform should involve three elements: shifting subsidy programmes away from price subsidies to income support, a change in the focus of government spending towards provision of public goods, and a focus on outcomes through an improvement in systems of accountability. The survey calls for a tax regime that is simple, predictable and stable consisting of a single-rate goods and services tax (GST), fewer exemptions in direct taxes, and a transformation of tax administration.
The survey states that tax reform in India can improve the ease of doing business and promote efficiency and productivity growth. There is consensus that the GST will be a major milestone for indirect tax reform in India, the survey notes. The survey suggests implementation of a Central GST (CenGST) as a first step towards GST. Once the CenGST is implemented, and the information technology system for CenGST has worked, estimation risk will be lower and it will be easier for the centre and states to move to the GST, according to the survey.
Just as the GST is a transformation of indirect taxes, the DTC is required as a clean modern replacement for the existing income tax law. As with the GST, the key objective of DTC must be a simplification with a clean conceptual core, and the removal of a large number of special cesses and exemptions that favour special interest groups. The tax system must move away from industrial policy, with incentives for one activity or another, towards a simple framework, according to the survey.
Noting that the industrial growth has slowed down considerably in the recent years, the Economic Survey highlights the need for revival of corporate sector investment, pushing ahead with critical reforms and removal of infrastructure bottlenecks. In order to boost manufacturing sector, the government has already announced setting up of sixteen national investment and manufacturing zones (NIMZs). According to the survey, industrial policy needs to focus on labour-intensive and resource-based manufacturing in informal sector to rejuvenate small businesses. According to the survey, the near term industrial outlook is conditional on continued improvements in the policy environment and quick return to peak investment rate. With the improvement in overall macroeconomic environment, industry is expected to revive and growth can accelerate gradually over the next two years, the survey states.
The pick-up in India's exports in April-May 2014, after five months of low/negative growth, though a positive sign, is partly due to the low base. The quarterly and monthly export and import growth performance of the world and major trading countries is also not very encouraging. Thus world trade and India's exports are still fragile, the recent good performance notwithstanding. There is also the downside risk of external shocks like the latest increase in oil prices owing to the Iraq crisis, according to the survey.
The survey also highlighted several challenges and reforms required in the agriculture sector. The survey states that restoring economic freedom of farmers and allowing them to be part of a competitive national market is essential for controlling food inflation.
The Economic Survey 2013-14 comes just a day ahead of the Union Budget 2014-15. Finance Minister Arun Jaitley will present the final Union Budget for 2014-15 in Lok Sabha at 11:00 IST tomorrow, 10 July 2014. There are expectations that the finance minster will announce measures in the Budget aimed at bolstering economic growth. Increase in outlay on infrastructure sector with focus on stricter and time-bound implementation of projects, initiatives towards investments in agriculture and irrigation aimed at easing supply bottlenecks for food-grains, fiscal prudence with roadmap to reduce the fiscal deficit, a roadmap for reducing the subsidy burden and timeline for implementation of the Goods and Services Tax are some of the expectations from the Budget.
Most European markets edged lower on Wednesday, 9 July 2014. Key benchmark indices in UK and France were off 0.12% to 0.51%. However, Germany's DAX was up 0.07%.
Asian stocks edged lower on Wednesday, 9 July 2014, in a broad based decline in global equities triggered by concerns that equity valuations are too high. Key benchmark indices in China, South Korea, Taiwan, Hong Kong, Singapore and Japan were off 0.08% to 1.55%. Indonesia's Jakarta Composite rose 0.72%.
Consumer-price inflation in China slowed last month, data today showed, while factory gate prices fell at the lowest pace in more than two years. China's consumer price index rose 2.3% in June from a year earlier, after gaining 2.5% in May. The country's measure of producer prices, which hasn't shown a year-on-year increase since January 2012, fell 1.1%. It dropped 1.4% in May.
Trading in US index futures indicated that the Dow could rise 3 points at opening bell on Wednesday, 9 July 2014. US stocks declined on Tuesday, 8 July 2014, in a broad selloff, dropping for a second straight session and driving the Dow Jones Industrial Average below 17,000 as investors turned cautious before the start of earnings season.
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