A bout of volatility was witnessed as key benchmark indices trimmed gains after hitting their highest level in 18 weeks in late trade. The barometer index, BSE Sensex, was provisionally up 177.99 points or 1.02%, off about 50 points from the day's high and up close to 175 points from the day's low. Comments from Union Finance Minister P Chidambaram on Monday, 6 August 2012, that he intends to shortly unveil a path of fiscal consolidation aided gains on the domestic bourses. The market breadth was positive. Provisional data showing continuation of buying of Indian stocks by foreign funds on Monday, 6 August 2012, underpinned sentiment.
Index heavyweight Reliance Industries (RIL) edged lower in volatile trade after Oil Minister Jaipal Reddy said the government may approve RIL's new investment plan for the D6 block in the eastern offshore Krishna-Godavari basin as the country continues to face an acute shortage of natural gas. Index heavyweight and cigarette maker ITC edged higher. Education stocks rose across the board. IT stocks rose after New Jersey-based Cognizant Technology Solutions Corp stood by its full-year revenue forecast at the time of announcement its second quarter results. Telecom stocks were mixed. SpiceJet hit a 52-week high whereas Kingfisher Airlines hit lifetime low. DLF jumped after strong sequential growth in bottom line in Q1 June 2012.
A bout of volatility was witnessed in early trade as key benchmark indices regained strength after trimming gains after hitting their highest level in nearly four weeks at the onset of the trading session. The market extended gains to hit fresh intraday high in morning trade. The market strengthened further to hit fresh intraday high in mid-morning trade. Firmness continued in early afternoon trade. Key benchmark indices hit fresh intraday highs in afternoon trade after European market opened higher. The market extended gains in mid-afternoon trade. The Sensex trimmed gains after hitting 18-week high in late trade.
Provisional data showing continuation of buying of Indian stocks by foreign funds on Monday, 6 August 2012, underpinned sentiment. Foreign institutional investors (FIIs) bought shares worth Rs 555.73 crore on Monday, 6 August 2012, as per provisional figures on the stock exchanges. Earlier, FIIs bought shares worth a net Rs 799.80 crore from the secondary equity markets in three trading sessions from 1 to 3 August 2012. FIIs made substantial purchases of Indian stocks last month. FIIs bought shares worth net Rs 9691 crore from the secondary equity markets in July 2012.
As per provisional figures, the BSE Sensex was up 177.99 points or 1.02% to 17,590.95. The index jumped 228.59 points at the day's high of 17,641.55 in late trade, its highest level since 3 April 2012. The index rose 4.96 points at the day's low of 17,417.92 in early trade.
The S&P CNX Nifty was up 48.10 points or 0.91% to 5,330.65, as per provisional figures. The Nifty hit high of 5,350.10 in intraday trade, its highest level since 3 April 2012. The Nifty hit a low of 5,281.65 in intraday trade.
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BSE clocked turnover of Rs 2171 crore, higher than Rs 1675 crore on Monday, 6 August 2012.
The market breadth, indicating the overall health of the market, was positive. On BSE, 1,513 shares rose and 1,295 shares fell. A total of 126 shares were unchanged.
From the 30-share Sensex pack, 25 stocks rose and only 5 of them fell. Tata Motors, Bajaj Auto and GAIL (India) rose by between 1.96% to 4.31%.
Index heavyweight and cigarette maker ITC rose 1.08% to Rs 261.05, off the day's low of Rs 257.25. 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) fell 0.44% to Rs 781.85. The stock hit a high of Rs 795.70 and a low of Rs 778.15. 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 today, 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%.
Shares of firms which run/own insurance and or mutual fund businesses either directly or through their subsidiaries edged higher after Union Finance Minister P. Chidambaram on Monday, 6 August 2012, said the government will announce a number of decisions in the next few weeks to attract more people to invest in mutual funds, insurance policies and other well-designed instruments. Max India, Bajaj Finserv, HDFC, IDFC, State Bank of India, ICICI Bank and Reliance Capital rose by between 1.51% to 5.06%.
SpiceJet jumped 10.71% to Rs 35.65. The stock hit a 52-week high of Rs 36.65 in intraday trade today. The company reported net profit of Rs 56.15 crore for Q1 June 2012, compared with net loss of Rs 71.96 crore in Q1 June 2011. Net sales jumped 51.1% to Rs 1406.74 crore in Q1 June 2012 over Q1 June 2011.
Kingfisher Airlines fell 2.25% to Rs 8.69. The stock hit record low of Rs 8.64 in intraday trade today.
Jet Airways rose 2.5%. The company reported a net profit of Rs 24.70 crore in Q1 June 2012, compared with net loss of Rs 123.16 crore in Q1 June 2011. Net sales jumped 30.8% to Rs 4344.92 crore in Q1 June 2012 over Q1 June 2011.
Realty major DLF rose 2.98% as 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, Oberoi Realty, HDIL, Unitech, and Sobha Developers rose by between 0.04% to 2.1%.
IT stocks rose after New Jersey-based Cognizant Technology Solutions Corp stood by its full-year revenue forecast at the time of announcement its second quarter results. Infosys, TCS and Wipro gained by between 0.83% to 2.86%.
HCL Technologies rose 1.46% to Rs 530.85. The stock hit a 52-week high of Rs 538.40 in intraday trade today, 7 August 2012.
Mahindra Satyam rose 0.23% and Tech Mahindra gained 2.86% after Mahindra Satyam announced that its partnership with Pegasystems, the industry leader in Business Process Management and Customer Relationship Management solutions, has been extended to include Tech Mahindra. Mahindra Satyam has been in strategic partnership with Pegasystems since 2003 and has delivered hundreds of successful business transformation solutions leveraging Pega technology. The landscape of customers who have benefited from Pega solutions is spread globally across more than 15 industries, including Banking and Financial Services, Insurance, Healthcare, Retail, Energy, Utilities and Manufacturing.
Oracle Financial Services Software gained 0.36% to Rs 2851.25. The stock hit a record high of Rs 3009.65 in intraday trade today.
Education stocks rose across the board. Educomp Solutions, NIIT, Aptech, Everonn Education, MT Educare, and Career Point gained by between 0.41% to 19.36%.
Telecom stocks were mixed. MTNL, Tata Teleservices (Maharashtra) and Reliance Communications rose by between 0.16% to 2.97%. Idea Celluar and Bharti Airtel fell 0.56% to 0.79%. Telecom Minister Kapil Sibal today, 7 August 2012, said the government will ask the Supreme Court to extend the August 31 deadline for conducting a much-awaited auction of telecommunications bandwidth. Mr. Sibal said the auctioneer selected by the government has given a schedule for holding the auction. The government is auctioning the airwave after the Supreme Court earlier this year revoked the telecom licenses of several companies, citing corruption in their allotment in 2008.
The court also ordered reallocation of the spectrum to be surrendered by the affected companies through an auction. The court has cancelled all the licenses of the Indian joint venture of Telenor and most of Sistema's unit. It also revoked a few permits of Idea Cellular. These companies can provide services under the cancelled licensed until September 7, but will need to purchase spectrum through the auction, which the court said must be held by August 31, to continue operations further. The Union Cabinet on Friday, 3 August 2012, approved reserve price of Rs 14000 crore for 5 MHz pan India in 1800 MHz Band.
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 on Wednesday, 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.
Voting for the country's new vice president takes places today, 7 August 2012.
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. Mahindra & Mahindra, Tata Power and Bharti Airtel unveil Q1 results tomorrow, 8 August 2012. Tata Motors and Ranbaxy Laboratories unveil quarterly results on Thursday, 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.
European shares edged higher on Tuesday, 7 August 2012, on hopes that Spain will request a full bailout, making it possible for the European Central Bank (ECB) to buy Spanish bonds. Key benchmark indices in France and Germany were up by 0.01% to 0.2%. UK's FTSE 100 fell 0.33%.
Recent optimism that the European Central Bank (ECB) will soon start to buy up Spanish and Italian government bonds got a further boost after German Chancellor Angela Merkel's government on Monday, 6 August 2012, said it supported the ECB's bond-purchasing program. ECB president Mario Draghi last week said the ECB may soon step in to buy government bonds in the open market, possibly in unlimited quantities, and it will also consider other unconventional measures to lower exceptionally high borrowing costs of financially stressed euro-zone economies. Draghi indicated that the ECB may buy government bonds in the open market under strict conditions and after stressed states submitted a request for aid
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.
Most Asian stocks advanced on Monday after Germany backed a European Central Bank bond-buying plan that may ease the debt crisis. Key benchmark indices in China, Hong Kong, Taiwan, Japan and South Korea rose by between 0.05% to 0.88%. Key benchmark indices in Indonesia and Singapore fell by between 0.13% to 0.49%.
Japan's finance ministry today, 7 August 2012, announced a six-month extension to a measure encouraging Japanese firms to buy foreign assets, figuring that further flows of private-sector money out of the country are needed to help tackle the strong yen. Until next March, the ministry will continue to offer cheap dollar loans to Japanese firms with the aim of spurring more cross-border mergers and acquisitions, and purchases of overseas natural resources by Japanese companies.
Initially launched as a one-year measure last summer, the program finances only part of overseas deals by Japanese firms. Borrowers must procure the rest of the amount in dollars themselves, helping to curb the yen's strength in the process. The soaring yen is considered one of the biggest threats to Japan's recovering economy.
Australia's central bank kept interest rates unchanged at a developed-world high today, 7 August 2012, citing a domestic expansion that's weathering a global slowdown. Governor Glenn Stevens and his board left the overnight cash-rate target at a 2 1/2-year low of 3.5% for a second month, the Reserve Bank of Australia said in a statement today in Sydney.
Trading in US index futures indicated that the Dow could gain 10 points at the opening bell on Tuesday, 7 August 2012. US stocks closed at three-month highs on Monday, extending last week's rally on the hope for more assistance for the troubled euro zone.
Election for a new president in the United States, the world's biggest economy, is scheduled on 6 November 2012.
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