Key benchmark indices once again pared gains after regaining strength in mid-morning trade after the latest data showed a surprise decline in industrial output in June 2012. The market breadth turned negative from positive in mid-morning trade. Index heavyweight Reliance Industries (RIL) reversed intraday gains. The barometer index, BSE Sensex, was up 48.75 points or 0.28%, off close to 55 points from the day's high and up about 40 points from the day's low. Index heavyweight and cigarette major ITC hit record high. Tata Global Beverages hit 52-week high.
Mahindra & Mahindra (M&M) extended Wednesday's rally triggered by strong Q1 results. Bharti Airtel extended Wednesday's losses triggered by weak Q1 results, with the stock hitting 52-week low. IT stocks rose for the third straight day after New Jersey-based Cognizant Technology Solutions Corp stood by its full-year revenue forecast at the time of announcement its second quarter results. HCL Technologies hit a 52-week high. Bank stocks gained, with HDFC Bank hitting a record high. Indiabulls group shares were mixed after the group initiated action against Canada's independent research firm Veritas Research Corporation, Mr. Neeraj Monga and Mr. Nitin Mangal.
The market edged higher in early trade on firm Asian stocks. The market trimmed gains in morning trade. Key benchmark indices once again pared gains after regaining strength in mid-morning trade after the latest data showed a surprise decline in industrial output in June 2012.
Industrial production declined 1.8% in June 2012 compared to the level in the month of June 2011, as per the latest data released by the Ministry of Statistics & Programme Implementation. Manufacturing output, which has a 75.5% weight in the index of industrial production, fell 3.2% in June 2012 compared to the level in the month of June 2011. Capital-goods production shrank 27.9% in June 2012 compared to the level in the month of June 2011. In terms of industries, fourteen (14) out of the twenty two (22) industry groups (as per 2-digit NIC-2004) in the manufacturing sector have shown non-negative growth during the month of June 2012 as compared to the corresponding month of the previous year, the Ministry of Statistics & Programme Implementation said.
Some of the important items showing high negative growth during the current month over the same month in previous year include Cable, Rubber Insulated (-82%), Sugar (-66.1%), Sponge Iron (-17.2%), Fruit Pulp (-22.4%), Three-Wheelers (-29.4%), Di Ammonium Phosphate (-54.1%), Cement Machinery (-40.0%) and Colour TV Picture tubes (-79.7%). Some of the important items showing high positive growth include Aerated Waters & Soft Drinks (58.3%), Biaxially Oriented Polypropylene (BOPP) Film (35.1%), Petroleum Coke (70.8%) and Woollen Carpets (61.5%).
Gains in Asian stocks supported domestic boruses. Asian shares rose on Thursday, 9 August 2012, as cooling Chinese consumer price data kept hopes of more monetary easing from the world's second biggest economy intact
Provisional data showing that foreign institutional investors (FIIs) remained net buyers of Indian stocks on Wednesday, 8 August 2012, also helped boost sentiment on the domestic bourses. FIIs bought shares worth Rs 1114.20 crore on Wednesday, 8 August 2012, as per provisional figures on the stock exchanges. Earlier, FIIs bought shares worth a net Rs 2228.70 crore from the secondary equity markets in five trading sessions from 1 to 7 August 2012 as per data from Securities & Exchange Board of India (Sebi). 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 48.75 points or 0.28% to 17,649.31. The index rose 102.42 points at the day's high of 17,702.98 at the onset of the trading session. The index rose 9.58 points at the day's low of 17,610.14 at the onset of the trading session.
The S&P CNX Nifty was up 9.90 points or 0.18% to 5,347.90. The Nifty hit high of 5,368.20 in intraday trade. The Nifty hit a low of 5,339.15 in intraday trade.
The market breadth, indicating the overall health of the market, turned negative from positive in mid-morning trade. On BSE, 1,246 shares declined and 1,065 shares rose. A total of 136 shares were unchanged.
From the 30-share Sensex pack, 21 stocks rose and rest of them fell.
Index heavyweight and cigarette maker ITC rose 0.67% to Rs 263.65. The stock hit a record high of Rs 264.55 in intraday trade today, 9 August 2012. The company's net profit jumped 20.21% 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.
Tata Global Beverages rose 1.77% to Rs 132.30. The stock hit a 52-week high of Rs 133 in intraday trade today, 9 August 2012. The stock turned ex-dividend today, 9 August 2012, for dividend of Rs 2.15 per share for the year ended 31 March 2012.
Index heavyweight Reliance Industries (RIL) fell 0.18% to Rs 789.20, off the day's high of Rs 796.20. The oil ministry has reportedly agreed to conditionally approve the capital expenditure plans of RIL and its partners to make fresh investments for increasing production of natural gas at D6 oil and gas block in the eastern offshore Krishna-Godavari basin. Oil Minister Jaipal Reddy on Tuesday, 7 August 2012, 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.
According to production-sharing contracts for the oil and gas sector in India, the explorer invests in developing oil and gas blocks and later recovers the money through selling hydrocarbons. The investments made by the explorer need to be cleared by the government. 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%.
Mahindra & Mahindra (M&M) rose 2.96%, with the stock extending Wednesday's 3.92% gains triggered by strong Q1 results. The combined net profit of M&M and its 100% subsidiary -- Mahindra Vehicle Manufacturers (MVML) -- jumped 25.9% to Rs 778.50 crore on 35.2% growth in gross revenue to Rs 10003.90 crore in Q1 June 2012 over Q1 June 2011. MVML, located at Chakan near Pune in Maharashtra, has been set up as a 100% subsidiary of M&M with a view to source contemporary products for expanding the market offering of M&M.
M&M said the growth in first quarter net profit despite relentless increase in material costs was on the back of good volume performance of the company's automotive sector and also due to tight control on expenses.
M&M said some of the major group companies viz. Mahindra Finance, Mahindra Satyam, Mahindra Lifespace Developers and Mahindra Holidays & Resorts significantly improved their performance in Q1 June 2012.
M&M said the drought-like conditions prevailing in several states this year has added to the risks of domestic companies.
Bharti Airtel shed 4.14% to Rs 263.05, with the stock extending Wednesday's 6.6% losses triggered by weak Q1 results. The stock hit a 52-week low of Rs 261.85 in intraday trade today, 9 August 2012. Consolidated net profit as per international financial reporting standards (IFRS) fell 37.28% to Rs 762 crore on 14% increase in revenue to Rs 19350 crore in Q1 June 2012 over Q1 June 2011.
IT stocks rose for the third straight day after New Jersey-based Cognizant Technology Solutions Corp stood by its full-year revenue forecast at the time of announcement its second quarter results. India's third largest software services exporter by revenues Wipro gained 0.73%.
HCL Technologies rose 0.01% to Rs 536.10. The stock hit a 52-week high of Rs 539.40 in intraday trade today, 9 August 2012.
India's second largest software services exporter by revenues Infosys rose 0.89%. India's largest software services exporter by revenues Tata Consultancy Services (TCS) gained 0.66%.
Bank stocks edged higher. India's second biggest private sector bank in terms of branch network HDFC Bank rose 0.79% to Rs 602.25. The stock had hit a record high of Rs 603.70 in intraday trade today, 9 August 2012.
State Bank of India (SBI) rose 0.36%. SBI last week cut interest rates on home and car loans even as it left its base rate unchanged. SBI said on Monday, 6 August 2012, it has decided to revise downwards the interest rates on NRE/NRO deposits for tenors of 5 years and above to 8.50% per annum with effect from August 07, 2012. SBI said on 2 August 2012, it has decided to revise downwards the interest rate on domestic term deposits for tenors of 5 years and above to 8.5% from 7 August 2012.
India's largest private sector bank by net profit ICICI Bank gained 1.2%. The bank's profit after tax jumped 36% to Rs 1815 crore on 32% growth in net interest income to Rs 3193 crore in Q1 June 2012 over Q1 June 2011. ICICI Bank's net interest margin (NIM) improved to 3.01% for Q1 June 2012, from 2.61% for Q1 June 2011. The bank announced the results on 27 July 2012.
Indiabulls group shares were mixed after the group initiated action against Canada's independent research firm Veritas Research Corporation, Mr. Neeraj Monga and Mr. Nitin Mangal. Indiabulls Infrastructure and Power, Indiabulls Financial Services and Indiabulls Real Estate rose by between 0.83% to 5%. Indiabulls Power, Indiabulls Securities and Indiabulls Wholesale Services fell by between 0.77% to 2.4%.
Police has booked Mr Neeraj Monga, Mr Nitin Mangal and Veritas Research Corporation under Sections of 383, 384, 420, 500, 506, 511 and 1208 under FIR No 99 dated 8 August 2012, Indiabulls said in a statement. Indiabulls officers filed complaint to the police against malafide Veritas report along with an email evidence where Mr Neeraj Monga demanded money through his personal email for holding back the report, Indiabulls said. The Veritas report has been published with gross incorrect data about each of its three flagship Indiabulls group companies, Indiabulls said. Indiabulls officers have also lodged complaints against Mr Neeraj Monga, Mr Nitin Mangal, Veritas Research Corporation and their accomplices with investigating agencies in Canada for causing harm and injury to Indiabulls companies and its shareholders.
Veritas Investment Research recommended 'sell' rating on all stocks in the Indiabulls Group citing corporate governance issues in a report dated 1 August 2012.
Abbott India jumped 4.86% after net profit jumped 170.3% to Rs 46.22 crore on 14.6% growth in net sales to Rs 402.83 crore in Q2 June 2012 over Q2 June 2011.
Union Finance Minister P. Chidambaram early this week 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.
Mr. Chidambaram on Wednesday, 8 August 2012, said that the government has received requests to put off plans to implement the General Anti-Avoidance Rules (GAAR) which aim to check tax avoidance. The implementation of GAAR was postponed by one year in order to provide an opportunity of wider consultation before such a legislation is implemented, Mr. Chidambaram said in the lower house of parliament while replying to lawmakers' questions. The provisions of GAAR are directed toward preventing tax avoidance by way of aggressive tax planning, he added.
The implementation of GAAR proposal introduced in the Union Budget 2012-13 in March 2012 by then-finance minister Pranab Mukherjee has been deferred to 1 April 2013. This came after heavy criticism from foreign investors who fear that GAAR would give the authorities arbitrary powers to examine any deal that they feel is designed to avoid tax. Prime Minister Dr. Manmohan 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.
Dr. Singh last month also 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.
On the macro front, inflation based on the monthly wholesale price index (WPI) is seen inching up to 7.4% in July 2012 from 7.25% (provisional) for the month of June 2012, as per the median estimate of a poll of economists carried out by Capital Market. The data is due for release at 11:30 IST on 14 August 2012.
Finance Minister P. Chidambaram on Wednesday, 8 August 2012, said that it will be difficult to achieve a 9% annual growth target set for the five years to March 31, 2017. He added that the Planning Commission would cut the target later this year.
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 began 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.
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.
Some major Indian firms will announcing their first quarter results over the next few days. State Bank of India, Sun Pharmaceuticals Industries, Siemens and BPCL announce quarterly results on tomorrow, 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.
Asian shares rose on Thursday, 9 August 2012, as cooling Chinese consumer price data kept hopes of more monetary easing from the world's second biggest economy intact. Key benchmark indices in China, Indonesia, Taiwan, Hong Kong, Japan and South Korea rose by between 0.61% to 2.23%. Singapore's stock market was closed for a holiday.
Kicking off a busy day for Chinese data, inflation data showed consumer prices increased 1.8% from the year-ago period, just ahead of forecasts for a 1.7% increase, but slowing from the 2.2% increase recorded in June. Data released by the National Bureau of Statistics Thursday also showed a drop in producer prices. July retail sales rose 13.1% which was lower than 13.7% growth in June 2012. Industrial output advanced 9.2% in July 2012 which was lower than 9.5% expansion in June 2012.
Sales of passenger cars in China, the world's largest automobile market, rose 11% from a year earlier to 1.12 million units in July, the China Association of Automobile Manufacturers (CAAM) said on Thursday. The data represented a 13% drop from June, when China sold 1.28 million passenger cars. July is one of the low seasons for car sales because auto makers usually carry out equipment maintenance in the summer.
The Bank of Japan (BoJ) today, 9 August 2012, left its interest rates and policy stance unchanged after a monetary policy review, with the Japanese central bank reiterating its commitment to powerful monetary easing, but taking no further action to achieve its goal to spur a 1% increase in consumer prices. The BoJ's policy interest rate was kept in the range of 0% to 0.1%, with the size of the asset purchase program also maintained at 70 trillion yen ($89.3 billion), as widely expected. The BoJ said it will proceed with monetary easing "in a continuous manner by steadily increasing the amount outstanding" of the asset purchase program that is currently in force. The inflation rate is likely to remain around zero for the time being, it added.
The BoJ said that while fixed investments by businesses and private consumption continued to improve moderately, exports had moderated, and recent readings on production were weak. On the external front, the BoJ said particular attention must be paid to developments concerning the European debt problem.
The Bank of Korea left its key policy interest rate at 3.0% on Thursday, after a surprise cut last month -- its first in more than three years.
Standard & Poor's Ratings Services affirmed its 'AA-' long-term and 'A-1+' short-term unsolicited issuer credit ratings on Taiwan. The outlook is stable. The transfer and convertibility assessment remains 'AA+'. At the same time, it affirmed the 'cnAAA/cnA-1+' Greater China scale ratings on Taiwan. Taiwan's extremely strong external position, sound monetary management, and dynamic information technology (IT) companies in the private sector support the ratings. Tempering these strengths are a moderately high government debt and a small, open economy that is vulnerable to global economic conditions.
Australia's seasonally adjusted unemployment rate totaled 5.2% in July, down from 5.3% in June, the Australian Bureau of Statistics said Thursday. The number of employed increased 14,000 to 11.5 million while the number of unemployed decreased 2,500 to 635,100. The labor force participation rate reached 65.2%, from 65.3% seasonally-adjusted in June.
Trading in US index futures indicated that the Dow could gain 59 points at the opening bell on Thursday, 9 August 2012. US stocks dipped on Wednesday following three days of gains as traders awaited more signals about central bank action in support of a stalling global economy.
Election for a new president in the United States, the world's biggest economy, is scheduled on 6 November 2012.
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.
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