The market may extend Monday's (6 August 2012) gains on firm Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a gain of 6 points at the opening bell. Asian stocks advanced Tuesday, extending steep gains made in the previous session, amid fresh hope for European action to support the region's weaker economies.
Among corporate news, DLF's consolidated net profit declined 18.29% to Rs 292.79 crore on 6.96% decline in total income to Rs 2328.85 crore in Q1 June 2012 over Q1 June 2011.
GMR Infrastructure said that at the board meeting of the company scheduled to be held on August 09, 2012, the board will also consider raising of funds through issue of equity shares or convertible debentures or Foreign Currency Convertible Bonds or any other securities.
IT stocks will be in focus as Teaneck, New Jersey-based Cognizant Technology Solutions Corp stood by its full-year revenue forecast at a time when its Indian peers have been painting a gloomy picture for the rest of the year on slowing global outsourcing spending. The company, which was founded in 1994 as a captive unit of Dun & Bradstreet in India, said net income rose to $251.9 million, or 82 cents per share, for the second quarter from $208 million, or 67 cents per share, a year earlier. Cognizant expects earnings for the year to be at least $3.38 per share, up from its previous forecast of at least $3.36 per share. It reaffirmed its revenue forecast of at least $7.34 billion.
PSU OMCs, oil exploration firms and airline stocks will be in focus as U.S. crude oil futures ended at its highest in more than two weeks Monday, as commodities continued to make gains following some better-than-expected U.S. jobs data end last week. US crude oil futures for September delivery gained $0.80 or 0.9 percent to close at $92.20 a barrel on the New York Mercantile Exchange Monday.
Higher crude oil prices could increase under-recoveries of state-run oil marketing companies (PSU OMCs) on domestic sale of diesel, LPG and kerosene at controlled prices. The government has already freed pricing of petrol. Higher crude oil prices will result in higher realizations from crude sales for oil exploration firms. Aviation turbine fuel, or jet fuel constitutes more than 50% of operating cost for airliners. Prices of jet fuel are directly linked to crude oil prices. State-run oil marketing companies--Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation revise jet fuel prices on the 1st and 16th of every month based on the average international crude price in the preceding fortnight.
Key benchmark indices surged to scale their highest closing level in nearly four weeks on Monday, 6 August 2012 with investor sentiment boosted by data showing that foreign funds remained net buyers of Indian stocks on Friday, 3 August 2012. Comments from Union Finance Minister P Chidambaram that he intends to shortly unveil a path of fiscal consolidation aided gains on the domestic bourses. Strong US economic data released on Friday, 3 August 2012, and expectations that the European Central Bank will step in to buy euro-zone government bonds in time to address the long-running euro-zone debt crisis, also aided gains on the domestic bourses. The BSE Sensex jumped 215.03 points or 1.25% to settle at 17,412.96 on that day, its highest closing level since 11 July 2012.
Foreign institutional investors (FIIs) bought shares worth Rs 555.73 crore on Monday, 6 August 2012, as per provisional figures on the stock exchanges. FIIs bought shares worth Rs 209 crore from the secondary equity markets on Friday, 3 August 2012, as per data from Securities & Exchange Board of India (Sebi). 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.
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 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. With the monsoon season halfway through, India is staring at the possibility of a full-blown drought in some regions.
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 Cabinet Committee on Economic Affairs last week approved the Minimum Support Prices (MSPS) for Arhar (Tur) and Moong for 2012-13 season. The MSP for Arhar (Tur) has been fixed at Rs 3850 per quintal and of Moong at Rs 4400 per quintal marking an increase of Rs 650 per quintal and Rs 900 per quintal, respectively.
Rice sowing has picked up according to the latest data released by the Ministry of Agriculture. Rice was sown in 233.68 lakh hectares (lh) till Friday, 3 August 2012, compared with 191.06 lh a week back. Rice sowing so far has been below the normal area of 240.89 lh for the summer sown crop by this time of the year. Cumulative sowing of coarse cereals totaled 135.75 lh till 3 August 2012, compared with 117.48 lh a week back. It, however, remains much lower than 169.30 lh of normal area for the crop this time of the year.
Sowing of pulses totaled 72.79 lh till 3 August 2012, compared with 62.99 lh a week back. It, however, remains lower than 84.15 lh of normal area for this time of the year. Sowing of oilseeds totaled 145.17 lh till 3 August 2012, compared with 138.33 lh a week back. It is almost equal to the normal area of 145.49 lh for oilseeds by this time of the year. Sowing of cotton totaled 100.14 lh till 3 August 2012, compared with 97.24 lh as on 27 July 2012. The normal cotton sowing area of 99.89 lh by this time of the year has already been surpassed. Sowing of jute and mesta totaled 8.40 lh as on 3 August 2012, exceeding the normal area of 8.22 lk for the crop by this time of the year.
The monsoon rains--which make up around 70% of India's annual rainfall--are crucial to the nation's agriculture sector and broader economy. More than 60% of the country's farmland is rain-fed. The timing, distribution and quantity of rainfall are all important for crops. The four-month southwest monsoon season that starts from June accounts for almost 70% of total annual moisture that Indian soil receives in a year.
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 and IDFC will unveil Q1 results on 14 August 2012.
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, Indonesia, Japan, South Korea, Singapore and Taiwan rose by between 0.07% to 0.6%.
The Reserve Bank of Australia will refrain today from cutting its benchmark interest rate the highest in the developed world.
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.
European Central Bank President Mario Draghi has said the ECB may buy short-dated bonds to lower borrowing costs to help Europe, which has been mired in a debt disaster. European shares closed at four-month highs on Monday.
U.S. 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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