Key benchmark indices edged higher for the second straight day after Union Finance Minister P Chidambaram on Monday, 6 August 2012, said he intends to shortly unveil a path of fiscal consolidation. The barometer index, BSE Sensex, jumped 188.82 points or 1.08%, off about 40 points from the day's high and up close to 185 points from the day's low. The market breadth was positive. Data showing continuation of buying of Indian stocks by foreign funds on Monday, 6 August 2012, underpinned sentiment.
From a recent low of 17,197.93 on 3 August 2012, the Sensex has gained 403.85 points or 2.34% in two trading sessions. The Sensex has gained 365.60 points or 2.12% in this month so far (till 7 August 2012). The Sensex has jumped 2,146.86 points or 13.89% in calendar 2012 so far (till 7 August 2012). From a 52-week low of 15,135.86 on 20 December 2011, the Sensex has risen 2,465.92 points or 16.29%. From a 52-week high of 18,523.78 on 22 February 2012, the Sensex has lost 922 points or 4.97%.
Coming back to today's trade, 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.
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 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.
The BSE Sensex jumped 188.82 points or 1.08% to settle at 17,601.78, its highest closing level since 10 July 2012. 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 jumped 54.15 points or 1.03% to settle at 5,336.70, its highest closing level since 10 July 2012. The Nifty hit high of 5,350.10 in intraday trade, its highest level since 3 April 2012. The index hit a low of 5,281.65 in intraday trade.
The BSE Mid-Cap index rose 0.35% and the BSE Small-Cap index gained 0.36%. Both these indices underperformed the Sensex.
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, 1,522 shares rose and 1,285 shares fell. A total of 133 shares were unchanged.
From the 30-share Sensex pack, 25 stocks rose and only 5 of them fell.
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 0.2% to Rs 783.70. 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 1.47% to 4.53%.
SpiceJet jumped 11.8% to Rs 36. 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 2.02% to Rs 8.71. The stock hit record low of Rs 8.64 in intraday trade today.
Jet Airways rose 2.7%. 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 2.96% 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 2.32%.
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 0.7% 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.
NHPC rose 0.28%. The company's net profit fell 15.33% to Rs 669.81 crore on 3.62% decline in total income to Rs 1666.89 crore in Q1 June 2012 over Q1 June 2011. The result was announced during trading hours today, 7 August 2012.
Cement stocks extended their recent gains. ACC, Jaiprakash Associates, UltraTech Cements and India Cements gained by between 0.05% to 2.44%.
Ambuja Cements rose 3.25% to Rs 190.50. The stock hit a record high of Rs 191.30 in intraday trade today, 7 August 2012. Ambuja Cements' net profit rose 34.9% to Rs 468.90 crore on 17.9% growth in net sales to Rs 2565.95 crore in Q2 June 2012 over Q2 June 2011.
Sugar stocks fell on profit booking after recent strong gains. Bajaj Hindusthan, Balrampur Chini Mills and Shree Renuka Sugars declined by between 1.4% to 2.9%.
Wockhardt rose 2.63% to Rs 1,081.45, with the stock extending Monday's 4.27% gains triggered by strong Q1 results. The stock hit a record high of Rs 1,088 in intraday trade today, 7 August 2012. Consolidated net profit jumped 94.87% to Rs 377.97 crore on 35.37% growth in income from operations to Rs 1425.82 crore in Q1 June 2012 over Q1 June 2011.
Wockhardt recently concluded the divestment of its nutrition business to Danone for Rs 1280 crore. This has significantly improved the balance sheet position for the company and its debt to equity ratio now stands below 1, the company said in a statement.
Sun Pharmaceutical Industries fell 0.29% to Rs 669.15. The stock reversed direction after hitting a record high of Rs 684 in intraday trade today, 7 August 2012. The company on Monday, 6 August 2012, said its board will consider a proposal for internal restructuring of the company's business with effect from 31 March 2012 along with Q1 June 2012 results on 10 August 2012. The announcement was made during trading hours on Monday, 6 August 2012.
Metal stocks gained as LMEX, a gauge of six metals traded on the London Metal Exchange, rose 0.68% on Monday, 6 August 2012. Sterlite Industries, JSW Steel, Hindalco Industries, Jindal Steel & Power, and Hindustan Zinc rose by between 0.13% to 1.74%.
Sail rose 1.88%, with the stock extending Monday's gains as the company's core operating profit margin surged to 14.05% in Q1 June 2012 from 12.16% in Q1 June 2011. Net profit declined 17.9% to Rs 696.41 crore on 3.08% fall in total income to Rs 11055.95 crore in Q1 June 2012 over Q1 June 2011. The fall in net profit was mainly due sharply higher foreign exchange loss of Rs 256.94 crore in Q1 June 2012 compared with foreign exchange loss of Rs 11.66 crore in Q1 June 2011.
Tata Steel 0.43%, with the stock extending Monday's gains as euro zone worries eased. European operations constitute almost 65% of Tata Steel's sales.
India's second biggest private sector bank in terms of branch network HDFC Bank was flat at Rs 599.80. The stock gave up entire intraday gains after hitting a record high of Rs 602.80 in intraday trade today, 7 August 2012.
Capital goods stocks edged higher for the second day in a row. L&T rose 0.75%. The company's recurring profit after tax rose 19% to Rs 890 crore on 26% growth in gross revenue to Rs 12078 crore in Q1 June 2012 over Q1 June 2011. The company announced the first quarter results last month. L&T said the healthy revenue growth in Q1 June 2012 was on the back of a strong order book and good progress in execution of various jobs. International sales constituted 17% of the total revenue in Q1 June 2012, L&T said in a statement.
L&T's order inflow jumped 21% to Rs 19594 crore in Q1 June 2012 over Q1 June 2011 despite weak investment sentiment and prevailing global uncertainties, the company said. The major orders came from infrastructure, buildings & factories and power transmission & distribution sectors, L&T said in a statement. L&T's order book stood at Rs 153095 crore as on 30 June 2012.
With regard to future business outlook, L&T said that with its enhanced capacities and presence in the diverse sectors, the company is in a good position to harness the opportunities as they emerge. The superior execution capabilities and growing order book provide visibility to sustained revenue growth in the medium term, L&T said in a statement.
On the international front, select markets in the Middle East, South East Asia and CIS countries hold promising prospects where the company is strengthening its presence, L&T said in a statement.
State-run power equipment maker Bhel rose 1.42%. Bhel's net profit rose 12.92% to Rs 920.90 crore on 16.46% growth in total income to Rs 8805.28 crore in Q1 June 2012 over Q1 June 2011. The company announced the results on 26 July 2012. The company's order book position declined to Rs 132900 crore as on 30 June 2012 from Rs 134681 crore as on 31 March 2012.
Among other capital goods stocks, Siemens, Thermax, Punj Lloyd and Siemens rose by between 0.1% to 4.08%.
Shares of public sector oil marketing companies extended their recent losses as US crude oil futures ended at its highest in more than two weeks on Monday as commodities continued to make gains following some better-than-expected US jobs data end last week. BPCL, HPCL and Indian Oil Corporation shed by between 0.93% to 2.54%. 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.
The Petroleum Planning and Analysis Cell (PPAC), under the Ministry of Petroleum and Natural Gas, announced 1 August 2012 that the under-recovery on HSD (High Speed Diesel) applicable for 1st fortnight of August effective 1 August 2012 increased substantially to Rs 12.13 per litre. This is higher than Rs 9.95/litre prevailing during previous fortnight. In case of PDS Kerosene also the under-recovery is higher at Rs 28.54/litre for the month of August 2012 than Rs 27.20/litre for July 2012. Under-recovery on Domestic LPG for August 2012 at Rs 231/cylinder continues to rule at high. OMCs are currently (effective 1 August 2012) incurring daily under-recovery of about Rs 402 crore on the sale of Diesel, PDS Kerosene and Domestic LPG.
Most auto stocks extended Monday's gains. Tata Motors surged 4.42% after jumping 3.51% on Monday. 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 gained 0.44%. 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 0.35% ahead of its Q1 results tomorrow, 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.
Car major Maruti Suzuki gained 1.12%. 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.
Bajaj Auto rose 2.16%. 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 declined 1.37% as the stock turned ex-dividend today, 7 August 2012, for final dividend of Rs 45 per share for the year ended 31 March 2012 (FY 2012).
SpiceJet clocked highest volume of 1.5 crore shares on BSE. Cals Refineries (1.01 crore shares), Kingfisher Airlines (61.65 lakh shares), Birla Power Solutions (38.44 lakh shares) and Deccan Chronicle Holdings (36.78 lakh shares) were the other volume toppers in that order.
SBI clocked highest turnover of Rs 130.96 crore on BSE. ICICI Bank (Rs 81.06 crore), HDFC (Rs 89.33 crore), RIL (Rs 66.06 crore) and Orissa Mineral & Development Corporation (Rs 61.54 crore were the other turnover toppers in that order.
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 0.4% to 0.5%. UK's FTSE 100 fell 0.14%.
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 30 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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