Key benchmark indices extended intraday gains in mid-morning trade as Asian stocks rose amid fresh hope for European action to support euro zone's weaker economies. Provisional data showing continuation of buying of Indian stocks by foreign funds on Monday, 6 August 2012, underpinned sentiment. 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 strong. The barometer index, BSE Sensex, and the 50-unit S&P CNX Nifty hit their highest level in nearly four weeks. The Sensex was up 127.94 points or 0.73%, up close to 125 points from the day's low.
Interest rate sensitive banking stocks extended Monday's gains, with HDFC Bank hitting a record high. PSU OMCs extended recent losses as US crude oil futures ended at its highest in more than two weeks on Monday. Capital goods stocks rose for the second day in a row. Index heavyweight Reliance Industries (RIL) edged lower on profit taking after Monday's rally. Another index heavyweight and cigarette maker ITC also edged lower.
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.
Asian stocks advanced on Tuesday, 7 August 2012, extending steep gains made in the previous session, amid fresh hope for European action to support euro zone's weaker economies.
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.
At 11:20 IST, the BSE Sensex was up 127.94 points or 0.73% to 17,540.90, its highest level since 11 July 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 37.75 points or 0.71% to 5,320.30. The Nifty hit high of 5,321.85 in intraday trade, its highest level since 11 July 2012. The Nifty hit a low of 5,281.65 in intraday trade.
The market breadth, indicating the overall health of the market, was strong. On BSE, 1,292 shares rose and 851 shares fell. A total of 117 shares were unchanged.
From the 30-share Sensex pack, 25 stocks rose and only five of them fell. Tata Motors, Jindal Steel & Power and Bajaj Auto rose by between 1.7% to 2.89%.
Index heavyweight and cigarette maker ITC fell 0.23% to Rs 257.65. 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 0.38% on profit booking after Monday' 5.71% rally triggered by reports 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.
RIL bought back 3.66 crore shares for about of Rs 2617.57 crore till 24 July 2012 under its ongoing share buyback program. RIL has set maximum buyback price of Rs 870 per share. The company has set aside Rs 10440 crore for share buyback. The buyback program opened on 1 February 2012 and closes on 19 January 2013. RIL chairman Mukesh Ambani said at the company's Annual General Meeting in June 2012 that the company's buyback program represents a highly accretive use of cash by the company and it will supplement earnings growth from operations, for higher EPS (earnings per share), in the near future.
Interest rate sensitive banking stocks extended Monday's gains. India's second biggest private sector bank in terms of branch network HDFC Bank was flat at Rs 599.75. The stock gave up entire intraday gains after hitting a record high of Rs 602.80 in intraday trade today, 7 August 2012.
State Bank of India (SBI) rose 1.33%. 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.
Punjab National Bank (PNB) gained 0.78%. The bank has decided to increase rate of interest on single domestic term deposit of less than Rs 1 crore from 8.75% to 9% for maturity of one year from August 02, 2012. The same shall also be applicable to NRE term deposits. Similarly, the interest rate of 9% will also be applicable to NRE term deposits of 1,111 days as applicable to domestic term deposits, PNB said.
Among other PSU bank stocks, Bank of India, Bank of Baroda and Canara Bank rose by between 0.33% to 1.04%.
India's largest private sector bank by net profit ICICI Bank gained 1.53%. 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.
Capital goods stocks edged higher for the second day in a row. L&T rose 0.46%. 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 1.18%. 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, Thermax, Punj Lloyd and Siemens rose by between 0.07% to 3.26%.
BEML fell 1.29% to Rs 313.25. after the company reported net loss of Rs 39.44 crore in Q1 June 2012, compared with net profit of Rs 15.87 crore in Q1 June 2011. The stock hit a 52-week low of Rs 308 in intraday trade today, 7 August 2012. BEML's net sales declined 25.1% to Rs 413.91 crore in Q1 June 2012 over Q1 June 2011.
Shares of public sector oil marketing companies extended recent losses as US crude oil futures ended at its highest in more than two weeks 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 0.91% to 1.16%. 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.
Escorts jumped 6.42% after net profit rose 103.40% to Rs 26.89 crore on 17.82% rise in net sales to Rs 858.88 crore in Q3 June 2012 over Q3 June 2011.
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. 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.
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 Hong Kong, Japan, South Korea and Singapore rose by between 0.11% to 0.71%. Key benchmark indices in China, Indonesia and Taiwan fell by between 0.03% to 0.13%.
The Reserve Bank of Australia held key rate steady as household spending and currency surged.
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.
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.
Trading in US index futures indicated a flat opening of US stocks 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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