Sensex gains 1.2% on robust auto sales, macro data

Strong Q1 June 2010 GDP data and robust automobile sales for August 2010, helped the market gain upward momentum last week. Healthy manufacturing data in China and better-than-expected GDP figures from Australia also supported Asia-Pacific stocks last week. Data showing resumption of buying by foreign funds also underpinned sentiments on the domestic bourses.



The government has delayed the implementation of the direct taxes code by one year to 1 April 2012. Earlier, the government had planned to implement the code from 1 April 2011.

Under the Direct Taxes Code Bill, 2010 tabled in the Lok Sabha by Finance Minister Pranab Mukherjee on Monday, 30 August 2010, and referred to the Select Committee of Parliament for scrutiny, the government has sought to raise the income tax exemption limit from Rs 1.6 lakh to Rs 2 lakh while retaining a host of incentives for individuals. While senior citizens (above 65 years) will enjoy a higher exemption of Rs 2.5 lakh, women taxpayers will have no additional relief as they have not been categorised separately.

As for corporate taxes, the levy will be at a flat rate of 30% with no surcharges or cesses. Besides, the tax rate for foreign companies will now be the same as domestic companies. Dividends distributed by companies to parents in a vertical structure will not be subject to double taxation, as the cascading effect of the tax on dividends will be removed.

The minimum alternate tax (MAT) will continue to be calculated on book profits and not gross assets, as proposed in the August 2009 DTC draft. While this rate has been increased a bit to 20%, the blow has been softened by allowing companies to carry forward MAT credit to 15 years from the current 10 years.

The applicability of the existing profit-linked tax incentive scheme has been extended to units being set up in special economic zone (SEZ) till 31 March 2014, provided the SEZs are notified before 1 April 2012. However, with respect to SEZ developers, the profit-linked incentive scheme would continue only if the SEZ is notified on or before 31 March 2012. All other new SEZ developers and units would be entitled to investment-based incentive scheme.

The good news for investors in the stock market is that the DTC bill has maintained the benefit of zero tax on long-term capital gains on sale of shares held for a period exceeding one year. Short-term capital will now be charged at 50% of the base rate, i.e., 5%, 10% or 15%, depending on the applicable slab rate for individuals and 15% for corporates. Short-term gains are currently taxed at 15% for all investors.

It has also been clarified that profit on sale of shares by foreign institutional investors (FIIs) will be charged under the head capital gains. Hitherto, the law was vague as to whether such gains are capital gains or business income. Also for FIIs, regardless of any tax-friendly treaty, long-term capital gains on listed equity will be exempt but treaty benefit of short-term capital gains currently available in relation of certain tax-friendly jurisdictions, while not having been withdrawn, may attract anti-avoidance provisions.

On the macro front, India reported its strongest GDP number since the global financial crisis began, expanding at the fastest pace in 2-1/2 years in Q1 June 2010. The gross domestic product (GDP) grew 8.8% in Q1 June 2010. The manufacturing sector grew 12.4%, mining sector expanded 8.9%, construction sector grew 7.5%, and farm sector expanded at 2.8%. Output in the combined sectors -- trade, hotels, transport and communication, jumped 12.2%.

The economy could grow better than 8.5% in the fiscal year that ends in March 2011, Planning Commission deputy chairman Montek Singh Ahluwalia said on Tuesday, 31 August 2010. Government spending is expected to pick up after the June-September monsoon rains, Ahluwalia said.

India's key southwest monsoon rains were 16% above normal in the past week, compared with 29% above normal in the previous week, the Indian Meteorological Department (IMD) said on Thursday, 2 September 2010. Total rainfall since June 1 till date is just 1% below normal, the IMD said.

Exports rose for the ninth straight month in July 2010, growing an annual 13.2% to $16.24 billion, the latest government data showed. Imports for the month rose 34.3% to $29.17 billion, widening the country's trade deficit to $12.93 billion. Exports during the April-July period rose 30.1% to $68.63 billion.

The trade deficit edged back into double digits in April 2010 after averaging $9.1 billion in Q4 March 2010 and has remained elevated since then. Latest data shows the gap stood at $12.93 billion in July 2010, highest since September 2008 and widening further from $10.55 billion in June 2010.

The HSBC Markit Purchasing Managers' Index, based on surveys of 500 Indian companies, fell to 57.25 in August 2010 from 57.6 in July 2010, but strength in new orders helped the index remain well above the 50 mark that divides growth from contraction. The manufacturing PMI had edged up to 57.6 in July 2010 from 57.3 in June 2010, when it slipped from a multi-year high.

The new orders index was 61.99 in August 2010, down from 62.82 in July 2010. The survey showed that output prices rose at their slowest rate in 10 months in August 2010, while the input price index rose for the second consecutive month.

Maintaining their bullish stance for the third month in a row, foreign institutional investors (FII) bought equities worth Rs 11,687.50 crore in August 2010. FIIs play a significant role in domestic equity markets and their movement (inflow and outflow) causes fluctuation in benchmark indices.

The BSE Sensex rose 223.02 points or 1.24% to 18,221.43, in the week ended 3 September 2010. The 50-unit S&P CNX Nifty rose 70.7 points or 1.3% to 5,479.40.

The BSE Mid-Cap index jumped 2.94% to 7,859.11 and the BSE Small-Cap index 2.82% to 9,912.64 in the week. Both these indices underperformed the Sensex.

The key benchmark indices registered small gains in what was a choppy trading session on Monday, 30 August 2010. Volatility rose during the last one hour of trade after reports filtered in that the government has tabled the much-awaited Direct Taxes Code bill (DTC) in the Lok Sabha, which proposes to raise the exemption limit on income tax from the current Rs 1.6 lakh to Rs 2 lakh. The BSE 30-share Sensex was up 33.70 points or 0.19% to 18,032.11. The S&P CNX Nifty was up 6.75 points or 0.12% to 5,415.45.

The key benchmark indices recovered in the last one hour of trade on Tuesday, 31 August 2010, as robust first quarter June 2010 GDP data triggered bargain hunting after a steep intraday slide in share prices. The BSE 30-share Sensex lost 60.99 points or 0.34% at 17,971.12. The S&P CNX Nifty declined 13.05 points or 0.24% to 5,402.40.

The key indices rallied in the second half of trading session on Wednesday, 1 September 2010, boosted by gains in index pivotals Reliance Industries, Infosys, and ICICI Bank. Strong auto sales, data showing expansion in manufacturing sector in August 2010 and data showing resumption of buying by foreign funds, underpinned sentiments. The BSE 30-share Sensex rose 234.75 points or 1.31% to 18,205.87. The S&P CNX Nifty rose 69.45 points or 1.29% to 5,471.85.

The key benchmark indices eked out small gains in volatile trade on Thursday, 2 September 2010. The BSE 30-share Sensex rose 32.44 points or 0.18% to 18,238.31. The S&P CNX Nifty gained 14.30 points or 0.26% to 5,486.15.

The key benchmark indices edged lower on Friday, 3 September 2010, as profit taking emerged ahead of a crucial economic data in the US later in the global day. US is the world's biggest economy. The S&P CNX Nifty fell below the psychological 5,500 mark, after crossing that level at the onset of the trading session. The BSE 30-share Sensex fell 16.88 points or 0.09% to 18,221.43. The S&P CNX Nifty fell 6.75 points or 0.12% at 5,479.40.

From the 30-share Sensex pack, 24 stocks rose while the rest of them declined.

India's largest listed telecom operator by sales Bharti Airtel topped the Sensex gainers last week. The stock rose 7.34% to Rs 339.4. The government, last week, started the process of allotting third generation (3G) spectrum to the winning telecom bidders. The telecom operators would be able to use the 3G spectrum for 20 years starting 1 September 2010. With this, the commercial launch of 3G mobile services is expected to happen by the end of this year or early next year, which would enable mobile phone subscribers to access the internet and download videos at a much faster pace.

Bharti Airtel said it has appointed the son of its billionaire founder-chairman as a manager, setting the ball rolling for his eventual succession of the $27 billion company. Shravin Bharti Mittal, 23, one of twin sons of Sunil Bharti Mittal, will be part of Bharti's international operations in Africa, the company said in a statement. He may be elevated to the board of the company's international unit or equivalent position in future, the company said. Shravin Mittal will initially get an annual salary of 50,000 euros, according to a company statement.

India's largest steel maker by sales Tata Steel was the second biggest Sensex gainer. It spurted 5.84% to Rs 539.95. Tata Steel's UK unit Corus signed an agreement with Thailand's Sahaviriya Steel Industries for the sale of its mothballed Teesside plant in northern England for $500 million. The assets covered by the agreement include the Redcar and South Bank coke ovens, power generation facilities and sinter plant, the Redcar Blast Furnace and the Lackenby Steelmaking facilities. The sale agreement would also result in Corus and Sahaviriya Steel (SSI) operating Redcar Wharf (TCP's bulk terminal) as a joint venture, giving Corus the flexibility to use Teesside to serve its other steelmaking operations, while also meeting SSI's requirements on Teesside.

Anil Dhirubhai Ambani-controlled Reliance Infrastructure was the third biggest Sensex gainer. It rose 4.93% to Rs 1030.45.

Maruti Suzuki India (up 4.44%), ICICI Bank (up 4.34%), Sterlite Industries (up 4.31%), Hindalco Industries (up 4.19%), were the other prominent gainers.

India's largest car maker by sales Maruti Suzuki India rose as the company's total vehicle sales rose 23.6% to 1,04,791 units in August 2010 over August 2009.

Copper maker Sterlite Industries jumped on reports a leading Japanese brokerage had upgraded its rating on the stock to 'buy' from 'neutral', following a recent fall in its share price.

India's largest power equipment maker by sales Bharat Heavy Electricals was the biggest Sensex loser. It fell 3.14% to Rs 2392.6.

India's largest two-wheeler maker by sales Hero Honda Motor was the second biggest Sensex loser. The scrip fell 2.74% to Rs 1736.15. The company reported 2.16% rise in total vehicle sales to 4.24 lakh units in August 2010 over August 2009.

Index heavyweight Reliance Industries (RIL) fell 2.54%. It was the third biggest loser in the Sensex. RIL said on 1 September 2010 it bought additional 26.7 lakh shares or about 0.68% stake in EIH, raising its stake in the hotel chain to 14.8%. It may be recalled that RIL had early this week bought a 14.12% stake in EIH from EIH promoters in an off-market deal valued at Rs 1,021 crore, or an average price of Rs 184 a share. EIH jumped 11.58% in the week.

TCS (down 2.16%), State Bank of India (down 1.06%), and Jindal Steel & Power (down 0.90%), were the other Sensex losers.