Higher Q3 advance tax payment may cap downside

Emerging market investors will closely watch activity from foreign institutional investors (FIIs) in the coming weeks as rising US bond yields in response to an improving US growth outlook could result in emerging market carry trade losing flavour. Low trading volumes may cause volatility on the bourses towards the end of the calendar year. Volumes are likely to drop as foreign fund managers go for Christmas and year-end vacation.



Higher advance tax payment by Indian firms for the third installment of 15 December, may support the market at lower level. As per reports, top Indian firms have paid 15-20 % higher tax for the third quarter of the current financial year. Except for cement companies, firms in all the sectors such as banking, auto and pharma have paid more advance tax than last year. Top private sector players such as Reliance Industries, the Tata group companies and the AV Birla group saw a sharp surge in the third installment of advance tax payment.

Investors in India are also closely watching political developments as the government struggles to contain the fallout from the sale of lucrative mobile phone licences at below-market prices in 2007-08. The Central Bureau of Investigation (CBI) on Wednesday, 15 December 2010, raided 34 offices and residences of corporate lobbyist Nira Radia, former TRAI Chairman Pradip Baijal, siblings of former telecom minister A Raja and an NGO linked to DMK MP and Tamil Nadu chief minister M Karunanidhi's daughter Kanimozhi. The CBI also swooped down on the premises of Raja's auditor Subramanyam and also auditor of Ms. Kanimozhi's mother.

Kanimozhi on Thursday, 16 December 2010, sought to dispel notions that the CBI raids in the 2G spectrum scam had strained relations between DMK and the Congress and described the raids as due process of law. Meanwhile, DMK chief Karunandhi has reportedly convened a meeting of the DMK executive on Saturday, 18 December 2010, to take stock of the political situation. DMK is a part of the Congress-led United Progressive Alliance (UPA) government at the Centre. DMK has 18 MPs in the current Lok Sabha.

On the global front, investors remain worried about euro-zone sovereign-debt problems. Political leaders from the European Union (EU) will hold discussions on Thursday, 16 December 2010 and Friday, 17 December 2010, on the sovereign-debt crisis. The EU leaders will reportedly consider measures such as creating a permanent crisis-resolution mechanism and increasing the current bailout fund.

The Indian stock market remains closed on Friday, 17 December 2010, on account of Moharum.