Market hits one-week low on Indo-Mauritius tax treaty ‎revision concerns

Key benchmark indices fell for the second straight day to reach their lowest closing level in one week on reports Indian and Mauritian tax officials have begun talks on revising the double taxation avoidance pact between the two countries. Index heavyweight Reliance Industries (RIL) fell nearly 2%. The barometer index, the BSE Sensex, lost 146.10 points or 0.92%, off about 160 points from the day's high and up close to 60 points from the day's low. The market breadth was weak. BSE Small-Cap and Mid-Cap indices fell more than 1% each.

Interest rate sensitive banking stocks declined on fears of increase in bad loans in a slowing economy. Realty stocks were mixed. Metal stocks fell as hedge funds reduced bets on higher global commodity prices to the lowest level since 2009 in the week ended 20 December 2011. Some power stocks bucked weak market. Interest rate sensitive auto stocks fell on concerns higher interest rates could crimp sales of automobiles.



Reports that Indian and Mauritian tax officials have begun talks on revising the double taxation avoidance pact between the two countries, weighed on sentiment. About 40% cent of FII inflows and around 42% of the foreign direct investment (FDI) in India are routed through the island nation. While short-term capital gains are taxed at 15% in India, they are exempted in Mauritius. Several companies take advantage of the double taxation avoidance pact between the two countries and escape paying taxes in both the countries.

From a recent high of 15,970.75 on Monday, 26 December 2011, the Sensex has declined 242.90 points or 1.52% in two trading sessions. The Sensex has fallen 395.61 points or 2.45% so far this month. The Sensex has slumped 4,781.24 points or 23.31% in calendar 2011. From a 52-week high of 20,664.80 on 3 January 2011, the Sensex has lost 4,936.95 points or 23.89%. From a 52-week low of 15,135.86 on 20 December 2011, the Sensex has risen 591.99 points or 3.91%.

Stocks were volatile today, 28 December 2011, as traders rolled over positions in futures & options (F&O) segment from the near-month December 2011 series to January 2012 series. The near-month December 2011 F&O contracts expire tomorrow, 29 December 2011.

The market edged lower in early trade on weak Asian shares. The market extended initial losses to hit fresh intraday low in morning trade. A bout of volatility was witnessed in mid-morning trade as key benchmark indices trimmed losses after hitting fresh intraday lows. The market weakened further to hit fresh intraday low in early afternoon trade. Intraday volatility continued as key benchmark indices cut losses after hitting their lowest level in nearly one week in early afternoon trade. Weakness continued in mid-afternoon trade. The market weakened once again after trimming intraday losses in late trade.

The BSE Sensex shed 146.10 points or 0.92% to settle at 15,727.85, its lowest closing level since 21 December 2011. The index rose 13.85 points at the day's high of 15,887.80 in early trade. The index fell 207.49 points at the day's low of 15,666.46 in early afternoon trade.

The S&P CNX Nifty lost 44.70 points or 0.94% to settle at 4,705.80, its lowest closing level since 21 December 2011. The index hit a low of 4,685.65 and a high of 4,756.20 in intraday trade.

The BSE Mid-Cap index fell 1.06% and the BSE Small-Cap index dropped 1.12%. Both these indices underperformed the Sensex.

BSE clocked turnover of Rs 1270 crore, lower than Rs 1343.01 crore on Tuesday, 27 December 2011.

The market breadth, indicating the overall health of the market, was weak. On BSE, 1,682 shares declined and 1,054 shares rose. A total of 109 shares were unchanged.

Among the 30-member Sensex pack, 18 fell while the rest of them rose.

Index heavyweight Reliance Industries (RIL) declined 1.95%. Gas output from Reliance Industries' eastern offshore KG-D6 gas field declined to a fresh low of 38.66 million cubic metres per day during the week ended 18 December 2011, as the company shut five wells due to water ingress, a news agency reported citing a status report filed by the company with the Oil Ministry. The director general of hydrocarbons S.K. Srivastava last week said that RIL is planning workover operations to revive sick wells at its D6 block in the Krishna-Godavari basin, off India's east coast. Srivastava said production at the KG-D6 block may increase post the workover program.

RIL late last month said that it has initiated arbitration proceedings against the government to seek an independent view of a tribunal on the issue of the company's entitlement of recovery of entire costs on KG-D6 gas blocks from the revenue generated from the blocks. RIL said it has initiated arbitration proceedings against the Government of India (GoI) in a bid to finally resolve the cost recovery issue so as not to hinder future investments in this block.

RIL said its investment in KG-D6 production facilities has been only partly recovered and the return on the investment so far is less than the cost of the capital. The production sharing contract (PSC) with the Government of India (GoI) contains no provision which entitles the GoI to restrict the costs recovered by the company by reference to factors such as the level of production or the extent to which field facilities are utilised, RIL said.

Interest rate sensitive auto stocks fell on concerns higher interest rates could crimp sales of automobiles. Purchases of automobiles, including that of cars, utility vehicles and commercial vehicles are substantially driven by financing. India's largest passenger vehicle maker by sales Tata Motors shed 0.91%. The company is replacing starter motors of all of its Nano minicar's older variant that were sold between July 2009 and October this year because the company has developed a better starter motor which is installed on the new Nano. Tata Motors introduced a new variant of Nano in November.

India's second largest motorcycle maker by sales Bajaj Auto shed 1.59%. India's largest bike maker by sales Hero MotoCorp rose 0.19%.

India's biggest utility vehicle maker by sales Mahindra & Mahindra (M&M) shed 2.39%. The company plans to raise prices of its vehicles by up to 3% in January 2012 to offset the effects of rising raw-material costs. The company's total auto sales jumped 52.7% to 40,722 units in November 2011 over November 2010. The company plans to unveil new models from its recently acquired South Korean unit Ssangyong Motor Co at the New Delhi Auto Expo 2012 next month.

India's largest small carmaker by sales Maruti Suzuki India fell 0.35%. Maruti plans to launch a new multi-utility vehicle Ertiga at the New Delhi Auto Expo 2012 next month. It will also display two small cars based on the K-car platform that are sold in Japan.

Interest rate sensitive banking stocks declined on fears of increase in bad loans in a slowing economy. India's largest commercial bank by net profit and branch network State bank of India (SBI) dropped 2.02%. The bank will raise term deposit rates for non-resident external accounts by up to 574 basis points from 1 January 2012. Deposits below Rs 1 crore will earn interest rates of 9.25%. Deposits above Rs 1 crore will earn 9% for 1-2 years maturity from 3.82% earlier.

The Reserve Bank of India deregulated interest rates on non-resident external (NRE) rupee deposits and ordinary non-resident accounts earlier this month to provide greater flexibility to banks to attract dollars

India's largest private sector bank by branch network ICICI Bank declined 3.88%. Punjab National Bank, Yes Bank, Bank of India, Axis Bank, Bank of Baroda, Federal Bank, Union Bank of India, Kotak Mahindra Bank, IDBI Bank, IndusInd Bank and Canara Bank fell by 0.48% to 4.24%.

India's second largest private sector bank by branch network HDFC Bank was flat. The bank raised interest rates on non-resident savings deposits to 9% from 3.82% from Friday, 23 December 2011, taking advantage of recent deregulation to attract dollars.

The Reserve Bank of India (RBI) said on Tuesday banks' investments in paid up equity of financial entities, even if they are exempted from capital market exposure, will be assigned a 125% risk weight or risk weight warranted by external rating of the counter party, whichever is higher, from 1 January 2012. Previously, such investments were assigned a 100% risk weight, the central bank said in a statement.

Metal stocks fell as hedge funds reduced bets on higher global commodity prices to the lowest level since 2009 in the week ended 20 December 2011. Tata steel, Sterlite Industries (India), Nalco, Jindal Saw, Hindalco Industries, Hindustan Zinc, and Sail dropped by between 0.12% to 3.48%.

Jindal Steel & Power slipped 7.07% and was the top loser from the Sensex pack on reports the government is proposing to cap tariffs for power supplied from projects that have captive coal blocks and assured fuel supply from Coal India.

Tata Power Company rose 1.61% after the company announced after market hours on Tuesday that it has signed a share purchase agreement with BP Alternative Energy Holdings to purchase the latter's 51% equity and preference shares in the joint venture -- Tata BP Solar India. On completion of transaction, Tata Power will own 100% of Tata BP Solar India. Tata BP Solar India will continue to enjoy access to certain BP technology until 2013.

Among other power stocks, Bhel and NTPC rose by between 2.26% and 2.68% respectively.

Index heavyweight L&T rose 0.09% to Rs 1029.75, off the day's low of Rs 1007.50.

Pharma major, Cipla rose 1.2% on defensive buying.

Interest rate sensitive realty stocks were mixed. Unitech, HDIL and Orbit Corporation dropped by between 2.24% to 6.7%. DLF and Indiabulls Real Estate rose by between 0.71% to 2.09%.

PSU OMCs declined as oil prices surged. Higher crude oil prices will 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 deregulated petrol prices. HPCL (down 2.76%), Indian Oil Corporation (down 2.97%) and BPCL (down 1.69%), edged lower.

Crude oil futures traded near six-week high after Iran threatened to block crude transportation through the Strait of Hormuz, sparking oil supply concerns.

Oil exploration stocks fell in a weak market. Cairn India, and ONGC shed by between 1.14% to 2.27%. But, Oil India rose 0.16%. Higher crude oil prices will result in higher realizations from crude sales for oil exploration firms.

Airline stocks declined as crude oil prices surged. Jet Airways, Kingfisher Airlines and SpiceJet shed by between 1.81% to 3.52%. Jet fuel or aviation turbine fuel (ATF) typically makes up almost half of an airline's operating cost. 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.

IT stocks were mixed. India's second largest software services exporter by revenue Infosys gained 0.7%. The company said last week its business process outsourcing subsidiary -- Infosys BPO has signed a definitive agreement to acquire all of the outstanding share capital in Australia-based Portland Group Pty, a leading provider of strategic sourcing and category management services. The purchase consideration for the deal is Australian dollar (AUD) 37 million. Portland Group reported revenue of about AUD 31.3 million for the year ended 30 June 2011.

India's third largest software services exporter by revenues Wipro fell 2.27%.

India's largest software services exporter by revenues Tata Consultancy Services (TCS) declined 0.65%. TCS early last week announced that it will expand its operations in the state of Maharashtra by building a new software development campus in Nagpur with an investment of Rs 600 crore in the first phase.

The rupee fell on Wednesday dragged by dollar demand from oil importers. The rupee was at 53.32/33 to the dollar, weaker than Tuesday's close of 53.015/025. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion's share of revenue from exports.

Cals Refineries clocked highest volume of 1.24 crore shares on BSE. Resurgence Mines (80.01 lakh shares), IFCI (62.86 lakh shares), Rockon Fintech (57.23 lakh shares) and Dazzel Confindive (33.19 lakh shares) were the other volume toppers in that order.

SBI clocked highest turnover of Rs 69.87 crore on BSE. Infosys (Rs 60.59 crore), RIL (Rs 46.37 crore), ICICI Bank (Rs 41.27 crore) and L&T (Rs 35.17 crore) were the other turnover toppers in that order.

Foreign funds bought shares worth Rs 214.31 crore on Tuesday, 27 December 2011, as per provisional data from the stock exchanges. FIIs bought stocks worth a net Rs 412.01 crore in three trading sessions from 23 to 27 December 2011, as per provisional data from the stock exchanges. Before recent inflows, FIIs were net sellers for ten days in a row from 9 to 22 December 2011. FIIs have sold shares worth a net Rs 1274.60 crore so far this month (till 27 December 2011), as per provisional data from the stock exchanges.

A government statement in parliament last month dashed hopes of a relief in securities transaction tax (STT). Junior finance minister S.S. Palanimanickam has said that the government has no proposal to lower the securities transaction tax (STT). There has been a speculation that the government will reduce STT in Union Budget 2012-2013 in a bid to revive sagging volumes on the bourses. Palanimanickam said in a written reply to Rajya Sabha that the securities transaction tax receipts had declined by around 18% to Rs 2960 crore during the first six months in the current fiscal year from a year ago period.

The next major trigger for the market is Q3 December 2011 corporate earnings which will start tricking from second week of January 2012. The focus will be on guidance from the company managements on outlook for the remaining part of the year and for the next year. Advance tax collection from the country's top 100 companies, as per the final numbers, declined by 1.4% to Rs 30763 crore in the third quarter of 2011-12, indicating sluggishness in economy. Advance taxes are collected in four installments -- 15% by 15 June; 40% by 15 September; 75% by 15 December and 100% by 15 March.

Prime Minister Manmohan Singh last week said he was disappointed to hear negative comments from industry leaders that the government's policies were leading to a slowdown. Singh, who met members of his Trade and Industry Council, said such comments strengthened negative forces who had no stake in the country's development. The UPA government has been battling criticism over its handling of the economy and the perception of policy paralysis in the aftermath of a string of scandals which hit the headlines since last year. Several top industrialists had written to the government expressing frustration at the slow pace of reforms and the gloomy atmosphere.

Credit rating agency Moody's Investors Service on 14 December 2011 said that the sharp decline in the value of the Indian rupee against the dollar over the past few months is generally exerting only a moderate impact on rated Indian companies. Risks for companies holding large amounts of dollar denominated debt are also manageable in the near term, given that debt maturities are limited for this time frame, Moody's said in a new report. This means Indian companies rated by Moody's do not have a significant dollar outflow at a time when the Indian rupee is losing ground.

The infrastructure sector output grew 6.8% in November from a year earlier, sharply higher than the annual growth of 3.7% in November last year, data released by the government on Monday, 26 December 2011, showed. The infrastructure sector accounts for 37.9% of India's industrial output.

The food inflation eased sharply to 1.81% in the year to 10 December 2011, from an annual 4.35% rise in the previous week, government data showed on Thursday, 22 December 2011. The fuel inflation remained unchanged at 15.24% in the latest week compared with the prior week, data showed, while the primary articles price index rose 3.78%, compared with an annual rise of 5.48% in the previous week.

At its mid-quarterly monetary policy review meet on Friday, 16 December 2011, the Reserve Bank of India (RBI) left its main lending rate unchanged in order to support faltering economic growth as inflation shows signs of cooling. While inflation remains on its projected trajectory, downside risks to growth have clearly increased, RBI said in a statement. From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth, RBI said.

RBI said inflation risks remain high and inflation could quickly recur as a result of both supply and demand forces. RBI also said that the rupee remains under stress. The timing and magnitude of further actions will depend on a continuing assessment of how these factors shape up in the months ahead, RBI said. The RBI has raised rates 13 times since March 2010.

India may face the risk of stagflation if the government doesn't take urgent steps to tame inflation and stimulate growth, a parliamentary panel on finance warned on Thursday, 22 December 2011. The Standing Committee on Finance blamed the Reserve Bank of India's 13 interest-rate increases over the past 21 months for stalling economic growth. "Measures taken by the government and the RBI so far have squarely failed to rescue the economy from unabated inflation. Instead, monetary measures initiated for this purpose have only resulted in worsening the condition of the economy further," the report said.

Finance minister Pranab Mukherjee on Sunday, 25 December 2011, said he did not think there was any problem in presenting the Budget for 2012-13 on schedule in the wake of the announcement of assembly elections in five states. Mukherjee, however, said the date for the presentation of the budget will be fixed after discussions at various levels. The Union Budget is presented on the last date of February every year.

The Election Commission on Saturday, 24 December 2011, announced the dates for the assembly polls in Uttar Pradesh, Punjab, Uttarakhand, Manipur and Goa. Uttar Pradesh will have polling on February 4, 8, 11, 15, 19, 23 and 28, while Uttarakhand and Punjab will go to polls on January 30. Manipur will have polls on January 28 and Goa on March 3.

The Lok Sabha on Tuesday night passed a historic Lokpal and Lokayuktas Bill, 2011, but defeated a parallel Constitution (116th Amendment) Bill, which would have given the Lokpal constitutional status. The Whistle-blowers Bill (Protection to Persons Making the Disclosures Bill, 2010) was also passed by the Lok Sabha, which literally burnt the midnight oil to complete the legislative business. In the next step, the Bill will have to get the nod from the Rajya Sabha before it goes to the President for her assent. The UPA government does not have a majority in the Upper House and so the fate of the anti-graft Bill will be at the mercy of the Opposition. The Lokpal Bill will be debated in Rajya Sabha tomorrow, 29 December 2011.

Anti-corruption activist Anna Hazare who is unwell has announced that he is calling off his fast at the MMRDA Grounds in Mumbai and will instead sit in protest at Delhi's Ramlila Ground for two days, starting December 30. Last night, doctors said Anna was seriously unwell. His blood pressure was rising, and he was feverish. This morning, they warned that if he persists with his fast, he faces the risk of a kidney failure. Anna had on Tuesday, 27 December 2011, begun his hunger strike to protest against the government's version of the Lokpal Bill that was cleared with amendments last night by the Lok Sabha.

European stocks extended their gains on Wednesday with the benchmark index rising for a fourth day, as Italy's borrowing costs fell at an auction of 179-day bills. Key benchmark indices in France, Germany and UK gained by between 0.48% to 0.88%.

Italian short-term debt costs halved at auction on Wednesday as a new austerity package and cheap long-term liquidity from the European Central Bank won Rome some respite in thin year-end markets. Italy sold 9 billion euros of six-month BOT bills at an average rate of 3.25% down from a euro lifetime record of 6.50% at an auction last month. Demand totalled 1.69 times the amount on offer, versus a bid-to-cover ratio of around 1.5 at the end of November. This is the first Italian debt sale since the ECB provided 490 billion euros in cheap three-year loans to euro zone banks on December 21 in an unprecedented move aimed at easing credit strains.

Asian stocks declined on Wednesday, 28 December 2011, amid concern economic growth in the region is slowing. Key benchmark indices in Hong Kong, Singapore, Indonesia, Japan, South Korea and Taiwan fell by between 0.28% to 0.92%. However, China's Shanghai Composite index rose 0.18%.

Economic reports today showed Japan's industrial production dropped and confidence among South Korean manufacturers sank to a 30-month low.

Trading in US index futures indicated that the Dow could gain 25 points at the opening bell on Wednesday, 28 December 2011. US stocks ended little changed on Tuesday, 27 December 2011, as a better-than-estimated US consumer confidence report overshadowed a decline in US home prices and concern about Europe's debt crisis.

The Confidence Board reported that its consumer confidence index came to 64.5 in December, up from 55.2 in November and outpacing market forecasts for a 58.2 reading. Consumer spending accounts for about 70% of total US economic output. On a more negative note, the S&P/Case-Shiller House Price Index showed home prices in a 20-city composite group fell 3.4% in October when compared to the same month in 2010, slightly worse than expected.