Sensex, Nifty at 8-week lows on concerns new tax norms may hit FII inflow

Key benchmark indices reached their lowest closing level in eight weeks on reports the adoption of the new tax norms viz. the General Anti-Avoidance Rules (GAAR) which come into effect from 1 April 2012, could affect FII investments through the Mauritius tax haven and through participatory notes (P-notes) route. Also dampening sentiments were concerns of high crude oil prices and its adverse impact on already high fiscal deficit of the government. The barometer index, BSE Sensex, lost 308.96 points or 1.78%, off about 325 points from the day's high and up close to 30 points from the day's low. The market breadth was weak. All the 13 sectoral indices on BSE in the red. All the 30 stocks from the Sensex pack declined.

Index heavyweight Reliance Industries (RIL) edged lower. Interest rate sensitive banking declined on fears banks' bad loans could increase in a slowing economy. Auto stocks dropped on worries increase in vehicle prices following a hike in excise duty in Union Budget 2012-13 will dampen demand. IT pivotals edged lower in volatile trade. Power generation stocks saw across the board slide. Cigarette maker ITC slipped on profit booking.



Pharma major Cipla lost over 4% after a bulk deal of 30 lakh shares was executed on the stock on the BSE today, 26 March 2012. Kotak Mahindra Bank rose after a mega bulk deal of 2.65 crore shares or 3.57% equity was executed on the counter in opening trade on the BSE today, 26 March 2012.

Concerns about FII inflows hit sentiments. Media reports suggest that the adoption of the new tax norms viz. the General Anti-Avoidance Rules (GAAR) which come into effect from 1 April 2012, could affect FII investments through the Mauritius tax haven and through participatory notes (P-notes) route. GAAR will help the tax authority deal with commercial transactions that are structured essentially to circumvent tax laws and avoid paying taxes. If the revenue authority concludes that a transaction by any entity is aimed primarily at avoiding taxes, it will be able to deny tax benefits claimed by the entity. The detailed guideline that is expected to be issued will provide some clues on how the GAAR provisions are to be applied in practice.

It is no secret that a large portion of FIIs investing in to India are domiciled in Mauritius. The double taxation avoidance agreement (DTAA) that India has signed with Mauritius enables tax on securities transaction to be taxed in the country where the company is resident. Since capital gains tax rate in Mauritius is zero, foreign investors buying or selling Indian stocks through the Mauritius route get away by paying no capital gains tax.

High crude oil prices also weighed on sentiment. India imports two-thirds of its oil consumption, so an increase in oil prices will hurt its fiscal balance substantially. If the government fails to hike petrol and diesel prices, the subsidy burden is set to impact fiscal deficit. Crude oil prices are up 8% this year after advancing 25% in the last quarter of 2011. Oil for May delivery was at $106.78 a barrel in London.

Key benchmark indices edged lower in early trade on mostly lower Asian shares. The market extended initial losses to hit its lowest level in more than 2-1/2 weeks in morning trade. Key benchmark trimmed losses after sliding to fresh intraday lows in morning trade. Volatility continued as key benchmark indices recovered after hitting fresh intraday lows in early afternoon trade. Weakness on the bourses continued in afternoon trade. Sustained selling pressure in index pivotals kept the key benchmark indices firmly in the red in mid-afternoon trade. The market extended losses in late trade.

The market may remain volatile this week as traders roll over positions from the near-month March 2012 series to April 2012 series. The March 2012 derivatives contracts expire on Thursday, 29 March 2012.

The BSE Sensex lost 308.96 points or 1.78% to 17,052.78, its lowest closing level since 30 January 2012. The index fell 339.89 points at the day's low of 17,021.85 in late trade. The index rose 15.85 points at the day's high of 17,377.59 in early trade.

The S&P CNX Nifty shed 93.95 points or 1.78% to 5,184.25, its lowest closing level since 30 January 2012. The index hit a low of 5,174.90 and a high of 5,274.95 in intraday trade.

The BSE Mid-Cap index fell 1.6% and the BSE Small-Cap index declined 1.4%. Both these indices outperformed the Sensex.

The total turnover on BSE amounted to Rs 3784 crore, higher than Rs 2,371.70 crore clocked on Friday, 23 March 2012.

The barometer index, BSE Sensex, has fallen 699.90 points or 3.94% in March 2012 so far (till 26 March 2012). The index has surged 1,597.86 points or 10.33% in calendar 2012 so far (till 26 March 2012). From a 52-week low of 15,135.86 on 20 December 2011, the Sensex has risen 1,916.92 points or 12.66%. From a 52-week high of 19,811.14 on 6 April 2011, the Sensex has lost 2,758.36 points or 13.92%.

Coming back to today's trade, the market breadth, indicating the overall health of the market, was weak. On BSE, 1,955 shares declined and 919 shares rose. A total of 113 shares were unchanged.

All the 30 members from the Sensex pack declined.

Index heavyweight Reliance Industries (RIL) shed 1.91%. The board of directors of RIL at its meeting held on Friday, 23 March 2012, approved a scheme of arrangement for amalgamation of Reliance Jamnagar Infrastructure (RJIL) -- a wholly-owned unlisted subsidiary of RIL -- with RIL. RIL, being the holding and transferee company, the entire issued, subscribed and paid up capital of RJIL will get cancelled and no news shares of RIL will be issued, RIL said.

Interest rate sensitive banking declined on fears banks' bad loans could increase in a slowing economy. India's biggest private sector bank in terms of net profit, ICICI Bank lost 4.3%.

India's second largest bank by net profit HDFC Bank fell 1.04%.

India's largest bank by branch network State Bank of India slipped 2.17%.

Among other banking stocks, Axis Bank, Punjab National Bank, Yes Bank, Canara Bank and Union Bank of India dropped by between 2.65% to 4.58%.

Kotak Mahindra Bank rose 1.18% to Rs 530.95 on high volume of 2.67 crore shares after a mega bulk deal of 2.65 crore shares or 3.57% equity was executed on the counter at Rs 530.40 per share in opening trade.

Auto stocks dropped on worries increase in vehicle prices following a hike in excise duty in Union Budget 2012-13 will dampen demand. India's largest commercial vehicle maker by sales Tata Motors fell 1.78%. Tata Motors recently increased the prices of its commercial vehicles and passenger vehicles following hike in excise duty announced in Union Budget 2012-13.

India's largest utility vehicles and tractors maker by sales Mahindra & Mahindra shed 1%.

India's largest small car maker by sales Maruti Suzuki India shed 0.89% to Rs 1297. The stock retreated after an initial rise to an intraday high of Rs 1323.40 triggered by reports the company has increased the prices of its vehicles by up to Rs 17,000 per unit following the hike in excise duty in the Budget 2012-13.

Maruti Suzuki India chairman R.C. Bhargava on Monday said the car maker plans to cut car production by half by 2015 at its factory at Gurgaon due to various logistical and environmental issues. Bhargava also said that the company may eventually make up to 20 lakh cars at a new factory in Gujarat. Bhargava on Saturday, 24 March 2012, said the company will invest Rs 1700 crore to set up a new diesel-engine plant in Gurgaon to cater to the rising demand for cheaper fuel vehicles. The new plant will initially produce 1.50 lakh diesel engines and the plans are to double production by 2014, Bhargava said.

India's second largest bike maker by sales Bajaj Auto fell 2.97%. India's largest bike maker by sales Hero MotoCorp slipped 1.1%.

IT pivotals edged lower in volatile trade. India's second largest software services exporter by revenue Infosys declined 1.36%. India's largest software services exporter by revenue TCS fell 1.76%. India's third largest software services exporter by revenues Wipro shed 0.67%.

Power generation stocks saw across the board decline on concerns about coal shortage. NTPC, Tata Power Company, Reliance Infrastructure, Torrent Power, Reliance Power, GVK Power Infrastructure and Lanco Infratech declined by between 0.84% to 3.77%.

Coal India (CIL) declined 0.58%. As per reports, London-based hedge fund, The Children's Investment Fund (TCI), has written to coal secretary Alok Perti to change the top management of CIL, saying the company lacked necessary leadership to develop operationally. TCI is the second largest shareholder in CIL, with 1.01% holding (as on 31 December 2011) with the Government of India stake pegged at 90%.

TCI had recently threatened to sue the board of directors of CIL as it felt that the government influenced pricing policies. TCI wants parity of coal prices to import prices and rectification of other fiduciary duties by the company's directors.

Cigarette maker ITC fell 0.2% to Rs 222 on profit taking. The stock had hit a record high of Rs 226.65 in intraday trade on Thursday, 22 March 2012. The Union Budget 2012-13 imposed an additional ad-valorem excise on cigarettes, while keeping the fixed rate structure constant. The additional levy is at the rate of 10% on 50% of retail selling price (MRP), which effectively works out to 5% of MRP. This additional levy is on cigarettes above 65 mm of length, which covers almost the entire cigarette portfolio of ITC. Analysts reckon that ITC may go for medication of length of some of its lower-end brands (reduce the length to sub-65mm) to avoid the additional levy on some part of its portfolio.

Pharma major Cipla lost 4.10% to Rs 289 after a bulk deal of 30 lakh shares was executed on the stock at Rs 297 per share at 10:42 IST on the BSE today, 26 March 2012.

Some hospitality stocks edged higher. Hotel Leela Venture (up 6.55%), Royal Orchid Hotels (up 0.1%), and EIH (up 1.12%), gained. Indian Hotels Company fell 2.02%.

EIH Associated Hotels gained 6.28% after the company said its board of directors will meet on 28 March 2012 to consider rights issue of equity shares. The company made this announcement after market hours on Friday, 23 March 2012.

Metal stocks edged lower. JSW Steel, Hindustan Zinc, Sail, Tata Steel, Jindal Steel & Power, Hindalco Industries and Sterlite Industries shed by between 0.68% to 4.16%.

Power equipment makers extended recent losses triggered by disappointment from the budget. Bhel, Crompton Greaves and Siemens fell by between 1.66% to 3.24%. But, Thermax rose 1.75%.

L&T fell 1.77%. The company last week said it has won new orders valued over Rs 1120 crore across various business segments in March 2012.

Union Budget 2012-13 disappointed power equipment makers which were anticipating that the government might impose an import duty of 14%-19% on mega/UMPP projects. A status quo on existing concessional import duty for mega and UMPP power projects means that domestic equipment makers who are augmenting their capacity continue to face strong competition in the domestic market.

Shares of some tea plantation firms gained on reports higher of tea prices this year. Williamson Magor & Company, Assam Tea & Exports, Jay Shree Tea & Industries, Goodricke Group, Harrisons Malayalam rose by between 0.24% to 3.85%. Tea auctions have reportedly witnessed strong opening prices this year. Auction prices are up 46-55% this year.

Shares of Mumbai-based real estate companies declined on reports the Maharashtra government has proposed a steep hike in stamp duty for leave-and-licence agreements for residential and commercial properties. Phoenix Mills, Hubtown, Indiabulls Real Estate, Oberoi Realty and HDIL dropped by between 0.14% to 4.83%.

Godrej Properties fell 3.38% at Rs 638.30 after the firm said its board finalised allocation of equity shares under the institutional placement programme to the successful applicants at the lower end of the Rs 575 - Rs 620 price band. The announcement was made before trading hours today, 26 March 2012.

Other realty shares also declined. Anant Raj Industries, DLF, Unitech, and D B Realty fell by between 0.09% to 8.24%.

Gold financing companies extended Friday's sharp losses after the Reserve Bank of India (RBI) last week put a restriction on financing against gold jewellery. Manappuram Finance slumped 11% while Muthoot Finance fell 5.18%. The Reserve Bank of India (RBI) has directed all NBFCs not to sanction loan beyond 60% of the value of gold jewellery.

The RBI further said that the NBFCs whose financial assets consist of loans against gold jewellery to the tune of 50% or more, will have to maintain 12% tier-I capital by April 1, 2014. RBI said NBFCs should not grant any advance against bullion/primary gold and gold coins and they have to disclose the percentage of gold loans to their total assets in balance sheet.

Kotak Mahindra Bank clocked the highest volume of 2.67 crore shares on BSE. Cals Refineries (2.5 crore shares), K S Oils (82.84 lakh shares), Vikas Wsp (76.50 lakh shares) and HDIL (58.54 lakh shares) were the other volume toppers in that order.

Kotak Mahindra Bank clocked the highest turnover of Rs 141.84 crore on BSE. SBI (Rs 115.86 crore), Cipla (Rs 92.89 crore), Tata Steel (Rs 57.30 crore) and RIL (Rs 55.59 crore) were the other turnover toppers in that order.

The next major trigger for the market is Q4 March 2012 earnings. Investors will focus on the guidance provided by the management for the year ending March 2013 (FY 2013) to gauge the earnings outlook. The Q4 earnings season will begin in mid April 2012. Advance tax payout of top Indian firms for the last installment of 15 March 2012 was largely flat. A muted advance tax payment indicates that the revenues and profits of companies are under stress. Companies have to pay advance tax on their projected earnings a fortnight before the end of every quarter.

The government on Monday ordered a CBI inquiry into the allegation made by Army chief General V K Singh that he was offered a Rs 14 crore bribe by a lobbyist. Earlier, both houses of Parliament were adjourned till 14:00 IST after the opposition MPs created a ruckus over the disclosures made by the Army chief. In an interview to a newspaper, the Army chief alleged that an equipment lobbyist offered him a bribe of Rs 14 crore, which he had reported to the Defence Minister. He said the lobbyist offered him the bribe in order to have a tranche of 600 sub-standard vehicles of a particular make cleared for purchase.

European stocks were volatile on Monday. Key benchmark indices in Germany and UK rose by between 0.48% to 0.7%. France's CAC 40 fell 0.1%.

The Spanish government on Sunday failed to secure a majority in an election in Andalucia, which may make it harder for Prime Minister Mariano Rajoy to push through austerity measures in that region to cut the country's deficit. Separately, Italian Prime Minister Mario Monti reportedly said Spain could reignite the euro-zone debt crisis if it fails to impose austerity measures.

Asian shares were mixed in volatile trade on Monday amid concern exporter earnings are deteriorating and after a report Chinese banks have understated the risks of loans to local governments. Key benchmark indices in Indonesia, Singapore and Taiwan were down by between 0.24% to 1.35%. Key benchmark indices in China and Japan rose by between 0.07% to 0.05%. Hong Kong's Hang Seng was unchanged.

South Korea's Kospi slipped 0.38%, with investors focused on developments with the North. US President Barack Obama on Monday repeated a warning to North Korea over the Asian country's planned rocket launch. Obama was speaking in Seoul ahead of a Nuclear Security Summit.

Trading in US index futures indicated that the Dow could gain 44 points at the opening bell on Monday, 26 March 2012. US stocks reversed early losses on Friday, 23 March 2012, shrugging off dull news from Europe and a downbeat picture of US home sales. The Dow Jones Industrial Average finished up 34.59 points, or 0.3%, at 13,080.73. The S&P 500 index gained 4.33 points, or 0.3%, to 1397.11, while the Nasdaq Composite index added 4.60, or 0.15%, to 3067.92