Taxing times

"There is no such thing as a good tax." - Winston Churchill. Reported clarifications on GAAR tax regulations and soothing words from the FM on the vexed issue may have calmed some frayed nerves. However, the uncertainties do not end here. As a result, the market is unlikely to heave a sigh of relief until the matter is settled. The sudden drop in FII inflows in the past couple of sessions is testimony of escalating tension on the GAAR issue. We expect a lower opening as global markets have taken a breather after rallying on Ben Bernanke’s dovish remarks. US stocks fell on mixed economic reports. European indices too finished lower. Stock benchmarks in Japan and China are pacing a decline in Asia this morning. The Government’s borrowing calendar for H1 FY13 might add to a growing view that interest rates might not fall as fast as anticipated earlier. All eyes are on the April 17 RBI policy meeting. In addition, a few banks have hiked deposit rates to tide over a liquidity crunch. This could pressure their margins as lending rates may not rise commensurately. The undertone remains nervous and a fresh bout of selling is not ruled out. At the same time, upside seems capped from here given the plethora of problems the Indian market is confronting. Volatility may increase before Thursday’s F&O expiry. The trading action on Tuesday was volatile. The appearance of a ‘bullish harami cross’ near the rising support line extended from the trough of 4530 indicates a trend reversal signal. The 200 DMA at around 5160 levels becomes a very important level to watch. Immediate resistance for the Nifty is expected around 5380. Trend in FII flows: The FIIs were net buyers of Rs 429.9mn in the cash segment on Tuesday while the domestic institutional investors (DIIs) were net sellers of Rs 2.9bn, as per the provisional figures released by the NSE. The FIIs were net sellers of Rs 6.3bn in the F&O segment on Tuesday, according to the provisional NSE data. The foreign funds were net sellers at Rs 944mn in the cash segment on Monday, according to the SEBI figures. Mutual Funds were also net sellers of Rs 1.74bn on the same day. Global Data Watch today: Eurozone M3 money supply, UK current account, UK GDP data, UK business investments, US mortgage applications, Germany CPI data and US durable goods orders.