FII activity holds key

The market may remain rangebound although stock-specific activity could be witnessed based on Q4 earnings. On the macro front, the government will announce inflation data for the month of April 2012 on Monday, 14 May 2012. The annual rate of inflation based on the Wholesale Price Index (WPI) is seen easing to 6.6% in April 2012, as per the median estimate of a poll of economists carried out by Capital Market. The annual rate of inflation, based on monthly WPI, stood at 6.89% (provisional) for the month of March 2012. Investors are closely watching India Inc's Q4 March 2012 and year ending March 2012 (FY 2012) earnings. Focus is on the guidance provided by the managements for the year ending March 2013 (FY 2013) to gauge the earnings outlook. L&T announces FY 2012 results on Monday, 14 May 2012. Bajaj Auto announces FY 2012 results on Thursday, 17 May 2012. State Bank of India, Tata Steel and Coal India unveil FY 2012 results on Friday, 18 May 2012. The trend in flows from foreign institutional investors hold key. Investor sentiment has been affected, as government remained adamant on its stance to tighten noose on overseas tax evaders. Finance Minister Pranab Mukherjee reiterated on Tuesday, 8 May 2012, the government's right to tax overseas transactions of companies that realize capital gains from the sale of their Indian assets. There cannot be a situation where somebody will make huge capital gains on the assets located in India and will not pay tax to either India or the country of its origin by making some arrangements through certain tax haven locations through a complicated setting up of series of subsidiaries, Mukherjee said in his closing remarks during the debate on the Finance Bill. India will not be treated as a tax haven, Mukherjee said. The Finance Bill 2012 was passed by Lok Sabha on Tuesday, 8 May 2012. The government has proposed retrospective changes that will empower the government to tax transactions that have taken place outside the country, but involve underlying assets located in India. The proposal will have the power to tax retroactively. Mukherjee had clarified early this week that the retrospective amendments do not override the provisions of double taxation avoidance agreements (DTAAs). The finance minister had also clarified that the retrospective amendments would not be used to reopen cases where assessments have been completed. Critics have slammed the proposal for a retroactive capital-gains tax as contrary to international taxation practices, and a legislative reversal of a Supreme Court decision earlier this year that said such tax on such deals wasn't allowed. Mukherjee said in parliament on Monday, 7 May 2012 that the application of General Anti-Avoidance Rules (GAAR) has been deferred by one year until 1 April 2013, giving some short term respite to the foreign investors.