Nifty falls below 5,000

Key benchmark indices slumped as macroeconomic worries and weak global stocks hurt investor sentiment. The 50-unit S&P CNX Nifty fell below the psychological 5,000 mark. The market fell in four out of five trading sessions in the week ended Friday, 11 May 2012. The latest domestic data showed industrial production contracted 3.5% from a year earlier in March as manufacturing output shrank, deepening worries of a slowdown in the economy. The last time industrial output contracted was in October 2011, when production fell 5%. Manufacturing output, which has a 75.5% weight in the index of industrial production, contracted 4.4% from a year earlier in March. It had risen 3.9% on year in February. Capital goods output shrank 21.3%. However, electricity production increased 2.7% from a year earlier in March. For the year ended March 31, industrial output grew a muted 2.8%, against an 8.2% increase in the previous year, government data showed. Economic uncertainty in the euro zone returned as Greece has been unable to form a government since May 6 elections and Spain took control of the nation's fourth- biggest bank this week, putting the country at risk of bankruptcy. The BSE Sensex declined 538.10 points or 3.2% in the week ended Friday, 11 May 2012, to settle at 16,292.98, its slowest closing level since 16 January 2012. The 50-unit S&P CNX Nifty dropped 157.95 points or 3.1% to 4.928.90, its slowest closing level since 16 January 2012. The BSE Mid-Cap index fell 2.49% and the BSE Small-Cap index shed 2.93%. Both these indices outperformed the Sensex. Key benchmark indices snapped three-day losing streak on Monday, 7 May 2012, after the Finance Minister Pranab Mukherjee said in parliament that the application of General Anti-Avoidance Rules (GAAR) has been deferred by one year until 1 April 2013. The BSE Sensex advanced 81.63 points or 0.48% to settle at 16,912.71, its highest closing level since 3 May 2012. Key benchmark indices tumbled to their lowest closing level in almost 16 weeks on Tuesday, 8 May 2012 after comments from Reserve Bank of India (RBI) deputy governor Subir Gokarn that the central bank has relatively little room to cut interest rates now. Weakness in European stocks also weighed on the domestic bourses on that day. The BSE Sensex tanked 366.53 points or 2.17% to settle at 16,546.18, its lowest closing level since 18 January 2012. Key benchmark indices fell for the second straight day to reach their lowest closing level in 16-weeks on Wednesday, 9 May 2012. Data showing selling by foreign funds over the past two days weighed on sentiment. The BSE Sensex lost 66.60 points or 0.4% to settle at 16,479.58, its lowest closing level since 18 January 2012. Key benchmark indices fell for the third straight day to hit their lowest level in more than 16 weeks on Thursday, 10 May 2012, as data showing selling by foreign institutional investors over the past three trading sessions and weakness in European markets hurt investor sentiment. The BSE Sensex shed 59.53 points or 0.36% to settle at 16,420.05, its lowest closing level since 16 January 2012. Key benchmark indices edged lower to hit over 16-week closing lows on Friday, 11 May 2012. after the latest data showed a surprise contraction in industrial production in March 2012. The BSE Sensex lost 127.07 points or 0.77% to 16,292.98. From the 30 share Sensex pack, 27 stocks declined and only three rose during the week. Tata Power Company tumbled 7.73% and was the top loser from the Sensex pack. Index heavyweight Reliance Industries (RIL) declined 4.01%. The firm has reportedly cut its estimate of its total proven gas reserves by 6.6% to 103.958 billion cubic meters due to lower-than-expected output from its east coast gas field. Gas output from RIL operated D6 block, off India's east coast, is projected to decline to 20 million standard cubic metres a day (mmscmd) in 2014/15 from an estimated 28 mmscmd in this fiscal year, Oil Minister S. Jaipal Reddy said on Tuesday. RIL's average daily gas production from the D6 block in Krishna Godavari basin was 42.65 million standard cubic meters a day in the financial year through March 2012, way beneath a target of 70 mmscmd. RIL holds a 60% stake in D6. BP PLC owns 30% and Niko Resources has 10%. RIL also owns 30% of the Panna-Mukta-Tapti gas fields along India's west coast. RIL after trading hours on Friday, 4 May 2012, said that the government by its letter of 2nd May 2012 has communicated to the company that it proposes to disallow certain costs for natural gas exploration and development blocks which the Production Sharing Contract (PSC) entitles RIL to recover. On 23rd November 2011, RIL had issued arbitration notice under the provisions of the PSC relating to Block KG-DWN - 98/3 to the Government of India, on the issue, amongst others, of wrongful denial of cost recovery on the ground of lower production or under utilization of facilities. RIL said it maintains that any such attempt by the government is unwarranted and violative of the PSC. RIL said it continues to maintain that a contractor is entitled to recover all of its costs under the terms of the PSC and there are no provisions that entitle the government to disallow recovery of any contract cost as defined in the PSC. The government's communication articulates the very issues which are subject matter of the notice of arbitration issued by RIL and these issues will be resolved through arbitration process stipulated under the PSC which has been initiated by RIL, the company said in a statement. After market hours on Wednesday, 9 May 2012, RIL said it has signed a $2 billion equivalent loan with nine banks covered by Euler Hermes Deutschland AG ("Euler Hermes") on 7 May 2012 at Berlin, Germany. The loan will be primarily used to finance goods and services procured from German suppliers as part of RIL's petrochemicals expansion projects at Jamnagar, Hazira, Silvassa and Dahej in India. The facility is among the largest underwriting by Euler Hermes in recent years, RIL said. Euler Hermes has for the first time accorded 'Better than Sovereign' rating to a corporate, RIL said. Despite the challenging financial markets, the deal witnessed 50% over subscription, RIL. The facility has a door-to-door maturity of 13 years. This deal help diversify RIL's funding sources and extends the maturity profile of its long term debt in a cost effective manner, RIL said. Power generation major NTPC slipped 4.23% to Rs 148.35. The stock hit a 52-week low of Rs 146.10 on Friday, 11 May 2012. The company reported 6.77% fall in net profit to Rs 2593.44 crore on 5.19% growth in total income to Rs 17031.82 crore in Q4 March 2012 over Q4 March 2011. The result was announced during trading hours on Thursday, 10 May 2012. NTPC during market hours Friday, 11 May 2012, said that with a view to have benefit of synergy of operation, enhancement of efficiency and administrative control and to optimize utilization of resources, the board of directors has approved a scheme of amalgamation of NTPC Hydro (NHL), a wholly owned subsidiary of NTPC with NTPC. Coal India declined 4.6%. The government reportedly ordered the stat-run coal miner to supply coal to all power plants getting commissioned within this fiscal even if they have not signed legally binding fuel supply agreements (FSA) with the company. Interest rate sensitive banking shares declined as the Reserve Bank of India's final guidelines to implement the Basel-III capital rules issued last week, which require banks to steadily build up their capital buffers through March 2018. India's largest bank by branch network State Bank of India (SBI) tumbled 7.09% and was the second top loser from the Sensex pack. India's largest private sector bank by net profit ICICI Bank dropped 2.52%. India's second largest private sector bank by net profit HDFC Bank shed 4.83%. Interest rate sensitive auto shares were mostly lower as most auto firms reported tepid sales growth for April 2012. India's largest commercial vehicle makers by sales Tata Motors fell 1.33%. Tata Motors' Jaguar Land Rover unit on Friday, 11 May 2012, said it will source additional auto parts worth £1 billion from its UK-based suppliers over four years to meet rising demand for its sport-utility vehicle, the Range Rover Evoque. The company said the Evoque order book remains healthy and that the additional auto parts contracts will support the model's increased production at its factory in Halewood, Merseyside. India's largest car maker by sales Maruti Suzuki India lost 3.83%. Reportedly, the company has raised the prices of the new diesel variants of its sedan DZire by up to Rs 12,000 with effect from 1 May 2012, citing input costs pressure. India's largest tractor and sports utility vehicles maker Mahindra & Mahindra (M&M) fell 4.75%. The company announced during market hours on Wednesday that a fire broke out on Wednesday morning at one of the storage areas pertaining to manufacturing of Scorpio/Xylo TCF lines of Nasik Plant 1. The plant assets are adequately covered by insurance. M&M had announced on that day that the management expects to restart the Bolero and Verito lines fully and the Scorpio line partially from the second shift onwards on Wednesday. India's largest motorcycle maker by sales Hero MotoCorp fell 6.94%. The company on 2 May 2012 said that its net profit rose 20.33% to Rs 603.59 crore on 12.22% growth in total income to Rs 6139.90 crore in Q4 March 2012 over Q4 March 2011. The core operating profit margin (OPM) fell by 10 basis points to 15.3% in Q4 March 2012 on account of increase in raw material costs. The company said early this month it has raised prices of most of its products by Rs 500 to Rs 1000 per unit with immediate effect, in order to partially offset rising input costs. Bajaj Auto surged 3.56% and was the top gainer from the Sensex pack. The company last week said its total sales rose 4% to 3.81 lakh units in April 2012 over April 2011. Exports rose 7% to a record 1.69 lakh units in April 2012 over April 2011. India's largest private sector aluminium maker by capacity Hindalco Industries dropped 2.16%. During market hours on Tuesday, 8 May 2012, the company said its net profit jumped 42% to Rs 639.99 crore on 15.04% growth in revenue from operations to Rs 7647.07 crore in Q4 March 2012 over Q3 December 2011. With regard to the future outlook, Hindalco said volatile commodity prices and spiraling energy costs post significant challenge for the company. Hindalco said it is confident of mitigating the cost pressure to a larger extent on the strength of integration in its operations and operational efficiencies. Among other metal stocks, Sterlite Industries (down 5.93%), Jindal Steel & Power (down 5.48%), and Tata Steel (down 5.03%), declined. Pharma stocks declined after the government announced an inquiry on Friday into India's main drug regulator, three days after a parliamentary report exposed dysfunction within the agency and alleged serious irregularities in how drugs are approved. Sun Pharmaceutical Industries dropped 5.17%. The parliamentary report alleged collusion between officials of the Central Drugs Standard Control Organisation (CDSCO), which oversees the licensing, marketing and trials of new drugs in India, and pharmaceutical firms. It also said the agency was chronically understaffed and lacked both expertise and high-tech laboratories to fulfill its growing responsibilities. The government has appointed three experts to look at the scientific basis for approving new drugs without clinical trials and to recommend ways of overhauling the approval procedures. The experts have been given two months to report back to the government with their findings. Pharma major Cipla shed 1.94%. The company reported 36.3% growth in net profit to Rs 291.74 crore on 12.1% growth in income from operations to Rs 1890.03 crore in Q4 March 2012 over Q4 March 2011. The result was announced after market hours on Thursday. In Q4 March 2012, Cipla's domestic sales grew by more than 15% and export sales grew by more than 11%. Operating margins and PAT have increased by more than 37% and 36%, respectively in Q4 March 2012 over Q4 March 2011, Cipla said in a statement. Material cost decreased on account of changes in product mix viz. lower production of anti-retrovirals and higher contribution of anti-asthma as well anti-malarial segment coupled with increased realizations, the company said. As a result, operating margins increased by about 4%, Cipla said in a statement. The increase in staff cost (Rs 51 crore) is due to annual increments, regrouping of contractual staff as regular staff as well as increase in manpower and is in line with the previous quarter, the company said. Other expenditure has increased by Rs 65 crore for the quarter (Q4 March 2012) on account of increased marketing expenses, professional fees and travel expenditure, the company added. Tax for the quarter has increased mainly due to expiry of tax benefits on EOUs, Cipla said in a statement. IT stocks declined amid the ongoing euro-zone debt worries. Europe is the second biggest outsourcing market for Indian software exporters after the US. India's largest software services exporter by revenues Tata Consultancy Services (TCS) fell 3.65%. India's third largest software services exporter by revenue, Wipro slipped 3.4%. India's second largest software services exporter by revenue, Infosys declined 5.3%. India's largest realty firm by land bank DLF rose 3%. Reportedly the company has set up a core team of five to six people to focus on the process of sale of non-core assets. India's largest electric equipment maker by sales Bhel gained 3.29%. India's largest engineering & construction firm by sales Larsen & Toubro shed 0.79%. During market hours on Tuesday, 8 May 2012, the company said its overseas joint venture Larsen & Toubro ATCO Saudia LLC has secured a large procure and construct contract from Sadara Chemical Company (Sadara), a joint venture of Saudi Arabian Oil Company (Saudi Aramco) and The Dow Chemical Company (Dow). The Union Cabinet on Thursday reportedly deferred a decision on modifications to the insurance amendment bill as did not see great hurry in moving changes to the law if it could not increase the foreign direct investment in the sector to 49% from 26%. The insurance bill delay is a setback to the Manmohan Singh government that is keen to get key financial bills passed to assuage concerns that reforms are dead. The government had introduced the Insurance Laws (amendment) bill, 2008 in the Rajya Sabha in December 2008 to update the sector law and increase the foreign participation in the sector by lifting the FDI limit. The finance ministry had argued that an increase in the FDI limit will help step up investment in the insurance sector. The former finance minister and BJP leader Yashwant Sinha headed standing committee on finance had in its recommendation on the bill said there was no need to increase the FDI limit in the sector. In a move aimed at arresting the rupee's recent plunge against the dollar, the Reserve Bank of India (RBI) on Thursday said that all foreign-exchange earners, including exporters, have to convert 50% of the total foreign exchange earnings kept in banks into rupees. This must be done within a fortnight, the Reserve Bank of India said. It added that, from now on, companies will be allowed to keep only 50% of their total foreign exchange earnings in their Exchange Earners' Foreign Currency Accounts (EEFC) and that they will have to convert the rest into rupees. The EEFC accounts allow exporters to hold foreign currency in onshore accounts for imports and other expenses. In addition, companies will have to draw down their EEFC accounts fully before they buy any foreign exchange, the RBI said. The measures are also applicable to foreign-currency accounts of resident Indians and so-called Diamond Dollar Accounts held by diamond exporters. Meanwhile, the RBI also sought to reduce speculation against the rupee, with a separate move that fixed banks' intra-day open position limits at five times their net overnight open position limit. Open positions are unhedged currency positions. The Reserve Bank of India (RBI) eased restrictions on the usage of foreign currency deposits on Wednesday, just days after its move to relax the interest rate ceiling on such deposits. The RBI has allowed banks to use funds from foreign currency non-resident deposits as collateral against lending to related local residents. The funds in the foreign currency non-resident (FCNR) can be used for foreign exchange needs or for working capital needs in rupees for exporters and corporates, the RBI said 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. The finance minister in reply to debate on Finance Bill 2012 in parliament on also said that the onus will be on the government to prove tax avoidance under GAAR. Earlier, the government had said that the onus of proof that a transaction was not undertaken to avoid tax will be on the company or investor concerned. GAAR is aimed at curbing tax avoidance by structuring a business or effecting a transaction with the objective of avoiding the tax liability instead of rational commercial considerations. This rule had created angst particularly among foreign institutional investors, who invest into India through units registered in tax-favorable countries like Mauritius, which they feared could be construed as tax avoidance. Mukherjee said that a committee has been formed to look at various provisions of the anti-avoidance rule, and the committee would ensure that the "provisions are not applied indiscriminately." He said the committee will submit a report by the end of May 2012. The Indian government is considering a review of its tax avoidance treaty with Mauritius as it looks to boost revenue, junior Finance Minister S.S. Palanimanickam said Friday, 4 May 2012. There has been unwillingness on the part of Mauritius to cooperate in addressing this problem, he said. Palanimanickam said that consistent efforts are being made by the Indian government to find mutually acceptable solutions for addressing India's concerns. The Finance Minister recently announced reduction in long term capital gains on sale of unlisted securities to 10% from 20% for non-resident investors, including private equity investors. The FM has also proposed extending the benefit of tax exemption on long term capital gains to the sale of unlisted securities in an initial public offer. Simultaneously, the FM has decided to levy Securities Transaction Tax (STT) at the rate of 0.2% cent on such sale of unlisted securities.