Market seen halting recent gains on subdued Asian stocks

The market is likely to take a breather after the recent strong gains. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a fall of 5 points at the opening bell. Asian stocks were mostly lower on Thursday ahead of the US Federal Reserve's decision about injecting more stimulus into the world's largest economy. Key benchmark indices gained for the sixth straight trading session on Wednesday as world stocks rose after Germany's highest constitutional court allowed the country to ratify the euro area's permanent bailout fund. Optimism the Indian government will unveil a series of fiscal policy decisions later this week and hopes of further stimulus measures from the world's top central banks underpinned sentiment. The BSE Sensex was up 147.08 points or 0.82% to 18,000.03, its highest closing level since 23 February 2012. Optimism the government will unveil a series of fiscal policy decisions later this week triggered recent gains. Reports suggest that the government may permit foreign direct investment (FDI) in multi-brand retail and aviation after Friday's agenda-heavy cabinet meeting. Foreign institutional investors (FIIs) bought shares worth a net Rs 451.19 crore on Wednesday, 12 September 2012, as per the provisional data from the stock exchange. Government data released on Wednesday, 12 September 2012, showed the index of industrial production (IIP) grew at 0.1% in July 2012 as against 3.7% in the same month last year. The index, a key measure of industrial output, contracted by 1.8% in June 2012 after growing at 0.1% in April 2012. August headline inflation figure to be declared tomorrow, 14 September 2012 will be closely watched. Inflation based on the wholesale price index (WPI) is projected rise by 7% in August 2012, as per the median estimate of the poll carried out by Capital Market. The Reserve Bank of India (RBI) last cut rates by 0.5 percentage point to 8% from 8.5% in April, its first move to reverse a 20-month rate-tightening cycle. It then held rates steady in June and at its last rate-setting meeting on July 31, saying that a cut would exacerbate inflationary pressures. The RBI is scheduled to undertake a mid-quarter review of the monetary policy on 17 September 2012. The RBI is expected to maintain status quo on short term lending rates in its policy review on 17 September 2012, as per the poll carried out by Capital Market. Advance tax data for the 2nd installment due on 15 September 2012 could provide cues on the likely corporate earnings for Q2 September 2012. The Reserve Bank of India (RBI) on Tuesday eased the external commercial borrowing (ECB) rules and hiked the maximum limit to $3 billion for one company. RBI also hiked the overseas borrowing cap to 75% of the company's last three-year average forex earnings. The foreign loan cap has also been raised to 75% of last three-year average forex earnings. ECB refers to commercial loans in the form of bank loans, buyers' credit, suppliers' credit, securitised instruments availed of from non-resident lenders with a minimum average maturity of three years. Last month, the Finance Ministry had liberalised the norms for raising funds through ECBs by domestic firms, particularly those in the realty sector. The High Level Committee on ECBs also permitted FIIs to invest up to $5 billion in rupee bonds within the overall corporate bond limit of $45 billion. Finance Minister P. Chidambaram early this month said that India is making consistent efforts to check the abuse of a double-taxation-avoidance pact it has with Mauritius. India has in the past said it is considering a review of the treaty in an effort to boost tax revenue. An India-Mauritius joint working panel was set up in 2006 to put in place adequate safeguards for preventing the misuse of the double-taxation-avoidance agreement between the two countries. India, in the past, has said that Mauritius was unwilling to cooperate on this issue. Mauritius says it has taken India's concerns seriously. Traditionally, Mauritius has accounted for nearly 40% of India's foreign investment. Under the avoidance of double taxation treaty, companies that invest through Mauritius do not have to pay tax in India but only have to pay tax in the island. But capital gains tax is close to zero in Mauritius, making it a popular investment hub. India wants to renegotiate the double taxation treaty with Mauritius to check round-tripping, in which money is moved out of one country to another and brought back under the garb of foreign capital, taking advantage of tax breaks. Meanwhile, a committee appointed by the government to review the controversial general anti-avoidance rules (GAAR) early this month suggested deferring the implementation of anti-avoidance rules by three years. "Where Circular No. 789 of 2000 with respect to Mauritius is applicable, GAAR provisions shall not apply to examine the genuineness of the residency of an entity set up in Mauritius," the committee said. The committee has also recommended that the government should abolish the tax on gains arising from transfer of listed securities, whether in the nature of capital gains or business income, to both residents as well as non-residents. The panel has said the government might consider increasing the rate of Securities Transaction Tax (STT) appropriately to make the proposal tax neutral. At present, short-term capital gains on equities are taxable at the rate of 15%. Holding period of less than one year is considered as short term. There is no long term capital gains tax on sale of shares. Business income is taxed at 30%. Distinguishing capital gains and business income depends on several factors, and disagreements have resulted in numerous litigation cases between the Revenue Department and taxpayers, the committee said in its report. India's annual exports fell 14.8% to $22.4 billion in July, while imports fell 7.6% to $37.9 billion, leaving a trade deficit of $15.5 billion, the trade ministry said in a statement early this month. India's gross domestic product (GDP) rose 5.5% in Q1 June 2012, data released by the government on 31 August 2012 showed. The services sector grew 6.9%, industry grew 3.6% and agriculture sector grew 2.9%. Manufacturing output rose 0.2% while mining sector grew 0.1% in Q1 June 2012. India's economy has slowed sharply over the past year due to weak industrial activity as high interest rates crimped demand and made it hard for corporates to finance expansion plans. Global rating agencies Standard & Poor's and Fitch Ratings cut their outlooks on India's ratings to negative from stable earlier this year and warned that unless the government takes concrete action to improve the macro-economic environment, the country may lose its investment-grade status. The month-long Monsoon session of Parliament that ended on Friday 7 September 2012, was one of the least productive sessions by far with protests over Assam violence, CAG report on coal blocks allocation and finally the Bill over SC/ST quota in job promotions stalling the proceedings. No business could be transacted for days due to the daily ritual of slogan shouting and rushing to the Well of the House finally resulting in the Lok Sabha and the Rajya Sabha being adjourned sine die on Friday, 7 September 2012. Only four bills including the Protection of Women Against Sexual Harassment at Workplace Bill and the AIIMS Amendment Bill were passed during the Monsoon session, that had 30 bills pending. Of 15 bills listed for introduction, just five were introduced. It now remains to be seen whether Parliament will be able to pass the pending bills in the Winter session. Slamming the Opposition as Parliament adjourned sine die on the last day of the monsoon session on Friday, 7 September 2012, without conducting any major business, Prime Minister Dr. Manmohan Singh said that the regular disruptions by the Opposition were a negation of democracy and a violation of norms of Parliament and the Constitution. "We have great respect for the CAG. However, if we respect it, we should be willing to discuss its reports in the House and at the PAC. This is negation of democracy, violation of norms of Parliament and the Constitution as we have understood it," Dr. Singh said on Friday, 7 September 2012. He said that the time wasted by Parliament could have been better utilised in discussing more crucial problems grappling the country like terrorism and Naxalism. "On the economic front too we face major challenges. The world is passing through an exceptionally difficult phase. Our economy is also experiencing problems. We must work hard to ensure that the Indian economy returns to high growth. I have no doubt we can do it. We can rebuild our growth momentum and encourage entrepreneurship by stimulating investment in infrastructure, in power, in roads, ports, railways, and telecommunications. This will send a clear signal to the world that India is on the road to recovery. This in turn will bring back the momentum of growth, generate productive employment and also enable us to direct more resources to help the poor and weaker sections," Dr. Singh said. The Prime Minister said that the government must act wherever it can without the benefit of Parliamentary guidance. "I am instructing all Ministries to accelerate their consideration of critical issues where decisions are needed to get the economy moving again," Dr. Singh said. The Central Bureau of Investigation (CBI) early this month registered five separate cases against certain private companies, their directors and unknown public servants in connection with the allegations related to getting coal blocks allocated on the basis of misrepresentations and false claims in the applications, presentations and connivance/lack of due diligence on part of public servants. Promoters of some of these companies have allegedly sold their stakes in an irregular manner after allocation of coal blocks, CBI said in a statement issued on 4 September 2012. A preliminary enquiry to examine the irregularities, if any, in the allocation of coal blocks during the period 2006-09 was registered on a reference from CVC, in June this year. The Comptroller and Auditor General of India last month issued a report that said the government had lost as much as Rs 1.86 lakh crore in potential revenue because it awarded 57 coal blocks to private companies between 2004 and 2011 without competitive bidding. The report has created a furore, with opposition political parties stalling proceedings of the Parliament and demanding the resignation of Prime Minister Dr. Manmohan Singh. Dr. Singh has denied allegations of impropriety in coal-block allocations and termed "clearly disputable" the Comptroller and Auditor General of India's (CAG) observations that the process followed to allot them deprived the government billions of dollars in revenue. In its report on the allocation of coal blocks, CAG said the government lost a maximum of Rs 1.86 lakh crore by allocating licenses for 57 coal-mining blocks between 2004 and 2011 to state-owned and private companies without a transparent auction. Dr. Singh on 27 August 2012 said the CAG's calculation of about Rs 1.86 lakh crore of financial gain to private parties can be questioned on a number of technical points. Dr. Singh also said since that the coal blocks were allocated to private companies only for captive purposes for specified end-uses, it will not be appropriate to link the allocated blocks to the price of coal set by CIL. The government has very limited time to take economic reform measures given that assembly elections in Gujarat and Himachal Pradesh (HP) are scheduled in December this year. It will difficult for the government to enact controversial measures close to the assembly polls. After elections in Gujarat and HP, assembly elections are planned in a total of 10 states during the period from March 2013 to January 2014. The next general election is due in May 2014. Reserve Bank of India (RBI) governor D Subbarao last month said India's inflation is still a challenge, but its growth story remains intact. "India has no space for a policy response to a crisis, we are more vulnerable," Subbarao said at an event in Cornell University in the United States. The country, he said, had room to react through monetary policy to the 2008-09 crisis, but this time around a litany of challenges--including moderating growth, persistent and high inflation, stress on balance of payments and twin deficits in the country's current account and fiscal budget--have left the central bank little room to negotiate the global slowdown. He noted that despite the depreciation of the Indian rupee by nearly 20% since last August, there has been no improvement in the country's current account deficit. He blamed the government's policy of fuel subsidies for protecting consumers from the effect of global commodity price rises. He noted despite higher prices, imports of oil into the country continue to increase due to rise in consumption, as consumers are protected from these price hikes. He added investors still should be confident of India's growth story and look at the positives including its attractive demographics, its growing middle-class and high savings rate. But he acknowledged there was a lot left to be done by various stakeholders to make the growth story happen. "India needs to grow at 10% for the next 15 years just to catch up," he said. A late pick-up in monsoon rains in August month will lead to a recovery in yields in summer-sown crops including rice and oilseeds, lessening the severity of a drought in several parts of the country following scanty rains for much of this year's June-September monsoon. Prolonged rains would also improve the prospects for winter-sown crops due to better soil moisture. An El Nino weather event, which usually disrupts rainfall, is expected to emerge at the tail-end of the monsoon in September. Farm Secretary Ashish Bahuguna late last month said the El Nino may not impact rainfall in September due to build-up of another weather phenomenon called the Indian Ocean Dipole. The monsoon rains--which make up around 70% of India's annual rainfall--are crucial to the nation's agriculture sector and broader economy. More than 60% of the country's farmland is rain-fed. The timing, distribution and quantity of rainfall are all important for crops. The four-month southwest monsoon season that starts from June accounts for almost 70% of total annual moisture that Indian soil receives in a year. Finance Minister P. Chidambaram last month said that the goods and services tax (GST) is a more effective and efficient substitute for a plethora of indirect taxes. The Finance Minister said that he is hopeful that the GST Bill would be passed before the end of the current financial year. The Finance Minister further said that though there are still some issues relating to GST and its Network (GSTN) to be resolved, yet they are not insurmountable. Union Minister of Commerce, Industry & Textiles Mr. Anand Sharma said 16 August 2012 that the government will come out with announcements pertaining to industrial environment that will address the subdued sentiment in the industry. Speaking after the fourth meeting of the Government-Industry Task Force Mr. Sharma said that there is a shared concern over the declining industrial production, particularly the manufacturing sector. Asian stocks were mostly lower on Thursday ahead of the US Federal Reserve's decision about injecting more stimulus into the world's largest economy. Key benchmark indices in China, Indonesia, Singapore and Hong Kong were down by 0.03% to 0.44%. Key benchmark indices in Japan, Taiwan and South Korea were up by between 0.11% to 0.46%. Japan's central bank, Bank of Japan, holds two-day policy meeting on interest rate in Japan on 18 and 19 September 2012. Data released on Wednesday showed that Japanese machinery orders climbed a seasonally adjusted 4.6% month-over-month in July, rising for the second straight month. The headline figure was sharply higher than forecasts following the 5.6% jump in June and the 14.8% plunge in May. China posted a wider-than-expected trade surplus in August as imports unexpectedly contracted during the month from the year-ago period, suggesting lackluster domestic demand, according to data released on Monday, 10 September 2012. Exports rose 2.7% in August 2012 from a year earlier, indicating relatively weak overseas demand. Imports surprised by dropping 2.6% from August 2011, against expectations for a small rise. China's top economic planners last week approved major infrastructure-investment projects, bolstering the more than two dozen subway and urban-rail initiatives. The National Development and Reform Commission gave the go-ahead to 13 highway projects and other municipal and port projects, according to reports. The measures follow announcement on 5 September 2012 of 25 new rail projects worth an estimated 800 billion yuan ($127 billion) over the next three to eight years South Korea on Monday, 10 September 2011, announced a five-billion-dollar economic stimulus package to support Asia's fourth-largest economy, which has been badly hit by the global downturn. The 5.9-trillion-won ($5.23 billion) package -- 4.6 trillion won of stimulus support for the remainder of this year and 1.3 trillion won for next year -- doesn't require a new national budget, the Ministry of Strategy and Finance said. The stimulus will take the form of reducing taxes on individual incomes and on purchases of homes or cars, and expanding state-funded social welfare programs. The new plan follows a stimulus package of 8.5 trillion won announced in June to boost the economy for the second half of 2012. The combined stimulus of 13.1 trillion won for this year equates to 1% of the country's gross domestic product. South Korea's export-led economy has been severely hit by shrinking overseas demand amid the prolonged euro-zone sovereign-debt crisis and weakened global economy. US stocks ended slightly higher on Wednesday after a top German court gave its nod for the new euro zone rescue fund to go ahead, which will allow the European Central Bank to buy sovereign bonds. The Dow Jones Industrial Average was up 9.99 points, or 0.07 percent, at 13,333.35. The Standard & Poor's 500 index was up 3 points, or 0.21%, at 1,436.56. The Nasdaq Composite index was up 9.78 points, or 0.32%, at 3,114.31. The Federal Open Market Committee (FOMC)'s two-day meeting on US interest rates concludes today, 13 September 2012. As per reports, the Fed appears poised to launch a third round of large-scale asset purchases or QE 3 and policymakers may also extend their low-interest-rate guidance into late 2015. Federal Reserve Chairman Ben S. Bernanke pledged in an Aug. 31 speech to promote growth with "additional policy accommodation as needed." The US government's debt rating could be heading for the "fiscal cliff" along with the federal budget. Moody's Investors Service on Tuesday said it would likely cut its "Aaa" rating on US government debt, probably by one notch, if budget negotiations fail. If Congress and the White House don't reach a budget deal, about $1.2 trillion in spending cuts and tax increases will automatically kick in starting January 2, a scenario that's been dubbed the "fiscal cliff," because it is likely to send the economy back into recession and drive up unemployment. A year ago, Moody's cut its outlook on US debt to "negative," which acts as a warning that it might downgrade the rating, after partisan wrangling over raising the US debt limit led the nation to the brink of default. Election for a new president in the United States, the world's biggest economy, is scheduled on 6 November 2012. Germany's Federal Constitutional Court on Wednesday rejected calls to block the ratification of Europe's 500 billion euro ($643.7 billion) permanent rescue fund, the European Stability Mechanism, and the fiscal pact. As expected, the judges attached various conditions to the ESM, saying a total cap on Germany's liabilities under the ESM must be capped for the measure to conform to the country's Basic Law, or constitution. Europe moved a step closer to a banking union on Wednesday with a plan for the European Central Bank to supervise all euro zone banks, a cornerstone of closer fiscal integration designed to end years of financial turmoil in the region. European Commission President Jose Manuel Barroso outlined the proposal in his annual "state of the union" address, laying out a path to further economic integration that he said he hoped would underpin the future of the euro currency. The proposed banking reforms, which need to be approved by the European Union's member states, aim to break the link between banks and states, preventing heavily indebted countries being sucked further into difficulty by distressed lenders in need of rescue. The results of a detailed audit on the capitalisation needs of Spain's banks are expected in mid-September 2012. ECB President Mario Draghi on Thursday, 6 September 2012, said policy makers agreed to an unlimited bond-purchase program as they try to regain control of interest rates in the euro area. The program will target sovereign bonds with maturities of one to three years in its most ambitious plan yet to save the euro. The central bank also forecast a deeper economic contraction for 2012 than it did three months ago. Euro-area gross domestic product will drop 0.4% this year compared with an earlier 0.1% projection, it said.