Banking, metal stocks lead decline

Key benchmark indices edged lower to reach their lowest closing level in over 4-1/2 weeks after Finance Minister P. Chidambaram said India is making consistent efforts to check the abuse of a double-taxation-avoidance pact it has with Mauritius as Mauritius has become an attractive route for investments by third-country residents into India through treaty abuse. The barometer index, BSE Sensex, lost 139.64 points or 0.8%, up about 50 points from the day's low and off close to 120 points from the day's high. The market breadth was negative. Weakness in global stocks also weighed on domestic bourses. The Sensex has fallen 116.22 points or 0.66% in this month so far (till 5 September 2012). The Sensex has jumped 1858.42 points or 12.02% in calendar 2012 so far (till 5 September 2012). From a 52-week low of 15,135.86 on 20 December 2011, the Sensex has risen 2177.48 points or 14.38%. From a 52-week high of 18,523.78 on 22 February 2012, the Sensex has lost 1210.44 points or 6.53%. Coming back to today's trade, metal stocks declined as global commodity prices dropped on growing concerns about the strength of the global economy. Hindalco Industries hit a 52-week low. Jindal Steel & Power tumbled after the company announced the acquisition of Canadian coal company CIC Energy Corp. PSU bank stocks dropped after global rating agency Fitch Ratings said that a sharp increase in non-performing loans reported by India's largest government banks in Q1 June 2012 indicates that fiscal 2013 impaired assets across the banking sector may exceed the rating agency's initial forecast in a slowing economy. Index heavyweight Reliance Industries (RIL) edged lower. FMCG stocks extended their recent gains triggered by revival of monsoon rains last month, with Hindustan Unilever hitting record high. Index heavyweight and cigarette maker ITC edged higher in volatile trade. Capital goods stocks extended recent losses triggered by concerns slowdown in the economy could crimp new orders. Tech Mahindra rose after the company announced the start of an international partnership with Royal KPN N.V., a leading telecommunications and ICT provider in Netherlands. The market edged lower in early trade on weak Asian stocks. The market weakened once again after trimming initial losses to hit fresh intraday high in morning trade. Weakness continued on bourses in mid-morning trade. The market extended intraday losses to hit fresh intraday low in early afternoon trade. A bout of volatility was witnessed as key benchmark indices pared losses after hitting their lowest level in over 4-1/2 weeks in afternoon trade. Weakness continued on the bourses later in the trading session. The BSE Sensex lost 139.64 points or 0.8% to settle at 17,301.23, its lowest closing level since 3 August 2012. The index fell 190.07 points at the day's low of 17,250.80 in afternoon trade. The index declined 29.20 points at the day's high of 17,411.67 in early trade. The S&P CNX Nifty lost 48.30 points or 0.92% to settle at 5,225.70, its lowest closing level since 3 August 2012. The index hit high of 5,259.50 and a low of 5,215.70 in intraday trade. The BSE Mid-Cap index fell 0.31% and the BSE Small-Cap index declined 0.49%. Both these indices outperformed the Sensex. BSE clocked turnover of Rs 1971 crore, higher than Rs 1627 crore on Tuesday, 4 September 2012. The market breadth, indicating the overall health of the market, was negative. On BSE, 1,558 shares fell and 1,235 shares rose. A total of 142 shares were unchanged. From the 30-share Sensex pack, 21 stocks fell and rest of them rose. Index heavyweight Reliance Industries (RIL) lost 0.96%. RIL early last week said it has scheduled a planned maintenance turnaround of one of the diesel hydrotreater units of the DTA refinery at its Jamnagar, Gujarat complex for a period of approximately two and half weeks starting 28 August 2012. This opportunity will also be utilised to carry out other maintenance and inspection jobs during the shutdown period, RIL said in a statement. During the period the other diesel hydrotreating unit of the DTA refinery along with other units including crude processing levels are planned at normal levels, RIL said. RIL bought back 3.89 crore shares for about of Rs 2788.83 crore till 21 August 2012 under its ongoing share buyback program. RIL has set maximum buyback price of Rs 870 per share. The company has set aside Rs 10440 crore for share buyback. The buyback program opened on 1 February 2012 and closes on 19 January 2013. RIL chairman Mukesh Ambani said at the company's Annual General Meeting in June 2012 that the company's buyback program represents a highly accretive use of cash by the company and it will supplement earnings growth from operations, for higher EPS (earnings per share), in the near future. Oil exploration stocks declined as US crude oil futures traded near the lowest level in a week after a report showed manufacturing shrinking in the US, the world's biggest crude consumer. Cairn India and Oil India dropped by between 1.05% to 2.34%. But, ONGC rose 0.57%. US crude oil futures for October 2012 delivery were up 2 cents at $95.32 a barrel in electronic trading today, 5 September 2012. The contract had fallen $1.17 or 1.21% to settle at $95.30 a barrel on the New York Mercantile Exchange on Tuesday, 4 September 2012, its lowest closing level since 30 August 2012. Front-month prices are down 3.6% this year. Lower crude oil prices will result in lower realization from crude sales for oil exploration firms. FMCG stocks extended their recent gains triggered by revival of monsoon rains last month. FMCG firms derive substantial sales from rural India. FMCG major Hindustan Unilever rose 1.84% to Rs 530.90. The stock scaled a record high of Rs 532 in intraday trade today. Index heavyweight and cigarette maker ITC rose 0.66% at Rs 268. The stock had scaled a record high of Rs 271.50 in intraday trade on 30 August 2012. The company reported strong Q1 June 2012 results. ITC's net profit jumped 20.21% to Rs 1602.14 crore on 15.34% growth in net sales to Rs 6652.21 crore in Q1 June 2012 over Q1 June 2011. Despite series of tax hikes, ITC's performance in cigarettes business remains robust and displays pricing power for the company. United Spirits rose 0.06%, with the stock reversing initial losses. The company after trading hours Tuesday, 4 September 2012, said that the media reports that the company is planning to sell its stake in Whyte & Mackay is speculative information and it would not be appropriate for the company to comment on market rumours. Marico fell 1.07% to Rs 204.15. The stock reversed direction after hitting a record high of Rs 208.95 in intraday trade today. United Breweries fell 1.07%. The company today said that the High Court of Karnataka has directed that a meeting of the shareholders of the company be held on September 24, 2012 for the purpose of considering and if thought fit, approving, with or without modification(s) the scheme of amalgamation between Scottish and Newcastle India and United Breweries. Capital goods stocks extended recent losses triggered by concerns slowdown in the economy could crimp new orders. Thermax, Bhel, Siemens, ABB, Punj Lloyd and L&T shed by between 0.69% to 5.09%. Kingfisher Airlines dropped 1.46% to Rs 9.45. The company's auditor has found out that the carrier's losses last financial year were under-reported due to improper accounting practices, Kingfisher said on Wednesday, 5 September 2012, in its annual report to shareholders for the past financial year. The carrier's auditor, B.K. Ramadhyani and Co., said that Kingfisher's losses for the year ended 31 March 2012 (FY 2012) would have been Rs 3444 crore instead of the reported Rs 2328 crore had the company properly amortized repairs and maintenance costs on leased aircraft and made provisions for withholding tax and security commission to guarantors of the company's loans. The auditor has also pointed out anomalies in the way Kingfisher assigned the rights on some aircraft purchases to its lessors. It also said Kingfisher owes Rs 539 crore as tax deducted at source. Bank stocks were mostly lower. India's largest private sector bank by net profit ICICI Bank slumped 3.56%. India's second largest private sector bank by net profit HDFC Bank rose 0.36%. PSU bank stocks dropped after global rating agency Fitch Ratings said that a sharp increase in non-performing loans reported by India's largest government banks in Q1 June 2012 indicates that fiscal 2013 impaired assets across the banking sector may exceed the rating agency's initial forecast in a slowing economy. Bank of India, Bank of Baroda, Indian Bank, Dena Bank, Oriental Bank of Commerce, Syndicate Bank, Andhra Bank, Central Bank of India, UCO Bank, Vijaya Bank, Allahabad Bank, Punjab National Bank, Canara Bank, Indian Overseas Bank, Corporation Bank, and Bank of Maharashtra shed 0.8% to 2.8%. Absolute cumulative gross non-performing loans (NPLs) reported by India's five largest banks accounting for over a third of the system assets increased by around 62% in Q1 June 2012 from a year before, and there was also a sharp increase in restructured assets, Fitch said in a report released today, 5 September 2012. State Bank of India, the country's largest bank, reported a gross NPL ratio of 5% Q1 June 2012, up from 4.5% in FY 2012. The trend is matched across other large and small government banks, albeit to varying degrees. "Our estimate of 3.75% for system-wide gross NPLs in the fiscal year ending March 2013 (FY 2012: 2.9%) could therefore be exceeded in light of the continuing pressures on the economy”, Fitch said in a statement. "We expect stressed assets in the banking system, including unseasoned restructured loans, to reach around 10% by FY 2013 from 6.7% in FY 2010. The large government banks' loan diversity, funding stability and access to capital means they are able to withstand significant pressure on their funded and unfunded asset exposures, and this is reflected in their standalone ratings. Medium and small government banks look relatively more vulnerable", Fitch said. Fitch also said that the asset-quality performance at government banks has sharply lagged behind that of the private banks, which are experiencing relatively stable asset quality. "We believe this highlights the need for further strengthening of risk underwriting and monitoring mechanisms at government banks. These issues will need to be addressed as the government banks may find it hard to raise the significant capital required under migration to Basel III if they have large stocks of stressed assets", Fitch said in a statement. State Bank of India (SBI) shed 2.17%. SBI today, 5 September 2012, said it has decided to revise downwards interest rates on retail term deposits with effect from Friday, 7 September 2012. The bank has decided to cut interest rates on retail term deposits by between 50 basis points to 100 basis points for various maturities for deposit below Rs 15 lakh. SBI has decided to cut interest rates on retail term deposits by 50 basis points for various maturities of less than 5 years for deposits of Rs 15 lakh to less than Rs 1 crore. Indian banks need to mobilize an additional Rs 5 lakh crore to meet Basel III capital requirements by March 2018, the country's central bank governor said on Tuesday, 4 September 2012. The Reserve Bank of India's D Subbarao said that, as part of the transition to the Basel III standard, the government will have to infuse Rs 90000 crore into state-run banks if it wants to retain its majority shareholding. The final Basel III guidelines for banks in India are stricter than elsewhere, requiring them to maintain a capital ratio of 9% of risk-weighted assets, rather than 8%. Basel III is a global regulatory framework for more resilient banks and banking systems. Auto stocks were mixed on reports the petroleum ministry plans to raise diesel rates by Rs 4-5 per litre after the monsoon parliament session ends on September 7 as oil firms' revenue loss has soared to almost half the retail price. Oil companies are also set to raise petrol prices by about Rs 5 a litre. The parliament session will be over on September 7 unless it ends earlier because of current pandemonium due to alleged coal scam. Hero MotoCorp rose 0.15%. The company reported a dip of 11.88% in sales at 4,43,801 units in August 2012 over August 2011. Meanwhile, Hero's recent launches- 110 cc "Maestro" and the 125cc "Ignitor"– have been received well by customers and are also generating volumes across markets. Hero MotoCorp also recorded its highest-ever scooter sales for any month by selling more than 45,000 scooters in August (combined sales figure for both the scooter brands- "Maestro" and "Pleasure"), the company said. Bajaj Auto fell 0.15%. The company announced during market hours Monday that its total sales fell 10% to 3.44 lakh units in August 2012 over August 2011. Bajaj Auto said that the company exported 22,300 three-wheelers in August 2012, indicating near normalcy in Sri Lankan and Egyptian markets. Ashok Leyland declined 1.66%. The company reported a 30.4% jump in sales to 9,432 units in August 2012 over August 2011. Car market leader Maruti Suzuki India rose 0.15%, with the stock reversing initial losses. The company has unveiled a refreshed version of Ritz Diesel. Priced attractively at Rs. 5.31 lakh onwards, the new Ritz Diesel is sure to entice new age buyers who are looking for contemporary design, unmatched performance and superb fuel efficiency, Maruti said in a statement. Mahindra & Mahindra (M&M) dropped 0.83%. The company announced that its total auto sales rose 22% to 45836 units in August 2012 over August 2011. The company's domestic sales rose 20% to 42826 units in August 2012 over August 2011. The Passenger Vehicles segment (which includes the UVs and Verito) has registered a growth of 39%, to 21831 units in August 2012 over August 2011. Exports have also grown by 56% in August 2012. The company said its total sales fell 40.8% to 54,154 units in August 2012 over August 2011. Owing to the lock out at the Manesar plant (21st July 2012 to 20th August 2012) the supply of Swift, Dzire, SX4 and A-star models was impacted. Customers extended strong support to the company, reflected in higher retail sales of other models. The combined retail sales for July and August 2012 were 145,087 units, a growth of 6.7 % over the same period last year, company said in the statement. Mahindra & Mahindra's Farm Equipment Sector (FES), maintained its leadership position in the tractor industry in August 2012. Domestic sales in August 2012 stood at 12394 units, as against 15059 units during August 2011. Total tractor sales (domestic + exports) in August 2012 stood at 13234 units, as against 16003 units for the same period last year. Exports for the month of August 2012 stood at 840 units, as against 944 units in August 2011. Tata Motors fell 2.6%. The company said its total sales (including exports) of Tata commercial and passenger vehicles rose 12% to 71,826 vehicles in August 2012 over August 2011. The company's domestic sales of Tata commercial and passenger vehicles rose 13% to 67,453 in August 2012 over August 2011. Cumulative sales (including exports) for the company for the fiscal are 334,125 units, higher by 4%, over 320,878 units, sold last year. Telecom stocks gained on reports Telecom Commission is expected to finalise later this week the guidelines for licences that are to be issued to new players that win spectrum in the auction which is due in November. Tata Teleservices (Maharashtra), Idea Celluar and Bharti Airtel rose by between 2.03% to 3.28%. MTNL was flat. The new licences will do away with different kinds of permits that are issued to telecom companies for offering various services. Like earlier licences for mobile services, the new licences will not have spectrum bundled with them. Telecom Regulatory Authority, TRAI, has proposed to bring telecom tower companies under the licensing regime and estimated that bringing IP-I (mainly telecom tower firms) under the licensing regime will fetch the government revenues of around Rs 1900 crore per year. The regulator has also recommended to issue Unified Licences at three levels for National level, Service area level and District level. Reliance Communications fell 1.6% on profit booking after Tuesday's 4.7% rally. Chairman Anil Ambani said at the company's annual general meeting on Tuesday, 4 September 2012, that the company is pursuing options to reduce its heavy debt load, including the possible sale of a stake in its mobile tower arm. The company will also again attempt to list its undersea cable arm in Singapore when market conditions improve, Ambani said. In July, Reliance Communications shelved a Singapore initial public offering of its undersea cable unit due to weak investor appetite. IT stocks were mostly lower on weak economic data in the US, the biggest outsourcing market for the Indian IT firms. India's second largest software services exporter by revenues Infosys declined 1.01%. India's third largest software services exporter by revenues Wipro fell 0.47%. Tata Consultancy Services (TCS) rose 1.41%, with the stock reversing initial losses. TCS has re-appointed Mr. S. Mahalingam as the Executive Director and Chief Financial Officer of the company for the period September 6, 2012 to February 9, 2013, subject to the approval of the shareholders. Tech Mahindra rose 1.11%. Tech Mahindra and Royal KPN N.V. (KPN) today, 5 September 2012, announced the start of an international partnership in order to further improve KPN's efficiency and effectiveness in its IT environment and operational processes and to jointly address strategic growth areas. As a first step in this partnership, KPN and Tech Mahindra have signed a five-year contract for development and support of over 150 applications in the operational IT systems of KPN NetCo segment. As a second step, KPN and Tech Mahindra will thoroughly explore and determine future projects in the newly set up partnership, a joint statement from KPN and Tech Mahindra said. KPN expects to make savings of at least euro 200 million over a 5-year period with the partnership with Tech Mahindra, the two companies said. As part of its 'Strengthen, Simplify and Grow' strategy for the period 2011-2015, KPN has set out a clear ambition on cost leadership and acceleration of its FTE reduction program, the statement said. This new partnership helps to realize both ambitions, the statement added. Commenting on the development, CP Gurnani, Managing Director, Tech Mahindra said, "KPN is a leading player in the Netherlands and is in the midst of its accelerated investment strategy which gives Tech Mahindra significant opportunities to use its transformation solutions. Furthermore, we envisage a mutually beneficial partnership that aligns well with ours and KPN's growth objectives over a longer term period". Commenting on the development, Erik Hoving, Chief Strategy, Innovation & Technology Officer, KPN said, "In addition to the technological leadership and innovation that Tech Mahindra has in the telecom industry, we see natural synergies between our two organizations which we believe are critical to build a lasting partnership". KPN is a leading telecommunications and ICT provider in the Netherlands offering wireline and wireless telephony, broadband and TV to consumers and end-to-end telecom and ICT services to business customers. In Germany and Belgium, KPN pursues a challenger strategy in its wireless operations and holds number three market positions through E-Plus and KPN Group Belgium. KPN provides wholesale network services to third parties and operates an efficient IP-based infrastructure with global scale in international wholesale through iBasis. Tech Mahindra during trading hours on Tuesday, 4 September 2012, announced the acquisition of 100% stake in Hutchison Global Services (HGS) for $87.1 million, payable upfront. HGS provides customer lifecycle operations to clients in UK, Ireland and Australia and has an associate base of over 11,500 employees. HGS operates out of Mumbai and Pune and is among the largest captives in the telecom domain. This acquisition builds on the significant relationship between Tech Mahindra and the Hutchison group across multiple countries, Tech Mahindra said in a statement. The acquisition will provide significant enhancement of Tech Mahindra's expertise in the customer management space and will thus be a key component of its strategic plans going forward, the company said. As part of the deal, the clients of HGS have committed to procure services worth $845 million over a 5 year period, and have agreed to HGS being their exclusive provider of certain agreed services in India, Tech Mahindra said. Meanwhile the rupee extended losses to 55.89/90 per dollar, nearing the psychologically significant 56 mark against the dollar, as weakness in the domestic share market and the euro weighed. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion's share of revenue from exports. Metal stocks declined as global commodity prices dropped on growing concerns about the strength of the global economy. Hindustan Zinc, JSW Steel, Tata Steel, Sail and Sterlite Industries fell by between 1.04% to 3.42%. Jindal Steel & Power (JSPL) tumbled 5.97% to Rs 331.80. The stock hit a 52-week low of Rs 331.70 in intraday today, 5 September 2012. Jindal BVI (JBVI), a subsidiary of Jindal Steel & Power (JSPL) has acquired Canadian listed coal company CIC Energy Corp. (CIC) for about $115 million (over Rs 600 crore) by way of merger of JBVI and CIC. The deal will provide JSPL access to CIC's high quality thermal coal in Greater Mmamabula coalfield in SE Botswana which is estimated to be in excess of about 6 billion tones, JSPL said in a statement today, 5 September 2012. The deal will provide JSPL the opportunity to tap the highly lucrative and power deficient South African Development Community (SADC) countries and given the huge resource, it will also provide JSPL an opportunity to set up a coal to hydrocarbons project. JBVI will make cash payment of Canadian dollar 2 per share, aggregating to about 116 million Canadian dollars, to the shareholders of CIC. JBVI has already transferred the consideration amount to the depository for onward payment to CIC shareholders. CIC has already been granted water allocation for the mining and power plants and has also received the environmental approvals for its power projects. CIC has done extensive drilling in its coalfields and has drilled about 2,100 boreholes totaling about 1,86,000 meters. CIC has already incurred development expenditure of 246 million Canadian dollars on the projects, including the manpower costs and overheads. CIC is the frontrunner for building a 1,200 megawatts power plant in Botswana for supply of power to South Africa. JSPL already has acquired stakes in coal mines in South Africa, Mozambique, Australia and Indonesia, JSPL said. Hindalco Industries fell 2.6% to Rs 101.05. The stock hit a 52-week low of Rs 100.30 in intraday today, 5 September 2012. PSU OMCs gained for the second straight day on reports the petroleum ministry plans to raise diesel rates by Rs 4-5 per litre after the monsoon parliament session ends on September 7 as oil firms' revenue loss has soared to almost half the retail price. Oil companies are also set to raise petrol prices by about Rs 5 a litre, reports suggest. The parliament session will be over on September 7 unless it ends earlier because of current pandemonium due to alleged coal scam. HPCL rose 0.78%. But, BPCL fell 0.55%. PSU OMCs are currently (effective from 1 September 2012) incurring daily under-recovery of about Rs 551 crore on the sale of Diesel, PDS Kerosene and Domestic LPG. Indian Oil Corporation (IOC) rose 0.45%. The stock turned ex-dividend today, 5 September 2012, for dividend of Rs 5 per share for FY 2012. Minister of State for Petroleum and Natural Gas Mr. R.P.N. Singh said in a written reply in the Rajya Sabha on Tuesday, 4 September 2012, that the continuous increase in under-recoveries along with delay in release of government compensation has deteriorated liquidity condition of the three Public Sector Oil Marketing Companies (PSU OMCs) viz. Indian Oil Corporation (IOC), BPCL and HPCL requiring them to borrow from market at high interest cost to meet their working capital requirements and capital expenditure. Mr. Singh also said that the Ministry of Petroleum and Natural Gas has been requesting the Ministry of Finance for timely sanction and release of cash compensation to PSU OMCs. The combined borrowings of the three PSU OMCs stood at Rs 1.57 lakh crore as on 30 June 2012, higher than Rs 1.28 lakh crore as on 31 March 2012. Realty stocks edged lower. DLF, HDIL, D B Realty and Unitech shed by between 0.14% to 2.2%. ACC was flat after company said after trading hours on Tuesday, 4 September 2012, said its cement dispatches declined 6.91% to 1.75 million tones in August 2012 over August 2011. Cement production also declined 6.91% to 1.75 million tones in August 2012 over August 2011. Foreign institutional investors (FIIs) bought shares worth net Rs 301.60 crore from the secondary equity markets on Tuesday, 4 September 2012, as per data from Securities & Exchange Board of India (Sebi). Earlier, FIIs had sold shares worth Rs 228.80 into the secondary equity markets in two sessions on 31 August 2012 and 3 September 2012, as per Sebi data. Finance Minister P. Chidambaram today, 5 September 2012, said that India is making consistent efforts to check the abuse of a double-taxation-avoidance pact it has with Mauritius. "An investor routing his investments through Mauritius into India does not pay capital-gains tax either in India or in Mauritius. Mauritius thus became an attractive route for investments by third-country residents into India through treaty abuse," Mr. Chidambaram said in a written reply in Lok Sabha. Efforts are on to find "mutually acceptable solutions for addressing India's concerns," he added. 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 committed 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. Advance tax data for the 2nd installment due on 15 September 2012 could provide cues on the likely corporate earnings for Q2 September 2012. Indian private sector services business expanded at the fastest pace in six months in August, driven by the strongest growth in new business since February and increasing optimism about the future, a survey showed on Wednesday, 5 September 2012. The HSBC Purchasing Managers' Index for services business, based on a survey of about 400 private-sector companies, rose to 55 in August from 54.2 in July, marking nearly a year of uninterrupted monthly growth. Services, including government services like railway transport, make up nearly 60% of India's economic output. The services data come close on the heels of the HSBC manufacturing PMI Monday, which showed manufacturing activity grew at its slowest pace this year in August due to a second consecutive monthly fall in export orders. HSBC India Composite Output Index was at 54.3 in August, little changed from July's 54.4. 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 on Monday. India's gross domestic product (GDP) rose 5.5% in Q1 June 2012, data released by the government last week 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. The bitter political battle over the Constitution (One Hundred Seventeenth Amendment) Bill, 2012, which provides for reservation to SCs/STs in job promotions, has deeply divided Parliament. The Centre after tabling the legislation on Wednesday, 5 September 2012, indicated that the Bill is unlikely to be passed in the Monsoon Session, prompting the Bahujan Samaj Party, which is in the forefront of introducing reservation to SCs/STs in job promotions, accuse the UPA Government of not being serious on the issue. The Rajya Sabha also witnessed a scuffle between the two MPs over the issue just after Minister of State for Social Welfare V Narayansamy introduced the Bill. Samajwadi Party MP Naresh Aggarwal and Bahujan Samaj Party MP Avtar Singh Karampuri came to blows. They pushed each other while fighting over the SC/ST quota bill. Rajya Sabha was later adjourned for the day amid uproar over quota and coal allocation issues. The Central Bureau of Investigation (CBI) on Monday, 3 September 2012, 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 Tuesday, 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 last week 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 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. Dr. Singh said it is true that the private parties that were allocated captive coal blocks could not achieve their production targets. This could be partly due to cumbersome processes involved in getting statutory clearances, an issue which the government is addressing separately, Dr. Singh said. Dr. Singh said that the government has initiated action to cancel the allocations of allottees who did not take adequate follow-up action to commence production. Moreover, CBI is separately investigating the allegations of malpractices, on the basis of which due action will be taken against wrongdoers, if any, Dr. Singh said. Trade Minister Anand Sharma on 23 August 2012 said that a deadlock in parliament over allegations of irregularities over the allocation of coal blocks is delaying the government's move to push ahead with reforms to stimulate economic growth. 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 week 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. 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. 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. Rice sowing picked up in August 2012 following revival of monsoon rains. According to data released by the Ministry of Agriculture, rice was sown in a total area of 347.10 lakh hectare (lh) till 31 August 2012, compared with 329.19 lh as on 24 August 2012. Rice sowing has exceeded the normal area of 331.85 lh for the summer sown crop by this time of the year. Cumulative sowing of oilseeds totaled 167.15 lh till 31 August 2012, compared with 164.29 lh as on 24 August 2012. Sowing of oilseeds remains lower than the normal area of 168.36 lh by this time of the year. Sowing of cotton totaled 112.83 lh till 31 August 2012, compared with 111.53 until 24 August 2012. The normal cotton sowing area of 106.91 lh for the cotton crop by this time of the year has already been surpassed. Cumulative sowing of coarse cereals totaled 167.87 lh till 31 August 2012, compared with 165.34 lh until 24 August 2012. Sowing of coarse cereals remains lower than 196.77 lh of normal area for the crop this time of the year. Sowing of pulses totaled 97.70 lh till 31 August 2012, compared with 88.30 lh until 24 August 2012. Sowing of pulses remains lower than 101.31 lh of normal area for this time of the year. Sowing of jute and mesta totaled 8.78 lh until 31 August 2012. Sowing of jute and mesta remains lower than 9 lh of normal area for this time of the year. 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 week said that the proposed direct-tax code (DTC) may require a fresh look. The DTC, which aims to simplify tax procedures and improve compliance, was placed in parliament more than a year ago, and the government had earlier said it would implement it on April 1, 2013. The DTC has already undergone several changes. Mr. Chidambaram also said tax laws needed to be friendly but firm. Mr. Chidambaram said the government will be able to achieve its indirect tax revenue target of Rs 5.05 lakh crore for the current fiscal year that began April 1. Meeting the target is crucial for the government, which is struggling to control its fiscal deficit as heavy spending is straining its finances. Weakening tax revenue amid a sharp slowdown in the economy has put further stress on the government's financial health. Authorities will also begin a campaign to improve compliance to tax laws and widen the service tax net, Mr. Chidambaram said. Mr. 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. European stock markets edged higher in choppy action Wednesday, as investors remained cautious a day ahead of the European Central Bank's policy meeting. Key benchmark indices in Germany and France were up by 0.12% to 0.63%. UK's FTSE 100 fell 0.14%. The Markit euro-zone composite purchasing-managers' index indicated private-sector activity in the region contracted more than previously estimated in August. The PMI fell to 46.3 from 46.5 in July and was down from a preliminary reading of 46.6. The index for the services sector fell to 47.2 from 47.9 in July and was down from a preliminary figure of 47.5. A reading of less than 50 signals a contraction in activity European Central Bank (ECB) President Mario Draghi is expected to unveil measures tomorrow, 6 September 2012, to support sluggish growth in debt-stricken Europe. ECB holds its policy meeting on euro area interest rates tomorrow, 6 September 2012. The ECB slashed its interest rates to an all-time low in July. UK's central bank -- the Bank of England -- holds its monthly meeting on interest rates on 6 September 2012. The results of a detailed audit on the capitalisation needs of Spain's banks are expected in mid-September 2012. Germany's constitutional court will decide on 12 September 2012 whether the European Stability Mechanism (ESM) -- the proposed permanent successor to the euro-zone's current emergency lender viz. the European Financial Stability Mechanism -- violates German law and the Maastricht Treaty's 'no bailout' clause. Asian stocks fell Wednesday, 5 September 2012, as US manufacturing contracted for a third month and Australia's economy grew at a slower pace. Key benchmark indices in China, Hong Kong, Indonesia, Japan, Singapore, South Korea and Taiwan shed by between 0.29% to 1.74%. China's services-sector activity cooled to a one-year low in August, with more businesses growing downbeat about their outlook, even as overall conditions remained moderately expansionary, according to a survey released by HSBC on Tuesday, 4 September 2012. The China services Purchasing Managers' Index eased to 52 for the month from 53.1 in July. A subindex that measures total new business signaled conditions were at their weakest since November 2011, while optimism among participants within the sector slumped to an eight-month low. HSBC economist Hongbin Qu said in a note accompanying the data that the Chinese economy is clearly deteriorating and that authorities need "to do more to counterbalance the external shock." HSBC said its survey found growing pessimism among respondents, with many citing rising average costs while selling prices were little changed. Japan's central bank, Bank of Japan, next meets on Sept. 18 and 19 to review monetary policy. Australia's economy grew at a lower than expected rate of 0.6% in the second quarter of 2012, according to data compiled by the Australian Bureau of Statistics. First-quarter gross domestic product growth was revised up to 1.4%, from a previous reading of 1.3%. Trading in US index futures indicated that the Dow could fall 20 points at the opening bell on Wednesday, 5 September 2012. US stocks closed mixed Tuesday as investors continued to await clarity on European Central Bank plans to shore up heavily indebted countries, but the market ended off its lows on a rally in Apple Inc. US manufacturing contracted for a third straight month in August while firms in the sector hired the fewest workers since late 2009, according to an Institute for Supply Management survey. Separate data showed US construction spending in July fell by the most in a year as both the private and public sectors cut back on investment, according to a report that could dampen hopes of a pick-up in economic activity in the third quarter. The August US non-farm payroll report will be released on Friday 7 September 2012. The Federal Open Market Committee (FOMC) holds a two-day meeting on US interest rates on September 12-13. Election for a new president in the United States, the world's biggest economy, is scheduled on 6 November 2012.