Market may open lower on weak Asian stocks

The market may open lower on weak Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates that the Nifty could fall 25 points at the opening bell. Volatility may remain high this week as traders roll over positions in the futures & options (F&O) segment from the near month September 2012 series to October 2012 series. The September 2012 F&O contracts expire on Thursday, 27 September 2012. Asian shares edged lower on Monday, with metal-related firms weak, while some Japanese stocks suffered from a rising yen and growing tension between China and Japan. State Bank of India (SBI) Saturday, 22 September 2012, said it has cut its benchmark prime lending rate by 25 basis points to 14.5% per annum with effect from 27 September 2012. The announcement comes close on the heels of the bank cutting its base rate by 25 basis points to 9.75% with effect from 20 September 2012. Key benchmark indices surged on the last trading session of the week on Friday, 21 September 2012, with the market sentiment boosted by the government on Thursday notifying the rules for allowing greater foreign investment in retail, aviation and broadcasting sectors. The BSE Sensex jumped 403.58 points or 2.2% to 18,752.83 on that day, its highest closing level since 25 July 2011. Foreign institutional investors (FIIs) made substantial amount of purchases on Friday, 21 September 2012 as per the provisional data. FIIs bought shares worth a net Rs 2327.82 crore on Friday, 21 September 2012, as per the provisional data from the stock exchanges. Earlier, sold shares worth a net Rs 1.90 crore from the secondary equity market on Thursday, 20 September 2012, as per data from Securities & Exchange Board of India (Sebi). FIIs had made heavy purchases of Indian stocks recently. FIIs bought shares worth a net Rs 6267.30 crore from secondary markets during three sessions from 14 to 18 September 2012. Completing the last rites of the Congress-Trinamool alliance, six TMC ministers submitted their resignations from the Union cabinet on Friday, and the party withdrew its support to the UPA government. Railway minister Mukul Roy and five ministers of state — Saugata Roy, Sudip Bandhopadhyay, Sisir Adhikari, CM Jatua and Sultan Ahmed — handed over their individual resignations to prime minister Manmohan Singh at his 7 RCR residence. Later, they went to the Rashtrapati Bhawan and submitted a letter to President Pranab Mukherjee withdrawing their party's support to the UPA government.With the TMC's 19 MPs withdrawing support, the UPA has been reduced to a minority in the Lok Sabha. The TMC has withdrawn support from the UPA-2 to register its protest against the reformist decisions like allowing 51% FDI in multi-brand retail, increasing the diesel price by Rs 5 per litre, and imposing a cap on the number of subsidized LPG cylinders per family at six. All these decisions have been opposed by political parties across the spectrum. Prime Minister Dr. Manmohan Singh on Friday, 21 September 2012, said that the time has come for hard decisions. Explaining the rationale for the government's recent measures viz. hike in diesel price, capping of subsidised LPG cylinders per household per year and allowing foreign direct investment in multi-brand retail trade, Dr. Singh said that rapid growth in the economy is necessary to raise the government's revenue for financing its programmes in education, health care, housing and rural employment. Dr. Singh said that India must avoid high fiscal deficit which could cause a loss of confidence in the economy. "We are at a point where we can reverse the slowdown in our growth. We need a revival in investor confidence domestically and globally. The decisions we have taken recently are necessary for this purpose", Dr. Singh said in an address to the nation on Friday evening. Explaining the rationale for the hike in diesel prices and the cap on LPG cylinders, Dr. Singh said: "If we had not acted, it would have meant a higher fiscal deficit, that is, an unsustainable increase in government expenditure vis-a-vis government income. If unchecked, this would lead to a further steep rise in prices and a loss of confidence in our economy. The prices of essential commodities would rise faster. Both domestic as well as foreign investors would be reluctant to invest in our economy. Interest rates would rise. Our companies would not be able to borrow abroad. Unemployment would increase". Dr. Singh pointed out to the problems being currently faced by European countries by stating that governments in many European countries today cannot pay their bills and are looking to others for help. They are having to cut wages or pensions to satisfy potential lenders, Dr. Singh said adding that he is determined to see that India is not pushed into such a situation. The world is not kind to those who do not tackle their own problems, Dr. Singh asserted. The Prime Minister said that the government has raised the price of diesel by just Rs 5 per litre, instead of the Rs 17 per litre that was needed to cut all losses on diesel. Much of diesel is used by big cars and SUVs owned by the rich and by factories and businesses. Dr. Singh raised a question that should government run large fiscal deficits to subsidise them. Dr. Singh said that the government has reduced taxes on petrol by Rs 5 per litre to prevent a rise in petrol prices so that the crores of middle class people who drive scooters and motorcycles are not hit further. With regard to the cap of 6 subsidised cylinders per year per household, Dr. Singh said that almost half of the people in India use only 6 cylinders or less a year and that the government has ensured they are not adversely affected by the cap on LPG cylinders. He also said that the government has not touched the price of kerosene which is consumed by the poor. Dr. Singh said the fear that small retailers will be wiped out after the entry of foreign supermarkets chains in India is completely baseless. In a growing economy, there is enough space for big and small to grow, he said. He also said that the opening of organised retail to foreign investment will benefit farmers and consumers and will also create millions of good quality new jobs. Dr. Singh pointed out the benefit of the opening of manufacturing sector to foreign investment in 1991. Indian companies are today competing effectively both at home and abroad, and they are investing around the world, he said. "More importantly, foreign companies are creating jobs for our youth -- in Information Technology, in steel, and in the auto industry. I am sure this will happen in retail trade as well", Dr. Singh said. The government on Thursday evening braved intense political opposition to notify the rules for allowing 51% foreign direct investment (FDI) in multi-brand retail. The government also notified on Thursday the relaxed conditions for single brand retail as well as the norms for allowing 49% investment by foreign airlines in Indian carries and permitted greater foreign investment in some sections of the broadcasting sector. The government Friday, 21 September 2012, approved the operational features of the Rajiv Gandhi Equity Savings Scheme, allowing an income-tax waiver of 50% on new equity investments of up to Rs 50,000 by retail investors who have annual income of less than Rs 10 lakh. The government had first made the announcement of the Rajiv Gandhi Equity Savings Scheme in the Union Budget for 2012-13 announced in March 2012. The tax-saving plan is part of the steps the government announced the Budget to encourage the flow of India's significant household savings into financial markets. The scheme is open to new retail investors, identified on the basis of their PAN numbers. This includes those who have opened the Demat account but have not made any transaction in equity and/or in derivatives till the date of notification of this scheme and all those account holders other than the first account holder who wish to open a fresh account. The maximum investment permissible under the Scheme is Rs 50,000 and the investor would get a 50% deduction of the amount invested from the taxable income for that year. To benefit the small investors, the investments are allowed to be made in installment in the year in which tax claims are made. Under the scheme, those stocks listed under the BSE 100 or CNX 100, or those of public sector undertakings which are Navratnas, Maharatnas and Miniratnas would be eligible. Follow-on public offers (FPOs) of the above mentioned companies would also be eligible under the scheme. IPOs of PSUs, which are getting listed in the relevant financial year and whose annual turnover is not less than Rs 4000 crore for each of the immediate past three years, would also be eligible. Exchange Traded Funds (ETFs) and Mutual Funds (MFs) that have RGESS eligible securities as their underlying and are listed and traded in the stock exchanges and settled through a depository mechanism have also been brought under RGESS. The total lock-in period for investments under the scheme would be three years, including an initial blanket lock-in period of one year, commencing from the date of last purchase of securities under RGESS. After the first year, investors would be allowed to trade in the securities in furtherance of the goal of promoting an equity culture and as a provision to protect them from adverse market movements or stock specific risks as well as to give them avenues to realize profits. Investors would, however, be required to maintain their level of investment during these two years at the amount for which they have claimed income tax benefit or at the value of the portfolio before initiating a sale transaction, whichever is less, for at least 270 days in a year. The calculation of 270 days includes those days pursuant to the day on which the market value of the residual shares/units has automatically touched the stipulated value after the date of debit. The general principle under which trading is allowed is that whatever is the value of stocks/units sold by the investor from the RGESS portfolio, RGESS compliant securities of at least the same value are credited back into the account subsequently. However, the investor is allowed to take benefits of the appreciation of his RGESS portfolio, provided its value, as on the previous day of trading, remains above the investment for which they have claimed income tax benefit. For the purpose of valuation of shares, the closing price as on the previous day of the date of trading will be considered so that new investors are certain about their debits and credits into the account. In case the investor fails to meet the conditions stipulated, the tax benefit will be withdrawn. The finance ministry Friday, 21 September 2012, announced reduction in the tax rate on the interest paid to overseas lenders by local companies to 5% from 20%. The rate is applicable from July 2012 until June 2015. "This lower rate of taxation will apply to interest paid to a non-resident by an Indian company for money borrowed in foreign currency from a source outside India, either under a loan agreement or by way of long-term infrastructure bonds," the Finance Ministry said in a statement. The tax reduction will encourage corporates to borrow more for funding expansion projects. Over the past few weeks, the Reserve Bank of India has eased curbs on overseas borrowing for companies in the manufacturing and infrastructure sectors to boost growth. Samajwadi Party chief Mulayam Singh Yadav has hinted at continuing giving outside support to the UPA saying he does not want 'communal forces' to come to power. The UPA government, which has been reduced to a minority after the Trinamool Congress decided to withdraw its support, can safely cross the half-way mark in the Lok Sabha with Samajwadi Party's support. Samajwadi Party has 22 MPs. "We are giving support to the Congress so as not to allow the communal forces to come to power," Mulayam said on Friday. When asked about his reactions to the government's policies, Mulayam said he was against the government's policies, but wanted to keep 'criminal forces' at bay. "We are against the policies of Congress. We are not in UPA, but we support them to keep criminal forces away," Mulayam said. However, Mulayam also endorsed a Third front for the next elections. "The third front will win next elections. Who will lead the Third front will be decided later, Mulayam said. The next general election is due in May 2014. Coming back to economics, the outlook for winter crops has improved due to the annual monsoon rains' delayed withdrawal, which has provided crops with badly needed moisture after months of insufficient rainfall. The monsoon rains usually leave India by 1 September, but this year rainfall began to pick up in late August, after insufficient rain in preceding months forced four major agricultural states to declare a drought. The rains are now expected to begin departing from northwest regions by Monday, 24 September 2012, the state-run India Meteorological Department said on Wednesday, 19 September 2012. The overall rainfall deficit for the monsoon season has narrowed to 5% below the long-term average from around 13% in July and 29% in June. The late rain was unexpected. In fact, weather department had forecast that an El Nino would emerge in September. The weather event usually limits rainfall in India. Farm Secretary Ashish Bahuguna on Wednesday, 19 September 2012, said that the late rainfall would mitigate damage to summer crops caused by the earlier rain shortfall, but wouldn't result in a dramatic improvement. The government will release its latest crop estimate for the year that started on 1 July 2012 on Monday, 24 September 2012, Mr. Bahuguna said. 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. The Reserve Bank of India Monday, 17 September 2012, announced a reduction of 25 basis points in the cash reserve ratio (CRR) of scheduled banks to 4.5% of their net demand and time liabilities (NDTL) effective the fortnight beginning 22 September 2012 from current 4.75% after mid-quarter review of monetary policy. The reduction in CRR will inject around Rs 17000 crore of primary liquidity into the banking system, RBI said in a statement. The RBI kept its policy rate viz. the repo rate unchanged at 8%, stating that inflationary pressures, both at wholesale and retail levels, remain strong. As inflationary tendencies have persisted, the primary focus of monetary policy remains the containment of inflation and anchoring of inflation expectations, RBI said. Finance Minister P. Chidambaram, Monday, 17 September 2012, said the government will unveil more measures to narrow fiscal deficit and to boost economic growth, which may encourage the central bank to cut interest rates at its next monetary policy review on 30 October 2012. He didn't elaborate on what the measures could be. RBI is scheduled to undertake Second Quarter Review of Monetary Policy - 2012-13 on 30 October 2012. The Cabinet Committee on Political Affairs (CCPA) raised price of heavily subsidised diesel by Rs 5 per liter on 13 September 2012 to balance government's fiscal deficit situation. The CCPA also restricted the supply of subsidized LPG cylinders to each consumer to six cylinders (of 14.2 kg) per annum. 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. Asian stocks fell on Monday after a China's central bank adviser said the economic slowdown may extend into next year. Key benchmark indices in China, Hong Kong, Indonesia, Japan, Singapore, South Korea and Taiwan shed by between 0.41% to 0.86%. The economic slowdown may persist into 2013 amid a lack of funding for approved infrastructure projects, according to Song Guoqing, an academic adviser to the People's Bank of China, while a survey showed China's manufacturers and retailers are less optimistic about sales than they were three months ago. Tension has lately grown between China and Japan in a territorial dispute over a group of islands known as the Diaoyu in Chinese and Senkaku in Japanese. U.S. stocks ended mostly down Friday, with the major indexes closing near their session lows, as investors weighed central-bank easing measures with concerns about the health of the global economy. Election for a new president in the United States, the world's biggest economy, is scheduled on 6 November 2012. The Spanish government is expected to announce on Friday, 28 September 2012, the results of a review of its banking system, which will also include how much the European Stability Mechanism needs to recapitalize those banks