Market may open slightly lower

Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a fall of 7 points at the opening bell. Meanwhile, Asian stocks trade mostly higher on Thursday as investors await the European Central Bank meeting later in the day Bharat Heavy Electricals (Bhel) turns ex-dividend today, 6 September 2012, for final dividend of Rs 3.68 per share for the year ended 31 March 2012 (FY 2012). BEML turns ex-dividend today, 6 September 2012, for dividend of Rs 5 per share for FY 2012. Coal India turns ex-dividend today, 6 September 2012, for final dividend of 50 paise per share for FY 2012. NTPC turns ex-dividend today, 6 September 2012, for final dividend of 50 paise per share for FY 2012. Oil India turns ex-dividend today, 6 September 2012, for final dividend of Rs 5 per share for FY 2012. Key benchmark indices edged lower to reach their lowest closing level in over 4-1/2 weeks on Wednesday, 5 September 2012 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 S&P CNX Nifty lost 48.30 points or 0.92% to settle at 5,225.70 on that day, its lowest closing level since 3 August 2012. Foreign institutional investors (FIIs) sold shares worth net Rs 188.65 crore on Wednesday, 5 September 2012, as per the provisional data from the stock exchanges. FIIs had 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. The stock market remains open for short duration of 1-1/2 hours on Saturday, 8 September 2012, as the Bombay Stock Exchange is testing its disaster recovery site. Trading will start at 11:15 IST and end at 12:45 IST. Trades done on 8 September 2012 will be settled on Tuesday 11 September 2012 as a separate settlement, the National Stock Exchange (NSE) said in a circular issued on Friday 24 August 2012. Finance Minister P. Chidambaram Wednesday, 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. Asian stocks traded mostly higher Thursday following a mixed night on Wall Street, as investors to see whether the European Central Bank would act to support the euro zone at its meeting due later in the day. Key benchmark indices in China, Indonesia, Japan, South Korea and Taiwan rose by between 0.05% to 0.66%. Key benchmark indices in Hong Kong and Singapore fell by between 0.21% to 0.34%. South Korean GDP rose a seasonally-adjusted 0.3% in the second quarter of 2012, revised data from the Bank of Korea showed Thursday. In July, the central bank issued a preliminary estimate of 0.4% GDP growth for the quarter. On an annual basis, the economy expanded 2.3%, weaker than an estimate of 2.4% made in July. Japan's central bank, Bank of Japan, next meets on Sept. 18 and 19 to review monetary policy. U.S. stocks closed mixed on Wednesday with investors cautious ahead of Thursday's ECB policy decision. 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. European Central Bank (ECB) President Mario Draghi is expected to unveil measures today, 6 September 2012, to support sluggish growth in debt-stricken Europe. ECB holds its policy meeting on euro area interest rates today, 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 today, 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. Moody's Investors Service has lowered Ireland's local and foreign currency bond and deposit country ceilings to A3 from Aaa, citing financial and economic risks in the country. The lower ceiling means that the highest rating that can be assigned to a domestic issuer in Ireland or to a structured finance security backed by Irish receivables is now A3.