Market snaps two day winning streak
Key benchmark indices snapped two day winning streak as global shares slipped on Wednesday as investors weighed up whether signs of progress in the euro zone debt crisis warranted the recent surge and as Japan's wider-than-expected trade deficit in July provided a reminder of the problems facing top economies. The barometer index, BSE Sensex, was down 38.40 points or 0.21%, up close to 45 points from the day's low and off about 65 points from the day's high. The market breadth turned negative form positive in late trade. Index heavyweight and cigarette maker ITC edged higher in volatile trade. Another index heavyweight Reliance Industries (RIL) edged lower in volatile trade.
From a recent low of 17,657.21 on 16 August 2012, the Sensex rose 228.05 points or 1.29% in two trading sessions to settle at 17,885.26 on 21 August 2012. The Sensex has gained 610.68 points or 3.54% in this month so far (till 22 August 2012). The Sensex has jumped 2,391.94 points or 15.47% in calendar 2012 so far (till 22 August 2012). From a 52-week low of 15,135.86 on 20 December 2011, the Sensex has risen 2,711 points or 17.91%. From a 52-week high of 18,523.78 on 22 February 2012, the Sensex has lost 676.92 points or 3.65%.
Coming back to today's trade, bank stocks were mostly lower in choppy trade. Pharma stocks bucked weak market. IT stocks were mixed. Airline stocks jumped ahead of meeting of newly-formed United Progressive Alliance (UPA) coordination committee today to discuss foreign direct investment (FDI) in aviation sector. While, shares of organised retailer declined. Bharti Airtel hit a 52-week low. Interest rate sensitive realty shares fell on profit booking after recent gains.
The market edged lower in early trade on weak Asian stocks. It trimmed losses after weakening once again after recovering from the initial decline to hit fresh intraday high in morning trade. It slipped into the red after moving into the positive terrain to hit fresh intraday high in mid-morning trade. It hovered in negative terrain in early afternoon trade. Key benchmark indices pared losses in afternoon trade as bargain hunting emerged at lower levels. It slipped into the red once again in late trade.
The BSE Sensex was down 38.40 points or 0.21% to 17,846.86. The index rose 26.82 points at the day's high of 17,912.08 in mid-afternoon trade, its highest level since 15 March 2012. The index declined 84.97 points at the day's low of 17,800.29 in early trade.
The S&P CNX Nifty was down 8.15 points or 0.15% to 5,412.85. The Nifty hit high of 5,433.35, its highest level since 16 March 2012. The index hit a low of 5,394.80 in intraday trade.
The BSE Mid-Cap index declined 0.21%, matching the performance of Sensex. The BSE Small-Cap index dropped 0.22% and underperformed the Sensex.
BSE clocked turnover of Rs 2032 crore, higher than Rs 1926 crore on Tuesday, 21 August 2012.
The market breadth, indicating the overall health of the market, turned negative from positive in late trade. On BSE, 1459 shares fell and 1341 shares rose. A total of 159 shares were unchanged.
From the 30-share Sensex pack, 18 stocks fell and rest of them rose.
Bharti Airtel tumbled 3.85% to Rs 248.70 and was the top loser from the Sensex pack. The stock hit a 52-week low of Rs 248 in intraday trade today.
Among other telecom stocks, Tata Teleservices (Maharashtra), Reliance Communications and Idea Celluar shed by between 0.08% to 4.65%.
Bank stocks were mostly lower in choppy trade. India's largest bank by branch network State Bank of India declined 0.06%. SBI's net profit surged 136.91% to Rs 3751.56 crore on 16.89% increase in total income to Rs 32415.49 crore in Q1 June 2012 over Q1 June 2011. The surge in net profit was mainly due to a sharp fall in provisions and contingencies in Q1 June 2012. It may be recalled that SBI's provisions and contingencies had risen sharply in Q1 June 2011. The result was announced during trading hours on 10 August 2012.
SBI's ratio of net non-performing assets to net assets rose to 2.22% as on 30 June 2012, from 1.82% as on 31 March 2012, and 1.61% as on 30 June 2011. SBI's ratio of gross non-performing assets (NPA) to gross advances stood at 4.99% of gross advances as on 30 June 2012, higher than 4.44% as on 31 March 2012 and 3.52% as on 30 June 2011.
India's largest private sector bank by net profit ICICI Bank fell 0.05%. Before market hours on Thursday, 16 August 2012, the bank said it has successfully priced an issuance of 5.5 year fixed rate notes in aggregate principal amount of $750 million. The offering had an order book of $5.7 billion with interest from over 312 investors. The 5.5 year fixed rate notes carry a coupon of 4.7% and were offered at an issue price of 99.813%, which is spread of 364 basis points over equivalent London Interbank Offered Rate (Libor).
India's second biggest private sector bank in terms of branch network HDFC Bank gained 0.04% to Rs 597. The stock had struck a record high of Rs 609.70 on 13 August 2012. HDFC Bank last week said it has issued on a private placement basis unsecured, redeemable, non-convertible, subordinated bonds towards Tier-II capital bonds for an amount aggregating Rs 3477 crore.
Bank employees in India began a two-day strike on Wednesday to protest against proposed reforms that would ease mergers and allow more private capital, including foreign investment, in the banking sector. The strike will involve about one million employees and affect 70,000 bank branches of state-run and some private and foreign banks including the country's biggest lender, State Bank of India. Parliament is likely to approve a bill to amend some banking laws on Wednesday, which would include raising shareholders' voting rights limit in private banks to 26% from 10%. The amendment will meet a major demands of foreign investors seeking more say in the financial system.
Index heavyweight and cigarette maker ITC rose 0.19% to Rs 261.60. The stock hit a high of Rs 262.95 and a low of Rs 259.20. Global cigarette majors got an adverse court ruling in Australia last week. Tobacco giants failed in their bid to overturn an Australian law forcing them to remove virtually all branding from cigarettes packets, giving a boost to other countries planning similar steps. The legal challenge was brought also by British American Tobacco PLC, Imperial Tobacco Group PLC and Japan Tobacco Inc. The court ruling is a major blow for the companies, which are concerned other countries may be emboldened to push through similar measures. Norway, India, France and Canada are already considering curbs on cigarette marketing, while both New Zealand and the UK are looking specifically at introducing plain-packaging laws. The World Health Organization, which backs the plain-packaging measures, estimates that 5 million people worldwide die annually from diseases linked to tobacco, a figure it expects to climb to 9 million by 2030.
Shares of ITC had scaled a record high of Rs 269.25 on 14 August 2012. The company reported strong results last month. 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.
Index heavyweight Reliance Industries (RIL) was down 0.77% to Rs 808.05. The stock hit a high of Rs 815.90 and a low of Rs 805.80. RIL has bought back 3.88 crore shares for about of Rs 2776.78 crore till 7 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.
Interest rate sensitive realty shares fell on profit booking after recent gains. HDIL, DLF, D B Realty and Unitech fell by between 0.56% to 3.75%.
Sugar stocks also fell on profit booking after recent gains. Bajaj Hindusthan, Balrampur Chini Mills and Shree Renuka Sugars shed by between 3.05% to 4.99%.
Airline stocks jumped ahead of meeting of newly-formed United Progressive Alliance (UPA) coordination committee to discuss foreign direct investment (FDI) in aviation sector today. Jet Airways, Kingfisher Airlines and SpiceJet rose by between 2.68% to 4.71%. Currently, foreign airlines are not allowed to pick up equity in aviation companies while foreign investors and financial institutions can hold up to a 49% stake.
Shares of organised retailers edged lower ahead of UPA meet to discuss foreign direct investment (FDI) in retail sector. Trent, Pantaloon Retail and Shoppers Stop fell by between 0.35% to 1.15%. The Cabinet had cleared the proposal for 51% FDI in multi-brand retail on 24 November 2011.
Cairn India rose 0.69% as crude oil on Tuesday, 21 August 2012, hit their highest settlement price since May 2012. Higher crude oil prices will result in higher realization from crude sales for oil exploration firms such as Cairn India.
Pharma stocks gained on renewed buying. Cipla rose 0.13% to Rs 360.25. The stock had hit a 52-week high of Rs 365.20 in intraday trade on Tuesday, 21 August 2012.
Lupin, Cadila HealthCare, Dr Reddy's Laboratories and Sun Pharmaceutical Industries gained by between 0.95% to 1.52%.
Pharmaceutical and biotechnology major Wockhardt rose 0.48% to Rs 1269.45. The company said before market hours today that it has received tentative US FDA approval for marketing a generic version of 20mg, 40mg, 60mg & 80mg capsules containing Ziprasidone hydrochloride, which is used in the treatment of bipolar disorders and schizophrenia. The stock had hit a record high of Rs 1325 in intraday trade on Tuesday, 21 August 2012. Ziprasidone capsule is the generic name for the brand Geodon, marketed in the US by Pfizer. Wockhardt will launch the product on Sept 02, 2012. According to IMS Health, the total market for this product in the US is about $1.3 billion.
Ranbaxy Laboratories jumped 4.12% after the company clarified with reference to development relating to withdrawal by Ranbaxy of 27 approved ANDAs in the USA market appearing on US Regulator website and on certain online portals, that the company has determined that certain products with negligible commercial impact should be withdrawn to enable the organization to focus resources on other applications that are of greater importance and value to the US business and healthcare system. Further, the aforesaid ANDAs do not pertain to current business and will have a negligible impact on the company's business in USA, it said.
IT stocks were mixed. India's second largest software services exporter by revenues Infosys gained 0.93%, with the stock extending Tuesday's 2.37% gains triggered after the company said a US court has thrown out a case filed by an employee alleging harassment for blowing the whistle on how the Indian outsourcing giant flouted US work visa laws. The court found no basis to support any of the charges filed by Jack Palmer, a principal consultant working at Infosys who sued the company, and dismissed the case entirely, Infosys said in a statement. Mr. Palmer was also ordered to pay the costs for the case, the company said, without elaborating.
The court decision confirms what we have been saying from the beginning: Mr. Palmer's claims of retaliation were completely unfounded. Infosys is a company built on core values that include leadership by example, integrity and transparency. Those values always have and will continue to shape the way we do business with our clients and, without exception, the way we treat our people. We are pleased to consider this matter officially closed, Infosys said in a statement.
India's third largest software services exporter by revenues Wipro fell 0.25%.
India's largest software services exporter by revenues Tata Consultancy Services (TCS) declined 0.49% to Rs 1292.05. The stock reversed direction after hitting a record high of Rs 1310 in intraday trade today, 22 August 2012. The company last week said it has entered into a definitive agreement to acquire 100% equity of Computational Research Laboratories (CRL), a wholly owned subsidiary of Tata Sons, for a cash consideration of Rs 188 crore. The acquisition of CRL, a pioneering start-up firm in the arena of High Performance Computing solutions in India, will enable TCS to extend its suite of solutions and offer integrated High Performance Computing (HPC) application and Cloud services to its large base of customers, TCS said in a statement.
HPC applications are finding increasing relevance and use among large enterprises, as they look to solve complex business problems like reducing their time-to-market. This is driving an increase in adoption of HPC based applications for modeling, simulations, visualization and big data analysis across the business, TCS said.
Metal stocks were mostly lower. JSW Steel, Sesa Goa, Jindal Steel & Power, Sterlite Industries and Hindustan Zinc shed by between 0.35% to 1.87%.
Hindalco Industries rose on bargain hunting after declining for the last four trading sessions triggered after reporting weak Q1 results. The stock was up 0.45%. Hindalco Industries' net profit fell 34.04% to Rs 424.77 crore on 1.93% increase in total income to Rs 6,329.37 crore in Q1 June 2012 over Q1 June 2011. The result was announced on 14 August 2012.
NMDC jumped 3.34% on reports the state-owned mining company has hiked prices of fines by 8% and for lumps by 13% for June- September quarter. This is for the second consecutive quarter. NMDC has raised prices of raw material in this fiscal. During the last quarter, it had raised iron ore prices by 8-10% on increased demand and lower availability.
Interest rate sensitive auto shares were mixed. Car major, Maruti Suzuki India fell 0.17%, with the stock reversing initial gains. The company resumed production at its Manesar facility in Haryana on Tuesday, 21 August 2012. The company had declared a lock-out at the Manesar plant on 21 July 2012 following large scale violence by workmen on 18 July 2012. The re-start of production at the Manesar plant would be gradual and will be taken up in phases, Maruti had said last week at the time of announcing the lifting of lock-out at the unit.
Maruti produces its highest-selling diesel cars -- the Swift hatchback and the Swift Dzire sedan -- at its Manesar unit. It also manufactures the SX4 sedan and the A-Star small car at Manesar.
Tata Motors gained 0.71%, with the stock extending gains for the third straight day after the company said its global sales jumped 21% to 1,01,605 units in July 2012 over July 2011. The company's passenger vehicles sales stood at 53,829 units in July 2012, a jump of 45% from the same month last year. Commercial vehicle sales were up by 1% to 47,776 units from the same month last year. Sales of luxury brands from Jaguar Land Rover were at 26,921 units in July 2012, up 41% from the same month last year. While sales of luxury sedans of Jaguar brand stood last month at 4,064 units, Land Rover sales were at 22,857 units. The Tata Motors group's global sales comprise Tata, Tata Daewoo and Hispano Carrocera range of commercial vehicles, Tata passenger vehicles, along with the distributed brands in India, Jaguar and Land Rover.
Mahindra & Mahindra's (M&M) was flat. M&M's consolidated profit after deducting minority interest jumped 55% to Rs 1026.40 crore on 23.7% growth in gross Revenue plus other income to Rs 17670.80 crore in Q1 June 2012 over Q1 June 2011. During the quarter, some of the major group companies like Mahindra Finance, Mahindra Satyam and Mahindra Lifespace Developers significantly improved their performance. M&M announced the consolidated results last week.
As on 30 June 2012, the M&M group comprised of 115 subsidiaries, 6 joint ventures and 11 associates. A full summation of gross revenues and other income of all the group companies taken together for the three months ended 30 June 2012 is Rs 20476.90 crore and profits before minority interest is Rs 1405.30 crore, M&M said in a statement.
Two wheeler makers gained. India's largest motorcycle maker by sales Bajaj Auto gained 0.79%. The company on 2 August 2012 said its total sales declined 5% to 3.44 lakh units in July 2012 over July 2011. Motorcycle sales declined 3% to 3.08 lakh units in July 2012 over July 2011. The company sold 5,600 units of Pulsar 200 NS and 14,400 units of Discover 125 ST in July 2012. Bajaj Auto's commercial vehicles sales dropped 23% to 35,292 units in July 2012 over July 2011.
Bajaj Auto's exports declined 13% to 1.25 lakh units in July 2012 over July 2011. The company said there has been partial recovery in exports to Sri Lanka and Egypt and it expects further recovery in exports this month.
The company at the time of Q1 June 2012 results last month said that it has undertaken proactive measures like rationalizing the end-user cost of vehicles in Sri Lanka and with these measures the company expects normalcy in exports to resume by end of Q2 September 2012. Bajaj Auto lost exports of about 20,000 units in Sri Lanka in Q1 June 2012 due to introduction of import barriers by that country. The company also lost export of about 25,000 commercial vehicles in Q1 June 2012 due to restrictions by importing countries and due to political unrest in Egypt, Bajaj Auto said in a statement.
India's largest motorcycle maker by sales Hero MotoCorp gained 0.85%.
Four stocks to be excluded from the derivatives segment on the National Stock Exchange fell on BSE. NCC (down 4.04%), Central Bank of India (down 2.25%), Shipping Corporation of India (down 3.56%) and The South Indian Bank (down 1.74%), edged lower.
The National Stock Exchange (NSE) has decided to exclude Central Bank of India, NCC, Shipping Corporation of India and The South Indian Bank from its futures & options (F&O) segment with effect from 31 August 2012. Contracts for new expiry months in these four stocks will not be issued on expiry of existing contract months, NSE said in a circular. However, the existing unexpired contracts of expiry months August 2012, September 2012 and October 2012 will continue to be available for trading till their respective expiry and new strikes will also be introduced in the existing contract months, NSE said.
Foreign institutional investors (FIIs) bought shares worth net Rs 141.36 crore from the secondary equity markets on Tuesday, 21 August 2012, as per provisional data from the stock exchanges. Their inflow into the secondary equity market totaled Rs 4931.80 crore during 12 trading sessions from 1 to 17 August 2012. The inflow this month comes on the top of substantial purchases last month. FIIs bought shares worth net Rs 9691 crore from the secondary equity markets in July 2012.
On the macro front, the consumer price inflation remains high. Provisional annual inflation rate based on all India general consumer price index (CPI) combined for July 2012 on point to point basis stood at 9.86%, lower than 9.93% in June 2012, as per the data released by the Central Statistics Office Tuesday, 21 August 2012.
Reserve Bank of India (RBI) deputy governor Subir Gokarn on Sunday, 19 August 2012, said interest rates will come down only when there is a sustained fall in inflation. We have to balance growth and inflation risks, and when we see the inflation risk being the dominant one, as we have seen now, we cannot afford to ignore that risk, especially since pressure points on food and oil prices are re-emerging, Mr. Gokarn said at a conference of foreign-exchange dealers. The inflation rate for July 2012 at 6.87% was well above RBI's 5% comfort level. Mr. Gokarn said improving overall macroeconomic health would also help stabilize the rupee. The best policy for exchange-rate management is macro stability and concerted domestic policy actions, which will help offset global pressures, he said.
The annual rate of inflation based on the Wholesale Price Index (WPI) eased to 6.87% (Provisional) for the month of July 2012 (over July 2011) from 7.25% (Provisional) in June 2012. Build up inflation in the financial year so far was 2.36% compared to a build up of 3.14% in the corresponding period of the previous year. However, weak rainfall this year and a possibility that the government may allow local fuel retailers to raise prices could drive up inflation. Seasonal rainfall this year has been 15% below normal. Further, core inflation, also known as non-food manufacturing inflation, has accelerated, indicating overall price pressures haven't ebbed enough. Core inflation, which strips off volatile food and fuel prices, picked up to 5.5% on year in July from 5% in June.
Due to deficient rainfall this year, total Kharif area sown is 802.09 lakh hectares against the normal of 854.86 lakh hectares as on 8 August 2012, Minister of State for Agriculture and Food Processing Industries Mr. Harish Rawat said early last week. Mr. Rawat on 16 August 2012 said Rajasthan and Karnataka have declared drought in some areas of the respective states and are seeking relief from the central government. Rainfall across the country has been 15% below the long-term average so far this monsoon season, which started June 1.
Mr. Rawat said a shortage of rainfall has also affected the cultivation of summer-sown crops in other parts of the country. Punjab and Haryana as well as parts of Maharashtra and Gujarat haven't declared drought yet, but are facing very dry conditions, he said. But he added that, overall, crops will likely fare better this year than during the country's last drought, in 2009, the worst drought the country suffered in nearly four decades. Coarse cereals, including corn, have been hit hardest by poor rainfall, he 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 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 Ministry of Coal has denied the findings made by the controversial report of the Comptroller and Auditor General of India (CAG) on allocation of coal blocks from July 2004 to end-March 2011 to various state-owned and private companies without competitive bidding. The intent of the government behind allocation of coal blocks was to induce rapid development of infrastructure that is so very essential to keep the economy on high growth trajectory, by involving the private sector to invest in identified priority sectors so as to create additional capacities, the Ministry of Coal said in a statement issued on Friday 17 August 2012 - the day when the CAG report was tabled in parliament. The calculation of financial gains to the private parties from allocation of coal blocks by the CAG was flawed on certain basic fundamentals related to the geological sector, it said.
The BJP, unyielding in its demand for Prime Minister Manmohan Singh's resignation, did not allow Parliament to function again today. Party reportedly plans to continue disruptions till this week over the controversy that's being called Coal-Gate, spawned by the national auditor's conclusion that the government enabled Rs. 1.86 lakh crores as windfall gains to private firms by giving them coal fields at a fraction of their market value. For three of the five years under scrutiny, the PM held direct charge of the Coal Ministry. Therefore, the BJP says, he must accept the blame for a huge lapse and resign.
The Ministry of Coal said that since 1993 the allotment of coal blocks was through a mechanism of inter ministerial Screening Committee. The Screening Committee was a broad based body with representation from the State Governments, concerned Ministries of the Central Government and the coal companies. This procedure of allotment of blocks through the Screening Committee was well established and accepted by all successive Governments since 1993. The procedure adopted for allocation involved wide consultations with all stakeholders. The parameters and the guidelines for allocation followed by the committee, while evaluating the applications, were duly published on the website of the Ministry of Coal before inviting the applications. Comprehensive details about the applicant, the group, performance of the group, financial strength, readiness of the end-use plant etc were placed before the committee so as to enable it to make appropriate recommendation keeping in mind the comparative merits of the applicants. Therefore, the allegation made by CAG that the allocation of coal blocks was not transparent does not appear to be based on appreciation of the process of allocation that was put in place in the prevalent circumstances, the Ministry of Coal said in a statement. The subsequent move to introduce competitive bidding was with a view to make the selection process more objective and demonstrably transparent, it said. The delay in introduction of competitive bidding of coal blocks proposed in 2004 was due to conflicting legal opinion on the issue, the Ministry of Coal said.
The Prime Minister's Economic Advisory Council (PMEAC) headed by Dr. C. Rangarajan, has projected 6.7% growth GDP in 2012/13. The GDP is projected to grow at 6.7% in 2012/13 due to the impact of weak monsoon on agriculture and the current reservoir storage position in 2012/13, PMEAC said in a statement issued last week. PMEAC said deficient monsoon will likely have an adverse impact on the prices of primary food items, especially on those where the ability of government stocks to play a moderating role is not there. PMEAC has forecast inflation rate to be within the range of 6.5% to 7% at the end of 2012-13.
The PMEAC said that containment of the fiscal imbalance at the Centre rests on the government's management of the subsidy bill, especially that on refined petroleum products and by increasing the tax-GDP ratio. Introduction of the General Sales Tax on Goods & Services (GST) would be a very important milestone in the path of tax reform, it said. Introduction of GST requires considerable negotiations, bargaining and preparatory work in relation to both the structure and operation of the tax, it said.
Given the huge subsidy projection for the current financial year, priority consideration may be given to a suitable increase in the price of diesel in one or more steps and on capping the level of consumption of subsidised domestic LPG close to what is currently being consumed by poorer households, i.e., 4 cylinders. There is need to specifically focus and address the apprehensions that have been occasioned by perceptions of arbitrary actions on tax and other fronts, the PMEAC said. Outstanding payments for infrastructure projects need to be cleared on time, it said.
There is a need to take steps to contain high inflation in primary food which is mostly linked to the antiquated system of marketing and absence of modern handling and storage facilities for perishable products, the PMEAC said. Reforms in agriculture sector need focused attention on liberalizing tenancy arrangements, reforming domestic markets for agricultural produce and, reducing input subsidies, the PMEAC said.
Significant improvement required in the approach of government to a number of issues to make IT-related export business much more competitive, the PMEAC said.
Union Minister of Commerce, Industry & Textiles Mr. Anand Sharma last week said 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 on 16 August 2012 Mr. Sharma said that there is a shared concern over the declining industrial production, particularly the manufacturing sector. We have also looked at other concerns of the industry so that steps are taken to improve the investors' confidence as well as the climate of investment.... I have said so earlier that the government will take decisions which are the expectations of the industry and the investors... We hope that in the next three weeks there will be decisions by the government which will bring about a positive improvement, Mr. Sharma said.
Prime Minister Dr. Manmohan Singh said in his Independence Day speech on 15 August 2012 that at a time when the global economy is passing through a difficult phase, India must make every effort to resolve the problems inside the country so that the nation's economic growth and the creation of employment opportunities in the country are again speeded up. If we do not increase the pace of the country's economic growth, take steps to encourage new investment in the economy, improve the management of government finances and work for the livelihood security of the common man and energy security of the country, then it most certainly affects our national security, Dr. Singh said.
The prime minister said the government has recently taken new measures to accelerate infrastructure development. Ambitious targets have been fixed in roads, airports, railways, electricity generation and coal production. The Government will take steps to increase investment for infrastructure development with the help of the private sector, Dr. Singh said. To attract foreign capital, we will have to create confidence at the international level that there are no barriers to investment in India, Dr. Singh said. Dr. Singh said that almost all the villages in the country have now been electrified. The government's next target is to provide electricity to each and every household in the country in the next 5 years and to also improve the supply of electricity, Dr. Singh said. The National Skill Development Council has formulated a major scheme for skill development in which 8 crore people will be trained in the next 5 years, Dr. Singh said.
Union Finance Minister P. Chidambaram said early this month that a path of financial consolidation will be unveiled shortly. Government finances are under pressure as expenses exceed revenue, mainly because of subsidies doled out for cheaper supplies of food, fuel and fertilizer. Mr. Chidambaram said that the fiscal-deficit target for the current financial year will be reassessed after a mid-year review later this financial year depending on the pace of expenditure and the resource position of the government. The government is aiming to restrict spending on subsidies, the finance minister said. The government has already taken some steps to reduce expenditure. In late May, the finance ministry asked government departments to reduce their non-plan spending -- expenditure that won't create long-term assets -- by 10% this fiscal year as part of its efforts to keep the fiscal deficit under check.
The government intends to fine tune policies and procedures that will facilitate capital flows into India, Mr. Chidambaram said early this month. Clarity in tax laws, a stable tax regime, a non-adversarial tax administration, a fair mechanism for dispute resolution, and an independent judiciary will provide great assurance to investors, Mr. Chidambaram said. The government has appointed two committees -- one to examine anti-avoidance tax proposal viz. the General Anti-Avoidance Rules (GAAR) legal provisions and guidelines and the other to review taxation of the IT sector and Development Centres. Mr. Chidambaram said he has also directed a review of tax provisions that have a retrospective effect in order to find fair and reasonable solutions to pending as well as likely disputes between the Tax Departments and the Assessees concerned. The implementation of GAAR proposal introduced in the Union Budget 2012-13 in March 2012 by then-finance minister Pranab Mukherjee has been deferred to 1 April 2013. This came after heavy criticism from foreign investors who fear that GAAR would give the authorities arbitrary powers to examine any deal that they feel is designed to avoid tax. Prime Minister Dr. Manmohan Singh last month constituted an expert committee on anti-avoidance tax proposal viz. the General Anti-Avoidance Rules (GAAR) to undertake stakeholder consultations and finalise the guidelines for GAAR by 30 September 2012.
Dr. Singh last month also decided to refer the issue of implications on FIIs and portfolio investors of the amendment made to the Income Tax Act relating to the taxation of non-resident transfer of assets where the underlying asset is in India to the Expert Committee on anti-avoidance tax proposal viz. the General Anti-Avoidance Rules (GAAR). It is necessary to have clarity on the tax liability of portfolio investors and foreign institutional investors as a result of this amendment particularly when the investment is made through a registered stock exchange in accordance with SEBI guidelines and purely in the form of portfolio investment, the Prime Minister's Office (PMO) said in a statement issued on 30 July 2012. Any clarification needs to be harmonised with the GAAR guidelines and will have to address any residual concerns outside of GAAR, the PMO said.
An India-Mauritius joint panel will discuss a series of proposals to review the double taxation avoidance treaty between the two nations on 22-24 August in Mauritius. India has been looking to negotiate the double taxation avoidance agreement with Mauritius for the past few years to check so-called round tripping and other potential abuses. Round tripping entails moving money out of one country to another, and getting it back under the garb of foreign capital. Capital gains tax is close to zero in Mauritius and almost 40% of investments into India come through the island nation. Under the bilateral agreement, capital gains from sale of securities can be taxed only in Mauritius.
The India-Mauritius joint working group will also discuss the inclusion of a so-called limitation of benefit clause, similar to the Singapore tax treaty with India, to ensure only genuine Mauritius-based companies are benefited. India's tax agreement with Singapore says that only those companies that spend a minimum of $200,000 (about Rs 1 crore) in Singapore can avail the benefits of the treaty.
Sanctity of tax residency certificates issued by a country to companies operating in its jurisdiction to enable the firms to claim tax benefits under various treaties is another issue between India and Mauritius. While India in this year's national budget said the certificates are a necessary but not sufficient condition, Mauritius wants those issued by it honoured. Draft guidelines issued by Indian government for implementing the controversial anti-avoidance tax proposal viz. the GAAR state that GAAR provisions should be invoked on a foreign institutional investor (FII), if it chooses to take a treaty benefit, but would not in any case be invoked in the case of the non-resident investors of the FII. The draft guidelines suggested that the onus of proving wrongdoing should be on the authorities.
European shares slipped from 13-month highs on Wednesday as investors booked profit after recent surge. Key benchmark indices in UK, France and Germany were down by 0.9% to 1.22%.
On Thursday, 23 August 2012, investors get their latest checkup on the health of Europe's economy through reports of German, French and euro-zone purchasing managers indexes for August 2012. It is widely expected that all three PMIs, which provide insight on manufacturing activity, will show contractions. Last month, France's PMI was 48, Germany's was 47.3, and the euro zone's was 46.4, with anything below 50 indicating contraction. France and Germany are considered the strongest members of the euro zone, so further contraction would portend an economic slowdown and likely add to expectations that the broader euro zone is entering a recession.
Greek Prime Minister Antonis Samaras is set to meet German Chancellor Angela Merkel in Berlin on Friday, 24 August 2012, and will visit French President François Hollande on Saturday, 25 August 2012. Samaras is reportedly prepared to sound out Merkel on his call to stretch the implementation of new austerity measures over four years rather than the two years agreed as part of second bailout for Greece. Greek news reports, however, said Samaras wouldn't formally request an extension until a meeting of European Union leaders in October 2012. Samaras campaigned on that pledge as his center-right New Democracy party eked out a first place finish in June's parliamentary elections over the left-wing Syriza party, which had vowed to tear up the austerity provisions altogether.
Asian stocks dropped on Wednesday after Japan reported a wider-than-expected trade deficit and as investors await developments from a euro-area finance ministers meeting this week to discuss details of the bailout package for Greece. Key benchmark indices in China, Hong Kong, Japan, South Korea, Singapore, and Taiwan were down by 0.14% to 1.06%. Stock markets in Indonesia were closed for a holiday today.
Japan reported a wider-than-expected trade deficit in July as Europe's sovereign debt crisis and a slowdown in China dragged down exports and higher oil prices boosted imports. The shortfall was 517.4 billion yen ($6.5 billion), after a revised 60.3 billion yen surplus in June, the Finance Ministry said in Tokyo today.
Markit Economics will release HSBC flash China purchasing managers index for August 2012 on Thursday, 23 August 2012. HSBC's final reading of China manufacturing Purchasing Managers' Index came in at 49.3 for July, up from June's print at 48.2, but still below the 50-point threshold that divides expansion from contraction.
Trading in US index futures indicated that the Dow could fall 31 points at the opening bell on Wednesday, 22 August 2012. U.S. shares ended with losses Tuesday, even after rising to within touching distance of multi-year highs during the session. Minutes of the Federal Open Market Committee's (FOMC) two-day meeting held on July 31-August 1 will be released today, 22 August 2012. Investors are awaiting the details of the FOMC meeting to gauge how amenable central bankers are to a new bond-buying program. Federal Reserve Chairman Ben Bernanke is scheduled to talk on 31 August 2012 at the Kansas City Federal Reserve Bank's annual symposium in Jackson Hole, Wyo.
Election for a new president in the United States, the world's biggest economy, is scheduled on 6 November 2012.
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From a recent low of 17,657.21 on 16 August 2012, the Sensex rose 228.05 points or 1.29% in two trading sessions to settle at 17,885.26 on 21 August 2012. The Sensex has gained 610.68 points or 3.54% in this month so far (till 22 August 2012). The Sensex has jumped 2,391.94 points or 15.47% in calendar 2012 so far (till 22 August 2012). From a 52-week low of 15,135.86 on 20 December 2011, the Sensex has risen 2,711 points or 17.91%. From a 52-week high of 18,523.78 on 22 February 2012, the Sensex has lost 676.92 points or 3.65%.
Coming back to today's trade, bank stocks were mostly lower in choppy trade. Pharma stocks bucked weak market. IT stocks were mixed. Airline stocks jumped ahead of meeting of newly-formed United Progressive Alliance (UPA) coordination committee today to discuss foreign direct investment (FDI) in aviation sector. While, shares of organised retailer declined. Bharti Airtel hit a 52-week low. Interest rate sensitive realty shares fell on profit booking after recent gains.
The market edged lower in early trade on weak Asian stocks. It trimmed losses after weakening once again after recovering from the initial decline to hit fresh intraday high in morning trade. It slipped into the red after moving into the positive terrain to hit fresh intraday high in mid-morning trade. It hovered in negative terrain in early afternoon trade. Key benchmark indices pared losses in afternoon trade as bargain hunting emerged at lower levels. It slipped into the red once again in late trade.
The BSE Sensex was down 38.40 points or 0.21% to 17,846.86. The index rose 26.82 points at the day's high of 17,912.08 in mid-afternoon trade, its highest level since 15 March 2012. The index declined 84.97 points at the day's low of 17,800.29 in early trade.
The S&P CNX Nifty was down 8.15 points or 0.15% to 5,412.85. The Nifty hit high of 5,433.35, its highest level since 16 March 2012. The index hit a low of 5,394.80 in intraday trade.
The BSE Mid-Cap index declined 0.21%, matching the performance of Sensex. The BSE Small-Cap index dropped 0.22% and underperformed the Sensex.
BSE clocked turnover of Rs 2032 crore, higher than Rs 1926 crore on Tuesday, 21 August 2012.
The market breadth, indicating the overall health of the market, turned negative from positive in late trade. On BSE, 1459 shares fell and 1341 shares rose. A total of 159 shares were unchanged.
From the 30-share Sensex pack, 18 stocks fell and rest of them rose.
Bharti Airtel tumbled 3.85% to Rs 248.70 and was the top loser from the Sensex pack. The stock hit a 52-week low of Rs 248 in intraday trade today.
Among other telecom stocks, Tata Teleservices (Maharashtra), Reliance Communications and Idea Celluar shed by between 0.08% to 4.65%.
Bank stocks were mostly lower in choppy trade. India's largest bank by branch network State Bank of India declined 0.06%. SBI's net profit surged 136.91% to Rs 3751.56 crore on 16.89% increase in total income to Rs 32415.49 crore in Q1 June 2012 over Q1 June 2011. The surge in net profit was mainly due to a sharp fall in provisions and contingencies in Q1 June 2012. It may be recalled that SBI's provisions and contingencies had risen sharply in Q1 June 2011. The result was announced during trading hours on 10 August 2012.
SBI's ratio of net non-performing assets to net assets rose to 2.22% as on 30 June 2012, from 1.82% as on 31 March 2012, and 1.61% as on 30 June 2011. SBI's ratio of gross non-performing assets (NPA) to gross advances stood at 4.99% of gross advances as on 30 June 2012, higher than 4.44% as on 31 March 2012 and 3.52% as on 30 June 2011.
India's largest private sector bank by net profit ICICI Bank fell 0.05%. Before market hours on Thursday, 16 August 2012, the bank said it has successfully priced an issuance of 5.5 year fixed rate notes in aggregate principal amount of $750 million. The offering had an order book of $5.7 billion with interest from over 312 investors. The 5.5 year fixed rate notes carry a coupon of 4.7% and were offered at an issue price of 99.813%, which is spread of 364 basis points over equivalent London Interbank Offered Rate (Libor).
India's second biggest private sector bank in terms of branch network HDFC Bank gained 0.04% to Rs 597. The stock had struck a record high of Rs 609.70 on 13 August 2012. HDFC Bank last week said it has issued on a private placement basis unsecured, redeemable, non-convertible, subordinated bonds towards Tier-II capital bonds for an amount aggregating Rs 3477 crore.
Bank employees in India began a two-day strike on Wednesday to protest against proposed reforms that would ease mergers and allow more private capital, including foreign investment, in the banking sector. The strike will involve about one million employees and affect 70,000 bank branches of state-run and some private and foreign banks including the country's biggest lender, State Bank of India. Parliament is likely to approve a bill to amend some banking laws on Wednesday, which would include raising shareholders' voting rights limit in private banks to 26% from 10%. The amendment will meet a major demands of foreign investors seeking more say in the financial system.
Index heavyweight and cigarette maker ITC rose 0.19% to Rs 261.60. The stock hit a high of Rs 262.95 and a low of Rs 259.20. Global cigarette majors got an adverse court ruling in Australia last week. Tobacco giants failed in their bid to overturn an Australian law forcing them to remove virtually all branding from cigarettes packets, giving a boost to other countries planning similar steps. The legal challenge was brought also by British American Tobacco PLC, Imperial Tobacco Group PLC and Japan Tobacco Inc. The court ruling is a major blow for the companies, which are concerned other countries may be emboldened to push through similar measures. Norway, India, France and Canada are already considering curbs on cigarette marketing, while both New Zealand and the UK are looking specifically at introducing plain-packaging laws. The World Health Organization, which backs the plain-packaging measures, estimates that 5 million people worldwide die annually from diseases linked to tobacco, a figure it expects to climb to 9 million by 2030.
Shares of ITC had scaled a record high of Rs 269.25 on 14 August 2012. The company reported strong results last month. 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.
Index heavyweight Reliance Industries (RIL) was down 0.77% to Rs 808.05. The stock hit a high of Rs 815.90 and a low of Rs 805.80. RIL has bought back 3.88 crore shares for about of Rs 2776.78 crore till 7 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.
Interest rate sensitive realty shares fell on profit booking after recent gains. HDIL, DLF, D B Realty and Unitech fell by between 0.56% to 3.75%.
Sugar stocks also fell on profit booking after recent gains. Bajaj Hindusthan, Balrampur Chini Mills and Shree Renuka Sugars shed by between 3.05% to 4.99%.
Airline stocks jumped ahead of meeting of newly-formed United Progressive Alliance (UPA) coordination committee to discuss foreign direct investment (FDI) in aviation sector today. Jet Airways, Kingfisher Airlines and SpiceJet rose by between 2.68% to 4.71%. Currently, foreign airlines are not allowed to pick up equity in aviation companies while foreign investors and financial institutions can hold up to a 49% stake.
Shares of organised retailers edged lower ahead of UPA meet to discuss foreign direct investment (FDI) in retail sector. Trent, Pantaloon Retail and Shoppers Stop fell by between 0.35% to 1.15%. The Cabinet had cleared the proposal for 51% FDI in multi-brand retail on 24 November 2011.
Cairn India rose 0.69% as crude oil on Tuesday, 21 August 2012, hit their highest settlement price since May 2012. Higher crude oil prices will result in higher realization from crude sales for oil exploration firms such as Cairn India.
Pharma stocks gained on renewed buying. Cipla rose 0.13% to Rs 360.25. The stock had hit a 52-week high of Rs 365.20 in intraday trade on Tuesday, 21 August 2012.
Lupin, Cadila HealthCare, Dr Reddy's Laboratories and Sun Pharmaceutical Industries gained by between 0.95% to 1.52%.
Pharmaceutical and biotechnology major Wockhardt rose 0.48% to Rs 1269.45. The company said before market hours today that it has received tentative US FDA approval for marketing a generic version of 20mg, 40mg, 60mg & 80mg capsules containing Ziprasidone hydrochloride, which is used in the treatment of bipolar disorders and schizophrenia. The stock had hit a record high of Rs 1325 in intraday trade on Tuesday, 21 August 2012. Ziprasidone capsule is the generic name for the brand Geodon, marketed in the US by Pfizer. Wockhardt will launch the product on Sept 02, 2012. According to IMS Health, the total market for this product in the US is about $1.3 billion.
Ranbaxy Laboratories jumped 4.12% after the company clarified with reference to development relating to withdrawal by Ranbaxy of 27 approved ANDAs in the USA market appearing on US Regulator website and on certain online portals, that the company has determined that certain products with negligible commercial impact should be withdrawn to enable the organization to focus resources on other applications that are of greater importance and value to the US business and healthcare system. Further, the aforesaid ANDAs do not pertain to current business and will have a negligible impact on the company's business in USA, it said.
IT stocks were mixed. India's second largest software services exporter by revenues Infosys gained 0.93%, with the stock extending Tuesday's 2.37% gains triggered after the company said a US court has thrown out a case filed by an employee alleging harassment for blowing the whistle on how the Indian outsourcing giant flouted US work visa laws. The court found no basis to support any of the charges filed by Jack Palmer, a principal consultant working at Infosys who sued the company, and dismissed the case entirely, Infosys said in a statement. Mr. Palmer was also ordered to pay the costs for the case, the company said, without elaborating.
The court decision confirms what we have been saying from the beginning: Mr. Palmer's claims of retaliation were completely unfounded. Infosys is a company built on core values that include leadership by example, integrity and transparency. Those values always have and will continue to shape the way we do business with our clients and, without exception, the way we treat our people. We are pleased to consider this matter officially closed, Infosys said in a statement.
India's third largest software services exporter by revenues Wipro fell 0.25%.
India's largest software services exporter by revenues Tata Consultancy Services (TCS) declined 0.49% to Rs 1292.05. The stock reversed direction after hitting a record high of Rs 1310 in intraday trade today, 22 August 2012. The company last week said it has entered into a definitive agreement to acquire 100% equity of Computational Research Laboratories (CRL), a wholly owned subsidiary of Tata Sons, for a cash consideration of Rs 188 crore. The acquisition of CRL, a pioneering start-up firm in the arena of High Performance Computing solutions in India, will enable TCS to extend its suite of solutions and offer integrated High Performance Computing (HPC) application and Cloud services to its large base of customers, TCS said in a statement.
HPC applications are finding increasing relevance and use among large enterprises, as they look to solve complex business problems like reducing their time-to-market. This is driving an increase in adoption of HPC based applications for modeling, simulations, visualization and big data analysis across the business, TCS said.
Metal stocks were mostly lower. JSW Steel, Sesa Goa, Jindal Steel & Power, Sterlite Industries and Hindustan Zinc shed by between 0.35% to 1.87%.
Hindalco Industries rose on bargain hunting after declining for the last four trading sessions triggered after reporting weak Q1 results. The stock was up 0.45%. Hindalco Industries' net profit fell 34.04% to Rs 424.77 crore on 1.93% increase in total income to Rs 6,329.37 crore in Q1 June 2012 over Q1 June 2011. The result was announced on 14 August 2012.
NMDC jumped 3.34% on reports the state-owned mining company has hiked prices of fines by 8% and for lumps by 13% for June- September quarter. This is for the second consecutive quarter. NMDC has raised prices of raw material in this fiscal. During the last quarter, it had raised iron ore prices by 8-10% on increased demand and lower availability.
Interest rate sensitive auto shares were mixed. Car major, Maruti Suzuki India fell 0.17%, with the stock reversing initial gains. The company resumed production at its Manesar facility in Haryana on Tuesday, 21 August 2012. The company had declared a lock-out at the Manesar plant on 21 July 2012 following large scale violence by workmen on 18 July 2012. The re-start of production at the Manesar plant would be gradual and will be taken up in phases, Maruti had said last week at the time of announcing the lifting of lock-out at the unit.
Maruti produces its highest-selling diesel cars -- the Swift hatchback and the Swift Dzire sedan -- at its Manesar unit. It also manufactures the SX4 sedan and the A-Star small car at Manesar.
Tata Motors gained 0.71%, with the stock extending gains for the third straight day after the company said its global sales jumped 21% to 1,01,605 units in July 2012 over July 2011. The company's passenger vehicles sales stood at 53,829 units in July 2012, a jump of 45% from the same month last year. Commercial vehicle sales were up by 1% to 47,776 units from the same month last year. Sales of luxury brands from Jaguar Land Rover were at 26,921 units in July 2012, up 41% from the same month last year. While sales of luxury sedans of Jaguar brand stood last month at 4,064 units, Land Rover sales were at 22,857 units. The Tata Motors group's global sales comprise Tata, Tata Daewoo and Hispano Carrocera range of commercial vehicles, Tata passenger vehicles, along with the distributed brands in India, Jaguar and Land Rover.
Mahindra & Mahindra's (M&M) was flat. M&M's consolidated profit after deducting minority interest jumped 55% to Rs 1026.40 crore on 23.7% growth in gross Revenue plus other income to Rs 17670.80 crore in Q1 June 2012 over Q1 June 2011. During the quarter, some of the major group companies like Mahindra Finance, Mahindra Satyam and Mahindra Lifespace Developers significantly improved their performance. M&M announced the consolidated results last week.
As on 30 June 2012, the M&M group comprised of 115 subsidiaries, 6 joint ventures and 11 associates. A full summation of gross revenues and other income of all the group companies taken together for the three months ended 30 June 2012 is Rs 20476.90 crore and profits before minority interest is Rs 1405.30 crore, M&M said in a statement.
Two wheeler makers gained. India's largest motorcycle maker by sales Bajaj Auto gained 0.79%. The company on 2 August 2012 said its total sales declined 5% to 3.44 lakh units in July 2012 over July 2011. Motorcycle sales declined 3% to 3.08 lakh units in July 2012 over July 2011. The company sold 5,600 units of Pulsar 200 NS and 14,400 units of Discover 125 ST in July 2012. Bajaj Auto's commercial vehicles sales dropped 23% to 35,292 units in July 2012 over July 2011.
Bajaj Auto's exports declined 13% to 1.25 lakh units in July 2012 over July 2011. The company said there has been partial recovery in exports to Sri Lanka and Egypt and it expects further recovery in exports this month.
The company at the time of Q1 June 2012 results last month said that it has undertaken proactive measures like rationalizing the end-user cost of vehicles in Sri Lanka and with these measures the company expects normalcy in exports to resume by end of Q2 September 2012. Bajaj Auto lost exports of about 20,000 units in Sri Lanka in Q1 June 2012 due to introduction of import barriers by that country. The company also lost export of about 25,000 commercial vehicles in Q1 June 2012 due to restrictions by importing countries and due to political unrest in Egypt, Bajaj Auto said in a statement.
India's largest motorcycle maker by sales Hero MotoCorp gained 0.85%.
Four stocks to be excluded from the derivatives segment on the National Stock Exchange fell on BSE. NCC (down 4.04%), Central Bank of India (down 2.25%), Shipping Corporation of India (down 3.56%) and The South Indian Bank (down 1.74%), edged lower.
The National Stock Exchange (NSE) has decided to exclude Central Bank of India, NCC, Shipping Corporation of India and The South Indian Bank from its futures & options (F&O) segment with effect from 31 August 2012. Contracts for new expiry months in these four stocks will not be issued on expiry of existing contract months, NSE said in a circular. However, the existing unexpired contracts of expiry months August 2012, September 2012 and October 2012 will continue to be available for trading till their respective expiry and new strikes will also be introduced in the existing contract months, NSE said.
Foreign institutional investors (FIIs) bought shares worth net Rs 141.36 crore from the secondary equity markets on Tuesday, 21 August 2012, as per provisional data from the stock exchanges. Their inflow into the secondary equity market totaled Rs 4931.80 crore during 12 trading sessions from 1 to 17 August 2012. The inflow this month comes on the top of substantial purchases last month. FIIs bought shares worth net Rs 9691 crore from the secondary equity markets in July 2012.
On the macro front, the consumer price inflation remains high. Provisional annual inflation rate based on all India general consumer price index (CPI) combined for July 2012 on point to point basis stood at 9.86%, lower than 9.93% in June 2012, as per the data released by the Central Statistics Office Tuesday, 21 August 2012.
Reserve Bank of India (RBI) deputy governor Subir Gokarn on Sunday, 19 August 2012, said interest rates will come down only when there is a sustained fall in inflation. We have to balance growth and inflation risks, and when we see the inflation risk being the dominant one, as we have seen now, we cannot afford to ignore that risk, especially since pressure points on food and oil prices are re-emerging, Mr. Gokarn said at a conference of foreign-exchange dealers. The inflation rate for July 2012 at 6.87% was well above RBI's 5% comfort level. Mr. Gokarn said improving overall macroeconomic health would also help stabilize the rupee. The best policy for exchange-rate management is macro stability and concerted domestic policy actions, which will help offset global pressures, he said.
The annual rate of inflation based on the Wholesale Price Index (WPI) eased to 6.87% (Provisional) for the month of July 2012 (over July 2011) from 7.25% (Provisional) in June 2012. Build up inflation in the financial year so far was 2.36% compared to a build up of 3.14% in the corresponding period of the previous year. However, weak rainfall this year and a possibility that the government may allow local fuel retailers to raise prices could drive up inflation. Seasonal rainfall this year has been 15% below normal. Further, core inflation, also known as non-food manufacturing inflation, has accelerated, indicating overall price pressures haven't ebbed enough. Core inflation, which strips off volatile food and fuel prices, picked up to 5.5% on year in July from 5% in June.
Due to deficient rainfall this year, total Kharif area sown is 802.09 lakh hectares against the normal of 854.86 lakh hectares as on 8 August 2012, Minister of State for Agriculture and Food Processing Industries Mr. Harish Rawat said early last week. Mr. Rawat on 16 August 2012 said Rajasthan and Karnataka have declared drought in some areas of the respective states and are seeking relief from the central government. Rainfall across the country has been 15% below the long-term average so far this monsoon season, which started June 1.
Mr. Rawat said a shortage of rainfall has also affected the cultivation of summer-sown crops in other parts of the country. Punjab and Haryana as well as parts of Maharashtra and Gujarat haven't declared drought yet, but are facing very dry conditions, he said. But he added that, overall, crops will likely fare better this year than during the country's last drought, in 2009, the worst drought the country suffered in nearly four decades. Coarse cereals, including corn, have been hit hardest by poor rainfall, he 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 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 Ministry of Coal has denied the findings made by the controversial report of the Comptroller and Auditor General of India (CAG) on allocation of coal blocks from July 2004 to end-March 2011 to various state-owned and private companies without competitive bidding. The intent of the government behind allocation of coal blocks was to induce rapid development of infrastructure that is so very essential to keep the economy on high growth trajectory, by involving the private sector to invest in identified priority sectors so as to create additional capacities, the Ministry of Coal said in a statement issued on Friday 17 August 2012 - the day when the CAG report was tabled in parliament. The calculation of financial gains to the private parties from allocation of coal blocks by the CAG was flawed on certain basic fundamentals related to the geological sector, it said.
The BJP, unyielding in its demand for Prime Minister Manmohan Singh's resignation, did not allow Parliament to function again today. Party reportedly plans to continue disruptions till this week over the controversy that's being called Coal-Gate, spawned by the national auditor's conclusion that the government enabled Rs. 1.86 lakh crores as windfall gains to private firms by giving them coal fields at a fraction of their market value. For three of the five years under scrutiny, the PM held direct charge of the Coal Ministry. Therefore, the BJP says, he must accept the blame for a huge lapse and resign.
The Ministry of Coal said that since 1993 the allotment of coal blocks was through a mechanism of inter ministerial Screening Committee. The Screening Committee was a broad based body with representation from the State Governments, concerned Ministries of the Central Government and the coal companies. This procedure of allotment of blocks through the Screening Committee was well established and accepted by all successive Governments since 1993. The procedure adopted for allocation involved wide consultations with all stakeholders. The parameters and the guidelines for allocation followed by the committee, while evaluating the applications, were duly published on the website of the Ministry of Coal before inviting the applications. Comprehensive details about the applicant, the group, performance of the group, financial strength, readiness of the end-use plant etc were placed before the committee so as to enable it to make appropriate recommendation keeping in mind the comparative merits of the applicants. Therefore, the allegation made by CAG that the allocation of coal blocks was not transparent does not appear to be based on appreciation of the process of allocation that was put in place in the prevalent circumstances, the Ministry of Coal said in a statement. The subsequent move to introduce competitive bidding was with a view to make the selection process more objective and demonstrably transparent, it said. The delay in introduction of competitive bidding of coal blocks proposed in 2004 was due to conflicting legal opinion on the issue, the Ministry of Coal said.
The Prime Minister's Economic Advisory Council (PMEAC) headed by Dr. C. Rangarajan, has projected 6.7% growth GDP in 2012/13. The GDP is projected to grow at 6.7% in 2012/13 due to the impact of weak monsoon on agriculture and the current reservoir storage position in 2012/13, PMEAC said in a statement issued last week. PMEAC said deficient monsoon will likely have an adverse impact on the prices of primary food items, especially on those where the ability of government stocks to play a moderating role is not there. PMEAC has forecast inflation rate to be within the range of 6.5% to 7% at the end of 2012-13.
The PMEAC said that containment of the fiscal imbalance at the Centre rests on the government's management of the subsidy bill, especially that on refined petroleum products and by increasing the tax-GDP ratio. Introduction of the General Sales Tax on Goods & Services (GST) would be a very important milestone in the path of tax reform, it said. Introduction of GST requires considerable negotiations, bargaining and preparatory work in relation to both the structure and operation of the tax, it said.
Given the huge subsidy projection for the current financial year, priority consideration may be given to a suitable increase in the price of diesel in one or more steps and on capping the level of consumption of subsidised domestic LPG close to what is currently being consumed by poorer households, i.e., 4 cylinders. There is need to specifically focus and address the apprehensions that have been occasioned by perceptions of arbitrary actions on tax and other fronts, the PMEAC said. Outstanding payments for infrastructure projects need to be cleared on time, it said.
There is a need to take steps to contain high inflation in primary food which is mostly linked to the antiquated system of marketing and absence of modern handling and storage facilities for perishable products, the PMEAC said. Reforms in agriculture sector need focused attention on liberalizing tenancy arrangements, reforming domestic markets for agricultural produce and, reducing input subsidies, the PMEAC said.
Significant improvement required in the approach of government to a number of issues to make IT-related export business much more competitive, the PMEAC said.
Union Minister of Commerce, Industry & Textiles Mr. Anand Sharma last week said 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 on 16 August 2012 Mr. Sharma said that there is a shared concern over the declining industrial production, particularly the manufacturing sector. We have also looked at other concerns of the industry so that steps are taken to improve the investors' confidence as well as the climate of investment.... I have said so earlier that the government will take decisions which are the expectations of the industry and the investors... We hope that in the next three weeks there will be decisions by the government which will bring about a positive improvement, Mr. Sharma said.
Prime Minister Dr. Manmohan Singh said in his Independence Day speech on 15 August 2012 that at a time when the global economy is passing through a difficult phase, India must make every effort to resolve the problems inside the country so that the nation's economic growth and the creation of employment opportunities in the country are again speeded up. If we do not increase the pace of the country's economic growth, take steps to encourage new investment in the economy, improve the management of government finances and work for the livelihood security of the common man and energy security of the country, then it most certainly affects our national security, Dr. Singh said.
The prime minister said the government has recently taken new measures to accelerate infrastructure development. Ambitious targets have been fixed in roads, airports, railways, electricity generation and coal production. The Government will take steps to increase investment for infrastructure development with the help of the private sector, Dr. Singh said. To attract foreign capital, we will have to create confidence at the international level that there are no barriers to investment in India, Dr. Singh said. Dr. Singh said that almost all the villages in the country have now been electrified. The government's next target is to provide electricity to each and every household in the country in the next 5 years and to also improve the supply of electricity, Dr. Singh said. The National Skill Development Council has formulated a major scheme for skill development in which 8 crore people will be trained in the next 5 years, Dr. Singh said.
Union Finance Minister P. Chidambaram said early this month that a path of financial consolidation will be unveiled shortly. Government finances are under pressure as expenses exceed revenue, mainly because of subsidies doled out for cheaper supplies of food, fuel and fertilizer. Mr. Chidambaram said that the fiscal-deficit target for the current financial year will be reassessed after a mid-year review later this financial year depending on the pace of expenditure and the resource position of the government. The government is aiming to restrict spending on subsidies, the finance minister said. The government has already taken some steps to reduce expenditure. In late May, the finance ministry asked government departments to reduce their non-plan spending -- expenditure that won't create long-term assets -- by 10% this fiscal year as part of its efforts to keep the fiscal deficit under check.
The government intends to fine tune policies and procedures that will facilitate capital flows into India, Mr. Chidambaram said early this month. Clarity in tax laws, a stable tax regime, a non-adversarial tax administration, a fair mechanism for dispute resolution, and an independent judiciary will provide great assurance to investors, Mr. Chidambaram said. The government has appointed two committees -- one to examine anti-avoidance tax proposal viz. the General Anti-Avoidance Rules (GAAR) legal provisions and guidelines and the other to review taxation of the IT sector and Development Centres. Mr. Chidambaram said he has also directed a review of tax provisions that have a retrospective effect in order to find fair and reasonable solutions to pending as well as likely disputes between the Tax Departments and the Assessees concerned. The implementation of GAAR proposal introduced in the Union Budget 2012-13 in March 2012 by then-finance minister Pranab Mukherjee has been deferred to 1 April 2013. This came after heavy criticism from foreign investors who fear that GAAR would give the authorities arbitrary powers to examine any deal that they feel is designed to avoid tax. Prime Minister Dr. Manmohan Singh last month constituted an expert committee on anti-avoidance tax proposal viz. the General Anti-Avoidance Rules (GAAR) to undertake stakeholder consultations and finalise the guidelines for GAAR by 30 September 2012.
Dr. Singh last month also decided to refer the issue of implications on FIIs and portfolio investors of the amendment made to the Income Tax Act relating to the taxation of non-resident transfer of assets where the underlying asset is in India to the Expert Committee on anti-avoidance tax proposal viz. the General Anti-Avoidance Rules (GAAR). It is necessary to have clarity on the tax liability of portfolio investors and foreign institutional investors as a result of this amendment particularly when the investment is made through a registered stock exchange in accordance with SEBI guidelines and purely in the form of portfolio investment, the Prime Minister's Office (PMO) said in a statement issued on 30 July 2012. Any clarification needs to be harmonised with the GAAR guidelines and will have to address any residual concerns outside of GAAR, the PMO said.
An India-Mauritius joint panel will discuss a series of proposals to review the double taxation avoidance treaty between the two nations on 22-24 August in Mauritius. India has been looking to negotiate the double taxation avoidance agreement with Mauritius for the past few years to check so-called round tripping and other potential abuses. Round tripping entails moving money out of one country to another, and getting it back under the garb of foreign capital. Capital gains tax is close to zero in Mauritius and almost 40% of investments into India come through the island nation. Under the bilateral agreement, capital gains from sale of securities can be taxed only in Mauritius.
The India-Mauritius joint working group will also discuss the inclusion of a so-called limitation of benefit clause, similar to the Singapore tax treaty with India, to ensure only genuine Mauritius-based companies are benefited. India's tax agreement with Singapore says that only those companies that spend a minimum of $200,000 (about Rs 1 crore) in Singapore can avail the benefits of the treaty.
Sanctity of tax residency certificates issued by a country to companies operating in its jurisdiction to enable the firms to claim tax benefits under various treaties is another issue between India and Mauritius. While India in this year's national budget said the certificates are a necessary but not sufficient condition, Mauritius wants those issued by it honoured. Draft guidelines issued by Indian government for implementing the controversial anti-avoidance tax proposal viz. the GAAR state that GAAR provisions should be invoked on a foreign institutional investor (FII), if it chooses to take a treaty benefit, but would not in any case be invoked in the case of the non-resident investors of the FII. The draft guidelines suggested that the onus of proving wrongdoing should be on the authorities.
European shares slipped from 13-month highs on Wednesday as investors booked profit after recent surge. Key benchmark indices in UK, France and Germany were down by 0.9% to 1.22%.
On Thursday, 23 August 2012, investors get their latest checkup on the health of Europe's economy through reports of German, French and euro-zone purchasing managers indexes for August 2012. It is widely expected that all three PMIs, which provide insight on manufacturing activity, will show contractions. Last month, France's PMI was 48, Germany's was 47.3, and the euro zone's was 46.4, with anything below 50 indicating contraction. France and Germany are considered the strongest members of the euro zone, so further contraction would portend an economic slowdown and likely add to expectations that the broader euro zone is entering a recession.
Greek Prime Minister Antonis Samaras is set to meet German Chancellor Angela Merkel in Berlin on Friday, 24 August 2012, and will visit French President François Hollande on Saturday, 25 August 2012. Samaras is reportedly prepared to sound out Merkel on his call to stretch the implementation of new austerity measures over four years rather than the two years agreed as part of second bailout for Greece. Greek news reports, however, said Samaras wouldn't formally request an extension until a meeting of European Union leaders in October 2012. Samaras campaigned on that pledge as his center-right New Democracy party eked out a first place finish in June's parliamentary elections over the left-wing Syriza party, which had vowed to tear up the austerity provisions altogether.
Asian stocks dropped on Wednesday after Japan reported a wider-than-expected trade deficit and as investors await developments from a euro-area finance ministers meeting this week to discuss details of the bailout package for Greece. Key benchmark indices in China, Hong Kong, Japan, South Korea, Singapore, and Taiwan were down by 0.14% to 1.06%. Stock markets in Indonesia were closed for a holiday today.
Japan reported a wider-than-expected trade deficit in July as Europe's sovereign debt crisis and a slowdown in China dragged down exports and higher oil prices boosted imports. The shortfall was 517.4 billion yen ($6.5 billion), after a revised 60.3 billion yen surplus in June, the Finance Ministry said in Tokyo today.
Markit Economics will release HSBC flash China purchasing managers index for August 2012 on Thursday, 23 August 2012. HSBC's final reading of China manufacturing Purchasing Managers' Index came in at 49.3 for July, up from June's print at 48.2, but still below the 50-point threshold that divides expansion from contraction.
Trading in US index futures indicated that the Dow could fall 31 points at the opening bell on Wednesday, 22 August 2012. U.S. shares ended with losses Tuesday, even after rising to within touching distance of multi-year highs during the session. Minutes of the Federal Open Market Committee's (FOMC) two-day meeting held on July 31-August 1 will be released today, 22 August 2012. Investors are awaiting the details of the FOMC meeting to gauge how amenable central bankers are to a new bond-buying program. Federal Reserve Chairman Ben Bernanke is scheduled to talk on 31 August 2012 at the Kansas City Federal Reserve Bank's annual symposium in Jackson Hole, Wyo.
Election for a new president in the United States, the world's biggest economy, is scheduled on 6 November 2012.
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