Firmness continued on the bourses in early afternoon trade. The barometer index, BSE Sensex, was up 128.66 points or 0.73%, up 88.89 points from the day`s low and off 9.94 points from the day`s high. Indian stocks surged as euro zone debt worries eased after German Chancellor Angela Merkel on Thursday, 16 August 2012, said Germany will do whatever it can to keep the euro. The market sentiment was also boosted by provisional data showing that foreign funds remained buyers of Indian stocks on Thursday, 16 August 2012. The market breadth was positive. Index heavyweight Reliance Industries (RIL) retained positive zone.
Hindalco Industries dropped for the third day in a row after reporting weak Q1 results. FMCG major Hindustan Unilever (HUL) scaled a record high. Index heavyweight and cigarette maker ITC recovered from Thursday`s slide. Offshore oil services stocks rose across the board as crude future hit 3-month high on Thursday. Bank stocks rose as data released early this week showed the rate of growth in inflation based on the wholesale price index (WPI) fell to the slowest pace in nearly three years in July 2012, building hopes that the central bank will find more space to ease monetary policy and revive industrial growth that has slumped largely due to high interest rates over the past couple of years.
Key benchmark indices edged higher in early trade as euro zone debt worries eased after German Chancellor Angela Merkel on Thursday, 16 August 2012, said Germany will do whatever it can to keep the euro. The market extended initial gains in morning trade. Firmness continued on the bourses in mid-morning trade. The market held firm in early afternoon trade.
The market sentiment was boosted by provisional data showing that foreign funds remained buyers of Indian stocks on Thursday, 16 August 2012. Foreign institutional investors (FIIs) bought shares worth net Rs 95.01 crore on Thursday, 16 August 2012, as per provisional figures from the stock exchanges. Earlier, FIIs bought shares worth a net Rs 4473.90 crore from the secondary equity markets in 10 trading sessions from 1 to 14 August 2012, as per data from Securities & Exchange Board of India (Sebi). 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.
At 12:20 IST, the BSE Sensex was up 128.66 points or 0.73% to 17,785.87. The index jumped 138.60 points at the day`s high of 17,795.81 in morning trade, its highest level since 16 March 2012. The index rose 39.77 points at the day`s low of 17,696.98 in early trade.
The S&P CNX Nifty was up 31.05 points or 0.58% to 5,394. The Nifty hit a high of 5,398.70 in intraday trade, its highest level since 16 March 2012. The Nifty hit an intraday low of 5,367.55.
The market breadth, indicating the overall health of the market, was positive. On BSE, 1,503 shares rose and 1053 shares fell. A total of 147 shares were unchanged.
The total turnover on the BSE amounted to Rs 973 crore by 12:25 IST compared with Rs 755 crore by 11:25 IST.
From the 30-share Sensex pack, 21 stocks gained and rest of them declined.
FMCG major Hindustan Unilever (HUL) rose 1.77% to Rs 503.30. The stock had hit a record of Rs 504.35 in intraday on Friday, 10 August 2012. The company`s net profit jumped 112.3% to Rs 1331.19 crore on 13.7% growth in net sales to Rs 6250.15 crore in Q1 June 2012 over Q1 June 2011. The company announced the results last month.
Index heavyweight and cigarette maker ITC rose 1.78% to Rs 262.75. The stock had lost 3.59% to Rs 258.15 on Thursday after an adverse court ruling in Australia for cigarette makers. 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 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) rose 0.66% to Rs 820.45. RIL last week said it 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.
Offshore oil services stocks rose as US crude futures hit 3-month high on Thursday. Great Offshore (up 16.22%), Dolphin Offshore Enterprises (India) (up 5.82%), Global Offshore Services (up 4.66%), Shiv-Vani Oil & Gas Exploration Services (up 1.03%), Jindal Drilling (up 1.68%), Aban Offshore (up 2.73%) and South East Asia Marine Engineering & Construction (up 0.69%), edged higher.
Crude oil futures for September delivery were 29 cents lower, or 0.3% at $95.31 a barrel. The contract rose 1.4% on Thursday, 16 August 2012, to the highest in three months.
Bank stocks rose as data released early this week showed the rate of growth in inflation based on the wholesale price index (WPI) fell to the slowest pace in nearly three years in July 2012, building hopes that the central bank will find more space to ease monetary policy and revive industrial growth that has slumped largely due to high interest rates over the past couple of years.
India`s largest bank by branch network State Bank of India rose 1.19%. 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 gained 1.09%. 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 fell 0.57% to Rs 596.90. The stock had struck a record high of Rs 609.70 on Monday, 13 August 2012. During market hours on Monday, 13 August 2012, the bank 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.
Other gainers from the banking sector included Punjab National Bank (up 0.36%), Union Bank of India (up 0.54%), Axis Bank (up 0.39%), Bank of India (up 0.38%), Kotak Mahindra Bank (up 0.40%), and Canara Bank (up 0.57%).
IndusInd Bank rose 1.25%. The private sector bank on Thursday launched its foreign currency pre-paid travel card -- Indus Forex Card. The Indus Forex card will be available in US dollar, euro, sterling pound, Singapore dollar, Australian dollar and Saudi Riyal.
Hindalco Industries fell for third day in a row after reporting weak Q1 results early this week. The stock was down 0.56%. 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 during trading hours on Tuesday, 14 August 2012.
Mahindra Satyam rose 2.48% to Rs 99.15 after scaling a 52-week high of Rs 99.80 in intraday trade today, 17 August 2012. The company after market hours on Thursday announced the launch of the Motor Vehicle Enterprise Solution (MOVES) for modernizing Department of Motor Vehicles` business (DMV) operations. MOVES addresses the needs of financially constrained state and local governments to move into the future with a proven software platform that not only delivers a better DMV customer experience but also reduces the risk of implementation, Mahindra Satyam said in a statement.
The stock market remains closed on Monday, 20 August 2012, on account of Ramzan Id.
The Prime Minister`s Economic Advisory Council (PMEAC) headed by Dr. C. Rangarajan, today, 17 August 2012, 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. 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 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. The WPI inflation fell below the 7% level for the first time since November 2009, building hopes that the central bank will find more space to ease monetary policy and revive industrial growth that has slumped largely due to high interest rates over the past couple of years.
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 this week. Mr. Rawat on Thursday, 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.
A panel of Indian ministers last week approved steps to contain the impact of a near-drought situation. The steps include providing a diesel-price subsidy to farmers, increasing the subsidy on seed supplies and removal of the import tax on oilmeals.
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.
Ahead of the WPI inflation data Reserve Bank of India Governor D Subbarao on Monday, 13 August 2012, said high inflation leaves no room for easing policy to counter a potential external shock to Asia`s third-largest economy. Unlike during the global financial crisis of 2008-09, "there is just no space for fiscal or monetary responses," Subbarao said in a speech to a conference organized by a body which advises the state government of Kerala on economic policy. "Inflation is high, oil prices are at elevated levels, the external sector is under stress," he added.
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. Mr. Subbarao said wholesale price inflation--the mostly closely watched inflation gauge in India--remains above the central bank`s tolerance level. The RBI is scheduled to undertake a mid-quarter review of the monetary policy on 17 September 2012.
The Central Statistics Office (CSO) will unveil data on consumer price index (Agricultural Labourers/ Rural Labourers) today, 17 August 2012.
Union Minister of Commerce, Industry & Textiles Mr. Anand Sharma on Thursday, 16 August 2012, 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 Thursday, 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.
Mr. Sharma recently said the prolonged crisis in the Euro Zone has cast a long shadow on the exports and measures takes by the government in June 2012 are likely to have a positive impact on exports from September. The minister said that efforts are on to bring down the transaction cost. His comments came after data early this week showed that India`s exports 14.8% in July 2012.
Prime Minister Dr. Manmohan Singh said in his Independence Day speech on Wednesday, 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 last week said 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 last week. 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 recently 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.
Mr. Chidambaram said that the government has received requests to put off plans to implement the General Anti-Avoidance Rules (GAAR) which aim to check tax avoidance. The implementation of GAAR was postponed by one year in order to provide an opportunity of wider consultation before such a legislation is implemented, Mr. Chidambaram said in the lower house of parliament while replying to lawmakers` questions. The provisions of GAAR are directed toward preventing tax avoidance by way of aggressive tax planning, he added. 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.
Asian markets were mostly higher on Friday, 17 August 2012, as euro zone debt worries eased after German Chancellor Angela Merkel on Thursday, 16 August 2012, said Germany will do whatever it can to keep the euro. Key benchmark indices in Singapore, Japan, Hong Kong and Indonesia were up by between 0.11% to 0.77%. Key benchmark indices Taiwan and South Korea were down 0.58% and 0.30%.
Mainland Chinese shares dropped as weak economic data remained as a weight on sentiment, with investors also shrugging off recent remarks from Chinese Premier Wen Jiabao suggesting more monetary policy action. The Shanghai Composite index was down 0.30%
China might not be able to cut interest rates if the yuan weakens further, according to Moody`s, which says the end of the strong Chinese currency era could limit Beijing`s policy actions. Markets are coming around to the view that the Chinese currency could now be near its fair value -- instead of moderately undervalued, as maintained by the International Monetary Fund -- according to Moody`s analyst Alaistair Chan. The Chinese yuan has depreciated 0.9% against the US dollar since the start of the year.
China`s foreign direct investment (FDI) in July contracted 8.7% from a year earlier, marking its weakest level in two years and signalling lower foreign confidence in the mainland economy`s prospects. China reported FDI inflows of $7.6 billion for the month, bringing total inflows for the first seven months of the year to $66.7 billion, according to data released Thursday by the Commerce Ministry.
Chinese Premier Wen Jiabao on Wednesday, 15 August 2012, said that he sees growing room for monetary policy action.
Trading in US index futures indicated a flat opening of US stocks on Friday, 17 August 2012. US markets jumped on Thursday after comments from German Chancellor Angela Merkel came as reaffirmation to investors that European Central Bank (ECB) will do everything to fight the regions debt crisis. The Dow Jones Industrial Average gained 85.33 points, or 0.65%, to 13,250.11. The Standard & Poor`s 500 index rose 9.98 points, or 0.71%, to 1,415.51 and the Nasdaq Composite index added 31.46 points, or 1.04%, to 3,062.39.
The University of Michigan will release its preliminary consumer sentiment survey for August today, 17 August 2012.
Election for a new president in the United States, the world`s biggest economy, is scheduled on 6 November 2012.
German Chancellor Angela Merkel on Thursday said Germany will do whatever it can to keep the euro.
A group led by German Professor Markus Kerber has reportedly filed in a lawsuit to the German constitutional court aiming to delay the approval of the European Stability Mechanism (ESM) -- a permanent bailout fund for financially troubled countries in the 17-nation euro zone. The ESM needs to be ratified by all euro zone nations. It has already been backed by Germany`s parliament. Germany`s President Joachim Gauck is yet to sign it into law, pending several challenges with Germany`s constitutional court. Germany`s Federal Constitutional Court has said it will decide by September 12 whether the legislation is compatible with Germany`s constitution. That date may have to be pushed back following the new complaint, reports suggest.
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