Stocks
Indian stocks shoot up as bulls warm up to local and global factors

A sharp decline in oil price, temporary resolution to the Euro crisis, updgrades by foreign broking houses have emboldened the bulls. Now, will the PM deliver?

Indian stocks have turned bullish thanks to the fact that several stars have lined up to create a positive environment for stocks. Unlike a few previous occasions when either the domestic or global conditions have been bullish, this time, both local and global factors are looking positive. The big boost to stocks today came from abroad, specifically the two-day summit in Brussels which began on Thursday, 28 June 2012 where the European leaders began searching for ways to turn around the continent's economy. The European leaders came up with a plan for a single financial supervisory mechanism for the European region to help stabilize markets. European Commission President Herman van Rompuy said at a press conference early Friday that the mechanism will involve the European Central Bank and that there will be the possibility of direct recapitalization for European banks. The direct recapitalization of banks will take place without increasing a country's budget deficit.

Financial assistance will be provided by the European Financial Stability Facility (EFSF) until the European Stability Mechanism (ESM), a future permanent bailout fund, becomes available. Loans will be transferred from the EFSF to ESM without a change in seniority of the debt.  Europe is trying to do what's necessary in order to break the negative cycle for the region, he said.

The market has interpreted this very positively assuming that liquidity and capital constraints of the banks are over. In a step towards easing the funding problems on fund-distressed countries, the leaders of the 17-nation currency bloc agreed that euro-area rescue funds could be used for sovereign debt purchases without forcing countries to adopt extra austerity measures.

Countries that requested bond support from the rescue fund would have to sign a memorandum of understanding setting out their existing policy commitments and agreeing a timetable. "We are opening the possibility to countries that are behaving well to make use of financial stability instruments in order to reassure markets and to get again some stability around some of the sovereign bonds of our member states," Van Rompuy said.

Enthused by this, Hang Seng was up by over 400 points and Nikkei closed 1.5% higher. The Sensex was among the biggest gainers in Asia-the same with the Hang Seng. European stocks have turned even more bullish. Germany's DAX rose by 2.5% at the time of writing while CAC40 rose 2.4%. The US stocks futures were trading higher, with Dow showing a 125 point rise and S&P futures gaining 16.6 points.

In markets, when it rains, it can pour. While the global environment has turned favourable-albeit temporary-the local conditions have started improving too and this would be a bigger reason for the rally to continue. One of the best things that could have happened was the exit of Pranab Mukherjee from the ministry of finance where he had made a mess of capital market regulations, tax laws, disinvestment and fiscal deficit. While prime minister Dr Manmohan Singh has been doing a lousy job too, he holds the finance charge now under pretty trying circumstances, similar to 1991. One of the first things he has done is to cut petrol prices. The Prime Minister's Office has also been quoted by The Hindu Business Line as saying that the General Anti Avoidances Rules (GAAR) put out by "officials in the Finance Ministry" have not been seen by the Prime Minister. The guidelines are merely in the nature of a draft that has been put in the public domain for "discussion and comment'. This clarification comes close on the heels of categorical official statements to the effect that from April next year, GAAR will target foreign institutional investors (FIIs) that make use of double taxation avoidance treaties.

The market is not expecting too many positive events to happen which is why there has been no rally so far. Remember, today's rally was entirely caused by the action in Europe. On top of this, even if the PM takes some steps, marketmen will warmly embrace that as a bullish sign. This does not mean that the fundamentals have changed in a very basic way. They haven't, but the valuation possibly discounts all current negative news. In fact, Morgan Stanley has just upgraded Indian stocks to "equal weight" after being 'underweight' since the first quarter of 2011, saying India is now trading at a price to book multiple of 2.1x, close to the trough valuations of 2.0x in the 2002 and 2008 cycles.

"This is an indicator of the extent to which the Indian market is already pricing in the adverse global environment and the current domestic situation of high inflation and slower trend GDP growth," it said. Morgan Stanley adds Indian stocks tend to perform well versus MSCI emerging market indexes after a period of oil price declines. The upgrade comes after Deutsche Bank and JP Morgan upgraded Indian stocks to 'overweight' from 'neutral'.

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L&T Construction bags orders worth Rs1,002 crore

Of this, orders worth Rs846 crore are from the domestic market and new orders worth Rs156 crore are from the Middle East

 

New Delhi: Larsen & Toubro (L&T) today said it has bagged orders worth over Rs1,002 crore across different categories from both domestic and overseas market during the current month, reports PTI.

“The Power Transmission & Distribution IC of L&T Construction has won orders valued over Rs1,002 crore across various business segments in June 2012,” the company said in a statement.

The company said it bagged order worth Rs846 crore from West Bengal Electricity Distribution Company for rural electricity infrastructure in the villages of West Bengal.

As far as international market is concerned, the company said it has bagged “new orders worth Rs156 crore... from reputed customers in Qatar for electrical network power quality improvement work including additional orders in ongoing projects in Middle East.”

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GAAR to be finalised after approval of PM: Government

The finance ministry last evening had issued draft guidelines on GAAR but the PM, who now holds the finance portfolio, is yet to see the guidelines. They will be finalised only after the PM’s approval, the PMO said

New Delhi: Within 24 hours of the finance ministry issuing the draft guidelines on controversial General Anti-Avoidance Tax Rules (GAAR), the PMO appears to have distanced itself from the proposal saying that were not seen by prime minister Manmohan Singh and would be finalised only after his approval, reports PTI.

"These (draft guidelines) have not been seen by the prime minister and will be finalised with the approval of the prime minister, who holds the finance portfolio, only after considering the feedback received", the Prime Minister's Office (PMO) said in a release.

The finance ministry last evening had issued draft guidelines on GAAR-a budgetary proposal to check tax evasion-to seek feed back of the stake holders.

The draft guidelines seek to address the concerns of the investors over misuse of the tax proposal. Besides other things, it said that there would be a threshold limit for invocation of GAAR and it would apply on income accruing after 1 April 2013.

In view of the widespread protest against the proposal, former finance minister Pranab Mukherjee postponed its implementation by a year to April 2013.

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