Markets to open with large downward gap: Tuesday Market Preview

The ongoing turmoil in West Asia and Africa has fired up crude prices and made Asian markets jittery

The local market is likely to witness a cautious opening as political turmoil across West Asia impacted stock markets across the globe. While the US markets were closed on Monday for a local holiday, mounting tensions in Libya led key European markets sharply lower yesterday. Markets in Asia were trading in the red on the back of the unrest in the Middle East that is feared to impact crude prices. The SGX Nifty was down 55 points at 5,476, down from its previous close of 5,531.

The market started in the positive on Monday, but as we had expected weakness surfaced immediately thereafter. Till around 1.30pm the indices were down. The Nifty fell to a four-day low of 5,413 and the Sensex hit a low 18,083. However, the market revived strongly and the Nifty went on to hit a high of 5,526, while the Sensex hit an intra-day high of 18,457. The Sensex closed 227 points up at 18,438 and the Nifty closed 60 points up at 5,519. 

In Friday's report we had mentioned that the Nifty should close above 5,520 for the rally to continue. However, although the market has gained yesterday, this rally is weak. This is borne out by the advance-decline ratio on the NSE which was a poor 761:1102. Expect the market to trade in a range. A day or two of rally will be followed by a day or two of decline or vice versa.

The political tensions in West Asia, particularly in Libya, spooked stocks exchanges in Europe, threatening to slow down the economy recovery process. UK’s FTSE 100 declined 1.1%, Germany’s DAX and France’s CAC 40 both fell by 1.4%. Italy’s FTSE MIB was the worst performing European market, plunging 3.6%, the largest decline in more than seven months.

Markets in Asia were in the red in early trade on Tuesday as tensions in West Asia pressurised crude prices and renewed concerns about the pace of the economic recovery. Meanwhile, Moody’s Investors Service on Tuesday re4vised the outlook on Japan’s Aa2 bond rating to negative from stable, citing the difficulties facing the government and dimming prospects to stem the rising debt burden. The move follows Standard & Poor’s decision to lower its debt rating for Japan to AA- from AA.

Among commodities, oil futures jumped 8.6% in New York from Friday’s close to $97.44 a barrel as of 9:49 am in Tokyo. Gold added 0.3% and silver rallied to the highest since March 1980.

The Shanghai Composite declined 0.46%, the Hang Seng tanked 1.63%, the Jakarta Composite slumped 1.62%, the KLSE Composite fell by 0.62%, the Nikkei 225 tumbled 1.96%, the Straits Times declined 1.21%, the Seoul Composite plunged 2.23% and the Taiwan Weighted was 1.97% lower in early trade on Tuesday.

Back home, ahead of the general budget, the Prime Minister’s Economic Advisory Council (PMEAC) on Monday asked the government to withdraw some tax incentives provided to the industry to combat impact of the global financial meltdown.

Pointing out that significant portion of fiscal adjustment will have to come from additional tax revenues, the PMEAC’s ‘Review of the Economy 2010-11’ called for “continued attempts to reform tax administration, review the double taxation avoidance agreements and other measures to prevent flight of incomes to tax havens.”


CBI questions Videocon’s Dhoot, brother, in 2G probe

Confronts the two with documents of change in share capital of Datacom Services

New Delhi: The Central Bureau of Investigation (CBI) today questioned Videocon group chairman Venugopal Dhoot and his brother Rajkumar Dhoot, who is also a member of the Rajya Sabha, in the continuing probe into the alleged irregularities related to the grant of telecom licences in 2008.

The two were called to the CBI headquarters, where they were questioned for over seven hours and confronted with documents on the change in their share capital in Datacom Services from Rs1 lakh to Rs150 crore, official sources said here today, reports PTI. Datacom, since renamed Videocon Telecommunications, is an unlisted subsidiary of Videocon Industries.

Dhoot is the latest high-profile Indian industrialist to have been called by the CBI after Anil Ambani met with investigators on 16th February, and Prashant Ruia, Essar CEO, and Sanjay Chandra, managing director of property developer Unitech, earlier.

The agency is investigating allegations of manipulation and favouritism in the allotment of licences and bandwidth at prices set in 2001. It says irregularities in the allotment resulted in a potential revenue loss of nearly Rs22,000 crore. The Comptroller and Auditor General (CAG), the country’s top auditor, has estimated the potential loss at Rs1,76,000 crore and said that some of the firms which got mobile licences benefited from the alleged scam.

CBI sources said that the statement of Videocon company secretary submitted to the Department of Telecommunications (DoT), claiming change in the share capital, was also shown to them and the two were asked to explain the minutes of the meeting of an extraordinary general body of the company held on 27 August 2007.

The company could not be contacted for comments.

The CAG in its report had alleged that Datacom Solutions, while submitting its application for 22 licences on 28t August 2007, had “made a false claim of the paid-up capital of Rs150 crore through the company secretary, although documents attached with indicated that the authorised share capital of the company as Rs1 lakh only”. Since the requirement of the requisite amount of the paid-up capital was an important eligibility criterion, their applications ought to have been rejected forthwith.

However, on 27 November 2007, the company suo motto submitted a so-called “correct” version of documents as on 28 August 2007, stating that they had submitted an old version of documents inadvertently along with the application. “The new version of memorandum of association and articles of association claimed to have increased the authorised share capital from Rs 1 lakh to Rs150 crore through an ordinary resolution passed in the extraordinary general meeting on 27 August 2007, a day preceding the date of submission of applications by the company.

“Since there is a procedure prescribed in the Companies Act for effecting increase in the authorised share capital of a company, the company could under no circumstances have a paid-up capital of Rs150 crore on 28 August 2007 and hence the certificate furnished by the company secretary of the company appeared to be false,” the CAG report said.

It alleged that DoT “failed miserably” to do any due diligence in the examination of claims of the company even when company claimed to have passed the resolution enhancing the authorised share capital on the preceding day of the date of application of the applicant company.


Anand Mahindra offers to resign from NACIL board

Writes to civil aviation minister saying that M&M’s expanding aerospace business could result in a conflict of interest

New Delhi: Mahindra & Mahindra vice-chairman Anand Mahindra today offered to resign from the board of National Aviation Company of India (NACIL), which operates state-owned Air India, citing conflict of interest. In a letter to civil aviation minister Vayalar Ravi, Mr Mahindra sought permission to step down from the NACIL board.

"The recently concluded Aero-India 2011 at Bangalore has thrown up business opportunities for my company Mahindra & Mahindra Ltd, which was a potential conflict of interest and thereby throws up questions of good board practice. Hence my request," Mr Mahindra said in the letter.

Mr Mahindra was among the independent directors appointed to the the NACIL board in March 2010, along with air chief marshal Fali H Major (Retd), FICCI secretary general Amit Mitra and Ambuja Realty group chairman Harsh Neotia, reports PTI.

Mahindra said his firm had fruitful discussions with international aerospace corporations, encouraging the group to aspire to become a leading components player. "We are developing the capability to supply components to major suppliers from where Air India sources its aircraft. In view of this and the favourable business prospects, which recently emerged for M&M's aeronautical business in Bangalore, I feel that my continuing as a director of NACIL would not be in accordance with the highest standards of corporate governance," Mr Mahindra wrote.

M&M made its foray into the aerospace business in 2009, acquiring a 75.1% stake each in two Australian aerospace firms-Aerostaff Australia and Gippsland Aeronautics-for Rs175 crore, and it planned to make aircraft and allied components to service the global market.


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