Sensex, Nifty may see some gains: Monday Closing Report

The Nifty made a higher low today. If it moves above today’s and Friday's high, there could be a short upmove

The market settled in the negative for the fourth successive day, this time on concerns about weak corporate earnings for the fourth quarter and economic growth. The Nifty made a higher low today. If it moves above today’s and Friday's high, there could be a short upmove. The National Stock Exchange (NSE) reported a lower volume of 44.42 crore shares and advance-decline ratio of 569:750.


The market opened flat on concerns about weak growth from corporates in the fourth quarter earnings season and subdued cues from its Asian peers which were weak in morning trade on concerns about the pace of global economic growth.


The Nifty opened two points down at 5,551 and the Sensex started the week at 18,456, up six points over its close on Friday. Select buying at the onset of trade led the benchmarks to their highs at around 9.30am. The Nifty rose to 5,569 and the Sensex inched up to 18,504 at their respective highs.


Volatility, seen since the opening bell, saw the benchmarks fluctuating between the red and green for most of the morning session. The market touched its low at noon with the Nifty dipping to 5,537 and the Sensex going back to 18,403.


Buying in consumer durables and healthcare stocks pushed the benchmarks higher in subsequent trade.  However, selling pressure capped the gains and pushed the market lower in late trade.


The market settled marginally in the red, continuing its decline for the fourth day in a row. Today’s fall came on the back of selling in IT, capital goods and banking stocks.


The Nifty closed 10 points (0.19%) down at 5,543 and the Sensex settled 12 points (0.07%) lower at 18,438.


Among the broader indices, the BSE Mid-cap index settled 0.18% lower and the BSE Small-cap index fell 0.13%.


The top sectoral gainers were BSE Consumer Durables (up 1.18%); BSE Fast Moving Consumer Durables (up 0.77%); BSE Healthcare (up 0.71%); BSE Power (up 0.64%) and BSE Oil & Gas (up 0.55%). The main losers were BSE IT (down 0.98%); BSE Capital Goods (down 0.87%); BSE Bankex (down 0.79%); BSE Metal (down 0.61%) and BSE TECk (down 0.36%).


Seventeen of the 30 stocks on the Sensex closed in the positive. The chief gainers were Bharti Airtel (up 3.90%); BHEL (up 2.62%); Cipla (up 2.19%); Hindustan Unilever (up 1.51%) and Dr Reddy’s Laboratories (up 1.44%). The top losers were Sterlite Industries (down 1.85%); Larsen & Toubro (down 1.78%); HDFC (down 1.62%); Wipro (down 1.39%) and Jindal Steel & Power (down 1.30%).


The top two A Group gainers on the BSE were—Glenmark Pharmaceuticals (up 5.49%) and Reliance Communications (up 4.52%).

The top two A Group losers on the BSE were—Muthoot Finance (down 7.85%) and Jaiprakash Power Ventures (down 3.53%).


The top two B Group gainers on the BSE were—Rishiroop Rubber International (up 19.98%) and Accel Frontline (up 19.92%).

The top two B Group losers on the BSE were—Hazoor Multiprojects (down 18.26%) and Pacific Industries (down 17.59%).


Of the 50 stocks on the Nifty, 22 ended in the green. The key gainers were Reliance Infrastructure (up 3.48%); Bharti Airtel (up 3.27%); BHEL (up 2.73%); Ambuja Cement (up 2.28%) and Cipla (up 2.24%).  The major losers were Asian Paints (down 2.99%); Ranbaxy Laboratories (down 2.37%); Punjab National Bank (down 2.11%); Axis Bank (down 2.05%) and Sesa Goa (down 1.97%).


Markets in Asia, except the Nikkei 225, closed in the red on concerns about the deadly new strain of bird flu as China reported fresh infections from the virus that has killed six persons since last month. The government’s move to cap property prices in Asia’s leading economy also added to the woes.


The Shanghai Composite declined 0.62%; the Hang Seng shed 0.04%; the Jakarta Composite fell 0.58%; the KLSE Composite lost 0.04%; the Straits Times dropped 0.46%; the Seoul Composite declined 0.44% and the Taiwan Weighted tumbled 2.395. Bucking the trend, the Nikkei 225 jumped 2.80%.


At the time of writing, the key European markets were trading with gains between 0.27% and 0.61%. At the same time, the US stock futures were in the positive, indicating a green opening for US stocks later in the day.


Back home, foreign institutional investors continued to be net sellers, withdrawing Rs203.18 crore on Friday. On the other hand, domestic institutional investors were net buyers of equities amounting to Rs21.47 crore.


Aditya Birla Nuvo will hive off its carbon black business by way of slump sale to SKI Carbon Black (India) Pvt Ltd, an Aditya Birla Group Company, for a lump sum consideration of Rs1,451 crore as enterprise value. Aditya Birla Nuvo declined 1.77% to close at Rs945 on the NSE.


IL&FS Engineering and Construction Company today said it has received a Letter of Intent (LoI) to construct Hyderabad's first Integrated Multilevel Automated Car Parking facility for Charminar Robo Park. The scope of work includes design and engineering, civil and structural works, electrical works, interior fit-out works, external infrastructure services and landscape works. IL&FS Engineering advanced 0.875 to settle at Rs40.55 on the NSE.


Three independent directors quit Sahara companies’ boards

The resignations come at a time when the Sahara group is fighting an intense battle with market regulator SEBI over issues related to refund of over Rs24,000 crore to an estimated three crore bondholders of its two companies

Amid a fierce regulatory battle with the Securities and Exchange Board of India (SEBI), diversified conglomerate Sahara group has seen three independent members exiting from the boards of its various companies.


Those having relinquished their association with the Sahara group include RBI’s former deputy governor Amitabha Ghosh, retired Supreme Court judge S Mohan and New India Assurance Company’s former chairman A C Mukherjee.


Ghosh was on the board of group’s life insurance venture Sahara Life and real estate entity Sahara Prime City, besides being on the Board of Trustees of Sahara Mutual Fund.


AC Mukherjee was an independent director on the board of Sahara Life, while S Mohan was an independent member on the Board of Trustees of Sahara Mutual Fund.


The resignations come at a time when the Sahara group is fighting an intense battle, within and outside the courts, with market regulator SEBI over issues related to refund of over Rs24,000 crore to an estimated three crore bondholders of its two companies—Sahara Housing Investment Corporation (SHICL) and Sahara India Real Estate Corporation (SIRECL).


While none of the three persons who resigned from their positions with Sahara group could be reached for their comments, sources said that all of them have cited personal or family reasons for their resignations.


However, sources said exits could have happened because of Saharas’ legal and public spat with SEBI.


About one of the three persons, Sahara said that he was on many boards of different corporates and these corporates had strong objection of his continuing with Sahara.


ISF seeks rollback of securitisation tax proposal

Even though the budget exempts securitized vehicles from the ambit of income tax, they will be taxed if they distribute income to stakeholders. This will scare away entities investing in such instruments, which will otherwise broaden the scope of the financial markets in India, particularly fixed income market, feels the Indian Securitisation Foundation

Just when India is seeking to broaden the scope of the fixed income market in India that has remained stagnant for more than a decade, the 2013 Budget proposal to tax income distribution by securitisation, special purpose vehicles (SPVs) could scare away investors who are seeking to invest in a more stable source of revenue and income.
Vinod Kothari, director designate of the Indian Securitisation Foundation (ISF), said, “While a complete pass through treatment of the SPV is well agreed upon, the Budget proposals bring a distribution tax on securitisation cash flows, which is a body blow to securitisation investors.”
The securitisation industry has sought a pass-through status for securitisation vehicles, whereas Budget 2013 imposed a tax on distribution of tax by such vehicles. “Indeed, the finance minister accepted the proposal but the Budget fine print told a different story! Instead, securitisation vehicles will come under the ambit of taxation vis-à-vis distribution (rather than being tax-free), and thus equating them with collective investment vehicles like mutual funds even though both are structured very differently. This will hurt the securitisation industry,” he said.
Mr Kothari added, “Clearly, what has been done in the Budget is to promote securitisation. However, the actual drafting of the provisions has resulted in a distribution tax. The distribution tax, being on gross income, completely disregards the actual income of the investor, and depending on the refinancing used by the investor, may be even higher than the net profit of the investor. If the investor has losses in the net, the distribution tax still disregards the same.” 
An SPV vehicle will have to pay as much as 25%-30% tax on income distributed, according to new budget proposals. The fine print of Section 115TA of the Income Tax Act states: “Notwithstanding anything contained in any other provisions of the Act, any amount of income distributed by the securitisation trust to its investors shall be chargeable to tax and such securitisation trust shall be liable to pay additional income-tax on such distributed income at the rate of—(i) twenty-five per cent on income distributed to any person being an individual or a Hindu undivided family; (ii) thirty per cent on income distributed to any other person”. However, it is ironic that mutual funds investing in SPVs will be free of distribution tax as they fall into exempt category of investors.
According to ISF, while securitisation trusts will be exempt from income tax, the decision to tax an SPV’s distribution may have unintended consequences. Instead of distributing income to investors and acting as a conduit, the SPV may just accumulate income (since it does not have to pay tax) and, perhaps, put it back into a project or completely elsewhere. Investors, who invested in an SPV by way of shares or debt instruments issued by the SPV, will be simply waiting for their income. There will be zero cashflow for them. When there is zero cashflow for them, they will stay away from SPVs or even fixed markets and seek income elsewhere, the Foundation said in a release.
According to the representation paper titled “Detailed post-Budget representation on securitization tax” drafted by ISF, the whole nature of “special purpose vehicles” will get distorted and such vehicles will get into the realm of operating entities rather than special purpose entities. The representation paper seeks to remove the ambiguity and inequity imposed on securitisation vehicles. Instead, ISF contends that securitised vehicles ought to be treated the same way as venture capital (i.e. Section 115TU), in which income is tax in the hands of their investor, regardless of whether it is distributed or not. 
The representative paper states: “If a provision equivalent of Section 115U is applied in case of securitisation, there is no duplication of taxes; at the same time, there is no apprehension of revenue leakage since most of the investors are regulated entities. Even if there are unregulated investors, their particulars may be declared by the trustee—which serves to create a trail. It is unlikely that an investor investing in such instruments will be able to escape the tax net.”
The representative paper also adds that developing fixed markets is crucial. It states, “While mutual funds investing in securitisation vehicles will be free from the distribution tax, we cannot miss the point that professed objective of the country is to develop the fixed income securities market, and therefore, to bring more investors into securitized debt instruments.”
Securitisation, in India, is partly used by banks to meet their priority sector lending requirements. Banks which are unable to originator qualifying priority sector loans by themselves acquire the same from others by way of securitisation. Hence, securitisation is essential to the idea of financial inclusion. In addition, securitisation is also essential to promote housing finance markets. Housing finance, in line with the international practices, is funded substantially by way of securitisation. Infrastructure operators in India also use securitisation as a device of takeout financing.
The Indian Securitisation Foundation (ISF) is body representing securitisation industry in India, consisting of banks, non-banking finance companies, micro finance institutions, and other stakeholders. 


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