Share prices headed lower: Friday Closing Report

A sharp decline on budget disappointment has put the bulls on the back-foot

With most of the Asian indices opening flat all ended in red except for the Shanghai Composite and Nikkei 225. Thursday saw the lowest amount of FII inflow in the past five trading sessions while DIIs continued to be net sellers for third day in a row. Back home, the Sensex and Nifty, too, had a near flat opening at 17,657 and 5,380. The NSE saw the highest volume of 99.40 crore shares in the past 15 trading session (including today). Today's market move was one of the signs of increasing selling pressure. If the bulls don't make a comeback from the current level, we may Nifty headed towards 5,195.

On Thursday, US data showed new claims for unemployment benefits fell to a four-year low last week, and producer prices, excluding food and energy, were contained. Manufacturing data in New York and the US mid-Atlantic region also improved, according to regional Federal Reserve surveys.

The domestic indices were up before the budget session with all eyes set on the Union Budget 2012-13. Immediately on the onset of the session the indices went on to hit their intraday highs. The Sensex hit 17,871 while the Nifty rose to 5,446, however, both were at a lower high compared to yesterday. Finance minister Pranab Mukherjee outlined expenditure plans for various segments such as agriculture, infrastructure, rural development and defence while presenting the budget.

He also proposed to cap the subsidy program that spans diesel to fertilizers and raised service and excise taxes to rein in the wide budget deficit. The government forecast that the fiscal deficit will decline to 5.1% of gross domestic product next fiscal year from 5.9% in the current year. The gap for the year through March 31 will be 5.9%, wider than the 4.6% target set a year ago. Modest targets for trimming a rising fiscal deficit saw the indices falling. Both the Sensex and the Nifty hit 17427 and 5,305 respectively, their lowest low this week .The Sensex fell 210 points (1.19%) to close 17,466 while Nifty fell 63 points (1.16%) to settle at 5,318. The past two trading day's losses wiped off the gains made earlier in the week.

The government also has more than doubled its target for a capital infusion into state-run banks to 158.9 billion rupees ($3.2 billion) for the year ending March 2013 as it sought to bolster risk buffers and boost credit growth.

At the time of writing the European indices were trading in the green and the US stock futures were also in the positive.

The advance-decline ratio on the NSE was in favour of the losers at 536:1169.

In the broader market space, the BSE Mid-cap index declined 0.68% and the BSE Small-cap index dropped 1.12%.

BSE Fast Moving Consumer Goods (up 1.91%) and BSE Auto (up 0.22%) were the only sectoral gainers. The top losers were BSE Oil & Gas (down 3.32%); BSE Power (down 2.98%); BSE Capital Goods (down 2.94%); BSE PSU (down 2.63%) and BSE Metal (down 2.22%).

The top Sensex gainers were TCS (up 3.65%); M&M (up 2.71%); Hindustan Unilever (up 0.59%); Maruti Suzuki (up 0.52%) and Coal India (up 0.44%). The key losers were Sun Pharma (down 7.09%); ONGC (down 4.66%); Jindal Steel (down 4.23%); NTPC (down 3.82%) and Tata Power (down 3.65%).

The Nifty was led by ITC (up 4.45%); M&M (up 3.43%); Ambuja Cements (up 1.94%); Maruti Suzuki (up 0.92%) and HUL (up 0.75%). The major losers were Sun Pharma (down 7.83%); Cairn India (down 6.60%); ONGC (down 5.43%); Siemens (down 4.49%) and NTPC (down 4.23%).

McNally Bharat Engineering Company has secured two orders aggregating Rs70 crore from VISAPower. The stock declined 3.09% to close at Rs98.75 on the NSE.

Godrej Properties has decided to offer and issue up to 7.44 million equity shares of face value of Rs10 each of the company, with a right to allot an additional up to 7.44 lakh equity shares in case of oversubscription, to eligible qualified institutional buyers by way of an institutional placement programme. The stock fell 2.84% to close at Rs648.25 on the NSE.


Govt proposes taxing Vodafone-like deals retrospectively

Under the proposed amendment to the Income Tax Act, all persons, whether resident or non-residents, having business connection in India will be required to deduct tax at source and pay it to the government even if the transaction is executed on a foreign soil

New Delhi: In a measure that will have far-reaching impact on foreign investment and the Vodafone case having a tax implication of Rs11,000 crore, the government today proposed amendment in the Income Tax Act retrospectively from 1 April 1962, reports PTI.

Under the proposed amendment, all persons, whether resident or non-residents, having business connection in India will be required to deduct tax at source and pay it to the government even if the transaction is executed on a foreign soil.

The amendment will apply to all past transactions concerning assets in India.

Commenting on the government move, PwC Direct tax leader Rahul Garg said: "This amendment is to seek an overturn to the ruling of the Supreme Court judgment on mainly two cases-Vodafone and Azadi Bachao Andolan."

In the Azadi Bachao Andolan case, it was held that an entity having a tax remittance certificate from Mauritius would be exempt from paying tax in India.

The changes in the Income Tax Act, according to experts, will also have a bearing on about 500 overseas deals of similar kind, experts said.

As per the proposed changes in I-T Act, 1961, any asset which is registered or incorporated outside India shall be deemed to be situated in India "if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.

"These amendments will take effect retrospectively from 1 April 1962 and will accordingly apply in relation to the assessment year 1962-63 and subsequent assessment years," says the Memorandum to the Finance Bill, 2012.

The amendment may have implications on Vodafone case in which the Supreme Court had held that the Income Tax department does not have the jurisdiction to levy Rs11,000 crore as withholding tax on Vodafone for its $11 billion acquisition deal with Hutchison Essar in 2007.


Budget measures will leave small investors cold

The Union Budget 2012 has tried to attract small investors into the stock market leaving mutual funds in a mess. It shows knee jerk reaction, no understanding of ground reality and policy confusion

Finance Minister Pranab Mukherjee, in his budget presentation speech for the fiscal 2012-13, announced a slew of measures to encourage the small investor to participate in equity markets. Would these be effective or was the FM poorly advised about what his measures really mean? The budget proposals include:

  •  Rajiv Gandhi Equity Scheme to deepen investor base and reduce volatility, allows for 50% deduction to the small investor, to an annual limit of Rs50,000 in equities. However, this will apply to only those investors up to Rs10 lakh income to be eligible for the scheme. Investment will also have to be locked-in for three years.
  •   The Securities Transaction Tax (STT) on cash delivery transactions has been reduced by 20%, from 0.125% to 0.1%, in order to reduce transaction costs in the capital markets.
  •   Additionally, the FM has modified IPO guidelines to broaden investor reach. To achieve this, it is mandatory for companies to issue IPOs of Rs10 crore and above in electronic form through nationwide broker network of stock exchanges.
  •   The finance minister has also proposed a central Know Your Customer (KYC) depository will be developed in 2012-13 to avoid multiplicity of registration and data upkeep.

The overwhelming emphasis on the equity markets is a policy volte face, most likely a result of no organised thinking but a knee jerk reaction to the declining interest of savers in the equity markets. For the last 20 years, there has been a continuous emphasis on mutual funds as an effective tool for small investor participation and investment. Investors have been told not to trade in equities if they are not sure what they are doing. However, now the FM is offering incentives to small investors to buy equities while mutual funds have been effectively killed when the market regulator started messing around with commissions (starting with banning entry load and upfront commission in August 2009) under chairman CB Bhave, which the current chairman has perpetuated. Following this, many distributors have stopped selling mutual funds thus restricting their reach to small investors. And now, instead of fixing this problem, the government is instead pushing these investors from mutual funds back to equities without any debate.

The tax incentive for equity investment is also a not a well-thought out idea. We have been had 100% exemption long-term capital gains in equity investment (over one year) for years now and yet there has been little equity participation despite this huge benefit. What is the point of having a three-year lock-in period when long-term capital gains, which is totally exempt for capital gains over just a year is not being availed of? Merely locking in investors with the Rajiv Gandhi Scheme, for Rs50,000 tax benefit, is convoluted and has no logic. They might as well bypass the scheme altogether and invest in equities, where capital gains are tax-free. The government seems to have missed the point.

The reduction in STT for delivery trades, while welcome, would also not mean much. The bulk of volumes comes from speculation in futures and options. This minor tweak of reducing STT for delivery trades amounts to no incentive at all for non-investors and is unlikely to entice them to the stock market.

Why has the FM suddenly tried to bring small investors back into the market? After years of thoughtless policies, cumbersome regulations, poor grievance redressal and no course correction, India's investor population is declining.
Moneylife has been repeatedly pointing out that India's investor population has declined from 20 million in the 1990s to just over 8 million by 2009 (as per the D Swarup Committee report). All this while the regulators who live in the ivory tower were unconcerned about this phenomenon. Suddenly, the drought of new issues and the government's failure to disinvest easily has woken up policy makers (mainly the market regulator) to the sad state of stock markets. But since they have no truck with reality, the measures they have suggested to the FM would turn out to be meaningless.



Adi Daruwalla

5 years ago

This is a rich mans budget. Where the relief is actually required for people in the 2 - 5 lakhs income bracket there is no relief. This will be referred to as the jerks helping the jerks reaction, while those who require the help are in the murk.

S R Balasubramanian

5 years ago

You have hit the nail on the head. The Govt seems rudderless and short of ideas. They seem to have done precious little to make investments easier and profitable. It seems bureaucrats are having a field day.

Nagesh Kini FCA

5 years ago

A listless budget that has all token provisions the niggardly Rs.20,000 hike in the basic exemption, then the Parliamentary Committee had proposed Rs.3,00,000. The Preventive Health care deduction of Rs.5,000 doesn't cover basic tests. The TDS on Bank deposits and exempting only SB and not Term Deposits makes no sense. Investment of capital gains in SME in a circutous route and the Rs.000 Rajiv Gandhi Yojana all evidence lack of proper thought on the part of the FM.


5 years ago

Other than long term capital gains from equity being tax free, there is already an existing provision to invest any amount upto Rs.1 lakh in ELSS and claim 100% deduction. This is applicable for both ‘old’ and new’ investors. So how Rajiv Gandhi equity scheme will help better? How small investor is expected to pick stocks? Even genuine sub-brokers, in small cities may not be knowledgeable to help them. So investors may be stuck with dud stocks for 3 years.

ELSS is more advantageous as though for the investor the money is locked-in for 3 years, the fund manager is free to make change in portfolio any time.

Request you to write about impact of TDS on real estate transactions and gold.


5 years ago





N Rajagopalan

5 years ago



5 years ago

UPA Govt., at the Centre is not worried about Indians - The Prime Minister, Dr. MMS is working overtime to sell India to Foreign companies and Sonia (not Gandhi) is only worried about her son being made as the PM of India.

1.2 Billion of Indians can not have an Indian as the ruling party chief, its a clear way to doom India.

Govind Shanbhag

5 years ago

DB & AG Sirs - Looking at the budget, there is not going to be mid term elections. Senior ciizen (SC) , who along with hutment dwellers religiously vote have been left dry. Now due to service tax going up, this will attract inflation and worst sufferers would be sc. The budget fails to woo women - both working and non working and we do not know the concession of 15K which women were enjoying earlier is there or taken away. There is no need to read tomorrows budget specials in news papers as nothing great is there in budget.


ruma mukherji

In Reply to Govind Shanbhag 5 years ago

as service tax is extended to the ac coaches in a train,the the fare in total will get more by 12% and cess.well done fm sahab.


5 years ago

The proposed scheme is only for new investor only and it is once in life time. FM is doing the right thing by not extending STT reduction to F&O segment as F&O can not be considered as investment instrument and it will be better for small investor to keep away from it

Krishnaswami CVR

5 years ago

@srini: The scheme already exists in mutual funds as ELSS which has a lock in period of three years. It is now being extended to direct investments in equity also. While it is laudable and aimed at more retail participation, the tax payer is not compensated for the risk which he undertakes. Hence I am of the opinion that the scheme proposed should be linked to the exemption of capital gains tax.


5 years ago

I think this scheme it will be extended to mutual funds too.


5 years ago

Does this mean that you buy a particular share and cannot exit it for 3 years? How ridiculous? Instead, the FM could have allowed this concession for investing in Equity Linked Mutual Funds. This would have revived the mutual fund markets as well.

Krishnaswami CVR

5 years ago

I agree with the general trend of the article and hope FM will take notice and make amendments particularly in respect of lock in period coinciding with long term capital gains.

As the author himself points out that bulk of the speculation lies in the ambit of F&O, is he not justified in reducing the STT only on investments. It may also be pertinant to point out that such reduction would pave way to meet the demands of FII, at least in part?

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