Market drifts lower as August F&O contracts expire

Telecom, IT, metal sector stocks and index heavyweight HDFC led losses for key benchmark indices. The barometer index, the S&P BSE Sensex, lost 226.84 points or 0.81% at 27,833.10, as per the provisional closing data. The decline in the Nifty 50 index was lower than the Sensex's fall in percentage terms. The Nifty fell 58.10 points or 0.67% at 8,592.20, as per the provisional closing data. The Sensex provisionally settled below the psychologically important 28,000 level. Weakness in European stocks weighed on the domestic bourses. European stocks edged lower as a closely watched indicator of the German economy declined in August 2016. The latest slide on the bourses materialized as the near month August 2016 contracts in the futures and options (F&O) segment expired.

Globally, investors are awaiting speech tomorrow, 26 August 2016, from Federal Reserve Chairwoman Janet Yellen which could provide hints about the timing of the next rate hike from the Fed. High US interest rates would pull money out of emerging markets and redirect it to the US. Yellen is due to speak at the Kansas City Fed's annual Monetary Policy Symposium in Jackson Hole, Wyoming. Minutes from the Federal Open Market Committee's (FOMC) July meeting showed officials were split on whether an increase in interest rate was needed soon.

Closer home, the Union Cabinet yesterday, 24 August 2016, approved amendments to the Double Taxation Avoidance Agreement (DTAA) with Cyprus, which could impact foreign portfolio investment and foreign direct investment into India from Cyprus.

Key benchmark indices reversed direction after holding positive zone until afternoon trade. The indices extended losses towards the latter part of the trading session. The Sensex fell 256.70 points or 0.91% at the day's low of 27,803.24 in late trade, its lowest level since 11 August 2016. The barometer index rose 94.27 points or 0.33% at the day's high of 28,154.21 in early trade, its highest level since 19 August 2016. The Nifty fell 66.65 points or 0.77% at the day's low of 8,583.65 in late trade, its lowest level since 23 August 2016. The index rose 32.75 points or 0.37% at the day's high of 8,683.05 in early trade, its highest level since 22 August 2016.

The market breadth indicating the overall health of the market was negative. On BSE, 1,452 shares declined and 1,250 shares rose. A total of 184 shares were unchanged. The BSE Mid-Cap index provisionally lost 0.35%. The BSE Small-Cap index provisionally fell 0.11%. The losses for both these indices were lower than the Sensex's decline in percentage terms.

The total turnover on BSE amounted to Rs 2910 crore, lower than turnover of Rs 3031.51 crore registered during the previous trading session.

Telecom stocks declined. Bharti Airtel (down 1.3%), Idea Cellular (down 2.49%) and Reliance Communications (down 1.15%) edged lower.

Bharti Infratel was down 2.05%. Bharti Infratel is a telecom tower arm of Bharti Airtel.

Index heavyweight and software major Infosys was down 1.97% at Rs 1,036.75. The stock hit a high of Rs 1,058 and a low of Rs 1,032.30 in intraday trade.

Index heavyweight and housing finance major HDFC was down 1.87% at Rs 1,358.35. The stock hit a high of Rs 1,389.50 and a low of Rs 1,352.50 in intraday trade. The company during market hours today, 25 August 2016, announced that it intends to raise Rs 500 crore from issue of non-convertible debentures on private placement basis. The debentures will carry a coupon rate of 7.7% per annum and will have a tenor of 1 year 6 months. The proceeds of the issue would be utilized for financing/refinancing the housing finance business requirements of the company. The issue opens and closes for subscription tomorrow, 26 August 2016.

Index heavyweight and cigarette major ITC rose 1.06% at Rs 252.85 on reports that a foreign brokerage has maintained its outperform rating on the stock. The brokerage has reportedly stated in a research note that lower price hike will support cigarette volume growth. ITC's earnings are likely to grow at a compound annual growth rate (CAGR) of 14% over FY 2016 to FY 2019, the brokerage reportedly said.

Meanwhile, ITC during market hours today, 25 August 2016, issued a clarification regarding news reports that it has moved court against Britannia Industries (Britannia) for copying biscuit packaging. ITC said that it has filed a suit against Britannia before the Delhi High Court as Britannia has copied the trade dress and colour combination of ITC's Sunfeast Farmlite Digestive ALL Good' biscuit packages for its 'Britannia Nutrichoice Digestive Zero' biscuit packages. The case was filed by the company on 20 August 2016 and will be coming up for hearing on 31 August 2016, ITC said.

Britannia Industries was up 0.98% at Rs 3,470. The company in its clarification issued after market hours yesterday, 24 August 2016, said that ITC has filed a suit against the company at Delhi High Court alleging that Britannia is copying the color combination of ITC's 'Sunfeast Farmlite Digestive All Good' Biscuit Packs for its 'Nutrichoice Digestive Zero' biscuit packs. The matter came up for hearing before Delhi High Court on 22 August 2016 and 24 August 2016. The next date of hearing is 31 August 2016. No injunction (stay) has been granted as of now. As the matter is sub-judice, the company cannot comment further on this matter, Britannia Industries said.

Meanwhile, the Union Cabinet yesterday, 24 August 2016, approved amendments to the Double Taxation Avoidance Agreement (DTAA) with Cyprus, which could impact foreign portfolio investment and foreign direct investment into India from Cyprus. With the revision of the treaty, India will have the right to tax capital gains arising in India for entities resident in Cyprus. All existing investments from Cyprus and additional investments made up to 31 March 2017 will be grandfathered like the Mauritius Treaty and therefore capital gains tax will not be applicable on shares acquired prior to 1 April 2017. According to a government statement, the proposed DTAA with Cyprus also expands the scope of the Permanent Establishments (PE) that enables source based taxation of business income.

As per media reports, foreign direct investment into India from Cyprus totaled $3.3 billion in 2015-16. Companies based in Europe and the US use Cyprus to route investments in India to take advance of the tax treaty, reports suggest. The Indian government is also in discussion with Singapore for amending tax treaty with Singapore.

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