Key benchmark indices surged to hit fresh intraday highs in mid-afternoon trade, with market sentiment boosted by provisional data showing continuation of buying of Indian stocks by foreign funds on Tuesday, 7 August 2012. Comments from Union Finance Minister P Chidambaram early this week that he intends to shortly unveil a path of fiscal consolidation, aided gains on the domestic bourses as the barometer index, BSE Sensex, hit its highest level in more than 20-1/2 weeks. The 50-unit S&P CNX Nifty hit its highest level in more than 18 weeks. The Sensex was up 110.68 points or 0.63% , up about 105 points from the day's low and off close to 5 points from the day's high.
Mahindra & Mahindra (M&M) jumped after strong Q1 results. Index heavyweights ITC hit a record high. FMCG major, Hindustan Unilever also hit a record high. Index heavyweight Reliance Industries (RIL) edged higher on reports the oil ministry has agreed to conditionally approve the capital expenditure plans of RIL and its partners to make fresh investments for increasing production of natural gas at D6 oil and gas block in the eastern offshore Krishna-Godavari basin. Bharti Airtel dropped after poor Q1 results. Ambuja Cements hit a record high. UltraTech Cement reversed direction after hitting a record high. Grasim Industries hit a 52-week high. Wockhardt hit a record high.
The market edged higher in early trade. The market trimmed gains in morning trade. The market regained strength after hitting fresh intraday low in mid-morning trade. The market once again trimmed gains after regaining strength in early afternoon trade. The market surged to hit fresh intraday high in mid-afternoon trade.
Provisional data showing continuation of buying of Indian stocks by foreign funds on Tuesday, 7 August 2012, underpinned sentiment. Foreign institutional investors (FIIs) bought shares worth Rs 815.94 crore on Tuesday, 7 August 2012, as per provisional figures on the stock exchanges. Earlier, FIIs bought shares worth a net Rs 1364.50 crore from the secondary equity markets in four trading sessions from 1 to 6 August 2012, as per data from Securities & Exchange Board of India (Sebi). The inflow this month comes on the top of substantial purchases last month. FIIs bought shares worth net Rs 9691 crore from the secondary equity markets in July 2012.
At 14:20 IST, the BSE Sensex was up 110.68 points or 0.63% to 17,712.46. The index rose 117.44 points at the day's high of 17,719.22 in mid-afternoon trade, its highest level since 16 March 2012. The index rose 3.84 points at the day's low of 17,605.62 in morning trade.
The S&P CNX Nifty was up 35.70 points or 0.67% to 5,372.40. The Nifty hit high of 5,377.60 in intraday trade, its highest level since 3 April 2012. The Nifty hit a low of 5,338.70 in intraday trade.
The market breadth, indicating the overall health of the market, was negative. On BSE, 1,410 shares fell and 1,243 shares rose. A total of 134 shares were unchanged.
From the 30-share Sensex pack, 23 stocks rose and rest of them fell. Hindalco Industries, Tata Motors and Jindal Steel & Power gained by between 2.07% to 3.33%.
Mahindra & Mahindra (M&M) jumped 3.93% after strong Q1 results. The combined net profit of M&M and its 100% subsidiary -- Mahindra Vehicle Manufacturers (MVML) -- jumped 25.9% to Rs 778.50 crore on 35.2% growth in gross revenue to Rs 10003.90 crore in Q1 June 2012 over Q1 June 2011. MVML, located at Chakan near Pune in Maharashtra, has been set up as a 100% subsidiary of M&M with a view to source contemporary products for expanding the market offering of M&M.
M&M said the growth in first quarter net profit despite relentless increase in material costs was on the back of good volume performance of the company's automotive sector and also due to tight control on expenses.
M&M said some of the major group companies viz. Mahindra Finance, Mahindra Satyam, Mahindra Lifespace Developers and Mahindra Holidays & Resorts significantly improved their performance in Q1 June 2012.
M&M said the drought-like conditions prevailing in several states this year has added to the risks of domestic companies.
Index heavyweight and cigarette maker ITC rose 0.46% to Rs 262.25. The stock hit a record high of Rs 262.75 in intraday trade today, 8 August 2012. The company reported 20.21% growth in net profit to Rs 1602.14 crore on 15.34% growth in net sales to Rs 6652.21 crore in Q1 June 2012 over Q1 June 2011. Despite series of tax hikes, ITC's performance in cigarettes business remains robust and displays pricing power for the company.
Hindustan Unilever rose 1.29% to Rs 476.35. The stock hit a record of Rs 478.60 in intraday trade today.
Index heavyweight Reliance Industries (RIL) rose 1.89% on reports the oil ministry has agreed to conditionally approve the capital expenditure plans of RIL and its partners to make fresh investments for increasing production of natural gas at D6 oil and gas block in the eastern offshore Krishna-Godavari basin. Oil Minister Jaipal Reddy on Tuesday, 7 August 2012, said the D6 block is producing only 29 million standard cubic meters a day of gas compared with an expected 80 mmscmd in the current financial year through 31 March 2013.
According to production-sharing contracts for the oil and gas sector in India, the explorer invests in developing oil and gas blocks and later recovers the money through selling hydrocarbons. The investments made by the explorer need to be cleared by the government. RIL and its partners are struggling to raise production from their D6 block, India's largest gas find so far. The field produced 104.40 billion cubic feet of gas during April-June 2012, down 33% from a year earlier due to reservoir complexity and natural decline. While RIL holds a 60% stake in the block, UK's BP PLC owns 30% and Canada's Niko Resources the remaining 10%.
Bharti Airtel shed 2.35% to Rs 286.90 after consolidated as per international financial reporting standards (IFRS) net profit fell 37.28% to Rs 762 crore on 14% increase in revenues to Rs 19350 crore in Q1 June 2012 over Q1 June 2011.
Bharti Airtel said its monthly average revenue per user (ARPU) in the country fell 2% to Rs 185 in Q1 June 2012 over Q4 March 2012. For its African operations, Bharti reported an ARPU of $6.5 in Q1 June 2012, down from $6.7 in Q4 March 2012.
Bharti Airtel's consolidated revenues rose 14% to Rs 19350 crore, marked by growth of 31.5% in Africa and a strong 44.2% increase in India Mobile Data revenues.
EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) margin at 30.2% was depressed due to the adverse regulatory and tax developments in India, enhanced market participation and planned accelerated investments in both India and Africa.
Consolidated operating free cash flows for the quarter was healthy at Rs 2273 crore, which represents an increase of 67.4% over the corresponding period last year. The net debt - equity ratio was at 1.38 (Q4 March 2012: 1.29) and net debt - EBITDA ratio was held at 2.54 (Q4 March 2012: 2.56).
The company said mobile revenues in India during the quarter were impacted due to the Telecom Regulatory Authority of India (TRAI) guidelines around processing fees restricted the sales of combo packs, which offered bundled service propositions to augment customer value. Indian mobile revenues were also impacted due to the service tax hike from 10.3% to 12.36%, effective 1 April 2012, causing all telecom services to become dearer by nearly 2%, with the entire additional levy being passed through to the exchequer.
The company's Africa revenues grew by 31.5%, driven by strong operational performance in the last year and favourable currency movements. However, economic and currency headwinds are presently evident in key markets, as a result of the eurozone crisis, lower aid and grants, rising inflation and political issues in some countries. With this in mind, the company intensified market operations, advertising, network rollouts, as well as new growth initiatives such as 3G, airtel money and Rwanda, the company said in statement.
In a statement, Sunil Bharti Mittal, Chairman & Managing Director, Bharti Airtel, said: "Telecom revenues in India have been depressed due to hyper-competition and recent regulatory & tax developments. I am happy to note that, despite these adverse developments, Airtel has kept its focus on network expansion, market investments, superior customer experience and new product innovations. I am also pleased to see that India data pick-up is accelerating with over 38 million customers and mobile data revenues up 44%. On the African side, we are gaining market share, benefitting from the significant investments made in the last two years."
Bharti Airtel said that the board of directors of company's subsidiary, Bharti Infratel (BIL) at its meeting held on August 08, 2012 has appointed a committee of the board of directors (Committee of Directors) to consider the listing of the shares of Bharti Infratel. The proposed issue may include an offer for sale of shares, if desired by the existing shareholders of BIL. BIL has informed Bharti Airtel that any offering and its timing will be subject to market conditions, obtaining necessary shareholder and regulatory approvals. BIL has indicated that there can be no assurance that any offering will happen in a timely manner or at all. The final decision for the proposed issue will be taken by the Committee of Directors/the board of directors of BIL. The board of directors of Bharti Airtel in its meeting held on August 08, 2012 has constituted a Committee of its board of directors, to consider and finalise the terms and conditions with respect to participation in the offer for sale of shares upto 10% of BIL's equity share capital.
Ambuja Cements rose 1.18% to Rs 192.75. The stock hit a record high of Rs 193.75 in intraday trade today, 8 August 2012. Ambuja Cements' net profit rose 34.9% to Rs 468.90 crore on 17.9% growth in net sales to Rs 2565.95 crore in Q2 June 2012 over Q2 June 2011.
UltraTech Cement fell 0.08% to Rs 1637. The stock reversed direction after hitting a record high of Rs 1652 in intraday trade today, 8 August 2012.
Grasim Industries rose 0.94% to Rs 2957.05. The stock hit a 52-week high of Rs 2970 in intraday trade today, 8 August 2012.
Wockhardt rose 3.89% to Rs 1,123.50, with the stock extending recent gains triggered by strong Q1 results. The stock hit a record high of Rs 1,123.50 in intraday trade today, 8 August 2012. Consolidated net profit jumped 94.87% to Rs 377.97 crore on 35.37% growth in income from operations to Rs 1425.82 crore in Q1 June 2012 over Q1 June 2011.
Wockhardt recently concluded the divestment of its nutrition business to Danone for Rs 1280 crore. This has significantly improved the balance sheet position for the company and its debt to equity ratio now stands below 1, the company said in a statement.
Union Finance Minister P. Chidambaram on Monday, 6 August 2012, said that a path of financial consolidation will be unveiled shortly. He made it clear that the burden of fiscal correction must be shared fairly and equitably by different classes of stakeholders. The Finance Minister said that the poor must be protected and others must bear their fair share of the burden. Obviously, adjustments must be made both on the revenue side and on the expenditure side, he said. The Finance Minister said the government has asked Dr. Vijay Kelkar, Dr. Indira Rajaraman and Dr. Sanjiv Misra to assist the government in formulating the path of fiscal consolidation and said he expects the work will be completed in a few weeks.
Government finances are under pressure as expenses exceed revenue, mainly because of subsidies doled out for cheaper supplies of food, fuel and fertilizer. The subsidy expense was 2.4% of GDP in the last fiscal year. The government aims to bring it down to 2% of GDP this year, and reduce fiscal deficit to 5.1% from 5.75%. The oil ministry has already sought Rs 32800 crore in cash subsidy from the finance ministry to compensate retailers who sell diesel and cooking fuel at government-set discounted rates.
Mr. Chidambaram said that price stability is an important objective and that the government will work with the Reserve Bank of India to ensure that inflation is moderated in the medium term. Sometimes it is necessary to take carefully calibrated risks in order to stimulate investment and to ease the burden on consumers, Mr. Chidambaram said adding that the government will take appropriate steps in this regard.
The key to restart the growth engine is to attract more investment, both from domestic investors and foreign investors, Mr. Chidambaram said. "Since investment is an act of faith, we must remove any apprehension or distrust in the minds of investors. We will improve communication of our policies to potential investors", Mr. Chidambaram said. The aim will be to remove the perceived difficulties in doing business in India, including fears about undue regulatory burden or regulatory over-reach. Public sector enterprises which have large cash balances will be encouraged to restart investment. Proposals pending with the Foreign Investment Promotion Board will be processed and decisions taken expeditiously, Mr. Chidambaram said.
The government intends to work with manufacturers and exporters and implement appropriate short term and medium term measures to reverse the trend of sluggish growth in manufacturing and exports which are two key drivers of the economy, Mr. Chidambaram said. The government intends to find practical solutions to the problems that impede higher production or output in the coal, mining, petroleum, power, road transport, railway and port sectors. The Cabinet Committee on Economic Affairs will examine the issues affecting each sector and take decisions that will lead to quantitative growth in these sectors, Mr. Chidambaram said.
The government aims to raise the level of investment to 38% of the GDP that was achieved in 2007-08, Mr. Chidambaram said. The Finance Minister said that Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and other schemes will be converged to meet the challenge of drought.
The government intends to fine tune policies and procedures that will facilitate capital flows into India, Mr. Chidambaram said. Clarity in tax laws, a stable tax regime, a non-adversarial tax administration, a fair mechanism for dispute resolution, and an independent judiciary will provide great assurance to investors, Mr. Chidambaram said. The government has recently appointed two committees -- one to examine anti-avoidance tax proposal viz. the General Anti-Avoidance Rules (GAAR) legal provisions and guidelines and the other to review taxation of the IT sector and Development Centres. Mr. Chidambaram said he has also directed a review of tax provisions that have a retrospective effect in order to find fair and reasonable solutions to pending as well as likely disputes between the Tax Departments and the Assessees concerned.
In the next few weeks, the government will announce a number of decisions to attract more people to invest in mutual funds, insurance policies and other well-designed instruments, Mr. Chidambaram said.
Mr. Chidambaram today, 8 August 2012, said in the lower house of parliament that the government has received requests to put off plans to implement the General Anti-Avoidance Rules (GAAR) which aim to check tax avoidance. The implementation of GAAR was postponed by one year in order to provide an opportunity of wider consultation before such a legislation is implemented, Mr. Chidambaram said in the lower house of parliament while replying to lawmakers' questions. The provisions of GAAR are directed toward preventing tax avoidance by way of aggressive tax planning, he added.
The implementation of GAAR proposal introduced in the Union Budget 2012-13 in March 2012 by then-finance minister Pranab Mukherjee has been deferred to 1 April 2013. This came after heavy criticism from foreign investors who fear that GAAR would give the authorities arbitrary powers to examine any deal that they feel is designed to avoid tax. Prime Minister Dr. Manmohan Singh last month constituted an expert committee on anti-avoidance tax proposal viz. the General Anti-Avoidance Rules (GAAR) to undertake stakeholder consultations and finalise the guidelines for GAAR by 30 September 2012.
Dr. Singh last month also decided to refer the issue of implications on FIIs and portfolio investors of the amendment made to the Income Tax Act relating to the taxation of non-resident transfer of assets where the underlying asset is in India to the Expert Committee on anti-avoidance tax proposal viz. the General Anti-Avoidance Rules (GAAR). "It is necessary to have clarity on the tax liability of portfolio investors and foreign institutional investors as a result of this amendment particularly when the investment is made through a registered stock exchange in accordance with SEBI guidelines and purely in the form of portfolio investment", the Prime Minister's Office (PMO) said in a statement issued on 30 July 2012. Any clarification needs to be harmonised with the GAAR guidelines and will have to address any residual concerns outside of GAAR, the PMO said.
The government will unveil industrial production data for June 2012 tomorrow, 9 August 2012. Industrial production grew 2.4% in May 2012. Industrial production declined 0.9% in April 2012.
Finance Minister P. Chidambaram today, 8 August 2012, said that it will be difficult to achieve a 9% annual growth target set for the five years to March 31, 2017. He added that the Planning Commission would cut the target later this year.
The India Meteorological Department (IMD) last week said the El Nino weather pattern is likely to reduce rains again in the second half of the June to September monsoon season. The IMD said rains over the entire June to September season are now expected to be less than 90% of long-term average. This is lower than IMD's previous forecast of 96%. Monsoon rains are considered deficient -- a drought in layman's terms -- if they fall below 90% of a 50-year average. Between June 1 and August 1, rainfall was about 19% below normal. The IMD expects normal rains in August -- a critical month for summer crops. It expects rainfall to be 5-6% below average in September due to the possibility of El Nino. The weather office said rainfall during August-September is expected to be 91% of the long-term average.
The rainfall distribution has been erratic this year as major crop- growing regions such as Maharashtra, Karnataka, Gujarat, Punjab and Haryana have received scanty showers threatening the prospects of summer crops. A panel of Indian ministers last week approved steps to contain the impact of a near-drought situation. The steps include providing a diesel-price subsidy to farmers, increasing the subsidy on seed supplies and removal of the import tax on oilmeals.
Insufficient rainfall could lead to higher food inflation. There will be an impact on foodgrain output, but it is too early to give any estimate, Farm Minister Sharad Pawar last week. Mr. Pawar said the government will raise subsidies for the supply of various seeds for alternate crops in affected areas.
The monsoon rains--which make up around 70% of India's annual rainfall--are crucial to the nation's agriculture sector and broader economy. More than 60% of the country's farmland is rain-fed. The timing, distribution and quantity of rainfall are all important for crops. The four-month southwest monsoon season that starts from June accounts for almost 70% of total annual moisture that Indian soil receives in a year. A bad monsoon will have a larger impact on inflation than on growth as agriculture output constitutes a relatively small portion of India's economy, Indian central bank officials said on 1 August 2012, in a conference call following the release of its monetary policy review on 31 July 2012. The Reserve Bank of India (RBI) kept its key policy rate viz. the repo rate unchanged at 8% after first quarter review of Monetary Policy 2012-13 in an effort to keep a lid on inflation and inflation expectations. The RBI, however, lowered banks' statutory liquidity ratio, or the part of deposits that must be invested mainly in government bonds, by a percentage point to 23% to ensure that liquidity pressures do not constrain the flow of credit to productive sectors of the economy.
Principal adviser to the Planning Commission Pronab Sen last month said slowing investment due to weak confidence in the economy is hurting growth. Mr. Sen said Indian companies aren't facing any shortage of funds. Many of them are sitting on piles of cash and aren't even repatriating overseas borrowings, he added.
The government should take steps to meet the fiscal deficit target set out in the budget and that would improve sentiment and revive investments, Mr. Sen said. He said the government should scale back its spending and slash subsidies on fuels, food and fertilizers to help check its budget deficit.
Slowing growth in investment remains a cause for concern for India. Investment makes up 35% of India's economic activity.
A comprehensive Land Acquisition, Rehabilitation and Resettlement Bill is among the 31 Bills the government has lined up for consideration and passing during the monsoon session of Parliament, which begins today, 8 August 2012. Among the other bills include those on Forward Contracts, Banking laws, whistle-blowers and women's reservation as also the Prevention of Bribery of Foreign Public Officials bill. The monsoon session of Parliament will conclude on September 7.
Hamid Ansari has been re-elected as India's vice-president. A nominee of the ruling Congress-led alliance, the 75-year-old Ansari defeated opposition-backed rival Jaswant Singh by 252 votes for the largely ceremonial post. An electoral college of members of parliament elects the vice-president, who also acts as chairperson of the Rajya Sabha. Of the 736 votes cast, Ansari got 490 votes while Jaswant Singh got 238. Eight votes were declared invalid.
An India-Mauritius joint panel will discuss a series of proposals to review the double taxation avoidance treaty between the two nations on 22-24 August in Mauritius. India has been looking to negotiate the double taxation avoidance agreement with Mauritius for the past few years to check so-called round tripping and other potential abuses. Round tripping entails moving money out of one country to another, and getting it back under the garb of foreign capital. Capital gains tax is close to zero in Mauritius and almost 40% of investments into India come through the island nation. Under the bilateral agreement, capital gains from sale of securities can be taxed only in Mauritius. The India-Mauritius joint working group will also discuss the inclusion of a so-called limitation of benefit clause, similar to the Singapore tax treaty with India, to ensure only genuine Mauritius-based companies are benefited. India's tax agreement with Singapore says that only those companies that spend a minimum of $200,000 (about Rs 1 crore) in Singapore can avail the benefits of the treaty.
Sanctity of tax residency certificates issued by a country to companies operating in its jurisdiction to enable the firms to claim tax benefits under various treaties is another issue between India and Mauritius. While India in this year's national budget said the certificates are a necessary but not sufficient condition, Mauritius wants those issued by it honoured. Draft guidelines issued by Indian government for implementing the controversial anti-avoidance tax proposal viz. the GAAR state that GAAR provisions should be invoked on a foreign institutional investor (FII), if it chooses to take a treaty benefit, but would not in any case be invoked in the case of the non-resident investors of the FII. The draft guidelines suggested that the onus of proving wrongdoing should be on the authorities.
Investors' focus is currently on Q1 June 2012 earnings. Tata Motors and Ranbaxy Laboratories unveil quarterly results tomorrow, 9 August 2012. State Bank of India, Sun Pharmaceuticals Industries, Siemens and BPCL announce quarterly results on Friday, 10 August 2012. ONGC announces Q1 results on Saturday, 11 August 2012. Tata Steel and Coal India unveil Q1 results on 13 August 2012. Hindalco Industries, Reliance Infrastructure and IDFC will unveil Q1 results on 14 August 2012.
European shares edged lower on Wednesday after credit rating agency Standard & Poor's downgraded its outlook on Greece. Key benchmark indices in UK, France and Germany were down by 0.26% to 0.43%.
Standard & Poor's announced on Tuesday that it would lower its outlook on Greece to negative from stable based on the possibility that it may not secure additional bailout funds from the European Union and The International Monetary Fund.
European Central Bank (ECB) president Mario Draghi last week said the ECB may soon step in to buy government bonds in the open market, possibly in unlimited quantities, and it will also consider other unconventional measures to lower exceptionally high borrowing costs of financially stressed euro-zone economies. Draghi indicated that the ECB may buy government bonds in the open market under strict conditions and after stressed states submitted a request for aid. Recent optimism that the ECB will soon start to buy up Spanish and Italian government bonds got a further boost after German Chancellor Angela Merkel's government on Monday, 6 August 2012, said it supported the ECB's bond-purchasing program.
Germany's Federal Constitutional Court will announce a decision on lawsuits challenging the country's participation in the permanent euro-zone rescue fund, the European Stability Mechanism, and the fiscal pact on 12 September 2012. The court held a public hearing earlier this month to examine complaints that participation in the fund and the fiscal pact violated German law by taking some authority over the national budget away from parliament.
The Bank of England is due to release its Quarterly Inflation Report today, 8 August 2012. The central bank is likely to cut its growth and inflation forecasts, clearing the way for further monetary easing.
German factory orders declined much more than consensus forecast in June, as sales to euro area countries slumped amid recession-like conditions across most of the region. German factory orders fell at a seasonally-adjusted rate of 1.7% in June, as domestic orders dropped 2.1% and orders from within the eurozone fell 4.9%, the Economics Ministry reported Tuesday.
Italy's economy contracted for a fourth straight quarter in the three months ended June, as a protracted eurozone debt crisis continued to take its toll on bigger European nations. Italy's economy contracted by 0.7% in the second quarter of 2012, Rome-based national statistics institute Istat said in a preliminary report on Tuesday.
Most Asian stock markets rose on Wednesday, supported by expectations that policymakers will soon decisively address the euro zone fiscal crisis amid declining global growth. Key benchmark indices in China, Indonesia, Taiwan, Japan and South Korea rose by between 0.16% to 0.88%. Key benchmark indices in Hong Kong and Singapore fell by between 0.04% to 0.7%.
China is due to release a slew of July data including industrial production, fixed-asset investment, retail sales and inflation tomorrow, 9 August 2012, which investors will comb through to gauge the health of the world's second-largest economy.
The Bank of Korea is set to consider cutting rates for a second month tomorrow, while the Bank of Japan starts a two-day policy meeting today.
Japanese Prime Minister Yoshihiko Noda is prepared to dissolve the country's lower house of parliament in the near future and call for a general election in exchange for opposition parties' support for doubling the consumption tax rate to 10%, according to a Kyodo News report.
Trading in US index futures indicated that the Dow could fall 29 points at the opening bell on Wednesday, 8 August 2012. Hopes for more quantitative easing pushed the U.S. market higher for a third straight session on Tuesday.
Election for a new president in the United States, the world's biggest economy, is scheduled on 6 November 2012.
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