Bank stocks in demand
DATE: 13/09/2012
The key benchmark indices pared gains after scaling an intraday high in morning trade. The barometer index, the BSE Sensex slipped below the psychological 18,000 mark only to regain it later. The BSE Sensex was up 44.29 points or 0.25%, up 50.35 points from the day's high and off 2.42 points from the day's high. Index heavyweight Reliance Industries (RIL) reversed initial decline. Index heavyweight and cigarette maker ITC slipped. The market breadth was positive.
Interest rate sensitive bank stocks rose as almost flat growth of industrial output in July 2012 strengthened the case for the central bank to mull cutting policy rates in RBI's policy review on 17 September 2012 in order to help revive growth.
Asian stocks were mostly higher on Thursday ahead of the U.S. Federal Reserve's decision later in the day, as investors remained cautiously optimistic for further stimulus action to bolster the world's largest economy.
At 10:25 IST, the BSE Sensex was up 44.29 points or 0.25% to 18,044.32. The index gained 46.71 points at the day's high of 18,046.74 in morning trade. The index shed 6.06 points at the day's low of 17,993.97 in morning trade.
The S&P CNX Nifty was up 7.05 points or 0.13% to 5,438.05. The index hit a high of 5,441.85 and a low of 5,425.10 in intraday trade.
The market breadth, indicating the overall health of the market, was positive. On BSE, 1148 shares rose and 884 shares fell. A total of 105 shares were unchanged.
Among the 30-share Sensex pack, 16 gained while the rest declined.
Index heavyweight Reliance Industries (RIL) gained 1.09% to Rs 806.20, off day's low of Rs 794. RIL has bought back 3.9 crore shares for about of Rs 2793.51 crore till 4 September 2012 under its ongoing share buyback program. RIL has set maximum buyback price of Rs 870 per share. The company has set aside Rs 10440 crore for share buyback. The buyback program opened on 1 February 2012 and closes on 19 January 2013. RIL chairman Mukesh Ambani said at the company's Annual General Meeting in June 2012 that the company's buyback program represents a highly accretive use of cash by the company and it will supplement earnings growth from operations, for higher EPS (earnings per share), in the near future.
RIL on 27 August 2012 said it has scheduled a planned maintenance turnaround of one of the diesel hydrotreater units of the DTA refinery at its Jamnagar, Gujarat complex for a period of approximately two and half weeks starting 28 August 2012. This opportunity will also be utilised to carry out other maintenance and inspection jobs during the shutdown period, RIL said in a statement. During the period the other diesel hydrotreating unit of the DTA refinery along with other units including crude processing levels are planned at normal levels, RIL said.
Index heavyweight and cigarette maker ITC slipped 0.35% to Rs 268.45. The stock had scaled a record high of Rs 271.50 on 30 August 2012. ITC had reported strong Q1 June 2012 results. ITC's net profit jumped 20.21% 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.
Interest rate sensitive bank stocks rose as almost flat growth of industrial output in July 2012 strengthened the case for the central bank to mull cutting policy rates in RBI's policy review on 17 September 2012 in order to help revive growth.
ICICI Bank rose 1.16% after the private sector bank cut deposit rates by 50 basis points and the revised rates were effective 11 September 2012. The bank cut rates across maturities ranging from 91 days to less than five years.
HDFC Bank (down 0.32%) and Axis Bank (down 0.28%), fell. Both these private sector banks have reportedly cut interest rates on retail fixed deposits by up to 50 basis points for various maturities.
Andhra Bank rose 0.22% on reports the state-run bank has slashed its interest rates on retail loans.
Bank of India (up 0.78%), Vijaya Bank (up 0.94%), PNB (up 0.63%), Kotak Mahindra Bank (up 0.09%) and Bank of Baroda (up 0.15%) edged higher.
The reduction in rates has raised expectations of a cut in lending rates. With banks moving to the base rate system as the benchmark for floating rates, the cost of loans is now indirectly linked to cost of deposits. This is because the base rate is calculated on a formula which takes into account the cost of funds for a bank.
Optimism the Indian government will unveil a series of fiscal policy decisions and hopes of further stimulus measures from the world's top central banks triggered recent gains. Reports suggest that the government may permit foreign direct investment (FDI) in multi-brand retail and aviation after Friday's agenda-heavy cabinet meeting.
Foreign institutional investors (FIIs) bought shares worth a net Rs 451.19 crore on Wednesday, 12 September 2012, as per the provisional data from the stock exchange.
Government data released on Wednesday, 12 September 2012, showed the index of industrial production (IIP) grew at 0.1% in July 2012 as against 3.7% in the same month last year. The index, a key measure of industrial output, contracted by 1.8% in June 2012 after growing at 0.1% in April 2012.
August headline inflation figure to be declared tomorrow, 14 September 2012 will be closely watched. Inflation based on the wholesale price index (WPI) is projected rise by 7% in August 2012, as per the median estimate of the poll carried out by Capital Market.
The Reserve Bank of India (RBI) last cut rates by 0.5 percentage point to 8% from 8.5% in April, its first move to reverse a 20-month rate-tightening cycle. It then held rates steady in June and at its last rate-setting meeting on July 31, saying that a cut would exacerbate inflationary pressures. The RBI is scheduled to undertake a mid-quarter review of the monetary policy on 17 September 2012. The RBI is expected to maintain status quo on short term lending rates in its policy review on 17 September 2012, as per the poll carried out by Capital Market.
Advance tax data for the 2nd installment due on 15 September 2012 could provide cues on the likely corporate earnings for Q2 September 2012.
The Reserve Bank of India (RBI) on Tuesday eased the external commercial borrowing (ECB) rules and hiked the maximum limit to $3 billion for one company. RBI also hiked the overseas borrowing cap to 75% of the company's last three-year average forex earnings. The foreign loan cap has also been raised to 75% of last three-year average forex earnings. ECB refers to commercial loans in the form of bank loans, buyers' credit, suppliers' credit, securitised instruments availed of from non-resident lenders with a minimum average maturity of three years. Last month, the Finance Ministry had liberalised the norms for raising funds through ECBs by domestic firms, particularly those in the realty sector. The High Level Committee on ECBs also permitted FIIs to invest up to $5 billion in rupee bonds within the overall corporate bond limit of $45 billion.
Finance Minister P. Chidambaram early this month said that India is making consistent efforts to check the abuse of a double-taxation-avoidance pact it has with Mauritius. India has in the past said it is considering a review of the treaty in an effort to boost tax revenue. An India-Mauritius joint working panel was set up in 2006 to put in place adequate safeguards for preventing the misuse of the double-taxation-avoidance agreement between the two countries. India, in the past, has said that Mauritius was unwilling to cooperate on this issue. Mauritius says it has taken India's concerns seriously.
Traditionally, Mauritius has accounted for nearly 40% of India's foreign investment. Under the avoidance of double taxation treaty, companies that invest through Mauritius do not have to pay tax in India but only have to pay tax in the island. But capital gains tax is close to zero in Mauritius, making it a popular investment hub.
India wants to renegotiate the double taxation treaty with Mauritius to check round-tripping, in which money is moved out of one country to another and brought back under the garb of foreign capital, taking advantage of tax breaks. Meanwhile, a committee appointed by the government to review the controversial general anti-avoidance rules (GAAR) early this month suggested deferring the implementation of anti-avoidance rules by three years. "Where Circular No. 789 of 2000 with respect to Mauritius is applicable, GAAR provisions shall not apply to examine the genuineness of the residency of an entity set up in Mauritius," the committee said.
The committee has also recommended that the government should abolish the tax on gains arising from transfer of listed securities, whether in the nature of capital gains or business income, to both residents as well as non-residents. The panel has said the government might consider increasing the rate of Securities Transaction Tax (STT) appropriately to make the proposal tax neutral. At present, short-term capital gains on equities are taxable at the rate of 15%. Holding period of less than one year is considered as short term. There is no long term capital gains tax on sale of shares. Business income is taxed at 30%.
Distinguishing capital gains and business income depends on several factors, and disagreements have resulted in numerous litigation cases between the Revenue Department and taxpayers, the committee said in its report.
India's annual exports fell 14.8% to $22.4 billion in July, while imports fell 7.6% to $37.9 billion, leaving a trade deficit of $15.5 billion, the trade ministry said in a statement early this month.
India's gross domestic product (GDP) rose 5.5% in Q1 June 2012, data released by the government on 31 August 2012 showed. The services sector grew 6.9%, industry grew 3.6% and agriculture sector grew 2.9%. Manufacturing output rose 0.2% while mining sector grew 0.1% in Q1 June 2012. India's economy has slowed sharply over the past year due to weak industrial activity as high interest rates crimped demand and made it hard for corporates to finance expansion plans.
Global rating agencies Standard & Poor's and Fitch Ratings cut their outlooks on India's ratings to negative from stable earlier this year and warned that unless the government takes concrete action to improve the macro-economic environment, the country may lose its investment-grade status.
The month-long Monsoon session of Parliament that ended on Friday 7 September 2012, was one of the least productive sessions by far with protests over Assam violence, CAG report on coal blocks allocation and finally the Bill over SC/ST quota in job promotions stalling the proceedings. No business could be transacted for days due to the daily ritual of slogan shouting and rushing to the Well of the House finally resulting in the Lok Sabha and the Rajya Sabha being adjourned sine die on Friday, 7 September 2012. Only four bills including the Protection of Women Against Sexual Harassment at Workplace Bill and the AIIMS Amendment Bill were passed during the Monsoon session, that had 30 bills pending. Of 15 bills listed for introduction, just five were introduced. It now remains to be seen whether Parliament will be able to pass the pending bills in the Winter session.
Slamming the Opposition as Parliament adjourned sine die on the last day of the monsoon session on Friday, 7 September 2012, without conducting any major business, Prime Minister Dr. Manmohan Singh said that the regular disruptions by the Opposition were a negation of democracy and a violation of norms of Parliament and the Constitution. "We have great respect for the CAG. However, if we respect it, we should be willing to discuss its reports in the House and at the PAC. This is negation of democracy, violation of norms of Parliament and the Constitution as we have understood it," Dr. Singh said on Friday, 7 September 2012. He said that the time wasted by Parliament could have been better utilised in discussing more crucial problems grappling the country like terrorism and Naxalism.
"On the economic front too we face major challenges. The world is passing through an exceptionally difficult phase. Our economy is also experiencing problems. We must work hard to ensure that the Indian economy returns to high growth. I have no doubt we can do it. We can rebuild our growth momentum and encourage entrepreneurship by stimulating investment in infrastructure, in power, in roads, ports, railways, and telecommunications. This will send a clear signal to the world that India is on the road to recovery. This in turn will bring back the momentum of growth, generate productive employment and also enable us to direct more resources to help the poor and weaker sections," Dr. Singh said.
The Prime Minister said that the government must act wherever it can without the benefit of Parliamentary guidance. "I am instructing all Ministries to accelerate their consideration of critical issues where decisions are needed to get the economy moving again," Dr. Singh said.
The Central Bureau of Investigation (CBI) early this month registered five separate cases against certain private companies, their directors and unknown public servants in connection with the allegations related to getting coal blocks allocated on the basis of misrepresentations and false claims in the applications, presentations and connivance/lack of due diligence on part of public servants. Promoters of some of these companies have allegedly sold their stakes in an irregular manner after allocation of coal blocks, CBI said in a statement issued on 4 September 2012. A preliminary enquiry to examine the irregularities, if any, in the allocation of coal blocks during the period 2006-09 was registered on a reference from CVC, in June this year.
+POWERED BY: CAPITAL MARKET NEWS
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