Market may extend recent surge on government's bold reforms
DATE: 17/09/2012
The market may extend recent strong gains on bold reforms announced by the government after market hours on Friday, 14 September 2012. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicates a surge of 78 points at the opening bell.
Shares of organised retailers will surge after the government after trading hours on Friday, 14 September 2012, announced that the Union Cabinet has approved the proposal of the Department of Industrial Policy & Promotion for permitting foreign direct investment (FDI) up to 51% in multi-brand retail trading (MBRT). The permission for 51% FDI in MBRT is subject to specified conditions. A statement issued by the government said that retail sales outlets can be set up in those states which have agreed or agree in future to allow FDI in MBRT under this policy. The establishment of the retail sales outlets will be in compliance of applicable state laws/ regulations, such as the Shops and Establishments Act etc. The policy provides that it would be the prerogative of the state governments to decide whether and where a multi-brand retailer, with FDI, is permitted to establish its sales outlets within the state. Therefore, implementation of the policy is not a mandatory requirement for all states, the government said in statement.
Retail sales outlets can be set up only in cities with a population of more than 10 lakh as per 2011 Census and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking; In States/ Union Territories not having cities with population of more than 10 lakh as per 2011 Census, retail sales outlets may be set up in the cities of their choice, preferably the largest city and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities. The locations of such outlets will be restricted to conforming areas, as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking
At least 50% of total FDI brought in shall be invested in `backend infrastructure` within three years of the induction of FDI, where 'back-end infrastructure' will include capital expenditure on all activities, excluding that on front-end units. For instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure.
A high-level group under the Minister of Consumer Affairs may be constituted to examine various issues concerning internal trade and make recommendations for internal trade reforms, a government statement said.
A three year timeframe has been fixed for setting up the back-end infrastructure, which includes capital expenditure on all activities, excluding that on front-end units. For instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure. This condition will bind the foreign investors to invest in critical back-end infrastructure, which is a felt need across the country. It would also make the foreign investors accountable for proper implementation of the condition, the government said in a statement.
Shares of aviation firms are likely to surge after the government after trading hours on Friday, 14 September 2012, announced that the Cabinet Committee on Economic Affairs has approved the proposal of the Department of Industrial Policy and Promotion for permitting foreign airlines to make foreign investment, up to 49% in scheduled and non-scheduled air transport services. Removing the existing restriction on investment by foreign airlines would assist in bringing in strategic investors into the civil aviation sector, the government said in a statement. Higher foreign investment inflows are necessary at the present juncture, in order to strengthen the sector, the government said. Introduction of global best practices, concomitant with the induction of FDI from foreign airlines, is expected to lead to higher service standards, international best practices and induction of state-of-the-art technologies, in the air transport sector, the government said in a statement.
The decision to allow foreign airlines to make foreign investment up to 49% in scheduled and non-scheduled air transport services is subject to certain conditions. A scheduled operator's permit can be granted only to a company that is registered and has its principal place of business within India, the government said. The Chairman and at least two-thirds of the directors of the company should be citizens of India, and the substantial ownership and effective control of the company is vested in Indian nationals.
The Reserve Bank of India (RBI) is scheduled to undertake a mid-quarter review of the monetary policy today, 17 September 2012. The RBI is expected to maintain status quo on short term lending rates in its policy review today, 17 September 2012, as per the poll of economists carried out by Capital Market. 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.
Interest rate sensitive stocks like banks, auto and realty will also remain in focus ahead of the RBI's monetary policy review today.
Financial sector companies, led by private lender HDFC Bank, have reportedly posted a healthy increase in their second quarter advance tax payout, belying sluggishness in the economy. HDFC Bank's tax payment increased to Rs 1,100 crore from Rs 800 crore last year, while its larger rival ICICI Bank saw its second quarter advance tax outgo jump to Rs 815 crore from Rs 650 crore. State-run lender Bank of Baroda's second quarter tax outgo went up to Rs 620 crore from Rs 600 crore. Among other sectors, FMCG giant Hindustan Unilever's tax outgo rose to Rs 300 crore from Rs 190 crore while for Ambuja Cement, it jumped to Rs 160 crore from Rs 95 crore in the corresponding period last year. Auto major Mahindra & Mahindra saw its advance tax payments increase to Rs 200 crore from Rs 176 crore.
The Full Planning Commission, chaired by Prime Minister Manmohan Singh on Saturday approved the 12th Five Year Plan document. The plan which extends from 2012 to 2017 has lowered the economic growth target across five years to 8.2%. Besides other things, the 12th Plan seeks to achieve 4% agriculture sector growth during the Plan period. The growth target for manufacturing sector has been pegged at 10%.
Key benchmark indices logged smart gains for eight straight session of trade on Friday, 14 September 2012 after the government signaled pushing long pending reforms on the fast track after hiking steeply diesel prices by Rs 5 per liter on Thursday. The BSE Sensex was up 443.11 points or 2.46% to 18,464.27 on that day, its highest closing since 26 July 2011.
Foreign institutional investors (FIIs) made heavy purchases of Indian stocks on Friday, 14 September 2012 as per the provisional data. FIIs bought shares worth a net Rs 2833.72 crore on Friday, 14 September 2012, as per the provisional data from the stock exchanges.
+POWERED BY: CAPITAL MARKET NEWS
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