Volatility was the order of the day as the market swung between gains and losses during the last one hour of trade after the government tabled the much-awaited Direct Taxes Code bill (DTC) in the Lok Sabha which proposed to raise the exemption limit on income tax from the current Rs 1.6 lakh to Rs 2 lakh. The key benchmark indices provisionally registered small gains. IT and FMCG stocks fell. But, metal and realty stocks rose. Capital goods reversed initial gains. Index heavyweight Reliance Industries (RIL) turned negative from positive. The BSE 30-share Sensex was provisionally up 31.66 points or 0.18%, off close to 190 points from the day's high and up close to 70 points from the day's low.
The Sensex provisionally closed above the psychological 18,000 mark, after alternatively moving above and below that level in intraday trade. The market breadth was negative, in contrast with a strong breadth earlier in the day.
Intraday volatility was high. The market surged in early trade, tracking gains in Asian stocks. The market came off the day's high in morning trade as index heavyweight Reliance Industries (RIL) pared gains. The Sensex hit a fresh intraday low in morning trade. The market regained strength in mid-morning trade. The market held positive zone in early afternoon trade. The market came off the lower level in afternoon trade. The Sensex regained positive zone after turning negative for a brief period in mid-afternoon trade. Immense volatility was witnessed in the last one hour of trade as the Sensex alternatively swung between gains and losses.
NSE's volatility index, India VIX, a gauge of traders' perception of near-term risks in the market based on options prices, was down 6.46% at 18.36. The index had jumped 14.86% to 19.63 on Friday, 27 August 2010. The index had lost 9.67% at 17.09, on Thursday, 26 August 2010, a day after it had risen 11.36% to 18.92 on Wednesday, 25 August 2010. India VIX is calculated based on the S&P CNX Nifty options prices. India VIX is a measure of the market's expectation of volatility over the next 30 calendar days.
Finance Minister Pranab Mukherjee today, 30 August 2010, tabled the Direct Tax Code (DTC) Bill in parliament. The DTC will be effective from 1 April 2012, reports suggest. The taxation for short-term capital gains will be in three slabs -- 5%, 10% and 15%, as per reports. Besides, the new DTC Bill will have dividend distribution tax of 5% for both equity mutual funds (MFs) and unit linked insurance policies (ULIPs).
The special economic zone (SEZs) will be allowed profit linked tax deduction under DTC. Also SEZs notified as on 31 March 2012 will get tax break and that started by March 2014 will also get tax subsidy, reports suggest.
The DTC bill seeks to widen income tax slabs to levy 10% tax on income between Rs 2 lakh to 5 lakh, 20% on between Rs 5-10 lakh and 30% above Rs 10 lakh. For senior citizens, tax exemption is sought to be raised to Rs 2.5 lakh from Rs 2.40 lakh. Currently, income between Rs 1.6-5 lakh attracts 10%; between Rs 5-8 lakh, 20% and beyond Rs 8 lakh, 30%.
The bill seeks to fix corporate tax at the current 30% but without surcharge and cess. With surcharge and cess, the current tax liability on corporates comes to over 33%. The legislation also proposes to increase the minimum alternate tax (MAT) from 18% to 20% of book profit of a company. It seeks to levy dividend distribution tax at 15%.
On the macro front, the government will unveil data on GDP growth for Q1 June 2010 on Tuesday, 31 August 2010. The economy expanded an annual 8.6% in Q4 March 2010.
European shares came off initial highs on Monday, 30 August 2010. France's CAC 40 fell 0.2%, reversing initial gains. Germany's DAX rose 0.19%. UK markets were closed for the summer bank holiday.
Japanese shares pared their early gains on Monday, 30 August 2010, as the yen strengthened from morning levels after the Bank of Japan's (BoJ) emergency policy meeting resulted in additional easing steps that fell well within market expectations. The Nikkei 225 stock average ended 1.76% higher, after closing the morning session with a 3.1% gain, amid doubts on whether the steps that emerged from the emergency BoJ meeting would have a sustainable affect on yen strength.
As many expected, the BoJ said it would expand its current 20 trillion yen ($233 billion) quantitative-easing program to a six-month program from its current three-month time frame. The BoJ held its key overnight call rate steady at 0.1%.
In other Asian stocks, the key benchmark indices, China, Hong Kong, Singapore, South Korea and Taiwan were up by between 0.24% to 1.77%. However, Indonesia's Jakarta Composite fell 0.17%.
US index futures were off initial highs. Trading in US index futures indicated that the Dow could gain 9 points at the opening bell on Monday, 30 August 2010.
US stocks rebounded to post their best gains in nearly four weeks on Friday, 27 August 2010, overcoming initial skittishness brought on by a revenue warning from Intel and dour comments from Federal Reserve Chairman Ben Bernanke. The Dow Jones Industrial Average gained 164.84 points, or 1.65% to 10,150.65. The Standard & Poor's 500 Index jumped 17.37 points, or 1.66% to 1,064.59. The Nasdaq Composite Index climbed 34.94 points, or 1.65% to 2,153.63.
The stock market started on a positive note after US economic growth was revised down in the second quarter, but still the reading was better than expected. Strong buying interest at a key technical level and short-covering sparked the market's comeback, and the tone improved as investors took a more positive view of Bernanke's comments about the economy and the Fed's readiness to act.
Bernanke told central bankers at a conference in Jackson Hole, Wyoming the recovery has weakened more than expected but the US central bank was ready to take further steps if needed to spur the recovery. The Fed chairman downplayed concerns that the economy might slip back into recession, reassuring investors spooked by his recent comments the US economy faced unusual uncertainty.
Closer home, the infrastructure output grew 3.9% in July, marginally higher than annual growth of 3.6% in June, as crude oil and refinery output grew in double-digits, government data showed on Friday. In July, the electricity sector grew 3.8%, the same as the year-ago period, but cement contracted by 0.2% from 13.8% growth and finished steel shrank by 0.9% from 4% growth a year ago. Growth in coal slowed to 4.5% in July compared with 10.5% a year ago. Cement and finished steel output contracted because of heavy rains in mining areas and a slowdown in construction during the monsoon. The infrastructure sector accounts for 26.7% of industrial output. The industrial output rose 7.1% in June from a year earlier, its slowest pace in 13 months.
The food inflation declined further in the middle of this month even as prices of fuels remained steady, the latest data showed. Inflation in the Food Articles group stood at 10.05% for the week ended 14 August 2010, versus 10.35% in the previous week, the Commerce & Industry Ministry said. Inflation in the Primary Articles group stood at 14.75% in the week under review as against 14.85% in the week ended 7 August 2010. Inflation in the Fuel & Power group was unchanged at 12.57%. But, inflation in the Non-food Articles group rose to 22.20% from 21.70% in the preceding week.
The economic growth is getting more broad-based and inflationary pressures are easing and the central bank will calibrate policy action to the evolving growth-inflation dynamics, the Reserve Bank of India (RBI) governor D Subbarao said on Friday, 27 August 2010. Going forward, the Reserve Bank will calibrate policy action to the evolving growth-inflation dynamics, Subbarao said in a speech at a conference in Bangalore. Given the uncertainty in the world and the lags in monetary transmission, it is not possible to offer more precise guidance, he added.
The RBI is expected to raise key rates by 25 basis points at its 16 September 2010 policy review, after raising its lending rate by 100 basis points since March 2010.
The yield on the benchmark 10-year 2020 bond was hovering at 8%, higher compared with Friday's (27 August 2010) close of 7.97%. The yield on the second most traded, 8.13% 2022 bond was almost unchanged at Friday's (27 August 2010) close of 7.98%
The good news is that the kharif sowing has been remarkably good this year. As per reports, nearly 95 million hectares, constituting over 90% of the normal kharif area, has been brought under crop cover by 26 August 2010. This is nearly eight million hectares more than last year's coverage. Almost all crops have gained in area, compared to last year, with paddy, coarse cereals and pulses accounting for two million hectares of additional acreage, each, reports suggest. The crop condition is generally satisfactory, as per reports. Diseases and pests have remained largely below the threshold mark in most places.
Surge in rainfall in late August 2010 has resulted in rapid rise in total water stock of 81 major reservoirs. It stood at 82.793 billion cubic metres on 26 August 2010, which is 31% above the last year's corresponding level and just two per cent below the long-period average. However, there is still some worry about water storage in 36 dams which have hydel power units attached to them. The water level in 23 of these is still below normal.
The India Meteorological Department (IMD), in its monsoon forecast update issued on 27 August 2010, has predicted 15% above-normal rainfall in September 2010.
The south west monsoon is important for India as about 60% of the country's farmlands are rain-fed and more than half of the workforce is employed in the agriculture sector. The weather office expects this year's monsoon rains to be at 102% of the long-period average. If the southwest monsoon for the June-September monsoon season turns out good and if it is well distributed, it will help raise farm output, boost rural incomes and lower food inflation.
As per provisional figures, the BSE 30-share Sensex was up 31.66 points or 0.18% to 18,030.07. The Sensex rose 218.09 points at the day's high of 18,216.50 in early trade. The index fell 38.18 points at the day's low of 17960.23 in late trade.
The S&P CNX Nifty was up 8.55 points or 0.16% to 5,417.25 as per provisional figures.
The BSE Mid-Cap index rose 0.18%. The BSE Small-Cap index rose 0.08%.
The market breadth, indicating the health of the market, was negative, in contrast with a strong breadth earlier in the day. On BSE, 1612 shares declined while 1342 shares advanced. A total of 101 shares remained unchanged.
From the 30-share Sensex pack, 19 stocks advanced while the rest of them declined.
BSE clocked turnover of Rs 4415 crore, lower than Rs 5302.60 crore on Friday, 27 August 2010.
Index heavyweight Reliance Industries (RIL) fell 0.29% to Rs 947, with the stock falling for the sixth straight day. The stock came off the day's high of Rs 962. The government's proposal to raise the minimum alternate tax (MAT) on book profits to 20% from current 18% will affect the profitability of the company. RIL pays MAT.
Mukesh Ambani, chairman and promoter of Reliance Industries (RIL), recently restructured his shareholding in the company by transferring his 34% stake to a set of investment firms, which include a large number of limited liability partnerships (LLPs). The company or its promoters did not disclose the reason behind the rejig in shareholding of the promoter group. Reports suggested the move is aimed at streamlining the holding of various promoter groups in a tax-friendly manner.
Meanwhile, Reliance Industries is reportedly close to inking a deal with global hedge fund DE Shaw to launch a $700-$800 million infrastructure fund.
Realty stocks rose in volatile trade. Omaxe, HDIL, Anant Raj Industries, Unitech, Parsvnath Developers, Indiabulls Real Estate, DLF rose by between 0.15% to 1.88%.
Banking stocks fell on profit taking. India's largest bank by net profit and branch network State Bank of India fell 0.45%. The government may reportedly cut the size of a rights issue sought by the nation's biggest lender to raise Rs 20,000 crore ($4.26 billion).
Punjab National Bank, Bank of India and Bank of Baroda fell by between 0.38% to 0.79%.
India's second largest private sector bank by net profit HDFC Bank fell 0.17%, with the stock falling for the fourth straight day. But, India's largest private sector bank by net profit ICICI Bank rose 1.03%.
Capital goods stocks reversed initial gains. Bharat Heavy Electricals, Thermax, SKF India, Larsen & Toubro fell by between 0.25% to 0.95%.
Metal stocks rose as LMEX a gauge of six metals traded on the London Metal Exchange, rose 2.13% on Friday, 27 August 2010. Sterlite Industries, Hindalco Industries, Steel Authority of India, Sesa Goa, Jindal Saw, JSW Steel rose by between 0.22% to 2.72%.
Jindal Steel & Power rose 1.31%. The environment ministry has reportedly approved Jindal Power's Rs 13000 crore power project in Chhattisgarh. Jindal Power is a unit of Jindal Steel & Power.
India's largest steel maker by sales Tata Steel rose 3.44%, after Sahaviriya Steel Industries Public Co. (SSI), Thailand's largest steel producer, said it plans to buy Tata Steel's Cast Products unit in the UK for about $500 million as it seeks to turn around the unprofitable business. The stock was the top gainer from the Sensex pack. Tata Steel's UK unit Corus signed a memorandum of understanding with SSI and aims to complete the terms of a transaction as soon as possible, Corus said in a statement. The proposed sale includes coke ovens, power generation facilities and the Redcar Blast Furnace.
Shares of software exporters extended recent losses as the government's proposal to raise the minimum alternate tax (MAT) on book profits to 20% from current 18% will affect the profitability of most IT firms which pay MAT. India's second largest software services exporter by sales Infosys was down 0.92%, with stock falling for the third straight day. India's largest software services exporter by sales TCS fell 1.06%, with the stock falling for the second straight day. But, India's third largest software services exporter Wipro rose 0.49%, with the stock snapping a four-day slide.
Pioneer Distilleries fell 4.91% after the company reported net loss of Rs 12.13 crore for Q1 June 2010 compared with a net profit of Rs 2.01 crore for Q1 June 2009.