Indian equities drift to fresh lows in noon trades; IT, Realty stocks plunge

Indian equity markets have extended their declining momentum on Friday afternoon trades as the benchmark indices have slipped to fresh lows. The markets are trading on a weak note since the weaker than expected industrial production numbers spooked investors’ sentiments. The index of industrial production (IIP) grew at 1.8% on year on year basis against consensus estimates of 2.8% while the IIP reading has also come in below the 5.9% growth rate in November. The benchmarks got dragged close to the psychological 5,350 (Nifty) and 17,700 (Sensex) levels. Hefty selling pressure is evident in information technology counter which plunged over a percent while investors were also seen squaring off positions from rate sensitive Realty and Banking counters. Index heavyweight Reliance Industries too exerted pressure on the key gauges by drifting over a percent lower. On the earnings front, financial major IDFC got pounded heavily after announcing third quarter results, which were below street’s expectations while ADA group stocks like R Com and R Capital are trading on a somber note ahead of announcing their third quarter earnings later in the session. On the global front, Asian markets are trading on a pessimistic note as investors remain nervous after European finance ministers demanded more steps overnight along with Greek parliament’s approval before releasing the aid. The European stock futures are indicating a negative opening for the markets there as EU has delayed approval of Greek accord.

Moreover, the broader markets, which showed some resilience in morning trades, have retreated and are trading on a flat note but outperforming their larger peers. The bourses fell on good volumes of over Rs 0.50 lakh crore while market breadth on BSE was in favor of declines in the ratio of 1342:1337 while 109 scrips remained unchanged.

The BSE Sensex is currently trading at 17,723.24 down by 107.51 points or 0.60% after trading as high as 17,890.11 and as low as 17,709.81. There were 8 stocks advancing against 22 declines on the index.

The broader indices were trading on a mixed note; the BSE Mid cap index eased 0.11% and Small cap rose 0.09%.

On the BSE sectoral space, Consumer Durables up 0.26%, Metal up 0.16%, PSU up 0.14% and Auto up 0.02% were the only gainers while IT down 1.04%, Realty down 1.03%, Bankex down 0.70%, Oil & Gas down 0.68% and TECk down 0.67% were the major losers in the space.

Tata Steel up 4.06%, Bajaj Auto up 0.83%, Bharti Airtel up 0.59%, Tata Motors up 0.51% and ONGC up 0.43% were the major gainers on the Sensex, while Maruti down 2.83%, Hindalco down 2.55%, Sterlite down 2.16%, ICICI Bank down 1.87% and Infosys down 1.59% were the only losers in the index.

Meanwhile, Mauritius is keen to find a mutually satisfactory solution with India regarding the misuse of the Double Taxation Avoidance Agreement (DTAA), which has been seen as a means to avoid taxation in India. Mauritius Prime Minister Navincha-ndra Ramgoolam and Prime Minister Manmohan Singh have reviewed the status of negotiations and have directed officials to fast-forward talks in this regard.

The Mauritius PM has stated that Mauritius has a clean image in the international world and would like to maintain it. Hence a solution to the treaty would be in its interest too. He said that India and Mauritius’ double taxation avoidance convention had seen an unfair criticism, despite the fact that the legitimacy of the treaty had been upheld time and again in legal instances. He applauded the recent Supreme Court judgment on the Vodafone case in India.

The bone of contention between the two countries has been the two-decade-old bilateral agreement, the DTAA. Foreign entities have set up paper companies in Mauritius, claiming to be Mauritian residents. These companies, masquerading as Mauritian companies, have invested in India. And, taking advantage of the DTAA according to which capital gains tax is levied by the resident country, they avoid paying any taxes in India. They pay no taxes in Mauritius too as the island nation's financial regime is endowed with the key characteristics of a quasi tax haven.

Currently, over 40% of the total foreign direct investment (FDI) in India is made through Mauritius. Also, over 40% of foreign institutional investor (FII) money is understood to be routed through the island nation, much of which is poured by third-country investors. India has been demanding a change in the treaty and wants that capital gains tax should be imposed where the source originates and since the source is India, it should be allowed to impose taxes.

According to Indian officials, the country was losing more than $600 million every year in revenue because of the tax treaty, besides incurring the risk of militant groups using it to route money into India. Many Indian companies park illicit funds in Mauritius through shell companies as the standards for registering firms in the island are lax.

Earlier, Mauritius was not ready to revise the DTAA, fearing it would affect interests of its investors and hence the negotiations have been stalled for several years. A joint working group was constituted in 2006 to negotiate DTAA with Mauritius and its last meeting was held in 2008. India and Mauritius had one round of talks in December to revise the treaty. The changes in the treaty would change the way foreign investors structured their investments in India. Further, Ramgoolam’s visit is aimed at boosting Mauritius’ trade and technological cooperation with India.

The S&P CNX Nifty is currently trading at 5,372.05, lower by 40.30 points or 0.74% after trading as high as 5,427.75 and as low as 5,369.65. There were 13 stocks advancing against 37 declines on the index.

The top gainers on the Nifty were Tata Steel up 3.88%, BPCL up 3.22%, Sesa Goa up 3.14%, SAIL up 0.96% and ONGC up 0.80%.

IDFC down 3.23%, JP Associates down 3.17%, Hindalco down 3.08%, Maruti down 2.65% and Ambuja Cement down 2.55% were the major losers on the index.

In the Asian space, Hang Seng plunged 1.02%, Jakarta Composite plummeted 1.79%, Nikkei 225 declined 0.61%. Straits Times slipped 0.59%, Seoul Composite sank 1.04% and Taiwan Weighted dropped 0.61%.

On the flipside, only Shanghai Composite rose 0.10%.