Post Session: Quick Review

The early euphoria of the market vanished in the very first hour of trade and hopes of a recovery waned following a sharp slump of last session, as the trade turned choppy and markets kept moving in and out of the red. Traders discounted the relief generated by the government accepting the recommendations of A P Shah-led panel that minimum alternate tax (MAT) will not be applicable to foreign institutional investors (FIIs), a move which was expected to boost investor confidence and help sentiment in the financial markets to improve after the local markets get embroiled in the global rout. FIIs have pulled out more than Rs. 17,555 crore ($2.65 billion) from India during August, the biggest monthly withdrawal since October 2008.

The global cues once again remained weak and after the slump in the US markets the Asian markets too showed a choppy trend and though some indices managed a modestly positive close others just extended their fall on renewed concern that global economic growth is slowing, after Australia’s economy grew at half the pace forecasted, adding to evidence that the slowdown in China is spreading to its trading partners. The European markets though made a slightly higher start, snapping a two-day selloff that was caused due to data signaling manufacturing in the euro area shrank more than initially forecast, but they too gave up their early gains.

Back home, markets took the turn for worst in the final hours and slipped to their day’s low, with Nifty touching its lowest level since August 25 barely managing to save the 7700 bastion. Investors remained in panic mode and resorted to selling amid fear of further decline. There was some recovery during the mid day trade and private sector drilling companies surged, after  the Cabinet approved auction of 69 small and marginal oil fields of state-owned ONGC and Oil India to private and foreign firms as a precursor to a full fledged licensing round. The CCEA approved auctioning of the fields that state-owned firms are surrendering because they were uneconomical to develop due to government's subsidy sharing mechanism. The fields will be bid out on the basis of revenue share or the share of oil and gas a bidder offers to the government upfront, and work programme. However, the gains were short lived and the markets once again resumed the southward journey, led by sharp selling in the banking stocks, as Fitch Ratings said that RBI declaring only ICICI Bank and SBI as Domestic Systemically Important Banks (DSIBs) reflects in part some of the broader capital challenges in India. Fitch also said the government's capital support remains crucial for state-owned banks considering the shallow domestic additional tier I market and weak internal capital generation capability.  Back on street, apart from the IT and tech sector realty too moved higher for the day, encouraged by the news that DLF’s subsidiary DLF Home Developers entered into a joint venture with Singapore's sovereign wealth fund GIC to invest in two upcoming projects of the company in central Delhi.

The BSE Sensex ended at 25483.85, down by 212.59 points or 0.83% after trading in a range of 25395.09 and 25939.37. There were 7 stocks advancing against 23 stocks declining on the index. (Provisional)

The broader indices made a mixed closing; the BSE Mid cap index was down by 0.86%, while Small cap index ended higher by 0.23%. (Provisional)

The gaining sectoral indices on the BSE were IT up by 1.53%, TECK up by 1.24%, Realty up by 0.69%, FMCG up by 0.24%, while Power down by 2.34%, PSU down by 2.28%, Bankex down by 1.79%, Capital Goods down by 1.57%, Auto down by 1.56% were the top losing indices on BSE. (Provisional)

The top gainers on the Sensex were TCS up by 2.45%, Tata Steel up by 2.15%, ITC up by 1.54%, Reliance Industries up by 1.41% and Infosys up by 1.21%. On the flip side, BHEL down by 4.71%, SBI down by 3.70%, ONGC down by 3.36%, Mahindra & Mahindra down by 3.15% and NTPC down by 3.12% were the top losers. (Provisional)

Meanwhile, amid the market slump and exodus of the foreign funds from the country, the government giving much needed relief has accepted the recommendations of A P Shah-led panel that minimum alternate tax (MAT) is not applicable to foreign institutional investors (FIIs), a move which is expected to boost investor confidence and help sentiment in the financial markets after FIIs pulled out more than Rs 17,555 crore ($2.65 billion) from India during August.

Finance Minister Arun Jaitley said that the government has decided to waive the controversial minimum alternate tax (MAT) on capital gains made by Foreign Institutional Investors, (FIIs) prior to April 1, 2015. He added that “The Justice A.P. Shah Committee has said that there is no legal basis for levying 20 per cent MAT on past capital gains …. it is not leviable.” The Income Tax department has slapped notices on 68 FIIs demanding MAT dues of Rs 602.83 crore for previous years to April 1, 2015.

The Justice Shah panel which was appointed by the government to go into the question of levy of MAT on capital gains made by FIIs, in its report has said that castleton ruling was completely wrong and that the domestic legislation failed to specify any method for taxing book profits of FIIs/FPIs. It further added that taxing foreign income in the company's book profits would be contrary to the principle of territorial nexus. The report, however, left out from its scope MAT on foreign companies having private equity (PE) in India.

Government has stated that the AP Shah committee has recommended that section 115JB of the Income-tax Act may be amended to clarify the inapplicability of MAT provisions to FIIs/FPIs. Alternatively, the committee has suggested that a circular may be issued clarifying the inapplicability of MAT provisions to FIIs/FPIs.

The CNX Nifty ended at 7727.65, down by 58.20 points or 0.75% after trading in a range of 7699.25 and 7862.55. There were 14 stocks on gainers side against 36 stocks on decliners’ side on the index. (Provisional)

The top gainers on Nifty were Tech Mahindra up by 5.19%, Idea Cellular up by 3.21%, TCS up by 2.47%, Ultratech Cement up by 2.15% and Tata Steel up by 1.99%. On the flip side, BHEL down by 4.94%, ONGC down by 3.76%, SBI down by 3.64%, PNB down by 3.34% and Cairn India down by 3.26% were the top losers. (Provisional)

European markets after giving up early gains were trading mostly in red, UK’s FTSE 100 increased 1.25 points to 6,058.79, while Germany’s DAX declined by 6.24 points or 0.06% to 10,009.33 and France’s CAC was down by 3.06 points or 0.07% to 4,538.10.

The Asian markets closed mostly in red on Wednesday with Chinese markets recovering some ground. Chinese markets will be closed on Thursday and Friday for a holiday to commemorate the end of World War Two. The yuan’s recent depreciation moves it closer towards its real market value, the head of the Asian Development Bank stated, dismissing fears that China may export deflation to its Asian neighbors by flooding goods made cheaper by a weak currency. ADB President Takehiko Nakao added that while China’s economy may no longer expand at a 10-percent pace seen in the past, it will continue to grow steadily as it shifts to a consumption-driven economy with a deeper service sector. Japanese Economics Minister Akira Amari stated that it is too early to say that Japan has completely escaped the risk of returning to deflation. The consumer price index was not the only way to judge whether the economy was out of deflation. Amari added that it was important for the economy to grow both in nominal and real terms and for the gross domestic product deflator to be positive. Japan’s Monetary Base rose to 33.3% compared to 32.8% in the preceding month. Indonesia’s president Joko Widodo promised quick massive deregulation to improve investor sentiment in Southeast Asia’s largest economy. Widodo added that there were 110 regulations already identified as being negative for investors.