Sensex, Nifty erases early gains but fairly well placed in positive territory

Benchmarks pared some early gains but currently fairly well placed in positive territory on the back of resumption of buying at several front lines. Even the Indian rupee recovered from two-month lows today, rising by 33 paise against a dollar. The BSE benchmark rose 94 points and the NSE benchmark was up by 38 points. On the sectoral front Realty, consumer durables, FMCG, information technology, healthcare and metal stocks were trading firm. Bank stocks were off their early highs. PSU and capital goods stocks too have shed most of their gains. Automobile and oil stocks retreated after a bright start and were currently trading mixed. Power stocks too have shed all of their gains. On the global front, Asian markets continued to trade higher after Federal Reserve chairman Ben Bernanke’s comments and positive European economic data. Back home, the market breadth favoring the negative trend; there were 1,085 shares on the gaining side against 1,351 shares on the losing side while 137 shares remained unchanged.

The BSE Sensex is currently trading at 17,147.27, up by 94.49 points or 0.55%. The index has touched a high and a low of 17,230.34 and 17,061.16 respectively. There were 17 stocks advancing against 12 declining ones and one remained unchanged on the index.

The broader indices were trading mixed; the BSE Mid cap index was down by 0.01% and Small cap indices was up by 0.07%.

The top gaining sectoral indices on the BSE were, CD up by 1.88%, Realty up by 1.44%, FMCG up by 1.18%, TECk up by 0.94% and HC up by 0.81%. While, Power down by 0.42% remained the only loser on the index.

The top gainers on the Sensex were Cipla up by 2.82%, HUL up by 2.78%, Sterlite Industries up by 2.68%, DLF up by 2.04% and HDFC up by 2.04%.

On the flip side, Tata Power down by 2.19%, BHEL down by 2.07%, Maruti Suzuki down by 2.04%, Wipro down by 1.19% and Jindal Steel was down by 0.84% were the top losers on the Sensex.

Meanwhile, Mauritius, the tax haven for the foreign institutional investors may soon seize to be so. The government is moving forward with the general-anti-avoidance rules or GAAR that it introduced in the Budget 2012. It is a significant attempt made by the government to plug all loopholes and generate revenue.

Foreign institutional investors have invested over $ 100bn in Indian equities till date. As much as 40% of that investment has come into India through Mauritius. This means, FIIs set up an investment holding company in Mauritius and invest through a company registered in that country. This is because India's treaty with Mauritius exempts them from short-term capital gains on listed and unlisted stocks.

But now GAAR can override the treaty. It will help the tax authority deal with commercial transactions that are structured essentially to circumvent tax laws and avoid paying taxes. If the revenue authority concludes that a transaction by any entity is aimed primarily at avoiding taxes, it will be able to deny tax benefits claimed by the entity. If the investor feels that this is not the case then the onus shall lie on him to prove the same.

The proposed Sec.97(1)(c) says: “An arrangement will be deemed to lack commercial substance if it involves the location of an asset or of a transaction or of the place of residence of any party which would not have been so located for any substantial commercial purpose other than obtaining tax benefit for a party.” The Vodafone deal would not have passed this test.

The Central Board of Direct Taxes (CBDT), India’s apex body for administration of taxes, has formed a six-member committee to draft guidelines for enforcing the same. The panel, headed by CBDT chairman Laxman Das, is expected to submit the draft norms to the finance ministry within two months. The proposed guidelines will be put up for public feedback before they are finalized by the committee.

GAAR, even though unpleasant for investors, could help the government raise revenues. It is unlikely to deter an honest investor who is looking at genuine profits rather than mere tax evasion. However, there quarters in the industry who feel that it could substantially reduce investments in India and force investors to look at other destinations.  

The S&P CNX Nifty is currently trading at 5,216.05, higher by 31.80 points or 0.61%. The index has touched a high and a low of 5,246.05 and 5,184.65 respectively. There were 37 stocks advancing against 13 declining ones on the index.

The top gainers of the Nifty were Cipla up by 3.17%, Sterlite Industries up by 2.87%, HUL up by 2.53%, Sesa Goa up by 2.17% and DLF up by 2.14%.

On the flip side, BHEL down by 2.05%, Maruti Suzuki down by 2.00%, Wipro down by 1.50%, Tata Power down by 0.99% and ICICI Bank down by 0.84% were the major losers on the index.

All the Asian equity indices were trading in the green except Shanghai Composite down 0.03% while Hang Seng surged 1.60%, Jakarta Composite added 0.60%, KLSE Composite rose 0.32%, Nikkei 225 spiked up by 2.36%, Straits Times accumulated 1.06%, Seoul Composite was up by 1.02% and Taiwan Weighted registered gains of 0.78%.