P-notes clarification pulls the market out of woods

Markets witnessed extreme volatility on Tuesday, a day after witnessing brutal beating of around two percent. Though, the start was a gap-up one supported by the surge in US markets overnight and the jubilant opening of the Asian peers who rejoiced a possibility of stimulus in US to ramp up the economic recovery pace, but the domestic markets could not hold up to their gains long and slipped to their lowest point of the day within an hour on concerns of the General Anti-Avoidance Rules (GAAR) provisions being enforced from next week April 1, 2012. There has been general concerns among the FII’s, as the government under the new norm could tax participatory notes (P-Notes), which are issued by foreign portfolio investors registered with Indian market regulators to overseas investors. FII’s could either sell holdings in order to avoid the potential tax or they may shift base to locations that could provide a way to avoid payments. In last two months, many FIIs transacting through Mauritius were seen unwinding positions there and taking fresh positions in Singapore. Back on street the markets got some recovery in the late morning trade supported by the gains in consumer durables and realty stocks.

The Asian peers barring the Chinese market, added good gains for the day after US Federal Reserve signaled it will keep interest rates near zero, helping drive demand for higher- yielding assets. Japan's Nikkei 225 gained around 2.5%, topping the 10200 mark for the first time since July. Chinese Shanghai Composite was marginally down weighed down by some last week’s poor economic data, indicating slowdown in the world’s number two economy.

Back home, there was a sudden spurt seen in the markets in the late noon session, taking the benchmark indices to the high points of the day on the Government’s clarification that it will not target Participatory Notes in its newly proposed rules targeting tax avoidance, further saying that GAAR provisions will be invoked if the commercial substance in the establishment in Mauritius is missing and if one of the main objective of putting that establishment in Mauritius is to save taxes. However, the enthusiasm soon got fizzled out and the marketmen opted to book profit taking the indices lower, lacking much clarity on the GAAR issue as the P-Notes will continue to be under the new norms.

In the last leg of the trade markets once again ramped up adding gains with shorts being covered at the lower levels. All the sectoral indices turned in green and consumer durables and realty maintain their lead. Fast Moving Consumer Goods (FMCG) metal and technology were the other lading gauges. The Maharashtra based real estate developers bounced back after being pummeled down in last session as the state government deferred plans to hike stamp duty for leave-and-licence agreements for residential and commercial properties. The government has now asked the revenue department to take another look at the proposal and place it before the cabinet. The major indices finally recovered over a percent. Though, the broader indices however missed the fire and closed marginally lower for the day, the volume remained on higher side of over Rs 2.43 lakh crore while the turnover for NSE F&O segment too remained on the higher side as compared to that on Monday at over Rs 2.13 lakh crore. The market breadth was on the negative side with 1707 shares declining against 1187 shares advancing, while 123 shares were remained unchanged.

Finally, the BSE Sensex climbed by 204.58 points or 1.20% to settle at 17,257.36, while the S&P CNX Nifty surged 58.90 points or 1.14% to close at 5,243.15.

The BSE Sensex touched a high and a low of 17,366.84 and 17,061.16 respectively. The BSE Mid cap and Small cap index down by 0.07% and 0.17% respectively.

The top gainers on the Sensex were DLF up 4.31%, Cipla up 3.79%, Sterlite Industries up 3.56%, HUL up 3.42% and Bharti Airtel up 3.00%, while Maruti Suzuki down 1.79%, BHEL down 1.05%, Coal India down by 0.69%, NTPC down by 0.54% and Sun Pharma down by 0.19% were the major losers on the index.

The top gainers on the BSE sectoral space were Consumer Durables (CD) up 2.07%, FMCG up 1.69%, Realty up 1.56%, TECk up 1.23% and Metal up 1.22%, while Power down 0.07% was the only loser on the BSE sectoral space.

Meanwhile, India’s steel production has increased by 6.8% to 63.894 million tonnes in the period April-January of this fiscal, as compared to the same period last year. Further, steel production during the entire 2010-11 fiscal was 66.013 million tonnes, up 8.8% over 60.624 million tonnes in 2009-10, as per the country's steel minister, Beni Prasad Verma.

India has been a net importer of steel during the last three years and the trend has continued so far in the current fiscal as well. During the April-January period of the current fiscal, India imported 5.59 million tonnes finished steel against 3.45 million tonnes over the corresponding period last year. In 2010-11, steel exports stood at 3.46 million tonnes compared to 6.79 million tonnes of imports.

The government has taken various steps to maintain steady supply position in the domestic market and also to boost steel production in the country. It has increased export duty on iron ore exports to 30% and brought import duty on raw materials such as coking coal and steel melting scrap to zero.

Steel prices in the country are deregulated and hence it is decided by the individual producers based on various market conditions such as demand-supply scenario, movement in international steel prices, cost of raw materials and other input costs.

The S&P CNX Nifty touched a high and low of 5,277.95 and 5,184.65 respectively.

The top gainers on the Nifty were DLF up 4.52%, Cipla up 3.81%, Sesa Goa up 3.65%, Sterlite Industries up 3.33% and HUL up 3.26%. On the flip side, Maruti Suzuki down by 1.87%, JP Associates down 1.34%, HCL Tech down 0.97%, Grasim down 0.90% and BHEL down 0.85% were the top losers on the index.

The European markets were trading in green, as France's CAC 40 was up 0.30%, Britain’s FTSE 100 up 0.10%, while Germany's DAX was up by 0.68%.

All the Asian equity indices barring Shanghai Composite snapped the day’s trade on higher note on Tuesday, with Japanese shares climbing to their highest level in more than a year after Federal Reserve Chairman Ben Bernanke signaled US interest rates may remain at the current ultra-low levels. Bernanke said that the central bank would likely keep stimulative policies in place despite improvements to the jobs market.

The sentiment was also boosted by speculation that Germany would be willing to agree to an increase in Europe’s bailout fund to 700 billion ($930 billion). Germany has to date resisted calls to increase the lending capacity of the fund beyond the planned 500 billion despite uncertainty over the ability of Rome and Madrid to repay their debts.

Meanwhile, Japanese Nikkei share average rose more than 2 percent to hit its highest level since the massive earthquake and tsunami on March 11 last year after Bernanke signaled that supportive policy may continue. However, Chinese benchmark -- Shanghai composite -- ended the trade lower by 0.15 percent after government data showing net income for the nation's largest industrial groups was down 5.2% from a year earlier in the first two months of 2012.