Sensex retreats ahead of F&O expiry; Nifty breaches key 5,200 level

Stock markets in India lost most of the gains they amassed in the previous session as the benchmark equity indices shrank by about a percent a day ahead of March series futures and options (F&O) expiry. The frontline indices traded with moderate cuts in a narrow range through the first half of trade but hefty selling pressure in the late hours dragged the gauges to session’s lowest levels.

There did appear some short covering in the dying moments of trade which only helped the key indices to settle off the day’s lows. In the event of downfall, the benchmarks breached the important technical 5,200 (Nifty) and 17,200 (Sensex) levels as investors chose to book profits largely across the board.

Meanwhile, government announced its borrowing calendar in which union government has planned to raise Rs 3.7 trillion through bond sales during April-September, 65% of the government's gross borrowing target of Rs 5.7 trillion for 2012/13. Despite the borrowings being largely in line with broad expectations, marketmen lacked conviction to open fresh positions amid fears of spiking bond yields which at one point in time shot up to 8.62% and is not likely to move below the 8.5-9% range in the first half of FY13.

Investors were seen squaring off hefty positions from the rate sensitive Banking and Realty counters which got plummeted by over one and half a percent each and weighed on the frontline gauges. The Consumer Durables index on the BSE sectoral space languished at the bottom of the table with a nasty over three percent laceration. On the other hand, investors continued to show buying interests for defensive bets like FMCG and Healthcare which settled on a positive note with about a quarter percent gains.

Meanwhile, a report by ICRA showed that power distribution companies suffered losses to the tune of whopping Rs 80,000 crore in current fiscal, excluding the government subsidies. The total book losses are likely to reduce to around Rs 38,000 crore, with the inclusion of subsidies.

Besides, shares of Vijay Mallya promoted UB Group companies such as United Spirits, United Breweries (UBL), United Breweries (Holdings) and Kingfisher Airlines remained in limelight in the day amid reports that Heineken may buy 12-13 percent of Chairman Vijay Mallya's stake in United Breweries (UBL).

On the global front, the Asian markets retreated in the session as the euphoria over Fed Chairman’s comments gave way to profit booking as largely in line US consumer confidence data along with home price reports failed to persuade market participants to open fresh positions. Chinese benchmark remained the top laggard in the space with over two and half a percent cut.

On the other hand, the European counterparts too traded on a sedate note as risk-averse investors awaited the release of US economic reports amid renewed concerns over the debt crisis on Europe's periphery.

Back home, the NSE’s 50-share broadly followed index Nifty, got pounded by close to a percent to settle below the psychological 5,200 support level while Bombay Stock Exchange’s Sensitive Index - Sensex suffered triple digit losses to finish above the crucial 17,100 mark. Moreover, the broader markets too settled on a pessimistic note with around a percent cuts, underperforming their larger peers.

The markets sank on extremely large volumes of over Rs 2.12 lakh crore while the turnover for NSE F&O segment too remained on the higher side as compared to that on Tuesday at over Rs 1.85 lakh crore. The market breadth remained abysmal through the session as there were only 889 shares on the gaining side against 2030 shares on the losing side while 96 shares remained unchanged.

Finally, the BSE Sensex lost 135.74 points or 0.79% to settle at 17,121.62, while the S&P CNX Nifty declined by 48.40 points or 0.92% to close at 5,194.75.

The BSE Sensex touched a high and a low of 17,245.82 and 17,040.12 respectively. The BSE Mid cap and Small cap index down by 0.87% and 1.08% respectively.

The top gainers on the Sensex were Tata Steel up 2.02%, Maruti Suzuki up 0.98%, Wipro up 0.69%, ITC up 0.53% and L&T up 0.36%, while Hindalco Industries down 2.75%, ONGC down 2.75%, Sterlite Industries down by 2.32%, SBI down by 2.28% and ICICI Bank down by 1.93% were the major losers on the index.

The top gainers on the BSE sectoral space were FMCG up 0.29% and Health Care (HC) up 0.22% while Consumer Durables (CD) down 3.32%, Bankex down 1.73%, PSU down 1.58%, Realty down 1.57% and Oil & Gas down 1.23% were the top losers on the BSE sectoral space.

Meanwhile, clarifying the government’s stand on the controversial General Anti Avoidance Rules (GAAR), the Finance Minister, Pranab Mukherjee said ‘India is not a no-tax country, India has a determined tax rate, but it is not a tax haven ... If you pay tax in your country of origin, you don't have to pay tax, if we have double taxation agreement with your country of origin.’ By adding further he said, GAAR will be examined and modified as and when required, as this is essential for anti-avoidance.

Mukherjee further clarified that the intent of legislature is that there should not be double taxation but no outflow of revenue either. Of late there have been a lot of apprehensions raised over the implementation of GAAR. There were fears that the Participatory Notes - an instrument through which FIIs unregistered with SEBI invest in stock markets, would be taxed. Other concerns were regarding the power given to tax officials to re- open cases retrospectively.

However, the government has come forward and explained that GAAR is not being implemented with a vindictive intent. Also it has not been created to target any class of financial instruments. Moreover there is no room for apprehension as cases beyond six years cannot be re-opened. Provisions of GAAR will be applicable from April 1 and not with retrospective effect.

Defending the government's proposal to amend the Income Tax Act with retrospective effect, the FM stated that double taxation avoidance agreements (DTAAs) are meant for genuine investors who are required to pay in only one of the contracting countries. However, they cannot be used as instruments to avoid taxation.

It may be noted that all benefits which a person is entitled in a DTAA (Double Taxation Avoidance Agreement) treaty can be overruled or denied if GAAR is invoked. The fear of GAAR had spooked stock markets which tanked 2% yesterday on concerns that all short-term capital gains made by FII and P-Note investments would be taxed. The Sensex, however, recovered today rising over 200 points.

In the Union Budget for 2012-13, Mukherjee had said that the government wanted to introduce GAAR in order to ‘counter aggressive tax avoidance schemes, while ensuring that it is used only in appropriate cases, by enabling a review by a GAAR panel.’

The S&P CNX Nifty touched a high and low of 5,236.55 and 5,169.60 respectively.

The top gainers on the Nifty were Tata Steel up 2.09%, Dr Reddy up 1.43%, Ranbaxy up 1.32%, Maruti Suzuki up 1.30% and Siemens up 0.95%. On the flip side, JP Associates down by 5.23%, Cairn down 4.17%, RPower down 3.79%, Kotak Bank down 3.58% and RCOM down 3.33% were the top losers on the index.

The European markets were trading in red, as France's CAC 40 down 0.06%, Britain’s FTSE 100 down 0.18%, while Germany's DAX was down by 0.05%.

Most of the Asian equity indices snapped the session in the negative territory on Wednesday after rallying the previous session on hopes for further stimulus from the Federal Reserve. Moreover, investors will be looking for clues from US durable goods orders data for February, due later in the day. Data on Tuesday showed Americans were more worried about inflation in March than at any time in the last 10 months and consumer confidence waned in the wake of higher gasoline prices.

Meanwhile, Chinese Shanghai ended down 2.65 percent, the biggest one-day percentage drop in four months, as weak corporate earnings reports increased worries over the domestic economy. China's industrial firms suffered a rare annual drop in profits in the first two months of 2012 mainly in petrochemicals, metals and auto firms, data showed on March 27, 2012. Moreover Seoul shares fell after putting in their best daily performance in two weeks on March 27, 2012, with investors taking profits in blue chip issues that have recently outperformed the market. While, Tokyo stocks fell 0.71 percent following a weak performance on Wall Street, despite a surge from electronics maker Sharp on a capital deal with Taiwan’s Hon Hai.