Weak trade continues on street; Auto, Capital Goods and Banks drags

Indian equity indices continued their weak trade in noon session on back of selling in frontline counters ahead of the expiry of October derivative contracts today. Trading Sentiments remained subdued with the report that the Reserve Bank may not be able to achieve its medium term target of 4% inflation, even if food prices are managed as health and education prices could play spoil sport.  Besides, disappointing earnings by some heavyweights, weak trade in other regional markets and sustained selling by FIIs too dampened the trading sentiments. Foreign institutional investors were net sellers in equities worth Rs 1,451 crore on October 26, 2016.  Meanwhile, Tata group stocks came under pressure, after Ousted Tata Group Chairman Cyrus Mistry accused directors at India's largest conglomerate of wrongfully dismissing him and warned that the tea-to-software giant may face $18 billion in write-downs because of five unprofitable businesses he inherited. Market participants will be eyeing the quarterly results whereby in all a total of 135 companies would announce September quarter results scheduled for the day.  The list includes Maruti Suzuki, ONGC, Tech Mahindra, ABB, MRF, PVR, TVS Motor, Emami and Bharat Electronic, among others.

On the global front, Asian markets were trading weak on Thursday, tracking sluggish trends in US markets overnight, with shares in Hong Kong declining the most dragged by financials. Chinese stocks declined after data released early today showed that growth in the nation’s industrial profits had slowed last month. China recorded 7.7% year-over-year growth in industrial profits in September, sharply down from the 19.5% growth the previous month. Further, Japan's benchmark index Nikkei 225 edged down as poor earnings forecasts from companies such as Nintendo and Canon disappointed the market, offsetting gains in domestic demand sensitive stocks.

Back home, barring FMCG index which gained 0.30 percent, all the other indices were in the negative, with Auto, Capital Goods and TECK indices being significant losers. In scrip specific development, Lakshmi Machine Works has declined after the company reported 31.72% fall in its net profit at Rs 37.92 crore for the quarter ended September 30, 2016 as compared to Rs 55.54 crore for the same quarter in the previous year. On the other hand, IIFL Holdings has rallied after the company reported 30.44% rise in its consolidated net profit of Rs 183.12 crore for the quarter ended September 30, 2016 as compared to Rs 140.39 crore for the same quarter in the previous year.

The market breadth remained pessimistic as there were 881 shares on the gaining side against 1439 shares on the losing side, while 176 shares remained unchanged.

The BSE Sensex is currently trading at 27712.40, down by 124.11 points or 0.45% after trading in a range of 27693.03 and 27843.62. There were 6 stocks advancing against 24 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index was down by 0.97%, while Small cap index was down by 0.55%.
The sole gaining sectoral index on the BSE was FMCG up by 0.30%, while Auto down by 1.20%, Capital Goods down by 1.05%, TECK down by 1.04%, Bankex down by 1.01% and IT down by 0.91% were the top losing indices on BSE.

The top gainers on the Sensex were ITC up by 1.97%, Dr. Reddys Lab up by 1.55%, HDFC up by 1.00%, Sun Pharma up by 0.77% and GAIL India up by 0.34%. On the flip side, Asian Paints down by 3.30%, Tata Motors down by 2.29%, Hindustan Unilever down by 2.05%, Hero MotoCorp down by 1.70% and Wipro down by 1.65% were the top losers.

Meanwhile, in order to avoid double taxation, India has notified the revised Double Tax Avoidance Agreement (DTAA) with South Korea under which capital gains tax will be levied at the source. Provisions of the new DTAA will have effect in India in respect of income derived in fiscal year beginning from April 1, 2017. The revised DTAA was signed on May 18, 2015 and was notified on September 12, 2016, on completion of procedural requirements by both the countries.

The Central Board of Direct Taxes (CBDT) said that the revised DTAA aims to avoid the burden of double taxation for taxpayers of two countries in order to promote and stimulate flow of investment, technology and services between India and Korea. It will provide tax certainty to the residents of India and Korea. The existing DTAA, which has been in vogue for three decades, provides for residence-based taxation of capital gains on shares, which means taxes were to be paid where the investor was a resident. The revised DTAA provides for source based taxation of capital gains arising from alienation of shares comprising more than 5% of share capital.

In order to promote cross border flow of investments and technology, the revised DTAA provides for reduction in withholding tax rates from 15% to 10% on royalties or fees for technical services and from 15% to 10% on interest income. The treaty also allows investors to invoke Mutual Agreement Procedure (MAP) in transfer pricing disputes as well as apply for bilateral Advance Pricing Agreements (APAs). It provides for exchange of information, including by financial institutions. Information exchanged under the revised DTAA can now be used for other law enforcement purposes with authorization of information supplying country.

CBDT further said that to facilitate movement of goods through shipping between two countries and in accordance with international principle of taxation of shipping income, the revised DTAA provides for exclusive residence-based taxation of shipping income from international traffic. The reworked DTAA inserted new Article for assistance in collection of taxes between tax authorities. It also inserted new Limitation of Benefits Article i.e. anti-abuse provisions to ensure the benefits of the agreement are availed only by the genuine residents of both the countries.

The CNX Nifty is currently trading at 8562.95, down by 52.30 points or 0.61% after trading in a range of 8557.80 and 8609.90. There were 10 stocks advancing against 41 stocks declining on the index.

The top gainers on Nifty were ITC up by 1.97%, Dr. Reddys Lab up by 1.73%, HDFC up by 1.15%, Sun Pharma up by 0.88% and Aurobindo Pharma up by 0.72%. On the flip side, Bharti Infratel down by 3.66%, Asian Paints down by 3.33%, Yes Bank down by 2.69%, Tata Motors - DVR down by 2.69% and Tata Motors down by 2.52% were the top losers.

Asian markets were trading mostly in red; Hang Seng declined 0.96%, Nikkei 225 decreased 0.37%, Taiwan Weighted shed 0.67%, Shanghai Composite slipped 0.28% and FTSE Bursa Malaysia KLCI was down by 0.36%. On the flip side, KOSPI Index increased 0.5% and Jakarta Composite was up by 0.37%.