Indian equities drop to 7-month low on capital gains tax woes

Indian equity bourses commenced the fresh week on a depressing note as the benchmark indices extended previous week’s sell-off and sank by close to a percentage points to a seven-month low, on worries that capital gains taxes would rise after Prime Minister Narendra Modi said market participants should contribute to nation-building. Though, Finance Minister Arun Jaitley later clarified that the government did not plan to impose long-term capital gains tax, it was not enough to prevent selling pressure. Finance Minister also expressed hope that demonetisation will help increase government revenue and lower fiscal deficit, leading to higher expenditure on defence and rural infrastructure. Market participants also remained cautious with the report that the GST Council could not evolve a consensus on the issue of dividing the administrative powers between the Centre and States in its two-day meeting which concluded on Friday even as it cleared all other provisions of draft model GST Bill and whole of compensation Bill. The next meeting of the GST Council will take place on January 3 and 4, 2017.  Foreign institutional investors’ pulling out also continues to weigh on equity markets. So far in December, FIIs have pulled out Rs 3,744 crore from equity markets following US Federal Reserve decision to increase interest rates by 0.25% and hinting at quicker rate hikes in 2017. The markets are likely to remain volatile this week as traders may roll over positions in the Futures & Options (F&O) segment from the near month i.e. December 2016 series to next month i.e. January 2017 series. The near month December 2016 derivatives contracts will expire on Thursday i.e. December 29, 2016.

On the global front, Asian markets ended mostly higher on Monday, with trading volumes remain subdued as several Asian markets were shut on account of the Christmas holiday. Chinese shares declined more than a percent in early trade over concerns about Beijing’s monetary policy to deflate various risky asset bubbles, but rebounded and ended higher as investors turned their attention to increased government spending on infrastructure to boost the economy. However, Japanese stocks ended lower as the yen strengthened a bit and banking stocks continued to succumb to profit taking. A strong yen threatens to reduce profits exporters earn abroad.

Back home, the local benchmarks got off to a sedate opening tracking the dismal leads prevailing in Asian markets. The selling pressure accentuated in the mid morning trades as investors took to across the board risk aversion. Thereafter, the key indices oscillated in an extremely tight range through the session as market participants remained on the sidelines lacking conviction amid the persistent worries over likely increase in long term capital gains tax. Though, the bourses recovered from the lows of the day but could not succeed in minimizing the huge losses by the end of trading session. Finally, the NSE’s 50-share broadly followed index Nifty, took a cut of about a percent to settle above the crucial 7,900 support level, while Bombay Stock Exchange’s Sensitive Index, Sensex slipped by over two hundred points and closed above the psychological 25,800 mark. Moreover, the broader markets had to bear a brutal assault as they went on to underperform their larger peers by quite a margin with BSE’s mid cap shaving off 2.17% and BSE’s small cap shelving 2.10%. All sectoral indices remained on sellers’ radar with the Realty counter languishing at the bottom of the table with over three and half percent losses. The pockets like Metal, PSU and Power too lead the way down after drifting 2.85%, 2.05% and 1.79% respectively.

The market breadth remained pessimistic as there were 577 shares on the gaining side against 2020 shares on the losing side, while 178 shares remained unchanged. Finally, the BSE Sensex declined by 233.60 points or 0.90% to 25807.10, while the CNX Nifty dropped 77.50 points or 0.97% to 7,908.25.

The BSE Sensex touched a high and a low of 26008.57 and 25753.74, respectively and there were 5 stocks on gainers side against 25 stocks on the losers side on the index. 

The broader indices made a negative closing; the BSE Mid cap index ended lower by 2.17%, while Small cap index was down by 2.10%.
The losing sectoral indices on the BSE were Realty down by 3.61%, Metal down by 2.85%, PSU down by 2.05%, Power down by 1.79% and Oil & Gas down by 1.56%, while there were no gainers on BSE sectoral front.

The top gainers on the Sensex were Hindustan Unilever up by 1.25%, Bharti Airtel up by 0.25%, ITC up by 0.11%, TCS up by 0.08% and Larsen & Toubro up by 0.05%. On the flip side, Cipla down by 4.94%, Lupin down by 2.78%, Tata Steel down by 2.64%, ONGC down by 2.07% and SBI down by 2.07% were the top losers.

Meanwhile, Industry body, Confederation of Indian Industry (CII) which had earlier said that the demonetisation move of the government will strike a blow to the illegal economy and would have a dampening impact on inflation, giving room to the Reserve Bank of India (RBI) to cut the policy rates, has said that the demonetisation move has created an enormous opportunity to channelise public savings into productive assets.

The industry body added that identification data of the borrowing entity can be procured through PAN,TIN/CIN/GSTIN (post launch of GST), Articles of Association & Memorandum of Association and financial information can be availed from sources like annual returns which are available with Ministry of Corporate Affairs (MCA) as scanned documents, Form 26 AS with Income Tax authorities, and Provident Fund data with Employees Provident Fund Organisation (EPFO). It said that while customers will gain from hurdle-less access to credit, the banks may choose to offer loans at varied interest rates depending on the strength of data of the customer.

The chamber further suggested that abundant data on SMEs and corporates through various sources can be made available to banks and other lending institutions, pointing out that banks will benefit from authentic financial and other data to accurately identify the right customers. To accomplish this, CII has recommended consolidation of SMEs and corporates financial data with banks to assess creditworthiness of borrowers.  

The CNX Nifty traded in a range of 7,970.05 and 7,893.80. There were 6 stocks in green against 45 stocks in red on the index.

The top gainers on Nifty were Hindustan Unilever up by 1.84%, Larsen & Toubro up by 0.49%, TCS up by 0.38%, ITC up by 0.31% and IndusInd Bank up by 0.19%. On the flip side, Hindalco down by 5.02%, Cipla down by 4.64%, Aurobindo Pharma down by 3.75%, Bank of Baroda down by 3.43% and Lupin down by 3.23% were the top losers.

The European stock markets remained closed on account of Christmas holiday.

Asian equity markets ended mostly in green on Monday despite thin trading volumes because of the Christmas holidays, with some major markets in the region still closed. Markets in Hong Kong, Singapore, Indonesia and Malaysia were closed. Chinese shares fell more than 1% in morning trading over concerns about Beijing’s monetary policy to deflate various risky asset bubbles, but rebounded and ended higher as investors turned their attention to increased government spending on infrastructure to boost the economy. Meanwhile, Japanese shares ended lower as the yen strengthened a bit and banking stocks continued to succumb to profit taking. A strong yen threatens to reduce profits exporters earn abroad.