Markets do scintillating U-turn outshining global peers post FM’s GAAR deferment

After a week of horrendous performances, Indian benchmark equity indices finally showed some enthusiasm as market bulls vehemently fought back to protect the psychological 16,900 (Sensex) and 5,100 (Nifty) bastions. The frontline equity indices staged a remarkable recovery on the week’s first trading session as they convalesced over two percentage points from the intraday low levels of around 16,500 (Sensex)and 5,000 (Nifty).

The session’s around half a percent gains appeared even more prominent as they came on a day of relentless risk aversion across the global markets. The markets had got off to a worrisome start early morning and lost colossal ground through the first half as investors largely remained influenced by the disconcerting leads from both sides of the Atlantic, where a weak US jobs data along with the success of anti-austerity leaders in European elections multiplied concerns over global economic outlook.

Nervousness exacerbated over the European debt crisis after French and Greek voters ousted respective incumbent parties in a backlash against austerity measures aimed at battling the euro zone crisis. However, the second half brought the ray of hope for the domestic bourses which pulled through an unexpected finish after finance minister Pranab Mukherjee buckled under the pressure of foreign investors and deferred the implementation of a controversial GAAR to the next financial year starting April 1, 2013, in an effort to arrest an alarming slide in investor confidence.

Investors turned sanguine and resorted to hefty bottom fishing in fundamentally strong and undervalued stocks after Mukherjee’s comment, who opined that in order to provide greater clarity and certainty in GAAR related issues, a committee has been set up which has held several rounds of discussions with various stakeholders including foreign institutional investors and will submit its report by May 31.

Meanwhile, another dose of underpinning for markets came from the currency front, as the rupee recovered after initial losses against the US dollar because of RBI’s measures on Friday and also on the back of deferment of GAAR by the government. Hefty short covering was witnessed in the Capital Goods counter, which topped the BSE sectoral space with close to four percent gains.

The Power and Metal pockets along with rate sensitive sectors gained traction in the session after initial sharp sell-off. Apart from the Aviation shares which skyrocketed in the range of 7-13% post GAAR deferment, PSU oil marketing companies like BPCL, HPCL and IOC rallied in the range of 2-5% in the session after international crude oil prices corrected over two percent after previous week’s over six percent sell-off.

On the global front, a collection of worrying news out of Europe and the US sent stock markets across the Asian region reel under tremendous selling pressure on the week’s first trading session. On the other hand, the European markets too fell sharply after Socialist Francois Hollande won France's presidential election, but traders were more concerned about poll results in Greece which cloud Euro-zone debt-rescue action.

The NSE’s 50-share broadly followed index Nifty bounced back to settle with half a percent gains above the psychological 5,100 support level while Bombay Stock Exchange’s Sensitive Index - Sensex amassed eighty points to finish above the crucial 16,900 mark. Moreover, the broader markets too finished on a positive note with gains of around half a percent largely in tandem with their larger peers.

The markets rebounded on larger volumes of over Rs 1.70 lakh crore while the turnover for NSE F&O segment remained on the higher side as compared to that on Friday, at over Rs 1.30 lakh crore. The market breadth turned optimistic by the end as there were 1,440 shares on the gaining side against 1,270 shares on the losing side while 136 shares remained unchanged.

Finally, the BSE Sensex gained 81.63 points or 0.48% to settle at 16,912.71, while the S&P CNX Nifty rose by 27.30 points or 0.54% to close at 5,114.15.

The BSE Sensex touched a high and a low of 16,944.13 and 16,513.77 respectively. The BSE Mid cap and Small cap indices were up by 0.52% and 0.30% respectively.

The major gainers on the Sensex were BHEL up by 6.12%, L&T up by 4.79%, DLF up by 4.34%, Jindal Steel up by 3.54%, and Maruti Suzuki up by 2.46% while Reliance down by 1.53%, Hero MotoCorp down by 1.21%, Hindustan Unilever down by 1.17%, HDFC Bank down by 0.86% and Wipro down by 0.71% were the major losers on the index.

The top gainers on the BSE sectoral space was Capital Goods (CG) up by 3.87%, Power up by 1.82%, Metal up by 1.57%, Consumer Durables (CD) up by 1.45% and Auto up by 1.23% while FMCG down by 0.72%, Oil & Gas down by 0.51%, IT down 0.41%, Health Care (HC) down by 0.13% and TECk down by 0.04% were major losers on the BSE sectoral space.

Meanwhile, General Anti-Avoidance Rules (GAAR) has been deferred by a year. According to the Finance Minister Pranab Mukherjee, GAAR provisions will be applicable only from April 2013. Also levy on all precious metals, branded or unbranded has been withdrawn.

The FM, in a statement to the parliament, has stated that GAAR will be applicable only from 2013-14 and that the finance ministry was amending the GAAR provision in the Finance Bill. Mukherjee has also clarified that the burden of proving tax evasion will be with the authorities and not with overseas investors. Further, the retrospective amendments to Income-tax Act will also not override DTAAs with 82 countries.

GAAR is aimed at curbing tax avoidance by structuring a business or carrying out a transaction with the objective of avoiding the tax liability instead of rational commercial considerations. The recent clarifications may spell good news for market investors as most of them have been hoping for a one-year delay for more clarity in guidelines and implementation.

Mukherjee has also stated that there will be no excise duty on purchase of jewellery valued Rs 5 lakh against earlier threshold of Rs 2 lakh. The move is expected to help in reducing the increasing price of the metal.

The S&P CNX Nifty touched a high and low of 5,124.75 and 4,988.00 respectively.

The top gainers on the Nifty were BHEL up by 5.75%, BPCL up by 5.00%, L&T up by 4.61%, DLF up by 4.41% and Jindal Steel up by 4.29%.

On the flip side, Cairn India down by 2.39%, JP Associates down by 2.25%, HCL Tech down by 2.17%, Dr Reddy down by 1.81%, and Reliance down by 1.19% were the top losers on the index.

The European markets were trading in red, as France's CAC 40 down by 0.24%, Britain’s FTSE 100 down 1.93%, while Germany's DAX was down by 0.77%.

Sentiments continued to remain bearish in the Asian region and all the Asian counters ended the day’s trade in the negative terrain on Monday after elections results in Greece and France heightened uncertainty about Europe’s ability to solve its debt crisis. Weekend election outcomes in Greece sent tremors throughout Europe as voters punished the parties responsible for highly unpopular austerity measures instituted to prevent the country from defaulting on its massive debts and exiting the euro currency. No political party won sufficient votes to form a government, raising the possibility of new elections within months and protracted uncertainty for global markets. Moreover, on Friday, weaker-than-expected US jobs data added to global risk aversion, raising concerns that the world's largest economy may be stalling in its path of recovery.

Meanwhile, Seoul shares ended at a three-month low with a cut of over one and a half percent and Japan’s Nikkei average slid nearly 3 percent to its lowest close in three months after elections in Europe stoked worries about efforts to resolve the euro zone debt crisis and US jobs data disappointed. However, China shares closed flat on Monday, with property and financial shares weak after regional markets suffered a bout of selling on fresh worries over the euro zone debt crisis.