Benchmarks make cautious start ahead of Union Budget

Indian equity benchmarks have made a cautious start and are trading slightly in red in early deals on Monday as market participants reacted negatively to the change in immigration policy announced by the US President Donald Trump. Traders also remained on sidelines ahead of Union Budget. However, losses remained capped as some support came with the tax department assuaging investors concern ahead of implementation of GAAR from April 1. The Central Board of Direct Taxes in clarifications on GAAR, has said that the adequate procedural safeguards are in place to ensure that General Anti-Avoidance Rules (GAAR), which seeks to prevent companies from routing transactions through other countries to avoid taxes, are invoked in 'a uniform, fair and rational manner'.

On the global front, Asian markets were exhibiting mixed trend at this point of time, though most of the Asian equity benchmarks are closed on Monday for Lunar New Year holidays. The US markets made a mixed closing in last session after a lack luster trade, as investors weighed disappointing fourth-quarter data on domestic economic growth and a spate of earnings.

Back home, the market breadth indicating the overall health of the market was weak, with 978 shares gaining and 1001 shares declining, while a total of 132 shares were unchanged. Stocks related to gems and jewellery sector shines with industry's apex trade promotion body Gem Jewellery Export Promotion Council (GJEPC) stating that gems and jewellery exports are likely to witness a growth of about 10 per cent this fiscal due to increasing demand in the US and Europe. Aviation stocks too remained buzzing on a report from A NITI Aayog that air traffic grew 23% to almost 77 million during April-December period.

The BSE Sensex is currently trading at 27871.69, down by 10.77 points or 0.04% after trading in a range of 27813.32 and 27916.20. There were 13 stocks advancing against 17 stocks declining on the index.

The broader indices were trading mixed; the BSE Mid cap index gained 0.02%, while Small cap index was down by 0.09%.

The few gaining sectoral indices on the BSE were Realty up by 0.78%, Capital Goods up by 0.57% and FMCG was up by 0.56%, while Metal down by 1.02%, IT down by 0.88%, Auto down by 0.53%, Power down by 0.47% and PSU down by 0.46% were the top losing indices on BSE.

The top gainers on the Sensex were Bharti Airtel up by 4.50%, Sun Pharma up by 2.13%, Dr. Reddy’s Lab up by 0.97%, Larsen & Toubro up by 0.84% and ITC was up by 0.82%. On the flip side, Wipro down by 1.79%, Tata Steel down by 1.78%, Tata Motors down by 1.49%, TCS down by 1.19% and NTPC down by 0.90% were the top losers.

Meanwhile, in a bid to address investors’ concerns ahead of General Anti-Avoidance Rules (GAAR) implementation from April 1, 2017, the tax department has said that its provisions which will be effective from assessment year 2018-19, shall not be invoked merely on the ground that the entity is located in a tax efficient jurisdiction. It also said that the rules will not be invoked if the jurisdiction is finalized based on non-tax commercial considerations and if the main purpose of the arrangement is not to obtain tax benefit.

In clarification on implementation of GAAR, the Central Board of Direct Taxes (CBDT) said that adequate procedural safeguards are in place to ensure that GAAR, which seeks to prevent companies from routing transactions through other countries to avoid taxes, are invoked in a uniform, fair and rational manner. It can be invoked only through a two-stage process involving a nod at the level of principal commissioner of income tax and a panel headed by a high court judge. The new rules give tax authorities the right to scrutinize and tax transactions which they believe are structured solely to avoid taxes. But it will not interplay with the right of the taxpayer to select or choose method of implementing a transaction.

Also, CBDT clarified that if the jurisdiction of FPI is finalized based on non-tax commercial considerations and the main purpose of the arrangement is not to obtain tax benefit, GAAR will not apply. GAAR will not interplay with the right of the taxpayer to select or choose method of implementing a transaction. CBDT said that the provisions will not apply if the tax benefits obtained are permissible under the limitation of benefits clause provided in tax treaties. Investments made by way of convertible instruments, bonus issuances or split/consolidation of holdings prior to April 1 will be grandfathered. CBDT added that adoption of anti-abuse rules in tax treaties may not be sufficient to address all tax avoidance strategies and they are required to be tackled through domestic anti-avoidance rules. However, if a case of avoidance is sufficiently addressed by Limitation of Benefits (LoB) provisions in the tax treaty, there shall not be an occasion to invoke GAAR.

Further, it said that the proposal to apply GAAR will be vetted first by the Principal Commissioner of I-T/Commissioner of I-T and at the second stage by an Approving Panel headed by a judge of High Court. It also said that the stakeholders have been assured that adequate procedural safeguards are in place to ensure that GAAR is invoked in a uniform, fair and rational manner and added that the government is committed to providing certainty and clarity in tax rules.

The CNX Nifty is currently trading at 8636.00, down by 5.25 points or 0.06% after trading in a range of 8617.75 and 8650.15. There were 18 stocks advancing against 33 stocks declining on the index.

The top gainers on Nifty were Idea Cellular up by 7.50%, Bharti Airtel up by 4.74%, Sun Pharma up by 1.97%, Grasim Industries up by 1.50% and Larsen & Toubro was up by 0.98%. On the flip side, Wipro down by 1.62%, Hindalco down by 1.44%, NTPC down by 1.38%, Tata Steel down by 1.36% and BHEL was down by 1.25% were the top losers.

Asian markets were exhibiting mixed trend; Jakarta Composite increased 0.58 points or 0.01% to 5,313.42, however Nikkei 225 was down by 128.06 points or 0.66% to 19,339.34.