Benchmarks continue weak trade in late morning session

Indian equity benchmarks continued their weak trade in the late morning session with traders remained on sidelines ahead of Union Budget. The rupee opened down against dollar on Monday on account of buying of American currency by banks and importers amid weak global cues. The sentiments remained on cautious note tracking cues from global markets as investors got spooked from Donald Trump’s protectionist stance. Trump on Friday signed an executive order that suspends the arrival of refugees for at least 120 days and bars visas for travelers from seven Muslim majority countries including Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen for the next three months. India’s software lobby group, Nasscom, has asked IT majors in America such as Apple, Google, Microsoft and IBM to lobby with Trump, to explain that more jobs would be generated by US companies if they outsource to India. The potential visa curbs come a time when the traditional IT services sector is under pressure from automation and the shift in spending on newer areas such as digital and cloud. 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.

Traders were seen piling position in Realty, Capital Goods and FMCG stocks, while selling was witnessed in IT, Auto and Consumer Durables sector stocks. Telecom companies Bharti Airtel, Idea Cellular and Reliance Communications were trading firm on reports that the number 2 telecom player Vodafone India is in merger talks with Idea Cellular. In scrip specific development, Just Dial was trading firm on reporting a 5.90 percent rise in net profit at Rs 27.44 crore for the third quarter ended December 31, 2016. The company had reported a net profit of Rs 25.91 crore in the corresponding quarter a year ago.

On the global front, Asian shares were trading mixed, as investors cast a wary eye over steps by President Donald Trump to bar travelers from seven Muslim-majority countries. Japan’s Nikkei 225 fell after data showed that December retail sales rose 0.6% from the previous year, well below the 1.3% increase expected. Back home, the NSE Nifty and BSE Sensex were trading below the psychological 8,650 and 27,900 levels respectively. The market breadth on BSE was negative in the ratio of 1084:1146, while 168 scrips remained unchanged.

The BSE Sensex is currently trading at 27859.52, down by 22.94 points or 0.08% after trading in a range of 27813.32 and 27916.20. There were 12 stocks advancing against 18 stocks declining on the index.

The broader indices were trading mixed; the BSE Mid cap index was up by 0.13%, while Small cap index was down by 0.08%.

The top gaining sectoral indices on the BSE were Realty up by 1.00%, Capital Goods up by 0.38% and FMCG up by 0.22%, while IT down by 0.86%, Auto down by 0.65%, Consumer Durables down by 0.60%, Oil & Gas down by 0.40% and Bankex down by 0.32% were the losing indices on BSE.

The top gainers on the Sensex were Bharti Airtel up by 4.44%, Sun Pharma up by 1.74%, Dr. Reddy’s Lab up by 1.28%, Power Grid up by 0.71% and Lupin up by 0.70%.

On the flip side, Wipro down by 1.39%, Tata Motors down by 1.30%, Hero MotoCorp down by 1.26%, Tata Steel down by 1.18% and TCS down by 1.00% 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 8627.50, down by 13.75 points or 0.16% after trading in a range of 8617.75 and 8650.15. There were 16 stocks advancing against 35 stocks declining on the index.

The top gainers on Nifty were Idea Cellular up by 7.05%, Bharti Airtel up by 4.49%, Grasim Industries up by 2.19%, Sun Pharma up by 1.60% and Dr. Reddy’s Lab up by 1.39%.

On the flip side, Aurobindo Pharma down by 2.14%, Tata Motors - DVR down by 1.77%, Bharti Infratel down by 1.27%, Hero MotoCorp down by 1.24% and Wipro down by 1.19% were the top losers.

The Asian markets were trading mixed; Nikkei 225 decreased 108.27 points or 0.56% to 19,359.13, while Jakarta Composite increased 3.98 points or 0.07% to 5,316.82.

Markets in China, Singapore, South Korea, Taiwan, Malaysia and Hong Kong were shut on Monday for the Lunar New Year holiday.