Indian markets to get a flat-to-cautious start; GAAR to be in limelight

The Indian markets are likely to get a cautious start and there is going to be buzz in the markets with the domestic as well as foreign investors reacting to finance minister P Chidambaram’s statement that amendments to General Anti-Avoidance Rules (GAAR), the controversial law against tax avoidance through foreign investments, have been finalized. Finance minister has said that the final amendments to GAAR would come in 7-10 days. He said that the drafting work is complete. So, GAAR is under control. I have taken the decisions, subject to Prime Minister’s approval and then Cabinet. There would also be buzz in the banking sector, as the government has asked the RBI to finalize guidelines and initiate the process of inviting applications 'without any further delay'. Also some PSU banks will rejoice as the government will decide in the next few weeks how much additional capital will be injected into the state-run banks. There will be some action in the metals and mining sector too, as the Inter-Ministerial Group (IMG) is likely to meet today to decide the fate of 14 more mines allotted to public sector firms after de-allocating eight blocks allotted to PSUs.

The US markets made some recovery on Friday, though there wasn’t any significant gain as concern about the fiscal cliff kept looming large, the unexpected fall in industrial production too pressurized the markets. The Asian markets have made a mixed start of the new week though some of the indices are trading lower. Japanese market has surged as US President expressed confidence that he and Congress would reach a budget agreement and also got support from yen weakness.

Back home, Indian benchmarks extended their southbound journey for sixth day in a row, hitting its lowest level in more than 9 weeks, with both the gauges snapping the Friday’s session with a brutal cut of over a percent as investors booked profits on the back of weak cues from European markets. Market participants also remained caution ahead of next week’s resumption of parliament weighed heavily with investors also factoring in the worsening global risk environment. The frontline equity indices traded on a sanguine note for most part of the day after Finance Minister urged RBI to start working on issuing final guidelines for granting licenses to new banks and receiving applications from the interested entities in anticipation of Banking Regulation Act (BRA) being amended. However, the domestic markets took a turn for the worse in late hours of trade as investors started to square off hefty positions across the board after rate sensitive realty, auto and bankex hammered badly in the late trade on Subbarao’s comments that India’s inflation rate is still high suggesting that the bank is unlikely to loosen monetary conditions anytime soon. Meanwhile, the traders shrugged off comments from Finance Minister P Chidambaram that the economy is likely to pick up in third and fourth quarters of the financial year. The minister also said that India can still meet the fiscal deficit target of 5.3 per cent of gross domestic product (GDP) for the current financial year. The sentiments were further weighed down by the concerns over global growth recovery amid concerns about the looming US ‘fiscal cliff’. Back home, some amount of pressure also came in from telecom space after Kapil Sibal, Telecommunications Minister reported that 2G spectrum story needs to be taken forward with government intending to hold an auction of mobile phone airwaves that were left unsold at a sale this week before March 31, 2012. Finally, the BSE Sensex lost 162.00 points or 0.88% to settle at 18,309.37, while the S&P CNX Nifty declined by 56.95 points or 1.01% to end at 5,574.05.