Bourses come off from day’s low in late afternoon session

The Indian equity benchmarks came off from day’s low in late afternoon session. Weakness gathered over the markets due to selling in IT counters. Meanwhile, the broader indices, the BSE Mid cap index and Small cap index were trading with cut of over a percent. Traders were worried ahead of inflation data updates. Investors concerned about higher interest rates in the U.S. and a possible recession. On the global front, Asian markets were trading mostly in red on growing expectations that US interest rates will go much higher and for longer than previously thought. European markets were trading higher as investors assessed the potential for further monetary policy tightening ahead of key U.S. inflation data and fresh quarterly Eurozone economic forecasts.

The BSE Sensex is currently trading at 60445.42, down by 237.28 points or 0.39% after trading in a range of 60245.05 and 60740.95. There were 11 stocks advancing against 18 stocks declining on the index, while 1 stock remained unchanged.

The broader indices were trading in red; the BSE Mid cap index declined 1.11%, while Small cap index was down by 1.04%.

The few gaining sectoral indices on the BSE were Capital Goods up by 0.61%, Industrials up by 0.22% and Metal was up by 0.04%, while IT down by 1.81%, TECK down by 1.66%, Realty down by 1.44%, PSU down by 0.78% and Power was down by 0.77% were the top losing indices on BSE.

The top gainers on the Sensex were Larsen & Toubro up by 1.97%, Titan Company up by 1.93%, NTPC up by 1.39%, Power Grid up by 0.84% and ITC up by 0.75%. On the flip side, SBI down by 2.88%, Infosys down by 2.52%, TCS down by 1.43%, Tech Mahindra down by 1.37% and Bajaj Finance down by 1.37% were the top losers.

Meanwhile, the Income Tax Department is likely to come out with modified valuation rules under the I-T Act for ascertaining the fair market value (FMV) of shares of unlisted companies for the purpose of levying tax on non-resident investments. The Finance Bill, 2023 has proposed amending Section 56(2) (viib) of the I-T Act, thereby bringing overseas investment in unlisted closely held companies, excepting DPIIT-recognized startups, under the tax net. The amendments are needed as I-T Act and FEMA provide different methodologies for calculating the FMV of shares of unlisted companies.

Rule 11UA of I-T rules will be re-prescribed taking into account the concerns expressed by stakeholders to harmonise it with the FEMA regulations. Rule 11UA deals with determination of FMV of assets, other than immovable property. Under the existing norms, only investments by domestic investors or residents in closely held companies were taxed over and above the fair market value. This was commonly referred to as angel tax. The Finance Bill, 2023, has proposed such investments over and above the FMV, will be taxed irrespective of whether the investor is a resident or non-resident. Once approved by Parliament, the provisions would come into effect from April 1.

However, no tax would be levied on investments in startups which meet the prescribed norms and are recognised by the Department for Promotion of Industry and Internal Trade (DPIIT). Post the amendments proposed in the Finance Bill, concerns have been raised over the methodology of calculation of fair market value under two different laws. FEMA regulations mandate that issue of a capital instrument by an Indian company shall not happen at any value less than FMV computed as per FEMA laws.

Under I-T law, tax would be levied on any excess price recovered over and above FMV (calculated as per the income tax laws) on issuing shares to a non-resident. Suppose FMV of a share computed under FEMA law is Rs 100, whereas under income tax it is Rs 80. Now, let's assume if the shares are issued to foreign investors at Rs 100 only. Even in such cases, the income tax department will impose tax on Rs 20 (100-80) in the hands of the recipient company. 

The CNX Nifty is currently trading at 17772.40, down by 84.10 points or 0.47% after trading in a range of 17719.75 and 17880.70. There were 19 stocks advancing against 31 stocks declining on the index.

The top gainers on Nifty were Titan Company up by 2.03%, Larsen & Toubro up by 1.90%, Bajaj Auto up by 1.81%, NTPC up by 1.42% and Eicher Motors up by 1.06%. On the flip side, Adani Enterprises down by 7.14%, Adani Ports down by 6.23%, SBI down by 2.98%, Infosys down by 2.58% and HDFC Life Insurance down by 1.68% were the top losers.

Asian markets were trading mostly in red, Nikkei 225 slipped 243.66 points or 0.89% to 27,427.32, Taiwan Weighted lost 42.37 points or 0.27% to 15,544.28, Straits Times fell 32.8 points or 0.98% to 3,327.89, Hang Seng declined 26 points or 0.12% to 21,164.42 and KOSPI was down by 17.03 points or 0.69% to 2,452.70. On the flip side, Jakarta Composite gained 19.81 points or 0.29% to 6,900.14 and Shanghai Composite was up by 23.49 points or 0.72% to 3,284.16.

European markets were trading higher, UK’s FTSE 100 increased 19.32 points or 0.25% to 7,901.77, France’s CAC rose 28.98 points or 0.41% to 7,158.71 and Germany’s DAX was up by 32.35 points or 0.21% to 15,340.33.