Markets continue positive rally; Sensex at two months high

Indian equity markets rallied sharply outperforming Asian peers and currently trading at high point of the day on the back of better than expected initiatives taken by European Union at its summit on first day to solve credit crisis. The Sensex jumped 2% to its highest in two months on Friday. However, hopes of a way out to the euro zone crisis, government’s guidelines for implementing the controversial anti-avoidance tax proposal and the decline in petrol prices are also contributing to the market's impressive gains. In currency markets, rupee appreciated against American currency on Friday on dollar selling by banks and exporters. On sectoral front all were trading in green. On the global fronts, Asian shares were trading higher as European leaders agreed to take emergency action to bring down Italy's and Spain's spiraling borrowing costs. Back home, the market breadth favoring positive trend; there were 1,688 shares on the gaining side against 708 shares on the losing side while 106 shares remained unchanged.

The BSE Sensex, after touching a high and low of 17,380.47 and 17,134.61 respectively, is currently trading at 17,365.31, up by 374.55 points or 2.20%. All the 30 stocks on Sensex were on the advancing side.

The broader indices too amassed additional gains; the BSE Mid cap and Small cap indices spurted by 1.22% and 1.00% respectively.

All the 13 sectoral indices on BSE were on the gaining side, however, the top gaining sectoral indices were, Capital Goods (CG) up by 3.19%, Bankex up by 2.63%, Power up by 2.56%, Auto up by 2.29% and Consumer Durables (CD) up by 2.28%.

Since all the stocks were on advancing side, there were no losers, however, the top gainers on the Sensex were Maruti Suzuki up by 4.30%, ICICI Bank up by 3.79%, Tata Power up by 3.74%, L&T up by 3.72% and BHEL up by 3.53%.

Meanwhile, in its move to allay concerns over contentious taxation issues, the Finance Ministry in its draft guidelines issued on June 28, 2012, put forward a proposal to set a monetary limit for invoking the controversial General Anti-Tax Avoidance Rules (GAAR). The draft guidelines cited that those deals which are over a prescribed limit should be covered by GAAR provisions however, it remained silent on any specific monetary limit.

The recent draft guidelines also talked about invoking GAAR provisions only in cases where FIIs choose to take the benefit of double tax avoidance treaties, but would not in any case be invoked in the case of the non-resident investors of the FII. Highlighting that the provisions will apply only to the income arising to taxpayers on or after April 1, 2013, the draft guidelines also advocated the idea of setting up a three-member Approving Panel to decide whether a particular case would attract the provisions of the GAAR.

Former Finance Minister Pranab Mukherjee, who is now seen by many as the frontrunner in the race of becoming President of India, in his Union Budget 2012-13 had proposed the GAAR provisions to curtail tax evasion. The provisions had invoked sharp criticism from the foreign and domestic investors, following which the government constituted a high-level committee to look into their concerns.

According to some estimates Indian markets had lost around Rs 1 lakh crore or about $20 billion worth of investments from the overseas funds and ultra-rich foreign individuals over the three month period between March and May on new taxation proposals and the government's recent white paper on Black Money. General Anti-Avoidance Rule (GAAR) remained the buzzword over last three months in the financial circles and though not many knew about the nitty-gritties of it, most witnessed how talks surrounding its implementation from April 1, 2012 rattled foreign institutional investors (FII) which in turn triggered a free-fall off sorts in Indian stock markets.

A committee headed by Director General of Income Tax (international taxation), looked into the concerns of the investors and came out with draft guidelines to seek comments of the stakeholders. Proposing time limits for completion of various actions under the GAAR, the draft also has examples for what would be deemed as permissible and impermissible arrangement.

The S&P CNX Nifty is currently trading at 5,259.50, higher by 110.35 points or 2.14%. The index has touched a high and low of 5,264.05 and 5,189.00 respectively. There were 48 stocks advancing against only 2 declines on the index.

The top gainers of the Nifty were Maruti Suzuki up by 4.06%, Tata Power up by 3.64%, ICICI Bank up by 3.63%, BHEL up by 3.60% and L&T up by 3.55%. On the flip side, Cairn down by 5.77% and BPCL down by 0.84% remained the few losers on the index.

All the Asian equity indices were trading in the green; Shanghai Composite climbed 0.95%, Hang Seng Index jumped 2.24%, Jakarta Composite surged 1.38%, KLSE Composite advanced 0.49%, Nikkei 225 accumulated 1.50%, Straits Times Index soared 1.50%, KOSPI Composite Index garnered 1.91% and Taiwan Weighted amassed 1.77%.