The Hindu : Business : Monsoon, tax relief hopes aid recovery

Online edition of India's National Newspaper
Monday, Jul 19, 2004

Business

Business

Monsoon, tax relief hopes aid recovery

THE PROSPECTS of revival of the monsoon and indications that the rate of the proposed transaction tax on capital market trading may be lowered helped the stock market overcome its initial resistance and extend the winning streak to the third week in a row. The market made a strong turnaround in the concluding two sessions, driven by operators who responded to the reports of fairly good rainfall in some parts of the country.

Sentiment was well supported by positive developments including robust first quarter results announced by IT major, Infosys Technologies, and SEBI's move to settle the vexed issue of registration fee. The SEBI has announced a regularisation scheme for waiver of partial interest levied on stock brokers on the delayed payment of registration fee based on turnover.

Even though the Finance Minister assured a relook at the proposed 0.15 per cent transaction tax issue and said comprehensive tax reforms would be carried out in the next budget, jobbers, day-traders and arbitrageurs remained sidelined resulting in a sharp fall in volume in the first two sessions of the week. A section of the brokers boycotted trading on Tuesday to protest against the proposal. It was only after the meeting broker representatives had with Mr. Chidambaram that day that the agitating brokers resumed normal business from Wednesday.

After losing ground for three consecutive sessions, market indices ended in the positive territory. In the last two trading sessions, share prices rose sharply. Thursday's gains were attributed to expectations that the monsoon might revive in the coming weeks and a forecast of widespread rainfall in the Central and Western regions. Across-the-board buying was in evidence on Friday.

The BSE benchmark 30-share index, which had fallen by over 110 points in lacklustre activity during the first three days to the intra-week low of 4835.34, later recovered sharply and ended the week at 4951.17 against the previous week close of 4945.48, netting a gain of 5.69 points.

During the week, steel, textiles, oil and gas and cement stocks were in the limelight. Textile scrips witnessed good buying support following the budget concessions.

To mention specifics, steel stocks gained for the third consecutive session with a majority of them scoring impressive gains. Tata Steel, Jindal Iron, Saw Pipes, SAIL, Ispat Industries and Jindal Stainless were prominent gainers. The Government has revoked the duty entitlement pass book (DEPB) benefit for steel exporters with effect from March 2004. Steel majors will now get the DEPB benefit with retrospective effect, with adjustments in rates as per the import duty cuts on steel announced in March 2004.

Among IT stocks, Infosys announced its first quarter results, which were much above market expectation. Its results and guidance have given investors a reason to cheer. Wipro, Satyam Computer, Tata Infotech and Mastek also recorded remarkable gains. Satyam will announce its Indian GAAP and U.S. GAAP results for the first quarter on July 22.

Among public sector stocks, GAIL gained on reports that the company will set up a petrochemicals plant in Uttar Pradesh. It had signed a technology agreement with Mitsui Chemicals of Japan to set up the plant to produce one lakh tonnes of high-density polyethylene (HDPE) a year. The company is also assessing the feasibility of setting up a $1.5 billion naphtha cracker to produce 8 lakh tonnes of ethylene and 4 lakh tonnes of propylene a year in Kerala.

Among stock specific, Birla Corporation went up on reports that the foreign fund, Emerging Market Management, has acquired a 5.65 per cent stake in the company.

Foreign institutional investors reported negative activity having made net sales of Rs. 78 crores in the first four sessions of the week. Domestic mutual funds too were sellers to the tune of Rs. 57 crores.

The market is expected to continue its upward march this week with reports that Mr. Chidambaram might lower the transaction tax rate on debt deals and day-trading in equity on Monday. Analysts say that the progress of monsoon and the Government's decision on turnover tax will dictate the short-term trend in the market.

Rupee under pressure

Despite late central bank intervention to arrest the slide, the Indian currency remained under considerable pressure against the U.S. currency during the week on sustained heavy all round dollar demand amidst reduced supplies due to a slowdown in foreign fund inflows, following growing opposition to the proposed government reforms.

In volatile trade during the week, the rupee ended at 45.95/96 a dollar, a massive 30 paise decline from the previous weekend finish of 45.66/68 a dollar, following a tumble to nearly one-month low of 46.22/24 in intraday deals on Friday, forcing the Reserve Bank of India (RBI) to intervene to halt the slide.

Interest rates up

With higher inflation, the interest rates moved up further. The year-on-year inflation moved up to 6.16 per cent on July 3. The ten-year government security was traded at 5.95 per cent and the five year security at 5.58 per cent.

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