FIIs not pleased with tax residency certificate requirement.
R. Chandrasekaran
CHENNAI: The Indian stock markets closed in the red for the week ended March 1, indicating the worst weekly closing in the current calendar year and for more than 3-month period as the budget proposals failed to meet the market expectations.
The expiry of futures and options contract also came in simultaneously to add to volatility with the sentiments drawing towards a downside bias. In the process, the Bombay Stock Exchange’s 30-stock barometer and the National Stock Exchange’s 50-share CNX Nifty closed below the psychological levels of 19,000 and 5800 levels, respectively.
The stock markets closed below the psychological mark after November 27. The earlier weekly close below the 19,000 and 5800 levels was during the week ended November 23.
The markets failed to get any domestic and global cues to drive them higher. More than the global cues, it was the domestic set backs that was responsible for the downbeat sentiments casting its shadow on the equity markets. While the railways minister raised the freight rates, the finance minister’s general budget failed to meet the market expectations. The December quarter GDP of 4.5 percent, which is a decade low, also hurt the sentiments badly. There were also doubts about the credibleness on the financial targets set by the government in its budget proposals.
Additionally, the budget proposals talked about introducing a section that basically talks about the tax treaties much to the embarrassment of the foreign institutional investors, who were not happy with the proposed requirement of tax residency certificate for claiming tax benefits. Though the finance ministry clarified the issue, it failed to satisfy the FIIs going by their outflow on Friday.
Among the major news to hit the Indian stock markets during the week included, many major budget announcement of 2012 were not implemented; pension and insurance bills yet to see progress; Tata Motors may launch mini-SUV to take on rivals; Chennai-based Shriram group to focus on low-cost banking; Tatas invest in Zurich-based solar technology developer Flisom; industrialist and JK Group’s Hari Shankar Singhania dies at 79; second round of Spectrum sales failed to evince interest among the telecom service providers; Supreme Court rejects Sahara’s appeal against refund and asked it to deposit Rs.190 billion; beleaguered Kingfisher Airlines loses international flight rights and domestic airport slots; employees provident fund cannot park funds in equity market; railway minister raises freight charges; hike in railway freight rates may hurt its traffic forcing corporate to opt for trucks; railway budget offer scope for private public participation in new projects; Etihad and Jet move closer to strike a deal; Vodafone India CEO sees Indian market is not yet ready for 4G; Cognizant to cut bonuses this year; Goldman Sachs India says budget offers negative effect for equities, bonds, and the Rupee; finance minister taxes super rich with 10 percent surcharge; budget focuses on fiscal consolidation through a smaller increase in plan expenditure; budget confuses FIIs; S&P says budget will not impact India’s sovereign credit rating; the Reserve Bank of India says budget lays foundation for lowering fiscal as well as current account deficits besides supporting domestic and foreign investments; and the third quarter GDP growth slows to 4.5 percent.
Of the five trading sessions, the markets tanked heavily on Tuesday and Thursday on European concern and budget disappointments. The gains seen on Monday and Friday were also marginal though the markets advanced slightly better on Wednesday. On Monday, the BSE’s Sensex rose 0.08 percent only to be dragged down by 1.64 percent on European concern on Tuesday, but staged a recovery of 0.72 percent on Wednesday following the U.S. Federal Reserve’s comments. However, the derivatives contract expiry and the disappointing budget pulled the benchmark index down again by 1.52 percent. Though the Sensex managed to post a gain of 0.3 percent on Friday, it was not enough to offset the losses suffered on Tuesday and Thursday.
In the end, the BSE’s benchmark index shed 398.49 points or 2.06 percent to close the week at 18,918.52, while the NSE’s Nifty dropped 130.6 points or 2.23 percent to end the week at 5719.7. Of the 30-shares, six stocks closed in the green and the rest finished the week on negative territory.
In the BSE’s sectoral indices, consumer durables and IT bucked the negative sentiments to post a gain of 3.7 percent and 2.4 percent, respectively. The realty sector is the top loser with a loss of 8.6 percent, followed by PSU by 5 percent and Oil & Gas and Metals slipped 4.6 percent each.
Reliance Industries, an index heavy weight, dropped 6.16 percent following the government’s plan to review the oil and gas exploration policy to revenue sharing contracts from the current profit sharing pattern.
HDFC Bank led the banking stocks down with a loss of 5.79 percent. State Bank of India and ICICI Bank followed it by shedding 4.88 percent and 3.23 percent, respectively. The automobile sector too was hit by budget proposals. Tata Motors, Maruti Suzuki, and Mahindra & Mahindra slipped 1.48 percent, 1.08 percent, and 0.71 percent, respectively. In the two-wheeler segment, while Bajaj Auto edged higher by 1.54 percent, Hero MotoCorp slipped 1.99 percent.
Metal stocks also melt down during the week with Hindalco Industries losing 7.65 percent followed by Tata Steel by 6.27 percent and Sterlite Industries by 4.31 percent. Jindal Steel & Power, however, bucked the trend to modestly gain 0.39 percent.
However, IT stocks gained in the week ended March 1 driven by weak rupee. Infosys, TCS and Wipro advanced 4.43 percent, 4.06 percent and 5.6 percent respectively.
Other major stocks to witness downtrend were Coal India by 5.46 percent, Dr. Reddy’s Laboratories by 4.35 percent, ITC by 0.39 percent and Hindustan Unilver by 0.54 percent. Realty stock DLF is the worst hit by 7.65 percent.
The FIIs remained net buyers until February end with an inflow of $260.08 million in the last four days of trading. For the month of February, the FIIs have pumped in $4.57 billion into the Indian equities, whereas it was $8.63 billion for the months of January and February. However, on March 1, the FIIs turned net sellers to the tune of $237.04 million. The domestic mutual funds were the net buyers for the week with an inflow of Rs.6.78 billion in the last four days of February. However, for the month of February, they were the net sellers to the tune of Rs.8.48 billion.
For the upcoming week, the stock markets will struggle to find directions as the financial year will close in March. Therefore, investors will take every uptick opportunity to make profit. This will limit the markets gaining significantly at least till March.