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Rate-sensitives Drag Indian Shares Sharply Lower

Weak global cues on fears over Spain's fiscal outlook and lingering worries about slowing global growth dragged Indian shares sharply lower on Monday. The rupee dropped to its lowest level in more than two months and allegations of bribe made by Army chief VK Singh forced adjournment of both Houses of Parliament once again, dampening sentiment further.

Also, with the government preparing to pass retrospective amendments to the income-tax laws, investors fear that new tax rules could affect capital inflows through participatory notes.

Finance minister Pranab Mukherjee assured industry representatives at a Confederation of Indian Industry meeting on Sunday that the government has no vindictive intention behind the proposal to retrospectively amend tax laws, especially the old cases, as it is simply not permissible under the laws.

While presenting the Union Budget for 2012-13 early this month, Mukherjee had proposed amending the Income Tax Act with retrospective effect to bring tax deals involving overseas companies like the Vodafone-Hutchison deal into tax net, as such cases have tax implications of around Rs.40,000 crore.

Rate-sensitive banking and realty stocks bore the brunt of the selling, as higher oil prices and the government's inability to cut its fiscal deficit offered little room for maneuver for what the Reserve Bank of India can do to lower interest rates. Banks such as SBI and ICICI Bank fell 2-4 percent, mortgage lender HDFC shed 1.5 percent and property developer DLF lost 3.6 percent.

Brent crude futures were trading weak below $125 on Monday as renewed global growth worries and hopes of a possible resumption in crude production from South Sudan offset fears over supply disruptions from Iran, Syria and Yemen.

The benchmark 30-share Sensex ended the day down 309 points or 1.78 percent at 17,053, with all 30 of its components retreating. Market heavyweight Reliance Industries declined 1.9 percent, telecom major Bharti Airtel ended down 2 percent, metal stocks such as Tata Steel, Hindalco and Sterlite fell 2-4 percent, two-wheeler manufacturer Bajaj Auto shed 3 percent and drugmaker Cipla tumbled 4 percent.

The 50-share Nifty index fell 94 points or 1.78 percent to 5,184, while the BSE mid-cap and small-cap indexes ended down 1.6 percent and 1.4 percent, respectively.

Varun Industries was locked at the 10 percent circuit limit, extending recent steep declines, on buzz that pledged shares by promoters may have sold in the open market. Kingfisher Airlines slumped 6.7 percent after reports emerged that the cash-strapped airline is laying off 50 percent of its current employees.

Among those that advanced, shares of Jaiprakash Associates rallied 2.6 percent after the company bagged two contracts worth Rs 913 crore from Bhutan. Kotak Mahindra Bank rose 1.2 percent after private equity investor Warburg Pincus sold its remaining 3.6 percent stake in the private sector lender via a block deal.

Deep Industries soared 3.5 percent as the company said it had secured work orders worth Rs 170.78 crore from ONGC, GACL and HOEC.

On the global front, other Asian markets closed on a mixed note Monday, as weakening global growth and fresh worries about "contagion" from Spain's debt crisis rendered investor mood cautious. Key benchmark indexes in Australia, Singapore, South Korea and Taiwan posted modest losses, while markets in China, Hong Kong and Japan ended largely unchanged.

European shares edged higher in volatile trading after a report released by the IfO Institute showed that German business confidence unexpectedly improved in March.

Sentiment also improved after reports indicated that Angela Merkel, the German Chancellor, has dropped her resistance for expanding the euro-zone bailout fund. The eurozone finance ministers are meeting in Copenhagen this Friday to decide on the enhancement of the eurozone bailout fund from its current size of 500 billion euros.

by RTT Staff Writer

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