Key benchmark indices are seen opening slightly lower extending yesterday's 2% slide. The SGX Nifty futures for July 2009 expiry fell 5.50 points in Singapore. Global cues were mixed. Also a rush to raise funds through share sales by corporate India may continue to take its toll on the secondary equity markets.
Concerns that a glut in share sales will suck liquidity from the secondary market weighed on investor sentiment after Indian companies on Monday, 29 June 2009, launched shares sales worth nearly $2 billion. A number of firms have announced plans to raise funds through shares sales to institutional investors, taking advantage of a solid surge in share prices in the past three months. Brokers expect companies to raise over $10 billion in the current financial year by way of share placements and initial public offers. The large equity sales may keep a natural lid on share prices in the secondary market
Volatility is likely to zoom on the bourses in the near term major ahead of the Union Budget 2009-10 on 6 July 2009. The Annual economic survey is scheduled to be presented on 2 July 2009 followed by the Rail Budget on 3 July 2009.
The corporate sector is expecting a removal of the fringe benefit tax (FBT) in the budget. Under the current dispensation, an employer has to pay FBT at 30% on the fringe benefit, the taxable value of which is determined in accordance with a formula. FBT is a tax levied on perquisites-or fringe benefits -provided by an employer to his employees.
Meanwhile, domestic brokerages and fund houses want the government to remove securities transaction tax (STT) on trading in securities in the Budget. The Securities & Exchange Board of India (Sebi) members have already forwarded the demand of premier stock exchanges, BSE and NSE, to Finance Minister Pranab Mukherjee for scrapping STT in the Budget.
STT, which was introduced in the Union Budget 2004-05 by the then Finance Minister P Chidambaram, taxes every purchase and sale of securities entered into in a recognised stock exchange in India in securities like shares, debentures, bonds, and units of mutual funds. Equity investors pay an STT of 0.125% for every transaction in cash for the delivery of shares.
Meanwhile, before the budget, investors will also be keenly watching the outcome of the Employees' Provident Fund Organisation (EPFO's) apex advisory body meet on 4 July 2009. The Central Board of Trustees (CBT) will take a view on the Finance Ministry's proposal to invest 15% of its corpus in equity. The EPFO has a corpus of about Rs 1,82,000 crore and the permission to invest 15% funds in equity could have positive implications for the capital market. A proposal to park funds in the stock market was earlier rejected by the EPFO's Finance and Investment Committee (FIC) at its meeting on 26 March 2009.
Analysts expects that the government will provide a thrust to the infrastructure sector and push economic reforms to boost growth. Finance Minister Pranab Mukherjee would present the budget on 6 July 2009. The Railway Budget will be presented on 3 July 2009 and the Economic Survey would be presented on 2 July 2009.
A comfortable victory last month for the Congress-led United Progressive Alliance (UPA) government in elections for the 15th Lok Sabha has raised hopes for economic reforms. Reforms virtually came to a halt in the past five years of the Congress-led alliance government at the centre, when the Communists provided support to the government from outside for a large part of the five-year term. Left parties are opposed to economic reforms.
Investor expectations from the new government are high. Investors expect financial sector reforms such as increase in the cap on foreign direct investment in insurance sector to 49%, from 26% at present.
Most Asian markets were trading higher today, 1 July 2009. Key benchmark indices in Singapore, South Korea, China and Taiwan were up by between 0.19% and 1.39%. However Hong Kong's Hang Seng index fell 0.81%
US markets declined on Tuesday, 30 June 2009, after consumer confidence unexpectedly slid and delinquencies on the least-risky mortgages more than doubled. The Dow Jones industrial average slipped 82.38 points, or 0.97%, to 8,447; the S&P 500 fell 7.91 points, or 0.85%, to 919.32, and the Nasdaq Composite index declined 9.02 points, or 0.49%, to 1,835.04.
Back home, as per the provisional figures on the NSE, foreign institutional investors (FIIs) bought shares worth Rs 107.88 crore on Tuesday, 30 June 2009 while domestic institutional investors purchased shares worth Rs 197.98 crore.
Foreign institutional investors (FIIs) bought shares worth a net Rs 2,996 crore in June 2009 (till 29 June 2009) while their inflow in calendar year 2009 totaled Rs 24,315.40 crore
The barometer index BSE Sensex gained 4785.34 points or 49.29% in the quarter ended June 2009 from its close of 9708.50 on 31 March 2009, on heavy buying by foreign funds. A strong global liquidity and increase in risk appetite boosted inflows after a comfortable victory for the Congress-led UPA government in parliamentary elections raised expectations of economic reforms.
Monsoon rains, which runs from June to September, have weakened and are expected to be below normal, Prithviraj Chavan, minister of science and technology, said on Wednesday, 24 June 2009 in a briefing in New Delhi. The India Meteorological Department on 17 April 2009 predicted rains in the June- September period to be near normal. The minister said the 2009 monsoon rainfall would be 93% of the long-term average, lower than an earlier forecast of 96%.
The outlook is among the nation's most widely watched indicator as monsoon rains are a major influence on output of key crops, economic activity and also affects sentiment in the country's financial markets.
The World Bank on 22 June 2009 predicted that the global economy will shrink 2.9% this year, a deeper fall than the 1.7% contraction it predicted in March 2009.
The good news for India is that the World Bank has raised India's growth forecast for 2009 to 5.1% from earlier projection of 4%. It has projected an 8% growth for India in 2010 which will make it the fastest growing economy in the world in 2010, overtaking China's expected 7.7% growth relative to the robust performance prior to the current crisis.
In its semi-annual Economic Outlook released on 24 June 2009, the Organisation for Economic Co-operation and Development (OECD) called on the Indian government to restore fiscal discipline, speed up structural reform and increase sales of public-sector assets.
Brazil, India, China and Russia - collectively, the BRICs - held their first summit in Paris this month, underlining the quartet's growing political as well as economic clout.
The OECD had been forecasting GDP growth for India of 4.3% in 2009 and 5.8% in 2010. OECD said that with the gradual recovery of the global economy and easier financial conditions, growth is projected to gradually regain momentum.
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