Sensex Crosses 35000 as govt Moves to Contain Fiscal Deficit

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Indian stocks crossed new milestones on Wednesday on hopes of a corporate earnings recovery and the government’s effort to limit a fiscal slippage in the current financial year. However, high crude oil prices and interest rate hikes by foreign central banks remain key risks to the rally.

The BSE’s benchmark Sensex closed at 35,081.82 points, up 310.77 points, or 0.89%, crossing the 35,000-point mark for the first time. The National Stock Exchange’s Nifty ended at 10,788.55 points, up 88.10 points, or 0.82%.

Early on Wednesday, the government pared its additional borrowing programme in the year to 31 March to Rs20,000 crore from the Rs50,000 crore it announced last month, giving investors hope that the fiscal slippage will be contained. The fiscal deficit reached 112% of the full-year budget in November. Investors have also been fretful that the government may stray off the fiscal consolidation path in the 1 February budget, its last before the 2019 general elections.

The abatement of some of these worries, along with optimism of an earnings recovery, continued to pull in money. Analysts are expecting the first signs of a rebound in corporate earnings growth in the December quarter owing to the favourable effect of a low base a year ago and higher consumer spending in the festive season.

Those expectations have overriden concerns over high valuations. Currently, the Sensex is trading at 20.39 times expected earnings for the next 12 months.

“High valuations will be justified once economic revival and earnings growth start catching up,” said Dhiraj Sachdev, who helps manage Rs11,252 crore at HSBC Asset Management.

Opening bell: Asian Markets open Higher; Bharti Airtel, Ultratech Earnings in Focus

US stocks end higher; Asian shares surge in early trade

Stocks traded higher on Wednesday, following the release of stronger-than-expected quarterly results from some of the biggest US companies.

Stock indices in Asia on Thursday bounced back from declines in the last session, tracking substantial overnight gains on Wall Street. Investors also awaited a raft of China data, as well as interest rate decisions from South Korea’s and Indonesia’s central banks due later in the day.

Newgen Software IPO gets 70% subscription on Day 2

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The initial public offering (IPO) of IT firm Newgen Software Technologies was subscribed 70% on the second day of the share sale on Wednesday.

Amber Enterprises IPO fully subscribed on Day 1

The Rs600-crore initial share public offering (IPO) of Amber Enterprises was fully subscribed on the first day of its bidding.

Puravankara to invest Rs600 crore on low-cost housing project

Realty firm Puravankara Ltd said it will invest Rs600 crore to construct an affordable housing project in Bengaluru.

Amalgamation scheme: Tata Power shareholders’ meet on 19 February

Tata Power said it will convene shareholders’ meeting on 19 February to seek approval for the proposed amalgamation of four group entities with the company.

HUL Q3 profit rises 28% to Rs1,326 crore

Hindustan Unilever Ltd posted a 28% rise in its third-quarter profit, underpinned by higher sales from its personal care business.

Earnings corner

Adani Power, Bharti Airtel, Hindustan Zinc, Mastek, Yes Bank and UltraTech Cement are among the companies that will be announcing their December quarter earnings on Thursday.

Budget 2018: Long-term Capital gains on Equities—is a Bird in hand Better?

What happens if, in the forthcoming Union Budget 2018, a tax is reinstated on long-term capital gains (LTCG) on listed shares? After an initial shock, the stock markets should stabilize. Domestic investors will realize that equities yield better post-tax returns than other asset classes and India will continue to be a part of the emerging market portfolio of foreign investors.

Once the chaos dies down, the focus will shift to whether revenue increases for the government, which is the underlying objective of any tax proposal.

Here, the question is if LTCG will be imposed in addition to the securities transaction tax (STT) or in place of it. If it is an additional levy, STT collections will continue to add to revenues, while LTCG will be the icing on the top. The worst that can happen is tax collections from equities don’t increase much.

If LTCG replaces STT, then that decision makes sense only if the government is confident of earning more from LTCG than what it makes from STT, on a sustained basis. What could make this difficult? Capital gains are like having a rich mineral underground. Till it is extracted, it is of no use to the tax authorities.

Investors must sell shares they have held for 12 months or more to earn gains and then pay LTCG tax. Now, under STT, they are paying tax when they buy or sell shares. With a tax on long-term sale, investors have one more variable to consider apart from their investment outlook influencing their selling decision. If they decide to delay selling, that delays tax revenue to the exchequer.

Also, when they sell shares, it does not necessarily mean the entire gains get taxed. Indexation will be available. Depending on when they bought the shares, the acquisition cost will be padded up to account for inflation. That can lower the taxable gains. And then there is capital loss as well; they may have shares or other eligible assets that have been sold at a loss. The tax laws allow investors to offset certain losses they have suffered from their gains, to arrive at net gain and therefore the tax payable. If they have losses that have not been set off against gains, they can carry them forward to offset in future years.

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The government can’t calculate potential gains and losses in advance, as that depends on the date of purchase, how listed shares move throughout the fiscal year, all of which eventually will determine net gains (or losses) in the taxpayer’s hands. When P. Chidambaram first introduced STT in the 2003-04 budget, he said that his calculation showed STT can result in a win-win situation. That implied that the revenue lost from exempting the tax would be made up by STT.

The thing about STT is that it is collected in both good and bad years for investors. The tax collection happens automatically at source. The tax department would be spending very little money on auditing this revenue, relative to the amount earned. But LTCG relies on the taxpayer to calculate and pay tax, and declare it in the tax returns. Scrutiny requires more effort from the tax department.

Then there is tax planning, a legitimate way used to lower tax liability. In capital gains, this can involve timing the sale of an asset or selling a pool of assets with gains and losses, to lower the tax outgo. There is the illegal side too, which was seen in cases that had come to light before LTCG on listed shares was abolished. Taxpayers with capital gains would enter into sham transactions showing a capital loss, allowing them to lower their net gains.

Opening bell: Asian Markets Open Higher; HDFC, Novartis India in News

US stocks end higher; Asian markets follow suit

US stocks rose to all-time highs on Wednesday as a gain in chip stocks propelled the tech sector higher.

Major Asian markets traded higher on Thursday, following the stronger lead seen on Wall Street. Investors in the region will also keep an eye on Caixin’s China services and composite PMI later in the morning after the Caixin manufacturing PMI beat estimates and the country’s official PMI met expectations.

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RBI to issue new Rs10 notes in chocolate brown colour

The Reserve Bank of India (RBI) will shortly issue new Rs10 notes under the Mahatma Gandhi series. The central bank has already printed around 1 billion pieces of the new Rs10 note.

HDFC to keep Rs1,575 crore from HDFC Standard Life IPO as special provision

Housing Development and Finance Corp. Ltd (HDFC) will make a special provision of Rs1,575 crore, using a part of the proceeds from the initial public offering (IPO) of HDFC Standard Life Insurance.

Novartis’s diclofinac injection flagged by health ministry panel

A health ministry panel has raised concerns about the safety of painkiller injection diclofenac marketed by drug maker Novartis India and made by Themis Medicare Ltd, after Troikaa Pharmaceuticals alleged that the painkiller injection contains Transcutol, which damages kidneys.

Reliance Industries likely to see big cash flow boost, says CLSA report

Reliance Industries Ltd is likely to see a big cash-flow boost as projects of over $40 billion start to deliver in full swing this fiscal while capex falls, international brokerage house CLSA said on Wednesday.

Sebi allows commodity bourses to raise transaction charges

Capital markets regulator Securities and Exchange Board of India (Sebi) has allowed the commodity derivative exchanges to keep the highest transaction charge in turnover slab of any contract at a maximum of double the lowest charge in the same segment.

New launches boost Skoda volume 30% in 2017

Volkswagen Group company Skoda said its sales spiked 30% to 17,438 units in 2017 over the previous year, driven by the latest launch, the Kodiaq SUV, besides rollout of three refreshed versions of its popular sedans.

Tata Motors MD tells staff to bolster accountability, performance

Homegrown auto major Tata Motors Ltd managing director and chief executive officer Guenter Butschek has called employees to bolster accountability and drive performance within the organisation as the firm seeks to build on the positives of its turnaround drive that is expected to be completed by March.