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The wait begins

The hopes of deferment of GAAR by three years by the Shome Committee made the markets open higher this week. The committee put forward that the government may consider raising the rate of STT to make up for the shortfall in revenue from short term capital gains. The committee also recommended that the government should abolish tax on gains arising both in the form of capital gains or business gains from the transfer of listed securities to both residents as well as non-residents.

Demonstrators burn a European flag during a protest on September 8
Thessaloniki, Greece: Demonstrators burn a European flag during a protest on September 8 against fresh austerity measures the government has decided to impose. More than 12,000 protesters, including the main trade unions, opposition parties such as the radical left Syriza Party, communist activists and even police officers, firefighters and coast guard personnel joined the protest. Pics/AFP

Ongoing reforms
The government is initiating more reforms to boost more funds to flow to the country by allowing the NRI to borrow more against their foreign currency deposits in the country. By planning this, the government is looking to fund current account deficit that touched 4.2 per cent of GDP in 2011-12, highest since 1991. Also the finance minister is trying to create mutually acceptable solutions to reduce the abasement of the double taxation avoidance pact with Mauritius.

There is also news that India may exempt individual foreign investors and trusts that directly invest in the capital markets from acquiring PAN. Also the SEBI is planning to relax the margin requirement for FIIs to improve the investor sentiment.

Protesters hold a banner with a devil-like picture of Mario Draghi
Karlsruhe, GERMANY: Protesters hold a banner with a devil-like picture of Mario Draghi during a demonstration against the European Stability Mechanism (ESM) on September 8. The banner reads “Don’t give ESM a chance”. The powerful Constitutional Court is currently weighing a raft of complaints against the Eurozone’s permanent ESM rescue shield and the European fiscal pact for greater budgetary discipline and expected to announce its judgement on Wednesday

Recently, the RBI governor said that the government will find it a dilemma to recapitalise banks to help them to their new global capital requirements, but bringing down its holdings below 51 per cent can help them to solve the problem. Also the central bank estimated that the government may have to infuse R70,000 crore to R90,000 crore in capital into state-run banks to meet the capital requirements as stipulated by Basel-III norms. The new norms will be applicable from January 2018.

The monsoon session of the parliament ended on September 7, 2012 but the House was distrusted continuously 13 days without transacting any significant business over the issue of coal block allocation. The House adjourned sine die without making the customary concluding address. There were 31 listed this session, but only six of them were passed. The government is likely to present its view before Parliament's Public Account Committee (PAC) by September 14 on the observation made by CAG.

Upcoming policies
The Telecom Commission is likely to finalise key policy issues related to new mobile licences that will be issued post the upcoming auctions, on Friday and will also discuss other issues relating to unified licensing regime once the airwaves sale process is over. The unified licensing issues may include national and service area level permits which will cost R25 crore and R2.5 crore respectively.

Rupee will trade in broader range at 55.88 – 55.26 before the RBI policy meet. A move above or below can cause one-sided movements to the domestic currency against the dollar. Gold may have a target of $1776 in the short term. Also the support stood at $1700 and $1695.

In Indian markets the investors may be keenly waiting for the RBI’s monetary policy on September 17. The other economic data to be watched will be August inflation (expected to be around 7 per cent), which is to be announced on September 14, and the July industrial output that is scheduled to be declared on September 12. Also the decisions of the government over the FDI and fuel price hike via executive decisions are awaited.

The major technical indicators are still in the sell mode and even if the market reaches further highs, sustainability above 5400-5450 levels are lacking. Nifty has support at 5322 and 5300 at lower levels.

Investors with high risk-taking capacity can create long call position on Nifty 5400 call option for a holding period of three working days. On the cash segment stocks like Hercules, Hind Oil Exploration and Tata Sponge can give decent returns to the investors.

If European debt crisis can be solved to a certain extent through EBC bonds purchases, then we can expect more global economic growth.

Alex K Mathews is the author of Financial Services And Systems, as well as Option Trading: Bear Market Strategies published by Tata McGraw Hill. He is also the technical and derivatives research head of Geojit BNP Paribas Financial Services Ltd. The author may have a vested interest in investments he has recommended. Feel free to e-mail him at alex@geojit.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is for educational and information purposes only and under no circumstances should be used for actual trading or making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment or trading decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at his or her risk. 

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