MARKETS CONSOLIDATING

The local benchmarks are consolidating around their previous closing levels as investors indulge only in stock specific buying amid a gloomy leads from the global markets. A slew of global headwinds like Standard & Poor's warning to cut the United States' AAA credit rating and revision in its credit outlook to negative, aggravating European debt crisis and rising inflationary pressure tormented the markets across the globe. However, the local markets which got butchered for two previous back to back sessions and shaved off well over two and half a percentage point chose to overlook the slump in majority of Asian and European markets. The wilt in international crude oil prices for second straight day too helped the PSU oil marketing companies like HPCL, BPCL and IOC. Meanwhile, government notified export of sugar under Open General Licence (OGL) and has given time till 2nd June to companies to seek export permit. Sugar stock like Shree Renuka Sugars, Bajaj Hindustan and Balrampur Chini saw renewed buying interests after the news hit headlines. Banking bellwether, HDFC bank surged by 1.50% on reporting decent Q4 numbers on Monday after trading hours. While index heavyweight Reliance Industries too is holding its heads above the water as the company indicated that it is planning to make a major foray into homeland security and aerospace sectors.

Meanwhile, the broader markets continue to trade on a quiet note as the midcap index slipped by 0.03% while the smallcap index added 0.12%. The market breadth on the BSE was in favor of declines in the ratio of 1206:1420 while 91 scrips remained unchanged. Moreover, the market volumes remained very high as it has already crossed the Rs 1 lakh crore mark.

The BSE Sensex added 29.02 points or 0.15% at 19,120.19. The index touched a high and a low of 19,201.92 and 18,976.19 respectively.

On the BSE sectoral front, Teck was up 0.63%, IT up 0.50% Bankex 0.35%, Oil & Gas 0.32% and CD 0.10% were the major gainers in the space.

On the flip side, Realty down 1.17%, Power down 0.94%, PSU down 0.58%, CG down 0.26% and Auto down 0.23% were the major laggards in the BSE sectoral space.

The top gainers on the Sensex were RCom up 1.61%, Bharti Airtel up 1.56%, HDFC Bank up 1.50%, Cipla up 1% and TCS up 0.79%.

On the flip side only Hero Honda down 2.94%, BHEL down 2.53%, Tata Power down 1.35%, DLF down 1.09% and HUL down 0.82% were the major losers on the index.

Meanwhile, in order to check the excessive use of Mauritius as a tax heaven while investing in India and to also address some security related concerns, the Indian government is planning to rewrite the norms of tax treaty with it. The renegotiation according to the finance ministry will help provide India the access to additional details on sources of funds, besides tax-related information.

In fact Indian government is already discussing some revision in norms governing the Double Taxation Avoidance Agreement (DTAA) with Mauritius, and one of the changes that India is looking for is the insertion of articles on exchange of banking information and assistance in collection of taxes. There is a current article similar to one being discussed but it does not provide access to some of the privileged banking information, according to the Indian side.

As per the provisions of the DTAA existing between Indian and Mauritius, any Mauritius-based investor does not have to pay capital gains tax either in India or in Mauritius. This has resulted in Mauritius becoming a tax heaven for investors looking to bring capital into India. In fact maximum amount of FDI into India has come from Mauritius so far. A large chunk of this investment has been made by companies headquartered in other countries but routed through their Mauritius office to save taxes.

The government now wants to ensure that legitimate taxes are not evaded by foreign investors and therefore the need for revisiting treaty with Mauritius. India has similar treaties with many other countries and all will be revised over time. According to the finance ministry estimates, India losses somewhere between $600-$1.5 billion in taxes owing to loopholes in tax treaties with various countries.

Besides revising the tax treaties, the government is also opening overseas offices of Income Tax department that will help it get better information on sources of capital coming into India. It has already set up two such offices in Indian missions in Mauritius and Singapore and eight more are likely to be set up in the USA, the UK, the Netherlands, Japan, Cyprus, Germany, France and the UAE.   The S&P CNX Nifty rose 7.55 points or 0.13% at 5,736.65. The index touched high and low of 5,762.95 and 5,693.25, respectively.

The top gainers on the Nifty were Cairn up 2.74%, HCL up 2.02%, RCom up 1.75%, GAIL up 1.74% and HDFC Bank up 1.57%.

On the other hand, Hero Honda down 3.37%, Grasim down 2.80%, BHEL down 2.45%, Kotak Bank down 1.50% and Tata Power down 1.16% were the losers on the index.

On the Asian front, Shanghai Composite was down 1.60%, Hang Seng was down 1.48%, Jakarta Composite was down 0.38%, KLSE Composite was down 0.41%, Nikkei 225 was down 1.21%, Straits Times was down 0.97%, Seoul Composite was down 0.70% and Taiwan Weighted was down 0.87%.

The European markets are trading on a mixed note as the France's CAC 40 climbed 0.48% but Germany's DAX got butchered by 2.11% and Britain's FTSE 100 plummeted 2.10%.