UNSTABLE SESSION

Domestic frontline indices went through an extremely unstable session of trade to finally negotiate a close in the green territory after two straight sessions of butchery. Cautious investors indulged only in stock specific trading and the benchmarks see-sawed between red and green throughout the day's trade. The session largely remained characterized by choppiness as investors seemed reluctant to pile up hefty positions amid gloomy leads from the global markets. After S&P's warning to downgrade US credit rating from AAA and revision in its credit outlook to negative, not only equity markets across the globe but commodities too floundered as investors opted to square off positions from riskier asset classes to take refuge under the safe havens like bullion. However, the rebound in European markets after initial weakness, gave some support to the local sentiments in the dying hours while the wilt in international crude prices for second straight session too calmed nerves in the domestic markets. The NSE's 50-share broadly followed index Nifty, settled with less than a quarter percent gains, below the crucial 5,750 support level while Bombay Stock Exchange's Sensitive Index, Sensex ended with marginal gains above the psychological 19,100 mark. The broader markets on the other hand failed to show any kind of fervor and largely mirrored the trend followed by their larger peers. The BSE's Midcap Index went home with moderate gains of 0.36% while the Smallcap Index added 0.29%. On the sectoral front, the Teck index, which got heavily pounded in last two sessions, grabbed the top gainers position after some short covering appeared in stocks like HCL Tech and Bharti Airtel which surged 2.53% and 2.18% respectively. While the Oil and Gas counter too witnessed some buying and ended with gains of 0.62% because of the decline in international crude oil prices which aided the rise in PSU oil marketing companies like HPCL, BPCL and IOC which garnered gains between 2.50-4% by the close of trade. While 2.45% surge in Cairn India after London listed, Vedanta bought 10.5% stake in Cairn India from Malaysia's state oil firm Petroliam Nasional Bhd (Petronas) too helped the Oil and Gas counter to move higher. Petronas sold its 14.94% stake in Cairn India for a total consideration of $2.1 billion, Vedanta bought 10.5% stake and the rest of around 4.44% stake was bought by domestic and foreign institutional investors. Banking stocks like HDFC Bank and IDBI Bank soared by 1.40% and 2.89% respectively in the session after reporting decent quarterly earnings numbers. Meanwhile, government notified its decision to allow five lakh tonnes of sugar exports, nearly a month after its approval by the panel of ministers, under Open General Licence (OGL) and has given time till June 2 to companies to seek export permit. Stocks like Bajaj Hindustan up 1.47%, Dwarikesh Sugar up 1.05%, Ugar Sugar Works up 1.45%, Sakthi Sugars up 1.14%, and Oudh Sugar up 2.58% in the session as they saw renewed buying interests after the news hit headlines. On the other hand weakness was seen in counters like FMCG and Power which shaved off 0.89% and 0.86% respectively.

On the global front, most Asian equity indices finished with large cuts of over a percent on Tuesday with the Chinese benchmark doing the maximum damage. The Shanghai Composite fell around two percent points dragged by coal miners and metal companies on the back of the retreat in global commodity prices. The European markets after starting on a subdued note have managed to climb back into the green terrain with France's CAC gaining by 0.73% followed by Britain's FTSE 100 which rose 0.57% and Germany's DAX which has advanced by 0.48%. On the other hand, the screen trading for US index futures indicated that the Dow could open on a flat note.

Earlier on Dalal Street, the benchmark started the day on a cautious note tracking the Asian equity indices which crumbled in the morning trade, following the overnight plunge on Wall Street after S&P raised concern about US' debts and its chances of lowering the rating of the country's government debt. The benchmarks lacked conviction right from the initial moments of trade and went ahead to hit the low point of the day in the mid morning session. After hitting intraday lows the indices soon hit intraday high levels within an hour but failed to capitalize on the momentum amid high volatility. Thereafter, the bourses continued to gyrate around the neutral line to eventually snap the session in the green zone with marginal gains. Markets declined on volumes of over Rs 1.55 lakh crore while the turnover for NSE F&O segment remained lower compared to Friday's volumes at 1.32 lakh crore. Market breadth remained negative as there were 1389 shares on the gaining side against 1476 shares on the losing side while 116 shares remained unchanged.

Finally, the BSE Sensex gained 30.66 points or 0.16% to settle at 19,121.83 while the S&P CNX Nifty was up by 11.65 points or 0.20% to end at 5,740.75.

The BSE Sensex touched a high and a low of 19,201.92 and 18,976.19 respectively. The BSE Mid-cap and Small-cap indices gained 0.36% and 0.29%, respectively. 

Bharti Airtel up 2.18%, Reliance Communication up 2.08%, L&T up 1.62%, HDFC up 1.40% and TCS up 1.32% were the major gainers on the Sensex.

On the flip side, Hero Honda down 4.64%, BHEL down 2.37%, Hindustan Unilever down 1.20%, ITC down 1.05% and Maruti Suzuki down 0.82% were the Major losers on the index.

In a move that can impact the margins of satellite TV providers, the Supreme Court on Monday stayed the order of the Telecom Disputes Settlement & Appellate Tribunal (TDSAT) regarding charging particular rates by Pay channels. At the same time, it raised the permissible rate for pay channels for direct-to-home (DTH) and other similar services providers to 42% of that of normal cable operators.

Earlier, the Telecom Regulatory Authority of India (TRAI) had stated that DTH operators needed to pay only 35% of what cable operators would pay per-subscriber to channel-owners. The pretext was that cable operators were generally under-stating number of subscribers, and therefore the channel owners were charging much higher to compensate for lower-than-actual numbers reported by the operators.

Since in a platform like DTH, which is digitalized end-to-end, it is not possible to hide the real subscriber numbers, the TRAI decided to cap the rate to be paid by the DTH players to channel owners. Intervention of the regulator was challenged by channel owners in the TDSAT that stayed the TRAI's order. Both the sides reached apex court. Now the Supreme Court has while agreed to the logic of TRAI, it has at the same time hiked the payment to be made by DTH operators to 42% cable operators rather than earlier 35%.

Analysts however, feel that even though in the decision seems to increase the cost of DTH players immediately, it will not have a major impact on the industry in long term. The digital TV industry is already moving from a per-subscriber payment system to a fixed annual contract system in which payment will remain constant irrespective of number of subscribers. Once such a system is fully in practice, both the DTH players and service providers can negotiate either annual or longer tenured deals and there the order by the TRAI will not come into work at all.

TECk up 0.77%, Oil & Gas up 0.62%, CD up 0.52%, Bankex up 0.50%, Realty up 0.36% were the major gainers in the BSE sectoral space.

FMCG down 0.89%, Power down 0.86%, Auto down 0.39%, PSU down 0.27% and HC down 0.25% were the major losers in the BSE sectoral space.

The S&P CNX Nifty touched a high and a low of 5,762.95 and 5,693.25 respectively.

The top gainers on the Nifty were IDFC up 3.05%, HCL Tech up 3.03%, BPCL up 2.69%, Cairn up 2.45% and Bharti Airtel up 2.44%.

The top losers on the index were Hero Honda down 5.25%, Grasim down 2.87%, BHEL down 2.29%, Kotak Bank down 1.57% and Dr Reddy down 1.45%.

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.

European markets were trading on a mixed note. France's CAC 40 was up by 0.64%, Germany's DAX gained 0.34% and Britain's FTSE 100 was trading higher by 0.48%.

All the Asian equity indices barring Jakarta Composite finished the day's trade in the negative terrain on Tuesday as Standard & Poor's cut the US long-term credit outlook and triggered concern that a recovery in the global economy may slow. Japanese Nikkei dropped more than one percent and hit a three-week low after chipmaker Texas Instruments warned the impact from Japan's earthquake last month would result in slower sales growth. The yen increased on S&P's threat to cut the US credit rating also dampened the sentiments in the region. In addition, Shanghai Composite and Hang Seng also witnessed a huge cut in the trade.