TAX NEWS - June 2010

Wild swings in ICICI Bank counter

A bout of volatility was witnessed in afternoon trade as the market rebounded from lower level after hitting a fresh intraday low. Volatility in index heavyweight ICICI Bank triggered volatility on the bourses. The BSE 30-share Sensex was up 11.11 points or 0.06%, up 79.08 points from the day's low and off 49.45 points from the day's high. The market breadth turned negative. The breadth was strong earlier in the day.

Shares of ICICI Bank fell sharply in early afternoon trade. The stock soon cut losses in afternoon trade. Volume in the counter were high. ICICI Bank has nearly 8% weightage in Sensex. The stock's weightage in the 50-unit S&P CNX Nifty is about 6.5%

The market moved in a narrow range in early trade. The BSE Sensex surged to a fresh intraday high in early afternoon trade. A bout of volatility was witnessed as the Sensex soon slipped into the red, led by fall in index heavyweight ICICI Bank counter. The Sensex hit a fresh intraday low. The market regained positive zone later, as ICICI Bank came off lows.

Foreign funds have made heavy purchases of Indian stocks recently. Foreign funds bought equities worth a net Rs 2787.45 crore in five trading sessions from 10 June 2010 to 16 June 2010, as per data from the stock exchanges. The net inflow totaled Rs 1698.75 crore in June 2010 so far (till 16 June 2010) compared to a massive outflow of Rs 12071.13 crore in May 2010.

Domestic funds, which had absorbed some of the heavy selling from foreign funds last month, offloaded stocks worth a net Rs 588.28 crore this month so far. Domestic funds had mopped up equities worth a net Rs 6361.17 crore in May 2010.

On the macro front, the annual food inflation eased to 16.12% in the week ended 5 June 2010, compared to previous week's annual rise of 16.74%, data released by the government today showed. The fuel price index climbed 13.18%, lower than an annual rise of 14.23% in the previous week.

European shares moved in tight ranges as investors await the outcome of a Spanish bond auction. The key benchmark indices in France and UK were up by 0.01% and 0.21% respectively. However, Germany's DAX was down 0.18%.

Spain is due to hold a 10-year and 30-year bond auction Thursday. Concerns about Spain's economic health have been increasing in the last few days.

Asian stocks were trading mixed on Thursday on concern a global economic recovery may take longer than expected after US housing starts dropped. The key benchmark indices in Indonesia, South Korea, Hong Kong and Taiwan were up by 0.15% to 0.83%. However, key benchmark indices in China, Japan, and Singapore were down 0.30% to 0.67%.

US markets saw a flat closing on Wednesday after FedEx's cautious comments and mixed economic data. The Dow Jones industrial average added 4.69 points, or 0.05%, to 10,409.46. The Standard & Poor's 500 Index fell 0.62 points, or 0.06%, to 1,114.61 and the Nasdaq Composite Index rose 0.05 points to 2,305.93.

A Commerce Department report showed housing starts fell 10% in May 2010, the biggest drop since March 2009. The weak housing market data released by the Commerce Department on Wednesday contrasted with a separate report that showed a surge in industrial output, highlighting the uneven nature of the economic recovery.

Trading in US index futures indicated the Dow could fall 30 points at the opening bell Thursday, 17 June 2010.

Back home, the collection of indirect taxes, which include customs, central excise and service tax, jumped 49% to around Rs 35,000 crore during April-May 2010 from a year ago period on the back of industrial buoyancy. The government proposes to raise the collection of indirect taxes by 29% this fiscal ending March 2011.

The government after market hours on Tuesday, 15 June 2010 proposed to impose capital gains tax on all stock market transactions by Indians and overseas funds as a part of changes in tax laws. As per the second draft of the direct tax code (DTC) released on Tuesday, the securities transaction tax (STT) will stay and rates will be calibrated. In its first draft DTC unveiled last year, the government had proposed to scrap the securities transaction tax.

The DTC has proposed taxing gains from investments in the stock market and also equity-linked mutual fund units at the applicable rate of taxation. The DTC has also proposed some taxes on income of foreign funds, treating all incomes from their investments in the stock market in India as capital gains.

The revised discussion paper on DTC has proposed computation of minimum alternate tax (MAT) on book profits basis. The earlier code had proposed MAT on gross assets. The revised discussion paper also makes it clear that profit-linked deductions of units already operating in special economic zones would be protected for the unexpired period. The tax proposals, which will replace the existing direct tax laws introduced decades ago, are expected to come into force in the next financial year starting 1 April 2011.

Meanwhile, many Indian firms have reportedly paid higher advance tax in Q1 June 2010. Higher advance tax payment normally indicates higher profits for the period under review. Reliance Industries (RIL) has paid Rs 653 crore, an increase of 108%, while HPCL paid Rs 61 crore, a 307% increase. Bajaj Auto paid Rs 110 crore against Rs 50 crore last year.

Infosys Technologies, the country's second-largest software company, reported an advance tax payment of Rs 275 crore, compared to Rs 230 crore in the previous year. TCS paid Rs 128 crore in advance taxes in Q1 June 2010, up 142% from Rs 53 crore it paid in the April-June period last fiscal.

The country's top consumer goods company Hindustan Unilever paid Rs 75 crore, the same as last the last fiscal year. Advance tax payments by companies during the April-June quarter account for 15% of the total advance tax payable in the fiscal year

The country's top pharmaceutical companies have also paid higher taxes, with GlaxoSmithkline Pharma paying Rs 42 crore against Rs 39 crore in the year-earlier period and Ranbaxy's payments rising to Rs 17.5 crore from Rs 15 crore.

The banking sector was a mixed bag during the quarter. The country's largest bank State Bank of India (SBI) paid Rs 860 crore against the Rs 1170 crore it paid a year before. Union Bank of India's advance tax payments rose to Rs 168 crore from Rs 104 crore, while ICICI Bank paid Rs 350 crore, the same as it paid in the last fiscal.

Housing finance major HDFC has paid advance tax of Rs 215 crore in Q1 June 2010 verses Rs 175 crore in Q1 June 2009. Private sector lender HDFC Bank has paid advance tax of Rs 315 crore in Q1 June 2010 versus Rs 250 crore in Q1 June 2009.