The Tribune, Chandigarh, India

BUDGET 2012
Sops for retail stock investors on cards
Sanjeev Sharma/TNS

New Delhi, March 2
The budget for fiscal 2012-13 is likely to contain some incentives for increasing participation by retail investors in equity markets, according to analysts. According to a Deutsche Bank research note, these sops could come in the form of increasing tax allowances for retail investment in equity mutual funds. This move will allow channelizing personal savings from real assets such as gold into equities. The other incentive could be lowering of short-term capital gains on stocks.

The report says the government may reintroduce surcharge on personal income tax of around 10%, particularly in the maximum tax bracket. However, Finance Minister Pranab Mukherjee is likely to raise the maximum exemption limit from Rs 1.8 lakh, providing more disposable income into the hands of the lower income group.

On corporate taxes, the report says the budget may further lower minimum alternate tax (MAT) to 20% from 18.5%. There are also expectations that surcharge on corporate taxes be raised to 10 per cent compared to 5% currently.

With gross capital formation declining, analysts expect several fiscal measures in the form of budgetary allocations, tax exemptions to kickstart the capex cycle. The sunset clause on tax incentives for infrastructure projects is likely to be extended by a year and there could be fiscal sops for new capex. A National Electricity Fund could be announced to provide interest subsidy to state electricity boards for investments in transmission and distribution to reduce losses.

There are also expectations of a partial decontrol of urea prices to address concerns over rising fertilizer subsidies. This will also result in increasing investments in the sector where imports have risen sharply over domestic shortages. There could be some action on oil subsidies also with a hike in prices of diesel, kerosene and LPG.

The report says this may be the last opportunity for Mukherjee to present a budget during the UPA’s current term, as the next one just before the general elections in 2014 will be guided by electoral considerations.

Tax net may be widened, rates on manufactured products raised

New Delhi, March 2
The government is likely to raise taxes on a number of manufactured items and expand the tax net in its budget to rein in its deficit and give space for the central bank to cut interest rates to support growth, a top government economic adviser said Friday.

The RBI has called on the government to cut its fiscal deficit to help fight inflation, while signalling its bias is towards beginning to cut interest rates. India's fiscal deficit is expected to miss its target of 4.6% of GDP in the fiscal year ending this month by at least one percentage point.

"One of the possibilities is full rollback of the stimulus, that is almost 1% of the GDP," Pronab Sen, principal adviser to the Planning Commission, told Reuters on Friday. India implemented a stimulus package of about $37.6 billion following the 2008 global financial crisis. — Reuters

ONGC auction fiasco batters selloff hopes

Mumbai, March 2
The government's failure to sell all of the shares in its $2.6 billion auction of a 5 percent stake in Oil & Natural Gas Corp is an embarrassing setback in its effort to revive stock sales in state companies to trim a yawning fiscal deficit.

The government's handling of the share sale, seen as a litmus test for its stalled privatisation agenda, was widely slammed as being aggressively priced, poorly marketed and shoddily executed, with bid details plagued by confusion.

ONGC shares fell more than 2% on Friday, a day after the government sold just 98.3% of the shares on offer.

State-run Life Insurance Corp took up more than half the offer, a banking source with direct knowledge said, while some media reports said the insurer had bought close to 90% of the shares.

A senior official at LIC declined to comment.

"It’s bad management, and should not have happened. No one wants this mess happening again," Pronab Sen, principal adviser at the Planning Commission told Reuters. "They’ve to tighten how the disinvestment happens," he said.

The government hoped to follow up the ONGC sale by unloading shares in Bharat Heavy Electricals Ltd, Steel Authority of India Ltd and Oil India but will need to rethink how it manages and prices those deals.

The floor price for the ONGC auction, set at Rs 290 rupees late on Tuesday, was at a 2.3% premium to the day's closing price, prompting widespread criticism that it should have been priced at a discount.

Analysts blamed the deal's bankers and the stock exchanges as well as the government for poorly managing the auction. "The pricing wasn’t favourable in terms of the market scenario we are operating in. They should have left something on the table for investors," said Jigar Shah, head of research at Mumbai's Kim Eng Securities.

REGULATORY RISK: A lack of clarity on how much of India's hefty oil subsidies would be borne by ONGC was a key deterrent to more interest from foreign institutions, bankers and analysts said. In future deals, the government will need to address the concerns of overseas instititional investors about regulatory risk associated with investing in state companies, they said. The auction itself drew wide criticism. The websites of the two main exchanges failed to update bid activity 10 minutes before the auction’s close. — Reuters

Small, mid-cap stocks help MFs post better returns than Sensex

New Delhi, March 2
Diversified equity funds posted better returns than the BSE Sensex in February, helped by small and medium-sized stocks that rose on increased foreign and domestic buying.

Diversified funds, the largest category of stock funds in India by number and assets, returned an average 4.8 percent in the month, according to fund tracker Lipper, a Thomson Reuters company.

These funds outperformed the benchmark index, which rose 3.25% on robust inflows from foreign institutional investors (FIIs) and hopes of easing monetary policy.

Favourable global liquidity conditions encouraged foreign investors to buy more than $7 billion of Indian equities so far in 2012, pushing up the index by more than 14%.

"With the backing of FIIs, retail participation increased in mid- and small-caps, which pushed them higher," said R. K. Gupta, managing editor at Taurus Mutual Fund. "However, the outlook for these shares is likely to be cautious going ahead."

Mid and small-cap shares accounted for more than a third of the assets of diversified funds at the end of January, and holdings of such stocks rose to the highest level since January 2011, Morningstar India data showed. During the month, the BSE mid-cap index rose 8.8% while the small-cap index gained 6.14%.

Exposure to the financial services sector — the top sector bet for money managers, with an allocation of over 20% — also helped equity diversified mutual funds as the Bombay Stock Exchange banking index rose 5.12%.

Shares of top-lender State Bank of India (SBI.NS) gained 9%, while HDFC Bank rose 5% on hopes the central bank will further reduce the cash reserve ratio for banks to help ease tight liquidity conditions.

Two diversified funds from HSBC, the HSBC Midcap Equity Fund and the HSBC Progressive Themes Fund, were India's top performing mutual funds in February, returning more than 11%.

Among sectoral funds, those focusing on technology returned over 7% while those investing in financial services registered a rise of nearly 6%.IT stocks were among the best performers in February, pushing up the BSE IT index by 6.6%. Gold exchange traded funds (ETFs) rose a little more than 1% on an average in the month. — Reuters

SC dismisses plea in Voda case
Legal Correspondent

New Delhi, March 2
The Supreme Court on Friday dismissed a public interest litigation for quashing the court’s verdict on the Vodafone tax case on the ground that Chief Justice S.H. Kapadia, who was part of the bench that heard the case, had a “conflict of interest”.

A bench comprising justices Aftab Alam and Ranjana Desai also imposed a cost of Rs 50,000 on advocate M.L. Sharma for filing such a “highly irresponsible, frivolous and scandalous” PIL in a “cavalier” manner for which he “could be sued for defamation.”

When Sharma insisted he should be allowed to read portions of his PIL in order to convince the court, the bench said it had already gone through it “line by line and more we read it the more we are hurt.”

The bench remarked that Sharma was trying to “destroy” the institution where he was practising and make it “dysfunctional.”

He cited a resolution passed by Supreme Court judges on the issue of conflict of interest. The bench retorted, stating “we know our resolutions better than you do.”

The PIL pertained to the judgment delivered by a three-member bench, headed by Kapadia, quashing the income tax department’s order asking Vodafone to pay Rs 11,000 crore as tax for the purchase of Hutchison Whampoa Ltd’s Indian cellular business in 2007.

The Supreme Court bench found a basic fault in the petition, pointing out that there was no provision for quashing a judgment on the basis of a PIL filed under Article 32 of the Constitution meant for enforcing people’s fundamental rights.

“Article 32 will not lie for quashing of a judgment. Also, we have reservations about your bona fides,” the bench remarked.

Rupee hits 3-wk low; seen falling further

Mumbai, March 2
The Indian rupee hit a three-week low on Friday on persistent demand for dollars by oil importers, while a subdued response to the government's sale of shares in Oil and Natural Gas Corp was taken an indication that foreign inflows may weaken.

The rupee closed at 49.50/51 to the dollar after hitting 49.56, its weakest since Feb. 10. It closed at 49.21/22 on Thursday. The weekly loss was the first in three weeks.

"If the inflows don’t pick up, the rupee is poised to weaken further," said Vikas Babu, a foreign exchange trader at state-run Andhra Bank. "However, the RBI could step in to curb the rupee's losses at around 49.75 levels," he said.

The government's failure to sell all the shares in its $2.5 billion auction of a 5 per cent stake in ONGC was a setback to its plans to unload shares in state firms to help trim a ballooning fiscal deficit.

The next support for the Indian currency was seen at 49.75, a trader at a private bank said. Reuters

Corporate Briefs
Power Grid, Ambuja tieup

In a first of its kind initiative, state-owned Power Grid Corp of India and Ambuja Cements Ltd have tied up to provide primary health services to 23 remote villages in Nalagarh tehsil in Himachal Pradesh. Under this programme a team comprising a doctor, a pharmacist, a lab technician and a nurse will visit the villages in a well- equipped ambulance to provide OPD services to residents at their doorstep.

RInfra ‘energy manager’

Reliance Infrastructure Ltd. has launched a new online customer care initiative, ‘Energy Manager’, for its 2.6 million Mumbai suburban consumers, who will now be able to calculate savings effected on their power bills by resorting to the stringent energy conservation norms. A consumer can now set the quantum of savings on each electrical appliance they use at home.

Auto firms against cess on diesel cars

New Delhi, March 2
The Society of Indian Automobile Manufacturers (SIAM) on Friday expressed its opposition to the government’s move of imposing cess on diesel cars in the forthcoming budget while cutting duties on those imported from Europe.

SIAM said cutting import duties would not result in any benefits for automakers, adding India may be giving away too much in the proposed free trade agreement with the EU. The body has been opposing cuts in duties on fully built cars imported from Europe. — TNS