Business This Week – Banks Rally, Tax Reforms on the Cards

Tax Reforms

Tax Reforms Both, the 30 share S&P BSE Sensex and the NSE’s CNX Nifty gained about 1 percent this week. It has been a happening week in the equity market with both indices zooming ahead to record high closings yet again. While NIFTY ended the week at 8477, just short of the 8500 level, Sensex rose to 28334 at the close of Friday. A strong bank rally and well-performing capital goods and infrastructure helped push the indices up. State Bank of India, Kotak Mahindra Bank, Punjab National Bank, Bharti Airtel and Cipla were among the top gainers this week. Of the 1505 shares listed on the NSE, 657 shares closed with gains, 32 shares recorded a fall this week, while 816 shares closed flat. Gold seems to have made a considerable recovery from the significant lows it tested a few weeks ago. Gold closed the week at 26,391 and bullion investor sentiments seemed uncertain as weak global cues battled strong wedding season demand. More tax reforms ahead The Indian Finance Minister, Arun Jaitley’s statements this week hinted at a slew of tax reforms that can next be expected from the NDA Government. As far as individual tax payers go, the FM hinted at increasing the exemption limit for the middle class and salaried people while going after the evaders with a strong hand. While taking a rather stringent stand against black money and tax evasion, Jaitley assured that the middle class shall gain further relief from his tax plans for the nation. This should encourage spending and lead to additional collection of indirect taxes as well. We may have to wait for his next budget to see any such relief, though. The FM also said that the indirect tax revenue targets for this fiscal year seemed hard to achieve given the weak levels of demand. Commenting on the aftermath of the Income Tax department’s defeat in the Rs 18,000 crore transfer pricing case against Shell India, the Finance Minister said that unsustainable tax demands shall only earn India a bad reputation as an investment destination and not add to actual tax collection since the courts shall remain ready to block them. He added that a retrospective amendment of the tax laws crafted by the previous UPA Government may also be necessary. This shall only attract more foreign investment and support the ‘Make in India’ campaign. Banking looks up This week the BSE Bankex was the top sectoral gainer at the BSE. The State Bank of India (SBIN) saw a tremendous rise before the stock split was effected on Thursday, November 20, 2014. While the State-run bank had seen its highest intra-day level in over 3 years on Friday last week following the announcement of its Q2 FY 2014-15 results, the momentum was well maintained through this week. On Thursday, the bank’s stock was split and shareholders received 10 equity shares of nominal value of INR 1 each in lieu of 1 equity share of nominal value of INR 10 each. Subsequently, another surge in demand drove prices up. The ICICI Bank also announced that its stock split would be done on December 5, 2014, driving prices up by about 3 percent. On the private banking front, Kotak Mahindra Bank decided to buy ING Vysya Bank in an all stock USD 2.4-billion merger deal. The merger is yet to receive the go-ahead from RBI and the Competition Commission of India but it does not seem that the deal will face hiccups on that front. With the merger, Kotak Mahindra Bank is likely to become the fourth largest private bank in the country. SEBI is, however, looking into some unusual trading patterns in the Kotak Mahindra shares prior to the merger announcement. Most major banking shares did well this week. Future Group acquires Nilgiris chain Kishore Biyani-led Future Consumer Enterprise (Future Group) has acquired the Nilgiris chain of grocery stores and supermarkets for about INR 300 crore. In this all-cash deal, the Future Group has managed to gain a major foothold in the southern States where the Nilgiris superstores are rather popular. The Future Group is believed to have acquired 97.9 percent stake in the Nilgiris Dairy Farm supermarket chain, from the UK-based private equity firm, Actis. Nilgiris has been in business since 1905 and is very popular in Andhra Pradesh, Karnataka, Kerala and Tamil Nadu. With over 140 stores in these four States, mostly in the larger town, Nilgiris is likely to add much value to the Future Group’s southern operations. India’s shareholder protection ranking goes up One of the major concerns expressed by Prime Minister Narendra Modi during the launch of the ‘Make in India’ campaign was the country’s low rank in the World Bank’s Ease of Doing Business ratings. On Saturday, the Securities and Exchange Board of India (SEBI) Chairman UK Sinha announced that India has made quick progress in terms of shareholder protection and in this parameter alone India has now been ranked 7th in the world in 2014 (up from 49 in 2012) in the Ease of Doing Business Ratings. India’s position based on this parameter is even ahead of better developed economies such as the US. He also revealed that the SEBI was engaging actively with the RBI and the State Governments to inhibit the launch of Ponzi schemes. Apart from the recently passed Depositor Protection Act, a number of legislations to this effect are in the pipeline. Government considers preferential LPG subsidy scheme The Government is considering modifying the LPG subsidy scheme and doing away with the subsidy for the rich. Last week, the Government had launched a new LPG subsidy scheme that entitled all those who had enrolled to avail of the subsidy. This may soon change, though. Commenting on the issue, the Finance Minister said that the NDA Government has moved decisively in the matter of discontinuing the diesel subsidy and linking it to market rates. LPG too was one matter where a bold decision was both required and anticipated from the new Government.