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Market Commentary - Mid Session
Selling pressure continues; breadth weak
(19 Jul 2019, 13:35)

The market moved steeply lower in the afternoon trade, shrugging off positive global cues. Domestic shares came under selling pressure after the government did not offer any respite to foreign investors registered as trusts from the proposed super-rich tax.

At 13:30 IST, the barometer index, the S&P BSE Sensex, was down 489 points or 1.26% at 38,408.46. The Nifty 50 index fell 155.50 points or 1.34% at 11,441.40.

The S&P BSE Mid-Cap index was down 1.67%. The S&P BSE Small-Cap index was down 1.64%.

The market breadth was tilted in favour of sellers. On the BSE, 511 shares rose and 1798 shares fell. A total of 123 shares were unchanged.

Index heavyweight Reliance Industries (RIL) was down 0.58% ahead of its Q1 result today, 19 July 2019.

NTPC (up 2.09%), TCS (up 0.45%), ONGC (up 0.38%), Coal India (up 0.36%) and Titan (up 0.35%) advanced.

Bajaj Finance (down 4.59%), Eicher Motors (down 4.23%), Bajaj Fiserv (down 3.89%), Mahindra & Mahindra (down 3.40%) and IndusInd Bank (down 3.22%) declined.

Tata Motors fell 3.26%. The auto major said that it incorporated a wholly owned subsidiary company named Brabo Robotics and Automation with effect from 17 July 2019. Brabo Robotics and Automation is engaged in manufacture of machinery and equipment relating to factory automation and robotics. The announcement was made after market hours yesterday, 18 July 2019.

Larsen & Toubro was down 1.63%. The company announced during market hours today, 19 July 2019, that the power business of Larsen & Toubro has bagged significant engineering, procurement and construction (EPC) orders from Damodar Valley Corporation (DVC) to set up flue gas desulphurisation (FGD) systems in three power plants of DVC - Durgapur Steel Thermal Power Station (2x500 MW), Mejia Thermal Power Station (2x500 MW) and Raghunathpur Thermal Power Station (2x600 MW) - in West Bengal. The valuation of the orders in the significant category falls between Rs 1000 to Rs 2500 crore.

JSW Steel was down 1.99%. The company announced during market hours today, 19 July 2019, that it has begun the roll-out of JSW Platina, premium tinplate targeted at packaging industry.

Finance minister Nirmala Sitharaman on Thursday declined to remove or relax the applicability of the new surcharge on the super rich on foreign portfolio investors (FPIs), but advised those staring at an increase in tax outflows to shift to the corporate structure where the Budget has not made any change in tax treatment.

Replying to a debate on the Finance Bill in the Parliament on 18 July, Finance Minister Nirmala Sitharaman dismissed the argument of the Opposition that the tax would lead to a flight of foreign portfolio investors (FPIs). It will have an impact on FPIs registered as trusts. There is an option for FPIs to register as companies. If they are registered as companies, they don't have a problem with this new tax, Sitharaman said. She said a trust was treated as an individual entity and came under the tax.

Sitharaman in her maiden Budget speech on 5 July 2019, proposed to enhance surcharge on individuals having taxable income from Rs 2 crore to Rs 5 crore and Rs 5 crore and above so that effective tax rates for these two categories will increase by around 3% and 7% respectively. The effective tax rate on the highest tax bracket goes up to 42.7% after the hike.

There are concerns that the increased surcharge on super-rich could also affect foreign funds investing in India since a same tax structures apply for individuals, Hindu Undivided Family (HUF) and Associations of Persons (AOPs). FPIs, including pension and retirement funds, educational endowment fund, etc, come in through trusts or AOPs route because it has been the most tax-efficient structure.

The Lok Sabha passed the Finance Bill by voice vote, completing the budget process for 2019-20 in the Lower House. It will now go to the Rajya Sabha. A money bill does not need Upper House approval.

Overseas, shares in Europe and Asia advanced on Friday, as comments from US Federal Reserve official cemented expectations of a US interest rate cut later this month.

US stocks closed higher Thursday, after New York Federal Reserve President John Williams said the central bank's wisest strategy is to cut interest rates at the first sign of economic distress when interest rates are already low.

The Fed is widely expected to cut interest rates at the conclusion of its two-day July 30-31 policy meeting.

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