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Reports hinting at government reviewing long-term capital gains tax also act as catalyst

Equities staged a strong rally in the second half of the trading session after reports poured in that the government is likely to roll back the higher tax on foreign investors. The levy was introduced in the recent Budget.

The benchmark Sensex rallied more than 650 points from the day’s low to close at 37,327.36, gaining 636.86 points or 1.74%. Incidentally, the first half of the trading session saw the indices staying range-bound due to the absence of strong positive triggers.

The broader Nifty reclaimed the psychological 11,000-mark to close at 11,032.45, gaining 176.95 points or 1.63%.

Earlier in the day, reports suggested that the government was likely to withdraw the tax surcharge that was introduced for entities earning more than ₹2 crore.

Most foreign portfolio investors (FPIs) who have structured themselves as trusts and not corporate entities, would be liable to pay the tax.

“Such a move will be strongly welcomed by the markets reeling under unprecedented selling avalanche from the FPIs after the Union Budget due to a host of domestic and international headwinds,” said Ajay Bodke, CEO — Portfolio Management Services, Prabhudas Lilladher.

“Refusal to roll back the surcharge on FPIs and absence of a fiscal stimulus to beleaguered sectors such as autos and NBFCs are the principal reasons for the plunge in Indian equities.

‘Tax relief can spur rally’

“Any move to offer generous relief on both these counts can lead to a massive short covering by speculators and a strong rally due to buying from FPIs and domestic institutional investors,” he added.

Reports that the government is also reviewing the long-term capital gains (LTCG) tax also acted as a catalyst in boosting investor sentiments.

The late surge in the markets was led by auto, financials and technology heavyweights. Top gainers in the Sensex pack were HCL Technologies, Tata Motors, M&M and Bajaj Auto.

In all, 27 of the Sensex constituents ended the day with gains. On a broader level, gainers at 1,351 managed to outnumber declines that were pegged at 1,069. Most of the sectoral indices gained in excess of 1% each on Thursday.

Provisional numbers showed that foreign investors were net sellers at ₹437 crore, which was lower than the quantum of selling on most days in the recent past.

Net retail inflows for July almost doubles month-on-month to ₹15,561 crore

Mutual funds registered strong inflows, especially through systematic investment plans (SIPs), in July even as the stock markets registered extreme volatility with a downward bias during the month.

According to the Association of Mutual Funds in India (AMFI), July saw net inflows of ₹8,324 crore by way of SIPs, which was the highest such monthly inflows in the last three years. In the previous month, SIP net flows were pegged at ₹8,122 crore.

Further, the number of folios also registered a marginal increase to 2.78 crore in July from 2.73 crore in the previous month. Corroborating the strong retail interest in mutual funds, the month also saw net retail inflows of ₹15,561 crore, which was nearly double that of last month, when such flows were pegged at ₹8,367 crore.

“Despite a difficult month and volatile market conditions, the overall sentiment towards debt, equity and hybrid mutual fund schemes has been positive, and equity SIP contributions are at all-time high over last three years,” said N.S. Venkatesh, chief executive, AMFI.

“This conveys signs of maturity on the part of retail investors and is reflective of continued investor trust in the Indian MF Industry,” he added.

On an overall basis, the assets under management (AUM) of the mutual fund industry rose to ₹24.54 lakh crore in July from ₹24.25 lakh crore in the previous month.

‘Dip in valuations’

While the SIP assets under management witnessed a marginal dip in July, he attributed the dip taken on account of mark-to-market valuations. Incidentally, the benchmark Sensex lost 4.86% or 1,914 points in July.

“Investors are remaining invested either through the SIP or other routes. The flows have been positive both, at the overall and retail levels. Despite market showing volatility, continuous investment is happening,” said Mr. Venkatesh, while adding that though the RBI has done a minor correction in its GDP projection numbers, the fundamentals of the economy were still strong.

‘FinMin to ensure rate cuts passed on’

In one voice: Sanjiv Puri, Rishad Premji and Balesh Sharma at a collective meeting with the Finance Minister. pti

The government has given an assurance that it will not initiate punitive action against companies not following the Corporate Social Responsibility (CSR) norms as mentioned in the recent amendments to the Companies Act, industry leaders said, following a meeting with Finance Minister Nirmala Sitharaman on Thursday.

The Finance Ministry will also be looking into ways to ensure that the rate cuts undertaken by the Reserve Bank of India are passed on to consumers by banks.

“A lot of discussion took place on the availability of credit, but any decision taken will be done after the government finishes its consultations,” Sajjan Jindal, chairman and managing director of the JSW Group, told reporters following the meeting. “The Minister has categorically mentioned that the RBI cut will be passed on entirely.”

“On CSR, it was discussed that the punitive action will not be taken, that was the assurance that was given,” Mr. Jindal added.

The recent amendments to the Companies Act mandate a jail time of up to three years and a possible fine for those companies and its officials that do not comply with the stated CSR norms.

The other issue that was discussed extensively in the meeting was the transmission of the central bank’s interest cuts by the banks to the customers.

‘Cut small savings rates’

“Government needs to look at the small savings rates and reduce them in line with the market rates,” T.V. Narendran, Global CEO and managing director of Tata Steel and vice-president, CII, said following the meeting. “If that does not happen, then the ability of banks to reduce deposit rates and hence ease the lending rates will be at best limited.”

The meeting was attended by senior Finance Ministry officials. Industry leaders present included Sanjiv Puri, chairman and managing director of ITC, Rishad Premji, executive chairman of Wipro Limited, Suneeta Reddy, managing director, Apollo Hospitals Group, Dilip Shanghvi, founder of Sun Pharmaceuticals, and Ajay Piramal, chairman of the Piramal Group.

Major chunk of ₹350 crore, to be invested this fiscal, will go towards exports, says chairman

SFL is setting up an SEZ at Sri City to make and export high precision engineering components, says Krishna.V. Ganesan

Sundram Fasteners Ltd. (SFL) is focussing on exports to enable the company to tide over the slowdown in the domestic automobile sector.

“Currently, our exports stand at 35% and retail at 10%,” said Suresh Krishna, non-executive chairman, Sundram Fasteners Ltd. “In the coming years, we aim to increase it [exports] to 50%.”

Mr. Krishna also said that SFL had committed to invest ₹800 crore during 2018-19 and 2019-20, of which ₹350 crore would be deployed during the current fiscal.

A significant portion from this would go towards exports.

“We were able to mitigate the adverse impact of the slowdown due to a combination of various measures such as focus on exports, after-market, product innovation, cost reduction themes and adherence to TQM [total quality management] principles,” he said.

“We have managed the downward trend. A good company has to manage both upward and downward trends,” he added.

Q1 net declines

During the first quarter of 2019-20, SFL’s standalone net profit declined to ₹93.11 crore from ₹106.65 crore in the year ago period. Revenue from operations was lower at ₹945.35 crore against ₹968.51 crore. The company reported domestic sales of ₹557.22 crore (₹614.29 crore). Exports were ₹348.28 crore (₹321.71 crore).

In the first quarter of 2019-20, SFL’s domestic sales dropped by 9.3%, compared with the corresponding period last year, while exports revenue increased by 8.3%.

“The drop in overall revenue was 2.5%. If not for growth in exports, the dip would have been higher,” said S. Meenakshisundaram, chief financial officer, SFL.

Mr. Krishna said SFL was in the process of setting up a Special Economic Zone unit at Sri City to manufacture and export high precision engineering components. In order to expand growth in non-auto segments, SFL has incorporated a wholly owned subsidiary named Sunfast TVS Ltd.

The new firm would focus on growth opportunities in aerospace and defence segments and continue to expand SFL’s existing business in the aerospace segment.

On introduction of electric vehicles, he said more charging stations were required for EVs to gain momentum. “One has to deal with the disposal of batteries, which none has talked about,” he said.

Mr. Krishna also disclosed that K. Ramesh, who was associated with SFL as a director since December 1971, resigned in June 2019 due to personal reasons.

Merger synergies, better operational efficiencies boost cement firm’s bottomline

UltraTech Cement Limited’s net profit for the first quarter almost doubled to ₹1,208 crore compared with the net profit of ₹631 crore registered in the year-earlier period, due to merger synergies and better operational efficiencies.

The rise in profit for one of India’s largest cement makers came on a 15% growth in net sales to ₹10,027 crore during the quarter.

The company’s profit before interest, depreciation and tax stood at ₹2,840 crore compared with the ₹1,763 crore in the year-earlier period. The company achieved an operating EBITDA per tonne of ₹1,466 as EBITDA margin improved to 28% compared with the 19% in the year-earlier period.

Overhauling of plants

“With major overhauling of the plants and completion of quality upgradation, UltraTech’s Nathdwara Cement Limited has been fully integrated with UltraTech systems and processes. The plants have achieved optimal efficiencies,” said the company in a statement.

The cement plants acquired from Jaiprakash Associates in 2017 are operating in line with the existing plants of the company and have achieved PBT (profit before tax) break-even during the quarter. The company’s Bara grinding unit is scheduled for commissioning during Q3 FY20 due to project delays.

The company is in the process of merging the cements division of Century Textiles with itself and after completion of the transaction and coupled with the ongoing expansions, UltraTech Cement will achieve an installed capacity of 117.35 MTPA, inclusive of its overseas operations.

The company has repaid over ₹1,000 crore worth of debt during the quarter to take its outstanding debt to ₹18,565 crore.

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