Mumbai: When Dalal Street opens on 18 June, stock movements are likely to be determined by ICICI Bank’s follow-on issue and the government’s new income tax directive distinguishing stocks as trading and investment assets.
While there are no fundamental triggers with the earnings season coming to a close, market direction could depend on how the latest circular by Central Board of Direct Taxes (CBDT) affects various players.
According to the circular issued after market closed on Friday, 15 June, market players will have two sets of options — whether to classify their holding as investment or trading and whether to put money in primary or secondary market.
An investor’s portfolio can be divided into investment and trading assets, which would be treated as capital gains and business income respectively for tax purposes.
The circular assumes even more significance as it might bring some of the FIIs, a major force behind movements in Indian markets, under tax net.
Most of the FIIs investing in India are registered in Mauritius and are exempt from capital gains tax due to the double-taxation avoidance treaty between the two countries.
However, the new CBDT circular noted that for calculating tax liability of FIIs, tax officials should verify whether the shares held in their books are valued as stock in trade or held as capital assets.
Besides FIIs, the circular might impact dealings by domestic players as well because income from trading assets is considered as business income and attract over 30 per cent of tax rates, as against short-term capital gains tax of 10% and no tax on long-term capital gains.
In another major development in the market, ICICI Bank’s mega follow-on public offer would open on 18 June, from which the company is planning to raise up to Rs10,000 crore ($2.4 billion), including a green shoe option.
Some market observers believe the secondary market might take a beating if investors decide to book profits to divert funds into the primary market, which is also likely to witness some other big issues like those from HDFC Bank and SBI soon.
However, similar predictions were made before real estate giant DLF’s initial public offer hit the market. However, the issue failed to have any visible impact in secondary market.
While factors like falling inflation and a satisfactory monsoon are being seen as positive drivers for the bourses, experts expect mostly side-ways movements in next few weeks before the earnings season starts by middle of next month.
The Bombay Stock Exchange’s 30-share Sensex settled at 14,162.71 points on Friday, with a gain of about 100 points in the past week after moving sideways in a range of less than 300 points.
There are some companies like Indian Hotels, Godfrey Phillips India, Inox Leisure, Educomp Solutions and Aban Offshore scheduled to declare their audited results next week, but their impact is likely to remain stock-specific.