The finance minister clarified that the tax, which the Budget proposed on purchases of exchange-traded securities, will only be applied to delivery of securities and will be shared between the buyer and the seller. While the proposed 0.15 per cent transaction tax on securities purchases would apply only to delivery-based trades, transaction tax has been proposed to cut to 0.015 per cent on non- delivery-based transactions, and 0.01 per cent on the trades in the derivative segment.
Following the relaxation in transaction tax, the market advanced steadily since Wednesday, after a flat opening during the week. (In two sessions, Monday and Tuesday, the BSE Sensex gained 6.71 points). The relaxation in turnover tax resulted in a rise in volumes on both the domestic bourses. Average combine volumes of the BSE and the NSE recorded in the week was Rs 2,997.34 crore (Rs 2,604.13 crore). Volumes had dropped during the previous week as day traders stayed away in protest against the proposed 0.15 per cent transaction tax. Meanwhile, FII remained net buyers on the bourses, putting in Rs 224 crore in the first four sessions of the week.
So far, the trend in quarterly results has also been extremely encouraging, which has also been one of the major reason for the rise in the market. Of the 354 quarterly results available so far, the aggregate net profit of 351 companies has risen 48.7 per cent to Rs 5,943 crore, while sales witnessed a 33.6 per cent rise to Rs 60,022 crore. Among the major results, Wipro, Satyam Computer, Bharti Tele Ventures, Tata Steel, Uttam Galva Steel and Allahabad Bank were some of the companies that reported strong performance during the week.
Meanwhile, rising inflation and monsoon worries deterred the players from taking huge positions in the market, who had booked profits at higher levels. Since the Indian economy depends highly on agriculture, the monsoon is crucial for maintaining the targeted economic growth For the week ended July 18, 2004, inflation rates rose to 6.52 per cent.
PGR Prasad, MD, SBI Mutual Fund, said: Concern over monsoon and hardening of interest rates is worrisome, but presently its not alarming. Fundamental growth in the country still continues, which is why FIIs have also not changed their view on the Indian markets. If the finance bill is passed without any hitches, then the flow of funds will continue into the equity market. Mr Prasad further attributed the firmness in the market to the initial run-up of the forthcoming TCS IPO.