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In a move that would benefit equity mutual fund investors, the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) today slashed Securities Transaction Tax (STT) on buying and selling of equity-oriented units.

Effective from June 1, all transactions on the exchanges involving sale of equity mutual fund (MF) units will attract STT of 0.001 per cent against the current 0.1 per cent. While buying, investors would not have to pay any STT, currently 0.1 per cent.

The exchanges’ decision is in line with the Finance Act, 2013, wherein the finance minister had proposed cuts in STT in the Union Budget. The proposal received Presidential assent on May 10, 2013.

India’s MF sector has welcomed the implementation of the said proposal three months after it was proposed. “This is a positive move for the industry and investors, in particular, will get the benefits,” says Jimmy Patel, chief executive officer of Quantum Mutual Fund.

There are two instances of STT charges when redemption happens from equity schemes. First, when the funds sell units and second, when investors redeem. Though industry executives say it will give a fillip to equity investments as security transaction fees are now almost zero, they are quick to add that while redeeming, investors do not necessarily calculate how much fees s/he is paying.

At present, the sector manages around Rs 1.75 lakh crore in equity assets comprising a little over 20 per cent of the sector’s overall assets under management.

STT was introduced in 2004 and is levied on the sale and purchase of equities. Apart from the equity mutual fund, sale of futures in securities will also be charged lower STT at 0.01 per cent against the current 0.017 per cent, a decline of around 40 per cent.

However, in the case of buying and selling of equity shares, where the contract for the purchase and sale is settled by the actual delivery or transfer of such share, the prevailing STT of 0.1 per cent will continue without change. Similarly, cases where equity share or equity-oriented fund units are sold (the contract for the sale of such share or unit is settled otherwise than by actual delivery), the seller will continue to pay 0.025 per cent as STT.

On sale of an option in securities too, there are no changes to the prevailing transaction rates, which would continue to be 0.017 per cent. And, in case the option is exercised, the buyer would end up paying the same fees of 0.125 per cent.

In a setback to the jute sector, the Union food ministry has recommended dilution of the Jute Packaging Materials Act of 1987 (JPMA), pressing instead for a 30 per cent use of plastic bags for packing foodgrain in the 2013-14 agriculture season.

It has based this on a recent price policy report on raw jute for 2013-14 by the Commission for Agricultural Costs and Prices (CACP). The CACP said reservation in the JPMA should be reduced to 70 per cent of the total need. JPMA provides for mandatory use of jute bags for packaging of foodgrain and sugar up to 100 per cent by government procurement agencies. The food ministry is the biggest purchaser of the annually produced 2,000 million jute bags. About 35-40 per cent of jute bags produced by the industry are purchased by the food ministry on behalf of different state food procuring agencies and the Food Corporation of India (FCI).

"The dilution proposal is very unfortunate. If implemented, it will shrink further. The industry will lose around Rs 2,000 crore if this happens. Though the textile ministry is supposed to take care of the industry, it is neglecting our concerns. There are alternative jute bags available for packaging of foodgrains but these are not being used," said Sanjay Kajaria, joint managing director, Hastings Jute Mill and former chairman, Indian Jute Mills Association. The total market for jute bags, including exports, are estimated at around Rs 10,000 crore.

In 2012-13, the Cabinet Committee on Economic Affairs allowed 10 per cent use of plastic bags for packing foodgrain and 60 per cent for sugar. According to the food ministry, the industry has a peak capacity to supply 2.5-3 million bales (a bale is 180 kg) of jute bags, while the yearly requirement is 3.5-4 million bales.

In a recent letter, Union food secretary Sudhir Kumar complained to his counterpart in the textiles department, Zohra Chatterjee, that for the past two to three years, the state grain procuring agencies were facing many problems regarding timely supply of packaging material. To relax pressure on the grain producing farmers, the JPMA should be eased by 30 per cent, Kumar suggested.

In 2011, Madhya Pradesh witnessed law and order problems because of irregular supply of jute bags. In its proposed arguments before the coming meeting of the Standing Advisory Committee on jute, the industry has claimed the demand for jute bags is lower than production. And, that there are no proven records of supply default to food procuring agencies and FCI.

The Jute Advisory Board at its meeting on May 10 had projected an estimated total production of 12 million bales for 2013-14 . This includes 11.2 million bales of jute and 0. 8 million bale of mesta. In 2012-13, the production was 11.4 million bales, including 10.8 million bales of jute and 0.6 million bales of mesta.

Global equity and bond markets, especially in Japan, were spooked today post the US Federal Reserve’s comments on the third round of bond buying programme, commonly known as quantitative easing (QE3). Adding to the woes was China HSBC Purchasing Managers’ Index for May that fell to a seven-month low at 49.6.

Japanese government bond prices dived and 10-year Japanese government bond (JGB) futures saw yields jump to as high as one per cent, its highest level since April 2012, prompting the Tokyo Stock Exchange to temporarily suspend trade as the dollar hit a near three-year high.

The dollar’s rise was followed US Federal Reserve Chairman Ben Bernanke’s statement, in which he said the Fed’s massive bond-buying programme would remain in place for now. However, what came as a surprise was a hint that the US Fed may be looking to scale back the quantum of buying it does each month of around $85 billion.

“While Bernanke’s apparently hawkish remark may have been an innocent attempt to illustrate the flexibility of the Fed’s asset purchase programme, it did confirm the market’s suspicion that the FOMC is at least talking about tapering off QE3 in the next few months, and for some in the market, it is even a signal that we may see the Fed tapering off QE3 in the near future,” noted Jan Lambregts, managing director, global head of financial markets research, Rabobank International.

“Since fiscal policy uncertainty is likely to restrain the recovery at least until September, we do not expect a meaningful acceleration in the US labour market before Q4. Therefore, our guess is that the Fed will slow down asset purchases in Q12014, before terminating QE3 altogether later in 2014,” he added.

Free fall
Asian shares fell and extended their losses after a survey showed that China’s May factory activity shrank for the first time in seven months. Japan’s Nikkei lost nearly eight per cent after rising as much as two per cent in early trade, while MSCI’s broader index of Asia-Pacific shares outside Japan fell 1.5 per cent. Hang Seng, Taiwan Weighted and KOSPI also skidded 1.3 per cent – 2.8 per cent.

Back home, the rupee fell to its lowest in over eight-and-a-half months on Thursday to a low of 55.92, heading for a fifth consecutive session of falls.

An impact of these developments was also visible on the bourses with the benchmark indices – the Sensex and the Nifty – slipping nearly two per cent to sub-20,000 and 6,000 levels in intra-day deals, respectively.

“It is just a global trigger that led to the sell-off in the Japanese markets and what we are seeing in the Indian markets is just a reflection of the same. I think the bigger worry is China’s PMI that fell below 50. The Fed would wind up QE3 in a calibrated form, if at all it happens, and will not impact the growth factor in the US. But I think the market is over-reacting to all the news flow and worrying about the quantum of bond purchases,” observes N Sethuram Iyer, CIO, Daiwa Mutual Fund.

“We have seen significant rise in valuations in the past couple of weeks. So, a correction was in the offing and since it was triggered by a global event, I would not read too much into that. I think if the market corrects one or two per cent further from where we are, it could be used as a good buying opportunity. I think now the investors’ focus will shift to fundamentals,” Iyer adds.

The road ahead
So, what should you interpret from all this? Are the markets factoring in all the negatives and is it a good time to buy?

Notes Gaurang Shah, assistant vice president, Geojit BNP Paribas Financial Services: “The run-up in Nikkei had been significant in the past six months, so, a seven per cent fall on a closing basis would not be surprising. However, the developments will have a spillover effect on other indices, such as Hang Seng. Moreover, European futures are already trading negatively; so a risk-off sentiment is already in place.”

“In the Indian context, the Nifty has gained nearly 700 points in just one month. Hence, a sell-off seems normal. But yes, the rupee continues to remain a huge concern. Overall, I would say we are better placed as compared to the other emerging market economies given the outlook for commodities and interest rates,” he adds.

Experts suggest the rupee will continue to trend higher against the US dollar (USD). “For the Indian currency, it’s a clear break of trend, which was in the range of 50-55 against the USD. Now, one can expect the levels of 56-58 in the near future with intermittent corrections,” said Abhishek Goenka, chief executive officer, India Forex Advisors.

“Bernanke’s statement has created an atmosphere of uncertainty and nervousness. Yesterday’s fall in bond prices in international markets and elevation in dollar subsequent to the statement, have negatively impacted Indian gilt prices and the rupee. Going ahead, I don’t expect much more fall for the Indian bonds from the current levels,” observed Rupa Rege Nitsure, chief economist, Bank of Baroda.

As regards individual stocks, Shah of Geojit BNP Paribas expects high beta stocks to be affected the most. “Ranbaxy is a sell at current levels, as factors are more corporate driven. Maruti Suzuki, on the other hand, was basking on the rupee-yen situation but other factors like monthly auto sales will need to be looked at. The sectors that will be most affected will be real estate, infrastructure, etc,” he says.

Rebounding from nearly two-week lows, the BSE benchmark Sensex on Friday snapped a four-day downtrend by ending 30 points higher on the back of strength in Tata Steel, ICICI Bank, L&T and Tata Power shares.

However, the index ended around 3 per cent lower on a weekly basis as Sensex shed over 580 points from last Friday.

After plunging nearly 390 points on Thursday, Sensex resumed on a strong note at 19,813.72 but fell to a low of 19,571.91 intra-day. However, a late surge in beaten down stocks helped the index settle 30 points, or 0.15 per cent, higher at 19,704.33.

Shrugging off its weak Q4 performance, shares of Tata Steel gained 4.56 per cent on and was the top gainer in Sensex.

The 50-share NSE Nifty index closed higher by 16.50 points, or 0.28 per cent, at 5,983.55. MCX-SX flagship index SX40 closed marginally lower by 1.17 points at 11,681.13.

Buying mainly in consumer durable, metal, capital goods, banking and power scrips supported rise in indices. However, Sun Pharma, TCS, ITC, SBI, Infosys and Tata Motors saw fall.

"With earnings season nearing its end, markets would await for signs of monsoons and development in global markets," said Sanjeev Zarbade, VP - PCG Research, Kotak Securities.

Second-line shares also were in demand with S&P BSE-Midcap and S&P BSE-Smallcap outperforming Sensex. TTK Healthcare, Taj GVK Hotels, United Breweries, JM Financial, United Spirits and Amara Raja notched up strong gains on Friday. today.

However, Wockhardt after plunging by 20 per cent yesterday again fell by 6.5 per cent on concerns over its US business.