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Auto stocks being shunned early on
Fri, 6 Feb 09:30 am

The major Asian stock markets have opened the day on a mixed note with Singapore (up 0.88%) and Japan (up 0.77%) leading the pack of gainers. However, Chinese markets (down 1.14%) are trading in the red. The Indian markets have opened on a positive note. Most of the sectoral indices are trading in the green with stocks from IT and consumer durables witnessing maximum buying interest. However, auto stocks are trading weak.

BSE-Sensex is currently trading up by about 39 points (up 0.14%), while the NSE-Nifty is higher by about 9 points (up 0.1%). Both BSE Mid Cap and BSE Small Cap indices have too opened the day in green, up by 0.21% and 0.15 % respectively. The rupee was trading at Rs 61.73 to the dollar at the time of writing.

As per news reports, in the upcoming budget scheduled on 28th February, the government is planning to scrap dividend distribution tax (DDT) altogether. Currently, DDT is in the range of 15-17% and is paid by corporates. Earlier dividends were taxed in the hands of shareholders. If DDT is scrapped, corporates would stand to benefit and shall be inclined to dole out their surplus cash as dividends rather than hoard the same for tax reasons. This shall also boost investor sentiment but impact the revenue targets of the government. If DDT is indeed scrapped government will have to look out for alternative ways to boost its revenues.

It seems like government already has a solution up its sleeves arising from the loss of revenues if DDT gets scrapped. It is planning to impose customs duty on crude oil imports in the upcoming budget in a move to shore up its revenues. This move is likely to fetch the exchequer around Rs 140 bn. It may be noted that government had scrapped customs duty on crude oil import in 2011 when the oil prices were high. However, since prices have declined sharply in the last few months the government is mulling imposing the duty again. The rate could be 3%, if news reports are to be believed. This coupled with a gradual rise in excise that has been affected in the last few months should help government plug the fiscal deficit to a large extent.

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