Indian Stock markets tumble further

Mon, 23 May 01:30 pm

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The Indian stock market indices have extended their losses in the last two hours of trade. Except FMCG, all other sectoral indices are trading in the red. Stocks from the banking, metal, realty and auto space are the biggest losers.

The BSE-Sensex is down 352 points while NSE-Nifty is trading 107 points below the dotted line. Both BSE Midcap and BSE Small cap indices are down 1.4% each. The rupee is trading at 45.31 to the US dollar.

Most of the software stocks are trading in the red with Mahindra Satyam, NIIT Ltd and Moser Baer India leading the pack of losers. However, Patni Computers and Mphasis Ltd are trading firm. As per a leading financial daily, Wipro has come under the tax scrutiny for body shopping, the infamous term for onshore contracts. Onshore development refers to the practice of IT companies sending their employees to work in overseas markets. Under these arrangements, the foreign company pays the Indian firm for the services of each employee while the domestic company pays a daily allowance over and above the salary paid to them. Software firms currently pay no tax on this income, claiming deduction under Section 10A of the Income Tax Act.

The tax authority justification of charges is that body shopping involves export of manpower. Around six months back, Infosys was slapped with Rs 4.5 bn tax demand for the same reasons. Tax authorities have not yet made a claim on Wipro. However, a scrutiny notice has been sent to the company seeking details of services provided to clients for assessment year 2008-09. The IT Department has also challenged Infosys for what it calls the dual benefits (claimed by IT companies).It wants IT companies to reduce the amount spent in foreign exchange to pay staff sent abroad from the total export turnover. The stock of the company is trading in the red.

Energy stocks are trading mixed with ONGC, Petronet LNG and MRPL leading the pack of losers. However, HPCL and Chennai Petroleum Corporation are trading firm. As per a leading financial daily, Gujarat State Petronet Ltd has bagged a contract from Petroleum and Natural Gas Regulatory Board (PNGRB) to lay three cross country gas distribution lines - Mallavaram Bhilvara, Mehasana Bhatinda and Bhatinda Jammu pipelines. The initial capital expenditure to build these pipelines is estimated at Rs 125 bn. It will have the capacity to carry around 95 mmscmd of gas.

The company led consortium was the one to bid the lowest and was issued a letter of authorization this month. It plans to form a special purpose vehicle (SPV) for this project. The company has a 52% stake in the consortium and other partners are IOC (26%), BPCL (11%) and HPCL (11%).It is the second largest transmission company after GAIL and operates more than 1,900 km pipeline network in Gujarat. Adding the proposed network for these pipelines, the area under operation covers around 2,500 km. The stock of the company is trading in the red.