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Indian Indices Spike Upwards
Wed, 1 Jun 11:30 am

After opening the day on a positive note, the Indian stock markets have added to their early gains. Sectoral indices are trading on a positive note with stocks from the telecom and FMCG sectors leading the gains.

The BSE Sensex is trading up 152 points (up 0.6%) and the NSE Nifty is trading up 43 points (up 0.5%). The BSE Mid Cap index is trading up by 0.4%, while the BSE Small Cap index is trading up 0.7%. The rupee is trading at 67.16 to the US$.

Service tax will be charged at 15% as the Krishi Kalyan cess of 0.5% comes into force from today. Similarly, a luxury tax of 1% will be imposed on cars priced above Rs 10 lakh and services valued at above Rs 2 lakh.

The development will push up retail prices of almost all everyday products, and services, including air travel, restaurant meals, movie tickets, telecom, credit card, electricity and mobile bills.

In Budget 2015-16, finance minister Arun Jaitley raised the service tax rate from 12.36% to 14%. The Swachh Bharat cess of 0.5% came into effect in November. Add Krishi Kalyan cess to this and service tax will increase to 15%. The revenues collected through the Krishi cess would be used for financing initiatives relating to the improvement of agriculture and welfare of farmers.

Further, the luxury tax is a part of the government's strategy to clamp down on cash transactions. Arun Jaitley had stated in the in the Budget that the aim of the tax is to reduce the quantum of cash transaction in sale of any goods and services, and for curbing the flow of unaccounted money in the trading system. Do read this interesting article by Vivek Kaul, editor of Vivek Kaul's Diary, where he explains correlation of car sales to black money.

The above increase in service tax rate could push up inflation rates. And a high inflation rate will mean less chances of an interest rate cut by the Reserve Bank of India (RBI).

Moving on to the news from the steel sector. Tata Steel's UK operation - Tata Steel UK has completed the sale of its Long Products Europe business to investment firm Greybull Capital LLP.

Under the agreement signed in April, Greybull Capital paid a nominal fee for the entire long-products business and takeover of Tata Steel UK's assets and liabilities. The deal includes a £400 million investment and financing package for the business, as well as agreements with suppliers and unions on cutting costs.

The sale follows an accelerated process of negotiations between Tata Steel UK and Greybull Capital to achieve this outcome.

On 29 March, Tata Steel decided to sell its UK operations, called Tata Steel Europe Ltd. This came as the company failed to turn around the business it bought as part of the takeover of Corus at the height of the commodity boom in 2007 for US$12.1 billion. The business suffered almost a decade of losses amid poor demand and cheap Chinese imports.

Radhika Pandit, Managing Editor, ValuePro had written an interesting piece on this matter in one of the editions of The 5 Minute WrapUp titled 'The Perils of Big Acquisitions Spare No One...Not Even the Tatas'.

Steel stocks are trading on a positive note with Tayo Rolls and Jindal Saw leading the gains. The stock of Tata Steel is trading up by 0.7%.

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