Tuesday, December 29, 2015
Investor anxiety is definitely growing around the world, but the question is will it also hit the United States. Japan's faith in the radical reforms of Abenomics is failing, while China's growth is slowing. Latin America is also a mess - from Brazil's massive corruption scandal to Argentina's efforts to turn around its government. The mood doesn't get better in Europe, as the continent faces an economic and refugee crisis, and Britain threatens to leave the EU. On the political and security front, the implosion of the Middle East continues.
Monday, December 28, 2015
Japan's factory output and retail sales both fell 1% in November, suggesting that a clear recovery in the world's third-largest economy will be delayed until 2016. On Friday, the country was hit with a raft of disappointing figures, including inflation data, household spending, jobless claims and falling incomes. The numbers could also put more pressure on the Bank of Japan to expand its stimulus program, which was last fine-tuned on Dec. 18 to ensure it can maintain and accelerate its money-printing.
Monday, December 21, 2015
Brent crude is shattering records, losing a fifth of its value in the last month and a third since early October. The benchmark has now hit levels not seen since 2004, skidding 2% to as low as $36.06 per barrel, as oversupply concerns and a strong dollar continue to weigh on the market. With a ban on U.S. oil exports lifted and new supplies looming from Iran, West Texas Intermediate crude is also feeling the pressure, down 0.9% at $34.42/bbl, its lowest since February 2009.
Wednesday, December 16, 2015
The day we've all been waiting for has finally arrived. The Federal Reserve is expected to hike interest rates when its two-day policy meeting concludes later today, marking the end of a decade of near zero interest rates. But how much and how fast could the Fed raise rates in the coming months? The answer to that question is likely to come from the triple-dose of news the central bank will issue this afternoon - a policy statement, economic forecasts and a news conference by Chair Janet Yellen. Stocks are green across the globe ahead of the big decision.
Sunday, December 13, 2015
China's yuan traded at its lowest level in over four years as Beijing continues to let the currency devalue. The yuan fell to as low as 6.4515 to the dollar. Some economists think that the People's Bank of China will allow the yuan to float lower until the Federal Reserve meets next week.
Thursday, December 10, 2015
The Swiss National Bank left its interest rates unchanged in negative territory today, declaring that it would remain active if necessary to weaken the highly-valued Swiss franc. "Despite depreciating somewhat in recent months, the franc is still significantly overvalued," the central bank said in a statement. The SNB kept its target range for three-month Libor at between -1.25% and -0.25%, and maintained a -0.75% interest rate on sight deposits.
Tuesday, December 1, 2015
The IMF added the yuan to its Special Drawing Rights basket yesterday, but what does that mean for the currency? 1) Effective Oct. 1, 2016, the renminbi will officially be recognized as a reserve currency, meaning central banks will have an alternative for foreign exchange reserves. 2) The basket's currency weighting will get mixed up, with the euro seeing the biggest percentage drop from the new formula. 3) The yuan also meets criteria of being "freely usable," or widely used for international payments and in foreign exchange markets, boosting China's influence in the global economy.
Monday, November 30, 2015
The International Monetary Fund is expected to grant China's yuan reserve currency status at an executive board meeting today, in a decision that will elevate the renminbi and China's influence in the global economy. The group's benchmark currency basket, also known as special drawing rights, so far only contains the dollar, euro, pound and yen. While the decision is likely to be announced later today, the yuan will not officially become a reserve currency until September 2016.
Friday, November 27, 2015
S. 32/ 43(6): Even assets installed in a discontinued business are eligible for depreciation as part of 'block of assets'
CIT vs. Sonic Biochem Extractions Pvt. Ltd (Bombay High Court)
Once the concept of block of assets was brought into effect from assessment year 1989-90 onwards then the aggregate of written down value of all the assets in the block at the beginning of the previous year along with additions made to the assets in the subject Assessment Year depreciation is allowable. The individual asset loses its identity for purposes of depreciation and the user test is to be satisfied at the time the purchased Machinery becomes a part of the block of assets for the first time
Thursday, June 4, 2015
Bond yields across global markets continued their sell-off into Thursday as a six-week-long bond rout rumbled on. Yesterday, ECB President Mario Draghi said asset prices tend to be more volatile in a low interest rate environment and policymakers were prepared to look through the sharp rise in yields. With the ECB seeing no reason to adjust its stance on monetary policy, German 10-year Bund yields rose to fresh 2015 highs today at 0.95% (up from near zero in mid-April). U.S. 10-year yield +3 bps to 2.4%.
Wednesday, June 3, 2015
Indian Meteorological Department (IMD) has revised its projection for the monsoons this year for the worse, stating that the probability of weak monsoons has risen to 93% from 68% earlier. The chart below indicates the prior year projections versus the actual rainfall and the projections made for the current year by the two institutions - IMD and private weather forecaster Skymet. As you can see, the jury is mixed on how the monsoons are likely to pan out this year between the two forecasters.
Data source: Business Standard, Department of Agriculture, IMD and Skymet; LPA - long period average
It, however, does seem that the markets are going with the more pessimistic view (that of IMD) considering how they have fallen over the past few days. There is no doubt that monsoons play an integral part in the Indian economy. However, basing investment decisions on such unpredictable outlooks would only lead to more errors in the process. Long term investors would do well to take advantage of market follies in such instances is what we believe.
Tuesday, June 2, 2015
The Reserve Bank of India cut interest rates for the third time this year, lowering its key repo rate by 25 bps to 7.25%, in a move that appears at odds with recent data showing the country's economy has become one of the fastest-growing in the world. Data on Friday showed India’s output expansion accelerated to 7.5% last quarter, outpacing China in terms of growth. Meanwhile, the Reserve Bank of Australia kept rates unchanged at a record low of 2.0% today, in line with analysts' expectations.
Monday, June 1, 2015
Transfer Pricing: The transaction of allowing credit period to the AE on realisation of sale proceeds is not an independent transaction and has to be considered along with the main international transaction of sale of goods
ACIT vs. Information Systems Resource Centre Pvt. Ltd (ITAT Mumbai)
The transaction of allowing the credit period to AE on realization of sale proceeds is not an independent international transaction but it is a closely linked or continuous transaction along with sale transaction to the AE. The credit period allowed to the party depends upon various factors which also includes the price charged by the assessee from purchaser. Therefore, the credit period extended by the assessee to the AE cannot be examined independently but has to be considered along with the main international transaction being sale to the AE
S. 43(5)(d): Loss from trading in derivatives is not a speculation loss and can be set-off against normal business profits
ITO vs. Emperor International Ltd (ITAT Delhi)
Now question arises as to whether the loss suffered by the assessee on derivative was to be treated as a speculative loss or to be set off against the regular business profit. Explanation to clause (d) of Sub-section (5) to Section 43 of the Act provides that eligible transaction in respect of trading in derivatives would not be deemed to be speculative transaction. In the present case, it is an admitted fact that the assessee was engaged in the business of dealing in shares & securities and has incurred loss from dealing in derivatives (shares futures)
Euro zone factory growth was weaker than previously thought last month as the bloc's core countries continued to struggle as prices deteriorated. Markit's final May manufacturing PMI was 52.2, below a preliminary flash reading of 52.3 but just ahead of April's 52.0. "The rate of growth is modest rather than spectacular, Meanwhile The euro tumbled today after Greece missed a self-imposed Sunday deadline for reaching an agreement with its lenders to unlock aid, keeping alive fears of a debt default and exit from the euro zone. The chances for a deal aren't looking any better after Alexis Tsipras' comments on Sunday. Yesterday, the prime minister accused bailout monitors of making "absurd" demands and seeking to impose "harsh punishment" on Athens. Greece is due to repay a €300M loan to the IMF on Friday and three additional payments, totalling about €1.25B, later in June. The euro is -0.7% to $1.0911.
Sunday, May 31, 2015
Switzerland's economy contracted the most since the financial crisis in Q1 as the strong franc took a toll on exports. Gross domestic product fell by 0.2% in the first three months of 2015 compared to revised growth of 0.5% in the prior period. The outlook for the economy suffered a blow in January when the Swiss National Bank removed its currency cap, causing the franc to rally 15% vs. the euro during the quarter
Thursday, May 21, 2015
European stocks are on the decline amid mixed reports on the region's factory activity. France's output contracted less than economists estimated in May, but German manufacturing missed projections, signaling the region's largest economy is losing momentum. Markit's composite flash PMI for the eurozone also fell below analyst expectations, dropping to 53.4 in May from 53.9 in April.
Wednesday, May 20, 2015
Taking advantage of the lower borrowing costs in the eurozone, McDonald's and United Technologies are now the latest big U.S. companies to issue debt in euros (called "reverse Yankee" bonds), selling €2B and €750M, respectively. The total raised by U.S. companies issuing euro-denominated debt so far this year is just over €34B (not including the latest two deals), more than double the previous record of €17B in 2007.
Thursday, May 14, 2015
Consumer inflation continued to remain benign with the April recording inflation of 4.9% YoY. This is lower than March's 5.3% inflation (revised upward from 5.2% reported earlier). Core inflation slightly inched up to 4%, after hitting a three year low of 3.9%. Urban inflation was down to 4.4%, while rural inflation came down to 5.4%
Consumer inflation for April down to 4.9% YoY, lower than March’s 5.3%.
Lower food inflation has led to lower headline numbers; Core inflation inches up to 4%.
Pressure on inflation emerging from possible drought, higher crude oil prices and depreciating Rupee.
High possibility of central bank leaving policy rates unchanged in June, due to upside risks to inflation.
Another risk to inflation is from the depreciation of the Rupee, which has been under pressure for the past one month, primarily due to sell-off of local equities by foreign portfolio investors. INR was trading at 61-63 to the dollar for a long time, but has hit 64/USD during the last week and continues at those levels now. With India importing ~80% of required crude oil, the weakness in INR will translate to higher fuel costs, multiplying the impact of already higher crude oil prices.
The vicious selloff in the European bond market has continued into another session, after German and U.S. bond yields surged to their highest levels in over five months. The startling rise in yields is making equities look more expensive in comparison to debt, keeping stock markets subdued. Yields on German 10-year paper are now up to 0.73%, having been as low as 0.59% on Wednesday, while U.S. 10-year notes have halted their slide.
The dollar languished at three-month lows today after poor U.S. retail sales proved a huge disappointment to those expecting some sort of U.S. rebound from a weather-weakened Q1. The key measure of sales was flat in April, adding to other disappointing data that could see the Fed postpone a rate hike and analysts downgrade their growth forecasts for the rest of the year. The dollar index last traded down 0.5% at 93.27. It has now shed nearly 7% from a 12-year peak of 100.39 set in March.
Tuesday, May 12, 2015
According to the latest report from the Energy Information Administration, oil production from seven major U.S. shale plays is expected to fall by 86K bbl/day in June. Oil output at the Eagle Ford shale play in South Texas is forecast to see the biggest decline, down 47K bbl/day, while production at the Bakken shale play, centered in North Dakota, is expected to drop by 31K bbl/day. Crude futures +1.9% to $60.39/bbl.
The global sell-off in bond markets has resumed, as yields surge on 10-year notes in Italy, Spain, Portugal and Germany. With the full picture still far from clear, strategists and analysts have been hard pressed to pinpoint a specific reason for the shift over the past two weeks. Markets will now focus on rates today and several U.S. Treasury auctions this week to see if Monday's high yields were just the starting point for a new trading range. 10-year Bund yields +9 bps to 0.68%; U.S. 10-year +12 bps to 2.27%.
Monday, May 11, 2015
China's budgetary purchases of crude oil from overseas hitting a new high of 7.4M barrels a day (equivalent to roughly one in every 13 barrels consumed globally) and topping U.S. imports of 7.2M bpd. While China's imports are not expected to consistently surpass those of the U.S. until the second half of this year, the move highlights how the U.S. shale revolution has cut the country’s reliance on oil from overseas - and how China's demand has grown even as its economy slows.
Asian shares rose today as investors cheered the fresh easing measures China announced over the weekend. China's central bank cut its benchmark lending rates by 25 bps to 5.1% on Sunday, its third reduction since November, as economic growth cools to levels not seen since the global financial crisis. The PBOC also reduced one-year benchmark deposit rates by 25 bps to 2.25%.
Tension is building ahead of a key meeting of eurozone finance ministers in Brussels today which will discuss Greek debt concerns, reforms and the likelihood of an imminent deal. Although Greece seems to have enough money to meet Tuesday's deadline for the repayment of €750M to the IMF, the country is perilously close to running out of cash and defaulting on its debt. The IMF is now working with national authorities in southeastern Europe on contingency plans for a Greek default. Euro -0.4% to $1.1157
Sunday, May 10, 2015
Eurozone retail PMI recorded its highest reading in ten months at 49.5 for April, up from 48.6 in March. Growth of retail sales in Germany helped to offset falls in Italy and France. Gross margins continued to fall at a faster rate in a signal conditions are still demanding for retailers, according to the report.
The International Monetary Fund warns the balance of risk in the Asia-Pacific region is tilted toward the downside due to rising debts and a strong U.S. dollar. Although Asia is still seen as a global growth leader, the agency sees a slowing trend. The region is forecast to have a growth rate of 5.6% in 2015 and 5.5% in 2016, according to the new IMF survey. Positive factors for Asia in the near future include moderating commodity prices, strong labor markets, and solid demand from the U.S. and Europe.
Wednesday, May 6, 2015
Sentiments in the Indian markets remained dull throughout that day. At the time of writing, the Sensex was trading lower by about 700 points or 2.5%. Weakness was seen in stocks across the board with engineering, realty and power stocks being the most affected. The midcap and small cap indices fell by about 3% each today as well.
the BSE-Realty index was amongst the top losers today on news of the Real Estate (Amendment) Bill and the Constitution (122nd Amendment) (GST) Bill 2014 getting stalled by the Congress-led opposition in the Rajya Sabha. The real estate bill is now proposed to be sent to the select committee of the Rajya Sabha. The opposition, led by the Congress, has been opposing the amendments made by the NDA government, claiming that it goes against the interest of the buyers and as such is pro-developers.
Crude prices hit fresh 2015 highs overnight, continuing a rally that has surprised many investors almost as much as the steep sell-off that bottomed in mid-March. After gains of 20% for Brent and 25% for WTI in April, oil bulls pushed prices higher again this week, despite indications that OPEC would keep production unchanged at its meeting next month. The EIA is scheduled to issue official stockpiles data at 10:30 a.m. EST. Crude futures +2.5% at 61.89/bbl.
Countering signs that the economy was slowing before Thursday's knife-edge general election. Markit's services PMI climbed to an eight-month high of 59.5 in April from 58.9 in March, beating forecasts for a decline to 58.5. The latest opinion polls seem to show the Conservatives with a slight lead over Labour, although neither are on track to command a majority in the parliament.
Interest payment that fell due on Wednesday, although concerns over its future continued to rattle European markets. Athens faces another €750M repayment obligation to the IMF on May 12 and many commentators are struggling to see where the money is going to come from. The cash-strapped country still remains in a deadlock with creditors over its next tranche of bailout funding.
A worldwide sell-off in government bonds deepened today, buoyed by rising German Bund yields that recently hit record highs and narrowed their gap with U.S. Treasuries. Benchmark 10-year Bunds now trade at 0.53%, having hit a record low of 0.05% last month, when many expected them to turn negative. The vicious bond market meltdown is also raising pressing questions for investors - is this a correction or merely a trend change?
The European Commission raised its euro-area growth forecast today as dwindling fears of deflation and monetary stimulus help the economy overcome pressure from the continuing crisis in Greece. While GDP in the 19-nation bloc is now forecast to increase 1.5% this year (up from a prediction of 1.3% in February), the European Commission slashed Greece's economic growth outlook to 0.5% in 2015, down from an earlier 2.5% estimate. Other GDP forecasts for 2015: Germany +1.9%; France +1.1%; Italy +0.6%.
Tuesday, May 5, 2015
U.S. companies have issued a record $39B of bonds in 2015 that mature in more than three decades, more than five times the amount sold in the same period last year, according to data compiled by Bloomberg. Oracle joined the fold this past Tuesday, selling $1.25B of securities due in 2055. Another notable is Microsoft , which sold its first 40-year bond in February. Treasurers are embracing what may be their last opportunity to lock in cheap long-term funding costs before the Fed raises rates, while investors are snapping up the longer-dated securities because they offer a higher yield over shorter-term debt.
Monday, May 4, 2015
Russian President Vladimir Putin ratified an accord Saturday to set up a $100B reserve fund for the so-called BRICS nations, aimed at reshaping the Western-dominated international financial system centered around the IMF and World Bank. China is poised to provide the largest share of $41B to the pool, while Russia, Brazil and India will provide $18B each. South Africa is set to chip in the remaining $5B.
Chinese shares bounced back from their earlier lows on Monday as weak China factory activity reinforced views that Beijing will roll out more stimulus measures to support its slowing economy. The HSBC final Purchasing Managers' Index fell to 48.9, its fastest drop in a year, down from the preliminary reading of 49.2 and weakening from the 49.6 print in March. Meanwhile, the IMF is close to declaring China's yuan as fairly valued for the first time in more than a decade, a milestone that follows years of IMF censure of Beijing's management of the currency.
With a surge in German yields and lessening fears of deflation in Europe, the euro rallied for a second session, climbing to a fresh two-month high against the dollar. Data this week suggesting the eurozone might be pulling out of deflation triggered a rise in Bund yields and shot the benchmark 10-year yield to 0.386%, up some 20 bps in two days. The euro has now clawed its way back from a 12-year low of $1.0457 in March, when the ECB launched its massive QE program. Euro +0.2% to $1.1244.
Thursday, April 30, 2015
Despite China receiving 47 member applications, the U.S. and Japan remain the only two major economies that have not asked to join the bank., the Obama administration now says the new bank could be a good development, but cautioned against its lack of transparency. "This could be a positive thing," President Obama declared at a White House press conference with Japanese Prime Minister Shinzo Abe. "But if it’s not run well, then it could be a negative thing."
Stocks fell in Europe, following Asia lower, while the dollar held near two-month lows before the much-anticipated policy decision. "While steady language by the FOMC may not by itself change the mind of the rates market, we believe incoming data will, prompting a front-end sell-off in Treasuries and a rebound in the USD. Investors will again be looking for subtle clues today for the timing of a future interest rate hike as the Federal Reserve's policy-setting committee wraps up its third meeting of the year. The chance of a hike in June is still on the table, although the likelihood of one has steadily decreased amid a drum-beat of soft Q1 economic data. The U.S. Commerce Department is also scheduled to issue its first snapshot of first-quarter GDP this morning. Economists are forecasting growth at a seasonally adjusted annual rate of 1%, which would be the worst performance in a year.
Monday, April 27, 2015
Looking to make North America its largest market, Cap Gemini plans to buy U.S.-based iGATE for $4B, or $48 per share. The deal, which has been agreed on by both boards, will be financed through a combination of the French company's cash, debt and an equity portion that will not exceed a 6% dilution of its share capital. Cap Gemini also expects the acquisition to enhance earnings by 12% in 2016 and 16% in 2017.
As the monetary easing by central banks across the globe keep yields at rock-bottom, investment officers predict that Japanese demand for U.S. debt won't ease up in the months ahead given the lack of alternatives. Japanese life insurers - some of the world’s largest institutional investors - plan to keep pouring money into U.S. debt this year, WSJ reports, outlining that Japan even overtook China in Q1 as the largest foreign holder of U.S. Treasurys. While the current 2% yield on the U.S. 10-year is a far cry from yields of 5% or more before the financial crisis, it is still miles apart from the 0.16% yield on German bunds and the 0.29% yield on the 10-year Japanese equivalent.
Thursday, April 23, 2015
China's factory activity declined at its fastest pace in a year, according to HSBC/Markit's Purchasing Managers Index. PMI fell to 49.2 (est. 49.6) in April, beneath the 50-point watermark that separates growth from a contraction. In Japan, manufacturing fell to 49.7 (est. 50.8), dropping below 50 for the first time since July 2014.
Wednesday, April 22, 2015
Following the country's soft GDP data last week, China's central bank cut the reserve requirement ratio for all banks by 100 bps to 18.5%, adding more liquidity to the world's second-largest economy to combat slowing growth. China's GDP is still expected to fall to a quarter-century low of around 7% this year from 7.4% in 2014, even with the additional stimulus.
Sunday, April 19, 2015
Saudi Arabia will open its $530B stock market to foreign investments on June 15, giving international investors direct access to the Middle East's largest economy. In 2008, Saudi Arabia began permitting foreign investors indirect access to the market through swaps, but is now looking to fully open the market as it pushes to diversify its petrodollar-dependent economy by boosting the private sector. The Saudi Tadawul Index is up 10% YTD.
German government bonds continued to break records, buoyed by the ECB's commitment to stimulus, coupled with investors' appetite for low-risk assets amid growing concerns over Greece. In early trade, the yield on Germany's 10-year bond slipped to 0.070%, breaking through Thursday's all-time low. The yield on the country's 30-year debt was just below half a percentage point. "Liquidity is drying up in Greece," Athens will continue to "compromise for a speedy agreement, but will not be compromised."
Thursday, April 16, 2015
With a negative outlook, citing a substantial risk of a default due to the country's drawn out negotiations with its creditors. "No one has a clue how we can reach agreement on an ambitious program," Germany's finance minister said on Wednesday, adding that Greece's new leftist government had "destroyed" all the economic improvements achieved by Athens since 2011.
Japan is set to overtake China as America's largest overseas creditor when the U.S. Treasury releases its February investment figures in Washington. China cut its investment in Treasuries for a fifth month in January, while Japan added $7.7B, narrowing the gap to $1B. While the two Asian nations each own almost 10% of the $12.6T in publicly traded U.S. debt, China has held more than Japan since 2008.
Tuesday, April 14, 2015
Greece is preparing to take the dramatic step of declaring a debt default unless it can reach a deal with its international creditors by the end of April, FT reports.If the Europeans won't release bailout cash, there is no alternative [to a default]," one government official said. Athens has also decided to withhold €2.5B of payments due to the IMF in May and June if an agreement is not struck.
The U.S. ended the month of March with a budget deficit of $53B, up 43% from the same period last year, bringing the current fiscal YTD deficit to $439B at the end of last month. Meanwhile, Fitch has affirmed the U.S.'s long-term default ratings at "AAA," citing the country's "unparalleled" financing flexibility as the issuer of the world's pre-eminent reserve currency and benchmark fixed-income asset. Fitch also expects the U.S. to grow 3% in 2015, before decelerating slightly in 2016.
Monday, April 13, 2015
Industrial production for February 2015 grew at 5% YoY (vs. +2.8% in January 2015) - highest growth in the past nine months.
Core industries grew at a tepid pace of 1.4% YoY.
Capital goods' growth trend up, indicating improving investment in the economy.
The industrial production for February 2015 moved up, printing a growth of 5% YoY, compared to 2.8% YoY in January 2015. This is the highest growth recorded in the past 9 months. Core industries (constituting 38% of industrial output) grew at a tepid pace of 1.4% YoY during the month.
Industries constitute 45% of banking sector credit; growth in industrial production is a key positive for banks.
Manufacturing, constituting 75% of the industrial production index, expanded 5.2% YoY, against 3.4% in the previous month. Mining grew at 2.5% YoY (January 2015: contraction of 2%), while electricity generation registered a 5.9% growth YoY (January 2015: 3.3%).
Monetary and fiscal policies are in easing mode; growth momentum is expected to continue.
China has rejected Taiwan's bid to become a founding member of the Asia Infrastructure Investment Bank under the name "Chinese Taipei," but said the island would be welcome to apply again as an ordinary member in the future. The two have been tied up over an "appropriate name" under which Taiwan can join the bank. Although China views Taiwan as a renegade province, it allows it to participate in the Asian Development Bank under the name "Taipei, China."
Raising new concerns over the damaging side effects of the ECB's landmark QE program, many analysts now think it is only a matter of time before Germany's benchmark 10-year government borrowing costs drop below zero for the first time. Yields on the Bunds fell to just 0.15% today, compared with 0.54% at the start of the year, as the ECB entered the second month of its €1T bond-buying program. Although not part of the eurozone, Switzerland became the first government in history last week to sell benchmark 10-year debt at negative interest rates, raising even more worries about distortions in the global financial markets.
China's exports surprisingly tumbled in March while import shipments fell at their sharpest rate since the global financial crisis, setting a poor precursor to the country's closely-watched Q1 GDP figure due on Wednesday. According to official data, Chinese exports plunged 15% and imports fell 12.7% last month in dollar terms as weak demand and the impact of the lunar new year weighed heavily on Chinese factories. The soft trade figures sent Chinese shares higher, with the Shanghai Composite closing up 2.2%, as investors bet on more stimulus from Beijing.
Sunday, April 12, 2015
Central banks cut their euro holdings by the most on record last year to help mitigate losses ahead of the ECB's QE. The euro now accounts for just 22% of global reserves, down from 28% before the EU's debt crisis five years ago, according to the IMF. "As a reserve currency, the euro is falling apart". The numbers may be music to Mario Draghi's ears - a cheaper currency is theoretically a more competitive one - but Mizuho suggests the euro's slipping popularity suggests a more lasting loss of confidence in the EU economy.
Thursday, April 9, 2015
German exports recovered smartly in February, growing 1.5% on month after falling 2.1% in January and beating consensus of +1%. Imports increased 1.8% following a decline of 0.2% and the trade surplus rose to €19.7B from €19.6B. Meanwhile, industrial production increased 0.2% on month, as expected, after slipping 0.4%. The figures come after data yesterday showed that factory output weakened in February, although PMI readings in March were strong.
Meanwhile,European stocks were higher at the time of writing following the positive German data and yesterday's release of the FOMC minutes, which provided little clarity on when the Fed might hike rates but were deemed sufficiently dovish. Reports about Greece's €450M repayment to the IMF has also added to the positive sentiment. In Asia, Hong Kong stocks had another banner day as investors looked to exploit cheap prices in relation to the mainland.
Greece has made a €450M loan repayment to the IMF, Bloomberg reports, although other outlets just say that the country will make the payment today. The government had threatened to miss the deadline in order to avoid defaulting on "their own people" - Greece also needs to pay €1.7B in wages and pensions at the end of this month - but seems to have backed down.
Euro zone partners gave Greece six working days to improve a package of proposed reforms in time for finance ministers of the currency bloc to consider whether to release more funds to keep the country afloat when they meet on April 24.
Euro zone partners gave Greece six working days to improve a package of proposed reforms in time for finance ministers of the currency bloc to consider whether to release more funds to keep the country afloat when they meet on April 24.
Wednesday, April 8, 2015
Shell has agreed to purchase BG Group for £47B ($69.6B) in a cash-and-stock deal that will add 25% to Shell's proven oil and gas reserves and 20% to its production. The acquisition will also improve the latter's prospects in new projects, particularly in Australian LNG and Brazilian deep water. With Shell paying a premium of 52%, BG Group's shares surged 37% in London, although Shell fell 1.55% premarket in the U.S.
A blockbuster deal to buy BG Group for $70B, with the Europe 600 Oil & Gas index +5.2% at the time of writing. However, although the deal pushed the FTSE 100 higher, the rest of Europe was looking pretty down as the poor German factory figures acted as a bit of dampner.
German factory orders dropped 0.9% on month in February, which badly missed consensus of +1.5% but did represent an improvement from a 2.6% slump in January.
Stocks surged in Asia amid an atmosphere of monetary easing, while U.S. futures were up ahead of the release of the minutes of the latest Fed meeting, which will be scrutinized for clues about when the bank might increase rates.
Saudi Arabia raised oil output to 10.3M barrels a day in March, the highest in at least 12 years, and intends to keep producing 10M bpd despite low crude prices. Oil minister believes that oil will rise in the "near future" but even if it doesn't, some expect the kingdom to hold firm until the slump in crude forces U.S. shale plays into bankruptcy.
The Nikkei has hit a 15-year high after the Bank of Japan kept its monetary spigots on at full blast, with the BOJ's board voting 8-1 to maintain its asset-purchase target at ¥80T a year. As in the U.S., all that money printing has caused an inflation in assets - if not in consumer goods and services - and the Nikkei rose 0.8% to 19,789.81, the highest close since April 2000.
Rating agency Moody’s has affirmed India’s sovereign rating at BAA3, but raised the rating outlook to ‘positive’ from ‘stable’.
“The Baa3 rating incorporates the risk that higher levels of growth and infrastructure development will be accompanied by higher leverage.
Sovereign credit improvements over the next 12-18 months will depend on the extent to which growth, policies and buffers can contain the risks associated with rising leverage.
However it cautioned that unless the country’s banking system woes were resolved, its credit profile would remain constrained.
Moody’s view is that India’s policymakers are establishing a framework that will likely allow India’s growth to continue to outperform that of its peers over medium term and improve India’s macro economic, infra and institutional profile.
The rating agency said there was increasing probability that actions by policy makers will enhance the country’s economic strength, and by extension, the sovereign’s financial strength over coming years.
S. 80HHC: It is a pre-requisite that there must be profits from the export business. If the exports business has suffered a loss, deduction cannot be allowed from domestic business
Jeyar Consultant & Investment Pvt. Ltd vs. CIT (Supreme Court)
From the scheme of Section 80HHC, it is clear that deduction is to be provided under sub-section (1) thereof which is “in respect of profits retained for export business”. Therefore, in the first instance, it has to be satisfied that there are profits from the export business. That is the pre-requisite as held in IPCA and A.M. Moosa as well. Sub-section (3) comes into picture only for the purpose of computation of deduction. For such an eventuality, while computing the “total turnover”, one may apply the formula stated in clause (b) of subsection (3) of Section 80HHC. However, that would not mean that even if there are losses in the export business but the profits in respect of business carried out within India are more than the export losses, benefit under Section 80HHC would still be available.
Tuesday, April 7, 2015
U.K. services PMI jumped to a seven-month high of 58.9 in March from 56.7 in February, boosted by a stronger rise in new business. The latest PMI surveys indicate that the economy grew 0.7% in Q1 following a slowdown late last year. "Faster growth of new business and improved expectations...bode well for the upturn to retain strong momentum," says Markit. The pound was -0.1% at $1.4866 at the time of writing
Eurozone business activity powered ahead in March, with eurozone services PMI rising to 54.2 from 53.7 in February, while the composite figure increased to an 11-month high of 54 from 53.3. "Ireland and Spain continued to lead the charge, backed up by a fast-improving German economy," says Markit, but "rates of expansion in Italy and France were modest in comparison." The PMIs indicate Q1 GDP growth of 0.3%, although "the pace of expansion looks set to gather pace." The euro was -0.6% at $1.0853 at the time of writing.
Monday, April 6, 2015
The market remained lacklustre post announcement of RBI policy. The Reserve Bank of India kept repo rate unchanged at 7.5 percent and cash reserve ratio at 4 percent.
RBI says retail inflation will remain below 6 percent in FY16. "CPI inflation is expected to fall to 4 percent by August but firm up to 5.8 percent by year-end."
The Reserve Bank says GDP growth under new methodology is seen at 7.8 percent in FY16.
RBI feels the outlook for growth is improving gradually. Comfortable liquidity conditions should enable banks to transmit the recent reductions in the policy rate into their lending rates, thereby improving financing conditions for the productive sectors of the economy.
Oil prices jumped more than 5 percent on Monday as traders reassessed how quickly Iran might increase exports after a preliminary nuclear deal and anticipated that a months-long rise in U.S. crude inventories may be slowing.
Brent crude's rally followed Thursday's nearly 4 percent tumble after Iran and six world powers announced a framework agreement on the OPEC member's nuclear programme. But initial expectations of a quick recovery in oil exports were tempered by views that it could take longer than expected to roll back sanctions.
Hedge funds increased bullish oil bets by the most in four years as negotiators worked to reach a deal over Iran’s nuclear program. Speculators boosted their net-long position in crude by 21% during the seven days ended March 31, CFTC data show, the biggest percentage increase since March 2011. Short positions declined by the most in three months.
Sunday, April 5, 2015
CIT vs. Cotton Naturals (I) Pvt. Ltd (Delhi High Court)
The question whether the interest rate prevailing in India should be applied, for the lender was an Indian company/assessee, or the lending rate prevalent in the United States should be applied, for the borrower was a resident and an assessee of the said country must be answered by adopting and applying a commonsensical and pragmatic reasoning. We have no hesitation in holding that the interest rate should be the market determined interest rate applicable to the currency concerned in which the loan has to be repaid. Interest rates should not be computed on the basis of interest payable on the currency or legal tender of the place or the country of residence of either party. Interest rates applicable to loans and deposits in the national currency of the borrower or the lender would vary and are dependent upon the fiscal policy of the Central bank, mandate of the Government and several other parameters. Interest rates payable on currency specific loans/ deposits are significantly universal and globally applicable. The currency in which the loan is to be re-paid normally determines the rate of return on the money lent, i.e. the rate of interest
India's external debt rose to USD 462 billion at the end of Dec'2014, up from USD 456 billion at the end of Sep'2014. This is 8% higher than USD 427 billion, a year ago. The increase was driven by Commercial borrowings, which now constitute 37% of total external debt (up from 20% in Sep'04).
Forex reserve at the end of Dec'2014 was USD 322 billion (This has risen to USD 340 bn recently).
Forex reserves currently at US$ 340 billion; Looks adequate. Forex reserve as a percentage of total external debt increased to 70%. As a percentage of non-Rupee debt, forex reserves rose to 95% from 91% in Sep'2014, a key positive for the Rupee (NYSEARCA:INR) as it lowers the pressure on the forex reserves.
Source: Ministry of Finance
Commercial borrowings constituted 37% of total external debt, followed by Deposits from non-resident Indians' deposits ((24%)) and Short term debt ((19%)):
Source: Ministry of Finance
Decrease in share of non-INR debt is a positive.
Forex reserves might see pressure if maturing forex debt does not get refinanced by fresh forex borrowings.
Rupee to trade at 61-63 in the near-term; Year-end target at INR 65/USD.
Thursday, April 2, 2015
U.S. equity-index futures dropped with the dollar on weaker-than-estimated data on hiring and manufacturing
U.S. equity-index futures dropped with the dollar on Thursday, the last trading day of the week for many markets before the Easter holiday season. Despite many investors sitting on the sidelines prior to the weekend, markets are preparing for the monthly U.S. jobs report for clues on monetary policy. The figures will follow yesterday's weaker-than-estimated data on hiring and manufacturing, which fueled speculation that the U.S. economy is slowing and bolstered the case for keeping interest-rates lower for longer.
Wednesday, April 1, 2015
Euro-area manufacturing expanded faster than initially estimated last month, helped by growth in Spain and Italy and a stronger performance in Germany. Beating an earlier "flash" reading of 51.9, Markit's Purchasing Managers Index hit a 10-month high in March, rising to 52.2 from 51 in February. Economic momentum in the eurozone is picking up as the ECB continues its €60B a month QE program and a weaker euro aids exporters.
Tuesday, March 31, 2015
Japan remains cautious about signing up to the China-led Asian Infrastructure Investment Bank, indicating that Tokyo will miss the March 31 deadline for application, but both Taiwan and Norway said they would seek to join the institution. Despite warnings from Washington, over 40 nations have joined or said they intend to become members of the AIIB, adding clout to an institution seen as enhancing Beijing's regional and global influence.
A slump in euro-area consumer prices eased in March, offering respite to the ECB after it pledged to buy €1.1T of assets through September 2016 to fend off deflation. According to flash estimates released by Eurostat this morning, the annual rate of inflation climbed to -0.1% from -0.3% in February. Other data also showed the region's unemployment rate falling to 11.3% last month, down slightly from 11.4% in January.
Meanwhile, the euro fell for a second day, heading toward a fourth straight quarter of declines, amid concerns Greece will fail to reach an agreement with its European partners to unlock a fresh lifeline of €7.2B. The currency is now down 0.9% at $1.0737 after sliding 0.5% on Monday - weakening 11% this year against the dollar. Greece's creditors said yesterday that the reform plan the country submitted over the weekend fell short of the needed requirements
Russia, Australia, Denmark and the Netherlands have now become the latest countries to join the China-led Asian Infrastructure Investment Bank despite misgivings in Washington. China has set a March 31 deadline to become a founding member of the bank, which is seen as a significant setback to U.S. efforts to extend its influence in the region and balance China's growing financial clout and assertiveness. At least 35 countries will join the AIIB by the deadline, the bank's interim chief, Jin Liqun, said last Sunday.
Indian banks are yet to cut base rates in response to the central bank's 50 bps cut during 2015.
Credit growth might lag rate cuts by 6 to 9 months.
Base rate cuts will put pressure on banks' net interest margins, but could be offset by gains in bond portfolio.
Bank earnings might remain under pressure during 1H15.
Expect the central bank to further cut policy rates by 25 to 50 bps during 2015.
The Reserve Bank of India has cut policy rates twice in 2015 in out-of-scheduled policy meetings - bringing rates to 7.5% from 8%. This was mainly due to lower consumer-level inflation, which is currently running at around 5%. The Indian banking sector has been experiencing slowdown in credit growth, especially for the past 12 months. While part of the credit demand has moved to the commercial paper (CP) market due to quick transmission of policy rate cuts, we see that the CP market is just 4% of the banking sector, and hence will not be able to divert credit demand from the banking system.
Monday, March 30, 2015
South Korea hopes its infrastructure companies will benefit from the country joining the China-backed Asian Infrastructure Investment Bank, its finance ministry said on Friday. The countries share close trading ties: China is South Korea's biggest trading partner and the two nations are set to sign a free trade agreement in the first half of this year. Seoul announced yesterday it would join the AIIB as a founding member, the latest U.S. ally to do so despite Washington's warnings.
Lower oil prices and subdued consumer demand have again pushed Japan to the brink of deflation, underscoring the difficulties faced by policy makers to revive the world’s third-largest economy through its ¥80T a year stimulus program. Japanese core consumer price inflation, which includes energy prices but excludes food, fell to zero Y/Y in February, far below the 2% target the central bank had aimed to achieve by this spring. The Nikkei closed down 1% on the news, falling to 19,286.
Thursday, March 26, 2015
Ford has invested $1B in a new plant in western India that will help it triple its exports from the country. Ford (NYSE:F) is planning to make India an export hub for compact cars such as the EcoSport, and the newly launched compact sedan, Ford Figo Aspire, the first car to be produced at the new facility. The plant will also nearly double the company's installed production capacity in the country to 610K engines and 440K vehicles a year.
Wednesday, March 25, 2015
S. 143(1A): As the object of s. 143 (1A) is to prevent tax evasion, it can apply only to tax evaders and not to honest assessees. The burden of proving that the assessee stated a lesser amount in the return in an attempt to evade tax is on the revenue
CIT vs. Sati Oil Udyog Ltd (Supreme Court)
The object of Section 143 (1A) is the prevention of tax evasion. Read literally, both honest asessees and tax evaders are caught within its net. We feel that since the provision has the deterrent effect of preventing tax evasion, it should be made to apply only to tax evaders. Section 143 (1A) can only be invoked where it is found on facts that the lesser amount stated in the return filed by the assessee is a result of an attempt to evade tax lawfully payable by the assessee. The burden of proving that the assessee has so attempted to evade tax is on the revenue
Tuesday, March 24, 2015
Activity in China's factory sector slipped to an 11-month low in March as new orders crumbled, a private survey showed. HSBC's flash China manufacturing index dipped to 49.2, from 50.7 in February, while the new orders sub-index fell for the second straight month to 49.3. The poor readings will likely fuel calls for more stimulus measures as persistent weakness plagues the world's second-largest economy despite two recent rate cuts and other easing.
Sunday, March 22, 2015
The Obama administration is expected to issue long-awaited regulations setting new standards for hydraulic fracturing in the oil and natural gas industries. The final rules reflect years of work by regulators seeking to balance environmental interests and economic imperatives, but may well fail to appease environmentalists who have argued for strong protections or oil industry leaders who insist well-tailored state rules are better than one-size-fits-all federal mandates.
Thursday, March 19, 2015
Global shares edged up today after the Fed dropped its "patient" philosophy toward raising rates, but downgraded its views on the economy, inflation and lowered its interest rate trajectory. The statement would put a June increase on the table, but the dovish tone suggested the first hike wouldn't come until at least September or October. In the wake of the Fed's cautious words, the dollar clawed back much of the ground it lost on Wednesday, after posting its biggest daily fall in 18 months. U.S. Dollar Index +1.8% to 99.08.
Wednesday, March 18, 2015
Oil extended losses to a seventh day, with crude futures down 2.2% at $44.20, ahead of stockpiles data and the Federal Reserve's monetary policy decision. U.S. crude stocks are forecast to have surged for the tenth straight week to a new record high, fueling new supply concerns of a global oil glut. The Fed is also likely to cut the word "patient" from its policy statement, leaving the door wide open for a rate hike in June.
Tuesday, March 17, 2015
The Bank of Japan maintained its massive ¥80T stimulus program today despite a tumbling inflation rate, indicating that a steady economic recovery will help it achieve its price target without immediate, additional monetary easing. Heading south, the RBA released minutes to its March 3 meeting when it kept its benchmark interest rate on hold after lowering it in February, saying some time was needed for "the economy to adjust to the earlier change" - but left the door wide open for another cut. The FOMC also begins its two-day meeting on interest rate policy this morning, with nearly all believing that the Fed will delete the word "patient" from its statement.
Monday, March 16, 2015
India’s BoP for Oct-Dec 2014 pegged at USD 13 billion surplus, helped by lower current account deficit and higher capital account surplus.
When compared against nominal GDP, the BoP surplus was at 2.6%, current account deficit was at 1.6% and trade deficit was 7.7% of GDP.
Current account deficit at USD 8 bn; higher than previous quarter due to higher trade deficit.
Jan-Mar 2015 might see current account surplus at 1.1-1.3% of GDP due to lower oil and gold import bill.
Consequent to the BoP surplus and central bank interventions, India's forex reserves continued to build-up, reaching USD 338 bn for the week ended March 6th, 2015
Rupee to remain weak due to USD appreciation and REER over-valuation
With the dollar hitting fresh 12-year highs and growing concerns that the U.S. might run out of oil storage, U.S. crude fell for a fifth day, dropping to its lowest intraday price since March 2009. As the dollar index stayed above the key 100 level, Crude futures lost as much as 2.8% to $43.57 a barrel, closely following the IEA's prediction on Friday that tanks in the U.S. may become full this year as drilling-rig cuts fail to slow production
International Computers Indian Manufacture vs. CIT (Bombay High Court)
A plain reading of section 35D indicates that the Legislature has thought it appropriate to give a special benefit to the assessee in respect of expenditure specified in sub-section (2) incurred before commencement of business or after the commencement of business, in connection with the extension of industrial undertaking or in connection with setting up a new industrial unit. This provision allows amortisation of the specific category of expenditures incurred by the assessee, by way of deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years as provided therein. The legislature, therefore, having specifically provided for amortisation of the preliminary expenditure which includes expenditure incurred for issuance of shares by the assessee in connection with the issue of shares, the said expenditure on issue of shares is not eligible for depreciation.
Tuesday, March 10, 2015
The euro continued its decline on Tuesday, hitting a new 12-year low against the dollar, as Dallas Fed President Richard Fisher reiterated that the U.S. should promptly end its easy monetary policy and press ahead with an interest rate increase. So far this month, the euro has dropped more than 400 pips, or 3.63% against the dollar. The currency also felt pressure from lower euro zone debt yields after the ECB launched a €1T bond buying program yesterday. The euro is -0.9% to 1.0751.
Monday, March 9, 2015
Round one of the Federal Reserve's annual bank stress tests concluded with all 31 banks under scrutiny passing. The tests include how a bank's Tier 1 ratio, a measure of capitalisation, would react under a hypothetical crisis. This year's tests included a more stringent corporate debt default scenario.
During last year's stress tests the average CDS spread among US banks was 73bps. The current average stands at 66bps; an indication that the US banking system is healthier this time around.
Round two results, which are due to come out next Wednesday, will delve deeper into how banks will allocate future profits, in a much more comprehensive capital analysis. All eyes will be on the big banks JP Morgan (NYSE:JPM), Bank of America (NYSE:BAC) and Citigroup.
Looking to stimulate the eurozone economy and avert the threat of deflation, the ECB began its €60B per month QE program today by buying German government bonds, Bloomberg reports quoting two traders in government debt. While European equities slipped, eurozone yields held steady, and the euro added 0.6% to $1.0903 to regain some ground after its slide to an 11-year low last week.
Global equity markets started the week on the back foot after Friday's strong U.S. jobs data stoked concerns that the Fed could raise interest rates as soon as June. In Asia, Japan GDP revisions also hurt sentiment, following a new report that estimated the economy grew an annualized 1.5% in the October-December period, down from an initial reading of 2.2% in February. German export figures similarly kept markets subdued, after January's seasonally-adjusted exports posted their biggest drop in five months.
Sunday, March 8, 2015
Global trade in liquefied natural gas (LNG) will exceed $120B in 2015, surpassing iron ore as the most valuable commodity after oil, Goldman analysts say. Competition among producers will increase as buyers shift away from long-term contracts. U.S. supplies coming online and other factors will lead to declines in LNG prices "until they can challenge thermal coal in the fuel mix of the power sector,"
Tuesday, March 3, 2015
The government welcomed a surprise interest rate cut on Wednesday as good news for the economy that would not pose any inflationary risks.
Both the rate cut and last weekend's annual budget were "consistent with non-inflationary growth",
The Reserve Bank of India (RBI) lowered its policy repo rate by 25 basis points to 7.5 percent on Wednesday, its second inter-meeting cut this year on the back of easing inflation and what it said was the "weak state" of parts of the economy.
The cut comes days after the government and the Reserve Bank of India agreed to formally adopt inflation targeting, although the central bank had been effectively using targets since early 2014.
Analysts said the RBI's rate cut appeared to give backing to the government's fiscal plans and its pledge to exercise responsibility despite a delay in meeting a fiscal deficit target of 3 percent of gross domestic product by a year to 2017/18.
Indian bonds and rupee rose sharply after the cut. The benchmark 10-year bond yield dropped to as much as 7.61 percent, its lowest level since July 15, 2013. The partially convertible rupee gained to as much as 61.65 to the dollar, its strongest level since Feb. 4.
Japan emerges from recession with 2.2% annualized growth in the last quarter of 2014.
Inflation stabilizes at 2.4% and is likely to be met with Bank of Japan inaction.
Strong industrial production resulted in equity rally, but further caution warranted
In an early encouraging sign, Japan's industrial production in January 2015 surged to 4.0% over market expectations of 2.9% and December 2014 growth of just 0.8%.
This expansion is expected to carry on to February and March 2015 which is mainly attributed to foreign demand instead of domestic demand for Japan at this stage.
The Japanese equity market took this positively together with the fact that Japan is officially out of recession
German retail sales and record index advances in the U.S. fueled European stocks earlier in the session, pushing the DAX up a staggering 16.4% YTD. Retail sales rose by 2.9% M/M and 5.3% Y/Y in January, heavily beating economists' forecast for a 0.3% M/M decline. U.S. stocks also began the new month with a bang, as the Nasdaq closed above the 5,000 level for the first time since March 2000, yesterday, and the Dow and S&P 500 set new records
Monday, March 2, 2015
China cut interest rates by a quarter percentage point over the weekend, while a survey showed HSBC's PMI climbing from 49.7 to 50.7 in February, the strongest level since July. "Deflationary risk and the property market slowdown are two main reasons for the rate cut this time," said a central bank official. In the last few months, China has been showing further signs of flagging economic growth, with GDP dipping to 7.3% in Q4 - its slowest rate in over two decades, and CPI sliding to 0.8% in January - its weakest showing since late 2009.
Sunday, March 1, 2015
India’s Finance Ministry has projected the country's economic growth to accelerate to a four-year high of between 8.1%-8.5% in the fiscal year starting April, making the South Asian nation one of the fastest-growing economies. The latest projection is much higher than the 7.4% growth the ministry forecast for this fiscal year, as falling oil prices and the government’s commitment to implementing economic reforms have improved the country's outlook.
Thursday, February 26, 2015
Greek stocks and bonds surged yesterday, with Athens' main stock exchange closing almost 10% higher on the day after eurozone financial ministers approved a four-month extension to the country's bailout program. Although the list of proposals were accepted, the ministers warned that the reforms must be expanded in detail before new bailout funding would be released. Athens' ATG stock index +0.1%.
Wednesday, February 25, 2015
China's factory sector edged up but export orders shrank at their fastest rate in 20 months, painting a gloomy outlook that argues for more policy support. The flash HSBC/Markit PMI crept up to 50.1 (just above contraction) in February, while the new export orders sub-index dropped three points to 47.1, the sharpest rate of contraction since June 2013. Meanwhile, Hong Kong's GDP was reported to have slowed to 2.3% in 2014 and weakened to 0.4% in the fourth quarter as pro-democracy protests froze parts of the city.
Tuesday, February 24, 2015
Treasury bonds were boosted on Monday, following the release of somewhat disappointing U.S. housing data.
U.S. equities rose and bond yields fell after U.S. Federal Reserve Chair Janet Yellen said on Tuesday it would be several months before the Fed expects to boost interest rates, while European equity markets gained after Greece locked in a four-month extension of its financial rescue programme.
In recent trading, the yield on the benchmark 10-year Treasury note was 2.070%, compared with 2.136% on Friday. Yields fall as bond prices rise. The greenback jumped initially but paired gains and was down 0.1 percent against a basket of currencies (.DXY).
Yellen is scheduled to testify before the Senate banking committee in her semi-annual report on monetary policy today, and will appear before the House Financial Services Committee on Wednesday.
Monday, February 23, 2015
Japan's Nikkei 225 Stock Average extended 15-year highs today after U.S. equity gauges climbed to records following Greece's provisional deal on its bailout program. "The debt deal is giving comfort to the market,"as investors' risk appetite is mainly due to Japanese shares' attractive valuations. The Nikkei added 0.7% to 18,466.92 in Tokyo, its highest close since April 2000.
India's trade deficit for the month of January came in at a 11-month low of $8.3 billion. Exports contracted by 11.3% over the year to $23.8 billion and imports declined by 11.4% to 32.2 billion. The trade deficit in January of 2014 was $9.45 billion.
The Reserve Bank of India (RBI) allowed nominated banks to import gold on a consignment basis. All domestic sale of gold however, will be against upfront payment only. Moreover banks are free to grant gold loans.
The central bank also clarified that the 80:20 rule will continue to apply in case of un-utilized gold imported before November 28, 2014.
Sunday, February 22, 2015
The major global stock markets witnessed gains during the week. After various discussions, the Eurozone Finance ministers approved a four-month extension on Greece's bailout on Friday. Though the extension will not be final until Greece government makes some submissions. This deal is expected to eliminate the immediate risk of Greece economy running out of money.
The stock markets in US were up by 0.7% during the week, and ended at record highs on Friday. Lifted by depreciating yen, the Japan markets (up 2.3%) surged to 15-year high levels. After witnessing some rally, the oil prices tumbled during the week on the back of higher supply from US. Back home, the Indian stock markets ended the week on a positive note. While the Indian indices continued to surge during the week, Friday witnessed selling activity, weighed down by oil and gas stocks.
Germany and France picked up momentum in February, boosting eurozone PMI to 53.5 this month, up from January's 52.6. Markit's German composite Purchasing Managers Index rose to its best in seven months, increasing to 54.3 from 53.5, while France also reported strong figures. The country's composite services PMI score rose to 52.2 from 49.3 in January, its strongest gain in three and a half years.
Japanese exports surged, providing more evidence that the world's third largest economy is slowly climbing out of recession. Exports rose by 17% on year last month, their biggest jump since late 2013, while imports in January contracted 9% Y/Y. Helped by gains in financial and shipping companies, Tokyo’s Nikkei touched its highest level since May 2000 during the session, climbing 0.6% to 18,307.25.
S. 147: Verdict of Bombay High Court in The Indian Hume Pipe Co Ltd vs. ACIT 348 ITR 439 that “full & true disclosure of material facts” means “specific” disclosure of “each” fact nullified
The Indian Hume Pipe Co Ltd vs. ACIT (Supreme Court)
The assessee entered into an agreement in July 2001 for sale of development rights for Rs.39 crore. The transfer was in December 2003. The assessee computed LTCG of Rs. 23.19 crore. The assessee invested in eligible bonds between Feb & June 2002 (after the agreement to sell but before the transfer) and claimed exemption u/s 54EC. During the assessment proceedings, the AO asked for a copy of the agreements with the purchaser and other details which the assessee furnished. A copy each of the s. 54EC bonds (which gave the dates of investments) was also furnished. The AO allowed the deduction as claimed. After the expiry of 4 years from the end of the assessment year, the AO issued a notice u/s 148 claiming that as the investments were made prior to the date of transfer (Dec 2003), s. 54EC deduction was not admissible. The assessee filed a Writ Petition to challenge the reopening on the ground that there was no failure on its part to make a full and true disclosure of material facts. The High Court (348 ITR 439) dismissed the Writ on the ground that (i) “Full and true disclosure of material facts” means that the disclosure should not be garbled or hidden in the crevices of the documentary material which has been filed by the assessee with the AO. The assessee must act with candor. A full disclosure is a disclosure of all material facts which does not contain any hidden material or suppression of fact. It must be truthful in all respects and (ii) On facts, though the AO enquired into the matter and the assessee furnished a copy of the s. 54EC bonds (from which the dates of allotment/ investment were evident), there was no (specific) reference by the assessee to the dates on which the amounts were invested in the s. 54EC bonds. It was also held that it was evident that the AO had not applied his mind to the issue of s. 54EC exemption and that the AO was justified in reopening the assessment. On a SLP filed by the assessee to the Supreme Court HELD by the Supreme Court:
Monday, February 16, 2015
Consumer inflation continued to be stable at 5.1% in January 2015 (year-on-year), against previous month's inflation of 5% YoY, while core inflation came in at 3.9%. Food inflation inched up, while fuel and housing experienced slower inflation.
Core-inflation (inflation excluding food & fuel) continued to trend downwards - at 3.9% YoY during the month, against 5.2% in Dec'14.
January inflation print should be comfortable news for the inflation-targeted central bank, as it remains well below the target of 8% set for Jan'2015. The new series of CPI data was one of the key data points, the RBI was looking for, as stated in the previous monetary policy statement. The governor had stated that the central bank is comfortable with real policy rates in the range of 1.5%-2%. Hence we believe that, the current month inflation number provides room for the RBI to cut rates. We reiterate our view of 25bps rate policy rate cut in March 2015.
S. 43(5): Transaction of call/put options in foreign currency are "derivatives" and loss suffered therein is not a "speculation" loss
IVF Advisors Private Limited vs. ACIT (ITAT Mumbai)
“Derivatives” include foreign currency call option/ put option. These transactions are of derivative markets and cannot be termed as speculative in nature
Sunday, February 15, 2015
Transfer Pricing: Dept is not entitled to challenge the ITAT's decision to determine the interest rate ALP of funds advanced to AE as per Euribor if the earlier ITAT judgements relied upon by ITAT have not been challenged by the Dept
CIT vs. Tata Autocomp Systems Ltd (Bombay High Court)
The assessee advanced funds to its wholly owned subsidiary in Germany on interest-free terms. The TPO held that the transaction was an “international transaction” and held that the assessee ought to have received interest at 10.25% being the lending rate charged by the banks in India (Arms length price). The DRP enhanced the rate of interest to 12%. On appeal, the Tribunal followed its earlier view in VVF Ltd. Vs. DCIT (ITA No.673/Mum/06) and DCIT Vs. Tech Mahindra Ltd (46 SOT 141) and held that as the amount was advanced to an AE in Germany, the ALP rate of the interest had to be determined by adopting the EURIBOR rate of interest i.e. rates prevailing in Europe. The Department challenged the said finding of the Tribunal in the High Court on the basis that the EURIBOR does not govern the monetary markets or interest rates in India, which is the residence country of assessee and EURIBOR rate is not applicable to the loans for which foreign currency has to be purchased by the Lender. HELD by the High Court dismissing the appeal:
Arcelor Mittal warned this morning of lower profits in 2015 but surprised the market by managing to cut its debt to the lowest level since the company was created in 2006. The steelmaker said it expects core profits to drop to between $6.5B-$7B in 2015, from $7.2B in 2014, as dwindling prices of iron ore dent a recovery in steel demand. Despite a 5% decline in Q4 profit, ArcelorMittal (NYSE:MT) posted a $1.1B net loss for 2014, an improvement on a $2.5B net loss a year ago. MT +1.9% premarket.
Monday, February 9, 2015
Stocks decline after Greek PM Alexis Tsipras vowed to roll back austerity measures yesterday and stressed that his country would not be asking for an extension to its current bailout. The news was enough to bring down Athens' ATG stock index 5.6%, following European markets, which are mostly in the red. S&P cut Greece's sovereign debt rating to B- from B on Friday, while Moody's placed its Caa1 rating on review for downgrade.
S. 2(22)(e): Inter-corporate deposits (“ICDs”) are not “loans and advances” and are not assessable to tax as “deemed dividend”
IFB Agro Industries Ltd vs. JCIT (ITAT Kolkata)
The assessee received an inter-corporate deposit of Rs.11.20 cr from IFB Automotive Pvt. Ltd, a company in which it held 18% of the shares. The AO and CIT(A) held that the said ICD constituted “loans and advances” and was assessable as “deemed dividend” in the assessee’s hands u/s 2(22)(e). On appeal by the assessee to the Tribunal HELD allowing the appeal:
S. 2(22)(e) refers to ‘loans’ and ‘advances’ and does not refer to a ‘deposit’. The fact that the term ‘deposit’ does not mean a ‘loan’ and that the two terms are two different & distinct terms is evident from the Explanation to S. 269T and S. 269SS of the Act where both the terms are used. Further, the second proviso to S. 269SS recognises the term ‘loan’ taken or ‘deposit’ accepted. Once it is accepted that the terms ‘loan’ and ‘deposit’ are two distinct terms which have distinct meaning then if only the term ‘loan’ is used in a particular section the ‘deposit’ received by an assessee cannot be treated as a ‘loan’ for that section. The Companies Act, 1956 also makes a distinction between a “loan” and a “deposit” in s. 58A, 269 & 370. The distinction between a “loan” and a “deposit” is that in the case of a “loan”, the needy person approaches the lender for obtaining the loan. The loan is lent at the terms stated by the lender. In the case of a “deposit”, the depositor goes to the depositee for investing his money primarily with the intention of earning interest. Also, s. 2(22)(e) enacts a deeming fiction and cannot be given a wider meaning than what it purports to cover. It has to be interpreted strictly. Thus, the view of the AO & CIT(A) that an Inter-corporate deposit is similar to a loan is not correct (Gujarat Gas & Financial Services 115 ITD 218 (Ahd)(SB), Housing & Urban Development Corp 102 TTJ (Del)(SB) 936 & Bombay Oil Industries 28 SOT 383 (Bom) followed)
Note: In DCIT vs. P.C. Chandra Holdings (Kol) (attached) it was held that the fact that the “deposit” is shown as a “loan” in the books is not relevant
CIT vs. M/s National Travel Services (Delhi High Court)
The assessee was a partnership firm consisting of three partners being Naresh Goyal, Surinder Goyal and Jet Enterprises Pvt. Ltd. The assessee was the “beneficial owner” of 48.18% of the share capital of Jetair Pvt. Ltd which were held in the name of its partners Naresh Goyal and Surinder Goyal. The assessee took a loan of Rs. 28.52 crores from Jetair Pvt. Ltd. The AO held that the said loan was assessable as “deemed dividend” u/s 2(22)(e) in the hands of the assessee which was reversed by the Tribunal. Before the High Court, the assessee argued, relying on Ankitech Pvt. Ltd, Universal Medicare 324 ITR 363 (Bom) and Bhaumik Colour 118 ITD 1 (Mum) (SB), that s. 2(22) could only apply in the hands of the “shareholder” and as the assessee was not a “shareholder” (its partners were), s. 2(22)(e) could not apply. HELD rejecting the assessee’s plea:
The first limb of s. 2(22)(e) is attracted if the payment is made by a company by way of advance or loan “to a shareholder, being a person who is the beneficial owner of shares”. While it is correct that the person to whom the payment is made should not only be a registered shareholder but a beneficial share holder, the argument that a firm cannot be treated as a “shareholder” only because the shares are held in the names of its partners is not acceptable. If this contention is accepted, in no case a partnership firm can come within the mischief of s. 2 (22)(e) because the shares would always be held in the names of the partners and never in the name of the firm. This would frustrate the object of s. 2(22)(e) and lead to absurd results. Accordingly, for s. 2(22)(e), a firm has to be treated as the “shareholder” even though it is not the “registered shareholder”.
Thursday, February 5, 2015
China's new reserve-requirement ratio has commenced, freeing up more than $100B for its banks to lend after announcing a half a percentage point cut in the measure yesterday. The new move boosts speculation for more measures to pump up the country’s economic growth, which is expected to cool further this year. China's economy slowed to 7.4% in 2014, its lowest annual growth rate in a quarter century
The Europe's largest economy will gain steam early this year after narrowly avoiding recession in mid-2014. Beating even the highest forecasts, bookings for goods rose 4.2% in December, compared to a 2.4% contraction the previous month. Germany still slumped into deflation in January with prices falling 0.5%, although much of this can be blamed on the sharp fall in the oil prices.
Wednesday, February 4, 2015
Monetary Policies are made in India keeping the interest of small savers.Fixed deposit schemes in banks were treating big deposits, typically corporate or HNI deposits, differentially. Fixed depositors earn differential rates of interest based on the size of deposit. Deposits above Rs 1 crore earn a higher rate of interest. Additionally deposits up to Rs 1 crore can be withdrawn prematurely, resulting in asset-liability (ALM) mismatch. To correct this anomaly, the RBI has allowed banks to offer deposit schemes up to Rs 1 crore which cannot be broken prematurely. There are so-called non-callable deposits which would attract different (higher) rates of interest. Since the money would remain with the bank for a fixed and longer tenure it would avoid AM mismatches. This opens the prospect of retail depositors, who opt for such deposits, to earn a slightly better rate of interest than on a callable deposit. We believe schemes like this will go a long way in not just incentivizing small savers but also help in financial inclusion.
As renewed concerns over global demand brought an end to a rally that pushed up prices by about 19% over the past four sessions. Growth concerns in China have especially prompted renewed concern for demand, after the HSBC China services PMI reported a six-month low of 51.8 in January, compared with 53.4 in December. Crude futures -3.2% to $51.41, as investors ask if oil has really found a bottom.
Tuesday, February 3, 2015
The RBI decided to enhance the limit under the LRS to USD 250,000 per person per year. Furthermore, in order to ensure ease of transactions, it has also been decided in consultation with the Government that all the facilities for release of exchange/ remittances for current account transactions available to resident individuals under Schedule III to Foreign Exchange Management (Current Account Transactions) Rules 2000, as amended from time to time, shall also be subsumed under this limit.