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Thursday, May 31, 2012

Irish seen voting yes to austerity.

The Irish are expected to vote in favor of the EU fiscal compact in a referendum today even though unemployment of 14.3% gives a bit more juice to opponents who dub it "the austerity treaty." Polls show 60% favoring the measures, although they may have no choice - a "no" vote immediately turns Ireland into Greece.

Japanese industrial output disappoints.

 Japan's factory output grew a weaker-than-expected 0.2% in April from the month before. Analysts had expected +0.5%. The slowdown stemmed from reduced demand for electronics goods, especially in China. The government expects output to fall in May before rebounding in June.

India's growth falls to nine-year low.

 India's Q1 GDP growth fell to a much worse-than-expected 5.3% on year from 6.1% in Q4 2011, with the farming, industrial and services sectors acting as drags. The corporate sector is experiencing its worst slowdown in recent times as confidence takes a hit from higher interest rates, policy mismanagement and political deadlock. India's BSE Sensex fell while the rupee hit a record low of beyond 56.50 to the dollar.

Thursday, May 24, 2012

Euros Outlook Remains Bleak, Yen Steady

The Euro hovered near recent 22-month lows against the US Dollar and remains on the ropes as fears of a messy Greek exit from the Euro Zone keeps investors on their toes.
Meanwhile, the Japanese Yen held its ground against the US Dollar and remains steady in the wake of the recent BOJ meetings.

Wednesday, May 23, 2012

Euros Sinks Back To 4-Month Low, US Dollar On The Up

The Euro rebound proved to be short-lived as the single currency sank back down to its recent 4-month low, fueled by further speculation that Greece will exit the Euro Zone.
Meanwhile, the US Dollar climbed to a 20-month high across the board. The US Dollar also rose against the Japanese Yen after Fitch downgraded Japan's sovereign credit rating.

Monday, May 21, 2012

Euro Retreats From 4-Month Lows, Yen Dips Lower

The Euro was lifted off its most recent 4-month lows in early trading on Monday but most analysts remain uneasy over the financial turmoil in Greece and Spain.
The Euro looks to be entering a consolidation phase but this may not be enough to keep Greece in the Euro Zone.
The Japanese Yen was seen trading lower amidst growing speculation that the Bank of Japan (BOJ) would further stimulate the economy by weakening the currency via easing measures in its meeting later on this week

Tuesday, May 15, 2012

Euro Continues To Slide, Yen Remains Steady

The Euro continued its slide downards and went on to reach a 4-month low against the US Dollar on Tuesday. The political deadlock in Greece has raised fears that the country may soon exit the Euro Zone completely.
As a result, the US Dollar continued posting gains against the major currencies but only managed to gain a little bit of ground back on the Japanese Yen in early trading today.

Facebook increases IPO price range.

 Facebook (FB) has raised its IPO price range to $34-$38 a share from $28-$35 in response to heavy demand. The new range would give the company a market cap of $93B-$104B, and at the midpoint, the firm would raise $12.1B in its sale of 337.4M shares.

German recovery helps eurozone avoid recession.

German GDP rebounded in Q1 to rise 0.5% on quarter, more than double forecasts of +0.2%, boosted by exports to emerging markets. France showed zero growth and Italy experienced a worse-than-expected 0.8% contraction, which means that it was mainly Germany that helped the eurozone record flat growth in the quarter and avoid a recession

Thursday, May 10, 2012

Euro Zone Turmoil Continues, Yen Remains Up Beat

The Euro remained stuck at its 3 and a half month low versus the US Dollar on Thursday. At the moment, political uncertainty in Greece threatens its rescue deal and raises speculation that the country will soon be leaving the Euro Zone.
With most analysts expecting the situation in Greece to weigh heavily on the markets, the big winner seems to be the Japanese Yen.
The Yen is receiving wide support having recovered most of the losses that followed the Bank of Japan's updated monetary easing policy released earlier this year.

Euro Hit New Lows, Yen On The Rise

The Euro tumbled to a new 3-month low on Wednesday, amidst renewed fears that political uncertainty in Greece and France will undermine austerity plans, which remain an integral part of tackling the debt crisis in the Euro Zone.
As a result, the 'safe-haven' Japanese Yen went on to post fresh gains after rising across the board against the major currencies.

Sunday, May 6, 2012

Despite borrowing, gains on shares assessable as STCG & not business profits

Narendra Gehlaut vs. JCIT (ITAT Delhi)

The assessee earned gains from shares of which Rs. 7.61 crores was out of delivery-based transactions and offered as STCG while Rs. 4.26 crores was out of futures & options and offered as business profits. The AO & CIT (A) assessed the STCG as business profits on the ground that (a) there was no LTCG, (b) there was no dividends, (c) there were hundreds of transactions during the year, (d) the assesee had borrowed interest-bearing funds for purchase of shares & (e) the average holding period was 41 days. On appeal by the assessee, HELD allowing the appeal:

In the books, the delivery based transactions were accounted as investment and a distinction from the non-delivery transactions is maintained. The transactions were with a limited number of companies (8) and the average number of transactions in one month were 8. The CBDT Circular permits the assessee to deal in the shares of one scrip and treat some as trading and some as a capital investment. The fact that the assessee borrowed funds for investing in shares cannot constitute a factor as in none of the case laws or CBDT circular it has been held that borrowings will not be allowed in investment transactions. Investment in capital assets can also be carried out by use of borrowed funds. There is no bar notified by the law, judicial pronouncement or CBDT Circular.

S. 36(1)(iii): S. A. Builders 288 ITR 1 (SC) to be reconsidered

ACIT vs. Tulip Star Hotels Ltd (Supreme Court)
 The assessee borrowed funds and used it to subscribe to the equity capital of its subsidiary company. The subsidiary company used the said funds for the purpose of acquiring the Centaur Hotel, Juhu Beach, Mumbai. The assessee paid interest on the borrowed money and claimed that a deduction u/s 36(1)(iii). The AO rejected the claim though the CIT (A), Tribunal & High Court (338 ITR 482) allowed it by relying on S. A. Builders Ltd vs. CIT 288 ITR 1 (SC). It was held that as the assessee, being a holding company had a deep interest in its subsidiary, and hence if the holding company advanced borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would be entitled to deduction of interest on its borrowed loans. On appeal by the department, HELD by the Supreme Court:
Standing helpless against a rapidly depreciating rupee, the Reserve Bank of India (RBI) was forced into action. The central bank has now eased norms to encourage foreign currency inflows. Interest rate ceilings on different maturities of foreign currency non-resident (FCNR) deposits have been relaxed. However, these measures may not help curb the fall of the rupee. Policy issues including the General Anti Avoidance Rules (GAAR) need to be clarified. Oil prices, a huge component of our import bill, also needs to soften. Companies, which took advantage of the cheap credit overseas, need to make repayments in dollar terms. Unless some of these issues get resolved, there will continue to be pressure on the Indian currency.
Ratings agency Standard and Poor's (S&P) has recently cut India's outlook to negative from stable and issued a threat of potential downgrade, citing high fiscal deficit. As a result, Indian government is facing tremendous pressure to reduce its fiscal deficit. In order to increase revenues for the government, India is planning to review the double-taxation avoidance agreement (DTAA) with Mauritius. The reason behind the review is to prevent misuse of the treaty and track illicit money allegedly stashed in the African island nation. The country was losing more than USD $600 m every year in revenue because of the tax treaty, besides incurring the risk of militant groups using it to route money into India. This announcement had sent a panic wave in the Indian stock markets. It must be noted that Mauritius has the biggest share (39%) of foreign direct investment (FDI) inflows in India.

India's trade deficit has reached the highest ever level in FY12.

Today's chart of the day highlights how India's trade deficit has reached the highest ever level in FY12. While our imports have exceeded imports most of the time, the difference in FY12 has come as high as US$ 185 bn. Combine this with weak capital inflows and one gets an idea on why rupee seems to be under immense pressure. Unless petro prices cool off, we do not think a big respite is in the offing any time soon. Of course, imports of precious metals such as gold have also caused the problem to exacerbate a bit.