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Tuesday, July 31, 2012

Euro up, Dollar down on Fed speculation

Expectations that major central banks may add more stimulus have helped edge the Euro higher against the Dollar earlier today. The Euro though, has remained off its recent three week high while the Aussie touched a four month high.
Following ECB President Mario Draghi's recent pledge to do whatever was necessary to protect the Euro zone from collapse, the markets have remained optimistic about the outcome of an ECB policy meeting to be held on Thursday.
Most analysts agree that the market sentiment at the moment is that there are going to be some strong measures taken. If so, we could expect a boost to the commodity currencies and some emerging market currencies.
The outcome could well be that the ECB may soon reactivate its bond-buying programme in a bid to assist in cutting Spain and Italy's borrowing costs. Such steps may however find opposition from Germany.
With market expectations running high, it's apparent to me that the ECB simply can't afford to do nothing, as they themselves have raised the expectations.
What is also clear to me is that many remain sceptical, and justifiably so, that ECB bond-buying by itself would be enough to change the Euro's weak overall trend.
The fact is that the Euro bloc's issues are, and will remain, very complex and no single measure in itself will be enough to provide long term relief. Recent investor diversification out of the Euro bloc periphery and Europe as a whole, has longer term implications and won't suddenly turn around. If anything, the ECB's measures could provide short term respite for the Euro and so we could expect some short term spikes for the Euro.
Data is due today that could show that the jobless rate in the Euro area rose to 11.2% in June from 11.1% in May, the highest on record.
The Euro had earlier moved up 0.1% to $1.2274, however it remained below the high of $1.2390 hit last Friday.
Even so, the modest rise in the Euro had weighed on the Dollar index, which measures the Dollar's value against a basket of major currencies. The index last stood at 82.749, near a three week low of 82.343 hit the previous week.
As against the Yen, the Dollar edged up 0.1% to 78.26 Yen.
In fact the Dollar was down against most of its major peers on speculation that Federal Reserve policy makers will signal additional stimulus when they conclude a two day meeting that starts later today.
While the Fed is deemed unlikely to do a "QE3" at this point, it is possible that they could come up with other forms of stimulus. New stimulus measures could well send U.S. interest rates lower and we may see the Dollar-Yen decline as a result.
High beta currencies such as the Aussie, which are relatively volatile and tend to benefit when investor optimism about the outlook for the global economy picks up, have recently been amongst the best performers.
The Euro was down 0.2% to the Australian Dollar at A$1.1656, after having hit a record low around A$1.1646 on Monday.
In Australia, the Bureau of Statistics announced today that the number of permits granted to build or renovate houses and apartments fell 2.5% in June, a figure that was a lot lower than had been expected, and this contributed to the greenback falling to a four month low against the Aussie.
The Aussie last stood at $1.0526, having hit a four month high of $1.0538 earlier today.

“Binding” AAR Rulings can be challenged but not directly in the Supreme Court

Columbia Sportswear Company vs. DIT (Supreme Court)
The Petitioner, a USA company, filed an application for advance ruling on the question whether its liaison office in India was a “business connection”/ “permanent establishment” and whether its business profits were taxable under the Act and the DTAA. The AAR held that the liaison office was a business connection/ PE and that the income attributable thereto was assessable to tax in India. The Petitioner filed a SLP directly in the Supreme Court to challenge the AAR’s ruling. The Supreme Court had to consider whether the AAR was a “tribunal”/ “court” and whether a direct challenge in the Supreme Court was desirable. HELD:

Japanese unemployment falls, consumer spending rises.

 Japan's unemployment rate eased to 4.3% in June, beating expectations the rate would remain at May's level of 4.4%. Meanwhile, household spending rose 1.6% on year, missing forecasts for a 2.9% increase.

NPA Provisions saw a rise on Balance Sheets of Indian Banks.

There was little doubt in investors' minds that Indian banks, especially PSUs are into troubled waters. The June 2012 quarter results further confirmed the same. The near term outlook does not look rosy either. Policymakers have cut the GDP (Gross Domestic Product) growth forecasts. Further, an unfortunate mishmash of high inflation, stagnant capex plans and the economic turmoil in the developed economies could worsen credit growth. This has led many Indian companies to either restructure or default on their debt. As a result, the non-performing assets have been piling up on the balance sheets of Indian banks. As per a report on Mint, PSU banks' NPA provisions saw a rise of 129% YoY in the June quarter. Further, the gross NPA ratio went up from 1.5% in June 2011 to 1.8% in June 2012. Even large PSU banks like Bank of Baroda (BOB) and Oriental Bank (OBC) were badly hit. Given that the NPA writeoffs take a direct toll on bank's networth, investors can expect returns to remain muted for the time being.
The European Central Bank (ECB) seems to be running out of options to resolve the Euro crisis. It has cut down interest rates to 0.75%. It has bailed out the troubled nations but their troubles are far from over. It gave cheap funds to the European banks to bail them out. But nothing seems to be working. All of its efforts can at best be described as short term fixes. Now it appears that it would use another option, that used by the United States. It plans to come up with a quantitative easing and print money to bail the Euro zone out. The ECB President has hinted that he may look at buying sovereign bonds in the zone and in effect pump money into it. However, before planning it, he has to get Germany to agree to the plan. But we feel that someone needs to go and tell the ECB President that money printing is again nothing but a short term fix. In the long run, it really does not help much. Something the US realized after embarking on two rounds of quantitative easing.


RBI keep rates unchanged.

For the second time running since April, the central bank decided to keep rates unchanged. Under current circumstances, the Reserve Bank of India (RBI) believes that easing policy rates would only aggravate inflation and not necessarily stimulate growth. The RBI maintained status quo on the policy front. It kept the cash reserve ratio (CRR) for banks at 4.75% and the repo rate unchanged at 8%. This was in line with the general market expectation. But, there was some liquidity enhancement undertaken by the central bank. The RBI slashed the statutory liquidity ratio (SLR) of scheduled commercial banks from 24% to 23% of their deposits with effect from mid August. The SLR is the percentage of total deposits that banks need to invest in the government bonds. The reduction will help in the flow of credit through the system. A 1% cut, based on the total deposits in the country, will help inject around Rs 620 bn of liquidity into the system.

Monday, July 30, 2012

Euro Slides But Losses Limited, Yen & Dollar Remain Sticky

The Euro dropped from the 3-week high achieved last week but losses were at a minimum as most investors expect the European Central Bank (ECB) to embark on a fresh new campaign to tackle the Euro Zone debt crisis.
Strangely enough, investors have avoided both the US Dollar and the Japanese Yen over the last few days, leaving the greenback stuck at a 3-week low against a basket of currencies.
The focus of market players in the days ahead, will be largely on whether the ECB will reactivate its bond buying programme in an attempt to cut Spanish and Italian borrowing costs. The ECB's President, Mario Draghi, had vowed recently to do whatever was necessary to protect the Euro zone from collapse.
I think it's likely that the Euro's downside tendency will be limited in the coming days and that the currency will probably remain range bound, at least until the ECB meeting on Thursday.
In the opinion of many analysts, ECB bond buying alone will not resolve the fiscal issues of indebted countries and is therefore unlikely to change the Euro's weak overall trend.
If nothing meaningful is announced, that would clearly be a massive disappointment, though the expectation is that there is room for some leeway to be made.
A report due out today, from the European Commission in Brussels, may add to signs that the region's debt crisis is weighing on consumer sentiment.
The report is expected to confirm its index of household sentiment in the Euro area declined to an almost three year low of minus 21.6 in July.
A separate report, due out on Tuesday, could show that the jobless rate in the area probably had risen to 11.2% in June, from an all time high of 11.1% in May.
With economic data remaining very weak, the Euro will continue to be sold each time such data comes out.
The Euro earlier dropped 0.3% from a three week high of $1.2390 hit on Friday, to $1.2293 and fell 0.4% to 96.31 Yen, remaining above last week's low of 94.12 Yen.
Ahead of a two day meeting of the Federal Reserve, which starts on Tuesday, demand for the Dollar was limited amid speculation the Fed may signal additional stimulus which would debase the greenback.
Fed Chairman, Ben Bernanke, had said earlier this month that policy makers are looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labour market. Bernanke had indicated that introducing a third round of asset purchases is an option.

ECB rumors aid Italian bond auction.

 Speculation that the ECB might restart buying government bonds helped send Italian yields lower in an auction of €5.48B ($6.749) of debt with differing maturities. The cost of 10-year paper dropped to 5.96% from 6.19% in a sale in June, while the bid-to-cover ratio edged up to 1.29 from 1.28. Yields on five-year paper dropped to 5.29% from 5.84%.

India lags BRICS in Forex Reserves

Forex or foreign exchange reserves are an important resource for the central bank of a country. It can be used by the central bank to help the domestic currency. When the domestic currency weakens in the international markets, the central bank could use its kitty of forex reserves to repurchase the domestic currency from the international markets. This can help in stabilizing the currency's value. Therefore, we thought of evaluating the position of India vis-a-vis its BRIC peers in terms of forex reserves. Interestingly, India lags behind all the other BRIC countries in this regards. It must be noted that large forex reserve balance can be used by a country to manipulate its exchange rates to provide itself a more favourable economic environment. Something that China has been accused of by other developed nations. And with a reserve in excess of US$ 3 trillion, it is quite understandable as to why it has come under the firepower of such accusations.

Sunday, July 29, 2012

Facebook shares sink on growth fears.

Facebook (FB) shares dived 8.9% premarket following its Q2 report on concerns about its slowing growth, especially after it didn't provide guidance. Facebook swung to a net loss of $157M from a profit of $240M a year earlier due to large stock compensation charges, EPS was in-line with forecasts at $0.12, and revenue climbed 32% to $1.18B. The big question for Facebook is how to make money from its 543M mobile users.

SBI's bond issue success brightens up prospects for others

Trying to reduce their cost of funds either through increasing their low cost deposit base or accessing cheap resources is becoming important for banks these days. They are trying to protect spreads and margins at all costs, especially in the current rate scenario. Raising cheap money from abroad seems to be a no-brainer. However global sentiments are weak and the credit rating of India and its banks have been downgraded. But, India's largest bank Securities and Exchange Board of India (SEBI) seems to have finally broken ground. The bank raised US$ 1.25 bn from overseas investors at 4.125% for a five year period. These dollar bonds were subscribed 5.4 times. The bonds received US$ 6.8 bn in bids from around 350 accounts spread across Asian, European and US investors. The success of this offer has now opened a window of opportunity to other good-quality Indian issuers to tap international bond markets. A number of banks have been waiting on the sidelines since April on account of risk aversion from overseas investors. Maybe we can expect to see a few more bond issues soon.

Thursday, July 26, 2012

Speculation about the possibility of the Fed adopting monetary easing steps at month end could escalate, especially if U.S. second-quarter gross domestic product data due out tomorrow is weak.

Persistent concerns about Spain's debt crises have clouded the outlook for the Euro, which has given back some gains earlier today from a short-covering rally on Wednesday.
Euro sentiment today appears to remain bearish when one factors in also the spiralling Spanish borrowing costs that show a real chance that Spain will need a full sovereign bailout.
The Spanish 10-year government bond yield remains close to a Euro era high of about 7.75% having fallen to roughly 7.40% on Wednesday.
The Euro earlier eased 0.1% to $1.2146, remaining above a two-year low of $1.2042.
Investors now appear to be moving out of the Euro and into commodity currencies. A month end U.S. Federal Reserve policy meeting though, could limit the Euro's downside move against the Dollar on growing speculation that the Fed might take some action.
The Fed's choices appear to be include a third round of quantitative easing, in the form of large-scale bondpurchases (QE3), and lowering the interest it pays banks on excess reserves they leave with the central bank.Speculation about the possibility of the Fed adopting monetary easing steps at month end could escalate, especially if U.S. second-quarter gross domestic product data due out tomorrow is weak.
The Dollar held steady at 78.18 Yen, near a 7 week low of 77.94 Yen set earlier in the week.
The Dollar has been supported by the possibility of potential Yen-selling by the Bank of Japan.
Canada's Dollar has risen from its lowest level in two weeks and posted the largest one-day gain this month, after speculation that central banks will consider increasing monetary stimulus to spur growth, which has boosted higher-risk assets.
Canada's currency, nicknamed the loonie, climbed 0.7%, the most since the 29th of June, to C$1.0155 per U.S. Dollar.

Wednesday, July 25, 2012

Euro Rebounds After Slide, Spanish Bailout On The Horizon

The Euro remained deadlocked at its recent 2-year lows in early trading on Wednesday after a sell-off in global stocks while fears continue to mount over debt-ridden Spain's potential bailout.
Skyrocketing borrowing costs in Spain continue to fuel fears for the region's economic stability and European Union officials went on to state that Greece had little hope of meeting the terms of its recent bailout.
As a result, the Euro, which plummeted to a new 2- year low, remains in a downward slump even though the single currency rebounded towards the end of the Asian session.

Tuesday, July 24, 2012

Euro Tumbles For A Second Day, Yen Remains Strong

The Euro tumbled against the US Dollar in trading on Tuesday after weak German manufacturing data meant worries continued to mount over slowing growth in the German economy.
This also did little to alleviate fears that Spain may need a full bailout. And to add more fuel to the fire, Moody's changed its outlook for Germany, Holland and Luxembourg to negative, adding that Europe's top-rated countries may have to increase financial support for more troubled regions like Spain and Italy.

Contraction in eurozone manufacturing accelerates.

 Eurozone manufacturing PMI dipped to an initial 44.1 in July from 45.1 in June, touching a 37-month low, with contraction in Germany also accelerating. The downturn in the eurozone shows no signs of letting up and "is consistent with GDP falling at a quarterly rate of around 0.6%, which is similar to the rate of decline we expect to see for the second quarter."

Moody's warns AAA eurozone countries.

 Moody's has lowered its outlook on Germany, Holland, and Luxembourg to Negative, while affirming Finland's Stable outlook and AAA credit rating. The agency cited the usual fears related to the eurozone's debt crisis, along with the "increasing likelihood that greater collective support" will be needed for Spain and Italy. Germany hit back, pointing out that it has exceptionally low borrowing costs

5 Member Special Bench Transfer Pricing verdict affirmed without examining merits

Aztec Software & Technology Services Ltd vs. ACIT (Karnataka High Court)

In Aztec Software vs. ACIT 294 ITR (AT) 32 / 107 ITD 41, a 5 member Special Bench judgement of the Tribunal answered several questions such as (a) Whether it is a legal requirement under the provisions contained in Chapter X of the Income-tax Act, 1961 that the Assessing Officer should prima facie demonstrate that there is tax avoidance before invoking the relevant provisions?, (b) Whether it is a legal requirement under the provisions contained in Chapter X of the Income-tax Act, 1961 that the Assessing Officer should prima facie demonstrate that any one or more of the circumstances set out in clauses (a), (b), (c) and/or (d) of sub-section (3) of section 92C of the said Act are satisfied in the case of any assessee, before his case is referred to the Transfer Pricing Officer under sub-section (1) of section 92CA for computation of the arm’s length price?, (c) Whether the Assessing Officer is required to record his opinion/reason before seeking the previous approval of the Commissioner under section 92CA(1) of the Income-tax Act, 1961?, (d) Whether before making a reference to the Transfer Pricing Officer under section 92CA(1) read with section 92C(3) of the Income-tax Act, 1961, is it is a condition precedent that the Assessing Officer shall provide to the assessee an opportunity of being heard?, (e) Is the approval granted by the Commissioner under section 92CA(1) justiciable ? If so, can it be called in question in appeal on the ground that it was accorded without due diligence or proper application of mind?, (f) What is the legal effect of Instruction No. 3 of 2003 dated 20-5-2003 issued by the Central Board of Direct Taxes on Transfer Pricing matters?, (g) What is the role of the Assessing Officer after receipt by him of the order passed by the Transfer Pricing Officer under section 92CA(3) of the Income-tax Act, 1961 etc. After laying down the principles of law, the matter was remanded to the AO. On appeal by the assessee against the principles of law laid down by the Special Bench, HELD by the High Court dismissing the appeal:

Monday, July 23, 2012

Euro Down To 11 And A Half Year Low, Yen On The Upside

The Euro defied all odds and went on to slide against the Japanese Yen and a basket of other currencies, hitting its lowest level in more than 11 and a half years in early trading on Monday.
The drop came after pressure mounted over fears that Spain may require a full sovereign bailout.
The news was welcomed by the Japanese Yen which went on to gain more than one percent during the Asian Session, with the troubled Euro hitting its lowest level since November 2000.

Spain's debt-to-GDP ratio not all that bad.

 The eurozone's government debt-to-GDP ratio stood at 88.2% at the end of Q1, up from 87.3% at the end of Q4. For Spain, the ratio was 72.1% vs. 68.5% previously, which looks pretty healthy compared with Greece's 132.4%, Italy's 123.3%, Portugal's 111.7% and Ireland's 108.5%. At the other end of the spectrum were Estonia (6.6%), Bulgaria (16.7%) and Luxembourg (20.9%).

Thursday, July 19, 2012

Difference between market price & option price of ESOP shares deductible

CIT vs. PVP Ventures Limited (Madras High Court)

The assessee allotted shares to its employees under an ESOP scheme. In accordance with the Employees Staff Option Plan and Employee Staff Purchase Scheme Guidelines, 1999 issued by SEBI, the difference between the market value of the shares and the value at which they were allotted to the employees was debited to the P&L A/c. This was claimed as a deduction under the head “staff welfare expenditure”. The AO allowed the claim though the CIT revised the assessment u/s 263 and held that the expenditure was notional and contingent in nature and not allowable as a deduction. On appeal, the Tribunal (S.S.I Ltd vs. DCIT 85 TTJ 1049) held that as the SEBI regulations required the difference between the market price of the shares and the price at which the option is exercised by the employees to be debited to the P&L A/c as expenditure, it was an ascertained expenditure and not contingent in nature. On appeal by the department to the High Court, HELD dismissing the appeal:

As far as the Employees Stock Option Plan is concerned, as rightly pointed out by the Tribunal, the assessee had to follow SEBI direction and by following such directions, the assessee claimed the ascertained amount as liability for deduction. There is no error in the order of the Tribunal

Major Pairs Ganging Up On The US Dollar

The Euro posted gains against the US Dollar while the US Dollar fell to a 2-week low against a basket of major currencies.
The US Dollar's poor form also continued against the Japanese Yen where it went on to fall to a new 6-week low as many investors now favor the Japanese currency due to the possibility of more monetary easing in the United States.

Value of shares allotted free of cost to employees is deductible revenue expenditure

ACIT vs. Spray Engineering Devices Ltd (ITAT Chandigarh)

The assessee allotted 3,94,692 Sweat Equity shares to its employees free of cost for rewarding them for past services or providing know how for making available rights in the IPR as per s. 79A of the Companies Act, 1956. Though the shares were allotted for no consideration, the assessee accounted for the shares at Rs.106.26 each (face value Rs. 10) at its arms length price and claimed Rs. 4.19 crores as a deduction towards “employees benefit expenses”. The shares were not allotted as at 31.3.2006. The AO disallowed the claim on the ground that it was not an ascertained liability but was a contingent liability though the CIT (A) allowed the claim. In appeal before the Tribunal, the department relied on Ranbaxy Laboratories 124 TTJ 771 (Del) & VIP Industries (ITAT Mum). HELD dismissing the appeal:
Though the allotment of the ESOP shares was not done as of 31.3.2006, the number of shares to be allotted to the employees as on 31.3.2006 was specified and immediately thereafter the said shares were so allotted. Consequently, the mere non-allotment of the shares pending completion of certain formalities does not merit the disallowance of said expenditure as being a contingent liability. The fact that the scheme provided for a lock in period of five years under which in case the employee left employment before the expiry of five years, the shares so allotted to him would revert to the assessee, did not make the liability contingent because where the shares were forfeited, the value thereof would be offered to tax in that year (S.S.I. Ltd. vs. DCIT 85 TTJ 1049 (Chennai) followed; Ranbaxy Laboratories 124 TTJ 771 (Del) & VIP Industries (ITAT Mum) distinguished)

Transfer Pricing: Arms’ length royalty allowable even in respect of unpaid sales

CIT vs. CA Computer Associates India Pvt. Ltd (Bombay High Court)
The assessee entered into a Software Distribution Agreement with CA Management Inc (“CAMI”) pursuant to which it was appointed as a distributor of CAMI’s products in India. The assessee was required to pay an annual royalty of 30% on sales. The TPO accepted that the rate of royalty was at arms’ length price but held that royalty ought not to have been paid on sales where there was complaints on quality or which had turned into bad debts. The CIT (A) upheld the TPO’s stand though the Tribunal reversed it. On appeal by the department to the High Court, HELD dismissing the appeal:
S. 92C provides the basis for determining the ALP in relation to international transactions. It does not either expressly or impliedly consider failure of the assessee’s customers to pay for the products sold to them by the assessee to be a relevant factor in determining the ALP. In the absence of any statutory provision or the transactions being colourable bad debts on account of purchasers refusing to pay for the goods purchased by them from the assessee can never be a relevant factor while determining the ALP of the transaction between the assessee and its principal. Once it is accepted that the ALP of the royalty is justified, there can be no reduction in the value thereof on account of the assessee’s customers failing to pay the assessee for the product purchased by them from the assessee. Absent a contract to the contrary, the vendor or licensor is not concerned with whether its purchaser /licensee recovers its price from its clients to which it has in turn sold /licensed such products. The two are distinct & unconnected transactions. The purchaser’s / licensee’s obligation to pay the consideration under its transaction with its vendor / licensor is not dependent upon its recovering the price of the products from its clients.

Tax planning is legitimate if it is within the framework of the law

In Re AVM Capital Services Private Limited (Bombay High Court)

A scheme of arrangement u/s 391 to 394 of the Companies Act was entered into which provided that five private limited companies would be merged with Unichem Laboratories. Pursuant to the Scheme, (a) the entire undertaking of the transferor companies would stand vested with the transferee, (b) The shares held by the transferor companies in the transferee company would be cancelled & (c) shares of the transferee company would be issued to the shareholders of the transferor companies. The scheme was challenged by a shareholder on the ground that it was propounded to avoid capital gains tax that would have arisen if the transferor companies would have directly transferred their shares to the promoters and that it was a “colourable device to evade tax”. Reliance was placed on McDowell 154 ITR 148 (SC), Wood Polymer 47 CC 597 (Guj) & Groupe Industrial Marcel Dassault (AAR). HELD by the High Court rejecting the objection.

Wednesday, July 18, 2012

Euro Wipe Out, Bernanke Giving Nothing Away... Yet

  The Euro wiped out gains achieved yesterday after the  Federal Reserve testimonies sent the currency soaring  against the US Dollar.
  A gloomy assessment of the U.S. economy from Federal  Reserve Chairman Ben Bernanke, now leaves the door  open for more monetary easing although his testimony  was vague at best. Investors are now looking to the  second round of testimony due later today.
  As a result, we can expect moves in the Euro and  other major currencies to be subdued ahead of today's  testimony.

All eyes on the U.S. today

The Dollar finds itself under pressure today ahead of Ben Bernanke's testimony, while the Euro is off lows as hedge fund buying triggered stop losses.
Today we saw the Euro rise versus the Dollar as a result of purchases from hedge funds which triggered a flurry of stop-loss buying. This pulled the Dollar down to a seven week low against a basket of currencies. What this in effect did was to exacerbate the Dollar's losses following poor U.S. retail sales figures.
The greenback was also down to a one month low against the Yen after Tokyo markets reopened following a holiday on Monday. The Yen was held back though on the threat of intervention by the Tokyo authorities and on weakness as against other currencies.
Today all traders are focusing their attention on the world's largest economy, the U.S, ahead of Federal Reserve Chairman Ben Bernanke's testimony before Congress today and Wednesday.
In the view of many analysts and myself, besides overtly signalling the possibility of more stimulus, there is not much Bernanke can say or do that he hasn't already. In fact, the sell off in the U.S. Dollar and U.S. equities show us that investors likely are positioning for slightly more dovish comments from Bernanke.
In June the Fed expanded efforts to keep long term interest rates low, when it announced that it would buy an additional $267 billion in long term bonds while selling short term securities in a measure that's been dubbed "Operation Twist", while at the same time the central bank held off from launching further quantitative easing.
Earlier today the Dollar stood at 78.90 Yen, and the Euro and Australian Dollar pushed higher versus the Yen, with the Euro gaining 0.3% to 97.04 Yen and the Aussie standing at 81.27 Yen.
The rise against the Japanese currency helped the Euro gain ground to the Dollar and earlier it stood at $1.2314.
It appears that the Euro has now become the funding currency of choice following both German and Dutch two year bond yields having turned negative recently.

Tuesday, July 17, 2012

Moody's takes knife to Italian banks. Moody's has cut the ratings of 13 Italian banks, citing the weakening of the Italian government's credit profile. The move followed the downgrade of Italy to Baa2 from A3 last week. UniCredit (UNCFF.PK) and GE Capital SpA are among the banks whose ratings were cut

Growth expectations likely to remain muted

The planning commission had set out an ambitious target of spending US$1 tn on infrastructure in the 12th five year plan. But in light of current growth prospects it seems that target is on the verge of being missed. It may be noted that the target of US$ 1 tn was based on GDP growth expectations of about 9%. And now, since the growth expectations are revised down wards, spend is likely to change. Also, it may be noted that target was given when the rupee was hovering at about 44 to the US dollar. But with rupee depreciating significantly in the recent past, the dollar equivalent spend is bound to impact the target. Now, we know that infrastructure is the backbone of any economy. So, unless the government takes calculative steps to increase spend, growth expectations are likely to remain muted in the near term.

Latest consumer prices :India ranks high.

India's latest wholesale price inflation (WPI)  might have eased a bit in June, but high prices at the consumer level are still a cause for worry. Today's chart of the day shows that when compared to other countries, consumer prices in India are still the highest. Further, with monsoons playing truant in the year so far, the possibility of prices staying firm cannot be ruled out. This is in sharp contrast to China where lower inflation has given the government more headroom to cut interest rates in an effort to spur growth.

Monday, July 16, 2012

Euro Holds Steady Ahead Of Fed Chairman's Testimony

The Dollar may rise if Bernanke decides not to pursue QE, and negative yields in the Euro zone bode ill for the Euro.

Earlier today the Euro had held steady against the Dollar as investors were focused on whether the U.S. Federal Reserve Chairman, Ben Bernanke, will give any hint of additional monetary stimulus when he gives testimony to Congress on Tuesday and Wednesday.
My thinking is that he will keep the door open to this possibility however, it is unlikely that he will say that the Fed has moved closer to QE since the last FOMC meeting.
In June the Fed had expanded its efforts to keep long term interest rates low, when it announcing that it would purchase an additional $267 billion in long term bonds while also selling short term securities through its "Operation Twist" programme.
The central bank had held off from going the route of quantitative easing (QE), a form of stimulus which would have seen the launch of a third round of outright bond purchases that would expand its balance sheet.
Should the Fed hold off, the Dollar could gain support against both the Euro and the Yen.
As for the Euro, both German and Dutch two year bond yields have turned negative recently. Up to now the strength of Germany's economy has made its highly liquid bonds a major safe haven from the Euro zone's debt crisis. A similar scenario has played out as regards Dutch bonds, which have enjoyed similar demand,as investors turned to bonds of Euro zone countries which have been in relatively good fiscal health.
What this means is that, to now, Capital preservation has effectively been ensured by these bond investments but, now that yields have turned more negative, this is becoming a growing concern because investors would suffer losses if they were to hold such bonds until maturity. The upshot of that, could be that we could see a retreat out of Euro zone assets by international investors in particular.
A gauge of investor confidence in Germany, the currency bloc's biggest economy, is expected to have declined to minus 20 in July from minus 16.9 in June. The ZEW Centre for European Economic Research will release this data for its index of investor and analyst expectations on Tuesday.

Sunday, July 15, 2012

Two impossible outcomes of the Euro crisis

Nobel-Prize winning economist Paul Krugman has two possible outcomes on how the Euro crisis will end. But, both of them are impossible. One possibility is that the ECB aggressively buys peripheral debt and caps borrowing costs of Spain and Italy. This is while it makes it clear that it will promote monetary expansion that boosts inflation in Germany and helps restore competitiveness between Germany and the rest of the euro zone. The other possibility is a doomsday scenario. Basically if the ECB stops protecting all the banks there will be wide spread bank runs and currency redemptions. This would mean the end of the euro system which would have worldwide implications. What will actually happen? Well, it's all up to Germany. They seem to be the only European nation with some fight left in them

Property subject to ULCA restrictions cannot be valued at market value

AIMS Oxygen Pvt. Ltd vs. WTO (Gujarat High Court Full Bench

The assessee had a plot of open land which was declared to be surplus under the Urban Land [Ceiling & Regulation] Act, 1976. The assessee claimed that as the land was under ULCA and not marketable, its value for wealth-tax purposes had to be taken at the rate of compensation that it was entitled to be awarded under the ULCA. However, the AO, CIT (A) and Tribunal held that as s. 7 of the W.T. Act required the land to be valued on the basis of  “if sold in open market”, property had to be valued on that basis and there was no question of reducing the value of the land on the ground of restrictions and prohibitions. On a reference to the High Court, the issue was referred to the Full Bench. HELD by the Full Bench reversing the lower authorities.

Thursday, July 12, 2012

BOJ holds rates steady and Yen seen as haven

Today the Bank of Japan (BOJ) made a technical change to its asset buying programme. This saw the Dollar enjoying a short rise against the Yen and it remained close to a two year high to the Euro.
Euro Sinks To Fresh 2-Year Low, No Easing From BOJ
The troubled Euro relinquished all of the its recent gains against the US Dollar and went on to fall to a fresh 2-year low.
Meanwhile, the Bank of Japan declined making further changes to monetary easing policies as expected but instead went on to make a technical change to their asset buying programme, leaving the Japanese Yen close to a 2-year high against the Euro
Despite recent moves to ease monetary policy by central banks in the Euro zone, Britain and China, the BOJ refrained from doing the same as it had been expected to do.
The BOJ held its key policy rate in a range of zero to 0.1% and stopped short of additional easing steps. It did though tweak its asset buying and lending programme.
It decided to maintained the total size at 70 trillion Yen ($879 billion) however, it pledged to purchase more short term securities and at the same time reduce the amount it offers under fixed rate market operations.
The Dollar advanced as high as 79.97 Yen following the announcement, however shortly thereafter erased the move and earlier was trading at 79.49 Yen. Economic slowdown concerns have enhanced demand for the Yen as a haven.
Yesterday's minutes of last month's Federal Reserve meeting had revealed that the U.S economy would have to worsen further before the Fed would take any more easing steps.
As a result, the Dollar index soared to a two year high of 83.610 overnight.
The Euro held steady at $1.2242 having fallen overnight to a two year low of $1.2212. The Euro has fallen around 5.5% so far this year.
It seems there will be no quick judgment from a German court on the Euro zone's bailout fund which is adding to investor uncertainty about Europe's progress to address its debt crisis.
In Spain, Prime Minister Mariano Rajoy yielded to EU pressure to attempt avoiding a full state bailout and unveiled new measures to slash 65 billion Euro from the public deficit by 2014.
The Australian Dollar took a hit after data showed an unexpected drop in Australian employment in June. This has added to concerns about its economic outlook following reports of a slowdown in China, Australia's biggest trading partner.
Earlier today the Australian Dollar was down 0.6% at $1.0185, as investors priced in the possibility of further interest rate reductions.

Infosys disappoints the street

 The fall today was brought about by yet another quarter of poor results. The company reported a quarter-on-quarter (QoQ) decline of 1.2% in net profits. In dollar terms, the decline was even worse at 10% QoQ. Slowdown in the company's major markets, US and Europe, has been cited as one major reason for this decline. In addition to that, global uncertainty continues to haunt the future of the company. This has resulted in a weaker guidance for FY13 by the company's management. Though one should not really put too much faith in short term quarterly results. However, it does appear that the IT industry is going through a slowdown at least in the short term. In the long term the need for outsourcing and India's proven capabilities in the field would help boost the industry's growth.

Wednesday, July 11, 2012

Euro Failure To Launch Leaves The Pair Grounded

The Euro remained steady during the Asian session on Wednesday while hovering near 2-year lows against the US Dollar, with analysts sweating over the outcome of a German court hearing on the Euro Zone bailout fund.
This hearing is yet another hurdle obstructing efforts to launch the region out of its crippling debt crisis.
Most analysts believe that while the Euro could see some short-term corrective moves, it is difficult to foresee too many market players taking long positions in the following months.
 Earlier today the market remained unconvinced that the Euro zone can decisively bring down its struggling member states' borrowing costs.
The Euro zone's debt crisis has now also engulfed the region's larger economies of Spain and Italy. Yesterday Italy announced that it may need Euro zone aid to ease its borrowing costs as market jitters persisted.
Spain is set to receive the first batch of aid for its troubled banks by the end of July. Euro finance ministers have given Spanish Prime Minister, Mariano Rajoy's government an extra year, until 2014, to drive the nation's budget deficit below the Euro limit of 3% of gross domestic product.
Concerns about a protracted struggle to resolve the debt crisis persisted on plans for a hearing, by the German Constitutional Court, into whether the Euro zone's bailout fund, known as the European Stability Mechanism (ESM), and planned changes to the region's budget rules are compatible with German law.
The ESM is seen by many economists as a vital tool to assist in reducing the borrowing costs of indebted nations and for breaking the link between the sovereign debt problem and the banking sector stress in Europe.
Scepticism about the decision- making process in Europe has hurt Euro sentiment, and earlier today the Euro traded at $1.2256, near a two-year low of $1.2225 touched on Monday.
Investors are currently risk averse and are seeking refuge in safer assets such as bonds that are issued by sturdier Euro zone economies, like the Netherlands and France and Japanese government bonds (JGB). The JGB appear more valuable relative to U.S. Treasuries or German Bunds, given Japan's low inflation rate.
The Yen has remained stronger against the Dollar after a three day gain, on signs that Europe's debt crisis is hurting growth and on expectations that Japan's central bank will refrain from adding stimulus to temper the currency's appreciation.
The Yen touched a one month high against the Euro at 97.10 Yen and the Yen earlier fetched 79.35 per Dollar.
Demand for the U.S. Dollar has remained limited ahead of the Federal Reserve releasing minutes of its June 20th gathering. At that meeting Fed Chairman Ben S. Bernanke had indicated another round of QE remains an option.
The Fed had sought to cap borrowing costs and stimulate the economy when it bought $2.3 trillion of bonds in two rounds of so called quantitative easing, or QE, from December 2008 to June 2011.
China is due to release its second quarter gross domestic product report on Friday. This is expected to show the slowest growth in at least three years, and follows benign inflation figures and weak imports which have clouded the prospects for Chinese exports.

Tuesday, July 10, 2012

Downtrend likely to continue.

Today the Euro fell to a near two year low, following a meeting of Euro zone finance ministers which had offered no positive surprises. The Australian Dollar dipped on the release of disappointing Chinese import data.
Euro zone ministers have agreed to grant Spain until 2014 to reach its deficit reduction targets, in exchange for further budget savings and had set the guidelines for an aid package for Spain's ailing banks.
However, no apparent progress was made by them as regards the activation of the Euro bloc's rescue funds, in order to intervene in bond markets and thereby bring down the spiralling borrowing costs for Spain and Italy.
After the European Central Bank had cut interest rates last week and on the back of a renewed rise in Spanish bond yields back above the critical 7% level, seen as unsustainable in the long-term, the Euro has taken a hit.
Analysts agree that investor concerns over Spain's fiscal health and the Euro zone's sovereign debt crisis remain.
Reports due out today from the Paris based national statistics office, are expected to show that industrial production in France and Italy has shrunk as Europe's debt crisis undermines growth.
It appears that there is still a long way to go before the stage is reached at which policymakers will be ready to act, especially as relates to potential bond purchases in the secondary market. The outcome of the Euro zone finance ministers' meeting highlights a seeming lack of urgency on the part of policymakers according to many traders.
This in turn results in a weaker risk appetite and translates to a stronger Yen and Dollar, with many analysts predicting that the Euro's overall trend toward the downside is likely to continue in the days ahead.
The Euro had dipped 0.2% to $1.2287 earlier today, close to a two year low of $1.2225 hit on Monday. The Euro was also down 0.3% to the Yen at 97.70 Yen, close to a one month low of 97.48 Yen touched yesterday.
The Greenback dipped 0.1% to 79.50 Yen. It remains range bound between 79.08 Yen to 80.10 Yen since late June.
Disappointing Chinese trade data saw the Australian Dollar slip 0.3% to $1.0174.
China's imports in June had grown at half of the expected pace. This underscored concerns that China's economy and domestic demand are slowing rapidly, notwithstanding export growth being slightly better than expected.
China remains Australia's single largest export market and the health of China's economy always influences the commodity currency.

Eurozone agrees to bank aid to Spain.

 Eurozone finance ministers yesterday agreed to speed the provision of up to €100B ($123B) in aid for Spain's banks, with an initial €30B to be lent by the end of July. The goal is to use the bloc's rescue fund to recapitalize Spanish banks directly rather than saddling the government with debt. Ministers also agreed to give Spain an extra year to bring its budget deficit back in line. Yields on the country's 10-year bonds have plunged in relief.

S. 271(1)(c): Professional’s opinion in support of claim does not per se make it bona fide. Third Member cannot sit in judgment over dissenting Members’ views

Darwabshaw B Cursetjee Sons Ltd vs. ITO (ITAT KolKata Third Member)
The assessee filed a ROI claiming deduction for the entire VRS liability despite s. 35DDA providing that VRS payments would be allowed in 5 installments. The AO allowed the claim in s. 143(1) and then issued a s. 148 notice (on some other issue; the s. 148 notice did not refer to the VRS claim). In the ROI filed pursuant to the s. 148 notice, the assessee itself disallowed the VRS payment and claimed only 1/5th thereof as was allowable u/s 35DDA. The AO accepted the ROI but imposed s. 271(1)(c) penalty on the ground that there was suppression of income in the original ROI and the s. 148 ROI was not “voluntary”. The CIT (A) confirmed the penalty. Before the Tribunal, the assessee argued that s. 271(1)(c) penalty was not leviable because (a) under Explanation 3 to s. 271(1)(c), income declared in a s. 148 ROI cannot be subjected to penalty if a s. 139(1) ROI had been filed, (b) at the stage of filing the original ROI, the assessee was advised by his CA that in view of Bhor Industries 264 ITR 180 (Bom), VRS was revenue expenditure & allowable in the year it was incurred, (c) after receipt of the s. 148 notice, the assessee was advised by its CA that in view of s. 35DDA, VRS was allowable only in installments and it surrendered the claim and (d) the s. 148 notice did not refer to the VRS claim and the assessee had voluntarily disallowed it. The JM accepted the assessee’s plea that it had acted in a “bona fide manner” based on a mistaken belief of the law and penalty was not leviable. However, the AM took a converse view. On reference to the Third Member, HELD:

Euro Sinks To New 2-Year Low Against The Greenback

The Euro sank to a 2-year low against the US Dollar in early trading on Monday before making a slight recovery against a basket of major currencies ahead of a meeting of Euro Zone financial leaders later in the day.
Against the Japanese Yen, the Euro reached a 1-month low before rising up once more. The US Dollar also slipped slightly against the Japanese Yen departing from last weeks 2-week high.

INDIA ECONOMICS: 4QFY12 BoP shows continued deficit for 3 quarters; Record trade deficit and CAD/GDP ratio in FY12; Expect FY13 CAD/GDP at 2.5%

The Balance of Payments (BoP) data release for 4QFY12 and FY12 displayed continued overall deficit. Exports growth slowed down while import growth was resilient resulting in highest ever trade deficit and CAD/GDP ratio for FY12 at 10.3% and 4.2% respectively.

- Invisibles comprising services exports, net income from abroad and remittances showed first signs of growth in FY12 after a hiatus of two years.

- While capital flows improved somewhat, this fell short to meet the expanded trade gap leaving continued overall BoP deficit for 3 consecutive quarters.

- The measures to ease restrictions on capital account seem to have been successful at the margin in attracting capital flow with NRI deposits rising by USD7b in 4QFY12.

- Early indicators of 1QFY13 point to continued BoP deficit with USD6b drawdown on forex reserves, USD120m FII outflow and near 8% INR depreciation.

- However, trade data for Apr-May 2012 reflect moderating trade growth with import composition pointing to moderate growth in oil bill while near halving of gold & silver imports.

- Thus, we expect FY13 CAD/GDP ratio to come down to 2.5%. However, attracting capital flow would be a challenge in the current investment climate and therefore we may still be left with an overall BoP deficit of USD10b in FY13.

Tuesday, July 3, 2012

Platinum & Palladium: The Other Precious Metals can be thought of as a better play on macroeconomic conditions.

Recent years have seen gold and silver emerge as investor favorites given their appeal as precious metals. But with the popularity of the aforementioned metals came the general shunning of platinum and palladium, the other precious metals. While investment in these two hard assets is not quite as popular as gold and silver, they are a bit more practical and may make more sense from an investing standpoint. Palladium, for example has the lowest melting point and lowest density of the PGMs, and about half of the world’s palladium is ultimately used in catalytic converters. Those devices are responsible for converting hydrocarbons and carbon monoxide from automobile emissions into carbon dioxide, water vapor, and other non-harmful forms.

Platinum is a dense, malleable transition metal, and as a member of the platinum group of elements it is generally unreactive. It is a relatively recent discovery—scientists first became aware of its existence in the 18th century—but certain physical characteristics have made it ideal for a wide variety of industrial applications. About half of the supply of platinum goes towards emission control devices for automobiles; as a catalyst it allows for the combustion of unburned hydrocarbons from the exhaust into carbon dioxide and water vapor. Jewelry and electronics are other significant end uses, and platinum is also used in certain dental applications and thermometers.

Because these metals have a much more frequent use in the industrial world, they can be thought of as a better play on macroeconomic conditions rather than some of the speculation and trading aspects that plague some gold and silver investments.

For those looking to invest in these two metals, there are a number of ETFs to help you take advantage of these assets. Among several broad based products, the ETFS Physical Palladium Shares (PALL) and the ETFS Physical Platinum Shares (PPLT). Platinum is more widely represented as there are several other products that also utilize a futures-based strategy.

Poor News Data Leaves Euro & Dollar A Little Flat

The Euro and US Dollar were left a little flat on Tuesday after poor data out of both regions raised fears that the US and Euro central banks may need to intervene.
As a result, the Japanese Yen went on to be the top performer while other competing currencies continued to suffer.
A report released yesterday has shown that U.S. manufacturing activity has contracted for the first time in nearly three years. This fanned investor scepticism that crept in about hopes for the European Union's plan to support debt laden countries.
The European Central Bank (ECB) may well cut interest rates by 25 basis points to 0.75% at its policy meeting on Thursday, after data showed that the jobless rate in the Euro zone had risen to a record high in May, while factory activity remained steady at its lowest level in three years.
Yesterday both Finland and the Netherlands said that they were opposed to a plan for the Euro zone's permanent bailout fund to purchase government bonds in the secondary market, further pressuring the Euro.
The main issue now, is that the plan can't proceed if members don't agree and many analysts see this as a sign that there might be more bad news ahead for the Euro.
The announcement of the plan on Friday had sent the Euro soaring about 1.7%, its biggest one-day percentage gain since last October.
Activity though has been relatively thin ahead of the Fourth of July U.S. holiday. Some analysts expect the Federal Reserve to announce that it will embark on a third round of asset purchases, known as QE3. This could occur as soon as the central bank's next policy meeting scheduled from 31st July to 1st August.
Today, market focus will be on the U.S. Commerce Department which is due to release .U.S. factory orders data today. Orders are expected to have risen around 0.1% in May, from a 0.6% drop the previous month.
The Dollar has managed to outperform the Euro which had slipped to $1.2595.
The Yen outperformed most of its major counterparts and the greenback was off from Monday's high around 79.98 Yen at 79.72 Yen, while the Euro stood at 100.42 Yen, back above the 100 Yen mark.

Monday, July 2, 2012

Euro zone leaders take steps to solve crisis.

The Euro dipped slightly today after Friday's rally and the market's focus now shifts today to latest data on European and U.S. manufacturing sectors

The Euro dipped earlier today, as investors searched for new reasons to extend a rally initiated by euphoria concerning the latest European leader's push to solve the region's debt crisis.

On Friday, the Euro zone leaders had agreed to have their rescue fund provide aid directly to stricken banks from 2013 and also to intervene on bond markets in order to support troubled members.
The EU leaders went even further towards banking union, when they pledged to create a single banking supervisor.

The agreement then triggered a rally in Italian and Spanish government bonds and the Euro shot up nearly 1.7% on the day, its largest one day percentage gain in eight months.

While many analysts expect that the Euro's rally may be sustained for a while longer, many others doubt its sustainability. Some have cautioned against reading too much into the Euro zone bond market's reaction on Friday and expect some of the gains to be given back.

Over the course of the month, one could expect to see the Euro run into resistance from weak economic data and move down as officials haggle over the details of the EMU summit.

A near term risk for the Euro, is the European Central Bank's interest rate decision which is due this Thursday. There is an expectation that the ECB may cut interest rates by 25 basis points to 0.75% and a rate cut will almost certainly be Euro negative.

Data is due out today that may show that the Euro bloc's jobless rate has climbed to a record figure, expected to be in the vicinity of 11.1% in May from 11% in April, and that manufacturing figures are down.

The Euro slid 0.3% to $1.2625 earlier today and had slipped 0.3% to 100.72 Yen, having jumped 2.2% versus the Yen in its biggest one day rise against the Yen in 15 Months on Friday, as there was some profit taking by hedge funds.

The market's focus now turns to the latest data on European and U.S. manufacturing sectors. China had announced yesterday that its factory activity had slowed to seven month lows in June however, this figure was not as low as initially feared.

Eurozone debt crisis continues to bite.

Eurozone unemployment rose in May to hit another record of 11.1%, up from April's 11%. As usual, the figures were very ugly in the South, with Spain's rate 24.6% and Greece's 21.9%. Meanwhile, final Eurozone Manufacturing PMI came in at 45.1 in June, rounding off the weakest quarter in three years. Germany and France were among those to suffer contraction, with only Ireland and Austria enjoying growth.

India's external trade balance has worsened to record lows.

 In March quarter, the current account deficit (CAD) stood at 4.5% of the Gross Domestic Product (GDP). For the full year, the same stood at 4.3%. Declining exports due to slowdown in global economy and strong crude oil demand has negatively impacted the CAD. And this has impacted the rupee negatively. It may be noted that the rupee has depreciated by 25% over the last one year. In fact, it touched a record low of 57-58 a dollar recently. While RBI has taken a few steps like easing the external borrowing norms for companies it remains to be seen whether it will have a meaningful impact in curbing the rupee's fall. We believe the best way to do the same is to take steps that shall narrow the trade deficit. Making exports competitive by providing tax sops to exporters is one such step. Policy reforms attract FII/FDI flow into the country. Even that would provide some respite to the falling rupee. Further, falling crude prices also act as a blessing in disguise.

Sunday, July 1, 2012

One of the most visible signs of a strong economy is a stable currency. The slide of the Rupee against the dollar is continuing unabated. The rupee posted its biggest daily gain in three years on Friday, after Indian government confirmed it will not impose retroactive taxes on foreign investors. But, this still did not prevent the Indian currency from posting its worst quarterly performance in at least 17 years. The reasons for this downfall are many. India's large current account deficit. Eurozone's escalating sovereign debt crisis. Dollar outflows from Indian stock markets (BSE-Sensex lost 25% in 2011). India's deteriorating macro-economic conditions. The country's new taxation rules and reopening of old cases. To reverse this trend, India needs to put some key strategies so that the demand for Indian Rupee increases in the forex market.


The RBI has raised the red flag on the current state of the Indian Economy.

 Almost every number that seems to be announced on the state of the economy lately is bleeding red. And it is only getting worse. Data released by the Reserve Bank of India (RBI) yesterday showed the current state of the Indian economy. And it is not a pretty sight. India's trade position with the rest of the world deteriorated in the March quarter to its worst level in 20 years. The current account deficit (CAD), which is the excess of imports over exports, rose to a dangerous level of 4.5% of the gross domestic product (GDP), from a benign level of 1.3% only a year earlier. For the full fiscal, the CAD stood at 4.2% of GDP, crossing projections of 4%. In FY11, the same stood at 2.7% of the gross domestic product. It has been almost 2 decades since the balance of payments crisis of 1991 where the Indian government was on a brink of default. But, even then these numbers were not so dismal.
A high CAD is a clear indication that a country is living beyond its means and can only fund its consumption with excessive external borrowings. A prime example is the US government, which continues to run a multi-billion dollar deficit till today. The scary part is that India seems to be treading a similar destructive path. India currently has the highest debt to GDP ratio of all the BRIC nations. This currently stands at 68% of GDP, compared to only 25.8% in China.

India also seems to be more vulnerable to external shocks, since its forex reserves have been drawn down and its stock of external debt has increased. Plus, growth in the country has slowed and India is facing pressures of sovereign credit rating downgrades. Now with its report on the state of affairs of the economy, the RBI has raised the red flag, confirming the rating agencies' concerns. But, can the government rise to the challenge? Or will it raise the white flag of surrender?

More clarity required on GAAR.

The Union Budget for the year had proposed several measures to try and increase foreign investors to invest in India. But it also proposed one big thing that scared FIIs (Foreign Institutional Investors). This proposal was that of GAAR or General Anti Avoidance Rule. The Rule was proposed with the intention of preventing investors from routing money through the tax havens to avoid payment of taxes. Naturally like any individual, FIIs were also unhappy at the prospect of paying more tax. Fortunately like most other ambiguous rules and proposals, GAAR too was deferred to another date. But in a new development the Finance Ministry has proposed a monetary limit on invoking GAAR. Though the ministry has not disclosed the amount of this limit, it has proposed the same in its draft guidelines for GAAR. So all deals over this limit would fall under the purview of GAAR. Also this would be applicable only on those FIIs who choose to take the benefit of double tax avoidance treaties. As such the statement in itself is neither good nor bad. Unless there is more clarity on how GAAR would be invoked there would be no point in reacting to the same. More importantly till there is more clarity on when GAAR would be invoked again there would be no point in reacting to the same.