Threat of external debt for India.

The Reserve Bank of India (RBI) has flagged a major risk to the Indian financial system. This comes in the form of external risk. And the reason for this is the rising quantum of external debt particularly short term debt. As per the RBI, India's external debt has gone up to US$ 390 bn which is about 21% of our GDP. Of this 44.2% is short term in nature which needs to be repaid over the next one year. The recent decline in Rupee has made the situation even worse because the amount of rupees required to pay back the debt goes up due to the currency depreciation. This debt burden makes India exceedingly vulnerable to any external sector shocks.

                                          

                                            Source: The Mint

 

EU agrees first budget cut in its history.

The EU has agreed a seven-year €960B budget that represents the first spending cut in its history. The bloc also approved plans to invest €6B on tackling youth unemployment and for the European Investment Bank to lend hundreds of billions of euros to small and medium-sized businesses. With finance ministers agreeing rules for bank rescues this week, the EU has enjoyed an uncommonly productive summit.

ECB plays down report it's considering bond-buying.

The ECB has dismissed a report that a working group has been discussing buying bonds from all 17 eurozone countries, akin to the Fed's QE program. "I can't rule out that inside a large organization, someone is thinking about something, but that's not policy-relevant," said German ECB board member.

Japanese data provides encouragement.

Japanese CPI was flat on year in May, as expected, vs -0.4% in April as a weakening yen sent utility costs up at the fastest pace in almost five years. "Deflationary pressure appears to be broadly weakening," says economist. Meanwhile, industrial production rose 2% on month and comfortably topped expectations, while retail sales grew 0.8% on year for the first increase since December.

Dollar Mixed, Extending Rally Against Europeans, But Soft Against Commodity Currencies

Dollar remains mixed in early US session, maintaining gains against European majors, staying soft against commodity currencies and flat against yen.

 

Initial jobless claims dropped slightly to 346k in the week ended June 22, slightly below expectation of 348k.

 

Personal income rose more than expected by 0.5% in May while spending rose 0.3%. Headline PCE rose less than expected by 1.0% yoy while core PCE rose 1.1% yoy, inline with consensus.

 

US futures point to higher opening and stocks would likely extend yesterday's rebound. Focus remains on whether Fed would really start tapering the asset purchase this year, and more important, in what speed.

 

Euro remained soft as weighed down by ECB president Draghi's repeated dovish comments on growth and the pledged to keep monetary policy accommodative.

 

EU finance ministers have agreed on the guidelines for assigning losses to private creditors on handling failing banks. German finance minister Schaeuble said that's an "important step" to make clear that "shareholders and creditors are liable first and foremost." 

 

Italy sold maximum target in EUR 5b of 3.5% June 2018 and 4.5% May 2023 dated bonds today.

 

Yield on the 2018 BTP rose to 3.47%, up from prior auctions's 3.01%. Yield on the 2023 BTP rose to 4.55%, up from 4.14% in prior auction. The auction was viewed as solid by the markets with well supported demand.

 

Data from Eurozone saw M3 growth slowed to 2.9% yoy in May.

 

Economic confidence improved to 91.3 in June, industrial confidence improved to -11.2, consumer confidence unchanged at -18.8, services confidence dropped to -9.5.

 

Germany, unemployment unexpectedly dropped -12k in June while unemployment rate also dropped 6.8%. Import price dropped -0.4% mom in May.

 

UK Q1 GDP was finalized at 0.3% qoq, unrevised.

 

Credit crunch spreads to China's "Main Street."

Despite efforts by the People's Bank of China to ease the credit crunch in the country's financial markets, the WSJ finds anecdotal evidence that the liquidity squeeze has spread to the wider economy. As a result, companies have increasingly used bankers' acceptances, which are short-term bank-issued guarantees, to pay their bills instead of cash. The acceptances are "relatively easy to get as they don't show up on banks' balance sheet," says a purchasing manager.

German unemployment stays near to unification low.

Unemployment in Germany has continued to provide a bright contrast to the depressing economic picture outside the country, staying steady at 6.8% in June and coming in slightly under consensus of 6.9%. The number of people out of work unexpectedly fell by 12,000 to 2.943M vs a rise of 17,000 in May and expectations for an increase of 8,000.

French consumer confidence has unexpectedly dropped to a record low of 78 in June from 79 in May, indicating that the French consumer can't be relied upon to help lift the economy out of its slump. The state auditor has added to the gloom, forecasting that the government's 2013 public deficit will be near to 4% of GDP, above its target of 3.7% and the EU goal of 3%.

EU fin mins agree on rules for bank rescues.

At the second time of asking, EU Finance Ministers have agreed on measures to deal with failing banks. The proposals include imposing losses of up to 8% of a bank's total liabilities on shareholders, creditors and then deposits of over €100,000, after which governments will be able to supply funds of up to 5% of liabilities. EU leaders are set to approve the measures at a meeting today.

Source: Business Standard

 

With global interest rates hovering at near zero levels, India Inc used FCCBs (Foreign Currency Convertible Bonds) and ECBs (External Commercial Borrowings) to fund their businesses. But now these 'cheap loans' are turning out to be something of a curse for the companies. As per RBI's data, a large part of these loans are coming up for repayment in this year. These are related to the approvals made during FY07 and FY08 which as shown in the chart are sizeable amounts. With the steep fall in the rupee's value, the repayment amount related to these loans has gone up. The Business Standard estimates that the principal repayment cost could go up by 25 - 30% due to the fall in rupee's value. This would further hurt the fina ncials of the companies that are already stretched thanks to the tough business conditions in the economy.

India has witnessed a major shift from being a farm based economy to service based economy, of which IT sector is a key pillar. However, if a report from JP Morgan is to be believed, the Indian economy is likely to get another jolt by virtue of its high reliance on the blue eyed industry.

As per the report, if US immigration bill gets passed in its current form, it is likely to erode India's GDP. In a bid to protect jobs, the US bill suggests a hike in the visa fees. If the bill gets passed, it will mean a huge addition to costs for Indian IT companies and hence a threat to their business. But this is not all. There is more to this issue than meets the eye. This is because of the multiplier effect that the software sector has on the economy. If the IT industry gets impacted, the other ancillary industries like travel, transportation, hospitability and real estate will also be dragged down. The report estimates the overall loss to the GDP to be around 0.3% - 0.4% in FY15.

While there is nothing final yet, if the worse does happen, the IT industry is likely to react by changing the hiring policies and the way the business is done. While such changes have already started taking place, all adaptations take time. In the meantime, the Indian economy does have serious reasons to worry.

In the global economy there is one indicator that is widely used to understand the credit risk in a particular country. This is called the credit default swap (CDS) spread. CDS is essentially a financial agreement by which the seller of the agreement will compensate the buyer in case of a loan default or any other such adverse credit event. So if the CDS spread increases it means that the seller is demanding a higher compensation for providing the risk cover. Or that the risk of default is increasing. Therefore increasing CDS spreads is treated as an indicator of an upcoming credit crisis. And this indicator suggests that there is a trouble brewing in our neighbouring nation - China. Because the CDS spread for China has spiked by most since the collapse of Lehman Brothers. The spread has gone up by 55% over the past few days. This has many to wonder if the credit bubble created by China's shadow banking network is about to pop. The country has so many layers of financing other than its banks that it had sent credit risk in the country soaring. And as China slowed down in the wake of the global crisis, the credit risk posed by the multiple layers was getting worse. If the CDS spread increase is anything to go by, then the country is on a brink of a credit crisis. We all hope that the government would take all measures to prevent this from happening. But what if China has a financial crisis? Can the unstable global economy withstand such a blow? 

German consumer confidence hits six-year high.

The Gfk survey of German consumer confidence has climbed to its highest level in close to six years, rising to 6.8 going into July from 6.5 for June and beating consensus, which was also 6.5. Sentiment has been boosted by a strong labor market and big wage hikes. It's positive news for those looking to domestic demand to support growth in Germany and the wider eurozone.

EU to try again over rules for bank rescues.

 EU finance ministers are due to make a second attempt this evening to decide on the regulations for coping with bank failures. Talks last weekend were unsuccessful following division over how much leeway governments should have. Germany is pushing for an EU standard in which losses would be imposed on shareholders, bondholders and deposits of over €100,000. France, Britain, Denmark and Sweden want flexibility in whether to take such steps.

Rising bond yields hurt bank balance sheets.

Falling bond prices and rising yields are threatening the recovery in the balance sheets of global banks, which have built up huge portfolios of liquid securities. For example, 90% of Bank of America's (BAC) $315B portfolio comprises mortgage bonds and Treasury's. Some analysts, though, believe that QE tapering should increase interest margins and offset the one-time hit to book values because of rising bond yields

Spot gold prices drop to three-year low.

Spot gold prices have dropped to their lowest since August 2010, down 4.2% at the time of writing to $1,224.30 an ounce, as better-than-expected economic data in the U.S. yesterday strengthened the likelihood that the Fed will soon start tapering its QE program. Gold has fallen around 25% this year and assets in the SPDR Gold Trust ETF (GLD) are 28% lower, hitting 969.5 metric tons yesterday. Silver (SLV) has been similarly battered, with spot prices -5.4% at $18.58 an ounce.

PBOC continues attempts to calm markets.

Chinese markets were calmer today as inter-bank market rates dropped further, although shares fell 0.4%, after the People's Bank of China said that it has provided liquidity to banks and that it will inject cash "based on the market's actual situation." The PBOC also said it will maintain its "prudent monetary policy," suggesting continued tightening. The comments reflect a further attempt by the PBOC to ease the credit crunch it engineered last week as a strategy to slow China's lending boom.

India has been signing free trade agreements (FTAs) left, right and centre. But they have been of very little help towards the trade of the country. As per Business Standard, the country has signed several FTAs. But the exports from the country have declined by 1.76% in FY13 as compared to FY12. At the same time, imports have shot up. A big reason for this is that these agreements have actually helped our trade partners more than they have helped us. Most of the countries with whom we have an agreement have used it to send their goods into our shores. Many have even used India as a dumping ground. At the same time exports from our country have actually de-grown. This is due to the poor state of manufacturing in our country.

The sector has just been unable to capitalise on the opportunity presented by these FTAs. And this has led to the skewed trade balance that we see. The only way to fix this would be by fixing the problem at its root. That is fixing the manufacturing sector. This would involve several steps not just from the sector participants but from the government as well. The latter needs to change the policies and remove the bottlenecks in the path of investments. Only then will the manufacturing sector become more competitive. Unless these steps are taken, the FTAs would continue to help our trading partners and put more pressure on the domestic companies.

Are the chickens of bad loans finally coming home to roost in China? It does certainly look like it. The latest sign that something could be wrong came yesterday when Chinese stocks fell 5.3% on news of a credit crunch. Clearly, the incident brought back memories of the US banking crisis of 2007 and 2008. However, if noted investor Mark Mobius is to be believed, the similarity ends right there. As per Mobius, the Chinese Government controls the country's banks. And thus it will be much easier for China to bail its banks out. Besides, China is the owner of the world's largest stock of currency reserves, a neat US$ 3 trillion. It can therefore bring this to use as and when it decides to recapitalize its banking system. While we agree with Mobius, we are of the view that days of 9%-10% GDP growth seem to be over for China. As a result of the overhang of the bad loans and the exports driven structure of its economy, long term sustainable growth could come in much lower for China henceforth.

G20 to study Libor reform.

The G20's Financial Stability Board (FSB) will set up a task force to look at reforming Libor, incoming Bank of England Governor Mark Carney said today after an FSB meeting. The committee will report back next year over whether the benchmark should be changed and in what timeframe. The creation of the task force comes after banks were fined for Libor manipulation.

Microsoft, Oracle announce software partnership.

Oracle (ORCL) and Microsoft (MSFT) have made their partnership official, with Oracle's database software to not only "receive full support" from the company when running on Microsoft's Windows Azure cloud app/infrastructure platform, but also when used with the latter's Hyper-V virtualization platform. The deal could intensify the competitive pressure on VMware (VMW) and IBM (IBM) offerings.

PBOC moves to soothe markets over liquidity.

Chinese shares (FXI) staged a major recovery from an earlier pounding to close a mere -0.2% following speculation that the People's Bank of China would raise the white flag to China's "feral hogs" over its tough liquidity stance, which had caused short-term lending rates to go haywire. While the rumours proved to be a little enthusiastic, PBOC official did say the bank will guide rates to a "reasonable range" and be flexible in managing liquidity.

BIS warns on risks to growth, stability.

Central banks "cannot do 'whatever it takes' to return still-sluggish economies to strong and sustainable growth," says the Bank for International Settlements. In its annual report, the BIS blames unconventional monetary policy for delaying private sector deleveraging and for making countries especially vulnerable to rising interest rates, which, "without an equal increase in the output growth rate will further undermine fiscal sustainability."

Chinese shares battered, Treasurys hit 2-year high.

The great global sell-off continued today, with the focus of the angst turning from Japan to China, where shares (FXI) slumped 5.3% on continued fears about the cash crunch in the banking sector, as well as about the ending of the Fed's QE policy. European shares, U.S. stock futures, copper and government bonds caught the downbeat mood, helping to send 10-year Treasury yields to a two-year high of 2.61%.

China Worries Pressured Stocks, Lifted Dollar

Risk aversion dominates the markets as the week starts as worries over credit crunch in China weighed, in addition to last week's Fed comments.

 

Major European indices turned south after opening flat. FTSE 100 drops most by more than -2% at the time of writing.

 

Meanwhile, US stock futures also point to sharply lower opening.

 

Dollar index extends last week's rally and reaches as high as 82.49 so far today. In the currency markets, Canadian dollar is the weakest one so far today while dollar is generally firm.

 

China's interbank rate plunged following the sharp rise last week as the PBOC signalled injection of funding to the market. While it appeared absurd that the PBOC adopted tightening measures last week despite the spike in money market rates, the announcement made today indicated that the central bank's upcoming tools would be more accommodative. Yet, the PBOC warned that commercial banks should manage the liquidity with caution, signalling helps the authority is not unlimited

 

German Ifo business climate improved to 105.9 in June, inline with expectation.

 

Current assessment gauge dropped to 109.4 versus consensus of 109.6. Expectations gauge improved to 102.5 versus consensus of 102. Ifo noted in the release that "although assessments of the current business situation are slightly less positive, firms are increasingly optimistic with regard to their future business outlook." And, "the German economy holds its course". Also, it noted that German industry is "pinning strong hopes on exports".

Nifty June Futures - Important Levels for Tuesday, 25.06.2013.

TREND DECIDING LEVELS : Today, the Important Trend Deciding Levels on Lower side is 5575.  Below this, next important level is  5545. (This levels, Either Acts as a support while Nifty is moving in downward direction or Acts as a down side Break out/Break down Trigger level which fuels further downward movement from here).

Today, the Important Trend Deciding Levels on Higher Side is 5625.  Above this, next important level is  5645. (This levels, Either Acts as a hurdle while Nifty is moving in upward direction or Acts as a Upside Break out Trigger level which fuels further upward movement from here).

Disclaimer :

The stock Tips and recommendations given in this blog is for information and educative purpose only. No representations can be made that the tips given here will be profitable or that they will not result in loss. Trading involves risk of loss of money. The Tips in this news letter are given with the understanding that readers acting on this information assume all the risks involved and that they are trading at their own risk. The above recommendations are based on the theory of price related technical analysis and they do not reflect the fundamental strength or weakness of the respective stocks. We shall not be responsible for any loss incurred for acting on the tips given above.

 

No s. 14A disallowance if satisfaction not recorded with reference to A/cs. Under Rule 8D(2)(ii) loans for specific business purposes cannot be included. Under Rule 8D(2)(ii) & (iii) investments which have not yielded income cannot be included

REI Agro Ltd vs. DCIT (ITAT Kolkata)

 

In AY 2008-09, the assessee invested Rs.103 crores in shares on which it earned tax-free dividends of Rs. 1.3 lakhs. The assessee claimed that though its borrowings had increased by Rs. 122 crores, the said investments were funded out of own funds like capital and profits. It claimed that no expenditure had been incurred to earn the dividends and no disallowance u/s 14A could be made. The AO applied Rule 8D and computed the disallowance at Rs. 4 crore. On appeal by the assessee, the CIT(A) reduced the disallowance to Rs. 26 lakh. On cross appeals, HELD by the Tribunal:

 

(i) When the AO does not accept the assessee’s claim regarding the non-applicability/ quantum of disallowance u/s 14A, he has to record satisfaction on that issue. This satisfaction cannot be a plain satisfaction or a simple note. It has is to be done with regard to the accounts of the assessee. On facts, as there is no satisfaction by the AO, no disallowance u/s 14A can be made (Balarampur Chini Mills 140 TTJ (Kol) 73 (included in file) followed);

 

(ii) Rule 8D(2)(ii) is a computation provision in respect of expenditure incurred by way of interest which is not directly attributable to any particular income or receipt. This clearly means that interest expenditure which is directly relatable to any particular income or receipt is not to be considered under rule 8D(2)(ii). The AO has to show that the interest is not directly attributable to any particular income or receipt. In the assessee’s case, the interest has been paid on loans taken from banks for business purpose. There is no allegation that the loan funds have been diverted for making investment in shares or for non-business purposes. The loans are for specific business purposes and no bank would permit the loan given for one purpose to be used for making any investment in shares. Also, the assessee has substantial capital & reserves. Accordingly, the interest on the loans cannot be included in Rule 8D(2)(ii);

 

(iii) Further, in Rule 8D(2)(ii), the words used in numerator B are “the average value of the investment, income from which does not form or shall not form part of the total income as appearing in the balance-sheet as on the first day and in the last day of the previous year“. The AO was wrong in taking taken into consideration the investment of Rs.103 crores made during the year which has not earned any dividend or exempt income. It is only the average of the value of the investment from which the income has been earned which is not falling within the part of the total income that is to be considered. Thus, it is not the total investment at the beginning of the year and at the end of the year, which is to be considered but it is the average of the value of investments which has given rise to the income which does not form part of the total income which is to be considered. The term “average of the value of investment” is used to take care of cases where there is the issue of dividend striping;

 

(iv) Under Rule 8D(2)(iii), what is disallowable is an amount equal to ½ percentage of the average value of investment the income from which does not or shall not form part of the total income. Thus, under sub-clause (iii), what is disallowed is ½ percentage of the numerator B in rule 8D(2)(ii). This has to be calculated on the same lines as mentioned earlier in respect of Numerator B in rule 8D(2)(ii). Thus, not all investments become the subject-matter of consideration when computing disallowance u/s 14A read with rule 8D. The disallowance u/s 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income.

 

The problems that the power sector in India faces highlight the apathy of the government in resolving these in time. Indeed, power producers since a long time had been hankering the government to allow them to pass on the rise in coal prices to consumers. The government chose to turn a blind eye to these demands. The power purchase agreement did not have such a provision, especially in the case of ultra mega power projects. And the government did not do much in terms of speeding up reforms in this regard.

Now as per an article in Business Standard, the government seems to have reluctantly allowed coal price rises to be passed on. But the question is who will buy this higher priced power? The industrial sector is facing a slowdown and competition has increased keeping margins under pressure. State electricity boards are already in a sorry state. They could not afford power even from producers who were using subsidized coal from Coal India. If there are no takers, power producers will be left with no choice but to absorb this cost. And thereby bear the burden of lower profitability.

More trouble in store for mortgage-bond investors.

Holders of mortgage bonds may be facing billions of dollars of undisclosed losses after a review of investor documents showed that individual houses are being reported as being in foreclosure long after they've been sold or the loans paid off. The reporting lag has enabled banks and servicers to continue charging investors monthly fees, and could lead to new litigation. The companies involved include Bank of New York Mellon (BK), Wells Fargo (WFC), Ocwen Financial (OCN) and Bank of America (BAC).

5 steepest market cap declines in 2013.

The prospects of a pullback of the monetary stimulus by the US Fed have sent a wave of panic across global markets. As such, Indian stock markets too fell sharply along with the global counterparts. In fact, on June 20, 2013, the Indian markets witnessed their biggest losses in the year 2013. Today's chart of the day shows five steepest market capitalisation declines in 2013. There is increasing fear about FIIs fleeing Indian markets. Apart from the global risks, a sharply depreciating rupee has further added to our troubles. As long as the rupee does not stabilise within sustainable levels, the RBI will find it difficult to cut interest rates. And this in turn would keep hampering economic growth.

                                                                        Data source: DNA 

Nifty June Futures - Important Levels for Monday, 24.06.2013.

TREND DECIDING LEVELS :

Today, the Important Trend Deciding Levels on Lower side is  5635.  Below this, next important level is  5615. (This levels, Either Acts as a support while Nifty is moving in downward direction orActs as a down side Break out/Break down Trigger level which fuels further downward movement from here).

Today, the Important Trend Deciding Levels on Higher Side is 5665.  Above this, next important level is  5685. (This levels, Either Acts as a hurdle while Nifty is moving in upward direction or Acts as a Upside Break out Trigger level which fuels further upward movement from here).

Disclaimer :

The stock Tips and recommendations given in this blog is for information and educative purpose only. No representations can be made that the tips given here will be profitable or that they will not result in loss. Trading involves risk of loss of money. The Tips in this news letter are given with the understanding that readers acting on this information assume all the risks involved and that they are trading at their own risk. The above recommendations are based on the theory of price related technical analysis and they do not reflect the fundamental strength or weakness of the respective stocks. We shall not be responsible for any loss incurred for acting on the tips given above.

Dollar Extends Post FOMC Rally, Gold and Bond Tumble

The global markets are dominated by Bernanke's comment that tapering of QE measure might begin as soon as later this year and the asset purchase could end mid-2014.

 

In equities, Major European indices dropped over -2% and remains weak at the time of writing.

 

Nikkei dropped -230 pts in Asia and barely managed to close above 13000 level.

 

US futures point to lower opening. In commodity markets, gold drops over -5% today and breached 1300 psychological level. And the break of 1321.5 in gold confirmed resumption of larger down trend.

 

Silver also resumed larger decline and breached 20 psychological level.

 

In bonds, US treasury yields open higher with 10 year and 30 year yield making new 2013 high. In particular, 10 year yield breached 2.4 level, and made the higher level in nearly two years.

 

In currency markets, dollar index extends yesterday's strong rebound and breaches 82 level. Among major currencies, Aussie, yen , Indian Rupee and kiwi are the weakest against dollar.

 

Data from US saw initial jobless claims rose to 354k in the week ended June 15.

 

FOMC meeting yesterday turned out to be more hawkish than previously anticipated with policymakers seeing 'diminished' downside risks to the economic outlook.

 

Meanwhile, the Fed was not worried about the weak inflation level. At the press conference, Chairman Bernanke indicated the intention to complete the tapering process by mid-2014.

 

The Fed's latest set of economic projection showed downward revision unemployment rate and upward revision of 2014 GDP growth estimate.

Eurogroup to discuss bank bailouts.

Eurozone finance ministers are due to decide today when and how the European Stability Mechanism (ESM) can be used to bail out distressed banks, with the issue one of the vital elements in creating a European banking union. Among other things, the Euro group will decide government contributions, who would take haircuts, and whether the ESM would become a shareholder in an institution it rescued.

Eurozone factory activity hits 16-month high.

Perhaps lost in all the frenzy about the end of QE is what seems to be an improving picture - or one that's less worse - in the eurozone, where flash manufacturing PMI edged up to a 16-month high of 48.7 in June from 48.3 in May and topped consensus of 48.6. While business activity contracted, says Markit, "there are reassuring signs that the downturn is continuing to ease." Markit even forecasts a "return to growth" in Q4.

U.K. banks need to raise £27.1B.

The British banking sector needs to formulate plans to raise a combined £13.4B in order to meet Basel III capital requirements, the Bank of England said today. Banks had a total shortfall of £27.1B at the end of 2012 and have already drawn up programs to raise £13.7B, although some of the proposals need regulatory approval. RBS's (RBS) shortfall was £13.6B, Lloyds' (LYG) was £8.6B and Barclays (BCS) was £3B.

Chinese manufacturing PMI shrinks further.

 HSBC Chinese manufacturing PMI has fallen to a nine-month low of 48.3 in June from 49.2 in May and vs consensus of 49.4. "Manufacturing sectors are weighed down by deteriorating external demand, moderating domestic demand and rising de-stocking," says HSBC. Because of Beijing's preference for reform over stimulus, HSBC expects "slightly weaker growth in Q2." The data added to the gloomy market sentiment, with miners in particular suffering.

Markets plunge as Bernanke signals the end of QE.

Global markets across multiple sectors have sold off after Ben Bernanke yesterday signalled that the Fed may soon start turning down the money printing presses, saying that the bond-buying could end in mid-2014. Asian, European and U.S. equities fell and government bond yields spiked, while gold had plunged 5.95% to $1,292.20 at the time of writing and hit a 2 1/2 year low. Only the dollar seems to have benefited, rising across the board.

As you know, Japan has unleashed an unprecedented monetary stimulus program. With the flood of cheap liquidity, the Japanese Prime Minister hopes to revive the flagging economy. The underlying assumption is that the monetary stimulus will lift inflation. This in turn will raise consumer confidence and corporate investments.

But as it goes, such things appear to work only in theory. In reality, Japanese companies are still shy of investing at home. In fact, their cash stockpile has been growing. As per an article in Bloomberg, the cash and deposits of private Japanese companies have shot up to about US$ 2.4 trillion. That's more than the size of Italy's economy. That's higher than even the liquid assets of American companies.

All in all, it seems Japan has set itself on the path of very high risk. There is a big question mark whether it will work. If it falters, it will wreck havoc in the Japanese economy.

Nifty June Futures - Important Levels for Friday, 21.06.2013.

TREND DECIDING LEVELS :

Today, the Important Trend Deciding Levels on Lower side is 5625.  Below this, next important level is  5610-5575. (This levels, Either Acts as a support while Nifty is moving in downward direction or Acts as a down side Break out/Break down Trigger level which fuels further downward movement from here).

Today, the Important Trend Deciding Levels on Higher Side is 5665-5685.  Above this, next important level is  5700-5715. (This levels, Either Acts as a hurdle while Nifty is moving in upward direction or Acts as a Upside Break out Trigger level which fuels further upward movement from here).

Disclaimer :

The stock Tips and recommendations given in this blog is for information and educative purpose only. No representations can be made that the tips given here will be profitable or that they will not result in loss. Trading involves risk of loss of money. The Tips in this news letter are given with the understanding that readers acting on this information assume all the risks involved and that they are trading at their own risk. The above recommendations are based on the theory of price related technical analysis and they do not reflect the fundamental strength or weakness of the respective stocks. We shall not be responsible for any loss incurred for acting on the tips given above.

Has pharma R&D lost steam in India?

 It would certainly appear so. As per recent post by Equity Masters, Global pharma players such as Pfizer Inc, GSK Plc, Novartis and the like typically spend around 15% of sales on R&D. But most of this is done in the developed world. India hardly figures as an investment destination for global pharma trials. Why is that? The primary reason for that is the uncertain regulatory environment. India traditionally had been following the process patent law. This allowed many of the domestic companies to perfect the techniques of reverse engineering. And this spawned the launch of cheaper generic drugs in the country. Although the country in 2005 shifted to the product patent law, implementation has been patchy at best. With considerable uncertainty relating to the validity of patents, most MNCs are wa ry of investing huge sums in the country. As far as domestic companies are concerned, the progress on the R&D front has been quite slow. Given that new drug discovery is a high risk, expensive and time consuming process, most of the domestic companies have once again shifted focus on doing R&D for generics medicines. Thus, even though the R&D spend may have increased, the amount towards new drug discovery has not really risen. Indeed, it does appear that unless the patent law in India matches the standards of the developed world, MNCs at least will not put much money into doing research in India.

Spot oil market subject to rigging - WSJ.

The WSJ carries an expose of how traders manipulate the spot market for oil by selling a small amount at a loss to drive down the benchmark price and then buy shiploads at the lower cost. McGraw Hill Financial (MHFI) unit Platts, which sets the benchmark by relying on information that traders provide about their deals, said that it's not aware of such manipulation.

Japanese exports jump 10.1%.

The weak yen helped Japanese exports grow at the fastest rate since 2010 in May, with sales abroad jumping 10.1% on year vs +3.8% in April and consensus of +6.5%. However, volume dropped 4.8%, hurt by the economic situation in China and the EU. With imports climbing 10%, Japan generated a trade deficit for the 11th consecutive month as the figure widened 13% on month to ¥993.9B ($10.4B).

Global stocks mixed ahead of FOMC.

U.S. stock futures were flat-to-higher and European shares (FEZ) mixed ahead of the FOMC's policy announcements later today, with investors seeming to be increasingly confident that the Fed won't signal the end of its QE program. "There is a lot of slack in the economy and there is no inflation pressure,"

Nifty June Futures - Important Levels for Thursday, 20.06.2013.

TREND DECIDING LEVELS : Today, the Important Trend Deciding Levels on Lower side is  5750.  Below this, next important level is  5700. (This levels, Either Acts as a support while Nifty is moving in downward direction orActs as a down side Break out/Break down Trigger level which fuels further downward movement from here).

Today, the Important Trend Deciding Levels on Higher Side is 5775.  Above this, next important level is  5945. (This levels, Either Acts as a hurdle while Nifty is moving in upward direction or Acts as a Upside Break out Trigger level which fuels further upward movement from here).

 

Disclaimer :

The stock Tips and recommendations given in this blog is for information and educative purpose only. No representations can be made that the tips given here will be profitable or that they will not result in loss. Trading involves risk of loss of money. The Tips in this news letter are given with the understanding that readers acting on this information assume all the risks involved and that they are trading at their own risk. The above recommendations are based on the theory of price related technical analysis and they do not reflect the fundamental strength or weakness of the respective stocks. We shall not be responsible for any loss incurred for acting on the tips given above.

S. 10(38): Scheme of sale of land through sale of shares of shell company is valid

Bhoruka Engineering Inds. Ltd. vs. DCIT (Karnataka High Court) 

 

The assessee held 98.73% shares in Bhoruka Financial Services Limited (BFSL). In AY 2005-06 BFSL purchased a plot of land from a group sick company called Bhoruka Steels Ltd for Rs.3.75 crores which was accepted to be the prevailing market price u/s 50C. BFSL was a shell company with no assets other than the said land. In AY 2006-07 the assessee sold its shareholding in BFSL to DLF Commercial Developers Ltd for a net consideration of Rs. 20 crore. As the sale of shares was executed through the Magadh Stock Exchange and STT was paid, the assessee claimed that the gain on sale of shares was exempt u/s 10 (38). The AO, CIT(A) and Tribunal rejected the assessee’s claim on the basis that the assessee, BFSL and Bhoruka Steels were all controlled by common shareholders and that the scheme to first sell the land to BFSL and then to sell the shares of BFSL was devised with the sole purpose of avoiding tax on the capital gains which would have arisen if the land had been sold directly. It was held that the formalities of the transaction and the legal nature of the corporate bodies had to be ignored by lifting the corporate veil and the transaction had to be taxed as a sale of the land. On appeal by the assessee to the High Court, HELD allowing the appeal:

 

Though BFSL was a shell company with no asset other than the land and by buying the shares of BFSL, DLF in effect purchased the land, the transaction cannot be said to a sham or an unreal one. In coming to the conclusion that the transaction is a colourable devise, the authorities have been carried away by the fact that the assessee was able to avoid payment of income tax. The assessee did resort to tax planning and took advantage of the law/ loopholes in the law. After seeing how the loophole was exploited within the four corners of the law, it is open to Parliament to amend the law plugging the loophole. However it cannot be done by judicial interpretation. S. 10(38) of the Act is unambiguous. If the share holder chooses to transfer the lands through a transfer of the shares of the company owning the land, it would be a valid legal transaction in law and cannot be said to be a colourable devise or a sham merely because tax is avoided thereby (McDowell 154 ITR 148 (SC), Azadi Bachao Andolan 263 ITR 706 (SC) & Vodafone International 341 ITR 1 (SC) referred)

Dollar Rebounds as Fed Starts Two Day Meeting

Dollar rebounds broadly as markets as FOMC starts a two day meeting today. Fed will release the statement tomorrow, as well as updated economic projections.

 

Bernanke will also hold a press conference and is expected to talking about recent hot topic of tapering the stimulus program.

 

Data released from US today saw headline CPI rose to 1.4% yoy in May while core CPI was unchanged at 1.7% yoy. Both were inline with expectation.

 

Housing starts rose less than expected to 914k in May while building permits dropped to 974k annualized rate.

 

Released from Eurozone, German ZEW economic sentiment rose slightly more than expected to 38.5 in June.

 

However, the current situation gauge unexpectedly dropped to 8.6. Eurozone ZEW also improved to 30.6, beat expectation of 29.4. ZEW president Fuest noted that German recovery will "proceed timidly" and, "almost half of respondents expect no significant economic impetus in the next half-year."

 

ECB president Draghi said that the central bank has "open mind" at non-standard measures that are "effective in our institutional setup and that fall within our mandate." But he also noted that while "some of those measures may have unintended consequences" it just meant ECB need to be "aware of those consequences and manage them appropriately."

 

In UK, headline CPI rose more than expected by 2.7% yoy in May while core CPI also accelerated to 2.1% yoy.

 

PPI input rose to 2.2% yoy, PPI output rose to 1.2% yoy, output core was unchanged at 0.8% yoy. 

Nifty June Futures - Important Levels for Tuesday, 18.06.2013.

TREND DECIDING LEVELS :

Today, the Important Trend Deciding Levels on Lower side is  5810-5790.  Below this, next important level is  5765-5745. (This levels, Either Acts as a support while Nifty is moving in downward direction or Acts as a down side Break out/Break down Trigger level which fuels further downward movement from here).

Today, the Important Trend Deciding Levels on Higher Side is 5825-5845.  Above this, next important level is  5865-5880. (This levels, Either Acts as a hurdle while Nifty is moving in upward direction or Acts as a Upside Break out Trigger level which fuels further upward movement from here).

Disclaimer :

The stock Tips and recommendations given in this blog is for information and educative purpose only. No representations can be made that the tips given here will be profitable or that they will not result in loss. Trading involves risk of loss of money. The Tips in this news letter are given with the understanding that readers acting on this information assume all the risks involved and that they are trading at their own risk. The above recommendations are based on the theory of price related technical analysis and they do not reflect the fundamental strength or weakness of the respective stocks.We shall not be responsible for any loss incurred for acting on the tips given above.

EU car market stuck in the doldrums.

The EU new-car market showed no signs of bottoming out in May as registrations dropped 5.9% to 1.04M units, the lowest level for the month since 1993. The fall followed a 1.7% gain in April. In January-May, registrations slid 6.8% to 5.07M vehicles. GM (GM) was among those to suffer the most in May with an 11.3% decline. Toyota's (TM) registrations dropped 4.9% but those of Ford fell just 0.3%.

German investors remain confident.

The German ZEW survey of investor confidence rose to 38.5 in June from 36.4 in May and topped consensus of 38.1; however, the current situation print fell to 8.6 from 8.9 and missed forecasts of 9.5. "The financial experts stick to their assessment: the German economy is likely to pick up speed" in H2, ZEW President Clemens Fuest said. "However, the results of the current survey indicate that the economy will improve rather slowly."

Economists expect CPI to have returned to growth in May.

The FOMC will be able to chew on inflation data for May when it meets, with the reading due out this morning. Economists expect that CPI rose 0.2% on month after sliding 0.4% in April, driven up by slightly higher food and gasoline costs. "Inflation is low in the U.S. at the moment, giving the Fed more room to wait for improvement in employment before it starts tapering."

Markets nervously await the FOMC.

U.S. stock futures were higher and European shares mixed at the time of writing as investors awaited the outcome of the FOMC's two day policy meeting, which is due to start today. All the focus is on whether the Fed will announce the winding down of its bond-buying program. Yesterday, U.S. shares fell on FT speculation that the taper was drawing near.

Consolidation Continues, No Reaction to Economic Data.

Forex markets continue to consolidate in tight range today as investors are staying cautious ahead of FOMC announcement.

 

The focus would remain on discussion about the tapering of QE measures. Besides the meeting statement, the Fed would also release new economic and policy projections while Chairman Bernanke would hold a press conference.

 

As Chairman Ben Bernanke testified before the Congress' Joint Economic Committee in May, he signalled that the central bank 'could take a step down in the next two meetings' if economic data warrants.

 

His comments resulted in turbulent market reaction although later watered down by other policymakers.

 

Dollar was pressured with the dollar index back below 81, comparing to May's high of 84.50.

 

However, we'd emphasize again that there is no clear sign of reversal in equities, nor in treasury yields.

 

Bond guru Bill Gross anticipates the Fed would end QE later this year. His forecast was not driven by expectation of sustainable recovery in the US economy but the Treasury will lack bonds to issue due to lower than expected deficits.

 

Meanwhile, Gross appears less optimistic on the effectiveness of QE measures in stimulating the economy.

 

He stated that "central banks seem to believe that higher and higher asset prices produced necessarily by more and more QE check writing will inevitably stimulate real economic growth via the spillover wealth effect into consumption and real investment''...

EU and U.S. could launch trade talks at G8.

The EU and U.S. could launch trade talks at the G8 summit, which starts today, after EU ministers agreed on Friday to provide a mandate for negotiations. They acquiesced to France's demand to leave the subsidies for its audiovisual industries off the table despite fears that the U.S. will use the situation to exclude more economically important sectors such as government procurement.

India maintains benchmark rate at 7.25%.

As expected, the Reserve Bank of India has kept its benchmark interest rate at 7.25% after cutting it at three previous policy meetings. The RBI warned of inflation risks due to a weakening rupee in its review. "The RBI was slightly hawkish but with the rupee under pressure to weaken, the tone was appropriate,"

Sometimes we wonder whether currency movements do indeed have any logic to them. Take the current situation for instance. There's a talk that the US dollar is weakening against the Yen because the US Fed plans of cutting back its quantitative easing. Now, isn't that illogical? Quantitative easing simply means printing more money. And if there's a slowdown in the rate of printing, the underlying currency should strengthen and not weaken, isn't it? However, there are no signs yet of the dollar becoming stronger. Or maybe the Yen has been hammered so badly that it is now coming back to favour. And as a result of the same, dollar is weakening and not strengthening as it should be.

So while we expect dollar to strengthen, it really does not mean that it has got the best fundamentals out there. In fact, it is as much in trouble as other currencies and hence, over the long term, should see its value erode considerably. If not against other currencies, then certainly against gold we believe. And this the reason why we keep harping about the virtues of gold and the importance of having some part of one's investments in the yellow metal.  

Withdrawal of MAT And DDT exemption to SEZs is not breach of promissory estoppel

Mindtree Limited vs. UOI (Karnataka High Court)

 

As a corollary to the Special Economic Zones Act, 2005 (‘SEZ Act’), s. 115JB(6) and s. 115-O(6) was inserted to exempt SEZs from payment of minimum alternate tax (“MAT”) on book profits and tax on distributed profits [Dividend Distribution Tax ("DDT")]. By the Finance Act, 2011, the exemption granted by s. 115JB(6) and 115-O(6) was made inoperative w.e.f. 1.4.2012 and 1.06.2011 respectively. The Petitioners claimed that they had established SEZs on the basis of the promise made by the Government that SEZs would enjoy an exemption from payment of MAT and DDT and that the amendments by the Finance Act 2011 withdrawing the said exemption was opposed to the Doctrine of Promissory Estoppel and the Doctrine of Legitimate Expectation. HELD by the High Court dismissing the Petition:

 

Firstly, it is the settled position of law that every tax exemption should have a sunset clause. As the exemption in s. 115JB(6) & 115-O(6) did not have a sunset clause, the flaw is removed by the impugned amendment. Secondly, the exemption created an inequality between SEZ companies and other companies which is now removed. Thirdly, the exemptions provided to SEZ companies resulted in erosion of tax base. Fourthly, the impugned amendment relates to fiscal policy of the state and any decision in the economic sphere is adhoc and experimental in its nature and the Government is well within it sovereign power to regulate the same. Lastly, the impugned amendments do not transgress any of the fundamental rights of the petitioners guaranteed under the Constitution. The legislature can never be precluded from exercising its legislative power by resort to the Doctrine of Promissory Estoppel. Since it is an equitable doctrine, it must yield when equity so requires. The courts would decline to enforce this doctrine if it results in great hardship to government and would be prejudicial to the public interest.

 

OECD: G20 GDP rises 0.7% in Q1 but variations great.

GDP in the G20 edged up 0.7% in Q1 vs +0.6% in Q4 2012, although the actual patterns across the world's 20 largest economies diverged significantly. India, China, South Africa and Mexico slowed, while GDP continued to contract in France and Italy, although at a reduced pace.

Indian inflation continues to fall.

India's wholesale price index, its main inflation gauge, slowed to a 3 1/2 year low of +4.7% on year in May from +4.9% in April. Inflation has been dropping over recent months, partly due to the Reserve Bank of India's tight monetary policy. The RBI is due to hold a policy meeting next week, when it will be under pressure to cut interest rates from 7.25% because of the falling inflation and stuttering economy, and despite the weak rupee.

Eurozone inflation continues to be tame.

As expected, Eurozone inflation rose to 1.4% on year in May from 1.2% in April, while core inflation increased to 1.2% from 1%. Inflation is well below the ECB's target of just under 2% and even verges on deflation in Greece, where it was -0.3%. Meanwhile, eurozone employment fell 0.5% on quarter in Q1 to 145.1M vs -0.3% in Q4 2012. Both sets of data could theoretically give the ECB good reasons to ease policy if it so wished.

Equity mutual fund exits highest in May 2013

 

The Indian equity markets have been quite volatile over the last few years. Several risk factors in the domestic economy along with uncertainty in the global economy have taken a toll on equity investments. As a result, retail investors have been rushing to exit from equity mutual fund scheme. As per an article in Business Standard, the month of May 2013 saw the highest ever number of equity folio closures. The chart of the day shows the months with the highest folio closures. During the financial year 2012-13, equity mutual funds witnessed over 4.5 million folio closures.

The main reason for retail investors exiting equity mutual funds is the lacklustre returns delivered by most schemes. As per Business Standard, annual returns have been a paltry 6-7% over the last five years. This has caused many investors to shift to debt schemes which offer relatively better returns. 

                                      

Data source: Business Standard

U.S. states to end fiscal year in good shape.

U.S. states are expected to end their fiscal year on June 30 with a combined surplus of $23.7B after taking in stronger-than-expected revenues. However, the future is more uncertain, as income this year may have been boosted by residents selling assets ahead of a capital-gains tax rise. Going forward, states will also have to cope with federal spending cuts, an expansion of Medicaid, and increasing pension and retirement obligations.

Blackstone raises $1.5B for $4B Asia fund.

Blackstone (BX) has reportedly carried out the initial closing of its first Asian property fund, receiving capital commitments of $1.5B out of a total target of $4B. Blackstone intends to start putting the money to work immediately, focusing on China, India, Australia and Japan.

The fact that consumer price inflation is still high in India despite the wholesale inflation coming down is an anomaly. Not surprisingly, the culprit for this difference has been food inflation. It is not that there are no food grain stocks available. Indeed, the government has in its stocks 77 m tonnes of grain right now. So if food prices are still high, it means that there is gross mismanagement on the part of the government. Dearth of infrastructure and lack of good warehousing facilities have been some of the primary reasons why there have been supply bottlenecks. Thus despite a good crop, considerable quantity was left to rot thereby contributing to food shortage. But now ironically, the food security bill could also be another reason for higher food prices. The Food Bill is aiming to ensure that subsidized grains are given to nearly 65% of the country's population. This means that the government needs to show that it has sufficient food grains in stock to meet the requirements of the law. This effectively will make the government the largest buyer and the largest hoarder of food grains. And as long as that is the case, one should not be surprised if food prices continue to remain high.

S. 5 & 9: No income is attributable to Liaison Office’s activity of sourcing mfgd products from India even if fee for service is received from overseas buyer

CIT vs. Nike Inc (Karnataka High Court)

 

The assessee, a USA company, set up a liaison office in India whose main activity was to liaise with Indian manufacturers for purchase of apparels from India by the assessee’s HO and overseas subsidiaries. It employed a large variety of staff whose task was to create awareness amongst the Indian manufacturers of the need to maintain quality control and adhere to standards. The price for each apparel was negotiated with the manufacturer and the samples were forwarded to the US office. The liaison office gave its opinion about the reasonableness of the price and all related issues etc. The US office decided about the price, quality, quantity, to whom to be shipped and billed. The liaison office kept a close watch on the progress, quality, time schedule etc at the manufacturing workshop. The AO held that the activities of the assessee of identifying exclusive manufacturers, designing the products, supervising the manufacture and quality of the and marketing the products were beyond that required by a liaison office and resulted in income accruing or arising in India u/s 5(2) read with s. 9(1)(i). He accordingly held that 5% of the export value of the goods was attributable to India operations and was chargeable to tax. This was upheld by the CIT(A). On appeal, the Tribunal (125 ITD 35 (Bang) held that the activity of the liaison office was merely that of purchasing goods for the purpose of exports as the agent of the buyer and that under Explanation (1)(b) to s. 9, no income can be said to be derived by the assessee in India through the operations of the liaison office. On appeal by the department to the High Court, HELD dismissing the appeal:

 

(i) U/s 9(1)(i) income accruing or arising from any “business connection” in India is deemed to accrue or arise in India. The expression “business connection” is defined in Explanation 2 to s. 9 to include any business activities carried out by a person who is habitually acting on behalf of the non-resident in India. However, this does not include an authority to conclude contracts on behalf of the non-resident if the activities are limited to the purchase of the goods or merchandise for the non-resident. Under Explanation 1(b) to s. 9(1)(e) a non-resident is not liable to tax in India on any income attributable to operations confined to purchase of goods in India for export, even if the non-resident has an office or agency in India for that purpose and the goods are subjected by him to any manufacturing process before being exported from India. The result is that no income is deemed to accrue or arise in India to a non-resident, whether directly or indirectly through or from any “business connection“, if the activities are confined for the purpose of export.

 

(ii) On facts, the assessee is not carrying any business in India. The object of the liaison office is to identify manufacturers, give them technical know-how and see that they manufacture goods according to the assessee’s specification which would be sold to the assessee’s affiliates. The person who purchases the goods pays money to manufacturer and in the said income, the assessee has no right. The said income cannot be said to be a income arising or accruing in India vis-a-vis the assessee. As the entire operations are confined to the purchase of goods in India for the purpose of export, the income derived therefrom cannot be deemed to accrue or arise in India. The non-resident buyer may in turn pay some consideration to the assessee outside India but as that contract between the assessee and the buyer is entered outside India, that income arises or accrues to the assessee outside India and is not chargeable to tax in India (Anglo-French Textile 23 ITR 101 (SC) & R.D. Agarwal 56 ITR 20 (SC) referred)

S. 194C TDS does not apply to contract manufacturing agreements.

CIT vs. Silver Oak Laboratories P. Ltd (Supreme Court) 

The assessee, a manufacturer of pharmaceutical products, entered into agreements with various manufacturers who manufactured the said items according to the specifications provided by the assessee. The AO held that the transaction between the assessee and the manufacturer was in the nature of a “works contract” and fell within the purview of s. 194C and that the assessee ought to have deducted TDS thereon. The assessee was held to be in default and liable to pay the tax and interest u/s 201(1)& 201(1A). On appeal by the assessee, the Tribunal held that the transaction was one of sale simplicitor and was not in the nature of a work contract and that the assessee was not liable to deduct TDS u/s 194C. The department’s appeal to the High Court was dismissed by following Reebok India 306 ITR 124 (Del). On appeal by the department to the Supreme Court, HELD dismissing the SLP:

 

On examining the terms and conditions, invoices, purchase orders and challans indicating payment of excise duty, there is no material on record to indicate that the transaction in question is a “contract for carrying out works“. Hence, s. 194C is not attracted. S. 194C has been amended by the Finance (No.2) Act, 2009, w.e.f. 1.10.2009 to provide that “work” includes manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer. It is clarified that the definition of the word “work” will not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person other than such customer.

 

This impliedly approves the view taken in Glenmark Pharmaceuticals 324 ITR 199 (Bom)

Japanese machinery orders slide sharply.

Japan's core machinery orders fell for the first month in three in April, dropping 8.8% on month vs +14.2% in March and consensus of -8.5%. The figures, which are a leading but volatile indicator of capex, show that companies are still reluctant to spend despite the government's and BOJ's stimulus policies. Prime Minister Shinzo Abe wants to change that with tax cuts on capex.

Eurozone industrial output surprises on the upside.

Eurozone industrial production unexpectedly rose 0.4% on month in April, although growth was held back by a fall in energy and durable and consumer goods. The highest increase was in Ireland (+3%), while Finland and Holland suffered sharp declines. Although the data is "relatively encouraging," as per economists but "the eurozone manufacturing sector is not yet out of the woods."

MSCI demotes Greece to emerging market.

MSCI has cut Greece's classification to emerging market from developed market, making the country the first to suffer such a demotion. MSCI attributed the move to Greece not meeting requirements related to securities borrowing and lending facilities, short selling, transferability and stock-index size. MSCI's decision follows similar action from Russell Investments in March.

Japanese shares fall, Europe and U.S. regain poise.

Japanese shares (EWJ) had another volatile day, dropping as much as 2.4% before rebounding to close a mere -0.2%. Better-than-expected eurozone industrial output helped EU stocks (FEZ) recover some poise after two days of declines, with U.S. futures and the dollar-yen rate (FXY) (+0.55% at the time of writing) also higher. But the continuing theme of uncertainty about central bank stimulus is keeping markets on edge.

An economy just entered the club of emerging markets. The term 'emerging' brings to mind a fast growing developing economy, right? But this is not the case with the economy under consideration.

The country we are referring to is none other than the crisis-struck economy of Greece. As per Bloomberg, Greece has been downgraded to emerging-market status by index provider MSCI Inc. This is the first time ever that a developed nation has been downgraded to a lower status. Just to recall, Greece had been elevated to the developed-market status in 2001 by MSCI. But the sovereign debt crisis that engulfed the nation in the last decade crippled the country's economy. The benchmark ASE index has plunged 83% since October 2007.

The downgrade is likely to make matters worse for Greece. It could further lead investors to dump the country's stocks. Greece's condition is a clear proof of the status of progress in the Eurozone. The crisis is still far from over. 

India's budget deficit worst in the BRICS

Back in 2007, the BRICS were the apple of global investors. The blistering pace at which these countries were growing, it was little wonder that everyone wanted to invest in them. But in recent times things have changed. The countries have slowed down. Inflation has shot up and the current account situation in nearly all of the countries has worsened from what it was in 2007. But even when all BRICS are doing badly, India seems to be faring even worse. Especially when it comes to budget deficits which is nothing but the excess of government's spending over what it earns. As per The Mint, India's budget deficit stood at 4.9% of GDP in 2013. This makes it the worst on the BRICS list. In fact India has fared badly even on other economic parameters. Inflation is high, its current account gap is increasing, growth has slowed down drastically and the fiscal mess is getting worse. This is a poor reflection on the country's government. We have been writing about how the gover nment needs to pull up its socks and fast track reforms. Though it has gone ahead with some reforms

in the recent past, however, there is still a lot of work that needs to be done. 

 

                                                                                                                     Source: The Mint

Sterling Lifted by Job Data, Strength Limited

Sterling strengthened mildly against dollar and Euro today after better than employment data. Claimant count dropped more than expected by -8.6k in May, versus consensus of -5.0k.

Unemployment rate was unchanged at 7.8% in April. The data added more evidence to recovery in UK.

Nonetheless, strength in the pound is relatively limited. BoE Fisher warned that "growth is going to be slow for a long time". He noted that while Q2 looked "very good", "these things will flip from one quarter to another".

In Eurozone, German constitutional court continued the hearing on ECB's OMT bond-purchase program today.

 

 Bundesbank chief Weidmann noted that "secondary market bond purchases should not be used in my understanding in a European currency union to lower the solvency risk premiums of individual countries.

 

" ECB board member emphasized that the program is within ECB's mandate. The strong signal was "required to convince market participants of our seriousness and decisiveness in pursuing the objective of price stability."

 

Yesterday, MSCI lowered Greece to emerging market status, down from developed market status.

 

 It said that in the Greek equity markets, the "in-kind transfer and off-exchange transaction like facilities" are so "restrictive" and "unusable".

 

And Greece, failed to meet the criteria including securities borrowing, lending facilities , short selling and transferability. Greece was the first developed country downgraded.

 

Elsewhere, Japanese domestic CGPI rose 0.1% mom in May, machine orders dropped -8.8% mom in April.

 

Australia Westpac consumer confidence rose 4.7% in June. German CPI was finalized at 1.5% yoy in May. Eurozone industrial production rose 0.4% mom in April.

Nifty June Futures - Important Levels for Thursday, 13.06.2013.

TREND DECIDING LEVELS : Today, the Important Trend Deciding Levels on Levels on Lower side is  5740-5720.  Below this, next important level is  5710-5680. (This levels, Either Acts as a support while Nifty is moving in downward direction orActs as a down side Break out/Break down Trigger level which fuels further downward movement from here).

Today, the Important Trend Deciding Levels on Levels on Higher Side is  5770-5780.  Above this, next important level is  5805-5815. (This levels, Either Acts as a hurdle while Nifty is moving in upward direction or Acts as a Upside Break out Trigger level which fuels further upward movement from here).

Disclaimer :

The stock Tips and recommendations given in this blog is for information and educative purpose only. No representations can be made that the tips given here will be profitable or that they will not result in loss. Trading involves risk of loss of money. The Tips in this news letter are given with the understanding that readers acting on this information assume all the risks involved and that they are trading at their own risk. The above recommendations are based on the theory of price related technical analysis and they do not reflect the fundamental strength or weakness of the respective stocks. We shall not be responsible for any loss incurred for acting on the tips given above

RBI takes steps to increase dollar inflows

The Reserve Bank of India (RBI) on Tuesday took measures to increase the supply of dollars in the market including asking exporters to realise their dollar earnings and get them back into the country within one year to support a plunging rupee.

 

The RBI also hastened the process of dollar inflows through online payment channels by increasing the amount that exporters can bring back to $10,000 from $3000, it said in a separate release on Tuesday.

 

The new norms will be applicable with immediate effect, the Reserve Bank of India said.

 

Striking 58.98 per dollar at its weakest, the rupee had plunged 3.25 percent this week, notching record lows for two consecutive days.

 

These are the first few steps taken by the RBI to send a signal of its intention to protect the rupee through administrative measures. The central bank had done away with the time limit for realisation and repatriation of export proceeds in 2003.

 

However, dealers said the RBI needs to impose a cap on banks' daily net open position in the forex market, similar to the one done in 2012 to reduce speculative trades in the forex market which is adding to the rupee slide.