The Finance Insider blog

Search This Blog

Blog Archive

The Finance Insider

Wednesday, August 27, 2014

India's antitrust regulator has fined major automakers over anti-trust violations.

India’s antitrust regulator has fined major automakers over anti-trust violations, just days after authorities in China imposed similar penalties. The commission found that carmakers were able to charge high prices by providing spare parts only to authorized repair shops. A total fine of 25.4B rupees ($420M) was slapped on 14 automotive groups including Tata Motors (NYSE:TTM) and the local units of Honda (NYSE:HMC), Volkswagen (OTCQX:VLKAY), Fiat (OTCPK:FIATY), BMW (OTCPK:BAMXY), Ford (NYSE:F), General Motors (NYSE:GM), Mercedes-Benz (OTCPK:DDAIY), Nissan (OTCPK:NSANY) and Toyota (NYSE:TM).

Wednesday, August 20, 2014

Argentina is looking to push bondholders to swap defaulted debt for new notes, in order to dodge a U.S. ruling that prevents the government from paying creditors. Argentina's last interest payment of $539M was blocked by a NY court, resulting in the country's sovereign default on July 30. President Cristina Fernandez has continued to argue that Argentina is not in default, and has called for a new bond swap as a result of the ruling.

Monday, August 18, 2014

Wall street Weapons of mass destruction back again.

They were called weapons of mass destruction! But that was back in 2008. Six years hence Wall Street seems to have found its lost love for derivatives. And the too big to fail banks are once again at the forefront of creating new toxic products. Names like JP Morgan and Goldman Sachs were associated with toxic instruments like CDOs post Lehman bankruptcy. It seems these firms have learnt no lesson and are back to their notorious tactics putting the global financial system at risk! As per Bloomberg, Goldman Sachs is planning as much as 10 billion Euros (US$ 13.4 billion) of structured investments that bundle debt into top-rated securities. J P Morgan Chase is offering a swap contract that makes it easier for investors to wager on the debt. Thus while the big banks are back to vetting investors' risk appetite, the regulators are hardly prepared to avert another 2008 like crash. One can only hope that Western central banks, including the US Fed, take the RBI's warning signals more seriously!

Eurozone banks are expected to borrow about €250B from ECB under LTRO

Eurozone banks are expected to borrow about €250B in cheap four-year money from the European Central Bank in September and December under the ECB’s "targeted long-term financing operations". The new loans would come on top of the more than €1T in cheap finance the ECB pumped into the financial system between late 2011 and 2012 to avert a financial crisis, and are expected to boost lending to the region’s credit-starved businesses.

Wednesday, August 13, 2014

Japan's economy contracted sharply in the second quarter.

Japan's economy contracted sharply in the second quarter after a national sales tax in April rose 3% and triggered a sharp decline in consumer spending. Real GDP shrank 6.8% in the three months through June on an annualized basis from the prior quarter. Prime Minister Shinzo Abe will have to address the tax issue again soon. A sales tax increase (which will raise the rate to 10%) has been approved by the Japanese government and will take effect in October 2015.
The Treasury Department posted a U.S. budget deficit of $95B at the end of July, down 3% from $98B in the same period last year. Fiscal year-to-date, the deficit of $460B is off 24% from the same period a year ago, and the lowest for the first ten months of the fiscal year since 2008. Receipts last month totaled $211B, up 5% from the year-ago period, and spending totaled $305B, up 3% from July 2013.

Tuesday, August 5, 2014

RBI keeps key rate unchanged

In the first quarter Monetary Policy review today, the RBI kept the key lending rate (repo rate) unchanged. Repo rate or the rate at which at the central bank lends money to commercial banks remains unchanged at 8.0%. Even the cash reserve ratio (CRR) stayed at 4%. However, in an effort to ease some liquidity the statutory liquidity ratio (SLR) was reduced from 22.5% to 22%. In the last policy review too, the central bank had chosen to tinker with the SLR, while keeping other rates unchanged.

Transfer pricing implications of interest-free loans, corporate guarantee & export turnover adjustments explained

Kohinoor Foods Ltd vs. ACIT (ITAT Delhi)
(i) Interest free loans to AEs: We have no issue of the TPO applying the CUP method. But the problem arises when in the name of applying CUP method; a wholly inapplicable comparable model applied which leads to distorted results. A significant sector of multi-national corporate set up involves creation of subsidiaries and associate enterprises for advancement of their overseas business. They help them in terms of finance by offering soft loans and subsidiary loans; they are primary focused to spread the business of the principal unit. It would have been very reasonable, judicious and appropriate on the part of the TPO to have looked into such type of transactions and applying it as uncontrolled transactions. Re-course straightaway to CRISIL, which deals in hardcore institutional finance transactions that too with clear commercial object of earning out of loans bereft on other considerations, is wholly inapplicable. While the real income theory has no application to a fictional working as provided by section 92 but this being part of the Income-tax Act, the valid consideration for properly assessing a transaction cannot be given a go by. Every fiction has limits to its application. In view thereof, the rate of 13.49% applied solely relying upon a third party opinion by applying on uncontrolled set of transaction is factually not correct and cannot be accepted. The correct comparable which can be applied is of LIBOR rate which is internationally recognized. It is the most appropriate comparable for the relevant periods and being reasonable and scientific uncontrolled comparable to be applied to the assessee’s loan transactions

Monday, August 4, 2014

The FM is considering proposal to tax builders to pay tax on unsold stock

A real estate developer's key role is to construct properties and sell them. But when sentiments are poor, more often than not the unsold inventory starts to pile up. So should the developer be taxed on these unsold properties, even if these are not rented out? Well, the major response would be 'no'. However, as mentioned in the Economic Times, the government is considering asking builders to pay taxes on unsold stock, which would be computed on the basis of annual letting value. What this could lead to is realtors taking up measures to clear off the inventory which would include reducing prices, something that seems required in India. However, whether this will be implemented or not remains to be seen as the Finance Ministry is considering this proposal. It may be noted that there are over 760,000 apartments that remained unsold at the end of June this year. Bringing in such a move would be a major setback for developers, but a positive for buyers.

Japanese stocks fell to a more than one-week low

This morning, with financials and sea transporters leading the losses, as investors turned risk averse due to last week's U.S. stock sell-off, concerns over Argentina's default and Portugal's banking problems. The Nikkei sank 0.3% to 15,474.50, its lowest close since July 25, extending losses for a third straight trading day. The Topix shed 0.4% to 1,276.19, while the JPX-Nikkei Index 400 dropped 0.3% to 11,620.36.

HNI and hedge funds' investments through P-notes rises to a 5-year high

Investments by HNIs and hedge funds into the Indian equity markets through the participatory notes (P-notes) route has risen to $37 billion in June, the highest level seen since May 2008. P-notes account for 15-20% of total FII holdings in India.    

Amenments to Investment limits by FII's in GOI securities

The Reserve Bank of India has decided to enhance the investment limit in government securities available to FIIs by $5 bn by correspondingly reducing the amount available to long term investors from $10 bn to $5 bn within the overall limit of $30 bn.
The incremental investment of $5 bn will have to be invested in GoI bonds with a minimum residual maturity of 3 years.

Sunday, August 3, 2014

Argentina a 'selective default'

In this world of ever increasing debt, the possibility of a default is always around the corner. And if the defaulter in question happens to be a sovereign government, then the result could be catastrophic. This is exactly what has happened in Argentina. The South American nation which has a long history of sovereign defaults has done it again. Back in 2001, the Argentina had defaulted on its foreign debt for the seventh time in its history, amounting to US$ 82 bn. In the restructuring exercise that followed, some of the country's creditors held out. They demanded that they be repaid in full. This group of creditors has now received a court order to that effect and this has triggered a fresh crisis. Argentina has refused to pay up. S&P has called it a 'selective default'. So what happens now?

As Argentina has been shut out of the global markets since 2001, there will be little impact felt immediately. However, the longer this saga drags on, the more nervous global markets will become.
FIIs may not press the panic button just yet but if last minute negotiations do not result in a settlement, large outflows from the Indian markets cannot be ruled out. At such times, it is best if investors remain cautious and remain invested in companies with excellent fundamentals.

Brent Crude Oil slips as OPEC has pumped more supplies

Just last month, record high bets were placed on rising oil prices due to supply disruptions in Iraq. However, oil prices have surprised once again. Despite the tensions surrounding the Middle East, Africa and Ukraine, the Brent crude oil price has slipped as OPEC has pumped more supplies. What has further kept price under control is the low demand from the US and higher gasoline inventories. In fact, all these factors are likely to account for the biggest monthly loss in oil prices over last 15 months.

While the trend bodes well for India, as it largely depends on oil imports, the risk to Indian energy sector does remain. This is because dollar still remains strong, supported by US economic growth data. Further, OPEC is quite known for changing supplies as per its whims and a further cut down cannot be ruled out. As India hopes to introduce regulatory reforms in the energy sector, a rise or volatility in oil prices is likely to slow down the pace of the same.
Some of Russia's largest companies are starting to move their cash reserves to Asian banks as worries surface that Russia could eventually be completely shut out of U.S. dollar funding markets. On friday, the EU adopted its toughest Russian sanctions to date, including heavy restrictions on the country's financial markets, energy industry and a complete embargo of the arms trade between the two.