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Wednesday, January 28, 2015

China is planning to cut its growth target to around 7% in 2015  its lowest goal since 2004, as policymakers try to manage slowing growth, job creation and pursue reforms to drive the economy, Reuters reports. Data last week showed that China's economy only expanded 7.4% in 2014, its slowest pace in 24 years. Sources say the growth target, which is set to be announced in March, was endorsed by top party leaders and policymakers at a closed-door Central Economic Conference in December.

Apple reports largest net income for its fiscal first quarter.

Apple +7.3% premarket after reporting the largest net income of any public company in history and beating even the most bullish Wall Street forecasts. The tech giant posted profit of $18B for its fiscal first quarter, up 38% from $13.1B a year earlier, and sold 74.5M iPhones during the quarter. CEO Tim Cook also announced that the company will begin shipping the Apple (NASDAQ:AAPL) Watch sometime in April.
Microsoft reported a fall in its quarterly profit that was in line with Wall Street forecasts, as the company struggled with the impact of a strong U.S. dollar and reduced demand for Windows software due to slumping personal computer sales. Net profit came in at $5.86B compared with $6.56B in the year-ago quarter. Microsoft (NASDAQ:MSFT) also set its financial forecast for the remainder of the fiscal year, which ends in June, below Wall Street estimates. MSFT -6.8% premarket.

The ruble recovered slightly followed by S&P downgrade Russia's rating

The ruble has recovered slightly, trading at 67.79 per dollar, after ending Monday's session over 6% lower at 68.79. The plunge followed yesterday's move by S&P to downgrade Russia's sovereign rating to junk due to weak economic growth prospects, low oil prices and Western sanctions. Russian share indexes opened lower this morning, although the ruble-based MICEX is now up by 1.6%, while the dollar-based RTS is still down by 0.8%

Monday, January 26, 2015

European markets are jittery

As investors digest news that the left-wing, anti-austerity Syriza party won a general election in Greece on Sunday. Party leader Alexis Tsipras has already moved to form a coalition that will work to reverse years of austerity measures imposed on Greece by the Troika. The euro dropped to a fresh 11-year low after initial results came out, falling as far as $1.1098 vs. the dollar, although it is now up 0.4% at $1.1244 amid speculation that the victory won't push the nation to exit the currency bloc. Athens' ATG stock index is down 1.2%.

Thursday, January 22, 2015

ECB launches 1 trillion euro rescue plan to revive euro economy

The European Central Bank took the ultimate policy leap on Thursday, launching a government bond-buying programme which will pump hundreds of billions in new money into a sagging euro zone economy.

The ECB said it would purchase sovereign debt from this March until the end of September 2016, despite opposition from Germany's Bundesbank and concerns in Berlin that it could allow spendthrift countries to slacken economic reforms.

Together with existing schemes to buy private debt and funnel hundreds of billions of euros in cheap loans to banks, the new quantitative easing programme will release 60 billion euros ($68 billion) a month into the economy, ECB President Mario Draghi said.

By September next year, more than 1 trillion euros will have been created under quantitative easing, the ECB's last remaining major policy option for reviving economic growth and warding off deflation. The flood of money impressed markets: the euro fell more than two U.S. cents to $1.14108 on the announcement, and European shares hit seven-year highs.

China’s central bank injected $8B of capital support

China’s central bank injected $8B of capital support into the country's financial markets today, spurring speculation that further loosening of monetary policy may be on the way as the economy grows at its slowest rate in more than two decades. Almost fully recovering from Monday's 8% plunge, the Shanghai Composite closed up 0.6% on the news. The move also comes ahead of the Lunar New Year holiday next month when demand for funds normally increases substantially.

Wednesday, January 21, 2015

BOJ cut its CPI forecast for the year

As widely expected, the Bank of Japan held off on expanding its massive stimulus program today and cut its core consumer inflation forecast for the year beginning in April to 1% from 1.7%. The BOJ unexpectedly expanded monetary stimulus in October last year as soft domestic demand and slumping oil prices slowed consumer inflation. However, oil prices have lost nearly half of their value since then, keeping the central bank under pressure.

Gold rally for the first time

Gold climbed above $1,300 an ounce today for the first time since August as worries over the global economy and hopes of stimulus measures from the ECB fuelled safe-haven bids. After shunning gold for two years, investors are returning to the precious metal, boosting prices 4.7% just last week. The IMF and World Bank's weak global growth outlooks and SNB's abrupt removal of franc's euro cap last week are also prompting reasons to move into the commodity.

My opinion on Oil

In current news, oil prices continue to slide.  I’ve read a lot of articles that suggest this is a long-term play by big oil companies to stop the growing number of natural gas and small competitors that are popping up all over the world (think about the growth in the Calgary area for example).  This is seriously knocking the supply and demand of energy out of whack. When the price per barrel drops below a certain threshold, it becomes very difficult for natural gas companies to be profitable and competitive.  It’s also difficult to say how long this will last, but I don’t expect it to change for at least a couple quarters (that’s just me).  My opinion is based on the idea that it’ll take some time to suffocate the small companies and see the cycle re-emerged and rebalance.  I don’t have any positions in this sector right now, but I’ll continue to watch it closely.  When you are determining the value of individual companies, or the industry as a whole, you must account for the price of oil in the future, not the past.  Using a conservative price for oil (like $50 or $60 dollars) will help you keep a margin of safety when you conduct your valuations. There is a lot of CAPEX in this industry too. 

S. 32: Road constructed on Build-Operate-Transfer (“BOT”) terms is eligible for depreciation even though assessee is not the legal owner of the road

DCIT vs. Swarna Tollway Pvt. Ltd (ITAT Hyderabad)

The assessee, a SPV, was awarded a contract by the NHAI for widening, rehabilitation and maintenance of an existing two lane highway into a four lane one on the Tada-Nellore section of NH-5 on BOT basis. The entire cost of construction of Rs. 714 crore was borne by the assessee. The construction was completed during the FY 2004-05 after which the highway was opened to traffic for use and the assessee started claiming depreciation from AY 2005-06 onwards. The AO rejected the claim on the ground that the assessee had no ownership, leasehold or tenancy rights for the asset in question, i.e., the roads. On appeal, the CIT(A) reversed the AO. On appeal by the department to the Tribunal HELD dismissing the appeal:

i) ALP of interest on loan granted to European AE has to be based on Euribor, (ii) If technical know-how is transferred by reserving certain rights, there is no "transfer" for s. 2(47) capital gains, (iii) interest u/s 244A is not taxable if withdrawn.

Mylan Laboratories Ltd vs. ACIT (ITAT Hyderabad)

(i) As the assessee has advanced the loan in foreign currency PLR rate of interest will not be applicable. Moreover, since the AE is situated at Belgium EURIBOR rates would be more appropriate (Tata Autocomp Systems Ltd. Vs. ACIT, 2012(5) TMI 45 followed);

Though, technical know-how is a capital asset, it does not necessarily follow that all receipts from exploitation of such asset are to be treated as capital receipts. Revenue receipts can also be generated by exploiting capital assets.

iii) If the interest granted u/s 244A was subsequently withdrawn by the department, effectively no income on account of interest granted under section 244A accrues to the assessee. Therefore, the income already shown by the assessee by taking into account the interest granted earlier under section 244A requires to be reduced from the taxable profit for assessment year. The fact that the assessee’s appeal is pending is not relevant.

Monday, January 19, 2015

With the recent rate cut, hopes have gone up for the infrastructure firms as cost of funds will go down. However, amidst the cheer that rate cut has brought in the markets, there is downside that not many are warning about. First, is the premise itself that lower inflation and hence financial stability is here to stay. With food and fuel prices determining inflation levels, and both at the mercy of nature and global developments respectively, one cannot be so sure of the financial stability. Secondly, unless the supply side constraints are taken care of, a rate cut will not do much to boost the economy. Further, while rate cut is here, fiscal consolidation is yet to happen. With Government already reaching 99% of the fiscal deficit target in November 14, things do not seem very assuring in this regard.

After RBI, it is the Swiss National Bank (SNB) that has stunned the markets. By scrapping its three-year-old peg of 1.20 Swiss francs per euro and cutting benchmark interest rate to -0.75%, SNB has rattled the global stock and currency markets. Swiss Franc has moved up by 30% against the Euro. And Swiss stocks have witnessed their biggest daily fall in 26 years. The other global stock markets have not been untouched either.

Sunday, January 18, 2015

The Swiss National Bank unexpectedly scrapped its cap on the franc to fight recession and deflation threats, after investors fleeing the euro zone crisis pushed the currency to record highs. Minutes after the announcement the franc had soared by almost 30% in value against the euro, sending the safe-haven currency crashing through the 1.20 per euro limit it introduced on Sept. 6, 2011. The euro is now down 13.9% against the franc at $1.0345.

Thursday, January 15, 2015

Seeking to support growth, Japanese Prime Minister Shinzo Abe's cabinet approved a record ¥96.3T ($814B) budget while cutting new borrowing for a third year in a row. Rising revenues following the sales tax increase last April enabled Abe to raise spending without increasing the proportion financed by new government bonds, though the total national debt is still well over twice the country's GDP.
Treasuries advanced for a third day, with U.S. 10-year notes hovering near their lowest level since May 2013, down 4 bps at 1.87%. "It’s all about oil," said a bond trader at Bank of Nova Scotia. "Inflation expectations keep coming down. That’s forcing the bond market to rally." Japan’s five-year yield fell to zero for the first time today, while the country's 10-year yield and Australia’s 15-year yield also dropped to new records.

Monday, January 12, 2015

Japan's government is set to announce a record budget for next fiscal year of more than $810B but will cut bond issuance by ¥4.4T to ¥36.9T, the third decrease in a row and the lowest level in six years. The draft budget for the year from April is aimed at trimming Japan's public debt, which is well over twice the country's GDP after years of sluggish growth and huge stimulus spending.

Sunday, January 11, 2015

S. 80-IA/ 80HHC: Despite the introduction of 'block of assets' depreciation cannot be thrust on the assessee while computing quantum of eligible deduction

DCIT vs. Sun Pharmaceuticals Ltd (Gujarat High Court)

The High Court had to be consider whether for computing the profits eligible for deduction u/s 80HHC and 80-IA, depreciation (under the concept of ‘block of assets’) had to be deducted even though the assessee had not claimed the same. The department relied on the judgement of the Full Bench of the Bombay High Court in Plastiblends India Limited vs. ACIT 318 ITR (Bom) (FB) where it was held that for the purposes of deduction under Chapter VIA, the gross total income has to be computed inter alia by deducting the deductions allowable under sections 30 to 43D of the Act, including depreciation allowable under section 32 of the Act, even though the assessee has computed the total income under Chapter IV by disclaiming the current depreciation. HELD by the Gujarat High Court taking a different view:
Depreciation is optional to the assessee and once he chooses not to claim it, the Assessing Officer cannot allow it while computing the income. Further, once depreciation is optional, it will be optional for block of assets also. It is not necessary that the depreciation is allowable or not allowable as a whole. The assessee can claim it partly also in respect of certain block of assets and not claim in respect of other block of assets. Accordingly, for purposes of sections 80HHC and 80-IA, depreciation not claimed for by the assessee cannot be allowed as a deduction despite the introduction of the concept of block of assets.
Note: The judgement of the Special Bench in Vahid Paper Mills 98 ITD 165 (SB) (Ahd) is impliedly overruled. Both judgements, Plastiblends and Sun Pharma, are prior to the insertion of Explanation 5 to section 32 by the Finance Act 2001 w.e.f. 1.4.2002

S. 43B/ 36(1)(va): High Court verdict in Hindustan Organics Chemicals 270 CTR 478 (Bom) decides that employees' contribution to PF is eligible for s. 43B even though that was not the issue before it. It also does not refer to any judicial precedents. Also, the Q framed by the dept and its representation before the High Court leaves much to be desired. However, the judgement is binding and has to be followed

ITO vs. Indore Steel and Iron Mills Ltd (ITAT Mumbai)

However, again, it cannot be denied that per the said decision, which is judicially binding on us, the hon’ble court has abundantly clarified that the deduction in respect of the employee’s contribution (to the employee welfare funds) in the hands of the assessee-employer is governed by the provision of section 43B, so that where deposited by the due date of the filing of the return for the relevant year, shall be valid in terms of the amended s.43B, i.e., by Finance Act 2003, with effect from 01.04.2004, which amendment stands held by the apex court in Alom Extrusions Ltd. (supra) to the retrospective, so that it shall apply even to years prior to A.Y.2004-05. The hon’ble court, we note, does not discuss nor refer to any judicial precedents. The question of law framed by the Department, as well as its representation before the hon’ble court, leaves much to be desired. That, however, would not in any manner detract from or dilute its binding nature on us as a subordinate forum

S. 56(2)(vi): Amounts received under a Power of Attorney for making investments cannot be treated as income in the hands of the recipient

Sannidhi C. Patel vs. ITO (ITAT Mumbai)
Section 56 of the Act deals with income from other sources. Sub-clause (vi) to section 56 (2) was inserted by taxation laws (amendment) Act, 2006, with effect from 01/04/2007. The plain reading of the aforementioned statutory provisions reveals that it is intended to tax a receipt of money without consideration. The impugned amount was received by the assessee for making the investment on behalf of Ustad Zakir Hussain, on the basis of Power of Attorney. If the provisions of the Act and the content of the Power of Attorney are kept in juxtaposition and analyzed then it can be concluded that the mutual funds, purchase and sold by the assessee were made on behalf of Shri Zakir Hussain.

Wednesday, January 7, 2015

Transfer Pricing: ALP of interest on funds advanced to AEs has to computed on LIBOR and not as per domestic Prime Lending Rate (PLR)

Varroc Engineering Pvt. Ltd vs. ACIT (ITAT Pune)
While benchmarking the international transactions what has to be seen is the comparison between related transactions i.e. where the assessee has advanced money to its associated enterprises and charged interest then the said transaction is to be compared with a transaction as to what rate the assessee would have charged, if it had extended the loan to the third party in foreign country. Once there is a transaction between the assessee and its associated enterprises in foreign currency, then the transaction would have to be looked upon by applying the commercial principles with regard to the international transactions. In that case, the international rates fixed being LIBOR+ rates would have an application and the domestic prime lending rates would not be applicable.

Global Economic growth jitters oil prices.

Sliding to $49.66 a barrel overnight, Brent crude fell below the $50/bbl mark for the first time in five and a half years, as oil prices continued their decline on global economic growth fears and excess supply. Brent crude is now up 0.9% at $51.55 a barrel, while WTI is still below $50/bbl at $48.57.

Tuesday, January 6, 2015

Extending the drop from its lowest close since 2009,oil is again on the decline, as record Russian production and the highest Iraqi exports since 1980 add to the concerns of oversupply. Brent crude is down 2.1% at $55.26/bbl, while WTI is down 2% at $51.66. The two oil benchmarks have now lost more than half of their value from peaks hit in mid-2014.

European stocks are in the red

As fears over Greece's future in the euro zone and a fresh multi-year low for oil prices weighed on markets. Investors will be watching for data this week that is forecast to show December consumer prices in Europe falling for the first time in five years, adding to the argument for Mario Draghi to extend stimulus. The euro fell to $1.1861 on Sunday night, its weakest level since March 2006, as investors bet on the quantitative easing. The currency last traded at $1.1917.

Sunday, January 4, 2015

India's PMI rose to a two year high in december.

The New Year seems to have started on a good note for Indian stock markets that closed higher by 2.4% gains over the week. The gains were mainly supported by hopes of reforms, especially in the banking sector. The HSBC Purchasing Managers' Index (PMI) rose to a two-year high of 54.5 in December led by strong order books, suggesting that the business conditions in India have improved at a faster pace. However, the survey indicated that the job market remains tight. All sectoral indices ended on a positive note with stocks in the capital goods, consumer durables and power sector leading the gains.

China's Official manufacturing PMI contracts in december

China's official manufacturing PMI slipped to 50.1 in December from 50.3 in November, as a property slump continues to have a knock-on effect on manufacturers in many industries, from construction machinery to furniture. With the soft figures, many analysts expect Chinese GDP in Q4 to slow only marginally from 7.3% in Q3, meaning full-year growth will undershoot the government's 7.5% target and mark the weakest expansion in 24 years.
Oil prices began the New Year on a volatile note as Brent whipsawed between gains and losses after closing 2014 at more than five-year lows. The benchmark attempted a rebound early in the session, but pared the gains later on. Brent is now up 0.4% at $57.57/bbl, about $1 below the day's high at $58.54.

Eurozone manufacturing PMI remained subdued in december With ECB stimulus in sight.

Eurozone manufacturing PMI remained subdued in December (below a flash estimate of 50.8) at 50.6, but above November's 16-month low of 50.1. "The weakness of factory output, combined with the subdued service sector growth signaled by the flash PMI, suggests the eurozone economy grew by just 0.1% percent in Q4," says Markit. France and Italy's manufacturing sector continued to shrink in December, although Germany's figure was in line with earlier flash estimates at 51.2, as more new orders helped lead a return to growth.
Weak eurozone manufacturing, the euro started off the new year at 29-month lows. The currency sank as far as $1.2048, a level not seen since mid-2012, while the dollar notched up a near nine-year peak against a basket of major currencies following its best year since 2005. The euro is now dangerously close to its 2012 trough, and major chart support, at $1.2042. A break there would take it to territory not seen since June 2010.