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Thursday, June 4, 2015

Bond yields across global markets rose to fresh high

Bond yields across global markets continued their sell-off into Thursday as a six-week-long bond rout rumbled on. Yesterday, ECB President Mario Draghi said asset prices tend to be more volatile in a low interest rate environment and policymakers were prepared to look through the sharp rise in yields. With the ECB seeing no reason to adjust its stance on monetary policy, German 10-year Bund yields rose to fresh 2015 highs today at 0.95% (up from near zero in mid-April). U.S. 10-year yield +3 bps to 2.4%.

Wednesday, June 3, 2015

How will the monsoons pan out?

Indian Meteorological Department (IMD) has revised its projection for the monsoons this year for the worse, stating that the probability of weak monsoons has risen to 93% from 68% earlier. The chart below indicates the prior year projections versus the actual rainfall and the projections made for the current year by the two institutions - IMD and private weather forecaster Skymet. As you can see, the jury is mixed on how the monsoons are likely to pan out this year between the two forecasters.

Data source: Business Standard, Department of Agriculture, IMD and Skymet; LPA - long period average

It, however, does seem that the markets are going with the more pessimistic view (that of IMD) considering how they have fallen over the past few days. There is no doubt that monsoons play an integral part in the Indian economy. However, basing investment decisions on such unpredictable outlooks would only lead to more errors in the process. Long term investors would do well to take advantage of market follies in such instances is what we believe.

Tuesday, June 2, 2015

Reserve Bank Of India (RBI) reduced repo rate by 25bps

The Reserve Bank of India cut interest rates for the third time this year, lowering its key repo rate by 25 bps to 7.25%, in a move that appears at odds with recent data showing the country's economy has become one of the fastest-growing in the world. Data on Friday showed India’s output expansion accelerated to 7.5% last quarter, outpacing China in terms of growth. Meanwhile, the Reserve Bank of Australia kept rates unchanged at a record low of 2.0% today, in line with analysts' expectations.

Monday, June 1, 2015

Transfer Pricing: The transaction of allowing credit period to the AE on realisation of sale proceeds is not an independent transaction and has to be considered along with the main international transaction of sale of goods

ACIT vs. Information Systems Resource Centre Pvt. Ltd (ITAT Mumbai)

The transaction of allowing the credit period to AE on realization of sale proceeds is not an independent international transaction but it is a closely linked or continuous transaction along with sale transaction to the AE. The credit period allowed to the party depends upon various factors which also includes the price charged by the assessee from purchaser. Therefore, the credit period extended by the assessee to the AE cannot be examined independently but has to be considered along with the main international transaction being sale to the AE

S. 43(5)(d): Loss from trading in derivatives is not a speculation loss and can be set-off against normal business profits

ITO vs. Emperor International Ltd (ITAT Delhi)

Now question arises as to whether the loss suffered by the assessee on derivative was to be treated as a speculative loss or to be set off against the regular business profit. Explanation to clause (d) of Sub-section (5) to Section 43 of the Act provides that eligible transaction in respect of trading in derivatives would not be deemed to be speculative transaction. In the present case, it is an admitted fact that the assessee was engaged in the business of dealing in shares & securities and has incurred loss from dealing in derivatives (shares futures)

Euro tumbled on Greece missed the deadline,along with weaker factory growth within a bloc.

Euro zone factory growth was weaker than previously thought last month as the bloc's core countries continued to struggle as prices deteriorated. Markit's final May manufacturing PMI was 52.2, below a preliminary flash reading of 52.3 but just ahead of April's 52.0. "The rate of growth is modest rather than spectacular, Meanwhile The euro tumbled today after Greece missed a self-imposed Sunday deadline for reaching an agreement with its lenders to unlock aid, keeping alive fears of a debt default and exit from the euro zone. The chances for a deal aren't looking any better after Alexis Tsipras' comments on Sunday. Yesterday, the prime minister accused bailout monitors of making "absurd" demands and seeking to impose "harsh punishment" on Athens. Greece is due to repay a €300M loan to the IMF on Friday and three additional payments, totalling about €1.25B, later in June. The euro is -0.7% to $1.0911.