10 Things you should know about the NEW COMPANIES ACT

Thu, August 29, 2013 12:12 IST

Click this link :http://businesstoday.intoday.in/companies-bill.jsp?slide

Gloomy Forecast:Doomsday ahead for Indian financial markets?

It was a deeply disturbing Tuesday for the Indian economy. The passing in the Lok Sabha, on Monday, of the Food Security Bill - which is expected to exert further pressure on the fiscal deficit - as well as rising crude prices due to tensions in West Asia have had three ominous effects. The Bombay Stock Exchange's Sensex fell 590 points, the rupee dropped further to cross 66 to the US dollar, while the G-Sec yield climbed over 8.5 per cent. 


Investors who sold hastily may have been myopic in their assessment but they can hardly be blamed. It does seem, looking at India alone, that doomsday in the financial markets is at hand.

However, if one looks beyond the country's shores - and financial markets globally are all inter-connected now - India is not the only loser in recent times and certainly not the worst performing market in the world. 

In the eight months of 2013, as the US economy has improved, all countries in the MSCI Emerging Market Index have been trading in the red. They have lost between 2 and 31 per cent of their value, while India has shed around 20 per cent. Against this the MSCI US Index is up 16.5 per cent.  

The primary reason for the fall is the uncertainty that the US Federal Reserve will taper off the quantitative easing it resorted to after the 2008 financial crisis. It is expected to withdraw the stimulus package from September. 

This has seen investors moving away from emerging markets as their risk appetite for the US market has increased. This has also seen the end of the 30 year bull-run in the US bond market where yields kept going higher and higher. Yields have sharply fallen and currently the 10-year US yield is trading in the range of 2.65-2.75 per cent. 

Though India is hardly alone in its financial problems, things are certainly different now from 2008/09 when the global downturn initially struck. 

During the sub-prime crisis of that time, India was shielded from the global crash because of its strong growth in the preceding years and the regulations it had in place. Today, elections are just a few months away, while the country is beset with problems, especially the skyrocketing fiscal and current account deficits, rising inflation and lower growth.

Foreign institutional investors (FIIs) are still net buyers in Indian equities to the tune of over $12 billion if looked at across the eight months of 2013. But in the last few months they have indeed been selling heavily and there is a feeling that the dream-run for India and the Indian market is over. 

FIIs have been the backbone of the Indian market, and for the past few years, the sole factor behind the rising equity market. Of course, some eternal optimists are still holding on, given that the Indian economy is still growing at around 5 per cent. 

But time is running out. India is just one notch above being given 'junk status' by global rating agencies. It is time the Indian government does something constructive to boost investment, rather than taking defensive measures such as increasing import duties or selling foreign currency bonds or gold to the International Monetary Fund. 

India needs to act fast before it is too late. India's situation today is no worse than the Argentine crisis of 1999 or the Asian crisis of 1997/98. If FIIs don't like a country they will not hesitate to leave. If this happens it would be difficult to guess till where the Indian currency will dive. Equally, FIIs may not return for a long time. It took Argentina and some of the east-Asian countries nearly a decade to bring them back.







Mahesh Nayak : Last Updated: August 27, 2013  | 20:33 IST

‘Tax avoidance’ arrangement is legitimate if it’s within four corners of law, says HC

Taxmann: Wednesday, August 28, 2013

Where arrangement of assessee to avoid payment of tax did not contravene any statutory provision and was achieved within four corners of law, it couldn’t be found fault with

In the instant case the assessee was holding shares in BFSL, which had purchased 15 acres of land from assessee.

 The assessee sold its shareholding in BFSL for a certain consideration to DLF through Stock Exchange after paying STT and claimed exemption from gain on sale of shares under section 10(38). 

The AO held that sale of shares by assessee was a colourable device and that virtually the immovable property had been transferred to DLF and assessee was liable to tax on short-term capital gain on sale of immovable property.

Further, the CIT (A) and the Tribunal upheld the order of the AO. 

The High Court held in favour of assessee as under:

1) Every taxpayer is entitled to arrange his affairs so that his taxes would be as low as possible and that he is not bound to choose that pattern which will replenish the treasury. If the taxpayer is in a position to carry through a transaction in two alternative ways, one of which will result in liability to tax and the other will not, he would at liberty to choose the latter one and would do so effectively in the absence of any specific tax avoidance provision;

2) If BFSL had sold the property by executing a registered sale deed and received the sale consideration, then it ought to have paid capital gains on the said consideration. All the authorities were carried away by this aspect of the matter and because the Department was deprived of the tax, they had come to the conclusion that it was a colourable device and tax planning to avoid payment of taxes;

3) The assessee by resorting to such tax planning had taken advantage of the benefit of the loopholes in the law, which had endured to his benefit. After seeing how this loophole had been exploited within four corners of the law, it was open to the Parliament to amend the law plugging the loopholes;

4) However, by any judicial interpretation one couldn’t read into the section, which was not intended to by the Parliament at the time of enacting this provision. If the shareholder chose to transfer the land to the purchaser of the shares, it would be a legal transaction, in law, and merely because it was able to avoid payment of tax, it couldn’t be said to be a colourable device or a share transaction;

5) The finding of the assessing authority that it was a transfer of immovable property was contrary to law and material on record.

Unfortunately, three authorities committed the very same mistake which was illegal, contrary to settled legal position and, therefore, required to be set aside - 

Bhoruka Engineering Inds. Ltd. v. Dy.CIT[2013] 36 taxmann.com 82 (Karnataka)

Under Rajan, RBI to focus on currency; rupee to hit 69 : Reuters Poll

Reuters  |  Bangalore  August 27, 2013 Last Updated at 00:44 IST

Indian economy is caught in a quagmire of slow growth, high inflation, rickety government finances and a tumbling currency

Incoming Reserve Bank of India Governor Raghuram Rajan would prioritise currency stability over inflation and growth, according to a Reuters poll, which also showed the worst was not over for the rupee.

The rupee has lost about 15 per cent to the dollar, hitting record lows almost daily, since the US Federal Reserve hinted in May it would soon begin paring back its massive economic stimulus programme, sparking an investor exodus from emerging markets seen as the most exposed to foreign funding.

Rajan, a widely acclaimed economist, takes over as governor of RBIfrom incumbent Duvvuri Subbarao on September 5, at a time when the Indian economy is facing its worst crisis since 1990-1991.

 Eleven of 17 economists polled by Reuters said the currency will be the top priority for Rajan but the consensus showed it would likely weaken to 69 a dollar before rising, implying a further seven per cent fall from Monday's spot rate of 64.10.

Most expected it to bottom out in September. The Indian economy is caught in a quagmire of slow growth, high inflation, rickety government finances and a tumbling currency that is among the worst performing in emerging markets. 

"Rajan could streamline RBI's focus to stabilising the currency and inflation while being supportive of growth," said Nizam Idris, head of FX strategy at Macquarie Bank in Singapore.

 "The RBI must realise it cannot control the rupee, rates, capital flows and inflation all at the same time."

Management Tip of the Day : :Show Your Strength as a Leader

HBR :26 Aug 2013

Competence can be established by virtue of the position you hold, your reputation, and your actual performance.

 But your presence matters too.

 If you want people to see you as a strong leader, do the following three things: 

• Feel in command. If you see yourself as an impostor, others will, too. Instead, believe in your abilities and you’ll project confidence, enthusiasm, and passion.
• Stand up straight. Good posture does not mean the exaggerated chest-out pose known in the military as “standing at attention,” or raising one’s chin up high. It just means reaching your full height, using your muscles to straighten the S-curve in your spine.
• Get ahold of yourself. Twitching and fidgeting sends the signal that you’re not in control. Stillness demonstrates calm.

Adapted from “Connect, Then Lead,” by Amy J.C. Cuddy, Matthew Kohut, and John Neffinger.

Gold futures price seen hitting new peak of Rs 33,000 on weak Indian rupee

 FE :REUTERS : MUMBAI, AUG 27 2013, 13:33 IST

Gold futures, which hit a record high on Tuesday, are likely to touch the keenly watched 33,000 rupees ($510) per 10 grams mark this week, as a weakening rupee could continue to make the dollar-quoted yellow metal expensive.

Higher gold prices could dent demand in the world's biggest buyer of the yellow metal, even as traders scramble for supplies after the federal government put a quota system on imports by linking exports with domestic consumption.

The most-active gold for October delivery on the Multi Commodity Exchange (MCX) was 2.11 percent higher at 32,549 rupees, after hitting a record of 32,677 rupees, breaching its previous record hit in November last year.

"The main reason would be rupee depreciation and high crude prices," said Gnanasekar Thiagarajan, director with Commtrendz Research.

The Indian rupee breached the 65.56 per dollar mark to hit a record low, as a steep decline in the domestic share market following the approval of the food security bill in the lower house of parliament hurt sentiment.

The rupee plays an important role in determining the landed cost of the dollar-quoted yellow metal.

Buying is advised on dips to 32,400 rupees, with a stop loss at 32,200, targeting 33,000, said Thiagarajan.

Silver for September delivery on the MCX was 2.54 percent higher at 55,155 rupees per kg.

Buying is advised in silver at 55,800 rupees, with a target at 57,000 rupees, and a stop loss at 55,100 rupees, said Thiagarajan.

Bank profits to fall below five-year low on rupee

Live Mint ;Mumbai: Aug 26,2013

Indian banks’ profitability, already at the lowest since 2009, is poised to decline further after measures to stem the rupee’s record slump drove up borrowing costs and exacerbated rising bad loans and slowing loan growth.

“Return on equity, which measures profit generated with shareholders’ funds, may fall below 10% in the year to March for banks from last year’s 12.8%,” said Vibha Batra, co-head of financial-sector ratings in New Delhi at a unit of Moody’s Investors Service. “Stressed assets are approaching levels last seen in 2002,” she said on 21 August.

India’s banking index, which tracks lenders including State Bank of India, has lost 20% since 15 July following liquidity tightening measures from the central bank, which caused interbank rates to surge to a 17-month high last week. Those steps may drive up the risk of defaults in an economy that expanded last year at the weakest pace in a decade.

“With the rise in interest rates, the cash crunch and forex volatility, the evolving operating environment for banks in India is worrying,” Batra said. “With the operating environment becoming tougher, stressed assets in the banking system are rising.”

Interbank funding costs jumped after the Reserve Bank of India (RBI) raised two interest rates and capped cash injections into the banking system to stem the rupee’s 18% slide against the dollar since the end of April.

Developing nations

The rupee’s slump is part of a sell-off in emerging-market assets as growth in the biggest developing nations slow and speculation increases the US will start tapering its stimulus programme. The MSCI Emerging Markets Index of stocks slumped 2.7% last week, the most in two months, while a gauge of a currencies in Brazil, Russia, India, China and South Africa touched its lowest level versus the dollar since June 2010.

The rate at which Indian banks lend to each other for three months climbed to 11.2% on 23 August, the highest level since March 2012, compared with 8.52% at the end of June, National Stock Exchange of India Ltd data show.

RBI’s attempt to check the rupee’s slide threatens to curtail lending that has already slowed in an economy that expanded 5% in the year ended 31 March. Loan growth at Indian lenders fell to 13.7% in the 12 months to 14 June, the lowest since December 2009, before rising to 16.6% as of 9 August, central bank data show.

“We reduced our exposure to Indian banks in recent months,” David Gaud, a Hong Kong-based senior portfolio manager at the asset management unit of Edmond de Rothschild Group, which oversees more than $157 billion, said by phone on 21 August. “Nonperforming assets will rise and loan growth will be slower. There will be further pressure on return on equity.”

State Bank

“HDFC Bank Ltd had an ROE of 20.6%, the most among India’s 10 largest banks, while state-run IDBI Bank Ltd had the lowest,” according to data compiled by Bloomberg. State Bank of India, the nation’s largest by assets, had an ROE of 13.59% at the end of March, according to an e-mail from the lender’s public relations department.

“IDBI’s ROE had fallen to 6.3% as of 30 June from 10.1% a year earlier due to higher provisioning for soured debt and restructured assets,” chief financial officer Pothukuchi Sitaram wrote in an 23 August e-mail.

“Bad loans in the banking system rose to 3.92% of total lending as of 30 June, the highest in at least five years, from 3.4% at the end of March,” according to central bank data.

“The stressed-asset ratio, which measures bad loans and restructured assets as a percentage of loans, was at 10.02% at the end of June, central bank data show. The measure is approaching 10.4%, a level last seen in 2002,” said Batra, who works at rating company ICRA Ltd.

More action

To ease the cash crunch, the RBI will buy Rs.8,000 crore ($1.25 billion) of long-dated government debt, the authority said after markets closed on 20 August, a day after India’s 10- year bond yield reached the highest level since 2001.

“The central bank may take more measures,” Alex Mathews, head of research at Geojit BNP Financial Services Ltd said by phone on 22 August. “Easing the cost of funds can help in reviving the economy and improve the profitability of banks.”

Mathews, who doesn’t have official ratings on India’s lenders, is recommending his clients to gradually accumulate ICICI Bank Ltd, Axis Bank Ltd, Yes Bank Ltd and HDFC Bank Ltd as their share prices drop.

“The S&P BSE Bankex Index surged 6% at the open on 21 August before paring to close 0.5% higher as foreign investors sold a net $118 million of Indian equities,” according to data compiled by Bloomberg. “That was the fourth straight day of sales, the data show. The rupee is little changed since the RBI’s action and closed on 23 August at 63.33 per dollar.”

Worst performers

“The recent measures by the central bank to ease liquidity are not changing the operating environment,”Dolly Parmar, Mumbai-based banking analyst at IFCI Financial Services Ltd said by phone on 23 August. “The concerns will remain until the rupee stabilizes and the economy grows at a faster rate.”

Parmar has buy ratings on HDFC Bank and ICICI, and recommends investors sell Union Bank of India and Bank of India.

“Union Bank and Canara Bank, which are both state controlled, have fallen more than 50% this year. The two are the Bankex’s worst performers in that period amid concern growth in bad loans at government banks will outpace private sector lenders,” Geojit’s Mathews said.

The gross bad-loan ratio at India’s state-run banks was 3.8% as of 31 March, compared with 1.91% at private sector lenders, central bank data show.

Capital injection

Investors are demanding a higher premium to hold the debt of Indian banks. The yield on State Bank of India’s 4.5% euro debt due in September 2015 rose 79 basis points this month to 3.59%, heading for the biggest increase since September 2011, according to data compiled by Bloomberg.

“India may delay injecting capital into government banks including IDBI Ltd and Dena Bank because of the slump in their stock prices,” Rajiv Takru, the finance ministry’s banking secretary, said in an 19 August interview. “The government, which usually puts capital into lenders by buying their shares, doesn’t want to lose money as prices slide,” Takru said.

Moody’s downgraded the financial strength ratings of three state-run lenders—Bank of Baroda, Canara Bank Ltd and Punjab National Bank—to negative from stable on 16 August, reflecting the challenges of the current economic environment that had been exacerbated by the weakening rupee. Shares of the three banks have slumped at least 1.8% since then.

“The RBI measures to support the currency have not reversed the depreciation, implying interest rates may remain elevated,” Moody’s said in a statement. “State-run lenders will have more difficulty responding to slower economic growth and declining margins,” it said.

‘Until the rupee volatility subsides, banks’ profitability will keep falling,” IFCI’s Parmar said. “Banks will feel more pain in coming months.”