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Finesse 12 18th aug 2013


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Finesse 12 18th aug 2013

  1. 1. Top News of the Week Key features of Companies Bill 2012             Spending of funds by companies for Corporate Social Responsibility (CSR) will be mandatory. Companies are required to spend at least 2 % of their net profit on CSR. The companies will also have to give preference to the local areas of their operation. If the companies are unable to meet CSR norms, they will have to give explanations and may even face penalty. The amended legislation will help to control major source of corporate law-breaking for falsely inducing a person to enter into any agreement with bank or financial institution with a view to get credit facilities. With view of interests of employees, company will have to pay 2 years’ salary to employees in case it shuts operations. The appointment of auditors for five years shall be subject to ratification by members at every annual general meeting. The limit in respect of maximum number of companies in which a person may be appointed as auditor has been proposed as 20. The maximum number of directors in a private company has been increased from 12 to 15 and which can be increased further by special resolution. The financial year of any company can end only on March 31 and the only exception is for companies which are holding subsidiary of a foreign entity requiring consolidation outside India. It makes auditors subject to criminal liability if they consciously or carelessly omit certain information from their reports. It has a stipulation that keeps a check on very expensive remunerations for the board of directors and other executives of the companies. This will protect the interest of shareholders as well as employees. The amended legislation also limits the number of companies an auditor can serve to 20 besides bringing more clarity on criminal liability of auditors. The proposed legislation would ensure setting up of special courts for speedy trial and stronger steps for transparent corporate governance practices and curb corporate misdoings CAD Jitters: Customs duty on gold, platinum and silver raised to 10%  The government on Tuesday increased Customs duty on gold, platinum and silver to 10 per cent, in a move aimed at curbing the imports of these precious metals to limit its current account deficit (CAD) for 2013-14 at the targeted level of 3.7 per cent of gross domestic product.  The duty hike — estimated to bring an additional rupees 48.30 billion to the exchequer — however, was criticized by jewelers, who said the move might lead to a rise in gold smuggling and raise the yellow metal’s price by rupees 600 per 10 grams.  The move came a day after Finance Minister P Chidambaram told Parliament the government would restrict CAD at $70 billion in 2013-14, compared with $88.2 billion the previous year, by curbing imports of gold, silver, oil and nonessential goods. RBI to auction Cash Management Bills (CMBs) to control liquidity  Taking further measures to control the liquidity in order to boost the position of rupee which has been on a decline for past some time, the RBI has decided to auction short-term Cash Management Bills (CMBs) for an amount of rupees 220 billions every Monday.  RBI will be selling Rs.110 billion each in two CMBs maturing in 35 and 34 days on Monday and Tuesday, respectively. The bills will mature on 17 September, 2013, when banking system liquidity gets strained on account of advance tax outflow.  The auctions will be conducted using “Multiple Price Auction” method and the Cash Management Bills will have the generic character of Treasury Bills.  CMBs are short-term paper with the flexibility of fixing tenure according to the requirement of the government. The basic difference between a treasury bill and a CMB is that the former has fixed tenure of 30, 91, 182 and 364 days, while a CMB can be anything between seven days and one year.  CMBs can be structured in such a way that they are redeemed at that time to infuse liquidity but treasury bills do not offer that flexibility.
  2. 2. Top News of the Week India’s Forex reserves dips by $2.99 billion  As per the Reserve Bank of India, the country’s foreign exchange reserves lowered by an immense USD 2.995 billion to USD 277.167 billion. Foreign currency assets which are a major component of the forex reserves, dropped USD 2.155 billion to USD 249.895 billion in the first weekend of August 2013.  Foreign currency assets expressed in US dollar terms include the effect of appreciation or depreciation of the non-US currencies, such as euro, pound and yen, held in the reserves.  The gold reserves dropped USD 808.5 million at USD 20.747 billion. The Special Drawing Rights (SDRs) were down by USD 21.4 million to USD 4.352 billion, while the country’s reserve position with the IMF also fell by USD 10.7 million to USD 2.171 billion. IRDA relaxes investment norms    Insurance Regulatory and Development Authority (IRDA) relaxes investment norms for firms like Housing finance to allow them to get higher funding from the insurance companies. The single investee debt exposure limits in housing finance companies have been enhanced to 20% of equity plus free reserves from existing 10% limit. The limit mentioned above can be further increased by an additional 5% with the prior approval of board of company.   The US government has filed two civil lawsuits against Bank of America that accuse the bank of investor fraud in its sale of $850 million of residential mortgage-backed securities.  Bank of America made misleading statements and failed to disclose important facts about the mortgages underlying a securitisation named BOAMS 2008A. More than 40 per cent of the 1,191 mortgages in the securitisation did not comply with the bank's underwriting standards, according to the complaint. Europe recovers from its longest recession, stocks rise for the third straight week  Eurozone posted a 0.3% growth in the second quarter of 2013, thus marking the end of the longest recession in 40 years.  European stocks advance for the third straight week. This growth was driven by Germany and France, with growth rate of 0.7% an 0.5 % respectively.  However, unemployment rate stood at a huge figure of 12.1 %. Despite the apparent recovery, the Netherlands, Spain and Italy were still in contraction in the second quarter. The group and promoter group exposure norms will continue to apply on the investments made in a housing finance company. India’s Current Account Deficit has increased sharply  US Government says Bank Of America lied to investors about mortgage-bond risks It reached 4.8% of gross domestic product in the last fiscal year. Moreover the sharp depreciation of the rupee and the central banks interventions in the foreign exchange market to stabilize the rupee could deplete the reserves, reducing the import cover and the cushion for the economy. This is raising worries that it may be headed toward a repeat of the 1991 crisis. Mr Manmohan Singh countered this by saying that India now has greater foreign exchange reserve, and the aim is to only curtail the currency volatility and not to target the specific currency value. He also said that the increase in current account deficit is due to the import of gold. To keep this in check the import tax and lending rate to import gold have been increased to reduce its demand. Greek to need extra aid by early 2014, sets joblessness record  Greece will need additional rescue loans from its European partners by the start of 2014, as per Germany’s Central bank, the Bundesbank. Greece has received 240 billion Euros from IMF/EU as aid in the last few years.  Greece’s unemployment rate rises to a new high of 27.6%  Currently in its sixth year of recession, nearly 60% of the young(age 15-24) are jobless.
  3. 3. Terminologies BUSINESS CYCLE COUNTERVAILING DUTIES  It refers to economy-wide fluctuations in production, trade and economic activity in general over several months or years in an economy organized on free-enterprise principles.   It is the upward and downward movements of levels of GDP and refers to the period of expansions and contractions in the level of economic activities.  Business cycles are usually measured by considering the growth rate of real gross domestic product. Despite being termed cycles, these fluctuations in economic activity can prove unpredictable. ECONOMIC EXPANSION  An economic expansion is an increase in the level of economic activity, and of the goods and services available. It is a period of economic growth as measured by a rise in real GDP.  It is marked by an upturn in production and utilization of resources. Economic recovery and prosperity are two successive phases of economic expansion.   MARKET WATCH  Market Watch is the screen on which you can track your selected stocks.  In this one can add stocks and F&O contracts and select the details (open, high, low, close, last traded price, total traded quantity, percentage and absolute change, trend etc.).And all this will be Live! AD VALOREM TAX  A tax based on the assessed value of real estate or personal property. Ad valorem taxes can be property tax or even duty on imported items.  Property ad valorem taxes are the major source of revenue for state and municipal governments. ATA CARNET  An international customs document that allows its users to eliminate import duties and taxes and clear customs quickly on temporary imports into participating carnet countries and territories.  During a recession, Macroeconomic indicators such as GDP, employment, fall, while bankruptcies and the unemployment rate rise. For example, the carnet is helpful to music tour managers who need to bring equipment and merchandise related to a show into a country for a few days or a few weeks.  Government responds to recessions by adopting an expansionary macroeconomic policies, such as increasing money supply, increasing its spending and decreasing taxation. Almost all types of goods can be imported with an ATA carnet except for consumable goods, disposable goods and mail. AUTARKY RECESSION  Duties (tariffs) that are imposed by a country to counteract subsidies provided to a foreign producer. It is a business cycle contraction, a general slowdown in economic activity. Generally it occur when there is a widespread drop in spending due to a financial crisis, an external trade shock etc.  A nation or entity that is self-sufficient.  For example, a country that is functional without partaking in any international trade. From an economic view, autarky involving the elimination of foreign trade has proved unsuccessful, and is more of an Utopian ideal.
  4. 4. MARKET SNAPSHOT BSE SENSEX NSE NIFTY  The Sensex plunged 769 points, or almost 4 per cent - the most in two years - to 18,598; while the Nifty lost 234 points, or 4.08 per cent, to close at 5,507 on Friday. The indices have lost 4.26 per cent and 6.73 per cent, respectively, since the beginning of the year. The Reserve Bank of India's (RBI) curbs on Forex outflows announced on Wednesday, August 14, 2013, to stem rupee's slide rattled investor sentiment.  Along with the steep fall in the rupee, fears that the US Federal Reserve will begin to scale back its monthly bond buys in September 2013 also dampened investor sentiment.  The rupee hit a fresh record low of 62.03 on Friday, August 16, 2013, and the outlook is grim. Most analysts expect the currency to hit even lower levels say 63-64 against the dollar in the short to medium term. The RBI has taken a slew of measures since July 15 to stall the rupee's slide, which is Asia's worst-performing currency this year. Measures include hiking of shortterm interest rates by 200 basis points and squeezing liquidity.  Additional curbs have been put on gold imports, a key factor in the ballooning of the current account deficit after crude oil. However, most of the measures undertaken by the RBI to check speculation and outflows have seen little effect. However, measures taken by the RBI earlier this week have sent out a signal that it may not hesitate to take further steps to curb capital outflows fuelled bearish sentiment. Stocks were ravaged across the board with many blue chip stocks such as Larsen & Toubro, State Bank of India and Grasim Industries crashing to 52-week lows.  The top performing companies were TCS, Reliance, ONGC, ITC, Infosys.