The Union Budget is expected to change the definition of long term capital gains to 3 years instead of the current definition of 1 year. The 1-year definition of long term capital gains was introduced in the 2004 Union Budget presented by then finance minister, P Chidambaram. Back in 2004, the idea was to align with the definition of long term capital gains under the DTAA with Mauritius and Singapore. Recently, both these treaties have been renegotiated and the definition of long term capital gains under these new treaties stands modified to 3 years and therefore the change in the forthcoming budget is also very likely. However, making long term capital gains is highly unlikely.
Former RBI governor, Dr. Y V Reddy, has opined that in the last few months the institutional identity of the RBI had been substantially damaged. According to Reddy, the role of the RBI is absolutely central to the Indian financial system and its role cannot be restricted to just certain aspects of monetary policy. He also added that debt management, currency management should also continue to vest with the RBI as it gives the RBI the necessary wherewithal to take independent decisions. On the subject of demonetization, Reddy said that the damage had already been done, although he did not agree that impounding cash was the only answer to black money. According to Reddy, the focus of the RBI should now be to maximize and capitalize on the gains of demonetization.
In an effort to push digitization of cash, SBI has taken the lead to waive the 1% debit card charges for small merchants for a period of 1 year. This will help these merchants to overcome their initial apprehensions over investing in the POS infrastructure. This exemption will be applicable for all small merchants with an annual turnover of less than Rs.20 lakhs. SBI has a POS reach across nearly 4400 centres with 70% of this network concentrated in non-metros. Meanwhile, the government clarified that the fuel purchases via cards will continue after January 13th without attracting transaction fee. This had been a bone of contention between banks and retail fuel outlets.
Even as concerns are being expressed over the impact of demonetization on growth, Citi has lowered its estimate for the full year GDP for fiscal year 2016-17 to 6.8%. This is a downward revision of 40 basis points from 7.2% earlier. Citi expects that the uncertainty surrounding demonetization will further delay the recovery in private investments. Although lower interest rates and liquidity in the bank system are positives, Citi feels that the time in this fiscal year may not be sufficient to stage a full-fledged recovery.
According to finance minister, Arun Jaitley, the collections for direct and indirect taxes have shown good traction in the Apr-Dec period. This is despite the impact of demonetization in the months of November and December. Direct tax collections were up by 12% while indirect taxes were up by 25%. This largely negates the view that the demonetization may have seriously impacted output and indirect tax collections. Within the direct taxes kitty, both personal income taxes and corporate income taxes have shown smart growth.
In a move that could have larger ramifications for equity markets in 2017-18, LIC has decided to restrict its additional exposure to equities to just Rs.50,000 crore in the financial year 2017-18. At the same time, LIC plans to substantially increase its exposure to fixed income products. With banks flush with liquidity and their willingness to cut lending rates, bond yields may be headed further down in the next 1 year. That will create the ideal situation for the bond portfolios to appreciate during the year. According to sources within the LIC, the decision to reduce exposure to equities in the next financial year had to do with valuations as well as limited equity market opportunities next year.
Max Ventures of the Analjit Singh group has decided to sell 22.5% stake in the company to New York Life, the largest mutual life insurance company in the US. Max will use the proceeds from the sale of this stake to fund investments in manufacturing, real estate and education. The deal is subject to approval at the extraordinary general meeting (EGM) of shareholders of Max that has been called on February 07th this year.
Ratan Tata confirmed that he had personally asked Mistry to step down from the board of Tata Sons but his recalcitrance had led to his ousting. The Mistry camp had filed a petition with the National Company Law Tribunal (NCLT) against the removal of Mistry from the board of Tata Sons. This statement was made in a detailed point-by-point response to the charges made by Mistry. According to Ratan Tata, the decision to remove Mistry was the culmination of a chain of events where Tata Sons gradually lost faith and confidence in Mistry as he was trying to undermine the brand of the Tatas and also trying to take control of the Tata group companies through the back door.
The BSE will start trading Single-stock and equity index futures at the India International Exchange (INDIAINX) on January 16th 2017. While the indices will be a starting point, it will eventually add trading in gold, silver, copper, oil and INR too. Over the last few years, India has lost a major chunk of trading volumes to SGX on Nifty Futures trading and to the DGCX on currency futures trading. This is an attempt to reverse some of this drain by giving an opportunity for foreign investors to trade these instruments in the Indian market itself. The exchange will trade for 22 hours and will cover every possible market from Tokyo to San Francisco.
According to Bank of America, the big risk for the INR will be if the 10-year yield on the US generic touches 2.70%. At this point, according to BOFA, the yield spread between India and the US will be narrow enough to warrant rapid outflows from India and will result in a weakening of the INR. BOFA expects that a rise in US yields could trigger a weakening of the INR closer to the 70/$ mark. The world is waiting with bated breath for further cues from Donald Trump.
The UK£ fell to a 10-month low as Theresa May hinted at an early exit from the single market. It will mean that the UK may lose the substantial advantages that it was deriving in the form of preferential access to the EU markets. For many observers a BREXIT and a hard landing for UK almost looks certain at this point of time. Theresa May and the Mark Carney of the BOE will be closely followed.
