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 pen-

alty.

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 finan-

cial 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 sub-

ject 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 compa-

ny 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 requir-

ing consolidation outside India.

It makes auditors subject to criminal liability if they con-

sciously or carelessly omit certain information from

their reports.

It has a stipulation that keeps a check on very expen-

sive remunerations for the board of directors and other

executives of the companies. This will protect the inter-

est of shareholders as well as employees.

The amended legislation also limits the number of com-

panies 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 pre-cious 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, com-pared with $88.2 billion the previous year, by curbing imports of gold, silver, oil and non-essential 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 Manage-ment 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 Manage-ment 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.

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 eq-uity plus free reserves from existing 10% limit. The limit mentioned above can be further increased by an addi-tional 5% with the prior approval of board of company.

The group and promoter group exposure norms will continue to apply on the investments made in a hous-ing finance company.

India’s Current Account Deficit

has increased sharply

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 cush-ion 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 In-dia 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 lend-ing rate to import gold have been increased to reduce its demand.

US Government says Bank Of America lied

to investors about mortgage-bond risks

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 residen-tial mortgage-backed securities.

Bank of America made misleading statements and failed to disclose important facts about the mortgag-es underlying a securitisation named BOAMS 2008-A. 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 % respec-

tively.

However, unemployment rate stood at a huge fig-

ure of 12.1 %. Despite the apparent recovery, the

Netherlands, Spain and Italy were still in contraction

in the second quarter.

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 Ger-many’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.

BUSINESS CYCLE It refers to economy-wide fluctuations in produc-

tion, 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 lev-els of GDP and refers to the period of expansions and contractions in the level of economic activities.

Business cycles are usually measured by consid-ering the growth rate of real gross domestic prod-uct. Despite being termed cycles, these fluctua-tions 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 ser-vices 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 utiliza-tion of resources. Economic recovery and prosper-ity are two successive phases of economic expan-sion.

RECESSION It is a business cycle contraction, a general slow-

down in economic activity. Generally it occur when there is a widespread drop in spending due to a financial crisis, an external trade shock etc.

During a recession, Macroeconomic indicators such as GDP, employment, fall, while bankruptcies and the unemployment rate rise.

Government responds to recessions by adopting an expansionary macroeconomic policies, such as increasing money supply, increasing its spending and decreasing taxation.

Terminologies

COUNTERVAILING DUTIES Duties (tariffs) that are imposed by a country to counteract

subsidies provided to a foreign producer.

MARKET WATCH Market Watch is the screen on which you can track your se-

lected 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.

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.

Almost all types of goods can be imported with an ATA carnet except for consumable goods, disposable goods and mail.

AUTARKY 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 unsuc-cessful, and is more of an Utopian ideal.

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 ru-pee'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 short-term 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 ac-count 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.

MARKET SNAPSHOT

BSE SENSEX NSE NIFTY