Stimulus steps: How the FPI surcharge rollback affects investors

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The government has recognised the imminent slowdown in growth of the economy and has announced a series of measures to boost the sentiments of market and industry participants.

Finance Minister Nirmala Sitharaman has provided a comprehensive package that proposes to address the select FPI tax issues, enhance the credit flow in the economy and provide aid to the auto and NBFC sectors. The FM has also promised a slew of measures to be announced early next week to revive the housing sector.

Amongst the above, the one announcement that has garnered high investor attention is the withdrawal of the enhanced surcharge that was introduced in the Budget presented on July 6, 2019 with respect to the income arising on account of capital gains.

The finance minister had then hiked the surcharge from 15 percent to 25 percent for those with taxable income of Rs 2-5 crore, and to 37 percent for those earning more than Rs 5 crore. This increased the effective tax rate for these two groups to 39 percent and 42.74 percent, respectively.

As a consequence, many FPI’s who have been investing in India as a non-corporate entity such as a Trusts or Association of Persons were also subject to the aforesaid higher rate of surcharge.

The tax change – Investor perspective

The government has withdrawn the increased surcharge on long/short term capital gains arising from the transfer of equity shares / equity-oriented mutual funds referred to in section 111A and 112A of the Income Tax Act.

This means that the pre-budget position has been restored for both domestic investors as well as FPIs and they would not be subject to the enhanced surcharge on capital gains arising from the transaction involving the aforesaid instruments.

However, it appears that the foreign and domestic investors shall continue to be liable to pay the increased surcharge in respect of other income, i.e., interest, dividend, etc.

Further, considering that derivative instruments (i.e capital gains arising from future and options instruments) are not specifically included in the aforementioned sections, the finance ministry has clarified that necessary changes would be bought about in section 115 AD (governing taxation of FPI’s) to exclude the same as well.

What is not included?

However, it would be pertinent to note that any off-market deals, capital gains arising from the sale of unlisted companies, would still continue to attract higher surcharge.

Also Cat-III Alternative Investment Funds (AIFs) investing through non-corporate entities and those engaged in arbitrage/trading activities whose income is characterized as ‘business income’ and not ‘capital gains’ would attract the higher surcharge.

Conclusion

The government has attempted to retain the investment attractiveness by bringing about the aforesaid changes and the key would be to quickly translate the same into effective execution.

It is also expected that the economic issues would continue to be addressed on a dynamic basis to navigate the economy on a path of sustained growth.

Girish Vanvari is the founder of Transaction Square.

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US exports to lobster-loving China go off cliff amid tariffs

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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U.S. lobster exports to China have fallen off a cliff this year as new retaliatory tariffs shift the seafood business farther north.

China, a huge and growing customer for lobster, placed heavy tariffs on US lobsters — and many other food products — in July 2018 amid rising trade hostilities between the Chinese and the Trump administration.

Meanwhile, business is booming in Canada, where cargo planes are coming to Halifax, Nova Scotia, and Moncton, New Brunswick, to handle a growing bump in exports. Canadian fishermen catch the same species of lobster as American lobstermen, who are based mostly in Maine.

The loss of business has brought layoffs to some Maine businesses, such as The Lobster Co., of Arundel, where owner Stephanie Nadeau has laid off half the 14 people she once had working in wholesale.

“They picked winners, and they picked losers, and they picked me a loser,” Nadeau said. “There is no market that’s going to replace China.”

America has exported less than 2.2 million pounds (1 million kilograms) of lobster to China this year through June, according to data from the US federal government. The country exported nearly 12 million pounds during that same period last year. That’s a more than 80 percent drop.

In Canada, exports to China through June were already approaching 33 million pounds, which is nearly as much as all of 2018.

The value of Canada’s exports was nearing $200 million in US dollars through June and was almost sure to outstrip last year’s total of more than $223 million. America’s exports through June were valued at less than $19 million, more than $70 million behind where they were through June 2018.

Lobster prices paid by American consumers have remained fairly steady during the trade dispute, and there remain many buyers for US lobster. But the loss of China as an overseas market is happening at the end of a decade in which the US seafood industry has experienced exponential growth in lobster exports to the country. The US exported about 800,000 pounds of lobster in China in 2010 and more than 20 times that last year.

The American lobster industry is looking to open up new domestic and international markets to make up for the loss of China, said Marianne LaCroix, who directs the Maine Lobster Marketing Collaborative. Maine lobsterman Brian Rapp will attend a trade show in Hong Kong and a trade mission to Dubai in September to promote US lobster, she said.

“China is so large that you have to look at a number of new markets to replace that business,” LaCroix said.

In Canada, the boost to business has helped the industry but also led to uncertainty about its future, said Geoff Irvine, executive director of the Lobster Council of Canada.

The American and Canadian lobster industries overlap, with some businesses operating on both sides of the border, and it’s more beneficial to the lobster industry at large for trade to go on unimpeded, he said.

“Whenever there’s any kind of uncertainty, it makes people worry,” Irvine said. “Everybody would like to see the entire lobster industry open and free.”

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Gold prices today touch new highs on equity selloffs, silver rates at 3-year peak

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Gold prices in India surged to a fresh all-time high for the sixth straight session on Monday supported by gains in global markets and losses in equity markets over the escalating US-China trade war. The depreciating Indian rupee against the US dollar has also boosted gold rates. Global gold prices also jumped nearly 1 percent to trade at the highest level since April 2013. In India, gold futures rose 1 percent to Rs 39,196 per 10 grams in early trade. So far this year, gold prices rose nearly 25 percent in 2019. Comex gold rates hit their six-year highs.

Globally, spot gold rate jumped 0.9 percent to $1,539.70 per ounce as of 9.44 AM (IST), having earlier touched $1,554.56 an ounce, its highest since April 2013. US gold futures were up 0.8 percent at $1,549.50 an ounce.

Silver prices in India have also risen to a three-year high. Silver futures were up 1 percent at Rs 45,058 per kg, after rising to 45,148 rupees earlier in the day, the highest since October 3, 2016.

Indian benchmark indices BSE Sensex and NSE’s Nifty 50 surged nearly 2 percent in the opening trade but soon erased all the gains, dragged by losses in Asian markets. Global markets fell after US President Donald Trump announced additional tariffs on Chinese goods.

The Indian rupee fell to an eleven-month low today again the US dollar. The local currencies fell to 72.2538 per dollar, down 58 paise from its previous close of 71.6650.

Pritam Kumar Patnaik, head commodities at Reliance Commodities, said the upward trend in gold and silver prices is likely to continue. While the gold prices are likely to move towards Rs 39,900 to Rs 40,000 levels on the MCX, silver rates expected to move higher towards 48,000 levels in coming days.

“The US-China trade war with new tariff announcement has pushed gold and silver prices to a new six-year high as investors rushed for safe-haven assets. Depreciating Indian rupee also helped the rise in prices,” he said.

Patnaik said Rs 38,800 and Rs 39,000 act as a strong crucial support level for gold, while, for silver, 45,900 and 46,200 will serve as support levels on the downside.

“What we are seeing right now is a bit of profit-taking coming in, but that doesn’t change the overall sentiment for gold,” Reuters quoted OANDA analyst Jeffrey Halley as saying. Spot gold may peak in a range of $1,546-$1,569 per ounce, said Reuters technical analyst Wang Tao.

(With inputs from Reuters)

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CBIC retires 22 senior officers on corruption charges

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Central Board of Indirect Taxes & Customs (CBIC) on Monday compulsorily retired 22 officers in the rank of Superintendent/AO following corruption charges and Central Bureau of Investigation (CBI) traps under Fundamental Rule 56 (J).

The move has come close on the heels of government sending home 27 high-ranking revenue officers on allegations ranging from harassment, bribe, extortion, and corruption.

The officers fired by CBIC include K.K. Uikey, S.R. Parate, Kailash Verma, K.C. Mandal, M.S. Damor, R.S. Gogiya, Kishore Patel from various central GST zones. They all were at the level of superintendent.

Finance Ministry sources said that the decision to sack corrupt tax officers is in line with Prime Minister Narendra Modi’s promise to clean up the tax administration so that honest tax-payers are not harassed.

In his Independence Day speech, PM Modi said, “some black sheep in the tax administration may have misused their powers and harassed taxpayers, either by targeting honest assesses or by taking excessive action for minor or procedural violations. We have recently taken the bold step of compulsorily retiring a significant number of tax officials, and we will not tolerate this type of behaviour.”

The latest batch of officers shown the door comprised those dealing with Goods and Services Tax (GST) and Customs from across various zones of the country. The Central Board of Indirect Tax and Customs (CBIC) has maintained that the tainted officers have been expelled from the service in the public interest.

It may be noted that 27 high ranking IRS officers including 12 officers from Central Board of Direct Taxes (CBDT) were compulsorily retired under Fundamental Rule 56(J) in June.

(With inputs from IANS)

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P Chidambaram latest: CBI court extends custody till August 30

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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There is no relief for former P Chidambaram in the INX Media case. The CBI special court on Monday extended custody of the senior Congress leader till August 30.

Earlier in the day, the Supreme Court quashed Senior Congress leader Cidamabram’s plea for anticipatory bail against the Central Bureau of Investigation (CBI) as infructuous.

Since Chidamabram has been under arrested since August 21, the plea is now infructuous, the apex court said.

Chidamabram is at liberty to move a regular bail application. Bail application, if filed, will be considered uninfluenced by the Delhi High Court order disallowing anticipatory bail and this SC order.

Chidambaram on Monday moved the Supreme Court, saying his plea challenging the trial court’s order remanding him to CBI custody in the INX Medica case has not been listed for hearing today despite the apex court’s direction on August 23.

Senior advocate Kapil Sibal, appearing for Chidambaram, mentioned the matter before a bench headed by Justice R Banumathi and said that during the hearing on Friday last, the court had said that the plea challenging the remand order would be taken up for hearing on Monday but it has not been listed for arguments.

Also read: CNBC-TV18 Explains: What is the INX Media case and why was Chidambaram arrested?

The bench told Sibal that Chidambaram’s plea will be listed for hearing after the registry gets necessary orders from CJI Ranjan Gogoi.

“The registry has some difficulty and we have to take orders from the chief justice,” the bench told Sibal.

Chidambaram’s pleas challenging the Delhi High Court’s August 28 order dismissing his anticipatory bail in the INX Media corruption and money laundering cases lodged by the CBI and ED are listed for hearing in the apex court on Monday.

With PTI inputs

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Will the AI jobs revolution bring about human revolt, too?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The rise of artificial intelligence threatens to eliminate jobs once considered impossible to automate. One series of papers by Oxford researchers ranks jobs by their estimated susceptibility to automation. Among those most rated likely to vanish – because they involve work that AI can increasingly accomplish less expensively – are real estate brokers, insurance claims adjusters and sports referees. Could anything good come of mass unemployment?

History tells us that when technology squeezes people out of jobs, they revolt. Industrialization in 19th-century England, for example, gave rise to Luddite activism. Unfortunately, history also suggests that protests of the marginalized don’t solve the underlying problem. The British Army suppressed the Luddites; the government passed laws to protect factory equipment and industrialization marched on. As Marx went on to theorize, in a capitalist society, the government is co-opted by the wealthy classes.

What happens, though, when that skilled upper class is itself put out of a job? That’s the question that mass AI-based unemployment would pose. What would happen when well-educated lawyers, journalists, bureaucrats, corporate managers and other creative-class knowledge workers can’t find work? Could the rise of AI lead to a white-collar rebellion?

Extremely capable AI

When I was a Ph.D. student in the mid-1990s working in a subfield of AI known as computer vision – the automated processing of imagery – I used to think that the grand challenge of the field was to develop software that could take an arbitrary image and output a text description of it. At the time, computers couldn’t tell if a photo contained a human face or a bowl of macaroni and cheese. It was a problem I didn’t think I would live to see solved.

Just two decades later, a combination of advances in hardware, big data, parallel processing and neural networks have made impressive headway. Not only are AI systems increasingly able to describe image content, they are gaining significant footholds in translating between languages, grading essaysand composing music. Modern AI systems are already conducting financial analysis, writing news articles and identifying legal precedents.

Old ideas that computers can’t do certain human things – be creative, express emotion, empathize – are being tossed out one by one. A visceral way to feel AI’s looming approach to human intelligence is to view the output from Google’s DeepDream, in which a trained neural network run in reverse produces eerie, dream-like images that seem genuinely creative and uncomfortably human.

It’s hard to overstate what this and related advances portend. Even technologists who made fortunes paving the way for the AI future have begun to sound an alarm. Elon Musk, the CEO of Tesla, whose self-driving car technology includes plenty of AI, has called AI humanity’s “biggest existential threat.” Bill Gates seems to think the crisis is self-evident, saying he doesn’t “understand why some people are not concerned.” And if futurist Ray Kurzweil is right, by 2045, computer intelligence will match or exceed human abilities in every way – what he calls the “singularity.”

Professionals plotting revolution

But the job apocalypse might have a silver lining. The Luddites of the 1800s were unsuccessful for a number of reasons: They were politically marginal. They were not well-organized. They misdiagnosed the problem as being either about the technology or their employers. And, at least in some tellings, they had little public support.

In contrast, those involved in a white-collar movement would have strong ties to influential people. They would organize effectively. They would understand the larger problem as an imperfect economic system whose pathologies technology merely amplifies. And, they would have the rhetorical skills to draw the sympathy of the public – who are likely to be themselves jobless, too.

Unlike other worker revolts, a white-collar rebellion could move the levers of power so as to uproot the underlying problem: a politico-economic system that concentrates wealth, increases inequality, protects corporations from public accountability and fails to separate wealth and state.

I expect the AI job takeover to pose a problem primarily because its benefits will go to the few who own the technology, while all the harm will fall on the rest of us. It is a political problem, not a technological one.

In my view, technology amplifies the inequities of capitalism. What AI will do is to turn nearly everyone into displaced workers, even some who were previously among the elite.

Kentaro Toyama, University of Michigan

(The Conversation is an independent and nonprofit source of news, analysis and commentary from academic experts.)

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Air India unlikely to receive immediate relief from government

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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State-run airline Air India is unlikely to receive any immediate relief from the government as the cash-starved company is struggling to run daily operations, sources told CNBC-TV18.

Air India, which has been receiving continues funding from the government since September 2018, is yet to use guarantees worth Rs 5,000 crore out of the Rs 7,500 crore provided by the government, according to the sources.

Oil marketing companies had last week stopped the supply of aviation turbine fuel to Air India at six airports due to non-payment of pending dues, CNBC-TV18 reported on August 23, citing sources aware of the development. The fuel supply has been stopped at the airports of Patna, Kochi, Vishakhapatnam, Pune, Ranchi and Mohali.

Dharmendra Pradhan, minister of petroleum and natural gas, told CNBC-TV18 that the OMCs are independently talking to the airline on the ATF supply issue.

Meanwhile, Air Inda said it has no equity support from the government in order to handle its huge debt liabilities. “Our financial performance however this fiscal is very good and we are moving towards a healthy operating profit. The airline despite its legacy issues is performing well,” Dhananjay Kuma, Air India spokesperson said on Friday.

As per the provisional figures of FY 2018-19, the total debt of Air India Ltd as on March 31, 2019, is Rs 58,351.93 crore.

In the union budget for 2019-20, the government had not given any substantial financial equity support to Air India and had said it will again initiate the process of its disinvestment.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Amrapali Group: Supreme Court clears decks for probe, directs special forensic audit report to be shared with ED, Delhi Police

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Supreme Court on Monday directed special forensic audit report of Amrapali Group to be shared with the Enforcement Directorate and Delhi Police.

The apex has ordered Noida and Greater Noida authorities to set up nodal cell for giving completion certificates to home buyers.

In May, forensic auditors told the Supreme Court that Rs 9,590 crore can be recovered from the embattled Amrapali Group which has diverted Rs 3,523 crore of home buyers money.

This a developing story, please check back later for updates.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

All you need to know about mutual funds last week

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The BSE Small-Cap index fell 3.2 percent over the course of this week. BSE defines small-cap as the 250 smallest companies in the BSE 500 index which itself is the 500 largest market cap companies in India. Historically, the BSE SmallCap 250 index has outperformed the benchmark Sensex, but with higher volatility i.e it rises and falls a lot more than the Sensex.

While the average returns for small caps are higher, have small caps delivered any “alpha”? Alpha, in investing, is defined as the ability of an investment to beat the market after adjusting for risk. Simply put does your investment have better risk-adjusted characteristics than the market?

Globally,  there has been evidence of small-cap alpha, first documented by Rolf Banz in 1981:

It is found that smaller firms have had higher risk-adjusted returns, on average, than larger firms.

The India evidence, so far, shows otherwise. We ran a monthly regression of BSE SmallCap 250 index returns against the BSE Sensex index returns. We find that the BSE SmallCap 250 Index has produced no alpha over and above the BSE Sensex index.

The evidence so far is not favouring smaller cap companies in India over their larger-cap brethren. If you are already invested in small-caps though, you should think about it as a lesson learned and wait to get out of your investment.

Don’t rush to sell, as a drawdown of 30 percent plus in the smallcap index may not be the right time to sell your investments. If you are feeling restless, spend some time reading (instead of placing orders)!

Nirmala Sitharaman, the Finance Minister, announced that the Government would rollback the enhanced surcharge levied on long and short term gains arising from the transfer of equity and shares. The higher tax surcharge on Foreign Portfolio Investors (FPIs) and Domestic Investors has been withdrawn. The higher surcharge will continue to apply for HNIs (high net-worth individuals).

The Finance Minister has also said that the corporate tax rate for companies with over Rs 400 crore turnover will be gradually cut to 25%. No timeframe has been specified for the same. In her maiden Budget last month, Sitharaman had cut the corporate tax for companies with an annual turnover of up to Rs 400 crore to 25% from the earlier rate of 30%.

In Conversations, we spoke with Mr Manish Banthia, Senior Credit Fund Manager who has been with ICICI Prudential AMC in several roles including fixed income trading, credit analysis and product development. We talked about current credit conundrum, how to select credit funds and the opportunities in this space going forward.

Thus far, while investing in credit risk funds, investors were largely looking at the overall Yield to Maturity (YTM) of a portfolio rather than the underlying risks in their investments.

Index returns

Source: BSE/NSE

Top 5 best performing funds

Source: Kuvera.in

Top 5 worst performing funds

Source: Kuvera.in

What investors bought

We saw the most inflows in these five funds:

Source: Kuvera.in

What investors sold

We saw the most outflows in these five funds:

Source: Kuvera.in

Movers & Shakers

1) UTI Mutual Fund has appointed Ankit Agarwal as equity fund manager and key personnel of UTI AMC, with effect from August 16.

2) Tata Mutual Fund has appointed Aurobinda Prasad Gayan as the key personnel at Tata Asset Management Ltd, with effective from September 9.

3) Canara Robeco Mutual Fund has announced that Achal Kumar Gupta, independent director, has retired from the board of directors of Canara Robeco Asset Management Co., effective August 22.

Quote of the week:

Before, you are wise; after, you are wise.

In between, you are otherwise.

– David Zindell

Gaurav Rastogi is the CEO of Kuvera.in, India’s first completely free Direct Mutual Fund investing platform.

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3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow