seen near 52/$ by Dec
NEELASRI BARMAN & PARNIKASOKHI
Mumbai, 21 September
The rupee, which ended at a four-and-ahalf-month closing high today,
is expected to strengthen further in the near term.
The Street expects it to hover near ~52 per dollar by end-December.
"The third round of quantitative easing (by the US Fed) and the start
of reforms will have a positive impact on the rupee. Besides, this
current account pressure is expected to be limited. Iexpect the rupee
to be around ~52-52.50 against the dollar by December," said Abheek
Barua, chief economist, HDFC Bank.
Today, the rupee opened at ~54.16 against the dollar, touching a high
of ~53.34 during the day and ending at ~53.47 compared with
yesterday's close of ~54.39. The government decision to cut
withholding tax on borrowing by Indian companies abroad, lowering the
borrowing cost for these firms, helped the rupee gain, dealers said.
The governments reform push is also expected to avoid a rating
downgrade.
"Rupee appreciation is mainly reflecting the positive sentiment of
investors towards the currency and the country. Any more reform
measures will add to the mood," said Hitendra Dave, managing director,
head of global markets, India at Hongkong and Shanghai Banking
Corporation (HSBC). He expects further appreciation of about one per
cent from current levels in case the slew of investor-friendly
measures continue to be announced.
JMoses Harding, head, economic and market research, IndusInd Bank,
concurred. "Now that the government has acted firmly on fuel price
rise and roll-out of the next round of financial reforms, the risk of
a sovereign rating downgrade is not relevant. The strong headwind from
the external sector in the form of availability of liquidity and a
near zero-interest rate regime till 2015 will address issues relating
to the balance of payment," he said.
Withholding tax cut helped the currency gain 1.7%
Thechangingfortunesofrupee
|After depreciating 26% in one year till end-July, the rupee has
strengthened 4% since |Market participants see rupee going up to
52/dollar by 2012-end |Currency seen gaining pace on the back of
durable inflows |Rupee gets support from additional liquidity due to
QE3 stimulus from USFed |Higher ECBs after relaxation in tax
obligation will support rupee REPORT CARD
Rupee perdollar
(inverted scale)
Withholding taxon foreign loans cutto 5%
BS REPORTER
New Delhi, 21 September
The finance ministry today said it has reduced tax on interest paid by
companies for foreign borrowings to five per cent from 20 per cent.
The ministry also gave approval to all borrowings fulfilling certain
conditions, in an effort to reduce the time lag in seeking approvals
for such loans. Earlier, it had said approval would be given on
case-to-case basis. The move would benefit companies looking to tap
cheaper funds from abroad.
Finance Minister P Chidambaram told reporters: "Instead of
case-to-case approval, we have laid down general conditions. Anyone
satisfying general conditions need not come to the government for case
to case approval." He said the step was taken to encourage overseas
borrowing as the rates were extremely low abroad.
The Finance Act, 2012, had provided that interest income of a
nonresident investor would be taxed at the reduced rate of five per
cent. Thus, the Indian company, while paying interest on money
borrowed in foreign currency, would be required to withhold tax at
five per cent and not 20 per cent. The relief has been provided on
borrowings made during July 2012 to June 2015. "With a view to lower
the compliance burden and reduce the time lag, which would arise on
account of case-by-case approval, the government has decided to grant
approval to all borrowings by way of loan agreement and long-term
infrastructure bonds that satisfy certain conditions," the finance
ministry said in a statement.
A finance ministry official said it usually takes about two to three
weeks to seek approval for such borrowings.
With this relaxation, a company can directly go for overseas
borrowing, taking advantage of lower rates.
For availing the tax benefit, the finance ministry has laid down
conditions that in case of long-term infrastructure bonds, the end-use
of the proceeds of such issue should be for the infrastructure sector
as defined by the Reserve Bank of India under its external commercial
borrowing regulation.
REFORM RUSH
Govtoutlines RajivGandhi Scheme; allows MFs, ETFs
BS REPORTERS
Mumbai/New Delhi, 21 September
Finance minister P Chidambaram today approved and outlined the details
of the Rajiv Gandhi Equity Savings Scheme (RGESS), which was proposed
in this year's Budget for providing income tax benefit for first-time
capital market investors.
The scheme is exclusively for first-time retail investors with annual
income of below ~10 lakh. The maximum investment permissible under the
scheme is ~50,000 and the investor would get a 50 per cent deduction
of the amount invested from the taxable income for that year.
RGESS, conceptualised by the capital market division of the finance
ministry, has been predominately designed for encouraging direct
investment into equities. However, the government has also included
investments routed through exchange traded funds (ETFs) and mutual
funds (MFs) following requests from various stakeholders.
"The scheme not only encourages the flow of savings and improves the
depth of the domestic capital markets, but also aims to promote an
equity culture in India. It is also expected to widen the retail
investor base in the Indian securities markets," said a press note
from the finance ministry.
"The penetration of investment in equities is very low in India, this
initiative will help overcome this," Sanjiv Shah, co-chief executive
officer, Goldman Sachs Asset Management, said Investments made in the
top 100 listed stocks (BSE 100 and CNX 100) and public sector
undertakings (Navratnas, Maharatnas and Miniratnas) would be eligible
under the scheme. ETFs and MFs with these stocks as underlying will
only be eligible.
In order to help achieve the disinvestment target, the government has
said investments in follow-on public offerings of the above companies
and initial public offerings of PSUs with turnover of more than ~4,000
crore would also be eligible under this scheme.
The scheme will be only open to new retail investors, who will be
identified on the basis of their PAN numbers. First-time investors who
have opened their demat accounts but have not yet transacted will also
be eligible.
Similar to other tax-saving schemes, investments through RGESS also
will have a threeyear lock-in but investors will be allowed to trade
in the securities after the first year.
Investors would, however, be required to maintain their level of
investment during these two years at the amount for which they have
claimed income tax benefit or at the value of the portfolio before
initiating a sale transaction, whichever is less, for at least 270
days in a year.
The government has said that the tax benefit will be withdrawn if an
investor fails to meet the conditions stipulated for the scheme.
Market experts said the scheme will be beneficial for the stock market
but at the same time added that it was quite complicated from
afirst-time investor's point of view.
"The intentions look good but at first glance the scheme looks very
complex," said Gautam Mehra, executive director (banking regulations
&asset management), PwC. "A first time stock market investor may not
have the level of sophistication needed to understand the scheme."
"There are still too many uncertainties," said Jimmy Patel, chief
executive officer, Quantum AMC. "There is no clarity whether existing
mutual fund investors will be eligible. Also, whether both openended
or close-ended MF schemes will be allowed. It will be very complicated
for the government to monitor this scheme." The government has said
the scheme has already been incorporated as a new Section -80CCG - of
the Income Tax Act, 1961, as amended by the Finance Act, 2012. The
department of revenue is likely to notify the scheme soon and market
regulator Sebi will be issuing relevant circulars to operationalise
the scheme in the next two weeks.
The scheme is exclusivelyfor first-time retail investors with annual
income of below~10 lakh
--
.
-
CS A RENGARAJAN,, B.Com ,FCS, LLB, PGDBM
Company Secretary, Chennai
email csarengarajan@gmail.com
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