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Sunday, January 12, 2020

economic news of india - world economic news - economics news for students - indian economy news

economic news of india - world economic news - economics news for students - indian economy news


Walmart India sacks a third of its top execs, more to go in April

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Mumbai | New Delhi: Loss-laden Walmart India is in turmoil as the world's largest retailer is in the process of sacking about a third of its top executives based at local headquarters in Gurgaon, according to people aware of the development.Walmart announced the layoffs of more than 100 senior executives including vice presidents across sourcing, agri-business and the fast-moving consumer goods (FMCG) divisions at a townhall on Friday. It also plans to shut the Mumbai fulfilment centre, its largest warehouse, and halt new-store expansion in India.Profit has eluded Walmart in India with tepid sales growth more than a decade after entering the country. The real estate team responsible for new store locations has been disbanded, according to the people mentioned above.Walmart India didn't comment on the number of people laid off or store plans but said it remains committed to growing in India. "We are always looking for ways to operate more effectively to serve our members. This requires us to review our corporate structure to ensure that we are organised in the right way to best meet the needs of our members," a Walmart India spokesperson said. "Impacted associates have been offered enhanced severance benefits and outplacement services to support their transition."More people will probably have to leave later in the year. "This is the first phase of layoffs and we expect the next round by April," said one of the persons cited above.Three persons aware of the development said Walmart sees no future in its brick-andmortar cash-and-carry business in the country and the downsizing is either a precursor to selling it or consolidating operations with Flipkart's backend. 73220253 But Walmart, which acquired ecommerce marketplace Flipkart in 2018, said it had no plan to exit the wholesale segment. "This is completely baseless and false," said its spokesperson."Walmart remains deeply committed to growing its cash-and-carry business in India and is making deep investment in technology to cater to its members' need through brick-and-mortar and ecommerce."Mandate to Turn Around or Face Scaledown"The parent company has given a mandate to either turn around the business or face a massive scaledown," said another person aware of Walmart's plans.Walmart India's Best Price stores had accumulated losses of Rs 2,180.8 crore until March 2019. In the last fiscal year, Walmart India posted sales of Rs 4,095 crore and a net loss of Rs 171.6 crore. Rival Metro, which entered India in 2003, is the market leader in the segment with 27 stores and revenue in excess of Rs 6,500 crore.The Tata Group had held discussions on buying Walmart's wholesale business but found it unviable in the current form.The cash-and-carry business involves wholesale sales to small neighbourhood stores, hotels and catering firms. The world's largest retailer acquired Flipkart for $16 billion in 2018 to gain access to India's $670 billion retail market.Walmart's cutback comes as Flipkart has announced its entry into food retail in India. Flipkart FarmerMart will sell locally produced items online and can also sell through physical stores later. India allows 100% foreign direct investment (FDI) in food retail for locally manufactured items. Food is the only segment in which etailers are allowed to sell directly to consumers. The government has asked ecommerce firms to keep food-only retailing ventures at arm's length from flagship marketplaces by maintaining separate boards, staff, bank accounts and inventories."While they will have to figure out synergies and efficiencies between both companies, they will have to keep the regulatory framework in mind. There will be overlap and commonality which will be merged over time," said Devangshu Dutta, chief executive officer at consultancy firm Third Eyesight. "Walmart still has a small presence in India which is a nascent market but will keep growing for several decades."Walmart entered India in 2007. It partnered with the Bharti Group in the wholesale business, then bought out its partner's 50% stake. It terminated franchise and supply agreements related to Bharti's retail business in 2013. Walmart's store expansion was put on hold between 2012 and early 2015 amid an internal probe to check if its local unit had in any way violated the US Foreign Corrupt Practices Act that penalises American companies for bribery and other such wrongdoing overseas.

Tata Trusts' tax tussle is about to get ugly

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MUMBAI: The income tax (IT) department will likely tell the income tax appellate tribunal (ITAT) that six Tata Trusts wrongfully invested in shares of private companies and acted in breach of the object and purpose specified in their respective trust deeds, said people with knowledge of the matter. The appeal by the trusts against the department, which cancelled their registrations in October last year, is likely to be heard next month.The trusts will argue that they were not in violation of the trust deed and had themselves surrendered their registrations in March 2015, said people aware of the matter. Soon after this, the I-T department had issued a showcause notice (SCN) proposing to cancel registrations. The trusts had agreed. The trust sources said this showcause notice was never acted upon by the tax department.The I-T department's case is strong in law, countered an official. "The law very clearly states that a registration cannot be surrendered — it has to be cancelled," he said.The six entities are the Jamsetji Tata Trust, RD Tata Trust, Tata Education Trust, Tata Social Welfare Trust, Sarvajanik Seva Trust and Navajbai Ratan Tata Trust. They together hold 39,000 shares of Tata Sons, said one of the persons cited above.73220507 Concerns Over Trustees' RoleWhile the Tata Trusts as a whole owns 66% of Tata Sons, the six entities have less than 10%. The main shareholding trusts are the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust which are not parties to this case.Section 11(5) of the I-T Act covers investments or deposits by a trust that has sought exemption under the act, said an official. Section 13(1)(d), which was amended in 2014, clearly states that one of the conditions attached to I-T Act registration is that a trust can't own shares of a company, unless it held them as of June 1, 1973. "The said sections prohibit holding of shares of a company. However, the Tata Trusts holds a sizeable chunk of the Tata Sons shares... This doesn't amount to charity as defined in the I-T Act," said an official cited above. The thinking behind the 2014 amendment is that trusts engaged in charity should not hold and thus earn from shares of private companies.The July 2019 show-cause notice from I-T department clearly states that trusts created for charitable purposes are being used to control a large business group through Tata Sons, said another person."Clearly, this is not the intention of the trust deed," said the official. "There is a larger concern here on the alleged failure of the fiduciary duties of the trustees who allowed investments in prohibited modes. They have a lot of answering to do. However, this is something the office of the Charity Commissioner has to deal with."Since the current provisions of the I-T Act don't deal with the role of trustees, the department has only elaborated on the role of the trusts, the official said."In the event the ITAT order goes in the department's favour, action in terms of demand notice will be against the trusts and not the trustees," he said.On alleged delayThe department will also argue it acted at the "appropriate time" and that there was no delay on its part."Even the so-called surrendering of the registration by the trusts in 2015 was not voluntary but these trusts were forced to do so after an unfavourable March 2014 order of the ITAT which found them in violation of certain provisions," said another of the persons cited above. "The trusts even went to the Bombay High Court when the next round of notices were issued by the department. However, by late 2018 they withdrew the petition."The department then sought a legal view on the matter. In December 2018, it received a communique from the Comptroller and Auditor General (CAG) seeking an update on the action taken following adverse findings against the trusts."A decision was taken to revisit the case and accordingly a fresh showcause notice was issued in July 2019 and subsequently the registrations were cancelled in October 2019," added the official.Tata Trusts' response"Insofar as cancellation of registration is concerned, the six trusts had themselves surrendered their registrations in March 2015," a spokesperson for the trusts said in an email. "Soon thereafter, the I-T department had issued a show-cause notice proposing to withdraw/cancel the registrations. The trusts have not received any explanation as to why this 2015 notice (to which the trusts had agreed) was not acted upon. The real issue is not the reasons, but when the registration stood cancelled/withdrawn. It is the trusts' case that it happened in 2015 itself."The person said the trust deed had not been violated."Such allegation is based on an argument that the trusts were obliged to maintain their registration under the I-T Act," the spokesperson said. "Such an argument is conceptually wrong because I-T registration is not compulsory for a trust to carry out its charitable work. The trusts do not derive their charitable identity from the I-T Act. Seeking I-T Act registration is an option, not an obligation."Top officials close to the issue said the I-T department has also pointed out that in the last few years 85% of income was not spent on charity as required. This was countered by the trusts' spokesperson."The Tata Trusts' annual spend budget has been at least 85% of the inflow. In recent years, the trusts have, in fact, applied more than the year's inflow as application towards the objects of the trusts," the spokesperson said.

7 money myths you should never believe

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Planning your finances can be akin to negotiating a minefield, of money myths. Over the years, we have systematically busted one myth at a time to make the life of you, the investor, easier. However, the rot of misinformation run so deep that even some personal finance professionals spout fallacies without realising how wrong they are. In this week's cover story, we tackle seven misconceptions about money that if ignored, can jeopardise your finances. From telling you why not all long-term loans are bad to how much of risk you ought to be taking; from looking beyond just the monetary aspect of retirement planning to pointing to the dangers of over dependence on your financial adviser; from hammering home the point that SIPs do not make your investment risk free to why it is not necessary to budget for every paisa; we tackle the harmful myths doing the rounds to ensure a secure future for you.Myth 1: Pay long duration loans firstA common trait among many finance professionals is to recommend paying off of long duration loans quickly to save on interest costs. While on the face of it the logic appears sound, the folly lies in not considering the time value of money. What the financial advisers are doing is equating the interest saved now with interest saved after say a decade.The fallout of such advice is people continue to service high-cost short-term loans like personal loans while prepaying low-cost long duration loans like housing loans. "Instead of paying long duration loans blindly, borrowers must compare the net cost of borrowing— after considering taxes— and repay the most expensive loans," says Rohit Shah, Founder & CEO, Getting You Rich. Tanwir Alam, Founder & CEO, Fincart agrees. "If you consider tax benefits, the real cost of a housing loan will be less than 6% for people in the 30% tax bracket. It is a mistake to repay that and not the personal loans, which cost much more," he says.This argument makes immense sense to home loan borrowers. A home loan of Rs 50 lakh at 8.5% can be made tax efficient by taking the loan in two names—of the husband and wife. Due to tax benefits under Sec 80E and the reasonable cost structure, an education loan is another long duration good loan that borrowers should not rush to repay (see table).Irrespective of tenure, prepay most expensive loans firstEffective cost of different loans 73201024 Should you prepay loans or invest the amount elsewhere? "Consider investment over repayment if the post-tax investment return is higher than the tax adjusted cost of loans," says Alam. Returns of tax-free products like PPF are higher than tax adjusted costs of home or educational loans (see table).If investment returns are higher, let loan run and invest elsewhereEffective return of different investments 73201039 Though equity investments may generate better post-tax returns, they have not been considered as returns are not guaranteedDue to impact of 4% cess, effective slabs now are 20.8% and 31.2%Myth 2: Risk is not for the middle classThis myth warns the middle class to avoid risk at all cost. However, shunning risk now can have serious repercussions in future. This is because this income group has limited resources and will not be able to meet goals by relying on low risk and low yielding debt products alone. In other words, investors from this group must park a part of their portfolio in growth assets like equities that can generate higher returns. "People with limited resources can't afford to ignore equity. Else, inflation will eat into their corpus. The only question is how much this equity allocation should be," says Suresh Sadagopan, Founder, Ladder7 Financial Advisories.On the other hand, high net worth individuals (HNIs) can ignore equities and remain fully invested in debt if they want to, without affecting their goals. Let us assume the higher education goal of two children– one from an HNI family and another from a middle class family. After 20 years both will need a corpus for a two-year course that costs Rs 25 lakh now. If inflation remains at 6% per annum, the required amount will be Rs 80.18 lakh. The HNI family can make an upfront investment of Rs 25 lakh in safe products like debt funds, which can generate a CAGR of 7%. The return will be enough to meet the goal. However, a middle-class family, if it tries to achieve this goal through a safe route, will be forced to invest much more. To accumulate Rs 80.18 lakh after 20 years at 7% return, the family must do a monthly SIP of Rs 15,392. The SIP amount can be Rs 8,105 if the product can generate a return of 12% per annum, which is possible from equities.Middle income investors will find it difficult to reach goals if they avoid investing in equities out of fear.Why HNIs can remain invested in debt alone 73201074 For middle income group cost is much higher 73201079 Taxability ignored for simplicityMyth 3: In the long term, sips are risk freeWhile all finance professionals say SIPs average out investments and thereby reduce risk, some go overboard and try to project SIPs as the weapon to eliminate risk altogether. "SIPs will never able to eliminate risk because it is just a tool and not a product," says Amol Joshi, Founder, PlanRupee Investment Services. Though SIPs can be done for any asset class like equity, debt, gold, etc., most investors use it for equity funds. "Equity returns will never look linear, whether the investment is done through SIPs or one time. A casual look at the last 20-year returns will show a few good, bad and average years," says Alam.Since the returns from a few good years will compensate for the bad years, equity investors end up getting decent historical average returns. However, long term SIP investments can also give negative returns if the stock market remains in a bear grip over a very long time. Despite long term SIPs, returns were negative when the market hit rock bottom between 2001-03 (see chart).SIPs can generate negative returns if stock market goes into a prolonged bear phase 73201092 This is not an attempt to undermine the importance of SIPs. On the contrary, SIPs are an important tool for every investor. Only the myth that SIPs make equity investments risk-free needs to go. In addition to averaging purchases, SIPs are suitable for people who earn regular monthly income as it helps them coincide their earnings with investments.Myth 4: Retirement planning is all about moneyThis myth grew as discussions about retirement planning centred around creating the retirement corpus. While most people underestimate the longevity risk or the risk of surviving long years and exhausting the retirement corpus, creating an adequate corpus that will last till the end is the corner stone of retirement planning. However, retirement planning should also take care of several other issues.Time in hand is the biggest asset (or liability) in retirement, depending on which way you look at it. "Since retired life can stretch to 30-40 years, you need to balance the money part with other activities. Use a part of the free time to revive hobbies, rejuvenate the friends' circle and spend time on social responsibility etc," says Joshi. Sadagopan agrees with him. "We ask clients to treat retirement as a new innings and think about the non-financial aspect too," he says.Managing health related issues is the next big task in retired life. Retirement planning should be split into two parts— the time till you expect to maintain reasonable health and beyond. Retirement planning should also have a clear plan in place for the second stage when you require support. If you are not sure of the support of your children, it is better to identify retirement homes from now itself. What should be the criteria while selecting retirement homes? "While selecting retirement homes, basic facilities like medical care, etc. needs to be fulfilled. However, the final decision should be based on location," says Anil Lobo, India Business Leader – Retirement, Mercer.Myth 5: The family budget needs to be detailedWe tend to avoid seemingly complicated tasks and budgeting is one of them. The myth about must having a detailed budget in place needs to go. Not creating a budget because you can't make a detailed one is foolish. There is nothing to stop you from creating a family budget with broad guidelines. "Budgeting doesn't mean that you have to write down everything. Treat budgeting as a broad framework and split the outflows into three buckets—expenses, repayments and savings," says Joshi. What is there in each bucket will vary depending on life stages and income levels. For example, expenses will be less than 1/3 for families with very high incomes. Similarly, the repayment buckets will be empty for people without any loans.Split your outflow budget into 3 broad categories for better controlFamily budget for outflowsBucket 1: ExpensesBucket 2: RepaymentBucket 3: Savings & investmentsTo identify how much should be in each bucket, identify your broad expenses first. "Identifying expenses is not that difficult and if the husband and wife sit together, they will be able to do it in 15-20 minutes," says Sadagopan. This is because most monthly expenses like electricity bill, telephone bill, etc are paid online and therefore, easy to track. Most groceries and other household expenses are bought using credit cards now and trail is available there too. What they need to discuss and finalise is a budget for discretionary expenses like eating out, movies, etc. and annual expenses like travelling, etc. While budgeting, one also needs to make provisions for random expenses like replacing appliances that may come up during the year.Myth 6: Straying from budget will upset financial plansIf you repeatedly fail to stick to your budget, you will impact your long-term goals. However, budgets are broad guidelines and overshooting every few months is normal. If there is a budget breach, find out from which bucket you have spent excess from. For example, meeting your sudden urge to buy a smartphone by giving up on the annual travel plan is fine. However, there would be a problem if you bought the phone by breaking into investments for critical goals like your kid's education or your retirement planning.A budget breach can also happen because of sudden and necessary expenses. For example, you want to gift a gold chain for your relative's marriage because she did the same for your marriage. You can dip into the emergency fund for situations like this. "The emergency fund is not just for bad things like hospitalisation and loss of job. It can also be used for other necessary expenses that come up suddenly," says Alam. However, make sure you don't touch the emergency fund for expenses that can be postponed, like buying a smartphone.If the emergency fund is not enough, you can also manage immediate cash flow stress by stopping SIPs for a few months and restarting it later. For example, stopping SIPs for a few months will be a much better option than making cash withdrawals from a credit card. However, some people are reluctant to restart a stopped SIP and this behaviour can create problems for long term goals. If you are in this category, you need to make your budgets flexible. "Leave some cushion in the budget itself and don't over commit with your monthly SIP amounts," says Vikram Dalal, Managing Director, Synergee Capital Services.Myth 7: The financial adviser will take care of it allMost investors assume that once they hire an adviser, their financial planning related work is over. What investors should understand is that planning is just the starting point and not the end. "We take clients' input in everything and explain the possible scenarios to them. After that, it is their decision," says Sadagopan. It is also not safe on the part of investors to blindly trust advisers. Investors should always remember the 'caveat emptor' rule. "Investors handing over the logistic part to the adviser is fine, but they need to keep the decision-making part with them," says Shah. Please note that appointing someone as your financial adviser itself is a big decision and you have to do proper due diligence. Even after that, investors need to drive the engagement with the adviser and keep questioning them. As per the Sebi RIA rules, active involvement from the client is compulsory.

Phone? Discount days may not be far off

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NEW DELHI: In a bonanza for consumers, India's top five handset brands are about to clear their online and offline channel inventory with heavy discounts and attractive schemes on smartphones. The inventory has been particularly galling for the offline channel and will continue till March-end in the market analysts said.Xiaomi, Realme and Samsung, which play both in the online and offline space, haven't been able to clear inventory of old models in the October-December quarter while they continue launching new devices, industry watchers said. They added that Vivo and Oppo, who play mainly in the offline segment, also face similar issues but to a lesser extent.Xiaomi and Realme denied facing any inventory pile-up issues. Samsung, Oppo and Vivo did not respond to ET's queries."There have been inventory levels throughout the past few quarters across channels and brands. This inventory is expected to continue to the last quarter," Upasana Joshi, associate research manager, Client Devices, IDC, told ET. She said that inventory issue is a worry round the year with many brands immediately announcing price drops in a months' time after new product launches. "…offline sales will remain muted owing to heavy aggression by online platforms in terms of deep discounting, offers and cashbacks." 73220388 Counterpoint Research's associate director Tarun Pathak said there was an inventory pile up, but the situation was better than last year. "Most of the top five brands were cautious about their sell-in this year and were watching the situation closely," he added.Pathak added that handset brands with good online exposure are better poised to get rid of inventory, but brands with offline inventory will face challenges. "If there are older models that didn't sell well, then they undergo price cuts to get rid of their inventory. The price cut procedure is easier for online brands like Xiaomi and Realme to take and to get rid of the inventory as compared to the ones in offline space," he added.Muralikrishnan B, chief operations officer at Xiaomi India, however said that the brand today has the lowest level of inventory in the last several quarters and in fact, it is trying to further scale up supply and manufacturing to meet demand.Realme India CEO Madhav Sheth too denied any inventory pressure and said that the brand always prepared its stocks based on the consumer demands. "Our previous models were also sold out in a shorter time."IDC's Joshi said that the festive quarter, which accounts for majority shipments in a year, registered highest ever smartphone shipments in third quarter. But the actual sell-out was "quite slow," leading to a further rise in inventory levels in the upcoming quarters of Q4 2019 and Q1 2020. "Thereby the vicious circle continues throughout the year and further transfers to next year beginning as well."Industry executives said that the smartphone ecosystem needs to align itself to clear off these piling inventories by offering attractive channel schemes, especially offline, price drops by brands on older line-up and attractive consumer schemes like cashback offers, No cost EMI, buyback options etc to fill newer stocks in the market."Offline has got more inventory levels since online has stressed offline already. Some of Xiaomi's partners are stressed since the brand launched new devices like Note 8 pro but didn't provide clarity on existing inventory of old models," a senior industry executive familiar with the matter said. "The brand offered discounts on various models, including K20 Pro".The person added that Samsung's inventory issue has become "severe", with a vacuum created by delayed launch of Galaxy A series and the brand couldn't clear existing A series, which helped Chinese brands during the festive season.Samsung has started blacklisting retail partners that are selling its online exclusive devices in the offline space.

Reliance HFC gave Rs 12,000 crore loans to 'indirectly linked' borrowers: Audit

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NEW DELHI: Reliance Home Finance, part of the Anil Ambani-led Reliance Group, granted loans worth about Rs 12,000 crore to a set of "potential indirectly linked" borrowers that had weak financials and shared common features, according to a forensic audit carried out by Grant Thornton, several people aware of the matter said.The forensic auditor found "anomalies" in the credit appraisal process of the home financier and noted that more than 80% of disbursals comprised corporate loans to a group of 47 borrowers that shared these common characteristics, according to these people. This included similar registered addresses, common directors and key management personnel.The company's exposure to corporate loans was purportedly in violation of regulatory guidelines that prescribe limits for non-housing disbursement as per the forensic auditor's findings, said the people cited above.Reliance Home said it had cooperated fully with the investigation and had revealed all information voluntarily.The auditor also found that eight of the 47 were "related parties" of Reliance Group companies Reliance Power and Reliance Infrastructure Ltd prior to disbursal of loans worth Rs 1,300 crore. 73220574 Low Paid-up CapitalJust before the loans were disbursed however, the shareholding pattern of these eight companies changed. The eight were RPL Solar Power, RPL Star Power, RPL Surya Power, RPL Aditya Power, Worldcom Solutions, Hirma Power, Jayankondam Power and Reliance Cleangen.The auditor also found instances where loans granted to the group of 47 borrowers eventually found their way back to Anil Ambani group companies through onward lending, according to these people. Many of these corporate borrowers were incorporated recently and loans were disbursed to them within days or months of their incorporation.The group of 47 borrowers identified by Grant Thornton have to repay around Rs 7,900 crore to Reliance Home Finance, according to the sources. Around Rs 2,700 crore of these loans have already been declared as nonperforming by the home financier.Many of the borrowers have minimal or negative net worth and low paid-up capital. The paid-up capital of the borrowers ranged from Rs 10,000 to Rs 12 lakh, but they were given loans exceeding Rs 100 crore in some cases, as per the people aware of the auditor's findings.The auditor also found that prudential norms were not followed while disbursing loans to the specified group of corporate borrowers that had shared characteristics, these sources said.Transparent Disclosures: Reliance HomeA Reliance Home Finance spokesperson said the company had voluntarily and publicly disclosed this information even before the commencement of the probe to its auditors, regulators, lenders and also in the latest annual financial statements."As can be noticed from your query above mentioning around Rs 12,000 crore disbursed to alleged group entities, only around Rs 7,984 crore (including interest) is outstanding," the spokesperson told ET in an email. "Clearly, a large amount of over Rs 4,000 crore has already been repaid."The company also informed the stock exchanges through a late evening notification on Sunday that "no adverse findings" were reported by Grant Thornton in the forensic audit.The audit was commissioned by a consortium of more than 20 banks led by Bank of Baroda that are owed money by Reliance Home Finance."We have received the final report and have called a lenders' meeting on January 16 to discuss the same," Bank of Baroda executive director Murali Ramaswami told ET. Banks that have loaned money to the home financier have outstanding dues of over Rs 10,000 crore.Grant Thornton declined to comment, citing client confidentiality clauses.Reliance Home Finance further said that the funds disbursed were used for debt servicing of other group companies."The company had also disclosed transparently that the enduse of such group exposure was for their debt servicing. Such disclosure was made even before the commencement of forensic audit, to its auditors, regulators, lenders, and also in the latest annual financial statements which were duly approved by the shareholders," the spokesperson said.The company official further said that Reliance Home Finance had cooperated fully in the investigation. "Observations on regulatory anomalies in the forensic audit had already been reported to the National Housing Board (NHB)," the company's statement read. It also stated that penalties had been imposed by the regulator for these.Lenders plan legal actionThe lenders are now considering legal options based on the findings of the forensic audit though a decision will only be taken on Thursday, according to several people aware of the matter.They are also to decide on the course for resolution of the company's outstanding loans. The options being considered by banks include plans to find an investor to infuse capital in the company or taking it to the National Company Law Tribunal (NCLT). The second option will require a regulatory nod.Reliance Home Finance's credit rating was downgraded to 'D' or default status by CARE Ratings in September. The company, which held an initial public offering (IPO) two years ago, informed the stock exchanges in June that auditors Price Waterhouse & Co. had resigned prematurely citing certain "observations/transactions" that if not resolved satisfactorily could be "significant or material" to the financial statements of the company.The company had said in its defence that it disagreed with "the reasons given by PwC for their resignation." The auditor had declared that it didn't receive information sought on the transactions and asserted that an audit committee meeting was not convened in time to address its queries despite repeated requests.Subsequently Dhiraj & Dheeraj, appointed by Reliance Home Finance to replace PwC, issued a qualified opinion on the company's financial statements for the year ended March 2019 and noted that it had found "significant deviations" in the corporate loan book of the company. It also noted that there had been a material shift in business from housing finance to non-housing finance.

ITAT hearing on Trusts’ appeal likely in February: I-T Dept may argue 6 Tata Trusts owning shares in cos wrong

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MUMBAI: The income tax (IT) department will likely tell the income tax appellate tribunal (ITAT) that six Tata Trusts wrongfully invested in shares of private companies and acted in breach of the object and purpose specified in their respective trust deeds, said people with knowledge of the matter. The appeal by the trusts against the department, which cancelled their registrations in October last year, is likely to be heard next month.The trusts will argue that they were not in violation of the trust deed and had themselves surrendered their registrations in March 2015, said people aware of the matter. Soon after this, the I-T department had issued a showcause notice (SCN) proposing to cancel registrations. The trusts had agreed. The trust sources said this showcause notice was never acted upon by the tax department.The I-T department's case is strong in law, countered an official. "The law very clearly states that a registration cannot be surrendered — it has to be cancelled," he said.The six entities are the Jamsetji Tata Trust, RD Tata Trust, Tata Education Trust, Tata Social Welfare Trust, Sarvajanik Seva Trust and Navajbai Ratan Tata Trust. They together hold 39,000 shares of Tata Sons, said one of the persons cited above.73220507 Concerns Over Trustees' RoleWhile the Tata Trusts as a whole owns 66% of Tata Sons, the six entities have less than 10%. The main shareholding trusts are the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust which are not parties to this case.Section 11(5) of the I-T Act covers investments or deposits by a trust that has sought exemption under the act, said an official. Section 13(1)(d), which was amended in 2014, clearly states that one of the conditions attached to I-T Act registration is that a trust can't own shares of a company, unless it held them as of June 1, 1973. "The said sections prohibit holding of shares of a company. However, the Tata Trusts holds a sizeable chunk of the Tata Sons shares... This doesn't amount to charity as defined in the I-T Act," said an official cited above. The thinking behind the 2014 amendment is that trusts engaged in charity should not hold and thus earn from shares of private companies.The July 2019 show-cause notice from I-T department clearly states that trusts created for charitable purposes are being used to control a large business group through Tata Sons, said another person."Clearly, this is not the intention of the trust deed," said the official. "There is a larger concern here on the alleged failure of the fiduciary duties of the trustees who allowed investments in prohibited modes. They have a lot of answering to do. However, this is something the office of the Charity Commissioner has to deal with."Since the current provisions of the I-T Act don't deal with the role of trustees, the department has only elaborated on the role of the trusts, the official said."In the event the ITAT order goes in the department's favour, action in terms of demand notice will be against the trusts and not the trustees," he said.On alleged delayThe department will also argue it acted at the "appropriate time" and that there was no delay on its part."Even the so-called surrendering of the registration by the trusts in 2015 was not voluntary but these trusts were forced to do so after an unfavourable March 2014 order of the ITAT which found them in violation of certain provisions," said another of the persons cited above. "The trusts even went to the Bombay High Court when the next round of notices were issued by the department. However, by late 2018 they withdrew the petition."The department then sought a legal view on the matter. In December 2018, it received a communique from the Comptroller and Auditor General (CAG) seeking an update on the action taken following adverse findings against the trusts."A decision was taken to revisit the case and accordingly a fresh showcause notice was issued in July 2019 and subsequently the registrations were cancelled in October 2019," added the official.Tata Trusts' response"Insofar as cancellation of registration is concerned, the six trusts had themselves surrendered their registrations in March 2015," a spokesperson for the trusts said in an email. "Soon thereafter, the I-T department had issued a show-cause notice proposing to withdraw/cancel the registrations. The trusts have not received any explanation as to why this 2015 notice (to which the trusts had agreed) was not acted upon. The real issue is not the reasons, but when the registration stood cancelled/withdrawn. It is the trusts' case that it happened in 2015 itself."The person said the trust deed had not been violated."Such allegation is based on an argument that the trusts were obliged to maintain their registration under the I-T Act," the spokesperson said. "Such an argument is conceptually wrong because I-T registration is not compulsory for a trust to carry out its charitable work. The trusts do not derive their charitable identity from the I-T Act. Seeking I-T Act registration is an option, not an obligation."Top officials close to the issue said the I-T department has also pointed out that in the last few years 85% of income was not spent on charity as required. This was countered by the trusts' spokesperson."The Tata Trusts' annual spend budget has been at least 85% of the inflow. In recent years, the trusts have, in fact, applied more than the year's inflow as application towards the objects of the trusts," the spokesperson said.

View: Technical setup suggests smallcap & midcap rally ahead

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BY SANDEEP PORWAL TECHNICAL AND DERIVATIVES ANALYST, ASHIKA STOCK BROKINGWhere we are: The last couple of weeks remained action-packed as market participants saw an unusual rise in volatility. Yet again, the level of 12000 acted as a strong support. Despite a sharp fall, the index managed a close above the key level and traded higher. The short-lived pullback followed by a sharp rally indicates a tussle between the bulls and the bears. Nifty PSU Bank and Nifty Energy were key underperformers in the week gone by while Nifty Realty bucked the downtrend and topped the charts. In this phase of uncertainty traders/investors lapped up small-cap stocks too; this index had shown relative strength in the week gone by.What is in store? The level of 12300 continues to remain a strong resistance as multiple attempts by bulls to surpass it failed for the last four weeks. However, sharp reversal from the intermediate lows indicates bias turned bullish; in the event of a close above the 12300-12350, we are likely to see an extension of a rally. Nifty Bank is trading above its 20 & 50 DMA, which are placed at 32070 & 31540, respectively. Thus, expect a follow-up buying up to the level of 32610 in the coming trading sessions.What could investors do? The technical setup suggests that long-awaited small and midcap rally may take place. Thus, one can look to add quality stocks from the respective space. We recommend the addition of longs in M&M, Exide, Apollo Tyres and Shoppers Stop while sell on the rise is advised in RIL.

D-Mart on course to being cash surplus, how it spends will be key

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ET Intelligence Group: Improving cash profits and a weak property market are twin tailwinds for Avenue Supermarts to step up its expansion plans.The operator of the D'Mart chain has been increasing its store count by 20-25 every year, but with increasing base and higher number of stores reaching maturity, the company will need to intensify its rate of store addition.In the first nine months of FY20, it added 20 stores taking its total count to 196 at the end of 2019 and the last quarter is usually the quarter where it adds maximum stores. In the previous fiscal, it added only nine stores in the first nine months and 12 in the last quarter. To sustain a high growth run rate, stores would have to be added faster. Most of the stores are owned by the company. The promoter recently bought an 8.8-acre land parcel for 500 crore in Borivali, a suburb in Mumbai.In the December quarter, it reported year-on-year revenue growth of 24.4 per cent and operating profit growth of 33 per cent to Rs 6,809 crore and Rs 597 crore respectively. This was in line with broad expectations. Operating profit margins jumped 600 basis points to 8.8 per cent, marginally below estimates. But thanks to the downward revision in the corporate tax rates,its net profit grew by 55.4 per cent to Rs 384 crore,. Adjusting for depreciation, the retailer made Rs 480-crore cash profit in the quarter. 73220767 At this rate, the company may have a significant cash balance by the end of FY20, with negligible or no net debt. It will be interesting to see how the company will utilise this cash. Keeping high cash on the balance sheet may lower the return on equity ratio and impact the valuation multiples.At the current price of Rs 1,877, the stock is trading at 85 times annualised earnings. The high valuations factor in the current rate of growth and the stock may consolidate at present levels.

House Panel wants a fix to social media’s porn problem

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BENGALURU: A Parliamentary committee formed to study the prevalence of adult pornography and child abuse videos on social media platforms in India has questioned microblogging platform Twitter and tech giant Google, and has sought answers on how they will curb children's access to such content.The committee, headed by Congress Party leader and Rajya Sabha member Jairam Ramesh, is studying the 'alarming issue' of pornography on social media and its effect on children and society.The panel, formed in December, has so far met with representatives of Facebook, TikTok, Twitter, Google and ShareChat. Last week, the panel members asked Twitter about its policy allowing pornography on its platform, according to two sources. However, Twitter clarified that its policy allows only consensually shot pornography and does not permit revenge pornography or child abuse material.The panel also asked Google what it was doing to limit discovery of pornography on its search engine and video platform YouTube, according to a source. Google is believed to have replied that login details were required to discover adult content on YouTube.According to YouTube's policy, content creators can age-restrict videos. So, for example, when a video is age-restricted, viewers must be signed in and be of 18 years of age or older to view it. Twitter suggested to the committee that the industry and government should take a "constructive" approach to educate teenagers on how to make their online experience pleasant, positive and safe, according to the source. Share-Chat, which also made its submissions before the panel, called for regulations to provide contractual protection to the digital interactions of young adults and said India could look at a framework such as the Children's Online Privacy Protection Act (COPPA) framed by the US, according to another source.The panel will present a report with a set of suggestions on legislative and regulatory changes. To be sure, viewing of pornographic content is not illegal in India. A Twitter spokesperson told ET that the platform had a zero-tolerance policy for child sexual exploitation but did not answer a question on the panel's concern about adult pornography and its access to children. Google and ShareChat declined to comment. Twitter's policy towards nudity and pornography is known to be far more liberal than other platforms.Its latest policy states that users can share consented adult content within their Tweets, provided they mark this media as sensitive. However, users cannot include adult content within areas that are highly visible on Twitter, including live video, profile or header images.On the other hand, Instagram and Facebook do not allow 'nudity' of any kind except photos of post-mastectomy scarring and women actively breastfeeding.

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