{"id":36037,"date":"2025-02-07T21:15:02","date_gmt":"2025-02-07T15:45:02","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=36037"},"modified":"2025-02-07T21:15:02","modified_gmt":"2025-02-07T15:45:02","slug":"the-weekly-wrap-the-squeaky-wheel","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/the-weekly-wrap-the-squeaky-wheel\/","title":{"rendered":"The Weekly Wrap | The Squeaky Wheel"},"content":{"rendered":"

In this edition, we offer a quick glimpse into the changes in India\u2019s fiscal and monetary policies. We also talk about the challenges that automakers Volkswagen and Kia are facing from tax authorities, and SEBI\u2019s new rules for algo trading.<\/span><\/i><\/p>\n

 <\/p>\n

Welcome to Kuvera\u2019s weekly digest on the most critical developments related to business, finance, and the markets.<\/span><\/i><\/p>\n

 <\/p>\n

tl;dr<\/strong>\u00a0Hear the article in brief instead?<\/p>\n

 <\/p>\n\n

 <\/p>\n

\"\"<\/p>\n

 <\/p>\n

\u201cI hate to be a kicker, I always long for peace,<\/span><\/i><\/p>\n

But the wheel that does the squeaking is the one that gets the grease.\u201d<\/span><\/i><\/p><\/blockquote>\n

 <\/p>\n

Henry Wheeler Shaw, the American humorist better known by his pen name Josh Billings, supposedly wrote the lines above in his poem \u2018The Kicker\u2019 in the late 19th century. At the time, \u2018kicker\u2019 was used to describe a person who complained. We say supposedly because it hasn\u2019t been proven beyond doubt that he did write those lines!\u00a0<\/span><\/p>\n

 <\/p>\n

There might be doubt over who wrote those lines but we are sure nobody will disagree with the message behind those words. Still, if you disagree, let\u2019s take a look at the two biggest developments in India over the past week.<\/span><\/p>\n

 <\/p>\n

First, last Saturday, Finance Minister Nirmala Sitharaman slashed personal income taxes in the budget for 2025-26. And then, this Friday, Reserve Bank of India Governor Sanjay Malhotra announced the monetary policy committee\u2019s decision to cut its benchmark interest rate for the first time in almost five years.<\/span><\/p>\n

 <\/p>\n

Now, we won\u2019t go into details of Sitharaman\u2019s tax cut because it has been covered ad nauseam by newspapers, websites, TV channels, social media and what not. But we can\u2019t resist from giving a gist of the budget anyway.\u00a0<\/span><\/p>\n

 <\/p>\n

The budget\u2019s biggest announcement was the cut in income tax rates. Essentially, those earning Rs 12 lakh or less won\u2019t have to pay any tax. Those earning more than that threshold will also see a reduction in their tax outgo. The cut came after a section of middle class became highly vocal about their dissatisfaction with high taxes, especially after Sitharaman in her previous budget increased taxes on capital gains and removed indexation benefits for real estate and debt funds.<\/span><\/p>\n

 <\/p>\n

For mutual fund investors, the budget offered absolutely nothing. Nothing directly anyway. Although the mutual fund lobby group AMFI had pitched for restoration of indexation benefits on debt funds, Sitharaman chose to ignore all its suggestions. But she also didn\u2019t increase the capital gains tax, as some investors had feared.<\/span><\/p>\n

 <\/p>\n

Anyway, the tax cut means people will have more money to spend. The government is hoping that this will revive the slowing demand in consumption and boost economic growth. Critics, however, argue that the tax cut benefits only a small set of people and that it won\u2019t be enough to increase consumption or GDP growth. That needs some help from the RBI and the central bank delivered it.<\/span><\/p>\n

 <\/p>\n

The RBI\u2019s policy-setting body, meeting for the first time since Malhotra took over as governor, cut the repo rate to 6.25% from 6.50%, making its first reduction since May 2020 when the Covid-19 pandemic sent the global economy into a tailspin. The decision came as demands for a rate cut grew louder from government officials, economists and industrialists due to the economic slowdown.<\/span><\/p>\n

 <\/p>\n

Indeed, the central bank cited slowing growth and moderating inflation as reasons for the rate cut. It projected India\u2019s GDP to expand 6.7% next year, above this year\u2019s 6.4% estimate, but also issued a warning.\u00a0<\/span><\/p>\n

 <\/p>\n

\u201cHeadwinds from geopolitical tensions, protectionist trade policies, volatility in international commodity prices and financial market uncertainties, continue to pose downside risks to the outlook,\u201d it said.\u00a0<\/span><\/p>\n

 <\/p>\n

Will the cut in taxes and rates be enough to revive GDP problem? We hope so, although doubts remain.\u00a0<\/span><\/p>\n

 <\/p>\n

So, what could the consumer and the corporate world do to nudge the government and the RBI to lower taxes and rates even further? Squeak louder!<\/span><\/p>\n

 <\/p>\n

\"Start<\/a><\/b><\/p>\n

 <\/p>\n

Vroom time<\/b><\/h3>\n

 <\/p>\n

Staying with the squeaky wheels, India\u2019s auto sector was in the news this week for more reasons than one.<\/span><\/p>\n

 <\/p>\n

First, the good news. The year 2025 started on a positive note with vehicle sales rising across the board in January, according to the Federation of Automobile Dealers Associations. FADA, which tracks retail sales from dealerships to buyers, said that overall sales in the month grew by 6.6% year on year led by a 15.5% jump in sales of cars and SUVs. Sales of commercial vehicles rose 8.22% while tractor sales increased 5% and two-wheelers inched up 4.15%.<\/span><\/p>\n

 <\/p>\n

To be sure, some of the spike\u2014especially in cars and SUVs\u2014stems from December purchases registered in January so that buyers get the advantage of the 2025 model year and get a better resale value as and when they sell their vehicles.<\/span><\/p>\n

 <\/p>\n

Still, the industry will take every little win it can get at a time when sales generally have slowed; passenger vehicle sales for the 10 months through January have risen only 5.6% from a year earlier while sales of buses, trucks and tractors have been almost flat. And the industry expects the coming months to be cautious, too.<\/span><\/p>\n

 <\/p>\n

Tightening the screws<\/b><\/h3>\n

 <\/p>\n

Now, the not-so-good news. The German carmaker Volkswagen, which also houses Audi and Skoda brands, and South Korea\u2019s Kia have found themselves in a tax battle with the Indian government. Here\u2019s what has happened so far.<\/span><\/p>\n

 <\/p>\n

The government has accused VW and Kia, an affiliate of Hyundai Motor, of evading taxes by misclassifying imports of components. Essentially, the government says the two companies imported dozens of components and then assembled their cars in India. So, what\u2019s the problem?\u00a0<\/span><\/p>\n

 <\/p>\n

India imposes a tax of more than 100% if automakers import fully-assembled cars. Import duties drop to 30-35% if automakers bring cars in completely knocked down, or CKD, conditions, and then assemble the vehicles in India using some local components. But customs duties on auto components are just around 5-15%.<\/span><\/p>\n

 <\/p>\n

According to the government, VW and Kia imported all the components required to assemble certain high-end models in separate shipments as individual parts. They then used those components to assemble models such as the Kia Carnival, the VW Tiguan, the Skoda Kodiaq, and the Audi A3. This, the government says, amounts to tax evasion.\u00a0<\/span><\/p>\n

 <\/p>\n

While Kia has received a notice for evading $155 million, VW\u2019s tax bill is a whopping $1.4 billion. Both companies deny the allegations and VW has even challenged the government in the Bombay High Court. VW also says it had informed the government of its import plans well in advance and even got clarifications as far back as 2011.<\/span><\/p>\n

 <\/p>\n

What will happen if the companies lose in court? For one, they will have to pay double the amount they are accused of evading in taxes. And that will make it extremely difficult for them, especially VW, to survive in India.<\/span><\/p>\n

 <\/p>\n

Go for Algo<\/b><\/h3>\n

 <\/p>\n

For the past few months, the Securities and Exchange Board of India has been warning about the risks involved in futures and options trading and explained how thousands of retail investors lost billions of dollars by engaging in such activity.<\/span><\/p>\n

 <\/p>\n

In September last year, SEBI said in a report that individual F&O traders suffered a total loss of Rs 1.8 trillion over the last three fiscal years and that 93% of individual traders lost money. Meanwhile, institutional investors and proprietary traders made boatloads of money at the expense of individual traders.<\/span><\/p>\n

 <\/p>\n

It then took measures to curb F&O trading by raising the minimum trading amount and reducing the number of weekly options contracts. And then, in December, it sought to level the playing field.<\/span><\/p>\n

 <\/p>\n

This week, SEBI put into action its plan that allows retail investors to use algorithmic trading.<\/span><\/p>\n

 <\/p>\n

Algo trading, for those new to the term, refers to using computer algorithms to trade. It is faster, cheaper and backed by data. This gives it a leg up. So much so that SEBI\u2019s study showed it accounted for 97% of foreign investors\u2019 gains and 96% of proprietary traders\u2019 profits in futures and options during FY24.<\/span><\/p>\n

 <\/p>\n

In a circular this week, SEBI said that brokers can offer algo trading facility to retail investors but need to take approval from stock exchanges for each algorithm. In addition, an audit trail of algo orders must be kept.<\/span><\/p>\n

 <\/p>\n

Will the new facility really give retail investors a level-playing field? Or will institutions and large traders find new ways to retain their edge? More importantly, will it keep retail investors hooked to F&O trading? We will keep you posted.<\/span><\/p>\n

 <\/p>\n

\"FD<\/a><\/p>\n

 <\/p>\n

Market Wrap<\/b><\/h3>\n

 <\/p>\n

India\u2019s benchmark stock market indices, the Sensex and the Nifty, rose marginally this week as a cut in taxes and interest rates helped offset the growing international trade tensions due to US President Donald Trump\u2019s tariff wars. Sensex closed the week with a gain of 0.4% and Nifty rose 0.2%<\/span><\/p>\n

 <\/p>\n

Most banks and non-bank lenders ended with gains on rate cut hopes. IndusInd Bank and Bajaj Finance were the top performers among Nifty stocks, gaining over 8% each during the week. Bajaj Finserv, Axis Bank, Shriram Finance, HDFC Bank and Kotak Mahindra Bank also ended in the green.\u00a0<\/span><\/p>\n

 <\/p>\n

Auto stocks M&M, Maruti Suzuki, Eicher and Bajaj Auto edged higher thanks to strong quarterly earnings. ITC Hotels, Adani Ports, JSW Steel and Bharti Airtel were the other major gainers.<\/span><\/p>\n

 <\/p>\n

State Bank of India was the sole lender to close in the red. Power Grid, Bharat Electronics, ONGC and Larsen & Toubro were the biggest losers, dragged down by concerns over the moderate rise in the government\u2019s planned capex in the budget. Coal India and NTPC also dropped.<\/span><\/p>\n

 <\/p>\n

Consumption-driven stocks such as Trent, Hindustan Unilever, Nestle India and ITC slipped on concerns of slowing growth and tepid earnings that were driven mostly by price hikes.<\/span><\/p>\n

 <\/p>\n

Earnings Snapshot<\/b><\/h3>\n

 <\/p>\n