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Few Words on Market…

Posted by VRIDHI on 28/03/2015

by Vivek Karwa, Certified Financial PlannerCM 

150324 – Don’t know how many noticed the recent movements in the market. For quite some time, in fact it was many times mentioned, in the previous articles that the Sensex should test the 30006 mark on the higher side. The recent high made on 4/March/2015 was 30025 on Sensex and then we saw a correction. We have seen a low of 28158 till now and market seems to be stabilizing in this area. We should see a good support at 28000 and then another good support at 27800 in the short term, best support comes at 26200 on Sensex.

Markets generally move based on news flow. We had several news events over last 45 days and the situation seem to be drying up now, hence the profit booking. As the old saying goes: buy the rumors sell the news, hence the market is now consolidating, and will look forward to more news.

We started with the Railway Budget and first time since I have started tracking the budget saw No New Trains introduced. The vision was very clear that it makes no sense to just announce new things and then keep them undone. It actually made sense to clear the back log and improve the amenities which the passengers like us actually expects.

As usual the critics criticized the rail budget as a mere piece of vision document. The answer to them lies exactly in what they are saying. The budgets till now actually lacked any kind of vision for the corporation which is used by crores of people daily and employs the highest number of people.

Then came the finance budget, the budget was highly awaited and tracked by everyone, being the new governments first full year budget. Agreed that it’s a people unfriendly budget in the short term but will turn out to be a huge boost in the long run.

Both the rail and the finance budget were first misunderstood by the markets on the first instance. That’s why the markets saw a correction after each budget, then after realizing the hidden agenda in it, the markets gave thumps up. The Sensex and the Nifty movements clearly tells us this thinking!

There are many positives happening now. These things have to start reflecting on the ground. Have a belief that in next 12 – 18 months the Indian economy will be in much stronger position and the same is clearly voiced by all rating agencies. The growth projections have already been raised up by the global rating companies.

The first half of the budget session of the parliament has passed off. The data says it was one of the most productive sessions of the recent history, though there were many attempts to throw the government in to the policy paralysis state which some of us have actually become used to. This sends the signal to the global investors that the Indian politicians mean business (hopefully) and thus many bills are being passed within one session.

The Insurance Bill, Mining Bill and the Coal Bill are the major ones which has attracted the attention of the world. Insurance bill has been wandering around the corridors of the parliament for many years and finally has been disposed off for good. This sector alone is supposed to attract more than 35000 Crs in next 3-5 years.

Investors should gauge all such things with positive outlook and use opportunities to add good quality companies in their portfolios. Sensex hopefully should test the range of 33600 – 35000 in the current year 2015 and to reach those levels support from good quality stocks is pertinent. Happy investing and wish you a profitable new financial year.

This Article will be Printed in the Investors Digest Magazine of TamilNadu Investors Association (SEBI Recognized)

Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this news letter. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources.

***

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The sober reality of making liquor in India

Posted by VRIDHI on 08/03/2015

Taxation, policy decisions make India one of the most complex markets in the world to make and sell alcohol

P.R. Sanjai |  Ashish K. Mishra, 4/3/15 Mint

source: http://www.livemint.com/Industry/IL7nR6USe1un4vgIcnYhdJ/The-sober-reality-of-making-liquor-in-India.html

If Abanti Sankaranarayanan is exasperated, she does a pretty good job of not showing it. As managing director of Diageo Plc. in India, it is not like Abanti, 45, hasn’t said this enough; in meetings with government officials in various states, myriad excise officials and also with the central government and internally to employees—being in the business of making and selling alcohol in India is tough.

But then when she says this, with a straight face, as straight and matter of fact as the expression can be, the penny drops: “Every day, Diageo as a group has 748 touch points with the government.” Every day. 748 touch points.

Make in India

And nobody understands this better than V. Raghunath, general manager at United Spirits Ltd’s distilleries at Kumbalgodu in Bengaluru. A stout, unmistakably jolly man, he has what can be called a living nightmare of a job

“It is like a James Bond movie,” he says. “Every single truck that goes out of a distillery or bottling plant to a warehouse of state beverage corporation, you will spot an excise inspector sitting in the truck.” What’s in the truck? Alcohol. Why is the excise inspector in the truck? To ensure that the law of the land prevails.

Nobody steals. Nobody tampers. Every case is accounted for. Raghunath, who has worked for the last 25 years across six states in the country, can’t help but find humour in the situation.

“It is like a handing over a tonne of gold or a month-old baby to another party,” he says. “There is an excise guard in the truck until it reaches the border. Another excise guard gets into the truck as the truck starts moving to other state.

” It is a simple affair. State A’s excise officer gets out, hands over the documents to the excise inspector of state B and then takes the next available line bus or auto rickshaw back home. Clearly, a job well done.

To understand the complexity of the operation, here’s a fun fact. The Kumbalgodu plant on Mysore Road produces 600,000 cases of alcohol every month. That’s 20,000 cases a day. 40 trucks a day.

That’s not all. Transportation is just one small part. The big one is documentation. And maintaining files for approvals. “There are 100-200 steps to obtain allotment of spirits from a distillery to our plant for blending and bottling,” says Raghunath. And to be able to do that, Raghunath has to plan months in advance. “A concerned employee will spend at least one hour out of his eight hours just to follow up with excise commissioner offices to obtain necessary approvals,” he adds. So much so that the distillery office enters transactions in pencil first to avoid mistakes.

At the Kumbalgodu plant, we request Raghunath to give us a tutorial on some of the paper work and the procedures. A concerned officer walked in with five fat files.

Let’s begin. Typically, a distillery secures necessary approvals to get spirits from a factory in 12-15 days if it is within the state and 30 days if the factory is in another state.

So a distillery gets sanction from its regional offices to procure the prescribed amount of spirits from a factory, which in turn will give a consent letter to the party to sell. The consent letter will then go to the local excise office. This letter will have to contain details including opening stock, closing stock and various other points. The local office will then issue a recommendation letter to the distillery. But not directly.

It goes to the next level in the office. That of either the deputy or joint commissioner’s office of excise to get necessary endorsements. The letter goes through post. And this letter will have prescribed trips from the clerk to deputy superintendent to deputy commissioner and back again. The officer concerned explains that there are at least 24 to-and-fro file movements. And only when it is approved will it go to the local excise office by post.

“If there is a ‘query’, then life turns ugly,” says Raghunath. Which means another round of back and forth. All through snail mail. Finally, this letter will go to the state beverage corporation, which will issue an OFS, or order for supply. An OFS will order supply of spirits to the bottling plant from a designated factory. And then it is the excise guard’s turn to take over. And track everything. All over again.

Twenty nine countries

For most industries, permissions and clearances are needed when setting up a plant, whether greenfield or expansion. In alcohol, it is for business as usual.

“Any analyst will tell you that for alcohol, India is one of the most complex markets in the world,” says Abanti. “I’m not commenting on whether such a high level of regulation is right or wrong. I’m stating the facts as they are and therefore it is not easy to do business. We operate not in one country but 29 different states.” Needless to say, alcohol is a state subject, where every state has its own policies, procedures and excise tax structures with very little harmony between them.

Let’s try and understand a simple business decision—prices. Of let’s say, Johnnie Walker Black Label. Price in Delhi is x, in Haryana it is 0.8x; Maharashtra is y and in Daman, it is 0.6y. Because of taxes.

Now, what often happens is that the state where the prices are higher will say this price doesn’t work for it. Because they don’t want the price to be any higher in their state, because in the neighbouring state it is lower. All thanks to a different tax structure. “That alcohol can flow through porous borders between Delhi and Haryana is a genuine concern,” says Abanti. “But the price of that is paid by manufacturers.

” Let’s take another simple business decision—labelling on bottles. And this really gets the goat of all manufacturers. Twenty-nine states put together can’t come to an agreement on a single labelling standard. Which means that Diageo, to take just one case in point, must customize labels.

“So in 2013, we had Punjab saying we want a holographic label,” says Abanti. Sure. But Diageo also wanted its Drink Responsibly branding on the label. Of course, Punjab said no. “Now one particular state said ‘no, don’t have it’, for whatever reason. So this brings complexity,” she adds.

And that’s not all. There’s a much larger tug of war when it comes to policy decisions. Case in point—the inclusion of alcohol to adhere to the standards of the Food Safety and Standards Authority of India (FSSAI). Industry spokespersons argue that to begin with there were no standards and the move was ad hoc. Sonjoy Mohanty, secretary general at International Spirits and Wines Association of India (ISWAI), says that alcohol was never a part of food regulations.

“The attitude was ‘I want A, B, C, D on the label; if you don’t do it, your imports won’t get cleared’,” says Mohanty. And that’s what happened. In September last year, Diageo and Pernord Ricard suspended shipments to India temporarily.

“It is a very peculiar situation,” says Mohanty. “Because FSSAI is a central government authority. And alcohol has to follow what state excise says. So suddenly you’ve created confusion and no one wants to give an inch.” Needless to say, manufacturers lobbied heavily to get FSSAI on board with international labelling standards. But it didn’t go anywhere. “If you caught us to put down the collective hours we put, it is mind-boggling,” says Abanti. “But there was no outcome. So you are trying to fix a broken house and only if you could get 29 people in one room. There is a certain ad hocism without consulting or engaging with the industry. Like now this or nothing else.”

Missing the GST bus

It is no secret that the industry desperately wanted alcohol to be a part of the proposed goods and services tax (GST). And countless man hours went into its lobbying; ISWAI, for instance, had 93 meetings across the board with the states and the centre. But to no avail. “The government is all agog and in a hurry to bring GST in,” says Mohanty. “Not for a single moment have they paused to see the pitfall of excluding the alcohol industry.” Let’s understand this better.

Being a part of GST would ensure that the entire manual permission ecosystem would move to electronic. By industry estimates, the number of 748 touch points would have gone down to almost 30. And at the retail end, it would have made life easier for restaurants and retail outlets selling alcohol. For instance, currently the restaurants and hotels that serve alcohol generally attract three different taxes: state sales tax or value-added tax (VAT) on alcoholic beverages, state sales tax or VAT on food and non-alcoholic beverages, and the service tax levied by the centre on 40% of the invoice amount, which is deemed to be a charge for the services provided to the customer. “Now that we are not part of GST, think of the complexity at the retail end where an outlet is selling both GST and non-GST items,” says Mohanty. “To put it simply, sandwiches and alcohol.”

It is another matter altogether that most states didn’t want in because they feared that they would lose the ability to control, regulate and tax the alcohol industry. And then, they didn’t want an electronic audit trail. According to the World Health Organization, almost 50% alcohol sold in India is non-commercial (350 million cases) which varies from state to state, but GST was a great chance to address it. “Now we have lost that chance forever,” says Mohanty. “It is just sad that nobody wants to talk or openly discuss the alcohol industry because it is seen negatively. But this issue is more relevant for ‘Make in India’ today than ever.”​

***

VRIDHI’s View: The article was really fun to read but then at last you feel how complex the law is! The Alcohol has always been lobbied hard by the state governments and hence will remain out of the GST when it comes in effect from 1/4/2016. No wonder Alcohol is Big Business and there are few states which depend on revenues from it for funding their electoral promises. State CM’s can atleast come together through the platform of Niti Aayog and make the process of liquor business more smooth. States should realise that if the rules are made simple and straight forward, the cash books out of liquor business will only swell further. Use the platforms like Niti Aayog immediately. If Make In India has to be successful, doing business has to be made simpler. Hope atleast this govt. will make things easy.

***

 

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‘Wish I’d known’ lessons from Finance Gurus

Posted by VRIDHI on 24/02/2015

Starting early is the easiest and smartest financial lesson. Even leaders of the industry agree

Vivina Vishwanathan, Mint 9/2/15

source: http://www.livemint.com/Money/NBuCcrV9IT3E65yN6eBH3L/Wish-Id-known-lessons-from-finance-gurus.html

Anyone who has just joined the workforce for the first time has a list of things to spend on—from clothes to gadgets, and more. Saving and investment rarely feature in this list. This may sound boring and even unimportant, but if you don’t want to be financially lost, you must plan your finances. Here are a few things you can do with your income in the early stages of your career.

Start early

When it comes to growing your money, the earlier you start saving and investing, the easier it will be to build a corpus. “You should understand the power of compounding. Unfortunately, people don’t understand it and how starting early will enable lower investment savings,” said Dilshad Billimoria, director, Dilzer Consultants Pvt. Ltd.

Say, you are 25 years old and plan to retire at 60. If your current annual expense is Rs.10 lakh, the expenses in your first year of retirement would be Rs.77 lakh, assuming annual inflation of 6%. So, you will need a corpus of Rs.10.7 crore at age 60, for which you need to invest Rs.28,000 per month till retirement age and earn return of 10% on it. If you delay and start investing only when you turn 30, you would need to save Rs.35,365 per month. So, the later you start, the more you need to save.

Identify goals later

You may be wondering, why invest when you don’t have goals. Imagining about retirement or any other kind of long-term goal is difficult when you are in your 20s. “Many financial commitments come in the form of events. The older you get, the more difficult it gets to catch up to the expenses. People don’t think about this in their 20s,” said Leo Puri, managing director, UTI Asset Management Co. Ltd.

How does one overcome this difficulty?

“It is a simple thing. Generally, your financial goals will include retirement, buying a house, marriage, children, their higher education and marriage, your higher education, travel and spending on gadgets or white goods. Even if none of these make into your list right now, they will soon creep in,” said Suresh Sadagopan, a Mumbai-based financial planner. Even if you don’t have a goal, keep a part of your salary aside to be used for future needs.

Insure yourself

Once you have decided to save a certain portion of your income, the next step you may assume is to invest. It’s not. the next step should be buying health insurance so that medical liabilities are taken care of. “Life insurance can wait. But you should take medical insurance immediately. You may think that your employer will take care of it. But health issues can occur any time, say, when you are in between jobs. Consider taking health cover of at least Rs.3 lakh, which will cost you under Rs.4,000 per annum,” said Sadagopan. You don’t want to dip into your savings or investments when you have an option to hedge.

Understand products

After health insurance comes investing. You must remember that over time, money loses value due to inflation and taxes. So, leaving all your money in a savings account is not prudent. Of course, that doesn’t mean that you invest in any product that gives you higher returns than a savings deposit. You should calculate the returns you get after factoring in inflation and tax. “People don’t understand the difference between real return and nominal return. They misunderstand nominal return to be the real return. Always remember to factor in inflation when you are investing,” said Vivek Dehejia, professor of Economics at Carleton University in Ottawa, Canada.

So, which product to choose? Since you have time on your side, you are in a better position to take risk.

“Equity-oriented products are a good option. But you should invest at least 40% of your money in lock-in products such as Public Provident Fund as it will help you build financial discipline,” said Sadagopan.

You can create a corpus by investing in short-term products such as debt funds or even bank fixed deposits. This will help build financial discipline.

Though you should save and invest regular, it doesn’t mean that you can’t indulge. “You can buy a new gadget or go for a vacation, but it doesn’t mean that you go overboard with you credit card and spend more than you can afford,” said Sadagopan.

If you have basic understanding of financial products and how they work, you will be able to make the right decisions about your money life. Doing so will earn healthy returns.

***

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Best ways to use the Capital Gains Scheme

Posted by VRIDHI on 23/02/2015

The Capital Gains Account Scheme helps you save on long-term gains tax; reason enough to befriend it

Ashwini Kumar Sharma, Mint 23/2/15

source: http://www.livemint.com/Money/7wuOLyuOV3KEZg9zlcI0KM/Best-ways-to-use-the-capital-gains-scheme.html

Selling a house results in you suddenly having a large sum of money. And unless you have already decided how it’s going to be used, chances are that it will either be put in a savings account, or it gets spent. And, of course, there is tax to be paid on the gains. Some of this can be avoided. If you had the house for at least three years before you sold it, the gains are called long-term capital gains (LTCG); if you held it for a shorter period, your profit is called short-term capital gains (STCG).

Tax on long-term gains can be avoided if you utilize the amount within 2 years and 3 years to buy a new property or to construct one, respectively. You can also invest the money in specified bonds. But the amount on which you can get tax benefit is limited to Rs.50 lakh, and you must invest in the bonds within six months from the date of sale.

Another way to save on the taxes is to use the Capital Gains Account Scheme (CGAS). This scheme is meant for those who are not able to re-invest the gain in a new residential property before the due date of filing tax return (typically 31 July). Parizad Sirwalla, partner-tax, KPMG, India, said, “As per domestic tax laws, an individual can avail an exemption from LTCG tax resulting from sale of house or agricultural land (i.e. after holding the same for specified period from acquisition date) by reinvesting the LTCG into another residential house or plot of agricultural land, as the case may be, within specified timeframes of sections 54 and 54B, respectively.”

Let’s take a look at the scheme and how to get the most out of it:

What’s on offer?

An account under the capital gains scheme, which was introduced in 1988, can be opened only with specified banks or institutions. “The deposit can be made in lump sum or in instalments at any time on or before the due date for filing the return of income,” said Rahul Jain, partner, Nangia and Co. Say, you sold a property on 15 January 2015, and are not able to use the gains by 31 July 2015. In such a situation, you should open a CGAS account and deposit the money in it by 31 July. You can deposit in cash, by cheque or by draft.

There are two types of accounts—account A, similar to a savings account; and Account B, which is like a term deposit. You can put your money in any of the two. Account A offers flexible withdrawals, but interest rate offered is similar to what that bank offers on its regular savings account. Account B offers higher interest, which would be similar to what the bank offers on its other term deposits, but withdrawal is not flexible.

If you plan to, say, buy a property after a year, choose account B. But if you plan to build a house soon, and would need money periodically, choose account A. Money withdrawn has to be used within 2 months.

You can withdraw from account B also, but would need to first transfer the money into account A. For such premature transfers, the interest rate will get adjusted.

Do note that “the interest earned on money deposited in CGAS is taxable in the hands of the taxpayer as ‘Income from other sources’,” said Sirwalla.

How much you can deposit varies across banks. At IDBI Bank Ltd, for example, the range of deposit can be Rs.10,000-100 crore. But at State Bank of India, the lower limit is Rs.1,000, and there is no upper limit.

Any gains arising out of property transaction or transfer attracts tax. Short-term gains are taxed at the normal income slab rate of the assessee. Long-term gains are taxed at 20% with indexation. For instance, the acquisition cost of a Rs.60-lakh house purchased in 2010 and sold in 2013, based on the cost inflation index (CII) for 2010 (632) and 2013 (1024) would be about Rs.97 lakh. If this house is sold for, say, Rs.1 crore, the owner makes a gain of about Rs.12 lakh, and this is the amount that she can invest in a CGAS account.

How to use the money?

The scheme has been made for a special purpose, and therefore, money can only be withdrawn for specific purposes. Jain said, “Money deposited in a CGAS account can be utilized only to buy or construct a new asset.” Typically, small sums of, say, less than Rs.25,000 can be withdrawn in cash; for anything more, you will get a crossed demand draft. Initially, to withdraw money, you will have to give an application mentioning the purpose. For subsequent withdrawals, you can use a specified form, in which you will mention details of how the earlier withdrawal was used. Banks may reject further withdrawal if required details are not given. Therefore, keep the bills for materials purchased, payments to contractor, and so on.

“The money must be utilized within 60 days of withdrawal. Any unutilized sum has to be re-deposited in a savings account immediately,” said Jain.

When closing it, the account holder will have to give a specific authority letter or certificate from an income tax officer. Closure would be allowed on terms mentioned in the letter of authority, which could also be a completion certificate or occupation certificate from the authorized government authority. If you are unable to use the gains from the house sold to buy or construct a new house, the amount will be treated as capital gain for the year in which the period of three years from the date of sale of the original house expires. In the example use earlier, if you sold on 15 January 2015, you must deposit the LTCG in a CGAS account by 31 July 2015. The deposited money should be used either before 14 January 2017 to buy a new house, or to construct one before 14 January 2018. If you are not able to do either of these, you will have to pay tax on the balance amount while filing your tax returns for FY2017-18.

Mint Money take

Since property buying and constructing is a long-term process, a CGAS account is handy for those who have long-term gains from the sale. While the scheme is useful, opening an account under it is difficult as all bank branches do not offer these.

To buy a property you have two full years. But if you are planning to build a house, don’t delay for long because you can use this account for only up to three years, and construction takes a lot of time. Also, do remember that the house will not be considered as complete till you get its occupation certificate, and that your claim for tax exemption is based on the completion of your house.

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Few Words on Market…

Posted by VRIDHI on 24/01/2015

by Vivek Karwa, CPFA., CFPCM

150120: #IndianStockMarket has delivered fabulous returns in 2014. For the period 1-1-2014 to 31-12-2014 the frontline index #Sensex had given a return of 29.89% though the return was good it stood third in the list of global indexes.

The #BSE100 delivered a return of 32.27% while the #BSE200 and #BSE500 delivered returns of 35.49% and 36.97% respectively. The US market of which we are generally obsessed of, #DowJones delivered just 8.49% for the same period. We in this newsletter have always been bullish past one year and the #Bankex delivered highest return of 65.05% among the sectoral indexes.

If you note from the above mentioned returns the highest returns have been from the small and mid cap while the frontline stocks along with Sensex and Nifty have given lowest returns. Lowest in comparison to other indices, in absolute terms 30% returns can be termed as fantastic.

In spite of all cylinders pumping, the markets do not seem to be costly yet. The small cap and the mid cap stocks were beaten so badly that they ran anywhere between 50 to even 200% in certain cases. Such stocks even after such run up are still trading anywhere between 30 to 60% lower to their highest levels registered.

Even the Sensex and Nifty valuations do not look very bad. We registered 21000 in Jan’08 and crossed the level in this year and are now trading at 28300 approx. after 5 years! The valuations of companies have changed during the period and market is still to focus on this factor and re-rate the pe.

We this time have a stable government, not even a year is over hence it would be too early to say that they would perform very well, but the initial signals suggest that they are serious on reforms and may do many things which will improve the eps of the frontline companies. We post the end of this financial year, will start factoring in the future earnings. So at the current P/E of Sensex and the Nifty we are definitely costly, we are just at fair values.

The new government has also been cheered with the crude oil prices slump. The government which used to fund the fuel consumers by way of subsidies are able to garner more revenues in form of taxes in spite of reducing the prices nearly 10 times since assuming office! This will aid in controlling the subsidy burden.

Interest rates also have been cut for the first time by RBI after many years. We feel this is the start of the downtrend in the rate cycle. Lower interest rates will have positive impact on every sector in the economy. Banking sector may continue doing well in the future since they will now be able to recover the loans which have already been termed as NPAs.

So 2015 should be volatile but positive year. We will find huge supports at 25500 – 25000 and 24700 – 24300 Sensex levels. We may try to achieve 33600 – 35000 in 2015. Remain Invested.

This Article will be Printed in the Investors Digest Magazine of TamilNadu Investors Association (SEBI Recognized)

Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this news letter. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources.

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