Invest in Incredible India

Monday, March 27, 2006

Avoid : SUN TV IPO

Price @ 730-875 Opens:03-Apr - 07-Apr

IT is one of the very expensive issue, investor can better stay away from the issue if needed you can buy after listing. Though it worth a lot to your portfolio, IPO price is expensive, buy on decline

Sunday, March 26, 2006

contrarian approach in a costly stock

Not all high PE stocks are expensive

Consider HDFC,it has a PE of 32 and above,many investors think that the stock is very expensive as all financial institutions trade near to 10 - 18 PE.If you are a long term investor,you can buy HDFC, the reason being,HDFC has a larger FII interest. FII have about 65% of it's share. Is FII stupid to buy an expensive stock? Though home financing is it's core business it have a significant interest in other non-core business like bank(HDFC Bank, the banking outperformer),Life & General insurance(HDFC Standard and HDFC Chubb),asset management - Mutual Fund (HDFC AMC), housing finance (Grah finance),BPO business(Intelenet Global Service),in which HDFC Bank and Grah Finance are listed.Most of these ventures are amoung the market leaders in their respective categories. It also hold stocks in listed and unlisted companies like Development Credit Bank(DCB),which is preparing itself for an IPO.

Now reading above lines you should have come to a conclusion,Invest in HDFC with a long term outlook.consider about HDFC investments, when listed.It's life insurance business is growing at the rate of more than 100%.

Monday, March 20, 2006

PAN is Mandatory

SEBI had made PAN quoting is mandatory for all demat account holder

To prevent a repeat of numerous IPO application being filed through multiple demat account(as in case of YES Bank IPO),SEBI had made PAN quoting is mandatory for all demat account holder.

Come 1 April, you will have to show your PAN Card to open a demat A/C. And if you already have one, you will have to produce your PAN card before 1 October 2006 to continue operating your account after the date.For Joint accounts.all holders will be required to provide PAN Cards.

"Apply Here for pan card online"

India's FMCG Sector

Those Expensive Growth Stories

Stocks: HLL,Godrej Consumer

Peter Lynch says, stocks of companies selling commodity-like products should come with a
warning label: "Competition may prove hazardous to human wealth."

As you know P&G and Hindustan Lever fought for years to gain market share of each other in Indian FMCG market by reducing their price,Lever was in red for last few years , but now suddenly it showed a 11.4 % increase in sales and now it share has also gained about 30% hearing the news, is this gain worth to invest or to exit still remains a myth.As the book value of the stock remains Rs.10/.

you know that Indian FMCG Stocks are expensive not only HLL, but also other stocks like Godrej Consumer and others in terms of Market Price/ Book Value,but still it remains confusing whether to invest or to exit? Why does Franklin Mutual fund bought it?

As per Goldman Sachs report, India is the only BRICs economy( Brazil,Russia,India and China ) that will sustain an above 5% growth through out the next 45 years. Over the next 15 years, India's GDP growth averages 6 %. It is the only economy in BRICs country whose population will grow throughout the entire period.It's population growth rate will remain above the rest of BRICs.Indian's population will overtake that of china in 2034.Income per capita triples by 2020.By 2050,income per head increases by 35 times current level.In such case FMCG is going to be one amoung outperforming sectors. But still you can expect more competition from local unlisted players, who manufacture in local states and districts to provide with a cheap FMC goods. HLL and other listed players have manufacturing units in Mumbai or in particular place only, so due to increase in Crude price, it's cost keeps increasing due to expensive transportation, which will favour a large number of local companies to tap the markey.( Example: power soap in Tamil Nadu).

Before investing think about certain facts,

1.P&G is not the only competitor.
2.Valuation is expensive (in terms of p/bv)
3.Don't look at it's one time extrodinary profit or sales.
4.Be cautious while investing in growth stock,you will end up with a loss if growth slowed down.

"When the Surf rises,it throws up deadwood too.Choose your Stocks with extreme care."

Read Draft Red Herring Prospectus before investing in an IPO and Read Annual Report(3years) before investing in Stocks.

Tuesday, March 14, 2006

Sentiment Driven

Markets are always Sentiments Driven

Be a contrarian,i.e Buy when others are fearful and sell when others are greedy.But it is a hard task,Fools Rush In When Angel Fear To Trade.Ignore the madness of the crowd.

Consider an example

When Headlines cried " Bird flu " in India, all hatcheries and Hotel stocks were down taking Newly listed Royal Orchid Hotel to Rs.177/-. But slowly the news is been vanished from investors mind and the stock is up now it is Rs.200/, always consider this in mind, don't follow the madness of the crowd, be a contrarian, Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised.So you will get a good opportunity to buy not sell.

But not all situation is same, consider this

Nokia,which was earlier refused permission to sell handsets directly in India, tied up with HCL Infosystem to distribute handsets. Following the government's decision to allow FDI in single-brand retailing, however, it has decided to go on its own although the tie-up with HCL has been extended. So now 50% of the business will move to Nokia. While HCL expects higher volumes due to increasing mobile penetration to make up for the loss,the news of HCL promoters selling stock since September have also created a negative sentiment and stock fell to Rs.180/. In this situation you can join your hands with the crowd, since Govt decision can't be reversed, selling of stock in exchanges by promoter to public is bad,it definately reflect the current situation of the company. So think twice about all situations and sentiments before investing.

Sunday, March 12, 2006

Yes Bank is an Outperformer

" Say YES to Growth "

In March 2004, it become the first bank in a decade to get a greenfield licence from the RBI, now it has 7 branches and plans to open 35 branches in next three months.Though it is an late entrant in the huge competitive and crowded banking sector,it is a new-age bank for emerging India.

Though it operate as a 7 branched small new generation bank, it have shown a impressive Q3 Result, with Profit After Tax(PAT) @ Rs.14.50 Crore ,while it's Q3 of 2005 stood @ Rs.-0.33 Crore i.e loss. It have shown a 4,493.93 % growth in PAT and 86.87% growth in total sales. This will definately continue, with ZERO NPA,book value @ Rs.20/ and Market price @ Rs.83 it can be considered as a good long term investment. So one can buy the stock whenever it decline.

Advise: Please read the annual reports of the company before investing.

Monday, March 06, 2006

Important changes in personal taxation

While the Finance Minister has not changed income tax rates for individuals, he has made a few important changes on the savings side. Here are the highlights of the budget impact on personal taxes.

* No change in tax rates

* One-by-six scheme for filing tax returns abolished. Now you would have to file tax returns only if you have income over the tax-exempt limit of Rs 1 lakh (Rs 1.35 lakh for women and Rs 1.85 lakh for senior citizens)

* Ceiling of Rs 10,000 per annum for investments in pension policies under section 80CCC removed. You can now invest up to Rs 1 lakh in pension policies. This will give a boost to your retirement planning.

* Investments in fixed deposits of scheduled banks for a term of more than 5 years is now eligible for a deduction of up to Rs 1 lakh under section 80C. So now, along with investments in Public Provident Fund, National Savings Certificates, Insurance, ELSS, you can also invest in bank fixed deposits.

* Cash transaction tax continues on cash withdrawals of over Rs 25,000 from current accounts

* Section 54EC for reinvestment of sale proceeds of capital asset amended. You can now invest the sale proceeds only in bonds of National Highways Authority of India and Rural Electrification Corporation, to enjoy tax-free capital gains, as against bonds of NABARD, NHB and SIDBI allowed earlier.

* Section 54ED, which allowed you to invest sale proceeds of capital assets in listed equities now abolished.

* You will be required to quote your Permanent Account Number (PAN) in more transactions now

* Service tax increased from 10% to 12%. More services brought under the scope of service tax.

Reduce your tax liability for 2005-06 in 4 steps

Many of the Salaried employees would not be able to receive in hand their monthly salary for the balance period of the financial year 2005-06 specially because of the fact that such employees would now be under financial constrain as a result of investments to be made by them for achieving tax saving. Generally at the beginning of the year the Salaried employees give an undertaking to their employer that they would be making particular investments t o cut down their tax payments. In the first ten months of the financial year such employees do not made the required investments. And now is the time when they should make the investment or suffer the burden of higher tax payment. It is in such a situation that for most salaried employees the next few days before the close of the accounting year would look like a war like situation and this war is for money which is either to be invested or is to be paid by way of Income-tax. As soon as the targets for investments to achieve tax deduction have been achieved the tax payer starts thinking that he has reached the moon.

Well, for all tax payers mainly the Individuals as also the Hindu Undivided Families the investment plans now should start so that Income-tax is saved to the maximum permissible limit by taking full advantage of tax deduction and tax rebates.

As the financial year 2005-06 is coming to close, the individual tax payers now seem to start worrying about their income-tax matters and the search continues for tax saving schemes. Making investment in certain sectors would be the best available tax planning tip right now for most tax payers specially when the investment results into tax saving by way of tax rebate.

The first step:
… to tax planning for the financial year 2005-06 is to invest immediately the sum of Rs.10,000 by way of contribution to a pension fund so as to receive a deduction @ 100% of the investment. It may be recalled that deduction is available to an individual tax payer as per section 80CCC @ 100% of the payment made to any pension fund to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India or any other insurer for receiving pension from the fund. The maximum amount eligible for deduction is Rs. 10,000 p.a. Please do remember that on and from the Assessment Year 2006-07 the maximum deduction available under section 80C is Rs 1 lakh, this is inclusive of the deduction under section 80CCC.

Step 2:
Similarly, if the tax payer has not yet made payment of the Medical Insurance premium then it is time now to take out such medical insurance policy and make payment upto Rs. 10, 000 p.a. which is allowed as a deduction under section 80 D from your income of the year. In case such premia is in respect of persons who are senior citizens then the maximum amount which would be eligible for tax deduction would be Rs. 15, 000 p.a.

Step 3:
Another important deduction which can be enjoyed by a tax payer would be in respect of Donations to certain recognised funds and charitable trusts and institutions. Always do remember that the benefits for deduction in respect of donations would be available only if such donation is given to a recognised trust or institution which has obtained a certificate under section 80 G of the Income-tax Act, 1961. The maximum amount eligible for deduction under section 80 G is 10% of the total income while the rate of deduction is 50%. However, certain donations like donation to Prime Minister’s National Relief Fund are eligible to deduction @ 100% and the monetary ceiling also does not apply.

Now is the time to take care of Income-tax deduction for the financial year 2005-06. Certain investments if made can result into tax saving by way of tax deduction.

Step 4:
Individuals and HUFs are entitled to claim tax deduction under Section 80C of the Income-Tax Act, 1961 by making investments in certain assets upto a maximum of Rs.1,00,000 in the financial year 2005-06, relevant to the assessment year 2006-2007.This deduction is available irrespective of the taxable income of the tax payer.

The tax payers should remember that from the financial Year 2005-06 the concept of granting tax rebate for investments etc made under section 88 of the Income tax Act 1961 has been done away with. Now as a result of insertion of new section 80C to the Income-tax Act 1961 a deduction would be permissible to all individuals and Hindu undivided families in respect of investment made by them or expenses incurred by them as mentioned in the said section 80C of the Income-tax Act, 1961. The maximum amount that can be invested/spent for claiming the tax deduction is Rs. 1,00,000. The best part of the new provision is that the tax payer can invest the entire sum of Rs. 1 lakh in the ratio in which he desires. Thus, if an individual say is interested to make payment of Rs. 1 lakh only for Life Insurance Premium then he can do so and enjoy full deduction to the extent of Rs. 1 lakh. Similarly if a person wishes no other investment to avail tax deduction then he can do and avail deduction on housing loan repayment to the full extent of Rs. 1 lakh. Similarly, one another person say is interested to spend the entire Rs. 1 lakh on the education of his children, he can also do so and enjoy full tax benefit of deduction under the new section 80C of the Income tax Act, 1961.

The following is the list of items which are eligible for tax deduction of Rs. 1,00,000 as per section 80C:-

1. Payment for Life Insurance Premium

2. Payment for Deferred Annuity Plan

3. Deferred Annuity payable by Govt.

4. Contribution to Public Provident Fund

5. Contribution to Provident fund set up by Central Government

6. Contribution to Recognised Provident Fund

7. Contribution to recognised superannuation fund

8. Subscription to any security or deposit notified by Govt.

9. Subscription to Saving Certificates

10. Subscription for Unit Linked Insurance Plan 1971

11. Contribution for Unit Linked Insurance plan of LIC
12. Payment for Annuity plan of LIC or any other Insurer

13. Subscription to units of notified Mutual Funds

14. Contribution to Notified pension fund of Mutual Fund

15. Pension fund set up by National Housing Bank

16. Subscription to Deposit Scheme of Public Sector Company engaged in providing long term finance for house.

17. Tuition fees of two children in India

18. Payment of installment for self-financing of a Residential Property for repayment of loan.

19. Subscription to equity shares or debentures as approved for Infrastructure.

20. Subscription to any units of Mutual Fund as approved by the Central Board of Direct Taxes.

Note: Total amount allowed as deduction is limited to Rs. 1 lakh inclusive of deduction as per sections 80C, 80CCC, 80CCD and new section 80CCE.

Budget cocktail: Choice of investments widened

The Finance bill 2006 provides for only two types of assets for claiming the exemption under sec 54EC of the Income tax Act, 1961. These two assets are the bonds issued by National Highway Authority of India as also the Rural Electrification Corporation limited.

The filing of Income tax Return has also been made compulsory for all those who would like to claim the tax deduction for certain new industrial undertakings etc., taking advantage of sec 10B, 80IA, 80IAB, 80 IC.

For the first time in last one decade this year’s budget proposals particularly relating to Income tax have not brought out anything special for the taxpayers but still by and large the individual taxpayers appear to be happy and satisfied with the tax proposals. A deep peep into the reasoning of the taxpayers on this front revealed that the one single focused point is the absence of any proposal to introduce the long talked about concept of EET. Likewise, the inheritance tax was out of the shelf and finally there was no provision introduced in the Budget to bring some extra tax on shopping by the rich and the famous in the big malls.

The personal tax rates and corporate tax rates have not been changed at all. But the minimum alternate tax is increased from existing level of 7.5% to 10%. While calculating MAT the long-term capital gain on securities will be calculated to arrive at the book profit. This amendment means some extra tax outgo.

The Securities Transaction Tax on different types of transactions have gone up by 25% of the existing tax schedule but this will not mean too much loss of money to the common man. However, the earnings from mutual fund would get slightly reduced because of some extra burden on equity mutual funds.

Now coming to the investment scenario from the point of tax benefit to the individual taxpayer, we find that the existing limit of deduction under sec 80C has remained unaltered. What all has changed is just the choice of making investments. Now as per the amendment made by the Finance Bill 2006 the investment in the pension plan can be made up to Rs.1 lakh against the existing limit of Rs.10000. Similarly, the investment in five year fixed deposit with a scheduled bank would qualify for a tax deduction within the overall limit of Rs.1 lakh. However the combined limit for exemption under sec 80C as well as sec 80CCC (pension) continues to be Rs. 1 lakh only.

The income of co-operative banks would not be exempted now in terms of sec 80P of the Income tax Act 1961. There have been substantial amendments made to the provisions relating to Fringe Benefit Tax. The genuine problem of the taxpayers has been solved to some extent but still the pinch of FBT would be felt by the tax paying public. The expenses incurred on free samples of medicines or of medical equipments to doctors are outside the clutches of FBT. Similarly, expenses on account of payments made to persons of repute for promoting the sale of goods or services of the business of the employer would be outside FBT. The best part of the proposed amendments is that the contribution by the employer to an approved superannuation fund for his employees would be subjected to FBT only if the amount exceeds Rs. 1 lakh per employee. The expenses incurred on tour and traveling including foreign travel would be subjected to FBT on only 5% of the value of such expenses. There have been certain relaxations on FBT payment for persons engaged in business of carriage of passengers or goods by aircraft/ships.

For the first time a new concept has been proposed in the budget which speaks about filing income tax return through income tax preparers who could even sign your income tax return. More details on this would come in near future.

The provisions relating to compulsory filing of income tax return based on 1/6 economic indicators have been completely done away with. However it is expected that the govt. would now catch the tax evaders through the information gathered by Annual Information Return and the BCCT, which still continues in the statute book.

Not a single provision has been introduced which would provide any relief to women taxpayers and senior citizens. It was expected that in tune with the CMP of the UPA govt. certain new schemes to unearth black money would be coming in this year’s budget. But the fact is that there is not even any direction on tackling the problem of black money resulting into tax evasion.

An amendment to sec 43B has been proposed on retrospective basis since the assessment year 1989-90. This proposed amendment states that if interest etc. to bank etc., has been converted into a loan or a borrowing that it shall not be deemed to have been actually paid and thus this proposed amendment would result into hardships to lakhs of business taxpayers in the country.

The best part of the Finance Bill 2006 is that the old concepts of tax and investment planning still continue to operate.

Friday, March 03, 2006

5 reasons why NRIs must invest in India

It is time Non-Resident Indians and foreign investors took note of India. Not just because a much publicized report has predicted that the Indian economy will become one of the world's largest by year 2050 -- which is anyway too far out to invest for.

But because there are real changes happening here; changes which will have a significant impact on India's prospects in the next decade. The opportunity is here and it is beckoning you.

It was in July 1991 that Dr Manmohan Singh, the then finance minister of India, presented his first Union Budget. India was in a crisis then and drastic measures were needed to tide over the emergency. The two-stage devaluation of the rupee marked a turning point in the Indian history. Talk of import substitution was replaced by export promotion. What transpired over the last 13 years or so is for all to see.

It is widely thought that India's external sector performance will continue to be good. To believe this, one needs to look at the outsourcing revolution that is taking place across the globe, in not only the services but also the manufacturing and research sectors. On the investment side, liberal rules and better and well-regulated markets are drawing in capital to fund India's growth.

Unfortunately, the same degree of success is not evident when it comes to India's finances.

The numbers pretty much tell the story. But one needs to keep in mind that during this period the world witnessed several crises involving Mexico (1995), South-East Asia (1997), Russia (1998) and then, of course, the global economic slowdown that followed the stock market meltdown in early 2000. These crises spread to other countries too. But the impact on India was more muted than one would have expected.

As the Reserve Bank of India often highlights, this is so because of the 'resilience' of Indian economy. This resilience is clearly illustrated in the overall economic growth posted by India over the last many years (last 10 year average of 6.1 percent p.a) and the benign inflationary environment

But then this is history. And investing today requires a good understanding on what can be expected going forward. This is where one can take a break from numbers and list out five big reasons you should invest in India.

1. You can't ignore the resilience

It has been close to 20 years since the reforms process started, with the main push coming with the twin devaluations in 1991. During this period numerous developments have taken place that have contributed to the resilience of the Indian economy.

Key amongst these are the opening up of the Indian economy to foreign investment, strengthening of the domestic financial system, liberalization of imports, rationalization of interest and exchange rates, a more conducive environment for investing in industry, and of course, the people-intensive services sector.

This resilience is clearly reflected in the fact that average economic growth rates have moved up (peaking at 8.2 percent in the financial year ending March 2004) and India has emerged as one of the fastest growing economies in the world. Even the change in the government has not stymied growth completely (in fact, there is an improvement in overall growth rates).

Going forward the benefits of these measures will become more pronounced as focus shifts to implementation. Coupled with the expected shift in the demographics which should see a larger share of the Indian population falling in the 'working class' age bracket, the Indian economy can be expected to perform better over the next decade.

2. Renewed focus on agriculture, infrastructure

In recent years there has been a renewed focus on two key but long ignored segments of the Indian economy – agriculture (about 22 percent of the economy) and infrastructure. The focus on agriculture and related activities, which supports approximately 65 percent of the Indian population, should provide a new thrust area for economic growth.

Although the results will take time to show, when they do, the impact will be huge. An increase in output, productivity and value-add will lead to higher income levels for India's large rural population. This will aid investment and consumption activity leading to higher overall economic growth in the long term.

Belatedly the government has taken note of the poor state of infrastructure. Highway development, power sector reforms and substantial investment in building a pan-India telecom/internet network are just three of the several new initiatives underway which will help improve the quality of infrastructure.

An overall improvement in infrastructure will add to the competitiveness of the economy. Of course, in the interim, as these projects are implemented, the economy will get a boost as investment demand will surge (for example to build roads you need among other inputs people, machinery, steel and cement).

3. Benefits of foreign direct investment

Undeniably, foreign direct investment (FDI) inflows have stagnated in recent years (though interest in India is unarguably increasing). But its significance cannot be lost (we only need to look at China to understand this). Not only does FDI augment domestic capital and help increase productive capacity of the economy, it also brings in with it world class technology, processes and products/services, and jobs.

The benefits of these lessons are likely to be more pronounced in India, which is way behind developed countries. This should help the economy leapfrog in some sense, boosting productivity and competitiveness. Higher productivity could again trigger a virtuous circle of higher incomes, higher consumption activity and even higher investment.

4. The global outsourcing boom

Whenever one talks about outsourcing, Indian business process outsourcing companies come to mind. More often than not, the understanding is that the BPO is a call centre. Rightly so, given that this is where it all started. But there is much more to this outsourcing boom than is commonly understood. Fortunately, India stands to benefit from it in a great measure.

Some examples of the kind of 'outsourcing' work that could find its way to India: research and development for various products and services (including pharmaceuticals), manufacturing of auto parts (forgings, et cetera) and complete IT departments and networks. As confidence in India's abilities grows, more value-added work would come through.

Competitiveness in this sector would be sustained by declining/stagnating infrastructure costs (a case in point is the declining telecom rates which are a key cost for BPOs) and ample supply of skilled manpower.

As outsourced services tend to be people intensive (in 2002 it was estimated that 4 million jobs in the sector and support services will be created by 2008), significant benefits could be reaped by India over the next decade. Higher employment and better incomes would once again contribute significantly to overall economic growth.

5. Well-regulated and deep capital markets

The Indian stock and debt markets (including banks and mutual funds) are well regulated by the Securities and Exchange Board of India and the RBI. Not that there are no irregularities that are committed (we are still trying to book all the culprits of the scams that rocked the country in 1992 and 2000). But the overall regulatory environment has improved dramatically in recent years.

Redressal measures are well laid out and this makes it easier to protect one's interest. In terms of infrastructure the Indian institutional framework is improving rapidly, backed by a strong financial system. By some measures Indian markets compare with the best globally!

In terms of choice, the Indian markets are right up there. Be it stocks, mutual funds, deposits or life insurance. The market is deep and liquidity is no major concern for individual investors.

India today offers a great investment opportunity. To make the most of it, investors need to take adequate precautions while committing funds to India. One way you can minimize the risk of fraud or bad advice is by selecting a credible financial advisor.

Finally, a note of caution. There will be ups and downs. Things may even not turn out the way one expects them to. But then if you have done your home work well, you stand a better chance of meeting your goals.


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