Pre-Budget 2008-2009 Analysis by Investorline

Pre-Budget Analysis

WITH JUST few days to go for the annual budget of 2008-09, it is time to speculate as to what changes can be expected in this budget. Budget is an important & most awaited event in the economic life of our country, with key pronouncements on taxes, financial allocations and benefits, and on developmental agenda. But what changes can be expected? There are questions galore and the expectations from the Finance Minister are sky-high. Will this be the budget where building the infrastructure backbone of the economy be further advanced by extending support to the Bharat Nirman program? Will the budget bring in cheers to millions through a much-awaited cut in income tax rates? Or will the Finance Minister succumb to the electoral necessities and present a 'populist' budget? Will there be any measures to counteract the effects of the recession of the United States economy?

Economic Outlook:

The Indian economy has been one of the best-performing economies globally in CY07. The Government of India and the Reserve Bank of India (RBI) have been able to mitigate the threat of rising inflation and inflationary expectations through several fiscal and monetary measures. According to the Central Statistical Organisation estimates, the economy is on course to grow by 8.6% in 2007- 08. The government, in its bid to sustain the high growth, is looking at policy adjustments to capture the mood of the nation. This is especially in view of recent global uncertainties and developments. In earlier Bugdets, more emphasis was laid on reducing the inflation rate, but it is expected that in the current budget emphasis would be laid on both controlling the inflation as well as sustaining high GDP growth rate. Needless to say, these twin issues will remain high on the priority list of the Finance Minister, as he gives final touches to the Budget document. Along with these, increased allocations for a balanced and inclusive growth will be important for him in his last full Budget before the general elections in 2009. For the first time, direct tax collections have surpassed indirect tax collections which are in line with the developed economies across the globe. During the first nine months of the current fiscal, personal income-tax collections rose by50%and corporate tax revenues by 39.84% compared with the same period last year. Such a phenomenal increase in the net tax collection could be attributed to strong economic growth, better tax administration and relatively improved compliance levels. Finance Minister had indicated that there could be a significant revamp in the taxation schemes. The direct taxes could be reduced from the existing 33.6 per cent, inclusive of surcharge to about 25 - 30 per cent. Thus, the reduction in the direct taxes would come as a sigh of relief to the several individuals as well as corporate who are affected by the direct taxes. Reducing the tax rates could also provide an incentive to taxpayers to declare their entire income honestly so that the overall tax collections can be improved. Plus the surcharge on tax, which is paid, by individuals and association of people who have an annual income greater than Rs 10 lakh is expected to reduce. Currently, there is 10 per cent surcharge on personal and corporation income tax, which may plummet in this budget. It could come down to as low as 5 per cent. Partnership firms and domestic organizations, whose income is greater than Rs 1 crore would also benefit from this. With such positive signs on the tax compliance and collections front, the common man is definitely looking at great expectations from the finance minister.

Domestic and global developments that will shape Budget 2008-09:

We are probably in the midst of the strongest growth run in the post-independence India. All the structural factors necessary for a sustained high growth phase seems to be in place but some cyclical headwinds are probably making our journey a little more turbulent than what we would have otherwise liked. The key concerns for the 2008-09 year are: a) possible inflationary pressure from food and oil, b) a slowdown in the growth rate from the heights of the past two years, c) increased pressure on fiscal, and d) the continued availability to funds to complete the ongoing investment cycle at viable interest rates. Our achievement on growth front, over the Tenth Plan period was very close to target and it is no surprise that the Eleventh Plan wants to take us closer to our aspirational target of double-digit growth. While the growth process has gathered its own momentum, Union Budget 2008-09 is expected to remove the hurdles towards conquering the next frontier by extending the reforms process to reap long-term gains. In the short run, maybe a little demand fillip will do wonders for an economy where incoming data have been flashing some intermittent signs of growth concerns. Let us take a look at the economic and political backdrop against which the contours of the Union Budget 2008-09 will be drawn up.

1) Focus on GDP Growth & Sustained Balanced Growth:

With regards to the composition of GDP, the percentage shares of various sectors have largely changed. The percentage share of the agriculture in the total GDP has declined, on the contrary the percentage share of services in theGDPis rising faster. The percentage share of various sectors of India's Economy in the total GDP in the earlier years is as follows:

As to the above diagram, the contribution of India's agriculture to the total GDP of the country is experiencing a declining trend. On the contrary the percentage share of services sector to the total GDP is rising at a faster pace. In the latest data we can see that the share of services has increased to 55.1% and that of agriculture has reduced to 18.5%. Keeping in view the poor performance of the agriculture in India's Economy, the upcoming Budget 2008-09 is expected to come with more perks for the farmers in India. More over the Budget 2008-09 is expected to draw more attention on consumption led growth, which is needed for strengthening and sustaining the economic growth of the country. India's GDP growth has averaged about 8.8% over the past four years. This has been made possible by continued investments over these years, ably supported by growing consumption. The main focus of the government is to maintain the GDP growth rate as the recent weakness in global economies has added an element of uncertainty to the prospects of sustained high growth rates in the future. The target GDP growth rate for the Eleventh Five Year Plan is9%and this year's budget is expected to contain such measures, which will facilitate sustenance of healthy GDP growth rates. Towards this, continued measures for the power, roads, highways, ports and other infrastructure are expected. The fund requirement for this purpose is put at more than $450 bn (Rs.18 trn) over the 2007-12 Five Year Plan. Of these, the estimated requirement in the transport infrastructure segment alone is over Rs.6 trn comprising railways (Rs.2.5 trn), roads (Rs.3 trn), ports (Rs.740 bn) and airports (Rs.350 bn).

2) Political Angle to the Budget:

One thing we cannot ignore is that this will be the last budget of the current coalition government. The Lok Sabha election is due, in 2009, and the United Progressive Alliance, with the dispute over the nuclear deal with the Left, has been on the brink of divorce. Thus, the FM might not present a budget that could stir up a political storm and bring the ruling government down. He would rather play safe. We might expect a popular budget with the aim of appeasing specifically targeted sections of the voting community. Thus vote bank politics could again play a vital role in this year's annual budget. However, Finance Minister P Chidambaram would be in a tight corner to maintain a fine balance between fiscal discipline and political demands arising from the next General Elections. With the first year already gone without a Plan in place, political constraints in the second year of the Plan, will further diminish the chances of the Eleventh Plan (2007-11) being implemented in letter and spirit. This being the terminal year for the Fiscal Responsibility and Budget Management Act (FRBMA), the Finance Ministry will not be in a position to create extra resources needed to meet both political requirements and economic demands for growth. Indications are that the Budget will depend heavily on generating extra funds through Public Sector Undertakings. However, the Budget would have to make provision for the schemes already announced during the course of the year. Thus, funds would have to be provided for the Skill Development Mission, schemes relating to the agricultural sector like Rashtriya Krishi Vikas Yojna and the Food Security Mission, clubbed with additional commitments in the education and health sectors. Availability of funds will be further constrained, as both the Central government and States will have to earmark funds for implementing the Sixth Pay Commission Report. With the Railway Ministry already being asked to keep apart Rs 9,000 crore for this purpose, indications are that the burden on the Central government alone would be to the tune of Rs 30,000 crores. Mr Chidambaram would thus have to keep a careful watch so that inflation does not get out of hand while ensuring that positive trends in the core sectors of the economy are not adversely affected beyond a point. In short, the Budget is set to witness a tug of war between demands economic growth and political wish lists.

3) Focus on Inflation Control:

Headline inflation for most part of FY08 has been benign to say the least. This could be a positive outcome of a judicious mix of fiscal and monetary policies and could be highlighted as one of the success stories of last year's budget. Inflation management has been accorded top priority by policymakers across the globe. The conscious policy choice of reducing import duties and banning futures trading in some agri commodities has helped in reining in headline inflation numbers. Global inflation has been on an uptrend in the later half of 2007, riding on crude oil reaching the magical 3 figure mark and food prices forcing inflation to reach multi-year highs in both developed and developing nations. The apparent immunity of Indian inflation to these global developments should not be thought of as resilience. Although a rapidly appreciating rupee has mitigated some of the impact of imported inflation, there is still incomplete pass-through. Some harsh decisions need to be taken as early as possible to align domestic prices with international prices in both the energy and food sectors because increasing off-balance sheet exposure (oil bonds) is making the financial health of the government a little more fragile.

4) Education & Rural Development:

Education and Rural development would get top priority in the coming Union Budget as said by the Finance Minister. Education sector is being given importance as literacy alone could make India a super power. The UPA Government in the last three years had allocated Rs 28,600 crore for the education sector lending, of which Rs 17,636 crore had already been distributed. The amount was four times more than what was allocated during the BJP-ledNDA regime, the Finance Minister said. The government could announce a special scheme in the coming Union Budget. “It (the scheme) may be christened Rashtriya Madhyamik Shiksha Abhiyan (RMSA) and may be in line with the 11th Plan (2007-12) objective of improving gross enrolment ratio and also to reduce inequalities. A tentative allocation of Rs500 crore for preparation work for the scheme is being worked out to be announced in the Union Budget of 2008-09,” said a senior government official, who did not wish to be identified. The Centre plans to spend Rs 35,567 crore on improving secondary education in the 11th Plan and will contribute75%of the total funds required for the programme, with the states putting up the rest. In the 12th Plan, this ratio is expected to be 50:50. Rural development may get substantially more funds in this budget - about Rs 50000 crore from Rs 41000 crore last year. Allocations for rural development in the national budget have been rising steadily in India. In 2004-05, it was Rs 16000 crore, which went up to Rs 24700 crore in 2005-06 and Rs 31000 crore in 2006-07. It was Rs 41000 crore in the 2007-2008. Substantial increase is likely to be announced in the social sector schemes and those relating to rural development, including the Horticulture Mission, Rural Water Supply Scheme, Rural Sanitation Programme, Sarv Siksha Abhiyan, National Rural Health Mission, NREGP, Indira Awas Yojna (rural housing), Pradhan Manrti Gram Sadak Yojna, Accelerated Power Development Programme(APDP), Integrated Child Development Scheme, Jawaharlal Nehru Urban Renewal Mission, Rashrtriya Krishi Vikas Yojna, and Backward Region Grant Fund.

5) Capital Flows:

The other macroeconomic factor, which has dominated economic debates in the last year or so and will be a crucial consideration for this year's budget, is the deluge of capital flows that the country has received. Finance Minister has himself dubbed them as 'copious' and it seems that this process of receiving foreign flows is going to sustain for some time to come. While in FY07 there was a BoP surplus of USD 35bn on the back of around USD 46bn of capital flows, it will not be a surprise if both these numbers would double in FY08! Monetary policymakers have been torn between letting the rupee appreciate and intervening in the currency markets to inject more rupee liquidity, which could be potentially inflationary in nature. Rupee has been one of the strongest appreciating currencies in the Asian region in 2007 even while RBI has continued its policy of back-to-back intervention and sterilization of the rupee liquidity through issuance of Market Stabilization bonds and CRR hikes.

6) Stock Markets:

Riding on robust economic growth and extremely positive business sentiment, the buoyant and largely bullish stock market, has also contributed significantly to the excellent growth in tax collections, with collection of securities transaction tax (STT) growing by a sharp 57.61% in the current fiscal. To top it, increased investor interest in equities induced by strong economic fundamentals, robust flows from foreign institutional investors and an attractive short-term capital gains tax rate have also contributed to the increased tax collections. People are investing like never before and the per capita income has increased manifold. The government must be keen to capitalize on this investment boom and strike a balance between inflation and growth.

7) Mutual Fund Industry:

Indian Mutual Fund industry has recorded and astonishing growth of 71% in AUM in this year. The AUM increased from about 3.21-lakh crore in Dec 2006 to 5.49 lakh crore in Dec 2007. The mutual fund industry has become more mature now and has given more products this year. TheMFindustry also has certain expectations from the coming budget. Its wishlist includes: Indian mutual fund firms have asked the government to allow them to offer investors multiple tax planning equity funds, seeking relaxation of a rule that limits the options they can offer to customers. A regulation framed in 2005 restricts them to just one such fund or equity linked savings scheme (ELSS), limiting options for investors who have been increasingly using them to save tax. Two years ago, India allowed savers to claim tax benefit on investment of up to 100,000 rupees in ELSS, making them hugely popular among investors with assets of such funds rising nearly 25 times to 154 billion rupees in past three years The industry also wants fund of funds (FoFs), which invest in equity schemes, and other funds investing in overseas equities to be treated as equity funds to enable them to pay less tax. Indian regulations classify funds investing more than 35 percent of assets in foreign equities and FoFs as debt funds and subject to higher taxes, making them unattractive. Dividend Distribution Tax on corporates and equity and non-liquid Mutual Funds to be reduced to 10%from 15% at present. Dividend Distribution Tax on money market and Liquid Mutual Funds to be reduced to 10% from 25% at present. Sec 80C deduction level to be raised from Rs1 lakh to Rs3 lakh. Howmuch of this wishlist gets achieved waits to be seen, given our coalition based policy.

8) Managing the Exchange rate shock:

The recession of the United States economy has meant that the rupee has appreciated a great deal. The exporters are feeling the brunt as their profit margins continue to go down. It is predicted that this trend is likely to continue. The RBI is expected to address this issue through its monetary policy and tax cuts in order to reduce the load on the exporters can also be expected. The suddenness and the magnitude of the exchange rate shock has affected several sectors in the economy which were export dependent with limited import content and did not have enough profit margins. Anecdotal and industry estimates suggest possibility of huge job losses in several industries including textiles and the approach of Finance Minister to address this issue could be one of the highlights of Budget 2008-09. Most likely this is going to be the last budget of Finance Minister before the general elections. So there will be expectations from him to satisfy a large number of pressure groups who will be the key to electoral success. It will be the Finance Minister's endeavor to see that the resultant force of these often opposing demands does not lead to a lopsided budget, which will be a setback for economic reforms. The last piece in the backdrop for this year's budget will be the slowly unfolding global developments. After almost 4 years of unprecedented global growth, there is a possibility that the global economy might enter a phase of moderation in 2008, mainly on the back of a severe slowdown in the US economy. At a macro level budget policy formulation by the Finance Minister will have to take into account all the above factors.

1) Indirect Taxes:

In the previous Budget, the peak import duty was brought down to 10%. The Government is committed to bringing down import duties to Asean levels. In addition to this, currently there is an overriding concern of rising inflation. On the other hand, adequate protection is needed for several emerging/weaker sectors. Moreover, the Finance minister also has to consider the revenue implications. The slowing global growth can impact India's GDP growth, going ahead and consequently tax collections also. Taking into account these factors, we expect moderation in import duties with continued protection to few sectors. The Finance Minister has already indicated that diverse rates of excise duty on various goods are expected to converge at the Cenvat rate of 16%.We expect further steps in this direction. Growth in excise duty collections in the first nine months of FY08 has been about 5.1%, which is lower than the target growth of about 11% for the fiscal. Thus, there may not be significant reduction in excise duty rates.We also expect the CST rate to be further reduced from 3% levels, in line with the process started in the previous Budget. The contribution of service tax to overall tax revenues of the Government is lower when compared to the fact that services account for more than 50% of the GDP. For 9MFY08, collections from service tax were up about 37% YoY v/s a targeted rise of 32% for FY08. We believe the Finance Minister will bring in more services under the tax net to increase the contribution of services to tax revenues

2) Direct Taxes:

Direct taxes have been the high point of FY08, with collections having grown by40%in the first 10 months against the fiscal target growth of 17%. Exceeding indirect tax receipts for the first time, direct tax collection now looks set to cross Rs 3 lakh crore or (Rs 3 trillion) this fiscal. The budget estimate of a tax (both direct and indirect) to GDP ratio of 11.8% is likely to be exceeded. The government had set a target of Rs 2.67 lakh crore for direct tax receipts for this fiscal. The Government's initiatives for bringing in more people under the tax net have paid dividends with an increase in the number of taxpayers. The rising income levels of Indians have also resulted in more taxpayers. In the backdrop of a strong growth in tax collections, some relief to smaller taxpayers in the form of a higher exemption limit can be expected. Investments in long-term savings instruments may be encouraged with specifically directed tax exemptions. Some reduction in dividend distribution tax (DDT) is also expected.

Issue of Tax Compliance in Budget 2008 (expected)

On 6th of December 2007, the Finance Ministry announced the issue of tax compliance in budget 2008. It is learnt that the taxpayers would be benefited reviewing the direct tax rates and increasing the voluntary compliance. The level of tax compliance is increasing significantly for the last two or three years. During the fiscal year 2006-07, almost 31.9 million tax payers of India have filled their income tax returns, which is not an exciting figure at all keeping in mind the population in India. Government would like to get in more and more people to pay taxes in this fiscal. But the government has announced that it will focus more on the tax compliance issues. The Finance Ministry will not increase the maximum marginal rate of personal income tax further, for it may result in voluntary compliance. The Advisor to the Union Finance Minister of India has said that, the government will now be able to keep track on the ups and downs of voluntary compliance. Maximum marginal rate of personal income tax will be 30%. However, the base of the taxpayer is not large, as it ought to be because a big portion of the population of the Indian economy lies below the poverty line.

Sector Wise Expectations:

Automobilies:

Industry expects a uniform excise duty rate of16%for all cars- large and small. Currently, small cars are levied16%excise duty whereas all other cars and SUV's are levied 24%. Expectations of reduction of excise duty rate on two-wheelers from 16% to 12%or 8%.

Banking:

The moderating credit growth (22-23% YoY) and a relatively higher deposit growth would make RBI comfortable. The headline inflation has also moderated in the last couple of months. The interest rates have almost peaked and are likely to move southward from the next quarter purely due to demand and supply factors. Even though RBI has not given any signal by cutting benchmark rates, banks are expected to start reducing rates in due course of time. This is also evident from recent moves by many banks like SBI, Canara Bank, Allahabad Bank and Bank of India. Industry expects Relaxation in lock in period for savings to qualify for tax benefits, increase in ceiling for TDS on fixed deposits, tax exemptions on infrastructure financing. If the above expectations are fulfilled, it would have a positive impact on the sector as a whole and would help banks correct their asset liability mis-match. Increase in FII/FDI limits in PSU Banks from currently 20% to 49%. This would be a positive move, as it will help these banks raise capital for funding their growth and meeting the Basel II norms.

Capital Goods:

In the power sector, India expects to add a capacity of 80,000MWby 2012 and provide power for all. To attain this ambitious target, the Government had outlined a proposal for nine ultra mega power projects (each project having a capacity of 4,000 MWor more). Till date, only two of theseUMPPs have taken off. Investments in key industrial sectors are expected to soar to Rs.6924 bn over the next five years as compared with Rs.2274 bn worth of investments made over the past five years. Over the next five years, growth in investments will be driven by strong capacity additions, led by healthy growth in demand and high existing operating rates across some of the key industries. Reduction in excise duties on power equipment: Currently, while there is zero customs duty on mega power projects and 5% customs duty on non-mega size projects, excise duty continues to stay at 16%. Project developers are demanding reduction in excise duty to 8%, which is intended to translate into lower operational cost for consumers. Reduction in excise duty on energy efficient ACs: With a view to promote energy conservation, it is expected that the Government may reduce excise duty from 16% to 8% for ACs meeting Bureau of Energy Efficiency (BEE) standards. This should benefit consumer durables manufacturers like Voltas and Blue Star.

Construction:

Union Budget 2008-09 is expected to be positive for the infrastructure sector with higher budgetary allocations in different segments such as roads, irrigation, ports, airports, power etc. With infrastructure development requiring around $492 bn in the next five years, companies with significant experience in executing projects in this key segments are likely to benefit significantly.

Information Technology:

The IT/BPO services industry is expected to achieve 25% growth in FY08 to about $50 bn. Of these, exports are expected to grow by more than26%to nearly $40 bn. The sector has been facing significant challenges in FY08. Over the past three quarters, the challenge has been in the form of an appreciating rupee. The rupee has appreciated by about 10% in FY08, posing challenges for the sector and more so, for smaller companies. Since Q3FY08, the economic growth in the US has been slowing with an increasing probability of a recession. In case there is a prolonged recession in the US, the volume growth for Indian IT services/BPO sector can be impacted. Industry on the whole expects extension of tax exemption beyond FY10 & also Deemed fringe benefit at higher levels v/s IT service companies- should be treated at par. Nasscom expects extension of the Software Technology Parks (STPI) scheme beyond 2009.

FMCG:

India continues to remain a domestic consumption driven economy. To some extent, this insulates the Indian economy from global shocks in the form of a possible US recession or a financial credit crunch gripping other developed economies. Last year, the FMCG sector grew to Rs.750 bn at 10-15%, backed by growth in urban markets and a surge in demand for premium products. There are indications that the Sixth Pay Commission, expected to be passed this year, will recommend salary hike. This will put more purchasing power in the hands of the 4mn strong central government work force and induce households to upgrade to premium brands in personal care and non-durable consumer goods. Industry expects Relief on existing 16% excise duty on soaps and detergents & hoping reduction in the CST from 3% to 2%. Other expectations include reduction in VAT across food processing industry from 12.5% to around 4%. Reduction in CST will help boost consumption and demand buoyancy and would prove to be beneficial for food processing industry.

Healthcare:

Healthcare has emerged as one of the largest service sectors in India. Strong economic growth, along with increasing percapita income, growing healthcare awareness and expanding insurance coverage is creating a new and continuously expanding group of consumers. In the coming Budget the sector is hoping for incentivizing research and development, hoping to receive more tax benefits in order to enhance healthcare service/delivery. Significant medical needs of the Indian population provide huge potential for Indian healthcare service/delivery sector. This sector requires enormous investment over the next five years (approximately US$5 bn for bed additions). The Finance Minister may provide a boost to the sector's prospects by qualitative measures like, infrastructure status, increasing health spending allocation and providing incentives for the sector to grow.

Media:

From a longer-term perspective, it can be said that on the back of greater spending power, growing consumerism – offshoots of the healthy economic growth being projected -consumer discretionary sectors like media and entertainment will continue to enjoy healthy growth prospects. India's evolving demographics, with a high proportion in the income earning age, is expected to support consumption growth. Broadcasters are subject to levy of service tax@ 12.24% unlike print media that is exempt from the levy of service tax, therefore broadcasters expect parity to be drawn between the print and electronic medium. Multiplex alongwith the retail industry expects the removal of 12.36% service tax or allow set off against sales tax. Other expectations include reduction in excise duty and customs duty on equipments like set top boxes.

Metals & Mining:

Indian steel consumption is growing at a record rate of 12.6%. This is almost twice the 6.6% growth in supply (April-December 2007 period). India will turn net importer of steel for the first time in a decade as Indian steelmakers are struggling with greenfield expansions, primarily due to problems in mine allocations and land acquisition. Steel product prices are expected to rise sharply(>15%) during the year. However, unlike in the past, it would not boost the net profits of most of the Indian steel companies as the price rise is mainly driven by sustained raw material cost pressures. The environment is extremely positive for companies engaged in key raw materials of steel like coking coal, ferroalloy ores and iron ore. These companies are price takers and dependant of international product prices. Coal is fast emerging as a scare commodity. There has been sharp surge in coal prices globally driven by a massive fall in inventory levels and emerging supply constraints. Industry expects that customs duty of5%should be scrapped on import of coke and refractories. This move is very necessary for the Indian steel industry as it is unable to cope up with the sharp jump in coke prices, which is one of the critical raw materials and Indian industry is import dependent at large. Other expectations include cut in Import duty of nickel from present 5% to 2% & also reduction in ceiling on chrome ore xport. Current ceiling of 0.40MMTto be reduced to 0.30MMT.

Oil & Gas:

The Oil Ministry is seeking a series of tax and duty changes related to petroleum products retailing and energy exploration in a bid to reduce prices, subsidies and attract greater investment. Oil - FY08 has been negative for the Indian oil industry. With rising crude prices, the industry did quite well at the upstream front. However, the downstream sector faced severe problems regarding subsidies, taxes and pricing. OMCs continue to remain dependent on oil bonds. The practice of issuing oil bonds does not resolve the problem as it only defers the resolution while compounding economic and financial costs. Gas - The country's natural gas supply by FY10 is likely to more than double from current levels due to expected supply from the KG basin. Currently, a majority of the gas consumption in India is industrial, with city gas distribution (CNG and PNG) accounting for less than10%of the total consumption. Key expectations from this budget include equalization on import duty, which is presently 5% for crude and 7.5% for petroleum products.

Pharmaceuticals:

The pharmaceutical industry is facing several challenges like an appreciating rupee against foreign currencies, domestic pricing pressure and pressure on finding and developing new molecules. Given the huge potential held by the Indian Pharma sector, the Finance Minister is likely to give a boost to the sector's prospects by qualitative measures like reduction in duties, extending time line for exemption in respect of profits of a 100%EOU, tax exemption on income from intellectual properties. Industry expects to extend income tax exemption by another 5 years or till 2012, relaxation in certain conditions to avail 150% weighted average deduction on R&D expenditures. Expenditures on clinical trials and patent filings should be eligible for tax benefits.

Power:

In the Eleventh Five Year Plan period, the Government is aiming to add 78 GWcapacity and another 80 GWduring the Twelfth Five Year plan. Of the Eleventh Five Year Plan's additions, 50GWof capacity is already under construction and the orders for the rest are expected to be placed in the next six months. The Government has awarded three ultra mega power projects (UMPPs) and has plans to award another four projects. The recently awarded UMPPs and the other upcoming ones are expected to get an extension of tax holidays from 2010 to 2017, though they will continue to pay the Minimum Alternate Tax (MAT). The decision to extend is mainly due to noncommissioning of any of theUMPPunits by the stipulated period. To partially offset sharp spikes in prices of imported natural gas, the government is likely to withdraw the 5% customs duties for theLNGthat is used in the power generation projects. The above move will be welcome one for the power sector.

Aviation:

India's air carriers want the sales tax on jet fuel to be slashed to a uniform rate of four percent across the country and import duty to fall to five percent in the forthcoming budget to ease cost pressures. Jet fuel, which is almost three fourths costlier than international benchmarks, accounts for 40 percent of the operating cost of an Indian airline.

Pre-Budget 2008-2009 Analysis Report by Investorline (NJ IndiaInvest)

Read More

Markets on 22nd Feb 2008

Markets on 22^nd Feb 2008

Markets end in red on the back of weak global cues

The markets opened in the negative on the back of weak global cues and remained in a range for the rest of the session. They finally closed near the lows of the day. While the Sensex was down 385.61 points or 2.17% at 17,349.07, the Nifty lost 81.05 points or 1.56% to close at 5110.75. Broadmarket indices also fell but to a smaller extent as the BSE Midcap and Smallcap indices lost 0.97% and 1.01% respectively. The market breadth was negative as A/D ratio was 1:2 on the BSE. NSE cash turnover was Rs.10201.49 cr vs. Rs. 12193.69cr yesterday.

Sectorally, barring the BSE Consumer Durables and Healthcare indices that ended flat, all the other BSE Indices ended lower. The biggest losers were the BSE IT and Bankex which lost 3.06% and 3.14% respectively. Gainers from the index pivotals were Cipla, Hindalco and Maruti Suzuki. Major losers were Bajaj Auto, HDFC Bank, Satyam Comp, ICICI Bank and Infosys.

With the Nifty closing near the 5100 support levels which also correspond to the 200 day EMA, Monday’s trading session would be crucial. A close below these important supports could lead to a sharp fall and a testing of the 5000 and 4800 supports. We continue with our go slow approach on fresh long positions.

Read More

Indian Markets - A Smart recovery

Indian Markets  -  A Smart recovery

The markets opened in the positive on the back of strong global cues and then started to slip into negative territory post lunch. However, they soon staged a smart recovery in the last hour of trade to finally close with healthy gains. While the Sensex was up 117.08 points or 0.66% at 17,734.68, the Nifty gained 37.35 points or 0.72% to close at 5191.80. Broadmarket indices performed in line with the frontline indices as the BSE Midcap and Smallcap indices gained 1.05% and 0.64% respectively. The market breadth was positive as A/D ratio was 1.2:1 on the BSE. NSE cash turnover was Rs.12193.69cr vs. Rs. 12184.21cr yesterday.

Sectorally, barring the BSE Bankex and Capital Goods, all the BSE Indices ended higher. The BSE IT and Metals surged 4.77% and 3.83% respectively. Top Gainers amongst the index pivotals included Satyam Comp, Hindalco, Wipro, Tata Steel and Infosys. Losers were HDFC, ICICI Bank, BHEL, SBI and Grasim Inds.

While the main indices continue to remain rangebound a lot of stock specific action is being seen. We nevertheless continue with our go slow approach on fresh long positions due to continued global uncertainties and the fact that the main indices in India are yet to enter into a confirmed uptrend.

Source- Capital Markets

Read More

Market News 21st feb 2008

Market News 21^st feb 2008

 

FIIs turn buyers

Foreign institutional investors (FIIs) bought shares worth net Rs 1,585.10 crore on Tuesday, 19 February 2008, compared to their selling of Rs 115.90 crore on Monday, 18 February 2008.

FII inflow of Rs 1,585.10 crore on 19 February 2008 was a result of gross purchases Rs 3,788.30 crore and gross sales Rs 2,203.20 crore. The 30-share BSE Sensex rose 27.61 points or 0.15% at 18,075.66 on that day.

FII inflow in February 2008 totaled Rs 1,153.80 crore (till 19 February 2008). FII outflow in calendar year 2008 totaled Rs 11,881.90 crore (till 19 February 2008).

There are a total of 1,295 FIIs registered with the Securities & Exchange Board of India (Sebi).

 

Record date for Bajaj Auto scheme of arrangement is 25 March 2008

Hon'ble High Court of Judicature at Bombay has sanctioned the scheme of arrangement of demerger between Bajaj Auto, Bajaj Holdings & Investment and Bajaj Finserv and their respective shareholders and creditors.

Bajaj Auto has fixed 25 March 2008 as record date for determining the shareholders of the company, who would be eligible to receive shares of Bajaj Auto (new) and Bajaj Finserv in the ratio of 1:1.

The company made this announcement after the trading hours on Wednesday, 20 February 2008.

 

Government to invest $2.5 bn in SBI rights shares - REUTERS

The Cabinet on Thursday approved a government proposal to invest Rs 9996 crore ($2.5 billion) in the rights share offering by State Bank of India, the country's biggest lender, a spokeswoman said.

SBI, 59.7 per cent owned by the government, launched the rights share sale on February 18 hoping to raise $4.2 billion.

The spokeswoman said the government would issue special marketable securities, instead of an earlier commitment to issue bonds that would qualify for statutory liquidity reserves (SLR) of commercial banks.

The cabinet also modified an earlier proposal to invest Rs 100 billion in the rights issue. Banks in India are required to hold at least 25 per cent of their deposits in government securities under the SLR norm.

SBI is offering one rights share at Rs 1,590 for every five held. The sale is open for one month. "On receipt of the approval of cabinet, the transaction will be completed within this financial year," the spokeswoman said.

The funds will be used to meet rising loan demand in a fast-growing economy. Shares in the bank fell 1.2 per cent on Thursday to Rs 2,179.30 in a Mumbai market that closed 0.7 per cent higher.

The government is estimated to receive Rs 1450 crore in dividend and taxes from SBI in the fiscal year ending in March, the spokeswoman said. State-run firms in India that make profits are required to pay 20-30 per cent dividend annually to the government.

 

Markets may fall further, earnings not good enough: Goldman Sachs

Indian stocks remain expensive as the corporate earnings potential and various macroeconomic factors do not justify the current level of the market, despite its recent downslide, according to Goldman Sachs.

"With valuations still elevated, notwithstanding recent market weakness and domestic investor sentiment bruised by poor performance of the high-profile Reliance Power IPO, we reiterate our underweight stance and expect the market to retrace further, or at best mark out a volatile trading range," the global investment banking major said in its latest portfolio strategy report for Indian market.

Goldman Sachs analysts said that retail investors have been a key driver of the market's strong rise between August 2007 and January this year, but their "speculative enthusiasm" has been dampened.

Read More

Economy News 20th Feb 2008

Economy News 20^th Feb 2008

Govt asks public banks to provide interest-free loans to sugar mills

Central government in New Delhi asked the public sector banks (PSBs) to implement a sugar package involving the provision of interest-free loans to sugar mills and submit a compliance report in the next 10 days.

Finance Minister Palaniappan Chidambaram pointed out that three banks, namely Punjab National Bank, Indian Bank and Indian Overseas Bank, had already implemented the relief package.

Goverment to offer package to address credit needs of farmers:PM

On 15 February 2008, Prime Minister Manmohan Singh while addresing the annual general meeting of Federation of Indian Chambers of Commerce and Industry (Ficci) in New Delhi, said the government will soon come out with a package to address the indebtedness of farmers.

The minister pointed out that the share of agriculture in the GDP has been declining. He added that the importance of this sector for India's economy cannot be minimised this sector as it supports a significant portion of the country's population and also acts as a social safety net.

The package would look into the credit needs of farmers. The minister explained the goverment could not have a situation where 80% of the agri sector is outside the formal financial system and suffers from excessive indebtedness.

Read More

Third-Quarter Review of the Annual Policy Statement for 2007-08

Third-Quarter Review of the Annual Policy Statement for 2007-08

Monetary Measures:

· Bank Rate kept unchanged at 6.00%.

· The reverse repo rate and the repo rate under the LAF are kept unchanged at 6.00% and 7.75%, respectively.

· The Reserve Bank retains the option to conduct overnight or longer term repo/reverse repo under the LAF depending on market conditions and other relevant factors. The Reserve Bank will continue to use this flexibility including the right to accept or reject tender(s) under the LAF, wholly or partially, if deemed fit, so as to make efficient use of the LAF in daily liquidity management.

· CRR kept unchanged at 7.50%.

Other Highlights:

· Real GDP growth moderated to 9.10% in the first half of 2007-08 from 9.90% in the first half of 2006-07.

· Inflation, based on variations in the wholesale price index (WPI) on a year-on-year basis, eased to 3.80% as on January 12, 2008 from its peak of 6.40% at the beginning of the financial year and from 6.20% a year ago. Prices of primary articles registered a year-on-year increase of 3.90% as on January 12, 2008 as compared with 9.50% a year ago.

· Growth in broad money (M3), year-on-year (y-o-y), was 22.40% on January 4, 2008 as compared with 20.80% a year ago. Non-food credit by scheduled commercial banks moderated to 22.20%, y-o-y, as on January 4, 2008 from 31.90% a year ago

· There has been some improvement in the finances of the Central Government as the gross fiscal deficit has declined indicating that adherence to the Fiscal Responsibility and Budget Management (FRBM) rules in the current financial year is on track.

Stance of Monetary Policy

· The projection of overall real GDP growth in 2007-08 is maintained at around 8.50% for policy purposes, assuming no further escalation in international crude prices and barring domestic or external shocks.

· The policy endeavor would be to contain inflation close to 5.00% in 2007-08 while conditioning expectations in the range of 4.00-4.50% so that an inflation rate of around 3.00% becomes a medium-term objective.

· The rate of money supply has picked up coincident with a jump in the growth of reserve money, driven by the accretion to the Reserve Bank's foreign exchange assets. Moderating money supply in alignment with the indicative projections of 17.00-17.50% set out in the Annual Policy Statement of April 2007 may warrant appropriate responses, given the considerations for ensuring macroeconomic and financial stability going forward.

· The Reserve Bank will continue with its policy of active demand management of liquidity through appropriate use of the CRR stipulations and open market operations (OMO) including the MSS and the LAF, using all the policy instruments at its disposal flexibly, as and when the situation warrants.

· Barring the emergence of any adverse and unexpected developments in various sectors of the economy and keeping in view the current assessment of the economy including the outlook for growth and inflation, the overall stance of monetary policy in the period ahead will broadly continue to be:

o To reinforce the emphasis on price stability and well-anchored inflation expectations while ensuring a monetary and interest rate environment conducive to continuation of the growth momentum and orderly conditions in financial markets.

o To emphasise credit quality as well as credit delivery, in particular, for employment-intensive sectors, while pursuing financial inclusion.

o To monitor the evolving heightened global uncertainties and domestic situation impinging on inflation expectations, financial stability and growth momentum in order to respond swiftly with both conventional and unconventional measures, as appropriate.

The markets were expecting a rate cut by RBI which did not take place. This has resulted in hardening of bond yields which would be an opportunity to invest in them. However the overall stance of the monetary policy is neutral for the debt markets. As expected RBI sounded caution on the high money supply growth and inflationary expectations due to the high oil and agricultural prices. The growth in Money Supply was mainly on account of the forex reserves buildup in the last 1 year. Any slowdown in the reserves buildup would be a positive for the markets.

We continue to recommend investing in Income funds for a 1 year plus horizon as we expect yields to ease from the current levels. For 6 months to 1 year perspective, investments in short term bond funds are recommended. Liquid Plus funds are recommended for conservative investors with a 3-6 months horizon as they would be able to provide higher accrual income on the portfolio.

Source- HDFC

Read More

Markets on 19th Feb 2008

Markets on 19^th Feb 2008

Markets end on a flat note for the second consecutive session The markets opened in the positive and traded at higher levels until noon.

Thereafter, they witnessed selling pressure and marginally dipped in the red. They finally closed on a flat note. While the Sensex was up 27 points or 0.15% at 18,075.66, the Nifty gained 3.9 points or 0.07% to close at 5280.80. Broad market indices outperformed the frontline indices as the BSE Midcap and Smallcap indices were up 0.57% and 0.41% respectively. Market breadth was positive, as A/D ratio was 1.2:1 on the BSE.

Sectorally, it was a mixed bag. While the top gainers were the BSE Consumer Durables, Auto and Healthcare indices, the top losers were BSE Realty and Power. Gainers from the index pivotals include Bajaj Auto, Ranbaxy Labs, ACC and TCS. Losers were Rel Energy, Hindalco, DLF and ITC.

With the main indices continuing to trade in a narrow range for the second consecutive session, markets seem to lack direction for the moment. We recommend a go slow approach on fresh long positions.

Read More

Markets on 19th Feb 2008

Markets on 19^th Feb 2008

Markets end on a flat note for the second consecutive session The markets opened in the positive and traded at higher levels until noon.

Thereafter, they witnessed selling pressure and marginally dipped in the red. They finally closed on a flat note. While the Sensex was up 27 points or 0.15% at 18,075.66, the Nifty gained 3.9 points or 0.07% to close at 5280.80. Broad market indices outperformed the frontline indices as the BSE Midcap and Smallcap indices were up 0.57% and 0.41% respectively. Market breadth was positive, as A/D ratio was 1.2:1 on the BSE.

Sectorally, it was a mixed bag. While the top gainers were the BSE Consumer Durables, Auto and Healthcare indices, the top losers were BSE Realty and Power. Gainers from the index pivotals include Bajaj Auto, Ranbaxy Labs, ACC and TCS. Losers were Rel Energy, Hindalco, DLF and ITC.

With the main indices continuing to trade in a narrow range for the second consecutive session, markets seem to lack direction for the moment. We recommend a go slow approach on fresh long positions.

Read More

The story of Rupee Appreciation & Depreciation and Forex Reserves

Re falls, yields at two-week high

The foreign exchange and bond markets witnessed volatile movements on Monday, propped by global concerns and dwindling cash conditions in local markets.

While the rupee ended the day at 39.77 levels versus the dollar, bond yields rose to a two-week high. Rates in the inter-bank call money market rose to 8%. The rupee, which had closed at 39.67 on Friday, fell against the dollar as sentiment was hit by risk aversion felt in Asian markets which increased the probability of capital outflows.

In the domestic market, there was considerable demand for dollars from oil companies, while foreign fund inflows remained stunted. In the government bond market, demand for bonds was largely affected as most traders were wary of a severe crunch in cash conditions going forward. The central bank has not been intervening in the forex market as the rupee has been on a weakening mode, given that there are no significance dollar inflows.

The yield on the benchmark paper, the 7.99% bond maturing in 2017, ended at 7.54%, above Friday’s close of 7.51%. It rose to as high as 7.57% levels during the day. The market is taking cognisance of the liquidity drying up, and where the rates are headed towards, depends on what kind of cash conditions we see in the market,” said a bond dealer. Another factor is that companies will be making advance tax payouts in March, which will further take a toll on liquidity. (Full Story)



Rupee falls on oil payment, global concerns
The rupee eased on Monday on import payments, while a bout of risk aversion across Asian markets raised the prospect of further capital outflows from local shares, dealers said.

The partially convertible rupee ended at 39.775/785 per dollar, off the previous close of 39.672/682.

"Importer demand from oil companies which was not covered by the forward market caused the depreciation," said a trader with a foreign bank. "Plus, there were not too many inflows on the capital side," he added.

Inflows of foreign capital are a key driver of the rupee. Foreign funds have been net buyers of nearly $500 million of stocks so far this month, according to official data, after selling about $4 billion in January. (Full Story)


Rupee strengthens on strong Asian stocks, inflows eyed
MUMBAI: The rupee rose in early trade on Monday, with demand for the local unit bolstered by gains in Asian equity markets, which raised the prospect of higher foreign capital inflows, dealers said.

The partially convertible rupee was at 39.647/655 per dollar, a shade stronger than Friday's close of 39.672/682. (Full Story)


Dollar steadies as clues awaited to US econ health
TOKYO: The dollar steadied against the yen and the euro on Monday as many investors stayed on the sidelines ahead of US data this week waiting for further clues on the health of the economy.

The dollar slid late last week when US reports revived fears that the economy was slipping into a recession, but sentiment was improving slightly after a drop in Wall Street share prices on Friday was relatively limited, traders said. (Full Story)


Rupee weakens despite market rally; forward premia hit
MUMBAI: The bond market fell victim to uncertainty over a government official’s comments that special oil bonds could be used by banks to meet statutory liquidity ratio (SLR) requirements. The yield on the 10-year benchmark bond rose to a high of 7.54% during the day and closed at 7.51%, above its previous close of 7.45%.

Petroleum secretary MS Srinivasan had told mediapersons that the finance ministry had approved a move to allow oil bonds issued in the current fiscal year to be used by banks to meet their SLR requirements.

Banks reacted to the comment by selling bonds, only to hear that the finance minister had later clarified that he hoped the bonds, which are given to state-owned fuel retailers to compensate them for selling fuel at government-set prices, would be given SLR status. According to market sources, the minister’s comments resulted in a knee-jerk reaction by banks, which made considerable losses because of the rumour.(Full Story)



Forex reserves down $1.8 bn
MUMBAI: Bank credit has been showing signs of a gradual pick up over the past few fortnights. Data released by the Reserve Bank of India (RBI) in its weekly statistical supplement (WSS) show that bank-credit growth has risen to 22.8%. This figure has progressively risen over the past few weeks, from 21.5% in the second week of January this year. At current levels, the year-on-year bank credit stands at Rs 4.09 lakh crore.

Outstanding bank loans touched Rs 22,07,312 crore on February 1, up Rs 40,465 crore, from the previous fortnight’s levels. While food credit rose Rs 2,009 crore, non-food credit moved up Rs 38,456 crore during the fortnight. Simultaneously, outstanding deposits with commercial banks touched Rs 30,89,540 crore as on February 1, rising Rs 58,899 crore over the previous fortnight’s levels. While demand deposits rose Rs 57,794 crore, term deposits with commercial banks rose Rs 1,106 crore. Investments in government and other approved securities by banks dropped to Rs 9,50,589 crore as on February 1, down Rs 7,908 crore from the previous fortnight’s levels. (Full Story)

Source- Economics Times

Read More

Market Round Up - 19th Feb 2008

Market Round Up - 19th Feb 2008

FIIs in buying mode

Foreign institutional investors (FIIs) bought shares worth net Rs 1147.50 crore on Friday, 15 February 2008, compared to their selling of Rs 1183.10 crore on Thursday, 14 February 2008.

FII inflow of Rs 1147.50 crore on 15 February 2008 was a result of gross purchases Rs 3898 crore and gross sales Rs 2750.50 crore. The 30-share BSE Sensex rose 348.62 points or 1.96% at 18,115.25 on that day.

FII outflow in February 2008 totaled Rs 315.40 crore (till 15 February 2008). FII outflow in calendar year 2008 totaled Rs 13,351.10 crore (till 15 February 2008).

There are a total of 1,290 FIIs registered with the Securities & Exchange Board of India (Sebi).

CRISIL net profit rises 291.74% in the December 2007 quarter

Net profit of CRISIL rose 291.74% to Rs 27.50 crore in the quarter ended December 2007 as against Rs 7.02 crore during the previous quarter ended December 2006. Sales rose 102.54% to Rs 84.68 crore in the quarter ended December 2007 as against Rs 41.81 crore during the previous quarter ended December 2006.

For the full year, net profit rose 89.06% to Rs 70.67 crore in the year ended December 2007 as against Rs 37.38 crore during the previous year ended December 2006. Sales rose 73.99% to Rs 255.32 crore in the year ended December 2007 as against Rs 146.74 crore during the previous year ended December 2006.

PM confident of sustaining 9% economic growth

On 15 February 2008, Prime Minister Manmohan Singh while addresing the annual meeting of the Federation of Indian Chambers of Commerce and Industry (Ficci) in New Delhi, expressed confidence on sustaining a 9% annual economic growth despite a possible global slowdown.

The minister also cautioned India must be aware that it cannot be completely insulated from chilly global winds that may blow in its direction.

He further said keeping the lid on inflation rate was a priority for his government, but controlling the price-line did not mean growth would be sacrificed.

Amid fears that a hike in petrol and diesel prices might fuel inflation, he said the government has taken an important policy stand to keep inflation under check and ensure that growth is more inclusive. The minister termed inflation as iniquitous tax explaining that it hurts the poor more than the rich. Therefore, it is essential to ensure that the poor are not adversely affected by high inflation, particularly that of basic items of consumption.

Inflation down 4.07% in the week ended 2 February 2008

Annual inflation, based on the wholesale price index, moved down 4.07% in the week ended 2 February 2008 compared with 4.11% in the week ended 26 January 2008. Inflation was 6.58% in the corresponding week a year ago.

The market estimate stood at 4.16%.

Prices of fruits and vegetables decreased 3% and those of arhar, masur and condiments and spicesn reduced 1% each. Prices of jet fuel also eased in the week.

Inflation figure for the week ended 8 December 2008 was revised upwards to 3.845 as against 3.65% reported earlier.

An eventful week for US Market

Lots of events dominated the US during the week that ended on Friday, 15 February, 2008. But the best part was that indices registered gains for the week after, each shedding more than 4% last week. Market closed higher in the first three days of the week but slipped in the later two.

The Dow Jones Industrial Average gained 166 points for the week. Tech - heavy Nasdaq gained 17 points. S&P 500 added 18.7 points.

On Monday, 11 February, it was reported that effective 19 February, 2008, Bank of America and Chevron will be added to the Dow Jones Industrial Average in place of Altria Group and Honeywell respectively. But on that very day, another Dow component AIG led to Dows downslide.

AIG was a major drag on the market on Monday after the company clarified its prior disclosures regarding CDOs saying that it has yet to determine the decline in value of its portfolio, and is still accumulating market data to update its valuation. The stock slipped by 12% and Dow would have ended the day higher, if not for AIG.

But the biggest news of the week was on Tuesday, 12 February, when it came to light that Warren Buffett's Berkshire Hathaway has made an offer to several flagging bond insurers. Berkshire Hathaway has sent an offer to reinsure the municipal bond holdings of Ambac, MBIA and FGIC. Berkshire offered to take a liability of $800 billion, adding $5 billion of its resources. Berkshire pledged there would be no distribution or management fees taken for 10 years. Dow ended the day higher by more than 100 points. (Full Story)

Read More

Taxation - Budget Expectations- 2008

Taxation

Budget Expect: Tax exemption limit may be raised

New Delhi: Now that the budget is around the corner, there is some good news for all tax payees.

This budget may just bring about some changes in the existing income tax structure. CNN-IBN sources say the Finance Minister is set to juggle the Tax Slabs so that those with lower income pay less tax.

The current exemption limit of Rs 1 lakh, ten thousand for men is expected to increase up to Rs 1 lakh 25 thousand rupees.

However, it would be better to not expect any reduction in tax rates.

The lowest tax rate of 10 per cent is now likely to extend from Rs 1.25 lakhs to Rs 2 lakhs, instead of Rs 1.10 lakhs to Rs 1.50 lakhs as it is, at present.

Read More

Market on 18th Feb 2008

Markets end marginally in red

After opening in the positive, markets witnessed selling pressure and slipped into the red. The markets then traded in red for most part of the day but managed to close off the lows of the day. While the Sensex was down 67.20 points or 0.37% at 18,048.05, the Nifty lost 26.0 points or 0.49% to close at 5276.90. Broadmarket indices outperformed the frontline indices as the BSE Midcap and Smallcap indices were up 0.65% and 1.40% respectively. This explains the positive market breadth as A/D ratio was 2:1 on the BSE. NSE cash turnover was Rs.10,920.95cr Vs. Rs.14,206.78cr on Friday.

Sectorally, it was a mixed bag. While IT, Oil, Metal and Realty were the underperforming sectors, strength was seen in select Banking, Sugar and Fertiliser stocks. Gainers amongst the index pivotals were M&M, ITC, Hindalco, HUL and ICICI Bank. Losers were Satyam Comp, Tata Motors, TCS, DLF and BHEL.

With the main indices yet to confirm that they are in a fresh uptrend and also due to continued global uncertainties, we continue with our strategy of taking a small exposure with respect to fresh positions in order to get your legs into the door. Aggressive positions can be built up once the markets enter a confirmed uptrend.

Read More

News Round up- Economy (18th Feb 2008)

News Round up- Economy (18^th Feb 2008)

Insurance sector seeks 49% FDI

MUMBAI: The insurance sector has demanded a hike in foreign direct investment (FDI) limit from the present 26 per cent to 49 per cent and exemption of service tax for health insurances.

"For the growth of the insurance sector, the FDI cap of 26 per cent should be increased to 49 per cent. This will help to further deepen the Indian insurance market," Unison Insurance Broking Services' Managing Director, B K Sinha, said on the sidelines of an insurance seminar on Sunday.(Full Story)

 

 

HSBC hints at more investment in India

MUMBAI: Hoping to benefit hugely from the India-growth story, global banking major HSBC, hinted at more investments in the country once the regulatory environment permitted it.

The bank is understood to be open to adopting the inorganic route to grow in the Indian market as and when the regulatory environment become conducive for it.

"We are waiting for the right market opportunities in India and will increase our investment here, as and when the regulator allows us," HSBC's Head of Personal Financial Services, Asia-Pacific, Nicholas G Winsor, said. (Full Story)

 

 

New UK rules for money transfer to India

LONDON: The British government has introduced new rules for money transfer companies to ensure that the money, which is transferred from Britain overseas including India, are delivered safely and to the right person.

Annually, about 2.3 billion pounds are transferred from Britain overseas, most of it to 50 developing countries.

A large chunk of it, about 300 million pounds, is transferred to India every year, followed by Pakistan (200 million pounds).

However, individuals who transfer the money to India and other places face worries about the amount reaching the destination, and reaching the right person. (Full Story)

 

 

SEBI warns investors against 'Art Funds'

MUMBAI: The Securities and Exchange Board of India has sought to caution investors with regard to investing in Art Funds, funds/schemes launched by companies formed for the purpose.

The market regulator Wednesday said at present, no entity was registered with it under the SEBI (Collective Investment Schemes) Regulations.

At the same time, SEBI has threatened actions, civil and criminal, against such funds / companies and warned against launching of "Art Funds" or schemes without registration. (Full Story)

 

 

Tax collection needs to be balanced: Supreme Court

NEW DELHI: The Supreme Court has rejected the Kerala government's plea, seeking disallowance of tax exemption benefits to an assesee saying a balance should be struck between revenue collection and business-friendly approach.

"Tax administration is a complex subject. It consists of several aspects. The government needs to strike a balance in the imposition of tax between collection of revenue on one hand and business-friendly approach on the other," a bench comprising Justices SH Kapadia and BS Reddy said. (Full Story

 

 

Small investors expect populist budget

The UPA's Finance Minster is expected to deliver a populist budget and so the demands are running high. The small investors are hopeful of a tax cut. At present, income up to Rs 1,10,000 for men and Rs 1,45,000 for women attracts no tax. Experts feel that this threshold can be increased by another Rs 40,000. Since incomes have also risen significantly, the highest tax rate of 30 per cent should be applicable to salaries above Rs five lakh against the current Rs 2,50,00. This could translate into a cool saving of Rs 40,000.

Another way to save on tax is to invest up to Rs one lakh into tax saving instruments. Investors want their limit to be hiked but they are also demanding that the government should extend tax saving sops to a wide variety of options. Investors are also demanding that interest on fixed deposit savings should become tax free and MFs across the board should get a tax saving waiver instead of restricting this option only to ELSS schemes.

"Even if you increase tax slab, it will definitely help. Secondly, mutual fund as a method of saving is becoming more popular. It is an opportunity to create wealth and not just an avenue for savings or short-term speculation. Having burnt their fingers in the recent market correction, small investors would be looking for a silver lining in this year's budget. A cut in income tax rates is what everyone is expecting but at the same time, more money in the hands of investors, whether invested or spent, will also help spur growth

 

Rupee appreciates 15 paise

Mumbai: Overcoming the weakening trend of the past few days, the Indian rupee on Thursday appreciated by 15 paise against the U.S. currency at 39.61/62 in sync with the surge in domestic as well as Asian stock markets amid increased availability of dollar. The rupee moved between 39.60 and 39.73 at the interbank foreign exchange market. It had closed at 39.76/77 on Feb 13, its lowest level since November 28 last year.

The rupee premiums on forward dollar also recovered sharply on fresh paying pressure from banks and corporates. Foreign exchange dealers said anticipation of fresh capital inflows, the key driver for the Indian unit, in view of the rise in equity markets and expectations of foreign institutional investors turning active once again boosted rupee sentiment. A record FII inflows had pushed the rupee up by about 12 per cent against the dollar last year.

 

Other Stories

FM may cut duty to spur growth

Industry bodies like the Consumer Electronics & Appliances Manufacturers Association have sought a cut in excise duty from 16 per cent to 8 per cent. The general consensus, however, is that a moderate duty cut to 12 per cent could be in the offing.

 

Petro price hike just a drop in ocean for PSUs

IOC chairman said the increase in prices of diesel and petrol will substantially reduce the bonds in the next financial year.

 

India, China are not immune to crisis: IMF

The IMF MD also admits that the Fund had previously underestimated implications of the crisis in the US.

 

IT shrugs off recession fears

It is now clear that the IT and BPO sector will be hit by the US recession only in the future

Read More