Buying Property? You Have to Pay More Now...

If you are among the many home buyers looking for a property to purchase right now, there is a recent RBI directive that you should be aware of, that will impact your cash flows management.

As per one of the latest notifications by the RBI to banks, stamp duty, registration charges and taxes such as VAT and Service Tax are to be excluded from property value when considering how much of a loan to give the consumer.
Let's see what this means:

What is Stamp Duty?

Stamp Duty is nothing but a tax levied on documents. Different levels of stamp duty are payable on different forms of documentation. If a document is stamped, it is considered legalized and can be used in the future as having evidentiary value in Court. 
In Maharashtra, stamp duty is 5% of property value. 
Registration charges are 1%. Also consider VAT and Service Tax. 

On what properties is service tax applicable? What is the rate of service tax?

A builder or developer is also now liable to pay service tax if any payments are made by buyers, before the completion certificate is given. This cost is also passed on to buyers.

If payments are made after the completion certificate is given, then no service tax is payable. 
Hence if a property is under construction and you as a buyer pay a booking amount, this is considered payment towards sale consideration before completion certificate is given, and hence you will be liable to pay service tax at the rate of 10.30% of 25% of the sale value i.e. 2.575% of sale value.

What is the rationale behind the RBI notification?
In December 2010, the RBI indicated to commercials banks that they should not lend more than 80% of property value in case of properties worth more than Rs. 20 lakh, and not more than 90% for properties worth less than Rs. 20 lakhs. This was put in place to keep a check on what the RBI thought was excessive lending to the real estate sector.

On Feb 3rd this year, this notification came about because it was seen that in order to artificially inflate the property value so as to give bigger loans, stamp duty, registration and other charges were included as property value, which technically they are not. Adding these charges overstated property values, 

How does the RBI notification impact you?
Earlier, when you applied for a home loan, certain amounts were included in the property value on your loan application, these included stamp duty, registration charges, VAT and other government taxes. 
Now, this is all excluded. This means that you have to pay stamp duty, registration charges, VAT and in the case of under construction properties service tax too, out of your own pocket.
So while earlier a bank would give you up to 80% of your applied amount as a loan, depending on your home loan eligibility, now you will get about 70 to 75% as a loan, and will have to put up 25 to 30% of the total value as down-payment, stamp duty, registration and other charges.

So here, your cash flow management can become key.
(Read our article on How to Build Wealth with a Loan )

How do banks decide how much loan to give you?
A bank decides your home loan eligibility based on quite a few factors.
They will consider your age, whether you are salaried or a business person, how much your monthly income post tax is, your monthly expenses, your family, your spouse's income if any, and most importantly your existing liabilities. 
The idea is to assess your surplus monthly income to see how much of a home loan you can service without stretching yourself. They want to know basically whether or not you are a safe borrower for them. 

Let's see how this impacts you with an example.
Suppose our favourite fictional character Mr. Shah wants to buy a house. 
He has identified an under-construction property worth Rs. 50 lakhs.
Property Value:                  Rs. 50 lakhs
Stamp Duty @ 5%:            Rs. 2.50 lakhs
Registration Charge @ 1%: Rs.  0.5 lakhs
VAT @ 1%:                       Rs. 0.5 lakhs
Service Tax @ 2.575%:      Rs. 128,750

The total value to be paid will be Rs. 54,78,750.

Before the RBI notification, a bank would give Mr. Shah up to 80% of this value as a home loan, and Mr. Shah would put up 20% of the value on his own. This means Mr. Shah has to put up Rs. 10,85,750 as down-payment.

After the RBI notification, all these charges are excluded from loan amount.
The loan will be only up to 80% of the property value, excluding stamp duty, registration charges, VAT, service tax and other charges.

So the bank will offer Rs. 40 lakhs as a loan.
The remaining Rs. 14,78,750 will have to be paid by Mr. Shah.

Conclusion
It looks like this change is here to stay. The only way for you as a buyer to move, if you definitely want to buy a property, is forward. From a financial planning point of view, be sure to have your down-payment ready, taking into consideration the additional charges. You can build up your mutual fund portfolio to plan for your down payment, if it is a few years down the line.

Remember, since you are now taking a home loan for a smaller amount, your EMIs will also be lower, so think of that as a silver lining to your future cash flows.

Also keep in mind the cardinal rule when taking on a major liability: have adequate term insurance . This way in case of any unfortunate event, the loan will not devolve on to your dependents.

India's Economic growth sags to 6.1%

India's economic growth slowed to 6.1 per cent in the December quarter, the slowest pace in over two years, on weak manufacturing and mining.

High interest rates, rising production costs, stalled investment, policy paralysis and corruption scandals have all taken a toll on Asia's third largest economy.

The data released Wednesday for the December quarter mark a slowdown from the July-September quarter, when the economy grew 6.9 per cent. India's benchmark stock index was down fractionally amid gains in other Asian markets.

Agriculture grew 2.7 per cent in the October-December quarter from a year earlier, mining fell 3.1 per cent and manufacturing eked out a 0.4 per cent rise.

Indian policy makers have struggled with a toxic combination of high inflation and slowing growth. The central bank hiked interest rates 13 times before pausing in October and has urged New Delhi to unblock supply constraints to help fight inflation and better balance the budget, which will be presented in March.

The government now says the economy will likely grow around 7 per cent for the year ending March, down from earlier expectations of 9 per cent.

"This is a weak result for India, which has a potential GDP growth rate around 7 per cent," said Glenn Levine, a senior economist at Moody's Analytics.

He said the fall in fixed investment was "most disappointing," as it reflected declining business confidence and higher interest rates. On the bright side, private consumption continued to grow, a reflection of India's rising middle class, he said.

"The economy has slowed in the face of weaker external demand, rising global uncertainty, elevated interest rates, high inflation, a stagnant government, and declining business confidence," he said.

"This will cap growth in 2012, especially through the first half where GDP growth is likely to dip below 6 per cent before lower interest rates and a global recovery lift growth through the second half."

India to Launch ONGC Share Auction

India will auction a 5% stake in Oil & Natural Gas Corp. over the next two days for at least 290 rupees per share, or a 2% premium to Tuesday's close, in an effort to kick-start attempts to sell state assets and boost government revenue.

The ONGC share auction, which will be completed in a single day, will help the government narrow its fiscal deficit and bolster plans to set robust non-tax revenue aim for the next fiscal year starting April 1 after weak share markets derailed New Delhi's fund raising plans via stake sale in government owned companies. The ambitious floor price for ONGC share sale, which will help government raise at least 124.05 billion rupees ($2.53 billion), will bring the government closer to its aim to mop up as much as 400 billion rupees from such sales this financial year.

Oil Minister Jaipal Reddy told reporters that the government had decided to auction ONGC shares and had set floor price, which it will inform to the stock exchanges. He declined to give details. A senior finance ministry official, who didn't wish to be named, said that the price had been set at 290 rupees a share.

"Tonight we are sending a notice to stock exchanges," Mr. Reddy said.

The shares of the New Delhi-based company Tuesday closed up 1.02% at 283.55 rupees, while the broader benchmark index was up 1.64%.

The government, which owns 74.14% of ONGC, plans to sell 427.77 million shares, which will trim its holding in the company to 69.14%.

The government aims to narrow the deficit to 3.5% by March 2014, but heavy subsidies to artificially lower food, fertilizer and fuel prices and shield the poor from inflation have cast doubts over the government's ability to stick to its fiscal consolidation plan.

The ONGC stake sale is important to help control the budget deficit, which is widely expected to overshoot the targeted 4.6% of gross domestic product this fiscal year through March by as much as one percentage point.

India had set a target to raise as much as 400 billion rupees in the current financial year through stake sales in state-run companies. However, due to weak markets it has so far raised only 11.5 billion rupees.

Disinvestment Secretary Mohammad Haleem Khan said this month that the target was now almost impossible to achieve.

In the auction method, which was permitted by the capital markets regulator last month, founders of companies can sell part of their share holding via stock exchanges instead of conducting a full public offering, saving on paperwork and time.

In November, the government cancelled plans for a secondary sale of ONGC shares to raise more than $2 billion. It didn't give any reason for the cancellation but local media reported that the government wanted a higher price band than what was suggested by merchant bankers.

All About Finance: Top Story of the day: Investment

All About Finance: Top Story of the day: Investment: Where one should invest???? Like, we have various options for investment and various asset classes. Like saving bank balance, Bank F.D.s, ...

Budget 2012: Will the aam admi get some tax sops?

Budget being round the corner, the so called 'Aam Admi' would be curious to know if there will be any increase in their disposable income. Every year there is a general expectation from the individual tax payers on the budget proposals relating to personal taxation, especially on the tax rates/tax slabs. This expectation is further heightened this time due to the impact of global economic slowdown directly or indirectly impacting the growth in India and inflationary trends in the domestic market.

Let us first look at the change in tax slabs over the last 5 years. As seen above, the exemption threshold has been increased over the years. One needs to keep in mind that Indian tax laws do not provide any major deduction (other than a threshold of Rs 1,00,000 & mediclaim) for expenditure to salaried tax payers and all income above the threshold limit is liable to tax. The budget 2012-13 may bring some cheer to the Aam Admi as the government is said to be considering restructuring of income tax slabs as well as the income tax exemption limit.

According to various media reports, the new tax slabs could be in line with the Direct Taxes Code (DTC) Bill. As per the DTC, income between Rs 2,00,000 and Rs 5,00,000 per annum will be taxed at 10%, income between Rs 5,00,000 and Rs 10,00,000 will be taxed at 20% and income above Rs 10,00,000 will be taxed at 30%. These rates are nowhere close to the tax rates suggested by the first draft of DTC. The first DTC draft suggested 10% tax on income from Rs 1,60,000 to Rs 10,00,000 and 20% tax rate between Rs 10,00,000 and Rs 25,00,000 and 30% tax rate on income above Rs 25,00,000.

An increase in the basic exemption limit to Rs 2,00,000 for individuals below 65 years of age vis-a-vis the current limit of Rs 1,80,000 would be a welcome change.

Currently, the highest tax rate of 30% is applicable to income above Rs 8,00,000 per year. This limit could be enhanced to Rs 10,00,000, thereby resulting in some savings and also aligning the slabs with the proposed DTC.

For easy reference, a comparison of the current tax rates and the tax rates under the proposed DTC is laid out below: Despite the rejig, the taxes paid in India by individuals are still among the highest in the world. As per the recent media news, the Indian companies during their customary pre-budget meeting advised the finance ministry to retain the tax rates at existing levels but increase exemption limits to promote growth or consumer spending. A rejig in the tax rates as well as the tax slabs may encourage higher tax compliance by individuals.

As India steadily progresses with the economic transition from a developing to a developed country, realignment of tax laws in line with such developments become priority for effective growth.

Source: ET

See 5750-6000 on Nifty; banks to lead upmove: Barclays Cap

Despite the past few days of consolidation, the trend remains upwards, says Dhiren Sarin, chief technical strategist at Barclays Capital. In an exclusive interview to CNBC-TV18, Sarin says "the sharp 350 point fall is likely a temporary correction at best and we will resume higher ultimately."

According to Sarin, buying interest and easing crude prices will aid the Nifty to move to 5750-6000, and adds that bank stocks will lead the upmove. Despite recent gains, however, Sarin says he needs more confirmation before he calls this rally a bull market.

Unlike 2011, Indian equity indices are actually outperforming the S&P 500, which is another positive sign according to Sarin. "We believe the S&P500 would be looking for a correction in March as it reaches its near-term top, so be sensitive to a correction," he said.

Below is an unedited transcript of his interview. Also watch the accompanying video.

Q: How is the technical picture looking for the Nifty after the sharp pullback of the last five days?

A: Well, let's take a step back and see what's happening with the Nifty over the last couple of months first because we would like to look at it from a bigger picture before we hone into the nitty-gritty details. The Nifty is actually starting to outperform the S&P 500 over the last couple of months; that is fresh news or fresh development given that it was underperforming for well over a year. So the bigger picture is quite positive for the Nifty.

This reversal we saw over the last couple of days and the sharp 350 point fall is likely a temporary correction at best. There is a 200 day average which comes at around 5,170, some more support below 5,100. That should setup a decent base for the Nifty and we will resume higher ultimately.

Q: So what kind of medium-term targets are you setting now on the Nifty given the point you just made?

A: I think given that this massive downtrend has just turned and we are seeing a lot of buying interest, even decent volume on this move higher in the Nifty, we think 5,750-6,000 is the reasonable target in the coming months.

Q: Are you marrying that in with targets that you see on Bank Nifty as well?

A: The banking stocks in the US are doing quite well and I think those are the leaders that we should be looking at. As long as those continue to do well, I think the world should hold up as well. In terms of the Nifty itself, I think given this positive outlook in the Nifty, banking is a high-beta sector so it should also respond positively.

Q: How are the global investors looking because the S&P 500 has been remarkably strong? Any signs of topping out that you are witnessing or experiencing around this 1,370 area or do you think that has more upside from here?

A: We have had a 10% run higher this year so far and that's been almost in a straight line rise, so we are little bit concerned especially as the S&P tests these peaks of last year around 1,371. There is a long-term level that comes around 1,381 as well, so ideally we would be looking for a correction in March and a near-term top.

But we don't want to jump ahead of ourselves. Right now the market is not showing many topping signs, so we are going to stick with the uptrend but just be sensitive to a correction coming into March.

Q: The price of crude, which has now gone up to USD 124-125, has been worrying everyone in India. What do you see there technically?

A: I think what's more important than the price of crude is going back to the Nifty because the Nifty is being impacted by these higher prices and in turn that starts to affect the rupee; there is a trickle on feedback loop effect.

We think that crude oil is also a self-correcting mechanism. For instance the Nifty is pulled back and the crude oil markets as well are starting to pullback showing some near-term signs of being tired. Ultimately, we think that this is self correcting mechanism. As crude oil prices correct lower the Nifty finds reason to rebound back and then in turn that feedback loop continues.

Q: The other one that emerging market watchers tend to track carefully is the dollar index. Any targets on that?

A: Well we think there is a little more downside on the dollar index, another couple of percent. Just keep in mind the biggest component of the US dollar index is the Euro itself and secondly the Yen. We are starting to see the dollar weaken against the Euro but strengthen again the Yen, so there is a bit of a mixed signal there.

Although we are near-term bearish on the dollar, it's likely to be quite a choppy move lower for the dollar index itself.

Q: Aside from the banks, any other heavyweights that you are betting on in order to get the Nifty to that 5,700 mark?

A: I think we should be looking globally here. As much as the Nifty can rise on its own, we find it hard to see it rise if the global backdrop isn't looking positive. So again, let's switch to the US markets. The biggest component leader that is pushing this top side is the NASDAQ; the technology stocks which we are seeing at post levels not seen in over 10 years. So the technology sector in the US is the primary key over here for this bullish move.

Q: How are you classifying these moves in global markets? Are these bull market kind of conditions that you are witnessing technically speaking or are you still saying this is a bearish kind of market and within that framework this is a powerful pullback rally?

A: That's a very good question, probably something that is under lot of investors' minds. We do think this is a bull market move that's panning out, but we would become more confident as levels are taken out to the topside. Turning into a bull market is more like a process, not an event. It takes some time to unfold and it unfolds in steps.

If the S&P takes out 1,381 and closes strongly higher, that will start to initiate more bullish thinking. There is one concern here that I must point out is that the volumes have been low for the DOW and for the S&P, but then again they have been consistently low for months as this rally has panned out. So for the time being we are prepared to ignore that fact.

Source: Money Control

Experts eye 6.4% Q3 GDP; services growth to be decisive

Experts tell CNBC-TV18 that the GDP growth figure for the third quarter, due tomorrow, could be as low at 6.4%. Speaking to CNBC-TV18, senior economist and Royal Bank of Scotland, Gaurav Kapur, said that the number to keep an eye out for is the services growth. "If that comes above 8.5%, it will push the number closer to 6.5% and vice versa. So services will be the one critical thing to look at," he said.

Chief Economist at Yes Bank , Shubhada Rao agrees, but expects the sector to grow by 9.6%. "What really has been a drag is mining," she said. Yea Bank anticipates mining sector to see a de-growth in the third quarter. Rao further adds that "agriculture, industry and services, services sectors will be the ones which will provide support to our 6.4% forecast for the third quarter."

Also read: GDP growth may be slowest in over 2 years

On the whole, Kapur says that while the headline number might disappoint, the devil is in the details, so they should be scrutinized to determine what they point at for the coming quarters.

Below is an edited transcript of his interview with Latha Venkatesh and Ekta Batra. Also watch the accompanying video.

Q: What are you working with and what else would you watch out for other than the topline GDP number?

Kapur: We are looking at a number slightly lower than 6.5%. It is about 6.4% to be precise going by the very dismal IIP growth of 1%. For the farm sector, because of a very high base last year, we are looking at 5%. It will be crucial to see how services perform because a number anything above 8.5% will push the number closer to 6.5% and vice versa. So services will be the one critical thing to look at.

The other thing of course will be the expenditure-wise classification of GDP. There again we know that this particular quarter, the investment activity was particularly weak whereas consumption held on. So we would perhaps need some kind of a reiteration of that. We would like to tie in with the overall estimate of CSO for the whole year which means that if with 1% growth in this quarter, you should see some improvement in the next quarter in manufacturing sector in particular for us to see 6.9% or even 7.1% kind of growth is what the Prime Ministers Economic Advisory Council has suggested.

So I think the devil really will be in the detail. The headline as you said might disappoint but one should look at the details as to how they look like and in terms of what they point at for the coming quarters.

Q: What about you? What kind of a number you think might scare the Reserve Bank into taking some kind of a rate action or March 15th?

Rao: I think quite clearly a sub-6%, somewhere between 5.5-6% would be alarming enough because these are the growth rates which we saw post-Lehman. I think the average was just about touching 6%.

We have seen sequentially the headline GDP number dropping starting from June to September. If it indeed slips below 6% in the December quarter, quite clearly that would be a bit of an alarm and would probably prompt to Reserve Bank of India to review their intended actions.

I think quite clearly services have remained very resilient. We are at 9.6% for services for the third quarter. What really has been a drag is mining which is going to be probably clocking the lowest ever in terms of headline growth of negative 4.6% is what we are anticipating.

Proxy indicators for construction seem to suggest that the sector will move up from 4.3% in the preceding quarter to say close to 5%. But overall, if I were to look at the sectoral indices, agriculture, industry and services, services sectors will be the ones which will provide support to our 6.4% forecast for the third quarter.

Q: So you are placed at 6.4% for Q3, but what about FY12 as a whole and also in terms of services specifically for Q3?

Rao: Q3 as I said, services is 9.6%. For FY12 GDP we are looking at a 7.1%. We haven't yet changed our forecast; we are looking at a marginal improvement. I would like to reiterate that probably this is the quarter where growth has bottomed out, the October-December quarter. In March we are expected to see improvement at least on some bit of services and agriculture and within industry in construction.

So overall, we could see minor slippage in services in the last quarter but aggregating it, the GDP would be totally at about 7.1% as per our estimates. On expenditure, I quite agree with Gaurav that investment has been continuously slipping.

But also a point to keep an eye on would be the drag of net export. Now the third quarter also had a deeper net export, negative zone. So I think that also will be a drag on expenditure side while consumption may have held up relatively better but it would be investments and net exports which would overall continue to drag.

Q: We have got four years of falling gross fixed capital formation and gross savings rate. Would this quarter only add to that trend?

Kapur: It looks like. I don't think there will be any significant change in the trend from what we have seen so far. In fact as Shubhada also pointed out, this particular quarter, perhaps the economy bottomed out. We know that looking at the IIP data at least it is very clear that the investment activity really is where all the slowdown was largely visible. So I wouldn't be surprised if we do see a contraction year on year in Q3 in terms of gross fixed capital formation.

Q: And you don't think that number would be enough to propel the Reserve Bank to do anything in March?

Kapur: Not really. I think if the overall headline number falls below 6%, and that too if it is on account of a slowdown in private consumption, that's when I think RBI will take a notice of it. It's a well known fact, when RBI reiterated its new GDP forecast in the previous policy, they mentioned 7% growth. They would have taken into account the slowdown in the investments.

But if consumption is holding up, it means that along with supply side pressures now emerging again from oil, you also have some support from demand in terms of inflation. So RBI could take some more time if it's really investment activity which is contracting because that's a well known fact. I don't think that adds any new information for the RBI.

Source: Money control

Experts warn mkt may slip more: So, which stocks to bet now

It's been a scary start to the week with the indices suffering deep gashes. The broader markets lead the fall and the global markets too did nothing to help. From a peak at the 5,600 level last week, theNifty tumbled all the way below the 5,300 today losing over 148 points. Indian equities underperformed global peers today. The Sensex fell 477.82 points or 2.67%, to close at 17,445.75 led by selling in 28 stocks.

Meanwhile, the Nifty lost 148.10 points or 2.73% at 5,281.20, extending from previous week's 2% loss. European markets were down 0.7-1% while the Dow Jones futures dropped over 50 points.

So, is this just a beginning of a deep wound?

Investors and expert are nervous and worried that the pain may last a little too long than anticipated. Sudarshan Sukhani of s2analytics.com warns that the decline could go longer in terms of time and the correction is probably going to be fairly deep.

Agrees Ambareesh Baliga, COO, Way2Wealth that it will last long as in the last week there was no broader participation and no bull rally can actually last too long without it. Baliga suggests buying at around 5200 partially and then buy most of whatever one wants by the time the market comes down to 5000 levels.

Nirmal Jain, Chairman, IIFL echoes a similar sentiment pointing out that oil prices have firmed while rupee is at an all-time high which may add up to dampen the rally for long.

Though the correction was expected it's the nature of the fall that has unnerved investors who were positive on buying into dips. Prakash Diwan, Asit C Mehta Investment feels that interest will return to the market as it regains some strength. "5,200 would see a rotation of the stocks in the Nifty and the sensex but it would see some sort of a support coming through," Diwan reiterates.

"We had a very heady run, it's already been sharp but it could get sharper correction," adds Jagdish Malkani, Member NSE/ BSE.

'Oil'y woes

No doubt the market faced severe profit booking pressures but oil heading toward USD 130 per barrel too added to the woes.

Indicating that it is one of the biggest concerns that investors are scared of, Saurabh Mukherjea, Head Of Equities, Ambit Capital warned that if USD 130 is crossed then the Reserve Bank of India may cut rates by 60 basis points rather than only 100 basis points over the next six to seven months.

"It is playing on investors mind especially playing on the minds with regards to banking stocks and the broken balance sheet plays which has 60-70% in the calendar year today," Mukherjea adds.

Baliga too feels that the RBI is likely to be pressurised if oil prices touch USD 140 per barrel.

"Crude is the most important trigger because that will impact our monetary policy also. If crude oil prices remain then you will see headline inflation numbers also tend to go up and then given whatever RBI has done in last two years, people would expect that they will refrain from interest rate cut and a fear that they will start talking hawkish," Jain reiterates.

Triggers- UP election results or Budget?

There is a lot of hope building up for the UP election results scheduled on March 6 and the Union Budget on March 16. Most experts feel that both the big events are likely to give required impetus to the market.

"It could break those 5000 levels in case both the election results and Budget are negative. But all of us still live on hopes," Baliga elaborates.

However, Jain feels that the UP elections will result in a hung assembly. "What everybody is betting on is Congress along with SP will make the government, but if Mayawati comes back to power then market may not like it or if there is a complete chaos in terms of nobody in any position to make a government then also I think that will not be taken positively by the market," Jain adds.

Best bets

Jain suggests not to get into profit booking mode unless one is leveraged. He suggests sticking to defensives with no exposure to real estate, capital goods and infrastructure.

"Remain invested in defensives, which is FMCG, pharma and whenever there is a correction then probably you can take some exposure to banking sector, but there also one has to be very careful. If the market corrects further you can try and increase your exposure to banking, but other than that remain in defensives and very select IT sector," Jain adds.

Mukherjea advises that high quality balance sheet stocks are attractive while it is best to exit weaker balance sheet names especially banks. His bets are Voltas , Torrent Power and Tata Power .

Diwan suggests going for more defensives, especially the stocks that had run up much and have come down quite a bit as they will start offering decent valuations over reasonable long term perspective.

How to buy stocks in an over-bought market

The sharp recovery in the markets has taken most participants by surprise. The Sensex has moved up 22% over a period of 64 days, making India the best performing market since the start of this year. A Credit Suisse report says this rally is the second-longest since 1995. Foreign investors are once again looking at India favorably, and so far have pumped in Rs 27,000 crore in 2012.

No wonder, there are many smiling faces around Dalal Street, and many of them are sure that the good times are back again. Really? "The market is seeing a lot of interest from investors. Though concerns on oil and the Eurozone remain, low valuations and a GDP growth of 7-7.5% indicate the worst is behind us. Every dip is a buying opportunity," says Kartik Mehta, AVP (institutional research), Sushil Finance.

STRATEGY TO CHOOSE STOCKS

Before you call up your stock broker, there are a few things you need to keep in mind. One, nobody has anticipated this turn around, just go back to the predictions of the talking heads at the beginning of the year if you want a proof. Also, the current rally has been broad-based. That means almost every stock has gone up, and you have to be very careful while picking up stocks. "Since the rally has been sharp, valuations are high, so wait for a correction before you enter. Pick your stocks carefully and stay invested for 12-18 months as the markets are expected to be volatile in the medium-term," says Abhishek Jain, head of research at JHP Securities.

"Look for stocks whose prices have not moved up in the recent rally despite good results and strong fundamentals," says VK Sharma, head - private broking and wealth management at HDFC Securities. He gives an example: Gujarat State Petronet (GSPL), where the company posted a net profit of Rs 392 crore for the 9-month period ended December 2011, against Rs 356 crore for the 9-months ended December 2010.

However, the stock price has moved up to Rs 75 from Rs 72. He is also recommending companies which came up with IPOs during 2008-2010. "If the company is reporting good financial results post IPO, but the stock continues to trade below the IPO price, it could be a buying opportunity," says VK Sharma. One such stock which he has identified using this strategy is VaTech Wabag from the water treatment industry. While the IPO was offered at Rs 524 (adjusted for split), in August 2010, the stock now trades at Rs 436.

With the results season over for the third quarter, another way to spot stocks could be to look out for companies where stock prices have been beaten down due to one-off poor results. "Thermax and Cummins have been beaten down due to poor results. However the order book for these companies are strong, the management commitment is high, thus providing a buying opportunity for investors," says Kartik Mehta. Then there are analysts who recommend value stocks.

SBI decides to cut interest on education loan

The country's largest lender State Bank of India (SBI) has taken in-principle decision to slash interest on education loans by up to 1 percentage point.

"The bank has taken in-principle decision to cut (interest on) education loan," SBI Managing Director and Chief Finance Officer Diwakar Gupta said.

"Announcement would be made soon. The bank will issue the notification shortly," he added.

Without giving details of quantum of rate cut, he said, it may be up to 100 basis points.

Interest rates on education loans range from 12.25 percent to 14.50 percent, depending on their quantum and the duration.

The education loan book of SBI constitutes under 7 percent of its Rs 1.75 lakh crore retail loan portfolio. In the quarter ended December, the bank saw its education loan books swell by 14.17 percent.

SBI is also offering a concession of 50 basis points on interest rates for loans given to female students.

Earlier this month, SBI Chairman Pratip Chaudhuri had said the possibility of a reduction in base rate at this point of time looks bleak as the bank has absorbed last three RBI policy rate hikes without raising its base rate.

The lender's base rate stands at 10 percent as of now, which is the lowest in the country.

About the possible slashing of home loan rates, he had said the possibility was "less".

"The possibility of (reduction) in home loans is less as the rate is 10.50 percent and the base rate is 10 percent. Hence, the possibility is less. Moreover, the tenor of a home loan is 25-30 years, (so) we have to think about it a lot," Chaudhuri had said.

He, however, had said in case of further CRR cut by the central bank, the entire rate structure will come down.

On January 24, the Reserve Bank had reduced the cash reserve ratio (CRR) by 0.5 percent to 5.5 percent to infuse liquidity into the system, and indicated a reversal of tight money policy stance.

PTI

Top Story of the day: Investment

Where one should invest???? Like, we have various options for investment and various asset classes.

Like saving bank balance, Bank F.D.s, Corporate FDs, Life Insurance, Gold, Equity (Mutual Funds, Direct equity, F&O, Private equity).

Return varies in all these options as risk increases.

So, where a person should invest? how to accurately judge one's risk profile. It’s almost impossible.

But one can see their age, their present and future potential income. And they should cover their major risk like life risk with a term policy, and after accessing these things they can go for risky investments.

After accessing risk they can diversify their investment into various asset classes. Always have a basket of investment; never keep your money in one basket.

House view

FII inflows keep stock markets on uptrend

The stock markets remained choppy last week after touching a six-month high. The markets began on a strong note in the beginning of the week, on the back of the Greece debt deal. However, later there was some profit booking due to concerns on the economic slowdown in the Euro region. The F&O series expiry also put pressure on the markets. There was a good run-up during the month and traders preferred to book profits.

The market sentiment is bullish, supported by strong foreign institutional investor (FII) inflows, and supportive global and domestic factors. The US has been posting positive economic numbers over the last few months, and fears of the Euro zone crisis have subsided a bit.

On the domestic front, the inflation rate has come down and there are strong expectations that the Reserve Bank of India (RBI) will start softening the monetary policy in the coming months. However the valuations in the markets are no longer cheap, and are in an overbought zone. Small investors should not get carried away by the positive sentiments, and should take a cautious.

In the currency markets, the rupee strengthened further against the dollar due to the FII inflows and is in a narrow range.

These are some major factors that kept the markets ticking in the recent past and are expected to influence the movements in the short to medium terms:

Concerns in Euro zone

In Europe, the long-awaited and much-tracked development came through last week as Greece struck a deal with financial institutions and secured a financial bailout. After agreeing to the strict austerity measures, Greece managed to win the confidence of its lenders and secured a loan of Euro 130 billion.

The deal is expected to bring down Greece's debt from 160 percent of its GDP to 120 percent, and provide a window of opportunity to control its expenses in a planned manner. However, analysts are taking a cautious stand on the Greece bailout fund as the economy is in a severe slowdown. The new programme will push the country even deeper into recession and can lead to a default on its debts further down the line.

The latest economic data shows the Euro zone economy might slip into a recession this quarter. The manufacturing sector is already in a slowdown and the recent contraction in activity in the services sector has fuelled negative sentiments. On the other hand, the unemployment rate is very high in the region at above 10 percent. Spain and Greece are reporting higher unemployment numbers. Investors should remain cautious in the markets and track FII inflows to get a sense of near-term market direction.

Commodities strong

The commodity markets had some positive movement over the last couple of weeks due to the easing of uncertainty in the Euro region. Metals and precious metals had a bounce-back as the Euro gained ground against the US dollar. The price of crude oil also remained high due to uncertainty over Iran as well as the positive developments in the Euro region.

Analysts are expecting commodities to remain strong and go through more appreciation based on the developments in the Euro region in the near term.

Source: ET

Stock market rally creates opportunity for investors to book profits

The stock markets have gone up significantly over the last couple of months. They seem to be set for a correction. Analysts have been saying investors should book some profits and enter again at lower price levels. Profit booking is a sensitive issue. The decision to book profits is quite personal to an investor. Often, investors get sentimental with their investments. In such cases, they miss opportunities to book profits, or exit at the appropriate time.

These are some strategies to help you make a systematic exit from investments and avoid missing opportunities:

Set a target

An exit target is one of the most basic of strategies to exit from positions. However, sometimes, it is not easy to execute these strategies when the opportunity comes up. Therefore, analysts suggest setting a target, and once the target is reached, start exiting gradually from the investment.

It is also advisable to book profits regularly in small quantities whenever there is some significant price movement. These smaller milestones can be set in steps of 10 to 20 percent price movements. Regular selling and booking profits enables you to average out opportunities and use them in a systematic manner.

Identify sell signals

Picking a sell signal is a bit more involved step. This requires time and closely tracking developments around the companies of interest and markets in general. There are many factors you need to track to identify sell signals.

Here are some:

Results

You can track the quarterly results of the company. Sometime, the results indicate the business conditions and challenges clearly, which show a clear-cut sell signal. Otherwise, you can refer to expert advice on various sectors and stocks to pick out sell signals.

Negatives for sector

A sell signal for a particular sector or stock can be identified from relevant negative developments. Although the performances of specific stocks may vary depending on company-specific performance, a sectoral under-performance gives a clear guidance to investors to start off-loading.

Sharp movements

Sharp upward of downward movements in a stock's price is a signal to book profits. Often, investors do not book profits or exit due a sentimental attachment to their stocks and lose the opportunity. In case of not being able to decide, investors should book part profits.

Take informed decisions

It is very important to be careful while investing in equity-related instruments, especially if you are investing in stocks directly. It is important to get sentiments out of the way while taking decisions, especially exit decisions. Sometimes, in case of bad investments, you should be ready to take a loss and exit. This hard move enables you to protect your capital which can be invested again in stocks or instruments with better prospects of growth rather than losing the entire capital in a bad investment.

Mr Kaushik Reddy is 100th member of All about Finance.

Hope it will grow day by day.. Target 200 in next 3 days.. Share it guys.. Thanks

‎4th day of All about Finance and it already got 99 members.. Who will be 100th member.......???

Kingfisher in talks with IAG, Etihad to sell stake

In a last-ditch effort to survive, the Vijay Mallya-promoted Kingfisher Airlines has started discussions with foreign carriers to sell 26 per cent stake as soon as a policy framework is in place. According to persons in the know, Kingfisher has held discussions with IAG, the parent company of British Airways, and Etihad Airways, the flagship carrier of the United Arab Emirates, for a possible stake sale after the government allows foreign airlines to buy into Indian carriers. Foreign direct investment in aviation is not allowed currently but is expected to be cleared. Sources say once the civil aviation sector is opened up, Kingfisher intends to bring a foreign partner immediately.

The cash-strapped airline has debt of nearly Rs 7,000 crore, and most of its lenders have already classified the account as non-performing. Banks have rejected the airline’s request for further credit on the ground the company is yet to bring promoter’s equity contribution of Rs 400 crore as agreed while restructuring debt in December 2010. Bankers said the airline informed them it was in talks with some foreign carriers to bring in equity. Kingfisher’s immediate requirement from banks is about Rs 400-500 crore, which it intends to use to service existing loans so that they become performing assets again.

However, bankers are not convinced about how far the airline will be successful in bringing a foreign partner. In addition, the finance ministry is not supportive of any debt recast unlike the last time when a push came from the highest level, prompting banks to decide on the basis of a long list of collaterals, including a personal guarantee. The ministry is, however, pitching for a relaxation in the Takeover Code as that will benefit all sectors. The code requires an entity acquiring 25 per cent or more equity in a listed company to mandatorily make an open offer for another 26 per cent to ensure individual shareholders also get an exit route. In the case of airlines, that will mean a foreign airline can acquire up to 51 per cent stake, thus breaching the 49 per cent FDI cap.

IAG is one of the world’s largest airline groups, with 348 aircraft flying to 200 destinations and carrying more than 50 million passengers a year. Etihad has picked up stakes in troubled airlines across the globe recently.

Vijay Mallya and IAG did not reply to queries sent to them. However, IAG, in a reply earlier, had said, “As we have said before, the process to allow foreign airlines to invest in Indian airlines has not yet been fully approved, so it would be wrong to speculate about IAG’s interest in any Indian airline at this stage.” Etihad said, “We are always looking at opportunities if they make sense for our business, but we would never comment on speculation of this nature.”

Meanwhile, responding to yesterday’s report — Mallya says no to loan on personal guarantee — United Spirits has clarified it did not give any corporate guarantee on behalf of Kingfisher Airlines during the latter’s December 2010 debt restructuring.

Mihir Mishra & Surjeet Das Gupta

Budget Proposals: DTC panel seeks addl tax cuts; will it make it to Budget?

In what could come as a relief on the tax front, the house panel on the DTC Bill has recommended hiking tax deductions.

This is the second review meeting that the Standing Committee has been conducting on the DTC Bill for the past several weeks, and what has been finalized in a sense is the additional tax set offs on certain expenditures that are available, reports Siddharth Zarabi, economic policy editor, CNBC-TV18.

Sources say at this stage that the recommendations of the committee is that the limit of Rs 1 lakh for personal savings under clause 69 be raised to Rs 1.5 lakh. Also, insurance expenditure including health insurance as well as school fees, the committee wants that to be increased to Rs 1 lakh from the proposed Rs 50,000, an additional deduction of Rs 20,000 for health insurance premium paid for dependent parents as well as Rs 50,000 for higher education expenditure. All this roughly works out to above Rs 3 lakh as a proposal.

Zarabi says that there were several other matters too which have been discussed by the committee. The moot point is that the speed at which the Yashwant Sinha-led panel is working at this stage, he reports. It could well be possible that a final report would be presented to the Finance Ministry during the budget session. Whether some of these clauses find their way into the Finance Minister's budget proposal is a big question at this stage, but one thing is for sure that with the Standing Committee moving at such a fast pace on this crucial reform, the Finance Ministry will be able to move ahead with a formal announcement as to when the DTC will finally come into play.

Source: CNBC-TV18 Comments