Posted at 11:07 AM , on January 27, 2020
The markets started off on a somber note during the week with the Sensex losing nearly 820 points in the first 3 days. The fall was significant for two reasons. Firstly, such sharp falls are not seen in the midst of a pre-budget rally. Secondly, the fall in Sensex happened with a sharp spike in the VIX. Here is what actually drove the indices lower.
A worrying quarter
The results are coming in thick and fast and there were some real concerns in a number of heavyweights. HDFC bank and Kotak Bank reported larger than expected NPAs. TCS had growth issues and RIL saw GRMs and petchem margin falling. Of course, there were smaller banks like RBL which saw a sharp fall in profits but the macro worry appears to be that the consumption slowdown is beginning to hit the private banks. Now PSU banks will be closely watched. Continue reading
Posted at 12:50 PM , on January 20, 2020
Mutual funds have been disappointed over the last two years as there has been little respite in the Budget. This time around, mutual funds will look at parity on a number of areas plus a reversal of some of the recent measures pertaining to capital gains tax and the tax on distribution of dividends by MFs.
Time to bring in DLSS
While ELSS has become extremely popular as a tax saving instrument, one argument has been that it forces people to take on risk. The answer could be in extending these Section 80C benefits to debt funds too and introduce a separate DLSS classification for the same. Of course, the lock-in period can be either retained at 3 years or extended to 5 years. The idea is that conservative investors need not be penalized when their financial plan dictates caution.
Parity with ULIPs and NPS
This has been a persistent demand of AMFI over the last few years. The first demand is to put pension plans of mutual funds at par with the National Pension Scheme (NPS) in terms of tax benefits. That will entail extending the additional exemption of Rs.50,000 on NPS to pension plans too. Secondly, while equity MFs are subject to LTCG tax, the ULIPs are exempt from any form of capital gains tax. This puts the mutual funds at a disadvantage and AMFI has been demanding parity.
Posted at 11:32 AM , on January 13, 2020
The government decision to cut corporate tax rates aggressively in Sep-19; built huge investor expectations. With an economic slowdown, there is a sharp demand for more tax breaks. Here are five things the government can do in the current context to reduce personal taxes and boost demand.
Rationalize tax slabs
The Budget 2019 had made incomes up to Rs.5 lakhs tax free but this benefit is not available for individuals earning marginally above that limit. Instead of offering a rebate, which is complicated, the government can simplify and make incomes up to Rs.5 lakhs totally tax exempt. The government must also look at an Asian style model where the peak rate of tax is limited to 10% up to an income level of Rs.20 lakhs. This could be a huge consumption boost for the economy and the equity markets.
Enhance Section 80C limits
The Section 80C limit has stayed at around Rs.1.50 lakhs for a very long time. The eligible investments have increased but the limits have not kept pace. The government must look to right away expand the limit to Rs.3 lakhs and the NPS can be integrated into this overall limit. That simplifies and also gives people more flexibility. Today, middle income earners are left with little to benefit after their PF, insurance and tuition fees of children are factored in. Continue reading
Posted at 10:58 AM , on January 13, 2020
As a crucial Budget 2020 approaches, the focus of attention is back on the capital markets in general and the equity markets in particular. Equity markets are built on hope and hence the hope is always for a market friendly budget. Specifically, markets will look for four specific announcements.
Push ahead with reforms
Nothing excites markets as much as a government committed to reforms. One of the reasons, the Nifty and Sensex had celebrated the return of the NDA was the continuation of the reforms process. However, economic challenges appear to have slowed down the reform thrust. The government must use the budget to give a clear and unambiguous signal that the reforms process is on track and the government is fully committed to the reforms process.
Better narrative for FPIs
Indian markets are still largely dependent on the buying patterns of foreign investors. With growth rates falling and geopolitical risk rising, there is a risk-off tendency among the FPI community. The government must move quickly on giving the FPIs comfort on retrospective taxation and on major pending cases like Cairn and Vodafone. Also, the budget must refrain from proposals like higher public holding or higher taxes on FPIs which don’t go down well with the investor community. Continue reading
Posted at 9:52 AM , on January 13, 2020
The latest model of resolution proposed by the IL&FS board is interesting, but its practically working is yet to be tested. Under the new model proposed, the Committee of Creditors (COC) will only have the powers to vote on the highest bidder. All other decisions pertaining to distribution of proceeds of the assets will be taken by the board. Let us first look at where the IL&FS issue stands as of today.
Rewinding the IL&FS saga
The problems at IL&FS first emerged in early 2018 and by mid-2018 IL&FS had begun to default on its loans and ICDs. This triggered a crisis of confidence as IL&FS was also viewed as a quasi state enterprise. Subsequent to the default it emerged that there were serious lapses in governance and connivance by the board of IL&FS. This led to the board being dismissed and the government appointed an independent board under the chairmanship of Uday Kotak. As the situation stands today, IL&FS has total debt to the tune of Rs.94,000 crore of which nearly 50% is housed in the subsidiary companies. Commercial bank exposure to IL&FS is to the tune of Rs.44,075 crore while employee related PF and pension dues are to the tune of Rs.10,173 crore. The rest are in the nature of private lenders and other operational creditors. In the past, the COC had an inordinate influence in deciding the best bids and the modus operandi of distribution. Continue reading