BENEFIT OF INVESTING IN EQUITY SHARES

Many investors will invest in the stock market without knowing its benefit and risk involved in it, but market is always right to reward its investors whether long term or short term prospective. However investors may find painful times and joyful profits based on the market conditions and there investment strategy but we should know the benefits of investing in equity shares to understand its implications. The benefits of investing in equity shares (Listed) are:-

• Dividend is exempted from tax Under Section 10(34) of Income Tax Act.
• Long Term Gains is exempted from tax Under Section 10(38) of Income Tax Act (If shares are sold in recognized stock exchange).
• The holding period for calculating Long term Capital Gain is 12 months (other assets its 36 months).
• Short term capital gains is taxed at lower rates that is 15%
• Dividend is not constant but can vary as per profitability of company.
• High risk and return always follows.
• Easily cashable
• Capital appreciation is high compare to other assets class.
• Easy to gift and transfer by demat mode.
• Low transaction & carrying cost.
• Bonus issue by companies if good profitability. This will maximize wealth.
• Hedge against inflations.

The equity shares of listed companies are one of the best investment avenues that are present. It can give good returns when calculated for many years. There may be years when returns may be very bad like the year 2008. But new investor should invest in shares of listed companies in systematic approach without giving importance to volume / quantity but quality of shares purchased. For example if you desired to invest every month 3000/- it not big issue you can buy say 10 Dabur Ltd, 16 Lakshmi Vilas bank(LVB) etc. over period of 12 months you can accumulate over 120 Dabur & 200 LVB with benefit of bringing down cost of investment when market is falling otherwise book profit. But never feel bad of low volume / quantity but quality and invest on long term basis on SIP approach only.

CITY UNION BANK LTD

CUB is 105 years old South Based Bank with 222 branches in India with strong presence in Tamil Nadu. CUB has consistent track record of dividend and profitability since IPO, currently it has issued rights shares in ratio of 1:4 at 6/- per share, post rights issue Equity share capital will increase to Rs.40 Cr. In order to Improve its business & comply with prudential norms the bank has proposed to go for QIP issue which can be for Rs.300 Cr.
At Current Market Price of Rs.25/- per share Long term Investor can approach this stock with Long term target of 40/- & Short term target of 30/-. Further its pertinent to mention that post rights issue the EPS will be 3/- and book value of 21/- and investor can expect another Rights Issue / Bonus from bank along with QIP which will increase the Paid up capital upto Rs.100 Cr.
For the FY 2009 the bank performance was ok with total Income has grown 35% and Profitability by 20% but the provisions were around Rs.105 Cr. During Q2 for Current FY Total Income Increased by 31% and profitability by 22%.
The only risk to this recommendation is that any new provisioning Norms by RBI or such other crises will only effect the profitability of the company.
It is to be noted that targets mentioned above may change with the dilution of equity share capital by bank.

TAXATION ON DERIVATIVES TRANSACTIONS.

The definition of “Speculative Transaction” in Section 43(5) of Income Tax Act, 1961 has been amended by Finance Act, 2005 with effect from AY 2006-2007 to exclude transaction in derivates from the purview of speculative transaction.
Income from Derivates Transaction will be treated as Business Income and taxed at normal rates as applicable to Individual / HUF. An Individual / HUF should file Return of income in Form ITR-4 if he does derivate transaction along with any other sources of Income.
Further its pertinent to mention that an individual / HUF may be liable to Tax Audit U/s 44AB of Income Tax Act, 1961 if “Assessee carry’s on business where Total Sales / Turnover / Gross Receipts exceeds Rs.40 Lakhs. Therefore if the transaction under derivates transaction exceeds Rs.40 Lakhs then Tax Audit provisions will be applicable.
The above view is given only in respect to Individual / HUF.

LAKSHMI VILAS BANK LTD

Lakshmi Vilas Bank (LVB) is a 83 year old karur based bank with 251 branches spread over 13 states. Investor can consider this bank with a Long & Short term point of view. Currently the bank has announced Right issue 1:1 at 54/- per share which is discount to current market price.
Investor can approach this stock with stable fair value of 90/- per share. This can also be considered target for Short to Medium term target and Long term 125/-. Currently the weakness in the price is due to rights issue.
The banks book value for FY 2008-09 was 91/- and post rights issue it will be in range of around 75-80/- per share with EPS of around 9/- values this share very cheaply in the market compare to other South Based Banks trading at price to book value of 1.25 – 1.50.
The financial performance for the first half is excellent and this bank has consistent track record of dividend and has always rewarded its shareholder with Bonus & Rights issue.

HIMATSINGKA SEDI

Long Term Investors can consider this stock with price target of 100/- and short target of 60/-. This company has consistent track record of dividend except last 2 years due to losses on account of forex transaction but now things have change and company has come out with excellent results showing good profits. The company has paid up capital of 50 Cr. ad reserves of 505 cr. That is book value of 55/- for current first half it has shown EPS of 1.67 which translates to EPS of 3.5-4/- per share. Further its pertinent to mention that with captive power plant it save huge cost also so going forward it will show EPS of 7/- in FY2010-11 considering these factors Long term view is 100+.

BLUESTAR LTD

Investor can accumulate this stock for long & short term point of view. this company is very strong Bonus candidate and has paid 350% dividend for past 2 years. the management is also having good track record of dividend for past 25 years and it has rewarded its share holder with Bonus & Rights issue. further its pertinent to mention that Q1 results were flat and Q2 is expected to be better but H2 is expected to be good numbers and its expected for FY 2009-10 it will have EPS of 25-30/- so it has short term Trg. of 550/- and Long term 800/-

LONG TERM MARKET OUTLOOK

long term Investor need not worry about the market since the fundamental is good of india and FII continues inflow will further accelarate in comming months which will bring 2nd leg of bull market.
its is expected that Q2 results will be far better than Q1 and no Forex loss but one should be stay away from IT stocks because appreciation in dollar. it is expected by december 2009 / March 2010 BSE will cross 21000 mark and 2011-13 will be excellent year to come

MUNDRA PORT SEZ

Long term investor can consider this stock with horizon of 2-3 years which will see EPS of company zooming upto 50/- and turnover will zoom to say 4000-5000 crores. further its pertinent to mention that the company has sustained global recession with its consistent performance for Q1 its turnover is 298 crores and Profit of 171 croes showing EPS of 4.26 and for FY 2009-10 it will have consolidated EPS of 21/- so investor accumulate at current levels with assured return. the only risk involved is the SEZ poliy of GOI and New Tax code other wise the locational advantage is huge.

STATE BANK OF INDIA

Lont term investor can consider this stock which will definately give fantastic return in long run. this bank standalone bas and consolidated basis has solid balance sheet. with excellent Q1 results and no significant M2M losses and low NPA it will show PAT growth of say 40-60% so its consider short term target of 2500/- and long term target of 4500/- Long term investor can consider this stock