HIGHLIGHTS OF NEW COMPANIES BILL 2011

The New Companies Bill, 2011 will be introduced in the Parliament in Winter Session.

1.Mandatory rotation of Independent Directors in every 10 years

2. Periodic rotation of Auditors after every 4 years

3. Profit-making companies above a certain threshold will have to spend at least 2% of the average profits  in  the preceding three years on CSR activities. This provision is not mandatory

4. Exit option must for minority shareholders in case of company gets new promoters

5. Definition of an “associate” company fixed at 20% of voting rights

6. Shareholders are now empowered with tools of class action suit like in US

7. Creditors are empowered to order restructuring if net worth of the borrower company falls

8. Shareholders’ approval must for Inter-corporate loans

9. It proposes to tighten laws for raising money from the public

10. The Bill aims to give more powers to the Serious Frauds Investigation Office (SFIO)

11. It seeks to prohibit any insider trading by company directors or key managerial personnel by treating such activities as a criminal offence

12. New corporate responsibility (CSR) framework, greater shareholder democracy and stricter corporate governance norms

INFLATION

What is Inflation

Inflation rate is the rate at which prices of goods and services increases in its economy it’s an indication of the rise in the general level of prices over time. Since its practically impossible to find out the average change in prices of all the goods and services traded in an economy due to the sheer number of goods and services present, a sample set or a basket of goods and services is used to get an indicative figure of the change in prices, which we call the inflation rate. Mathematically, inflation rate is calculated as the percentage rate of change of certain price index.

How does India Calculate Inflation

In India inflation is calculated on weekly basis. It uses the Wholesale Price Index (WPI) to calculate and then decide the inflation rate in the economy. WPI was first published in 1902 and was one of the most reliable economic indicator available to policy makers until it was replaced by most developed countries by the Consumer Price Index(CPI) in the 1970s.

     WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. In India a total of 435 commodities data on price level is tracked through WPI which is an indicator of movement in price of commodities in all trade and transactions. It is also the price index which is available on a weekly basis with the shortest possible time lag only 2 weeks. The Indian Government has taken WPI as an indicator of the rate of inflation in the economy.  

 According to research paper of prominent economist the CPI is official barometer in many countries such as USA, UK, Japan, France, Canada, Singapore and China. The Government there review the commodity basket of CPI once in every 4-5 years to factor in changes in consumption pattern.

  The various research papers say the main problem with WPI calculation is more than 100 out of 435 commodities included in the index have ceased to be important from the consumption point of view. India constitutes the last WPI series of commodities in 1993-1994 but has not updated it till now due to this economist argue the index has lost relevance and cannot be a barometer to calculate inflation. 

  WPI is supposed to measure impact of price on business. But India uses it to measure the impact on consumers. Many commodities not consumed by consumers get calculated in the Index and it does not factor in services which has assumed so much importance in the economy. 

Why India is not switching to CPI Method of calculating inflation

There are many intricate problem from shifting from WPI to CPI model. India there are 4 different types of CPI indices  which makes switching over to CPI from WPI fairly "Risky and Unwieldy"the 4 CPI series are

1. CPI Industrial Workers

2. CPI Urban and Non Manual Employees

3. CPI Agricultural Labour

4. CPI Rural Labour 

The CPI cannot be used in India because there is too much time lag in reporting CPI numbers. The WPI is published on weekly basis and CPI on monthly basis.

What is Consumer Price Index

A Consumer Price Index (CPI) is a measure estimating the average price of consumer goods and services purchased by household. CPI measures a price change for a constant market basket of goods and services from one period to the next within same area (City, Region or Nation). Its a price index determined by measuring the price of a standard group of goods meant to represent the typical market basket of a typical urban consumer. its one of several price indices calculated by most national agencies. The percent change in the CPI is a measure estimating Inflation. The CPI can be used to index wages, salaries, pension and regulated or contracted prices.
What are Myths of Inflation In India
Economist are of the view that there are 8 myths of inflation in India they are:-
1. Its all about Food Prices
2. The pick up in inflation is all due to base effects from last year's low inflation
3. Inflation will fall back to normal range on its own
4. Fresh capacity will come on-stream soon and alleviate constraints
5. Monetary tightening will kill the expansion
6. Administrative measures are as good as - or better than - monetary tightening to control  
    inflation
7. A stronger rupee does nothing to control inflation
8. Policy tightening will deny credit to small business and the common man as well as poor.

NEW TAKE OVER CODE

Till now take over of company was not so expensive.Companies can merely acquiring 15% stake and then make open offer for next 20% to remaining shareholders and due to this small share holder were biggest losers, but now a potential acquirer will have to pick up the entire quantum of remaining shares once the threshold limit of 25% is triggered. This will make take over much more expensive from current level. But before analyzing new takeover code its worth knowing following fact.

• In last 5 years more than 100 take over has been done only in less than  15% of the open offers did the acquirer offer to buy more than the mandatory 20%. 
• As per international standards the acquirer agrees to buyout all remaining shares
• The takeover code was amended many times before 1997 it was 10% then it was changed to 15% and now its proposed to 25%
• Today, the mean and median of promoter shareholdings in listed companies are at 48.9% and 50.5% of the total equity capital and the number of companies that are controlled by promoters holding 15% or less is less than 8.4%.
• Internationally countries like UK, European Union, Singapore and Hong Kong threshold limit ranges between 30-35%

 Based on above facts it  was expected that this trigger limit may be higher but what the committee has done is to allow promoters who already have a stake of 25% to continue to make a creeping acquisition of up to 5% a year, without making an open offer up to the maximum permissible non-public shareholding limit or 75%. That gives the promoters the flexibility to beef up their stake in the company, over a period of time.

Ideally, the market price should not form part of the criteria to decide the open offer price since the price negotiated between the buyer and the seller is the best indicator. However, the committee has decided that although the market price may not always be relevant, it should be retained for some more time as one of the criteria used to determine the offer price. The committee has, however, tweaked the rules to try and ensure that the market price of the shares in question cannot be manipulated by suggesting the use of a volume-weighted average price for the last 60 days, instead of the average of the weekly highs and lows for 26 weeks. Clearly, it would be more expensive to tamper with prices because the volume will now be taken into consideration. All in all, any buyout will become more expensive for acquirers now because the open offer will also have to take into account any non-compete fee that they pay to the seller.

But in my opinion this takeover code can be misused by the company at times though now trigger point is 25% but what happens when a company offers share to acquirer up to 25% making it equal partner in the company for example like case of United Breweries Ltd were the Indian and foreign partner holds equal share and they manage the company. This type of activity will make teasing effect on small investors with only cash coming in the company but not to investor.

Though looking at mean and median we say that 25% is good but one should not forget that this percentage is substantial and one can block resolution of company etc. so I feel that this code would have given a rider that

If acquirer is Indian Company then
25% of equity capital
                 or
25% of promoter’s holding which ever is Higher
If acquirer is foreigner etc.
25% of equity capital
           or
Promoter’s shareholding which ever is higher

This would have resulted in more clear picture and would have not resulted in teasing of small share holders, because if any foreigner acquiring shares of 25% or less they cannot sit on the board which would have resulted in takeover with out any benefit of share holders. by above recommendation they would have to make open offer and this code would not be misused by them. further its pertinent to mention that going forward China and Indian market will be be drivers of growth and consumption driven market so many foreign companies, PE funds will take over Indian companies this will result in part by part selling so cap should be give in this regard. otherwise this amendment is better compare to old one.

HIGHLIGHTS OF NEW DIRECT TAX CODE

The New Direct Tax Code prima facie looks like give common man much more relief to spend more by saving tax on income. Further for India Inc also its time to celebrate since surcharge will be removed and tax rates have been drastically reduce so giving more room for good dividend to investors / reinvest for expansion. This one can think as indirect stimulus by directly giving goodies for common man. Now there is a caveat, this draft Tax code will be discussed in parliament in the winter session and if it gets the green signal will be implemented for assessment year 2011. So we have atleast couple of years to live with current Tax structure.

Highlights of the Draft Tax Code Bill

1. Lowers the incidence of tax on corporate and individual incomes
2. Reintroduces wealth tax and capital gains tax, albeit at lower levels
3. Scope of income tax expanded to include value of perks, gifts, profit in lieu of salary and capital gains but excludes farm income.
4. Removal of most exemptions
5. All long-term savings to come under EET
6. Tax exemption to PPF and other pension schemes on withdrawals accumulated up to March 31, 2011.
7. The code proposes to abolish STT.
8. Capital gains on shares and securities to be taxed as income.
9. Distinction between long-term and short-term capital assets to go.
10. Wealth tax cap to be hiked to Rs 50 Lac.
11. Wealth to be taxed on net basis; Amount in excess of Rs50lac to be taxed at 0.25%
12. Moves the base year for calculation of capital gains tax to April 2000
13. Hike in tax deduction limit on savings to Rupees 3 lakhs
14. Higher income tax slabs, lowering net payable taxes.
15. Tax breaks on housing to be removed
16. Dividend will continue to be tax-free in the hands of investors
17. Effective corporate tax rate at 25% with no surcharge or cess
18. MAT to be levied on gross assets as against book profits now
19. MAT carry forward to be disallowed
20. Business losses to be carried forward indefinitely
21. No tax deduction on interest payable on any government security
22. Wealth tax liability to be discharged by payment of prepaid taxes
23. Income from certain transfers not to be treated as capital gains
24. Rationalization of taxes for all non-profit organizations
25. Annual disclosure of profits of non-life insurance businesses
26. Govt may enter overseas agreements for double taxation avoidance
27. No tax deduction on interest payable to banking firms and insurers

TAX RATE UNDER NEW DIRECT TAX CODE

  

The new Direct Tax code is only at draft stage and its still not approved.Under New Tax code its proposed to make tax structure simplyfied so main benefit will be given to individuals and corporates were tax rate have been reduced. however still this has not been approved so i expect that Tax rates for Individuals may again be modified from proposed levels. in case of corporates the tax will be reduced from current level of 30% besided surchage will be removed.
 
1.Tax Rates for Individual / HUF

Upto 1,60,000 :- Nil
1,60,001 to 10,00,000 :- 10%
10,00,001 to 25,00,000 :- 20%
Above 25,00,000 :- 30%

2.Tax Rates for Women Below 65 Years 
Upto 1,60,000 :- Nil
1,60,001 to 10,00,000 :- 10%
10,00,001 to 25,00,000 :- 20%
Above 25,00,000 :- 30%

3.Tax Rate for Co-operative Society
Upto 10,000 :-10%
10,001 to 20,000 :- 20%
Above 20,000 :- 30%
In Case of Any Other Society its 30% of Total Income

4.Incase of Non Profit Organization 15%
5.Incase of Every unincorporated body 30%
6.In case of Local Authority 30%
7.The Tax structure for Companies will done as follows
    (i) MAT will be based on asset value and not book profits
    In Case of Banking Companies 0.25% & Other Companies its 2%on the value of Gross Assets
    (ii) Normal Tax Rate is 25%
8.Dividend Distribution Tax is 15% whether interim / Final etc (Exempted in hands of Investors)
9.Tax On Branch Profit is 15%
10.Non Resident
  A. Investment income by way of
          • Interest :- 20%
          • Dividend (on which Distribution tax is not paid) :- 20%
          • Capital Gains :- 30%
          • Any Other Investment Income :- 20%
  B. On Income From Royalty / Fees for Technical Services :- 20%
 11. Non-resident sportsman, who is not citizen of India :- 10%
 On income by way of participation in India in any India game [other than a game the winnings here from are taxable under sub-item (b) of item 4] / sport / advertisement /contribution of articles relating to any game or sport in newspapers, magazines / journals in India
 12.Non-resident sports Association / Institutions :- 10%
On income by way of guarantee money in relation to any game (other than a game the winnings
Where from are taxable sub-item (b) of item 4) or sports played in India.
 13. Any Assessee :- 30%
Any lottery or crossword puzzle / race, including horse race (not being the income from the activityof owning and maintaining race horses) / card game or any other game /gambling or betting.

MOST EXPENSIVE CORPORATE FRAUDS.

1. ENRON
Enron’s collapse in 2001 from a company worth $63.4 billion, to one seeking bankruptcy reorganization, came as a shock to the general public. Considered to be a major accounting failure, it led to the dissolution of Arthur Anderson, one of the world’s largest accounting firms also. Over 15,000 employees of the corporate had most of their savings in stock, which fell from $83.01 in early 2001 to $0.01 in October 2001.
2. BERNIE MADOFF
On June 29, 2009, Bernie Madoff was sentenced to 150 years in prison, the maximum sentence that could be given to anyone convicted of corporate fraud. He ran an amazing ‘Ponzi” scheme for his clients, showing falsified profits, and gains with the money that they had given him for investment. SEC authorities believe the actual net fraud will be between $ 14 - $17 billion.
3. SUBPRIME MORTGAGE CRISIS
This was not the crisis of a single corporate but it led to the demise of many other corporate. The repercussions can still be felt throughout the US and even Europe. It has had an adverse effect on most of the banks and financial institutions, and has led to large scale reform in the financial sector rules and regulations. It’s pertinent to mention that crisis had washed out trillion’s of dollar effecting USA and European banks at large.
4. SATYAM COMPUTERS
India’s biggest corporate scam was disclosed when Ramalinga Raju, the CEO of company declared that profits had been overstated for many years. Inflated bank figures, understated liabilities and over 10,000 non-existent employees were among the many fraudulent practices being indulged in to cross 7000 crone rupees.
5. WORLDCOM
On July 21, 2002, when WorldCom filed for bankruptcy under Chapter 11, it was USA’s largest corporate failure. The accounting scandal covered $ 11 billion and it seems the workings of the company were masked by painting a false picture of growing profits and margins. In 2004, it emerged from the bankruptcy proceedings with $5.7 billion in debt and $ 6 billion in cash.
6. BARLOW CLOWES
One of England’s largest corporate scandals, it led to the collapse of the company, after it was disclosed that it’s co-owner Peter Clowes, had spent over $100 million of his clients money in items such as luxury yachts, private aircrafts and cars. A gilts management service, in the 1980s, it controlled millions of pounds of it’s clients funds.
7. DAEWOO
Prior to is dismantling in 1999, Daewoo was the second largest corporate in Korea. It collapsed due to bad financial management, due to the worldwide financial crisis and due to growing labor unrest. The collapse led to losses in billions of dollars and became a political crisis.
8. FANNIE MAE and FREDDIE MAC
Before their collapse in 2008, these two companies owned more than half of USA’s $ 12 trillion mortgages. In September that year they had to be placed in conservatorship by Federal Housing Finance Agency, as “one of the most sweeping government interventions in private financial markets in decades”.
9. AIG
An American Insurance Company, AIG went into a crisis mode when in 2008, its credit rating were downgraded to below “AA’ levels and they were unable to access any funds to tide over their crisis. Once the 18th largest company in the world, it’s disclosure of financial losses and frauds, led to its downfall.
10. PHAR-MOR
In 1992, Phar-Mor had over 300 stores and over 25,000 employees. It ran a successful chain of discount drugstores throughout America, and it ran on a policy of small profits, but large quantities of merchandise. However, the owners in 1992 were accused of large scale embezzlement, deceptive inventories and fudged data.  (Sources by websites)

ALL LISTED COMPANIES REQUIRED TO MAINTAIN 25% PUBLIC HOLDING

The Government has made amendments to The Securities Contract (Regulation) Rule to increase the public holding Minimum 25% level. The Salient features of amendment are as follows:
• The minimum threshold level of public holding will be 25% for all listed companies.
• Existing listed companies having less than 25% public holding have to reach the minimum 25% level by an annual addition of not less than 5% to public holding.
• For new listing, if the post issue capital of the company calculated at offer price is more than Rs.4000Cr., the company may be allowed to go public with 10% public shareholding and comply with the 25% public shareholding requirement by increasing its public shareholding by at least 5% per annum.
• For companies whose draft offer document is pending with Securities and Exchange Board of India on or before these amendments are required to comply with 25% public shareholding requirement by increasing its public shareholding by at least 5% per annum, irrespective of the amount of post issue capital of the company calculated at offer price.
• A company may increase its public shareholding by less than 5% in a year if such increase brings its public shareholding to the level of 25% in that year.
• The requirement for continuous listing will be the same as the conditions for initial listing.
• Every listed company shall maintain public shareholding of at least 25%. If the public shareholding in a listed company falls below 25% at any time, such company shall bring the public shareholding to 25% within a maximum period of 12 months from the date of such fall.
             The Securities Contracts (Regulation) Rules 1957 provide for the requirements which have to be satisfied by companies for the purpose of getting their securities listed on any stock exchange in India. A dispersed shareholding structure is essential for the sustenance of a continuous market for listed securities to provide liquidity to the investors and to discover fair prices. Further, the larger the number of shareholders, the less is the scope for price manipulation. Accordingly, the Finance Minister in his Budget speech for 2009-10, inter- alia, proposed to raise the threshold for non- promoter, public shareholding for all listed companies. To implement the Budget announcement the Securities Contracts (Regulation) (Amendment) Rules, 2010 have been notified.
        The companies  / promoters can increase public holding by any of the mode which is viable to them that is IPO / FPO / Rights Issue / Private Placement etc. The real benefit is to investor who can get shares of various PSU etc. this move was made so that disinvestment process can be started quikly. further at present around 180 companies have be identified which has less public holding. Further if companies follow this rule then market should be ready to invest in these shares which will require around 2,00,000 croes or say around $45billion so this kind of money market does not have even till date FII investment in india is $65billion so this will be only possible when companies disinvest around 5-10% to retail investor and balance can be possible with QIP / Private Placement with FII's, DII, Hedge funds, Mutual Funds etc. so that long term capital will help companies to bring down debt level and for GOI it will be helpful to bring down deficit which is balloning.

FINANCIAL SHOCKS

The USA market got the first shock in 2008 due to bad loans that lead to disaster, the government had to pump in USD1Trillion dollars but still it’s not out of wounds and the second shock started in European countries such as Greece and it is expected to hit Spain, Italy etc. Which also required USD1 Trillion package now after all these packages, relief funds etc. its not sure that the entire problem is solved.
The Developed market is witnessing stagnation in demand/ growth (except food articles) along with boiling Crude Oil prices which remains above $75 and the Fiscal deficit is ballooning at faster rate which at one point of time will eat economy as a whole. Another important problem is Inflation which is also not cooling of especially due to crude and food items. The Emerging economy is 100% risk and reward play but the developed economy is NOT SAFE in long run that is for sure and we do not know when Currency Dumping will start in the emerging market.

Looking at the current scenario I expect that Developed countries will require around USD5-7 Trillion and working capital of around USD 2 Trillion (Including existing Package) and it will take around 7-10 year to recover from full problem especially the USA as the financial system has completely struck hard whether Credit Card, Mortgage etc.

But Fund Managers, Hedge funds are bullish on China & India for Longer term prospective because large gap of demand and supply in these market and population is key driver for the same.

It’s expected that China will dominate world market as USD will loss its shine as and when such financial shock occur, that means may be its possible that Yuan will be the acceptable currency and most power full as whole.

In case of India it may not dominate same as china but Rupee will appreciate considerably in Long run as we can expect around USD70-100 billion (Fresh Funds) is waiting to come in our market provided proper government policy is initiated. Further at present our main problem is inflation, Demand supply gap in commodity and boiling oil prices etc. Long term market prospectus is bright but short term shock is not avoidable in any case.

However India’s share of export in manufacturing is less compare to china so if domestic consumption level is improved it will have better impact on our market, but all this is matter of time. We all know that once if a person is wounded badly it will take time to recover from such accidents in the same way is the financial market which had just seen 2 big accidents and many more may happen in developed market.

Indian Investor should be prepared to take Big & Small Crash that is why i always say that Retail Investor with small capital must avoid Speculation it will only give pain as they cannot compete with those FII’s, Hedge Funds etc.

UNION BUDGET 2010-11 PROPOSALS FOR EACH SECTOR

POWER
•Plan allocation to renewable energy ministry hiked
•Coal regulatory authority to be set up
•National clean energy fund to be set up
TEXTILES
•One-time 200 cr for allotment to Tripura Textile sector in Tamil Nadu
Infrastructure
•Plan allocation doubled for power sector
•To construct 20 km highway everyday
•13% rise in allocation for transport sector
•5 mega food parks to be set up
•Infrastructure thrust to be maintained in rural and urban areas
•Govt. committed to SEZ growth
AGRICULTURE
•Budget gives strong focus to boost agri production
•Rashtriya Krishi Vikas Yojna to get Rs 300 cr
•Four pronged strategy to boost agri production
•Repayment of loans to be extended to 6 months in drought and flood hit areas
•Fertilizer subsidy to be reduced
•Failure in agriculture sector compensated by good show in manufacturing sector
EXPORTS
•2% interest subvention for exports extended
BANKING & FINANCE
•Rs 16,500 cr allocated to public sector banks
•Divestment proceedings to be spent on social sector
•Double digit food inflation a worry
•RBI considering giving banking licenses to more private players
•Medium term growth plan to cross double-digit figure
•Private investment can sustain 9% growth
•Need to review fiscal stimulus
•GDP to reach 10% soon
•Efforts on to reduce inflation in two months

UNION BUDGET 2010-11 PROPOSALS

1. Individual / HUF Tax Slabs.
Up to 1,60,000 :- Nil
1,60,000 - 5,00,000 :- 10%
5,00,000 – 8,00,000 :- 20%
Above 8,00,000 :- 30%
2. Income tax return form to be made simple, Saral 2 form for individuals to come
into force, it will have only 2 pages
3. New Direct Tax Code by April, 2011
4. Additional Deduction of 20,000/- available for investment in Long Term
Infrastructure Bonds. This benefit is available above present 1,00,000/- on
savings instrument available U/s 80C
5. MAT Increased from 15% to 18% of the Book Profits.
6. Surcharge for Domestic Companies reduced from 10% to 7.5%
7. Relaxation of Audit with Business Income up to Rs.60 Lacs & Professional Income
Up to Rs.15 Lacs.
8. Threshold limit for TDS applicability to be rationalized.
9. No capital gains tax on conversion of a business entity into LPP
10.It is proposed to increase the interest chargeable u/s 201(1A) for late payment
of TDS from one percent to one and one -half percent for every month or part of
a month
11.Custom duty on gold to be reduced
12.Rationalisation of custom duty on gaming software
13.Excise duty on petrol, diesel increased
14.Mobile phones to be cheaper
15.Peak custom duty unchanged at 10%
16.5% custom duty on crude petrol back
17.Petro products to cost more
18.Cement to cost more
19.Large cars, SUVs to cost more
20.Cigarettes, non-smoking, chewing tobacco to cost more
21.Cross Tax Receipts Rs 7. 46 Lakh crore
22.R&D deduction hiked to 200%
23.Fiscal stimulus to be partially rolled back
24.GST to be implemented by 2011
25.Fuel price hike in due course
26.Defence allocation up by 6000 cr
27.Technology Advisory Group to function under Nandan Nilekani
28.15% rise in plan expenditure
29.Increase in allocation for school education
30.Interest subvention to benefit handicraft, jewellery and gem exports
31.Social sector spending up to 1.37 lakh crore
32.Bharat Nirman outlay Rs 48,000 cr
33.NREGA allocation Rs 40,100 cr
34.Banks in all villages with over 2000 population
35.Subsidy for affordable housing increased
36.Special allocation for unorganized labour sector
37.Slum free India at the earliest

BUDGET EXPECTIONS

The budget is important event in the country effecting planning’s of man people but what can we expect from the budget. The following points one can expect from the budget.
1.Full / Phase manner rollback of stimulus package.
2.Hike in personal income tax basic limits.
3.hike in excise duty
4.Benefits to export oriented sectors.
5.More benefits for software industry
6.Review of the STT system due to implementation of New Direct Tax Code from 2011-12
7.Road map for implementation of GST
8.Disinvestment of other PSU
9.Certain announcements with regard to housing sectors
10.Strategy for bringing down the Fiscal deficit.
11.Infrastructure spending for development of Roads etc.
12.The GOI may also consider to bring down subsidy for fertilizers due to gas based production.
13.Reconsider tax benefits U/s80C
14.May bring in more stiff provisions for tax evasion

I feel the budget may surprise many of us because the main effort will be to bring down deficit without hurting the growth of the country. However with inflation at 8.5% and likely to cross 10% in near term, the only option available to FM is to Full / phase manner rollback of stimulus package. However these packages will continue to EOU because the export is just picked up for last 2 months or so with increase of 10%. The main beneficiary will be the ITES, Textiles & EOU etc.
Therefore taking into consideration above points i feel that budget will be a disciple affairs and one should not expect more from FM. The market may react negatively with regard to rollback of stimulus packages & Hike in petrol etc.
WITH ROLLBACK OF STIMULAS the IIP will stabilise at around 12%, GDP at 7% and inflation will be at 3-4% after rollback for first FY and growth will be at better rate provided there is no policy overlapse from GOI.

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