BHARTI AIRTEL ??

Telecom giant Bharti Airtel is the flagship company of Bharti Enterprises. The Bharti Group has a diverse business portfolio and has created global brands in the telecommunication sector. Airtel comes to you from Bharti Airtel Limited, India’s largest integrated and the first private telecom services provider with a footprint in all the 23 telecom circles.

The businesses at Bharti Airtel have been structured into three individual strategic business units (SBU’s) –

1) Mobile Services

2) Airtel Telemedia Services

3) Enterprise Services

To talk about the Bharti price fall, it will not stop as long as it doesn’t take any decision to reply TATA DoCoMo`s 1ps/Sec Tarif. There would be occasional rallies after the results. I feel that Relcom also will travel along with Airtel to find new bottom as their new strategy is not the answer for DoCoMo. Airtel share holder can keep hope only upto the results.

Bharti would be timing of the announcement of new tariff which can match DoCoMo`s 1ps/sec plan.

There are two things to be addressed.

1) Is to retain the customer

2) Is to announce the Tariff (it can offer only 1ps/sec billing other wise customer will not take it.).

Both are complimentary one can not be without the other.

Bharti in particular can go down to Rs.310 and from there probably some buying support is likely to emerge. Start buying Bharti from current price and accumulate for every 5 to 10% dip. Bharti will do good business by adding more and more customers even with lot of competition in the sector. If one second pulse rate implemented good number of customers will be added to Bharti.

I think a stock like Bharti from these levels can easily give you a return of 25-30% in next 12-15 months.

Markets @ current levels

At this point of time i would be advising clients to be cautious. The rally may last as long as liquidity lasts but investors should be cautious. As of now there is no clear picture over what earnings growth in FY11 would be, so it was difficult to arrive at a fair value for the market based on earnings expectations.

If we look at the valuations,they are at the higher end. We are already trading at about 21-22 times. Markets have been able to meaningfully sustain above these levels at 2000 and early 2008. So,from a valuation perspective, the markets are now in a probably euphoric zone, it’s only liquidity or any of the unexpected positive news flows which could drive this market higher from here.

On FII and DII front, FIIs are buying and DIIs are not selling in this rally.There is a lot of momentum in the market. The volumes have steadily picked up these last few days and the breadth continues to be good. DIIs are not selling in this rally as they are following the insurance company's trend. Insurance company's sell when FIIs continue to buy and eventually the market comes down.

The SEBI Move to do away with Entry Load

SEBI in its eagerness to help mutual fund investors has done away with entry loads. The MF industry, which also includes 70,000-strong distribution personnel, is unhappy over the SEBI move to do away with entry load on fund schemes. The new regulations will hurt MF distributors badly, and to some extent, the industry too.

I believe that this move would ensure more transparency in the system. We have to wait and watch how this will be implemented.

If advisors have to collect two cheques from investors it may be a little tougher.

We will see many IFAs or agents moving out of this field as this will become less profitable in the short run. It will kill a large number of distributors who were making a living selling mutual fund products and contributing to the growth of this industry. The retail distributors will badly get affected by this move.

I think there would be a different model coming up with fee-based advice. The financial advisor can no longer remain a salesman. He now needs to be a professional who is qualified and knowledgeable to give advice on investments and linking it to various components of personal finance. He needs to upgrade his knowledge by undergoing certification programs such as Certified Financial Planner (CFP). Only the advisors who acquire and upgrade their knowledge and skills will be able to deliver value for fee taken from clients.

LIQUID & LIQUID PLUS FUNDS

Liquid and liquid plus funds are short-term debt funds; they are different in a few aspects.

Investment tenure is the major differentiating factor between liquid and liquid plus funds. The debt instruments held by liquid plus funds have a longer tenure than liquid funds.

Liquid and liquid plus funds can be redeemed within a day. However, if liquid plus funds are redeemed within a specified period, there can be an exit load (the minimum investment tenure and the exit load vary across fund houses). On the other hand, there is no exit load on liquid funds.

In terms of tax implications, a dividend distribution tax of 28.33% is charged on liquid funds, whereas it’s 14.16% for liquid plus funds (in case of individual investors). Liquid plus funds pay lower dividend distribution tax as compared with liquid funds, which make them more attractive.

Liquid plus funds are riskier. This is mainly due to two reasons a) liquid plus funds hold investments that have a higher maturity and b) there is no limit on the mark-to-market (MTM) component of liquid plus funds.

A fine balance between risk and return and better tax efficiency is encouraging investors to favour liquid plus funds over liquid funds, Anybody with a slightly longer call preferred liquid plus schemes rather than liquid funds,

TAX Implication on Liquid & Liquid Plus Funds:

Capital Gains Taxation
		STCG		LTCG
Individual		As per the tax slab applicable for the investor		11.33% without indexation OR 22.66% with indexation
Corporate		33.99% (30%+10%+3%)		11.33% without indexation OR 22.66% with indexation
The above figures include the tax rate + surcharge + cess SOURCE:www.valueresearchonline.com

The good aspect with LTCG is that the income tax authorities give you the option to include the benefit of indexation. Indexation is the process by which inflation is taken into account when doing the tax calculation. This is excellent because it reduces the amount of capital gains and consequently the amount you end up paying as tax.

Exchange Traded Fund’s (ETFs) And Index Fund’s

We normally invest in an Active way or a Passive way. One of the most claims of Active investor is “I know more than the market.’ Passive investors simply take exposure to market via Indexing. They believe that market is usually right. Building a good portfolio is just not enough. You need to manage it properly and take the return. So, either you do this consistently on your own or ask some expert. 

Investing in Stocks requires time and effort. Investing in Mutual funds will make you feel like you have lost control over it as you have no control over the fund or fund manager.

It is difficult for an individual to outperform the market consistently over the medium to long term. None can consistently predict the direction of the market.

Surgeon and Pilots are skilled.

                                    Managers or Stock Pickers are also skilled,

                                                    Why doesn’t it repeat?

In order to invest sensibly we have to bring down Non Systematic Risk.

“Most Investors, both institutional and individual, will find the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees & expenses) delivered by the great majority of investment professionals.” – Warren Buffet 

It is more profitable to invest directly in an Index. Index funds allow you to invest in the index. Such funds invest their portfolios only in the stocks that contain a particular index. Performance of such funds will be same as the performance of the index. You have array of Index funds available from Mutual fund sector. Mutual fund sector offers you funds that not only mirror an index but whose units can be traded on the stock exchange in much the same way as common stocks. These funds are called Exchange Traded Fund’s or ETFs.

Benchmark Asset Management Company in December 2001 launched India’s first ETF, Nifty BeES .In India currently there are Equity and Debt market ETFs. Global ETF markets have grown rapidly. The US remains the world’s largest ETF marketplace, followed by Europe.

ETFs are perfect medium to execute strategic asset allocation for long term portfolios.

STARTING INSURANCE PLANNING EARLY

Insurance should be a part of the Portfolio. Starting to plan for Insurance at the early stage is always better. Delay in Insurance planning leads to expensive premium. The premium that is age specific will vary and go high as we grow older.

There is a huge need of Insurance cover at younger age also. The individual has to cover himself as he has responsibility towards his family and society.

At the earliest first take a Term Cover and then move into ULIP’s, Pension or Endowment plans etc.

The duration of the plan i.e.) Term also matters in term of building corpus. Longer the Term, more the benefit. Power of compounding will work better in longer term. Instead of starting late its better to start early.

Treat Insurance as an expense which mandatorily or compulsorily to be taken.

Manual Switch gives the Best of Averaging the Price

Though market has fallen steeply it is dangerous to invest fully or in one shot into Equity Mutual funds. Steadily increase exposure to Equity Mutual funds by way of Switching from Debt to Equity at different price levels.

Initially investors has to invest in a Debt fund and then transfer amount to designated Equity scheme whenever they see a fall in the price. Investors should note that all valid transfer requisitions from one scheme to other would be treated as Switch out / redemption and switch in / subscription transactions at the applicable NAVs of the two schemes will be reflected in the number of units allotted. Investors have to also look into eligibility of the schemes which will allow them to Switch from Debt to Equity. Please read the offer document of the transferee scheme carefully before investing.

By doing a manual switch when there is a fall in the price will give more advantage in averaging the price than the Systematic Investment Plan (SIP), Systematic Transfer Plan (STP) or Switch Plans. Manual Switch will allow investors to have control over the entry price in Equity schemes and as such will give the best of averaging the price.

In the current market condition it is better to rebalance the allocation systematically in favour of Equity. Investing in Debt and switching slowly to Equity will give best of times of both Debt & Equity.

 

SHOULD YOU SHIFT YOUR HOME LOAN?

India’s largest Public sector Bank State Bank of India (SBI) cut the interest rates on new home loans to 8 %. LIC Housing Finance followed suit with a rate of 8.75 %.

For people who are waiting to take the Home loan this is a great deal to grab as other banks are offering in double digits. To be believed, Public sector banks may join this rally but not Private Banks.

If you are a new borrower it is better to choose this scheme as you will save money for a year due to lower interest rates. Even after the expiry of the first year, you can continue your loan with the bank since the rates prevailing then will be close to what other banks will be offering.

If you already have a loan with another bank, you can think of switching the same as you will save the difference in interest rates. If the current rate on your loan is 13 %, by switching you will be saving a considerable amount - a difference of 5 % this year. In case of foreclosure charge, it is better of to shift because the saving by interest rate will more than make up for the penalty.

Latest Home loan rates offered by leading banks:  http://in.reuters.com/money/personalFinance/calculator?calculator=homeLoans

 

 

Tax Rebates under Indian Income Tax Act - Assessment Year 2009-10

Specified Investment Schemes u/s 80C

• Life insurance premium payments
• Contributions to Employees Provident Fund/GPF
• Public Provident Fund (maximum Rs 70,000 in a year)
• National Saving Certificates. (NSC)
• Unit Linked Insurance Plan (ULIP)
• Repayment of Housing Loan (Principal)
• Equity Linked Savings Scheme (ELSS)
• Tuition Fees including admission fees or college fees paid for Full-time education of any two children of the assessee (Any Development fees or donation or payment of similar nature shall not be eligible for deduction).
• Infrastructure Bonds issued by Institutions/ Banks.
• Interest accrued in respect of NSC VIII issue.

Deduction under section 80 CCC (1): This section allows a deduction of premium paid towards approved pension funds. Max.1Lakh.

Deduction under section 80D: Under This section, a deduction up to Rs 15,000 (Rs. 20,000 in case of senior citizens) is allowed in respect of premium paid towards health insurance policy, like "Mediclaim". Such premium can be paid towards health insurance of spouse, dependent parents as well as dependent children.

Deduction under section 80DD: Any expenditure for Medical, Nursing & Rehabilitation incurred on dependant suffering from permanent disability including blindness, mental retardation, autism, cerebral palsy or multiple disabilities. Rs.50, 000 with an additional Rs.25, 000 if the disability is severe exceeding 80%.

Deduction under section 80DDB: Actual expenditure incurred on Medical treatment of Self or dependant or a member of HUF suffering from terminal diseases like Cancer, AIDS, Renal failure etc upto Rs.40000 & Rs.60000 for senior citizens.

Deduction under section 80E: Interest on loan taken from Financial/Charitable Institutions for Self/Spouse/Children for pursuing Higher Education (for a max. period of 7 yrs)

Deduction under section 80G: Donations made to National Defence Fund, Prime Minister’s Relief Fund, approved Funds of reputed Educational Institutions, National Trust for Welfare of persons with Autism, Cerebral Palsy etc.

Deduction under section 80G: Deduction in respect of rents paid.

Deduction under section 24(b): Under this section, Interest on borrowed capital for the purpose of house purchase or construction is deductible from taxable income up to Rs.1, 50,000 with some conditions to be fulfilled.

DUE DATES FOR FILING RETURN OF INCOME: All Individuals/HUF/Firms deriving Income from Salary, House Property, Capital Gains, Business or Other Sources and not covered under section 44AB are required to file the Return of Income by 31st July. All Tax Audit Cases covered under section 44AB, Company returns are required to file the Return of Income by 31st October.

IIFCL Plans bond issue

IIFCL would issue bonds worth 2 billion rupees on 10th or 11th of this month. It is eyeing raising subordinated debt to fund new projects, its chairman S.S.Kohli said in a conferance call with investors.

They would also raise subordinated debt with a maturity of 12 years to 15 years with 2-5 years moratorium and could be raised both locally and overseas.

"Quantum initially could be 1,000 crore (10 billion rupees). It could be raised further, depending on requirements," Kohli said.
Source: "Reuters India"

Monetary Stimulus

Indian Central Bank slashed its two key short-term interest rates by 100 basis points each on Friday and the government unveiled a fiscal package to stimulate the economy that has been slowing faster than expected. The government said it would ease foreign borrowing rules for firms in the infrastructure and real estate sectors, and raised the foreign investment limit in corporate bonds to $15 billion. The central bank also announced a cut in its cash reserve ratio, the proportion of deposits banks must keep with the Central Bank, by 50 basis points to 5.0% with effect from Jan.17

Key Points are :

- Repo rate is the rate was cut to 5.5% from 6.5%.

- Reverse repo rate was cut to 4.0% from 5.0% .

- Both reductions are effective immediately.

- The cash reserve ratio was cut by 50 basis points to 5.0% with effect from Jan-17.

- External commercial borrowing rules eased.

- Raised foreign investment limits in corporate bonds to $15 billion from $6 billion.

- Withdraws customs duty exemption on zinc, Ferro alloys .

Views:

Some more tinkering in the repo rate is possible going forward and further reverse repo rate cut is a possibility unless global economic outlook worsens further in the months ahead. Existing Investors can wait till Jan 2009 since more events to come up to give direction to the interest rate market. Fresh investments in bond funds suggested for those who have 6-12 months time horizon and as part of asset allocation theory, suggest you to look at short term income funds also.