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RBI may slash CRR by 25 bps soon
TCS overtakes ONGC in m-cap
Moody’s may cut growth forecast to 6.5%
Aviation Notes
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RBI may slash CRR by 25 bps soon
New Delhi, December 4 Bankers and analysts believe the central bank’s intervention may come anytime during the week as the payment of advance tax by companies will be due on December 15. This will result in substantial amount of money being sucked out from the market. Such a move to lower CRR, which is the portion of deposit that banks are compulsorily required to keep with the central bank, will result in release of about Rs 15,000 crore into the system. "We expect 25-50 basis point cut in the CRR at any time. It could happen during this week," head of a leading public sector bank said. The CRR has been left unchanged at 6% since May 2010. However, the policy rates have been raised 11 times during the same period. In October, the central bank raised the repo rate by 25 basis points to 8.50% and the reverse repo rate moved up by a similar percentage to 7.50%. Repo is the short-term rate at which the RBI lends to banks, while reverse repo is the rate at which it gets funds from banks. According to senior official of another public sector bank, the liquidity infusion from the RBI looks very likely. He said CRR cut may happen either during the week or on December 16 when the RBI will release its mid-quarterly review of the monetary policy. Analysts also feel there would be liquidity easing from the central bank in a gradual manner. "We expect the RBI to continue to ease liquidity, first through open market operations, and then by cutting the reserve requirements of banks," Goldman Sachs said in a report.
— PTI
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Mumbai, December 4 With a market capitalization of Rs 2,30,071 crore as on Friday's close on the Bombay Stock Exchange, TCS toppled state-owned ONGC, which had a market value of Rs 2,29,329 crore. TCS saw the maximum addition of Rs 22,029 crore to its market value during the week. ONGC added Rs 13,859 crore. In a market that saw the BSE 30-share index, Sensex, gain over 7 per cent during the week, Reliance Industries remained the most-valued company in the country. Its m-cap swelled by Rs 18,598 crore to Rs 2,65,483 crore. CIL was at the fourth place, followed by ITC, Infosys, Bharti, NTPC, State Bank of India and HDFC Bank. The m-cap of Coal India Ltd surged by Rs 16,170 crore to Rs 2,11,219 crore, while ITC gained Rs 11,006 crore to Rs 1,60,533 crore. Infosys added Rs 5,524 crore taking its m-cap to Rs 1,54,851 crore, while Bharti Airtel's value climbed Rs 5,791 crore to Rs 1,48,160 crore. Power utility NTPC's market valuation accelerated by Rs 12,574 crore to Rs 1,41,986 crore. Furthermore, SBI's m-cap soared by Rs 12,433 crore to Rs 1,19,792 crore and HDFC Bank gained Rs 8,007 crore in market value to Rs 1,08,874 crore. The Sensex closed at 16,846.83 on Friday. — PTI
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Moody’s may cut growth forecast to 6.5%
New Delhi, December 4 "We may need to revise our 2012 growth outlook from the current rate of 7% and towards something like 6.5%... It looks like tough times are ahead," Moody's Analytics said in a report. The country's GDP growth slipped to 6.9% in the second quarter, the lowest in over two years. For the first half (April-September) of the fiscal, the average growth rate stood at 7.3%. Economic growth in 2010-11 stood at 8.5%. Growth in eight core infrastructure industries dipped to 0.1% in October, the lowest in five years. The RBI has already revised its growth projection for the Indian economy to 7.6%, from 8% earlier. On Friday Finance Minister Pranab Mukherjee said GDP growth in the current fiscal was likely to be around 7.5%, far below the 9% projection made by the government in its prebudget survey. Moody's said the economy is struggling under the weight of higher interest rates but this had failed to achieve the objective of cooling inflation, which have been above the 9% mark since December last year. The RBI has already hiked its key-policy rates 13 times, totalling 350 basis points, since March 2010 to tame demand and curb inflation. India Inc has blamed the repeated rate hikes, which have led to increased cost of borrowings, for hindering fresh investments and slowing down industrial growth. — PTI
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Aviation Notes
Prime Minister Manmohan Singh was noncommittal in his hour long meeting with the chiefs of private airlines, who were seeking the government's help to emerge from their financial woes. While listening to the Federation of Indian Airlines (FIA) representative's views on "an unfavourable operating climate", Singh hinted he would be able to express no more than "sympathy" for the abysmal situation the domestic carriers had plunged into.
The conditions prevailing in the aviation sector worldwide are turbulent, but in the Indian scenario they are worse owing to the needless negligence of airline bosses in keeping soaring overhead expenses in check. It is futile to blame the government for taxes and duties on aviation turbine fuel. Research indicates some of the domestic carriers have found themselves in such a miserable situation that they might have no option but to declare insolvency on the lines of American Airlines whose parent has filed for bankruptcy protection. If such a situation arises, the government and its allied departments like the oil companies and the Airports Authority of India will be the worst hit because most of the private operators owe huge sums of money to them. No wonder the fuel retailers and AAI have refused to extend any further credit to the defaulting private operators. According to indepth research, some of the shrewd owners of private airlines have deliberately created this situation so that the government does not bail out Air India. Private operators feel AI’s closure will open the doors for them to stand up. This is no more than wishful thinking. In a turbulent climate obtaining in the airline industry, Air India's board of directors has advised National Aviation Co (NAC) to drop its plans for the outright purchase of 14 of the 27 Boeing 787 Dreamliners. While the order for buying such a large quantity of aircraft was wholly wrong, the board has asked the NAC to get back to the sale and lease operations instead. The board also feels that, in the absence of an adequate route deployment, there is no guarantee whatsoever that a turnaround in the airline's profitability will occur. The majority of the carrier's staff, however, is of the firm view that, if a turnaround is to come about, NAC has got into be broken into two as was the case before the merger. "There is no option but to save NAC without undertaking this measure", the staff has opined. Regardless of the lofty claims made by Delhi International Airport (DIA), the majority of commanders are not adequately trained to handle flights during the category-III of the instruments landing system (ILS). This being the reality, disruption of flights is likely to occur during December and January. Officials of some of the foreign airlines have gone on record saying schooling pilots to fly in foggy conditions is not worth the expenditure. It will be judicious if Air India in particular and other carriers in general adjust scheduled flights instead of undertaking operations during nights. It is a fact that most domestic carriers do not have an adequate number of trained pilots to operate flights in near zero visibility. It is pointless to take risks and operate flights when visibility is poor. |
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Tax Advice
Q: What are the major changes in the income tax norms for the current fiscal (2010-11) and the direct tax code (DTC) rules applicable with effect from FY2011-12 in regard to the following: (i) nontaxable (exempt) amount from total income; (ii) rebate amount under section 80C; (iii) Whether amount invested in post office by way of National Savings Certificates (VIII issue) and senior citizen saving scheme in FY 2011-12 is also admissible for rebate under section 80C; (iv) rate of income tax in the government notification regarding failure to file IT returns by a person whose total annual income is below Rs 5 lakh, besides other requirements, one requirement is that the assessee's income arise from the salary and by way of income from other source in the shape of interest in saving bank should not exceed Rs 10,000.
If an assessee’s income from bank FDs is Rs 15,000 and that from savings accounts is Rs 4,000, is he exempted from filing income tax returns as the latter amount is less than Rs 10,000 (though interest income from FDs is Rs 15,000)? — Satinder Vir Singh A: (a) The direct tax code enumerates 47 items of income which are not included in total income. These include agricultural income and dividend on shares. It is not possible to list these items due to space constraint. (b) Clauses 69 to 73 of the direct tax code deal with deductions allowable for savings to an individual assessee. The deduction is limited to Rs 100,000 in respect of contribution to an approved fund. Another deduction of up to Rs 50,000 is allowable for payment of insurance premium including health insurance and tuition fees for education of any two children of the assessee. (c) The direct tax code does not include provisions for deduction in respect of investment in National Savings Certificates (VIII issue) as well as deposits made in senior citizens saving schemes. (d) The following slab rates have been provided in the direct taxes Code in respect of an individual who is not a senior citizen: (1) Where the total income does not exceed Rs 2 lakh — nil; (2) Where the total income exceeds Rs 2 lakh but does not exceed Rs 5 lakh — 10% of the amount by which the total income exceeds Rs 2 lakh; (3) Where the total income exceeds Rs 5 lakh but does not exceed Rs 10 lakh — Rs 30,000 plus 20% of the amount by which the total income exceeds Rs 5 lakh; (4) Where the total income exceeds Rs 10 lakh — Rs 130,000 plus 30% of the amount by which the total income exceeds Rs 10 lakh. (e) The government notification regarding failure to file income tax returns is applicable to an individual whose total income does not exceed Rs 500,000 and consists of only income chargeable to income tax under the heads 'salaries' and 'income from other sources' by way of interest from a savings account in a bank not exceeding Rs 10,000. An individual who does not fulfill the above conditions will not be covered within the above notification. |
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So as a quick update, a fixed deposit is an instrument where the money is invested with a bank or other financial institution for a predetermined period of time at a predetermined rate of interest. Types of fixed deposits
Regular FDs: Here the amount is invested in the bank for a fixed timeframe ranging from seven days to ten years. Tax savers: This scheme is designed to cater to the needs of income tax assesses and is available for a maturity period of 5-10 years. The amount cannot be prematurely withdrawn before completion of five years. Special FDs: These are available for specific time periods like 300, 555, 1,000 days, etc, and usually carry a higher rate of interest if one opts for these tenures. If the interest rate for a period of 270-364 days is 7 per cent per annum, then the interest rate for a 300-day FD can be 7.25-7.50 per cent a year. Recurring deposits: Individuals with a regular source of income can save a fixed amount every month and also earn interest at the rate applicable to fixed deposits. These deposits mature at the end of the specific term. Floating FDs: The term deposit under this scheme carries a variable rate of interest. The rate of interest is reviewed at periodic intervals and is automatically reset. Some of the banks offering this scheme are State Bank of India, Indian Overseas Bank, Jammu & Kashmir Bank and Punjab National Bank. Additional features of FDs
Sweep in/out and super saver accounts: Most banks now offer a linked savings account to the fixed deposit. Such accounts offer customers the flexibility to use the balance in FD accounts in times of any emergency. In a super saver account the customer can avail up to 75% of the FD amount as the overdraft and the interest rates for the borrowed amount is usually 2% higher than the FD interest rates that he is earning. In a sweep-in account the customer can use the amount in his fixed deposit incase of any shortfall in savings account. The balance amount in the fixed deposit continues to earn the same rate of interest. Similarly, the idle money lying in the customer's savings account is invested in short-term FDs to maintain its liquidity. Secured credit card against FD
If a person is denied a credit card due to various reasons like bad credit history, his employer not being listed, etc. he can apply for a secured card. These cards are 100 per cent guaranteed credit card against their fixed deposit in the bank. These cards offer credit limit up to 80 per cent of their fixed deposit amount. Some of the cards issued by banks are ICICI Bank Instant Gold Credit Card, Kotak Aqua Gold Card, Axis Bank Easy Credit Card and SBI Advantage Gold Card. Loan against fixed deposits
In case of an emergency, instead of breaking a fixed deposit the customer can take out a loan against his existing fixed deposits. Banks offer loan up to 90 per cent of the fixed deposit amount. The rate of interest is very nominal as compared to any other unsecured loans. Tax benefits and implications
The interest earned on a fixed deposit is taxable under the head 'income from other sources'. The amount invested in tax saver deposits in a public sector scheduled (state-owned) bank is eligible for tax deduction under section 80C of the Income Tax Act, but the interest earned on the deposit is taxable. If the interest on investment in fixed deposit exceeds Rs 10,000 per annum, then the tax will be deducted at source. Investors can avoid tax deduction at source by presenting Form 15H, which states tat the person does not have a taxable income. Liquidity
Tax saver FDs cannot be withdrawn before the completion of five years. All fixed deposits can be liquidated anytime before their maturity period, but may attract a penalty of 0.50-1.00%. On a premature withdrawal of the deposit amount, interest is calculated at 0.5-1% below the rate applicable for the period of deposits that have been held in the bank. Certain banks like Kotak Mahindra Bank, Bank of India and Federal Bank do not charge any premature withdrawal penalty. Some banks do not allow premature withdrawal if the account is held in the name of a minor. Interest rates
Frequency: Interest is calculated on monthly, quarterly, half yearly or annual basis. Payout: A customer can choose between regular payout of interest or reinvestment option where the interest is reinvested in the fixed deposit and the entire principle with interest is paid back on maturity. How safe are fixed deposits?
In the event of a bank failure, the Deposit Insurance & Credit Guarantee Corporation (DICGC) protects bank deposits that are payable in India. It insures all deposits such as savings, fixed, current and recurring. DICGC insures principal and interest up to a maximum amount of Rs 100,000. For example, if an individual had an account with a principal amount of Rs.95,000 plus accrued interest of Rs 4,000, the total amount insured by DICGC would be Rs.99,000. If, however, the principal amount in that account was Rs 100,000, the accrued interest would not be insured, not because it was interest but because that was the amount over the insurance limit. However, customers should think before investing in fixed deposits for long term so as to avoid being locked into a lower rate. Hence, they should take deposits for a period not exceeding one or one-and-a-half years, so that they can make use of any additional opportunities in future. Investors should review their existing deposits at regular intervals to ensure that any corrections can be made, if required. Once investors feel deposit rates have moved high enough, they can lock in their FDs for a longer time to get more benefits. The author is product manager at
ApnaPaisa, a price & features comparison engine for loans, insurance and investments. The views expressed are his own |
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Markets to stay volatile through the week
It was a great week for the stock markets and the world is celebrating. From Australia to the US, bourses in all countries simply shot up. The reason for the same is not quite clear except the fact that there is belief and hope that the eurozone crisis would get resolved. The only big positive is that six central banks led by the Fed agreed on Nov 30 to reduce emergency borrowing costs for dollars. This led to the global surge.
The broader indices gained less with the BSE 500, BSE 200 and BSE 100 gaining 5.80 per cent 6.24 per cent and 6.61 per cent, respectively. The BSE MidCap and BSE SmallCap gained significantly by 2.69 per cent and 2.32 per cent, respectively, indicating this was more of a heavyweight rally and has not percolated down the breadth. The rise this week has come after four weeks of losses and has the market recovered 56.29% of the losses from 17,908 on the BSE Sensex to 15,478 points and 54.04% on the NSE Nifty from 5399.70 to 4639.10 points. FIIs, who were big sellers, have turned buyers during the week and bought stocks valued at Rs 695 crore while domestic institutions sold shares worth Rs 346 crore. The Indian rupee regained some ground and closed at 51.22 to the US dollar. The big gainers during the week were Hindalco, which spurted by 19.1%; JSW Steel— up 14.28%; Tata Steel — up 11.96%; and SBI — up 11.59%. TCS, REC, PFC and Sesa Goa all logged in gains of more than 10% for the week. Amongst the sectoral indices the BSE Metal was the top gainer with 10.52 per cent while the BSE Bankex clocked gains of 8 per cent. The upswing in the markets last week was certainly unexpected and did catch me on the wrong foot. This move is not an indication of things going forward and certainly not which is likely to be repeated. The short positions in the market have been largely covered and a relief rally has happened. The markets are likely to consolidate in the immediate short term and need to hold on to current levels at the bare minimum if any concerted uptrend needs to now happen. In the week ahead Monday would see profit taking and reduction of positions because of the next day being a trading holiday in India while the rest of the world is open. The markets are likely to gain in the coming week. However, one should not expect a big move like last week. The Sensex has support at 16,554, then at 16,167, then at 16,024, and finally at 15,849. It has resistance at 17,014 points, then at 17,207, then at 17,391, and finally at 17,475 points. The Nifty has support at 4,958, then at 4,849, then at 4,814, and finally at 4,754, having resistance at 5,102, then at 5,156, then at 5,245, and finally at 5,317 points. The stock markets are likely to gain but, after a steep rise like the previous week, there must be consolidation if the gains are to be sustained. Trade cautiously. The author is founder of KRIS, an investment advisory firm. The views expressed are his own
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With banks offering higher interest rates on term deposits, more popularly known as fixed deposits, in the wake of rising repo and reverse repo rates in the last 18 months, FDs have once again become a favoured investment instrument. According to the RBI's annual report for fiscal 2010-11, deposits (savings and term) in commercial banks accounted for 42% of total household savings. This way we see such deposits are quite popular with retail investors. Still many of us do not know what all it entails to make or break a FD.
The Indian stock markets too rose sharply and the benchmark indices put in their best weekly gains in roughly 30 months with the BSE Sensex gaining 1,151.40 points or 7.34 per cent to close at 16,846.83 points. The NSE Nifty gained 340.10 points or 7.22 per cent to close at 5,050.15 points.