The Tribune, Chandigarh, India

Reliance eyes energy targets in Americas

Mumbai, December 11
Reliance Industries, India's most valuable listed company, is scouting for oil investments in the Americas as it looks to increase the stake of crude production it owns to feed its refinery, the world's largest, a senior executive said.

The company, controlled by Mukesh Ambani, India's richest man, is also looking to invest more in the United States shale gas sector, executive director PMS Prasad told Reuters.

"We’re looking at opportunities to invest. Our shale gas business in the US needs capital," he said in an interview.

Reliance has outlined plans to spend $4 billion to $4.5 billion by 2014 on three US shale gas joint ventures it entered into last year.

Reliance's share price has fallen nearly 29% this year, underperforming the broader index, on investor worries about declining output at its key offshore India gas field.

This year, Reliance brought in BP’s expertise to help it on the offshore D6 block, where output is lagging targets, and the British firm has said production from the field off India's east coast could rise from 2014. BP, which paid $7.2 billion to Reliance for a 30% stake in over 20 oil and gas blocks, has said it hoped to get approvals to begin work this year. — Reuters

‘Action against RIL based on SGI view’

With KG-D6 gas output lagging target by over 30%, the oil ministry is taking "scrupulous" action against Reliance Industries based on the advise of the Solicitor General of India, a top source in the ministry said. It added RIL’s failure to comply with its commitments made the ministry seek legal opinion. — PTI

Aviation ministry okays 26% FDI in pvt airlines

New Delhi, December 11
The civil aviation ministry has agreed to the proposal of allowing foreign carriers to buy 26% stake in private airlines, sources said. Earlier the ministry had proposed to fix a cap of 24% on foreign direct investment by overseas carriers. "It (civil aviation ministry) has come on board for 26% FDI," a senior government official said. He declined to divulge the details.

The department of industrial policy & promotion had proposed 26% FDI by foreign airlines into the domestic industry, in the backdrop of private carrier Kingfisher Airlines slipping into a severe debt crisis and several others facing resource crunch.

The home ministry and the Planning Commission have already supported the draft cabinet note in this regard. The finance ministry has also given the green signal to the proposal, with a rider that such investments should not violate SEBI's takeover code. Currently FDI of up to 49% is permitted in aviation services like cargo handling but foreign carriers are not allowed. — PTI

Tax Advice
Rebate on insurance premium paid from HUF funds
By SC Vasudeva

Q: I intend to buy insurance for my son but want to pay the policy premium out of funds of my "Hindu Undivided Family" (HUF). Will my HUF get rebate under section 80C of the IT Act? My son has got his own HUF, out of which he is paying the premium of one insurance policy in his own name.

— Ramesh

A: In the case of a HUF, an insurance policy if taken in the name of any member of the HUF would entitle the latter to claim the deduction under section 80C of the IT Act, 1961. Therefore, in case your HUF pays premium towards your son's life insurance policy the same would be allowable as deduction from the total income of the HUF under section 80C of the Act, provided the amount has been paid out of the HUF funds.

Q: I hold a current account in a bank and deposit only funds from my agricultural income in it. I’m a senior citizen aged above 70 years and am a karta of a HUF. Can I fix the amount in the HUF account in the karta's name? How much is the extension at the first stage as in the case of individual's case Rs. 240,000 for senior citizens. How much rebate can a karta take under section 80C of the Income Tax Act?

— Harmail Singh

A: (a) The maximum amount up to which income tax is not payable by a "Hindu Undivided Family" for the assessment year 2012-13 (financial year ending March 31, 2012) is Rs 180,000. (b) The total income of an HUF above the said amount would be taxable. The limit stated in your query is applicable for assessment year 2011-12 to a senior citizen. (c) An HUF is entitled to claim a deduction of Rs 1 lakh from the total income for the payments made for the amounts specified under section 80C of the IT Act, 1961. (d) Your query regarding fixing the amount in an HUF account is not clear. You possibly want to know as to whether you can deposit HUF funds in the name of a karta. The answer is based on this presumption. It would be advisable to deposit the amount in the name of an HUF account only. The account can however be designated as "Harmail Singh karta of Harmail Singh HUF" subject to the bank's permission.

Q: I'm a serving soldier in the army. Due to exigencies of army service and late receipt of Form 16 I couldn't file my income tax returns for the years 2009 and 2010. Can I still file my returns with some penalty?

— Aranya Hari

A: It may not be possible for you to file your income tax returns for the assessment year 2008-09 as the time limit for filing a delayed return has expired. However, you can file the return for FY 2009-10 by March 31, 2012.

Eurozone pact only part of solution: IMF

Tel Aviv, December 11
An agreement reached by European countries last week for deeper economic integration was a step in the right direction, but not a complete solution for the eurozone's debt crisis, Olivier Blanchard, director of research at the IMF, said Sunday.

"I'm actually more optimistic than I was a month ago, I think there has been progress. What happened last week is important, it's part of solution, but it's not the solution," Blanchard told the Globes business conference here. — Reuters

Positive changes to PO savings schemes

Post office savings schemes rates will now be changed dynamically from time to time, depending upon the interest rate movement — upwards or downwards — unlike the passive manner in which this was done in the past. It’s important for investors to understand these changes before investing in PO schemes, underlines Anil Chopra.

Post office savings schemes, popular among the Indian masses for many years, have been synonymous with safety and are equivalent to sovereign debt. Investors, with lesser risk appetite and content with low to medium returns, have been investing in various popular plans of the post office, as they perceive high safety for their investments in these schemes.

As we are aware, the interest rates in post office savings schemes have not been changed very often in the past (sometimes not even for 10-15 years), whereas the real interest rates in the economy have been fluctuating frequently, the result being the interest rates offered by PO schemes have been very attractive at times when the real interest rates have been lower. For example, about three years ago, when the real interest rates had fallen down to about 5% to 7%, the small savings schemes were still offering an 8% interest rate, resulting in a huge inflow into the PO savings schemes system.

However, in the last one to two years these rates have been continuously hiked by the Reserve Bank of India and the 10-year G-sec yield has even crossed 8% (post office schemes offering 8% only), clearly indicating these interest rates were never correlated or pegged to the real interest rates. As a result, the popularity of these schemes dwindled during this period. Banks, offering an interest rate of 9% per annum, and other alternative investments offering higher interest rates, appeared to be more attractive to investors.

However, as the government has linked the interest rates of savings schemes to the actual government securities, popularly known as gilts (announced on Dec 1, 2011), post office savings schemes rates will now be changed dynamically from time to time, depending upon the interest rate movement.

Kisan Vikas Patras

The first important change has been in the popular instrument of Kisan Vikas Patras (KVPs), which have been discontinued now, indicating no fresh investment in KVPs can now be made. This step was taken in order to avoid the entry of any unaccounted money in these products, as was assumed. However, those who are already holding KVPs from the past need not be worried as their investment is safe and would be redeemed on maturity, as promised. The last KVP at the time of its issue was doubling in 8 years and 7 months.

NSC (series VIII & IX)

Another popular post office scheme, in which changes have been introduced, is the National Savings Certificate (NSC) - Series VIII (Series VI and VII were discontinued earlier). The maturity period of this scheme has been reduced from 6 to 5 years now, and the interest rates have also been improved. Thus, every Rs 100 of investment would grow to Rs 150 and 90 paise after 5 years. Therefore, those investors who wish to invest for a 5-year period with a slightly higher rate of interest will find NSCs very attractive. Another advantage is that according to the current tax laws, any investment in NSC will give a tax break/rebate under section 80C (till March 31, 2012).

Also, a new series of NSC (IX issue) has been launched with effect from December 1, 2011. Its maturity period will be 10 years where the initial investment of Rs 10,000 will grow to Rs 23,435 after 10 years. Also, there is a premature encashment facility after the expiry of 3 years.

Public Provident Fund

Also, changes have been made in another hugely popular and important post office scheme called Public Provident Fund (PPF). Earlier, the PPF limit used to be Rs 70,000 per person per financial year, which has now been increased to Rs 100,000 per financial year, meaning investors who have invested Rs 70,000 in the current fiscal can now make an additional deposit of Rs 30,000. Non-PPF account holders can start with Rs 100,000 as initial investment. The interest rate in PPF has also been hiked from 8% to 8.6% per annum, with the interest rate being totally taxfree.

Thus, PPF has become an attractive investment option now and is already a darling of the masses when it comes to retirement planning. Also, in case one needs to apply for a loan against PPF, he/she will now be charged 2% (from 1% earlier) higher than the interest rate which they already pay.

Schemes for elderly

Schemes that are popular among senior citizens and those looking for regular monthly income are the Post Office Monthly Income Schemes. Here, the maturity period has been reduced from 6 to 5 years, and the interest rate has been raised from 8% to 8.2% per annum with effect from December 1, 2011. Also, the 5% bonus payable to investors at the time of maturity has now been discontinued.

Also, similar to bank savings accounts, there are PO savings accounts too where the interest rate has been hiked from 3.5% to 4% per annum. Readers may note that in savings bank accounts interest rates were already raised to 4% by the RBI a few months ago and they have now been deregulated completely. Thus, banks can now offer rates according to their choice, but the rates for PO savings accounts have been raised from 3.5% to 4%.

Time deposit accounts

Another attractive investment avenue is the Post Office Time Deposit Account, which is similar to a bank deposit. The interest rates have been improved here also, as per the chart given below.

Period Of Deposit

Recurring deposits

Another scheme, which is popular among the rural population, particularly farm labourers, is the recurring deposit. By going in for a recurring deposit of Rs 10 per month, the maturity amount will come to Rs 738.62 as the interest rates have been hiked. Apart from this, most of the PO small savings schemes were marketed or explained by agents, who used to earn commission from the post office.

To conclude, we should not be surprised if interest rates in PO savings schemes are changed frequently in the future, unlike in the past when they were changed only once in a few years. Being managed on a dynamic basis now, any change in the real interest rates or the 10-year government security yield will also lead to similar changes in the small savings schemes also. Therefore, it is important for the investor to remain updated about the rates at all times and accordingly take investment decisions. Definitely, these changes have made most of the schemes more attractive, as the maturity period has been reduced and the interest rates have been improved. I would advise all the readers to go through these details properly before investing.

The author is group CEO of Bajaj Capital. The views expressed are his own

Choppy waters ahead for bourses
Arun Kejriwal

Market pointers

The stock markets tumbled last week on concerns over the government's inability to continue with policy reforms after it suspended plans to allow foreign direct investment in multibrand retail. Also, concerns over the outcome of the European Union summit spooked market sentiment.

The BSE Sensex fell 633.37 points or 3.76% to 16,213.46 at the close of the week ended December 9

The 50-share S&P CNX Nifty fell 183.45 points or 3.63% to close at 4,866.70

The BSE MidCap index fell 2.47% while the BSE SmallCap index fell 2.21%. Both these indices outperformed the broader indices

On a year to date basis in the current calendar year 2011, the BSE Sensex has dropped 4,295.63 points or 20.94%

The stock markets had another bad week and the saving grace was the one-day trading holiday on Tuesday that probably reduced the pain. The net loss on the BSE Sensex was 633.37 points or 3.76% with the benchmark index closing the week at 16,213.46 points. The NSE Nifty lost 183.45 points or 3.63% to close at 4,866.70 points.

e broader indices like the BSE 100, BSE 200 and BSE 500 lost 3.47%, 3.34% and 3.23%, respectively, while the BSE MidCap and BSE SmallCap lost 2.47% and 2.21%, respectively.

Stocks from almost all sectors fell with the big losers being PFC(down 9.79%), Sesa Goa (down 7.75%), ICICI Bank (down 7.11%) and Reliance Industries (down 6.91%).

It was an action packed week in more ways than one. The Parliament logjam over FDI in multibrand retail was resolved with the move put on hold. Inflation has started coming down but the week also saw the IIP (index of industrial production) slipping into negative territory.

India faces a serious threat of a slowdown in growth and this could affect the country's fiscal deficit dramatically. There is a sort of policy paralysis in the country and it is indeed a tragedy that when the need of the hour is to deliver, our house of representatives do not function on some pretext or the other.

The eurozone crisis has been averted with a simple decision where of the 27 EU nations all except the UK have agreed to reduce expenditure, increase taxes and allow their budgets to be monitored by the European Central Bank. This does not mean much except that the euro remains for the time being and the markets, which rose in Europe and the United States, may see some more rise for the time being. The accord, however small and temporary in nature, has avoided a crisis for the time being.

As far as institutional business in India is concerned, it has reduced considerably with FIIs buying shares valued at Rs 59 crore and domestic institutions selling shares worth Rs 235 crore.

The volatility in the markets has increased considerably and of the four trading days last week we saw intraday movement of over 250 points every day, with Thursday having a movement of almost 430 points. This kind of volatility indicates that the bourses are still struggling to find their own level and the flight of investors from the markets is continuing.

The huge surge we saw in India's exports has been corrected with the government accepting there was an error of US $9.4 billion. The error was huge and had caused all sorts of explanations initially, but now with the government error would put pressure on India's balance of trade.

The week ahead is expected to be again choppy and the markets are likely to have a bearish undertone. The BSE Sensex has support at 16,109, then at 15,965, then at 15,849, then at 15,751 and finally at 15,479 points. It has resistance at 16,349, then at 16,590, then at 16,764, then at 16,888 and finally at 17,003 points.

The NSE Nifty has support at 4,832, then at 4,772, then at 4,756, then at 4,693 and finally at 4,640 points. It has resistance at 4,909, then at 4,986, then at 5,030, then at 5,099 and finally at 5,142 points.

The bourses are looking vulnerable and every rally should be used to exit the market and for traders to build short positions.

The author is founder of KRIS, an investment advisory firm. The views expressed are his own