The Tribune, Chandigarh, India

BUDGET 2012
Marketmen banking on govt to deliver on fiscal consolidation
Sanjeev Sharma/TNS

New Delhi, March 11
While the recent state election results may have reduced the government’s ability to push politically sensitive reforms, markets and analysts are expecting the government to deliver on fiscal consolidation in the FY 2013 budget to be presented on Friday.

According to a research note by Nomura Securities, the budget will be a litmus test on the Congress party-led UPA government’s commitment to judicious economic policies.

It says that the onus on the government to reduce the fiscal deficit has increased since it may not be in a position to kick start contentious big ticket economic reforms.

The note warns since globally, the tolerance for fiscal slippages has diminished, another year of financial recklessness risks India being perceived by foreign investors and rating agencies as a fiscally vulnerable economy.

To achieve this, increase in taxes and asset sales may be an option. According to analysts at JP Morgan, revenues may be augmented by widening and raising taxes for excise and services and asset sales through divestment and telecom spectrum. Asset sales can bring in close to Rs 65,000 crore in revenues.

For the inflation hit public, analysts expect relief in personal income tax rates. An hike in personal income tax exemption limit and changes in tax slabs are expected along with a raise in tax exemptions on housing loans. Increased tax exemptions from the current Rs 1 lakh and higher exemptions on infrastructure bonds are also expected. In addition, the tenure of term deposits in banks that qualify for tax breaks may be reduced from 5 years to 3 years.

In its report on the Direct Taxes Code, the standing committee on finance suggested massive relief for taxpayers. It remains to be seen whether that is implemented in full or partially.

According to sources, since the report was presented very close to the budget some last minute changes may be made if the finance ministry had some idea about the contours of the report. Also, these days, the software has improved so vastly that budget making is just changing the figures on the worksheet.

While the debate revolves around subsidies in the context of the high fiscal deficit, it turns out that the problem is a low tax base. According to a report by Goldman Sachs, India has one of the highest fiscal deficits among growth markets due to a very low tax to GDP ratio and not necessarily because of spending.

Reviving the investment cycle through a higher Plan expenditure will also be a priority, according to analysts. Higher excise duty on diesel vehicles is likely as it will yield additional revenues and also reduce diesel consumption. Infrastructure, agriculture, education, health and rural development will be priority areas in the budget.

Most employees expect hike in tax exemption limit

New Delhi, March 11
A majority of employees surveyed expect Finance Minister Pranab Mukherjee to increase the income tax exemption limit to Rs 3 lakh in the upcoming budget, in line with rising inflation, Assocham has said.

"Over 89% of respondents said the slab of taxfree income has not moved up in line with real inflation. Therefore, there is a need to raise the basic exemption limit to Rs 3 lakh, as it will spike up the purchasing power of individuals and stimulate demand," the survey by Assocham said. At present, the tax exemption limit is Rs 1.80 lakh.

The chamber surveyed about 500 employees, working in sectors like manufacturing, IT/ITeS, power and FMCG, in major Indian cities. A hike in exemption limit will enhance people's disposable incomes, which, in turn, will boost consumption spending as well as savings, the study said. — PTI

BUDGET 2012
Pharma units for extension of tax sops, MAT rollback
Ruchika M. Khanna/TNS

Chandigarh, March 11
Spurring R&D in the pharmaceuticals sector by continuing tax rebates on units involved in research beyond the sunset clause of March 31 this year, rollback of minimum alternate tax (MAT); and a quick rollout of the goods & services tax (GST) regime to provide a level playing field to units located in non tax exempt states top the wishlist of the pharma industry in the region.

With just five days left for the Finance Minister Pranab Mukherjee to table his budget proposals for FY2012-13, pharma exporters, especially those hit by the meltdown in the United States and Europe, are hoping for some incentives from the government to help them consolidate their growth plans. With the pace of growth in pharma exports slowing down because of the crisis in the West, many of them, especially those located in the tax free states of Himachal Pradesh, Kashmir and Uttaranchal, hope the government will extend the tax rebate in these states beyond the sunset clause of March 31, 2012.

N.R. Munjal, chairman of the Pharmaceutical Export Promotion Council (Pharmexcil), told The Tribune the council was hoping for some rationalization in excise duty imposed on bulk drugs and formulations. “Presently, excise duty applicable on the formulations is 4% while on bulk drugs it is 10% which leads —to a loss of input credit. Besides, we hope that the budget has some scheme for involving public private partnership in pharma colleges/ institutes, with proper industry linkages, so that the shortage of skilled manpower is met. The FM should also work on reducing the cost of funds to the industry, so as to make us internally competitive,” he said.

Seconding him, Dheeraj Aggarwal, CFO of Baddi- based drug firm Venus Remedies, said most drug exporters were still recovering from the pricing pressures they are facing in the crisis hit the US and European markets. “In this scenario, we hope the government extends the sunset clause on tax exemptions given to drug manufacturers in the hill states. In this budget, we’re also hoping the surcharge on income tax is waived and the safe harbour rules are notified to help smooth international transfer between two organizations,” he added.

Vinod Gupta, president of the Haryana chapter of the SME Pharma Industries Confederation, hopes for some rationalization in taxes on medicines. “The government is keen on bringing down prices of medicines so that poor patients get affordable treatment. For this the government should rationalize taxes like central excise and CST while urging the state governments to do the same in VAT and octroi. Besides, rather than putting more essential medicines under the price control order, the government should cap the post manufacturing expenses of drugmakers at 300% while fixing the MRP” he added.

Alka Arora, MD of Karnal based Amree Pharmaceuticals, is hoping the budget will raise the excise exemption limit from the present Rs 1.50 crore to Rs 5 crore. “Since drugmakers in non tax exempt states like Punjab and Haryana have suffered huge losses because of cheaper medicines supplied by units located in tax exempt states, the government should now roll out GST fast, as it will provide a level playing field to all,” she added.

Tax Advice
Allowances paid to employees taxable
By S.C. Vasudeva

Q: I'm a Punjab government employee and getting a monthly mobile allowance of Rs 500 w.e.f. October 1 last year. Is this allowance taxable?

— R.K. Gupta

A: Any allowance provided by an employer is taxable provided it has actually been spent in the course of his duty. Exemption will be limited to the extent of the amount actually incurred for the said purpose.

Q: Has the Hindu Succession Act, 1956 as amended in 2005 come into effect? If so, does it apply to a will made before 2005?

— B.S. Brar

A: The Hindu Succession Act as amended in 2005 has come into operation. The provisions of the Act apply to a person who has died intestate, i.e., without making a will and therefore the question of its applicability to a will executed before 2005 does not arise.

Q: I have a Public Provident Fund account whose 15-year term was completed on February 29 this year. Can I open a PPF account in the name of my wife who is teaching in a privately run school, and am I eligible for tax rebate on it under Section 80C of the Income Tax Act?

— Dev Raj Garg

A: You have the option to extend your Public Provident Fund account for any number of years and hence completion of the 15-year term does not bar for you from continuing with such an account. Your wife can also open a PPF account and will be entitled to claim tax deduction in respect of the amount deposited by her in that account.

personal finance
Selecting the right lender for a home loan
There's nothing like settling on the best lender, whether a nationalized or private bank or a housing finance company, for a property loan, says Nikolai Kirtikar. The lender should be one who meets the borrower's income profile and loan requirement at a reasonable cost, and who provides the loan without any prepayment charge and who lends on the more transparent base rate system

There's nothing like settling on the best lender, whether a nationalized or private bank or a housing finance company, for a property loan, says Nikolai Kirtikar. The lender should be one who meets the borrower's income profile and loan requirement at a reasonable cost, and who provides the loan without any prepayment charge and who lends on the more transparent base rate system

On one of my visits to a bank branch, I happened to run into a friend of mine who was also there for some work. It was almost ten years since we had met, so we decided to catch up over a cup of coffee. My friend wanted to buy a residential property on a loan and was confused with so many lenders with varying rate of interests, eligibility criteria besides bag full of suggestions from relatives and friends who had taken home loan in the past. He was directionless: Which way to go? Whom to listen? What to do? How to choose the right lender?

Here it goes - what all I shared with my friend:

First, finalize your property

Normally you get the best rates from lenders only after you have finalized the property. Hence it makes sense to get your loan sanctioned once you have decided on a specific property. If you aren't sure about the amount of loan that will be sanctioned, then you can go in for a preapproved process. But remember - if for any reason the lender can't finance the property selected by you, or you fail to finalize the property within the stipulated timeframe, you may lose the processing fee you have paid for getting the sanction letter.

If you are planning to buy a resale property, keep in mind that lenders are normally reluctant to lend money for a very old property. Most banks get the property valued independently and they will provide the loan based on their value rather than the cost mentioned in the purchase agreement. Also, check that the selected property doesn't fall under the list of negative areas of the lender.

Fixed vis-à-vis floating

Since the home loan is taken for a reasonably longer period, it's advisable to opt for a floating rate of interest and not for a fixed rate interest loan, unless you feel the rates are at the lowest in the interest cycle. And that's quite difficult to judge.

Know about additional costs

Every loan has some extra costs attached to it, some of which your agent may conveniently fail to disclose during your loan application process. Get an approximate of the extra charges you may have to pay for your home loan.

Some of these charges are listed below:

n Processing or administrative fees of any nature.

n Legal fees payable to the lender or to the latter's legal consultants

n Stamp duty on creation of mortgage

n Prepayment charges

Processing fee is nonrefundable

Your lender will charge you a fee to get the loan proposal moving and it varies from bank to bank, but is usually up to 0.50% of the total loan amount. No matter what the bank representative informs you, the processing fee is not refundable. This means if your loan application is rejected or is sanctioned for a lower amount than promised, you can't claim the processing fee back unless the refund has been promised in writing.

Prepayment charges

This is a penalty levied by the lenders if the home loan is prepaid within a certain time period. It is usually up to 2% of the outstanding loan amount.

According to the relevant guidelines, housing finance companies don't levy any prepayment charges on floating rate loans irrespective of the source of such prepayment. However, there are currently no such restrictions on the banks and they are free to charge prepayment charges. A lot of banks, though, don't charge a prepayment fee for repayments made from own sources and some banks like State Bank of India and Axis Bank don't charge the fee on a floating rate loan irrespective of source. Nil prepayment charges save you the cost on foreclosing your loan or transferring it to another lender.

Loan amount

Eligibility to get a loan is dependent on your income, number of dependents, age and qualifications, etc. Almost all lenders allow co-applicants for a home loan to club incomes and thus help increase the loan amount. Most lenders allow spouses (husband/wife) and parents as home loan co-borrowers. However, certain lenders do allow brothers as co-borrowers provided they are co-owners of the property.

Banks vs housing finance companies

There's nothing like a best lender, whether a nationalized or private bank or a housing finance company. The borrower should select a lender that meets his income profile and loan requirement at a reasonable cost.

You should choose a lender who provides loan without any prepayment charge irrespective of the source of such prepayment and, within that, choose a lender who lends on the more transparent base rate system.

Hence, when there's a downward revision in the interest rates, the benefit, which has a certain degree of ambiguity in the PLR system, will happen with a greater degree of transparency in the base rate system.

Don't forget to negotiate

You should shortlist four or five lenders and get them to compete for your loan. The cost of your loan depends a lot on your ability to negotiate. Remember that all terms and conditions of a housing loan are negotiable if you've a good credit history. You can use reputed online price and feature comparison engines to get an idea of the prevailing rates in the market.

So till the time two rounds of coffee got over, I had shared my knowledge with my friend on the subject. I was pleasantly surprised to see him relaxed and we parted with a promise to meet up again, this time with his loan sanction letter in hand.

The author works at Apnapaisa.com, a price and features comparison engine for loans & investments. The views expressed are his own

Budget, credit policy to give direction to bourses
Arun Kejriwal

The stock markets behaved as predicted and were nervous following the outcome of the state elections. In one sentence one can say the poll results were a setback for the ruling Congress party and would put pressure on the present UPA II government. New combinations and permutations are likely post these results which could make the UPA stronger or weaker depending upon which way and what combinations happen.

The markets were weak for the first two days and then, after initial weakness, recovered to close flat on Wednesday. Friday was a great day at the markets and they had a bumper gain of 2%.

The Bombay Stock Exchange Sensex lost 133.56 points or 0.76% to close at 17,503.24 points. The National Stock Exchange Nifty lost 25.80 points 0.48% to close at 5,333.55 points.

The broader indices lost ground but not much and the BSE 100, BSE 200 and BSE 500 lost 0.47%, 0.43% and 0.41%, respectively. The BSE MidCap lost a mere 0.24% while the BSE SmallCap lost 1.15%.

Amongst the sectoral indices the BSE Metal lost 3.93% while the BSE Oil lost 3.08%. On the positive side the BSE Auto gained 1.45% while the BSE Bankex gained 0.75%.

In individual stocks metal companies Hindalco was down 8.96% while Sterlite was down 7.96%. Heavyweight Reliance Industries was a big loser down 4.91%. Tata Motors was a gainer up 4.39%, while Axis Bank was up 3.85%.

From Wednesday's low the Sensex has recovered 494.47 points while the Nifty has rallied by 162.10 points. A great part of this recovery was global cues and the market feeling that CRR cut was to happen and which was announced after market close on Friday. The Reserve Bank of India announced a dramatic 75 basis points cut on Friday evening which would release Rs 48,000 crore into the system. This will ensure a sharp upward opening move on Monday and set the scene for an action packed week.

The Index of Industrial Production data will be released on Monday, the railway budget on Wednesday, the credit policy on Thursday and also the Economic Survey and finally the last day of the week see presentation of the budget for fiscal 2012-13. It's a full house and every day is expected to be action packed.

The CRR cut announced on Friday evening is likely to give rise to expectations that the credit policy could bring some rate cuts this time around. This is enough to cause some rally and bring the markets back to a jubilant mood. Liquidity has been a big driver for the markets so far. Foreign institutional investors invested about Rs 1,000 crore in the four day week while domestic institutions pulled out Rs 300 crore in the same period.

The government has in the current budget a difficult task of meeting populist demands and expectation and also going ahead with much needed reforms. This budget becomes important with elections due in 2014 and is a "make or break" budget. What would be done or not is a matter of five trading days away. I believe investors should ride the rally beginning Monday and enjoy the pre-budget rally as long as it lasts and exit either on Thursday or Friday morning before the budget proposals begin.

The BSE Sensex has support at 17,375, then at 17,169, then at 17,005, then at 16,855 and finally at 16,765 points. It has resistance at 17,581, then at 17,789, then at 18,005, then at 18,244 and finally at 18,477 points. The NSE Nifty has support at 5,302, then at 5,251, then at 5,209, then at 5,161 and finally at 5,076 points. It has resistance at 5,355, then at 5,415, then at 5,458, then at 5,521 and finally at 5,630 points.

It's a crucial week and the markets are expected to witness high volatility. Trade cautiously and knowing that the government has nothing much to offer considering the poor financial condition, one should wait for the event to be over before jumping the gun.

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

market pointers
n Stock market slides for third week in a row

n Key indices slipped for the third consecutive week on fears the reform process may take a backseat after the ruling Congress party suffered a setback in the state assembly polls

n Weak cues from global peers on concerns of slowing Chinese economy, sliding rupee and firm crude oil prices also added to market sentiment

n The BSE Sensex fell 133.75 points or 0.76% to settle at 17,503.24 in the week ended March 9, while the S&P CNX Nifty fell 25.85 points or 0.48% to close at 5,333.55

n In the coming week, markets are expected to be volatile on the RBI's policy review and the FY13 budget. Finance Minister Pranab Mukherjee will present the annual budget for 2012-13 on Friday while the railway budget will be presented on Wednesday

What are Options & Futures

An option gives you the right to buy or sell the underlying asset . A call option gives you right to buy the underlying asset while a put option gives you the right to sell. An option contract specifies the strike price, that is, the price at which you can buy or sell the underlying asset.

In Futures, you buy a contract which will have a specific lot size of shares. When you buy a Futures contract, you don’t pay the entire value of the contract but just the margin. Open interest is the the total number of contracts not closed or delivered on a particular day.