New Delhi, May 27
After a slow start, Reliance Industries Ltd (RIL)'s share buyback programme seems to have gathered pace with the company having acquired stocks worth Rs 1,481 crore since launch of the share repurchase offer in February.

According to information available with the bourses, Mukesh Ambani-led RIL that began a buyback programme of Rs 10,440 crore early this year, has so far purchased shares worth Rs 1,481.66 crore. This translates to about 14 per cent of the total amount earmarked for purchase of shares.

Between February 14 and May 24, the firm purchased 1.92 crore shares at an average price of Rs 771 a piece.

Although the buyback begun in February, it gained momentum in May as the company has picked up about 1.20 crore shares this month compared to 29.89 lakh shares in April.

RIL had bought back 22.55 lakh shares in March and just 5.45 lakh shares in February, respectively. Market experts are of opinion that the oil and gas giant is buying back shares aggressively from the open market with an aim to shore up stock valuations.

However, the buyback programme appears to have provided little respite to the stock price, which has fallen over 7 per cent in May alone, underperforming the benchmark Sensex that has declined by 6 per cent during the period.

RIL shares slipped to as low as Rs 692 on last Friday, which is much below the maximum price of Rs 870 per share fixed for buyback. — PTI

New Delhi, May 27
The much-awaited amendments to the Forward Contracts Regulations Act (FCRA) to strengthen and deepen futures market in commodities will now have to wait for Parliament’s monsoon session.

With the Budget session having drawn to a close, the changes to the Act, as suggested by Parliament’s Standing Committee on Food, Consumer Affairs and Public Distribution, are yet to be cleared by the Cabinet.

The FCRA amendment Bill, when passed by Parliament, will boost India’s commodities market with collective turnover of national commodity exchanges growing at a compounded annual growth rate of 40% in the past seven years to close Rs 120 lakh crore during 2010-11.

The amendments are expected to strengthen the regulator Forward Markets Commission (FMC) by giving it more financial autonomy, allow entry of institutional investors such as banks and mutual funds that will deepen liquidity and allow better price discovery and introduce new products like options. The introduction of new instruments will also help investors and farmers hedge their exposure in a cost-effective manner, given a significant jump in volatility in commodity prices. Observers say it is high time FMC gets more autonomy as commodity trading volumes have surged.

The current Act lacks teeth as key hedging instruments like options and weather derivatives are currently not allowed. In one of its keys recommendations, Parliament’s standing committee has recommended that ‘options’ trading should be allowed for the benefit of farmers, observing that futures trading does not impact the prices of agricultural commodities.

The current Act also leaves FMC dependent on the government for funds and has significantly impacted the regulators’ ability to invest in infrastructural, technology, and human resources. This, in turn, impacts the regulator’s ability to effectively police futures trading.

As trading in commodities is expected to only significantly grow from current levels, the amendments to the Act are expected to make FMC stronger so that it can zero in on any malpractices and punish the guilty. Futures trading in commodity markets is very much driven by situation on the ground in terms of key data like sowing, output, weather and thus, it is important for the regulator to have the technological and manpower edge to monitor any price manipulation.

Chandigarh, May 27
The government’s plan to do away with the crisis of foodgrain storage by allowing export of surplus wheat may not bear fruit. Even as the Empowered Group of Ministers (EGoM) is yet to take a decision on allowing export of 4-5 million tonnes of wheat stocks lying with it, low international prices vis-a-vis high procurement cost may make its export not viable.

The cost of procurement and transportation of wheat to the ports works out to be Rs 19,680 per tonne ($357 per tonne). Comparatively, the price of wheat from Russia and Australia in the international market is around $100 per tonne. Thus, for making the exports viable, the government will have to shell out a huge subsidy.

Sources in the wheat trade said though a government-appointed committee headed by C. Rangarajan had recommended that the government could give a subsidy of Rs 1,500 crore on the export of 20 lakh tonnes of wheat, the subsidy bill of the government could go much higher if the export of foodgrain is allowed at the current international prices.

It is learnt that the government, through the State Trading Corporation, had recently floated tenders to export wheat. The agency received six bids from private parties, showing interest in exporting 5.5 lakh tonnes of wheat. However, these parties had quoted a price ranging from $150 per tonne to $230 per tonne. Thus, for the exports to materialise, the government will have to shell out the remaining amount. This means the government subsidy on each tonne of wheat exported would range from $207 to $127 (Rs 11,430 to Rs 7,030).

Sources said it is because of this huge cost of subsidy that the government has not announced wheat exports and is also exploring other options on offloading the excess stocks lying with it. It is estimated that by June this year, 75 million tonnes of foodgrain will be lying in the government stock.

Q. I retired as an associate professor from SD College, Ambala Cantt, on 31.03.2007. At the time of my retirement, I was paid a gratuity of Rs 3.5 lakh. The State of Haryana revised pension on 12.10.2010 effective from 01.01.2006 and as such the revised limit of gratuity i.e. Rs 10 lakh was also implemented in the aided private colleges of the state from the same date (i.e. 01.01.2006) payable in four equal annual instalments to its employees who retired on or after 01.01.2006.

As per para 5(2) of circular No. 05/2011 dated 16.08.2011 by Ministry of Finance (Deptt. of Revenue - CBDT), the retirement gratuity is exempted from income tax to the extent of Rs 10 lakh.

Since I retired from a government-aided private college in Haryana, the college authorities have deducted income tax from the first instalments of arrears (i.e. 25%) of Rs 1,48,483 of retirement gratuity.

It may kindly be confirmed whether the college authorities are right in deducting the income tax from the arrears of my gratuity being paid in instalments although total gratuity payable does not exceed the limit of exempt retirement gratuity of 
Rs 10 lakh.
— Ishar Singh

A. The exemption of gratuity to the extent of Rs 10 lakh is applicable to employees who retired on or after May 24, 2010. Since you had retired on 31.3.2007, the revised exemption is not applicable to you. The college authorities are, therefore, right in deducting tax at source on an amount exceeding Rs 3.50 lakh, being the exemption applicable as on the date of your retirement.

Q. I am 70-year-old female senior citizen, with basic tax exemption of Rs 2.5 lakh during 2012-13 financial year. My income is from interest only and is about Rs 3.25 lakh. I propose to invest Rs 1 lakh in a tax-saving scheme. Thus, my net income will be Rs 2.25 lakh. My queries are:

(a) i) Can I submit form 15-H to my banker to avoid deduction of TDS.

If I don’t submit form 15-H and my bank deducts TDS, then I have to claim the whole amount of deducted TDS as refund, which appears to be un-necessary exercise for myself as well as for the I-T Department.

ii) If I submit form 15-H, though not permissible, what are consequences.

(b) Since my net income is below taxable limit of Rs 2.5 lakh , can I avoid filing income-tax return or is it mandatory to file return and claim refund of TDS paid if gross income exceeds Rs 2.5 lakh.
— R. Aggarwal

A. You can submit form 15-H to the bank. You will have to file income tax return as you will be claiming deduction under Section 80C of the Income Tax Act, 1961 (The Act), which is part of chapter VI-A of the Act. This is in accordance with the proviso to Section 139 of the Act.

The Comptroller and Auditor-General, in a draft report, has categorically stated that an undue and uncalled for favour was done to GMR-owned Delhi International Airport Limited (DIAL) while granting prime land at a throwaway price.

The investigations further reveal that the DIAL is not the lone beneficiary. Similar concession was given to the GVK Power and Infrastructure consortium for developing airport at Mumbai.

These two private operators are gainers to the tune of Rs 83,000 crore for these ‘sweetheart deals’. At the behest of politicians, the Airports Authority of India (AAI) did not undertake any price survey or evaluation and identical agreement was signed with these two private operators, disguised as public-private partnerships.

When in January 2006 these two consortiums were provided valuable areas, owned by the AAI, to operate, develop, design, construct, upgrade and modernise, the government’s gain was dismal. Why such a one-sided agreement was signed by the private owners and the Civil Aviation Ministry is baffling.

According to reports, litigation for the ‘suo moto congnisance’ in the Supreme Court has already been filed.

The audit report is also critical of the DIAL for levying user charges on passengers. According to the audit report, the levy was not part of the original agreement when the land was given to the operator. The report adds: “Whenever DIAL had raised this issue regarding revenue to accrue to it or expenditure to be debited to the government, the Civil Aviation Ministry and AAI have always ruled in favour of operators and against the interest of the government”.

The report is scathing against the ministry. Many connected with civil aviation emphasise that this is as big a scam as enacted in the 2010 Commonwealth Games. The estimate is that the government has lost about Rs 100,000 crore. 

The last one and a half years have been cruel to equity investors. As on May 23, 2012, the BSE Sensex has given annualised returns of 2.1% and 4.7% over the past five and three years, respectively, with returns in the past one and two years being in the red. Compare this to returns of 7-7.5% p.a. in past five years and approximately 6% p.a. in past three years from debt and one shall have reason to believe that bond investors have been better off than equity investors. Naturally, people today are more inclined to invest in debt, enamored by the high yields and the ability to preserve capital, even though post-tax returns from debt may not beat inflation in the near term.

At present, there are a number of investment options available in debt which can broadly be divided into 'interest rate sensitive' and 'non-interest rate sensitive' categories. Non-interest rate sensitive instruments are those whose returns are not affected by interest rate fluctuations. These include corporate fixed deposits, tax-free bonds from infrastructure companies and fixed maturity plans (FMPs) from mutual funds. Instruments such as open-ended debt mutual fund schemes belong to the category of interest rate sensitive instruments. This category also includes listed NCDs and bonds available for direct subscription by individuals. For a common investor, the difference between the two categories is that while returns from non-interest rate sensitive instruments are solely dependent on the coupon that they carry, returns from rate sensitive instruments, apart from the coupon, are also affected by the impact of interest rate movements on the price of the instrument.

In the non-rate sensitive category, corporate deposits are available for tenures ranging from 1 to 3 years and presently carry handsome coupons ranging from 9% to 12.5%. However, the actual return in some cases may be as high as 15% p.a. due to monthly compounding done by some borrowers. Corporate deposits, by virtue of being unsecured and mostly unrated, are perceived to be riskier than higher rated secured bonds or NCDs.

Another popular instrument in the non-rate sensitive category is the tax-free bond. The Union Budget 2012 has doubled the limit of funds that can be raised by state-owned infrastructure companies by way of tax-free bonds to Rs 60,000 crore in 2012-13. Given the prevailing high yields in the economy, the tax-free nature of the income from these instruments and the perceived safety of state-owned enterprises, these issues should garner huge interest among investors. FMPs are another attractive investment avenue in the non-rate sensitive category. These are essentially close-ended, hold to maturity schemes that invest in very safe debt instruments, preferably bank CDs and CPs and/or secured NCDs of high credit quality in the short-term maturity bucket. Again, due to high yields at the shorter end of the curve, FMPs are expected to carry near double-digit yields. FMPs are available in various tenures ranging from 3 months to 3 years and particularly suit conservative investors wanting to lock-in a certain level of returns over a pre-defined time horizon.

In the rate-sensitive category, there are a plethora of investments available in the mutual fund space with schemes ranging from low-duration funds (suitable for investors with a time horizon of 3-6 months) to Corporate Bond Opportunity funds (suitable for time horizon of more than 3 years). Even though these schemes are considered to be riskier due to their rate-sensitive nature, the risk can be minimised if the investment is held for a sufficiently long horizon. The following matrix presents a better picture of available investment options in this space (see table).

Apart from the above, we also have Dynamic bond funds and income or gilt funds. Whereas income funds invest in longer term corporate as well as government bonds, gilt funds essentially invest in government securities 
(both long and short term) thereby carrying a very high credit quality. Dynamic bond funds on the other hand manage their portfolios actively, shifting between short term and long term instruments in line with market conditions 
and outlook.

The key to successful investing in debt markets is to invest strictly in accordance with your risk appetite and investment horizon. First determine your risk appetite i.e. how much interest rate risk or credit risk you are willing to take, and choose the options accordingly. Secondly, investment must be done only in instruments which 'mature' or whose 'ideal investment horizon' is less than or equal to your investment horizon. This will ensure that you get optimal returns from your investment at the minimal risk.

The author is Group CEO, Bajaj Capital. The views expressed are his own.

The markets last week were extremely choppy. We had a bad Wednesday and a good Thursday. The markets were able to eke out a small gain after four consecutive weekly losses. The BSE Sensex gained 65.07 points or 0.40% to close at 16,217.82 points. The NSE Nifty gained 28.95 points or 0.59% to close at 4,920.40 points. The broader indices like the BSE100, BSE200 and BSE500 gained similarly at 0.55%, 0.49% and 0.51%, respectively. The BSE Midcap index gained 0.61% while the BSE Smallcap was a big gainer up 1.01%. The sectoral gainers were led by BSE Capgoods which rose 1.67%, BSE Bankex up 1.61% and BSE Oil up 1.5%. BSE FMCG was down 2.28% in a week when almost everything was marginally up.

The Indian rupee weakened further to Rs 55.37 to the US dollar. The low for the week was Rs 56.40 and the recovery was on account of the steep petrol price hike. FIIs continued their selling spree and sold shares worth Rs 1,268 crore while domestic institutions continued to be buyers with purchases of Rs 810 crore.

Petrol prices were hiked by about Rs 7.50 per litre and the impending diesel hike was postponed for the umpteenth time. It appears the government has become so wary of its allies that it does not want to take any measure which may be seen as unpopular. In this manner diesel price rise is now overdue for more than 8-9 months. The largest UPA ally had a protest march in Kolkata on the weekend led by its mercurial Chief Minister. Similar protests and a Bharat bandh has been called for Thursday, May 31. The rally in the market came on Thursday on account of the steep petrol price hike. If tough measures intended to reduce the fiscal deficit are taken, it will help the markets to stabilise and also strengthen the rupee.

The week ahead would see futures for May series expire on Thursday, May 31. The level of the previous series April expiry was 5,189 points. This sharp fall of 269 points could see some recovery in the next four days. Global cues have also weakened and markets around the world have become listless. Concerns on account of the Eurozone crisis have taken centrestage. The result season would come to an end in a week's time. The summary of results shows that sales growth is slowing down and the margins have been impacted, reducing the operating margins and therefore net profit. Going ahead, the key would be to increase the sales momentum and prevent the same from turning negative.

Facebook, which listed on May 11 on NASDAQ, has been having a torrid time. There have been at least two class action suits filed against the company which set the world and the market blazing with a market cap of $104 billion at issue price of $38. The stock closed the week at $31.91, down $6.09 or 16.02% over the issue price. The share was at frenzy and the price clearly seems unsustainable having a PE multiple in excess of 100 times.

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