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Monday,
December 10, 2001, Chandigarh, India
  
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It’s time to book profits Sinha talks tough on housing reforms
Invest where fixed income is assured
Can UTI push up NAV? |
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Fine-tune amendments of CP Act
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It’s time to book profits It’s a confusing time. A global slow-down. Or a recovery. Will the world stock markets continue to bounce back? Or, another crash is round the corner. Will the US Federal Reserve’s rate cut work? Or they will fail as in Japan. These are some of the critical questions, which have to be answered to see which way the stock market is going in the months to come. The recovery in the world stock markets is making us believe that the worst may be over for now. The Bombay Stock Exchange benchmark
(sensex) has gained over 840 points or 32 per cent in less than two months. What are the reasons behind the recent surge in the
sensex, considering that the economic indicators do not present a rosy picture? For instance, exports, growth in industrial production and non-food credit has been down in the first half of the current fiscal compared to the same period in the last fiscal. On the flip side, imports, government borrowings, fiscal and revenue deficits are up. The only silver lining is the mounting Forex reserves and the general buoyancy in the cement sector. Market players attribute the recent gains on the bourses to several factors. The lower interest rate regime ushered in by the global central banks, including that in India, on signs of US slowdown and recession have seen the share prices recovering. Meanwhile, the valuations of stocks had become attractive to merit a closer look, after they tumbled to their eight-year low on September 21, 2001 in the aftermath of the terrorist attacks in the New York and Washington on September 11, 2001. The terrorist attacks had
exacerbated the crisis, particularly in the airlines, tourism and insurance sectors, pulling down global stock indices to their new lows in several years. Within 10 days of the attacks, the sensex was trading at its eight-year low of 2,594.87. Following the September 11 attacks, the US Federal Reserve cut the interest rates for the 10th time in the calendar year to a four-decade low. The Indian central bank has also lowered interest rates to provide a stimulus to the slowing domestic economy. The RBI has cut interest rates three times in this calendar year. The latest cut was on October 22 last during the announcement of the mid-term credit and monetary policy. The bank rate was reduced by 50 basis points to 6.5 per cent from 7 per cent and the cash reserve ratio
(CRR) by 2 per cent to 5.5 per cent from the earlier 7.5 per cent. While the lower interest rates may lead to increased consumer spending in India, the corporate profitability may also rise due to lower interest outgo. Tech stocks were the first to stage a rally on hopes of a recovery in the US economy. Investors feel that the Indian tech sector will greatly benefit, as more US companies prefer to outsource software services in order to keep their costs down. Apart from these hopes, battered valuations also led the investors to make a beeline for tech stocks. The spurt in the stock prices is not restricted to the frontline software stocks. The rise in the price of second line and third line software stocks has been even sharper as seen in the table. The recent rise in tech stock prices should be used an opportunity to book profits wherever the stocks have been bought at lower levels. Investors should also exit from some of the second and third-rung software stocks, such
HFCL, Rolta, Silverline and Shyam Telecom, and invest in sectors such as cement and
pharma. Cement scrips are witnessing a lot of action following the revival in demand for the commodity, firm prices and hopes of consolidation in the cement sector. Meanwhile, developments in the pharma sector have seen the stock prices in the sector remaining virtually immune to the recent downtrend on the bourses. The sector is expected to record higher growth, with the topline pharmaceutical companies concentrating on high-margin areas resulting from research & development (R&D) and export of generic drugs. The earnings growth in the healthcare segment is expected to rise sharply with changing lifestyles. In the pharma sector the investors can buy
Wockhardt, Ranbaxy, Morepen Laboratories and Dr Reddy’s on declines, as the present clearly is the time to book profit and sit on sidelines as a correction is round the corner. |
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Sinha talks tough on housing reforms Mumbai, December 9 Without naming specific state, Mr inha stressed the need to “create necessary atmosphere so reluctants also fall in line”. The Centre could work on ideas to have memorandum of understanding with states, on the lines of the MoU signed for power sector reforms, to ensure they carry forward the reforms in housing. The Centre has taken steps to boost housing sector like rural housing schemes and tax benefits for housing credit, but “our efforts will be incomplete if there is no response from the state government to reform”, Mr Sinha said while addressing a national convention of real estate industry here today. The real estate industry has complained about that sluggishness on part of state to rationalise stamp duties, the Reform Land Ceiling Act. Mr Sinha said the Centre would consider the real estate industries’ suggestions to raise the tax exemption limit for payment of interest on housing loans. However, there had to be tremendous increase in the volume of housing construction activity so that it could more than compensate for the revenue loss (due to concessions), he added.
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Invest where fixed income is assured Mr Sanjay Tandon manages Competent Finman (member of NSE), Competent Professionals (dealers for NSE, BSE and DSE), Competent Surveyors (surveyors, loss assessors and verifiers), Tandon and Company and S. Tandon Associates. He who started as a Chartered Accountant has been in to this business for the last more than 10 years. Interestingly, he is very conservative when it comes to investments and says put only that much what you can afford to loose in the
equities. A balanced spread of investments should be the thumb rule, he says. Initial investments As I strongly believe that one should be very secure financially, the first thing which I did was opening a Public Provident Fund account and buying insurance policies, in 80s itself. It was only in 90s that I developed interested in the equity market. I already had good knowledge about the market and invested in shares of good companies like Reliance, Godrej etc. To invest in the share market, a company with sound management, financial background having a good track record of payment of dividends should be
selected. One should sure that even after several years the company would exist and will be performing well. There is no dearth of fly by night operators and one has to protect oneself from them . The other very important point is that one should avoid greed. The best way to earn profits here is that the moment you buy a share, decide the price at which you will sell it. So that in the temptation of earning more during bullish trends, you do not end up loosing your money. Also, investment should be in shares of different sectors as that spreads your risk. These things have helped me earn in the market . Real estate Insurance Mutual Funds Bank deposits Where to invest A balanced spread of investments in fixed assets like land, liquid assets like jewellery and very liquid assets like banks should be the norm of investment This will come to your rescue in any kind of odd circumstances. So far as market is concerned, it follows trends like petro sector between around 1987 and 1990, finance companies between 1990-96, IT sector in, 96-2001 were the best performing. These trends though can’t be ignored but one should try not to get carried away. Never commit the mistake of putting all your money in one sector. In my opinion, IT related communication stocks will do well and so will IT related stocks. Insurance companies are also likely to hog the limelight after three-four years or so. (As told to Shveta
Pathak) |
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by Ashok Kumar Can UTI push up NAV? When the market opens everyday with a, what technicals buffs might call a “gap”, it is a sign of over enthusiastic traders jumping in. This is happening now. During the bull run of 2000, the opening gaps at one point were regularly 100-200 points higher than the previous closes. At least that is not the case today. Now if frontline stocks move, second line tech stocks should also move up, but they have been in overbought territory for quite sometime and look dangerously poised. Signs of a turnaround in the sector, globally, is leading to investors jump onto the bandwagon, as valuations of the sector were beaten down tremendously. The positive movements in foreign markets is driving up the stocks. However, a lot of activity from operators is being witnessed in second-line IT stocks. The rise in these stocks is more of a speculative nature rather than a fundamentally-driven one. There is a bubble being created and investors should be cautious as these stocks are overheated now. If you have to invest in tech stocks, avoid the second rung ones, unless of course you are a trader and clued in on the counters. A warning — the notorious Y2K bull is reportedly ramping the markets again. While the UTI has been criticised for its investments in K-10 stocks which have seen huge erosion in values, investments in blue-chip public sector companies have also added to UTI’s cup of woe. In a rare show of speed the Government of India acted fast forcing the UTI to come up with a revival package to cater to the needs of small investors, and well, itself too, of course. It is a smart way of avoiding redemption pressure. The six month freeze remains intact except for the first 3000 units held by the investor, on which he had the option to redeem beginning from August. But any redemption above 3000 units would have to wait till the January 2002, when US-64 would finally become NAV based. For investors who choose to wait till January 2002 even for the first 3000 units there is an incentive that the repurchase price would be either the administered price or NAV, whichever is higher. The idea is that this will reduce the redemption pressure if any on the scheme. Each investor holding units as on 30th June 2001 may offer up to 3000 units for repurchase at any time from August 1, 2001 to May 31, 2003 at fixed prices. By and large, it seems that UTI would like to push its NAV up in order to avoid redemption pressure. So, can UTI declare a NAV higher than its fixed price? Going by the current spate of activity being witnessed in second-line IT stocks, and more specifically, the infamous K-10 stocks, the Y2K bull may provide a solution perhaps.
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by R. N. Lakhotia Retirement benefits Q: My wife and myself have retired from PSU. We both got Rs 12 lakh as retirement in form of P.F. gratuity etc. We are non-pensioners. A sum of Rs 6 lakh we deposited in the Post Office under MIS (Jt Account) and getting Rs 5500 per month. Balance amount was deposited in the long-term schemes of UTI, IDBI, ICICI, SBI etc. From all sources our joint annual income is Rs 1,20,000. We have joint accounts in the banks for all purposes. Please advise us how to fill in the income-tax return separately? Secondly my wife is 62 is eligible to get rebate of Rs 5000 under Section 88C of IT Act or not.
Mrs & Mr S.L. Sharma, Ambala Ans: Separate income-tax returns should be filled in by you and your wife. The income in these income-tax returns should be shown based on the investment of funds by each of you. Thus, income accruing or arising to you out of investment of your funds should be shown as your income while the income arising to your wife out of her funds should be shown in her income-tax return.
IT law Q: The Thrift & Credit Co-op. Society (registered) advances loans to its employees (All Govt/BSNL employees) loans upto Rs one lakh. Members many times withdraw money from their GPF & want to repay the loan in cash. The amount is more than 20,000. It is understood that Income-tax law forbids advancing or returning of loan of Rs 20,000 and more, otherwise than through Payee Account Cheque/Bank Draft only. A member, who takes withdrawal of the GPF or other amounts in cash from his office & wants to return the loan amount of Rs 20,000 or more in cash to this Society. Clarify that what is the law and if the same is also applicable in our case when there is no likelihood of any evasion of any tax in this. President, Ans: One should avoid taking or repaying cash loans in excess of Rs 20,000. However, there is an exception for the banks and the co-operative societies. Section 269SS states that the provisions of this section would not apply to loan or
deposit taken or accepted by banking company and co-operative bank.
Transport allowance Q: As mentioned in column “Tax and You” of the Transport allowance is exempt from income-tax to the tune of Rs 800 p.m. If someone is getting Rs 1600 p.m., then the taxable amount will be Rs 1600 p.m. or Rs 1600 - 800 = Rs 800 p.m. Please clarify. K.L. Pusri, Panchkula Ans: Transport allowance is exempt under the Income-tax Act to the maximum extent of Rs 800 per month. In your case if the transport allowance is @ 1600 per month then Rs 800 per month will be added in the income. |
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by Pushpa Girimaji Fine-tune amendments of CP Act There were three major flaws in an otherwise comprehensive consumer protection (amendment) Bill, 2001, introduced by the Ministry of Consumer Affairs in the Rajya Sabha in April this year. The first two, on which consumers groups had very strong reservations, pertained to clauses that sought to unnecessarily narrow down the scope of the consumer courts and also tamper with the basic character of these courts to provide justice free of charge. The other major deficiency lay in the fact that the Bill did not pave the way for bringing within the jurisdiction of the consumer courts. certain services such as postal services, civic services and health services provided by municipalities and other state agencies. And all three were in conflict with the basic concept of consumer protection embodied in the law. Fortunately for consumers, the Standing Committee on Food, Civil Supplies and Public distribution, to which the Bill was subsequently referred, has attempted a course correction. In its report submitted to the Lok Sabha last week, it has categorically struck down the first two proposals and sought to widen the scope of the courts to include all basic amenities such as water supply, sewerage, street lighting, health and medical services provided by state government agencies or civic bodies, as well as services such as posts, education, provident fund, etc. Without mincing words, the Standing Committee said the proposal to substitute Section-3 of the CP Act with a new section was not in the interest of consumers and should be dropped. Clause 3 in the Bill seeks to exclude the jurisdiction of consumer courts in respect of claims for which corresponding remedies of judicial nature are available under any other special law. The committee also called for withdrawal of clause 12 (2) of the Bill on the ground that it changed the basic objective of these courts to provide inexpensive justice. The clause seeks to impose a complaint fee. Equally welcome is its recommendation to expand the list of service under Section 2(1)(0). Now even though the definition of “service” under this Section is wide enough to include all services, several services have remained outside the purview of the courts constituted under the law. Postal service is one such, because of the immunity against liability granted to the department and its staff under the Indian Post Office Act. Similarly, even though the CP Act came into being in 1986, till last year the question of applicability of the CP Act to educational institutions and the various services rendered by them remained uncertain. Last year, the National Consumer Disputes Redressal Commission, in its order in the case of Bhupesh Khurana vs Vishwa Budha Parishad finally held that educational services too come under the ambit of consumer courts, but there is still a question mark over disputes pertaining to examinations conducted by universities and boards. In 1996, in its order in the case of chairman, Board of Examinations, Madras vs Mohindeen Abdul Kader, the National Commission had categorically held that in conducting examinations, evaluating answer papers and announcing the results, the boards and universities were not rendering any ‘service’ as defined under the CP Act and consumers had no redress before these courts in these matters. Meanwhile, appeals against the decisions of some of the high courts holding that education did not come under the purview of consumer courts are pending before the Supreme Court. Given these factors. consumer groups felt that it would be better to add some of these services to the list specified under Section 2(1)(0) so as to leave no room for any doubt on the applicability of the act to these services. The Standing Committee has expressed a similar view. Similarly, a long pending demand of consumers and consumer groups has been to bring all basic amenities, including health services provided by municipalities and state agencies under the ambit of these courts. Today, be it a case of death caused by negligence in providing immunisation services or electrocution caused by a live wire left hanging dangerously at some traffic junction, most of the victims are poor people who cannot afford to go to a regular law court and fight for compensation. So the Standing Committee’s recommendation that basic amenities should be included in the list of services under Section (1)(0) is welcome. However I must point out that today consumers have no redress against these services only because Section 2(1)(0) excludes services provided free of cost. Initially, consumers argued that since these services are run from the taxes paid by citizens, it would be incorrect to classify them as ‘free service’ and exclude them from the purview of consumer courts. The supreme court, which examined this issue in the case of Indian Medical Association vs V.P. Shantha, however disagreed. So the government will now have to fine-tune the amendments further to implement the recommendations of the Standing Committee in this regard. |
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Inflation dips Haldia Petro Ashok Leyland |
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