Tuesday, May 25, 2010

Money,Market & Monsoon


After the monetary policy, the markets were keenly awaiting the monsoon forecast of the India Meterological Department to gauge the impact on food prices and on companies dependent on the agricultural sector.
The IMD dispelled fears by forecasting a normal monsoon for June-September. Rainfall is expected to be 98 per cent of the long period average, significantly higher compared to last year's 77 per cent LPA.
A normal monsoon is good news as it helps bring down prices of agricultural commodities and eases cost pressures for companies which use these as feedstock.
"It is quite possible that under a normal monsoon, food inflation declines significantly to more than offset the hit from non-food categories.
A poor monsoon, on the other hand, pushes up agricultural prices due to dwindling food stocks. Last year's rainfall deficit saw the country's foodgrain production dip to 216.85 million tonnes (mt) in 2009-10 as compared to 233.9 mt in 2008-09.
This meant agricultural growth declined 0.2 per cent in 2009-10 from 1.6 per cent in 2008-09. Agricultural growth was a robust 4.7 per cent in 2007-08, when the country saw a normal monsoon.
Improved outlook:
For India, the monsoon is critical as a large part of the arable land is dependent on rain. Kharif crops, which account for 55-60 per cent of the country's foodgrain production, are sown in June and July. Adequate rain, in terms of volumes and coverage (area-wise), is critical during this period.

Historically, it is observed that after a drought year, we have normal monsoon. So, this year, there is fair chance of a better monsoon. While last year, the industry took a hit, the outlook for the current financial year should improve.

2.Sector benifiting out of good monsoon:

1. Fertilizer:
A normal monsoon means the demand will be higher and the payment cycle will improve, which will be marginally positive for fertilizer companies.
Aries Agro, which makes nutrient-based fertilizers that help improve crop yields, is looking at 25 per cent growth in turnover in 2010-11 to Rs 175 crore (Rs 1.75 billion).
"We are expecting strong volume growth in fertilizers this year as compared to single-digit growth registered by the sector last year," says Sangeeta Tripathi, who tracks the fertilizer sector at Sharekhan.
We recommend a buy for Chambal Fertilizers and Coromandel International. Companies like Coromondel Fertilizers generate almost 90 per cent of their revenues from the fertilizer segment.
Deepak Fertilizers, which is largely into the chemical business, has a marginal exposure to fertilizers. Tata Chemicals and Chambal Fertilizers are among the most diversified players in this sector but still stand to gain.

2. Agri-inputs:
Irrigation India's monsoon, the main source of irrigation for the nation's 235 million farmers
Companies like Jain Irrigation the largest company in the drip irrigation segment, should benefit. This is due to the fact that a normal monsoon will lead to improved demand and working capital cycle, as most of its units are sold on credit.

3.Tractors Companies in the tractors segment like Mahindra & Mahindra will also benefit considering that the company's revenues from the segment are 30-35 per cent of its auto segment revenues.

4.Seed and crop protection segments: A normal monsoon will also mean good demand for companies in seed and crop protection segments.
These are the leading companies in these two segments
• Advanta India
• Monsanto India
• United Phosphorus
• Excel Crop Care

3.Who can benefit out of no rain
Farmers across North India may be looking up at the skies with hope but some punters on Dalal St want no rain.

• That’s because inadequate rains will fuel demand for pump sets, PVC pipes and drip irrigation systems fetching companies’ high returns. Operators on the bourses betting on deficient rain are lapping up shares of KSB Pumps, Kirloskar Brothers, Jain Irrigation, Bharat Bijlee and Finolex Industries faster.
• If India imports foodgrain, though it may not be necessary, shipping companies would be directly benefited. Lack of domestic demand for two-wheelers, tractors, especially rural demand could mean that companies will export these products to other countries.

4.list of companies

source : moneyconrtol.com
source :moneycontrol.com


source :moneycontrol.com

source :moneycontrol.com

Thursday, May 20, 2010

Cabinet increases natural gas prices

The Union Cabinet today effected an increase of over 113 per cent in the prices of natural gas produced by public sector companies Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL). These companies will now realise a price of $3.82 per million British thermal units (mBtu), compared to the existing one of $1.79. However, consumers of this gas, which mainly comprise the power and fertilizer sectors, will have to pay $4.2 per mBtu (inclusive of a 10 per cent royalty on the base price). This is equivalent to the price of $4.2 realised by Reliance Industries from its prolific KG-D6 gas block.

This gas, also known as the administered price mechanism (APM) gas, is produced from the fields earlier given to these companies on nomination. The price of APM gas was last revised in 2006. The new price is valid till March 31, 2014.

The low prices of gas have discouraged state-run oil companies from making investments in these blocks. Therefore, it became essential to increase the price of APM gas - Cabinet.

The increase would mean an increased fertiliser subsidy burden. The retail prices of fertiliser are capped by the government and any increase in input cost is offset as subsidy. The difference between cost and the maximum retail price (MRP) is released as fertiliser subsidy to manufacturers and importers. In case of power, any increase in input can be passed on to consumers. The power and fertiliser sector together account for 75 per cent of APM gas consumption. The total output of APM gas is estimated at 45 million standard cubic metres of gas a day (mmscmd).

ONGC –“This hike will also help us to wipe out the underrecoveries that were being incurred.” The state-run company incurred underrecoveries or revenue loss of Rs 4,745 crore from sale of 17.71 billion cubic metres of APM gas in 2008-09.

With this increase, ONGC’s revenues from APM gas will increase by Rs 6,550 crore to Rs 12,350 crore. While assuring better revenues to ONGC and OIL, the move will also bring a level-playing field between consumers of APM and non-APM gas.

Wednesday, May 19, 2010

3G auction ends, Govt to get Rs 67,719 cr windfal

Auction for 3G licence ended on Wednesday, with bids for pan-India licence touching Rs 16,751 crore that ensures the government a revenue of Rs 67,719 crore.

No single bidder bid for a pan-India license and Delhi emerged the most valuable circle at Rs 3,317 crore. Today was the thirty-fourth day of the bidding. The government’s revenues from the 3G spectrum are much higher than its original estimates and even surpassed its revised estimates by a hefty amount. The 3G proceeds will help the government to bridge its fiscal deficit.The government had budgeted revenues of Rs 35,000 crore from sale of air waves for 3G and Broadband Wireless Access (BWA) put together.

The Winners

Delhi: Vodafone, Bharti, Reliance Com at Rs 3317 cr
Mumbai: Reliance, Vodafone, Bharti Airtel at Rs 3247 cr
Maha: Tata Com, Idea, Vodafone at Rs 1258 cr
Gujarat: Tata Com, Vodafone, Idea at Rs 1076 cr
Andhra Pradesh: Bharti, Idea at Rs 1373 cr

Karnataka: Tata Telecommunication, Aircel, Bharti at Rs1580 cr
Tamil Nadu: Bharti, Vodafone, Aircel at Rs 1465 cr
Kolkata: Vodafone, Aircel, Reliance Communications at Rs 544 cr
Kerela: Idea cellular, Tata Telecommunications, Aircel at Rs 312.5 cr
Punjab: Idea Cellular, Reliance Communications, Tata Telecommunications, Aircel at Rs 322 cr
Haryana: Idea Cellular, Tata Telecommunications, Vodafone at Rs 222.6 cr

The auction for Broadband Wireless Access (BWA) spectrum would begin soon after the 3G auction is over. The 3G auction had commenced on 9 April, 2010 and there were nine bidders in the fray for the slots of 3G spectrum on the block. The government auctioned three slots in 17 telecom service areas and four slots in the remaining five states of Punjab, Bihar, Orissa, Jammu and Kashmir and Himachal Pradesh.

BSNL and MTNL received spectrum outside the auction process, but the price would be determined by the auction price.

The third-generation spectrum allows subscribers to download hi-speed data and stream videos on mobile telephones. The successful bidders would be allotted air waves in September after the spectrum is vacated by the defence forces.

The 3G spectrum saw aggressive bidding by the telecom players as India remains one of the fastest growing mobile-services market by subscribers. With the addition of over 20 million new users in March, the mobile subscriber base in the country has jumped to 584.32 million customers. The number of telephone subscribers in India, both wireless and wireline combined, increased to 621.28 million at the end of March-2010 from 600.98 million in February 2010, thereby registering a growth rate of 3.38 per cent. With this, the overall Tele-density in India reached 52.74.

Telecom players hope that the 3G spectrum will ease capacity constraints and also increase the revenue per user, which has been falling due to intense completion in the sector.

For broadband wireless access, there are 11 operators are in the fray. The reserve price for BWA spectrum has been fixed at Rs 1,750 crore and only two slots of 20 MHz each are on the block.

Tuesday, May 18, 2010

Birla Sunlife India Reforms Fund

The communication revolution has not just made telephone services cheaper, it has also created enormous wealth for shareholders in telecom companies over the decade. This win-win situation will not have happened without sweeping reforms.

There has been better utilisation of available resources and increased participation by the private sector in all sectors that have seen reforms. Reforms, be it the green revolution or the white revolution, have changed lives and opened up vast opportunities for the public.

As the government continues its journey on the reforms path in many sectors, investors are being offered an opportunity to participate in the process. A dedicated approach to this opportunity can be found in the new fund on offer from Birla Sunlife Mutual Fund – Birla Sunlife India Reforms Fund..

Presenting, Birla Sun Life India Reforms Fund, an open ended equity scheme that is designed to help you gain from the opportunities which could be created by policy reforms at any given time!

Let us explain how this scheme intends to work in your interest:

Your money is intended to be invested in sectors that are the focus area for India’s economic reforms!

The scheme intends to realign when emphasis shifts from sector to sector, to maximize its focus!

Our expert fund manager and team of analysts endeavour to select key companies with a significant potential to gain!

NFO Closes on 9 Jun 2010.

Source : ET


Monday, May 17, 2010

Finmin temporarily suspends e-filing of I-T returns

The Finance Ministry has temporarily suspended the facility for e-filing of income tax returns as it could not procure a security certification for the Income Tax Department's website in time.

"Pending completion of the certification procedure, the e-filing facility for assessment year 2010-11 has been temporarily suspended... The facility is expected to be renewed very shortly," an official release said today.

The department has initiated the process for renewal of the security certificate of its e-filing portal, which expired on May 8, 2010, it added.

The security certification, which is provided by specialised agencies, indicates that adequate safeguards have been taken to protect data from unauthorised access.

The government had introduced the system for mandatory filing of income tax returns by corporates in electronic format from assessment year 2006-07.

The temporary suspension of e-filing of returns, the release added, will not affect taxpayers, as the due date for submitting income tax return for assessment year 2010-11 is July 31, 2010.

The e-filing portal of the Income Tax Department remains fully secure and the lapse of the security certificate does not mean that its security features are slackened or compromised, it said.

Wednesday, May 12, 2010

Telecom companies - TRAI recommendation- potentially negative for sector

The proposals by Telecom Regulatory Authority of India (TRAI) have been greeted with anger by mobile phone companies, which said the cure that the wants to administer is worse than the disease, says The Economic Times. Many cellphone operators warned that any move to implement these recommendations could result in legal challenges as some of them want a panel to rework all key policies. Reliance Communications was the sole operator to welcome the planned changes. The paper quotes an unnamed source as saying TRAI has unleashed more confusion that would impact prospects of all companies. TRAI says the plan to charge a one-time fee for holding 2G radio spectrum in excess of 6.2 MHz would mean mobile phone companies must pay INR300-350bn more. The fee will be linked to the price of 3G spectrum that is now being auctioned. The worst affected companies will be Bharti Airtel, BSNL, Idea Cellular and Vodafone Essar.

BSL Capital Protection Oriented Fund - Series 2.

BSL Capital Protection Oriented Fund - Series 2

(A closed-ended Capital Protection Oriented Fund, 36 Months)

  • It aims to offer Investor Capital Protection + FD++ Return + TRIPLE Indexation Benefit + High Quality Portfolio

  • Fund Opens on : 21st Apr 2010
  • Fund Closes on : 21st May 2010

  • Plan Available : Growth. (Dividend Option not avaiable).

  • Minimum Investment : Rs. 5000 (In multiple of Rs 10/- thereafter)

  • Entry Load : Nil
  • Exit Load : Nil

  • No Redemption / Repurchase of Units shall be allowed pior to maturity of the scheme. Investors wishing to exit may do so through stock exchange mode.

  • Portfolio Allocation : Debt 85% (As per SID Permissible : 80-100%) managed passively (HTM Like FMP) & Equity 15% (As per SID Permissible : 0 - 20% ) managed actively (Target Return Basis)

  • Fund Manager : Mr. Satyabrata Mohanty

  • Benchmark : Crisil MIP Blended index
          Ratings : mfAAA(SO) from ICRA


Monday, May 10, 2010

Market Cheers on EU debt support !!

European policy makers unveiled an unprecedented loan package worth almost $1 trillion and a program of bond purchases to stop a sovereign-debt crisis that threatened to shatter confidence in the euro. Stocks surged around the world, the euro strengthened and commodities rallied.

Jolted by last week’s slide in the currency and soaring bond yields in Portugal and Spain, European Union finance chiefs met in a 14-hour session in Brussels overnight. The 16 euro nations agreed in a statement to offer as much as 750 billion euros ($962 billion), including International Monetary Fund backing, to countries facing instability and the European Central Bank said it will buy government and private debt.

The rescue package for Europe’s sovereign debtors comes little more than a year after the waning of the last crisis, caused by the U.S. mortgage-market collapse, which wreaked $1.8 trillion of global credit losses and writedowns. Under U.S. and Asian pressure to stabilize markets, Europe’s governments bet their show of force would prevent a sovereign-debt collapse and muffle speculation the 11-year-old euro might break apart.

Govt to divest stake in 10 more PSUs

The government is aiming to raise Rs 40,000 crore this fiscal through stake sale in 10 more public sector entities, including IndianOil and MMTC, and has set a roadmap for the same with the first issue SJVNL sailing off smoothly.

As per the Cabinet decision, all listed profitable PSUs should have a public holding of at least 10% and all profitable unlisted CPSUs should be listed.

As per criteria, 60 state-run companies are eligible for disinvestment. Last fiscal, the government had raised Rs 25,000 crore through stake sale in PSUs like Oil India, NMDC, REC and NTPC.

Here we take a look at 10 PSUs in which the government is going to sell its stake this fiscal:

1) Engineers India

Engineers India Ltd (EIL) was set up in 1965 to provide engineering and related technical services for petroleum refineries and other industrial projects.

It is working under the administrative control of the Ministry of Petroleum and Natural Gas (MoP&NG).

EIL today has emerged as Asia’s leading design, engineering and turnkey contracting company providing a complete range of project services needed to conceptualize, plan, design, engineer and construct projects to meet the specific requirements of its clients.

2) Coal India Ltd

Coal India Limited (CIL) is a Schedule 'A' 'Navratna' PSU under Ministry of Coal, with headquarters in Kolkata. It is the single largest coal producing company in the world and the largest corporate employer in the country with manpower of 409,332 (as on 1 July 2009).

With proven coal reserves of 105.82 billion tonnes out of total reserves of 267 billion tonnes (as on 1 April 2009), Coal India plays a pivotal role in Indian energy scenario. Coal India is a holding company with seven wholly owned coal producing subsidiary companies and one mine planning & consultancy company.

It operates through 79 areas and 473 mines of which 279 are underground, 163 opencast and 31 mixed mines. CIL further operates 18 coal washeries (12 coking coal and 6 non-coking coal) and also manages 200 other establishments like workshops, hospitals etc. CIL commands 75% of the Indian coal market.

3) Hindustan Copper

Hindustan Copper Limited (HCL), a public sector undertaking under the administrative control of the Ministry of Mines, was incorporated in November 1967.

It has the distinction of being the nation’s only vertically integrated copper producing company as it manufactures copper right from the stage of mining to beneficiation, smelting, refining and casting of refined copper metal into downstream saleable products.

The company markets copper cathodes, copper wire bar, continuous cast copper rod and by-products, such as anode slime (containing gold, silver, etc), copper sulphate and sulphuric acid. More than 90% of the sales revenue is from cathode and continuous cast copper rods.


SAIL is India's largest steel producing company. With a turnover of Rs 48,681 crore, the company is among the top five highest profit earning corporates of the country.

Ranked amongst the top ten public sector companies in India in terms of turnover, SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanised sheets, electrical sheets, structurals, railway products, plates, bars and rods, stainless steel and other alloy steels.

SAIL has five integrated steel plants, three special plants, and one subsidiary in different parts of the country.

5) Power Grid

Powergrid Corporation of India Ltd, a navratna public sector enterprise, is one of the largest transmission utilities in the world. It wheels about 45% of the total power generated in the country on its transmission network.

It has a pan India presence with around 71,500 circuit kms of transmission network and 120 EHVAC & HVDC sub-stations with a total transformation capacity of 79. 500 MVA.

Powergrid has also diversified into telecom business and established a telecom network of more than 20,000 kms across the country.It has consistently maintained the transmission system availability over 99% which is at par with the international utilities.

6) IndianOil

India’s flagship national oil company and downstream petroleum major Indian Oil Corporation Ltd (IndianOil) is the nation’s largest commercial enterprise, with a sales turnover of Rs 2,85,337 crore, the highest-ever for an Indian company, and a net profit of Rs 2, 950 crore for the year 2008-09.

IndianOil is also the highest ranked Indian company in the prestigious Fortune 'Global 500' listing, having moved up 11 places to the 105th position in 2009.

Incorporated as Indian Oil Company Ltd on June 30, 1959, it was renamed as Indian Oil Corporation Ltd on September 1, 1964 following the merger of Indian Refineries Ltd (established 1958) with it.

IndianOil and its subsidiaries account for approximately 48% petroleum products market share, 34% national refining capacity and 71% downstream sector pipelines capacity in India.

7) Manganese Ore India Ltd

Manganese Ore India Ltd (MOIL) currently operates 10 mines, six located in the Nagpur and Bhandara districts of Maharashtra and four in the Balaghat district of Madhya Pradesh.

All these mines are about a century old. MOIL fulfills about 70% of the total requirement of dioxide ore in India. The total production of manganese ore from all the mines constitutes about 65% of requirement of the country.

At present, the annual production is around 1.4 million tonnes which is expected to grow in the coming years. MOIL has set up Ferro Manganese Plant (10,000 TPY) and Electrolytic Manganese Dioxide (EMD) Plant (1000 TPY) as per its diversification plan for value addition to manganese ore.

MOIL is further considering setting up captive power plant, expanding the capacity of ferro manganese plant and setting up a new silico manganese plant.


Being the corporate body of Visakhapatnam Steel Plant, Rashtriya Ispat Nigam Ltd (RINL), Visakhapatnam, is one of the most prominent steel producing units of India.

Located 26 kilometers south of Visakhapatnam, the foundation stone of RINL was laid down in 1971.

The plant is known to have three different mines under its control, namely a dolomite mine and manganese mine at Cheepurupalli and a blast furnace grade limestone mine at Jaggayapeta.


Established in 1963, MMTC, one of the two highest foreign exchange earner for India, is a leading international trading company with a turnover of over $7 billion.

It is the largest international trading company of India and the first public sector enterprise to be accorded the status of ‘FIVE STAR EXPORT HOUSE’ by Govt Of India for long standing contribution to exports.

MMTC is the largest non-oil importer in India. Its vast international trade network, which includes a wholly owned international subsidiary in Singapore, spans almost in all countries in Asia, Europe, Africa, Oceania and Americas, giving MMTC a global market coverage.

10) Shipping Corporation

The Shipping Corporation of India was established in October 1961 by the amalgamation of Eastern Shipping Corporation and Western Shipping Corporation.

Starting out as a marginal Liner shipping company with just 19 vessels, the SCI today has metamorphosed into a giant conglomerate owning 76 ships of 5.1 million DWT with substantial interests in almost all segments of the shipping trade.

In addition, SCI mans/manages 60 vessels of 0.2 million tonnes DWT. It owns and operates about 33% of the Indian tonnage servicing both national and international trades.

Source: economictimes.

Friday, May 7, 2010

Credit Rating Agencies Warn of “Contagion”.. Market moving to double deep?

The credit rating agency, Moody’s has warned of potential fallout from the Greek debt crisis to foreign banks within the European Union; even if they are not in the Eurozone. This is a sort of a pot calling the kettle black situation in that when ratings agencies downgrade the credit worthiness of a sovereign state, the cost of borrowing for that country is increased due to the higher perceived risk of a default. This very act makes a default all the more likely, since servicing the national debt becomes more expensive. It is good news for speculators as it means that the yield on government bonds in the countries tainted with the “scourge of contagion” will rise (reflecting higher risk, of course).

Fitch’s was reportedly “considering a downgrade” of Portuguese government debt. Students of economic history will remember that the credit rating agencies gave their blessing to the securitisation of mortgage debt (including the notorious alt-A or sub-prime debt) in the 80s which sowed the seeds for the current global economic crisis. They were hugely wrong about that call. It is little surprise, then, that the European Commission is publicly musing about regulation of the credit ratings agencies. "We have seen developments in the markets that raise some doubts about behaviours of some of the players," said a Commission spokesman. In December of this year, the European Commission will be granted the powers necessary to impose controls over the ratings agencies activities within EU territory. It could be that these powers come into force sooner rather than later.

Despite credit agencies bestowing “junk status” on Greek government bonds, the European Central Bank (ECB) has made it clear that Greek bonds would be accepted as collateral for ECB loans although this required a change in its rules. EU states need to act decisively to steady the ship and restore confidence to the markets.

RIL-RNRL verdict.

The much awaited RIL-RNRL tussle has come closer to a conclusion today with the Supreme Court ruling a verdict, providing a road map for the contract negotiations, which we believe is in favour of RIL. The key highlights of the verdict are:

The Production Sharing Contract (PSC) to over-ride all other agreements

6 weeks given to RIL & RNRL to re-negotiate on gas supplies and tenure within parameters of PSC.

Pricing of the gas to be within the guiding principles of the EGOM.

We believe that the verdict gives a tacit indication for selling of the gas at $4.2/mmbtu. The verdict was in contrast to the Bombay High court judgment given on 15th June ’09, which directed RIL to supply 28mmscmd of gas at $2.34 for a period of 17 years from the commissioning of RPower’s gas based power plant.

What does this mean for RIL?

As far as financial implications of the verdict are concerned, RIL would continue to sell KG-D6 gas at government approved price of $4.2/mmbtu, implying no impact on cashflows. We note that cash flows would be negatively impacted by $700mn annually for selling 28mmscmd of gas at $2.34/mmbtu viz. a viz. $4.2/mmbtu.

Thursday, May 6, 2010

Greece Crisis!!!

So what's the problem in Greece?
Years of unrestrained spending, cheap lending and failure to implement financial reforms left Greece badly exposed when the global economic downturn struck. This whisked away a curtain of partly fiddled statistics to reveal debt levels and deficits that exceeded limits set by the eurozone.

How big are these debts?
National debt, put at €300 billion ($413.6 billion), is bigger than the country's economy, with some estimates predicting it will reach 120 percent of gross domestic product in 2010. The country's deficit -- how much more it spends than it takes in -- is 12.7 percent.

So what happens now?
Greece's credit rating -- the assessment of its ability to repay its debts -- has been downgraded to the lowest in the eurozone, meaning it will likely be viewed as a financial black hole by foreign investors. This leaves the country struggling to pay its bills as interest rates on existing debts rise. The Greek government of Prime Minister George Papandreou, which inherited much of the financial burden when it took office late last year, has already scrapped most of its pre-election promises and must implement harsh and unpopular spending cuts.

Will this hurt the rest of Europe?
Greece is already in major breach of eurozone rules on deficit management and with the financial markets betting the country will default on its debts, this reflects badly on the credibility of the euro. There are also fears that financial doubts will infect other nations at the low end of Europe's economic scale, with Portugal and the Republic of Ireland coming under scrutiny. If Europe needs to resort to rescue packages involving bodies such as the International Monetary Fund, this would further damage the euro's reputation and could lead to a substantial fall against other key currencies.

So what is Greece doing?
As already mentioned, the government has started slashing away at spending and has implemented austerity measures aimed at reducing the deficit by more than €10 billion ($13.7 billion). It has hiked taxes on fuel, tobacco and alcohol, raised the retirement age by two years, imposed public sector pay cuts and applied tough new tax evasion regulations.

Are people happy with this?
Predictably, quite the opposite and there have been warnings of resistance from various sectors of society. Workers nationwide have staged strikes closing airports, government offices, courts and schools. This industrial action is expected to continue.

How are Greece's European neighbors helping?
Led by Germany's Chancellor Angela Merkel, all 16 countries which make up the euro zone have agreed a rescue plan for their ailing neighbor. The package, which would only be offered as a last resort, will involve co-ordinated bilateral loans from countries inside the common currency area, as well as funds and technical assistance from the International Monetary Fund (IMF).

According to a joint statement on the EU Web site, a "majority" of the euro zone States would contribute an amount based on their Gross Domestic Product (GDP) and population, "in the event that Greece needed support after failing to access funds in the financial markets."

This means Germany will be the main contributor, followed by France. Although the announcement did not mention any specific figure, a senior European official quoted by Reuters said that the potential package may be worth around 20 billion euro (US$26.8 billion).

However any European-backed loan package requires the unanimous approval of European Union members, meaning any euro zone country would have effective veto power.


Wednesday, May 5, 2010

IRDA issues guidelines on ULIPs......

The Insurance Regulatory and Development Authority (IRDA) has issued guidelines on unit-linked insurance products (ULIP).

• The minimum policy term for ULIPs is to be five years.

• All ULIPs are expected to have an insurance cover payable on death.

• The pension/annuity products must have insurance cover.

• No loans are to be granted under ULIPs.

• A partial withdrawal in ULIPs will be allowed only after the fifth year of policy. However, there will be no partial withdrawal for pension/annuity products.

• These guidelines are to apply to all ULIPs from July 1, 2010.

All about TDS

THE tax season is here. And if you are an employee you can’t blame your employer for deducting large chunks of money from your salary towards tax deducted at source (TDS), which he is legally obliged to do.

Your bank will also deduct some percentage from your FD interest of Rs 10,000 or more towards TDS! So what is this TDS all about? How is it computed? Are there any changes this year? Read on...

What is TDS?

TDS reduces your taxable income and could even provide tax relief! The TDS collections account for 40 percent of the total taxes collected in the country. As the name suggests TDS is the amount of tax that is deducted at source in certain types of income. The TDS thus collected is deposited in the Government treasury within a specified time.

How is it computed?

Some of the types of income where TDS is applicable include salary, interest, rental fee, interest on securities, insurance commission, dividends from shares and UTI/Mutual Funds, commission and brokerage, prize money won from lotteries, horse races, etc, payments to non-resident sportsmen or sports associations, commission on sale of lottery tickets, fees for professional and technical services and the like, compensation for compulsory acquisition, income from units of an offshore fund and income from foreign currency bonds or shares of Indian Companies (unless specified as tax-free) and others.

The process of calculating the TDS involves these steps:

1. Estimate the gross salary paid to the employee for the whole year;

2. Find out and estimate the exemptions if any from the total salary income;

3. Add other income of the employee as disclosed by him like rental income, capital gains etc.

4. Consult employee to calculate deductions, if any, from the salary income;

5. Arrive at the employee’s net income and calculating the tax on the same;

6. Deduct the tax equally over 12 months of the year;

7. Pay the TDS every month and file e-TDS return every quarter; and finally

8. Ensure the employee is issued with Form 16 (TDS certificate).

How does it benefit salaried people?

Basically the TDS process saves the employee the time and the hassles of going through the cumbersome procedures involved in filing separate tax papers. On the salary part which is made up of many components, some monthly and some yearly there is income tax applicability in each component.

What are the possible deductions for tax under TDS?

The possible deductions on the employee’s gross salary after exemptions are taken into account come under Section 16 of the IT Act. These include dues paid as professional tax, deductions for investing in various tax saving investments like PPF, life insurance premium, pension schemes by life insurers, Mediclaim premium, interest on loans for education, house rent paid and deductions under Section 80U.



Monday, May 3, 2010

Mutual funds see no gain from IRDA move on agent fee disclosure

Even as the Insurance Regulatory and Development Authority (IRDA) asks insurance companies to disclose commissions paid to agents, mutual fund experts say the step is not enough to create a level playing field for mutual funds vis-à-vis ULIPs. It will take some time for the mutual fund industry to recover from the dip in distributor revenue due to the entry load ban, the experts observe.

The ban on entry load for mutual fund products last year had sparked off the confrontation between the insurance and mutual fund industries on the non-uniformity of the commission structure. According to industry insiders, nearly half of the country's independent financial advisors selling mutual funds have quit due to the ban on entry load. They say that many distributors have also chosen to sell ULIPs rather than mutual funds as the former offered more lucrative commissions.

ULIP Vs. mutual fund

Some observers also see the recent spat between the Securities and Exchange Board of India (SEBI) and IRDA on the jurisdiction of ULIP as a fallout of this clash of interests.

“The basic idea behind SEBI's move to claim jurisdiction of ULIP is to bring parity in commissions,” says the head of a mutual fund company on condition of anonymity.

Since the ban on entry load, upfront commission for mutual fund distributors has been slashed from about 2.5 per cent to 0.5 per cent. In contrast, the upfront commission for ULIPs remains 20-40 per cent even after the recent cap on charges.

Phased changeover

“Any move by the insurance regulator which infuses transparency in the system is welcome; but such changes should be phased and not rushed into. It will take at least a year for the mutual fund industry to regain the business of pre-entry load barrier days,” Mr Rajiv Deep Bajaj, Vice-Chairman and Managing Director, Bajaj Capital said. The revenues from Bajaj Capital's mutual fund business dropped 40 per cent in the last 6-8 months, and this was more or less compensated by the rise in revenues from ULIPs and fixed income instruments, he added.

While distributors are gearing up to charge commissions directly from investors for advisory services, only about 30 per cent of customers are willing to pay the additional fee, Mr Bajaj said. “The strategy for the remaining 70 per cent would be to reduce operating cost by using online medium and impart more efficiency in the distribution system,” he said. Investors generally would prefer to pay commission for financial instruments if it was embedded in the product pricing and not on a voluntary basis, he pointed out.

Mr Atul Suchak, an independent financial adviser said, “We are trying to mitigate the fall in charges by acquiring more customers by offering innovative and interpersonal advisory services.”

Source: http://www.thehindubusinessline.com/2010/04/30/stories/2010043050671200.htm