Skip to main content

Equity to debt transfer can yield good returns


   A joke in the equity markets is that when everyone expects the markets to move up, a correction phase sets in and vice-versa. During the just concluded week, the domestic stock markets, like their global peers, had this happy situation of proving the experts wrong and scaled a level of 19,000 (Sensex) after a fairly long time. The domestic markets' recovery story is not in isolation and is in line with the good performances shown by other markets.

Challenges ahead    

But what should be heartening for investors, is the fact that the recovery has come at a time when there are clear signs of non-performances on the government's front. It is difficult to remember when the government made any major announcements last. Caught by various challenges ranging from battling corruption to inflation, the government at the centre hasn't found time to focus on the reforms process. In fact, many attributed the lack of foreign institutional investor (FII) participation in the month of June to the lack of focus on governance.


   However, the turnaround in mood aided by a drop in crude oil price has been a pleasant surprise though one is not sure how long the good mood will continue on Dalal Street.

Results season factor    

The major worry for the markets in the coming weeks is the announcements of the quarterly results. While a below-par performance has already been factored in, the actual announcements when published are unlikely to be ignored. The high cost of funds has been a dampener of sorts though it has managed to serve the central bank's aim of cooling down the economy. Hence, it will be interesting to observe the impact of the tight money policy during the last few quarters on the performance of India Inc.


   A few sectors that would be interesting to watch are banking, automobile, and chemicals and fertilizers. Banking has been under pressure during the previous quarter due to a spike in interest rates. The rise in deposit rates was much steeper than that in lending rates in the last few months and there were also clear signs of a slowdown in the economy. As an indicator of things, the credit growth projections have been scaled down to 18-20 percent from an earlier target of over 20 percent by many bankers.

Markets hold potential    

Despite the lowerthan-expected growth rate, India still offers an opportunity for investors as the overall growth rate of the economy continues to be impressive. On the back of lack of turnaround in other economies like the US, the global investors are likely to find the domestic markets attractive over the long term. However, the risk for this story to sustain would be the political risk as the government seems to be hopping from one crisis to another. Hence, the global investors have been blowing hot and cold in the last few months.


   From a domestic and retail investors' point of view, the next few months, like in the recent past, will have to be managed on a more active basis as volatility has been on a wide range. An exit and entry strategy at regular intervals could boost the overall portfolio returns though timing them is never an easy task.

Debt attractive    

Investors can look at the option of exiting at the 20,000 levels and be in debt as the fixed returns products in themselves have been offering good returns. Despite their tax component, they have the potential to offer 5-6 percent returns, and if one were to take into account a profit booking strategy, the overall returns can be in double digits.


   For instance, if an equity investor reinvests his holding after an 8-10 percent dip in prices, the overall returns can be in the range of 15-16 percent which is very good in the current environment. The key, of course, is to get the timing right, which requires plenty of patience.

 

Popular posts from this blog

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

FCCB buyback

WITH dismal share valuations causing bondholders to redeem, and not convert their foreign currency convertible bonds ( FCCBs ), which until early this year were regarded as one of the most preferred options for raising corporate debt, suddenly seem to have become millstones around the necks of issuers. It is the redemption pressure on cash-starved issuers, coupled with the need to preserve liquidity by mitigating further forex outflow, which seems to have prompted the Reserve Bank of India ( RBI ) to issue the circular permitting buyback of FCCBs. As per the circular, issuers can now buyback FCCBs under the automatic route up to any limit out of existing foreign resources or by raising fresh external commercial borrowings (ECBs,) if effected at a minimum discount of 15% on the book value. Further, FCCBs up to $50 million can be bought back with prior RBI approval out of rupee resources representing “internal accruals”, if effected at a minimum discount of 25% on the book value. I...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now