Impact 
Post the approval by the BMCs standing committee to implement a capital-value based property tax system, the property owners in Mumbai and its suburbs will now have to shell out more as property tax, than what they were paying before. Thus, property owners owning a flat or property with an area more than 500 sq ft will now have to pay almost double the amount as tax, but flat owners who hold property that’s less than 500 sq ft have been completely spared.
Earlier, the BMC collected the property tax based on ratable value of a property. But now, the collection will be based on the capital value of the property. The factors that decide capital value of a property are carpet area, the ready reckoner value, age of the building and which floor the flat is based on. According to the BMC, once the new property tax is implemented in the city and its suburbs, 54% property owners will face no tax hike, 27% will get the benefit of the new system and pay lesser tax than earlier, while about 19% will have to pay higher tax than what they are paying now.
In our opinion emotions play a big role while buying a property, especially for self-occupancy and as such increase in property tax may not have a major impact on such properties. However, where the property purchase has been done for investment purpose, we may see this as a demand dampener, as investors may weigh the cost-to-benefit and thus ink the deal.
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This Week's Poll !!!
Would you like to check your EPF balance on a monthly basis?
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Impact
After eroding a quarter (i.e. 25%) of investor’s wealth last year, the Indian equity markets started the year 2012 pretty much on positive streak (gaining 14.4% in just 2 months), although worries of debt-overhang situation in the Euro zone swirled around in the global economy.
But now with economic outlook in the Euro zone worsening and rating agencies axing sovereign ratings, the ripples of shock are witnessed by India as well. Moreover, now with talks of Greece’s exit from the Euro zone (also known as ‘Grexit’) to cost humongous loss to global economy; shivers down the spine are passed on to many markets, including India.
MFs continue to be net sellers in the equity markets
(Source: ACE MF, PersonalFN Research)
Mutual funds too aren’t reacting any differently to this turmoil, as they have been on a selling spree since the beginning of year 2012 as depicted by the chart above. Even when the Indian equity markets (BSE Sensex) witnessed their highest level of 18,428 on February 21, 2012 from 15,517 as on January 02, 2012, the MF industry were net sellers to the tune of Rs 3,539.7 crore, and thus far on a year-to-date basis they have been net sellers to the tune of Rs 6,573 crore.
In our opinion, the above depicted phenomenon is nothing new. Whenever, there is panic in the market or the investment mood turns to pessimism, nervous investors in mutual funds tend to rush for redemptions which the fund houses have to adhere to. This is one reason why the MF industry has remained net sellers so far in this year. Also, with the equity markets shooting up in the first two months of the year 2012 may have provided an opportunity to the MFs to book profits.
However, investors in mutual funds should keep in mind that the fall or corrections in the equity markets should be seen as an opportunity for further investing rather than exiting from the markets. We recognise that the Indian equity markets are in a turbulent phase and volatile, but then to manage your investments during such times, the Systematic Investment Plans (SIPs) offered by mutual funds would enable rupee-cost averaging and power your portfolio, with the benefit of compounding.
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Impact
The recent fall in gold prices to Rs 28,085 as on May 15, 2012 from Rs 29,243 as on May 03, 2012 may have induced you to buy the precious yellow metal - gold. But this time while you plan to buy gold do keep in a reminder to carry your Permanent Account Number (PAN) card along, as you will have to furnish the same to the seller in case the transaction involves buying of gold coins or bars worth Rs 2 lakh or more.
This vigilant step has come in from the Government to keep a check on the menace of black money. Also it is now mandatory on the part of the seller to collect tax at source on such sales. The buyer's identity - the PAN will be treated as the source of identity for this purpose, will be mandatory.
To know our views, please click here..
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Impact
Protecting policyholders' interests has been one of the functions of the insurance regulator - Insurance Regulatory and Development Authority (IRDA) along with its role of developing the insurance industry. But at a time when policyholders are being lured to buy insurance products due to false promises or marketing gimmicks undertaken by the insurer; the insurance regulator - IRDA has expressed its discomfiture and brought out a number of changes to protect the interests' of the policyholders.
Let us look at the sweeping changes IRDA has brought about to protect the interests' of the policyholders.
To know our views, please click here..
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In an interview with the Economic Times, Mr John Chisholm – Chief Investment Officer of Acadian Asset Management LLC, shared his views on the near-term outlook for India and the implication of the retrospectively imposed taxation policy.
Mr Chisholm believes that in the near term the Indian markets are likely to stay aligned with other emerging markets. In his opinion, India had a good start to the year and performed really well, but there are a couple of things one needs to look at. “One is the level of risk in the marketplace, which we think is average or modestly higher than average. A part of that has to do with the macro picture, which we think is average-to-above average with GDP growth at about 7% year on year and the high inflation. There are also some challenges in the banking system and the space for rate cuts in the near term seems limited. Markets are not especially expensive, and are at an around 4% premium to average emerging markets, which is pretty much in line with the historical trend. As for the outlook on earnings growth, the fact that earnings expectations have been slowing somewhat means that valuations are slightly negative for Indian markets. The risk is average, macro outlook is okay - but not that great. India as a whole is not particularly attractive, but then it is aligned with other emerging markets,” he explained.
As far as Government’s recent retrospectively imposed taxation policy is concerned, Mr Chisholm said that this stance would be a significant negative. According to him, “One big problem is that such taxes actually directly eat into our processing costs. If there is a significant change in the transaction costs and the cost of buying and selling shares in any market, then that has a dramatic impact on how money goes back into that market. Even though the costs seem modest, it is the uncertainty. Say for capital gains tax, we would like to know exactly if it is going to have a certain cost on our transactions. Because when you buy a company it is because you expect the shares will appreciate, but when the costs are all so uncertain then you are not sure of what's going on. When you trade off certain costs with the level of uncertainty, then those certain costs seem much larger.”
We believe that the Indian economy has been surrounded by a number of downbeat factors which have slowed down the growth of our country. Right from the political uncertainty to stubbornly high inflation, widening fiscal deficit, sluggishness in the IIP growth and depreciating rupee, etc. have hurt the investment climate in the country. Moreover, if the Government continues delay in reforms it would drag our economic growth, and keep foreign investors at bay.
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- In order to boost micro-insurance, an initiative to provide insurance both life and non-life to low-income group people, the Insurance Regulatory and Development Authority (IRDA) is mulling ways to introduce prepaid insurance products. According to IRDA chairman Mr J Hari Narayan, this revolutionary idea can become reality, if the insurance providers, like the telecom service providers, are as quick to give instant policies at a desirable cost to cover multiple benefits and risks, especially for the low-income people. These products would be mainly single premium products to address all risk for the rural and social sector needs and would become an obligatory product for all the life insurance companies, similar to the banks.
- Credit ratings agency Moody’s downgraded the standalone ratings of India’s private sector lenders – ICICI Bank, HDFC Bank and Axis Bank to D+ from earlier C-.
Moody's pointed out that all these three lenders have significant direct exposure to the Indian Government securities: equivalent to 239% of tier-1 capital at Axis Bank, 226% of tier-1 capital of HDFC Bank, and 143% of tier-1 capital at ICICI Bank.
For all three banks, the key drivers for the rating action were: relatively low level of cross-border diversification of their operations; high level of balance-sheet exposure to domestic sovereign debt, compared with their capital bases; franchise resilience and intrinsic strength within the operating environment; and absence of on-going support from foreign ownership.
- The Government’s net direct tax collection jumped up 644% to Rs 14,812 crore for the month of April 2012 as against Rs 1,992 crore in April 2011. A major portion of the receipts was accounted for by personal income tax. Collections from companies stood at Rs 383 crore in April 2012, compared with a fall of Rs 6,490 crore in April 2011, owing to a higher refund outgo. Personal income tax collections rose 71% to Rs 14,423 crore, against Rs 8,472 crore in the year-ago period. Moreover, refunds too, fell to Rs 9,819 crore from Rs 25, 099 crore adding to the increase in net direct tax collection.
- Once the new system is in place, the subscribers of the Employees’ Provident Fund Organisation (EPFO) will be able to check the balance of their provident fund (PF) accounts on a monthly basis. At present, the subscribers can view their balances on a yearly basis. Apart from improving the service for the subscribers, the main trigger for the change was the repeated instances where employers had deducted the PF payments from the salaries of their employees, but had not submitted the deductions to EPFO.
- According to the economic think tank, Centre for Monitoring Indian Economy (CMIE) the real gross domestic product (GDP) for India is expected to recover to 7.6% in the current fiscal FY 2012-13, on the back of an expected good monsoon and easing of supply constraints.
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Capital Gains Tax: A type of tax levied on capital gains incurred by individuals and corporations. Capital gains are the profits that an investor realizes when he or she sells the capital asset for a price that is higher than the purchase price.
(Source: Investopedia)
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QUOTE OF THE WEEK
"The art of progress is to preserve order amid change, and to preserve change amid order." - Alfred North Whitehead
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