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| January 29, 2016 |
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Impact 
When The Budget for the Financial Year (FY) 2016-17 is around the corner and corporations are busy making presentations to the Finance Minister, Mr. Arun Jaitley. For the budget to be inclusive and effective, it has to address the basic concerns of the citizens, the taxpayers of this country. Many industry experts and investment advisors call the budget a “non-event”; from a businessman’s perspective it might as well be. However, from the common man’s point of view the budget still holds immense importance.
Unlike the yesteryears, governments roll out reforms and make important announcements even outside the budget. This is why many argue the budget exercise is merely an account reading activity, where the Government provides guidance on its revenue and briefs about the likely way money would be spent. That being said, some announcements are still typically made only in the budget; for instance, the announcements pertaining to taxation.
Taxpayers are all ears to the changes in the tax regime. The general expectation is lower taxes and more provisions allowing people and the corporations to save taxes.
Despite the massive population base, India’s taxpayers’ base is minuscule. At present not more than 5 crore Indians pay income tax. To top this, tax disputes (between the assessees and the tax authorities) increase the cost of tax collection, resulting in further loss to the nation. The accumulated amount of disputed tax ran into more than Rs 4 lakh crore, as stated by the finance minister in the last budget. As reported by the Business Standard dated February 27, 2015, there were about 10,843 cases pending in the Supreme Court.
Most likely announcements...
Whether the Budget 2016-17 will deal with all these issues effectively still remains to be seen, but the Finance Minister has hinted at some key changes in the tax structure and tax administration. Speaking to the media a few days ago, Mr. Jaitley said, “Laws must be simple, so even if you have a large number of assessees and a large population, if your laws are simple, then the possibility of excessive litigation does not arise.” He revealed, the Government is giving serious consideration to the recommendations of the Parthasarathi-Shome Committee. Also, it plans to look into the Eswar committee report as well. The Government had set up a committee under former Delhi High Court Justice, R. V. Easwar last October seeking advice on simplification of tax laws.
Don’t get too excited
The discussions of the finance minister with the media have so far revolved around bringing in administrative changes in the system. Therefore, expect the way tax is collected to change. For example, the threshold limit for Tax Deducted at Source (TDS) applicable to an individual or a firm may increase. This may reduce the cost of compliance and may avoid time, money, and efforts wasted in litigation. Administration level reforms look eminent as India has been constantly pushing for its “Make in India” programme. Let’s not forget, the World Bank ranking of a country on “ease of doing business” is closely linked to the prospects of receiving higher investments from foreign firms. Although the NDA Government hasn’t openly supported the retrospective taxes yet, it hasn’t even officially eliminated them.
In the last budget, the Government reduced the corporate tax rates, keeping mum about personal tax rates. While there’s little room to cut corporate taxes further this time, the Government may continue to maintain its silence about the common man’s tax concerns. The finance minister has avoided making any comment on revisiting the tax structure or the tax rate so far.
Who should pay the price for development—Common Man
The RBI Governor has suggested that the Government should cut interest rates on small savings schemes (SSS) to level the playing field on bank deposits. So don’t be surprised to receive a double whammy, i.e. the rate of tax or the tax slabs may stay unchanged and the rate of interest on small savings schemes such as PPF may be reduced.
The middle class segment that is growing very rapidly in India may keep guessing how the common man has actually benefited from the Government’s policies. While special programmes are being launched for the corporate, they have been left alone to fend for itself. When it comes to fiscal prudence, the common man is being asked to shoulder a little more of the burden , this way corporate can be shown some generosity.
Read your mind...
Food prices are up, tax structures remain unchanged, and interest rates have come down (and may go down even further). This has severely affected the purchasing power of masses as their discretionary income hasn’t grown much. Can tax reforms change this situation? Goods and Services Tax (GST), considered a revolutionary reform, is stuck in political feuds. In reality, it is the trickle-down effect that hasn’t happened yet. The common man can wait, the country can wait, for the Finance Minister’s answer on some tough questions.
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Impact
If More often than not, late comers stand to lose. Imagine missing the crucial first 15 minutes of a suspense movie or undermining the traffic that you might have to encounter on the way to the station.
This is not to say that timing makes all the difference; it’s just that, if your timing is bad, you might be at the disadvantage. Retail investors often find themselves in a disadvantageous position. Reason? Well, it could be greed, lack of awareness, overconfidence, or a bit of all.
Just read the following;
- With special support of retail investors; mutual funds in India closed 2015 with the highest ever investor base of 4.59 crore, as reported by the Business Line dated January 25, 2016.
- On January 26, the same daily newspaper reported about a story of mutual funds pouring a little over Rs 5 thousand crore in first 25 days of the New Year. The amount they mobilized from investors in 2015 has been about Rs 70, 716 crore.
- The cash segment on the National stock exchange (where the transactions are settled for actual cash) has seen 6% growth in investors’ participation in 2015 vis-à-vis the 2014 numbers.
It is noteworthy that retail investors are going bullish on the market when valuations have become expensive and Foreign Institutional Investors (FIIs) have started exiting India. Business prospects haven’t improved and reforms haven’t achieved any success at the grassroots level.
Retail investors often make the mistake of following the herd and aping FIIs. Unfortunately, they are too late every time. The market hasn’t moved anywhere in 2015. In fact, the bellwether index, S&P BSE Sensex has ended the year 2015 with around 5% losses. The start of 2016 has been bad for Indian markets. A lot hinges on the budget session and the guidance of the Government on various issues such as taxation, infrastructure spending, and fiscal prudence among others. Set on this backdrop, markets are unlikely to rally significantly in 2016. So those who invested at the start of the year 2015 may have to wait for extended time period before their investments realise moderate gains.
But, the markets can’t be blamed. They have always been unpredictable. It’s your investment strategies that are expected to be stable. You can’t pour in all your savings one day into equity when somebody tells you bullish stories, and empty your equity holdings one day if you feel markets are bearish. This would classify as bullwork. You are working too much maybe for too little.
On the contrary, you should consider your financial goals, time horizon, and risk appetite before making any investment. Consider having a broader asset allocation plan in line with your financial goals. You need not time the markets; but jumping in a ship when it’s sinking is foolishness. Common sense is enough to save you. But as they say, the common sense is uncommonly found.
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Impact
What do diets and investments have in common? With New Year’s resolutions still being new, dieting can be an extremely tough task. Even if one is motivated to lose those love handles, the love for junk food and alcohol may distract you from achieving your goal. Some control themselves diligently and even starve themselves for almost 5 days of a week, but as the sun sets on Friday, suddenly the drinking glasses, till then dumped in a cupboard, start jiggling for attention. The impact of your dedication during the week gets negated by the hedonistic weekend binge. The same holds true for equity investors.
When there’s no hope of a bright future, markets reflect a sombre silence. Trading volumes drop and and equity prices linger. But even the slightest hint of improvement drives investors crazy (as they starved during bad market conditions), and when they taste the blood again, they defy all logic. Markets move up beyond what the economy and performance of corporates can warrant them to. The balloon of expectations inflates and nothing really improves at the grassroots level. Something similar has happened to Indian markets over last 2-3 years. Markets experience a sinking feeling at that time.
Markets are already down due to unfavourable global developments. To add to their worries, gloom looms heavy on corporate horizons. Other domestic factors haven’t been supportive for growth either.
Cheap can get cheaper; don’t try to time the market 
Data as on January 22, 2016
(Source NSE, PersonalFN Research)
As reported by the Business Standard, on January 25, 2016, companies in India have seen muted sales growth in the October-December quarter of Financial Year (FY) 2015-16. Although many companies are yet to report numbers, the Q3 is going to be a disappointing quarter for India Inc. Close to the 236 companies that have shown the Q3 results as of now, collectively posted a decline of about 2.5% in sales. However, their operating profit has jumped nearly 10%, while net profit has hovered at around 8%.
To ready more about this story and PersonalFN’s views over it, please click here.
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Impact
China has been a hot topic of discussion everywhere these days---it’s been slowing down. Factory production and exports are shrinking and robots have started displacing factory workers. The Chinese Government is leaving no stone unturned to stave off the downslide further.
But this isn’t the end of their problems, there’s more trouble in China’s housing market. It is in dire straits and shows no signs of revival. Millions of homes are unoccupied. As per the data published by the National Bureau of Statistics in May 2015, the total area that remains unsold in Chinese cities sums up to 657 square kilometers. Do you know how big that is? This expansive area could accommodate another Singapore.
You’re probably thinking, what about India?
Given the sub-culture where peeping in other people’s homes and gossiping might be very entertaining, however ignoring what happens in your own home is often disastrous. Though India’s housing market may not be in dire states as it is in China, one can’t dismiss the possibility of a bubble forming. There’re already some clouds on the horizons in the Indian real estate market.
To ready more about this story and PersonalFN’s views over it, please click here. |
To curb the demand for physical gold, the Government launched the Sovereign Gold Bond Scheme a few months ago. The Government hopes to collect Rs 15,000 crore through it in the Financial Year (FY) ending on March 31, 2016. The first tranche that was launched in November 2015 managed to gather only about Rs 246.20 crore by selling 915.553 Kg. of gold.
However, the second tranche has received a far better response. Close to 2,800 Kg. of gold was sold in the second tranche for the total value of Rs 726 crore.
Although the response to the second tranche has been encouraging, Personal FN believes the Government may fall short in achieving the target it has set for the FY ending on March 31, 2016. The gold has fallen out of favour with investors as it has failed to generate attractive returns over last 3-4 years.
PersonalFN is of the view that, investors should ignore the short term fluctuations in the gold prices and should keep buying the precious asset at regular intervals. Gold is a great portfolio diversifier. PersonalFN suggests that every investor should have 10%-15% of his / her portfolio in gold. As remains the question of physical vs paper mode; gold sovereign bonds and Gold Exchange Traded Funds (ETFs) remain the suited options.
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Trickle-Down Theory: An economic idea which states that decreasing marginal and capital gains tax rates - especially for corporations, investors and entrepreneurs - can stimulate production in the overall economy. According to trickle-down theory proponents, this stimulus leads to economic growth and wealth creation that benefits everyone, not just those who pay the lower tax rates.
(Source: Investopedia)
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Quote : “The rich invest in time, the poor invest in money.”
-Warren Buffett
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