Medium Term Investment Portfolio Picks
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Experts see Nifty at
5300, cherry pick from Reliance pack
It was a quiet session for the markets. The indices moved within a tight range and closed the day absolutely flat. The Nifty ended the day at 5,233, up 11 points. The Sensex shut shop at 17,462, up 50 points. The Midcap index also ended marginally in the green. The gap between the advance and declines narrowed through the session to end at 1:1.
The mood on Dalal Street is getting optimistic. But does that mean a big rally is on its way or will global cues play spoilsport?
Naresh Kothari, President, Edelweiss Capital, sees some amount of optimism returning to the market over the last 3-5 days. "At lower levels, we are seeing continuous buying interest. At 4700-4800, we saw very good interest come in. I guess this continues to remain a period when people are sort of coming out of their shell and starting to look at opportunities and ideas."
He asks investors to be cautious around 5,300-5,400 levels. "The global phenomenon continues to be an overhang on the market. Also, the second half might not be as good as the first half. I think the market is a little bit more cautious on the upside. These two factors are actually ensuring that this will not be a runaway market. I would start buying more of Puts and build some amount of cash in the portfolio."
Ambareesh Baliga of Karvy Stock Broking expects the Nifty to continue in a 5,200-5,300 range. "Crossing this level will be quite difficult. Inspite of all the good news, whether it is advance tax figures, IIP (Index of Industrial Production) data, monsoons, GDP (gross domestic product) estimates, if you are not able to convincingly cross these levels, it clearly shows that there is no conviction inthe market. Over the next two-three months, we will be in the broad range of 4,700-4,800 and to around 5,300."
However, Sudarshan Sukhani of Technical Trends feels the market can see a 70-80 or 100 point correction. He advises investors to buy on dips.
Phani Sekhar, Fund Manager, Angel Broking, too asks investors to buy on dips. But unlike Sukhani he sees another 4-5% upside. "Individual midcaps and stocks will be doing much better than indices and that is where a lot of money is there to be created."
How should you play stocks from the Reliance pack?
On Reliance:
Baliga sees huge upside potential in Reliance Industries. "We have been talking of Rs 1400 levels, which it is refusing to go towards in the last six-eight months. But by January- February next year, once all these things settle down, it should trade over Rs 1400. At these levels, we are quite bullish on Reliance Industries."
Sekhar is betting on Reliance Industries and Reliance Infrastructure from the Mukhesh Ambani stable.
On the ADAG pack:
Reliance Communications, Baliga said, has already moved up decently from lower levels. "I don't think it can move much more looking at the way the telecom sector is doing." On the other stocks in the pack, he feels they are more of a speculative move than a fundamental move. "It is more of traders' pick at this point of time than a fundamental buy."
DTC 2.0: How will new capital gains tax impact investors?
The revised discussion paper of the direct tax code proposes significant changes to the application of minimum alternate tax, capital gains tax, among others. Tax treatment of investments made by foreign institutional investors and the common man may be tweaked.
In an interview with CNBC-TV18, Ketan Dalal, Joint Head of Tax & Regulatory Services at PwC; Dinesh Kanabar, Deputy CEO & Chairman – Tax at KPMG and Ramesh Damani, Member of BSE reacted to the development.
Below is a verbatim transcript of the interview. Also watch the video.
Q: I am going to come to the broad and the big issues here which is of capital gains and the reason I am not going to minimum alternate tax (MAT) first is because they have said that they propose to compute MAT with reference to book profit which is exactly how life is today so in that sense no change for corporate Indian with reference to MAT. The big change is in capital gains and while the earlier code propose to takeaway any distinction between long-term and short-term capital gains and club all capital gains to be taxed as per year slab rate. In this code they have made or created a certain advantage for long-term holdings. But I will go through them with you one by one. They have said, “Long-term is only long-term if it is held for a period of more than one year from the end of the financial year” That means its no longer 12-months or 365 days. It could in effect be even two years if you end up buying securities on April 3 and that’s the beginning of a new fiscal year. You have to wait till your fiscal year gets over—calculate another whole fiscal year and then be able to avail of long-term benefits. Am I correct?
Dalal: Absolutely right and to that extent the beneficial impact of long-term capital gains has been diluted because you are changing the very definition of long-term capital gains. As you said, it could be 23 months and 29 days for example. So to that extent you are absolutely right and of course the benefit itself has, to that extent, also been reduced because there is an exemption if you sell on the stock exchange that has been replaced by different regime.
Q: What they have suggested is of the total quantum of long-term capital gains there will be a deduction rate, the rate which is not been specified as of now. That amount will be deducted and the rest of the capital gains will be taxed at your slab rate. As far as short-term capital gains goes all of it will be taxed at slab rate and the other important development for the market is that all income arising on the purchase and sale of securities by an foreign institutional investor (FII) will now be income chargeable under the head of capital gains and they will be subject to advance tax and finally they have said Securities Transactions Tax (STT) is proposed to be calibrated based on the revised taxation regime for capital gains. Net, are we better-off with these suggestions on the capital gains regime or do you prefer what we have today which is the current situation or what the first Code put in?
Dalal: It depends on what you are. For example if you are an FII, today most of the FIIs are coming in through the Mauritius route and Mauritius as one knows thecapital gains tax has been exempt. It does not talk specifically of business income but business income if I put it in technical terms would be chargeable to tax if you have a permanent establishment and because of the capital gain exemption FIIs coming through Mauritius claim the capital gain exemption. Now they have said that it will be characterised as capital gains to that extent there is clarity.
The point however is that while there is a treaty override neutralisation in the new discussion paper. It is subject to a carve out of few things but the one which is relevant is a carve out for general anti-avoidance route and in simple words what it means is that you entitle the benefit of the treaty however if you are resorting to what the government considers as anti-avoidance then you will not be entitled to the benefit of the treaty. What my fear is that the general anti-avoidance carve out can be use to attack the benefit of the India-Mauritius Treaty which might be the intention any way. So if you are an FII to that extent you will probably wind up paying tax at the normal rate and if you are long-term.
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Src: HDFCSec, ET and Moneycontrol and DP blog