GST-It must be better late than never!!

How truly it has been said. The change is the need of time, change is innovation, but it becomes arduous when it is not accepted by that people for whom it was made. Whenever any change is about to come in our country it hangs in the way cause of lack of cooperation. To change the system of Indirect taxation Government brought a new system for implementation called GST-The goods and services tax. It was heard that GST will bring a drastic revolution in Indian Indirect Taxation system but the real picture shows something else as it itself become a reason of struggle between Central and states.

Need:-

Indian entrepreneurs are loaded with a number of taxes. Almost every business transaction suffers a different tax. For services, it is service tax, for manufacture it is Excise Duty, for sale within state it is VAT, for inter-state sale it is CST, for income earned it is Income Tax, for wealth created it is wealth tax, etc. These are mere examples for the consultants, but for the businessmen, they mean a lot of compliances involving a significant number of man power and money. In order to relieve the businessman from some of the taxes, government has planned to bring a composite levy – The GST which is said to bring a tax-revolution in the country. It is said that the GST will simplify the complex tax structure of the country and will replace around 16 central and state taxes including the service tax, excise duty, VAT, etc. while maintaining a collaboration between the Centre and the State.

Benefits:-

The main beneficiaries will be the business personnel. At present, there are a no. of taxes governed by different Acts and rules. The separate records are to be kept, separate returns are to be filed, different dates are there for payment of taxes and filing of returns, etc. which require a significant amount of man power and money. However, the GST, when implemented, will replace many of the taxes and will obviously reduce the paper work, man power and money. Further, there are no. of ambiguities in certain cases which makes it difficult to ascertain as to which law is applicable. For eg. software and SIM cards are service or goods? The service tax department says it is a service while the sales tax department says it is sale of goods. The GST will resolve the issue. The Government too will be benefitted. It is anticipated that the GDP of the economy will be increased by $500 billion and exports will also increase by 15%.

Beginning of GST:-

The Thirteenth Finance Commission, as constituted by the President on November 13, 2007 to give recommendations regarding the Central-State Fiscal relations during the year 2010-15. The Commission recommended a model GST structure and also recommended a grant of Rs. 50000 crores for its implementation. The recommendations were accepted in principle and discussions were carried out between the Centre and State.

The Empowered committee of state finance ministers has released the First discussion paper on GST on 10.11.2009 and it was proposed that GST is going to be implemented on 01.04.2010 with its new developments regarding unvarying tax rates all over country, removing cascading effects of Cenvat and service tax with set off by making a chain of set-off for hierarchy of Producer/manufacturer/service provider to Retailer/End user level. For this purpose GST is to be introduced at state level. But as history repeats itself Government had faced and still facing intricacy of different opinions of states in the way of implementation of GST. It is not an easy task to combine all the provisions and demands of the states having different thoughts and opinions. When everyone was waiting to greet with GST it was recommended in Report of Task Force on GST that it will be postponed till 01.10.2010 due to oppositions raised by states which is again delayed by 01.04.2011.

In the middle:-

On oppositions made by states, Government presented a revised draft bill of GST in order to arriving at consensus with the states. In the revised bill Government has provided veto power to the Union Finance Minister relating to state subjects matters on taxation issues. Then after Finance minister had offered some concessions on major demands of states relating to simplification of tax administration and replacement of multiple levies of taxes like CST, VAT, Excise, Service tax into a single tax. Government also proposed dual rate system to be included in GST system but because of this new system states may have revenue loss in initial year of implementation of GST. For this it was cleared by the government for compensation to states for switchover to the new tax regime including special incentives to those states such as Punjab and Haryana for loss out of purchase tax. The Government also agreed to exclude crude oil, petrol, diesel and ATF from the GST structure on demand raised by states.

Present scenario:-

But as it was predicted this bill also comes in litigations between states and central. The Empowered Committee of State Finance Ministers on GST has rejected the constitutional amendment bill on 01.08.2010. The BJP-ruled states, including Gujarat, Madhya Pradesh, Chhattisgarh, Himachal Pradesh and few others had opposed the constitutional amendment saying that all powers of the states have been snatched through the constitutional amendment. Chairman of the Empowered Committee of State Finance Ministers commented on the constitutional amendment that states were against infringement on their financial autonomy and have certain reservation on the provision of draft bill for the GST council and the GST Disputes Authority hence this draft bill is not acceptable in this form to the states. However some states were in favour of this amendment.

On coming of oppositions from many states, Centre has given up on the matter of veto powers given to the Union Finance Minister. The veto power has been withdrawn from the constitutional amendment bill on GST with giving a statement that central FM had no any intention of becoming the Super Finance Minister to interfere with the State GST.

In the latest meeting of state finance ministers and centre for GST, held on 20.09.2010 many states has accepted the approach of new draft of GST bill except few mainly Gujarat and Madhya Pradesh who still have different viewpoint. In that meeting the Madhya Pradesh government given an idea of an alternative model of the GST and BJP rules states has supported to it. Also some other states have allotted one month time for consideration to make their opinion on revised bill. In the meeting the states has stressed on retention of their rights and wished some more changes in the proposed Act.

Next what?

Recently, while addressing an interactive session organized by the Merchants' Chamber of Commerce at Kolkata, the chairman of empowered Committee – Mr. Asim Dasgupta, who is also the finance minister of West Bengal; indicated that the ongoing conflicts between the states regarding GST are about to resolve. The matter will be on board once again on October 30, 2010; when the empowered Committee will meet again. The points of dispute – the Dispute settlement mechanism of GST and GST council constitution will be discussed therein.

Before Leaving:-

Government has to obtain categorical support of all the sates since two-third majority is required for ratification of GST. But some states ruled by BJP and other opposite parties are not happy on implementation of GST. So it becomes a necessity for both Centre and States to have consensus on GST very soon for bringing the GST in actuality in 2011. But after coming of statement of Revenue Secretary in this august that introduction of GST will miss the deadline of April, 2011 it becomes unambiguous that the matter of GST becomes political issue rather than an economical or legal one. It is ever called that “Better late than never” so we can hope that the delay in coming of GST will bring a fruitful result with it’s implication. Let we hope that GST bill will be presented in winter session and political differences will shut down.

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VIJAY POPAT

SIMPLE TRICKS FOR PREPARING C.A. EXAMS

NOTE:- This info can be applied to any competitive examinations.  

Many  a times student ask whether 3 or 4 months will be sufficient enough for the preparation of examination like CA final, not only this ,they will put certain conditions  like they are average or dull student ,now will the time be sufficient for them to complete the syllabus. Someone will say we are smart worker , some one will say we are hard worker, now tell how much time will be sufficient for the exam preparation so that we can pass it with one go. These are the general queries come to ones mind when some one is facing the professional examination.

The solution to all the above queries will be given with the help of an algebraic equation.

Suppose for passing CA final a minimum of 10000 points is required, then this 10000 points can be achieved by multiplying two things i.e. 1.effective hours given for study and 2. points generated per hour

We can write the Points Required in the form of equation as:

Points Required(P) = effective hours given for study(H)   X  points generated per hour(G)

Assumptions behind the equation:

The views and thoughts behind the exams and the knowledge required is expressed with the help of this equation and points required is just a resemblance to the thought.

The Points Required(P) is complete in itself and it covers  all the factors necessary for clearing the examination like smart work, hard work etc

Effective hours given for study (H)  is the time when you feel that you have actually studied or learned something while studying

From the above equation following facts comes into picture

1.As we know ,points required is a constant figure ,hence if someone can generate higher points per hour ,then he/she has to contribute less effective hours of study compared to others and vice-versa

For E.g.: If “A” can generate 10 points per hour then he has to give only 10000/10 =1000 hours of effective studies. On the contrary if “B” can generate only  5 points per hour then he has to give 10000/5= 2000 hours of effective studies

2. We can say that, one   who feel him/her self more knowledgeable and Intelligent compared to others will have to give less effort compared to those who feels themselves as ordinary and average student

3. CA Curriculum has provided sufficient time for studies i.e. 2 to 3 complete years for the preparation of final exams which is sufficient from the exam coverage point of view. But still under some circumstances one can say that the time is not sufficient for the preparation

For e.g. if ”C”  can generate only 1 point per hour then he has to give 10000/1= 10000 hours of effective studies. If he manages to give on an average 8 hours of effective studies per day  for all the time period of his studies then he has give 10000/8=1250 days i.e. 1250/30=41.67 months i.e.3.47 years which is exceeding 3 years of time. Hence time became the limitation or hurdle in this situation. So in that sense can we say that this course is not meant for “C”. No, “C” can also  finish this course and its very much possible, and he can finish the same, very much within time. Now we will see how is that possible.

“C” will not take the time up to 3.47 years rather ”C” will try to generate more points per hour. Is increasing the points generation per hour possible? Yes it is very much possible. The below points are very much important for those  who feel  that they are below or average student:

1.  Do Yoga and Meditation. Concentration to a particular thing or a particular number or symbol with closed eyes increases the efficiency and thinking power

2. Solve Quiz, Sudoku etc, on a regular basis. By playing with mathematical numbers , the brain becomes sharp and intelligent, and the analytical power of the person grows.

The above two points will not give the result after one or two days but definitely in the long run this will work a lot. And the points generating power per hour can increased to 3 or 4 from 1 within a period of six  to eight months  if one will follow it properly with complete dedication.

Thus now “C” will  require only 3.47/3 i.e.  1.16 years of complete studies with 8 hours a day, which is much lower than the maximum time given  for preparation by CA curriculum

Hope the above points will be very much helpful for those students who feel that CA is not there cup of tea.

Now one more question can be raised on this equation, whether it covers the luck factor also?

My personal opinion is that, there is nothing called luck as such, if I will tell you through my example then the points required to  pass CA  was 10000 ,which was made by covering all the aspects, that  means a minimum prescribed level of knowledge is what expected by the Course Curriculum and if that level of knowledge is not there with the candidate then he/she  is not supposed to pass. And if the same happens in the examination we call it as the luck. But according to me he fails due to one of the two reasons: 1.Either his/her level of knowledge was not matching with ,what was required by the  course curriculum or 2.Though his knowledge was enough but he/she was lacking  with the presentation skills. But I will say “Luck required or not” is a very subjective thing and will vary from person to person.

If I will insert luck factor  into the equation then the new equation will look likes

Points Required(P) = effective hrs given for study(H ) X points generated per hr(G) X Luck Factor(L)

In   my previous equation  luck factor was by default 1,as L was 1 so it was not necessary to show L as the part of equation, as anything multiplied by 1 will remain that only.

Now here in the new equation , we will see how it  works:

Suppose  ”D” says he always have negative luck when he appears for  the exam. He says his luck is only 50% of others luck, means assuming other things same his chances of passing examination is half compared to others chances of passing the exams. And “D” also says that he can generate 5 points per hour then we have only G is missing in the equation:

P = H X G X  L  i.e. 10000= 5 X G X .5 i.e. G=10000/(5 x .5) i.e. G = 4000 hours.

Without considering the Luck Factor D was supposed to give only 2000 hours for studies but now as his luck is negative then he has to give 4000 hours. From this example one good point comes into picture:

1.  The luck factor can be compensated with the efficient and effective work. As the P is constant hence lower will be the L higher will be the G required

Conclusion:

This equation was there just to make you aware of your talent and potential. Nothing is impossible, and the success is achievable under worst to worst scenario.

The points generation per hour (G) is a subjective and relative term, and only one can understand his or her potential and generation capacity. After reading this article if you are going to ask me “how much points will I be able to generate per hour ,given the condition that I am average  or dull student”, then I will not be able to answer  your question, it is only you who can give answer to this question.

VIJAY POPAT

Online or offline - which tax filing process should you follow

In the digital age, its now possible for individuals to e-file their tax returns online. However, the offline option of physical filing continues to be popular. Over time, it is expected that more people will try out e-filing. Here we do a quick review of the respective processes involved in online and offline filing of tax returns.

Online – e-filing of tax returns

If you want to file your returns electronically, you have 2 options:

Option 1 – You can use online tax filing portals for preparation and filing of your tax return

Option 2 – You can e-file your tax return on Income Tax Department’s website after preparing it on your own using the software utility provided on the department’s site.

In each of the above options, your return will be electronically sent to the tax department. However, you still need to sign your tax return. If you have a digital signature, you can use this to electronically sign your return.

However, if you don’t have a digital signature, you will need to print out your ITR-V form. An ITR-V is an acknowledgement generated on filing your return. Print this document and sign it. Then send this hard copy of your ITR-V to the Central Processing Cell of Income Tax Department in Bengaluru within 120 days through ordinary post.

Offline – physical filing of tax returns

There is no danger or bias in filing online returns. However, if you are still old fashioned and slow to join the digital age, then you can choose to file your returns in physical form.

For physical filing you will have to prepare your tax return using the relevant form either on your own or through the help of a Chartered Accountant. Once your return is ready and signed by you, you will need to submit this to the local Income Tax Office.

Some things to remember

Here are some things for you to keep in mind:

• Whether it is electronic filing or physical filing, under the new procedure, individuals do not have to attach any documents or enclosures with the return of income

• The medium of filing has no bearing on whether the tax authorities will scrutinize your tax return and tax affairs. It makes no difference to the tax department whether you e-file or file physically

• If you are due a refund, you are not going to get it any faster if you file in one way or another.

VIJAY  POPAT

TAX SLAB

 

Know the new income tax slabs

The new income tax slabs for this financial year would help the common man save up to approximately Rs 50,000 per annum.

Additionally, Budget 2010 also offered an annual deduction of Rs 20,000 towards an investment in long-term infrastructure bonds, on top of whatever 80C deduction a taxpayer might have taken.

If you earn up to Rs 3 lakhs per annum, then there will be no change in your tax liability. If you earn between Rs 3 lakhs to Rs 5 lakhs, you can now save up to Rs 20,000 per annum. And, if you earn between Rs 5 lakhs to Rs 8 lakhs, you can now save between Rs 20,000 to Rs 50,000.

The above amounts are substantial enough and are expected to help promote higher consumption which will further boost our economy. Whether these savings are used to buy big-ticket items such as electronics or white goods, or spent towards daily consumption, or used for investing towards meeting financial goals, the common man will find many ways to take advantage of this tax break.

The following are the new tax slabs according to your gender and age that might be applicable to you.

For Men

Up to Rs 1,60,000 - Nil

From Rs 1,60,001 to Rs 5,00,000 - 10%

From Rs 5,00,001 to Rs 8,00,000 - 20%

Above Rs 8,00,001 - 30%

For Women

Up to Rs 1,90,000 - Nil

From Rs 1,90,001 to Rs 5,00,000 - 10%

From Rs 5,00,001 to Rs 8,00,000 - 20%

Above Rs 8,00,001 - 30%

For Senior Citizens

Up to Rs 2,40,000 - Nil

From Rs 2,40,001 to Rs 5,00,000 - 10%

From Rs 5,00,001 to Rs 8,00,000 - 20%

Above Rs 8,00,001 - 30%

VIJAY POPAT

RISK AND RETURN

What investors must understand about risk and reward

When it comes to investing your money, have the following thoughts ever come to your mind: "I want high returns but at low risk" or "I want to get 30% annualized returns, but must keep my principal safe". If so, then you are setting yourself up for disappointment.

Don’t blame the financial markets or your luck or your investment advisor. Rather take some time to understand that earning a high return at low risk is incompatible. If you want to create wealth for yourself and your family, you need to take some calculated risks and can’t be totally risk averse.

Here we will help you understand the trade-off between risk and reward, and also help you understand where on the risk-return spectrum some popular investment options fall.

The trade-off between risk and reward

Many a wise person has shared their wisdom to the effect that “if you want to achieve lofty goals, you have to take some risk.” Usually, the goal is compelling and rewarding enough for us to willingly take on the risk. However, we think of ways of mitigating the risk through some kind of damage control so that we don’t end up suffering if the risks were to materialize.

For instance, lets say our team is batting second in a one-day cricket match where the opponents have set us a very demanding target of scoring 400 runs in our allotted overs. If our team just scores singles and doubles, it might be safe, but we will fall dramatically short of achieving our target.

By taking no risk, we might conserve wickets, but we are almost sure to lose. To achieve this lofty goal of scoring 400 runs, our team will have to take risks. We will have to swing for the fences. Only then can we have some hope of reaching our target. In summary, scoring 400 runs (or earning a high return) while taking no risks is going to be almost impossible.

The same is true for investing. Earning a high return but while taking on very low risk is not possible. It’s a balance that even world-class investors struggle to achieve. Investment history has shown that you just cannot have it both ways - you generally get high returns only when you take higher than usual risk.

Take calculated risks – reward must be compelling

Exposing oneself to risk is not something one should do blindly. It must be done in the context of what the expected pay-off might be. If the reward is compelling enough, then it probably makes sense to take on the risk. Otherwise, it is not worth it.

Let’s take an example from everyday life. Wearing a seatbelt while driving is compulsory. Yet, many of us choose to drive without fastening our seatbelt. This exposes us to numerous risks. However, taking on these kind of risks has very little upside or payoff, but clearly disastrous consequences if the worst were to happen. This kind of a risk, which has no upside, is not worth taking.

Contrast this with the batsman chasing 400 runs who tries to hit every other ball to the boundary, with a degree of power and placement. Sure, there is a risk of getting caught but this risk is probably one that is worth taking because the payoff of scoring a six and chasing down the target is rewarding enough.

The big takeaway here for all of us here is that risks should only be taken when there is an upside and the expected payoff is rewarding enough. This is a lesson we must remember when investing our money.

Risk across the investment spectrum

Let’s take a look at common investment options and their risk reward trade-offs. The following will help illustrate how we as investors expect higher returns as the risk associated with the investment increases.

Let’s say I have Rs. 10,000 to invest into a fixed income instrument, an instrument that will give me a fixed return that is pre-set at the time of making the investment. I am considering 3 options: investing in a fixed income security issued by the government or a government backed entity, investing in an FD issued by a bank, or investing in an FD issued by a company.

The government security will pay the least amount of return (the reward) because it is least risky. It is backed by the government, and all things being equal the government ought to be a safe party to loan money to.

The bank FD will pay a slightly higher return because the government guarantees only part of the deposit so there is the risk of the bank failing, even if it is a very small risk. However, the company FD will pay the highest return because the risk perceived in lending to the company is the highest, so we expect a slightly higher reward for it.

What we are trying to demonstrate is that as the riskiness of the investment increases, so does our expectation of return. As a corollary, if we set out to earn a high return, please recognize that this will come at the cost of taking on a higher risk.

As one moves from holding cash in a bank savings account that earns only 3.5% return towards equities that are expected to earn up to 12% in the long-term, the riskiness of these different types of investments increases.

No pain, no gain

For those who frequently go to gyms, the idiom “no pain, no gain” is probably a familiar one. In the investment world as well, if we want gains, it’s going to be possible only when one takes some risks. Almost every investment option involves taking on some risks. Taking risks, albeit in a calculated manner, is something that is advisable, depending upon one’s personal situation.

Just like not every one has the capacity to lift weights of up to 40 kilos in the gym, not every one has the capacity to take on high risks. You must take on risks according to what your risk appetite allows you to do, and what you feel you comfortable about.

So next time you are looking to invest money, do keep in mind that there will be “no gain without pain”. Be realistic and don’t expect to get high returns unless you take on some risk.

VIJAY POPAT
www.vijaypopat.blogspot.com

iipm/pgp/ss/09-11/kolkata.wmv

VIJAY POPAT

Claims Final (2)

THIS IS A DETAILED PROJECT ON MANAGEMENT OF CLAIMS OF ALL DIFFERENT TYPES OF INSURANCE.

Claims Final (2)

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TECHNICAL ANALYSIS

TECHNICAL ANALYSIS

Technical analysis is a security analysis discipline for forecasting the future direction of prices through the study of past market data, primarily price and volume. Technical analysis and fundamental analysis are the two main schools of thought in the financial markets.

Technical analysis looks at the price movement of a security and uses this data to predict its future price movements.
Fundamental analysis, on the other hand, looks at economic factors, known as fundamentals. Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume.

Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity. It uses charts and computer programs to study the stock’s trading volume and price movements in the hope of identifying a trend. In fact the decision made on the basis of technical analysis is done only after inferring a trend and judging the future movement of the stock on the basis of the trend.

Technical Analysis assumes that the market is efficient and the price has already taken into consideration the other factors related to the company and the industry. It is because of this assumption that many think technical analysis is a tool, which is effective for short-term investing.


HISTORY OF TECHNICAL ANALYSIS

The principles of technical analysis derive from the observation of financial markets over hundreds of years. The oldest known hints of technical analysis appear in Joseph de la Vega's accounts of the Dutch markets in the 17th century. In Asia, the oldest example of technical analysis is thought to be a method developed by Homma Munehisa during early 18th century which evolved into the use of candlestick techniques, and is today a main charting tool.
Dow Theory is based on the collected writings of Dow Jones co-founder and Editor Charles Dow, and inspired the use and development of modern technical analysis from the end of the 19th century. Other pioneers of analysis techniques include Ralph Nelson Elliott and William Delbert Gann who developed their respective techniques in the early 20th century.
Many more technical tools and theories have been developed and enhanced in recent decades, with an increasing emphasis on computer-assisted techniques. Walter Deemer was one of the technical analysts of that time. He started at Merrill Lynch in New York as a member of Bob Farrell's department. Then when the legendary Gerry Tsai moved from Fidelity to found the Manhattan Fund in 1966, Deemer joined him. Tsai used to consult him before every major block trade, at the start of a time when large volume institutional trading became the norm and the meal ticket for brokers. Deemer, could recreate market history on his charts and cite statistics. He maintained contact with the group of other
pros around then, who shared their insights with each other in a collegial confidence worthy of the priesthood. Other pioneers of analysis techniques include Ralph Nelson Elliott and William Delbert Gann who developed their respective techniques in the early 20th century.

CHARACTERISTICS

Technical analysis employs models and trading rules based on price and volume transformations, such as the relative strength index, moving averages, regressions, inter-market and intra-market price correlations, cycles or, classically, through recognition of chart patterns.

Technical analysis stands in contrast to the fundamental analysis approach to security and stock analysis. Technical analysis "ignores" the actual nature of the company, market, currency or commodity and is based solely on "the charts," that is to say price and volume information, whereas fundamental analysis does look at the actual facts of the company, market, currency or commodity. For example, any large brokerage, trading group, or financial institution will typically have both a technical analysis and fundamental analysis team.

Technical analysis is widely used among traders and financial professionals, and is very often used by active day traders, market makers, and pit traders. In the 1960s and 1970s it was widely dismissed by academics. In a recent review, Irwin and Park reported that 56 of 95 modern studies found it produces positive results, but noted that many of the positive results were rendered dubious by issues such as data snooping so that the evidence in support of technical analysis was inconclusive; it is still considered by many academics to be pseudoscience. Academics such as Eugene Fama say the evidence for technical analysis is sparse and is inconsistent with the weak form of the efficient market hypothesis. Users hold that even if technical analysis cannot predict the future, it helps to identify trading opportunities.

In the foreign exchange markets, its use may be more widespread than fundamental analysis. While some isolated studies have indicated that technical trading rules might lead to consistent returns in the period prior to 1987, most academic work has focused on the nature of the anomalous position of the foreign exchange market. It is speculated that this anomaly is due to central bank intervention. Recent research suggests that combining various trading signals into a Combined Signal Approach may be able to increase profitability and reduce dependence on any single rule.

HOW TECHNICAL ANAYSIS IS DONE?
Technical Analysis is done by identifying the trend from past movements and then using it as a tool to predict future price movements of the stock. It can be done by using any of the following methods:

a) Moving Averages— This method is used to predict the trend and specify various support and resistance levels in the short and long term period. Most commonly used moving averages are 30 DMAs and 200 DMAs.Where DMA means Days Moving Average.

b) Charts & Patterns— Some analysts’ uses charts and patterns to decide on the trend and then judge the future movement. The tool used by such analyst is converting the chart in one of the many form of many shapes commonly formed by stocks. Some of such patterns are:

TYPES OF TRENDS

Trends can be classified broadly in 3 types.

a) Uptrend: - Generally a stock moves in any direction with phases of consolidation or moving against the trend for a short period. But still it creates a higher Highs and Lows in case of an uptrend. In short each short rally will create new High for the stock.

b) Downward: - In this case as against Uptrend the stock creates lower Highs and
lows. Furthermore in case of Downtrend the fall is much more steeper than the
rise in case of Uptrend.

c) Range-bound: - In case of such a trend the price moves in a small range for the
long period. There is no apparent direction as far as trend is concerned in this
case.

Role of Volume: Volume plays a key role in deciding about the kind of future movement in stock. Whenever there is a sudden rise in the volume of the stock and if it is not followed by a price fall, it is a sign of consolidation and that the price may rise in near future. Generally if any stock breaks any trend it is accompanied by huge rise in volume.
In case of range bound trend the volume tends to die down to a great extent. Smart investor uses technical analysis to judge the rise in volume and take early positions in the stock during breakthroughs.

Who uses Technical Analysis?

Investors for their short-term trading decisions use Technical Analysis. This short-term may be further divided in day trading, short-term investment and for hedging purposes.
The role played by Technical Analysis in each case is as follows:

1) Day Traders: A day trader is one who takes and squares off his position both on the same day. Mostly a day trader counts on turnover rather than margin. A day trader will interpret the market movement in the manner stated below.
.
2) Short term investors: These people form the biggest clientele base of both the brokers and the Technical Analyst. To explain the working let’s take the price movement curve of Infosys Technologies on NSE for the period 1st January 2003 to 9th April 2003. On closely analyzing the chart you will notice that a sustained buying is coming at the level of around Rs.4000. Another aspect, which should be noted, is the declining trend in terms of short term ‘High’ created by the stock. We can clearly deduce that each short-term rally is creating a lower high over the given term. In such a situation it is recommended by analyst to buy at the resistance level but sell it off immediately if it breaks the level by a margin of 2-3%. This is just an illustrative example and the level of analysis varies with each case.

3) Hedgers: These are generally big investors, who have lot of money at stake and hence they look to have some hedging of their risk. The strategy followed by this section of investors is that they compare the stock in consideration with the index and on the basis of the result of this comparison they take their position in the stock. This can be explained by comparing the movement of nifty on the graph with Infosys movement as we have done in the figure given below.
If we look at both the charts of nifty movement with Infosys movement we find that although both have fallen over the period but Infosys has witnessed some rallies and hence we can clearly say that a hedger will benefit by using technical Analysis and getting out at the periods when Infosys has given an upward rally.

Thus if we use only technical analysis in itself and do not consider other aspects it is very unlikely that we will have much success in the long run, particularly in case of short-term investments. But if we use Technical analysis along with fundamental analysis or discount the industry and company related news while considering the valuation, our chances of minimizing the risk brightens.
One thing that we must realize is that technical analysis provides us only with the trend and judge future on that basis, it can be far from actual in few cases, one of them was the day Infosys crashed by 30% on a single day. By no imagination and no analysis one could have guessed the same or rather have come closer to it. Therefore the best use of technical analysis is to realize the trend and levels at which it will break the trend so that one is prepared to take positions when such trend breaks. It is because of this disadvantage that Technical analysis more useful only for short-term investing.


VIJAY POPAT

TOTAL BUDGET REVIEW BY BENCHMARKERS

 

SECTOR WISE ANALYSIS OF BUDGET

AUTO COMPONENTS

PROPOSAL

Excise duty on auto components and tyres increased from 8% to 10%. Interest subvention of 2% on pre-shipment credit for small and medium exporters extended to 31 March 2011.

IMPACT

No significant impact on the industry. Increase in excise duty on tyres will be passed on fully to original equipment manufacturers (OEMs) and replacement segments. A rise in excise duty for the auto component sector may be passed on to automobile manufacturers. However, if absorbed, it will be offset by increase in demand. The interest subvention of 2% will have a marginally positive impact for small and medium exporters engaged in exports of auto components.

AUTO/ TWO- WHEELER

PROPOSALS

Excise duty up from 8% to 10%; excise duty on big cars, sport utility vehicles and multi-utility vehicles raised from 20% to 22%; additional duty component retained at Rs15,000 for cars of 1,500-1,999cc engine capacity and  Rs20,000 for passenger vehicles with engine capacity above 2,000cc; excise duty of Re1 per litre on fuel; customs duty 5% higher; allocation for road development up 13%; weighted deduction on in-house R&D spending raised from 150% to 200%; 4% excise duty on electric vehicles; critical parts and assemblies of such vehicles exempted from basic customs duty, special additional duty; countervailing duty of 4% imposed.

IMPACT

Higher excise duty rate is likely to be passed on to consumers and is partially negative. But this is likely to be compensated by exemptions on personal income-tax rates. The government’s thrust on rural and infrastructural development remains positive. The increased weighted deduction rate for in-house R&D will encourage higher R&D allocations.

BANKING/ NBFCs

PROPOSALS

RBI to consider giving banking licenses to private sector companies /non banking finance companies. Government to recapitalise select public sector banks by Rs16,500 crore; additional capital to regional rural banks. Increase in interest subvention from 1% to 2% for farmers who pay as per repayment schedule, extension of debt waiver and debt waiver for farmers extended to 30 June.

IMPACT

Competition is likely to further intensify. Recapitalising public sector banks is likely to help around one third of these banks. The additional interest rate subvention schemes to encourage prompt repayment by farmers should improve credit culture. But b, the government’s borrowing programme for FY11 remains sizeable and if the credit offtake is more than 15% - 16%, bond yields may rise and thereby impact treasury profits.

CAPITAL GOODS/ ENGINEERING

PROPOSAL

Increased allocation for power and infrastructure sector; excise duty cut from 8% to 4% on compact fluorescent lamps (CFL) and LED lamps; 5% concessional import duty on inputs for photovoltaic, solar panels; excise duty waived on photovoltaic, solar panels, and on inputs required in rotor blades.

IMPACT

Increased allocation and long-term funding availability for power and infrastructure projects will induce more investment and thereby benefit equipment manufacturers. Focus on energy efficiency and excise duty reduction for CFL will result in improved demand prospects for players in the lighting segment. Concessional import duty and waiver of excise duty on photovoltaic and solar panels as well as lower excise duty on inputs for rotor blades will benefit photovoltaic cell and wind turbine generator manufacturers, respectively.

CEMENT

PROPOSAL

2% excise duty hike.

IMPACT

Increase in outlay on roads, subventions on housing and focus on infrastructure development should boost demand for cement. Increased rural income under National Rural Employment Guarantee Scheme will also boost rural housing demand and, in turn, demand for cement. However, increase in excise duty and imposition of Rs50 per tonne cess on imported and domestic coal will increase costs, which will difficult to pass on to consumers given the current over supply situation.

CONSTRUCTION

PROPOSAL

Higher allocation for roads, railways, housing, urban infrastructure sectors; India Infrastructure Finance Co. Ltd (IIFCL) to continue take-out financing; minimum alternate tax (MAT) increased from 15% to 18% of book profits.

IMPACT

The increased outlay and continued take-out financing and refinancing plans of IIFCL, and availability of funds through long-term infrastructure bonds, will aid in faster execution of infrastructure projects. MAT increase will have negative impact on players with operational build-operate-transfer projects.

DRUGS/ PHARMACEUTICALS

PROPOSAL

Increase in weighted reduction from 150% to 200% on expenditure incurred on in-house research and development (R&D) activities, and from 125% to 175% on activities outsourced to specific institutions. Partial rollback in excise duty from 8% to 10% (to impact raw material costs).

IMPACT

The increase in weighted reduction on R&D activities is a positive and will continue to support higher investments by Researchled pharmaceutical companies. It’s a positive for contract research organisations as well. The increase in excise duty for raw material will impact the cost structure. Also, an increase in petrochemical prices may impact some of the basic raw material (intermediate) costs, impacting margin. The increase in MAT rate, however, is going to increase tax outgo for few companies that are currently paying lower taxes.

ELECRICITY/POWER

PROPOSALS

Increase in allocation to power sector at Rs5,130 crore (increase of 152%); increase in available long term funding through refinancing from India Infrastructure Finance Co. Ltd; increase in allocation to renewable energy sector at Rs1,000 crore (increase of 61%); formation of coal regulatory authority and national clean energy fund; clean energy cess of Rs50 per tonne on both domestic and imported coal; increase in minimum alternate tax (MAT) rates from 15% to 18%.

IMPACT

Increased allocation to power sector will be positive for central public sector undertakings. Increase in allocation and excise duty benefits are clear positives for firms in renewable energy segment. Coal regulatory authority will bring regulatory clarity and introduction of competitive bidding mechanism for allotment of coal blocks will further enable increased participation from private firms. The increase in MAT and cess on coal are a negative as they will negatively impact profitability of merchant power plants, where costs are not a pass through.

HOTELS/TOURISM

PROPOSALS

Benefits of 100% investment linked tax deduction on capital expenditure (excluding land, goodwill and financial instrument) for building and operating a new hotel (commissioned after 1 April) of two star category and above, extended from select locations to across the country.

IMPACT

Bringing the hotel industry within the preview of investment linked tax deductions could promote balanced (across categories) incremental investments in fresh inventory, reducing the supply–demand gap in the country. Benefits of increased government thrust on infrastructure/roads to trickle down to the tourism industry over the medium to long term. The increase in MAT rates will, however, have an adverse impact.

HOUSING

PROPOSAL

Rs1,270 crore allocated under Rajiv Awas Yojana; allocation for housing and urban poverty alleviation raised to Rs1,000 crore; 1% interest subvention on housing loan up to Rs10 lakh extended to 31 March 2011; allocation under Indira Awas Yojana increased.

IMPACT

Allocation under Rajiv Awas Yojana will aid slum redevelopment programmes. Moreover, extension of the scheme of 1% interest subvention on housing loan up to Rs10 lakh (where the cost of the house does not exceed Rs20 lakh) will continue to provide a boost to affordable housing. On the rural front, increase in allocation under the Indira Awas Yojana to Rs10,000 crore will help reduce the prevailing shortage in rural housing. However, these allocations will not significantly impact the organised housing sector.

INFORMATION TECHNOLOGY

PROPOSAL

Minimum alternate tax (MAT) rate has been increased from 15% to 18% while surcharge has been reduced from 10%  to 7.5% for Indian companies.

IMPACT

The impact of the Union Budget 2010-11 on the IT sector is negative. The increase in MAT rate will offset any  benefits resulting from the decrease in surcharge and will affect the players’ cash flows. The impact of MAT will be higher for tier II players compared to tier I players.

OIL AND GAS

PROPOSAL

Basic customs duty of 5% restored on crude petroleum, 7.50% on petrol and diesel and 10% on other refined  products. Central excise duty on petrol and diesel hiked by Rs1 per litre each.

IMPACT

The revised duty structure will marginally increase the import duty differential for refineries, leading to a marginally higher refining margin, which is a positive for standalone refineries, including greenfield projects currently being set up. Higher import duty and excise duty is negative for oil marketing companies as gross under-recoveries will increase. But the post budget hike in fuel prices will largely negate the impact. Increase of MAT is marginally negative

for some large oil and gas companies and new refinery projects. Five percent import duty on crude oil is positive for upstream companies, as they will be benefited in an import parity based pricing regime.

ROADS

PROPOSALS

Budget allocation for road projects increased by 13.5% to Rs19,894 crore in 201011, incremental disbursement of Rs25,000 crore over the next three years by India Infrastructure Finance Company Ltd ( IIFCL) under its takeout financing scheme and import duty exemption for specified machinery used in construction.

IMPACT

The increased outlay will favorably affect companies involved in road construction. The takeout financing through IIFCL would facilitate the availability of long term capital. The increase in MAT rate from 15% to 18% will have an adverse impact. Excise duty hikes in cement, petrol/diesel will also push up costs for the sector. Import duty  exemption for specific equipment will provide some respite.

TELECOM

PROPOSALS

MAT increased from 15% to 18%. Exemption from basic, countervailing duty (CVD), and special additional duty (SAD) to include battery chargers, headphones; Exemption of SAD extended to mobile phones not imported in prepackaged form.

IMPACT

The impact on the telecom services sector is negative. The increase in MAT will negatively impact the profitability of telecom services providers. The duty exemptions will result in further reduction in mobile handset prices. However, the impact will be marginal as mobile handsets and accessories are already very affordable.

TEXTILES

PROPOSALS

The exemption from basic, countervailing duty (CVD), and special additional duty (SAD) on components and accessories of mobile

handsets has been extended to include battery chargers and headphones. The government has also extended the exemption of SAD to mobile phones that have not been imported in prepackaged form. MAT increased from 15% to 18%.

IMPACT

The increase in MAT will negatively impact the profitability of telecom services providers. The duty exemptions will result in further reduction in mobile handset prices. However, the impact will be marginal as mobile handsets and accessories are already very affordable.

BY-

BENCHMARKERS

RACHANA JAIN

VIJAY POPAT

NITA CHANGANI

SONAM JAYASWAL

RAHUL AGARWAL

WASIM AHMED

VIJAY POPAT