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Budget 2016: Highlights

Finance Minister Arun Jaitley in his Budget 2016 speech stressed on Indian economy’s resilience amidst the current global economic turmoil. “Global economy is in a serious crisis. Financial markets have been battered but Indian economy has held its ground firmly.” “IMF has hailed India as a bright spot. Let us look at our achievements compared to the last three years of the last government. We inherited an economy with low growth and high inflation,” Jaitley said.

* No change in personal Income Tax slabs

* 4-month Compliance Window for domestic black money holders; tax, interest on them at 45%

* Relief for tax payers who earn below Rs 5 lakh; ceiling of rebate u/s 87A raised to Rs 5,000 from Rs 2,000

* House rent deduction raised from Rs 20,000 to Rs 60,000

* One-time dispute resolution scheme for retro tax cases, penalty, interest waived

* High level committee headed by Revenue Secretary to oversee creation of fresh liability using retro tax law

* Corporate Tax for new manufacturing units fixed at 25%

* Clean energy cess increased from Rs 200/ton to 400/ton on coal, lignite and peat

* First home buyers to get addl deduction of Rs 50,000 on interest for loan up to Rs 35 lakh; cost of house should not be more than Rs 50 lakh

* To achieve fiscal deficit of 3% of GDP by (2017-18)

* Fiscal Deficit target 3.9% in 2015-16, 3.5% in 2016-17

* Revenue Deficit to be 2.8% in 2015-16

* Current Account Deficit for 2015-16 at $14.4 billion or 1.4% of GDP

* Forex reserves at highest at $350 billion

* Budget lists 9 transformative pillars including doubling farm income by 2022, infrastructure, investment, reforms

* Highest ever allocation of Rs 38,500 cr for MGNREGA

* Certain equipment for dialysis exempt from basic customs duty, excise CVD

* Govt to circulate Model Shops and Establishment Bill, small retail shops may remain open for 7 days

* 100% rural electrification by May 1, 2018

* Govt to pay EPF contribution of 8.33% of new employees for first 3 years.

* Start-ups to get 100% tax exemption for 3 years except MAT which will apply from April 2016-2019

* To give statutory status to Aadhaar programme

* Infrastructure outlay at Rs 2.21 lakh cr

* Rs 35,984 crore earmarked for farmer welfare; to spend Rs 86,500 crore on irrigation in 5 years

* Rs 20,000 crore irrigation fund to be set up under NABARD

* Rs 2,000 crore for LPG connection to poor; scheme for MPG connection for women

* Stand Up India allocated Rs 500 crore

* Roads and highways allocation at Rs 55,000 crore; NHAI can issue tax free bonds.

* Long term capital gains for unlisted companies to be reduced from 3 to 2 years

* Rs 9,000 crore allocated to Swachh Bharat Abhiyaan

* Targets 10,000 km national highways, upgradation of 50,000 kms of state highways

* Incentivise gas production from deep sea, other unutilised deep sources

* Rs 31,300 cr Infra Bonds to be issued by various agencies– NHAI, IREDA, NABARD

* Further relaxation of FDI rules in insurance, pension, stock exchanges, asset reconstruction companies

* 100% FDI in food products made domestically

* Rs 25,000 cr for recapitalisation of PSU banks

* Department of Disinvestment renamed Department of Investment & Public Asset Management

* NITI Aayog to identify CPSEs for strategic sale

* To design framework for PSU bank consolidation

* To consider lowering govt stake in IDBI to below 50%

* Health insurance scheme to provide Rs 1 lakh per family

* Senior citizens to get additional healthcare cover of Rs 30,000 under the new scheme

* Comprehensive Code for providing specialised resolution mechanism for bankruptcy of banks/insurance firms

* To amend Companies Act for registration of firms in a day

* GAAR to be implemented from April 1, 2017.

* Legislation to deal with the menace of illicit deposit taking schemes

* Place of Effective Management rules deferred by a year

* Withdrawal up to 40% of the corpus at the time of retirement to be tax exempt in the case of NPS

* Steps to re-vitalise Public-Private-Partnership mode

* Public Utility (Resolution of Disputes) Bill to be introduced, Guidelines for renegotiation of PPP Concession Agreements

* New credit rating system for infrastructure projects

* Interest rate setting Monetary Policy Committee in 2016.

*Krishi Kalyan Cess at 0.5% on all taxable services from June 1, 2016

* Infrastructure cess at 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles, SUVs

* Excise duties on various tobacco products other than beedi raised by about 10 to 15%

* RBI to facilitate retail participation in G-Secs

* New derivative products to be developed by SEBI

* PSU General Insurers to be listed in stock exchanges

* Review and rationalisation of Autonomous Bodies

* Amount sanctioned under Pradhan Mantri Mudra Yojana increased to Rs 1.80 lakh crore

* Govt to increase ATMs, micro-ATMs in post offices

* Service Tax to be exempted on general insurance schemes under NIRMAYA Scheme.

* DBT to be used to transfer subsidy on fertiliser in select districts on pilot basis

* Plan, non-Plan distinction to be done away with; a Committee to review FRBM

* Service tax on Single premium Annuity Policies reduced from 3.5% to 1.4% of the premium paid in certain cases

* 10% tax rate on income from worldwide exploitation of patents developed and registered in India by a resident

* NBFCs to get deduction of 5% of its income in respect of provision for bad and doubtful debts

* Basic custom and excise duty on refrigerated containers reduced to 5% and 6%

* 100% deduction for profits in housing project for flats up to 30 sq metres in four metros; 60 sq mts in other cities, approved during June 2016 to March 2019 and completed in 3 years. MAT to apply.

* Agriculture credit target highest at Rs 9 lakh crore

* Unified agriculture market e-platform will be dedicated to the nation on the birthday of B R Ambedkar

USA from Oil importer to exporter

Eight years ago, USA imported 13m b/d (million barrels per day) of crude oil and petroleum products. At the end of 2013, this had fallen to 5m b/d. To put this 8m b/d fall in context, recall that Saudi Arabia currently produces 9.4m b/d. In other words, US imports fell by 90 per cent of the production of the world’s second largest producer. A recent Citi group report estimates that US could produce more than 14m b/d of oil by 2020, with gross crude exports exceeding 4m b/d in a ‘high case’ scenario (see graph). At today’s level, Citi estimates that US could turn an exporter of crude as early as 2018.

The report forecasts that by 2020, US is expected to become larger than the entire Middle East in exporting LPG. In addition, on LNG, the report forecasts that by the end of the decade, US LNG gross exports could amount to 148-Bcm/year (billion cubic meter) which compares with Russia’s 211-Bcm/year (2013 exports) and Qatar’s 106-Bcm/year. Combined with Qatari and Australian LNG, there could be a global glut in LNG by decade end.

Outsized impact
If these figures are achieved, the impact of a 10-Bcf/d (billion cubic feet per day) US LNG export in 2020 could be outsized. While this would be only 10 per cent of the US gas market, it would be closer to 20 per cent of the global LNG market.

US petroleum product balance has shifted from a deficit of 2.5mn b/d in 2005, to a surplus of 2.3 mn b/d in 2014. US refineries benefit from ample crude supply as well as low energy costs due to abundant shale gas. Given insufficient take-away capacity, US crude is increasingly cheaper compared to the ‘water borne’ variety – increasing US refining margins.

The USA remains the largest crude importer in the world with China a close second. With Canadian oil sands production growing the US is its main destination market. This reduces the need for foreign sources. The consequences for other global suppliers – especially the OPEC, are severe. As Saudi, Mexico and Venezuela look for newer markets, prices may remain pressured. This will extend to naphta and LPG – all inputs to the petrochemical sector. Among downstream products, US can remain a large exporter of ethylene derivatives such as PE and PVC, and will reduce its dependence on imports for ammonia.

Winners and losers
With its biggest market becoming a net exporter, the biggest loss in pricing power will be faced by OPEC. This will extend to natural gas as well – currently indexed to crude. The USA could potentially revive as a major manufacturing base for industries using natural gas and gas liquid as feedstock. This would range from energy intensive industries such as fertilizers and petrochemicals to steel, cement and paper manufacturers. The economic impact could last a couple of generations.

In the US, besides the E&P industry, there is likely to be a bonanza of opportunities for ancillary operations – pipeline construction, storage, blending and shipping services. If US exports exceed demand as is currently projected lower prices around the world could revive the use of gas instead of coal in power generation and other sectors where feedstock substitution is possible.

Manufacturers in China, Korea and India would benefit as well.

The biggest losers would be OPEC, and other producer countries with low domestic demand. Fall in prices of petro products would impact US producers as well. The pain levels of US producers is however significantly lower than pain levels of OPEC. Oil prices needed to balance the budgets of producer countries is in the figure below. If Brent were to normalize at $80 per barrel, this translates to a $1trillion boost to consumer economies – a quantitative easing program of the globe!

Indian Impact – positive but

A key cost in manufacturing is cost of energy. In India, with its unreliable power, industries face higher capital costs in setting up alternate generation capacity. In addition, running costs are higher because of the use of high-priced diesel for power. This makes Indian manufacturing expensive.

Reduced cost of energy can provide a significant boost to Indian economy. With better infrastructure and lower capital costs, ‘made in USA’ will likely become a reality once again. However, low and abundant source of energy coupled with lower cost manpower can make India globally competitive bar none.

However, geopolitical shifts are difficult to predict. Will the loss of interest in controlling oil resources in the middle-east mean that the US will be less interested in the politics of the region? Will this result in democracy actually taking root in producer countries without large power interference? Will the need to access the large Indian market make regional oil producers friendlier towards India – for example could there be a partnership between Iran and India which competes with the US? Or will a more powerful China become the market of choice and leave India to struggle with a hostile environment? Only time can tell.

Retirement plans

Investors will soon have many options to invest for their retirement. Several mutual fund houses, such as SBI, Reliance, Axis, DSP BlackRock, among others, are getting ready to launch their retirement products. Only three fund houses – UTI, Franklin Templeton and Tata – currently offer retirement plans in the country. Mutual funds have been clamouring for approval of their retirement products for a long time. They also wanted these products to be included in the Section 80C basket, which allows tax deduction of up to R1.5 lakh on certain investments. Finally, their prayers have been granted. Until recently, only insurance companies were allowed to offer pension products in India.

A cursory look at the offer documents reveal that these schemes offer various investment options to investors. Depending on their risk profiles, investors can choose different combinations of equity and debt. Typically, the most aggressive investment option would have maximum allocation to equity and a very conservative portfolio would have maximum allocation to debt. A combination of debt and equity would take care of the risk profiles that fall between these two extremes.

These various investment options shouldn’t be confusing for a regular mutual fund investor. An investor can figure out the specifications of a plan by looking at the equity or debt component in it. A plan with 65-100 per cent equity allocation is like any equity-oriented fund. Similarly, a plan with 90-95 per cent debt allocation is a pure debt plan. Mutual fund investors may also find investment allocations similar to balance funds, MIPs and so on. All an investor has to do is to pick an investment option that matches his risk profile and investment objective.

Since these schemes are expected to pool savings for retirement, you have the option to lock-in the money till your retirement or redeem it before that. To discourage investors from exiting from the scheme before their retirement, fund houses have lined up stiff exit loads for early redemptions.

Reliance’s product, apart from the two existing retirement funds from UTI and Templeton, qualifies for tax deduction under Section 80C. Other fund houses are also hopeful of getting similar exemption.

However, this is likely to pose a serious challenge to common investors as most of them typically exhaust most of the available limit under Section 80C with their EPF contributions and life insurance policies. ELSS is also going to compete with these retirement products. That could make the choice tricky for most investors.

Also, since some of these schemes do not have a mandatory lock-in period like all other permitted investments under Section 80C, it is entirely up to an investor to stick to his investments. It remains to be seen how many investors will have the discipline and courage to continue with their investment plan in adverse market conditions, as these retirement products allow investors to exit them after paying a slightly higher exit load.

Measuring Volatility

It is common knowledge that mutual funds are benchmarked against particular market indices. In general, diversified funds are benchmarked against Sensex or Nifty, while sectoral funds are benchmarked against their particular sector index. It is fair to then assume that the ups and downs of any index will affect the funds that are bench marked against it. In other words, if the Sensex falls, you can expect a diversified fund to fall as well.


But while some funds might be affected more by an index’s volatility, others might not. So, then how does an investor get an idea of how volatile a fund is with respect to its index?

Here is where beta enters the picture. Beta is the measure of a fund’s (or stock’s) volatility relative to the market or benchmark.

For example, if a fund is benchmarked against the Sensex, a beta of more than 1 would imply that the fund is more volatile than the index. And of course, a beta of less than 1 would imply lesser volatility.

Allow us to explain further. Let’s say there are two funds, one with a beta of 2.5 and the other with 0.4, both benchmarked against the same index. Now, if the market rises by 1 per cent, the first fund will rise by approximately 2.5 per cent, while the latter will rise by 0.4 per cent. A similar relationship will take place in a falling market. In simpler words, beta is a quantitative measure of a fund (or stock) relative to the market.

In effect, beta expresses the fundamental trade-off between minimizing risk and maximising return. This means that while an investor can expect high returns from a fund that has a beta of 2, he can also expect the fund to be more risky and drop much more when the market falls. A fund with a beta of 1 would flourish or diminish in the same vein as the market.

So, how effective is beta in judging a fund’s volatility? Well, that depends on the index used to calculate it. If the beta of a large-cap fund is calculated against a mid-cap index, the resulting value would have no meaning. This is because the large-cap fund would not be invested in the stocks making up the small-cap index.

Beta is fairly straightforward and offers a lucid, quantifiable and convenient measure of a fund’s volatility. However, beta does have its limitations. Beta is essentially a historic tool and does not incorporate new information. For example, a company may venture into a new business and assume a high debt level, but this new risk will not be captured by beta. Beta relies on past movements and does not take new happenings into account. Hence, beta cannot be calculated for new funds or stocks that have insufficient history.


A cut to conservative Debt investor

Raghuram Rajan has started cutting interest rates and it’s simply impossible to find any comment on it that is not heavily optimistic. Certainly, I’m not about to view coming lower interest rates in a negative light, but simply point out that the impact on savings must be considered. Right now, the focus is on cheaper money for businesses and government and the prospect of higher growth. As far as the impact on investments go, all attention is on the booming equity markets which have welcomed Rajan’s rate cuts with big jumps. The bond markets are also happy. Since we look set for a long period of interest rate declines, bond investors as well as fixed-income mutual fund investors are going to make handsome returns of the kind that they haven’t seen for a while.


So who isn’t invited to this party then? Clearly, only those who save in banks and other fixed-return deposits. A drop in interest rates will see a fall in savings bank rates and fixed deposit rates. Not just that, public provident fund (PPF) and post office deposit will also now fall, as will EPF returns. This is inevitable, and is an integral part of generally lower interest rates in the economy.


Of course some people will point out that since inflation has fallen, lower interest rates do not mean lower real rates. However, that’s only partially true. The official inflation rates do not reflect the actual inflation that an individual faces. Older, more conservative investors are rarely able to gain any direct advantage from lower rates. What this means is that times of good economic growth are, on a relative basis, implicitly disadvantageous for those who keep their long-term savings in fixed income asset classes. The logic of the time points towards equity. For some, it might be better to take some risk rather than see the real value of their savings whittled away.

Don’t mis-take Financial planning

Financial planning is one of the least understood aspects of modern life. The reason is not hard to find. Till as recently as middle of 20th century people had little reason to plan. Their lives were pretty much one track affairs where all that an individual could do was to start early in life, apply oneself to learning a particular job and raise a family. There were no career changes, jobs were for life, illness often meant death, and inflation was low and economic cycles of boom and depression lasted for decades.

However last 60 years have transformed the economy and the society. Economic cycles are much shorter, jobs are being redesigned as assignments, financial instruments are getting more complex and inflation is a reality. In all of this we have a scenario where what determines the long term prosperity of an individual is not only a function of his intelligence and his earning potential but also how he has planned his finances. Unfortunately the education system is yet to catch up to this new reality and inculcate systematic financial planning as an important education tool.

While proper financial planning is a subject in and of itself, in my experience if a person can avoid a few basic mistakes which I have listed down, then one considerably increases their chances of material well-being. Here is my list:

1.Absence of a clearly defined goal: We all have multiple goals in life for which we need to save. Buying assets, childs education, marriage, our own retirement. A common problem I see is that people have not written down exactly what do they want and how are they saving specifically for the goal. Each of the above goals has a different timeline and risks and accordingly saving plan has to vary.

2.Trying to save post expenses: We see so many people who believe that they simply cannot save. The expenses are too great. The mistakes made by people are that they try to save from what is left AFTER spending. That does not work. Your expense should be accounted for AFTER you have saved.

3.Not taking professional help: In case their car has a flat tyre or they have leaking tap people will not change it themselves and instead rely on mechanic or plumber. But when it comes to planning for their future and well being they try to do it themselves. I find it amusing and sad. Fact of the matter is that the financial world has become so complex and risks are so varied that it is beyond the capacity of most people to plan their financial future. Do not play with your future. Please draw your savings plan with a help of professional advisor.

4.Not taking risks into account: When planning for future are you accounting for what all can through your planning off the track? Death, Disease, Disability can all have a devastating impact on your goals. Untimely death & health expenses are the leading causes of bankruptcy in our country and yet very people seem to plan for these. Sound financial planning takes these factors into consideration and protects you against economic impact of the same.

5.Not reviewing progress: If a person does all of the above then he has taken a giant step towards securing his financial future. However all of the above will come to a naught if the progress is not reviewed periodically. At least set a couple of days every year to review how you are doing against the plan. Minus of this you will be playing blind. Not a good idea.

In essence what I would recommend is please be pro-active, seek professional help and be involved in the process of planning for your future. I am reminded of an old dictum failing to plan is planning to fail. Make sure you don’t fall prey to it.

The landing of Airlines in India

SPICJET is the recent addition in another failed Airline company in India…….the reasons are  many but a major analysis when we dig deep into the airline industry and system in the country gives  that AIRLINES business and environment in the country is not one of the most conducive in the world


Why with a country of 120 crore citizens, no airline company is sustaining on a longer term ? only indigo is the company to sustain itself in BLACK and that to with huge difficulty………….


Is the air traffic very low in the country ? or the operating conditions, costs, taxation etc is not in parity for all the players is a very key question before the current government puts up any revival plan lets see this


1. The indian railways despite being one of the most passengers travelled in the World is still running in LOSSES

2. Indian Airlines despite a pathetic management and most stupid business decisions is still given priority in most of the routes and still being funded, why isn’t that put in a PPP model since now is still a mystery to be answered

3. Delhi metro despite having a world class infrastructure, systems processes, security is running in profits since last 5-6 years, how come ?


Now the government first needs to put every AIR player whether private or public on the same level playing field, reduce the ATC charges and charge them on an incremental basis


AIR INDIA either needs to be diluted or should have a seat sharing system with other private operators in the country for both local and domestic routes

Further funding of AIR INDIA be stopped and all the unutilised seats/routes be auctioned/given to private players

a PPP model for running AIR INDIA be implemented asap


India could be a country with the kind of travel traffic and increasing affordability towards AIR TICKET , where the AIRLINES businesses could flourish the best in the world if the systemic issues are addressed properly


hope Mr Modi is listening ( reading) this


The crude melt

The crude oil price has fallen to almost 1/3rd since june this year and analysts expects it to fall more, although everything seems good for an net importer country like india, where inflation is easing, costs are coming down and everything seems to be going good.


But if we take a simple fundamental which says if the economy rises, the crude oil demand would rise and so the crude oil prices, but the current equiry markets and economic factor says a different story at all, where the markets ( not pretty sure of real economy) is rising but on the contrary the crude oil price is falling, and to top it the reason for rising equity markets is attributed to the falling of crude oil prices, so what would you say to this


If we dig a bit deeper in the whole crude oil story, there are few facts which will unfold the current situation viz. the rise in crude oil price back in 2009 or so to sub 140$ was not mainly due to the demand but more of the OPEC cartel decisions and their power to manage the crude price, which in turn gave birth to the low cost SHALE GAS which is abundant in the US territory ( the biggest consumer of energy products) and since 2009 US has hugely and on war footing worked on exploring SHALE GAS and other non conventional energy products, which has now made the US Crude oil demand to a 3 year low and in turn the Gulf or OPEC players are forced to sell the inventory in losses due a danger of loss on past inventory.


Also the current OPEC meet went away with keeping the same oil production levels, as against the minority belief of cut in production, with a simple view that if the Crude oil prices rise again the SHALE GAS exploration would be more economically viable for the producers and SAUDI( the largest oil producer) was of the view that a fall in production would adversely affect the crude prices


So lets analyse it this way, the world is going towards non conventional energy sources and mainly renewable ones, the table has turned upside down for crude oil since 1970 and this decade will mark a significant change in the way Energy products are produced, traded in world, so stay tuned so see some more cut in crude, which will definately increase the pollution but will decrease the inflation although


Happy Investing !

Should you go for Gold

Gold prices have been dropping of late, and many people are wondering if it is the right time to start investing in gold, but the answer may not be that simple. Gold prices have come down due to various reasons ranging from the global economic recovery, India’s economic recovery, a stronger rupee, and bullish stock markets. Apart from this, global markets seem to be firm and doing well, meaning with more risk appetite in the markets, resulting in lower investments into gold. One of the reasons that gold prices have come off their recent highs is that the markets in countries such as USA have started doing very well, resulting in an increased risk appetite, which in turn leads to reduction in gold investments. Another important factor to keep in mind, especially in the Indian context is that gold prices are denominated in dollars and traded in the international markets, and the domestic gold prices are arrived at by simply converting these dollar prices to Indian rupees at the prevailing rates.


One of the most popular forms of gold investment has been through the gold ETFs, which unlike physical gold purchase one does not hold the gold but stores it in electronic form – making it easier in terms of security. Typically 1 unit of any gold ETF is equal to 1 gram of gold. You invest in the ETF, and in turn the asset management firm buys an equivalent amount of gold and holds it. This is a good option since there is no requirement for you to select the gold and ensure purity, nor do you have to ensure its safety. One can buy gold ETFs for the same price as a gram of gold (with a few added charges, e.g. brokerage), and hold the required amount of gold in demat form, without any hassle. One also has the option of instantly liquidating one’s holding for cash, as compared to physical gold which one needs to sell back, which could take time.

Gold ETF’s are cheaper than physical gold (for long term holding) since you pay only brokerage charges of around 0.5% as compared to 10 – 15% making charges for physical gold (i.e. If one buys jewelry). It is important to keep in mind that investments in gold are taxable at the time of redemption/ sale of the gold. In the case of gold ETF’s long term capital gains are calculated post 1 year of holding and is currently 20%. However, one can use indexation to reduce the tax burden.

Although gold ETFs are more attractive than physical gold, the most important question is whether to invest in gold or not. Given the current drop in gold prices, and the global risk appetite increasing, investments in gold may not yield the same returns as in the immediate past. Keep in mind that over a decade or so, gold will yield on average 10% per annum. However, that being said it is advisable to keep 5 – 10% of one’s investment portfolio in gold in order to diversify, this is especially true of the majority of one’s investments are in equities. Overall, gold is no longer a one way street, with any investments in the precious yellow metal going only upwards. One can trade a small amount in gold (if required) but ensure to book profits regularly.

Steps to buy right insurance cover

If you are about to take an insurance policy do read the following pointers before taking the policy, so your purpose and investment both are justified enough

1. Insurance required 

You can check it by how many dependents, spouse’s income, liabilities, sources of income etc 

You will also have to take into account your lifestyle and future financial requirements, such as a marriage in the family.

2. Insurance costs 

The  premium charges, administration fees, mortality charges, fund management charge and rider charges, if any.

Compare the same with other insurers, online products etc 

3. Claim settlement ratio

You should check the claim settlement ratio of each insurance company before buying your policy from them 

4. Check the riders on offer

You should check all the riders and disclaimers by the insurance company before buying the policy from them.

5. Do not buy too many policies

Just to fill your tax saving limit you should not buy too many policies. 

6. Ask your Financial planner

Feel free and dont be afraid of asking questions from your financial planner for insurance needs