Q1 GDP Falls 23.9%, Worst Quarterly Slump in Four Decades

Q1 GDP Falls 23.9%, Worst Quarterly Slump in Four Decades
09/01/2020

With a view to contain the spread of the Covid-19 pandemic, restrictions were imposed on the economic activities that were not deemed essential, as also on the movement of people from 25 March 2020. Though the restrictions have been gradually lifted, the impact it has created on the country’s economy is worst than what the analysts anticipated. India’s GDP (Gross Domestic Product) has suffered a historical slump of 23.9% in Q1 FY2020-21.

With this India, the world’s fifth largest economy has become second-worst performer following the US and close to the UK. The US recorded a slump of 32.9% while the UK witnessed a contraction of 20.4% during the June Quarter. The figures recorded by India have been regarded as the sharpest contraction since the ministry started publishing quarterly figures in 1996.

The lockdown has hit every sector in the country, with agriculture being the only one spared. The agricultural sector grew by 3.4% during this quarter. The manufacturing sector was down 39% while the construction recorded a dip of over 50%. Hotel, trade, communication and transport sector posted a decline of 47% during the period. The service sector also slumped 20% compared to the growth of 4.4% in the last year during the period. Industries like airlines, hospitality, and entertainment etc, which contributes to the 60% of the country’s economy and have suffered the maximum.

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Sector Update - Cements

Are Cement Prices Improving?
by Nikita Bhoota 09/01/2020

Cement prices declined in all regions, except the South, for Jul-2020, with the monsoon intensifying. The region-wise price decline was in the range of Rs.2-18 per 50kg bag (1-6%). However, demand has improved in the northern and western regions, it has turned sluggish in the eastern region on account of the monsoon and the resumption of lockdown, as per the reports. All-India average price for end-July is up 3% YoY and down 2% MoM.  We expect the sequential price decline to continue into August, due to the monsoon and expect prices to improve from September.

North – Price decline moderates:

After a sharp decline in June, the price decline has moderated for July, in the northern markets. Demand has slightly improved for the month of July compared with June, except in the New-Delhi market, due to shortage of labourers, as per the reports. Demand continues to be strong in the rural areas of Punjab and Rajasthan. Demand is expected to be moderate in August, with the monsoon likely to mitigate, and prices are likely to go down further. End-July price range was Rs.260-345 per 50-kg bag in New Delhi, Rs.240- 340 in Jaipur, and Rs.300-360 in Ludhiana.

South – Marginal price hikes in a few markets:

Cement prices per 50kg bag improved by Rs.10 in Chennai and by Rs.25 in the non-trade market in Hyderabad in July, and prices largely upheld for the entire month; Hyderabad price hikes were primarily taken by smaller brand players. Prices in Bengaluru and Kochi were largely stable for the entire month. Demand was sluggish in July, as per the reports across the region, due to lockdowns in major markets. No new price hikes were announced in the current month.  The end-July price range was Rs.310-365 per 50-kg bag in Hyderabad, Rs285-395 in Bengaluru, Rs.330-415 in Ernakulam, and Rs.330-425 in Chennai.

East – Prices continue to slide due to monsoon:

With the monsoon intensifying, both cement demand and prices have weakened in the eastern region. The price decline is to the tune of Rs.10-30 per 50kg bag, which is the highest for the month of July across regions. Resumption of lockdowns in Patna and lack of pre-election spending has depressed the sentiment; The reports indicated that the demand has weakened in rural areas too. Demand is expected to be sluggish for the next few months, and any improvement is likely only post the Dusshera festival. End-July price range was Rs.245-310 per 50-kg bag in Kolkata, Rs.280- 340 in Patna and Rs.250-305 in Bhubaneswar.

West – Largely stable prices in both, Maharashtra and Gujarat:

Led by strength in prices in the South, Maharashtra prices for July were largely stable. Demand is gradually improving in Maharashtra, as work has commenced at many sites, as per the reports. The lockdown enforced in various cities in the last one month has not dented demand much. However, it is uncertain that the current demand strength will continue, as there is a financial crunch in the market. Prices in Gujarat are also largely stable for July. The end-July price range was Rs.290-350 per 50-kg bag in Mumbai, Rs.320- 370 in Pune, and Rs285-345 in Ahmedabad.

Central – Huge inflows from the southern region ease prices:

Cement prices eased by Rs.5-20 per 50kg bag in the central region, due to huge inflow from the southern region, in July. As per the reports, even a good brand from Andhra Pradesh reaching as far as Indore is selling at the lowest price. In Bhopal, demand was weak due to a complete lockdown for 10 days, till 4-August. Similarly, demand in Lucknow is also weak due to the financial crunch. However, demand in rural areas is strong. The prices are likely to erode in August, with likely improvement in the monsoon and a further improvement thereafter. The end-July price range was Rs.290-375 per 50-kg bag in Lucknow, Rs.250-340 in Bhopal, and Rs.255-320 in Indore.

Stock Performance

Company Name

25-Mar-20

26-Aug-20

Gain/Loss

Prism Johnson

28.8

55.3

92.2%

Dalmia Bharat

439.9

741.0

68.4%

Ambuja Cements

139.2

220.9

58.7%

JK Cement

963.6

1,497.9

55.5%

HeidelbergCement

130.0

198.4

52.6%

ACC

916.5

1,398.1

52.6%

Grasim Industries

450.6

667.9

48.2%

The Ramco Cements

503.3

724.1

43.9%

JK Lakshmi Cement

203.5

280.0

37.6%

India Cements

95.9

122.3

27.5%

UltraTech Cement

3,226.7

4,079.2

26.4%

Shree Cement

17,440.8

21,630.0

24.0%

Source: BSE

The stocks in the cement sector have given superior returns in the past 5 months. Prism Johnson jumped 92.2% in the past 5 months. Dalmia Bharat rallied 68.4% from March 25,2020 to August 26,2020. Dalmia Bharat (DBL) has clinker-backed cement capacity of 26mtpa (46% in the southern region and 54% in the eastern region). DBL has planned cement capacity expansions to reach 37mtpa by FY22 through the organic and inorganic routes.

ACC jumped 52.6% in the same period. ACC is a pan-India cement major, with production capacity of 33mtpa, which makes it the third-largest cement manufacturer in India. Similarly, UltraTech Cement gave 26.4% return from March 25,2020 to August 26,2020. UltraTech Cement (UCL) is the largest pan-India cement company, with cement capacity of 116mtpa (111mtpa in India). Shree Cement rallied the least 24% in the past 5 months. Shree Cement (SCL) is the second-largest cement player in the country, with capacity of 42mtpa. SCL is a player, primarily in the northern region, and extended its reach to the eastern region in FY16. SCL generally derives ~70% of its sales from the northern + central regions and ~25% from the eastern region, with the balance from the South.

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5 Large-Cap Stocks to Buy

5 Large-Cap Stocks to Buy
by Nikita Bhoota 09/01/2020

Most of the investors would have stayed away from equity markets this year as the market started tumbling and entered a bear phase on account of covid19 outbreak across the world. However, the Sensex and Nifty jumped ~50% and ~52% respectively from March 2020 lows to August 26, 2020 supported by the huge global liquidity and coordinated efforts by countries across the globe to fight coronavirus (Covid-19) pandemic improved investor confidence.

However, some of the investors may think to liquidate their portfolio to take the advantage of rise in the markets. Additionally, investors may also fear that the increase of covid cases and delay in finding out the vaccine to cure covid19 disease will drag the market sooner or later. However, investors can consider investing in large-cap stocks. Large- cap stocks can be considered for investing due to their strong balance sheet, consistent financial performance and solid management. Also, large cap stocks do not fall as much as midcap and small-cap stocks at the time of crisis in the economy.

Thus, based on financial performance, management, business outlook and historical trend, 5 paisa have picked following 5 large-cap stocks to buy for  healthy returns in the long run.

SBI Life Insurance (SBI Life)

CMP: Rs 839
Target Price: Rs1,050 (1-year)
Upside:25.1 %

Aided by strong distribution, SBI Life, India’s largest private life insurer on an APE basis, is well placed to leverage this opportunity. SBILI’s distribution reach and customer base are enviable and have propelled it into becoming the largest private player in the space. Optimal-costs structure, SBI banca partnership and high agent productivity are key competitive advantages, apart from a massive under-penetrated customer base. SBILI’s product portfolio has changed composition over the years. While ULIPs were the key growth driver earlier, focus on protection is rising. This should result in structural expansion in margins.  SBI Life could show greater resilience against macro pressures vs. peers, helped by strong renewals. We forecast VNB Cagr of 11% over FY20-22E. The stock trades at 2.8X FY21E P/EV

Year

New Premuim Income (Rs Cr)

VNB (Rs Cr)

VNB margin (%)

PAT (Rs Cr)

EV per share

P/EV (x)

FY20

40,324

2,010

18.7

1,422

263

3.2

FY21E

45,654

1,963

18.5

1,566

298

2.8

FY22E

54,424

2,495

20.3

1,960

343

2.4

Source: 5paisa Research

Power Grid (PGCIL)

CMP: Rs.185
Target Price: Rs.220(1-year)
Upside: 18.9%

PGCIL is targeting project completion to the tune of Rs.20,000cr in FY21E, on its own and via subsidiaries. Debtor days have started decreasing, as SEBs of AP, Telangana, UP, etc have availed funds from PFC/REC, to pay off dues; others like Rajasthan, Maharashtra, etc are set to avail funds, which would lower the receivables.  PGCIL is well placed to bid and win projects, as & when announced by the Government; new projects would be driven by investments in RE projects, mainly driven by Government focus.  Company’s current project pipeline is Rs.51,000 cr (standalone: Rs.39,000cr) and adequate for clocking growth over the next 2-3 years. InvIT approvals are yet to come through. We expect marginal growth in revenue and PAT CAGR of 5.4% and 6% over FY20-22E respectively. The stock trades at 9.1x FY21EPS

Year

Net Sales (Rs Cr)

OPM (%)

PAT (Rs Cr)

EPS (Rs)

PE (x)

FY20

37,868

87.4

10,811

20.7

9.0

FY21E

38,797

86.1

10,612

20.3

9.1

FY22E

42,066

85.9

12,146

23.2

8.0

Source: 5paisa Research

Bharti Airtel

CMP: Rs.515

Target Price: Rs.612 (1-year)

Upside: 18.8%

The company has been competing well with JIO in domestic mobile revenue market share and has continued its aggressive capex. Prospects for market share defence look bright.  While prospects for tariff hikes looks weak for next few months, it is almost certain in the next 12-18 months and will have a massive positive impact on cash flows. 24.4% Ebitda cagr over FY20-22E, prospects for RMS improvement at the expense of Vodafone Idea and some capex moderation will bring sharp FCF improvement   Absence of Vodafone Idea from spectrum auctions will enable addition of capacity economically.  We expect revenue CAGR of 16.1% over FY20-22E. The stock is trading at EV/EBITDA of 11.2x FY21E

Year

Net Sales (Rs Cr)

OPM (%)

Pre-Exceptional PAT(Rs Cr)

EPS(Rs)

EV/EBITDA

FY20

87,539

41.8

-9,800

-18.0

13.0

FY21E

97,200

42.7

700

1.3

11.2

FY22E

1,18,000

48.0

9,400

17.2

8.4

Source: 5paisa Research

ICICI Lombard (ILOM)

CMP: Rs1,264

Target Price: Rs1,400 (1-year)

Upside: 10.8%

ICICI Lombard (ILOM) has entered into a definitive agreement, to acquire Bharti AXA’s (BAX’) general insurance business via an equity swap for an implied value of Rs46.16bn, resulting in 7.9% dilution, with ICICI Bank’s stake falling to 48.1% (from 51.9%). The merged entity would have a GDPI market share of 8.7% (for FY20) and is expected to close by end-FY21. Operational synergies include expansion in South India, stronger motor franchise, significant cost savings, a robust corporate & branch distribution network and tax savings. The deal involves an equity swap at 2:115 ratio, resulting in issuance of 35.76m shares. The merger is subject to approvals, including ones from RBI and IRDAI. While there is risk of regulator asking ICICI to reduce holding in ILOM as a condition for approval (e.g. HDFC Ergo-Apollo), ICICI is committed to closing the deal irrespective, as per Mgmt. Despite stake falling to 48.1%, retaining Board control may help them consolidate ILOM. Management believes this transaction will enable long-term value creation for shareholders through both, revenue and cost synergies. The stock trades at 35.8x FY21E EPS.

 

Year

GDPI (Rs Cr)

PAT (Rs Cr)

EPS (Rs)

PE(x)

FY20

13,312

1,193

26.28

48.1

FY21E

13,489

1,601

35.26

35.8

FY22E

15,864

1,889

41.61

30.4

 Source: 5paisa Research

Infosys (INFO)

CMP: Rs951

Target Price: Rs1,050 (1-year)

Upside: 15%

INFO is well placed to gain wallet share within clients, led by its cloud offerings and automation-led efficiency solutions, further boosted by an institutionalized large deals team with focus on higher win rates. With ~60% of revenue coming from lesser impacted verticals including Communications and Hi-Tech, we expect revenue CAGR of 19.2% over FY20-FY22E.   INFO had invested in building digital skills and increasing localization over the past two years. With the investment phase now behind, margins should start to improve. INFO is focused on strategic margin levers including pyramid optimization, improved onsite mix, lower subcontracting costs and automation. We expect margins to remain resilient in the near term and expand by ~130bps over FY20-22E. The stock trades at 23.1x FY21EPS.

 

Year

Net Sales (Rs Cr)

OPM (%)

PAT(Rs Cr)

EPS(Rs)

PE(x)

FY20

90,791

24.5%

16,595

39.0

24.4

FY21E

97,355

25.1%

17,505

41.1

23.1

FY22E

1,08,207

25.8%

20,195

47.4

20.1

Source: 5paisa Research

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Everything you need to know about Burger King IPO

Everything you need to know about Burger King IPO
by Mrinmai Shinde 12/01/2020
Quick service restaurant chain, Burger King India is launching its three-days long IPO from 2nd December to 4th December. The company has set the price band at ?59-?60 per share for its IPO.

Through the IPO the company aims at raising ?810 crore. Of the total amount the promoter entity QSR Asia Pte Ltd will sell up to 60 million shares, which would amount to ?360 crore while a fresh issue of shares will aggregate to ?450 crore. The company has also raised a pre-IPO funding of ?92 crore from public markets investor Amansa Investments Ltd at ?58.5 per share.

Burger King IPO details at a glance

IPO Date

Dec 2, 2020 - Dec 4, 2020

Finalisation of Basis of Allotment

Dec 9, 2020

Initiation of refunds

Dec 10, 2020

Transfer of shares to demat accounts

Dec 11, 2020

Listing Date

Dec 14, 2020

Issue Size

?810.00 Cr

Fresh Issue

?450.00 Cr

Offer for Sale

?360.00 Cr

Face Value

?10 per equity share

IPO Price

?59 to ?60 per equity share

Min Order Quantity (each lot)

250 Equity Shares

Min Amount Cut off

?15,000

Maximum Lots allowed

3250 Shares (13 lots)


Want to know our suggestion? Read here - Burger King IPO Note.

Things you need to know:

Burger King India Limited is one of the fastest growing international QSR chains in India during the first five years of operations based on the number of restaurants. Talking about the global presence, when measured by the number of restaurants, with a network of 18,675 restaurants in over 100 countries, Burger King is the second-largest fast food burger brand globally. In India, the company owns 261 restaurants which include eight Sub-Franchised Burger King Restaurants, across 17 states and union territories and 57 cities across India.

Burger King India has exclusive franchise rights in India and a strong customer value preposition. Apart from the customer loyalty and brand value, strong management and a vertically scalable supply chain are the company’s key strengths. The company will use the funds raised through the IPO to finance the roll-out of new company-owned Burger King Restaurants, repayment or prepayment of outstanding borrowings and to meet the general corporate purposes.

If you are looking for the short-term gains through the IPO, you need to bear in mind that if there is a spike in the Covid cases and there is another round of lockdown, then the business might take a hit. The termination of the Master Franchise and Development Agreement could also pose a threat to the business. Lack of identification of the locations when expanding in new regions, and deteriorating relations with third party delivery aggregators apart from perceived and real health concerns along with shifting food preferences and habits are a few things to look for. Having said that, the investment would turn out to be promising in long term.

This year has seen a lot of good IPOs, which has encouraged a lot of new investors to enter the markets. Apart from Burger King, the other companies that issued IPOs this year include SBI Card, Rossari Biotech, Mindspace Business Parks REIT, Route Mobile, Happiest Minds Technologies, Angel Broking, Chemcon Speciality Chemicals, Computer Age Management Services, Mazagon Dock Shipbuilders, UTI AMC, Likhitha Infrastructure, Equitas Small Finance Bank and Gland Pharma.

How to apply for Burger King IPO?
  • In 5paisa Trading App, go to IPO Section reflected on the home screen
  • Click on Apply IPO
  • Enter Quantity and Price to bid for
  • Enter UPI id to block funds on
  • Later in the day you will receive funds block confirmation in your UPI app, which needs to be approved

If you are not a 5pasia customer, you can apply for the IPO using any supported UPI apps. Click here to find the list of UPI apps and banks supporting the IPO application.

Watch the video below to know more about the Burger King IPO

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Five changes in the new PPF scheme you should know about

Five changes in the new PPF scheme you should know about
15/01/2020

Government of India has recently notified the Public Provident Fund (PPF) Scheme, 2019 which replaces the erstwhile Public Provident Fund (PPF) Scheme, 1968. Broadly, there are five changes that have been made in different aspects of the PPF scheme. Here is what you need to know about the tweaks in PPF 2019.

Lower interest payable on loan against PPF

In line with the falling rates of interest, the PPF 2019 reduces the loan interest spread over the interest paid on PPF. Under the erstwhile PPF scheme 1968, an interest rate of 2% per annum above the prevailing PPF interest rate was payable in case the investor took a loan against the PPF balance. For example, if the PPF interest rate is 7.9%, then the loan against PPF will entail an interest payable at the rate of 9.9%. In the new PPF scheme 2019, this interest spread has been reduced from 2% to 1%. Effectively, in the above instance considered, your interest payable on the loan against PPF will not be 9.9% but 8.9%. This will be beneficial to PPF investors as the cost of taking loans comes down substantially.

Changes in case of premature closure of PPF account

Premature closure of the PPF Account after 5 years was already permitted in 2016 and that has been retained. However, what changed are the conditions under which the said PPF account can be closed prematurely. A special form, Form 5 has been created under PPF Scheme, 2019 for this purpose. It may be recollected that since 2016, the premature closure of PPF was allowed on grounds of serious ailments or life threatening diseases affecting the account holder, spouse, dependent children or parents. In addition, the PPF Scheme 2019 has added higher education of the PPF account holder or his/her dependent children. In these cases,  however production of documents and fee bills in confirmation of admission in a recognised institute of higher education in India or abroad is mandatory. In addition, the PPF Scheme 2019 also permits premature closure of the PPF scheme after completion of 5 years in the event of the change in the residency status of account holder. The clause that reduces the interest rate on premature withdrawal by 1% will continue.

Denominations of deposits in PPF

To make the PPF scheme administratively simpler, it will permit deposits only in multiples of Rs.50. It may be recollected that the PPF Scheme 1968 allowed deposits in multiples of Rs.5 also. There will be no upper limit on the number of deposits that can be made in the PPF account. However, the erstwhile limits of minimum annual contribution of Rs.500 and maximum annual contribution of Rs.150,000 have been retained. This is a very minor change to the PPF scheme and is more to bring about administrative simplicity so that the department does not have to deal with too many small denomination deposits in the PPF account.

Ambiguity in the matter of NRIs

We really cannot say that this is a change, but the new scheme surely brings about a degree of ambiguity on the NRI front. While the PPF Scheme 1968 explicitly prohibited NRIs from investing in PPF accounts, the PPF Scheme 2019 is largely silent on the subject. While  the PPF Scheme 2019 does not explicitly prohibit NRIs from opening a PPF Account the new application form requires a declaration that the individual is a resident of India. This can lead us to assume that logically the NRIs are prohibited from investing in PPF under the New PPF 2019 too. Apart from the investment by NRIs, there is also ambiguity about whether residents who become NRIs can continue with their PPF scheme.

Under the PPF Scheme 1968, a resident Indian who subsequently became a NRI during the tenure of the PPF could continue to subscribe to the PPF till its maturity. However, the PPF Scheme 2019 is silent on this subject. But it does put down that change of residency is a ground on which PPF account can be terminated prematurely after 5 years. This can lead us to logically conclude that such schemes cannot be continued in the event of the resident becoming a NRI during the tenure of the PPF.

Finally, some routine changes in forms

At a procedural level, there have been some changes as under:

  • Account Opening shifted from Form A to Form 1

  • Partial Withdrawal shifted from Form C to Form 2

  • Account closure after maturity shifted from Form C to Form 3

  • PPF Loan shifted from Form D to Form 2

  • PPF Extension shifted from Form H to Form 4

  • Premature Closure vide New Form 5

  • Nomination: Form E to Form 1

Nomination form has been combined with account opening form while the partial withdrawal form has been combined with the loan form.

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All you need to know about mutual funds taxation

All you need to know about mutual funds taxation
15/01/2020

Mutual funds are considered to be a tax efficient form of investment compared to other instruments; and rightly so. However, there are several layers to it. Once we understood these properly, we can make a very effective use of this investment option for our benefit. Let us look at the finer aspects of mutual fund taxation in India. 

Equity versus non-equity funds

The key to taxation of mutual funds in India is based on whether the fund in question is an equity fund or a non-equity fund. According to the Income Tax Act, a mutual fund scheme is classified as an equity fund if the proportion of holdings in equities is above 65%. Thus, your typical large cap funds, mid cap funds, index funds, sector funds and even arbitrage funds will classify as equity funds for taxation purposes. All funds that do not fall in the above category of equity funds are classified as non-equity funds. This distinction has larger implications for the taxation of dividends and capital gains.

Taxation of dividends on mutual funds

Dividends are taxed differently based on the types of mutual funds. Let us look at equity funds first. In the case of equity funds, the dividends are entirely tax free in the hands of the mutual fund investor. However, effective Budget 2018, the dividends paid by equity funds are subject to dividend distribution tax (DDT) at the rate of 11.648% (10% DDT + 12% surcharge + 4% cess). This reduces the amount of dividend received.

In the case of non-equity funds, the DDT is much steeper. Dividends paid out by debt funds, liquid funds and income funds are subject to DDT at the rate of 29.12% (25% DDT + 12% surcharge + 4% cess). This is almost at par with the peak income tax rates payable. Hence it is advisable to opt for a growth plan and structure a systematic withdrawal plan (SWP) rather than opting for dividend plans of debt funds.

Taxation of capital gains on mutual funds

Capital gains are the profits made when the sale price is higher than the cost price. Let us look at equity funds first. In case of equity funds, gains are classified as long term if held for 1 year or more and as short term gains if held for less than 1 year. STCG is taxed at 15% plus cess, which makes it 15.6%. Long term capital gains on equity funds were tax free till April 2018. Effective Budget 2018, LTCG on equity funds are taxed at 10% flat on the annual gains in excess of Rs.1 lakh. Flat tax means; even if you hold the equity fund for 10 years, there is no benefit of indexation available.

In case of non-equity funds or debt funds; gains are classified as long term if held for 3 years or more and as short term gains if held for less than 3 years. STCG is taxed at your peak tax rate applicable since it is added to your other income. In the case of long term capital gains on debt funds, they are taxed at 20% flat but with the benefit of indexation. One can also structure purchases in late March and sale in early April to get benefits of dual indexation.

Tax rebate for ELSS funds

This is a special category of equity oriented funds that offer tax exemptions under Section 80C subject to a lock-in period of 3 years. The funds cannot be withdrawn during this 3 year lock in period. The Section 80C continues to offer a blanket upper limit of Rs.1.50 lakhs and ELSS is part of this overall limit. What is interesting is that this enhances the effective yield on ELSS funds. For example, if you are in the 30% tax bracket and if you contribute to ELSS then you get a 30% tax break on the contribution. When you invest Rs.100, you are effectively investing only Rs.70. When the yields are calculated on Rs.70 instead of Rs.100, you can see the differential benefits of an ELSS due to the tax break.

Write-offs and carry forward of losses

Finally, just as profits on mutual funds are taxed, losses can be written off against profits. Obviously, capital losses can only be set off against capital gains (no other head of income). Short term losses can be set off against long term and short term gains while long term losses can only be set off against long term gains. In addition, any unabsorbed losses can be carried forward for a period of 8 assessment years, subsequent to the year when the losses arose.