Sectors to benefit from Indo-Japan bullet train project
Indian stock markets have rallied 23% (Nifty 50) and 21% (S&P BSE Sensex) in the first 8 months of FY17. Nifty 50 has crossed the 10,000 mark and Sensex surpassed 32,000 for the first time. It is an uphill task to identify stocks for investment in such a bullish market. One way to select stocks is to spot sectors that are likely to see an organic growth supported by concrete development plans/policies of the government.
Among the recent developments, Mumbai-Ahmedabad bullet train project in collaboration with Japan is a remarkable project. In this project, Japan will be the primary financier wherein it will fund 81% of the project cost at an interest rate of 0.1%; the overall cost is expected to be Rs 1.1 lakh crore. The project is expected to be completed by FY22.
On the basis of the above development, we believe Capital Goods, Metals, Infrastructure and Cement sectors to benefit the most from this project.
Capital Goods sector is the backbone of the numerous manufacturing subsectors in the country such as Heavy Electrical Equipments, Power, Defense and Railways. The sector has seen 3.7% growth in FY17. Going forward, Capital Goods sector is expected to grow with the support of government initiatives like Make in India and bullet train project. Some of the stocks that are likely to benefit from bullet train project include:
BHEL - Government-owned BHEL, India’s largest power equipment manufacturer with 55% market share in the segment, is likely to play a major role in country’s bullet train project. BHEL and Japan-owned Kawasaki Heavy Industries have formed a joint venture to manufacture rolling stocks for the project. According to recent reports, the company is expected to manufacture the coaches at its Jhansi Plant in Uttar Pradesh or Bhopal in Madhya Pradesh. The company has an order backlog that stands at Rs 101,380 crore in Q1 FY18.
Siemens and ABB - These companies are expected to benefit from bullet trains as they manufacture electrification systems and high-speed rail traction. ABB derives ~25% of the total revenue from electrification products business.
India is the 3rd largest steel producer in FY17 with total production of finished steel at 83.01 million tonnes. Government is taking steps to improve the country's domestic steel sector and raise its capacity to 300 million tonnes (MT) by 2030-31. Pickup in domestic activity as well as commencement of developmental programs like construction of smart cities, bullet train etc will increase the demand for metals and related products. Some of the companies to benefit from the bullet train project include:
Tata Steel and JSW Steel - These stocks are likely to benefit from the project as it will increase the demand for commodities like steel, iron etc. JSW Steel is one of India’s largest private sector steel manufacturers with a capacity of 18mtpa followed by Tata Steel with an installed capacity of 10mtpa.
The Government of India is highly focused on improving the rail and road connectivity in the country. Road Transport & Highways Ministry has invested around US$ 47.7 bn and Union Budget 2017 has further allocated Rs 131,000 crore for laying down 3,500 km of railway lines in 2017-18. Metro rail and bullet train project are the step towards developing urban infrastructure in the country. Some of the stocks to benefit from these initiatives:
NBBC- The company is likely to get new orders for development of new railway stations once the bullet train project is commissioned. The company recently got orders to develop 50 stations (10 stations in June 2017 and rest in September 2017). The company has a strong order book of Rs 75,000 crore in Q1 FY17 (90% from PMC and redevelopment segment, 10% from real estate and EPC division).
Larsen and Toubro Ltd - L&T offers services like construction of railway sidings and yards, bridges (steel and concrete), tunnels, rail-based urban transit systems (metro systems), stations (including underground stations), railway electrification, rolling stock, locomotives, intercity coaches, wagons and so on. The company has a total order book of Rs 262,900 cr as on Q1FY18.
India is the 2nd largest producer of cement in the world. It has a production capacity of 420 MT as on June 2017. The country has a lot of potential for development in the infrastructure and construction sectors and the cement sector is expected to largely benefit from it. Some government initiatives like smart cities and bullet train project will boost the demand for cement. Some of the companies to benefit are:
Ultratech Cement- It is the largest cement producer in India with a cement capacity of 95.3 MT (includes acquisition of the cement plants of JAL and JCCL- 21.2 MT and overseas operations). It has a market share of 22% on a pan-India basis and is the 4th largest player globally.
Some of the other cement companies to benefit from this project are ACC, Ambuja and Prism Cement.
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What is the right age to buy a term life insurance cover?
Death comes knocking at the door without any prior notice. The death of the only breadwinner of the family brings the family into severe financial crisis. This is the time when you realise the importance of a term insurance policy the most. A term insurance plan secures the life of your loved ones and helps them to meet their day-to-day expenses. It is always better to buy a term insurance plan early in life as an individual gets immense benefits for starting early. Also, the premium charges are also low when you are young.
Let’s take a look at the different ages and factors that one should consider while buying a term insurance.
During the 20s, an individual just steps into his professional life and is relatively debt free. He has lesser family responsibilities and buying a term cover at this age can help him pay off his education loans if any. Moreover, term insurance premiums are less expensive when an individual is young.
An individual, in his 30s, tend to have family and kids. While his income is higher at this age, the responsibilities are much more. He may have financial liabilities like home loan, car loan etc. The premium will tend to be slightly higher, given the family responsibilities.
During this age, an individual’s long term financial liabilities like a home or car loan is paid-off. However, he may have higher responsibilities like his child’s higher education or his own retirement planning. It is better to opt for a cover which provides a greater coverage and financial protection. The cover should be able to take care of your family expenses after your death.
When an individual reaches this age, his children already start earning and most of the debts are paid-off. Family members are not financially dependent on your earnings. During this age, what an individual is most concerned about is his retirement. At this age, the best option for an individual is to buy an endowment plan which will help him save and give him a lump sum amount on maturity.
Term Insurance Premium amounts for a cover of Rs. 50 lakh
The above table shows the difference in premiums as per the age of an individual. As the age increases, premium increases.
Age plays a major role in deciding the amount of your term insurance. The biggest mistake an individual makes is to not opt for a substantial cover for the family. One should make sure that the term cover takes care of all the basic necessities of the family in case of the sudden demise of the policyholder.
Tax Saving Investments and their Features
This is the time of the year when you start getting calls from the HR of your company asking for investment declarations. If you have not made any investments yet, here is the list of instruments where you can invest.
|Instrument||Investment||Section of IT Act||Lock-in Period||Returns||Risk||Taxation at Maturity|
|ELSS||ELSS is a type of mutual fund scheme where most of the fund corpus is invested in equities or equity-related products.||80C||3 years||Not fixed, depend upon the performance of equity market. However, in the past, ELSS has given average returns of 12-14%.||Carries some risk||Tax-free|
|PPF||It is a type of investment which is provided by the Government of India||80C||15 years||The rate of returns changes as per government policies.
Current returns - 8.1% compounded annually
|NSC||NSC are bonds issued by the government for small savings and one can purchase these bonds from post offices.||80C||10 years||The interest rate on NSC is decided by the government every year. It is linked to the yield of 10-year government bonds.
The current interest rate is 8%.
|Low Risk||Interest is Taxable|
|Pension Mutual Funds||Pension Mutual Funds invest 40% of the money in equity and 60% in debt instruments.||80C||Until you reach the age of 58||The returns in pension mutual funds are not fixed as it depends on the performance of the equity and debt market. Pension mutual funds have given an average return of 8-10% for a 5-year and 10-year period.||Carries some risk||Tax-free|
|Tax Saving FD||It is a special fixed deposit made with any bank.||80C||5 years||The interest rate varies from one bank to another. It usually ranges from 6.5-7.5%.||Risk Free||Interest earned is taxable|
|Rajiv Gandhi Equity Saving Scheme||Exclusively for first time retail investors. Individuals with an annual income below Rs. 12 lakh can invest.||80CCG||3 years||Depends on the performance of equity markets.||Carries some risk||50% of the invested amount|
5 Financial Priorities When You Turn 40
Whether it’s your 20’s, 30’s or your 40’s, every decade brings its own set of experiences and expectations. However, it can be said that there is something sweet about your 40’s. You are more or less settled in your life, where you have a fair idea of what your future will be like.
This decade also signals the approach of your retirement, and hence, you cannot afford to make any financial mistakes as opposed to your carefree 20’s where new things were considered adventurous and worth a try.
Following are the five priorities that any 40-something should abide by :
1.Make Sure You Are Insured
There is a big difference between being insured just for namesake and being adequately insured while taking your lifestyle into consideration. Don’t delay in buying the right insurance policy[Keywords are added in Bold in the article. Please make sure to add keywords in the article and make them bold from the next time. ] as there is a hike in premium rates as your age progresses.
Term insurance is a great way of getting a high-risk cover as well as keeping your savings intact. A comprehensive health cover is a must as well in the face of ever-rising healthcare prices.
2.Get Your Family Involved
Many don’t realise it, but it makes a world of difference when our family members are in sync with our financial goals. Whether it’s your parents or spouse, by aligning your financial plan with them, you can save more as opposed to going at it alone. Even a minuscule amount at present can add up to great savings for the future.
3.Learn Something New
Just because you are in your 40’s doesn’t mean that you have to settle down completely. Mix up that routine by practising a skill that you’ve always wanted to master. This also prevents the eventual complacency that comes with getting used to your regular work.
A well-learned skill can translate to a new side venture which will lead to you earning and eventually saving more money for your retirement corpus.
4.Wipe Off Your Debt
Without you even knowing it, being in debt takes away a huge chunk of your future savings. Thus paying off all your high-interest debt (other than long term home loan) is the first step towards being financially sound.
Start using portions of your bonuses or even tax refunds to pay off your high-interest credit card bills and other accrued debt, or else you will end up losing a huge chunk of savings in interest payments.
It also makes sense to start organising your expenses. By now most of your bills should be on auto pay which makes your expenses streamlined and easier to keep track of. It also saves valuable time.
5.The Retirement Goal
There is no better time than your 40’s to seriously start building up your retirement savings. Create a retirement fund and keep a portion of your income dedicated towards its growth. You can also invest in Public Provident Fund and National Pension Schemes by the government for better returns.
In a nutshell
As the saying goes, ‘It’s better late than never,’ take control and manage your finances well in your 40s so that they take care of you when you need them later. A better plan would be to have an organised approach by getting a financial planner/portfolio manager to draw up a retirement portfolio for you.
How To Buy Stocks Online?
In the older times, stock market was difficult for a common man because of lack of know-how. That is why it was extremely essential to consult a stock broker before investing. Back then, the brokers were the only source of stock purchase.
The internet has solved this problem for the common man. Now there are a large number of websites that give you a good working knowledge of the stock market. They can also give you good advice about when you should and shouldn’t invest in shares.
Thus, with the authentic information about stocks that is available on the internet, people with limited savings can get good knowledge about the stocks. They can not only get information about the stocks, but they can also buy stocks online starting from prices as low as Rs. 500.
Process of Buying Shares Online
1) To buy and sell shares, one needs Demat and Trading accounts. Both of these are provided by the two Depositories namely NSDL and CDSL through brokerage companies. One has to visit or contact a brokerage company offices for opening those accounts.
2) Generally, stock trading is possible in India between 9:30AM to 3:30PM. Stocks can be traded on all working days from Monday to Friday. The stock exchanges are closed on bank holidays and national holidays.
3) You can log into you online Trading account. Visit the online portal of your trading account. To log into your trading platform, you will have a user name and a password. Make sure you memorize these important login details.
4) It is important to do a pre-study before selecting a stock. Stock study is not just a study of its market price. More than the price, it isimportant to judge the company’s fundamentals.
5) To buy stocks, put a buy-order to trading account and wait for order execution. Setting up a price-limit to buy stocks is a good habit.
As you can see brokers are no longer a necessary part of the transaction while buying and selling shares. However, it is still advisable to consult a broker.
With the changing times brokers too have modified their services. Few years ago, there was only one type of broker, the Full-time broker who handled the complete buying, selling and monitoring of your shares. Today there are different types of brokers available in the stock market:
Types of Brokerage services
Full-service broker is a broker who gives Stock advisory plus trading facility to the investors. They generally charge 0.3% to 0.5% of the total amount invested by the customer as brokerage. Suppose you buy 1000 ICICI bank shares for Rs.500 each, your brokerage charge would be Rs.500000*0.5%= Rs.2500
These are new brokers who provide a trading platform to the investor but don’t give much advisory. Discount brokers usually charge Rs.20 per trade, irrespective of amount. Suppose you buy 1000 ICICI bank shares for Rs.500 each, your brokerage would be flat Rs.20.
People who are not so internet savvy and hesitate to buy stocks online it is great to refer a broking agency. Check out 5paisa.com to find out the services on offer for trading in stocks online. We offer a flat rate of Rs.10 for every transaction whatever the value of the deal. This makes our services valuable whenever you are buying shares.
Understanding FMP and its benefits
Fixed Maturity Plans, or commonly known as FMP is a close-ended mutual fund scheme with a fixed maturity. FMP usually invests in instruments that are equal to its own tenure. This means an FMP with a tenure of 1126 days would invest in an instrument that matures within 1126 days or less.
Why people invest in FMPs?
Fixed Maturity Plans offer returns that are risk adjusted. You can also get tax benefits on it. Mutual funds invest in securities that are not easily offered to retail investors. Thus, you can get better credit quality. The interest rate risk is also managed by the securities with the same maturity plan as that of the scheme.
What do investors get from FMP?
Protection from capital: FMP invests in debt instruments. Hence, the risk of loss of capital is relatively lower than that in equity funds.
Ideal for long-term FMPs: Investments that are greater than 36 months are often ideal due to minimum exposure to market risk, ability to park funds to achieve long-term goals, and potential to earn steady returns on investment in FMPs.
Better taxation benefits: FMP offers better returns as compared to FDs and ultra-short-term debt funds. This is possible due to the indexation benefit. Since indexation lowers capital gains, it translates into lower tax.
If you choose ‘Dividend’ option, there may be no tax for you as investors as you are getting the returns in dividends. However, the mutual fund companies would have to pay the Dividend Distribution Tax (DDT) along with surcharge and cess.
If you choose the ‘Growth’ option, you may be eligible for capital gains tax. For short-term capital gains of less than 36 months, you may be charged according to your own income slab rate. If you opt for long-term capital gains of more than 36 months, you would be taxed at 10% and 20% without or with indexation respectively. For example, if you take a 36-month FMP in May 2017 that is FY17-18, it would mature in May 2020 that is FY20-21. Since the purchase and sale years are in different financial years, you can enjoy the benefit of double indexation. This would help you reduce your tax liability to a great extent.
What does an FMP comprise of?
It comprises of the following:
Highly rated securities like AAA rated Corporate Bonds
Treasury Bills (T-bills)
Certificates of Deposit (CDs)
Bank FDs and other money market instruments
Points to remember before investing in FMPs
It is essential to know where the FMP is investing. This is because the credit worthiness of the fund’s assets is directly dependent on the quality of the portfolio.
Ensure that you read the Scheme Information Document (SID) carefully. It would give you an idea about the fund manager’s capabilities.
Are there any downsides of FMP?
Like every other thing, FMP too has its own share of shortcomings. Since it is a close-ended scheme, you may not be able to redeem it before maturity or expiry of its term. All FMPs are mandatorily listed on the stock exchange. If you still wish to redeem it, you might have to sell it on the stock exchange on which the units are listed. Since these units are rarely traded, it could make your FMPs illiquid in times of need.
FMPs are great investment tools if you are looking for good returns and tax benefits. The close-ended schemes can only be redeemed after the term. So, once the term is completed, all the capital along with the interest earned is credited back to the investors. The taxation in FMPs would depend on the investment option chosen by you. This could be either dividend or growth. Thus, FMP is an ideal investment option for all those investors who wish to have stable returns from a debt investment.