Union Budget 2020 – What’s It All About?

Union Budget 2020
01/02/2020

Budget 2020 was rich on expectations but the exemptions in the budget were much lower than what the market desired. The impact was visible in the performance of the stock market indices which cracked in response. While a detailed analysis is still due, the immediate reaction of the market appears to be that there was no big bang announcement in the Union Budget despite the tough macro conditions. Here are some of the major announcements in the Union Budget 2020.

Response to macro pressures

  • Nominal growth for fiscal year 2020-21 has been pegged at 10%. The real rate of GDP growth could be in the range of 5.5% to 6% depending on the nominal growth actually achieved as even 10% does look quite steep at this point in time.

  • The budget 2020 has fully utilised the 50 bps leeway on fiscal deficit offered by the N K Singh Committee. For 2019-20, the fiscal deficit has been pegged at 3.8% instead of 3.3% while for the fiscal year 2020-21 it is pegged at 3.5% instead of 3%.

  • There is some positive impact on post-harvest infrastructure. To improve post harvest infrastructure, including cold storage, the budget has announced viability funding based on public-private-partnership. Indian Railways will run dedicated trains to support the cold chain plan.

Some cheer for Corporates and MSMEs

  • Despite the lack of any cost advantage, the Budget 2020 has outlined big plans for manufacture of mobile phones and electronic equipment and semiconductor packaging. In addition, the 15% concessional tax will be extended to the power sector too.

  • Finally, MSMEs have something to be really pleased about. Invoice financing via the factoring method will be extended to MSME as will be the issue of subordinated debt to MSMEs and handholding in the early stages.

No cheer for markets and that was evident

  • LTCG on equity stocks and equity funds was not scrapped, despite the STT being introduced in 2004 in lieu of LTCG tax. This is resulting in the cascading effect of STT plus LTCG tax and that is adding to the costs of traders and investors.

  • While DDT has been scrapped on equity and on equity funds, it comes back in another form. At the same time, the dividend distribution tax on debt funds will continue as before. There will be a single point of taxing dividends as other income at the applicable peak rates of tax for individuals.

  • Efforts are being made to reduce tax burden on middle class. People earning in the range of Rs.5 lakh to Rs.15 lakhs will see reduction in taxes.

Direct tax; more complicated than effective

  • Direct tax regime has suddenly become a lot more complicated. There will be two regimes; first regime will focus on status quo with all exemptions and rebates. The new regime with lower rates applicable will be devoid of exemptions and rebates. Loss of exemptions could be a big cost as many exemptions are virtually mandatory or inevitable like life premiums, provident fund, tuition fees, home principal etc.

  • Under the new tax regime, direct taxes will be as under:

Income bracket

Below 5l

5l to 7.5l

7.5l to 10l

10l to 12.5l

12.5l to 15l

Above 15l

Tax Rate (%)

Zero

10

15

20

25

30

Above table represents the new regime. If you opt for the second option, then your IT form will be auto-filled. That simplicity appears to be the only visible advantage.

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Hurled by the IPO Rush? Here’s All You Need to Know About ASBA

ASBA IPO
IPO
by Nikita Bhoota 27/02/2020

ASBA (applications supported by blocked amounts) was introduced by SEBI to protect the interests of the retail investors. ASBA can used to apply for IPOs, FPOs, rights issues etc. In ASBA, the designated bank account only gets blocked to the extent of the application money. On the date of allotment, the amount gets debited to the extent of allotted shares and the balance gets released. If zero shares are allotted to the applicant, then the entire blocked amount under ASBA is released.

Who can make an ASBA investment?

ASBA is mandatory for all IPOs after January 01st 2016. However, an ASBA investor has to fulfil some basic conditions.

  • He must be a resident individual applying under the Retail Quota
  • Bid must be at cut-off price with a single option of number of shares bid
  • ASBA application has to be made through self certified syndicate bankers (SCSB)
  • Such price intibid made in ASBA cannot be revised later on
  • ASBA cannot be used for other categories like employees / shareholders etc.

What are the advantages of ASBA?

ASBA comes as a major boon to retail investors. Here are some of the major advantages.

  • Since the amount is only blocked, you continue to earn interest
  • You don’t worry about refunds as only the allotment money is debited
  • The application process is very simple and you can apply through your bank
  • The blocked amount is included in average quarterly balance (AQB)
  • Even through bids cannot be revised, they can be cancelled.

How can an ASBA application be cancelled?

While an ASBA application cannot be revised as per the rules, the ASBA application can certainly be cancelled. There are two distinct situations here. If the IPO has not closed, you can cancel the ASBA application through your online trading account or through the bank. Your SCSB will cancel the bid and unblock the amount right away. However, if you withdraw after the issue closes, then you have to write to the registrar to cancel the bid. The SCSB will only remove the block after the allotment is complete and they get intimation from the registrar.

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Here’s All You Need to Know About Getting a Demat Account

Open Demat Account
by 5paisa Research Team 25/03/2020

Demat Account is almost like a bank account. Just like you hold funds in your bank account, you hold shares and other securities in the Demat Account. Having a Demat Account is mandatory for trading in equities as per SEBI regulations. 

How to open Demat Account?

Demat Account can be opened online or offline. It is normally opened along with trading account (TCD) by the broker. Demat Account can be opened with any authorised depository participant (DP); which could be a bank or a broker. Here is how to open a Demat Account.

For offline Demat Account, you need to fill up the demat form and sign the demat agreement and submit to your DP. Basic documents like PAN Card, Proof of identity, Proof of residence and cancelled cheque are required. Copies of self-attested documents must be submitted to the DP along with the signed DP agreement. Carry the originals for verification by the officer. Demat account opening can take up to 4-5 days, if all the documents are in place.

Online Demat Accounts can be opened by filling up the online form on the DP website. You must authenticate your identify and address with your Aadhar Card and verify the same with OTP sent to mobile. An in-person-verification (IPV) has to be done before fully activating the demat account. Only Aadhar address will be considered for online demat.

Check: Procedure to open a Demat account


How to use the Demat Account

With a demat account, your purchase, sale and holding of securities are in electronic mode. You must issue a signed Debit Instruction Slip (DIS) to sell shares or you can give a power of attorney (POA) to the broker. When you sell shares, the demat account gets debited and when you buy shares the demat account gets credited.  All corporate actions like bonuses and splits are automatically credited to your demat account. Dividends are directly credited to the mapped bank account. 

Documents Required for Demat Account

As stated earlier, demat account opening requires proof of identity and proof of address. Proof of identity can be any statutorily issued photo identity like passport, Aadhar, driving license, voter card etc. Proof of address can be any of the above with complete and latest address or electricity or land line bill. In case of online demat account opening, the Aadhar address will be considered. In addition, submission of PAN card and cancelled cheque are mandatory for opening demat account.

Importance of having a Demat account

Here are some of the key uses of having a demat account.

1. It facilitates non-physical holding of securities

2. Demat account can hold equities, bonds, ETFs, gold bonds and other securities

3. Corporate actions are automatically executed in demat account

4. One point intimation of change in address, email, mobile to all companies

5. Eliminates risk of physical holdings like bad delivery, mutilation of certificates, loss in transit, forgery, fake certificates etc.

6. Trading shares, holding in demat and bank transfers become one seamless chain if you opt for online trading

7. Demat is also cost effective compared to dealing in physical certificates

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Covid 19: A pain for Summer Stocks

summer stocks
by Nikita Bhoota 12/05/2020

As the temperature begins to rise, the experts generally recommend investors to buy stocks of companies associated with air conditioners, cooling systems, consumer durables and tours & travel that normally see an uptrend between March and June. Some of the other categories that benefit from a harsh summer include makers of talcum powders, ice creams, juices, fruit and aerated beverages, deodorants etc.

However, this year the scenario seems to be opposite. The demand for consumer durable goods, ice creams and beverages are shattered. The spread of coronavirus (Covid19) disease all over the world and in India has resulted in shutting down the manufacturing activities in the country.  Also, the consumers of beverages and ice creams are recommended not to consume these products to curb the spread of Covid19. Similarly, the aviation and hotel industry are not allowed to carry on their operations. Thus, the market performance of stocks associated with manufacturing and services like consumer durables, beverages and tours and travels will be adversely affected.

Company Name

2-Mar-20

8-May-20

Gain/ Loss

Indian Hotel

133.6

67.5

-49.5%

Mahindra Holidays

214.1

125.8

-41.3%

Bluestar

809.4

478.2

-40.9%

Vadilal Industries

774.3

494.3

-36.2%

Varun Beverages

804.9

619.6

-23.0%

Voltas

663.2

456.6

-31.2%

Symphony

1,291.6

829.6

-35.8%

Emami

258.4

182.3

-29.4%

Pidilite

1,529.0

1,367.4

-10.6%

Source: BSE

Indian Hotel

Covid-19 outbreak and the control measures introduced by the Centre have resulted in a severe drop in foreign and domestic travel, across both the tourism and business traveller segments. As per the Media reports, the hotels’ sector witnessed a decline of more than 65% in occupancy levels in the third week of March 2020 as compared to the same period of the previous year. Indian Hotel is the major brand in hotel sector in India. The stock price have declined 49.5% from March 02, 2020 to May 08, 2020.

Mahindra Holidays

Mahindra Holidays has over 55 resorts in India and 52 internationally, with over 2.51 lakh members. Due to complete lockdown in the country, the business of the company will be highly impacted. The company had suspended the operations in most of the resorts for the time being till 31st March, 2020. The stock price has tumbled 41.3% from March 02, 2020 to May 08, 2020.

Bluestar

Blue Star stock slips 40.9% on halting operations due to the COVID-19 outbreak. Blue Star is an air-conditioning and commercial refrigeration company. The company conducts various activities, such as electrical, plumbing and fire-fighting services. Its segments include electro-mechanical projects and packaged air conditioning systems, and unitary products.

Vadilal industries (VIL)

A harsh summer bodes well for ice-cream makers like Vadilal. However, this year the spread of Covid 19 has affected the consumption and production activity of the company. VIL operates in two major segments – ice cream, under the brand name Vadilal and processed food, under brand name Quick Treat. Ice-cream brand Vadilal has a legacy of 100+ years. It has a strong presence in north, west and east India.

Varun Beverages

PepsiCo India's bottling partner stock was down 23% as the production and distribution facilities have been temporarily shut down and will be operated as per the local guidelines. Varun Beverages is one of the largest franchisees in the world (outside the USA) for PepsiCo. The company has operations across 17 states and two union territories in India. The manufacturing footprint is well spread out and includes 17 units in India and four production facilities in international markets. Products manufactured by Varun Beverages include carbonated soft drinks - Pepsi, Mountain Dew, Seven Up, Mirinda; non-carbonated beverages - Tropicana Slice, Tropicana Frutz; and bottled water - Aquafina.

Voltas

Voltas, a Tata Group company founded in 1954, has successfully evolved from a refrigeration and air-conditioning company into a fully-fledged mechanical, electrical and plumbing (MEP) contractor. The company’s key offerings include heating, ventilation, air-conditioning and refrigeration (HVAC&R) solutions, turnkey electromechanical projects (EMP), and room AC products. The stock plummeted 31.2% from March 02, 2020 to May 08, 2020 due to covid19 impact.

Symphony

The heatwave is likely to be more towards the central and northern parts of India as per the IMD, and Symphony could be a major gainer as it is more into the cooler segment than the air conditioner. It also has a very good brand recall. However, this summers will get impacted by lockdown in the country. The Symphony management has said consumer footfalls dropped sharply in March, as malls, modern retail formats and small dealers in small towns started shutting operations. Transport and inland logistics services are disrupted. Even the e-commerce platform has stopped delivering non-essentials. Symphony is the leading manufacturer of evaporative air coolers in India, with a value market share of ~50% in the organized market.

Emami

Emami’s April- June quarterly volume growth likely to get impacted this summer due to the spread of Covid19.  Summer portfolio sales for products like Navratna Cool Oil, Talc and HE deodorant which contribute about 25% to the total portfolio on annualised basis may be impacted. The Emami Group is one of India’s leading consumer-goods companies, with a presence in niche categories such as ‘cooling oils, pain balms and antiseptic creams, with no competition from MNCs so far. The company also markets men’s fairness creams and ayurvedic OTC medicines.

Pidilite

Pidilite has a product that needs to be applied to roof and walls so that the walls absorb heat.  The halt on construction, repairs and maintenance activity in the country will impact the financial numbers of the company. The company’s product range includes adhesives and sealants, construction and paint chemicals, automotive chemicals, art materials, industrial adhesives, industrial & textile resins, and organic pigments and preparations. Consumer products form nearly 80% of Pidilite’s sales consisting of adhesives, construction and plant chemicals and art materials. Pidilite shares are down 10.6% from March 02, 2020 to May 08, 2020.

 

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PM Modi’s Economic Package: A Historic one and its Highlights

Atmanirbhar Bharat
by Nikita Bhoota 15/05/2020

Prime Minister (PM) Modi has announced Rs 20 lakh crore (10% of GDP) economic package on Tuesday (May 12, 2020) to fight Coronavirus (Covid 19) economic crisis. The economic package announced by the PM is one of the largest in the world.

Stimulus as % of GDP
Japan 21
US 13
Sweden 12.00
Germany 10.7
India 10
France 9.3
Spain 7.3
Italy 5.7
UK 5
China 3.8
South Korea 2.2

Source: Media Article

This 20 Lakh crore package announced by Indian Prime Minister already includes earlier announced measures to save the lockdown battled economy like 1.7 lakh crore package of free food grains to poor and cash to poor women and elderly, announced in March, as well as the Reserve Bank's liquidity measures and interest rate cuts of ~Rs  6.3 lakh crore. Hence, it seems that additional Rs. 12lakh crore will be pumped into the economy to overcome financial loss due to Covid19 pandemic. The package will focus on land, labour, liquidity and laws. It will cater to various sections, including the cottage industry, MSMEs (Micro, Small and Medium Enterprises), labourers, middle class, and industries.

Finance Minister (FM) Nirmala Sitharaman on Wednesday shared the first tranche of the incremental measures. It included 15 relief measures with six aimed for MSME segment. The focus was on providing liquidity and credit support to ensure that MSMEs and Smaller NBFCs are able to sustain this tough time.

We are laying down these measures announced on May 13, 2020

1) Distressed MSMEs.

a) Rs. 3 lakh crore “guarantee” towards emergency working capital facility for businesses, including MSME availed from NBFCs and Banks:  This is an automatic collateral-free loans for borrowers with up to Rs. 25crore outstanding and Rs100crore turnover, having 4-year tenure with a 12-month moratorium on interest payment. The facility availed can be up to 20% of entire outstanding credit as on 29 Feb 2020. This will benefit 45 lakh units so that they can resume work and save jobs.

b) Rs. 20,000 crore subordinate debt for stressed MSMEs and Rs. 50,000 crore for “Viable” MSME to be used for Equity Infusion:  The GOI will facilitate provision of Rs. 20,000 crore as subordinate debt and will provide a support of Rs. 4,000 Crore to Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

As for second part, a Fund of Fund with a corpus of Rs. 10,000 crore will be set up which will operate through a mother and few daughter funds. The setup will help these units increase capacity and help them list on Markets if they choose

2) Other Measures for MSMEs

a) New definitions: The investment limits have been revised upwards and additional criteria of turnover have been added. Micro units with investment till Rs 1 crore, turnover up to Rs 5 crore. Small units with investment till Rs 10 crore, turnover up to Rs. 50 crore. Medium units with investment till Rs 20 crore, turnover up to Rs 100 crore. At the same time, the distinction between manufacturing and services enterprises have been eliminated.

b) No global tenders for Government tenders (up to Rs. 200 Crore): To encourage MSMEs, global tenders will be not allowed in Government procurement tenders.

3) NBFC/HFC/MFIs

a) Rs. 30,000 crore special liquidity scheme: The Government will launch a special liquidity scheme where investments will be made in investment grade debt papers of NBFC/HFC/MFIs. The securities will be backed by GoI.

b) Rs. 45,000 crore Partial Credit Guarantee (PCG) scheme 2.0 for liabilities of NBFCs/MFIs: Existing PCG scheme is extended to cover the borrowings of lower rated NBFCs, HFCs and other MFIs. GoI will provide 20% first loss sovereign guarantee to Public Sector Banks.

4) EPF Support

a) Extending the EPF support: Payments (12% employer and 12% employee contribution) made in to EPF accounts of eligible establishments has been extended for another three months.

b) EPF Contribution reduced: EPF Contribution to be reduced for Employers and Employees to 10% from 12% for all establishments covered by EPFO for next three months

5) Liquidity injection for stressed DISCOMS: The government announced a Rs. 90,000 crore liquidity injection into fund-starved electricity distribution companies (discoms). State-owned Power Finance Corp. (PFC) and Rural Electrification Corp. (REC) will infuse the liquidity by raising Rs90,000 crore from the markets against the receivables of discoms. These funds will be then given to discoms against state government guarantees to discharge their liabilities.

6) Relief to Contractors: All central agencies like Railways, Ministry of Road Transport & Highways and CPWD will be providing extension of up to six months to complete projects. Also, the Government agencies will partially release bank guarantees to extent of completed work.

7) Relief to Real Estate Projects: State Governments are being advised to invoke the force majeure clause under RERA. The registration and completion date for all registered projects will be extended up to six months with further possible extension of three months based on the State’s situation.

8) Reduction in TDS /TCS: The TDS rates for all non-salaried payment to residents, and tax collected at source rate will be reduced by 25% of the specified rates for the remaining period of FY 20-21.

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Stimulus Day-3 Puts the Entire thrust on “Jai Kissan”

Jai Kissan
18/05/2020

Friday the 15th of May marked the third consecutive day when Nirmala Sitharaman addressed the press and announced a slew of measures to prepare the Indian economy for growth post COVID-19. Here is how the Stimulus panned out on the first three days of the stimulus roll out.

Day 1 and 2 focused on the building blocks

The first day of the stimulus announcement saw a sharp focus on the financial sector. The government offered leeway to NBFCs, micro finance institutions and housing finance companies. The first day also focused on the beleaguered MSME sector. These medium and small enterprises account for nearly 35% of GDP and over 50% of all exports. MSMEs also account for a bulk of the jobs created in India. However, Day 2 focused on the more vulnerable sections of the economy like the rural population, street vendors and migrant labour. The migrant labourers are an important link in the supply chain for most industries. Their getting back to work is crucial and that is what Day-2 largely focused on.

Day 3 moves its focus to the Indian farmer

COVID-19 and the lockdown had come when Indian agriculture was in a state of flux. The Kharif crop last year had been disappointing but had been more than compensated by the robust Rabi output. However, efforts had been undermined by the lack of proper post harvest infrastructure. Day 3 of the stimulus has focused on improving the condition of the farmer, enhancing rural demand and arresting supply bottlenecks. Here are the key announcements made on Day-3 by the finance minister.

1. Government proposed strict stock limits under exceptional circumstances like national calamities, famines, floods, epidemics etc to smoothen supply flows. This can avoid sharp spikes in price and the consequent impact on inflation.

2. Risk mitigation is the key to protecting farmers from the vagaries of weather and price. A new legal framework will allow farmers to engage with processors, aggregators, large retailers and exporters to ensure fair pricing and risk mitigation.

3. Announced Rs.13,433 crore fund to ensure 100% vaccination of 53 crore livestock in India. The humongous and aggressive vaccination program will go a long way in ensuring the health of cattle and the quality of output.

4. Free pricing has been a long standing demand of farmers. FM announced that cereals, edible oils, oilseeds, pulses, onions and potatoes will be deregulated. The Essential Commodities Act is to be amended for better price realisation.

5. Beekeeping gets official agriculture status with fund allocation of Rs.500 crore. This will enhance income for 2 lakh beekeepers and ensure quality honey supply. The multiplier effect will be an increase in yield with better quality of crops through pollination.

6. A special Rs.100,000 crore fund made available to entrepreneurs and start-ups to facilitate procuring from farmers and add value to the agri-value chain. This fund will be used to create the requisite agri infrastructure with private entrepreneurship.

7. The long standing gap has been post harvest infrastructure. FM has allocated Rs.1 trillion for FPOs for strengthening farm-gate infrastructure such as cold chains, transport, post harvest etc. This will reduce wastage and spoilage of crops.

8. FM allocated Rs.20,000 crore for fishermen through PMMSY Fund. The scheme will lead to additional fish production of 70 lakh tonnes over 5 years. Fisheries and dairy have been two segments that have been less cyclical.

9. Finance Minister also announced a new scheme to give concessional interest loans to dairy cooperatives. Interest subvention scheme will continue and put additional Rs.5000 crore in hands of 2 crore dairy farmers

India is the world’s largest producer of milk, jute and pulses. It is also the second largest producer of sugarcane, cotton, groundnut, fruits, vegetables and fisheries and the third largest producer of cereals. No economic relief package can be complete or meaningful unless it begins with the farmer and that has been the focus on Day-3!