Monthly Archives: July 2014

Why Settle for Just One..! Get Both : Tax Saving + Growth Potential (Invest in ELSS Funds)

Equity Linked Saving Scheme (ELSS) is a type of diversified Equity Mutual Fund which is qualified for tax exemption under section 80C of income tax Act, and offers the twin advantage of capital appreciation and tax benefits.

Advantages of ELSS over other tax saving instrument

ELSS exploits the potential of equities

ELSS funds invest a large part of the fund (usually 65-100%) in equity. With the Indian economy possessing strong fundamentals and corporate earnings showing strong growth potential, equities as an asset class look set to provide attractive returns

Lowest Lock-in period

While the maturity period of other tax saving instruments like NSC is 6 years and PPF is 15 years, ELSS has the shortest lock-in period of all the tax saving instruments under Section 80C. Your investment is LOCKED for a period of 3 years. i.e., once invested in an ELSS scheme, your money cannot be taken out for 3 years. But this is a blessing in disguise, because ELSS schemes generally yield healthy returns during a 3-year period.

Dividend payout

An investor can opt for a dividend option and get a part of the investment back during the lock-in period itself, by way of dividend payout

SIP option

The best way to invest in ELSS is perhaps via Systematic Investment Plan (SIP). With SIP, you can invest a small amount every month for a specific time period. In SIP, the investor can take advantage of fluctuations in the stock market and get the benefit of averaging. So the investor will get more units when the market is down and get fewer units when the market is up.

facebookFor e.g. If you are investing Rs. 1000 every month, you will get 100 units when the Net Asset Value (NAV) is 10 and will get 50 units when the NAV is 20. So investing a fixed sum regularly helps to cover the market fluctuations through ‘rupee costs averaging

Tax benefits – no tax on capital gains and dividends

The profits on the sale of ELSS units are treated as long-term capital gains (assuming that the units are sold after the completion of a 3-year lock-in period), and as per current tax laws, these are not subject to tax. Also, there is no dividend distribution tax on equity investments and dividends earned are tax free in the hands of the investor.

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BUDGET 2014: Investment Led Growth


Low Deficit Target, Higher Spending and Investments, GST introduction, Infrastructure push, Industry incentives

Fiscal deficit target of 4.1% is a positive surprise (people had expected Jaitley to raise it to 4.5%). This lower target will lead to lower inflation, stronger currency, lower debt burden, and improved sovereign rating. It is a strong positive in long run for the economy. He aims to achieve it not by cutting the spending or raising rates but by controlling expenditure and broadening of the base.

Growth Drivers: Higher Spending on Infrastructure and Industry – Jaitley announced construction of roads, ports, warehouses, power plants, airports, waterways, smart cities, sanitation, and rural infrastructure. These measures will create jobs in manufacturing sector, expand industrial activity, and build better infrastructure for industrial growth
GST will be started this year


No reforms on land acquisition & labor, no clear decision on retrospective tax, DTC, and GST, subsidy rationalization is not clear, same MNREGA budget, lack of clarity over how he would cap the big fiscal deficit


Positive: Real Estate, Infrastructure, Power, Metals, Capital Goods, Banking, Insurance, Defense, Cement, FMCG, Retail, Logistics, Aviation, Commercial Vehicles, Education

Neutral: Telecom, Oil & Gas, Media, IT, Pharma, Textile, Hotels


  1. Defense, Insurance: FDI raised to 49% from 26%
  2. Real Estate:
  • Focus on affordable housing with Rs 12k crore allocation to NHB,
  • Rs 7k crore to modernize 100 Smart Cities,
  • Tax benefit on home loan interest raised,
  •   Built-up area for FDI decreased from 50k sq m to 20k sq m and minimum investment halved to $5 million
  • REIT with tax incentives, proposal to amend rules to end double taxation for REITs will boost transparency in the real estate sector and help developers raise funds

  3. Infrastructure:

  • Rs 5k crore for warehousing, 37k crore for roads, 11k crore for 16 new ports, more coal fired power plants, airports in small cities, waterways
  • Revive SEZs,
  • Funds raised by banks for infrastructure loans will be exempted from reserve demands like the Cash Reserve Ratio, Statutory Liquidity Ratio and priority sector lending,
  • Proposal to extend 10 year tax holiday for power producers, transmission and distribution companies that begin operations by March 31, 2017.
  • National gas grid, new metros, concession for solar, wind energy proposed
  • The government also plans to introduce a REIT-type structure for infrastructure projects which will help reduce pressure on the banking system and such instruments will attract long-term finance from foreign and domestic investors. It is a roadmap for providing long term funds on a sustained basis to the cash starved infrastructure sector.
  • Reduction of several customs and excise taxes particularly in power and steel
  • Single window customs clearance at ports

     4. Banking:

  • Improve risk buffer and boost capital through share sales, comply BASEL III by 2018.
  • The budget has several steps for faster implementation of power and infrastructure projects, which will help the banks to improve asset quality
  •   Capital raising, consolidation, and debt recovery tribunals are big positives

5. Rural – Rs 1k crore for irrigation access, Rural infra, power, water, roads, cattle breeding, Kisan Vikas Patra
6. Aluminum producers – will raise export duties on bauxite to help local aluminum producers, which are facing a shortage of the raw material because of mining curbs
  7.  Steel: plans to raise the import duty on flat-rolled stainless steel to 7.5 percent from 5 percent to help the industry
8. Tourism – e visa,
9. FMCG – low duties on inputs and income tax sops,
10. Education for all, Skill India project,

  11. MSMEs – Rs 10k crore fund
   12. Mining: Higher fund allocation
13. Textiles: Higher fund allocation


Nifty has breached the major support of 7500. It is now near a 38.2% Fibonacci support level of 7365, and if that is broken then it may fall further to the next major support zone of 7200-7100. There is a minor RSI diversion indicating reversal from current slide and on Monday Nifty may rise from its immediate support of 7410. If this support fails then Nifty may remain in down trend during the week. But if Nifty manages to sustain above 7500 next week, it may rise further.nifty technical 11 july

Existing investors should hold their investments in equity mutual funds and new investors may watch for the 7365 and 7500 levels.

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BUDGET 2014:Post Budget Market Direction?

The first Budget of Namo Government is expected to be growth oriented with definite direction towards higher Tax compliance, lowering of Subsidies and reduction in Taxes. Markets may read into the long term implications which should lead to a continued bullish trend.

Domestic indications for the Budget:

  1. Services activity rises to 17-month high on strong order flow in the first month of NDA,
  2. June factory activity grows at fastest pace in 4 months,
  3. June car sales rise hinting at recovery,
  4. After a dry June, monsoon is expected to advance,
  5. Venture capital investments in India rose 40% in first half of 2014,
  6. M&A at 7 year high, volume rose to $6.9 billion in April from $1.8 billion a year ago,
  7. QIPs rise 10 fold in April-June,
  8. Fitch raised India’s growth targets to 5.5% in 2014-15 and 6.5% the next year,
  9. Overseas investors have poured in a staggering Rs 19,772 crores (USD 3.35 billion) into the Indian debt markets in May, the highest monthly inflow in about two and a half years, and
  10. Indian households’ savings in physical assets (including gold) are at 10 years’ highest levels whereas savings in financial assets are at 10 years’ lowest level.

These positions are expected to change and we expect big inflows from physical assets to more productive financial assets after budget, driving the markets further higher.


Global indications:

  1. Worst of Iraq crisis is over and has been discounted by markets as reflected in falling crude prices,
  2. Growth at US factories held near the fastest pace of the year, and
  3. China and Japan gained pace in manufacturing activity.

Major Path-breaking Decisions Expected from Budget (That will boost markets post budget):

  • First major revamp in decades of India’s archaic labor laws to take place soon leading to revival of flagging economy, boost to manufacturing, and creation of millions of jobs. Labor reforms can create a virtuous cycle in Indian manufacturing. Rajasthan has already started working on it.
  • GST (Goods and services tax) is expected to be introduced which would result in a major rationalization and simplification of the consumption tax structure at both the center and state levels by replacing all central and state level indirect taxes such as value added tax (VAT), excise duty, service tax, entertainment tax among others bringing relief to the common man.

GST is the most ambitious indirect tax reform in India ever attempted and aims to create one “borderless domestic market”.

If GST is implemented without many exemptions and with a single rate, the following benefits will accrue: * Macro: Successful pan-India implementation will add 1-1.7 % to the GDP and boost the tax/GDP ratio. * Micro: Incidence of tax will come down in case of manufactured goods. However, in case of services the incidence and coverage of tax may rise resulting in higher prices. * Industry: Volume growth will accrue as incidence of taxation is minimized. Also, supply chain efficiencies will accrue as there will be no need for multiple depots and warehouses.


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NIFTY: Pre Budget Technical Analysis

Nifty is in an uptrend and has immediate support at 7700 and resistance at 7860. A break above 7860 may take it to 261.8% Fibonacci level of 8100.

Below 7700, Nifty has very strong support at 7500.

We expect Nifty to move between 7500 – 7800 with an upward bias till budget and go further up after budget.

Techincal View

Nifty Pre Budget Technical Analysis

It may be difficult for Nifty to breach 7500 unless there is a geopolitical major negative or the budget is anti-markets.

Markets may be volatile and the levels 7500 – 7800 for the Nifty may be tested pre-budget.

We recommend investing before budget and holding existing equities.

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