Wednesday, 18 December 2019

Budget 2020: Few Ideas

Budget 2020 is much awaited event amidst more than needed negativity created by media and publish houses. I am confident that Mrs Nirmala Sitharaman shall one of the finest budgets this year to fix economy and another step towards 5 trillion economy

Already in last three months many steps have been taken in this direction. Corporate rate cuts and liquidity to NBFC are the most important ones. Adding to this higher depreciation on cars bought till March 31 2020 helped in boosting car sales

Here are few proposals which may be considered for the budget to boost consumption and lift market sentiment and higher growth

Abolition of Long Term Capital Gain

Last two years non of the asset class has generated returns for investors. Long term capital gain has proved to be big dampener for the broader markets and equity portfolios are all in Red. Capital markets form an integral part of Economy and also a feel good factor for investors. When capital markets shall create wealth, the same shall help boost consumption, with higher spending power

Exemption of LT Capital gains tax on stocks which are part of BSE 500 and BSE Small Cap. This will cap the fraud done on capital gain of unlisted companies. Immediate booster

EPFO Funds

Broadening the investment horizon of EPFO from 100% in Nifty/Sensex to 10% in MidCap/Small Cap Indices as well. This will move the broader market and create wealth for investors. Indirectly boost consumption

Scrappage Policy

Announcing a scrappage policy for Commercial Vehicles with tonnage above 5 MT and in phases over next 3 years across all segments. This will lift sentiments of commercial vehicles. They are backbone of economy. Currently Commercial vehicles and companies financing them experiencing major slowdown and defaults

Income tax for Individuals, partnership and LLP

After corporate tax rate cuts, personal taxation and tax on partnership, LLP and HUF has to be rationalized, it can't be deferred. This gap is too huge. Corporate tax cuts are welcome step but to show results will take some time Personal tax cut will help faster boost consumption

Make Pvt owned businesses, esp Sole Proprietor, HUF, Partnership, report higher profits Misuse of entertainment allowance, purchase of personal vehicles, dummy consultant on board are few "tricks" through which reported profit is depressed.

A one time offer to "bump" up profits with low "past" profitable not to be investigated. This should be offered exclusively for SP, HUF and Partnerships. Then they will show genuine profits. Few don’t show as a bump up will invite Income tax notices

Real Estate

Huge amount of funds in Economy is struck in real estate, finished and unfinished projects

Although recent measures have been taken in real direction including real estate fund to help last mile funding for unfinished projects. However more needs to be done to help sell huge inventory lying unsold

It is a proven fact that any Economy cannot recover to Peak if Real Estate is in mess More sops for real estate needed. Increase the tax benefit on housing loan to 5 lacs

Real Estate creates huge jobs as well as creates demand for various products like cement, steel and many many other products. Can move Economy instantly

Single retail FDI with a Condition

open up Multi brand retail to FDI with limit of 26% and a path to 51% over next 7 years, put safeguards that at least 15% of floor space for fresh fruits and vegetables

World over organised retail has helped clamp down on food inflation and build transparent supply chain with farmers getting them better pricing and cutting out inefficient supply chain which currently leads to almost 20% of the output getting wasted.

This shall help farmers in a big way and also contribute to Economy

I am confident that under the Leadership of Narendra Modi Sir and Nirmala Sitharaman Madam as FM, We shall soon be on path to 8% GDP soon and this time shall be inclusive growth



Monday, 29 July 2019

Quick fix to march towards 5 Trillion Economy

Image result for indian economy 2019

Some Reactions Post Budget 2019

"I do not think the budget is growth-oriented. The stock market has also come down considerably.' Adi Godrej"

"If we don't create jobs for our children, we are going to have social problems...We are only doing populism. We need to get into real action but I heard none of these things in the Budget. I only heard things which were pleasing and will make headlines."Arun Nanda, Mahindra Holidays

"Was hoping the first full-time FM of the country would "hit some boundaries" but she chose to take "steady singles" instead. Mahindra & Mahindra Chairman said despite expectations of big moves to unleash the animal spirit of the economy, the Modi government's budget focussed on a long-term vision." Anand Mahindra

Above are few reactions to budget 2019. which disappointed most sections of society.

At a time when economy needed booster shot and some stimulus to revive consumption, FM gave a 10  year road map. 

Nothing wrong with the same. But currently economy is in dangerous downward spiral. every sector is interconnected, Auto Industry slow down affects ancillary industries, textiles,  jobs

Real Estate affects all from cement to steel to as simple as home consumption goods

However the budget failed to address the near term issues. Currently most corporate post results talk of cutting growth targets and income. Sentiment is of  doom and gloom, with everyone hoping, every passing day of some government intervention 

The solutions

***The proposal to increase the minimum public shareholding in listed firms to 35 per cent from 25 per cent, if implemented, may potentially squeeze liquidity in the secondary market, as many multinational companies and firms with high promoter holdings will have to come out with FPOs, QIPs or other tools to reduce stakes

At current market prices, the total quantum of sale that needs to be done by these 1,174 companies works out to be a whopping Rs 3,87,000 crore

The aspect needs to be re looked 

Buyback tax of 20% on listed companies:

 Finance Minister Nirmala Sitharaman proposed to extend the buyback tax at 20 percent to listed companies as well. This means, shareholder of a listed company will no longer enjoy exemption on income arising on account of buyback of shares.  Adding to the woes, a listed company will now have to pay tax on buyback under section 115QA at the rate of 20 per cent plus applicable surcharge and cess. The move is likely to impact buyback by all listed companies in future.

Kindly re look the same


Since the day long term capital gain on equity was introduced in 2018 budget markets never got into bullish trend. I doubt if government made any money out of the same, but in this process many small investors, retailers lost money. To add to the woes current budget added surcharge.

The government is in some different world that FII only have India to invest. Why shall they invest in Indian capital markets, when many other emerging markets are as promising and have much lower taxes.

To collect a small amount of  surcharge, more than 6 lac crore market capitalization lost. I fail to understand why the government in clinging to a tax, which is not generating  any revenues.

For many, their money is trapped in markets and in losses. They have postponed their purchases, and in turn the consumption hits. 

For few, it is easy to say that capital markets do not reflect the state of economy. 

Revenues are generated bu government out of capital markets 

 STT collection for the fiscal year stood at Rs 111.23 billion, Stock market traders and financial advisers create jobs. They pay taxed to government for profits earned. But this budget chose to ignore the same and concentrate on meager amount of tax. Very soon traders will close down. advisers will shut shops and along with that jobs lost. 

Not to forget, how disinvestment targets shall be met by the government with this state of capital markets 



High tax rates always promote evasion. Low taxes for corporate and incentive to them for fresh investments and job creation shall immediately boost sentiment 

In fact increasing the slab from 5 lacs to 8 lacs for individuals, shall give more money in their hands to boost consumption and add to spending 


Auto sector includes not only cars but tractors and commercial vehicles too. It creates jobs for millions. Also associated are many more industries to same. Move to EV as in budget 2019 is a welcome move. However transition shall take time. Auto sector is in deep recession, with dealers shutting shops and millions losing jobs

Reduction of GST rates for few months, giving GST input credit in your tax returns for cars bought in exchange of 15 year old cars, Giving depreciation deduction to salaried class for car bought, ............and various other measures can be taken to improve sales


The idea of Sovereign bonds as presented in budget, has been met with criticism, that the same shall be dangerous for country in future.

Money stacked abroad shall take a long time to be brought back to India. Even if the names are available, it shall meet legal hurdles. To help fiscal deficit and give booster shot to eceonomy, our country needs money

Issue Masala bonds for money undisclosed money abraod at zero perecent coupon rates. Also with a caveat , that money shall be paid back in India, in Indian currency posy five years at fixed exchange rate.  The same shall not put governemnt at currency risk, no interest payments, and shall give huge resorces to exchequer

One might argue that such VRS have not been successful previously. But now scenario has changed. All account holders are running for cover. They shall take the offer with both hands, provided they are promised amnesty. 

However fear psychosis needs to be created. If any account holder is caught post  this offer, life time imprisonment is on cards 

Currently the sentiment in economy is that government is anti Rich, Anti industrialists, Anti middle class.

It is a great step to lift poor out of poverty, but to punish all who are rich is not the right path. Socialism has never benefited any country. Rather than offering freebies, jobs need to be created. The same cannot happen, if businesses are taxed to maximum extent. 

We need a tax friendly environment for Indian corporate as well as to attract foreign money by way of FDI. Somehow the budget has given an impression, that India is on path to socialism, that might affect foreign investments

With US reducing interest rates and EU announcing Quantitative Easing, we have closed the doors to money that would have chased our equity markets. Something urgent needs to be done, before this money finds it way to China and other Emerging markets   

Image result for indian economy 2019

Thursday, 17 January 2019

Wish List Budget 2019

July 5,2019 marks the first budget to be presented by current government after resounding victory in elections in May 2019. 

I must congratulate Narendra Modi Sir and Arun Jaitley Sir for brilliantly managing fiscal deficit as well as inflation over past 5 years. Although in last budget not much tax relief was given to middle class by way of tax cuts.. However  one has to understand that low inflation, low interest rates and Health schemes like Ayushman  Bharat directly benefit middle class. Goods and Services tax has brought down prices of various daily need goods. 

But in a country where direct benefit is more applauded than long term benefits Finance Minister Madam Nirmala Sitharaman must announce sops for middle class as an award for being honest tax payers. 

 My few suggestions as a common citizen for this budget are as under:

1 Raise LT Cap Gains exemption to Rs 20 L from 1 L

Long term capital gains at 10% post one year is not giving any stability to stock markets. Neither it has resulted in any revenues to government. After a long time, retail investors have come forward to invest in financial assets, but have not been encouraged with  good returns. To add to woes, grandfathering creates more confusion

Stock markets returns will help increase consumption and revival of economy 

2. Revival of Real Estate and Housing Finance Companies  Rationalization of Sec 24 of the Act  

 Raise Interest exemption on self occupied home from Rs1. 5 L to Rs. 3.5 L

This shall encourage buyers to go for real estate and get the same financed. Currently Real estate companies with excess stocks and Housing Finance companies with liquidity crunch are both dragging the Economy downwards

3. Manage NBFC crises

Banks PSU, should start lending long term money to NBFCs and HFCs, 

This will be the most critical measure to avert a crisis. Banks have  practically stopped lending to small Housing Finance companies struggling with Asset Liability mismatch.. They are only lending to  few large NBFCs

4 Improving Automobile Sector

 Announce reward for scrapping cars more than 15 yrs to get Get rebate, as was announced in France a few years back, limit it to cars with engine cc upto 1.2 L.

Scrapping works as waiver of GST to be claimed back by owner, like cashback on cards, within 90 days, or with the annual ITR-V filing

This shall help boost car sales as well as decreasing pollution levels due to old cars in system 

5. Relief for small and medium enterprises from MAT

Minimum Alternate tax was introduced to help small and medium enterprises for lesser tax and simplicity. However at 18.5% MAT currently it is more of disadvantage than any advantage to smaller companies when corporate tax on smaller companies is reduced to 25%

In current scenario if a corporate makes any capital gains on equity, it is subject to 18.5% tax whereas an individual pays 10% that too above 1 lac. I understand that corporate tax rates are different, however post tax of 10% on LTCG. mat provisions are disadvantage to smaller corporate

In current scenario when most entrepreneurs want to work as a corporate set up , MAT at 18.5% is clearly a discouraging step. 

MAT provisions needs to be revisited again.

6. Setting limits on unfettered prosecution powers u/s 276B

Another issue is that even if a small or new company defaults on a small amount like 10,000 TDS by error, the principal office thereof, is subject to prosecution and harassment by tax authorities. One can charge some fine, but prosecution in such cases is really uncalled for. As of now, there are no fetters in terms of threshold limit on the powers of Tax Authorities when it comes to prosecution powers. Only way out in such case is that one can go for compounding which is a highly costly affair and that too one time opportunity available to a person. Any tax entity can commit small defaults, by error, however so much of backlash is demoralizing and uncalled for.

I suggest a limit of financial error( like non deposit of TDS ) be set to to help genuine tax payers and avoid Income tax officers harassing them . Just to illustrate mat be prosecution only if  TDS default above 1 lac.

7 Infrastructure bonds

Although government has launched NPS scheme for additional 50,000 exemption from income, many are hesitant to go for same. Reasons like long term lock in and compulsory annuity purchase for 40% coupled with lower returns than a regular equity fund over long period, Infrastructure sector needs high liquidity and resources are limited. 

I suggest Infrastructure bonds with 8% coupon rate with five year lock in period  be kept an option to avail tax benefits over and above current exemptions. The same shall help the tax payer in getting extra exemption and also be a part of India Infrastructure story

8. Abolish tax on dividends received from Equity funds:

Dividends on equity funds are subject to tax deducted at source without giving the income tax payee to claim the same in his Income Tax returns. There are various middle class home makers and retired citizens who are not liable to pay any income tax due to low slab rate, but are subject to this tax. Dividends from mutual funds form a regular monthly income for them. 

How fair is it to tax a person who is not liable to pay taxes? I request MOF to look into this urgently as many middle class families are unhappy on this provision. 

9. Increase budget Allocation on Education

The government in past five years has given huge importance to education in past four budgers and need to be applauded for same. Artificial Intelligence is one area where requirement is exceeding the professional available. I request that separate institutions and cources be introduced in this area to take India ahead and help youth get more jobs

10. CSR and adoption of villages

Few  companies in India are aware of  social responsibly and many show CSR activities only on papers. Most of the companies show use CSR funds only on paper.

As our villages still lag behind modern medical services, education and general awareness I request corporate to adopt villages and update the progress at the end of every fiscal year with funds spent and progress made. This shall help in further growth of Rural Economy , which is the backbone of our country.

Corporate must look into education, insurance, medical needs of villages and work hand in hand with government to make the efforts of Mr. Modi reach these villages 

11. Additional Tax incentives on usage of waste in construction of land filing activities 

India as a highly developing economy needs to improve its waste management methodology and more & more innovative ways should be brought in for usage of waste produced in country. One of the possible ways could be to use such waste in various land filling activities in construction industry in building roads, highways, properties etc. This would help avoiding accumulation of heaps and stacks of waste over the land. So much of land area is wasted in containing such heaps and lot of damage happens when such heaps of waste get carried away to running roads in the event of rain. 

I believe offering tax incentives for underground dumping of waste in land filling activities would help reduce the accumulation of waste over land. 

12 Tax measures to promote air purification  

It goes without any doubt that our country is developing by leaps and bounds by means of better infrastructure in terms of highly quality roads, highways; construction of hospitals, schools etc,  establishment of more and more domestic industries; and all other facilities which offer a luxurious life. Unfortunately, all this is happening at the cost of quality of air which we breath in. There has been a time when people from rural areas moved to urban areas for all these better facilities and a good quality life. However, now the time has come where people from urban areas and metropolitan cities like Delhi NCR, Mumbai etc., are forced to move out to rural areas for heath issues due to hazardous air quality.

There is a high need of hour to strike a balance of healthy air quality with the good amenities. The corporates and other private sector should be welcomed with open hands to support government in such initiative and various deductions and tax exemptions should be offered for clean air initiatives. 

India is growing. Being the fastest growing economy in the world and fifth largest, It has reflected that leadership with good intentions and citizens adopting the changes, We becoming number 4 is just a matter of time

Lets work toward more Stronger BHARAT 

Wednesday, 26 December 2018

Swanand Kelkar is Managing Director at Morgan Stanley Investment Management.
Markets In 2018: Not A Year For Doubling Down

Simhavalokana is a Sanskrit term to denote the retrospective gaze of a lion. It is said that as the lion traverses some distance in the jungle, he looks back to examine the path he chose and how he covered that distance.
It is that time of the year again when things thankfully begin to slow down. Many times this tumultuous year, I have daydreamed of the serenity that the second half of December brings and wished it would come sooner. From trade wars to crude price volatility to liquidity squeezes, this year was a handful, making investors feel like Kareena Kapoor in Jab We Met* when during a very eventful night she says “Please Babaji ab to hadd paar ho chuki hai, ab iss raat mein koi excitement mat dena, boring bana do ji ab iss raat ko please”. Naturally, a year like 2018 packs in a lot of learning, some timely reminders of old truths and some new perspectives. Here are a few things that I learned.

1. Correlation Between Hard Work And Results
Relentless hard work gets results is something that has been drilled into most of us. Not getting good marks? Study harder. Not losing weight? Sweat it out more in the gym. Sometimes this is where we make the Venn diagram mistake – yes, good results require hard work but there are times when hard work by itself does not guarantee success. During the volatile middle part of the year, I reacted to portfolio under-performance by giving it all that I had, so much so that eating right, working out, time with friends and family fell by the wayside. I need not have.
It was a time when the macro narrative was so dominant that individual stock picking—where most of the hard work gets done—was of little consequence.
As the chart below suggests, the market performance was quite narrow in 2018. Only 18 out of the 51 Nifty stocks outperformed the index. We had a similar scenario in 2013 when macro worries dominated the market and individual stock picking took a backseat.

Simhavalokana 2018: Not A Year For Doubling Down

Within these narrow outperformers, the index heavyweights punched above their weights and the only question that mattered for a relative investor was how much of these names did you own?
Simhavalokana 2018: Not A Year For Doubling Down

More humility and acceptance would have helped but the older brother of ‘Want more marks? Study harder’ is ‘Getting bad marks? How can you be doing nothing about it?’ and that is a very difficult question to stifle.

2. Investing For Yourself And Investing For Others
There is a difference when you are investing for yourself and investing for others. When you are investing for others you can be forced into doing things which you don’t agree with as an investor because that’s how typically fund inflows and outflows happen. In mid-2017, we were writing about the fact that the macro improvement that India saw from 2014 was reversing and market valuations were not factoring it in. However, money kept flowing in all through 2017. Foreign institutional investors net bought $8 billion of Indian equities in 2017. On the other side, during the panic months of September and October 2018 money was leaving the country. With net outflow of $4.6 billion as of Dec. 17, the year is on track to be the worst year for FII flows, barring 2008.

So as an investor managing money for someone else, you were buying through 2017 and selling in later months of 2018.
Managing money for others in that sense is about the ability to hold two sets of nerves – your own and your investors’. 
Simhavalokana 2018: Not A Year For Doubling Down

 3. Does Macro Matter? Yes And No.

In one of our earlier Simhavalokana pieces, we had written that macro does not matter for stock picking. We forgot to put a ‘terms and conditions apply’ asterisk there. The longer your investment horizon, lesser is the relevance of macros.
If you are like Warren Buffett—who is happy to hold on to stocks even if the market shuts down for ten years—then you need not pay any attention to the macro. If you stand in front of an investment committee every quarter, you better be paying heed to it.
This holds true for politics too. If your investment horizon is, say, the month of May 2019, a single event is going to matter for your performance. If your horizon is January 2019 to January 2029, you can afford to totally ignore what happens in May 2019. The chart below shows the Nifty performance from Jan 2004 to December 2013. The period has two general election result days and on both those days, the market was locked on a double-circuit breaker.
However, those violent reactions are but a small wiggle on the ten-year chart. 

Simhavalokana 2018: Not A Year For Doubling Down

4. The Impossible Trinity Of Money Management
While the impossible trinity of macroeconomics is quoted often, I discovered—the hard way—the impossible trinity of money management this year.
Concentrated portfolios, low turnover, and short-term performance measurement are an impossible trinity.
If you run low-churn concentrated portfolios, you have little control on short-term performance. If you want to have control on short-term performance with low churn, you should run a quasi-index diversified portfolio, which is passive investing. It’s an untested hypothesis, but running concentrated yet high-churn portfolios may give you some control over short-term performance. Choose two, let go of the third

5. How Portfolio Quality Dilution Happens
Most fellow investors I talk to utter the word ‘quality’ in the first two sentences when we chat about investments styles.
So if everybody is so quality-focused, how do low-quality stocks creep into institutional portfolios?
They enter mostly at the tail-end of red-hot rallies like 2017 when yes, you are quality-focused but you are also valuation-focused. The best-in-class stock in the theme that you like is trading at astronomical valuations. You go down the quality curve because you want palatable valuations. The added difficulty is at that time, there is a huge squad of motivated investment bankers and sell-siders cheer-leading the next XYZ (fill in XYZ with your favourite unaffordable stock)

Towards the end of 2007 mania, there was an unending quest for the 'next Larsen & Toubro' and in 2017 I was pitched at least three 'next Bajaj Finances'. The lesson here is simple: always gravitate towards best in class. If it’s unaffordable, wait. Don’t settle for a look-alike.
Genuine quality stocks are like tennis balls, they bounce back. Lookalikes are like eggs, they break.
6. Lessons From Tom and Jerry
Growing up, one of my favorite cartoons was Tom & Jerry and I used to love the hilarious chases that Tom used to routinely undertake. One that drew the most guffaws was when Tom used to keep running in the air after the end of a cliff, and then fall down in a straight line. That happens to markets too.

They can over-extend after the underlying fundamentals have turned, as if running in air. That happened when markets kept rallying hard till January 2018 despite the fact that the macro story had clearly turned downward. This happens on the other side as well when markets and stocks just ignore fundamental improvements and it can be quite frustrating for an investor. But the lesson here: stay with your fundamental convictions. Even Tom could not defy gravity.

7. Volatility And Productivity
Recently I activated the Screen Time feature on my iPhone. It measures the amount of time you spend on your phone and sends you a summary at the end of the day. Without giving you details, let me just say I have been disgusted at the amount of time I have been spending on the phone. I think the Bloomberg Terminal too should have this feature, especially on volatile days.
Things are moving all over the place, the screen is hypnotic and you sit in front of it immobilised or worse, succumbing to negative thought spirals that through one route or the other take you to the impending end of the world. And just like that, it is 3:30 p.m.

Avoid getting sucked in by the spiral by planning your circuit breaker in advance; anything that forces you away from the screen. Personally, I lock away the phone, gather a bunch of piled up reading and relocate to the coffee shop below our office. In a place full of financial services firms, the coffee shop is generally deserted on such volatile days.

8. The Greatest Enemy Of Growth Investing
The greatest enemy of growth investors is de-rating i.e. when markets opt to pay a lower multiple than before for same earnings stream because it views current growth to be unsustainable. If predicting earnings and cash flows is the science of investing, then predicting the multiple that the market will ascribe to it, is the art. It involves understanding the narrative around a stock or sector and what the market collectively feels about its future. At times like these, when disruption is a buzzword, stress-testing the high growth companies in your portfolio for vulnerability from disruption, either real or perceived is important.
A simple question that I ask myself in these situations is, whether the next three years are likely to be higher-growth years or lower-growth years than the last three?
If you get this right, you will most likely get the multiple right.

9. How To Survive Underperformance
In an earlier essay, I wrote about how a fund manager can cope with portfolio underperformance. The key here is to be clear about one’s investment style and state in advance what kind of market environment the portfolio will do well and badly in. We typically express this with the following bell curve chart and there was a lesson here as well. Most of us learn to see the world map in two dimensions. As a kid, it took me a while to understand that you can reach Hawaii quite quickly from New Zealand and you don’t actually have to fly westwards all the way back.
As an investor, it took me a while to understand that you can get to ‘batten down the hatches’ quite quickly from ‘off to the races’
Simhavalokana 2018: Not A Year For Doubling Down

10. ‘Comfort Zone’ Is Not Always A Bad Thing
In an all-pervasive performance culture that extends from sports to the corporate world, ‘comfort zone’ has become a bad word. It has become something that has to be avoided at all costs if you don’t want to fall behind in life.
But in a trying year like 2018, it’s extremely important to have cultivated a comfort zone.
A place or a routine that gives you a sense of calmness, helps you put things in perspective and rise above the pushes and pulls of daily life to see the bigger picture. It’s a place you come to recharge your batteries and be a bit easy on yourself. There is a small temple close to where I grew up, that thankfully hasn’t made it to ‘Top 10 places in Mumbai if you are seeking divine intervention’. On days, which aren’t the favourite of the presiding deity, it is quite empty. It’s on such days, sitting cross-legged in the cool inner sanctum, that I have been able to quieten the mind. Once in a while, I have also remembered to fold my hands and pay obeisance.