Stocks
Equity market upside can be significant over the next 18-24 months

Modi government’s priorities and concomitant lift in the decision making environment have improved the chances of the removal of bottlenecks and a revival of the investment cycle, says StanChart in a report

India needs swift policy action to remove bottlenecks like increase the investment rate and reduce the incremental capital output ratio (ICOR) – a measure of productivity – to move towards the growth rate of 6.0%-6.5% in the near term. Though the immediate focus would likely be on improving productivity to the pre-global financial crisis levels, the stronger-than-expected electoral mandate has improved the chances of a quicker-than-expected recovery in the investment cycle as well, says Standard Chartered Securities (India) Ltd in a research report.
 

"The new government’s priorities and concomitant lift in the decision making environment have improved the chances of the removal of bottlenecks and a revival of the investment cycle. It will take time, but a sharper-than-expected recovery in GDP growth, to say 8% by FY17, is not inconceivable. We note that equity market upside can be significant over the next 18-24 months, which in turn should continue to fuel investor appetite for domestic cyclicals, reversing the four-year sell down trend," the report says.
 

The return on assets (ROA – net profit divided by total assets) for the Sensex and asset turnover ratio (revenues divided by assets) further vindicate the macro deterioration in productivity, especially in the past two years FY13-14. The decline in ROA is particularly steep among domestic cyclicals (viz. capital goods) and policy-dependent sectors (viz. utilities). StanChart feels, this could turn swiftly if there is a broad-based recovery led by the government’s priorities to accelerate decision making and breaking the resultant policy logjam. That can lead to a virtuous cycle which can improve consumer demand and sentiment besides reducing stress in the banking system.
 

According to the report, to support the recovery, external funding support is more forthcoming now. "We estimate that $80 billion per year of external funding support is required to achieve 8% GDP growth – the government’s original growth forecast under the 12th Five Year Plan (FYP) for FY13-FY17. This is based on external debt/equity requirements for infrastructure and other sectors. Reducing political risks and a stable currency can make the requisite external funding support easier to attain, thus aiding the process of economic recovery," it added.
 

In an optimistic scenario, StanChart says moderation in inflation and rate cuts can add further fuel, making the recovery broad-based and it that happens, domestic cyclicals will have much more legs. It says, "We forecast March 2016 valuation targets under these optimistic assumptions for the economy-centric sectors like banks, cap goods, cement, real estate, oil & gas, consumer discretionary, on a sample of key index and large cap stocks”. (see Figure below)



StanChart says under the bull case, there could be significant upside in banks, cement and capital goods. While material upside exists for reform driven sectors as well (viz. oil & gas), it is contingent on the government’s stance on pricing and subsidy phase-out, and hence largely delinked from the economic recovery theme.
 

"Upside would come not only from valuation re-rating (headroom to +1SD PER), but also from the potential for EPS growth uplift from both volume growth recovery, return of pricing power (viz. cement, consumer discretionary, capital goods) and lower credit costs (banks)," the report added.

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The Black Money Trail

After the special investigation team (SIT) was set up following Supreme Court orders, there are hopes of a decisive action to unearth black money stashed abroad

One of the first actions of the Narendra Modi government was to set up a special investigation team (SIT) to track black money. The decision is not merely about a poll promise. No amount of hard work will bring the economy on track, unless the government finds a way to raise revenue innovatively. With a fiscal deficit of 4.47% of GDP (gross domestic product) and a lot of ‘unpaid bills’ (the unpaid subsidy bill alone is expected to aggregate around Rs1 trillion, says an article in The Mint), the government has the tough task of meeting sky-high public expectations with very little manoeuvrability.

Forcing rich Indians to bring back the wealth stashed overseas is certainly a better option than the Congress formula of draconian taxes, complex compliance processes and harassment, followed by amnesty schemes every few years to let tax-evaders off the hook. In any case, the Supreme Court (SC) had closed this option and also set a deadline for the black money issue.

The Congress-led regime has been dragging its feet on this issue for over five years, despite specific information available from France and Germany. That Indians have money stashed abroad is not a myth. Various global organisations have attempted to quantify the amounts from time to time. One such is Global Financial Integrity (GFI) which estimated black money outflow from India at a whopping $344 billion in the decade of 2002-11, of which $85 billion was in 2011 alone; India is ranked fifth in the world in terms of illicit outflows.

Why do we expect the Narendra Modi government to be different? First, an extremely credible person like Justice MB Shah has been asked to head the SIT. He has already held its first meeting. Secondly, it will report directly to the SC and this empowers it enormously. Thirdly, we have a strong leader at the Centre who is not burdened by coalition compromises. Finally, this is an issue that the Bharatiya Janata Party (BJP) leadership has agitated before the apex court and in the court of public opinion. Failing to act decisively will irreparably damage its own credibility.

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COMMENTS

Rama Kaushik

2 years ago

These people including Indian Politicians are too smart to permit even a paisa of their black money confiscated by Govt.Let us see how law catches up on them.

Java

2 years ago

There are two types of black money parked abroad:

1. that generated by evading taxes, which belongs mostly to businesses. This is probably a small fraction of the total.

2. illicit funds belonging to crooked politicians, bureaucrats, drug dealers and other criminals. This is the really big money, which will be hard to catch.

The UPA government signed a ludicrous 'revised taxation treaty' with Switzerland in August 2010, forfeiting all past information and making itself eligible only for prospective information after the treaty came into effect in January 2012, with a year having been spent for parliamentary approval and 100 days for Swiss 'public scrutiny'. Essentially, the government of India prohibited itself from getting any useful or relevant information and also allowed those with illegal accounts in Swiss banks, enough time to park them elsewhere.

By making Participatory notes acceptable for foreign investment transactions from foreign tax havens with total investor anonymity, the government has also made it easier for these funds to be round tripped to India and generate high tax free returns.

The government should insist on the names of the real owners of the investments, before allowing these investments to be repatriated along with profits. Till this is implemented, the government could be well within its rights to insist on withholding the profits in India, without the necessary information.

S K Agarwal

2 years ago

Could we hope for a lower income tax regime for individuals and expect glimpses of achche din? We pay taxes all the way in anticipation of Achche din. What we get in return - No electricity, no sewage, no water, no roads, traffic jams. Govts prefer waiving loans and bills of those who don't pay, but crush them who pay. Thousands of crores are waived, whose money is that? Do these ministers, chief ministers have any right to throw the public money down the drain. Probably all our weekness

Gopalakrishnan T V

2 years ago

The need to find resources to develop the economy is paramount and one of the best avenues is to unearth the blac As indicated in the election manifesto,the BJP under Mr Modi's leadership has initiated action to bring back the black money and a right person has been given the charge.If the Government succeeds in getting money it gives a strong signal that this Government means business and the black money accummulated domesticallly can also be targeted. The economy has to develop its infrastructure fast and creat a strong foundation for the GDP growth. The resources needed are huge and the present economic conditions offer no scope to raise the funds from abroad or locally through debt or new taxes. The black money hoarded abroad and locally in the form of hard cash,gold,real estate and commodities has to be tapped and it requires a strong will and guts.Mr Modi has made a good beginning and he deserves good support and cooperation.Such articles would definitely keep the spirit alive and motivate the people behind such actions.

deepaksb

2 years ago

This black money stashed abroad is being discussed for over one decade.

All persons-politicians ,industrialists and other individuals HAD enough time to re-arrange/manage ( JUGAD ) their so called black money in banks abroad.

Such illegal/black money MUST have been routed elsewhere and new govt.MAY NOT be able to locate/bring back this money.

Any volunteers to comment on above remarks ????????

REPLY

shadi katyal

In Reply to deepaksb 2 years ago

Indian business community has its own reputations abroad and are clever enough to hide. After all we started Hawla.
This black money is an issue which is to fool the voters and one should see letters on this issue by some well learned.
Keep in mind it was Dhongi Baba Ram Das who brought this up and since he is a Baba , the masses took it a God's word.
People donot stack money abroad to avoid not only taxes but to keep the sharks of Income tax away

R Nandy

2 years ago

Let them first do proper tax reforms,then black money will slowly become white.Unfair taxation in India is one of the major reasons behind hoarding of money abroad.

REPLY

shadi katyal

In Reply to R Nandy 2 years ago

One has to remember that we follow the old Colonial income tax system and added more taxes thus forcing people to avoid paying tax, a natural human impulse. We even came up with arbitrary taxation and drove investments. We killed industry with RED TAPE and Union power, and while other nations marched forward India stayed stagnant.
Why would anyone bring money back when it cannot be invested and no bribes for Income Tax Officers.
We are still trying to reinvent wheel.

MOHAN

In Reply to shadi katyal 2 years ago

Sir,

Regarding your comment "we follow the old Colonial income tax system"

Could you please explain the features of old Colonial income tax system ?

Regarding your comment "Why would anyone bring money back when it cannot be invested"

Please explain the official/legal channels through which one could bring back money (black) for investing in India?

shadi katyal

In Reply to MOHAN 2 years ago

Let me ask you first what do you know about present income tax system of India as compared to even 50 years ago. Are you a tax payer? India did not invent taxes after partition but it is old British system of collection of taxes which we followed and thus term colonial system.
We Indians are well known for finding ways and means to make it legal if we wish to bring it to the nation. Modi and his govt can give amnesty or one can use Hawla but what makes you think anyone looking for such investments.

Dr Anantha K Ramdas

2 years ago

This government's move to set up a SIT to find and get the black money from outside is laudable. Hope they succeed asap.

To my mind, we have to accept that we have parallel economy of black money in circulation within the country, which is also huge. We need to get this also back into the government treasury by any means.

Both issues have to be tackled on a war footing and separately, if need be.

I am not putting the cart before the horse, but, PM must also spell out as to what he plans to do when he gets even 5% of this huge treasure.

One of the many ways is to identify the areas in which these hoarded wealth can be invested for national development, by an amnesty, and without question, though a reasonable taxation, maybe a flat 30/40% is charged from the offender. If within the time frame some illegal wealth is not bring back to India, when found, should be confiscated.

Foreign countries where these are hoarded in bank accounts need to be frozen by diplomatic pressure, as a first step.

As for black money within the country, we need to take stringent action and it is time that government demonetizes the high value notes (Rs 500/1000) when the amnesty period expires.This can be done when we are able to bring in polymer currency into circulation, on which we have been hearing for years now from RBI. This move would kill fake indian currencies minted in Pakistan and circulated by greedy desh-drohis and stop counterfeiting
activities also.

Not a small deal by any means, but we have to start somewhere and sometime. This is it now we must enforce the idea into practice to make it work.

Meenal Mamdani

2 years ago

Several articles say that the black money that flows out to Mauritius and then returns to India is far greater than that stashed abroad. Most of this is invested in real estate. A government that is serious about curbing black money could easily close the loopholes in tax laws that make this inflow accountable.

Ratilal Shah

2 years ago

The New Govt. must act fast on this issue and take immediate action to SEAL the Accounts of all Indians in the Banks of Switzerland and Germany before they withdraw their Blackmoney from these accounts.

S.S.A.Zaidi

2 years ago

Substantial amount of black money is in the country.Efforts should be made to unearth that amount.There are businesses where no deal can be done without payment of certain percentafge in cash. Real estate is one such area

shadi katyal

2 years ago

Mr. Gautam you are correct but how can you educate people when they had been misled by politicians. Maybe some can first explain what is this Black money and how did it get there.I think it was money paid by Sweden for howitzers.
Politicians play with raw emotions of people and thus use mirrors and smoke to please voters.'
Will SIT give reports on progress or nation will wait for full report

REPLY

Gautam

In Reply to shadi katyal 2 years ago

Look at Mr. Shah's post. He says "....SEAL the Accounts of all Indians in the Banks of Switzerland and Germany before they withdraw their Black money from these accounts." What does this mean. The public typically thinks like this. It is an absurd proposition. After giving 10 solid reasons why bringing back the black money is like chasing windmills, I will still have to say et cetera, et cetera, et cetera, like Yul Brynner did in the famous movie "The King and I".

Gautam

2 years ago

I have been researching black money and related issues for many issues. My voice is hoarse repeating that a focus on bringing the black money back will likely reap very poor dividends for a number of reasons. Ordinary people do not understand why. Most politicians are equally clueless or know better but string along a gullible public in full knowledge.

Consider this fact. The World Bank's Stolen Asset Recovery (StAR initiative) established with the full backing of member countries has thus far been able to recover a few billion dollars. What is this amount as a share of black money from all developing countries. You would not want to know. Perhaps 0.000000001 percent of total illicit wealth. The StAR initiative has been there for decades. If the World Bank with all its expertise and the official blessings of member governments have had such a poor track record, what makes us think the GoI would fare much better in repatriating the black money to India? I will not go into the reasons but I can. There are many.

REPLY

Gautam

In Reply to Gautam 2 years ago

I mean for many years. Regret the typo.

Gautam

In Reply to Gautam 2 years ago

Mr. Katyal is quite correct. When more Indians begin to think correctly about this issue, we would have made a huge progress towards tacking black money.

shadi katyal

2 years ago

The old saying of Road to hell is paved with good intentions and this is a good example.
Can the Hon'ble SC Judges tell where had they been when media has been talking it for decades?
Who are the members of this SIT and what are there qualifications to bed able to investigate such issue?
There is a very difficult road to cross as one has to understand not only Country Laws but also Banks own privacy Laws. This is business for these banks and all I can wish them good luck. At least it will keep the lid on this question for some time.

REPLY

MOHAN

In Reply to shadi katyal 2 years ago

Mr. Shaddi Katyal's queries and answers:

Can the Hon'ble SC Judges tell where had they been when media has been talking it for decades?

Sorry Sir. Decades ago many of us were practicing as lawyers before various courts of the country ! If i am right some of us were High Court Judges !!

Who are the members of this SIT and what are there qualifications to bed able to investigate such issue?

We judges are having law degrees. However, it is not possible for me to give you the information regarding the qualifications of other members. But I think all of them are likely to be graduates of various disciplines !!

Any other questions??!!

MOHAN

In Reply to shadi katyal 2 years ago

Mr. Shaddi Katyal's queries and answers:

Can the Hon'ble SC Judges tell where had they been when media has been talking it for decades?

Sorry Sir. Decades ago many of us were practicing as lawyers before various courts of the country ! If i am right some of us were High Judges !!

Who are the members of this SIT and what are there qualifications to bed able to investigate such issue?

We judges are having law degrees. However, it is not possible for me to give you the information regarding the qualifications of other members. But I think all of them are likely to be graduates of various disciplines !!

Any other questions??!!

shadi katyal

In Reply to MOHAN 2 years ago

Mr. Mohan I normally donot care how my name is spelled but you seem to misspell it why are you not Indian or never heard for this word???
You might had been practicing Law in courts but this is not a new project or problem.
Sorry if you donot know the educational qualifications of the SIT members, why try to explain.
I am sure out of 1.2 Billions there must be some honest and disciplined people???

MOHAN

In Reply to shadi katyal 2 years ago

Sorry sir, it was a typographical error. Anyhow, I would request you to kindly restrain yourself from making unnecessary criticism against the newly constituted SIT at least for now.

Tax Tyranny

Corporates and taxpayers alike have been harassed by the 'tax terror'. It is time to put an end to the income tax department's misadventures

Prime minister Narendra Modi’s second major initiative within days of forming the government is initiating the much-needed tax and law reforms. The government has indicated that it plans to amend the controversial retrospective amendments to the Income Tax Act that were introduced to overturn the Supreme Court verdict on Vodafone. The amendment has been used by tax and enforcement agencies to harass several leading multinationals and had spawned hundreds of litigations in forums across India. While business houses and chambers of commerce were publicly silent, it was common knowledge that several multinationals, including some automobile giants were contemplating pulling out of India as a reaction to the UPA’s repressive tax regime and arbitrary interpretation of regulations. Many held back only on the hope of political change after the elections.

Interestingly, Mr Modi is also set to deliver on his election promise of good administration and rule of law. The PM has asked Union secretaries to give him a list of laws that can be scrapped fast. A detailed list of such laws, based on the findings of Dr Bibek Debroy, is already available in his book In the Dock. Interestingly, Dr Debroy says that the last time that a set of redundant laws was scrapped was in 2001, when Arun Jaitley was the law minister, again under a BJP-led government. Nothing moved after that, despite the huge public clamour for judicial reform to end the harassment of people through ridiculously outdated laws.

Moneylife readers are waiting, with eager anticipation, for action on another promise—income-tax reforms. We have already published two Cover Stories that have detailed how draconian TDS (tax deduction at source) provisions have not only forced people to act as unpaid tax collectors for the government, but also imposed harsh penalties for every lapse. One continues to come across newer details about the unfairness of the system.

On 3rd June, Punit Ved wrote in The Economic Times about how refund laws were stacked against income-tax payers. In a nutshell, he says, if the taxpayer fails to pay tax, or to pay on time, she is subject to severe punishment—12% interest and a 12% penalty. However, if the tax department is late to refund, it pays a mere 6%. What makes it draconian, says Mr Ved, is that the interest paid by the taxpayer is not allowable as expenditure while computing taxable income whereas the interest received by the taxpayer is taxable and gets further reduced post-tax. This unfair system, he says, is an important cause for corruption.

In the past few years, several taxpayers, including retired senior citizens living on their savings, have complained that the government is unilaterally adjusting their legitimate refund to fictitious demands going back to 2001-02. The amounts, often, run into a few thousand rupees but there is no easy redress. They are forced to run from pillar to post. Nagesh Kini, retired auditor and chartered accountant, says that these mindless orders covering 10-12 year-old ‘income’ have emanated from the Central Processing Centre at Bengaluru. Aggrieved by such orders, he suggests a class-action approach to the income-tax ombudsman. Unfortunately, victims of the tax department’s expropriation are usually lacking in leadership to make their case as a group. People who have been waiting for achche din (better days) to begin are hoping to see some far-reaching changes on this front too.

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COMMENTS

kapil agarwal

2 years ago

the final date of final advance tax to be paid for a year is by the 15th March for income upto the 31st March and also on income receivable upto the 31st march,
it takes 2/3 months to collect accured income details even from banks, lot of companies pay their interests for the year on about 1st week April. so it becomes impossible to work out your exact income and pay taxes by the 15th March.
The govt should make final tax payment date 31st May or atleast 30th April.

kapil agarwal

2 years ago

The govt. should make it mandatory for all banks to collect Service tax, income tax, as only very few banks collect these taxes also without fuss, like some banks have limited time before 11am, others take only of their customers, some banks do not take cash and give acceptance after a week, some banks only accept from their customers On-LIne only.

kapil agarwal

2 years ago

125 crore people are paying service tax on weekly, monthly, daily bills, on every transaction an amount of 12% + 2% +1% is collected, HOW much time, stationary, energy of country is
being wasted, Why doesn't the Govt. collect total amount by
one %, and disburse it centrally to respective depts. Besides to top it they have now a negative list because they themselves don't know their definations, just keep on adding items and harras people, If that is not enough they want Tax on unrealised income also, then they put business men behind bars after enacting such laws.

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