Budget 2018: FM may offer sneak peek into direct tax overhaul plan

While a task force on direct tax reforms will submit its report by May, the Budget speech may indicate broad pointers of the blueprint.

   

Finance minister Arun Jaitley may give an idea about the broad contours of a comprehensive direct tax reforms in the union budget 2018-19 that the government intends to rollout later during the year.

In September, Prime Minister Narendra Modi had said that more than half a century old Income-Tax Act needs to be re-drafted and a new Direct Tax Code (DTC) needs to be introduced in ‘consonance with economic needs of the country’.

The finance ministry in November constituted a six-member task force. Arbind Modi, Member (legislation) of Central Board of Direct Taxes (CBDT) is the convenor. Chief Economic Adviser (CEA) Arvind Subramanian is a permanent special invitee in the task force.

While the report needs to be submitted to the government by May, 2018, the Budget speech may include some direction on the tax law.

The task force will draft a direct tax legislation keeping in mind, tax system prevalent in various countries, international best practices, economic needs of the country, among others.

Some of the provisions of the Direct Tax Code such as General Anti-Avoidance Rule (GAAR) and Place of Effective Management (PoEM) has already been implemented.

While the Goods and Services Tax (GST) replaced more than a dozen of central and state levies to bring in one unified nation-wide tax, DTC will consolidate and simplify the direct tax laws into a single legislation.

The erstwhile UPA government had finalised DTC and had introduced the Bill in the Parliament in 2010. However, the Bill lapsed with the dissolution of the 15th Lok Sabha. The draft law proposed to do away with various exemptions, increase threshold of taxation and lower tax rates.

As the government overhauled the existing indirect tax system last year by implementing GST, on a larger scale, tax reforms would remain incomplete without revamping country’s direct tax system.

MORE WILL UPDATE SOON!

Multibagger opportunity! We are in a bull market which could span 10-15 years

Lastly emerging markets have also turned attractive. All factors are pointing to an increase in global trade in 2018 which should augur well for emerging markets like India.

 

Today, we stand at an inflection point whereby there is a high probability that the economy, and the markets will shift a gear higher in the year 2018.

The global macros are now more favorable than what they were a few years back. People are reasonably baking in US rate hikes (probably 3-4 hikes next year) and this seems possible given the fact that economy has expanded at a 3.3 percent pace, which has been the strongest since 2014.

The US unemployment rate has fallen to 4.1 percent which points to the economy is in a very healthy condition. People are also keenly watching Donald Trump’s tax cut plan passing through by end of the year.

Japan has also continued its GDP expansion and Europe macros also look good given its latest prints on manufacturing orders growth and robust PMI data. Bank of England also hiked rates for the first time in 10 years, denoting healthy growth in the country.

Lastly emerging markets have also turned attractive. All factors are pointing to an increase in global trade in 2018 which should augur well for emerging markets like India.

As regards our domestic economy, we have to be a bit cautious given higher inflation worries and consequently higher interest rates. Back of the mind, crude oil prices are also causing worry edging to a higher range of $65-$70 a barrel.

We also have to watch credit demand revival from corporate banks and commencement of lending by the PSU’s post recapitalisation which could signal a revival in private capital expenditure.

Given that capital expenditure by the Govt. has already been underway over the last couple of years the joining of forces by the private sector would certainly boost infrastructure spending and with it economic growth.

On the interest rate front, RBI may be on pause mode until the middle of next year unless something drastic happens in either direction. Overall, with the major policy initiatives like demonetisation and GST out of the way, we look set for a higher trajectory in GDP growth and other metrics.

The equity markets would increasingly look at earnings delivery given the fact that valuations are robust based on trailing returns. While structural liquidity continues to provide comfort earnings growth has to happen in order to move the markets to the next leg of the upswing.

We also believe that the recent Gujarat election verdict is a positive as the drop in seats by the ruling party would make it work doubly harder to ensure that it does not suffer even a minimal loss of support from the people.

It also indicates that GST and demonetization have largely been taken positively by the people which should ensure minimal dilution of the development mandate.

Within equities, there is a hunt for value across market capitalizations as well as sectors. We believe that investor should be invested for the long-term and be present across the cap curve with a major part of their allocation in mid and small cap space as historically this category has been able to deliver wealth-creating returns over the long term as compared to other categories.

We are especially positive on the rural prosperity theme as we believe that the policy initiatives and the increased and focussed spend on rural will spur growth.

Similarly, the consumption theme is another we are very hopeful about given that the structural change in consumption patterns on the back of increased income is still in its infancy. Also, growth in the rural economy would act as a further booster for growth in consumption.

We strongly believe that we are still in the initial stages of a long-term bull market which can span 10 to 15 years and so investors should stay invested and keep adding on to their positions through SIPs and STPs.

MORE WILL UPDATE SOON!!

Spotting wealth-creating ideas is easy; Don’t miss out these 5 themes in 2018: Credit Suisse

Amid high valuations and a volatile macro environment, Credit Suisse recommends investors to focus on long-term structural themes that have been shaping up in India.

 

Credit Suisse maintains a cautiously optimistic outlook on Indian equities, but a sustained or a sharp correction on D-Street is unlikely as domestic flows remain strong while a solid global growth outlook should be supportive for risky assets.

Amid high valuations and a volatile macro environment, Credit Suisse recommends investors to focus on long-term structural themes that have been shaping up in India.

Investors can build their portfolios around these themes, which we believe can potentially outperform the market in the medium term, it said in a report authored by Jitendra Gohil, Head of India Equity Research at Credit Suisse.

Here is a list of top 5 themes which investors can watch out in the year 2018:

Rural demand revival and financial inclusion:

Credit Suisse is positive on demand revival in rural and semi-urban areas. For the past couple of years, monsoon has been relatively good. Ahead of the general elections in summer of 2019, the government could take speedy measures to improve growth in rural and semi-urban areas, in our view.

Moreover, benefits of the 7th Pay Commission, farm loan waiver, record-high MANREGA allocation, etc. should provide a fillip to overall demand in 2018.

Credit Suisse likes Emami, Dabur India (HOLD), PI Industries (BUY) and Hero MotoCorp (HOLD), which are best positioned to benefit from rural demand revival.

Moreover, there is a huge scope for retail lending to improve, especially in rural and semi-urban areas, as penetration levels in India remain abysmally low.

Within retail lenders, Credit Suisse prefers rural and semi-urban lenders where there is maximum stress right now. Structurally, the global investment bank likes Shriram City Union Finance (BUY) and Cholamandalam Investment and Finance (BUY).

It reiterates BUY on Edelweiss, the largest ARC in the country, as Credit Suisse believes that the company will continue to demonstrate stellar growth in its credit as well as non-credit businesses (Net profit CAGR of over 50 percent in FY 2017– 2019E).

Progress on affordable housing is encouraging:

Credit Suisse expects the government to accelerate spending on affordable housing, which can create goodwill among voters and help create job opportunities as the construction sector is the second-largest employer after agriculture in India.

The global brokerage firm prefers housing finance companies, among which Indiabulls Housing Finance(BUY) and PNB Housing Finance (HOLD) are top picks. There are several industries such as paints, tiles, cement, faucets, white goods, cement, etc. that depend on the real estate sector.

Credit Suisse remains positive on Pidilite Industries (BUY), Kajaria Ceramics (HOLD), Shree Cements (BUY), Crompton Greaves Consumer (BUY) and Voltas (BUY).

Infrastructure and capital goods in a sweet spot:

As per IMF projections, India could spend on infrastructure on an average 8.1 percent of GDP per year from current fiscal year to 2022 compared to just over 5 percent a few years ago.

This accelerated spending along with policy support and international financing could potentially transform India’s infrastructure landscape. Apart from budgetary support, we expect the government to push public sector companies (PSU) to spend more or pay higher dividends.

Credit Suisse is positive on Larsen and Toubro (BUY), KEC International (BUY), Sadbhav Engineering (BUY), Dilip Buildcon (BUY) and VA Tech Wabag (BUY).

The energy sector continues to attract attention:

India is a net importer of oil and gas, and the sector has remained under-invested for years now. Credit Suisse expects the government to provide a favorable policy framework to attract more investments and improve energy infrastructure in India for curbing imports and moving toward energy independence.

In terms of gas sector reforms, Credit Suisse prefers ONGC (BUY), which will benefit from a better policy framework. Within oil marketing companies, we prefer Indian Oil Corporation (BUY), which will benefit from expansion and lower valuation.

NPA resolution will be keenly watched:

Stressed assets (NPA, restructured, etc.) in the Indian banking system are estimated at 14 percent of total loans. Starting June 2017, the Reserve Bank of India (RBI) issued a direction to banks to refer 40 cases to the National Company Law Tribunal (NCLT) for bankruptcy proceedings if they along with resolution professionals fail to finalize a resolution plan within the stipulated 270 days.

Progress on the resolution of most of these accounts has been better than expected so far, especially in case of the steel sector where banks have received multiple “Expression of Interests.”

Credit Suisse believes that State Bank of India (BUY) is best positioned to benefit from large accounts’ resolutions.

MORE WILL UPDATE SOON!!

Technical View: Nifty forms a Doji like pattern; tread with caution with stop below 10,600

The Nifty 50 which opened at 10,645.10 rose to a record high of 10,659.15 which made a small upper shadow, but bears quickly took control and pushed the index towards 10,603 which made a long lower shadow on the daily charts.

  

Bulls powered D-Street to yet another record high for the third straight day in a row on Tuesday. The index witnessed some profit booking but recouped initial losses to close near day’s high making a Doji pattern on the daily charts.

A 'Doji' is formed when the index opens and then closes approximately around the same level but remain volatile throughout the day which is indicated by its long shadows on either side. The body will be insignificant which will appear like a plus sign on the charts.

The Nifty50 index continued its formation of higher highs and higher lows for fifth consecutive sessions and registered a fresh lifetime high of 10659 zones.

The Nifty50 which opened at 10,645.10 rose to a record high of 10,659.15 which made a small upper shadow, but bears quickly took control and pushed the index towards 10,603 which made a long lower shadow on the daily charts.

The bulls took control and pushed the index towards its record high. The Nifty finally closed 13 points higher at 10,637, a fresh record closing high.

Investors are advised to stay long but tread with caution because the index is trading near key resistance levels. Analysts advise traders to keep a strict stop loss below 10,600 on a closing basis as this rally can falter going into the budget at any point in time.

“The Nifty50 registered a Doji kind of indecisive formation suggesting that traders are clueless at higher levels about further direction as the market remained range-bound throughout the trading session,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Though weakness is visible on short-term charts bulls are putting up a brave face with new lifetime highs. Hence, traders can choose to flow with the momentum but at the same time need to remain cautious and maintain tight stops for their long positions,” he said.

Mohammad advice traders to put a stop below 10600 on a closing basis for the next session. If the move gets extended on the upside beyond 10660 a modest target of 10700 can be expected in the near-term.

India VIX moved up by 0.78 percent at 13.85. VIX has to hold below 13-12.50 zones to support the fresh leg of the rally with a smooth ride in the market.

On the options front, maximum Put open interest was seen at 10500 followed by 10400 strikes while maximum Call OI was seen at 11000 followed by 10600 strikes.

“We have seen fresh and significant Put writing at 10600 and 10500 strikes which is shifting its support while fresh Call writing is seen at 10700 and 10600 strikes. Option band signifies a shift in support to 10550-10600 zones as this strike has seen fresh Put OI congestion.

“Nifty witnessed a decline from higher levels but finally closed on a positive note by forming a Small Bodied candle on the daily scale. Now index continues to hold above 10550 zones to extend its up move towards 10700 while on the downside supports are seen at 10500 levels.

MORE WILL UPDATE SOON!!

What to buy or sell @ record highs? Here are 8 money making ideas based on technicals

Sustaining above 10,550 levels on tradable basis Nifty can rally initially towards 10,720 and then 10,840 levels. On the downside, the index has support at 10,400 which was last week low and a break below the said level may trigger a decline towards 10,320 and then 10,230 levels.

 

The Nifty50 rose to a fresh record high of 10,659.15 but witnessed profit booking at higher levels which pushed the index in the red in afternoon trade. But, there are plenty of stock specific opportunities which traders can track for a return of up to 22 percent in short term.

If we look at the broader price movement seen in the last couple of months, the price had largely traded in a range of 10,500-10,000 odd levels and formed W shaped pattern.

The immediate resistance on the way up is placed around 10,650, and a failure to cross this resistance may trigger minor profit booking to levels of 10,400-10,260. On the higher side, next target is placed around 10,720-10,840 levels.

“For the last couple weeks, the price had been trading in a range and consolidating its gains after the rally index witnessed in the month of December last year. Now index has given breakout from this range indicating the market is going to move higher after forming a base.

Sustaining above 10,550 levels on tradable basis index can rally initially towards 10,720 and then 10,840 levels. On the downside, the index has support at 10,400 which was last week low and a break below the said level may trigger a decline towards 10,320 and then 10,230 levels,” he said.

India VIX, post the events in December month slide down to 11.59 levels and since then inched up to 13.74 levels. A further rise in volatility could be the cause of concern for bulls.

Here is a list of top 8 trading ideas by experts which can give up to 22 percent return in the short term:

Analyst: Ashish Chaturmohta, Head of Technicals and Derivatives, Sanctum Wealth Management

PVR Limited: Buy | CMP Rs 1460| Stop loss: Rs 1390| Target: Rs 1650 | Return 13%

The stock touched high of Rs 1655 in April 2017 and then corrected down to Rs 1142 levels in September 2017. The stock has been consolidating for last six months and formed bullish inverted head and shoulders pattern on daily chart.

The stock has formed a bullish pennant pattern over the last two weeks and witnessed a breakout in the last session. The price has moved above the long-term 200-days moving average (DMA).

The volumes activity is also above average indicating buying participation in the stock. The MACD has moved above the neutral level of zero on the weekly charts suggesting that the correction is over in the stock and ready to move higher.

Price is currently trading at neckline level and is likely to see a breakout on the upside considering the bullish price structure. The stock is a buy at current levels and on dips to Rs 1440 with a stop loss below Rs 1390 for a target of Rs 1650 levels.

Future Lifestyle Fashions Ltd: CMP: Rs 396| Stop loss: Rs 375| Target: Rs 460 | Return: 16%

The stock had seen a strong rally from Rs 120 to Rs 380 levels in the first half of the last year, and since then the stock has been trading sideways largely between Rs 300 and Rs 400 odd levels for the last seven months.

It has been consolidating its gains after the run-up and formed a base for the next leg of the uptrend. The lows during the consolidation have been progressively higher indicating buying coming at higher levels.

In the last five sessions, the price has rallied on high volumes to the top end of the range and is now trading at breakout level. The ADX line, an indicator of trend strength, is currently at 26.5 level on the daily chart and moving up above neutral level of 20.

The stock is likely to see a breakout on the upside and investors can look to buy the stock at current level and on dips to Rs 388 with a stop loss below Rs 375 and a target of Rs 460 levels.

Ujjivan Financial Services Ltd: Buy | CMP: Rs 421| Stop loss: Rs 395| Target: Rs460-480| Return: 14%

Since the August 2017 low of Rs 285, the stock has been forming a higher top higher bottom formation. Volumes have been above average on the up move indicating buying participation.

The stock price has now crossed the swing high of Rs 417 and closed above it. It has seen a Bollinger band breakout with the expansion of bands indicating price to see continuation trend in the direction of the breakout.

Thus, the stock is a buy at current level and on dips to Rs 410 with a stop loss of Rs 395 for a target of Rs 460-480 levels.

ICICI Prudential Life Insurance Ltd: Buy | CMP: Rs 412| Stop loss: Rs 390 | Target: Rs 454-475 | Return: 15%

The stock has been declining since it touched a high of Rs 509 on July 2017 and made a low of Rs 362 last month. In the process, the price has retraced 61.8 percent Fibonacci retracement level of the upswing (271-509).

The rally in the last couple of days has crossed downward sloping resistance trend line of last three months with strong price momentum and high volumes, indicating breakout is likely to sustain.

The stock has seen Bollinger band breakout with the expansion of bands indicating price to see continuation trend in the direction of the breakout. Thus, the stock is a buy at current levels and on dips to Rs 403 with a stop loss below Rs 390 and a target of Rs 454-475 levels.

CG Power and Industrial: Buy | CMP: Rs 96| Stop loss: Rs 90| Target: Rs 110

The stock has formed rounding base pattern formation over last seven-month period. On closing basis stock has witnessed from this pattern with strong price momentum and high volumes.

The stock has seen a Bollinger band breakout with the expansion of bands indicating price is going to see continuation trend in the direction of the breakout.

The momentum indicators have given positive crossover with their respective averages on daily chart indicating a change in trend. Thus, the stock is a buy at current levels and on dips to Rs 94 with a stop loss of Rs 96 for a target of Rs 110 levels.

Analyst: Aditya Agarwala, Technical Analyst, YES Securities (I) Ltd

IRB Infrastructure Developers Ltd: Buy | Target: Rs 285| Stop loss: Rs 228 | Return: 17%

On the weekly chart, IRB Infrastructure Developers Ltd. is on the verge of a breakout from a channel pattern suggesting resumption of the bull trend on cards.

A sustained trade above Rs 251 which is neckline of the pattern on higher volumes may trigger a bullish breakout. On the daily chart, the stock has broken out of an inverse head & shoulders pattern affirming bullishness portending to higher levels.

The relative strength index (RSI) is also favoring the bulls as it has taken support at the Rs 40 level and turned higher. The stock may be bought in the range of Rs 242-246 for targets of Rs 271-285, keeping a stop loss below Rs 228.

Great Eastern Shipping Company Ltd: Buy | Target: Rs 500 | Stop Loss: Rs 360 | Return: 18%

On the weekly chart, The Great Eastern Shipping Company Ltd is on the verge of a breakout from an ascending triangle pattern triggering a bull trend reversal.

The neckline of the pattern is at Rs 426; sustained trade above the neckline with healthy volumes can extend the up move. On the daily chart, the stock has broken out from a rounding bottom pattern affirming strong the bullishness.

The RSI has turned upwards breaking out of the upper band of the Bollinger Bands suggesting higher levels in the coming trading sessions. The stock may be bought in the range of Rs 420-425 for targets of Rs 470-500, keeping a stop loss below Rs 360.

Indiabulls Real Estate Ltd: Buy | Target: Rs 285| Stop loss: Rs 210| Return 22%

On the weekly chart, Indiabulls Real Estate Ltd. has broken out of a bullish flag pattern triggering a resumption of the bull trend. A sustained trade above Rs 227 can extend the uptrend in the coming trading sessions.

Further, RSI has turned higher breaking out of the Bollinger Bands after taking support at the Rs 50 level suggesting higher levels. The stock may be bought in the range of Rs 230-235 for targets of Rs 260-285, keeping a stop loss below Rs 210.

MORE WILL UPDATE SOON!!

Sensex, Nifty end rangebound session at new closing high; Coal India rises 6%

The continued record-hitting spree suggested that the market may be pricing in likely recovery in corporate earnings for December quarter, experts feel.

 

The market continued its buoyant mood on Tuesday as benchmark indices ended rangebound session at new closing high. The midcaps, however, snapped a four-day winning streak as investors await corporate earnings.

The 30-share BSE Sensex was up 90.40 points at 34,443.19 and the 50-share NSE Nifty rose 13.40 points to 10,637, tracking positive global cues.

The momentum suggests that the market may be pricing in likely recovery in corporate earnings for December quarter. Union Budget, which will be presented on February 1, will also be closely watched, say experts.

He remains neutral on the markets and would not recommend entering fresh positions at this juncture.

The broader markets failed to continue its uptrend for fifth consecutive session today as the Nifty Midcap closed lower by 0.12 percent on weak breadth. About three shares declined for every two shares rising on the BSE.

Sectoral indices ended on a mixed note as Nifty Bank, FMCG and IT were mildly higher whereas Auto, Pharma and PSU Bank lost 0.3-0.7 percent. Realty gained the most, rising nearly 3 percent.

Coal India was the biggest gainer among Nifty50 stocks, climbing nearly 6 percent on revision in non-coking coal prices that will add around Rs 1,956 crore to its revenue for FY18.

Index heavyweights Reliance Industries (up 1.34 percent), ITC (1.86 percent) and Infosys (0.51 percent) continued to support the market today as well.

IOC, Tata Motors and Wipro were other gainers with 1-2 percent upside whereas Eicher Motors, Bajaj Finance, Bharti Airtel, Hindalco, Zee Entertainment and HPCL lost 1-2 percent.

Bharti Infratel was down 1.6 percent. Despite the 22 percent decline in last two months, HDFC Securities reiterated its sell rating on the stock with revised target price at Rs 310 (from Rs 387 earlier), citing instant loss of tenancies on merger of Vodafone-Idea Cellular, and impact of Reliance Communications and Aircel businesses’ scaling down.

ICICI Lombard General Insurance lost 7 percent. Macquarie has initiated coverage on the stock with Underperform rating and target price at Rs 565 (which is far lower than current share price) as the business is suffering from underwriting losses despite several catalysts for growth.

Jaiprakash Associates was down 7 percent as the Reserve Bank of India has sought Supreme Court nod to initiate insolvency proceedings against the company. Jaypee Infratech also fell 5.5 percent and Jaiprakash Power Ventures was down 3 percent.

NMDC slipped 4.5 percent as the government set floor price for offer for sale (OFS) at Rs 153.5 per share, lower than Monday's closing price of Rs 161.85. The offer for sale issue will remain open till Wednesday.

Coffee Day Enterprises and Quick Heal Technologies saw monster rally today, rising 20 percent and 17 percent, respectively.

Reliance Power, Reliance Communications, Peninsula Land, GMR Infrastructure, Jet Airways, IFCI and Wockhardt among others slipped 3-7 percent whereas Indiabulls Real Estate, Prakash Industries, PC Jeweller, J Kumar Infra, NCC, Suzlon, HEG and Gujarat Alkalies gained 3-8 percent.

On the global front, European markets were higher as investors reacted to better-than-expected economic data and shrugged off a tech wobble in Asia. France CAC, Germany DAX and Britain FTSE were up 0.2-0.5 percent at the time of filing this piece. Asian stocks also extended gains today as Japan's Nikkei was at 26-year high, rising 0.6 percent at close.

MORE WILL UPDATE SOON!!