Telecom: 4QFY12E preview - Bharti's aggression dents the RPM uptick story for a while : Kotak Securities PDF link

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily02042012.pdf

4QFY12E preview – Bharti’s aggression dents the RPM uptick story for a while.
Flattish RPM, driven by pricing aggression from the market leader Bharti, is likely to
result in a modest 4QFY12E for the three listed players. Idea, led by industry-leading
volume growth, should still report a reasonably robust quarter. Bharti faces additional
pressure from local issues in Nigeria (impacting Africa performance) and forex losses on
account of Sri Lankan Rupee depreciation versus INR. Even as our medium-term positive
stance on Bharti and Idea remains intact, we would recommend trimming positions in
case of a 5-10% run-up ahead of results. Structural SELL stance on RCOM stays

Anil: Well placed to cash in on the potential opportunity:ShareKhan

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Key points
High growth potential for Indian starch industry
compared to global average: The starch industry in
India is at a nascent stage with the per capita
consumption of starch in the country being the lowest
at 1.3kg compared with 64.5kg in the USA and over
10kg in many comparable Asian countries. However,
the same is likely to improve in the coming years, as
starch finds diverse applications in the food and
beverage, paper, pharmaceutical, textile and animal
feed industries. Thus, with the rising demand for starch
products from various industries, the Indian starch
industry is expected to grow by around 15% per annum
in the coming years.
Anil, largest player with wide product portfolio: Anil
is one of the top three players in the domestic starch
industry with an organised market share of close to
20%. However, in the high-margin value-added starch
products it has a market share of 40-50%. Research
and development (R&D) has played pivotal role in Anil’s
success, helping the company to gradually shift from
a commodity product business to a business of valueadded
products. The company has reputed clients
including players like ITC, Nestle India, Amway, Dabur,
Heinze, Lupin, Arvind Mills and Raymond.
Robust track record with aggressive expansion plans:
Anil has grown its revenues at a robust 31%
compounded annual growth rate (CAGR) in the tough
period of FY2008-11. The improving revenue mix in
favour of value-added products has enabled it to double
its operating profit margin (OPM) to 17.2% from less
than 10% earlier, resulting in an exponential growth at
76.7% CAGR in its earnings during the three-year
period. Going ahead, we expect Anil’s revenues to grow
at a CAGR of 25% over FY2011-14 and the increasing
proportion of the value-added products would further
boost the margins to around 19% in the next two years.
To achieve the same, the company is expanding its
manufacturing capacities to 1,000 tonne per day (tpd)
in a phased manner, aims to launch new products and
enhance its geographical reach to newer overseas
markets.
Additional triggers—food processing park and land
bank: The Anil group of companies received the
approval from the ministry of food processing industries
of India to set up a Mega Food Park project in Gujarat.
The group will form a special purpose vehicle (SPV; a
consortium of companies from the food processing,
logistic and infrastructure businesses) in which Anil
will have a majority stake of 40%. The group will bring
in land of 87 acres (valued at around Rs25 crore) for
its 40% stake in the SPV. Once the project is completed
it will add tremendous value to the stock of Anil. The
company’s manufacturing facility is located at
Bapunagar, Ahmedabad in an area covering 1.5 lakh
square metre. In future the company could shift its
manufacturing facility to a special economic zone /
tax benefit zone, thereby unlocking value in terms of
land bank (the Bapunagar land area is currently valued
at Rs800-900 crore).

Technology: 4QFY12E preview - a soft quarter, 'cautious near-term' commentary likely : Kotak Securities PDF link

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily02042012.pdf

4QFY12E preview – a soft quarter, ‘cautious near-term’ commentary likely. We
expect a soft albeit in-line, given the mid-quarter caution expressed by various companies,
4QFY12E for the Indian IT services names. We anticipate a reasonably confident FY2013E
revenue outlook even as June 2012 quarter revenue outlook could have cautious
undertones. Infosys will likely guide, and in that case guide for a 9-12% US$ revenue
growth and EPS of Rs159-166 for FY2013E. Even as we remain largely positive from a 12-
month perspective, we would use any run-up ahead of results to trim positions.

Engineering & Capital Goods - Darkest before dawn; monthly update :: Edelweiss PDF link

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Monthly Highlights: What’s inside?

·       Q4FY12 earnings preview

·       Company visit / management discussion and channel checks

·       Key highlights/ news for the companies/ sector

·       Key macro trends

Energy: FY2012 looks fine, FY2013 uncertain : Kotak Securities PDF link

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FY2012 looks fine, FY2013 uncertain. We believe `400 bn in additional
compensation from the Government for FY2012, as sought by the Oil Ministry and
perhaps already provided for by the Government in the FY2013 Union Budget, will
result in a lower subsidy burden and robust profits for upstream companies. However, a
pragmatic pricing policy for regulated fuels and crude price correction are critical for
FY2013E earnings. We reiterate our BUY ratings on ONGC and OIL.

Economy: Balance of payments plummets into red : Kotak Securities PDF link

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Balance of payments plummets into red. In line with our expectations of negative
overall balance in FY2012, 3QFY12 balance dropped to US$(-)12.8 bn pulling the
balance of payments till date in FY2012 to US$(-)7.1 bn. Current account deficit at
US$19.4 bn (CAD/GDP at 4.3%) was in line with our estimate of US$20 bn. The capital
account balance weakened further to just US$8 bn. We reiterate our view of a negative
overall balance in FY2012 and expect balance of payments in FY2012 at US$(-)7.9 bn
and FY2013 at US$(-)10.8 bn. This is consistent with our view of a depreciating bias on
INR and we expect USD/INR to average 50.50 in FY2013.

India strategy : Edelweiss

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India strategy
Global backdrop: Liquidity prunes financial risks in the system
􀁹 Liquidity infusions by central banks, better than expected recovery in the US have boosted global risk appetite.
India has benefitted in the form of improved capital flows
􀁹 China’s growth concerns could potentially exert pressure on commodities. This could be positive for India
India: Poised for some cyclical upturn
􀁹 Economy emerging from very weak phase as seen in sequential uptick in IIP, exports, PMI, etc. Going into FY13,
monetary easing (~75bps), mild fiscal consolidation and relatively contained inflation will form ground for some
cyclical uptick. However, reversal is unlikely to be sharp.
􀁹 On the political front, key state elections are over, government is less distracted and TMC influence is likely to
recede due to possible support from like-minded BSP/SP. All this will facilitate some policy reforms
􀁹 Risks to the outlook: spike in crude oil prices, disruptive slowdown in China and re-emergence of risk in Europe
Markets: Earnings trajectory improving, valuations still attractive
􀁹 Earnings downgrade cycle is bottoming out with balance turning in favor of upgrades
􀁹 On absolute valuations, markets are below historical average. Expect earnings upgrade in H2, leading to Sensex
EPS of 1280-1300 in FY13. At 17500, Sensex discounts the earnings 13.5x. We expect multiple to expand to
avg. 14.5-15x, implying ~11-12% return
􀁹 Though the Sensex has limited upside, specific stocks are expected to outperform. On bottoms up approach, we
recommend RIL, Lupin, Crompton Greaves, Ashok Leyland and OBC
Sectoral themes: Incrementally cut exposure to defensives, add cyclicals
􀁹 Key themes to play: (a) reversal of interest rate cycle (favor autos over banks), (b) weak rupee to support
earnings in export driven sectors (favor IT), and (c) adding cyclicals (upgrading industrials to neutral)

Buy JAGRAN PRAKASHAN- TARGET PRICE: RS.136 : Kotak Securities PDF link

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http://www.kotaksecurities.com/pdf/dmb/MorningInsight03042012.pdf


JAGRAN PRAKASHAN
PRICE: RS.100 RECOMMENDATION: BUY
TARGET  PRICE: RS.136 FY13E P/E: 12.6X
Jagran Prakashan has announced the acquisition of Naidunia Media. The cost
of acquisition, Rs 1.5Bn net of tax benefits to Jagran Prakashan, is
reasonable. We expect negative impact of the transaction to the extent of
6.5% on PBT in FY13; which would be more than offset via tax benefits
arising from the transaction. Over the long-term, we believe the acquisition
shall be neutral on EPS. Valuations paid are reasonable, the acquisition has
some merit and we believe shall be a positive over the longer-term,
provided Jagran Prakashan can overcome competitive pressures to be#2/
strong #3 in the relevant markets. We maintain our BUY rating on Jagran
Prakashan.

MARKET STRATEGY-April 2012 : Kotak Securities PDF link

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MARKET STRATEGY
Indian markets underperformed its developed market peers in March. As
against a gain of 2.0% for the Dow, the Sensex lost 2.0% for the month.
Despite the launch of LTRO II, FII flow lost momentum in March. While the
Finance Minister was lauded for being realistic in his budgetary targets, the
market response was lukewarm. In fact, the selling pressure intensified
post-budget.
Industrial production for January surprised on the upside with 6.8% growth
from 2.5% growth in December (revised upwards from 1.8%). However, the
slowdown is confirmed by the cumulative growth during Apr-Jan FY12 at
4% vs. 8.3% last year. On the inflation front, February headline number
edged up marginally to 6.95% over January. Given the upside risks to
inflation, the RBI chose to keep repo rate unchanged, which was in line
with expectations.
US markets consolidated its gains during March led by improving strength
of its economy. For the first time in market history, the S&P, Nasdaq and
Dow closed above 1,400, 3,000 and 13,000 respectively. In the Eurozone, the
focus was on Greece as it concluded a debt-swap deal (sharp cut in their
private bond holdings) with private bond holders. This was a precondition
from the ECB before Greece sought its second bailout package to avert a
default.
Going ahead, we remain positive on the medium-to-long term prospects of
the market. However, a lot depends on policy support from the government
without which the economic growth may continue to lose steam.
Valuations have moved up from the lower end of the long-term range for
the benchmark indices. We expect the markets to remain range-bound in the
short-to-medium term and believe that, a bottoms-up approach will be most
suitable. One should use dips to accumulate stocks of companies having
ethical managements and strong balance sheets across sectors like IT,
Banking, Media, Logistics, Capital Goods and Infrastructure sectors.

Banks/Financial Institutions: A new beginning, but are we ready? : Kotak Securities PDF link

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily02042012.pdf


Banks/Financial Institutions
India
A new beginning, but are we ready? The RBI move to introduce dynamic provisions
(DP) is likely to reduce volatility as banks use excess provisions they made during
“periods of plenty.”RBI estimates a loan-loss provision (LLP) of 140 bps (as most banks
have yet to develop strong models) is conservative, above historical trends, indicating
high provisions in the medium term. While the intent is good we find the calculations
are from few banks, limited data, subjective and utilization-restrictive.

Accumulate BLUE STAR :TARGET PRICE: RS.215: Kotak Sec PDF link

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http://www.kotaksecurities.com/pdf/dmb/MorningInsight04042012.pdf

BLUE STAR LTD
PRICE: RS.196 RECOMMENDATION: ACCUMULATE
TARGET  PRICE: RS.215 FY13E P/E: 15.1X
 The company has continued its process of reviewing the project costs
and expects to take further cost increase of Rs 300 mn at EBITDA level in
Q4 FY12
 The company indicates that post the review of project costs, some
projects would continue at low margins and should get executed by
H1FY13. Sequentially, EBITDA margins should expand in FY13 but may
still remain below historical levels. The company indicated that projects
won in FY12 are at reasonably good margins, which should support margin improvement in FY13 and beyond.
 The company has been able to reduce its working capital and borrowings
in FY12. This process would continue in FY13 as well. The company targets to cut overheads by 30% in FY13.
 We believe the worst is over for the company in terms of deterioration in
balance sheet and earnings. Upgrade to Accumulate with a price target
of Rs 215. We are constrained from according a higher rating due to
weak business outlook.

Economy News  Kotak Securities

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Economy News
 The Union Cabinet is expected to soon consider a proposal to increase
foreign direct investment cap in broadcasting services like Direct-to-Home
and cable TV networks to a uniform 74%. (BL)
 The yields on the 10-year benchmark government bond touched a fourmonth high of 8.78% on Tuesday as the RBI conducted the first auction of
the financial year amid tight liquidity conditions. (BS)

Fears materialize as first auction sees high cutoffs & partial devolvement • : Edelweiss

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Fears materialize as first auction sees high cutoffs & partial devolvement
• The first trading day of FY13 began on a negative note as yields shot up by more than
10bps at opening, reeling under Friday’s unsatisfactory OMO buyback and ahead of the
sizable INR 180bn auction. Yields traded in a narrow range after opening, awaiting the
results of the bond purchase auction and fearing cutoffs higher than prevalent market
yields. The market fears came true when auction results showed marginal devolvement in
two of the instruments over and above the markedly higher cutoffs.
• The RBI set a cut-off of 8.76% for the 8.19, 2020 bond, 8.84% for the 9.15, 2024 bond,
9.00% for the 8.97, 2030 bond & 9.06% for the 8.83, 2041 bond. The RBI devolved INR
3.19bn of the 8.19, 2020 bond & INR 8.76bn of the 8.97, 2030 bond on primary dealers.
• This poor showing at the first auction in a year which will see sustained weekly paper
supply spooked the markets further and the 10-Y benchmark closed at 8.74%, a
whopping 17 bps higher than the previous close of 8.57%. It had opened at 8.67% and
touched a high of 8.78% when the auction outcome was declared.
Non-SLR Market
L&T Finance and L&T Infra Finance placed April Maturity CPs worth INR 4.35bn and INR
3.25bn @ 10.10%. I-Sec PD placed same tenor @ 9.95% for INR 1bn. SREI Equipment
Finance Pvt Ltd placed June Maturity CP worth INR 1bn @ 10.60%.
Money Market
The liquidity stress eased significantly as the year end pressure was released – the series of
dedicated LAF windows to cater to year-end requirements saw demand of INR 1.99 tn.
Borrowing at today’s LAF window toned down to INR 1.38tn and can be expected to ease
further as government spending and G-sec redemption flows come in. The call market also
softened as overnight WAR came off to 9.35% with relatively higher deal volume.

COAL INDIA FY13 production target raised to 470mt : Edelweiss

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Coal India (CIL) has raised FY13 production target to 470mt from 463mt, in
view of strong recovery in Q4FY12 production. The renewed momentum,
recent clearance of 19mtpa projects by MOEF and accumulated inventory
of 74.5mt convey upside risk to our FY13 sales assumption of 450mt.
Maintain ‘BUY’.
Raises FY13 production volume target to 470mt from 463mt
Coal production recovered strongly in Q4FY12 surging 9.7% YoY against decline of
2.8% YoY for 9mFY12. Hence, CIL has raised production target for FY13 to 470 mt
from 463mt. Total production of CIL for FY12 stood at 435.8mt while despatches
were 431.3mt, leading to inventory addition of ~4.5mt (total inventory increased to
~74.5mt by end of FY12).
MOEF clears coal projects totaling 19mtpa
MOEF has cleared a total of 10 projects of CIL in Feb-12 and Mar-12 with capacity
of 19mtpa, and is likely to further accelerate its coal project clearances in our view.
Further, in Feb-12, CIL’s Board has approved the Amrapali project with 12mtpa
capacity (expected production of 1.5mtpa in FY13).
Outlook and valuations: Upside risk to FY13 volumes; maintain BUY
For FY13, we have estimated sales volume of 450mt. The company’s target of
470mt in view of Q4FY12 production, clearances by MOEF and availability of 74mt
inventory convey upside risk to our assumption. Rake availability for Q4FY12 was
~199 rakes/day, a substantial improvement over FY12 average of ~169 rakes/day.
As per media reports, the adverse impact of forced signing of new FSAs with 80%
trigger level is likely to be mitigated by only 1% penalty payment (against 10%
currently) and stringent conditions. We retain our ‘BUY/SO’ recommendation on
CIL with a price target of INR 430.

Rupee woes: end-2012 forecast of INR55:USD. ::CLSA

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Rupee woes
INR remains one of the riskiest currencies. India’s large and widening
current account (CA) deficit and its dependence on volatile capital inflows
make it vulnerable to becoming a casualty of swings in global risk appetite
and crude oil prices. INR’s recovery in January was due partly to RBI’s
aggressive currency intervention, although global risk-on, RBI’s antispeculative
measures and deregulation of NRI deposit rates also
helped. However, INR has been weakening against USD since early
February, despite a surge in portfolio inflows into India (1Q12: around
USD13.5bn). Global risk-on will likely boost volatile capital inflows unless
domestic factors, such politics and policy coordination, are turn-offs. But
capital inflows may not be adequate to eliminate concerns about smooth
financing of the CA deficit. On our forecast, the CA deficit of 3.9% of GDP
in FY13 is beyond the RBI’s comfort level. This, along with our
expectations of a stronger dollar, sets the stage for INR to weaken. We
maintain our end-2012 forecast of INR55:USD.

Buy GlaxoSmithKline Consumer Healthcare: ShareKhan

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Key points
CY2011 performance – high teens growth: Glaxosmithkline Consumer
Healthcare Ltd (GSK) posted a high-teen growth in its top line and bottom line
during the year. The top line growth of 16.5% year on year (YoY) was driven by
a mix of volume and value. The malted food drinks (MFD) segment (94% of total
revenues) grew by 16.3% YoY, driven by an around 9% YoY volume growth.
Horlicks, which is the company’s flagship brand, grew by around 18% during the
year. The biscuits portfolio had done exceptionally well with a growth of 30% in
CY2011. Though the operating profit margin (OPM) declined by 51bps YoY (to
15.8%), the strong growth in the business’ auxiliary income and interest income
resulted in an 18.5% YoY growth in the bottom line.
Cash conversion cycle improved further: The company’s cash conversion cycle
improved from negative 89 days in CY2010 to negative 100 days in CY2011,
indicating an improvement in working capital management. The creditor days
have increased from around 139 days in CY2010 to 154 days in CY2011. Hence
despite an above 40% growth in loans and advances in the last couple of years,
the company’s ability to generate cash from operating activities has remained
strong. We expect the cash conversion cycle to further improve in the coming
years.
Return ratios remain strong: The return ratios continued to improve with the
return on net worth (RoNW) and return on capital employed (RoCE) up from
32.2% and 48.7% respectively in CY2010 to 33.8% and 51.7% in CY2011.
Cheery dividend player: The company is known to be a cheery dividend payer
in the fast moving consumer goods (FMCG) space. As anticipated the company
has paid a dividend of Rs35 per share in CY2011 (350% of face value). The
dividend payout ratio stood at 41% in CY2011, which has improved in comparison
to its average dividend payout ratio of around 33%. With the profit after tax
(PAT) growth likely to sustain at close to 20%, we expect the dividend pay out
ratio to sustain at around 40% in the coming years.

Buy Ess Dee Aluminium Limited (EDAL) : : Escorts Securities

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Indian Foils Limited (IFL) Story
EDAL had acquired 90% stake in India Foils Limited (IFL),
from Madras Aluminium Ltd (MALCO) a Vedanta Group
Company in 2008 for Rs. 128 cr. It infused Rs. 150 cr for
refurbishment of the plant since the buyout. IFL also has a
castor plant at its facility which makes Aluminium sheets which
is the input for Ess Dee. The current capacity utilization of
castor plant is 60% which is much below the breakeven
rate(80%). This current under utilization is expected to
improve in Q3FY13 which will increase income which have
currently been hit due to underutilization at IFL. EDAL
currently imports Aluminium Sheets, its raw material, from
only one supplier GRAMCO which costs ‘LME+$650’. After
the Castor at IFL reaches 80% utilization the cost of sheets to
EDAL will come down to ‘LME+$220’. This will give
additional profit to EDAL, thus increasing profit margins.

Q4FY12 Result Preview - Soft patch continues :: Edelweiss PDF link

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Q4FY12 is expected to be yet another weak quarter with a 6.4% PAT growth for Sensex, while earning for the coverage universe is expected to remain flat YoY (a major part of earnings growth is contributed by SBI). Revenue growth is also expected to slow down to 16% (coverage universe, ex OMCs) against a healthy 20%+ recorded over the past few quarters with margins contracting ~280bps YoY. Core defensive sectors (pharma and consumer goods) are yet again expected to post good set of results while growth in cyclicals is expected to lag. Going into FY13, the earnings trajectory seems to be bottoming out as reflected in the rising upgrade to downgrade ratio. Besides, high frequency macro indicators suggest that the economy is emerging from a phase of extreme weakness.

eClerx Services - Deceleration ahead, but still remains healthy; visit note; Buy :: Edelweiss PDF link

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eClerx Services (ECLX IN, INR 735, Buy)

We recently met the management of eClerx Services (eClerx) for business update and outlook going forward. While near-term growth could moderate, we believe the cost efficiency that eClerx provides to its clients, will continue to drive 20% revenue CAGR over FY12-14E. Further, we also note disproportionate investments happening towards growing non top 5 clients. Overall, we continue to believe the eClerx has built a solid business model (cost focused) that is continuing to grow over 20%, generating ROE of 40% and with a dividend payout of 50%. In the near term, due to slower growth, stock performance may remain muted. At P/E of 11.4x FY13, we maintain ‘BUY’ with target of INR845.   

Bharat Electronics - Another weak performance, but FY13 outlook better; company update; Buy :: Edelweiss PDF link

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Bharat Electronics (BHE IN, INR 1,519, Buy)

Bharat Electronics (BEL) reported provisional results for FY12 with turnover of INR57bn (our estimate INR60.5bn; management guidance INR62bn) and PBT of INR9.75bn (our estimate INR 10.9bn). Management has cited delays in customer clearances as reason for the miss. FY13 outlook is better with expectations of close to 20% sales growth and improvement in EBIDTA margin. BEL remains a good defensive play with cash of more than INR700/ share on balance sheet. We maintain ‘BUY’.

Sensex has strong bottom at 16000: Morgan Stanley MF

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In April, the Indian market will be keenly watching the RBI policy action. There are hopes for a rate cut. Jayesh Gandhi, executive director of Morgan Stanley Mutual Fund expects Indian equities to inch higher led by interest rate easing. He sees 16,000 as a strong base for the Sensex. "We need clear direction from RBI on interest rates," he adds.

The Indian has been volatile over the last few days. In an interview to CNBC-TV18, Gandhi says, in the short-term, the market movement will continue to be determined by global cues. "Global liquidity will remain supportive for equities," he asserts.

April 2012: Tax Talk:: Business Line

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I have recently retired from an MNC. The company pays gratuity to the management staff at the rate of one month basic salary for every year of service subject to a ceiling of 20 months. It appears that the scheme is not covered under the Payment of Gratuity Act. On this basis, the gratuity amount is paid to the retirees. But while calculating the tax exempt gratuity amount, they follow the calculation according to the following norms. The average basic salary of the 10 months preceding the last month (may be to facilitate payment of gratuity amount on the retirement day ) , say A is taken and tax exempt amount is calculated as A times the number of completed years of service , omitting the fraction even if more than 6 months times 15/30.

Whereas I understand that it should be the average of 10 months' salary including the last month times the number of years of service, increased by one year if the fractional service is more than six months times 15 /26 .

When calculated according to the company's method, the tax outgo is more by about Rs 12,000.

Kindly confirm, whether the stand of the company is correct in calculating the tax exempt amount. Please indicate the I-T clause also.

— Jagannathan.R

As informed by you, since your employer is not covered under the Payment of Gratuity Act (POGA) and you have received gratuity under a scheme not covered under POGA, the amount exempt from tax should be computed according to the provisions of section 10(10)(iii) of the Income tax Act, 1961. The exemption amount should be least of the following:

Half's month average salary for each completed year of service. The average monthly salary shall be calculated on the basis of the average salary of 10 months immediately preceding the month in which an individual had retired; or

Statutorily prescribed cap of Rs 10, 00,000; or

actual gratuity received.

According to the aforesaid provisions, while computing the amount to be claimed as exempt from tax in respect of gratuity, the average monthly salary has to be calculated on the basis of average salary of 10 months immediately preceding the month in which an individual has retired and not the month in which an individual has retired.

Further, unlike the provisions of POGA, which clearly states that while calculating the amount of gratuity as exempt from tax, every completed year of service or part thereof in excess of six months has to be considered, the words used in section 10(10)(iii) of the Act are half month's average salary to be calculated for each completed year of service. Generally, in such cases, where a reference to completed year of service is made, a fraction of a year is ignored.

It seems that your employer has computed the amount to be exempt from tax according to the provisions of section 10(10)(iii) of the Act by considering the average monthly salary on the basis of the average salary of 10 months immediately preceding the month in which you had retired and ignoring fraction of a year. Any gratuity amount received in excess of above prescribed limit shall be taxable in your hands as salary.

It needs to be ensured that the term salary includes basic salary and dearness allowance, if the terms of employment so provide, but excludes other allowances and perquisites. Further, in case, you have received any gratuity in any of the earlier FYs from your former employer(s), the prescribed limit of Rs 10,00,000 should be reduced by the amount of gratuity considered as exempt from tax in any of such previous FYs. In case, your employer is governed by the provisions of POGA, the amount of exemption should be computed according to the provisions of section 10(10)(ii) of the Act, subject to prescribed conditions.

(The author is Executive Director, Tax, KPMG)

Reliance Growth Fund - SWITCH:: Business Lines

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How debit and prepaid cards differ:: Business Lines

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Most prepaid cards cannot be reloaded with fresh cash. With a debit card, you simply make a deposit in the linked account and continue to use it.

They are both forms of plastic money. They can both be used at retail outlets. They can both be swiped at an ATM machine to check the remaining balance. And that's all the similarities there are between debit and prepaid cards.

If you've been mixing the two up, here's explaining how they are different.

GETTING A CARD

The first thing to note about prepaid cards is that you can buy them from the issuing bank whether or not you have an account with the bank.

For instance, if you want to get a Kotak Mahindra Best Compliments gift card, you don't need to have an account at Kotak Mahindra bank. That's certainly not true for debit cards. A debit card has to necessarily be linked to your bank account. A prepaid card is an over-the-counter product. It has an amount – which is left to your discretion – that is loaded at the time of purchase.

To buy a prepaid card, you need to fill out a form, provide proof of identification and address, hand over the cash or cheque and then you receive the card.

Proof is not required if you do have an account with the bank.For a debit card too, there is an application form.

But its processing and approval for issue can take as much as two weeks. The card is delivered only after approval.

Debit cards and prepaid cards have validity periods. But debit cards usually charge an annual fee, which is not the case with prepaid cards. There is a one-time fee when buying prepaid cards. Of course, re-issuing a card carries charges in both cases.The prepaid card can be swiped at any retail outlet up to the amount loaded onto the card.

USING THE CARDS

There is a minimum and maximum limit on the amount that can be loaded on a single card.

A debit card can be swiped as long as there is sufficient balance in the bank account, no matter what the amount is. Banks simply impose upper limits on the amount spendable per day.

Even so, these daily limits are usually far higher than the entire amount that's allowed on a prepaid card.

Prepaid cards have various avatars – gift cards, meal cards, forex cards and cash cards – each with their own uses.

The forex card, for example, is in foreign currency and can only be used abroad. It does not levy transaction costs as international debit cards are wont to do. A gift card can be swiped anywhere but a meal card can be used only at food-and-beverage outlets.

Another noteworthy point is that most prepaid cards cannot be reloaded with fresh cash.

Once used up, the card has to be discarded. With a debit card, you can simply make a deposit in the linked account and continue to use it.

For example, HDFC Bank's FoodPlus card cannot be ‘topped up'. On the other hand, money can be added to Axis Bank's My Money card and it can also be used to draw money. Nor can prepaid cards be used at ATMs to withdraw cash as you would with debit cards.

You can stick any prepaid card into an ATM only to check the balance remaining.

Prepaid cards also come with net-banking log-ins to check balances. Changing of prepaid card PINs is also not allowed by some banks.And finally, banks have many offers such as discounts, cash back, gifts and loyalty points when shopping with debit cards.

Such a reward system is not available with prepaid cards.

Simple rules to invest in NFOs ::Business Line

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You should take responsibility for your investments. In this article, we urge you to ask simple questions about any NFO before you decide to invest in it.

Many individuals we met during the last three years felt that their advisors wrongly sold them unit-linked insurance plans (ULIPs). These individuals have equally complained about their investments in certain active mutual funds that have underperformed their benchmarks.

Our intention here is not to accuse the advisors for selling such products or comment on the insurance companies and asset management firms offering such products. Rather, our attention is on you, the investor. We think it is your responsibility to protect your investments! And the only way you can do it is to invest time and effort to understand the products you buy. In this article, we discuss the issues that you should address before you invest in a new fund offering (NFO).

Asset management firms continually introduce new products and add to the already flooded market. Given this, how should you evaluate a fund? Below, we offer you a handle to evaluate investments in NFOs.

CHOOSING ACTIVE FUNDS

Is the new product based on a benchmark on which index products are available? This question is important because you should always weigh the pros and cons of active and passive investment.

An NFO benchmarked to, say, CNX 100 may not have a passive alternative in the market at present.

If index funds are not available, is the investable universe less crowded, if not new? This is, perhaps, the most crucial question you should consider before investing in an NFO. How will you know? Check if the fund describes its proposed strategy in the offer document. Often, the fund will simply state that it “seeks to generate long-term capital appreciation”. That does not say much about its strategy! So, check if the fund proposes to invest in a universe of stocks that is uncommon. A fund proposing to have a CNX 100 or BSE 200 is more common than, say, a fund that proposes to have the NSE Commodities Index as its benchmark index. The benchmark index tells you that the fund manager is likely to choose among the stocks that constitute the index. If more funds are benchmarked to the same index, lesser the chances of a fund beating its benchmark, as all funds are chasing the same investable universe.

Assuming the fund has a relatively new investable universe, are you comfortable with the asset management firm? If yes, invest. Choosing the asset management firm is, perhaps, the easiest step, as you may prefer to invest in NFOs offered by firms with which you have an existing relationship.

CONCLUSION

In short, you should invest in an NFO if the fund proposes to invest in a less-crowded investable universe. You can use the above as filter-rules to evaluate existing active funds.

Unless you have a compelling reason to invest in an active fund, you should consider an index fund, its passive alternative, if available. Why? Empirical evidence has shown that active funds do not consistently beat their benchmark index. The ability to beat the benchmark index is a function of two factors- assets under management (AUM) and number of peer funds. And the likelihood of beating the index reduces with the increase in AUM and peer funds.

This is further compounded by the fact that the cost of investing in an active fund is higher compared to an index fund (approximately 2.5 per cent vs. 1.5 per cent of the average AUM). This cost is important. Why? For one, you will incur this cost even if the fund earns negative return in any year! For another, higher cost means lost money, money unavailable for you to invest and earn higher return.

Indian markets- BSE and NSE closed today .Good Friday

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Indian markets- BSE and NSE closed today .Good Friday