Thursday, November 12, 2009
Sensex up 409 pts on global cues; RIL, IT stocks lead
Sensex up 409 pts on global cues; RIL, IT stocks lead
The Economic Times, November 12, 2009, Page 18
THE Bombay Stock Exchange (BSE) Sensitive Index rallied 2.5% on Wednesday, led by Reliance Industries (RIL) and Infosys Technologies, on renewed optimism about the world economy. Firmer global markets on hopes US interest rates will remain near zero for some time and robust Chinese factory output data helped set the ground for the rise, traders said.
Ajay Parmar, head of institutional equities at Emkay Global, said a weak dollar was encouraging foreign funds to plough cash into emerging markets such as India. Energy giant RIL, which has the heaviest weight on the main index, climbed 2.7% to Rs 2,107.95, taking its gains so far this month to 9.1%. The stock had shed 12.3% in October.
The 30-share BSE index closed up 2.49%, or 409.04 points, at 16,849.60, taking its gains so far in November to 6%. All of its components gained. Foreign funds have moved a net $14.5 billion into Indian stocks so far this year, propelling the benchmark index up nearly three-quarters in the period.
“It is a liquidity-driven rally. The stocks which were hammered are being pulled up,” said Deven Choksey, managing director and CEO of KR Choksey. “It is not that anything is wrong fundamentally, but it’s time to get cautious,” Software companies rose after the ET quoted the president of Nasscom as saying the industry was expected to grow 4-7% in the current fiscal year and return to growth of more than 10% next year.
Top outsourcer Tata Consultancy rose 3.3%, second-ranked Infosys climbed 4.1% and third-ranked Wipro gained 3.9%. Auto companies firmed after October car sales rose the fastest in over two years, bolstering hopes the industry was back on track for robust growth. Tata Motors raced 4.7% to Rs 621.55 while rival Mahindra & Mahindra closed 2.9% higher at Rs 1,032.20. ICICI Bank firmed up 3.4% to Rs 924.65, a day after its chief executive said bad loans had peaked and loan quality should improve.
Metals stocks rose on improving outlook for base metal prices, Mr Choksey said. Sterlite Industries rose 6.5% to Rs 858.05, while Tata Steel and Hindalco climbed 4.3% and 3.9% respectively.
In the broader market, gainers outnumbered losers in a ratio of 1.7:1 on better volume of 425 million shares. The 50-share NSE index closed 2.5% higher at 5,003.95. It closed above 5,000 for the first time since October 21. — Reuters
Debate tax code principles, not provisions
Debate tax code principles, not provisions
The Financial Express, November 12, 2099, Page 1
MK VENU, New Delhi
Union home minister P Chidambaram, who is the prime author of the new direct tax code, has said industry is making a mistake by comparing the proposed tax code with existing income-tax law, which has undergone thousands of amendments in recent years and is full of ambiguities.
Chidambaram, who had recently released the direct tax code along with finance minister Pranab Mukherjee, said it was not surprising the businesses that had been the biggest gainers of all the ambiguities and anomalies of the present tax laws are the ones raising objections to various provisions of the code. “It is unfortunate that all those who are arguing for tinkering with the tax code are the ones who are benefiting from the present tax system,” he told FE.
“All the exemptions and anomalies in the tax laws and provisions have rendered our tax system so ineffective that the government is unable to collect the taxes it is due. The corporate sector pays an effective tax rate of 19% and not the real tax rate of 30%-plus. PSUs still pay at a higher effective rate of 28%,” Chidambaram said.
“So, all those asking for amendments to the direct tax code are the businesses who fear their effective tax rate will go up from the present 19% and move closer to 30%,” he added. But that is precisely the idea of a new tax code, which removes anomalies and exemptions and creates a transparent system.
The former FM said he would advise the finance ministry to encourage businesses to debate first the principles outlined in the direct tax code’s narrative chapters before going into the tax provisions, which are an outcome of those principles. “It must be read as if it is a brand new tax code for a newly-formed country without referring to the existing income-tax law, which is so full of ambiguities that it can only be termed as the “Income-Tax Litigation Act.”
It will, therefore, be a big mistake to compare the new direct tax code with the old law. Going into details of the tax code, Chidambaram said, “We have laid down in Para 10.4 the principles underlying capital gains tax. Why and how capital gains must be treated differently from regular income and so on. Para 10.5 talks about how such gains and losses must be included in total income.” So, it is the principles that must be debated and not the tax rate provided in the new code. That can come later.
In regard to the contentious minimum alternate tax that is now proposed to be levied on the gross assets of a company, Chidambaram strongly defended the principle of asset-based taxation followed in many countries.
“For instance, an asset-based tax will discourage companies from buying wasteful assets like expensive real estate properties or luxury aircraft, which may not enhance shareholder returns. Can you quarrel with that principle?” he asked. An asset-based tax would also discourage real estate companies from keeping land banks for too long without constructing on them.
Similarly, another issue on which large corporate houses have represented to the finance minister is the feasibility of a flat 15% tax on all trusts that are non-religious. Many corporate houses hold shares in group companies through charitable trusts, which earn dividends. The new code seeks to simply tax the annual income net of expenditure for these trusts at 15%.
Chidambaram has argued this simple tax will hugely reduce compliance costs. The tax department runs large machinery, which processes returns from trusts. The department goes into the definition of a charitable trust and how the incomes are to be computed, accumulated or carried over for subsequent years. “All this will be unnecessary once you have a simple tax based on income net of expenditure. Pay the tax and be done with it,” he added.
Implying that corporates must show some vision rather than get caught in the nitty-gritty of tax provisions affecting them, Chidambaram said it was a great opportunity to have a simple income-tax regime where the majority (over 97%) of all individual taxpayers will be in the 10% bracket. This will create its own growth dynamic.
The Financial Express, November 12, 2099, Page 1
MK VENU, New Delhi
Union home minister P Chidambaram, who is the prime author of the new direct tax code, has said industry is making a mistake by comparing the proposed tax code with existing income-tax law, which has undergone thousands of amendments in recent years and is full of ambiguities.
Chidambaram, who had recently released the direct tax code along with finance minister Pranab Mukherjee, said it was not surprising the businesses that had been the biggest gainers of all the ambiguities and anomalies of the present tax laws are the ones raising objections to various provisions of the code. “It is unfortunate that all those who are arguing for tinkering with the tax code are the ones who are benefiting from the present tax system,” he told FE.
“All the exemptions and anomalies in the tax laws and provisions have rendered our tax system so ineffective that the government is unable to collect the taxes it is due. The corporate sector pays an effective tax rate of 19% and not the real tax rate of 30%-plus. PSUs still pay at a higher effective rate of 28%,” Chidambaram said.
“So, all those asking for amendments to the direct tax code are the businesses who fear their effective tax rate will go up from the present 19% and move closer to 30%,” he added. But that is precisely the idea of a new tax code, which removes anomalies and exemptions and creates a transparent system.
The former FM said he would advise the finance ministry to encourage businesses to debate first the principles outlined in the direct tax code’s narrative chapters before going into the tax provisions, which are an outcome of those principles. “It must be read as if it is a brand new tax code for a newly-formed country without referring to the existing income-tax law, which is so full of ambiguities that it can only be termed as the “Income-Tax Litigation Act.”
It will, therefore, be a big mistake to compare the new direct tax code with the old law. Going into details of the tax code, Chidambaram said, “We have laid down in Para 10.4 the principles underlying capital gains tax. Why and how capital gains must be treated differently from regular income and so on. Para 10.5 talks about how such gains and losses must be included in total income.” So, it is the principles that must be debated and not the tax rate provided in the new code. That can come later.
In regard to the contentious minimum alternate tax that is now proposed to be levied on the gross assets of a company, Chidambaram strongly defended the principle of asset-based taxation followed in many countries.
“For instance, an asset-based tax will discourage companies from buying wasteful assets like expensive real estate properties or luxury aircraft, which may not enhance shareholder returns. Can you quarrel with that principle?” he asked. An asset-based tax would also discourage real estate companies from keeping land banks for too long without constructing on them.
Similarly, another issue on which large corporate houses have represented to the finance minister is the feasibility of a flat 15% tax on all trusts that are non-religious. Many corporate houses hold shares in group companies through charitable trusts, which earn dividends. The new code seeks to simply tax the annual income net of expenditure for these trusts at 15%.
Chidambaram has argued this simple tax will hugely reduce compliance costs. The tax department runs large machinery, which processes returns from trusts. The department goes into the definition of a charitable trust and how the incomes are to be computed, accumulated or carried over for subsequent years. “All this will be unnecessary once you have a simple tax based on income net of expenditure. Pay the tax and be done with it,” he added.
Implying that corporates must show some vision rather than get caught in the nitty-gritty of tax provisions affecting them, Chidambaram said it was a great opportunity to have a simple income-tax regime where the majority (over 97%) of all individual taxpayers will be in the 10% bracket. This will create its own growth dynamic.
RBI may trim stimulus: Rangarajan
RBI may trim stimulus: Rangarajan
Business Standard, November 12, 2009, Section II, Page 2
Reuters / PTI Mumbai:
The Reserve Bank of India (RBI) may withdraw some monetary stimulus if inflation rises towards the end of 2009, C Rangarajan, chairman of the Prime Minister’s economic advisory council, said on Wednesday.
“If inflation pressures develop, monetary authorities may take measures earlier. RBI will wait and see how price situation develops in Nov-Dec,” Rangarajan said.
The fiscal deficit needed to be reduced by 1 to 1.5 percentage points in the next fiscal year, he said. “Next year we might have to start the process of withdrawing some of the measures,” he said referring to the fiscal stimulus, adding that excise duties needed to be adjusted while the government’s expenditure needed to be cut in 2010-11.
DLF owners to buy out DE Shaw in arm
DLF owners to buy out DE Shaw in arm
The Economic Times, November 12, 2009, Page 1
Arun Kumar NEW DELHI
THE founding family of India’s largest real estate company has reached a deal with DE Shaw to buy out the hedge fund’s investment in DLF Asset (DAL), an important step presaging transactions that could lead to a Singapore listing for the DLF affiliate in the first quarter of 2010.
DE Shaw will get a little less than $500 million from KP Singh and his family, and privately-held DAL will most likely become a majority-owned subsidiary of listed property developer DLF, two persons directly involved in the transaction said.
DAL, which buys completed commercial assets from DLF, was set up as a Real Estate Investment Trust (REIT) controlled by the Singh family. A Singapore listing for DAL, which was to have happened in 2008, was shelved following the crash in the global equity markets.
The integration of DAL with DLF, which is expected to be completed by December, is being done to give the property developer access to the former’s revenue stream.
Mr Singh and his family have bought DE Shaw’s investment for around Rs 2,300 crore ($500 million). The hedge fund had invested $400 million, equivalent to Rs 1,600 crore, in early 2006.
The cash-strapped real estate developer, whose sales fell by over 50% to Rs 1,810 crore during the quarter ended September, has set itself a target of nearly halving debt to Rs 6,500 crore this fiscal year. Revenues from DAL, which at one time accounted for over a third of DLF’s sales, have dried up.
FLAT OUT
Deal Contours
As per the pact with DE Shaw, KP Singh and family will buy out its investment in DAL for around $500 m DLF is close to integrating DAL's operations with itself Following the deal, DLF is likely to list the company on Singapore Stock Exchange by the first quarter of 2010
Concrete Plan
Integration is aimed at bringing all the commercial assets under the DLF umbrella to ensure a certain revenue flow This would help DLF ring-fence itself from market uncertainties
Arm's Length
DAL is a wholly-owned Real Estate Investment Trust of the Singhs, floated to acquire DLF’s commercial properties It buys and manages commercial assets on the lines of REITS
HOUSING FOR AAM ADMI, A BUSINESS PROPOSITION
HOUSING FOR AAM ADMI, A BUSINESS PROPOSITION
The Economic Times, November 11, 2009, Page 8
Arindam Ghosh and Souvik Sanyal New Delhi
The global economic slowdown which shrunk availability of credit and led to meltdown in asset prices including that of real estate has had at least one positive fallout. Almost all property developers focused on bringing low cost affordable housing to attract the common man and perk up demand.
The Economic Times Realty Convention, 2009 held on 27th October in New Delhi brought together a string of stakeholders from policymakers to property developers to discuss the changing prospects of the housing sector in the country.
The focus on affordable housing over the last one year is a marked change from the past when real estate players were primarily targeting high priced premium housing schemes. "Part of the slowdown was caused by rush of real estate companies to go for top-end housing," said urban development minister Jaipal Reddy while addressing the convention.
The urban affordable housing segment forms the largest chunk of the domestic housing market. Typically, it has a steady growth in demand that does not shrink significantly with the drop in stock markets or the global economy.
To support the growth of affordable housing, the urban development ministry is in talks with the ministry of finance to make an interest subsidy and other tax incentives to borrowers on loans of Rs 20 lakh to be raised to Rs 30 lakh.
Rohtas Goel, CMD of Omaxe Ltd and president of National Real Estate Development Council (NAREDCO), said that customers currently are going in for need-based housing rather value-based housing.
He assured the government that all the real estate developers will work closely with the government in achieving the social objective. But he raised concerns over the direct tax code and asked for more relaxation that need to be given to real estate developers.
The real estate players highlighted their concerns for getting project clearances. They felt that the process to get the green signal is very cumbersome and a lot time and money gets wasted in the process. The provisions should be made more flexible and friendlier towards construction firms.
Rajeev Talwar, executive director at DLF Ltd, said, "Time taken for approvals is too long, sometimes approvals with 30 or 40 authorities itself takes about two to two and half years. No one minds paying the money for approvals, but yes the time taken for approvals has a greater cost."
Naveen Raheja, Managing Director of Raheja Developers also highlighted the concerns of the real estate firms and asked the government to fasten their process of giving approvals. He said that the people who facilitate the process of clearing projects, should be able to take decisions quickly. "There are beautiful policies and schemes which can make a revolutionary change in the country for housing, but please give us that good mindset of people who will facilitate. If they really understand us, they can sign up in five minutes instead of five months," he said.
Talking about mounting grievances of consumers of housing sector, M Ramachandran secretary in the ministry of urban development, pointed out that a real estate bill is due to be presented in the next parliamentary session, which would formulate an integrated system to address consumer grievances.
The bill would also look at the requirement of affordable housing in the coming years, to ensure optimal capacity development. Mr Ramachandran stressed on the role of basic public transport system in building a holistic housing hub in the national capital region (NCR), as the housing capacity in the capital is nearing saturation. "Improved transportation in the NCR would encourage housing opportunities in the region," he said.
Arup Roy Choudhury, chairman of National Buildings Construction Corporation (NBCC) said that the builders and developers should be mandated to adopt a transparent pricing structure, wherein consumers are informed about the construction costs, tax levies and even the profit margin enjoyed by them.
He also said that stringent penalties should be imposed on builders and developers if they fail to deliver as per committed terms, adding that a regulatory organisation should be set up to supervise the same.
Increasing the supply of low cost housing is one thing but ensuring it remains 'affordable' for the common man is also crucial. A growing number of households are paying up to half their income for a place to live and one of the primary solutions for addressing the problem of building affordable housing is lack of easy financing.
Considering the fact that affordable housing is still out of reach for a large percentage of population, R V Verma of National Housing Bank said that in order to reach out to the people in the low income segment, financing procedures of banks ought to be simplified. However, the due diligence process for giving loans should not be compromised upon to avoid the asset bubble faced by the US economy due to the sub-prime lending.
DLF eyes Rs 4,500 cr from sale of non-core assets
DLF eyes Rs 4,500 cr from sale of non-core assets
The Economic Times, November 12, 2009, Page 11
DLF expects to get Rs 4,500 crore through the sale of non-core assets and has already raised Rs 1,064 crore in the first half of the current fiscal.
DLF has been working on the integration of DAL with itself for some time, a person with knowledge of the development said, adding the valuation will depend on the report of a panel of independent directors.
A DLF spokesman said the company "does not comment on market speculations".
Since 2006, DAL has acquired commercial assets valued at over Rs 11,000 crore from DLF. It has raised some Rs 5,000 crore ($1.05 billion) from hedge funds and owes DLF around Rs 2,000 crore.
In May, the Singh family mopped up Rs 3,800 crore by divesting a 9.9% stake in DLF to buy out the investment by DE Shaw. But the deal got delayed due to a tax hitch: since DAL was not a listed entity, the hedge fund was required to pay capital gains tax on the profit. This issue has now been resolved.
After the exit of DE Shaw, a DLF subsidiary will finalise the purchase of the promoters’ entire holding in DAL through a complex share-swap deal. The deal is being routed through a subsidiary as the promoter holding in DLF is above 75% and any issue of fresh shares to promoters is not allowed under listing norms. This effectively means that DLF will issue fresh shares of its subsidiary to the Singh family, said one of the officials. A source said the value of DAL would be around Rs 9,000 crore. After adjusting for DAL’s liability to DLF, loans from banks and the investment by Symphony Capital in the form of preference shares, the net value would be around Rs 2,500 crore against which the shares of a subsidiary company will be issued to the Singh family.
London-based hedge fund Symphony Capital has invested $650 million in DAL through convertible preference shares in two phases.
The company has started discussions with overseas investment banks for DAL’s Singapore listing, a banker said.
The Economic Times, November 12, 2009, Page 11
DLF expects to get Rs 4,500 crore through the sale of non-core assets and has already raised Rs 1,064 crore in the first half of the current fiscal.
DLF has been working on the integration of DAL with itself for some time, a person with knowledge of the development said, adding the valuation will depend on the report of a panel of independent directors.
A DLF spokesman said the company "does not comment on market speculations".
Since 2006, DAL has acquired commercial assets valued at over Rs 11,000 crore from DLF. It has raised some Rs 5,000 crore ($1.05 billion) from hedge funds and owes DLF around Rs 2,000 crore.
In May, the Singh family mopped up Rs 3,800 crore by divesting a 9.9% stake in DLF to buy out the investment by DE Shaw. But the deal got delayed due to a tax hitch: since DAL was not a listed entity, the hedge fund was required to pay capital gains tax on the profit. This issue has now been resolved.
After the exit of DE Shaw, a DLF subsidiary will finalise the purchase of the promoters’ entire holding in DAL through a complex share-swap deal. The deal is being routed through a subsidiary as the promoter holding in DLF is above 75% and any issue of fresh shares to promoters is not allowed under listing norms. This effectively means that DLF will issue fresh shares of its subsidiary to the Singh family, said one of the officials. A source said the value of DAL would be around Rs 9,000 crore. After adjusting for DAL’s liability to DLF, loans from banks and the investment by Symphony Capital in the form of preference shares, the net value would be around Rs 2,500 crore against which the shares of a subsidiary company will be issued to the Singh family.
London-based hedge fund Symphony Capital has invested $650 million in DAL through convertible preference shares in two phases.
The company has started discussions with overseas investment banks for DAL’s Singapore listing, a banker said.
Subscribe to:
Posts (Atom)
Posts
