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Tuesday, January 31, 2017

Terminology - Finance - Fiscal Deficit...

Terminology - Finance - Fiscal Deficit...

One of the important yardstick to measure the financial health of an economy is Fiscal deficit.

It is the difference between the government revenues & expenditure.

The difference is generally bridged by debt.

India Fiscal Deficit target of 3% of GDP..

India Fiscal Deficit target of 3% of GDP..!

One of the important yardstick to measure the financial health of an economy is Fiscal deficit. It is the difference between the government revenues and expenditure.

The difference is generally bridged by debt. The present government is committed to reduce the gap. The long term fiscal deficit target is 3% of the Gross domestic product (GDP). This simply means relatively less expenditure. Hence, less government spending.

Fiscal Deficit target of 3% of GDP

In last one decade India is making serious efforts to reduce the fiscal deficit level. Ever since, the new government came in it has been in favor of fiscal consolidation and meet the long term fiscal deficit target of 3% by FY17-18.

Mind you, the recent demonetisation has resulted in a slowdown. Further, government has announced flurry of projects but execution is still pending. 

This means the government needs to relax its spending to spurt the growth again.

This means, once again, the government needs to fight dual challenge. First, maintaining its stance on fiscal consolidation and sticking it fiscal deficit target of 3% of GDP for FY17-18. 

Second, it must relax the deficit target for reviving the economy from the shock of demonetisation.

With elections in Uttar Pradesh and preparing the ground work for 2019 election it would be interesting to see what stance government takes Fiscal consolidation or Fiscal deficit.

Monday, January 30, 2017

Expectations of the Indian Real Estate Sector from Union Budget 2017-18

Expectations of the Real Estate Sector from Union Budget 2017-18
 by Mr. Kishor Pate, CMD - Amit Enterprises Housing Ltd.

The real estate sector has been the second biggest employer for India after agriculture, and market estimates suggest that it will grow by as much as 30% in the next decade. Consequently, stakeholders have high expectation from the 2017-18 Union Budget. 

Here are 8 such changes that the industry and its stakeholders are unanimously looking forward to:

1.  Income tax relaxation..!

As of now, the tax deduction limit for home loans is just Rs. 2 lakh, which becomes insignificant when you take into account the high prices of properties in our larger cities. 

In Mumbai, for instance, the standard housing price is Rs. 1 crore, so the current tax deduction limit is insignificant for homebuyers in the financial capital. 

Apart from extending the tax exemption for home loans to at least 5 lakh, the budget should also introduce concessions on insurance premiums to encourage buyers insure their property.
Mr. Kishor Pate
2.  Increase in HRA deductions for the self employed..!

Salaried individuals already get HRA (house rent allowance) as a component of their income, and can also claim deductions on it. 

However, self-employed individuals are limited to only Rs. 2,000 as a maximum deduction on HRA as per the provisions of Section 80GG. The 2017-18 Union Budget should address this dichotomy.

3.  Standardize construction materials..!

A major reason for increasing home prices is the constantly escalating cost of construction materials like cement and steel. 

Standardization of such materials can help reach tax clarity and also make real estate a viable opportunity for investment.

4.  Single window clearances for real estate projects..!

As per the usual process, real estate projects need to go through a long line of approvals, and this bureaucratic process has been resulting in delayed deliveries. 

Single window clearances have been a long-awaited step to reduce these bureaucratic setbacks. Once in place, it can give a major boost to the market.

5.  Simpler tax norms of REITs..!

Until today, the real estate sector has not benefited from any REIT listings, with the model in its current format still weighed down with multiple taxes. 

Taxation for REITs needs to be simplified to allow developers and investors to benefit from REIT listings. It is necessary that the Union Budget 2017-18 recognizes the importance of REITs and provides:

·  Lower taxation on REIT income

·  Reduction/removal of service tax with leased premises

·  Waiving capital gains during transfer of property to REIT

6.  Better GST Clarity..!

Although the GST (Goods and Services Tax) structure has been declared, stakeholders are eagerly waiting to understand the rates applicable to the real estate / construction industry. 

We seek clarifications on abatement schemes, and scenarios when developers use composition schemes and the resultant credit for input tax.

7.  Financial protection with project delays..!

Currently, the interest deductions associated with self-owned homes has been limited at Rs. 2 lakh. However, for projects under construction, the deductions applicable are just Rs. 30,000. Further, the applicable period for the interest is 3 years, starting from the year that the loan was approved. 

This has proved to be a hardship for property buyers and investors. Union Budget 2017-18 should focus on further interest deductions in late deliveries and also amend the period of repayment from the year the possession was due.

8.  Clarification on PMAY beneficiaries..!

According to a recent announcement by the Union Government, a 3% interest rate is applicable for loans up to Rs. 12 lakh and 4% up to Rs. 9 lakh, as per the PMAY (Pradhan Mantri Awas Yojana) scheme. 

The scheme also states that two new income categories have been added to avail higher loan amounts with higher subsidies. We look forward to further clarifications on the definition of these beneficiaries.

About The Author

Mr. Kishor Pate, Chairman & Managing Director of Amit Enterprises Housing Ltd. is the driving force behind one of the most successful real estate development firms in Pune and beyond. 

Apart from its signature luxury projects like Montecito in Sahakar Nagar and other premium gated townships, AEHL has also launched highly successful affordable housing projects like Astonia Classic and Colori in Undri and the Mediterranean-style township Astonia Royale in Ambegaon.

For media contact
Jay Kalghatgi
Client Interface - Copyconnect
Mobile: 9320142248

Short term Impact of Indian Union Budget on Stock Markets


Short term Impact of Indian Union Budget on Stock Markets

Like just said, the Union Budget 2017-18 is less than 48 hours away. 

And just like always, there is no dearth of speculators trying to predict the possible announcements and expected market moves. 
As you can see from the chart, there is no clear trend when it comes to market movements pre and post budget. 

Note: Pre-budget data is until the previous day's closing. Post budget includes Sensex close on the budget day. Data for 2017 is from January 2 to January 8. 

If history is anything to go by, all this speculation will go in vain. And while big players can get away with their failed speculative bets, it is the individual investor that will be worst trapped. 

One of our subscribers recently wrote to us seeking stock recommendations that could benefit from the budget. 

I'll repeat a gist of our response for your benefit... 

We're sorry, we don't have any speculative 'tips' based on budget expectations. Don't get us wrong. We closely monitor the outcome of the budget. 

And we will certainly be assessing its impact on various sectors and companies. So stay tuned. And rest assured that we will keep recommending stocks whenever we see value.

Limits on Cash withdrawals from Bank accounts and ATMs - Restoration of status quo ante


DCM (Plg) No. 2905/10.27.00/2016-17
January 30, 2017

The Chairman / Managing Director / Chief Executive Officer,
Public Sector Banks / Private Sector Banks / Foreign Banks,
Regional Rural Banks / Urban Co-operative Banks,
State Co-operative Banks / District Central Co-operative Banks

Dear Sir/Madam,

Limits on Cash withdrawals from Bank accounts and ATMs - Restoration of status quo ante
Please refer to our circular DCM (Plg) No.1226/10.27.00/2016-17 dated November 08, 2016 placing limits on Cash withdrawals from bank accounts and ATMs in the wake of withdrawal of Legal Tender Character of Specified Bank Notes (SBN) and subsequent circulars DCM (Plg) Nos.1256, 1274, 1317, 1437, 2142 and 2559 dated November 11, 14, 21, 28, December 30, 2016 and January 16, 2017 respectively, providing for relief and relaxations therefrom.

On a review of the pace of remonitisation, it has been decided to partially restore status quo ante as under:

Limits placed vide the circulars cited above on cash withdrawals from Current accounts/ Cash credit accounts/ Overdraft accounts stand withdrawn with immediate effect.

The limits on Savings Bank accounts will continue for the present and are under consideration for withdrawal in the near future.

Limits vide the circulars cited above placed on cash withdrawals from ATMs stand 
withdrawn from February 01, 2017. 

However, banks may, at their discretion, have their own operating limits as was the case before November 8, 2016, subject to 2 (ii) above.
Further, banks are urged to encourage their constituents to sustain the movement towards digitisation of payments and switching over of payments from cash mode to non-cash mode.

Yours faithfully,
(P Vijaya Kumar)
Chief General Manager

Sunday, January 29, 2017

UTI Retirement Benefit Pension Fund (RBPF)

UTI Retirement Benefit Pension Fund (RBPF)

UTI RBPF (a Government of India notified Pension Fund), helps to create a corpus and aims to generate a flow of income post retirement. It helps in building a long-term portfolio for retirement.  The scheme is trusted for over 22 years and has more than 2.4 million investor accounts.

It is an open-ended debt oriented balance fund with a maximum equity allocation of 40% and the balance is in debt, this ensures to provide pension to investors after they attain the age of 58 years, in the form of regular income and liquidity in case of emergencies. Investors can also opt to receive the accumulated investment in the form similar to annuity by repurchasing the units over a period of time in the form of periodical cash-flow, based on the repurchase value of their holding then, through a systematic withdrawal plan, after they reach the age of 58.

UTI Unit Linked Insurance Plan (UTI ULIP)

UTI Unit Linked Insurance Plan (UTI ULIP)

UTI ULIP is the first insurance linked mutual fund product in the country. Launched in 1971, the scheme has a performance track record of over 45 years spanning across different  phases of market. The scheme has more than 2.7 lakh investor accounts.
UTI ULIP not only offers life coverage but also tax savings opportunity and a bundle other benefits such accident insurance cover and a balanced portfolio of debt and equity – thereby integrating asset allocation decision of the investor . The low cost structure, simple health declaration process, transparency and liquidity are key attributes that make UTI - 
ULIP a smart investment plan.

The scheme is positioned as a debt oriented balanced fund with a long term investment objective aiming to deliver capital appreciation. 

UTI Long Term Advantage Fund- Series V : Allows Income Tax Concession in multiple ways..!

UTI Long Term Advantage Fund- Series V

UTI Mutual Fund has launched a new 10 year close ended Equity Linked Savings Scheme, UTI Long Term Advantage Fund –Series V. The fund was launched on December 22, 2016 

The investment objective of the fund is to generate capital appreciation over a period of 10 years by investing predominantly in equity and equity related instruments of companies along with income tax benefit. The fund will follow an investment strategy of bottom up picking of stocks to benefit from the low base effect, visible earnings expansion and revival in the domestic cyclicals. Given the long term investment horizon of the fund, suitable for investors looking to benefit from distinctive and concentrated portfolio primarily focussed on the business cycle and complements current investor portfolios that are pre-dominantly geared towards non-cyclicals.

The tenure of the fund is 10 years with lock in period of 3 years. During the NFO period the fund sold at face value of Rs.10. 

No entry or exit loads are applicable. The fund offers 2 plans- Direct and Regular and 2 options viz. Growth and Dividend option with payout option only.

Investing in UTI Long Term Advantage Fund –Series V allows tax concession in multiple ways, primarily the contribution of up to 1.5 lakhs in the scheme is eligible for tax benefits under Sec 80C of the IT Act, 1961. Secondly, the dividends received from the fund will be tax free in the hands of the investors and lastly redemption proceeds will attract zero tax on capital gain, as investment is held for minimum period of 3 years (lock-in).

UTI MF SMART PLAN - Enjoy Benefits of Wealth Creation, Protection & Retirement..!


(Enjoy Benefits of Wealth Creation, Protection and Retirement)
Delaying the decision on investing for Tax Saving results in investors rushing at the last minute and not having enough time to evaluate the investment from a long term perspective. 

UTI Mutual Fund is offering an unique Mutual Fund Investment Solution called ‘UTI SMART PLAN’, which will provide benefits of Wealth Creation, Protection and Retirement in addition to tax benefits under Sec 80C of the IT Act, 1961 upto Rs.1.50 lakhs

UTI Smart Plan comprises of 3 wealth creation cum tax saving schemes namely UTI Long Term Advantage Fund-Series V, UTI Unit Linked Insurance Plan and UTI Retirement Benefit Pension Fund.

UTI Long Term Advantage Fund-Series V

 UTI Unit Linked Insurance Plan 

UTI Retirement Benefit Pension Fund

Saturday, January 28, 2017

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Friday, January 27, 2017

Wednesday, January 25, 2017

Life Insurance 36 crore Policies..!

Life Insurance 36 crore Policies..!

With nearly 36 crore (360 million) life insurance policies, India's life insurance sector is perhaps the biggest in the world in terms of number.

But despite the absolute size of the sector, penetration in the life segment is low; although it is comparable to China's 1.7% Similar metrics for South Korea (7.2%) or South Africa (11.4%) are much higher...

Valuing a business is...! - Mr. Warren Buffett

Investing Mantra's - Investment
Investing Mantra's
 Investing Mantra's - Warren Buffett, 

"Valuing a business  
is part art and part science." 
- Mr. Warren Buffett 

Tuesday, January 24, 2017

Declining Housing Loan Rates to Kick-start Residential Revival

Declining Home Loan Rates to Kick-start Residential Revival

by Mr. Ramesh Nair, COO – Business & International Director, JLL India

In the midst of all the demonetization brouhaha, there is reason to celebrate in the real estate sector. The Indian housing markets historically kicked off due to the easy availability of cheap home loans. Today, we see the past revisited, with the possibility of a healthy resurgence in demand driven by dipping home loan rates.

Cheap loan rates are obviously not the only factor driving home purchasing sentiment. However, it is definitely one of the key factors for a family – especially when it comes to buying their first home. 

Home loan interest rates becomes even more relevant for the value or budget home buyer, as every rupee reduction in EMI can propel a purchase decision forward. 

And needless to add, it is this customer base that is most vital for the Indian real estate market, as stable residential markets essentially depend upon healthy end-user demand from middle income and lower middle income buyers.

Though it has contracted demand in the short term, the recent demonetization drive will play the role of a catalyst in this demand revival. Banks are flush with funds post demonetization, and the potential for countering monetary contraction following the demonetization drive with affordable loans for the middle class home buyer is expected to bear fruit soon. With lowering rates, the consumption-led growth story will continue.

Fence-sitters who have harboured the desire to own a home but kept waiting for the rates to correct could not have hoped for a better new year gift as on 1st January 2017, State Bank of India (SBI) announced its decision to reduce one-year marginal cost of lending rate (MCLR) to 8% from 8.9%. 

A home loan of INR 75 lakh, which was earlier available at 9.1%, is now available at 8.6%. SBI slashed interest rates to the lowest in the decade, forcing rivals to follow suit in the fight for market share. Several other banks such as Union Bank of India, IDBI Bank, Punjab National Bank, etc. have subsequently reduced their home loan rates.

This steep cut was facilitated by a surge in deposits during the demonetization period, which led to a substantial fall in the cost of funds for lenders. Banks have mobilized an estimated INR 14.9 lakh crore deposits following demonetization. Prime Minister Narendra Modi had conveyed to all banks that they need to take advantage of the flood of money received in the form of deposits after the demonetization of INR 500 and INR 1,000 notes. 

The deadline fixed for deposits of devalued notes was December 30, 2016. In the history of the banking system, banks have never received such a large amount of money in such a short time span.

For aspiring home buyers, this is the best time in over six years to buy a house. The last time home loan rates were lower than this was in 2006-08, when rates had slumped to 7.75%. 

Besides fall in interest rates as per the government’s existing credit-linked subsidy scheme, economically weaker sections (EWS) and low income groups (LIG) seeking housing loans are eligible for an interest subsidy at the rate of 6.5% for a tenure of 15 years or during the tenure of loan, whichever is lower on the initial INR 6 lakh.\

While the rate cut will give the required boost to the residential real estate sector, we may witness further cuts down the line as cash-flushed banks now share the responsibility of propping up demand.

Significantly, home loan borrowers may not be the only ones with a reason to smile – banks will reduce the lending rate for developers as well. This will bring massive relief to builders, many of whom are already under a huge debt burden and have not been able to raise prices over the last 2 years for a variety of reasons.

We see the stage set for cheer in the residential real estate markets in 2017, for home buyers as well as developers, despite the doom-and-gloom predictions of naysayers.

Demonetization Move - The 3 models of Consolidation of the Indian Realty Industry: The Road Ahead..!

Demonetization Move : Consolidation of the Indian Realty Industry: The Road Ahead..!
  by Mr. Shobhit Agarwal, JLL India

The government’s demonetization move is bound to lead to further consolidation in the overcrowded Indian real estate industry. This move has already started affecting demand for developers who preferred unaccounted money, adding to their liquidity woes.

Debt-laden real estate developers, who have been gearing up for bigger cash crunch with the implementation of Real Estate (Regulation & Development) Bill or RERA, now have demonetization to add to their woes.

The move has already started affecting demand for unscrupulous developers. In the longer term, these two steps taken by the government will indeed transform the overall image of the Indian real estate sector. In the interim, however, the overcrowded Indian real estate industry is set to see consolidation activity pick up pace. 

The three ways through which consolidation will be seen are:

1.   Developers / landowners finding development/marketing partners in large, reputable developers though the Joint Development (JD), / Joint Venture (JV) / Development Management model

2.   Smaller developers being absorbed by larger developers

3.   Cash-starved developers monetising their land bank by selling it to cash-rich / opportunistic developers

The first option is largely dependent on developer reputation and marketability. We have seen various such partnerships being created over the past few quarters. Some examples are:

Development Partner
Area (acres)
Ace Developers
Godrej Properties
Vihang Group
Godrej Properties
Lotus Green
Godrej Properties
Neptune Group
Tata Realty
Omkar Realtors
Shapoorji Pallonji Real Estate
Eros Group
Bharti Realty
Logix Group
ATS Builders
Lotus Green
Tata Housing
BU Bhandari Builders
Prestige Group
800,000 sq ft
Rohan Lifescapes
Radius Developers
150,000 sq ft

Source: JLL Capital Markets Research

The latter two, on the other hand, would showcase the power of capital. The purchasing power of every Indian rupee or US dollar will increase and money will move in the direction of good quality land banks – Grade-A locations, followed by Grade-B locations. We have already witnessed a few instances of developers’ monetising their land parcels by selling them to their competitors.

Outright Sale
Area (acres)
Amount (INR crore)
Sahara Group
M3M India
Parsvnath Developers
Supertech Limited
Ramprastha Group
Vatika Group
Windsor Realty
Kanakia Spaces
M3M India
Tata Realty – Standard Chartered JV
Windsor Realty
Wadhwa Group
Skyline Group
Kanakia Spaces
500,000 sq ft TDR

Source: JLL Capital Markets Research

While the consolidation is undeniable, the pace of it will depend on the quantum of equity infusion by the larger PE investors and the strategy adopted by foreign developers who may enter. A few have already entered India and are in the process of setting up their base with a long-term view.

Fosun International, a Chinese conglomerate, has revealed its plans to invest up to USD 1 billion in India, whereas developers such as the Dalian Wanda Group (looking to invest USD 10 billion) and China Fortune Land Development Company (signed a Memorandum Of Understanding (MOU) with the Haryana Government to develop large-format industrial parks) are tying up with state governments to set a base for large-scale development.

A few investors/developers may opt to take the plunge in this market straight away (like Macquarie and Fosun) and a few might prefer the wait-&-watch approach, but we believe the industry is set to consolidate in the next five years. By 2021, we will see larger players consolidating their positions even further while the number of smaller players will reduce considerably. In both cases, equity investment or the lack of it will play a deciding role.
About the author..!

Mr. Shobhit Agarwal, Managing Director - Capital Markets, JLL India

For media contact

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