2008 | Dalal Street

Tax Treatment as Investor or Trader

January 7, 20081 min read

A friend of mine was subjected to Income Tax Scrutiny. The assessing officer treated my
friend’s profession as “Trader” and subjected him to 30% tax [Short Term].

Strategy: What we advice our clients is choose one family member who doesn’t TRADE or have any other business income in their name. Do all long term investments in this family member’s name and you will not be liable for 30% tax [even if you had to SELL the stock in SHORT TERM] and be just liable for short term gains of 10%. Long Term will be exempt.

Remember it is the discretionary of the Income Tax officer scrutinizing your case. Some people said they maintain a different TRADING Account and INVESTMENT account but if both are in the same name, the IT Officer can still make you liable for 30% tax on short term. So use the strategy we have suggested or whatever your Chartered Accountant / Tax Consultant suggests.

Economy, Markets and Macro Views

Gateway Distriparks – Upsidse from Rail freight subsidiary

January 7, 20082 min read

Gateway Distriparks has announced its plans to raise INR 2.5-3.0 bn through private equity in its subsidiary called Gateway Rail Freight (GRF) in the next 3-6 months. GDL owns 90% in the subsidiary whereas 10% is owned by directors of the company. Gateway rail freight is formed with a view to carry container train business and further expansion into its ICD business and plans to invest INR 8-10 bn over a five year period (INR 6-8 bn from equity and remaining debt contribution). (more…)

Equity Research

Buy Panacea Biotec – DSPML

January 7, 20082 min read

Panacea announced WHO pre-qualification for their pediatric combination vaccines Easy Four (DTP+Hib) and Ecovac (DTP+Hep B) which implies global acceptability of these vaccines by various UN procuring agencies. Expect approval for the crucial pentavalent vaccine (EasyFive) as well to be in place shortly. The combined demand of all combination pediatric vaccines worldwide was US$600mn in 2005 and is estimated to grow up to US$1.6bn by 2012.

Driven by combination and IPV vaccines as well as robust 14%+ domestic formulations growth, we expect Panacea to deliver EPS growth of 44% in FY09E and 26% in FY10E. Overall, we estimate 35% EPS CAGR (FY08E-10E) on the back of 23% revenue CAGR (FY08-10E). (more…)

Equity Research

Apollo Tyres Stock Punctured – IDFC SSKI

January 7, 20081 min read

IDFC SSKI in a report punctured the hopes of Apollo Tyres stock. The tyre industry is more of a commodity play with limited pricing power for players despite >90% capacity utilization. Though select players have hiked prices by ~1% in December 2007 in the replacement market to counter rising raw material prices, MRF’s non-participation raises doubts on sustainability of the price hike and rules out future increases. (more…)

Equity Research

Book Profits in Religare – Citi

January 6, 20082 min read

Citi in a research report released minutes ago has recommended a SELL on Religare. Religare is India’s fastest growing, most aggressive and leveraged retail brokerage entity. The stock is up 280% from its IPO price; currently trading at 30x FY09E EPS.

India’s equity markets have grown rapidly in both retail and institutional volumes. Trading volumes have expanded rapidly (+150% yoy) and have exceeded growth in market capitalization. While economic growth continues to be strong, and expect structural growth in retail volumes, the recent rapid pace of growth suggests near-term volatility. (more…)

Mutual Funds Review

Utilities, Real Estate Overvalued – HDFC AMC

January 6, 20082 min read

In an interview to the Press, Prashant Jain CIO of HDFC AMC said that Refineries, Utilities and Realty Stocks are the Most Expensive in today’s market.

Prsahant said,

I think there are better choices of label than the utility space at the current valuations and if one looks at the largest utility in the country and if one puts it along side the largest bank in the country both businesses are similar in terms of RoE what they earn. Both earn or give or take around 15 to 17% RoE.

So, whether the utilities may or may not fall they may actually drag over time for a number of years. But when two very similar businesses with similar ROEs and with similar growth prospects, the gap in valuations is 100% and to my mind it is not sustainable.

So investors of Reliance Power Ltd be ready to cash in on listing as Anil Ambani has 25% free float which is not locked in and you know what the ambanis can do 🙂

On Refinery Stocks,

Today refineries are somewhat like what Cement was like one year back. The refineries are a cyclical business, and currently the refining margins are very high. But I don’t think they will sustain beyond 1-2 years. And when one starts valuing cyclicals at peak cycles of 2X-4X replacement costs, I think the upside over the long-term is really not there.

Book some profits if you are in these sectors – suggestion for medium to long term investors.

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