Category: Personal Finance

Tax-free vs tax-saving instruments – The Hindu BusinessLine

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A coffee time conversation between two colleagues leads to an interesting explainer on tax jargons.

Tina: Have you filed your investment proofs for FY21 yet? The deadline set by the HR team is just around the corner.

Vina: No, I am yet to invest in tax-free instruments for this year.

Tina: What? You mean tax- saving instruments?

Vina: Yeah potato, po-tah-toh! Aren’t they the same thing said differently?

Tina: No. While both tax-free and tax-saving instruments ultimately help in lowering your tax outgo, they aren’t the same.

Vina: Why? What is the difference?

Tina: If you want to save tax on interest or any other incomefrom your investments, you should be investing in a tax-free instrument.

Tax-free bonds issued by State-owned companies such as PFC, NHAI, HUDCO and REC, with a maturity of 10 years or more, are one such example.

You can buy these bonds either during their primary issue or from the secondary market once they get listed.

The existing issues of these bonds currently pay interest rates in the range of 7.6 to 9.0 per cent per annum for varying maturities, and the entire interest income is exempt from tax. Hence, the term ‘tax-free’.

Vina: Oh cool! But in this case, my tax savings are limited only to the extra interest income that I pocket by not having to pay any tax on it, right?

Tina: Yes! If you want to save tax on your existing income, like in your case, you should opt for investing in tax-saving instruments.

Say, your income comes to ₹5 lakh a year. You can invest in certain instruments specified under Section 80C of the Income Tax Act and claim deduction of up to ₹1.5 lakh a year. These include five-year term deposits with banks or the Post Office, deposits in Sukanya Samriddhi Account, contribution to the Public Provident Fund and subscriptions to certain notified NABARD bonds. .

Since investing in these instruments reduces your taxable income and so your tax liability, these are labelled as “tax-saving”.

Remember that income from these tax-saving instruments may or may not be exempt from tax.

Vina: All right, now I get it. They aren’t same at all.

Tina: Yes. Tax-saving instruments help reduce your overall income that is subject to tax, to the extent of investment made. On the other hand, tax-free instruments help you only save tax on the interest income from such instruments.

Vina: Wow, that’s simply put!

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How you should evaluate returns from bonds

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Retail investors have flocked to the ₹5,000-crore bond offer from Power Finance Corporation (PFC), prompting an early closure. One hopes they’ve applied with a good understanding of how this bond compares to other fixed-income avenues. The offer did have some attractive options for retail folks. But reports that did the rounds of the mainstream and social media suggested that when it comes to evaluating bond returns, it is quite okay to compare apples not just to oranges, but also to grapes.

Mind the risks

Company officials promoting the PFC bond were eager to explain how it offered better returns than the National Savings Certificates (NSC). This isn’t strictly true. But even if it were, higher rates on the PFC bond, far from making it more attractive, would indicate higher risks to your capital. In the bond market, high interest rates correlate directly to credit risk.

As a key lender to the troubled power sector with gross NPAs of 7.4 per cent in FY20, PFC’s business carries a fair degree of risk. This is mitigated by the Government of India owning 55.9 per cent stake in PFC, lending it a quasi-government status. The PFC bond is a riskier instrument than the NSC because the latter is Central government-backed and doesn’t require you to take on any business risks.

When evaluating an NCD, it is best to see how much of a spread (extra return) it is offering over a risk-free instrument, which is a Central government bond. Today, the market yield on the five-year government bond is 5.3 per cent. At 5.8 per cent, the five-year PFC bond offered a 50-basis point spread over the G-Secs.

At 6.8 per cent, the NSC, which carries lower risks than PFC, offers 150 basis points (bps) over the G-sec, making it a better choice. The average spreads on five-year AAA, AA and A rated bonds over comparable government securities are currently 37 bps, 104 bps and 300 bps, respectively.

Check tenure

Bank fixed deposits tend to be the default option for investors seeking safety. So, many comparisons have been made between the PFC bonds and bank FDs. Most of these are simplistic comparisons of 5- and 10-year PFC bonds (coupons of 5.8 per cent and 7 per cent) with SBI’s 1- to 5-year deposit rates (5-5.4 per cent).

But it is plain wrong to compare rates on a 1-5 year instrument with a 5-10 year instrument. In the fixed-income market, investors are always compensated for longer holding periods with higher rates, given the time value of money and higher business uncertainties that come with lending for the longer term. If you would really like to compare PFC’s bonds with bank FDs, you would be better off looking at similar tenures. PFC’s three-year bond offered 4.8 per cent against the 5.3 per cent on SBI’s three-year FD. Its five-year bond will fetch 5.8 per cent against 5.4 per cent on the SBI FD.

Even then, the decision on the tenure of fixed-income security what you should buy should be based on your view on how interest rates will move in future and not on absolute rates.

If you buy a 10-year bond today and rates move up in the next 2-3 years, you’d risk capital losses if you try to switch to better-rated instruments.

Beware of market risks

Some have compared PFC bonds to debt mutual funds and concluded the latter are better.

Debt mutual funds which invest in high-quality bonds (corporate debt funds and PSU & banking funds) have delivered category returns of over 9 per cent for one year and 8 per cent for three and five years.

But comparing trailing returns of debt funds to the future returns on PFC bonds is akin to zipping on a highway using the rear-view mirror.

Returns on debt funds in the last one, three and five years have been boosted by falling rates triggering bond price gains.

Should rates bottom out or begin to rise, these gains can swiftly turn into losses. To gauge future returns on debt funds, the current yield to maturity (YTM) of their portfolios and their expense ratios are more useful.

Current YTMs of corporate bond funds are in the 4.5-5.5 per cent range with annual expenses at 0.4-1 per cent for regular plans, pointing to returns of 3.5-5.1 per cent from here, without budgeting for rate hikes. PFC bonds, by offering you a predictable 5.8 per cent for five years, are a better bet if you think rates are bottoming out.

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With 8.5% Return Should I Invest In This Fund For PPF-like Benefits?

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Investment

oi-Vipul Das

|

Public Provident Fund is a prominent choice for long-term debt investment, providing assured returns at comparatively higher interest rates along with income tax gain under section 80-C and tax-free maturity amount and interest. That being said, there is another similar enticing investment opportunity promising higher interest that most individuals can’t ignore if they are salaried individuals. Voluntary Provident Fund, also referred to as the Voluntary Retirement Fund, is an extension to the Employee Provident Fund which provides comparable privileges as PPF, but with an additional benefit of higher interest rate that is much stronger than PPF. At present, the interest rate on VPF and EPF is 8.5 percent, while for the current quarter, the government has kept the PPF rate at 7.1 percent. In comparison to both liquidity and yields, VPF outperforms PPF. The interest rate available to the VPF is the same as that of the EPF, and is usually higher than the interest rate given by the PPF. The EPF interest rate for FY20 is set at 8.5 per cent as of now, respectively.

With 8.5% Return Should I Invest In This Fund For PPF-like Benefits?

Why should I consider VPF?

If your company is authorized by the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, your EPF account is contributed up to 12% of your basic salary+DA (dearness allowance) per month. There is, though, a voluntary contribution clause over and above the standard 12% of your basic salary. Per financial year, you can contribute up to 100% of your basic wage plus DA to the voluntary provident fund, plus your EPF contribution. The VPF investments generate the same benefit received from the contributions of the employee and the employer.

This is the only reason that VPF is regarded as a very desirable investment option. 8.5 percent of the current interest in VPF investments is far higher than that of the Public Provident Fund (PPF). The Government of India periodically changes the rate of interest provided by the EPF, based on different considerations. The VPF contributions will also have the same lock-in period as the EPF, as the VPF contributions are deposited in the employees’ EPF account. Pursuant to the provisions of Section 80C of the Income Tax Act, 1951, VPF contributions rendered to EPF accounts are liable for tax deductions. You can therefore contribute as much as you need, but the tax exemptions open to taxpayers are limited to Rs 1,50,000 per year, and you can save tax of up to Rs 46,800 per year.

Premature withdrawal facility

As we all know that the tenure of VPF is the same as EPF. That being said, if one withdraws from his or her VPF account before the end of five years, the balance withdrawn will be taxable in compliance with his or her tax slab, if the individual resigns or retires from his employment. That being said, for defined purposes, such as buying a property, reimbursing a home loan, health needs, schooling or the marriage of children, you can use non-refundable advances against your EPF and VPF deposits. The withdrawal amount will rely on the purpose that the employee makes use of such advances, and years of employment. You can withdraw 100 percent of your EPF balance if you leave your job and stay unemployed for two months, and this will also cover your VPF savings.

How can I open a VPF account?

To fill out a VPF registration form, you just have to contact your HR and your account will be triggered which is no doubt a hassle-free process. Unlike PPF as the contribution amount is automatically deducted from your salary you don’t have to remember for making a deposit towards your VPF account each year. In order to increase or decrease your contribution towards VPF from your salary you can request your employer in written application anytime as per your convenience. In comparison, you won’t have to do any documentation work to make advantage of the VPF tax benefits. It will be determined automatically on Form-16 by your employer.

Conclusion

Your retirement is miles away if you are a salaried person between the age group of twenties or thirties. If you invest in equities, you can create a bigger retirement benefit but here you may face risks. But traditionally, relative to other fixed income vehicles like PPF, EPF and VPF, equities have often returned better yields. That being said, if you are searching for a risk-free long-term retirement alternative as part of the debt investment in your portfolio, you should consider VPF and PPF and the latter between the two. For investors near to retirement, VPF is also a great option to boost their debt holdings. Even if VPF was designed to provide the salaried group with post-retirement financial stability, equity mutual fund holdings are regarded to be the strongest retirement alternative for the general public. VPF contributions may be considered as part of their asset allocation approach by those entering their retirement age. These investors’ VPF contributions will boost their retirement portfolio’s financial flexibility thus receiving better returns if compared to bank FDs and other small savings schemes.



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Readers’ Feedback – The Hindu BusinessLine

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This is in the context of the article ‘Growth opportunity stocks (PEG Screener)’ that was published on January 17. PEG should not be taken in isolation.

––NS Raman

BusinessLine Research Bureau says: Agreed! We have added a couple of other parameters, too, to our screener. Besides, this is only a preliminary short-list for investors to do further research on.

This is in the context of the ‘Statistalk’ titled ‘Equity MF investors continue to book profits’ that was published on January 20. Nicely summerised report.

––@Equiideas09

This is in the context of the article ‘Take note of EPFO Pension Scheme’ that was published on January 17. Excellent article, Ms Satya.

––KE Raghunathan

This is in the context of the article ‘Simply put: How cashless garage facility benefits you’ published on January 17. A well-written story; very easy for common man’s understanding. The conversational style is really effective to take the message to the readers.

––Narayanan

I have been subscribing to BL for a long time. The Portfolio edition makes every Sunday very interesting.

––AS Nellaiyappan

I am a regular subscriber of BusinessLine and am very glad to read your BL Portfolio as well. It is very informative.

While thanking you for this, I would request you to write on mediclaim policies offered for senior citizens by various insurers (private as well as public sector) as I understand that most of them are hesitant to offer such policies.

––MP Parameswaran

BLRB says: Thank you for your feedback. We will strive to write on this issue in the coming weeks. Keep reading!

The newly launched Sunday edition BusinessLine Portfolio is an excellent initiative by The Hindu group. As the senior citizen population is gradually increasing, a section of the edition may please be devoted exclusively for senior citizens, covering management of retirement corpus, medical/insurance schemes, deposit/mutual fund schemes, housing schemes, FAQs on tax matters, government concessions, etc.

––Bhaskaran S

BLRB says: Thank you for your feedback. We do write for senior citizens from time to time across our pages. We will strive to do more on this front.

Success stories of individuals who created wealth by way of long-term investment in equities may be included in Portfolio. Likewise, the tragedies of persons who lost everything due to mistakes committed and excess greed will also be a good lesson for investors, especially new entrants.

The concept of PE ratio may be explained in detail so as to enable a layman to understand whether a scrip is expensive or not.

––Jose KF

BLRB says: Thank you for your feedback. We will strive to write on the topics you have suggested.

I started reading BusinessLine three years ago. The content is very useful for learning and upgrading one’s knowledge. I am very much passionate about finance. I regularly read Sunday BL Portfolio and share the content on my networks — LinkedIn, Instagram, Facebook. It will definitely help increase financial literacy of the readers.

––Baranitharan J

BLRB says: We are glad you find Portfolio content useful.

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Top 5 Tax Saving FDs With Interest Rate Up To 7.25% For Senior Citizens

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Eligibility to open a tax saving FD account

Only resident individuals and Hindu Undivided Families (HUFs) can open a tax saving FD account according to existing income tax legislation. Unless the bank allows you to do so without opening a savings account, you can open a tax saving FD account either with a bank where you currently have a savings account with or with another bank. You will be asked to follow the Know-Your-Customer (KYC) procedure in the above situation. You will be asked to have self-attested copies of your ID proof, address proof and passport size photographs in order to do the KYC procedure. Before submitting the KYC form, you must also take the original documents whose self-attested copy you are presenting with you as bank executives will do the validation.

Interest payouts

Interest payouts

On such FDs, the interest rate provided differs throughout banks. Generally banks offer cumulative interest or non-cumulative options on tax saving FDs from which you can choose from. Cumulative selection implies that by the time of maturity, interest earned on your principal will be reinvested and returned to you. Whereas the interest given by the bank will be paid to you on a monthly, quarterly, semi-annual and annual basis under the non-cumulative alternative. Higher interest rates on tax-saving FDs are typically provided to senior citizens.

Tax saving FD rates for general public

Tax saving FD rates for general public

Banks ROI in %
DCB Bank 6.75
Equitas Small Finance Bank 6.75
AU Small Finance Bank 6.50
IndusInd Bank 6.50
RBL Bank 6.40

Tax saving FD rates for senior citizens

Tax saving FD rates for senior citizens

Banks ROI in %
DCB Bank 7.25
Equitas Small Finance Bank 7.25
AU Small Finance Bank 7.00
IndusInd Bank 7.00
RBL Bank 6.90

Minimum and maximum deposit limit

Minimum and maximum deposit limit

The minimum deposit limit for the investors varies from bank to bank for a tax saving FD. One cannot, though, deposit more than Rs 1.5 lakh in these deposits in a fiscal year.

Maturity period of tax saving FD

Maturity period of tax saving FD

It is generally known to all that tax saving FDs comes with a lock-in period of 5 years. Which means that premature withdrawal is not allowed before 5 years according to the Bank Term Deposit Scheme, 2006. A tax-saving FD cannot be used as collateral or to apply for a loan if compared to regular FDs.

Account holding types

Account holding types

By individually or jointly one can open a tax saving FD. In case of joint-holder the tax benefit under section 80C will only be provided to the primary holder only.

Taxation

Under section 80C of the Income Tax Act, investment amount of up to Rs 1.5 lakh count for tax benefit in a fiscal year. That being said, you must note that in your pocket, interest paid/accrued on the principal is completely taxable. As per your tax slab interest will be applied to your income and taxed. The interest income comes under the classification of ‘Other Sources’ Income. Moreover, if the interest received reaches Rs.40,000 in a financial year from all the accounts kept with the bank, banks subtract tax at source. In order to validate the specifics of the deduction, a TDS certificate will be given.



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Wish To Invest In Gold In 2021: Here Are The Watch-Outs

Personal Finance

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Investment

oi-Roshni Agarwal

|

Gold prices for now are seeing high volatility and after having run sharply by over 20 percent in the year 2020 while there is expected upside it shall not be of the same order as in the previous year in 2021. So, if as part of your investment portfolio, you even are considering investment in gold, here are the watch-outs that you need not ignore:

Wish To Invest In Gold In 2021: Here Are The Watch-Outs

Wish To Invest In Gold In 2021: Here Are The Watch-Outs

Gold prices currently:

On expectations of a higher US stimulus package and then increasing US yield, gold is seeing huge choppiness and even as the prices have now climbed above Rs. 49000 on the MCX, one can expect more correction. On January 22, 2021, gold prices on the MCX settled lower by as much as Rs. 258 or over 0.5% at Rs. 49,190 levels per 10 gm.

Factors that may come into play in determining gold pricing going forward:

1. Biden’s dole out of a huge US stimulus package:

Now after the US Oval Office has been taken over the new US President, investors are hopeful of a larger stimulus and such a measure boost gold prices as investors take shelter into the yellow precious-metal, gold being regarded as an inflation hedge.

2. KYC measures as was announced earlier for gold jewellery buying:

Now that the KYC for jewellery buying of value less than Rs. 2 lakh has been done away with, there is seen some respite for jewellers and investors. Nonetheless any major announcement on similar front such as disclosure requirement to curb any illicit trade may instill cautious mood and may also weigh on the gold price with a dent in demand.

Interestingly, there is also reported an upward pick-up in physical gold demand, which will also boost prices.

3. Risk-on sentiment may be instilled if all goes well with Covid 19 vaccine administration:

For now the roll of corona vaccine in India has begun and if its successful, there will be faster economic recovery with more positiveness around and this may also push investors’ money into riskier assets. And for now, given the momentum in equities, some of the investors money is already finding its way into Indian equities, there has been reported an addition of 10 million new participants into the equity space on a month on month basis.

4. Dollar’s strength cannot be ignored:

With the Covid 19 led liquidity, there shall be abundance of dollar and this will weigh on the dollar’s index against its rival currencies and hence it shall be bound to decline going forward and this probably will maintain an upside in gold which behaves opposite to dollar movement. . Other indicators in favour of gold include the record-high holding of the precious metal by Central Banks, high global debt, high investment demand, higher bond prices and lower interest rate regimes,” says Subramanya SV, co-founder & CEO at Fisdom.

Now what should investors remember when considering investment into gold:

1. They should see gold as a portfolio diversifer giving the advantage of store of value as well as inflationary hedge that is seen as a safe haven in times of distress.

2. Should look gold as an asset class that helps generate high-risk adjusted return

3. Buying on dips shall be the right strategy and that too in a staggered manner to reach the optimal level in overall financial portfolio.

GoodReturns.in

.



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10 Pros of Investing In Tax Saving FDs

Personal Finance

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Investment

oi-Vipul Das

|

Those who are hunting for a secure and simple tax-saving choice a tax-saving fixed deposit can be a good bet. Tax saving FD is among the tax saving techniques which can be deposited under section 80C of the Income Tax Act in order to avoid tax. By visiting a bank, submitting the application form and cheque, one can conveniently participate in this FD. In addition, if you can hold the FD in the same bank branch on which you collect the cheque, then the transfer of money can occur easily and within a few hours the deposit can be made. Many banks also enable their net-banking facilities to invest in tax-saving FD if you have exposure to it and are relaxed using it.

This is one of the debt investments providing a tax advantage under section 80C with the shortest lock-in period of five years and providing a periodic interest pay-out alternative. Section 80C tax incentives are often provided by five-year NSCs, although they are cumulative mechanisms that do not provide periodic interest payouts. Consequently, tax saving FDs are a relatively more stable, stable and simple alternative for debt investments. A few considerations to remember before making investments in Tax- Saving FD are as follows:

10 Pros of Investing In Tax Saving FDs

  1. HUFs, resident individuals and minors are allowed to invest in a tax saving FD.
  2. A minimum amount that ranges from bank to bank can be deposited on the FD. For instance, the maximum amount in the fiscal year is Rs 1.5 lakh, which is the cap for investment in tax saving under section 80C.
  3. A tax saving FD comes with a lock-in period of 5 years, but premature withdrawals and loan against these FD’s are not permitted.
  4. With the exception of cooperative and rural banks, a person can deposit in these FD’s through either public or private sector banks.
  5. Deposit in a 5-year post office time deposit is also liable for an exemption under section 80(C) of the Income Tax Act, 1961.
  6. You can either keep these FD’s in ‘Single’ or ‘Joint’ form. In the event of a joint holding type, the tax gain is only applicable to the first owner.
  7. Under a tax saving FD scheme TDS is applicable on the interest received is taxable as per the tax bracket of the holder.
  8. The interest amount is either due on a monthly/quarterly basis or can be reinvested though. By submitting Form 15G (or Form 15H for senior citizens) to the bank, an individual can avoid TDS on the interest received. For investors, if the gross interest earned crosses Rs 40,000 in a financial year with no adjustment on taxation on the interest earned, TDS will be applicable though. Senior citizens can seek a deduction of up to Rs 50,000 on interest received from deposits under section 80TTB on the Income Tax Act.
  9. Under a tax saving FD scheme nomination facility is open. That being said, in the event of a deposit being paid for and kept by or on behalf of a minor, no nomination facility is available.
  10. If compared to the general public senior citizens are provided with higher interest rates on tax saving FDs by most of the banks. For tax saving FDs, this interest rate gap still persists. The post office does not, nevertheless, promise senior citizens with higher interest rates.



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Bindu Ananth, Dvara Trust, BFSI News, ET BFSI

Personal Finance

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Bindu Ananth, Co-founder and Chair at Dvara Trust believes it’s time for India to increase the number of lenders & non-bank lenders to push credit to different segments of the society.

Bindu Ananth, Co-founder & Chair, Dvara Trust.

Speaking at the Digital Lenders Association of India (DLAI) Conclave, she says, India shall look at adding more banks and increase the number of non-banking financial companies (NBFCs) by more than three times in the next 10 years which will help in having a robust financial services sector.

According to her, India’s financial system comprises over 50 scheduled commercial banks and about roughly about 300 NBFCs which are non-deposit taking systemically important and in next 10 years India should look at getting at least 100 high quality banks and 1000 non-deposit taking NBFCs.

Explaining the rationale behind doubling the number of lenders she says while the share of NFBCs in total credit has grown twice from 10% to 20% in the last decade, the advantage of a non-deposit taking NBFC is that it doesn’t pose systemic risks and thinks there is really a growing recognition that NBFCs have a set of core capabilities that banks in some sense might find it impossible to replicate.

She also believes that banks & NBFCs should coexist in a collaborative manner and service the millions of micro, small and medium enterprises (MSMEs) and focus on product innovation & dynamic risk-based pricing models, which is the need of the hour.

She acknowledged that digital lenders in India, specifically the ones serving MSMEs and small businesses have started using dynamic risk-based pricing algorithms and moved away from general risk assessments to more specific ones. Bindu explained the concept of risk ordinality, where risk at the same level shall be priced similarly and less risky customers shall receive credit at a different rate as compared to high-risk customers. According to her, banks and traditional NBFCs have struggled and found it difficult to address differential pricing.

Bindu also touched upon embedded financing which is driving far more contextual relationships as platforms serve the real economy and users and offers a huge opportunity for growth but less innovation is seen in this space in terms of the range of financial services and products.

In the context of embedded finance, she cautions companies to be careful with respect to consumer protection and grievance redressal mechanism.

According to her the innovation in embedded financing shall be accompanied by good thinking in terms of what happens when things go wrong as the customer only interacts with the platform and the actual lender is in the background.

Bindu concludes, India has a phenomenal opportunity to drive innovation on the product side be it the range of products and pricing of products for different segments.

Bindu Ananth was formerly associated with ICICI Bank’s Microfinance division and has also been the head for new product development in its Rural Banking Group. She was also the former Board Chair of Northern Arc Capital.



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2 Stock Buy Ideas For Gains In 3-5 Weeks By HDFC Securities

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Investment

oi-Roshni Agarwal

|

After indices have hit a record high and major moves such as change of guard in the US are behind us, there is expected some consolidation in the near term even as the overall trend seems positive. On Friday, on global sell-off and fresh concerns over corona leading to fresh restrictions in countries like China, Indian indices too saw profit booking but the long term trend line resistances as per monthly chart) could come into play. This is even as one may expect continuance of volatility ahead of budget announcement.

2 Stock Buy Ideas For Gains In 3-5 Weeks By HDFC Securities

2 Stock Buy Ideas For Gains In 3-5 Weeks By HDFC Securities

Here are two stock picks by HDFC Securities for gains in 3-5 weeks:

1. SBI Cards and Payment Services Ltd – Buy-Target Price – Rs. 1100 In 3-5 Weeks

As the stock saw sharp upside in Wednesday’s session, the chart now signals higher highs and lows, which indicate strength of an uptrend in the stock price. The volume has seen an expansion during recent upside breakout and daily 14 period RSI is placed around 70 levels. And hence pick up of RSI from here on suggest strengthening of upside momentum.

Buying can be initiated in SBI Cards at CMP (997.15), add more on dips down to Rs 960, wait for the upside target of Rs 1100 in the next 3-5 weeks. And you can place a stoploss of Rs 935. The last traded price for the counter have been Rs. 1032, an upmove of 5% even as the overall market saw sluggish momentum.

2. Godrej Consumer – Buy- Target price: Rs. 880 In 3-5 Weeks

While the stock has underperformed in line with the indices, there was traction in the stock in the week gone by and there could be valid upside breakout of a larger triangle pattern and one may expect further sustainable upside in the near term. Also the weekly momentum oscillator like RSI/Stochastic give signals to positive momentum.

Buying can be initiated in Godrej Consumer at CMP (799), add more on dips down to Rs 765, wait for the upside target of Rs 880 in the next 3-5 weeks. Place a stoploss of Rs 745. Last traded price for the counter has been Rs. 790 per share on the NSE.

GoodReturns.in



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This 2-Wheeler Shares Can Give Decent Returns

Personal Finance

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Investment

oi-Sunil Fernandes

|

Broking firm, Motilal Oswal has a “neutral” rating on the stock of Bajaj Auto, with a price target of Rs 4,000 on the stock. “Bajaj Auto’s operating performance was driven by a favorable mix, lower marketing spends, and operating leverage. It has both near (3W recovery) and long term (premiumization and exports) levers, which are fairly reflected in current valuations.

We upgrade our FY21E/FY22E EPS by 7%/5% to factor in mix, cost savings, and an upgrade in KTM’s PAT. Maintain Neutral,” the broking firm has said.

Management commentary as per report of Motilal Oswal Institutional Equities

This 2-Wheeler Shares Can Give Decent Returns

  • Outlook: Domestic 2W sales were back to last year’s levels. Base effect will drive growth, but on a like-to-like basis it would be in low single digits. Domestic 3Ws would see a QoQ recovery, but decline 50% YoY. The growth momentum in exports would continue, with 12-15% growth in most markets. If Association of South East Nations (ASEAN) recovers, it would clock its best ever exports.
  • 2W export volumes have recovered well with: a) South Asia (excluding Sri Lanka) and Africa back to pre-COVID levels, b) Latin America 80-90% levels, and c) ASEAN at 50% levels. 3W exports are seeing a gradual recovery with Latin America at 50-60%, ASEAN at 25%, and other markets at or above pre-COVID levels. Bajaj Auto has gained market share in all export markets.
  • Raw material costs is estimated to increase by 3pp QoQ due to commodity cost inflation. It has raised prices by 1% each in domestic 2W/3W in 3QFY21 and by 1.25% in Jan’21 for domestic 2W. It also hiked export prices to cover capping of MEIS incentives and rise in RM cost. Price increases have to be calibrated as demand recovery is fragile, and might be required to be phased out.
  • Electric Vehicles: Chetak e-scooter bookings remains closed since the end of Mar’20 due to supply chain issues. It expects to iron out these issues in the next 2-3 months and would look to expand its presence in the top 24 cities by FY22- end (from two cities at present). It is actively pursuing development of e3W and e-Qute, and plans to launch one in 2HFY22.
  • Capital expenditure (capex) for FY22/FY23 would be higher than the normal run-rate as it would be investing Rs 6.5 billion for a new plant for high-end Bikes (commissioning in FY23). Capex for FY22/FY23 would be Es 5.5-6 billion per annum.



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