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Income tax benefits under Section 80CCD (1)

Contributions made by an individual taxpayer towards the NPS Tier-I account are eligible for a tax benefit under section 80CCD (1). Subscribers who contribute any amount to their NPS account throughout the financial year are eligible for a deduction from their total salary of up to 10% of their basic pay for salaried individuals and 20% of their total income for non-salaried individuals.

For the contributions made by a subscriber or through the employer i.e. as a deduction from salary income, the deductions are applicable under NPS. The deduction allowed under this provision, however, is limited to the total maximum of Rs 1.5 lakh set by Section 80CCE of the Act.

The cumulative amount of deduction allowable under sections 80C and 80 CCD(1) of the Income-tax Act is determined under section 80CCE and consequently, in a financial year, contributions made under section 80C and section 80CCD (1) should not surpass the stated maximum of Rs 1.5 lakh. It’s worth noting that Sections 80C, 80CCC, and 80CCD (1) of the Income Tax Act allow a maximum total exemption of Rs 1.5 lakh.

Income tax benefits under Section 80CCD (2)

Individuals can claim a tax advantage under 80CCD (2) against the contributions made by their employer towards an NPS Tier 1 account on their behalf. The contributions made by the employer are deductible under Section 80CCD(2) of the Income Tax Act, up to a maximum of 10% of basic pay including Dearness Allowance (DA) for the financial year.

The said deduction is in addition to the deduction for employee contributions and it is not subject to the total maximum of Rs 1.5 lakh set forth in Sections 80CCE and 80CCD (1b). Employer contributions to NPS can be claimed as a ‘Business Expense’ from their Profit & Loss Account up to 10% of salary (Basic + DA). Employers can contribute up to 10% of an employee’s income in an NPS Tier-I account, and up to 14% for central government employees, according to current tax rules.

Income tax benefits under Section 80CCD(1B)

The Income-tax Act’s Section 80CCD(1B) enables a deduction of Rs 50,000 in addition to the Rs 1.5 lakh allowed by Section 80CCE. In a financial year, a taxpayer can seek a total of Rs 50,000 as tax breaks under section 80CCD (1b). This tax advantage of Rs 50,000 is in addition to the tax benefits provided under sections 80CCD (1) and 80CCD (2). As a result, if a subscriber has over the Rs 1.5 lakh limit under Section 80CCE apart from NPS, self- or employer-made contributions to NPS can be used to claim an additional deduction of Rs 50,000 under Section 80CCD (1B). Individual taxpayers can deduct up to Rs 50,000 under Section 80CCD (1B) for PF contributions of Rs 1.5 lakh and NPS contributions of Rs 50,000 made by self or have deducted from their income by their employer.

Tax benefits under NPS apart from section 80CCD

Along with the tax breaks provided under Section 80CCD, subscribers can withdraw funds from their NPS tier I account partially before reaching the age of 60 for emergency causes specified under NPS. The amount withdrawn up to 25% of the contribution made by the subscriber is tax-free.

The amount contributed for purchasing an Annuity is also tax-free. The annuity income you receive is subject to taxation in the subsequent years. Once the subscriber reaches the age of 60, up to 40% of the overall corpus withdrawn in a lump sum is tax-free.

For example, if you have a total corpus of 20 lakhs in your account at the age of 60, you can withdraw 40% of the entire corpus, without paying any tax which is Rs 8 lakhs. Hence, if you withdraw 40% of your NPS corpus as a lump sum, and make an annuity purchase using the remaining 60% of the corpus, you will not be subject to taxation.

1. Shriram Transport:

HDFC Securities has raised its bets on this stock from the finance-leasing and hire purchase segment, Shriram Transport Finance and set the target price of Rs. 1634, implying upside of 19 percent from the last traded price of Rs. 1372. The scrip has been recommended for an investment horizon of 2 quarters or 6 months.

HDFC Securities’ take:

The company’s major AUM i.e. over 90 percent comprises used CV financing. Also, with operations spanning 4 decades, the company has expanded its footprint in semi-urban and rural financing. Going ahead owing to reduced EMI pressure as well as replacement demand in the offing due to the implementation of the scrappage policy, demand for used CV financing will be somewhat better.

Some of the watch-outs will be collecting efficiency and asset quality situation. Also, management hold the view that good monsoon and festive demand will boost up the demand in the next 6 months. “Over dependence on financing used vehicles and rural economy brings concentration risk. The possibility of a third Covid wave and fresh lock downs could hurt the business. Demerger related news can keep the stock price volatile”, adds the report.

The brokerage previously also recommended its buy on the scrip for bull case target of Rs. 1503 on March 30 for a 2 quarter period. Now it again continues with its ‘Buy’ view on Shriram Transport.

Valuation & Recommendation:

The scrip’s average RoE of the last 10 years stand at 16%. The brokerage expects from FY22 things will be normalizes and there will be an uptick in the earnings. “We have envisaged 9% CAGR for NII and 23% CAGR for Adjusted Net Profit over FY21-23E, while AUM is estimated to grow at 9% CAGR over same time frame. NIMs may improve with decline in CoF and reduction in excess liquidity. With the current stock of provisions at 7.5% of AUM, we expect normalised provisioning from H2FY22 on the back of resumption of economic activity and improving collections and recoveries. RoAA is estimated at 2.6% in FY23E compared to 2% in FY21. The stock is trading at a significant discount to Cholamandalam and Sundaram Finance, which could reduce going forward given the company’s growth and asset quality trajectory. We believe that investors can buy STFC at LTP (1.4xFY23E ABV) and add more at Rs.1198 (1.25xFY23E ABV) for the base case fair value of Rs.1488 (1.55xFY23E ABV and for the bull case fair value of Rs.1634 (1.7xFY23E ABV) over the next two quarters”, says the brokerage report.

Stock	Current price	Target price	Potential upside
Shriram Transport	Rs. 1372	Rs. 1634	19%

2. Suven Life Sciences:

The brokerage is bullish on Suven Pharma and has set a target price of Rs. 117, an upside of 22 percent considering the last traded price of close to Rs. 96 per share. Note this is a positional call by the brokerage for a horizon of 3 months.

Note positional recommendations are given based on technical analysis of the stock by the company’s research experts.

Technical observation for the Suven Life Sciences:

The stock is in an intermediate uptrend and has been hitting higher tops and higher bottoms for some months now. After being in a range of Rs. 82-90, the stock broke out of its range on September 21 owing to above average volumes. Technicals for the stock are providing positive signals as the stock trades above the 20 day and 50 day SMA. “Weekly momentum indicators like the 14-week RSI have bounced back from oversold levels and are in rising mode now. This augurs well for the uptrend to continue. With the intermediate technical setup too looking positive, we believe the stock has the potential to move higher in the coming weeks and therefore recommend a buy”, adds the brokerage.

Stock	Current price	Target price	Potential upside
Suven Life Sciences	Rs. 96	Rs. 117	22%

Disclaimer:

The stocks listed out are based on fundamental and technical analysis and taken from brokerage report. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

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Why Bajaj Finance can be a good bet?

Bajaj Finance is a significant participant in the consumer finance area, but it has also dabbled in other lending segments such as housing, SME financing, and so on when chances arise.

ICICI Direct has set a price target of Rs 8950 on the stock of Bajaj Finance, as against the current market price of Rs 7780.

Why Bajaj Finance can be a good bet?

ICICI believes that it is currently adding 10 lakh wallets every month, with adequate capital of 28.5 percent, a concentration on technology, and a turnaround in the client acquisition trend all pointing to future development. From H2FY22 onwards, asset quality is expected to stabilise, with a faster recovery and gradual unlocking.

The share price of Bajaj Finance has increased by 7.2 times in the last five years, from roughly 1,100 in September 2016 to around 7800 in September 2021.

Target Price and Valuation of Bajaj Finance

“Bajaj Finance’s share price has grown by ~7.2x over the past five years. Factoring in management agility towards product development and process modification to suit the situation. We maintain our BUY rating on the stock.

Target Price and Valuation: We remain positive and factoring in high NIMs with risk adjusted growth we value the stock at ~10x P/ABV on FY23E and revise our target price to Rs 8950 from Rs 6900 earlier. Premium valuations stay,” the brokerage has said.

Key triggers for future price-performance:

• To boost values, make the switch from being a pure lender to fin-tech.
• RoE is expected to return to 15% and RoA to around 3%.
• A leaner operational approach and solid growth projections.

Alternative Stock Idea: In addition to BAF, we prefer HDFC Ltd in our BFSI coverage.

HDFC Ltd is India’s largest housing financing firm, with a loan portfolio of $ 4.98 lakh crore. Through its subsidiaries, the corporation also has a presence in other financial services categories.

Why Bajaj Finserv can be a good bet?

Bajaj Finserv is a financial conglomerate having interests in finance (Bajaj Finance), life insurance (Bajaj Life Insurance), and general insurance (Bajaj General Insurance).

ICICI Direct has set a price target of Rs 20,200 on the stock of Bajaj Finserv, as against the current market price of Rs 17,510.

Why Bajaj Finserv Bajaj Finserv can be a good bet?

• Long-term positives include traction in insurance and digitalization in financing.
• Bajaj Finance launched its wallet business in July 2021, and by FY23, it hopes to have onboarded 2.5 crore clients.
• Premium growth of 20% in general insurance for April-July21 helps market share gain of 30 basis points to 7.9%.
• Premiums for life insurance increased by 40% year over year in April-July21, outpacing the industry.
• A foray into the mutual fund business would add value to the franchisee’s overall operation.

The share price of Bajaj Finserv has increased by nearly 6 times in the last five years, from 2,900 in September 2016 to around 18,000 per share now.

Target Price and Valuation of Bajaj Finserv

“Bajaj Finserv’s share price has grown by ~6x over the past five years. We upgrade our rating on the stock from HOLD to BUY. Target Price and Valuation: We value Finserv at ~45x FY23 EPS to arrive at a revised Target Price of Rs 20200 per share from Rs 13500 earlier.

Key triggers for future price-performance:

• For FY22E and FY23E, expect AUM growth of 20% and 22%, respectively, and PAT growth of 30% and 45 percent.
• From H2FY22 forward, asset quality will stabilise.
• In the life and general insurance sector, robust premium growth and a carefully chosen product mix will promote business growth and earnings.

Disclaimer

The above stocks are picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

MindTree

The company’s QoQ revenue increase was 10.02 percent, the greatest in the prior three years. Only 2.3 percent of trading sessions in the last 14 years had intraday gains of more than 5%. The stock returned 300.83 percent over three years, compared to 55.03 percent for the Nifty 100.

Over a three-year period, the stock returned 300.83 percent, while the Nifty IT provided investors a 123.58 percent return. MindTree Ltd. has declared an equity dividend of Rs 25.00 per share in the last 12 months.

Tata Consultancy Services

The TCS stock returned 83.67 percent over three years, compared to 55.03 percent for the Nifty 100 index. Over a three-year period, the stock returned 83.67 percent, while the Nifty IT delivered investors a 123.58 percent return.

The promoters own 72.19 percent of the company. The stock’s PE ratio is 41.46, indicating that it is overvalued. However, the ROCE for the previous year was 56.24 percent, which is quite impressive. TCS’s sales increased by 3.55 percent last year, but by 11.78 percent during the previous three years.

L&T Technology Services

Larsen & Toubro Technology Services, is a subsidiary that provides engineering services. Artificial Intelligence, Digital Factory, 5G, and other disruptive technology areas are among the company’s specialties.

It caters to customers all over the world. In the year 2016, the company became public. Over the last three years, sales and profit have grown by 12.28 percent and 11.21 percent, respectively. The return on investment (ROI) is 22.84 percent, which is significantly greater than its peers. However, the company has a high PE ratio of 50.38, which is unfavourable because it implies that the stock is overvalued.

Infosys

Infosys, founded in 1981, is a Large Cap business in the IT Software sector with a market capitalization of Rs 731,902.59 crore. In comparison to the Nifty 100, which returned 55.03 percent over three years, the stock returned 143.65 percent. Over a three-year period, the stock returned 143.65%, while the Nifty IT provided investors a 123.58 percent return.

With a ROE of 25.16 percent, the company has a solid track record. The effective cash conversion ratio of the corporation is 110.27. With a solid Operating Margin of 28.14 percent, the company is in good shape. Infosys has a PE ratio of 38.52, which is high and expensive in comparison. Infosys has a ROA of 20.91 percent, which is a promising sign for the future. (It’s always preferable to have higher values)

Oracle Financial Services

Only 1.74 percent of trading sessions in the last 16 years had intraday drops of more than 5%. For the last five years, the company has had no debt. The company had a QoQ sales growth of 13.76 percent, which is the greatest in the recent 3 years. The stock returned 16.38 percent over three years, compared to 55.03 percent for the Nifty 100 index. Over a three-year period, the stock returned 16.38 percent, while the Nifty IT returned 123.58 percent to investors.

A solid Dividend Yield of 5.04 percent has been maintained by the company. In FY2021, the company’s ROE was 25.72 percent, which is a strong record. The effective cash conversion ratio of the corporation is 94.23. Oracle Financial Services has a PE ratio of 22.41, which is high and overvalued in comparison.

Tata Elxsi

Only 2.97 percent of trading sessions in the last 16 years had intraday drops of more than 5%. The company’s yearly sales growth rate of 11.85% surpassed its three-year CAGR of 9.19%. The company has enough cash on hand to cover its contingent liabilities.

With a ROE of 29.95 percent, the company has a strong track record. The effective cash conversion ratio of the corporation is 118.82. With a solid Operating Margin of 28.67 percent, the company is in good shape. Tata Elxsi’s PE ratio is 85.71, which is excessive and overvalued in comparison.

Sasken Technologies

Sasken Technologies Ltd., founded in 1989, is a Small Cap business in the IT Software sector with a market capitalization of Rs 2,064.60 crore. Since the last five years, the company has had no debt. The stock returned 42.26 percent over three years, compared to 53.6 percent for the Nifty Smallcap 100. Over a three-year period, the stock returned 42.26 percent, while the Nifty IT provided investors a 123.58 percent gain.

Sasken Technologies’ PE ratio is 17.34 which is high and pricey in comparison. The ROA of Sasken Technologies is 17.13%, higher is better for future performance. Sasken Technologies has a D/E ratio of 0, indicating that the company has a low debt-to-capital ratio.

Disclaimer

The above stocks mentioned are for educational purposes only. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies and the author are not liable for any losses caused as a result of decisions based on the article.