People School

  The recent amendment to the Budget, which taxes all income from debt mutual funds (MFs) as short term, has raised concerns among investors about whether equity is next in line to suffer a similar fate. Bloomberg reported last week that if the BJP government returns to power in 2024, it may consider a higher tax on equity capital gains, particularly on high-income earners. While the government has denied any such move, the idea has been sown in the public’s conscience. The unequal tax treatment in debt, where bank fixed deposits are taxed at the same rate as MF debt schemes, has been rectified. However, it raises the question of whether the same logic should apply to equity capital gains. After all, both equity and debt are sources of capital. If short-term capital gains on listed equity are taxed at 15 percent, should long-term gains be taxed at the same rate? While it remains to be seen how changes to tax rates will influence investment decisions, the government may consider...

  Indian retail equity investors are facing some uncertainty with the weakening of foreign portfolio flows and ongoing macroeconomic worries. However, retail investors invested a net Rs 20,534 crore into equity mutual fund schemes in March.  The recent pause by the RBI’s Monetary Policy Committee, this week’s low CPI inflation print, and India’s brighter economic prospects are bringing hope to investors. However, some investors have cautioned that stock valuations are not factoring in the risk of negative surprises in earnings. In this regard, TCS and Infosys’s results were disappointing, and their management commentary was bleak, indicating that the software industry may face a slowdown. Nevertheless, sudden turns and twists in the global economy could mean an upward revision to estimates, which could entice buyers. The effects of these results may be felt in different ways. For instance, a slowdown in hiring by one of the largest employers of India’s skilled and upwardly m...

Here,  we will discuss the recent developments in the Monetary Policy Committee (MPC) meetings. In the last two meetings, the MPC surprised many by deciding to pause its rate hikes, contrary to market expectations. The main reason behind the MPC's decision to pause the rate hike seems to be the inflation projections. Although India's real GDP growth for FY24 is now pegged at 6.5 percent, compared to 6.4 percent at the MPC’s February 2023 meet, the inflation projections for Q1 are slightly higher than anticipated, at 5.1 percent. However, inflation projections for Q4 have been lowered to 5.2 percent, thanks to the base effect. The RBI governor has also spoken about the heightened uncertainty in the current economic environment, making it difficult to predict inflation rates accurately. It's worth noting that a year ago, the RBI projected inflation at 5.1 percent in Q4 FY23, but the reality is that inflation is now above 6 percent, beyond the RBI’s upper limit. Hence, the...

 We have some news that might come as a shock to many of you.  The Indian government has just scrapped the indexation benefit that debt mutual funds enjoyed. This change was snuck into the Finance Bill and passed in Parliament without any prior announcement.  From April 1st, 2023, any new investments made in Debt Mutual Funds will be taxed as per your slab, whether you invest and sell it in 1 month or 10 years. This will hurt investors who park money for the long term to get relatively safe returns and beat inflation comfortably. Without indexation, investments may not beat inflation anymore.  It will also hurt financial experts who earn money when their clients invest in such funds. They might have earned via commissions or charged a percentage fee directly from the client for doling out advice.  It will also hurt the Mutual Fund industry and the corporate bond market. The Bharat Bond Fund, which contained bonds issued by government-backed companies...

 I  bring to you the latest developments in the electric vehicle (EV) industry in India. Reports suggest that the government may discontinue the FAME-II scheme beyond FY24, owing to alleged misuse and fraudulent claims by EV manufacturers. The government has withheld subsidies of about Rs 1,100 crore for over a year due to manufacturers allegedly claiming false localization of parts. The decision to discontinue the scheme has several ramifications for the EV stakeholders and the country's transition towards disincentivizing fossil fuel vehicles. The government's inability to announce a decision adds to the number of issues and areas where weak execution is the biggest stumbling block in achieving its ambitious plans. Additionally, the cash flows of companies that have doled out discounts are jeopardized until the matter is resolved, raising questions on the governance of companies. Moreover, dealers could be straddled with inventory if the issue is not resolved, and the ne...

  Dear readers, In recent news, the central government has issued an order for all power plants using imported coal to operate at full capacity in order to meet the increasing electricity demand in India. This move signifies that the demand and supply of electricity is precariously balanced, with electricity generation up 10% in January 2023, implying a healthy demand for electricity. The decision is expected to benefit thermal power producers such as NTPC, Tata Power Co, JSW Energy, and Adani Power, who have large thermal power generation capacities and can utilise their assets better. The government has invoked Section 11 of the Electricity Act, which will allow the companies to recoup fuel costs, benefiting their profitability. However, the situation also highlights the need for a long-term solution for India's energy requirements. Domestic coal production is falling short of India's requirements, and while solar power generation capacities are being rapidly added, thi...