Deepak Shenoy's blog

SEZ Developers On The MAT

Minimum Alternate Tax (or MAT) will apply for SEZ developers as well. Not just the real estate players, even companies like Opto Circuits had gone into developing SEZs. The funda was that if you developed an SEZ, or if you were a unit in an SEZ, you paid no MAT at all, regardless of how much profit you had made. This is a useful way to move money around and make it non-taxable.

Developers in SEZs will now pay MAT as well.

Also such SEZ developers paid no dividend distribution tax (DDT); but from 1 June 2011, they will have to pay 15% DDT.

This affects way too many stocks, if you ask me. I need to find out how to make a list of them without killing myself.

Budget 2011: The Said and the Unsaid

With this budget, the FM has said a lot, but there is a lot that he has left unsaid, which are just as important. But let me cut the bullshit and get to the point: what does this mean for you?

Budget 2011: Chat Transcript

What is more important in this budget is what WASN'T said, not what was.  But here's the transcript of what I wrote at the Yahoo chat through the budget.

Amnestasia: A disease where you forget to pay tax

My article at Yahoo: Amnestasia: A disease where you forget to pay tax on the Yahoo Budget Site.

(Reproduced in full)

There have been some calls for an "amnesty" scheme again. The concept is simple: people who have stashed away money and not paid tax on it, should be allowed to do so now, and thus escape the ignominy of being called cheats and put in jail.

The reasons for providing such an amnesty scheme is two-fold: a) this money wouldn't be caught anyway, because it is stashed in locations otherwise unknown and b) the government will be happy to have the money now.

Yet, this has a huge issue of moral outrage - why bother paying taxes, when every once in a while, the government throws an amnesty scheme? You could hide money forever and whenever there is an amnesty scheme, declare what you want and you're home scot free. This does no justice to the honest taxpayer, or even the government. On a personal note, I am absolutely against such a scheme at the ethical level - but then, I have reason to be, since I have no such tainted money.

Cutting Real Estate Down To Size

My article at Yahoo: Cutting Real Estate Down To Size on their Budget Site.

(Reproduced in full)

In an economy that is seeing ridiculous levels of increase in real estate prices, it is strange that we continue to give it sops, sometimes to an extreme. Let me list the ways real estate is "preferred" as a mode of investment.

First, you are allowed an income tax deduction of Rs. 150,000 on the interest paid for the home you live in. This, you think, is justified; you are also allowed a deduction (without limit) on any education loan. But it doesn't apply to any other loan you ever take - car loans, personal loans, a loan to buy that fridge that ensures your food doesn't rot and so on. I would recommend that either all interest paid on a loan for ANY durable - like cars or fridges - be tax free. After all, the government charges the bank income tax on that money.

Or, they must remove the special exemption for housing loan interest completely. Education loan exemptions are far less kind; they should stay, for the only reason that education is far more useful. A house is only as useful as a car nowadays.
Second, if you buy a second house, you're allowed to deduct an unlimited amount of interest paid on the loan. Again, just because no other item on your personal balance sheet is allowed that kind of deduction, I say remove it for housing, or let everything else in. How can you incentivize SECOND houses, for goodness sake!

At Yahoo: Good Stock. Bad Stock.

My article at Yahoo: Good Stock. Bad Stock.

(Reproduced in full)

Tata Steel showed some gutsy results in the last few quarters, with phenomenal year-on-year growth in their net profits. As western economies have recovered (ever so slightly) the Corus acquisition has helped them in scaling up.

But, the impact of such results for investors has been less than stellar. When Tata Steel announced the Corus acquisition in early-2007, it decided to finance that acquisition through a rights issue and compulsorily convertible preference shares (CCPS), sold to existing investors. The Rights issue allowed an investor with 5 shares to buy one more at Rs. 300 per share. The CCPS was priced at Rs. 100 per share, convertible in 2009 at 6 CCPS to one equity shares, valuing the equity share at Rs. 600 then.

This sounded cheap! The stock price in November to December 2007 — the dates of the rights issue - was between Rs. 800 and 900, much higher than any of the rights or convertible prices. In fact, just the rights issue would have taken your purchase price to the Rs. 750 levels. And the CCPS at 600 looked juicy.

Short Take: Conversations With Ramki

Just a blog plug to the video:  In the first in the series, Deepak Shenoy speaks with N. Ramakrishnan, popularly known as Ramki. Ramki has over 25 yrs of experience with markets, and has rich and deep knowledge of the Elliott Wave Theory. His views are sought after by leading banks and hedge fund managers around the world.

He now runs the treasury of a bank in the Middle East. He writes at www.wavetimes.com - a must visit for traders.

(See Video: 45 minutes)

PI Inflation up at 15.77% for Feb 12, 2011

Primary Articles Inflation on 12-Feb 2011 has bumped itself up to 15.77%, according to the latest data.

Primary Articles Inflation Chart

Brent Crude at $120

To continue the oil story: Brent Crude is now at $120.

Brent crude on Thursday spiked nearly USD 7 in the 90 minutes to 0800 GMT. It rallied as much as USD 8.54 a barrel to a peak of USD 119.79, trimming gains to trade up USD 6.00 at USD 117.25 by 0902 GMT. The contract has risen nearly 14% in four days.

HDFC Bk and ICICI Raise Rates, CDs quoting at 10%+

HDFC Bank and ICICI Bank have both hiked up lending rates by about 50 bps, says ET. This takes ICICI's base rate to 8.25% and HDFC Bank's base rate to 8.2%. Banks can't lend below the base rate. Most existing customer loans are linked to a "Benchmark Prime Lending Rate" (BPLR) which has also been raised appropriately.

The commercial paper (CP) and Certificates of Deposit (CD) markets seem to have gone berserk; government owned bank CDs are trading above 10% yields.