Book losses to lower tax burden.

IF YOU are sitting on unrealised losses on equity investments made less than a year ago, here is some consolation. Those unrealised losses can be used to lower tax liabilities for the current financial year.

Tax experts are advising investors to book their losses on or before March 31 this year and buy back those shares in the next financial year, beginning April 1.

By doing so, the tax on short-term capital gains, if any, can be set off to the extent of short-term capital losses. It may be noted that tax on short-term capital gains was increased by 15% from 10% with effect from 2008-09.
Brokers say this could trigger volatility in some stocks over the next couple of weeks, as investors try to balance their account books.

“Short-term capital losses for the year can be set off against any capital gains, short or long-term, reported under the head, income from capital gains,” said Jain Ambavat and Associates partner Vinod Ambavat.

“In case, the gains are lower than the losses, the excess short-term capital losses can be carried forward and offset against capital gains for eight successive assessment years,” he said.

However, Mr Ambavat said long-term capital losses on security transactions liable to securities transaction tax cannot be offset against any income, and cannot be carried forward for offsetting against any future gains. “These losses can also be offset against short-term as well as longterm gains of non-equity assets like real estate, jewellery, debt mutual fund units, gold ETFs, etc. Investors have to bear in mind that short-term capital losses first have to be adjusted with any short-term capital gains, and only then with longterm capital gains on transactions not liable to STT (like sale of gold, real estate, etc),” added Mr Ambavat.

Investors in many other countries like the US book temporary losses for lowering tax liability subject to fulfilment of certain conditions. But there are rules that prevent investors from selling and buying back the same stock within 45 days for tax purposes.

In India, there is no such restrictions that forbids investors from benefiting from this. So, many small-cap stock holders look for ways to avoid being taxed on their non-profitable investments.

Brokers eye MNC stocks with delisting potential

Analysts Feel MNC Parents Face No Compulsion To Raise Money From India

 

LISTED Indian arms of MNCs may not be the best bets in a raging bull market. But in troubled times, these stocks may not just be safe havens in terms of relative outperformance, but could be the best bets from an absolute return point of view. “Investing in MNC stocks (Indian arms of the MNCs) quoting near multi-year lows, and which look like potential delisting candidates makes sense,” said the head of a domestic financial services firm. Companies that fit into this category include that of Honda Siel, Blue Dart, Esab, Ingersoll Rand, Bayer CropScience, Merck, Abbott India, etc.

Equity analysts believe MNC parents of these companies see no compelling reason to raise capital from India. “Also, they have easy capital available outside India. A weak market will provide them an opportunity to increase their stake at a much cheaper rate, although their offer price will be at a substantial premium to current market price,” said an analyst tracking MNC companies.

Brokers maintain that this strategy will yield good returns from a 12-18 month timeframe, even if the delisting does not materialise. This is because majority of these firms are fundamentally sound. “Most MNCs are debt-free companies and are cash rich. In many cases, they have cash on book of almost 60-80% of its market cap. Almost all have a strong business model and good financials. Additionally, prices of all these stocks are ruling at near their lows, thereby reducing downward risk,” said the head of research of a broking firm. Some of the aforementioned companies have at some time or the other, sought to delist or have come out with an open offer for increasing the promoter’s stake.

In case of Esab India, the 55.56% subsidiary of Charter, UK, the parent made an open offer at Rs 505 for an additional 20% stake but got a response for only 15%. With Ingersoll Rand, the 74% subsidiary of Ingersoll Rand-USA, the exit price offered by the parent did not enthuse shareholders while in the case of Blue Dart — the 81.03% subsidiary of DHL group — the price of Rs 900 arrived through the reverse book building process price was not acceptable to DHL.

Bayer Crop Science, or BCSL, the 71% subsidiary of Bayer Ag, Germany and Honda Siel, a 67% subsidiary of Honda Motor Corporation (HMC) have not come out with open offers in the past. Yet market watchers believe that once these companies sell off their properties in Thane and Rudrapur, respectively, offers for delisting are likely.

Market watchers estimate that 50-60 companies are likely to delist over the next one year. “The global scenario being what it is, many parent companies are for the time being, not focused on their Indian subsidiaries. But the situation could reverse once the overall sentiment improves. These stocks, which are currently available at throwaway prices, could see their valuations soar then,” said a BSE broker.