Railway Budget (2008 - 2009 ) Highlights

Following are the highlights of Railway Budget 2008-09 presented by the Railways Minister, Mr Lalu Prasad, in Parliament on Tuesday.

Freight traffic crosses target of 785 million tonnes; to touch 790 million tonnes.
Railway Plan size increased from Rs 11,000 crore to Rs 30,000 crore in the last four years.
Posts profit of Rs 25,000 cr in 2007-08.
560 railway station platforms to be lengthened to take long trains.
Middle-level and low-level platforms to be upgraded to high-level platforms in several stations to help commuters.
Doubling of lines to be given priority.
Professional agencies being involved on a pilot basis to ensure cleanliness in running trains.

Second-class Sleeper fares cut by 5%.
AC-1 fare cut by 7%.
AC-2 fare cut by 4%.
AC-3 fare cut by 3%.
Freight on petrol, diesel cut by 5%
Work on automatic signalling to start in new sections.
Smartcard-based ticketing system planned.
Electrification of more routes in North India.
Foot overbridge along high level platforms.
Talks on with foreign cos for new wagon designs.
High level platforms in 135 stations.
Housekeeping in Shatabdis to be outsourced.
Lifts and escalators in 50 stations.

Modular toilets to be introduced in trains.
Rajdhanis, Shatabdis to get modernised coaches.
Touch screens, colour TVs across all major stations.
6,000 automatic ticket sale machines in 2 years.
By 2010 all coaches to be in stainless steel.
Rlys to use call centres for reservations.
16,548 old rail tracks to be renewed.
Ticket confirmation via mobiles likely.
Pvt cos can make terminals on Rly land.
All un-manned crossings to be manned.
Metal detectors, baggage scan at key stations.
Display boards to be set up across stations for convenience of passengers.

'Go Mumbai' tickets to be sold at bus depots.
Delhi-JNPT-NavaSheva western freight corridor cleared.
Multi-level parking at 30 major stations.
Free Rajdhani, Shatabdi travel for Ashok Chakra winners.
New Delhi, Mumbai, Pune to be made world-class stations.
50% concessions for AIDS patients.
Free season tickets for girls till graduation.
Rlys to issue wait-listed e-tickets.
50% concession for senior women citizen.
Arrival time to be printed on tickets.

To link trains via IT, communications in 2009.
10 new Garib Raths, 53 new trains to be introduced.
Amravati-Mumbai Express to run twice a week.
Khajuraho-Delhi to run thrice a week.
Chennai-Salem to have daily frequency
Kurla-Howrah to have twice a week frequency.
Considering a rail link for Ennore port.
To have new wagon leasing policy.
BBU-NDLS Rajdhani thrice a week.
Expanding use of automated signalling system.
Special train between Delhi and Pune for Commonwealth Games.

No panic: Mutual funds promise good returns in long-term

 Though mutual funds have seen a dip in the net asset value (NAVs) in the last one week due to turmoil in the market, experts said investors should not panic and take a short-term view. With Indian economy expected to grow at 9%, MFs are capable of giving handsome return in medium to long term (three to five years), they added.

Almost all categories of funds have given good return in three to five years period (see chart). On an average, the diversified funds have given a compounded annual return of 48% till Thursday.

In last one week, till Thursday, diversified MFs average NAV has dipped by 15.18%. As sensex gained more than 1,100 points on Friday, it has offset a substantial portion of loss, CEO of a MF said.

During last five years, there were couple of occasions when the sensex fell by over 1000 points. Critics said party is over and investors should exit. But, those who remained invested reaped the benefit.

What happened on Monday and Tuesday , the CEO said, should be taken as an aberration and will be corrected in due course. This kind of situation should be taken as an opportunity to invest. Any investment at lower level will improve the return, he argued.

In three to five years, he said, fund would be able to give more than 20% per annum return. He cautioned that the high return of 49% in the last five years may not be replicated in the next five years as most of the hidden value of the stocks have already been realized. Therefore, he said that if India grows at 9%, there will be companies which will grow at around 25%. So, investors can still manage to earn an annualized return of around 25% to 30% in the medium to long term.

Ideal investment for Long-term investor

Systematic investment in balanced funds is good for long-term investor
 
If you want to maintain a simple portfolio and yet have the benefits of diversification, a systematic investment in balanced funds is a great option

As an investor, if you are saving regularly for the long-term and want a low-involvement, hassle-free instrument, then balanced funds are the right choice.

Balanced (mutual) funds have been around for over a decade — and manage assets of over Rs 16,000 crore between them. They, by mandate, invest at least 65% of their portfolio in equities, and up to 35% in debt and related instruments. In practice, the equity component of most balanced funds varies between 65% and 80%, depending on the fund manager’s outlook of the markets. Long-term and discerning investors would no doubt have heard of the UTI Balanced Fund and Prashant Jain’s HDFC Prudence Fund.

Of course, today, there are over 15 balanced funds offered by different fund houses. They have systematic investment plans (SIP), growth/dividend options, and all the other investor-friendly features provided by ‘pure’ equity and debt funds.

But how effective are balanced funds from a tax, load and performance point of view, compared to, say, investing partly in equities and partly in debt? For those who do not wish to enter into nitty-gritties, here’s the simple answer: if you want to maintain a simple portfolio, and yet have the benefits of diversification, a systematic investment in balanced funds is a great option.

Also Read

à UTI, HDFC & ICICI may post over Rs 100-cr profits in FY08

à MFs crash but still promise long term gain

à MFs defy turbulent times at D-Street; pump in over $5 bn

à SEBI should look at phenomenon of MFs investing in their group cos

à No panic: Mutual funds promise good returns in long-term




If you are the more discerning and involved kind, you might want to synthetically ‘manufacture’ a balanced fund type of portfolio instead; by investing in two or more funds, each of ‘pure’ equity and debt nature. If you want some mathematics around, how we came to this, then read on!

For a fair comparison, we consider a Rs 100 investment for three years in a balanced fund on the one hand; and compare it with a combination of two investments for the same duration — of Rs 65 in an equity fund and Rs 35 in a debt fund. Of course, if your desired asset allocation is far different from this (say you are risk averse and want to stay away from equity markets), you should not consider balanced funds. We assume an annualised equity market return of 15% and a debt market return of 7%. Thus, the balanced fund return, ceteris paribus, is expected to be 12.2%, before load and tax.

Nature of portfolio

Balanced funds would invariably invest the equity component of the portfolio in a well-diversified basket of securities, in different sectors. This is ideal for an investor who wants to participate in the long-term growth of the economy, without any active sector or stock preference. Indeed, balanced funds are best suited for such investors. For someone wanting to take sector calls or ride a mid-cap rally, a ‘pure’ (sector or mid-cap) equity fund exposure is called for.

A balanced fund would invest in debt securities of intermediate duration (1-4 years). Thus, they are sensitive to interest rate movements, but not overly so. Hence, as with equity, they are again suitable for investors without a clear researched view on rate cycles.

Transaction costs

In any mutual fund investment, there are two kinds of transaction costs — viz entry/exit loads (for purchase or redemption of fund units) and the expense ratio (annual cost of fund management).

Let us examine each of these in the illustration given above. Most balanced funds, unfortunately, charge the same entry load as equity funds (2.25%).

Thus, in our numerical example, of the Rs 100 invested in the balanced fund, only Rs 97.8 would go towards allotment of units. In our synthetic example, the entire Rs 35 would go into debt units (there being no entry load), and Rs 63.57 towards equity units. Thus, in the synthetic case, we have escaped paying entry load on the debt part of the investment. This difference gets magnified with time, due to compounding.

The other major cost — the expense ratio — is (at least currently) similar in the balanced and synthetic fund scenario. In fact, the difference between funds of similar category exceeds the difference between the equity and balanced categories. So, we ignore this term in the comparison.

Tax implications

There are two tax structures in mutual funds, depending on whether a fund is classified as debt or equity. The following table summarises the currently prevailing tax structure:

Thus, equity funds enjoy beneficial tax treatment. Here, balanced funds enjoy the beneficial treatment of being taxed like equity funds and, in this, they clearly score over the synthetic portfolio we had manufactured, where the debt portion would be taxed at a higher rate.

Balanced funds have higher transaction costs, but are beneficial from a tax perspective. Let us now examine the net impact of all these factors on returns earned by a typical investor.

The accompanying table shows the net impact in both the balanced fund investment and the synthetic portfolio; for the period of three years, given the equity and debt returns as assumed above. As can be seen there, the synthetic portfolio outperforms, but by a very small margin. For all practical purposes, a good balanced fund can easily perform as well as a synthetically-made portfolio with similar debt to equity ratio. And we do have such excellent balanced funds in today’s mutual fund market!

As an investor, if you are saving regularly for the long term and want a low involvement hassle free instrument, balanced funds are for you. If you otherwise have a lot of debt investment (Bank FD, PPF, NSC, liquid funds, etc) then you might be better off going for 100% equity oriented funds instead. In either case, you can be comfortable in the knowledge that the benefits of one option over another are not overwhelming; and in most cases not even significant.

Shall we expect less taxed living after Budget

               Finance Minister P Chidambaram might spread cheer all around with Budget 2008-09, the last full-fledged Budget of the UPA government. A hike in the income-tax exemption limit, a higher ceiling for tax-saving investments along with a wider range of products under this category, and a rejig in tax slabs are some of the key proposals being considered by the UPA government. Corporate tax payers can expect some relief in the form of removal of surcharge.

The finance ministry, which is giving final touches to the tax proposals, is likely to raise the income-tax exemption limit from Rs 1,10,000 to Rs 1,25,000. Though there is a strong pitch from all corners to raise the limit to Rs 1,50,000, the fear of a big erosion in the tax base may prompt the government to follow a conservative approach.

A final call on direct taxes will be taken at “the highest political level”, since this will be the UPA government’s last full Budget, sources said. Budget 2009-10 will be a vote on account, as a new government has to be put in office by May 2009.

Direct tax collections have been buoyant this fiscal year, registering a growth of over 40% to Rs 2,18,538 crore in the first 10 months. An increase of Rs 15,000 in the exemption limit will make every taxpayer richer by Rs 1,500 while a rise of Rs 40,000 will provide a relief of Rs 4,000. An increase in the current investment exemption limit of Rs 1,00,000 to Rs 1,50,000 is also being considered with a view to channelise some savings into the infrastructure sector.

Keeping this in mind, the government could provide tax reliefs to investments in special infrastructure bonds and dedicated funds. Recently, the government had expanded the basket of products eligible for tax exemption by adding a senior citizen scheme and a five-year post office time-account to the basket.

Sources said the finance ministry considering whether the current personal tax slabs should be rejigged. The slabs were introduced three years ago, but the Prime Minister’s Economic Advisory Council has suggested a change in the structure. At present, those in the income bracket of Rs 1,10,000-1,50,000 attract 10% tax while those earning between Rs 1,50,001 and Rs 2,50,000 attract a tax rate of 20%. Income above Rs 2,50,001 is taxed at 30%.

The government is also reviewing the 10% surcharge. In the last Budget, the finance minister had partially relieved companies with an income of Rs 1 crore or less and individuals with income below Rs 10 lakh of this burden.

This year’s Budget also comes against the backdrop of the sixth Pay Commission recommendations. Though the commission is to submit its report by April this year, the finance minister is expected to make an announcement on government employees’ pay revision in this Budget.

Make India more investment friendly

So, what should Budget 2008 be like and what are the aspects that deserve the finance minister's attention?

A lot has been written about the key issues that MNCs face when transacting with India, ranging from withholding tax issues - especially when the payments made from India are in the nature of Royalties and Fees for Technical Services; or even transfer pricing issues.

However, with the fast pace of globalisation today, more and more Indian companies are adopting a global ideology and making major acquisitions overseas. This indeed, has also transformed the spectrum of international tax issues that one speaks of in the Indian context.

While Tata's may have made headlines with their overseas acquisitions, there is heightened and continued activity by Indian business entities, including medium sized entities, as regards overseas acquisitions.

Given the stakes involved, it has been witnessed internationally that investing companies have used investment structuring through tax-friendly jurisdictions as an effective business-planning tool. Structuring can offer treaty advantages to minimize source country withholding tax, the possibility of achieving tax deferral in the home country on profit repatriation/subsequent disposals of shares and tax-efficient circulation of cash within the group structure.



Currently, India has a residence based taxation system. Thus, Indian global companies incur taxation on income earned abroad and received in India (be it in the form of dividend, interest etc.) as well as income earned in India. However, Indian companies do receive a tax credit for taxes paid to foreign governments, but this is limited to the Indian tax liability.

Taxation in India only occurs when income is repatriated; thus, there is an incentive to accumulate income in low-tax countries, which can be used for further overseas expansions

However, such a system of taxation, also know as the classical or separate system of company taxation, could create economic distortions. Under this system, companies would be encouraged to retain profits outside India rather than repatriating the same to India. Secondly, there are two levels of double taxation involved, double taxation of company shareholder income and international double taxation (that is, taxation in more than one country).

In recent years, various countries have considered a change in company shareholder tax systems and a major reason for the change has been a shift of emphasis to consider both forms of potential double taxation together. With the increase in outbound investments by Indian companies, it would be worthwhile to review the shareholder taxation system in light of the above discussion. A possible relief on the international double taxation would encourage Indian companies to repatriate their profits from global operations back to India for productive re-investment which consequentially would fuel economic growth.

Possible Relief Mechanism

Relief can be provided, primarily, in two forms i.e. either by following an exemption system for the foreign sourced investment income or maximizing the possibility of claiming tax credits.

Exemption System: Some jurisdictions exempt foreign income from taxation; this is referred to as territorial system of international taxation. In addition, several countries have hybrid systems that lie in between this territorial system and the above discussed classical system; for instance, foreign income may be exempt from taxation in the home country provided that the foreign country's tax system is sufficiently "similar" to that in the home country.

For e.g. Singapore exempts the foreign country source dividend if the headline tax rate in foreign jurisdiction from which dividend is received is at least 15 per cent and the dividend income has been subject to tax in foreign jurisdiction from which it is received.

Cyprus and Hong Kong do not tax foreign source income while some European Union countries such as Belgium, Denmark, Netherlands, Luxembourg, Spain fully/partially exempt foreign sourced dividend, provided, conditions of 'participation exemption' are satisfied. While the conditions normally laid down for recognizing the 'participation exemption' vary from country to country, the typical requirements are a minimum shareholding of 5%-25% and shares not being held as 'portfolio investments'.

Credit System: Some countries (such as the United States and the United Kingdom) which do not follow an exemption method for taxing foreign source investment income, use a tax credit system. For example, US multinational firms incur taxation on income earned abroad as well as income earned in United States. However, US firms receive a tax credit for taxes paid to foreign governments. This tax credit is limited to the US tax liability although firms may (in some cases) use excess credits from income earned in high tax countries to offset US tax due on income earned in low tax countries.

The above concept is similar to underlying tax credits available under select tax treaties which India has entered into (e.g. Mauritius and Singapore). Allowing underlying tax credits in the domestic law could be a mechanism to reduce the tax implications on Indian multinational companies in respect of the foreign sourced dividend income.

Underlying tax credit is the credit of the corporate tax paid by the company paying the dividend on the profit out of which the dividends are distributed by it. The recipient, in addition to the foreign tax credit i.e. credit of withholding taxes paid in foreign country, is entitled to claim a credit of such taxes against the tax payable by it on foreign sourced dividend. Accordingly, the recipient is benefited by higher tax credit available to it.
Other Trends

American Job Creation Act, United States

In the United States, in sync with the objective of encouraging US companies to bring the profits back to the US (which are being accumulated outside US due to low tax rates), the IRS introduced the provisions to provide relief from domestic taxation in respect of foreign sourced dividend in the hands of US companies. The provisions, contained in American Jobs Creation Act, provided for allowing US companies to select a one year window during which they may deduct 85% of cash dividends received from controlled foreign companies.

Australia as a regional holding company location - Conduit Foreign Income Rules

On December 14, 2005 the Australian Government adopted Conduit Foreign Income (CFI) Rules as part of the reforms of Australia's international tax arrangements. The CFI measures aim to enhance the perception of Australia as a good location for regional holding companies of foreign groups and also improve Australia's attractiveness as an investment destination for multinational companies.

Conduit foreign income is basically foreign income that is not assessable in Australia when derived by an Australian qualifying entity. It includes, non portfolio dividends, gains on sale of shares of a foreign company with an underlying active business etc.

Conclusion

It might just be the right time, with large acquisitions by Indian companies becoming more frequent, for the Indian government to provide incentives to Indian companies to bring the overseas profits back into India and make India more investment friendly. Needless to say, given the sheer quantum of such money, it can go a long way in adding fuel to the Indian growth story.

Tips to investment from experts

Investment is an art. And not everybody has this skill. However, those who do not possess this skill, still need to make investments. The more you maximise the return by effectively utilising the money earned or saved by you, the better.

For those who do not possess this 'investment skill', there is a great route available -- mutual fund schemes. This is a different animal. A simple one, with lots of variety, it comes in all shapes and sizes to suit every investor's requirements.

In this article, without going into the basics of mutual funds, let me try and address some questions that investors have asked me at various points of time.

How long should I stay invested?

A typical quandary for most of the investors.

This is not just true of mutual funds, but in any other investment that involves a lot of volatility. Let me stick to mutual funds, though.

The longer you stay invested, the better. I would suggest a minimum tenure of 5 years for you to have a decent, steady return on your investment.

Well, it also matters what type of scheme you choose and when you invest. Even in mutual funds, the timing is important.

Just to cite an example, if you would have invested in a technology fund in 1998, you would have got yourself into a mess. But, if you would have invested in the same technology fund somewhere around 2002-03, you would have been better off.

The choice of right fund and right timing, therefore, is of essence.

Should I invest in growth or dividend option?

Some investors have this confusion as to which is best suited for their investment profile. Such confusion arises only because every investor worth her/his salt wants to maximise the return, ensure that the option is rightly chosen, and is also tax efficient.

If you plan to invest in an equity fund in the current scenario then capital gains in your hand is not taxable if you stay invested for more than a year. In the normal course, mutual fund investment should always be for the long term -- I would say, for 3-5 years. Therefore, you should look at investing in the growth option.

If your investment is into a debt product, you should invest in the dividend option. The dividend paid to the investor is tax free while the capital gain is taxable at 30 per cent for the short term and 20 per cent for the long term (plus surcharge and cess as applicable).

In case a dividend is paid to you, the scheme has to pay a dividend distribution tax of 12.5 per cent (plus surcharge and cess as applicable). In simple words, go for the growth option if you are investing in an equity scheme and dividend option for debt schemes.

The caveat still remains that it shall depend on the investor's tax bracket and income levels.

NFO or the existing fund?

The new fund offers (NFOs) are favourite for many investors. I cannot fathom why.

Given a situation where there is an NFO with the same objective of an existing fund, it is better to get exposed to the existing fund. As they say, `a known devil is better than an unknown angel'.

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However, if there is a new theme that is being launched, it makes a lot of sense to invest in such a new theme.

Having said that, in case there is a fund launched by a fund house which is not known for its equity investment performance, and after some time another established fund house launches the same theme, it is advisable to take an exposure in the scheme of the established fund house instead of the existing one.

Therefore, such decisions are situational and there is no set formula for the same. Still, it is all a game of asset allocation.

NAV of Rs 10 or Rs 175?

Frankly, such a dilemma is unnecessary.

The net asset value, NAV, of a mutual fund scheme has no say in the returns that you receive. If the return of a fund is 40 per cent then the NAV of your fund should not matter. Be its NAV Rs 10 or Rs 200.

By that I mean that an investor A who has invested at an NAV of Rs 10 will get a return of Rs 4 per unit and the other investor B could get a return of Rs 80 per unit. But the catch is in the number of units that the investor gets. Investor A will get 1,000 units (on an investment of Rs 10,000) and investor B will get only 50 units.

Thus, the return would be Rs 4,000 for both the investors. It is as simple as this.

Should I invest in an ULIP or a mutual fund scheme?

Unit linked insurance policy, ULIP, and mutual fund schemes are different set of investments. First and foremost, your objective should be clear. Do you want an insurance cover or do you want to earn money on your investment?

My view is that you cannot mix both. With the same outflow, it would be better to take a term policy (lower premium, higher cover) and have an SIP in a good mutual fund scheme for the period of your insurance (normally 15-18 years).

You would probably make much better return in this combination than investing in an ULIP.

How do I time the market?

Even the well-known stock market legends cannot accurately time the market.

The philosophy goes 'buy low sell high'. While it is great as a philosophy, in practice it is not possible to consistently do it. That is why, for those who are risk-averse, there is this excellent facility called the systematic investment plan, SIP, and the systematic transfer plan, STP. Also, rupee cost averaging will work very well for you if you invest consistently.

Currently, there are funds that offer weekly transfer plan under STP. I am waiting for the day when mutual funds will offer daily STP that could play wonders for rupee cost averaging.

20 Great stocks that rocks in 2008

Stock selection will be the key factor in determining returns in 2008, given concerns of a global slowdown and premium valuations in domestic markets.

Year 2007 saw the market deliver good returns amidst volatility, especially in the second half, thanks to global concerns. The BSE Sensex was up a good 46.6 per cent, helped by strong foreign and domestic inflows.

And what led to these inflows was none other than a strong performance by India Inc. For investors, the moot question is how will 2008 be? The answer is not simple given that none of the global concerns have eased, while the Indian rupee is still firm and India Inc is experiencing a deceleration in growth rates.

"Year 2008 will be difficult globally, although it is not yet known how deep the US downturn will be," says Andrew Holland, managing director -- strategic risk group, DSP Merrill Lynch.

While India's vulnerability to global shocks has been put to test adequately over the past year, the overall macroeconomic growth remained strong owing to infrastructure, capital goods and real estate sectors.

Notably, the story is not likely to be very different in 2008 barring drastic surprises, which means that domestic consumption plays should remain in flavour.

By this logic, the most certain sectors are capital goods, financial services, infrastructure, power, logistics and oil, gas and energy sectors among others. Even among these sectors, not all stocks can be expected to do well, owing to the differences in business models and the individual strengths and weaknesses.

Further, in our selection, we have looked at the fundamentals of companies and their potential to deliver earnings growth of over 20-25 per cent.

But, while growth is a must, valuations too need to be fair, which is why we kept a tab on the price earnings to growth (PEG) ratio. Here, most stocks are trading at a PEG of less than 1 times based on FY09 earnings estimates, which ensures that the price is not exorbitant.

To ease your effort of picking the juiciest fruits from the orchard, we have handpicked a few likely winners of 2008. Read on.

Adlabs Films [Get Quote]

With a strong presence across the entertainment industry value chain of content production, distribution, and exhibition, Adlabs becomes the choicest pick.

Domestic consumption and leisure spends will remain buoyant as disposable incomes rise across the country fuelling growth at Adlabs.

Adlabs produces and distributes films, and is a dominant player in the multiplex segment. It has also acquired 51 per cent stake in television content producer Synergy Communications, the maker of Jhalak Dikhhla Jaa and Kaun Banega Crorepati.

In the FM radio business, its subsidiary, which runs Big FM has 44 FM licenses across India. This could also become a value unlocking opportunity going forward.

Over the past three years, Adlabs has impeccably delivered a top line growth of over 100 per cent y-o-y, along with high profitability. In the September 2007 quarter, it raked in a whopping 69 per cent operating profit margin.

But going by the past numbers, operating margins have remained in excess of 50 per cent consistently, with net profit margins at over 22 per cent. The stock has appreciated three-fold since January 2007 and should do well.

Bank of Baroda [Get Quote]

Bank of Baroda has a strong presence in western India -- a key zone for retail and industrial growth-- with equally good rural network.

Further, the bank is one of the few banks having a substantial international presence, which contributes 18-20 per cent to total business and 30 per cent to profits. This business is expected to rise further with the bank growing its global presence.

The bank has improved its fundamentals over the past several years on key parameters such as net interest margins (NIMs) and asset quality despite growing at a robust pace (asset growth CAGR of 19 per cent in FY04-07). Going ahead, the bank's focus on NIMs backed by moderate growth augurs well.

Besides, its initiatives such as online trading services, and joint ventures in insurance and asset management, will help it create value for its shareholders.

Additional triggers could be in the form of consolidation within the public sector bank space. All this put together makes this stock, which is reasonably valued at 1.4 times its FY09 estimated book value, an attractive investment opportunity.

Bharat Bijlee [Get Quote]

Though Bharat Bijlee has risen by a whopping 228.5 per cent in the last one year, even at current levels, it is inexpensive.

Consider this: The company has investment in various companies including Siemens, HDFC [Get Quote] and ICICI Bank [Get Quote].

At current rates, their combined value works out to Rs 317 crore (Rs 3.17 billion), or about Rs 560 per share.

Excluding this, the core business is valued at attractive valuations of 20 times FY08 earnings and 15 times FY09 estimated earnings.

The company is capitalising on the emerging opportunities in the power transformer sector, which accounts for 65 per cent of its total revenues with the balance from motors.

In the Eleventh Five Year Plan, a total power generation capacity of 78,000 mw is planned. This augurs well for transformer manufacturers such as Bharat Bijlee.

The company on its part has recently expanded its transformer capacity to 11,000 MVA from 8,000 MVA. The motors business is also witnessing 25 per cent growth and Bharat Bijlee has forayed into higher frame motors of up to 400 kw. All this put together make Bharat Bijlee a good pick.

Bharati Shipyard [Get Quote]

Stocks of shipbuilding companies have been re-rated on the back of rising order book-to-sales to over seven times. The stock price of ABG Shipyard [Get Quote] has gone up 267 per cent, while Bharati Shipyard is up 107 per cent over the last one year.

The gain has been higher in the case of ABG Shipyard, thus stretching its valuation at 33 times its FY08 estimated earnings. Bharati Shipyard is still trading at a comfortable 18 times estimated FY08 EPS and 13 times FY09 EPS.

Also, its current order book of about Rs 4,639 crore (Rs 46.39 billion) (11 times its FY07 revenue) is strong enough for maintaining 50 per cent growth for the next three years.

Bharati is building a greenfield shipyard which will enable it to build six vessels up to 60,000 dwt (dead weight tonne) against 15,000 dwt currently by December 2008. This will enable Bharati to improve its execution speed and bid for more projects.

Besides, it is planning to invest Rs 2,000 crore (Rs 20 billion) along with Apeejay Shipping to set up a shipbuilding yard on the eastern coast, which will be commissioned in FY 2011. A relatively lower valuation and strong earnings visibility makes this stock an attractive investment.

Bhel

Today, the biggest constraint in the power sector is the supply of equipment, especially the critical power equipment required for the larger projects.

But, for Bhel, which commands about 65 per cent market share in the domestic power equipment industry, this provides long-term earnings visibility.

While competition is rising with new players like L&T and Chinese companies vying for a share, Bhel's order book of Rs 62,400 crore (Rs 624 billion), almost 3.6 times its FY07 revenues, instils confidence. The successful acquisition of orders for super critical boilers and high technology gas turbines required for the bigger projects would only improve its order book further.

Considering the huge order backlog and the orders in pipeline, Bhel is expanding its capacities by 67 per cent to 10,000 mw by January 2008, which will further increase to 15,000 mw by December 2009.

Bhel is also expanding its forging and casting capacities and a new fabrication plant to help reduce its dependence on imports. These should also help lower costs in the years to come. Overall, a better industry outlook, strong order book and expansion of existing capacities will drive the stock from the current levels.

Bharti Airtel [Get Quote]

With a mobile subscriber base of 51 million, Bharti Airtel is India's largest mobile service provider. While it has added an average of 2 million subscribers a month in Q2, it is expected to crack the 100 million subscriber mark by FY10.

While the company has experienced good growth, its ARPU has fallen by 10 per cent over the last three quarters, much ahead of the 4 per cent decline experienced by Reliance Communications [Get Quote]. Even then, operating margins have improved, on the back of higher margin in broadband business and cost reduction.

Going forward, increase in scale of operations will keep costs in check. Capital and operating expenditure is also likely to come down after the formation of Indus, a tower infrastructure company, which will manage the tower infrastructure of Bharti, Vodafone and Idea.

A trigger for the stock could be the listing of Bharti Infratel, the tower division and which holds 42 per cent in Indus. Bharti Infratel already has 20,000 towers and plans to set up more.

RCOM will be the biggest threat for the company if it manages to soon roll out its GSM services across 15 circles. Additionally, any unfavourable outcome over the spectrum issue will have its impact; it could lead to increased investments in upgradation of existing equipment.

To conclude, Bharti's revenues should grow by 35 per cent in the next two years on the back of subscriber expansion, start of Sri Lankan operations by March 2008, and launch of IPTV and DTH. A sum-of-parts valuation puts the per share value of Bharti at Rs 1,200, a 27 per cent upside from the current levels.

Blue Star [Get Quote]

The central air conditioning major, Blue Star, is a key beneficiary of the economic boom in the country across sectors like IT/ITES, retail and telecom.

This is reflected in the strong CAGR of 32 per cent and 40 per cent in sales and operating profit respectively in the past three years.

Notably, such strong growth traction is expected to continue as the company is sitting on a strong order book position, which is at Rs 1,030 crore (Rs 10.30 billion) as on September 2007. It is likely to get repeat orders from its existing customers as they expand operations.

It is expanding its capacities by investing about Rs 60-70 crore (Rs 60-700 million), which will lead to economies of scale and rationalisation of costs leading to margin expansion. Its return on equity and return on capital employed, which were at 34 per cent and 26 per cent, respectively, in FY07, will only improve.

However, the full benefits will be reflected only from the next financial year. The macro factors too continue to be robust, with huge investments planned in all the above mentioned sectors.

Dishman [Get Quote] Pharmaceuticals

Dishman, a pharma outsourcing player, is moving up the value chain from being a commoditised chemicals supplier to a research partner for innovator companies.

Its acquisition of Swiss-based Carbogen-Amcis (CA), which offers drug development and commercialisation services, has helped it tap into the client base of CA that includes seven of the top ten US drug companies.

With three projects in phase-III development, and likely to hit commercial production in two years, CA's revenues are expected to grow 15 per cent annually to Rs 400 crore (Rs 4 billion) by December 2008.

Dishman caters to 50 per cent of Dutch pharma major Solvay Pharma's requirement of eposartan mesylate, an anti-hypertension medication. Its acquisition of Solvay's Vitamin-D business will boost revenues. Its foray into China to manufacture Quats, a catalyst, is also seen positively.

All these should help reduce Solvay's share of 25 per cent in Dishman's revenues going forward. With earnings expected to grow between 25-30 per cent in the next two years (Rs 12 in FY08, Rs 15 in FY09 and Rs 20 in FY10), the stock can deliver 28-30 per cent returns in one year.

Educomp Solutions [Get Quote]

Educomp, the market leader in Kindergarten-12 education products, is a successful niche player. It has made some smart acquisitions, entered new areas. and garnered a client base of almost 6,000 schools across India besides, a small presence in Singapore and the US. Its first mover advantage makes it difficult for competition to catch up anytime soon.

Besides, the company has so far acquired and built the abilities to design and create content for schools, learning and school infrastructure management solutions, online teaching solutions, community building solutions and more recently into setting up its own schools.

Financially, Educomp's top line has almost doubled every year and operating margins have been maintained above 50 per cent.

Considering the growth potential in the Indian education industry, Educomp is likely to keep its juggernaut rolling for the coming few years. In FY09, Educomp will double its top line again and grow its earnings by 75 per cent. Although there has been a concern over valuations, the consistent earnings growth justify the same.

HDFC

HDFC is an ideal play on the gamut of financial services. Besides market dominance in housing finance, it provides huge potential for value unlocking from its investment in banking, insurance and mutual fund subsidiaries.

The proposed UTI Mutual Fund IPO, stake sale by Reliance Capital [Get Quote] in its mutual fund entity and the probability of listing of insurance companies though in the long term, should provide triggers. Moreover, there is a possibility of a merger with HDFC Bank.

Its core business--housing finance will continue to do well. Its loan book is expected to witness a CAGR of 25 per cent over the next two years. Its net interest margins are expected to remain stable at around 3 per cent.

And, HDFC is known for its asset quality. HDFC's stock trades at about 5 times FY09 estimated book value (adjusted for the value of its subsidiaries, which is about 30 per cent of HDFC's market capitalisation), and is a worthy pick.

India Infoline [Get Quote]

India Infoline is another company representing financial services, except the lending business.

Its stock price has grown more than fourfold in the last one year amid many positive triggers like capital raising for expansions, tie-up with strategic investors for investments in subsidiaries and restructuring of its various businesses.

Besides equity broking, it has expanded its product basket to include institutional equities broking, commodities broking, margin finance, investment banking and, distribution of life insurance, mutual fund and loans products.

It is investing towards building a strong distribution network (596 branches in 345 cities) and customer base (5 lakh clients) for its various services. Accordingly, the share of its traditional broking business of about 56 per cent in FY07 revenues is expected to come down over the years.

The stock trades at 51 times and 44 times estimated earnings for FY08 and FY09, respectively. While it looks cheaper than Edelweiss, in terms of market capitalisation to revenues, it trades at a higher P/E than Indiabulls [Get Quote].

However, it has the most de-risked business model compared to other players. Given India Infoline's aggressive growth strategy, the stock is ideal for long term investors.

Jain Irrigation

Jain Irrigation, which is in the businesses of micro irrigation systems, food processing and plastic pipes and sheets, is a direct play on the growing emphasis on agriculture. Irrigation systems account for 30 per cent of its revenue. It's revenues from micro irrigation have grown at 70 per cent annually.

Growth will be maintained on the back of its plans to launch new irrigation systems, higher replacement demand, focus on geographical diversification.

Jain's five overseas acquisitions, including a 50 per cent stake in NaanDan of Israel, the world's fifth largest micro-irrigation company, will help in terms of access to technology and access to large markets such as South Africa, US, and Europe.

In food processing, which accounts for 14 per cent of total income and grew by 74 per cent in FY07, Jain produces juices and dehydrated vegetables for companies like Coco Cola, Nestle [Get Quote], etc. This business to grow at healthy from hereon.

In plastic pipes and sheets, its products find application in agriculture (30 per cent market share) and telecom (70% share) among others and, should continue to grow at a healthy pace.

To sum up, Jain is operating in high growth areas, while exports too are expected to grow rapidly, which makes it a good investment case.

Jindal Saw [Get Quote]

Jindal Saw, the most diversified Indian pipe manufacturer, makes submerged arc welded (Saw), seamless and ductile iron spun pipes, which are used in diverse applications like oil & gas and water-based infrastructure.

The company is expanding its capacities in phases which will bring economies of scale-- longitudinal Saw pipes (by 25 per cent), helical Saw pipes (233 per cent) and seamless pipes (150 per cent) -- by FY09. These expansions are well-timed due to strong demand for pipes on account of surging demand for oil and gas globally.

Over the next three-four years, global demand (including India), for Saw pipes is estimated at 200,000 km involving an investment of $60 billion.

Jindal Saw is likely to gain due to restructuring of the investment holdings in Jindal Group companies, wherein it has substantial investments in Nalwa Sons, Jindal Stainless [Get Quote], JSW Steel [Get Quote] and Jindal Steel & Power, are worth about Rs 2,200 crore (Rs 22 billion). Excluding the value of investments, the stock trades at 9 times its FY09 estimated earnings, which is attractive as compared with 17 times for Welspun Gujarat.

Larsen & Toubro

Reinventing itself and successfully developing new businesses are among L&T's key strengths. That, along with the domestic infrastructure and global hydrocarbon investments, is responsible for the rising revenues and order book. It is now targeting a turnover of Rs 30,000 crore (Rs 300 billion) by FY10 as compared with Rs 18,363 crore (Rs 183.63 billion) in FY07.

Going forward, there is more business to come, as the government has estimated an infrastructure investment of $500 billion during the Eleventh Five Year Plan. Besides, a lot of money will also be spent by domestic players in the metal, oil and gas, power and other industries.

Little wonder, L&T's order book has been rising. As of September 2007, the engineering and construction division had an order book of Rs 42,000 crore (Rs 420 billion).

Going forward, L&T is also focusing on the overseas markets and has targeted exports to increase to 25 per cent of 2010 sales. It is entering shipbuilding, railway locomotives, power generation and power equipment as well.

While all these investments in different businesses will help sustain future growth, the medium term continues to be robust. Some of it is already rubbing off positively on the share price. Although the stock seems richly valued, it can fetch good returns.

Maruti [Get Quote] Suzuki

On the back of a sound foundation of existing products (13 models priced between Rs 2 lakh and Rs 15 lakh), strong distribution, efficient service network and new product launches, Maruti Suzuki will maintain its dominant position.

The company has 52 per cent market share by volume of the Indian car market and 62.5 per cent of the small car segment, which is commendable given the stiff competition from global majors.

Maruti grew at a scorching 18 per cent, compared with the 13 per cent recorded by passenger car market in H1 FY08. For eight months ended November 2007, sales volume was up 19.7 per cent to 500,108 vehicles led by 49 per cent growth in exports. Notably, exports are expected to grow 40 per cent annually for the next two years; its share in total sales is likely to move up to 12 per cent in 2010 from 7 per cent in FY07.

Maruti is already augmenting capacities by 3 lakh in a phased manner by FY10 to a million units. Besides, it has lined up Splash (A2 segment) and the concept car A-Star (A1 segment), while a Swift sedan is on the cards. These will help earnings grow by 20 per cent annually in the next two years. Aggressive pricing, enhanced margins on the back of improved product mix, indigenisation and scale benefits, will help Maruti do well.

ONGC [Get Quote]

Oil exploration companies are set to benefit from the current high oil prices and firm outlook. India's largest oil exploration company, ONGC is the best bet in this space. ONGC with interest in 85 domestic blocks including 52 offshore fields, has made 28 discoveries in the past two years, of which, 14 were made in FY08 itself.

Further, its 100 per cent subsidiary, ONGC Videsh has stakes in 26 blocks across 15 countries and is expected to be the key growth driver with its share in ONGC's consolidated revenues and profits expected to rise to 20 per cent (14 per cent now) and 14 per cent (9 per cent now), respectively.

ONGC's substantial interests in MRPL, Petronet LNG [Get Quote], GAIL and Indian Oil Corporation [Get Quote] are the topping. Moreover, the IPO of Oil India in the next few months could provide further triggers.

What also makes ONGC attractive is that it is the cheapest among its Asian peers trading at 10.1 times estimated FY09 earnings and enterprise value per barrel oil equivalent of about 7.5 times for FY09.

Going ahead, exploration successes especially in the KG basin and favourable announcement on various issues like sharing of subsidy burden, cess and deregulation in gas prices will be big positives.

Patel Engineering [Get Quote]

Patel Engineering, which is having an order book of Rs 5,400 crore (Rs 54 billion) almost 4.8 times its FY07 revenues, would be the key beneficiary of the boom in the construction, power and real estate sectors.

Within power sector, the 11th Five Year Plan has an outlay of Rs 70,000 crore (Rs 700 billion), adding another 18,000 mw in hydropower generation. Patel Engineering has 22 per cent market share in the domestic hydropower construction, which accounts for 60 per cent of its current order book.

Also, the company has pre-qualified for new projects worth over Rs 6,000 crore (Rs 60 billion) as on September 30, 2007.

Besides, its entry into own power generation setting up of 1,200 mw thermal power plant at an investment of Rs 5,000 crore (Rs 50 billion) are positive triggers. Meanwhile, its core businesses including construction of dams, transportation and micro-tunneling are growing at a faster pace thus providing sustainable earnings growth.

The immediate trigger would come from its real estate business. Patel Engineering has transferred a land bank of about 1,000 acres spread across Bangalore, Chennai, Hyderabad and Mumbai to Patel Realty India, a 100 per cent subsidiary.

According to estimates, the real estate business is valued between Rs 500-520 per share. All of these make Patel Engineering an attractive investment.

Reliance Communications

Reliance Communications (RCOM) has a mobile telephony market share of 18 per cent and subscriber base of 38 million, which is rising by a million every month. And this should continue to rise as RCOM penetrates into smaller towns.

What's more interesting is that despite concerns over declining, operating margins have improved to 42.2 per cent in Q2 FY08, thanks to the benefits of larger scale.

This is expected to improve further if RCOM gets the go-ahead to operate an additional 15 GSM circles as 65 per cent of passive infrastructure such as telecom towers, is common to both GSM and CDMA technologies and the investments in its existing networks will be incremental.

Additionally, it is the value unlocking in its subsidiaries that are likely to provide further triggers.

In 2008, RCOM is likely to announce a stake sale and subsequently list its tower subsidiary, Reliance Telecom Infrastructure, list its submarine cable subsidiary, FLAG Telecom, hive off of its SEZ and BPO businesses and the launch IPTV and DTH services by the first quarter of 2008.

Analysts estimate that a conservative sum-of-parts valuation based on FY09 numbers for RCOM comes to Rs 850-Rs 900 per share, which indicates an appreciation of 17-24 per cent from current levels.

Reliance Industries [Get Quote]

In 2008, Reliance Industries' (RIL) exploration and production (E&P) division, which accounts for 50 per cent of its sum-of-parts valuation, will start selling gas from the KG Basin. The only ambiguous aspect here seems to be the pricing of gas and settlement with the ADA group and NTPC.

Within a few months, Reliance Petroleum [Get Quote] will also start operations, all of which should lead to a jump in RIL's profits.

Also, the bids for NELP VII will be awarded by July 2008. While further wins will add to reserves, new discoveries at existing reserves should further add to valuations and the possible de-merger of RIL's E&P division would unlock value.

While the company is yet to prove its mettle in its retail and SEZ initiatives, given its track record managing mammoth projects, one can hope to see positive results here as well.

Notably, analysts maintain their bullish outlook on the core businesses. Refining margins for RIL, already the best among global players, should remain firm until FY11, while petrochemical margins are expected to be stable with good growth in volumes. At a P/E of under 12 times FY09 estimated core earnings, RIL is a worthy investment.

State Bank of India [Get Quote]

SBI's move to merge State Bank of [Get Quote] Saurashtra with itself has the potential to trigger the re-rating of public sector banking stocks by pushing the much needed consolidation process.

To further expedite consolidation, the boards of SBI and its other six associate banks are meeting in January to consider merger. Should that happen, SBI's standalone balance sheet size will grow 1.5 times to Rs 8.20 lakh crore (Rs 8.20 trillion), almost double the size of ICICI Bank's.

Also, its branch network will jump 50 per cent to 14,400 branches. But, the improvement in valuations (re-rating) should get a boost when the merged entity is able to rationalise costs and extract benefits from the merger.

SBI will raise Rs 17,000 crore (Rs 170 billion) through a rights issue that should provide fuel for future growth. In a competitive Indian banking business, it is important for banks to achieve size and scale to be globally competitive.

And for investors, it is more important to find such banks at reasonable valuations. SBI meets both these criteria. SBI's stock trades at 2.2 times and 2 times its estimated consolidated book value for FY08 and FY09, respectively.

Further, SBI has investments in mutual fund and life insurance subsidiaries, which make valuations more compelling.

4 Tips on how to spend wisely

Today's youth have higher disposable incomes as compared to their counterparts in earlier generations. The same has resulted in a significant change in lifestyles.

Objects that were considered luxury goods say a decade ago have become necessities for the present generation. In fact, the young population has been a major contributor to the India growth story. It is widely believed that spending habits of the youth will play a major role in vitalizing the economic cycle, going forward.

However, there is a need to understand that spending in an unrestrained and haphazard manner could spell disaster for your finances. Spending should be done with a degree of discipline and planning. We present four tips which will help you master the art of spending.

Spend in line with a budget
Remember the longstanding method of making a budget and then spending in line with the same. That is still the right way to go about spending. Having a clearly laid-out budget will help you prioritise your spending. For example, the highest priority must be accorded to investments that have to be made in line with investment plans and commitments like life insurance premiums. Only when the high priority needs have been taken care of, should the balance funds be used for other expenses. Although the idea of abiding by a budget for spending may seem "uncool", it is nonetheless, the right thing to do.

Track expenses
Again, tracking where you have spent your money may not qualify as an interesting way to spend time, but it is important nonetheless. It will provide you an unambiguous picture of your cash flows; this will put you in better control of your finances. More importantly, it will provide you an insight into your spending habits. This in turn can help you understand the areas that account for a significant portion of your expenses and give you the opportunity to do a reality check on their utility.

Don't succumb to impulse spending
It is now considered trendy to hangout at malls, coffee shops and lounges. And window displays and latest blockbusters are known to test the resolve of even the strongest. A young individual with access to disposable funds can be rather vulnerable in such a situation. Resist the temptations and don't succumb to impulse spending. This is especially pertinent if the spending will come at the cost of your monthly investment towards your retirement/home building corpus. Always try to spend in line with your budget.

For example, while it's good to take your friends to the movies or for a dinner once in a while, we recommend that it not be overdone. Movies/dinners can be very expensive propositions these days, which means that you stand to gain significantly if you cut down these outings even by say 20%.

For example, even if Rs 1,000 were to be saved on these outings and invested in a diversified equity fund over 20 years as a one-time investment, it would mature into Rs 16,366 (assuming 15% compounded growth).

Beware of credit cards
Easy availability of credit cards has provided a major boost to spending. A credit card gives you access to high spending limits; also it liberates you of the worry about handling cash. But credit cards have their downsides as well. For example, making the "minimum payment due" could get you entangled in a debt trap and force you to make interest payments at obscenely high rates. In fact, credit cards are so pervasive in the present day context that we have chosen to dedicate an article to the same in this guide.