Indian equity bumpy ride ahead....

The Indian markets are ready to kiss the recent high, last week after touch the 31 month high sensex and nifty corrected to their immediate support level that stands between 5370 to 5390.The sell off triggered by the selling by FII on Thursday and Friday however the data was not so high because they sold of only 276.62 crore on Thursday and 108.16 crore in Friday. The second fear in the minds of market participants was the announcement of revised GDP data of US economy on Friday but fortunately which was surprised the US market to positive side by saying that US economy has grown in last quarter with 1.6%, earlier analysts were estimating that it will be less than 1.5%.

The third aspect is the statement of fed governor Ben Bernanke he is ready to support the economy when further negative sine will immerse ,above activity supported the US market and Dow closes up 164 point above 10105 and this is a good sign for Indian market. So the market is going to recover their losses in coming week and will scale new high.

Dollar index who is the indicator of behavior of US dollar against major currencies has retreated again and it reflecting that US dollar has started weakening again so this is good for equities. The coming equity rally is not going to be a strait northward move it will be bumpy ride from here onward. The chances of major correction up to 5100 is also looming by October end and once this leg of correction will be over then market will be ready for the sharp rally till year end.

Direct tax code 2011 ..old wine in new bottle

The Union Cabinet on Thursday approved new rules of direct tax code 2011. In the major changes government proposes to raise income tax exemption slab from 1.6 lakh to 2 lakh, leaving more tax free money in the hands of individuals, and a lower tax rate for companies as well.

The much hyped Direct Taxes Code, or DTC, Bill, which strive for to replace the nearly 50-year-old income tax law, is likely to be introduced in house on Monday and may then be discussed to a select committee of members of both houses of Parliament.

The basic exemption limit is proposed to be raised to 2 lakh from the previous 1.6 lakh and corporate tax rate for both domestic and foreign companies proposed is at 30%, finance minister Pranab Mukherjee told to media persons after the meeting of the Union Cabinet held on Thursday.

Senior citizens and women will enjoy a higher exemption as it was expected and the limits are up to 2.5 lakh. The companies will be happy because there will be no surcharge or cess on them, and bringing the down the corporate tax rate to 30% from present 34% it will left more cash for them.

The new code proposes three income tax slabs—income of up to 2-5 lakh will face 10%, 5-10 lakh will attract 20% and income more than 10 lakh will face tax at the rate of 30%. The housing loan exemption of 1.5 lakh would also be available to individual taxpayers on the interest component.

“The new changes in the tax rates, expected to come into effect from April 1, 2011, could lead to some loss in revenue and raise the government’s deficit however it will benefitted in longer term.

However, the government recommends raising the minimum alternate tax (MAT) on book profits to 20% from current 18%. The move will be a big blow for Reliance and a host of IT and infrastructure companies that pay MAT.

Overall the new proposal in direct tax code 2011 has nothing fundamental change they followed the set trend by previous government, no significant change in the tax slab, no alteration in long term and short term capital tax gain which was earlier expected to change it is simply old wine in new bottle.

Reliance Industries Ltd in....what to do??? management is in doubt...

Unlike others in the oil business,RIL the india largest private company isn’t running short of cash. The company is facing the issue how to use the cash to diversify the business and maintain growth in future.

In the last one year, RIL doubled refining capacities and added one of the world’s largest gas facilities.RIL worked three years to simultaneously implement two of India’s largest and most complex hydrocarbon projects the 580,000 bpd second refinery at Jamnagar and gas production from the company’s deep water oil fields in the Krishna-Godavari (KG) Basin.

The company deployed USD 12 billion and kept a few hundred variables on a tight leash that could have derailed the project. Goldman Sachs reckons over the next couple of years, RIL will generate USD 25 billion in excess cash.

Then there’s another Rs 9,500 crore it is sitting on after sale of treasury stock over the last six months and having 13 crore more treasury stock which will be sold before march 2011. What will he do with all this money?

From another perspective, margins in the core operation are down to half of what they used to be earlier. To that point, in spite of the doubling up of capacities, company’s earnings are stagnant. How can he therefore deploy this money in resourceful ways to ensure the growth engine doesn’t slow down?

“The low debt equity and increased pressure will led to the psychological pressures on Reliance to do something with the money,”

Attempts to tackle these questions led to answers like retail and real estate through the special economic zone route. By all accounts though, both of these projects where Ambani invested Rs. 500 crore and Rs. 2,000 crore, respectively, haven’t quite taken off.

The recent settlement between ambani brother has opened the new avenue for ultra-power project and telecom foray for the company so they can use their cash in effective manner to get the goal of growth.

All pointers are he’s selected to take his foot off both and focus on the core work of the company.

Unfortunately for RIL, soon after it pitched for LyondellBassel, Apollo Management, a private equity firm, got into the game and upped the ante by offering USD 15 billion. On his part, Ambani was unwilling to offer anything more than USD 14.5 billion.

So, just what are the options in front of RIL?

Option 1: Emphasis on becoming an integrated oil major and ultimately aim for breaking into a league now occupied by the six biggest in the world (derisively called Big Oil).

Though it prides itself on being integrated, RIL does not have the equilibrium of upstream oil exploration, production and refining capabilities the majors have.

There are big gaps in terms of exposure to key oil and gas basins, that are vital and need to be filled and Reliance is better positioned than any other Indian oil and gas company to get there

Option 2: Become bigger petrochemicals and refining player, with increased global company, through acquisitions and buy out and what they are doing it.

Let see what management is stock market is also watching and investors are aloso in doubt as the company is doubtful market is giving price to the above doubt and share price of the company is not doing anything since last year .

INVESTOR PSYCHOLOGY..

Investor psychology:)>

ONE: Investors behavior is quite funny especial the shallow pocket and and small investor,they have the tendency to chase the mad rush when asset price is rising like any thing then they tend to buy the asset without taking care of the value of the asset.

TWO:They reluctant to book profit swiftly because greed comes in the way and this act is the missed opportunity and sometime led to loss.

THREE:They don't want to buy in the panic market because they feels it will go down further and this act led lo missed opportunity when market bounced.

FOUR: They always look at their sold asset and when it go up after sell they think and frustat

Derivatives Definition..

Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index, or reference rate), in a contractual manner. The underlying asset can be equity, forex, commodity or any other asset. For example, wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a change in prices by that date. Such a transaction is an example of a derivative. The price of this derivative is driven by the spot price of wheat which is the "underlying". In the Indian context the Securities Contracts (Regulation) Act, 1956 (SC(R)A) defines "derivative" to include-

1. A security derived from a debt instrument, share, loan whether secured or

unsecured, risk instrument or contract for differences or any other form of security.

2. A contract which derives its value from the prices, or index of prices, of underlying securities. . . Derivatives are securities under the SC(R)A and hence the trading of derivatives is . governed by . the regulatory framework under the SC(R)A.