Maruti Shuts Down Petrol Car Production For 3 Days

Maruti Suzuki has shut down the petrol car production for 3 days.
The company is under stress due to rising inventory levels of Petrol cars.
With the widening gap in the petrol and diesel prices, more and more customers are shifting their preference towards diesel vehicle.
Currently Maruti procure diesel engines from Fiat and it is asking Fiat to supply more engines than contracted by Maruti.
Maruti should be looking to enhance the export of the petrol cars to ensure that the investment done at the petrol engine plant is not lost.

There is pressure across the automobile manufacturers due to rising fuel price and also high level of interest rates.
With a slowdown in the economy it is expected that RBI may decrease the interest rates, which may be breather for auto firms.

Firms like mahindra which have high proportion of diesel vehicles have done well and are expected to do well as compared to firms like Maruti.

Team Money Plant
Disclosure: Some of our clients may have position in Maruti Stocks

State Bank of India - Tata Motors Low Margin Car Loan Scheme

SBI has come up with car loan offer for Tata Motors cars. The cars covered under this scheme are Tata Nano, Tata Indica, Tata Indica Vista, Tata Indigo, Tata Indigo Manza, Tata Sumo Gold, Tata Sump Grande,  Tata Aria,  Tata Safari and Tata Venture cars.

Salient features of this scheme are

• No Advance EMI.
• Longest  repayment tenure (7 years).
• Lowest interest rates ( there are further concessions for Corporate Salary  Package accounts).
• Lowest EMI.
• Loan amount: 90% of 'On Road Price' of car (includes registration, insurance and cost of   accessories worth Rs 25000).
• Interest Calculated on Daily Reducing  Balance.
• Flexibility of payment of EMI anytime during the month.
• No pre-payment penalty.
• Free Accident insurance. Optional SBI Life cover.
• Overdraft facility available
• Processing fee of  0.51% of loan amount
• Interest rate of 11.25% pa

This offer is lucrative and beats any car loan scheme. 

Source: https://www.sbi.co.in

Disclosure: Money Plant and its clients own stocks of SBI and Tata Motors

Muthoot Finance - Public Issue - 13.25% Secured Non Convertible Debentures - Avoid Subscribing

Investors should give a miss to the new Non Convertible Debenture (NCD) issue from Muthoot Finance.
These debentures are available in 4 options, with varying maturity and yield.
The following table shows the NCD options that are available

Options	I	II	III	IV
Frequency of Interest Payment	Annual	Annual	Annual	Cumulative
Face Value of NCDs(Rs.  / NCD)	Rs. 1,000	Rs. 1,000	Rs. 1,000	Rs. 1,000
Issue Price (Rs.  / NCD)	Rs. 1,000	Rs. 1,000	Rs. 1,000	Rs. 1,000
Effective Yield (% per annum)	13	13.25	13.25	13.43
Tenor	24 months	36 months	60 months	66 months

The debenture rating is AA- from CRISIL and ICRA, implying that these debentures can be considered as having high degree of safety and low default risk.
Here we are not doing fundamental analysis whether the firm is doing well or not and whether we should invest on the basis of the financial strength of Muthoot Finance.

Here we are comparing this issue with the already available NCD issues from Muthoot having the same credit rating.
You can see that the following NCDs are listed on NSE and are available for investment through your broker.
I am giving the link of Edelweiss along with the security, you can visit Edelweiss website for the detailed information on maturity, coupon payment frequency and other details. There are in total of 6 issues from Muthoot trading on NSE, but the problem is that these instruments (aprart from N6) are not liquid.

1. MUTHOOTFIN-N6 - around 5 yrs to maturity (roughly 4 yrs 9 months) and yielding 14.36%, on an average around 1400 NCDs are traded daily
2. MUTHOOTFIN-N4 -  around 3 yrs to maturity (roughly 2 yrs 9 months) and yielding 14.18%, on an average around 50+ NCDs are traded daily  
3. MUTHOOTFIN-N2  -  around 2 yrs to maturity (roughly 1 yrs 9 months) and yielding 14.12%, on an average around 200+ NCDs are traded daily 

So, if you can see, on an avearage investors are expecting 14%+ on investment in Muthoot Finance NCDs. The newly issued NCDs are yielding 13% to 13.43%, which is much lower than the market yield.

So, if an investor want to take exposure in these instruments, a better way would be to buy directly from the market.

However, there are some concerns when you buy from the market

• Brokerage Costs
• Liquidity is not good and hence you can see wide bid - ask spread and may not be able to buy at the price which you think is good

Please note that NCDs are not treated like stocks, so the interest accrued is charged at the investor's personal tax rate, also the capital gain is charged at personal tax rate. however there is no Security Transaction Tax (STT) to be paid.

NCDs are good instrument to give you exposure to high yield instruments, but there are some points which you should keep in mind

• Invest for shorter term securities (as the probability of default is more in the long run)
• Spread your investments across many entities - for example you can find NCDs from Manappuram, IIFL, Religare, Tata Capital, Sriram Transport
• These are illiquid and hence in case you require your money urgently, you might suffer loss because you will not be able to sell at the fair price of the security
• Try to get exposure in higher rated instruments
• See the financial ratios of the firm before investing
• These NCDs are typically issued by NBFC (Non Banking Financial Companies) and hence any downtrend in the economy would result in losses to these companies, so do a qualitative analysis before investing
• You are getting higher return to compensate for the default and liquidity risk, invest only if you have appetite for the risk

Disclaimer: NCDs are not risk free investment, there is risk of loss to the capital when you invest in such securities. This article should not be taken as recommendation, please consult your financial advisor/financial planner before doing any investment. Any loss suffered by an individual (non client) owing to the investment in such securities is because of their own decision and Moneyplant Financials doesn't take responsibility for it.

REC Infrastructure Bonds: Section 80CCF - Subscribe / Invest

About the Issue
Rural Electrification Corporation (REC) has come up with the infrastructure bond issue for the financial year 2011-2012. The Issue Opened on  December 19, 2011  and it is expected to  Close on  February 10, 2012.
This infrastructure bond issue is very attractive to the investors. The  interest rate is 9.15% for the 15 year bonds and 8.95% for the 10 years bonds.
15 year bonds have buyback option after 7 years whereas the buyback option is only 5 years for the 10 year bonds.

Bond Options available
A detailed comparison of the options available is given in the table below.

Options	I	II	III	IV
Interest  Payment Frequency	Cumulative	Annual	Cumulative	Annual
Coupon (% p.a.)	8.95% p.a. (Annual Compounding)	8.95% p.a. (payable annually)	9.15% p.a. (Annual Compounding)	9.15% p.a. (payable annually)
Tenor	10 (Ten) years	10 (Ten) years	15 (Fifteen) years	15 (Fifteen) years
Buyback option	At the end of 5 yrs+ 1day	At the end of 5 yrs +1 day	At the end of 7 yrs + 1 day	At the end of 7 yrs + 1 day
Interest Payment date	At   the   time   of maturity	15th February every year	At   the   time   of maturity	15th February every year
Maturity amount in case of buy back option
Buyback Date	16 February 2017	16 February 2017	16 February 2019	16 February 2019
Maturity Amt. after 5 yrs + 1 day	Rs.7677/-*	Rs.5000/-	Not Applicable	Not Applicable
Maturity Amt. after 7 yrs + 1 day	Not Applicable	Not Applicable	Rs.9231/-*	Rs.5000/-
Maturity Date / Maturity amount in case of without buy back option
Maturity Date	15 February 2022	15 February 2022	15 February 2027	15 February 2027
Maturity Amt after 10 yrs	Rs.11783/-*	Rs.5000/-	Not Applicable	Not Applicable
Maturity Amt after 15 yrs	Not Applicable	Not Applicable	Rs.18592/-*	Rs.5000/-
Lock-in period	5 years from the deemed Date of Allotment

Source: REC Website

Recommendation
Our recommendation is to subscribe to the 15 year, Annual paying bond and also apply for the buyback option in the bond. 9.15% is high interest and this bond gives you the opportunity to lock in high rate of interest. The bond will get listed in both NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) after the mandatory lock in of 5 years. If the interest rate decreases after the lock-in phase investors would be able to sell these premium bonds at higher than the face value.

Minimum Application
The minimum application is 1 bond or Rs 5,000. We would recommend investor to exhaust the entire 20,000 of the 80 CCF limit in this bond.

Interest on Application Money
Our recommendation is to apply for this bond as early as possible, as the REC is giving investors Interest on Application Money at the rate of interest applicable to the bond, this is better than IDFC which did not have this benefit to the investors. The Interest on Application Money will be paid on the 1st interest payment date which will be 15th February 2013.

Safety
REC is a government company and has been awarded the highest rating by the rating firms. However these particular bond issue is unsecured, but the investors can take assurance by the fact that the government will not let the company fail. Also the company is well managed and has been profitable for a long time.

Tax Benefits

Under section 80CCF, Rs 20,000 per year invested in long term infrastructure bonds shall be deducted in computing the taxable income. This is over and above Rs 1,00,000 tax benefit available under section 80C, 80CCC and 80CCD. 

So investors should take the opportunity to invest in the bond.

Taxability of Interest

The interest received in these bonds will be taxable at the personal rate.

TDS would be done for the physical format, however no TDS is applicable for demat form.

Please note as per the current tax laws, TDS would be done only if  the amount of interest is more than Rs 2,500/- per year, so for an investor who is investing only Rs 20,000 in the bond, TDS should not be a concern.

Disclaimer: Bonds and equities are not risk free investment, there is risk of loss to the capital when you invest in such securities. This article should not be taken as recommendation, please consult your financial advisor/financial planner before doing any investment. Any loss suffered by an individual (non client) owing to the investment in such securities is because of their own decision and Moneyplant Financials doesn't take responsibility for it.

Car Loan - Sbi Maruti Subvention Scheme

Sbi Maruti Subvention Scheme is a very good car loan scheme for those who are planning to buy Maruti Alto or Alto K10 car. Under this scheme, the interest rate would be only 9.99% (fixed), with maturity flexibility of 36, 48 or 60 months.

The prevailing car loan interest rates are as high as 16%, so this is really a good scheme, infact the car loan turns out cheaper than the fixed deposit interest rates offered by many banks.

Icing on the cake is the waiver on the processing fee.

This scheme is better than the Sbi Advantage Car Loan Scheme (interest rate is 11.25%).

Scheme Validity

The scheme is valid till 31st Dec, 2011. This scheme along with the discounts being offered by the car dealers makes it a bargain purchase of Alto/Alto-K10

Loan Amount

The maximum loan amount under this scheme would be Rs. 2.5 Lakhs.

Scheme Details

The scheme detail is highlighted in the table below

Eligibility	Between the Age: 21 – 65 years (for sanction of loan),loan can be granted for persons beyond 65 years who have sufficient, regular and continuous source of income for servicing the loan. Loan must be fully repaid before the borrower attains the age of 70 years. Minimum net annual income of Rs. 1,00,000/-
Who are Eligible	Individuals – Salaried, Professionals, Self Employed, Businessmen, agriculturist with Minimum net annual income of Rs. 1,00,000/-
Purpose	For purchase of All variants Alto and Alto K10 including CNG
Maximum Loan Amount	Maximum Loan Amount is Rs. 2.5 lacs
Security	Hypothecation of vehicle and noting of hypothecation charge in the books of R.T.O.
Processing Fee	No processing fee is applicable
Rates of Interest	9.99% p.a. (fixed)
Re-payment Period	Fixed repayment period of 36 months, 48 months or 60 months
Penal Interest	For Loans above Rs.25000/- , if the irregularity exceeds EMI or Instalment amount, for a period of one month , then penal interest would be charged @2% p.a.(over and above the applicable interest rate) on the overdue amount for the period of default. If part instalment or part EMI remains overdue, then penal interest should not be levied
Documents required	Statement of Bank account of the borrower for last 12 months. 2 passport size photographs of borrower(s). Signature identification from bankers of borrower(s). A copy of passport /voters ID card/PAN card. Proof of residence- Tax receipts, Telephone bill, Electric bill etc..  Latest salary-slip showing all deductions  I.T. Returns/Form 16: for last 2 years for salaried employees and 2 years for professional/self-employed/businessmen duly accepted by the ITO wherever applicable to be submitted. Proof of official address for non-salaried individuals
Prepayment Penalty	No Pre-payment Penalty will be charged
Mode of disbursement	Amount should be remitted direct to the supplier/dealer by means of RTGS/NEFT after deducting the subvention amount as per annexure-. The subvention amount will be credited to Interest Account.
Insurance	The vehicle purchased is to be kept comprehensively insured in the name of the borrower for the market value or at least 10% above the loan amount outstanding, whichever is higher, and the Bank’s interest as a hypothecatee should be noted in the certificate of insurance and insurance policy.  A copy of this is to be retained with the loan documents.

Source: SBI

Disclaimer: MoneyPlant Financials has no financial interest in the above said scheme of SBI or Maruti. However the author owns share in SBI.

IDFC Infrastructure Bond 2012 First Tranche - Invest

IDFC has come up with infrastructre bond issues. The bonds are rated AAA by leading rating agencies, regarded as the safest rating and the probability of default is very less.
The features of the current scheme is shown in the below table

Series	1	2
Face Value	5,000 per Bond
Minimum number of bonds per application	Two bonds and in multiples of one bond thereafter. For the purpose of fulfilling the requirement of minimum subscription of two bonds, an applicant may choose to apply for two bonds of the same or different series.
Interest payment	Annual	Cumulative
Interest  Rate	9% p.a.	N.A.
Maturity Amount per Bond	5,000	11,840
Maturity	10 years from the deemed date of allotment
Yield on  Maturity	9%	9% compounded annually
Buyback Facility	Yes
Yield on Buyback	9%	9% compounded annually
Buyback Date	Date following 5 years and one day from the deemed date of allotment
Buyback Amount	5,000 per bond	7,695 per bond
Buyback Intimation Period	The period beginning not before nine months prior to the buyback date and ending not later than six months prior to the buyback date

Source: IDFC

These bonds are applicable for tax deduction under section 80CCF. The maximum amount for which you can take deduction is Rs 20,000/-

Please note that the interest that you would receive will be taxable at the investor's personal tax rate.

The investment can be done in physical format or demat format. 

There will be no TDS in demat format. TDS will be applicable (subject to the guideline) for phyiscal format bonds.

Owing to high rating, we recommend investors to invest in the bonds.

We recommend the investors to invest in the option 1 and also to opt for the buy back option, where in the investors have the option to sell the bond to IDFC at the end of 5 years.

Why not option 2?

In option 2, you are not getting interest annually, the interest would be given to you at the end of the buyback or maturity date as applicable, but as per the current tax laws, an investor is required to pay tax on the interest earned on these bonds (even when you dont get the interest!!), so it is advisable to opt for Option 1.

There would be lots of infrastructure bonds which will be issued by many eligible players, but we recommend investment in these bonds for the following reasons

• Highest safety
• High rate of interest - 9% is good rate, since the interest rate on these bonds are determined by the current 10 yr GOI bond, it is a good rate. We believe that interest rate is nearly at its peak, so there might be some issue with higher rate (may be 0.1% - 0.3%) available to the investors in the future, but since the difference is not much, it would be good to invest in this issue
• Higher liquidity in IDFC bonds are expected becasue of larger issue size (as compared to other infrastructure bond issues). More retail investors are expected to go in for IDFC issues. So in future (after the 5 years lock in) if you want to sell your bonds in the market, you would be able to do it more favorably as compared to other bonds.
• Buy back option available for both the options at the end of 5 years

Infrastructure bond is a good source to save your tax and also to take part in the buiding of the nation. The money raised from such issues would be used for infrastrucutre financing projects like bridges, metro rail, power plant, electrification etc.

So, please make sure that you are a part of it.

Disclaimer: Bonds and equities are not risk free investment, there is risk of loss to the capital when you invest in such securities. This article should not be taken as recommendation, please consult your financial advisor/financial planner before doing any investment. Any loss suffered by an individual (non client) owing to the investment in such securities is because of their own decision and Moneyplant Financials doesn't take responsibility for it.

Are things really different this time

Many of my friends tell me that the stock market is different this time compared to the last time. They see growth in India and believe that India will grow and hence the stock markets are reflecting that type of growth.
I believe that India is a growth story but still the kind of valuation we are seeing is not reflecting the growth.
Yesterday Nifty closed at 6135.85 and had a PE ratio of 25.51. So our bluechips earnings should grow at 25% every year to justify this kind of valuation.
I did a quick data check on when Indian market cracked on the basis of PE ratio.
During the crash of 2008 - On 8th Jan 2008 - Nifty Level was 6287.85 and PE ratio was 28.29 and the market started falling after reaching this peak.
During the crash of 2000 - Market peaked on 11th Feb 2000 - Nifty Level was 1756 and PE ratio was 28.47.

With the current PE ratio of 25.51 , there is headroom for Nifty to increase. But a level of 28 PE will become unstable and we might see a correction. We might see a level of 6800+ but then a correction will be inevitable.
10 year PE ratio averages to 18 , which give a target of 4330. If the Nifty earnings grow by 15-20% we might see 5000 on Nifty again.

Thanks
Ratan