Wealth tax for returning Indians

Wealth tax, in India, is levied under the Wealth-tax Act, 1957. NRIs are liable to pay tax for their wealth in India alone. Foreign wealth is entirely exempt from tax.

Wealth tax is payable on the aggregate value of chargeable assets as reduced by the value of debts owed on valuation date. The valuation date is uniformly fixed at 31st March.

The following assets are subjected to wealth tax:

1. Guesthouse, farm-house, commercial complex, shopping mall and residential complex are subjected to the wealth tax.
2. Valuable items like jewelry and any items made up of precious metals like gold, silver, platinum or any other precious metals.
3. Aircrafts, yachts, boats that is used for non-commercial purpose
4. Cash in hand that is more than 50,000.
5. Any cash that is not recorded on the account log book is subjected to the wealth tax.
6. Motor car that is owned by an individual.
7. Any urban land situated in the jurisdiction where there is a total population of ten thousand as per last census is subjected to the wealth tax.

The wealth tax is 1% currently on the aggregate value of the assets as on valuation date in excess of Rs. 15 lakhs.

It may be noted here that productive assets like shares, debentures, bank deposits and investments in mutual funds are exempt from wealth tax.

A returning Indian or a person of Indian origin (PIO), who wishes to settle permanently in India, is eligible for exemption from wealth tax in respect of the following assets

• Moneys brought by him into India;
• Value of assets brought by him into India,
• Moneys standing to his credit in a NRE Account with a bank in India as on the date of his return to India; and
• Value of assets acquired by him out of moneys brought by him into India or sale of assets brought by him into India within one year prior to the date of his return.

This exemption for NRIs is available for a period of seven successive assessment years after his return.

Taxability for Indians Returning to India

For the last few years we have been hearing the great Indian growth story. This has lead to a lot of investments in India by NRI’s. With growth there are better career prospects, so many Indians are either returning to India or are planning to return to India. For Indians returning, settling in India becomes a little nerve wrecking because of the plethora of rules and taxation.  

As per the Income tax act, taxation is not based on residential status, but on the basis of physical presence in India. Any income generated in India or deemed to be generated in India is taxable as per the Income Tax act irrespective of the residential status. As per the Act, to be 'Resident' your physical presence in India during the relevant tax year is taken into consideration.

Accordingly, once an individual breaches the threshold number of days presence in India (currently being either at least 182-days during the tax year or at least 60-days during the tax year where he / she was in India for 365-days in the immediately preceding 4-tax years), he / she qualifies as an 'Ordinary Resident' under the Act.

The second situation typically arises in the 2nd or 3rd year of his / her return. In case of ‘Ordinary Resident’, his/her global income is liable to tax. Individuals, who do not breach the threshold limit, qualify as 'Non-Residents' (liable to tax only on income generated or deemed to be generated in India).

In case you had created a fixed deposit before your status changed from Non-Resident, do not rush to close the Fixed Deposit. You enjoy tax exemption on it till maturity. Any interest earned in your NRE saving account is taxable from the date you lose your status as Non-resident.

You might want to return to India, but are not sure if you would like to stay on forever. So what should you do with your NRE account? You can convert is to a repatriable RFC account. This way if you decide to go back you can convert it to an NRE account again. Any interest received in this RFC account is taxable if your status is resident.

Next would be the topic of Wealth tax for returning Indians

Should one invest in gold?

We always keep reading that gold is the best hedge against inflation. Gold prices have been going up for quite some time now. The way it is going up, it could be treated as an investment instead of treating it as a hedging tool. Many people have already started investing in gold, but then safety of storing gold is an issue.

A better way would be to purchase as a mutual fund unit in a gold exchange traded fund. That way, you would also have liquidity, since the price of the unit would rise as the price of gold prices and could be sold anytime through the stock exchange. But why should we treat it as an investment option?

Some of the reasons are the appreciation in the value of the US dollar and rise in the interest rates. The economy of most of the so called advanced economies is in a bad state and it does not look like there will be recovery soon. Most of the countries hold back their currency with gold reserves, so most of them would either increase their gold reserves.

Worldwide people have started investing in gold exchange traded funds. These funds back their units by buying gold. This has also increased the demand for gold. For the purpose of improving the economy most of the governments have increased their spending to increase the money supply in the economy.

More the money, more the chances of that money finding its way into gold and more the demand for gold, the prices will go up. Taking the past trend we might say that gold does not give good returns. But is that true? Have we not seen prices of gold just sky rocketing.

Gold prices go up, but they do not give returns as good as those of other investments. This is the reason it is a good investment option for those who do not like to take risks. With news that many countries on the verge of sovereign defaults and rising interest rates, there would be more demand for gold. So buy gold now.

An expert in selection of Equity

Do you think you are an expert in selection of equity shares? Do you have time to track your portfolio of Equity Shares purchased. Is the number of equity shares in your portfolio only increasing and you are not able to cash out? Then why did you purchase equity shares of many companies.

If you do not have time and expertise, then you should leave the decision making of when to buy and sell equity share to experts. Yes, we would all like to buy an equity share and hope it doubles or triples in 2 or 3 years, but it does not always happen. You have to keep studying the company’s financial statements and then take a decision.

We usually buy based on tips and reviews given by experts. But if the tips have been given by experts, the time taken for the tips and reviews to reach ordinary mortals like us would be a day or two and in that time the price would have gone up. But if you still believe then wait for a dip and purchase.

The ability of a person to track his / her holding is around 20 equity shares. This is assuming he puts in enough time to read and study his/her equity shares. Even when you keep track, you should know your long term goal and your risk appetite. Since the market keeps going up and down on a daily basis. Sometimes it falls for 3 to 5 days in a row.

And if such a thing happens your portfolio will fall. But if you look closely some equity shares would have fallen more than the others or some might have actually rising. This can happen only if you have had diversification of equity shares from different sectors. So the key to a good portfolio is diversification.

A good investor selects some shares which s/he buys as a security deposit. These shares s/he will rarely trade in. These shares s/he has great hopes in and would like to keep adding as and when s/he gets an opportunity. Of course s/he might have other shares which are meant for profit making (sometimes loss making).

However good you might be never put more than 20% of your equity investments in one company. Too much exposure to one company is very risky, profits might be good, but in case of loss that too would be good. Sometimes there are special occasion’s viz. buyback, dividends, bonus etc.

In such cases one should check the risks and then take a decision. In any case do not touch your security deposit. As we had discussed earlier do you have equity shares which you had purchased in the hope of making quick profits and still holding them and you feel if was a wrong decision, sell.

Yes, you would have made a loss, but your money is not locked and you can use it to make some money or another mistake. But holding on to such shares would only erode your capital. If you had purchased an equity share for the short term and set a target, sell it on reaching the target.

Paper profits would only increase your portfolio in the short term. If you feel you want to keep it move it to your security deposit.

Insurance, Do I need it

What do you think is insurance? Insurance is a promise of reimbursement in case of loss. Many insurance companies keep advertising asking us to get insured. What is their interest in it?  When you go to an insurance company and ask them to cover a certain risk, they charge a fee to take a risk, this fee is called premium.

The more the premium collected and risk not materializing increases their profits, hence the reason for them to advertise. So should you insure yourself? When we go for insurance we usually go to the insurance companies to buy ULIP’s or endowment plans i.e. where we would get a return.

If we talk of return, we are not insuring, but are investing. We should understand that insurance and investment are two different things. Insurance is a tool for protecting your risk and insurance company’s main job is insurance and not investing. So when you go to an insurance company, go to them only for insurance.

So now we decided that we go to an insurance company for insurance, what is the amount I should insure myself for? Assume that if something happens to you today, how your family will be taken care of, it could be out of your savings or it could also be out of insurance.

Usually a person should insure himself / herself by around 10 times of his / her annual income. Another method would be to take into account the expected expenses the family would have to bear without you, include child’s education, marriage, loans and other expenses.

Now if you go for so much of insurance and go for money back plan the premium would be high, but if you go for a pure term plan it would be cheap. Another thing you could do is increasing your insurance cover over a period of time, so when you are young, your risk level is low, so you can pay a lower premium payments.

But remember the premiums are usually locked depending on your age, so when you are young the premium per year would be lower, so start your insurance policy early. One more insurance policy you should not forget is a health insurance policy. If you have a family, go for a policy with family floater, you get a bigger cover and less premium, than if you take an individual health insurance policy.

Select the right stock

The financial year has come to an end and most of the companies have published their accounts. Very soon they will have their annual general meeting and with that they would also announce dividends. In their published accounts in addition to the performance for the last year, they also give a guidance of how they expect the coming year to be.

The published accounts are the best data anyone could ever get of a traded stock. The published accounts in addition to talking about the organization also talk about the sector they are in. When I mentioned the management gives guidance of how they expect the year to be, they base it on some knowledge viz. orders in hand, orders in pipeline and expected projects based on sector forecast.

It s not necessary that the guidance would be right, but it gives you an idea of how the company is planning for the coming year. Most of us look at how the company fared by looking at the profit made during the year. In addition to that we should also have a look at the cashflow statement.

The cashflow statement will give you an idea if the profit is actually getting converted to cash or the receivables is only raising. The published accounts are usually audited, so it would make good sense to read the notes to the accounts. Almost every audited statement has a qualification, which should be looked at as red flags raised by the auditors.

So next time you decide to invest, buy or sell a stock, read the published accounts.

Joint Ownership of Property

Most of us buy a property just before we get married or soon after marriage. Now Property may be purchased in own name i.e. singly or jointly. Jointly would be one or more persons, so usually husband and wife or within the family. Once you purchase a property jointly you say that all the owners would have equal rights to use the property.

One of the advantages of joint ownership is if anything happens to one owner the title automatically passes to the other joint owner/s. There are other advantage is, if the joint owners have taxable income and loan you need a loan, you can get a higher loan amount.

All the joint owners will also get the tax benefits. Joint Owners can claim separate deductions for their share in the property. But we have to be careful, while making payments ensure that all the joint owners make payments directly as per their share in the property.

This way there will not be any tax complications in future. As an individual one can claim deduction of Rs. 1.5 Lakhs towards interest payment against loan during a fiscal year. So each joint owner can claim upto Rs. 1.5 Lakhs towards interest payment, subject to the total of all claims does not exceed the total interest actually paid during the year.

So if the joint owners have their own taxable income, its best to go for joint ownership. Tax saved is money earned.

Loans and Equated Monthly Installment (EMI)

Most of us would have taken a loan or are in the process of taking a loan. When you take a loan you have to repay it. One way is to repay a fixed amount of principal every month and the interest on the outstanding till the end of the month. Of course the interest rate would have been decided or is known in advance.

The other option is EMI i.e. the amount repaid every month would be fixed, this amount would include both interest and principal. The formula is the same, from the amount repaid every month, the interest on the outstanding till the end of the month is deducted from the repaid amount and the balance is applied against the principal.

If you notice that in the first method initially your outgo would be high, but total interest paid would be low. In the second method the outgo is the same every month but the interest amount would be high, since initially the interest outgo is high. The main factors which would be considered for calculation on EMI are Interest Rate, Period and Loan Amount

The higher the interest rate higher the EMI, since the EMI should be able to take care of the interest and some amount needs to go towards principal. If it is used only to pay interest, it would go on forever. Shorter the repayment period, higher the EMI and vice versa.

Whenever we take a loan, repayment becomes a commitment. Sometimes, EMI payments become a burden. Especially when you lose your regular source of income or unexpected expenses arise. The best way to come out of such situations is to get rid of the burden at the earliest or postpone the burden.

The second option is the easiest, but remember the lender will never let go of his pound of flesh i.e. interest. Your interest outgo over the period will increase. The other option is prepayment, whenever you have surplus funds prepay, this will help in reducing the period or if you want to keep the period same your EMI will reduce.

Prepayment is the best option; since this will help you get out of debt at the earliest and will curb wasteful or unwanted luxuries.

Gratuity

Gratuity law; including commentary on the Payment of gratuity act, 1972


Gratuity is a voluntary extra payment made to employees in addition to the salary promised. Such payments and their size vary from organization to organization. Though by definition it is voluntary in India it is legally guaranteed under the Payment of Gratuity Act 1972. Since it is governed by the act it is taxable. Let us examine the payment and taxability.

Any gratuity received by an employee as calculated under the Payment of Gratuity Act 1972 to the extent of Rs. Ten Lakhs is exempt from Tax. This is with effect from May 24, 2010.

All Organizations which have employed 10 or more persons or have employed 10 or more persons in the past come under the Payment of Gratuity Act 1972.

Gratuity is payable when an employee has rendered continuous service of five years or more. In case of death or disablement the five year limit is waived. The amount becomes payable when the employee leaves the organization either on termination of employment or retirement or death or disablement.

 
Gratuity is calculated at the rate of 15 days of basic salary last drawn for every completed year of service or part thereof in excess of six months. So if you have completed six months or more it would be considered as a complete year. The number of days for a month is considered as 26 days, in case of employees earning monthly salary. So if your basic salary is Rs.10000/- per month and you have completed 5years 7 months. The Gratuity calculated would be 10000 * 6 years * 15 / 26 i.e. Rs. 34,615/- but if it was 5 years 5 months it would be Rs. 28,846/- since the number of years would be taken as 5 years. 

Now we mentioned that Gratuity is exempt to the extent of Rs. Ten Lakhs. This Ten Lakhs is over your entire life. That means every receipt of gratuity below ten lakhs is not tax free. The cumulative Gratuity received over your life time from one or many suppliers to the extent of Rs. Ten Lakhs is exempt. The moment it crosses this figure the amount above Rs. Ten Lakhs is taxable.

Calculation of Capital gains

We learnt that capital gain is Sale price less purchase price. But how do we arrive at the sale price and purchase price to ensure we pay the correct tax (not excess). Most of the details are taken from the Income Tax India Site.

Let us look at each

SHORT TERM CAPITAL GAINS (STCG)

Short Term Capital Gains is computed as below:

1.    Find the Value of consideration.

2.    Deduct the following

a.     Expenditure incurred wholly and exclusively in connection with such sale

b.    Cost of acquisition (purchase price as well as other charges incurred to acquire the asset)

c.     Cost of improvement

3.    The balance amount is STCG

LONG TERM CAPITAL GAINS (LTCG)

Long Term Capital Gains is computed as below:

1.    Find the Value of consideration.

2.    Deduct the following

a.     Expenditure incurred wholly and exclusively in connection with such sale

b.    INDEXED Cost of acquisition (purchase price as well as other charges incurred to acquire the asset)

c.     INDEXED Cost of improvement

d.    Deduct exemptions available under section 54

3.    The balance is LTCG

Now if you noticed we have mentioned indexed cost. How do we get the indexed cost? The indexed cost is based on cost inflation index (CII). CII is available the Income Tax India site. (Click here) 

Indexed cost of acquisition =

Cost of acquisition   x	CII of year of sale
	CII of year of acquisition

Indexed cost of improvement = 

Cost of improvement  x	CII of year of Sale
	CII of year of improvement

Deduction under Chapter VIA should not be given from LTCG.

COST OF SALE

This may include brokerage paid for arranging the deal, legal expenses incurred for preparing conveyance and other documents, cost of inserting advertisements in newspapers for sale of the asset and commission paid to auctioneer, etc. However, it is necessary that the expenditure should have been incurred wholly and exclusively in connection with the transfer.

Besides an expenditure which is eligible for deduction in computing income under any other head of income, cannot be claimed as deduction in computing capital gains.

COST OF ACQUISITION

Cost of acquisition of an asset is the sum total of amount spent for acquiring the asset.

Where the asset was purchased, the cost of acquisition is the price paid.

Any expenditure incurred in connection with such purchase e.g. brokerage paid, registration charges and legal expenses also forms part of cost of acquisition.

The cost of acquisition of bonus shares is nil.

COST OF IMPROVEMENT

The cost of improvement means all expenditure of a capital nature incurred in making additions or alternations to the capital asset. However, any expenditure which is deductible in computing the income under the heads Income from House Property, Profits and Gains from Business or Profession or Income from Other Sources would not be taken as cost of improvement. 

What are Capital Gains?

A capital gain results from sale of asset such as shares, bonds, real estate, etc. where there is a difference between purchase price and sale price. Capital gain, can either a profit or a loss. When the proceeds from the sale of a capital asset are less than the purchase price it is a capital loss.

When the proceeds from the sale of a capital asset are more than the purchase price it is a capital Profit. Capital gains may refer to investments that arise in relation to real assets, such as property or financial assets, such as shares or bonds.

We have tax on Capital Gain, although relief or exemption would be available in relation to holding period or type of asset or to compensate for the effects of inflation.

Classification of Capital Gains

Capital gain is classified into two types, depending on the period of holding of the asset.

·         Short Term Capital Gain (STCG)

·         Long Term Capital Gain (LTCG)

This classification also varies depending on the type of the asset. So, let’s understand this classification based on the type of asset.

Short Term Capital Gain (STCG)

If the type of asset is a share or mutual fund and held for less than 12 months before selling, the gain arising is classified as STCG. The only condition here is that the share should be sold on a recognized stock exchange, and securities transaction tax (STT) should be paid on it. In case of equity mutual fund, when redeemed the Asset Management company would deduct STT.

If the sale of shares is off-market (that is, if the sale is not on a recognized stock exchange) or non-equity mutual fund, the gain would be classified like that for other capital assets (given below). In this case, the short term capital gain is taxed at 15% of the gain. A short term capital loss can be set-off against short term capital gain, as long as both the sales occur in the same financial year. (Click here for set-off details)

In case of all other capital assets if the capital asset is held for less than 36 months before selling, the gain arising from it is classified as STCG. This short term capital gain is clubbed with your income for the year and is taxed at the rate applicable to you.

Long Term Capital Gain (LTCG)

If shares or mutual funds are held for more than 12 months before selling, the gain arising is classified as Long Term Capital Gain. In the case of long term capital gain arising out of the sale of shares or mutual funds, there is no income tax if STT has been paid. The long term capital gain in this case is tax free.

In case where STT has not been paid the capital gain tax is 10% if the cost of acquisition is not indexed, and it is 20% if the cost of acquisition is indexed. For all other assets, if the capital asset is held for more than 36 months before selling, the gain arising from the sale is classified as Long Term Capital Gain.

The long term capital gain is taxed at 20%. In other words, 20% of the long term capital gain has to be paid as income tax.

Income under the Income tax Act

In my earlier article I had mentioned that filing returns is easy. I had also mentioned that we need to identify all our sources of Income. What are the sources of Income that are taxable under the Income Tax Act? Income Tax Act defines the term Income as an inclusive definition i.e. it includes almost everything. Also it is not necessary that it has to be in cash. It can be in kind or notional as well. If excluded it would be specifically given. As per the Act the term Income includes:

a. Profits and gains of Business or Profession: This includes income from carrying on a business or income earned by doing any profession.

b. Dividend:

c. Profit in lieu of Salary (perquisite): This includes any amount received by an employee from his employer other then the salary amount.

d. Allowances granted to an employee to meet expenses incurred for performance of his duties: This includes allowances such as HRA, Medical allowance, etc given by the employer.

e. Any capital gains: This means any profit on sale of asset.

f. Winning from lotteries, crossword puzzles, races, card game, T.V. Game shows, etc.

Gifts are not treated as income (click here for details).

An interesting part of all this is income includes loss as well, as per the Income Tax Act loss is nothing but negative income.

Now that we have some idea on what can be income let us see the Heads of Income under which our income would be taxed.

Heads of Income

As per the Income Tax any income earned is broadly categorized into five heads of income. The five heads of income are:

1. Income under Head Salaries: This head taxes the income earned by an individual as salary from any firm or organization.

2. Income from House Property: This head taxes rental income received by any person from way of renting of any immoveable property. In case you have 2 houses and have not been given on rent, then one would be treated as rented (you can decide which one) at notional rent.

3. Profits and Gains of Business or Profession: This head of income broadly covers income earned by a person as a result of some business or professional set-up by him. As the head defines Profits and Gains not gross but net and if the net is a loss i.e. negative income would be taken.

4. Capital Gains: This head of income taxes the income earned on sale of any investment in form of gold, precious ornaments, shares, etc or immoveable property. Here you have to segregate between short term and long term.

5. Income from other Sources: This head of income covers any income which is not chargeable to tax under any of the above heads of income. Any income including gambling or profit/loss on running of race horses, camels, interest income , etc are chargeable to tax under this head of income.

Filing of income tax returns is easy

We have been talking a lot of financial planning and tax planning. We did all that, now it’s time to file your returns. When it comes to filing income tax returns we are a bit skeptical. Why? We are scared to get caught on the wrong foot. But if we know that we have not done anything wrong then filing of income tax returns is easy.

Let’s go through what we would need to file our returns.

Identify your income sources
This is the starting point. Identify the various sources from where you got your income during the last year. As far as salary is concerned you do not have to worry, your employer would give you your form 16, which would give all the details. What about those who are self employed or have additional income by doing part time business? Make a sum of gross income and make a sum of all expenses which went into making the income. Now the difference would be the Net Income. Now go through your passbook and ensure that all deposits are accounted for, if there is income other that business or salary then make a list of the same, e.g. Rent, sale of shares or mutual funds, Interest, Dividends, etc. These would need to go into heads of Income from house property, Capital gains or other income.  (Refer to topics under taxation for details.)

Identify deductions
Sum all deductions available under the different sections of 80. If you have salary income and you have submitted the details to your employer, he would have shown it in form 16. Under each head of income there are deductions available, refer to http://en.wikipedia.org/wiki/Income_tax_in_India for details.

Finding out the tax payable
The final taxable income and tax rate differs depending on your category i.e. are you a woman, senior citizen or other individuals

For individual tax payers, no tax for income below Rs 1,60,000
Women tax payers have no tax for income below Rs 1,90,000
Senior citizens do not have to pay tax if their income is below Rs 2,40,000

The income tax slabs for assessment year 2009-10 as per the Finance Ministry website:

Income tax slab (in Rs.)	Tax
Income tax slabs for Individuals
0 to 1,60,000	No Tax
1,60,001 to 3,00,000	10%
3,00,001 to 5,00,000	20%
Above 5,00,000	30%
Income tax slabs for Women
0 to 1,90,000	No Tax
1,90,001 to 3,00,000	10%
3,00,001 to 5,00,000	20%
Above 5,00,000	30%
Income tax slabs for Senior Citizens
0 to 2,40,000	No Tax
2,40,001 to 3,00,000	10%
3,00,001 to 5,00,000	20%
Above 5,00,000	30%

Calculating tax payable
Reduce the total deductions from the gross total income under each head of income to arrive at the actual amount on which the tax is to be paid. Calculate the tax payable based on the slab rates in which you fall. If you have any tax deducted at source (TDS) this should be deducted from your total tax liability.

Filling the correct ITR form
This depends on your source of income. ITR-1 is the form to be filled in by individuals having income from salary or pension and income in the form of interest.

ITR-2 is the form should be filled in by persons who in addition to the above list of income from capital gains, house property and income from other sources.

All self-employed individuals making income from business or profession should fill in the ITR-4 form.

Filing tax return
This can be done offline and online. The income tax department has good excel worksheets which help in creating XML files which can be used for doing online filing(http://www.incometaxindia.gov.in/). Online payment of taxes can be done through e-filing website, and through internet banking.

If you are still not confident contact your chartered accountant.

Plan for a New Financial Year

We are at the start of a new financial year. This is the best time to plan for the year. Most of the companies give increments from April. So this also helps in planning. So what should we do? As a starter write down what you would to do or achieve during the year. Once you have written down what you want to do, write down when you want to do it, i.e. in which month.

This is important, since if you are not aware of what you want to do or achieve and when you want it, there would be nothing to plan. Now that you have that written what and when, we can start planning how to reach there. So to reach there what we need would be money, right and if the expenditure is going to be big, I am sure you would have been planning for some time now.

To achieve that you would have made some investments. So now have a relook at your investments. If you have some time to reach the goal for which the investment has been made and the investment is not giving the returns you had expected, get out of it. This is a good time, the market has picked up, and so you could minimize the losses.

Now that you have done it, next allocate funds on a monthly basis to each of you needs. This process is called Asset Allocation. I am sure in the list you would have also listed liabilities that you would like to get out of. If you have surplus funds after doing your allocation, utilize the funds to get of high interest rate liabilities.

In fact if your new or fresh investments would yield less than what you would pay to service a liability, it’s better to use the funds to retire the liability then making the investment.  The faster you retire such liabilities, the faster you could build your assets to achieve your goals.

When you planned did you consider Tax? If not, add it to your plan. What I meant is investment to reduce tax liabilities. Don’t wait till March to do your Tax investments, the earlier you do it, the lesser the pressure on you. At the start when I increments, along with that some companies also disburse bonus’s.

Bonus is given for the efforts you had put in during the previous year, and you would definitely want to enjoy. Don’t plan to spend all of it, keep some aside for the future. How much is up to you.

Sectors to Watch

In the earlier articles, I had mentioned that you should track sectors and select stocks from sectors which you feel would go up and sell of stocks from sectors which are not likely to do well. The experts say the economic conditions have changed and the conditions are improving.

The stock market index in creeping up, but has not yet touched the highs it had touched. So the time is right to invest and as I had said earlier, look out for sectors which will help us reach our goal of making money when the market is growing. The money inflow in the market has been increasing and as recovery picks up, more money will flow.

As more money flows in the market index will rise. But there would be other factors which are driven by nature and one of them is the monsoon. Monsoon will play a significant impact on the economy. So we have to track the monsoon. As markets rise, every stock with good fundamentals will rise.

But if the sectors in which these stocks are are on the growth path, the prices of these stocks will rise faster than the other stocks. Let us look at some of the sectors:

Information Technology (IT)

As the economic conditions improve this sector has the potential to do well. They would do well more in the domestic sector with the government taking up a lot’s of IT initiatives. One of the big ones would be the UID project. The major revenue of most of the companies is from International project.

That means billing in dollars. So we should also keep a track of the currency rate movement. If the rupee gets strong the profitability of the company with major exposure in dollar billing will see an impact on its bottom line.

Auto

As the economic condition improves, so will the salaries. This means more disposable income, leading to better lifestyle. As lifestyle improves people go in for cars, those who already have cars, want better or bigger or new cars. To take care of this, companies will be launching newer and better models to increase sales.

Though interest rates are expected to go up, it would not have a major impact on this sector as the amount required per car would be small. The stock prices in this sector are already seeing an upward trend, so fresh small purchases should be made with every dip in the market.

Pharma

This sector is most likely expected to grow, thanks to the US signing the healthcare bill, which plans to make healthcare affordable. This would increase the sales of medicines.

Infrastructure

This is one sector which has a good growth potential. Our economy is growing and with that the government is also spending more on improving the country’s infrastructure.  As you must be aware most of the infrastructure projects have a long gestation period. So only investors, with a long term view should look at this sector.

Banking

This is one sector which has been growing for some time. With infrastructure improving banks will start moving into areas which were not being serviced properly.  With interest rates on the rise, this sector will benefit the most. Whenever there is a rise in the interest rates, the loan terms are reprised immediately.

You must have experienced this with your loan. But when it comes to raising the interest rates on deposits, it happens slowly. The interest rate of fixed deposits is not revised, you have to break the fixed deposit and apply again, where again you lose, but the bank profits and if that happens the stock price will rise.

Having looked at some of the sectors, now start looking at stocks within these sectors.