Short selling to give more depth to market
Mumbai: The Union Budget introduced by finance minister P Chidambaram has proposed steps aimed at strengthening the stock market infrastructure including the introduction of short selling in capital markets by institutions. The FM has also proposed the setting up of a stock lending and borrowing programme.

The decision of the International Organisation of Securities Commissions (IOSCO), the umbrella body comprising all major capital market regulators, to hold its annual conference in Mumbai - the first time in India - in April 2007, showed the international recognition of the strength of the Indian stock markets, Chidambaram said.

M Damodaran, chairman of the Securities and Exchange Board of India (Sebi), has been elected chairman of the Emerging Markets Committee of the IOSCO at its last annual conference in Hong Kong.

Financial analysts said the government should tax only those companies that have grown big enough while the tax sops should be continued on new companies.

Analysts said the fact that the finance minister did not touch the capital gains tax structure is also a big positive for the markets.
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Dividend tax a dampener
Mumbai: India Inc will have to payout an additional Rs1,750 crore with the Budget proposal to increase the dividend tax from 12.50 per cent to 15 per cent. This worsened the nervous situation existing in the market leading to an across the board selling.

The estimate on the additional dividend tax burden is based on the dividend payout of 28.30 per cent by 1,300 companies during the financial year 2005-06.

ONGC, Reliance Industries, Indian Oil Corporation, NTPC and Steel Authority of India may be especially hit hard by the new proposals.

These companies paid dividend of Rs41,436 crore in 2005-06 on the net profit of Rs146,412 crore and paid dividend distribution tax of Rs5,826 crore at an effective rate of 14.06 per cent (12.5 percent surcharge on 12.50 per cent dividend distribution charge).

As the finance minister has proposed a dividend distribution tax of 15 per cent (effective rate at 17.25 per cent as they have to pay 15 per cent surcharge on dividend distribution tax of 15 per cent) from 12.5 per cent, the effective dividend tax would be Rs9,420 crore, up by Rs1,742 crore.
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Mutual funds to get boost
Mumbai: The Union Budget has proposed that mutual funds could play a bigger role in infrastructure development by launching and operating dedicated infrastructure funds, which would directly invest into core sector projects. The proposal to launch dedicated infrastructure funds is likely to permit the fund houses to invest directly into infrastructure projects.

Asset management companies have already launched diversified as well as sector specific infrastructure funds. But these schemes invested through equities and were not permitted to invest directly into projects.

The budget also proposed to raise the dividend distribution tax (DDT) on money market and liquid mutual funds to a uniform level of 25 per cent from the present 12.5 per cent for retail investors and 23 per cent for institutional investors, to restrict the arbitrage opportunities used by these schemes.

The government has also proposed to bring in asset management services run by individuals under the service tax net. This means portfolio managers, who provide investment fund management advisory services, will now face service tax.

These managers will now have to register with the Central Excise department and have to pay service tax, if their service fee is more than Rs 8 lakh per annum.
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PAN required for all financial transactions
The Finance Minister has proposed to make the permanent account number (PAN) as the sole identification number for all transactions in the securities market.

The only addition to the PAN would be an alpha-numeric prefix or suffix to distinguish different kind of investments such as mutual funds, equity, debt and derivatives.

At present, quoting PAN is mandatory for investments of Rs50,000 and above in mutual funds and IPOs. For instance, if an investor wants to invest in mutual funds, he will have to quote his PAN along with MIN as its prefix or suffix.
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