Govt's 3rd economic stimulus, Saudi's drone attacks and more

Drone attacks on Saudi Arabia’s key facilities sparked fears of a global oil crisis and India’s government announced its third set of measures to lift up the economy. Here is what made news this week.

Business Standard
21st September

  • The government’s advance tax collection grew by 6 per cent between April and mid-September as against 18 per cent in the year-ago period, limiting its ability to give businesses rebates as the economy slows down.
  • The Federal Reserve cut its benchmark interest rate by a quarter-percentage point for the second time in as many months to cushion the US economy against a global slowdown amplified by the country’s trade war with China.
  • Indian markets fell this week on fears that oil prices could rise sharply after a drone strike on a key Saudi Aramco facility slashed the West Asian nation’s output by half, or about 5 per cent of world supply.
  • Cess collection under the goods and services tax (GST) — to compensate the states for their revenue loss in the two-year-old indirect tax regime —fell short of requirements in the first five months of the fiscal year, dimming rate-cut hopes for the auto sector.
  • Finance Minister Nirmala Sitharaman announced a slew of measures to boost sagging exports and a stressed real estate sector. These sops will have a total impact of more than Rs 60,000 crore on the exchequer.

PREMIUM CONTENT OF THE WEEK

Gig workers set to come under labour laws, get social security benefits

Somesh Jha & Neha Alawadhi, Business Standard

Workers employed in the gig economy are set to become part of India’s labour law legislation, enabling some employment-related rights for them. The labour and employment ministry has proposed the Code on Social Security, 2019, in which it has recognised ‘gig workers’ and ‘platform workers’ — terms which have never been used in any of the country’s labour laws earlier.

According to the draft Bill, gig and platform workers will be entitled to life and disability cover, health and maternity benefits, old-age protection, and “other benefits”, as determined by the central government, which will frame social security schemes for them. However, since gig workers are part of the unorganised sector, they will not be entitled to benefits under the Employees’ Provident Fund and Employees’ State Insurance schemes.

Such workers will also not be entitled to gratuity benefits, according to the proposal.

Gig workers are usually spoken of in the context of a sharing economy, such Uber and Ola drivers, delivery persons for Zomato and Swiggy, and so on. These are jobs enabled by a tech platform where workers are not bound to the organisation and can choose to work as long they want in a stint. However, the term could also refer to higher-skilled workers like coders or technology professionals working part time or as freelancers.

The draft law has defined a gig worker as a “person who performs work or participates in a work arrangement and earns from such activities outside of traditional employer-employee relationship”. A platform worker is a person who is part of an organisation that “uses an online platform to access other organisations or individuals to solve specific problems or to provide specific services in exchange for payment”.

The size of workforce in India’s gig economy is ballooning, especially with the coming up of mobile application-based services in major cities in the past few years.

According to a recent report by human resource consultancy firm Noble House, titled ‘The Future of Work is Anywhere - Gig Workforce’, 70 per cent of the companies in India hired gig workers at least once for major organisational work in 2018. There is no official estimate on the exact size of India’s ‘gig economy’.

At present, gig workers, who are often treated as independent workers, are devoid of any social security cover as they are not part of the country’s labour law legislation. Once the draft code becomes a law, the central government will also frame the role of ‘aggregators’ – firms which hire them – in the social security scheme. According to the proposal, an aggregator means “a digital intermediary or a market place for a buyer or user of a service to connect with the seller or the service provider”.

While appreciating the government’s move to recognise the gig economy in the labour law framework, Rituparna Chakraborty, co-founder & executive vice president, TeamLease Services, advised a word of caution against overregulating the sector.

“Two decades ago, the government chose not to overregulate the IT (information technology) sector and it flourished. Though gig is different from IT, premature load bearing with regulation might push these gig workers back into their earlier work. While health and life cover benefits are fine, old-age protection is above what gig represents. It flourishes because it thrives on optionality and choice,” Chakraborty said.

INVESTMENT GYAN OF THE WEEK

Explained: How capital gains from different forms of gold are taxed

Tinesh Bhasin, Business Standard

When you give old ornaments to a jeweller to buy new ones, you might need to pay capital gains tax depending on how the transaction is structured. Such a transaction can happen in two ways. One, the jeweller uses the existing gold from the customer to make new jewellery and bills the individual only for the making charges. Second, the jeweller will value the jewellery. The customer can then purchase a new set of the same value or pay the difference between new and old jewellery.

In the second case, where the jeweller would issue a new bill for a fresh purchase, the consumer will need to pay tax. “This is akin to a person selling old gold jewellery and buying anew. Most individuals are not aware that such a transaction could be taxable, depending on the invoice,” says Naveen Wadhwa, a chartered accountant with Taxmann.

Today, an individual can buy gold in many forms — physical, digital, exchange-traded fund (ETF), and sovereign gold bonds (SGBs). The taxation of such instruments could vary. In the case of physical gold, for example, if a person has held the gold for over three years, and then sells it, he would need to pay long-term capital gains (LTCG) tax, which is chargeable at 20 per cent after taking indexation benefit.

“If the jewellery sold was bought before April 1, 2001, then the taxpayer can use the gold price as on April 1, 2001. For 24-carat gold, the price was Rs 4,190 per 10 grams,” says Wadhwa. If physical gold is sold within three years of purchase, short-term capital gains (STCG) tax can apply. The gains are added to the income and taxed according to the individual’s tax slab.

Digital gold is the latest way to accumulate gold. Many mobile wallets such as Paytm, MobiKwik, and PhonePe have tied up with MMTC-PAMP or Safe Gold for buying and selling of the yellow metal. The taxation of digital gold is the same as that of physical gold. Gold ETFs invest in physical gold, and gold mutual funds invest in gold ETFs. Both mirror the price movement of physical gold. The taxation and exemption rules for them are the same as for physical gold.

When it comes to SGBs, the taxation will vary depending on whether the individual holds the bonds until maturity or sells them midway. SGBs come with a maturity period of eight years, with an exit option from the fifth year. SGBs are also traded on stock exchanges, offering an early exit option for investors. The bondholder also earns an annual interest.

The interest on gold bonds is taxable. It is added to the income of the bondholder. The capital gain arising on redemption of these bonds to an individual is not taxable, according to the regulations. The benefit, however, is not available if the bonds are transferred from one person to another before maturity. In such a case, the gains will be considered as capital gains. The long-term capital gain arising on such a transfer will be chargeable at 20 per cent with indexation, and short-term capital gain is added to the income of the bondholder.

TECHNICAL INDICATOR OF THE WEEK

Tech view: Here's how oil sector stocks look on the charts

Avdhut Bagkar

It has been a choppy week for oil prices that surged past the $70 a barrel mark after the largest-ever disruption of crude production in Saudi Arabia amid drone attacks on its key facilities. However, prices cooled-off after Saudi Arabia's energy minister said the Kingdom will be able to restore lost oil production by September-end.

If this truly is a temporary, one-off disruption, then oil prices could stabilise near current levels, believe analysts at Nomura. On the other hand, if there is strong retaliation or more drone attacks, the situation could spiral out of control and in the worst case, this could escalate into a full-blown crisis and lead to larger and more permanent oil supply declines, they suggest.

Here's how the stocks of leading refiners and oil marketing companies (OMCs) look on the technical charts:

S&P BSE OIL & GAS INDEX: The daily chart shows a formation of “Inverse Head and Shoulder” pattern with a breakout. Once the index is able to take out 13,550 – 13,600 levels, it can move even further to 13,900 and then 14,100 mark. The breakout seems promising as Relative Strength Index (RSI), which is at 50, trades below the overbought zone. Moving Average Convergence Divergence (MACD) is also above zero line, indicating a possible upside.

Reliance Industries (RELIANCE): The counter took support of 100-weekly moving average (WMA) at Rs 1,087 levels in August, it failed to give a breakout above Rs 1,300 decisively. One should not be overly positive on the stock for now. RSI also trades in a negative crossover.

Oil & Natural Gas Corporation Ltd (ONGC): The 50-day moving average (DMA) located at Rs 132.60 has become the hurdle for this rising stock. It did give a “Double-Bottom” breakout supported by rising RSI and MACD, which is moving towards the zero line, as per daily chart. Volumes are likely to get thin as the counter moves towards the 50-DMA. On the downside, a closing basis support stays at Rs 125 level. Going ahead, if ONGC is able to cross Rs 132.60, the stock can move up to 145 and then Rs 148, which are its respective 200-DMA and 100-DMA levels.

Hindustan Petroleum Corporation Ltd (HINDPETRO): The counter is trading above 200-weekly moving average (WMA), which is currently placed at Rs 230.50. This level did break in October 2018, but failed to do so convincingly. The stock has doubled from its October 2018 low of Rs 155 to hit a 52-week high of Rs 323.30. That said, it is now struggling to cross its 100- DMA at Rs 275. A range of Rs 230 – Rs 270 remains crucial for a further leg-up.

Indian Oil Corporation Ltd (IOC): The 50, 100 and 200-day moving averages (DMA) are indicating a negative sentiment. A 'double-bottom' formation supported by the Relative Strength Index (RSI), which is moving up with higher lows after moving out of oversold region, and Moving Average Convergence Divergence (MACD), which is heading towards zero line upward are signs of a possible recovery. A move above Rs 131 may see the counter hit Rs 140 and then 148 in the near-term. There is support at Rs 120.

Bharat Petroleum Corporation Ltd (BPCL): In the last 16 sessions, the counter has outperformed the frontline indices with a gain of 25 per cent. Such a significant rally in a short period may be met with profit booking. The RSI, too, has entered the overbought region. That said, the overall trend remains bullish and a rally towards Rs 440 may be expected over the medium term. The range of Rs 370 – Rs 365 remains a firm support for the stock.

NUMBER OF THE WEEK

Rs 9,152 crore: Equity mutual funds received inflows of Rs 9,152 crore in August, 13 per cent higher than in the previous month.

  • This was despite a negative return of -0.17 per cent delivered by the Sensex that month.
  • Year to date (till August end), the Sensex was up 3.51 per cent but the S&P BSE Midcap (-12.77 per cent) and S&P BSE Small-cap (-14.77 per cent) were deeply in the red.
  • Experts attribute the positive inflows into equities to growing maturity of retail investors who have continued with their systematic investment plans (SIPs) despite the markets tumbling. Each SIP buys more units when the equity market is down, which helps boost returns over the long run.
  • In fact, experts say, investors have even made lumpsum investments to take advantage of valuations that are becoming more attractive.
  • Flows into midcap and small-cap funds were also higher than in the previous month, though these categories have taken a harder knock.
  • With outperformance over the benchmark declining in large-cap funds, investors appear to be allocating money to mid- and small-caps due to their ability to deliver alpha over the long term.

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A few links for further reading

Hard path to growth

The signals for the economy are not positive: overall demand is yet to pick up; the share of total exports in India’s GDP is declining, and industrial output pattern remains worrying.

Small savings scheme

Investors breathed a sigh of relief when the government announced that interest rates on these instruments would not be revised for the fourth quarter of the calendar year.

Invest and emigrate

The great Indian dream of settling abroad is achievable if one has a few crores to invest. Rich nations offer a variety of investment options in a quid pro quo arrangement: immigrants get a better quality of life and revenue from them helps these countries’ finances. Wealthy Indians, troubled by polluted cities and the red tape holding up entrepreneurship, may want a quick ticket out of the country. Sanjay Kumar Singh lists a range of options: from a Canadian province’s investor programme to America’s US EB-5 plan.

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