Is Indian Share Market Overvalued? Exploring Possible Alternatives for Investors!

Introduction

 

When there are talks about intriguing topics, the future surely qualifies as one. The uncertainties and lack of facts about it makes a human mind delve deep into the ambiguity. The current scenario of the Markets touching an all-time high and the massive surge of participants makes us ponder the question, what is the stock market's future? Is the market overvalued? Is there a bubble?

This article will try to ease your anxiousness with some facts plus historical data, including judgements of the current trends and personal opinions. We will begin with the concept of valuations and the techniques involved, leading to possible future scenarios and how you as an investor can benefit from them.

 

Let's begin!

 

What is Overvaluation?

 

Valuing a stock is a lot different than it seems from valuing the stock market itself. An investor can perform Fundamental Analysis to value a stock by measuring its intrinsic value based on relative economic, financial and quantitative factors, but we cannot say the same for the market itself. Due to the large scale implications of every financial decision in the country and macroeconomic factors, the metrics differ for the market.

But every seasoned investor knows that there's more to analysing stocks than just looking at valuations metrics, and it is far more essential to invest in a good business than a cheap stock. We can say the same about the stock market.

 

Let’s first look at some of the frequently used metrics of market valuations used around the globe and try to understand their credibility and relevance in our scenario:

 

• The Buffett Indicator

 

The Buffett Indicator is the Market Capitalisation to GDP ratio, which is named after one of the most influential investors of all time, Warren Buffett, called this ratio 'The best single measure of where valuations stand at any given moment'. This indicator works by dividing the collective value of a country’s stock market by the nation’s GDP, assessing how expensive or cheap the aggregate stock market is at a given point in time. The current valuations according to this metric are hovering around 104-105% historically, which used to remain around 80% of GDP. To give you a clear idea only time such valuations (over 100%) happened was in FY08.

 

• P/E Ratio

 

Another closely watched metric for market valuations after the Buffet Indicator is the Price to Earnings Ratio (P/E Ratio).

 

It tends to show what the market is willing to pay today for a stock based on its past or future earnings. A high P/E Ratio reflects overvaluation, and guess what? Indian markets, along with global markets, are witnessing a raised P/E for the past few years. The Nifty Index P/E is trailed around 20 times which historically used to be 17 times at best, and the current figure is 25.39 as of today.

 

So what do we make of it? That the market seems to be overvalued? Well, it's not entirely true.

 

Experts point out that the buffet indicator is widely followed and works well in efficient economies like the US, but India has its unique characteristics. India's GDP does not capture many activities that are either informal in nature (including contributions by housewives) or are out of formal channel due to the unaccounted nature of transactions. If one includes this portion, then the denominator will rise. Also, in India, many PSUs and private companies (including startups) are not listed, and hence the numerator is also depressed.

 

Hence it is believed that the Buffett indicator is less useful for an economy like India with a substantial proportion of GDP being from unorganised and SME sectors and is outside of listed space.

 

As for the high and ambiguous P/E Ratio, Let me clarify that the P/E ratio is not a fact; it is an estimation. The Earnings denominator considers the past and the future earnings (which are estimated). Some might argue about the credibility of past earnings, but one massive problem exists in that also, the year 2020. The earnings had gone down drastically in 2020, causing the ratio to move up. Hence, consideration of the last 12-18 months earnings is not a good move.

 

The points mentioned above indicates that the credibility of the most popular market valuation metrics are in question. Hence, no one can indeed say that the markets are overvalued and expect a crash coming to that itself.

 

India is a stable economy with lots of growth potential, and expecting a bubble will restrict some serious money-making potential.

 

Alternate Approach

 

Investing is always about alternatives. Now that it is clear that the market situation is not as bad as it seems let us shift our focus towards options other than stock markets. If there are concerns about high pricing, bubble situation, speculative action, etc., in the market, the question arises what alternatives do we have?   FD? Bonds? Real Estate?

 

Well, we all know about the devious nature of Fixed Deposits and how they can create a hole in your wealth, courtesy of Inflation. On the other hand, the Real Estate Sector is not as lucrative as it was a long time ago as it has succumbed to Liquidity problems, High valuations, slogged growth, etc. That leaves us with Bond Markets.

 

Bond Markets are also a primary market like the stock market but much more prominent in size and often less talked about, which grabs the attention of investors through the Yield mechanism. But the problem lies in the low return scenario of these markets as they are operating on a belief of low Inflation that will lead to low growth in the upcoming years. In contrast, the Stock Market is sending a completely different signal of High Inflation that leads to high growth of businesses in the future resulting in high returns.

 

One can argue that yield can grow in the future, but there are two types of yield growth in bond markets; First, a Knee Jerk Reaction to move money into bond markets from stock markets which is not likely to happen as this will shake the stock market and no country wants that to happen and second, a slogged growth overtime which again makes the stock market shines like the most lucrative option.

 

There exist no option other than to invest in businesses as they are growing with Inflation. This growth becomes the sole reason why money is and will keep flowing from various other alternatives, including Bond Markets into Stock Market, indicating its growth in the future.

 

What should you do?

 

After all these facts and speculations about the market's future, the question that lingers the most among investors is that what should they do?

 

The first thing every investor needs to do is to stop pricing for perfections all over the world. Rather than believing that central banks can and will provide a stable floor for the market to stand upon, which is nothing but a perception, one should start planning for themselves and prepare accordingly for the worst to happen. Betting on Probable stories rather than Plausible ones makes much more sense, but sadly the reverse analogy is being followed (Take the case of Zomato)

 

Conclusion:

 

So rest assured, here are some key takeaways from my side with the hope of tapping the glorious opportunities which the future is going to throw at us:

 

• Invest in the growth of the middle-class sector

 

If talking about the growth potential in India, the middle-class sector holds the key to its salvation. We are currently in a recovery phase from the devastating impact of covid on our economy. Hence, the earnings are bound to increase with time. So if we are considering the P/E ratio as a growth indicator, a market crash cannot be anticipated as the ratio will come down eventually without that happening.

 

• Staying away from overvalued and super inflated stocks like Titan (high P/E) and sectors (like pharma) of the market can make your investing journey a little safe and sound.

 

• Hedge by buying Cryptocurrency

 

It is of believing that there is a good 10 to 15% population that believes in the Crypto narrative. To remove the uncertainties regarding the future of markets, investing around 20% of your portfolio in Crypto might be a sound hedging strategy. With the evolution and popularisation of Blockchain Technology (technology on which most Crypto operates) and its overtime infusion into mainstream tasks like Banking, Auditing, etc., speculations can be made about growth in this sector.

 

And what if the market crashes?

 

A likely scenario causing the market to crash in future is the Convergence of the Stock Market and the Bond Market talked above but guess what will this crash lead to; the boom in Crypto, which would make your hedge in Crypto successful.

 

Hence Investing in India and believing in its growth potential is the best bet one can make in the future.

 

Authored by Himanshu Sharma and assisted by Bhavy Dhawan

For any clarifications and suggestions reach us at info@manishanilgupta.com

Disclaimer!

This article is meant purely for knowledge and educational purposes. It contains only general information and references to legal content. It is not legal advice, and should not be treated as such.

 Source: https://www.manishanilgupta.com/blog-details/is-indian-share-market-overvalued--exploring-possible-alternatives-for-investors! 

Is Self-Certification in GSTR-9C Really a Welcome Step?

The Finance Act, 2021, introduced amendments in the CGST Act to do away with the requirement of filing CA certified Reconciliation Statement in GSTR 9C.

As per the amendments, now the taxpayers are not required to get the Reconciliation Statement certified by CA/CWA. Additionally, the taxpayers with turnover of up to Rs. 2 crores have option not to file GSTR 9 (Annual Return). These amendments will be in force w.e.f. 1st August 2021.

Pre the above changes, taxpayers with a turnover of more than Rs. 5 crores were required to file CA/CWA certified Reconciliation Statement in GSTR 9C.

In this article, we attempt to understand the background and analyze the implications of recent changes.

What is GSTR-9?

GSTR-9 is an annual return to be filed by registered taxpayers having turnover more than Rs. 2 Crores in previous financial year. It contains details like outward supplies, tax liability and input tax credit availed, refund claimed and tax paid during the financial year. The due date is 31^st December of the year following the particular financial year.  However, following class of taxpayers do not need to file GSTR-9:

• Casual Taxable Person

• Non-Resident Taxable Person

• Input Service Distributors

• Taxpayer covered under section 51 & 52

What is GSTR-9C?

Every registered person whose aggregate turnover is more than Rs. 5 crores shall furnish a copy of audited financial statement and reconciliation statement in GTSR-9C. It is basically GST Audit. GSTR-9C is a statement of reconciliation between the annual returns in GSTR-9 filed during the year and the figures as per audited financial statements under the provisions of Income Tax Act. Any difference arising is reported here along with the reasons for such difference

Until recently, the Reconciliation Statement was required to be certified. But now it’ll be filed on self-certification basis.

Why were these changes required?

It has been four years since the GST Act came into force. Although there are huge benefits of this new form of taxation, but there is the need to actively work towards simplifying compliances.

Compliance needs to be simplified as it is a costly affair both in terms of cost, time & energy. Already the taxpayers are required to file GSTR-1, GSTR-3B (and others depending on nature of business) on a monthly/quarterly basis. They have to incur significant costs for the same as professional services are required for managing compliance. There was a demand across sectors to make this non-business task less expensive and time-consuming.

When we look at GSTR9 in this context, we can see that changes in this direction have been made. Now only the taxpayers with turnover of above Rs. 2 crores are required to furnish GSTR-9, whereas GSTR-9C is furnished by taxpayers with turnover of above Rs. 5 crores. Recently, the requirement of CA certification on Reconciliation Statement has been removed, making compliance simpler.

The 43rd GST council was held on 28th May 2021 wherein various measures for combating Covid and reviving businesses were discussed. Along with this, the council expressed the need to simplify Annual Filing. It also recommended amending CGST Act to allow the filing of GSTR-9C on Self certification basis, which the notifications have now implemented.

Conclusion:

Although this is a welcome step, its disadvantages also need to be acknowledged. This step is bound to provide compliance level relief to number of taxpayers, however it would increase the risk of intentional as well as unintentional misstatements / errors in the annual filings, calling for increase in departmental scrutiny and hence, increased burden on the enforcement groups.

But on the flip side, it will create a number of opportunities to the litigation professionals as well to handle the scrutiny notices of their clients & represent the latter in front of department. As a result, it will provide more avenues to the professional to showcase their skills & garner more clients.

Hence, it should be noted that most of the taxpayers are not very well versed with the requirements of Annual filings, and professional help for the same is required. We are yet to see whether the merits of the move outweigh the demerits or not to the different stakeholders.

Authored by CA Rahul Pareva, assisted by Vrinda Sharma & Ashish Sharma

For any queries and suggestions, reach us at info@manishanilgupta.com

 About the Author & Firm

CA Rahul Pareva possesses many years of experience in litigation and advisory matters. He has been representing number of clients before Tax Authorities. He is actively involved in advisory related to filing of GSTR-9, how to prepare GSTR-9C and other GST matters in Manish Anil Gupta & Co. Chartered Accountants. MAG is renowned GST Consultants in Delhi where clients complexities are transformed into solutions.

Source:https://www.manishanilgupta.com/blog-details/is-self-certification-in-gstr-9c-really-a-welcome-step

Different Types of Accounting Services Offered by Professional Firms

 Most of the small businesses do require professional assistance in the pathway to make their business operations successful. The professional accounting services can help businesses handle their financial transfers, expenditures, and capital investments. Around 86% of small business owners count their accountants as trusted business advisors

Bookkeeping Services

Under the bookkeeping services, the professionals will help you in the following ways:

• They will help you set up the account charts.

• They will record all the customer receipts.

• They will handle the billings of all the goods or services sold. 

• Keeping track of the supplier payments. 

• Bank detail tracking.

• Year or month closing financial statement bookkeeping. 

• Handling the status of the employee’s payment and other such reports. 

Payable Account Handling Services

Under the Accounts Payable services, the professionals handle invoice approval, expense allocation, invoice storing, vendor inquiry handling, and online payment approval system. These are some of the important services that the professionals need to handle for seamless running of the organization.

Receivable Payment Management services

The receivable payment aspects of the business are also handled by professional accountants such as order management, collections management, customer billing works, reporting, and other such services. For all the payments that come to the company are tracked by the accountants to help make it easy for you to do your ITR filing in Janakpuri. The professional accountant firm will also have special agents to handle your tax filings as well. 

Financial Reporting Services

Along with the payment processing works, financial reporting is also essential for the seamless running of the businesses. Therefore, the accountants also handle your balance sheets, cash flow statements, income statements, asset account management, ledger reports, and all other such financial transaction reporting. 

Payroll Handling Services

The accounting services offered by the professionals will also help you with payroll setup, payroll taxes, payroll circulation, form filling, and other such services. Along with payroll, the professional accountants also handle the tax preparation aspects for making it easy for the business owners to process the tax payments. 

Manish Anil Gupta & Co. is one of the top firms in Delhi that offers professional accounting services to meet business requirements. Not only that, but it is also one of the best companies that offer trademark registration in Delhi. So, get in touch with them today. 

ALL ABOUT LLP (AMENDMENT) BILL, 2021

 The idea and concept of Limited Liability Partnership were introduced in 2008 for the first time with the enactment of the Limited Liability Partnership Act, 2008. This act was enacted by the Indian Parliament on 12th December 2008 to give legal sanction to the concept of LLP in India, and it came into force on 31st March 2009.

This form of partnership was introduced to make it easy to carry a lawful business to earn profit at low compliance costs. An LLP is a legal body liable to the extent (total) of its assets. However, the partners have limited liability only.

There were practically no amendments passed under this act till now. The Government of India recently introduced a New Limited Liability Partnership (Amendment) Bill, 2021, to amend the LLP Act 2008. The Rajya Sabha passed the Limited Liability Partnership (Amendment) Bill on 4th August 2021, and on August 10, 2021, Lok Sabha passed the bill.

These amendments are made to boost further the ease of doing business, reduce penalties for various offences, compounding offences stipulated in the Act of 2008. This Amendment Bill seeks to facilitate the ease of living to law-abiding corporates and decriminalize some of the violations under the existing act.

The purpose of the New Act

•    To boost ease of doing business.

•    To encourage start-ups in the form of LLP

•    Reduction in penalties for various offences and    compounding of offences stipulated in the Act of    2008

•    To encourage the small entrepreneurs to incorporate LLP

Key Highlights of Amendment:

The key objectives of this bill are to introduce the concept of ‘small LLP’, de-criminalization of certain offences. The implementation of this bill will create a more liberal economy and business-friendly environment in the market system for small businesses and start-ups in the form of LLP.

There is a total of 30 amendments to the LLP Act 2008 by LLP Amendment Bill 2021. Some of the major and essential amendments are:

I.    De-criminalization of compoundable offences:

In the existing act, there are 24 penal/criminal provisions, 21 are compoundable offences and 3 are non-compoundable. Through this new act, the number will get reduced to 22, with 7 compoundable offences and 3 non-compoundable. The residual 12 de-criminalized offences are now being assigned to the In-House Adjudication Mechanism (IAM).

The 12 residual de-criminalized offences consist of the less crucial or minor offences.

II.    Concept of Small LLPs

In line with the already well-established concept of Small Companies under the Companies Act, 2013,  the new idea of  Small LLPs is now introduced through this Bill. These Small LLP will attract lesser compliances, lesser fees and lesser penalties in case of defaults.

Currently, LLPs with Partner’s Capital Contribution up to 25 Lakhs and turnover less than 40 Lakhs are considered as small LLP.

However, according to the Proposed Bill, the Limit will be Rs 5 Crores instead of Rs 25 Lakhs in case of partner's capital contribution and Rs 50 crores in the case of turnover.

III.    Reduction of Additional Fee

Currently, as per section 69 of the LLP Act, 2008, the additional fee of Rs. 100 per day is charged in the case of delayed filing of forms. However, in the proposed bill, there will be a reduction in the additional fees.  

IV.   Accounting Standards

Under the Bill, the central government may also prescribe the standards for accounting and auditing for LLPs, in consultation with the National Financial Reporting Authority (NFRA).

V.    Special Courts

There is also a provision for the establishment of Special Courts for the speedy trial of offences under the Act. These special courts will follow the conditions laid down for Sessions judges and Additional Sessions for the offences punishable with the imprisonment of three years or more and Metropolitan Magistrate or a Judicial Magistrate for other offences. The order of the Adjudicating Authority of this court can be challenged and appealed for in the High Court.

VI.    Compounding of Offences

In This Bill, the Regional Director will be authorized by the Central Government to compound any offences which will be liable for the fine only from the person who is suspected of having done an offence under this Act.

The compounding application of offences will be filed before the Registrar & the same application along with the registrar's remarks thereon will be transferred to the Regional Director or any other officer as directed by the Central Government.

VII.    Punishment for fraud

If an LLP or its partners carry out an activity knowingly to defraud their creditors or for any other fraudulent purpose, then the punishment will be in terms of imprisonment and fine. The term of imprisonment can extend up to 5 years (it is 2 years in the current act)

VIII.    Appellate Tribunal

Same as the current LLP Act, 2008, the appeal against the order of the NCLT is required to be filed with the National Company Law Appellate Tribunal (NCLAT) within 60 days from the date of order. However, in the proposed bill, no party can appeal if the order passed is with the consent of the parties.

All the above amendments and new provisions have been made to promote entrepreneurship and ease the way of doing business in the form of a corporate business entity. This way, both the government and the entrepreneurs can satisfy and fulfil their interests without any loss or hardship to the other.

Authored by CA Manish Gupta & assisted by CS Richa Gulati

For any queries or suggestions, reach at info@manishanilgupta.com

 Source: https://www.manishanilgupta.com/blog-details/all-about-llp-(amendment)-bill,-2021