Indian Indices Open Flat

Fri, 4 Mar 09:30 am

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Major Asian stock markets have opened the day on a positive note. The stock markets in Hong Kong and Singapore are trading higher by 0.6% and 1.2%, respectively. Major indices in Europe ended their session on a negative note. US markets ended their previous session in the green. The rupee is trading at 67.25 per US$.

Indian stock markets have opened the day on a flat note. The BSE Sensex is trading lower by 15 points (0.1%) and NSE Nifty is trading lower by 12 points (0.2%). Both, BSE Mid Cap and BSE Small Cap are trading lower by 0.1% and 0.2% respectively. Sectoral indices have opened the day on a mixed note with stocks from consumer durables leading the gains and stocks from the telecom sector leading the losses.

As per a leading financial daily, Indian companies are seen on a dividend payout spree on the back of the new 10% tax on dividend income that is going to kick in on April 1. The new tax was announced on the Budget day and some 50 companies listed on the BSE have declared that they are considering payment of interim dividend before the month ends to avoid the tax.

Finance Minister Arun Jaitley has proposed in Budget 2016-17 that if the dividend income earned by a resident individual, Hindu Undivided Family (HUF) or firm exceeds Rs 10 lakh, it will be taxed at the rate of 10% in the hands of the recipient. This additional 10% tax is over and above 15% DDT (Dividend Distribution Tax) paid by companies. Up to March 31, 2015, companies paid DDT at the rate of 15% of the net dividend payable to shareholders. Though the rate of DDT has been kept unchanged in the subsequent year, the computation mechanism has changed and the effective rate of dividend stands increased to 20.36% (including surcharge and cess).

The additional 10% tax will be applicable from April 1, 2016. This means that the dividends declared before March 31, 2016 will not be taxable. The promoters, who earn huge dividend income, are likely to encourage companies to declare dividends before March 31, 2016. So, companies with high promoter shareholding are preferring to pre-pone most of the dividend pay-out before March 31, 2016 so that they do not end up paying 10% tax on their dividend income.

To beat the April 1 deadline, companies such as Suven Life Sciences, Allcargo Logistics, Godrej Industries, Zydus Wellness, Divi's Laboratories and Navneet Education have already announced plans to offer dividends this month.

And a BusinessLine analysis revealed that investors are also clamouring to buy these dividend stocks. It noted that about 16 of the total sample of 50 scrips have seen a sudden price surge in the range of 8-33%. Further, in the same period, the broader market moved up between 5-8%.

However, we would like to remind you not to fall for this folly. Investors should not blindly buy stocks of high dividend paying companies. In fact, dividends should not be the sole criterion for investment decisions. One should, instead, question if such payments are sustainable and whether the dividend policy is maintained or not. If high dividends are due to better cash generating capability of the business, investors should then pay attention to fundamentals and management quality. Only then they should commit their money to any company. Here's an article from the premium edition of The 5 Minute WrapUp that explains the point clearly (subscription required).

In another news update, HCL Technologies (HCL) has signed a five-year Next Generation Information Technology Outsourcing (Next - Gen ITO) contract with Husqvarna AB. Husqvarna AB is a leading manufacturer of outdoor power products including robotic mowers, garden tractors, chainsaws and trimmers.

HCL has been providing application management services to Husqvarna in the past. With this deal, HCL will now provide end-to-end integrated infrastructure and applications services, covering data center services, network services, security services, applications operations and support services.

The company will be utilising its transformational infrastructure and applications services and global delivery model to drive data-center consolidation and assets optimization for Husqvarna. This is said to allow a high degree of flexibility and enable Husqvarna to adopt future technologies for delivering an enriched end-user experience to end customers.

HCL Technologies is a leading global IT services company. Presently its stock is trading down by 0.6%.

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