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Investments in equities should be for 2-3 years

If you exit from your equity investments before completing 1 years, you will have to pay STCG tax

I have 1,000 shares of IL&FS Transportation Networks Limited. I had bought these shares for Rs 280. How are the long-term prospects of this share? Should I hold them or book partial profits?
-Pranav

IL&FS Transportation Networks Limited (ITNL) is an infrastructure development and finance company which was incorporated in 2000 by IL&FS. ITNL develops, operates and maintains national and state highways, roads, flyovers and bridges. It is one of the largest private-sector BOT road operators in India.

The company has strong parentage support from IL&FS, whose shareholders include LIC, SBI, HDFC, Central Bank of India, CORIX Corporation of Japan and Abu Dhabi Investment Authority. Further, it operates in a high-growth sector. The Indian government plans to make massive investments in infrastructure in the coming years.

To strengthen its position as a leader in Indian transportation infrastructure industry and gain entry into the lucrative markets of Europe and Latin America, the company had in 2008 acquired Elsamex SA of Spain, a leading road maintenance company.

Recently in March 2010, the company debuted on the bourses via an initial public offering (IPO). Currently, the share is trading at a price of around Rs 358.

We at Value Research do not favour IPO investments in stocks and NFO (new fund offer) investments in mutual funds due to the risks associated with investing in new stocks and funds. Why should you take the risk of investing in a stock that does not have much of a past track record to go by when there are other proven names in the same industry, such as Larsen & Toubro, Lanco Infratech and JP Associate?

Since the stock in question has been listed on the stock exchange for just about six months, we feel that adequate data is not available for us to comment on its performance relative to its peers.

While the stock has several positives, there are also a few concerns. To a large extent, the company depends on government policies and plans. Moreover, it will depend on its recently acquired subsidiary to make a mark in foreign markets. A sudden change in government policies or poor performance by its subsidiary could have a negative impact on its business. Our answer to the second part of your question depends on why you wish to exit this stock. If you need the money, then you should not have invested in shares in the first place. Only money that you can spare for at least five years should be invested in equities. If you exit now or book profits partially, you will have to pay an additional cost in the form of short-term capital gains tax (STCG).

However, if you don`t need the money, we suggest that you stay invested for at least two to three years more. The infrastructure sector is expected to do well over the next five years. Wait for the stock to show some results and only then decide to hold or sell it.



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