8 December 2016 Moneylife

SUCHETA DALAL ON: TATA SUCCESSION: PUPPET IN PLACE? Personal Finance Magazine

Pages 68

TATA WARS: PR, PLANTS AND PHILANTHROPY

25 November-8 December 2016

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TA-TA GOVERNANCE? The Tata-Mistry spat has exposed how cronyism, cloak-and-dagger moves, personal ambitions, fears and pettiness drive people pretending to hold the high standards of ethics and morality. Investors should be worried

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ISSUE CONTENTS

25 Nov-8 Dec 2016 What’s Left of Tata Image?

F

or three weeks now, Indian corporate sector watchers have been following the Ratan Tata and Cyrus Mistry camps engage in an increasingly bitter battle of words. While the Tata camp is pulling all strings to evict Mr Mistry from all the group companies, the shareholders of Tata companies face a long list of problems which need urgent, and continuous, attention. One of the major problems highlighted by Mr Mistry, after his ouster, is the ambiguous governance structure that the Tata group has created over the years. This spat also brings to the forefront the innumerable dubious transactions that had been brushed under the carpet for years. The Cover Story delves into all these issues. This is the longest Cover Story we have done. Don’t miss it. Sucheta’s Different Strokes explains how the new chairman at Tata Sons may end up being a mere puppet in the hands of Ratan Tata and simply be a yes-man. The future of the group may not be as significant a factor in the selection as the closeness to Ratan Tata. In her Crosshairs section, she raises questions about the expensive public relations and advertising budgets to maintain a spotless image of Mr Tata. She also gives us an insight into the dubious philanthropy and smear campaigns that have been undertaken under Ratan Tata’s shrewd planning. The Tata-Mistry spat was almost overshadowed by the government’s demonetisation of high currency notes. The mere volumes and numbers involved make it a gargantuan task. While the raging debates, serpentine queues at banks and vote bank politics take centre stage, the government is left to achieve the goal of weeding out counterfeit notes and black money from the economy. As good as the demonetisation looks for the economy, what remains to be seen is how deftly the government handles its implementation and smooth transition. As always, please do write to us with comments on the published articles and about what you would like to read. Debashis Basu 

30 Cover Story Ta-ta Governance? The Tata-Mistry spat has exposed how cronyism, cloak-anddagger moves, personal ambitions, fears and pettiness drive people pretending to be ethical and moral. Investors should be worried, write Sucheta Dalal & Debashis Basu

12 Your Money

– Palash Corporation Told To Pay Housing Society Rs3 Lakh Compensation – Peerless Sells Its Mutual Fund Business – ICICI Bank Home Loan Interest Rates Lowered by 15bps – Builder Arrested for Failing To Surrender Excess Land to the Government – Service-Tax Introduced on Music and E-Books Sold on Foreign Portals

14 18

MONEYLIFE

QUIZ Tata Wars: PR, Plants and Philanthropy

20 Different Strokes

Tata Sons Head: Will A Yes-Man Be the Fate of the Group?

Disclaimer: Moneylife has a policy of not allowing its editorial staff to buy and sell stocks that are written about in the magazine. All personal transactions in individual stocks are subjected to internal disclosure rules.

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CONTENTS FUND POINTERS

TAX / FIXED INCOME

Better 22 Choosing Performers

FD Rates Down 25 Bank after Demonetisation

LEGALLY SPEAKING

Many States, One 58 GST: Market?

FUND FACTS

and Cold Stocks 23 Hot of Mutual Funds in October 2016

– G-Sec Yields Down

xSTOCKS

YOU BE THE JUDGE

24 Smart Money Ca American Can Voters Vo Impact Indian Im Earnings? Ea

44 Stock Watch KPR Mills: Strong & Steady Growth Adani Ports and Special Economic Zones: Port of Call

INSURANCE

28 Insurance Trends Life insurance – Tata AIA Launches Three New Products

in 60 Ethics the Legal

Profession

ML FOUNDATION EVENTS

Fine Print

TAX HELPLINE

at Moneylife 52 Queries and Foundation’s Tax Helpline 62 Taxmen Demonetisation USEFUL APPS

Kajaria Ceramics: Double Whammy Asahi India Glass: Transparently Better KEC International: Infrastructure Business Doing Better

Get 54 LookFor: Spotted in a Sea of Faces

– Instant-Quantified Self: Track Your Activity – CALM: Take a Break for a Soothing Experience – InShorts: All the News in Just 60 Words

in Educational 66 Investing Opportunities for Gifted Poor Children

HEALTH

Market Manipulation: Medicamen Biotech

56 Drug Money

Market Trend: Demonetisation: An Unknown, Unknown

Pulse Beat: Medical developments from around the world

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BEYOND MONEY

DEPARTMENTS Readers’ Response ........... 8 Money Facts ....................64

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Volume 11, Issue 21 25 November–8 December 2016

Debashis Basu

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RICH GET RICHER! This is with regard to “Who Wants To Defeat Cancer?” by Prof BM Hegde. How true! The pharma industry wants to make money from death. It is the same as the armaments industry making money by the killings fields around the globe. Now, to support the pharma industry, the diagnostic industry is blooming. In this world, the rich get richer by playing on the misery of the poor. Today, Donald Trump wants USA to manufacture and also export. But who will they sell the products to? It is to the people in the third world countries. These people provide the market but no have money to buy. Mr Trump wants to trade only with countries which would make America great. This is a clear case of the UGLY AMERICAN. Sunil Rebello, by email

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EXCELLENT ARTICLE This is with regard to “Shareholders Pay for Ratan Tata’s M&As and Expansions” by Debashis Basu. This is an excellent article. It is well presented and very true. Tatas are wrongly placed on a very high pedestal. They are basically not successful businessmen! Sundararaman Gopalakrishnan, online comment

HISTORY REPEATS ITSELF? This is with regard to “Equity Funds: How Much to Expect Over the Long-term?” by Debashis Basu and Mitul Patel. History repeats itself—again. Market fall is not related to Donald Trump’s victory or the demonetisation move. This is because markets are trading at high value without any earnings improvement. I believe that the markets would trade in the band of 24,500 to 29,000 for some more time. No need to panic. V Ganesan, online comment



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LETTERS

the

Best letter

Showing a Mirror

T

his is with regard to “SEBI’s Investor Advisor Regulations: Right Step but Not Enough” by Sucheta Dalal. This is a wonderful article showing a mirror to SEBI—of their myopic approach to regulate only independent financial advisors (IFAs) of mutual funds. SEBI has not been able to regulate the high and mighty as well as the so-called small tips peddlers (around 6,000 small 5-10-seater call centres based in Gujarat and Indore) who have managed to get the data of investors opening demat accounts. They present themselves as if the contact number has been given to them by SEBI. Everyday, naïve investors are getting cheated by fraudsters. For example, an SMS

 KEEP IT UP!

This is with regard to “Picking Stocks: Marrying Momentum with Fundamentals” by Debashis Basu. I find that the recent articles on this subject in Moneylife are simply superb and a class apart from others. They are taking the level of knowledge into another orbit. Keep it up. Amol Chavan, online comment

FURTHER COVERAGE NEEDED! This is with regard to “It Is Training Not Talent that Creates Geniuses” by Debashis Basu. Thank you for providing such a review. It would be helpful if such topics are covered in detail, like expertise in not only sports skills but also soft skills like time management, presentations, communication, keeping a focus on multiple tasks and, lastly, on how to train yourself to be always out of comfort levels. Amol Chavan, online comment

INADEQUACY OF REHAB CENTRES This is with regard to “A Foster Home for Mentally ill Women”. It is sad to see women who give birth to us in such a plight. We do not have adequate rehabilitation centres for slow, long-term healing for mental illness in Mumbai. I had an awful experience of failing to support a 35-year old mentally challenged woman, when the local court of Bandra failed to allow me to take her to the Thane Mental Hospital for certified mentally ill patients by stating that this is a job for

to buy BSE-listed DHYANI (some small company) was sent by someone under the name of a reputed research company and naïve investors, who bought it, are all trapped. It has been more than six months and no trading has taken place since then. Complaints are pending with SEBI but lead to no results. Jaswant Aditya Singh, online comment

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the state police or an NGO. The police failed to support later and the Thane Mental Hospital refused to support her as there were already many patients with them. I went to Vandrewale Foundation/rehabilitation centre in Bhiwandi. They said that women patients bring additional sexual risk challenges. Finally, sadly, I left her on streets again as the family disowned her due to economic reasons. Jai Mauli! Mahesh S Bhatt, online comment

REGULATORS CAUGHT NAPPING This is with regard to “Wells Fargos of India neither Get Caught nor Pay a Price” by Sucheta Dalal. Crossselling high commission products to unsuspecting customers is a practice that has been rampant in Indian banks for a long time. Life insurance business has seen a huge volume surge in the past 15 years (postprivatisation) due to this and thousands of customers have lost money on ULIPs (unit-linked insurance plans). But banks have made hefty commissions; the relationship managers have got fat bonuses and foreign jaunts at the expense of insurance companies. The managers and honchos of insurance companies have got good salary increases and bonuses. What has any regulator done to undo this damage while it was being inflicted? Zilch. And the curbs on mis-selling remain largely in letter but are not 

MONEYLIFE | 25 Nov-8 Dec 2016 | 10

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LETTERS

 translated in spirit. Caveat emptor is the only dictum

that seems to work in our country while the regulators are caught napping at the wheel. Subba Rao, online comment

THINGS ARE CHANGING This is with regard to “Public Sector Banks: No Sign of a Turnaround Yet” by Sucheta Dalal. The malaise of bad loans is due to politicians and crony industrialists who have exploited public sector banks for private gains. People who have never worked as bankers want to appoint them and tell bankers how to go about their business. IOB (Indian Overseas Bank) is without a CMD (chairman and managing director). The BBB (Banking Bureau Board), which is being praised like the messiah that it is, suggested that it had already selected the candidate. The Bank is with just one ED (executive director) who was transferred from another bank! The appointment of a CA (chartered accountant) with links to the ruling party on the board of a public sector bank with full backing from LIC (Life Insurance Corporation of India—the insurer voted against him last year) certainly shows that things are changing. Is there such a dearth of talent at SBI (State Bank of India) that the government was forced to extend the term of its CMD? Kunal Singh, online comment

POOR MEDICAL COLLEGE ADMISSIONS? This is with regard to “The Sick Healthcare System” by Debashis Basu. On the one hand, the authors lament that the doctor’s education comes from the pharma companies. On the other, there is a general tendency among Indian doctors (as a monolithic political community, not as individuals) to never allow any meaningful role for other healthcare professionals, or share the professional space with them, except as 'subordinates' who take orders. A ‘prestige-based

hierarchy’ runs the healthcare system. The pharmacists, who are supposed to be drug experts, have never played a role in India. The Indian Medical Council is not likely to allow this to happen. There is little task-sharing (a new buzzword) between the various healthcare professionals. I have not read the book, so I have no idea if this possibility has been discussed. India had a very robust public health system before the revised medical curriculum incorporated public health into the MBBS syllabus. Public health is much more than the ‘social and preventive medicine’ that is taught in classrooms. It is more inclusive and multidisciplinary. Indian society looks up to the doctor with a great deal of awe and respect. It is a hangover of the feudal arrogance that rules India even today. Indians give great importance to unchallenged authority and are willing to ‘donate’ more than a crore of rupees to win a backdoor entry into a medical college. I don’t think it makes economic sense. Nor is it driven by passion. Unnikrishnan Mazhuvancherry, online comment

A SMALL REQUEST This is with regard to “It Is Your Money, Your Worry” by R Balakrishnan. I tried hard to explain to my friends about the inadequacy of bank fixed deposits to beat inflation; but nobody gives a damn about it. Luckily, my senior colleagues introduced me to Moneylife.Trust me, please, the subscription charges are worth every penny. I never miss R Balakrishnan’s articles. In fact, I go through the archives to read his articles. One small request from me is to publish an article about the ways to identify turnaround companies; it will be really helpful. Karthik Bharathi, online comment

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Your Money REAL ESTATE

Palash Corporation Told To Pay Housing Society Rs3 Lakh Compensation

P

alash Cooperative Housing Society (Andheri, Mumbai) bought flats from Palash Corporation (the builder) in 2007 and, in 2009, the housing society was formed with 65 members. The society should have got conveyance of the property, along with documents of original title, within four months, from the builder. In 2011, the society approached the Mumbai Suburban District Consumer Forum complaining of deficiency in service and unfair trade practice by Palash Corporation. In 2016, the Forum observed that the society was partly right and must be compensated for the harassment it faced due to the delay in getting the conveyance. The

compensation is to be paid with 9% interest per annum since 2011. The Forum, after hearing both sides, concluded that the developer

“failed to execute conveyance deed within a reasonable time. This act of nonfeasance by avoiding to

MUTUAL FUNDS

Peerless Sells Its Mutual Fund Business

K

olkata-based Peerless has sold its mutual fund business to the non-bank finance company Essel Finance Management, for an undisclosed sum, according to The Telegraph. The acquisition marks Mumbai-based Essel Finance’s entry into mutual funds. Peerless Mutual Fund offers one liquid scheme, four fixedincome schemes, one hybrid scheme and three equity schemes. Under the deal, Peerless General Finance and Investment Company Ltd will sell its entire stake in Peerless Fund Management Company Ltd (PMFCL) and Peerless Trust Management Company Ltd (PTMCL) to Essel Finance Management. PTMCL is the trustee, while PFMCL is the investment manager of Peerless Mutual Fund.

convey title and failing to execute necessary documents is a breach of statutory obligation, which amounts to deficiency of service... There are no adequate reasons why they need more than six years. The obligation does not end by sending a draft conveyance copy. It amounts to unfair trade practice and resulted in wrongful loss to the society.’’ The Forum directed the builder to pay Rs3 lakh to Palash Cooperative Housing Society as compensation for breach of obligations and delay in providing conveyance. It directed Palash Corporation to submit the building completion certificate and occupancy certificate within four months and all documents of title. The Forum was “also of the view that the builder has to pay the increase of stamp duty from April 2010 on the conveyance deed” and directed the firm to pay Rs500 per day, if conveyance is not executed within four months.”

LOANS

ICICI Bank Home Loan Interest Rates Lowered by 15bps

I

CICI Bank’s home loan interest rates have been lowered by 15bps. Women borrowers will now be able to avail loans at 9.15% while other borrowers will have to pay interest rate of 9.20%. The revised rates are applicable for home loans up to Rs75 lakh. ICICI Bank has launched a home loan overdraft facility for salaried customers under which customers can avail loans from Rs5 lakh up to Rs1 crore for personal needs (education, medical treatment) against property.

MONEYLIFE | 25 Nov-8 Dec 2016 | 12

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MONEYLIFE FOUNDATION THE RIGHT THING TO DO

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Your Money REAL ESTATE

TAX

Builder Arrested for Failing To Surrender Excess Land to the Government

S

haymsunder Agarwal was arrested while his brother Murlidhar Agrawal and architect Anil Motiramani were booked by Thane city police on the complaint of a real estate agent for failing to surrender excess land to the government under the ULC Act, according to a report in ET Realty. Police have also booked some officials of the ULC (Urban Land Ceiling)

department of the collectorate and the municipal corporation for collusion. The builder was required to surrender 5% of the land (2,023sqm or half an acre) to the government for building houses for the economically weaker sections. The ULC Act was scrapped some years ago, but some cases where builders were to surrender land are still continuing in the courts.

MONEYLIFE QUIZ

Service-Tax Introduced on Music and E-Books Sold on Foreign Portals

D

ownloading music or an e-book from an overseas site, or buying some storage on a cloud from an overseas service-provider, will entail a service-tax component of 15%, which will be added to the bill, beginning 1 December 2016, according to a report in the Economic Times. Domestic suppliers of movies, which can be downloaded by customers in India, already incur this servicetax. There will be a level-playing field between domestic and overseas suppliers, once the new rule comes into effect.

Moneylife Quiz no

246

Another quiz to tease your brain. The answers are in this very issue. The winner will be chosen by a lucky draw from correct entries and answers published in the issue dated 5 January 2017. Send in your answers to [email protected] with the Quiz no., name, address & telephone number before 14 December 2016.

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Answer Correctly! Win a personalised sed clock with an investment nt quote!

Francis F Fernandes

1. Who is responsible for saying, “In the business world, the rear view mirror is always clearer than the windshield”? a. Tooey Courtemanche b. Warren Buffett c. Bill Gates d. Donald Trump

5. Which poet is responsible for the lines “… little do we see in nature that is ours… we have sold our soul to the devil”? a. Percy Bysshe Shelley b. Henry Wadsworth Longfellow c. William Wordsworth d. Hans Peter Durr

2. For evaluating a mutual fund’s performance, how many years of track record should be looked at, ideally? a. 3 years b. 5 years c. 10 years d. 15 years

6. Of which company was Raymond Bickson MD and CEO earlier? a. Indian Hotels Company Ltd b. Tata Steel Limited c. Tata Motors Limited d. TCS Limited

3. How many mutual fund schemes in the Moneylife sample in the large-cap category have consistently outperformed the category average in each xx- year period? a. Seven b. Eight c. Nine d. Ten

7. For FY15-16, how much was the return on capital employed for Jayant Agro Organics? a. 11% b. 12% c. 21% d. 23%

4. Which of the following mobile apps gives India-centric news? a. InShorts b. Calm c. Instant - Quantified Self d. LookFor In all, 11 readers got all the answers right last time. The winner of Quiz-244 is Francis F Fernandes from Goa. Congrats! You win a personalised clock with an investment quote!

8. Which Article of the Constitution of India (read along with Schedule VII) provides for the division of powers between the Centre and the states? a. Article 250 b. Article 246 c. Article 230 d. Article 225 The answers to Moneylife Quiz-244 are: • 1- d. 2% • 2- d. 150 • 3- c. Philadelphia • 4- b. US$ 100 billion • 5- a. Surgeon • 6- a. 2 billion • 7- a. lithium-ion batteries • 8- d. Rs10 lakh

MONEYLIFE | 25 Nov-8 Dec 2016 | 14

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www.moneylife.in News & views with a big difference Was this the reason for Cyrus Mistry’s ouster? Ever since Cyrus Mistry was ousted from the chairmanship of Tata Sons, in a nasty coup engineered by the 11 directors of Tata Sons (two abstained from voting), corporate watchers are wondering what could Mr Mistry have done to completely lose the faith of the board? Tata Sons has so far not been able to come up with any explanation. Mr Mistry is tight-lipped. However, sources close to the group speculate that Mr Mistry

Corporate Governance, Indian Style: What Cyrus Mistry proposed and what he got from the Tatas For two weeks, there was no explanation about why Tata Sons’ directors ganged up to remove Cyrus P Mistry as chairman of Tata Sons. Then, the Tatas alleged that Mr Mistry was ‘drifting away’ from the group’s operating companies. However, documents viewed by Moneylife show a completely different picture

may have stumbled upon a hot button issue with Rata Tata: the relationship with C Sivasankaran, promoter of Sterling Infotech, with whom Mr Tata seems to have had a very cosy financial relationship for more than a decade. Documents reviewed by Moneylife show that Mr Mistry had raised the issue of Tata Sons’ dealings with Mr Sivasankaran, which seem to have resulted in large financial benefits to Mr Sivasankaran (often referred to as Siva). Mr Mistry had raised the issue of initiating legal action against Mr Sivasankaran

ML FOUNDATION Beware, Annual Information Report is a big weapon in the hands of the taxman Ameet Patel spoke at a seminar-cum-guidance session on “The AIR is a big weapon in the hands of the tax officer” organised by Moneylife Foundation in Mumbai. He also spoke about the recent demonetisation and what it means to tax reporting of citizens

How Demonetisation Has Affected Rural Areas The Union government sent shock waves among not just the hoarders of unaccounted money but also among its huge political constituency and the state governments. The measure may have precedence but the dimension of the effect has no precedence

EXCLUSIVE VIEWS

On issues that matter to you

Demonetisation: Pains of Bank Employees Highlighting the suffering of bank employees post- demonetisation, the Indian National Bank Employees’ Federation (INBEF) has requested finance minister Arun Jaitley to honour them with ad-interim relief in their wages and affect a wage settlement in 2017

Demonetisation: The reset and threat of future resets Aniruddha M Godbole

RTI use: Blame it on the common man Vinita Deshmukh

Demonetisation: MFIs hit by cash crunch in the near term Micro finance institutions (MFIs) are facing a severe cash crunch which is hurting their collections and disbursement. However, it is too early to conclude that there will be high loan defaults or weakening of credit culture in MFIs, says a research note

Demonetisation–Will RBI gear up? Dr B Yerram Raju

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18-11-2016 17:29:03

CROSSHAIRs

Exclusive news, the stories behind the headlines and the truth between the lines by Sucheta Dalal

Tata Wars: PR, Plants and Philanthropy

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one learns that Rediffusion-Edelman is being paid a hen it comes to fighting for internal control, whopping Rs60 crore per annum for PR support to Ratan Tata finds no use for the much-touted Tata Sons as well as the Tata trusts. What exactly does ‘Tata culture’. Values, equity and fair-play this kind of money buy? Quite simple. It ensured that quickly go for a toss and in come whisper campaigns, the 2G-telecom scandal and the machinations of the innuendo and falsehoods, on par with the worst in the group, led by Ratan Tata, were soon forgotten. How country, lubricated through expensive public relations else does one explain the shock and many allusions (PR) and large advertising budgets. I watched it closely to ‘damage to the Tata brand’ that greeted the crude in the 1990s while reporting the humiliating removal sacking of Cyrus Mistry? One must remember that this of Russi Mody, Ajit Kerkar and Darbari Seth and then, expensive PR machine is at work again in the Mistryagain, over the Tata Finance episode when YM Kale, a highly regarded senior partner at the accounting firm of Tata war and investors need to analyse news reports carefully, to get to the truth. AF Ferguson, was ignobly sacked by his firm (in order to retain the Tata business) because his 904-page special audit did not give Tatas the clean chit Tata Sons’ Guarantees they expected. A pink paper recently reported that Tata Sons may The Niira Radia tapes, published by Outlook and no longer guarantee loans, refinancing deals or Open magazines, among funding requirements of others (and still available on group companies where the net), provided the world a Cyrus Mistry refuses to ringside view into how step down as chairman. Ms Radia skilfully Unnamed executives were manipulated the media, quoted as saying, “Units politicians and bureaucrats that don’t adhere to the through a series of tradevalues and policies of Tata offs, loans and land deals Sons cannot be supported for her corporate clients with the comfort of Tata (primarily the Tata group assurance, top executives.” and Reliance). Cyrus Mistry’s It further says that this latest riposte to Tata Sons message about guarantees is (specifically, the belated full‘likely to be conveyed at the Ties that bind: Ratan Tata inaugurates Nayati Healthcare & page advertisement attempting Research in Mathura in February 2016. Nayati's chairperson EGMs’ (extraordinary general Niira Radia (right). to explain the disgraceful meetings) convened to oust boardroom coup to sack Mr Mistry) tells us that Ms Mistry. It further quotes unnamed bankers saying, “If Radia’s work through Vaishnavi Communications cost Tata Sons decides not to renew guarantees, borrowing a cool Rs40 crore per annum. costs could jump significantly for group companies and  Even before one digests this huge PR budget, make their loans more costly.”

MONEYLIFE | 25 27 Nov-8 November Dec 2014 2016 || 14 18

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18-11-2016 17:30:46



criticism. The 14 Tata trusts, acting under orders of Almost in tandem, the Tata director on Tata a single person, can do this by way of their collective Chemicals, Bhaskar Bhatt, requested Cyrus Mistry 67% shareholding in Tata Sons. to step down as chairman, because of the “threat At a time when the government has cancelled the the company faces on account of loss of confidence registrations of several NGOs, it is worth noting that of the promoter Tata Sons in the Chairman of Tata the Tata trusts also enjoy tax exemptions from the Chemicals.” He added to the drama by tendering his government. The battle with Cyrus Mistry has exposed resignation; this would have been relevant if he were the role of ex-Tata executives (NA Soonawala and an independent director, rather than a group company RK Krishna Kumar) in scrutinising the investments head and Tata nominee on the board. There is a nice sequencing to this, with the subsequent event appearing of Tata Sons, calling into question the whole edifice of philanthropic activity, not to mention the insider to confirm the media narrative and reinforcing public trading angle and sharing of price sensitive information opinion. How true is the threat about Tata Sons’ guarantees? that SEBI is reportedly investigating. One may well ask, in the context of Nitin Nohria’s role in Mr Mistry’s We learn that the only companies where Tata Sons ouster, whether the massive $50-million donation to has stuck its neck out by providing a direct guarantee Harvard Business School had a quid pro quo attached? of sorts is the controversial TTSL (Tata Teleservices Why is such a contribution from tax-exempted trust Limited). There, too, it is against a pledge of shares. funds, leading to a loss of revenue for India? In any case, TTSL, like TCS, is a company where Tata The saving grace in this Sons is in a position to remove sorry episode is that a few of the Mr Mistry as chairman. Given the aggressive muscle trustees on the Tata Trusts who Sources close to Cyrus flexing by the Tata trusts in the are also independent directors Mistry say that, during his tenure, bankers were specifically Cyrus Mistry episode, one could of group companies, set a great told to look at each group well ask whether this much-touted example of good governance. However, SEBI must ensure company on merit. Having said philanthropy has turned into a that, they agree that there is an very smart business promotion there is no scope for a repeat of this situation by telling Tata implicit guarantee of Tata Sons, and brand management tool Sons that trustees of its 14 and, in the Indian context, it is trusts cannot be ‘independent’ unimaginable for a Tata group directors on listed group entities. Proxy advisory firms company to renege on a payment obligation. have also pointed out that as many as 10 independent However, a sticky issue is Tata Steel, where lenders directors have been on boards well past the tenure have inserted covenants in the loan agreements prescribed by governance regulations. allowing them to pull out the loans if it ceases to be a part of the Tata group. Ironically, from the shareholder perspective, Mr Mistry is most likely to cut the losses Benefits of ‘Philanthropy’ of over 1 million-1.5 million pounds a day on account A February 2015 article by Zaheer Masani (son of of Corus Steel of the UK and bring the company back the famous Swatantra Party leader Minoo Masani) in shape. Will bankers be against such a move? points out how Tata UK, was “keen to advertise its Also, would Indian banks really refuse to lend to commitment to corporate social responsibility, with the Tata Chemicals, Tata Motors, Indian Hotels or even magic letters ‘CSR’ sprayed across all its publicity.” the debt-laden Tata Steel and another two-dozen listed It was ‘the dominant theme’ at Tatas’ ‘inaugural Tata companies at competitive rates on a stand-alone reception’ in London. basis? And yet, we hear that banks are struggling to He writes, “Today Tata prefers to forget the find bankable projects. buccaneering capitalism with which its founder began his remarkable career. Like most other Indian merchant princes of his time, he cut his business teeth in the Messy Structure notorious opium trade with China.” If anything, the revelations of the past two weeks Given the aggressive muscle flexing by the Tata ought to worry Tata Sons about stricter scrutiny by trusts in the Cyrus Mistry episode, one could well the Securities and Exchange Board of India (SEBI), the question whether this much-touted philanthropy has tax authorities and their own investors. The current turned into a very smart business promotion and brand structure of Tata Sons allows one individual, heading management tool. Such questions would have been the Tata trusts, to effectively ride roughshod over considered sacrilegious in the past, but they are going independent directors and dictate the fate of dozens to be raised openly and bluntly, now that the halo of listed entities and their millions of shareholders. around that Tata name has been severely dented by This goes against all norms of good governance and Ratan Tata’s own actions.  most proxy advisory firms have been scathing in their 19 | 25 Nov-8 Dec 2016 | MONEYLIFE

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18-11-2016 17:31:06

DIFFERENT STROKES SUCHETA DALAL

Tata Sons Head: Will A Yes-man Be the Fate of the Group?

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ill Ratan Tata’s image survive the shock and about being party to a grossly unfair decision, not even outrage caused by the brutal and, one would say, when three of the big names had been on the board for dubious, sacking of Cyrus Mistry as chairman just a couple of months. In some cases, financial incentives of Tata Sons? The jury is still out on that. I suspect it is and endowments flowing from the Tata charities appear going to be a long-drawn war with many small battles to have had a powerful influence. The dominant view is that Cyrus Mistry was targeted on the way. The question is: What will be Ratan Tata’s ultimate legacy and in what shape will he leave India’s for trying to clean up Ratan Tata’s legacy of massive debts most famous corporate group? (steel), messy projects (telecom) and emotional investments As I write this column, the media narrative is that (the Nano project that had to leave Singur in West Bengal Cyrus Mistry’s sacking was vicious and unfair; but after a public uprising and many deaths and is now an Ratan Tata will, eventually, get his way because he alone acknowledged financial and marketing disaster). However, controls the ownership, either directly or indirectly. Right the numbers are stacked against him because of the sheer now, independent directors of four of the biggest six muscle of Tata Sons’ shareholding and cross-holdings. Tata companies (Tata That may or may not be Motors, Tata Steel, Tata a miscalculation about Chemicals and Indian Mistry’s game plan; but Hotels Corporation only time will tell. Let us Limited) have all look at a few facts. endorsed Cyrus Mistry’s First, Cyrus Mistry leadership; he has been chose to keep a studiously removed as chairman of low profile (contrary to TCS Ltd and, in the fifth, the allegations contained Tata Global Beverages, in Tata Sons’ nine-page letter about using PR to Mr Mistry alleges that he has been removed build his own image) by similar dubious during his three-year stratagems as were tenure. He has not given deployed to oust him any media interviews; from Tata Sons. so we know very little That Ratan Tata has about his tenacity, ability not hesitated to seek the and willingness to fight Being a Tata director or a trustee on its many removal of Nusli Wadia the long war. But he has mega charities has such a big social cache that done rather well so far. (a childhood friend only the most upright person would allow Secondly, our Cover and his biggest ally in considerations such as fairness and good consolidating the group Story shows that sensible governance to jeopardise those posts in the 1990s) for backing institutional investors (retail investors won’t Cyrus Mistry in Tata Chemicals appears to have jolted several ‘independent’ matter because they seldom make the effort to vote) need to directors of other group companies into being more aligned make a dispassionate assessment about each Tata company; with Tata Sons’ thinking. that will happen if the government truly maintains a Remember, being a Tata director or a trustee on its hands-off policy and foreign investors do what is best many mega charities has such a big social cache that only for their funds. a rare person would allow considerations such as fairness A third issue that ought to be the biggest consideration and good governance to jeopardise that position. The for all investors and the future of the Tata group. Cyrus reputed directors of Tata Sons showed no compunction Mistry, and his family with an 18.4% holding, is probably 

MONEYLIFE | 25 Nov-8 Dec 2016 | 20

DIFFERENT STROKES.indd 2

18-11-2016 17:32:36

DIFFERENT STROKES SUCHETA DALAL

 as much, or more, concerned about this and Ratan Tata’s

toe his line; but Ratan will only consider him as the last next steps, as are institutional investors. Ratan Tata does possible option.” Noel Tata holds a 0.5% stake in Tata not have age on his side and nobody believes he is going Sons and his mother, Simone Tata, holds 0.5%. Then there is Mehli Mistry (a cousin of Cyrus Mistry; to find an effective replacement for Cyrus Mistry in just four months. In fact, he may remain fully occupied in but the two families do not get along well) who could trying to oust Cyrus Mistry and Nusli Wadia from the be a dark horse. He is very close to Ratan Tata and is a frequent companion on his many travels. Mehli group in that timeframe. Will the Rata Tata-headed selection committee pick Mistry, and his brother Pheroze Mistry, run a firm called any of the names being speculated about by the media M Pallonji & Co Pvt Ltd which used to have large shipping (Indra Nooyi and N Chandrashekaran, among others), and dredging contracts from Tata Power. He maintains or find an expatriate of high standing (as they have in a very low profile, but is so close to Ratan Tata that it is Tata Motors) to head the group? I find it hard to believe his family which purchased the flat at Bakhtavar (Colaba, that any professional manager will accept this otherwise Mumbai) (owned by Forbes, a group company) in which coveted job, without demanding thick lines to be drawn Ratan Tata lived for decades, in a very curious deal. between the Tata trusts A third name doing the rounds is that of R and Tata Sons and a clear articulation of the extent Venkataramanan (Venkat), of Mr Tata’s personal writ a former executive assistant over group decisions. to Ratan Tata. So deep is Mr Tata’s confidence After all, Mr Mistry in Venkat that he is the seems to have been sacked managing trustee of all precisely for pushing those boundaries and attempting the powerful Tata trusts, to cut the group’s losses in which, with their combined Tata Motors and Tata Steel shareholding of 67%, have full control over and set right the unsavoury Tata Sons. According to dealings at AirAsia India with Ratan Tata’s close sources, most of the Tata buddy Sivasankaran in trustees that matter (retired the loss-making Tata Tata executives who have Teleservices (TTSL) (where sinecures at the trusts There is a good chance that Mr Tata may put the group has to pay over and do the job of vetting in place a puppet, who follows his orders— $1billion to DoCoMo). doesn’t matter if it is disastrous for the group. investment decisions of Today, Mr Tata, with Tata Sons) are already used Elite Parsi circles are already abuzz with dual control over Tata to reporting, or working speculation about who it may be Sons and the powerful Tata in close coordination with trusts, is single-handedly in Venkat. Further evidence of charge of the $100-billion business empire. We don’t know Venkat’s standing with Ratan Tata is the fact that he holds if an eventually legal battle will lead to a court-ordered the critical 1.5% balancing stake in AirAsia India, while change in Tata Sons’ equation with the powerful Tata trusts. AirAsia Investments Ltd and Tata Sons hold 49% each. None of these names is being discussed because they But, until then, Ratan Tata is back at the steering wheel of this not-so-Nano group. There is a good chance are the best or most competent persons to head Tata that Mr Tata may put in place a puppet, who follows his Sons. What recommends them to the post is that they are orders—doesn’t matter if it is disastrous for the group. unlikely to challenge Mr Tata’s authority or decisions as Elite Parsi circles are already abuzz with speculation about Cyrus Mistry did. Eventually, it will be up to shareholders persons who may meet Mr Tata’s approval. of the Tata group companies to decide if any of them is There is one school of thought that Mr Tata may have a good custodian of their investment and they may vote to bring in another Tata, his half-brother, Noel Tata. Noel with their feet.  is married to Cyrus Mistry’s sister, Aloo; but this is a high stakes game. His appointment could also blunt the counter- Sucheta Dalal is the managing editor of Moneylife. She was attack by team Cyrus. Sources, who know the family, say awarded the Padma Shri in 2006 for her outstanding contribution that “Noel is used to being bullied by Ratan and could to journalism. She can be reached at [email protected]

21 | 25 Nov-8 Dec 2016 | MONEYLIFE

DIFFERENT STROKES.indd 3

18-11-2016 17:32:49

MUTUAL FUNDS POINTERS

Choosing Better Performers

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nlike stocks, where it is possible to take a call on the valuation and cash flows to set a target for expected future return, it is difficult to figure out how a mutual fund (MF) scheme will do in the future. The only way to judge MF performance is to look at past returns. However, the greatest investor of all time, Warren Buffett says “In the business world, the rear view mirror is always clearer than the windshield.” Does this apply to MFs as well? We looked at three-year returns for various MF schemes for the period September 2007 to September 2016 and divided them into four quartiles. What we concluded was that the top quartile schemes in the period 2007-2010 moved to either the 2nd, 3rd or 4th quartile in the second period 2010-2013. Many schemes from the 2nd, 3rd and 4th quartile in the period 2010-2013 moved to the 1st quartile in the period 2013-2016. There were all possible variations in ranking based on performance in the 1st, 2nd, 3rd and

Large-cap Performers Scheme

Outperformance over Category Average

4th quartile of individual three-year periods. Clearly, we cannot blindly use past performance as an indicator of future performance. Many even rely on point-to-point returns which are more arbitrary and dangerous. A possible solution would be to judge the scheme over a long period like 10-year rolling periods. From January 2000 to end-December 2015, we had seven such periods. We compared the average returns of the schemes over the 10-year periods with the average returns by that category, namely, large-cap and multi-cap, in the same period. If the scheme underperformed the category average, we gave it a score of 0 and, if the scheme outperformed the category average, we gave it a score of 1. We then arrived at the number of times the schemes under- or out-performed. The results are given in the table below. We get a reasonable basis to narrow down the list of the well-performing schemes. From the table, you can see that the underperformers have been constantly underperforming the category average and the outperformers have constantly outperformed the category average. Now, we can quickly shortlist the constant outperformers and analyse them, to increase the probability of picking better-quality schemes. 

JM Equity

0%

Taurus Bonanza

0%

HDFC Large Cap

0%

LIC MF Growth

0%

Birla Sun Life India Opportunities

0%

UTI Top 100

0%

Birla Sun Life Advantage

0%

Sundaram Select Focus

0%

LIC MF Equity

0%

UTI Mastershare

14%

Principal Growth

0%

Sundaram Growth

14%

Franklin India Opportunities

0%

HSBC Equity

25%

Sahara Growth

0%

UTI Equity

43%

ICICI Prudential Top 100

43%

Taurus Starshare

57%

ICICI Prudential Dynamic Plan

100%

SBI Magnum Equity

57%

Templeton India Growth

71%

Kotak 50

71%

SBI Magnum Multiplier

71%

Reliance Vision

86%

ICICI Prudential Multicap

86%

SBI Contra

100%

Tata Ethical

86%

Tata Large Cap

100%

Tata Equity Opportunities

100%

Franklin India Bluechip

100%

DSP BlackRock Opportunities

100%

HDFC Growth

100%

Birla Sun Life Equity

100%

HDFC Top 200

100%

HDFC Capital Builder

100%

HDFC Equity

100%

Reliance Growth

100%

Birla Sun Life Frontline Equity

100%

Franklin India Prima Plus

100%

Multi-cap Performers Scheme

Outperformance over Category Average

MONEYLIFE | 25 Nov-8 Dec 2016 | 22

Fund Pointer.indd 2

18-11-2016 17:34:43

MUTUAL FUNDS FUND FACTS

Hot and Cold Stocks of Mutual Funds in October 2016 In October, ICICI Prudential Value Discovery purchased Wipro worth Rs424.51 crore and sold Bank of Baroda worth Rs277.66 crore. Motilal Oswal MOSt Focused Multicap 35 purchased RBL Bank shares worth Rs105.62 crore and sold Infosys shares worth Rs297.35 crore. ICICI Prudential Dynamic Plan purchased Bharti Airtel shares worth Rs133.64 crore. Mutual Funds also preferred Axis Bank and SBI. HDFC Equity sold BPCL shares worth Rs125.42 crore. Top Bought Companies Company Name

Top Sold Companies Value (Rs Crore)

Company Name

Value (Rs Crore)

Wipro

453.11

Bank of Baroda

(345.68)

Axis Bank

384.63

Bharat Petroleum Corporation

(251.93)

State Bank of India

351.43

Punjab National Bank

(245.96)

Gail (India)

304.32

Infosys

(240.83)

Jubilant Life Sciences

280.47

Reliance Industries

(141.74)

Tata Motors

265.73

Tata Consultancy Services

(139.56)

Aurobindo Pharma

247.43

Crompton Greaves Consumer Electricals

(125.67)

ICICI Bank

221.10

Divi’s Laboratories

(119.15)

ITC

205.37

Yes Bank

(107.20)

Bharti Airtel

203.04

Sun T V Network

ICICI Bank

169.31

Bharat Petroleum Corporation

(233.27)

Reliance Industries

140.50

Sun T V Network

(103.77)

(99.77)

HDFC Mutual Fund

Cairn India

64.05

Maruti Suzuki India

(88.42)

Dish TV India

51.96

Coal India

(71.84)

Oil & Natural Gas Corpn

36.07

Cognizant Technology Solutions Corp

(65.71)

ICICI Prudential Mutual Fund Wipro

481.11

Bank of Baroda

(277.66)

Axis Bank

414.17

Reliance Industries

(262.29)

Bharti Airtel

194.59

Punjab National Bank

(261.82)

Larsen & Toubro

155.87

Divis Laboratories

(106.23)

Infosys

153.81

Bajaj Finserv

(101.08)

Mahindra & Mahindra

124.45

HDFC Bank

(101.16)

NCC

109.58

Reliance Mutual Fund

Kotak Mahindra Bank

75.83

Tata Consultancy Services

(97.76)

Larsen & Toubro

(78.16)

ITC

69.30

Crompton Greaves Consumer Electricals

(50.49)

Gail (India)

48.78

Tata Motors

(50.27)

TVS Motor Company

(48.53)

Franklin Templeton Mutual Fund Tech Mahindra

101.84

Hindustan Unilever

62.13

Indian Oil Corporation

(18.44)

Ashoka Buildcon

60.21

Oil & Natural Gas Corpn

(17.48)

Mahindra & Mahindra

53.05

Housing Development Finance Corporation

(16.30)

Info Edge

45.74

Tata Consultancy Services

(16.23)

23 | 25 Nov-8 Dec 2016 | MONEYLIFE

Fund Facts.indd 2

18-11-2016 17:37:49

SMART MONEY R BALAKRISHNAN

Can American Voters Impact Indian Earnings?

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he noise around the stock markets is a constant. If we look at it logically, earnings ought to be the only factor that impacts stock prices. However, if everyone realises this, so many media channels, talking heads and experts would be out of their jobs. Thus, every sneeze by a promoter, every price move in a commodity or any event taking place anywhere in the world becomes a reason to react. Thus, elections (state elections, national elections and, this year, even the US presidential election) become a big thing. By the time you read this, either Trump or Hillary would have been elected. If I go back to history, I have hardly seen any real impact on Indian corporate earnings by the choice of American voters. Yes, one of them wants to change the healthcare system. And how will that impact our Indian companies’ earnings? I am not knowledgeable enough to figure it out; but, looks to me like debating points rather than actionable points. Every government runs on patronage from the industry. Politicians need money to fight battles. Business provides that. Thus, irrespective of who becomes the ruler, things do not change much. For instance, instan it is now fashionable to say that the present government is close to an g Ambani or an Adani. Well, W these businessmen thrived even when the present government was Delhi. nowhere near New De What it has m meant is that, as capitalism deepens its hold, ho the income and wealth disparities increase. This leads to another set of problems which the politicians are forced to address— social justice justice. Globally, I am definitely seeing the emergence eme of a society where a Robin Hood kind of attitude is being justified by saying say that the ‘haves’ owe it to the ‘have-nots’. ‘ha This leaves the politician in a position where he politic has to please the ‘vote’ bank as w well as the ‘note’ bank. In India, we see subsidies and freebies as a ‘right’. In an the more advanced nations, it is ‘social security’ and ‘healthcare’. ‘h I do not see major

changes in economic policies. Public debate generally spurs politicians on to similar paths. Yes, posturing does cost us sometimes. One thing that all experts maintain is that the inflow of foreign investments is going to be impacted. Well, irrespective of who comes to power, it is India’s economic outlook and politics that will decide the quantum of inflows. Capital is like free-flowing water. It finds its own level. Some point out to our pharmaceuticals companies as being the likely victim, or beneficiary, of retaliatory action from the US. I do not think it is a political issue. And, if things were in order, why should Indian companies be worried? Penalties, or embargoes, are imposed only after they are caught with some wrongdoing. Thus, it is not a question of political intolerance or vendetta. The bigger issue to me is that, as the social inequality deepens and growth slows down, more and more countries are becoming protectionist. Nationalism has become a matter of survival for the politicians. Higher protectionism means a shrinking global trade and slower growth of economies. As I see it, the US cannot clamp down too much on others. They have so much at stake in global trade and investments, including companies that are domiciled outside the US borders, to escape their tax net, that they have no option but to keep trade open. Yes, they will become hostile in terms of regulatory enforcements, etc. Thus, I do not see any impairment in the earning power of Indian companies over the long term. Whoever occupies the White House will have to focus on bigger issues about their own economy, healthcare and domestic issues rather than plan vendetta on a handful of pharmaceuticals companies. However, markets will react to the noise and pockets of opportunities will be created. India has less to fear from global trade, thanks to its reluctance to open up. It is like a perverse kind of a ‘blessing in disguise’. Probably, oil prices have a larger impact on our economy than anything else. Whether pharmaceuticals or IT (information technology), the business models are still valid. At this juncture, valuations in the market are stretched. So, this is a good excuse for some pullback. In this pullback, it is possible that corrections could be excessive on the downside also. Be on the look-out for opportunities.  The author can be reached at [email protected]

MONEYLIFE | 25 Nov-8 Dec 2016 | 24

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18-11-2016 17:39:46

TAX/ FIXED INCOME

Bank FD Rates Down after Demonetisation he government’s move to demonetise Rs1,000 and Rs500 currency notes, to curb black money from the system, will also lead to lowering of bank fixed deposit (FD) rates. Banks have been sending SMSes urging customers to visit their braches to deposit cash. The cash deposited by customers will lead to less cash in customers’ hand and improved

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with unaccounted cash, possibly with back-dated FD receipts. It will be difficult to do the same with government or private banks. Cooperative banks operate locally with a handful of branches for local banking needs. They are also backed by politicians. HDFC Bank has reduced the interest rate on one-year fixed deposits by 25 basis points (bps),

CASA (current and savings account) money for the bank. It can lead to lowering of consumption demand and, possibly, drop in bank FD rates. Moreover, there have been reports of sharp increase in deposits with cooperative banks and credit societies. It was for opening FDs

to 7%, which is slightly lower than the 7.05% offered by one-year FD of State Bank of India (SBI). A good option for a better rate is RBL Bank (formerly Ratnakar Bank) which offers interest rate of 8% on deposits of up to Rs1 crore for one year to less than two years. For a longer duration, of two years to less

than three years, the rate is 8.25%. Recently launched Bandhan Bank also offers an attractive rate of 8.25% for two-year FDs. With the possibility of further reduction in rates by the Reserve Bank of India in future, bank FD customers will continue to face a decline in FD rates. For two- and three-year bank FDs, ICICI Bank and Axis Bank offer 7.25% while HDFC Bank has reduced it to 7%. Among government banks, Bank of Baroda is offering 7.30% while Punjab National Bank (PNB) and SBI are offering 7.05% and 7%, respectively, for two-year FDs. Bank of Baroda’s three-year FD rate is 7.25% while PNB’s and SBI’s FD rate for the same term is 7.05% and 6.5%, respectively. Even though interest is taxable as per the tax slab of the investor, bank FDs remain a popular investment option of Indians. With falling interest rates in the last couple of years, senior citizens and others customers, who depend on FD interest, will continue to face declining interest income.

G-Sec Yields Down

to demonetise Rs1,000 and Rs500 currency notes on inflation and also

on G-Sec yields will become clear in the coming days.

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he 10-year benchmark G-Sec yield, which sets the tone of the fixed-income market, has decreased by 7bps in the last fortnight to end at 6.72% on 12th November. The impact of government’s move

Issuer

Maturity Date

Next Last Yield Coupon (%)

Rating

INE038A07258

CRISIL AA+

Hindalco 9.55%

25 Apr-22 25 Apr-17

Aditya Birla Fin 9.62%

26 Oct-17 26 Oct-17

7.80

INE860H07623

CARE AA+

05 Jan-21 05 Jan-17

7.77

INE115A07IO9

CRISIL AAA

02 Aug-18 02 Aug-17

8

INE306N07II9

CRISIL AA+

Reliance Ports & Terminals Ltd 7.95%

28 Oct-26 28 Oct-17

7.94

INE941D07158

CRISIL AAA

Tata Power 9.32%

17 Nov-17 17 Nov-17

7.56

INE245A08059

CARE AA

LIC Hsg Fin 8.50%

8.28

ISIN

NSE data as of last trade date of 11 November 2016

G-Sec Maturity Date

Yield to Maturity

02 June-2028

7.07

19 December-2034

7.05

09 September-2035

7.03

G-Sec yields on 15 November 2016

Tata Capital Fin Services 8.62%

BSE data as of last trade date of 11 November 2016

25 | 25 Nov-8 Dec 2016 | MONEYLIFE

Fixed Income.indd 1

18-11-2016 17:44:40

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Which insurance product then is right for you? As a member of Moneylife Advisory, you get advice on selected term insurance products, identified after deep, unbiased research. Most importantly, you will get special support during your claims, as long as you make the right declarations. + Tool Advises on Your Existing Insurance Worried that the ‘investment’ you had made in insurance is a dud? You can surrender, go paid-up or continue. What should you do? If you surrender, where do you invest and what new insurance do you buy? What are the tax implications? This tool from Moneylife Advisory will help you decide easily and quickly.

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2. Right Health Insurance es differ Health insurance products are complex. Policies in exclusions, conditions and fine print. If you slip up on even one of the conditions, your claim may be rejected or cut down. A large number of cases generate disputes and some end up as complaints with the Insurance Ombudsman or consumer courts. We cut through the hype, hyperbole, duplication and complex fine print to help p you select the most suitable products. To help h you decide quickly, we have launched a health insurance selector tool.

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This is all you need on the insurance front. Be an MAS member today and stay safe. MAS is a no-bias, no-conflict platform. We are not in the business of selling any financial product and so can advise you ethically.

Subscription to Moneylife magazine is included in MAS Premium Membership About MAS MAS is a SEBI-registered investment adviser and part of Moneylife, India’s most unbiased and pro-investor research and information group. We run India’s best personal finance magazine, Moneylife. We are not afraid to call a spade a spade. We are India’s only media company to have set up a non-profit trust, Moneylife Foundation, which is now the largest savers’ and investors’ association with more than 35,000 members. MAS was set up to help investors and savers make the right financial decisions and handhold them through the entire process.

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INSURANCE TRENDS New products, regulations, features and options, interpreted from your perspective L i f e i n s u r anc e

Tata AIA Launches Three New Products

T

ata AIA Life launched three new products, Sampoorna Raksha—a non-linked nonparticipating term plan; Sampoorna Raksha Plus—a non-linked nonparticipating term plan with return of premium on maturity; and Vital Care Pro which is a non-linked non-participating health insurance plan covering critical illnesses. All the three products give options of lump-sum benefit or regular monthly income.

Fine Print Delhi HC Seeks IRDAI’s Response on HIV/AIDS Cover

A

public interest litigation (PIL), filed with the Delhi High Court (HC), seeks inclusion of people with HIV and AIDS in life and health insurance policies. The PIL alleges discrimination against people living with HIV and AIDS (PLHAs). The HC issued a notice to the ministry of health, public sector insurance companies and Insurance

Sampoorna Raksha is a term plan with a wide range of policy terms starting from 10 years and going to as high as 40 years, coupled with the maximum maturity age of 80 years. The product also offers the option of increasing life cover. The product offers lower premium rates for non-smokers and women. Customers do need life insurance up to their retirement. With Indians working for longer years and/ or have outstanding loans and

Regulatory and Development Authority of India (IRDAI) seeking their reply by 17 January 2017. The PIL contends that, the Centre had said in 2013 that by 1 April 2014, insurance cover would be available to all PLHAs. IRDAI had asked all insurance companies to put it in place by 1 April 2014; but this has not happened. The PIL claims that 100 lives are lost each day to the diseases due to ‘unaffordable medical care’ and alleged that PLHAs are ‘being neglected and discriminated against’; even simple accident benefit cover is not provided to them.

financial liabilities, a term plan with a longer tenure and maturity age gives flexibility to the insured. But the longer the policy term you choose, the premium will also increase. So, going with a policy with the maximum offered tenure is not always the right decision. A non-smoker male of age 38 years, buying Sampoorna Raksha for 25 years term with death benefit of lump-sum Rs50 lakh, will pay a premium of Rs7,450 (exclusive of service-tax); for a smoker, the premium will be Rs10,450. While there are a few online term products with lower premiums, Sampoorna Raksha does offer competitive premiums. It is better to opt for a lump-sum payout instead of monthly income option, if the family members are financially literate. Sampoorna Raksha Plus is a term plan with return of premiums (TROP) on maturity. Like Sampoorna Raksha, this plan 

Will Air Pollution Raise Health Premium?

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ir pollution has been on the rise in India with high levels of smog after Diwali. New Delhi has witnessed a record level of pollution and smog; other metros too have high pollution. Hospitals in New Delhi have seen 30% rise in respiratory and ocular complaints post-Diwali. Apart from impacting lungs and heart, pollution also affects eyes which are sensitive and prone to irritation from allergies, chemicals and pollutants in the air. Health insurance products are popular in metros and have lower 

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INSURANCE TRENDS

 provides flexibility to customers

to opt for lump-sum benefit on death along with monthly income for the next 10 years. One can choose to pay the premium for a limited period of five to 10 years. A TROP may give the satisfaction of premiums being returned to you on policy maturity, but it is possible only because the premium has an insurance as well as investment component. It is better to avoid TROP products, like other insurance-cum-investment products; buying a plain term plan, which pays nothing on maturity, is the best way to buy life insurance cover. Vital Care Pro is a critical illness (CI) policy which offers protection against 15 critical illnesses. Furthermore, the product offers premium rate guarantee for the entire policy term which can be as long as 30 years. This is an advantage, since most life insurance products that offer CI cover have premium guarantee of only three to five years. Having a fixed premium for the policy term of 30 years for a CI product is certainly beneficial for customers. But there is no lifelong renewal option. The maximum

 penetration in smaller cities. Health

insurance trends show an increase in the number of claims due to respiratory problems, especially in areas where pollution levels are high. Health insurance costs can go up 10%-20% if you are suffering from respiratory problems. The increase is dependent on the customer’s age with a possibility of higher premium for senior citizens.

Vital Care Pro Premium Rs 5,300 4,240

Vital Care Pro Covers 15 CIs 5,260

4,610 3,290 3,550

Coma of specified severity

4,005

Open chest coronary artery bypass surgery

3,180

Kidney failure requiring regular dialysis

2,120

First heart attack of specified severity 1,060 0

Stroke resulting in permanent symptoms 10 Year

15 Year

20 Year

25 Year

30 Year

Vital Care Pro premium for 38-year-old male buying cover of Rs5 lakh for different policy terms

Permanent paralysis of limbs Open heart replacement or repair of heart valves Major organ / bone marrow transplant

maturity age is 85 years. The premium rates are guaranteed for the first 15 years and are subject to review thereafter based on the CI experience and with prior approval from the IRDAI (Insurance Regulatory and Development Authority of India). The revision in premium rates will be applicable for new policy holders. A CI product can be considered after having adequate mediclaim cover. Vital Care Pro offers two options: Pro Care–lump-sum benefit, and Pro Care Plus– lump-sum benefit with income

regulations. The regulator said that many channel development associates (CDAs) were not imparting training and there was no adequate office space. The objective of appointing CDAs is questionable and making payments to CDAs increases the costs to the insurer in violation of corporate governance guidelines.

Reliance Life Penalised Rs15 Lakh

Car Premium Linked to Driver Behaviour?

I

C

RDAI has slapped a penalty of Rs15 lakh on Reliance Nippon Life Insurance for violation of outsourcing norms and other

Cancer of specified severity

urrently, car insurance premium is based on the make, model, year of manufacture and location of the vehicle. Unlike in the

Motor neurone disease with permanent symptoms Multiple sclerosis with persisting symptoms Benign brain tumour Parkinson’s disease Surgery of the aorta Alzheimer’s disease/irreversible organ degenerative brain disorders

loss benefit. The spouse can also be covered in the same plan. Duo Care–lump-sum benefit with joint life and Duo Care Plus–lump-sum benefit with income loss benefit with joint life. 

US and other countries, in India, it is not based on the driver’s record. Insurance companies may introduce ‘Telematics’ to arrive at better pricing of motor insurance. It is a technology of long-distance transmission of driving quality which can help good drivers reduce their premium. The device captures driver behaviour with parameters like speed, braking, etc. The device plugs into the car’s on-board diagnostics (OBD) and can relay data on the quality of driving and usage of cars to the insurer. 

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TA-TA GOVERNANCE? The Tata-Mistry spat has exposed how cronyism, cloak-and-dagger moves, personal ambitions, fears and pettiness drive people pretending to be ethical and moral. Investors should be worried, write Sucheta Dalal & Debashis Basu

O

n 24th October, 2.30pm, the directors of Tata Sons met at the Bombay House, the headquarters of the Tata group. At the meeting were: Ratan N Tata, Vijay Singh, Nitin Nohria, Ronen Sen, Venu Srinivasan, Ajay Piramal, Amit Chandra, Farida Khambata and Ishaat Hussain. Mr Nohria and Ms Khambata had flown in especially for the meeting which was going to be attended by Ratan Tata personally; Mr Hussain, an old Tata hand, had just returned from a

trip abroad. These eminent people had got together to sack their chairman, Cyrus Mistry, for non-performance. With that one action, the Tata image, already sullied by the Tata Finance, Niira Radia and 2G telecom episodes in the past 15 years, accompanied by rampant destruction of shareholder value in various Tata companies, sank to a new low. Here is why. • No papers had been circulated about Mr Mistry’s non-performance. • No discussions had been held at the Tata Sons’ board 

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COVER STORY



earlier about Mr Mistry’s non-performance. • There was no item on the agenda for removing the chairman. • Ratan Tata and Nitin Nohria walked into Mr Mistry’s room exactly one minute before the 2.30pm board meeting and said, “We have come to tell you that we are moving a resolution to have you replaced as chairman at this meeting.” He was asked to ‘resign gracefully’, but Mr Mistry refused. • For three of the directors, Ajay Piramal, Venu Srinivasan and Amit Chandra (brother-in-law of Nitin Nohria), this was only their second meeting, having joined the board just a couple of months earlier. How much did they know about the operations of the group, which had over Rs672,000 cores in sales and seven large operating companies, to agree to such a drastic change at the top so quickly? • Four months before he was ousted, the remuneration committee of the Tata Sons’ board had not only lauded Cyrus Mistry’s performance but also recommended a substantial salary increase which he did not accept. • The same committee had expressed appreciation of Mr Mistry’s “multifaceted initiatives aimed at preserving and promoting cohesive functioning of the group in accordance with its distinctive values.” • Of the board members, only Ratan Tata had shares in Tata Sons (0.8%). They kicked out someone whose family, the Shapoorji Pallonji group (SP group), controls an 18.4% stake. • Only two directors—Ishaat Hussain and Farida Khambatta—abstained; even they did not have the courage to object. Almost two decades after he got rid of the Tata stalwarts like Russi Modi (Tata Steel), ( ), Darbari Sheth (Tata a Chemicals and Tata Tea) and Ajit Kerkar ar (Indian Hotels) in a humiliating manner, er, Ratan Tata’s steel knuckles have comee out again. He had inducted the three new ‘independent’ directors two monthss prior for precisely this day. And they obliged. The move was planned well in n advance. In 2012, just after Mr Mistry ry was appointed the chairman, Ratan Tata ata got Tata Sons to change Article rticle 118 of the Articles of Association which gave the directors nominated by Tata trusts greater powers in the selection

committee that deals with the appointment and removal of the chairman. The change also saw the definition of ‘quorum’ of the selection committee tweaked to benefit Tata trusts. For three weeks now, Indian corporate sector watchers have been following the Ratan Tata and Cyrus Mistry camps engage in an increasingly bitter battle of words that has exposed how the mightiest of Indian corporates actually works: cronyism, cloak-and-dagger moves, personal ambition, fears and sheer pettiness. Central to the issue is how the Tata group functions. Ousted chairman Cyrus Mistry has released two letters that raise enough doubts about the much-vaunted Tata culture of fair play. His letters also raise questions on the ‘independence’ of the independent directors of Tata Sons and their conduct on all the boards of Tata companies. At the heart of it is the ambiguous governance structure that the Tata group has created over the years, of which little was known outside. There are three levels of power. At the apex are various Tata trusts which control Tata Sons with a 66% stake. Then comes Tata Sons which has stakes in various operating companies but has plenty of outside directors. Finally, there are the operating companies. To add to the confusion, there are old hands like K Krishna Kumar, Ishaat Hussain, Noshir Soonawala and others who wear multiple hats and switch roles as directors, trustees and ‘consultants’ as required. Finally, looming over all of this is Ratan Tata who pulls all the strings. According to a corporate governance framework drawn up by Mr Mistry’s team, reviewed by Moneylife, “there has to be clarity on demarcation of roles, speed/ responsiveness of decision making, clarity on delegation of responsibilities…” p

Ratan Tata: The real issue ffor shareholders of the various Tata companies companie is the continuing power without clear-cut accountability of 78ac year old Ratan Tata. In 2012, 2012 when the selection committee picked Mr Mistry to be the Tata Sons’ advised Cyrus Mistry to chairman, he famously advis despite being “Be your own man.” Mr Mistry, M an insider for nearly a decade decad (he has been on since 2006), failed to the Tata Sons’ board sin read that Ratan Tata never really wanted to give up reall power. He also failed pow to understand that he was not meant to tinker with the legacy, tin however wobbly, that ho Ratan Tata has left  Ra

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COVER STORY

Sir Dorabji Tata Trust Sir Dorabji Tata Trust R Venkataramanan, NA Soonawala, RK Krishna Kumar, Dr Amrita Patel, VR Mehta, Venu Srinivasan

Lady Tata Memorial Trust R Venkataramanan, FK Kavarana, Dr PB Desai, SN Batliwala, Dr M Chandy

JRD Tata Trust R Venkataramanan, NA Soonawala

Jamsetji Tata Trust R Venkataramanan, NA Soonawala, RK Krishna Kumar, Amit Chandra

Tata Social Welfare Trust R Venkataramanan, RK Krishna Kumar

JN Tata Endowment Trust R Venkataramanan, SN Batliwala, Prof SM Chitre

Tata Education Trust R Venkataramanan, RK Krishna Kumar

The JRD and Thelma J Tata Trust R Venkataramanan, Dr Suma Chitnis, Dr Armaity Desai, FN Petit

RD Tata Trust R Venkataramanan, RK Krishna Kumar

Sir Ratan Tata Trust Sir Ratan Tata Trust R Venkataramanan, NA Soonawala, JN Tata, KB Dadiseth, RK Krishna Kumar, SK Bharucha, NM Munjee, Amit Chandra

Tata Education and Development Trust R Venkataramanan, RK Krishna Kumar, Amit Chandra, JN Mistry

Navajbai Ratan Tata Trust R Venkataramanan, NA Soonawala, Amit Chandra, JN Mistry

Bai Hirabai JN Tata Navsari Charitable Institution NA Soonawala, JN Tata, KB Dadiseth, RK Krishna Kumar, SK Bharucha, NM Munjee

Sarvajanik Seva Trust R Venkataramanan, JN Tata Jointly these trusts hold 66% in

Shapoorji Pallonj holds 18.40%

Tata Sons

Tata companies hold 8.87% Others hold 6.73%

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COVER STORY

Tata Sons

Executive Director Ishaat Hussain

Non-executive Non - independent Directors Ratan Tata, Cyrus Mistry, Vijay Singh, Nitin Nohria, Amit Chandra, Ralf Speth, N Chandrasekharan, Venu Srinivasan

Independent Directors Ronen Sen, Ajay Piramal, Farida Khambata

MAJOR TATA COMPANIES

Tata Global

Tata Steel

TCS

Tata Motors

Indian Hotels

Tata Power

Teleservices

22.63%

29.75%

73.26%

26.98%

28.01%

31.05%

36.17%

 him.

had ignored during JRD Tata’s time, has turned into a Mr Tata claims never to have meddled in Tata Sons wily player. His main strength is his public persona. “He but Mr Mistry narrates some shocking incidents of has crafted his reputation so phenomenally well,” says remote controlling by Mr Tata. He has alleged that Tata an insider. “He is paranoid about it. He gets detailed Sons’ directors, Nitin Nohria and Vijay Singh, once left information everyday about what has appeared in the a board meeting in progress, keeping the board waiting media about him. The group used to spend Rs40 crore for almost an hour, to obtain instructions from Ratan a year on Niira Radia’s firm Vaishnavi Communications for lobbying, burnishing the Tata Tata on a decision. Clearly, Mr image and fixing things in Delhi. Tata does not seem to believe in His main strength is his public Now, it spends Rs60 crore on the independence of independent persona. “He has crafted his Arun Nanda of Rediffusion and directors even though the reputation so phenomenally well,” Edelman PR. The latter employs Tatas have built a great public perception of fairness and values. says an insider. “He is paranoid about 1,500 people on the ground, the bulk of who are deployed for the Mr Tata’s strategy, now, is to it. He gets detailed information make life difficult for Mr Mistry everyday about what has appeared Tatas. Then there are lawyers and lobbyists in Delhi who used and take him out of all equations. in the media about him to draw massive fees from the He would like to tell Mr Mistry operating companies. “I had to that he has no locus standi in the group, says a person close to Mr Mistry. He was a ease out several hangers-on who are prone to flaunt their director at Ratan Tata’s pleasure. Actually, he made this proximity to power,” confided Mr Mistry to someone very clear earlier. When Pallonji Mistry, Cyrus’s father, close to him. stepped down from the Tata Sons’ board, Ratan Tata promised to induct Cyrus or his brother, Shapoor, on the Tata Trustees: Mr Tata controls the group through 14 board. But he did not do it for a year. He was sending a Tata charitable trusts which hold 66% of the group’s signal. He wanted to tell the Mistrys that they may have holding company, Tata Sons Ltd. But Ratan Tata is the a 18.5% stake but zero rights. chairman of the trusts and so he controls the group. Over the years, Ratan Tata, whom the Tata satraps He appoints other trustees who hardly have any say. 

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29-07-2016 16:14:07

COVER STORY

Siva, Siva! Possible Reasons behind Ratan Tata’s Vicious Action

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s speculation about the reason for Cyrus Mistry’s ignominious ouster increases, there is a view that Mr Mistry touched a raw nerve by seeking legal action against Chennai-based businessman C Sivasankaran (Siva) who has struck a close friendship with Ratan Tata—a friendship that could compromise Tata group’s interests. Documents reviewed by Moneylife show that Mr Mistry was pushing to recover Rs694 crore that Siva owes to the group but is unwilling to repay. Here is what happened. Siva had got a preferential allotment of shares of Tata Teleservices Ltd (TTSL) through Sterling Infotech Ltd (now known as Siva Industries & Holdings Ltd) at a favourable price in 2005 which meant an instant benefit of Rs468 crore. Siva did not have the money to pay. He easily got a loan from Standard Chartered Bank against a virtual guarantee by Tata Sons Ltd. Further, Kalimati Investments, a subsidiary of Tata Steel, was made to advance Rs132 crore to Siva as an inter-corporate loan. All this was based on the closeness that Siva and Ratan Tata seem to have shared. NTT DoCoMo, of Japan, made a huge investment in TTSL in 2009. Of this, 6% came from existing shareholders. Siva was among them; he sold 40% of his shares to DoCoMo. This gave Siva a hefty profit of Rs209 crore, or a return of 594%, in less than three years. However, the deal with DoCoMo had a putoption clause wherein DoCoMo had the option to sell its TTSL shares back to the Tatas, under certain conditions.

 Many are indebted to Mr Tata for making them trustees.

“Being on a Tata trust can change a person; I have seen it myself,” says someone close to the group; it is considered a great distinction. How many of them have the courage to tell Mr Tata that the way the group is dealing with Mr Mistry is downright ugly? The bigger issue is that many trustees may not understand the deep trouble the Tata businesses are in. When the Tata-Mistry spat started, VR Mehta, a trustee of the Sir Dorabji Tata Trust was chosen to speak for the trustees. He claimed that, under Mr Mistry’s watch, the Tata group was dependent on only two companies, Tata Consultancy Services(TCS) and Jaguar Land Rover(JLR). Dividends to the trusts from Tata Sons had gone down and it affected the philanthropic activities of the trusts which was unacceptable. The facts are a little different. The SP group has been just as concerned about dividends, more so for an even

This put-option became active in April 2014. Under the agreement, all those who had sold shares to DoCoMo got claims from Tatas in proportion to the shares sold. Siva was to bear the burden of DoCoMo’s claim in proportion to the 20.74 million shares he sold. Meanwhile, Tata Sons has deposited the full amount on behalf of all the parties, including Siva, with the court. Mr Mistry was trying to recover Siva’s share of the claim amount to protect the interests of the Tata group. In September 2016, Mr Mistry briefed the board that Siva was not responding onding to the Tata Sons’ demand that he pay up and the board agreed to take legal action. However, within days, it was Siva iva who sent a legal notice to Tata Sons, TTSL and DoCoMo, oCoMo, alleging oppression and mismanagement of TTSL. TSL. Did Siva know of what transpired spired at the Tata Sons’ board meeting of 15 September 2016? Did d someone leak the board’s decision on to Siva and allow him to strikee before the Tata Sons’ board could act? The close relationship between tween Ratan Tata and Siva, the huge sums involved, the he sudden backtracking ng of Tata Sons’ board in n 

longer period. When Ratan Tata was the chairman, Pallonji Mistry used to raise the issue of increasing dividend. “Mr Tata only sneered at him. The dividend that the SP group earned was just about Rs60 crore— there was no increase. The 2025 Vision plan formulated by Mr Mistry, in fact, had a discussion on dividend policy. Today, the dividend paid by Tata Sons is only 10%. It was to increase gradually to 15% and then plateau, as per the plan. Also, under Mr Mistry, dividend has actually gone up compared to what it was under Ratan Tata’s regime. However, Mr Mehta did not let these facts come in the way of his opinions. Mr Mehta’s understanding is that if there is a choice between strengthening the operating companies by conserving cash or declaring dividends, one should give preference to declaring dividends to the holding company. He seemed clueless about the fact that the pie has to get bigger for each person’s share of it to increase. If the 

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COVER STORY

 initiating legal proceedings against Siva, and the timing

of Mr Mistry’s ouster, seem curiously connected. Siva has a deep and longstanding relationship with Ratan Tata. Siva may have been paid nearly Rs600 crore between early 2003 and mid-2008 towards services relating to procurement and vendor management by TTSL and its listed subsidiary Tata Teleservices Maharashtra Ltd. Also, the Tata group has forked out Rs330 crore to purchase Dishnet DSL, a Siva group company in 2004, at a huge valuation. The second reason for Mr Mistry being targeted is probably the AirAsia scam. Sources close to Mr Mistry suspect that, maybe, he was getting too close to things that may land on the doorstep of Mr Tata. Mr Mistry had ordered an audit into the Rs22 crore payment to unknown parties that was flagged off by Ernst & Young (EY). Mr Mistry appointed Deloitte as the forensic auditor. Deloitte established bogus payments (for work not done). One of the payments was connected to a company called Link Media which got Rs12 crore. Link Media is literally a bogus company. It was supposed to be a ground-handling agent. Finally, it appears that R Venkatraman, a confidante of Ratan Tata, his former executive assistant and now a trustee on every single of the Tata Trusts, is on the board of AirAsia and also has a 1.5% stake. Venkat earns a whopping salary of over Rs3.5 crore, if you add up earnings of all trusts. The Deloitte report came out in October 2016. But the Tatas have chosen to take no action.

of Nitin Nohria, as representatives of the Tata trusts. Interestingly, Keki Dadiseth, who sided with Mr Mistry as a director of Indian Hotels (IHCL), is a director in Piramal Enterprises. Also, Deepak Parekh who supported Mr Mistry in IHCL, and Nitin Nohria are directors in Piramal Realty. Immediately after Cyrus Mistry was sacked, Ralf Speth, heading JLR, and N Chandrashekharan, of TCS Ltd, have joined the board. Nitin Nohria plays a key role as Mr Tata’s confidante “although he lacks understanding of Indian companies and the Tata ethos,” says an insider. He has often asked whether India has any Chapter 11 provision (of the US) under which Tata Teleservices can file for bankruptcy. Mr Mistry had to tell him “even if there were, we cannot go down that road. Can you imagine what would be the perception about the Tatas; and, if we do that, what would be the impact on our borrowing cost?” Mr Nohria is the dean of Harvard Business School (HBS). Coincidentally, six years ago, the Tata group pledged a $50-million gift to HBS, the largest donation it has ever received from an international donor. All the Tata Sons’ directors’, barring one (Farida Khambata), supported Ratan Tata’s decision to oust Cyrus Mistry. All of them also appear to have supported Ratan Tata’s decision to sack Nusli Wadia for siding with Mr Mistry on various Tata boards. Till today, the Tatas have not produced any evidence that Mr Mistry was acting against the interest of the group, despite publishing a full-page advertisement in the newspapers to explain their action. The lack of independent voice in Tata Sons’ board should be a major red flag for investors.

Tata Companies: The least discussed, of course, are the  group is dependent on just two companies, shouldn’t the blame be laid on Ratan Tata, the man who ran the business empire for 16 years between 1996 and 2012, and left his debt-laden legacy for his successor to handle?

Tata Sons: Next in the hierarchy comes Tata Sons. Since Mr Mistry’s appointment in 2012, the board has undergone many changes. Until recently, it was a small board of five persons, apart from Ratan Tata and Cyrus Mistry. It included Ratan Tata loyalists like the Harvard Business School dean Nitin Nohria and old Tata hand and finance man Ishaat Hussain. Then there were former defence secretary, Vijay Singh, and Ronen Sen, former Indian envoy to US, as Tata Trusts’ representatives. In August, the board was expanded to bring in industrialists Venu Srinivasan (TVS group) and Ajay Piramal along with Amit Chandra, managing director of Bain Capital in India and brother-in-law

Tata operating companies like Tata Consultancy Services, Tata Motors, Tata Chemicals, Tata Steel and so on. Institutional investors have invested in these companies with very different objectives from those of the Tata trusts. They want dividends and price appreciation. They want to see steps being taken to turn around the many businesses that are wobbling. This was what Mr Mistry was working towards. Removing him from the boards of operating companies throws their future into jeopardy. From the view of the Tata trusts, it is these companies that generate the surplus that is distributed as dividend to Tata Sons which allows the Tata trusts to spend on dogooding. Even if they had cash to declare dividend, they had to see whether cash could be distributed as dividend or needed to be ploughed back into business expansion. This constant conflict in goals poses a major challenge to the growth of the group. Mr Mistry is the chairman of group companies like Tata Steel, Tata Motors, Tata Global Beverages 

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COVER STORY

Teflon-Coated The Tatas under Ratan Tata have a long history of getting carried away with new projects, acquisitions and people. In any other organisation, a manager would have had to pay a price for any one of these. But nothing ever seems to touch the Tata’s Tefloncoated image. Indeed, Mr Tata is accusing Mr Mistry of non-performance when he is infact cleaning up Tata’s mess. And he is being supported by some of the biggest names of the Indian corporate sector. Pre-1991: Mess at Nelco, which survived mainly on orders secured from Tata group companies. 1999: Tata Tetley: Grossly overpaid acquisition that took years to digest. 2003: Dishnet DSL: Grossly overpaid acquisition from friend Sivasankaran that turned worthless in a year. 2001: A 500-crore Tata Finance scam authored by Mr Tata’s blue-eyed boy Dilip Pendse. 2002: AF Ferguson being forced to withdraw its report on Tata Finance because it implicated many Tata stalwarts. YM Kale, a professional of highest integrity, forced by his own partners to resign in the most shameful manner. 2003-2008: Various hotel acquisitions that inflicted huge losses and had to be written off. 2004: Backdoor entry into telecom. 2007: Corus, a grossly overpaid acquisition. Mounting losses 2007: Loan of Rs1700 crore by Tata Realty to Unitech, facilitated by Niira Radia. The money was allegedly used by Unitech to pay, for 2G licences. 2008: Ambitious Nano project that has lost more than Rs1,000 crore and will have to be shut down. 2008: Tata Sons bought one-third stake in Piaggio Aero, an Italian aircraft company, because of the close relation between Ratan Tata and the promoter of Piaggio Aero. Tata Sons exited the company at a loss of Rs1,150 crore. 2010: Voltas: Land held on lease by Voltas was sold to Dr Shanmuganathan, a Malaysian, for roughly oneeighth of its estimated value. The agent to negotiate this deal used to be employed by a firm owned by Rajathi Ammal (Karunanidhi’s wife). 2011: 2G Scam. Sychophantic letter to Mr Karunanidhi, lavishing praise on A Raja, then telecom minister. 2014: Side-agreement with DoCoMo which has landed Tata Teleservices in a $1.16-bn soup 2016: AirAsia: A forensic investigation revealed fraudulent transactions of Rs22 crore involving non-existent entities in India and Singapore by the AirAsia and Tata alliance.

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 and IHCL. Of these, the IHCL directors have shown

Sons and Tata trusts, “because that would concentrate too much of power in the hands of one person. There is a veto power of 30% with the Tata trusts. Trust nominees have to be independent. They are making the board of Tata Sons impotent.” 3. The third is the issue of compliance with the market regulator’s insider trading and corporate governance norms. Information moves through various layers in the group rather freely. Tata companies share information with their boards and upwards to Tata Sons directors. But, for strategic issues, Mr Soonawala and Ishaat Hussain are often consulted. One of the two said at a meeting: “I am asking for these details in my individual capacity. I am not asking as a trustee.” If SEBI investigates whether A New Governance Structure Can this clumsy three-tier structure, fortified with there is scope for price-sensitive information passing on hangers-on, consultants and lobbyists, continue? It has to Tata Sons, Tata trustees and consultants even before not worked well so far, especially since the group has no the board of the operating companies has approved clear-cut succession plan. Indeed, it could be a disaster, them, the group would have a tough time explaining. especially since the same person could head the Tata There is no clearly laid down policy and system today. Realising all this, Mr Mistry had started working trusts and Tata Sons. There are three issues thrown up on a new corporate governance framework. He by the Tata-Mistry spat. 1. A governance structure that protects the group’s wanted to create a fair and transparent governance structure with the lines of power interests, especially since Mr Tata and accountability clearly drawn. has now invited ace dealmakers to There were elaborate discussions the Tata Sons board. Mr Mistry’s If SEBI investigates whether with various stakeholders and a fi ght is not to get back at the helm there is scope for priceplan was prepared in 2015. He of the Tata group, says a source. sensitive information passing has been telling the Tata Sons’ His objective now is to ensure on to Tata Sons, Tata trustees board “let’s decide once and for that the companies should stay in and consultants even before all. Let’s not keep flipping and the right hands and be provided the board of the operating flopping.” Minutes of the meeting with the right governance. The Shapoorji Pallonji Mistry family companies has approved them, would show that Mr Mistry was the group may have a tough pushing for this. “We were taking have been shareholders in Tata legal opinions officially. Darius time explaining Sons for over 80 years and Cyrus Khambatta (legal counsel) was Mistry is keen that the leadership supposed to attend one of these of the group should not pass into wrong hands. “I don’t want the group to be controlled meetings. There are records to show,” says a member of by a coterie that has had nothing to do with the group Mr Mistry’s team. He attempted to have it discussed in and has ulterior motives,” Mr Mistry is said to have the board meetings thrice but, curiously, the board did not find time for it. As the Tata-Mistry spat gets uglier, confided, to people close to him. This is logical. A fact that is often forgotten is that, especially since Mr Mistry feels humiliated and wants his while Ratan Tata is acting like the typical lala in deciding reputation restored, this poor governance structure may who should be on the boards, he has an insignificant 0.8% come to the attention of investors and regulators. As against this, the Tatas would want to keep their stake in Tata Sons, compared to 18.5% of the family of Cyrus Mistry. Of course, Mr Tata would want the Mistry reputation intact. There are people in Bombay House family to disappear. According to our information, Ajay who are masters at scripting the narrative by playing Piramal, Nitin Nohria and Amit Chandra have met the ethics and fair play card, using the media effectively international investors with the intention to buy out Mr and starting whisper campaigns. Investors have to stay focused on a simple fact. Who will do the enormous Mistry’s stake. 2. What ought to be the governance structure for the clean-up that almost all companies need if, Mr Mistry is group? According to sources, Mr Mistry always believed removed from everywhere? That task is onerous. Take a that a single person should not be the chairman of Tata look at the part two of our Cover Story.  solidarity with Mr Mistry. He continues to be the chairman of Tata Motors, Tata Chemicals and Tata Steel, although Ratan Tata would like him to be thrown out of every Tata company. TCS has replaced Mr Mistry with Ishaat Hussain, a Tata Sons’ director on the board of TCS. Tata Beverages has passed a resolution removing him as chairman which, Mr Mistry charges, is illegal. Independent directors of these companies are in a state of shock. Tata Power is the only major Tata company whose board is yet to meet. “We still can’t believe that Ratan Tata is doing this,” says an insider.

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COVER STORY

Tata Shareholders: Tough Time Ahead

T

he day after getting fired as a Tata Sons’ chairman, Cyrus Mistry hit back with a five-page reply that exposed how parts of the group were in deep trouble. Why did the Tatas take 15 days to come back with a rejoinder? Because of a surprising weakness in India’s largest business group: only Ratan Tata, the ‘interim’ chairman of Tata Sons, can decide on the public position of the group, according a person close to the situation. He was busy and travelling during this period. He found time only two weeks later to review and approve the statement. Does this centralised power structure give a clue to the shareholders about the decision-making they can expect, as Mr Tata seeks to remove Mr Mistry from various Tata group companies? After all, shareholders of Tata companies face a long list of problems that need urgent and continuous attention, starting with the expensive foreign acquisitions that have gone sour, leaving the group with a large debt overhang. There are also the highly capital-intensive domestic businesses that are haemorrhaging money, like the Nano project and the telecom businesses. Between 2011 and 2015, capital employed in IHCL (Indian Hotels Corporation Limited, Tata Motors, Tata Steel (Europe), Tata Power (Mundra) and Tata Teleservices (Maharashtra) Ltd (TTSL), rose from Rs132,000 crore to Rs196,000 crore, which is more than the Rs174,000 crore net worth of the group. “A realistic assessment of the fair value of these businesses could potentially result in a write-down over time of about Rs118,000 crore,” wrote Mr Mistry, in a letter to the Tata Sons board. Mr Mistry had done a dispassionate onate analysis of these hobbled businesses nesses and launched a systematic cleanleanup. Why was this unacceptablee to Mr Tata? Both, the overseas seas acquisitions and large-scale domestic stic expansion that have turned into o a major drag, were the outcome of Ratan Tata’s ambitious strategy gy between 1999 and 2010. Mr Mistry’s moves amounted to o undoing his strategy, however flawed. Then there are the egoistic new forays that are bleeding, too, and need to be addressed. Tatas as have invested in AirAsia and Singapore re Airlines (Vistara), which have a slim hope of ever ver making money.

Meanwhile, a recent forensic investigation in AirAsia revealed fraudulent transactions of Rs22 crore involving non-existent parties in India and Singapore. This episode is now the subject of a lawsuit and is unlikely to die down soon because it seems to be connected with people very close to Ratan Tata. If this spat between Ratan Tata and Cyrus Mistry drags on, what can Tata shareholders expect? We have summarised below what various Tata group companies are facing and what shareholders can expect from each of them.

Tata Steel: A Pension Fund with a Steel Plant Problems: Anglo-Dutch steel giant, Corus, was one of Ratan Tata’s prized acquisitions, but he paid a horrendously expensive price for it, ignoring the fact that this commodity business is at a cyclical peak. Indeed, it is a fitting case study for management students about how Mr Tata got carried by the bidding process and snatched the company at a 30% higher price than what was being offered by the Brazilian rival. This kind deal-making machismo saddled the company with huge debt not only for the assets purchased but also for the pension fund liability which is running at £15 billion; wags called Corus, a pension fund, with a steel business because it pays the pension of 130,000 British employees when 12 out of 13 employees do not contribute to it. But Mr Tata has never displayed what is called a buyer’s remorse about this scandalous acquisition, nor has he been questioned about it. Over the next four years after its acquisition, revive Corus and Mr Mistry, Ratan Tata failed to rev decided to exit the after exploring various options, o business with minimum damage. From 2009 till date, the company has provided for impairment losses pro of about Rs28,000 crore. In his letter to the Tata Sons board, lett Mr Mistry has hinted at potential impairment losses in excess of im Rs60,000 crore—higher than Rs the cost of acquisition. The letter also alleges aggressive let accounting by capitalising a ac substantial portion of product su development costs creating a de future liability. As the asset is fu over-valued since inception, ov economic benefits from fro the asset do not match the 

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COVER STORY

 value carried on its books.

Mr Mistry’s Solutions: Mr Mistry has speeded up the implementation of the Kalinganagar (Odisha) steel plant of Tata Steel. He also toured China to understand the dynamics of the steel business because China is the main player in steel today—it is the biggest producer as well as consumer. He concluded that the steel business enjoyed a super-cycle in 2003-2008 and the current downturn is not just a normal correction. Many excesses of the boom period are still to be wrung out. He pursued a merger of Tata Steel’s European steel unit with Thyssenkrupp AG. In October, Tata Steel reaffirmed that talks are progressing with Thyssenkrupp. Combining forces would have enabled Tata, Europe’s second-biggest steelmaker, and third-ranked Thyssenkrupp, to better use the facilities and cut costs. It is here that lenders have inserted covenants in the loan agreements allowing them to pull the loans if Tata Steel ceases to be a part of the Tata group. This creates a piquant situation because Ratan Tata has reportedly assured British unions that he will not sell Corus, now that he is back in the saddle. On the other hand, if the company turns independent, or Cyrus Mistry remains the chairman, he is more likely to take a practical decision to pare assets and cut the debt. Remember, Indian shareholders are paying for a loss of 1 million-1.5 million pounds a day on account of Corus. What Happens Now: It is a very emotional decision to get rid of the English white elephant for the Anglophile Ratan Tata who loves the adulation he gets as one of the largest employers in UK. Media reports say that he is keen to hang on to it but does he have much commercial choice? The more he delays the decision to get rid of it, the more uncertain will be Tata Steel’s future and the less money the company will have for its expansions, including the Kalinganagar plant.

Tata Motors: Small Card, Big Problems Problems: One successful move of Ratan Tata was the acquisition of Jaguar Landrover (JLR), which has saved the group. Before this acquisition, Tata Motors was a commercial vehicles company, which had diversified into passenger cars, that was losing money. Sources close to Mr Mistry say that Tata Motors is under-reporting expenses. It has followed an aggressive accounting policy to capitalise a substantial portion of the product development expenses, creating a future liability. They also say that Nano was intended to be a car below Rs1 lakh; but the costs were always above this. This product has consistently lost money, peaking at Rs1,000 crore. Profi ts are nowhere visible. The Nano plan makes 3,000 cars from an installed capacity of 100,000.

Mr Mistry wanted to shut it down but Mr Tata’s emotional attachment has held back this crucial decision. Possible Solutions: To make a turnaround, Mr Mistry had apparently outlined four areas for immediate attention—cost, quality and productivity; improving customer experience; regular introduction of new products; and sprucing up the brand image. He also suggested refreshing the design of vehicles, bringing in a new platform, improving supplier performance and closer collaboration between the Indian passenger car division and JLR. He had played a hands-on role until the appointment of Guenter Butschek as CEO and managing director after a longish gap, after which had stepped back. A

key factor was to rebuild employee confidence after the Nano fiasco. The Tata Motors team was banking on a good reception for Hexa, an SUV to be launched in January 2017, whose digital promotions have apparently shown a lot of public interest. Mr Mistry has also put together a joint working team with JLR to allow the Indian operations to benefit from the British experience. What Happens Now: Tata Motors has strong leaders for both, the domestic operation (Guenter Butschek) and for JLR (Ralf Speth). However, it needs to have a far better product portfolio for its domestic business (commercial vehicles and passenger cars). This is not in the offing over the next year or so. The September 2016 quarter results have been poor. In August, the management agreed to slow down investment in the development of a new Nano and focus on a two-seater sports car, in addition to funding the development of the Hexa and Nexon SUVs and the Kite 5 sedan. None of this solves Tata Motors’ current problems.

India Hotels: Checking Out Problem: Between 2003 and 2014, Ratan Tata’s favourite, Raymond Bickson, ran IHCL and almost ran it to the ground by a rash of investments across the world at fancy prices. Mr Bickson earned a compensation 

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COVER STORY

 of over Rs10 crore a year even as the company was

incurring losses. IHCL had housed the Searock property at Bandra (Mumbai) in an off-balance sheet structure, alleges Mr Mistry. This artificially reduced its actual

brands may be axed and all its hotels branded under the broader Taj label. What Happens Now: If Mr Mistry is removed from IHCL, Mr Tata would most likely fire Mr Sarna almost immediately and hire someone who would change the course of this group in accordance with his wishes. This will, most likely, involve postponing tough decisions. If so, the stock price will languish.

Tata Teleservices: Out of Range

liabilities. Pierre in New York is another worry. IHCL veterans say that the group had reviewed Pierre in the past but dropped it, after discovering that it has a set of permanent residents who simply cannot be shifted, making a much needed renovation of the entire property (to make it viable) impossible. Mr Tata’s team clearly did not bother to take a close look. Mr Mistry’s Solution: Sources close to Mr Mistry say that he was on course to charting a turnaround at IHCL. In the process of unravelling some of the bad investments, IHCL had to write-down nearly its entire net worth over three years which impaired its ability to pay dividends. Mr Mistry’s restructuring included selling off several foreign properties, like the Taj Boston and its holdings in Orient Hotels, which were the outcome of euphoric acquisitions during the boom years, under the Tata-Bickson regime. In 2014, Mr Mistry brought in Rakesh Sarna, as the managing director and CEO, who was the group president Americas for Hyatt Hotels Corporation. The recent quarter’s results show that the debt is reducing and the operating profitability is improving. The strategy of divesting loss-making overseas ventures and better cost control is beginning to pay off. That is probably why the independent directors of IHCL endorsed Mr Mistry’s leadership and unanimously expressed full confidence in him. Introduction of new customer loyalty programmes, cutting food & beverage expenses, developing a centralised system for resource allocation and enabling direct room booking through hotel websites, to save on commissions paid to third-party agents, are the key initiatives being taken up. Vivanta and Gateway budget

Problems: The telecom business was supposed to be a sunrise sector in mid-2000 and Tatas entered it through the backdoor, like the Ambanis. However, over the years, poor management quality and the 2G licensing scandal ensured that the business never reached a critical mass. It is haemorrhaging heavily. Besides, the Tatas had assured DoCoMo that they would buy back their shares at a predetermined price. This has now become a legal tangle, with an international arbitration decision going against the Tatas. DoCoMo has tried to enforce the award but the Reserve Bank of India is refusing to let Tatas remit the money because the buyback agreement violates Indian laws. DoCoMo has approached the Delhi High Court where the Tatas have deposited $1.17 billion in good faith. Tata Teleservices’ revenue is stagnating, profitability is declining and investments are slowing. This was the worst business Mr Mistry had inherited from Rata Tata. A shutdown, or a fire sale, would cost anywhere between $4 billion-$5 billion. TTSL is also the company where the group has several messy dealings with C Sivasankaran, a close friend of Mr Tata. Mr Mistry’s Solution: Mr Mistry, initially, wanted to exit the telecom business because of its utterly bleak prospects. There have been conversations with potential bidders for a possible sale; but nothing worked out. TTSL board then requested Rs10,000 crore from Tata Sons for investment but there has been no decision on this. He also wanted to initiate legal to recover dues from Sivasankaran. What Happens Now: Increasing competition, and the messy investments of the past, will make it tough for anyone to turn around this company. If Tata Sons does not put in fresh money, TTSL’s future seems bleak. 

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 Tata Power: Blackouts

Problems: Sources close to the Mistry camp allege that Tata Power bid aggressively for a project in Mundra, based on low-priced Indonesian coal. As regulations changed, the losses in 2013-14 amounted to Rs1,500 crore. Given that Mundra constitutes Rs18,000 crore of capital employed (40% of the overall company’s capital employed), this substantially depresses the return on capital for Tata Power and carries the risk of considerable

future impairment. Tata Power responded to Mr Mistry’s allegations by saying that its annual reports and financial statements published presented a “true and fair view of the state of affairs of the company and disclosed all material facts as required under applicable laws.” One of the major contentions in the current spat revolves around the Tata Power-Welspun deal under which Tata Power acquired Welspun’s renewable energy assets. The Tata group has charged Mr Mistry with keeping them in the dark by about the acquisition. They added that members of the Tata Sons’ board first heard of the acquisition through reports in the media. Mr Mistry, however, is understood to have provided credible proof that the board, along with Mr Tata, had been apprised and involved in the process from the beginning. Mr Mistry’s Solutions: The company is seeking to grow its renewable portfolio in India and in select international markets through organic and inorganic opportunities. With the acquisition of Welspun Renewable Energy, and its project pipeline, Tata Power Renewable Energy Ltd (TPREL) the portfolio of Tata Power has grown to about 2,400MW (megawatts), making it the largest renewable energy company in India. The solar project at Anantapuram (Andhra Pradesh) will also add 100MW of clean energy. Tata Power plans to expand its capacity by acquiring some of the country’s numerous underutilised stranded plants, instead of investing in expensive new

facilities. Domestic acquisitions are a part of Tata Power’s plan to nearly double its global power capacity to 20,000MW by 2025. Of that, 30%-40% will come from unconventional sources, including hydropower, rather than coal. The management is studying the design of ships, with a view to transporting compressed natural gas from the Middle East to India for power generation or to distribute directly to end-users. It also expects to complete the first phase of a $420-million 180MW hydropower joint venture in Georgia, in the first quarter of 2017. What Happens Now: All these ambitious expansions need a strong and stable management. This is a highly capital-intensive business with low returns. Mr Mistry would have steered the company to slightly higher returns. In any case, as with most utilities, shareholders are unlikely to make money from this stock over the long term. It would require deft handling, experience and commitment to get out of the mess the companies find themselves in. Then there is the overpowering presence of Rata Tata who may not want his ‘legacy’ undone. In companies where independent directors have stood firm and supported Cyrus Mistry, based on his plans and performance, Ratan Tata seems hell bent on removing the directors one by one. That he has already set in motion the process of removing Nusli Wadia, a close friend and ally in the past, has sent shock waves through the group and its directors. The message is, that Mr Tata is intolerant of independence and anyone who is not 100% with him is conniving with Mr Mistry. In fact, the notice from Tata Sons to remove Mr Wadia as an independent director, accuses him of “conducting himself as an interested party, in a manner designed to cause harm to the Tata group.” The action is a signal to Tata employee directors to display their loyalty in no uncertain terms— like Bhaskar Bhat and Harish Bhat have done at Tata Chemicals and Tata Global Beverages , respectively and will impact the decisions of independent directors as well. However, Nusli Wadia, is a doughty fighter and corporate watchers believe that Mr Tata has needlessly started another dangerous battle. In any case, as a shareholder, you would rather have your board concentrate on growing the company than involving themselves in ugly spats. — Research inputs by Namrata Patel -----------------------------------------------------------------------End Note: We have been told by one of the Tata Sons’ directors “none of the directors is commenting on any issue relating to the matter.” The 9-page Tata letter, published in the newspapers, has been the basis for the Tata version. We have already reached out to Debasis Ray, Tata group’s spokesperson, as and when required, for inputs. 

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StockWatch Stocks and sectors that catch our eye

K P R Mi l l s

Strong & Steady Growth

K

PR Mills has vertically integrated manufacturing capacities in India and produces yarn, knitted grey & dyed fabric and readymade garments. It also has three active subsidiaries, Quantum Knits Private Limited, KPR Sugar Mills and Jahnvi Motors Private Limited. Quantum Knits manufactures readymade garments mainly for exports. KPR Sugar has a capacity for crushing 5000 tonnes day (TCD). This subsidiary also has a production facility of Co-gen, producing 30MW of energy. The third subsidiary, Jahnvi Motors Private Limited, is a retailer of Audi cars and has an outlet in

Performance Gets Rewarded Adjusted closing Price in Rs 1,400

1,200

1,000

800

600 Nov-15

May-16

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Coimbatore. KPR Mills has a yarn division with production capacity of 90,000MT, a fabric division with production capacity of 27,000MT, a fabric processing division with 9,000MT capacity and garment manufacturing facility with a capacity of 95 million garments per year. All of these manufacturing facilities are based in Tamil Nadu; only the sugar manufacturing and Co-gen plant are based in Bijapur (Karnataka). It also has windmills with energy production capacity of 61.92MW which supplies around 60% of power requirements of the textiles unit. The garmenting capacity is undergoing another expansion by 36 million, taking the total capacity to 95 million garments per year, with a capital expenditure of Rs150 crore and will go on stream soon. Another capital expenditure, of Rs120 crore, is planned to increase the fabric processing capacity from 25MT to 50MT per day for FY16-17. This will be funded from internal accruals and bank finance. KPR Mills has also managed to reduce its debt:equity ratio to 0.98 for FY15-16 from 1.12 in FY14-15. KPR has had large cash flows for two years but the expansion spree that the company has undertaken, has again affected the free cash flows which stood at negative Rs2.15 crore for FY15-16. Some 36% of the total sales are achieved through exports, mainly of readymade garments. KPR Mills has reported strong results for the September 2016 quarter. Sales went up by 24%, to Rs755.39 crore (Rs609.59  crore), and net profit growth was 56%, to Rs81.19

Disclaimer: None of the stock information presented constitutes a recommendation or a solicitation of any offer to buy or sell any securities. Information presented is general in nature that does not take into account your individual circumstances, financial situation or needs Although information has been obtained from and is based on sources we believe to be reliable, we do not guarantee its accuracy and the information may be incomplete or condensed. All opinions and estimates constitute our judgement as on the date of the report and are subject to change without notice. Past performance is no indication of future results. Investors must do their own research before acting on them. Data Source: Centre for Monitoring Indian Economy’s Prowess database.

Those who have subscribed to the stockletters should only follow the stocks recommended there.

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STOCK WATCH

 crore (Rs52.18 crore). It has achieved an average sales

Investments Are Paying Off Rs Cr 240 200 Free Cash Flows 160 120 80 40 0 -40 11-12

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A da ni P o r t s and S p e c ial E c onom ic Z ones

Port of Call

A

dani Ports and Special Economic Zone (Adani) is an integration of three verticals, namely, ports, logistics and special economic zones (SEZ). It has a pan-India presence and owns and operates ports and terminals at nine locations across the Indian coastline. Its flagship port, Mundra Port in the Gulf of Kutch, is the largest commercial port in the country.

growth of 19.62% and net profit growth of 62.08% for the past five years. The RoCE (return on capital employed) for FY15-16 stood at 14% and RoNW (return on net worth) stood at 19%. The stock is trading at a priceto-earnings ratio (P/E) of 16.93 and has cash earnings per share of 96.11. The market-cap to sales ratio stood at 1.49 and market-cap to operating profit ratio stood at 8.07. The promoters hold 74.96% of the total capital. The stock rose from its 52-week low of Rs620 on 17 February 2016 to its 52-week high of Rs1,274 on 27 September 2016. It was trading at Rs1,129.95 on 11 November 2016 and may be worth looking at, for the long run. 

Adani has 19 subsidiaries, four step-down subsidiaries, two joint ventures and one associate company. After having made capital investments for several years in creating modern facilities, it is time for the company to reap the benefits. For the quarter ended September 2016, revenues were up 18%, to Rs2,183.05 crore (Rs1842.30 crore), and net profit shot up 68.26% to Rs1,095.89 crore (Rs651.32 crore), over the same period last year. The operating profit for the quarter was up by 23%. Last year, Adani’s RoCE (return on capital employed) was 14% and RoNW 

Strong Results

Continuous Investments

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270 -1,450 Free Cash Flows

-2,400

210

-3,350 150 Nov-15

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STOCK WATCH

 (return on net worth) was 22%. The stock is trading

at sales to market-capitalisation ratio of 7.95 and operating profit to market-capitalisation ratio of 12.45. The debt:equity ratio stands at 1.53 for FY15-16, not a lot lower than 1.59 for FY14-15. The problem with the business is that it still requires massive capital investments which have to be funded by borrowings. For instance, work is under way to expand the Adani International Container Terminal (AICTPL) in Mundra. Construction is due to be completed next year when the Terminal will be capable of handling 18,000TEU (twenty-foot equivalent unit) container vessels, with a cumulative capacity of

6.6MMT (million metric tonnes). For the year ended March 2016, cash from operations was Rs2,578 crore while it needed to make investment of Rs4,665 crore and had to borrow an additional Rs2,447 crore. This leaves no free cash flow for the shareholders. Nevertheless, it is a good stock to track, since the business has little competition. The promoters hold 58.94% while foreign institutional investors hold 17.14% and domestic institutions hold 14.95%. The stock price rose from its 52-week low of Rs165.96 on 12 February 2016 to its 52-week high of Rs317 on 25 October 2016. The stock was trading at 276.50 on 11 November 2016. 

K a j a r i a C e ram ic s

Double Whammy

T

iles market leader, Kajaria Ceramics, has captured over 10% of the market share and has achieved an average sales growth of 21.09% and average net profit growth of 31.49% over the

Slower Growth & Demonetisation Impact Adjusted closing Price in Rs 740 675 610 545 480 415 Nov-15

past five years. On 19 October 2016, the stock rose to its 52-week high of Rs740 from its 52-week low of Rs423.05 on 18 November 2015, on expectations of continued great performance. But, for the September quarter, Kajaria’s revenues were Rs630.09 (Rs609.5) barely rising by 3.38%, while operating profits were Rs126.72(Rs118.62) up just 6.83%, and net profits of Rs63.62 crore (Rs59.08 crore) rose only 7.68%. As a result, the stock had already gone down to under Rs600. Then the government announced the demonetisation of Rs500 and Rs1,000 currency notes on the evening of 8th November. By 11th November, the stock was down to around Rs500. This plunge was because of investors’ assumption that Kajaria’s revenues will go down due

May-16

Nov-16

to demonetisation. One of the largest sources of black money transactions is real estate, Kajaria’s main market segment. Our sense is that the effect of demonetisation would be temporary. Users will have to buy tiles and Kajaria’s products are preferred. Besides, Kajaria Ceramics earns 70% of its revenues from retail sales; the rest 30% comes from government orders and from major builders. Retail buyers will, ultimately, have to buy tiles by cheque or cards. Even the cash economy is not fully eliminated. The government has already issued Rs2,000 notes. The cost to the customer could increase because of the GST (goods & services tax) that will be levied on the purchase by cheque or other methods. The real worry for Kajaria is that even normal growth had come down to a crawl. The September quarter growth in sales and profit was in single digits. The next quarter will be bad because of the current disruption. The real picture will emerge in the March 2017 quarter. 

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STOCK WATCH

A s a h i I ndia Gl as s Expansions Paying Off

Transparently Better

Rs Cr

A

sahi India Glass Limited (Asahi) has reported a 10% rise in revenues for the September 2016 quarter, to Rs615.97 crore (Rs561.814 crore), and a huge 63% rise in net profit, to Rs33.35 crore (Rs20.52 crore). The operating profit was up 26%, to Rs118.14 crore (Rs93.8 crore). Asahi had made net losses for three continuous years, from FY11-12 to FY13-14, and made net profit of Rs42.02 crore

110

Free Cash Flows

60

10

-40

-90 11-12

in FY14-15, followed by net profit of Rs86.95 crore in FY15-16. What is the reason for this dramatically improved performance in the September quarter? The company derives more than 70% of its revenue from the automobile sector; sluggish demand

Growth in Place Adjusted closing Price in Rs 200

180

160

140

120 Nov-15

May-16

Nov-16

12-13

13-14

14-15

15-16

for automobiles has been the major reason for its net losses. These losses were exacerbated because of high-cost debt raised to fund expansion. Also, the rising prices of oil in FY13-14 put a lot of pressure on operating margins of the glass manufacturer. In the past year, Asahi has been able to reduce the net debt by Rs100 crore bringing down the debt:equity ratio to 3.72 from 5.04 for FY14-15. This reduction in financing costs, benefit of lower oil prices and demand growth had helped Asahi return to the growth path. In FY15-16, it commissioned new capacities for laminated glass of 0.7 million windscreens per annum, doubling the capacity of glass encapsulation and enhancing production of door glass by 20%. For FY15-16, Asahi’s RoCE (return on capital employed) was 17% and RoNW (return on net worth) was 25%. However, the stock is expensive. The market-cap to sales ratio is 2.02 and market-cap to operating profit ratio is 11.02. The share is trading at a price-to-earnings (P/E) ratio of 44.82. Asahi announced an interim dividend of 60% on 25 October 2016 after nine years. The promoters hold 54.31% of the total shares as of September 2016 and the public holds 45.59%. The share price rose from its 52-week low of Rs135 on 22 March 2016 to its 52-week high of Rs210 on 8 November 2016. The stock was trading at 191.90 on 11 November 2016. Asahi is a joint venture between Asahi Glass Co Ltd (AGC) of Japan and Maruti Suzuki India Limited (MSIL). It sells four kinds of glasses: automotive glass, architectural glass, consumer glass and solar glass, from 10 manufacturing units and three warehouses-cum-subassembly units. Asahi commands 76.57% share of the Indian passenger-car glass market. 

47 | 25 Nov-8 Dec 2016 | MONEYLIFE

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18-11-2016 18:18:45

STOCK WATCH

K E C I n t e r n at ional

Infrastructure Business Doing Better

K

EC International’s profit grew 130% y-o-y, to Rs65 crore, driven by strong operational performance, though revenue during the September 2016 quarter increased only 3%, to Rs2,121 crore y-o-y, on slow growth in transmission & distribution segment and lower cable business. KEC has secured new orders of Rs686 crore in transmission & distribution, railways and cable businesses. Consolidated earnings before interest, tax and depreciation (EBITDA) grew by 22% y-o-y, to Rs185 crore, and margin expanded by 140 basis points, to 9%, in the September quarter. Transmission & distribution business, which contributed 84% to revenue, grew by 3% y-o-y, to Rs1,790 crore, and infrastructure segment showed a whopping 55% growth; but cables business declined 19% in the September quarter. The company has reduced its debt by Rs317 crore, to Rs3,640 crore, in the September quarter ,compared with Rs3,957 crore at the end of March 2016. Throwing light on the first half performance and outlook, going forward, Rajeev Aggarwal, chief financial officer, said that revenue growth in first half of the financial year was muted due to low commodity

prices. He added: “With the kind of orders we have got in the first six months, we are expecting that we will be able to achieve the 10% growth guidance that we have given.” KEC is focusing on faster execution of projects. Last year, the company completed seven projects ahead of schedule. This year, they have been able to complete

Can It Now Surprise? Adjusted closing Price in Rs 170

150

130

110

90 Nov-15

May-16

Nov-16

Growth in Pockets Business Verticals

Q2 FY16-17 (Rs crore)

Q2 FY15-16 (Rs crore)

Growth (y-o-y)

1,790

1,731

3.4%

- SAE

261

201

29.9%

Infrastructure

85

55

54.5%

- Railways

66

34

94.1%

Transmission & Distribution

- Water

19

21

-9.5%

Cables

228

283

-19.4%

Solar

26

0.5

—

Inter SBU

(8)

(3)

—

2,121

2,066

2.7%

Total Net Sales

four projects in Saudi Arabia, where working capital was released. The margins are improving because of two factors. One, the SAE Towers business has shown impressive performance. Secondly, in the infrastructure business, particularly servicing the railways, it turned around and posted a positive profit before tax. The company’s transmission & distribution business has secured orders of Rs859 crore in India, Africa and the Americas. The cable business of the company has bagged an order of Rs105 crore. The company’s railway business has secured an overhead electrification order of Rs120 crore in the north-western region in India. Also, the solar business has received orders of Rs108 crore for providing turnkey engineering, procurement, and construction solutions for solar power projects with single-axis tracker. The company continues to diversify its customer base to include state electricity boards and developers of public-private partnership projects. 

MONEYLIFE | 25 Nov-8 Dec 2016 | 48

StockWatch.indd 6

18-11-2016 18:19:05

STOCK WATCH

UN UOTED STORIES OF PRICE MANIPULATION

Medicamen Biotech (Rs244)

M

edicamen Biotech is a pharmaceuticals company and has been in this line of business since December 1993. It claims to have two formulations plants at Bhiwadi (Rajasthan) and Haridwar (Uttarakhand). The company earns 40.8% of its revenue through exports. For the past five years, the company has shown no growth in sales or profits. Total sales for FY11-12 were Rs100.53 crore and have declined to Rs67.28 crore for FY15-16. For FY11-12 and FY12-13, it reported net losses of Rs83 lakh and Rs4.93 crore, respectively. In the past three years, the net profits have been

(Rs) 345

260

3619%

175

90

5 Jan-14

May-15

Nov-16

negligible, at Rs9 lakh, Rs44 lakh and Rs48 lakh, for FY13-14, FY14-15 and FY15-16, respectively. Total borrowings by Medicamen rose to Rs13.69 crore in

FY11-12 from Rs9.81 crore in FY10-11. The total borrowings stood at Rs19.45 crore for FY15-16. Medicamen says that debt has been taken for capacity expansion and for research and development; however, no significant outcome can be seen. Meanwhile, the stock jumped an enormous 3619%, from Rs6.72 on 6 January 2014 to Rs249.95 on 16 November 2016. The promoters held 45.51% of the total shares as of September 2016—1.69% lower than the promoter holding as of September 2015. The price-to-earnings (P/E) ratio stands at a ridiculous 101.89. Why is the stock price rising, despite no growth in sales and profits? Will the regulator find out? 

MARKET TREND

Demonetisation: An Unknown, Unknown

Tchange. It could be at the global level (financial

here are times when we are confronted with a major

crisis of 2008 or tech boom of the past ast 20 years) or at the national level (liberalisation off 1991). Demonetisation is such a change. It is an unknown, unknown. Nations are far more complex entities than stocks. We don’t even get the correct data to arrive at a sense of what is happening—unlike corporatee performance. Nations are not run in the most efficient manner; political expediency cy comes in the way. Corporate change is easier to deal with. You re-do the expected earnings. You re-do the valuation. Then, you either buy the stock or wait for a lower valuation. When a major economic change is positive, it is easy to forget data and get euphoric. There is a lot of excitement in the air—even among sensible people— which can mislead. If it is negative, it is easy to slip into too much pessimism. These are thoughts that came to

mind as I kept reading different reports and opinions on demonetisation which are products of chores: columnists have to comment and broking houses have to come out with interpretations. Unfortunately, they are contradictory and, often, superficial. Sometimes, the best answer to a m monumental change is ‘I don’t know’; bu but, we, as human beings, find it difficult to admit it. One thing we were more certain about, and we had repeated ad nauseam for the re past pas few months: the market was expensive. Most experts then preferred expe to focus foc on earnings trough, arguing that a long period of slow earnings would be followed by earnings growth—which follo would make high valuation go away magically. We were sceptical, preferring to believe that the current overvaluation would be resolved by lower stock prices. What now? Remember, nobody really knows the impact of taking 86% of currency notes out of circulation from an essentially cash economy. Wait and watch. — Debashis Basu 

49 | 25 Nov-8 Dec 2016 | MONEYLIFE

StockWatch.indd 7

18-11-2016 18:19:21

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Facts about the Stockletters What is the difference among these stockletters? The stockletters are for stocks for long term but with specific emphases. We hope to have a maximum of 25 stocks at any time. What is the investment horizon for these stockletters? The best results from good stocks come when they are held for five years or more. What is the investment strategy? Our investment strategy for the long-term stockletters is to select quality stocks at a reasonable price. We identify companies that are reporting high return on capital but are available cheaper than similar high-quality stocks. We then apply our knowledge of managements, including corporate governance. How much should one invest in each stock? You should invest equal amount in every single stock suggested. What if I cannot invest in all the stocks? If you cannot invest in all the stocks, invest equal amounts in as many stocks as possible, starting from the lowest in rupee terms to the most expensive in ascending order. It is also very important that you invest in stocks ONLY the money you will NOT NEED to touch for the next 5 years. Good quality stocks are likely to grow at 20%-22% annum but not in a smooth fashion. If some stocks have already run up sharply, will it be wise to invest in them still? These are all excellent stocks we have selected in long -term stockletters.

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We separately identify stocks that are still worth buying at current prices even if they have run up sharply. You must remember though that stocks may go down after your purchase. That is the nature of stocks. So it is important to follow these two principles about stock investing 1. Investing only that money you will not need for 5 years 2. Not looking at the share price in the short term. How do we know when to exit from the stocks selected? Exit suggestions are spelt out clearly every week. How many stocks are changed every week? Our list of long term stocks do not change much. Deletions are usually made after one year, if the performance is not too good. This also helps one avoid short-term capital gains. We may add a new company after several weeks. If the market crashes we may suddenly add many more names. How much do the stockletters cost? Antelope, Lion, Panther each costs Rs2,500 per year. If you buy two together, you pay Rs4,000. If you buy all three, you pay Rs6,000. How risky are the stocks mentioned in the stockletters? Stocks by nature are risky and volatile over the short-term and can lead to losses. But loss of capital in good quality stocks is not a function of stock selection but also how long a stock is held and at what valuation they are bought. We suggest investors hold stocks for at least five years. On our part, we will try to suggest stocks that are not expensive. How do subscribers get the stockletter?

07-10-2016 17:13:51

The stockletter is currently sent as a pdf file by email. Subscribers can also download their stockletter by visiting their MAS dashboard on our site savers.moneylife.in What is the frequency? You will receive your chosen stockletter every Saturday evening. Can I share the stockletter? The stockletters are meant for a single user and is backed by years of research. Hence, we urge you not to share them. What if I have any queries about specific stocks? Well, we would rather let our performance do the talking but if you have any serious doubts email us at [email protected] How can I buy the stockletter? You can buy online at https://savers.moneylife.in/prelogin/stockletters. html or you can send us a cheque or a demand draft by using the form below.

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More info at: https://savers.moneylife.in/sldownload/ Caution: The returns shown here are much higher than average. Average annual rise in the Nifty/Sensex is likely to be 12%-14% per annum over 10 years and more. Well-chosen stocks may rise by 20%-22% per annum over five year and more. Disclaimer: The Stockletters are part of multiple services offered by Moneylife Advisory Services which is a SEBI registered investor advisor (Registration No: INA000003429). The stockletters are for information purposes only and none of the stock information, data and company information presented constitutes a legally binding recommendation or a solicitation of any offer to buy or sell any securities. Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and the information may be incomplete or condensed. All opinions and estimates constitute our judgment as of the date of the report and are subject to change without notice. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalised recommendation to you. Individual stocks presented may not be suitable for you. Please read the terms and conditions before subscribing. Cancel within two issues: You can cancel your subscription within two issues. We will return your money after deducting Rs150 for payment gateway and handling charges. You can cancel by email or phone.

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07-10-2016 17:14:11

Supported By

Queries At Moneylife Foundation’s

Tax Helpline Ask tax-related questions at moneylife.in/taxhelp. It’s free

Exemptions on Home Loan

I

have a self-occupied property for which I have paid Rs60,000 towards housing loan interest during this financial year. With my wife, I jointly purchased a second property and paid Rs4 lakh towards stamp duty and registration charges in July 2016. We will not get possession of the second property before 31 March 2017. Could you please clarify our queries: 1) Can I avail tax benefit on the interest amount (Rs60,000) paid by me for my first property? 2) Can both of us (my wife and I) avail tax benefit under Section 80C for stamp duty and registration amount (Rs4 lakh) paid by us, even though we will not get the possession in this financial year? Ameet Patel’s Reply: 1. Yes. Deduction of a maximum of Rs2 lakh is available in respect of interest on borrowed capital for acquisition/ construction, subject to fulfilment of certain conditions mentioned below: • The construction/acquisition should be completed within three years from the end of the financial year in which the loan is taken; • For interest paid up to the financial year in which the

property was acquired/ constructed, deduction is allowable in five equal instalments commencing from the financial year in which the acquisition/construction is completed. A certificate has to be obtained from the person to whom interest is payable on the capital borrowed specifying the amount of interest payable for purpose of acquisition/ construction of the property. 2. The maximum benefit available under Section 80C is restricted to Rs1.50 lakh per year per person. In respect of jointlyowned property, each co-owner can claim separate deduction for payments made by him/ her. The stamp duty and registration charges are also eligible for deduction under Section 80C. However, there is a view that these are allowable only in the year in which possession is received. If the year of incurring the expense and the year in which possession is received are different, there is a possibility that the deduction will not be allowable in respect of these expenses. In any case, the upper limit of Rs1.50 lakh has to be borne in mind.

Wrong Assessment Year

W

hile filing my income-tax (I-T) return (ITR) for FY2015-16, I mistakenly mentioned

the assessment year (AY) as 201516 instead of 2016-17. After that, I received an intimation of interest and penalty regarding late filing of return from the I-T department. Please guide me on how to rectify my mistake and avoid all interest and penalty. Subodh Shah’s Reply: In your case, I am assuming that the return filed by you was within the normal time limit of Section 139(1). The best option is to approach your jurisdictional assessing officer (AO) with an application stating the error and requesting him to make the necessary change in the system. There is no direct online remedy.

Confirmation for Tax Paid in IDS

F

rom the press release of the Central Board of Direct Taxes (CBDT) dated 15 September 2016, it appears that the declarant cannot obtain the challan status of the taxpayer for tax paid under IDS-2016 using online tax accounting system (OLTAS) if the tax has been paid using challan No. ITNS-286. In such a case, how will the declarant satisfy himself or get a confirmation that the tax paid by him through an authorised bank has been duly transferred to the Central government account before he submits Form-3 to the concerned jurisdictional commissioner of income tax? Nikhil Vadia’s Reply: For your purpose, the challan from the bank giving the challan identification number (CIN) should be sufficient. This is done by the CBDT to maintain confidentiality. 

MONEYLIFE | 25 Nov-8 Dec 2016 | 52

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18-11-2016 18:24:29

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29-07-2016 17:49:42

USEFUL APPS YAZDI TANTRA

LookFor: Get Spotted in a Sea of Faces

CALM: Take a Break for a Soothing Experience

T

his is one of the dumbest apps you could have, but probably the most useful for being found! This app is so painfully simple that you will wonder why no one thought of it before. When you launch the app, you select a colour and then, the screen flashes that colour over and over again. Planning where to meet your friends is easy; but how do you quickly find them if you’re meeting them in a bar, a movie theatre or any other large, crowded location? Or maybe on the road at night. Just launch LookFor and flash it over your head. Waiting at the airport to receive some friends? Flash LookFor and your friends will spot you in the sea of faces instantly. LookFor is available for iPhones and Android handsets. Amazingly simple, dumb and useful—just look for LookFor! https://goo.gl/PxurRQ

M

Instant-Quantified Self: Track Your Activity

InShorts: All the News in Just 60 Words

S

W

o how do you quantify yourself? With the help of your Smartphone. Now, we can use technology to understand and quantify ourselves by using Instant-Quantified Self. This smart app on your phone helps you track your athletic activity, travel time, phone usage, app usage and fitness activity. It also allows you to set limits on your phone interaction for selfdiscipline. You will be shocked to realise how much time you spend in a day looking at the black rectangle in your hand, and on which apps! Instant-Quantified Self also integrates with Google Fit, Google’s health-tracking platform for developers, and pulls in data from various connected fitness-tracking apps. In addition, the app presents the data in a number of charts and graphs, so you can make better sense of your time and, perhaps, how it’s being wasted. With weekly reports, for trends and actionable insights on your activities, all of Instant’s data is private and remains only on your phone. Happy navel gazing and be prepared for surprises! https://goo.gl/BZ7xr1

editate, sleep and relax, with this wonderful app. This app will help you relax for two minutes to 30 minutes, depending on the time available. With a little bit of practice, this neat app will help you relax anywhere, anytime. It has seven guided meditation sessions for whenever you need a break. Follow the instructions and just relax. You will be surprised at the spurt of energy when you get back to work. The professional version helps with anxiety release, compassion and confidence. The more you practise Calm, the better you get at it; it is just like exercise for the mind! Go to www.calm.com and you can have the same soothing experience on your computer. You can even look for the app there and download it directly for your Android or iPhone. So, if you need some calm in your life, get Calm into your life.https://goo.gl/gpbrDR

e are bombarded with news all the time. And, to digest and assimilate all the stories is quite a brainful! InShorts is a mobile app which gives you India-centric news, in short. It is a unique app which condenses each news item in just 60 words. If you like to read more, you have a link where you can read the full story; but if you would like to get the gist and move on to the next story, you just swipe upwards, and off you go! In these days of shrinking attention spans, long commutes plus the need to know all, InShorts is a welcome refresher, in short! Download it today and enjoy the news!! https://goo.gl/hMo2e7  Yazdi Tantra is a chartered accountant by training, computer consultant by profession, entrepreneur-developer by hobby and trainer in his leisure time. He is currently the vice-chairman of Zoroastrian Co-operative Bank Ltd and has been running a medium-sized computer company ON-LYNE for the past 24 years.

MONEYLIFE | 25 Nov-8 Dec 2016 | 54

Tantra - column.indd 1

18-11-2016 18:27:18

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A complete online guide on every aspect of personal finance— from annuities and bank accounts to Wills and zero-coupon bonds—all in the form of common questions and answers. This handbook helps you make correct decisions about all aspects of money. Whenever you are in doubt, all you need to do is to refer to it. You will get factual and unbiased information. No need to wonder; no need to ask. Part of your MAS premium membership.

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MSSN - Unbiased.indd 1

29-07-2016 16:09:26

HEALTH BM HEGDE

Drug Money

T

his world is a wonder. In the quantum worldview, the world runs on energy—both occult and overt. But the world remains an enigma and what we see here is not the reality. What we see is Adi Shankara’s maya which Nobel Laureate Hans Peter Durr calls Wirklichkiet, a drama, in German. In reality, what runs the world is money, muscle and brain power. Of the three, the first, money power, is the most dominant. Up until money came into this world, humankind was altruistic (homo-altruisticus); ever since money came here, altruism went out through the window and greed took charge and humankind became man’s greatest enemy (homo-economicus). William Wordsworth put it so beautifully in his poem, The World is too much with us, thus: “…little do we see in nature that is ours… we have sold our soul to the devil.” The Innu community study in the Innu land, off the coast of Saskatchewan in Canada, showed how the Innus, who were ignorant of the ways of this world until Canadian economic system invaded them in 1732, led an egalitarian society without any illness or unhappiness. With money, came disease and misery. The most powerful money clout in the world is that of the drugs and device lobby which is worth trillions of dollars and is thrice as powerful as the oil lobby. The November US presidential election was controlled by the drug lobby. The documentary film SICKO, by Michel Moore, shows how every single US congressman and senator is under the thumb of the prescription drug barons. They, and their indirect bosses, who pose to the world as philanthropists, are, in fact, real cut-throat businessmen who live on human misery called illnesses. If that is so in the most enlightened country like the USA, one can only imagine the state of affairs in other countries! Let us throw some light on how this powerful lobby tries to medicalise the whole of mankind, to keep its coffers filled. I call that the sickness industry, the most lucrative one at that. They have even devised a new sub-set called screening industry which tries to make every human being a patient when he/she comes for a check-up.

In my previous piece, I have described how the cancer industry works. It is not for nothing that thinkers like Nobel Laureate Linus Pauling and many others have called cancer research, and even cancer charity, a fraud! The next biggest medical money-spinners are the recent addition of so many hi-tech vaccines. There seems to be a vaccine for every illness now. Thanks to the manufacturing techniques and the additives and preservatives, many vaccines are capable of creating new diseases like autism. A recent BBC documentary shows the dangers of doctors prescribing too many medicines and doing so many unnecessary tests that they are damaging human health, to a great extent. Medicalising death is another big money spinner. The last 10 days of the dying contribute to 90% of the corporate hospital profits in the ICCU (intensive cardiac care units). One must read Atul Gawande’s wonderful book Being Mortal, to gauge the level to which corporate medicine has sunk, to make money using death as a tool. When Breath Becomes Air is another poignant book by a young brilliant neurosurgeon at Stanford who suffered at the hands of cancer specialists! Way back in 1823, James Wakeley, a young physician member of the House of Commons, investigated to find that the London doctors, of those days, were a bunch of “corrupt, incompetent, nepotistic fools” who were like an abscess on the patient’s body. Being a passionate doctor, he started the prestigious medical science journal and named it The Lancet denoting that this lancet should teach London doctors some science and help drain the pus from the abscess that they had become. Recently, the present editor of that journal, Richard Horton, appointed a medical historian to find out its impact on the medical profession after nearly 185 years. The report’s essence was that “doctors have now transformed themselves into a huge corporate monstrosity eating into mankind’s health all over the globe!” God save mankind from these greedy monsters. 

Professor Dr BM Hegde, a Padma Bhushan awardee in 2010, is an MD, PhD, FRCP (London, Edinburgh, Glasgow & Dublin), FACC and FAMS. He can be reached at [email protected]

MONEYLIFE | 25 Nov-8 Dec 2016 | 56

BM Hegde.indd 2

18-11-2016 18:30:30

HEALTH BM HEGDE

SKIPPING DINNER IS HEALTHY, HELPS REDUCE WEIGHT

J

ROCK MUSIC AND HUMAN HEALTH

fasting by giving a big gap after the day’s last meal. We can learn a lot from our ancient habits but we need to research, to check their

authenticity. Modernity is not getting information from the West and calling it the best, as most of us in India are but RNIs (resident non-Indians)! Modernity in every culture should come from its antiquity.

SEXUAL ORGASM AND ITS SCIENCE

I

had a bitter experience once in Delhi. I was to talk on the present state of education in India and, in that context, I had mentioned Allan Bloom’s book Closing of the American Mind. The chair of the meeting was Dr Karan Singh who got up to condemn me in no uncertain terms as he said that “he enjoys rock music and thus it cannot be bad!” A good example of a really closed mind!

MEDICAL DEVELOPMENTS FROM AROUND THE WORLD

ains in India do not eat after sundown. Animal studies did show that time-restricted feeding did help reduce body weight and make the animal healthier. Now, for the first time, human studies performed carefully did show that eating the last meal very early (in the study, they finished the last meal at 2pm) will reduce weight in the obese without any reduction in total calorie intake! I followed this principle of the Jains some years ago and have found that my weight does not go up even if I overeat, as long as I give a longish gap after the last meal of the day and the following day’s breakfast. Although I do not know how this works, I think, one of the possible hypotheses is that you do intermittent fasting daily! Fasting is good for health; but periodic fasting, which had been studied for its health benefits, I feel, ranks lower than daily

A

dam Safron, PhD, of the Weinberg College of Arts and Sciences at Northwestern University in Evanston ( IL, USA), notes that the majority of research relating to the orgasm has focused on its evolutionary functions. “The idea that sexual experiences can be like trance states is, in some ways, ancient. Turns out this idea is supported by modern understandings of science. In theory, this could change the way people view their sexuality. Sex is a source of pleasurable sensations and emotional connection, but beyond that, it’s actually an altered state of consciousness,” feels Adam. In addition, his research found that the way the brain reacts to rhythmic sexual stimulation is comparable to the way it responds to rhythmic music and dance. He wasn’t expecting to find that sexual activity was so similar to music and dance, not just in the nature of the experiences, but also in that evolutionarily, rhythm-keeping ability may serve as a test of fitness for potential mates. Rhythmic sexual stimulation— if intense enough and if it lasts long enough—can boost neural oscillations at correlating frequencies, a process called “neural entrainment-sexual trance.”

This book is a classic, written by a professor of social philosophy at the University of Chicago. He refers in that book to his research which showed that rock music of the 1960s was the cause of a wave of suicides and divorce in the USA of the 1990s onwards. Rock is an African word that signifies sexual intercourse, the rhythm of both being one and the same. He gives graphic details of how that destroyed the emotional bondage in marriage, which should be the bedrock of a happy marriage, and might even have led to suicide in later life! In retrospect, that makes good sense with the new findings of the science of sexual orgasm. 

57 | 25 Nov-8 Dec 2016 | MONEYLIFE

BM Hegde.indd 3

18-11-2016 18:31:36

LEGALLY SPEAKING SD ISRANI

GST: Many States, One Market?

T

he Constitution of India, Article 246, read along with Schedule VII, provides for the division of powers between the Centre and the states. Central sales tax, excise duty, MODVAT (modified value added tax) and service-tax are imposed by the Central government, while each state has its own set of taxes including sales tax, VAT (value added tax) and several other local taxes. To add to the complexity, rates vary across states. Apart from making the taxation process complex and cumbersome for businessmen, precious national time is lost in logistics, adding to the cost. The problem with the existing system of indirect taxation is that taxes are levied at various stages right from the stage of procurement of raw materials, to intermediate stage, to manufacturing of finished goods. The second stage comes when the goods are on the way to the market to reach the consumer. The impact of all these taxes has a cascading effect on the final price, as, at every stage, tax gets levied on the price which includes taxes paid earlier. To deal with this, goods & services tax (GST) law has now come into effect. Consumers should note that the proposed GST will be value added tax and it will be levied across goods & services by the Centre as also the states. It is expected that such a move will help broaden the tax base and increase tax compliance. The other major benefit is the expected reduction in economic distortions. Interestingly, enacting the GST law is, unlike most of the other laws which parliament or the state legislature enact; it has entailed amendment to the Constitution of India. However, it has not been smooth sailing for GST, as can be seen from the fact that it started with the Constitution (115th Amendment) Bill, 2011, was introduced in Parliament to enable the levy of GST, but it lapsed with the dissolution

of the 15th Lok Sabha. Thereafter, in December 2014, the Constitution (122nd Amendment) Bill, 2014, was introduced in the Lok Sabha. After due legislative process, the new Bill finally saw the light of the day after being passed by both the houses of Parliament on 8 August 2016, including certain amendments passed by the Rajya Sabha. However, the Bill, being in the nature of a Constitutional amendment, had to be ratified by at least 50% of states. This was achieved within 23 days, with some deft manoeuvring by the Central government and effective liaison with other parties. The president of India gave his assent to the Constitutional Amendment Bill on 8 September 2016 which, thereafter, became GST Constitutional Amendment Act, 2016, thereby paving the way for the enactment of GST law. What seemed highly improbable is now slated to be a reality with the proposed target of implementing GST being 1 April 2017. When this sees the light of day, it will be perhaps be the biggest tax reform the country has seen since Independence. Though, ideally, there should be one or two rates, India has its own peculiar problems to be addressed by taking the states into confidence. So, now five different slabs of tax have been announced. Beginning with 0% for essential products like food grains, it is 4%, 12% and 18% for various other products and services, and 28% plus cess for luxury goods and ‘sin’ goods. This has been a major step towards implementation of the new tax regime which will roll out with effect from 1 April 2017. All products as well as services will be impacted by the new tax regime. The million-rupee question posed by an ordinary consumer is: How will he/she benefit from the imposition of GST? There is a possibility that certain products will become cheaper, while others may become costlier in the near term. Government’s efforts are on to minimise the adverse impact of the new taxes; in the long run, it is expected that the entire economy will benefit from the new tax regime and, eventually, benefit the consumers at large. 

SD Israni is a corporate lawyer & Fellow of ICSI. Email: [email protected]

MONEYLIFE | 25 Nov-8 Dec 2016 | 58

Legally Speaking.indd 2

18-11-2016 18:33:29

HANDHOLDING: MAS Benefit #11

• One-on-on e-Help • Portfolio X-Ray

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There are thousands of mutual fund schemes, hundreds of insurance products, bank FDs, corporate FDs, corporate bonds, over 3,000 actively traded stocks… How is an average saver supposed to choose? You have 5 options

Option1: Do nothing. Option2: Rely on friends, relatives, neighbours, office accountant, derived wisdom from social media or the press/TV. (But do they know more than you? And how do you know that?) Option3: Rely on ‘relationship’ managers, insurance agents, distributors, wealth managers. (But you are only a sales target for them) Option4: Research insurance, mutual funds, markets, stocks, financial theories… Become a financial expert yourself. (Is this practical?) Option 5: Choose Moneylife Advisory A no-bias, no-conflict platform. Ask any confidential question about investments, insurance and taxes and you get the right answer.

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MAS is a SEBI-registered investment adviser and part of Moneylife, India’s most unbiased and pro-investor research and information group. We run India’s best personal finance magazine, Moneylife. We are not afraid to call a spade a spade. We are India’s only media company to have set up a non-profit trust, Moneylife Foundation, which is now the largest savers’ and investors’ association with more than 35,000 members. MAS was set up to help investors and savers make the right financial decisions and handhold them through the entire process.

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MSSN Handholding.indd 1

29-07-2016 16:08:23

YOU BE THE JUDGE BAPOO MALCOLM

Ethics in the Legal Profession

A

nasty joke, on the net, asked the question: ‘What is the difference between a lawyer and a leech?’ Said it had something to do with Draculan haemel-imbibing practices. Two out of three, maybe 99 out of 100, will applaud. One can almost hear sighs of happiness. Is it true? Are lawyers a law unto themselves? Is there is no code of conduct? And, if so, can it be enforced? Please refer to a statute called The Advocates Act, 1961. It is free and on the net. Knowledge of the law will suffice, to avoid outright confrontation, if not acrimony. We try and bring you such applications of the law. Ten years ago, freshly minted, we had a lawyer as a client in a crime matter, of the short-fuse, impatient type. The accused were octogenarians, stationed far away. Our man had wanted them brought to Mumbai. The foursome, reduced to a trio following one natural departure, had resisted the move. We now entered the fray, only to be confronted by a fearsome defence attorney. We had few cards to play. The opposing lawyer had represented our client previously. We protested at his presence in this case. The lawyer countered that this was a different matter. We submitted that the parties were the same and so was the cause, rather similar. You be the judge. Whom would you favour, us or the other lawyer? The lawyer put forward two more appeals. One, that he would not get his fees and, two, his replacement would be tougher than he. Scare tactics were but water on a duck’s back. We continued to resist; especially when it came to our knowledge that the new, proposed advocate had previously played a counsellor’s role. You be the judge. Though the matter was resolved peacefully, we had made a point. A lawyer, having represented a person, cannot then plead for the opponent. That is the law. Whatever a client says to his advocate is privileged. It cannot be used to the detriment of his client. Point taken; but our matter did not end there, as we will see later. The question that usually arises when lawyers are

appointed after being on the other side; but in new matters involving the same litigants. Ethically, we personally believe that it must be avoided. When the stakes are high, fees astronomical, and the future rosy with well-heeled clients, elasticity becomes the key. A little bending here, a curvature there, all excuses, not explanations, may seek justification. The dividing line, between the legally correct and the morally justified, becomes blurred. The law is more strict for judges; rightly so. As an advocate, he may have litigated, or represented, a person. As a judge he cannot take up that person’s matters. He ‘recuses’ himself. This applies not only to professional practice, but extends to family relations, even friendships. If one finds any sort of ‘bonding’, he may ask for another bench. Not on some shaky advice, like the judge not being to your advocate’s liking. Avoid illfounded collision with the bench. If a judge is assigned a matter, he has the jurisdiction and, more importantly, he must exercise it. We are not there to compare ‘janma-patrikas’. In our matter, the accused appointed a new counsel. He failed to turn up and we got the ‘tareek-pe-tareek’ treatment and a lot of flak from our horse-mounted client, wanting full gallop. After three months and adjournments, we put our foot down. The opposition’s junior lawyer was warned to produce the counsel ‘within one hour’. He did. With the counsel came the first, now recused, advocate, advising him at every instance. Wrong move. No lawyer can argue with incessant prompting. We picked on just one point, crucial, and won the day, forcing the other side to settle. Yet, after all these years, one question remains unanswered. Was it correct on their part? You be the judge. And let us know.  Bapoo Malcolm is a practising lawyer in Mumbai. Please email your comments to [email protected]

MONEYLIFE | 25 Nov-8 Dec 2016 | 60

You Be the Judge.indd 2

18-11-2016 18:34:59

24 YEARS OF THE SCAM: THE PERENNIAL BESTSELLER, READS LIKE A THRILLER! THE ONLY BOOK ON THE TWO BIGGEST STOCK MARKET SCAMS OF INDIA, NOW IN ITS EIGHTTH PRINTING

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The skyscraper that houses BSE hadn’t yet come up. There used to be a trading ring, where brokers and jobbers struck deals, located in the adjacent three-storied structure. The ring was a reserved area, open only to jobbers and brokers. Harshad was just an onlooker. But he had a burning desire to get in and do deals. He cajoled the doorman and stepped in to watch how the world of the stocks spun on its invisible axis. That afternoon a new chapter began in the life of Harshad Mehta. A totally unfamiliar world that would be his kingdom ten years later...

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Scam Ad.indd 1

21-10-2016 18:07:06

ML FOUNDATION EVENTS

MONEYLIFE FOUNDATION SEMINAR ON ANNUAL INFORMATION REPORT

Taxmen and Demonetisation

M

essages spread over social media or WhatsApp may be entertaining or informative sometimes; but, when it comes to tax matters, believe in, and disseminate, information only from official sources, says Ameet Patel, a practising chartered accountant (CA) for the past three decades. He was speaking at a seminar-cum-guidance session on “The AIR is a big weapon in the hands of the tax officer” organised by Moneylife Foundation in Mumbai and supported by Capital First. “Most households in the country would have a few high denomination notes which are now no longer legal tender. What to do with these notes? There are two aspects involved, namely, depositing the money into the bank or exchanging it for new notes; and the income-tax implications,” he said to a packed audience. “However,” Mr Patel cautioned, “do not rush or take hasty decisions based on some posts on social media, WhatsApp or email messages. Please consult an honest tax consultant or chartered accountant and take his guidance about these things.” While explaining the seriousness of the government in weeding out black money, he gave the various tax implications for individuals in various tax slabs.

He also explained the system used by income-tax (I-T) department to collect information on all types of financial

transactions, including bank deposits, investments or buying property. “To keep a watch on high-value transactions undertaken 

Who Has To File an FTRA? • The REGISTRAR or SUB-REGISTRAR appointed under Section 6 of the Registration Act, 1908; • The registering authority empowered to register MOTOR VEHICLES under Chapter IV of the Motor Vehicles Act, 1988; • The POST MASTER GENERAL as referred to in clause (j) of Section 2 of the Indian Post Office Act, 1898; • The COLLECTOR referred to in clause (g) of Section 3 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013; • The recognised STOCK EXCHANGE referred to in clause (f ) of Section 2 of the Securities Contracts (Regulation) Act, 1956;

MONEYLIFE | 25 Nov-8 Dec 2016 | 62

Event.indd 2

18-11-2016 18:36:47

ML FOUNDATION EVENTS

What Is Reported to the Tax Dept • Payment in cash for purchase of bank drafts or pay orders or banker's cheque of Rs10 lakh or more. • Payments in cash aggregating Rs10 lakh or more for purchase of pre-paid instruments issued by RBI. • Cash deposits or cash withdrawals (including through bearer’s cheque) aggregating Rs50 lakh or more, in or from one or more current account of a person. • Cash deposits aggregating Rs10 lakh or more in a financial year, in one or more accounts (other than a current account and time deposit) of a person. • One or more time deposits (other than a time deposit made through renewal of another time deposit) of a person aggregating Rs10 lakh or more. • Payments made by any person of an amount aggregating 1) Rs1 lakh or more in cash; and 2) Rs10 lakh or more by any other mode, against bills raised in respect of one or more credit cards issued to that person. • Receipt from any person of an amount aggregating Rs10 lakh or more for acquiring bonds or debentures issued by the company or institution (other than the amount received on account of renewal of the bond or

Matching of Cash Deposited • With current year’s books / income • With earlier years’ income • With other factors (debtors’ aging; seasonal sales pattern, TCS returns (for scrap sales), etc • IS IT REALLY CURRENT YEAR’S INCOME? This question is supremely important  by the taxpayer, the income-tax law has framed the concept

of statement of financial transaction or reportable account (FTRA) which was previously called ‘Annual Information Report (AIR)’,” Mr Patel said. He touched upon the entities that are required to file an FTRA. He cited the nature and value of transactions for which various entities, like banks, post-offices, nonbanking finance companies (NBFCs), companies and mutual funds, must file an FTRA. He emphasised the need for individuals to disclose income and details to his/her CA, as the chances of scrutiny, based on details provided by third parties can get a person into trouble. Touching upon the importance to know about the

debenture issued by that company). • Receipt from any person of an amount aggregating Rs10 lakh or more for acquiring shares (including share application money) issued by the company. • Buy-back of shares from any person (other than the shares bought in the open market) for an amount or value aggregating Rs10 lakh or more. • Receipt from any person of an amount aggregating Rs10 lakh or more for acquiring units of one or more schemes of a mutual fund (other than the amount received on account of transfer from one scheme to another scheme of that mutual fund). • Receipt from any person for sale of foreign currency including any credit of such currency to foreign exchange card or expense in such currency through a debit or credit card or through issue of travellers cheque or draft or any other instrument of an amount aggregating Rs10 lakh or more. • Purchase or sale by any person of immovable property for Rs30 lakh or more or valued by the stamp valuation authority referred to in Section 50C of the Act at Rs30 lakh or more. • Receipt of cash payment exceeding Rs2 lakh for sale, by any person, of goods or services of any nature (other than those specified).

Central Information Branch (CIB), he explained how CIB aids the widening of tax base through identification of stop filers and non-filers and the deepening of tax base by providing information for proper selection of cases for scrutiny assessments through collection, collation of information from internal as well as external sources and its dissemination to assessing officers (AOs) and other users in I-T department. “So, the ITO has two tools with which he can confront a taxpayer with massive dose of information from the AIR or FTRA and CIB,” Mr Patel said. He further added that the ITO has information about the filer’s name, type and quantum of transaction and the source of income and misreporting or non-reporting of any could spell trouble for an assessee. Mr Patel then went on to explain how the AIR and CIB would impact assesees in two different scenarios, where the return is filed and where the return is not filed. He gave examples of assesees who have got notices from the IT department and on whom scrutiny has been initiated. He also explained how responses to notices by the department can be given online. The intelligence and efficiency of the officers was highlighted and he emphasised the need to be alert with disclosures by assesees. 

63 | 25 Nov-8 Dec 2016 | MONEYLIFE

Event.indd 3

18-11-2016 18:37:19

MONEY FACTS STOCKS

INDIAN MARKET TRENDS

FUND FLOWS

The Sensex and the Nifty fell 4% each during the fortnight ended 16 November 2016. ML Large-cap Index, ML Megacap Index and ML Mid-cap Index declined 6%, 7% and 9%, respectively. 

Foreigners: Foreign institutional investors were net sellers of stocks during the fortnight (Rs8,234.78 crore). They sold shares worth Rs48,303.18 crore. 

Share Prices Index, May 2016=100

315 -220

130

-755 -1,290

120

FII Net Investments (Rs Crore)

-1,825 110

-2,360 7 Nov-16

16 Nov-16

Indians: Domestic institutional investors were net buyers of stocks (Rs5,133.62 crore). They bought shares worth Rs26,221.31 crore. 

100

90 May-16

2,345 Aug-16 ML Large-cap ML Mid-cap

ML Small-cap ML Mega-cap

Nov-16 ML Micro-cap

Nifty Sensex

1,730

DII Net Investments (Rs Crore)

1,115

Index Sensex Nifty

04 Nov

16 Nov

+/-

27,274.15

26,298.69

-4%

8,433.75

8,111.60

-4%

ML Large-cap Index

115.95

108.51

-6%

ML Mega-cap Index

119.00

110.57

-7%

ML Mid-cap Index

125.05

113.78

-9%

ML Micro-cap Index

114.13

103.51

-9%

ML Small-cap Index

116.48

105.07

-10%

Mega-cap Gainers/Losers

04 Nov

16 Nov

Change

Bank of Baroda

142.55

173.40

22%

Berger Paints India

259.75

198.65

-24%

04 Nov

16 Nov

Change

40.10

47.85

19%

Godfrey Phillips India

1,391.00

951.95

-32%

Mid-cap Gainers/Losers

04 Nov

16 Nov

Change

525.60

597.10

14%

37.30

23.80

-36%

500

-115 7 Nov-16

16 Nov-16

GLOBAL MARKET TRENDS 17,885

Nikkei

16,900

15,915

Large-cap Gainers/Losers Corporation Bank

Garware-Wall Ropes Signet Industries Small-cap Gainers/Losers

04 Nov

16 Nov

Change

Dynemic Products

91.65

108.75

19%

Prakash Constrowell

15.60

9.55

-39%

Micro-cap Gainers/Losers Eskay K'N'It (India) Ansal Housing & Construction (All Prices in Rs)

04 Nov

16 Nov

Change

0.34

0.38

12%

25.70

16.30

-37%

14,930 May-16

Aug-16

Nov-16

Nikkei, NASDAQ Composite, S&P 500 and Shanghai Composite advanced 6%, 5%, 4% and 3%, respectively.  Index

04 Nov

16 Nov

+/-

16,905

17,862

6%

NASDAQ Composite

5,046

5,295

5%

S&P 500

2,085

2,177

4%

Shanghai Composite

3,125

3,205

3%

FTSE

6,693

6,750

1%

Korean Composite

1,982

1,980

0% -1%

Nikkei

Taiwan Weighted

9,068

8,962

Bovespa

61,598

60,759

-1%

Hang Seng

22,643

22,281

-2%

MONEYLIFE | 25 Nov-8 Dec 2016 | 64

Money Fact.indd 2

* 20 O

16 ** 1 N

16

18-11-2016 18:39:03

MONEY FACTS STOCKS



What’s H

T

ML SECTORAL TRENDS

Shares of public sector banks were in demand during the fortnight. Bank of Baroda, Corporation Bank, Indian Bank and State Bank of India advanced 22%, 19%, 17% and 14%, respectively. Punjab National Bank rose 13%.  Companies

ML Bank Index

Bank of Baroda

130

Corporation Bank Indian Bank Vijaya Bank

04 Nov

16 Nov

+/-

142.55

173.40

22%

40.10

47.85

19%

207.05

243.10

17%

41.05

48.15

17%

State Bank of India

242.85

277.20

14%

Bank of India

106.45

121.20

14%

120

St Bank of Mysore

110

519.15

589.80

14%

St Bk of Travancore

520.10

589.25

13%

St Bk of Bikaner

663.65

751.35

13%

PNB

131.65

148.80

13%

100 May-16

Aug-16

Nov-16

Shares of banks rose 2%, while shares of oil & gas companies ended flat. Shares of telecom services companies and energy companies dipped 1% each. Stocks of real estate companies and paints companies declined 17% and 13%, respectively. Stocks of cement companies declined 14%.  ML Sectoral Trends Banks

2% Real Estate

Oil & Gas

0% Garments

-17% -14%

Telecom Services

-1% Cement

-14%

Energy

-1% Building Material

-14%

Odds

-1% Paints

-13%

What’s



All Prices in Rs

URBAN INFLATION

N T

Combined inflation for urban and rural areas declined, to 4.20% in October 2016, from 4.39% in September 2016. Inflation in urban areas declined to 3.54% in October, from 3.64% in September. Food inflation in urban areas declined significantly,

Real estate companies were punished. Ansal Housing & Construction, Anant Raj, BL Kashyap & Sons, Ansal Buildwell and DLF declined 37%, 27%, 24%, 23% and 22%, respectively.  Companies

04 Nov

16 Nov

+/-

Ansal Housing

25.70

16.30

-37%

ML Real Estate Index

Anant Raj

50.40

36.85

-27%

120

BL Kashyap & Sons

24.75

18.75

-24%

Lancor Holdings

30.45

23.20

-24%

Ansal Buildwell DLF

71.05

55.05

-23%

139.70

108.60

-22%

Peninsula Land

18.95

14.80

-22%

Kolte Patil Dev

122.55

95.75

-22%

Arihant Foundations

61.00

47.85

-22%

HDIL

73.40

58.10

-21%

Significant Decline 5.50% Annual Change

110 5.00% 4.50% 100 4.00% 90 Apr-16

Aug-16

Nov-16

3.50% Oct-15

Apr-16

Oct-16

All Prices in Rs

BULK DEALS Date

Company

08 Nov-16 Mindtree

Buyer

Seller

Rs Cr

Rekha Nemish Shah

Amrit Petroleums Pvt

155.49

07 Nov-16 Lloyds Metals and Energy Lloyds Metals and Minerals

Uttam Exports Pvt

6.86

10 Nov-16 Suyog Telematics

LTS Investment Fund

Ivory Consultants Pvt

2.85

08 Nov-16 Apoorva Leasing Fin

Times Capital Services Pvt

Sri Endrash Investment & Finance

1.19

09 Nov-16 Vama Industries

GK Properties Pvt

Nitin Siddamsetty

0.47

07 Nov-16 Aarey Drugs Pharma

Nomura Singapore

Antara India Evergreen Fund

0.47

16 Nov-16 Mitsu Chem Plast

Aryaman Broking

Jhaveri Trading and Investment Pvt

0.29

to 2.79% in October, from 3.19% in September. In urban areas, prices of vegetables declined by 6.45% since last year. Prices of fuel & power increased by 0.17% in October, compared to a year ago. Inflation for housing fell marginally to 5.15%. In October 2016, inflation for clothing fell marginally to 3.78%; for miscellaneous items, too, inflation moved up to 3.78% compared to 3.70% in September 2016. 

65 | 25 Nov-8 Dec 2016 | MONEYLIFE

Money Fact.indd 3

18-11-2016 18:39:21

BEYOND MONEY

Investing in Educational Opportunities for Gifted Poor Children

I

t is the dream of all parents that their child should Since 2015, Dakshana has been offering one-year pursue a professional course in engineering or medicine, scholarships to help underprivileged students from state after passing the entrance examination. Yet, how many government schools, after class 12, to prepare for the are able to achieve this, even if their child is gifted? This JEE or medical entrance exams. During the year, all costs is where Dakshana Foundation comes in, to help gifted incurred for coaching, boarding and lodging, cost of books children from economically backward families. and cost of application forms, for each student, are borne Noor and Sadika, from a tiny village near Kargil in by Dakshana. “The programme is absolutely free for Jammu & Kashmir, are examples. From a village with no beneficiaries,” says Sharmila Pai. The Foundation now electricity or hospital within a radius of 15km, the two has 400 Dakshana scholars undergoing training which is girls were given a one-year scholarship to study at Pune fully funded by Dakshana at six locations across India. and prepare for their medical entrance exams. They are Dakshana’s track-record of results has been the first from their village to be sent for further studies excellent. “A total 1,100 of 2,044 Dakshana-sponsored anywhere beyond Delhi and underprivileged scholars, will be the first to attend have been accepted by IITs and another 800 medical college next year. to NITs; an aggregate Dakshana Foundation was established by Mohnish acceptance rate of 51% at IIT-JEE over the past eight Pabrai, investor and hedge years,” says Sharmila Pai, fund manager, who made news in 2007, when he chief operating officer of won a bid to have lunch Dakshana Foundation. with Warren Buffett. That Dakshana is headquartered at Kadus money went to charity. A year earlier, Mr Pabrai Village, Pune. The entire had set up Dakshana with operation is headed by an the objective of alleviating army veteran, colonel Ram poverty through education. Kumar Sharma, who has Dakshana’s mission is to fought the three wars for focus on investing in the delivery of world-class education India. At 76 years, colonel Sharma runs Dakshana like a opportunities for exceptionally gifted children from young, vibrant CEO of a multinational conglomerate. He impoverished rural backgrounds in India. brings with him the vast experience of managing a large The inspiration for setting up Dakshana, for Mr Pabrai operation with ease and success. Fondly known as ‘Dadaji’ and his wife, Harina Kapoor, was the Ramanujan School of by the scholars at all Dakshana Centres of Excellence, Mathematics at Patna (Bihar), founded by Anand Kumar, colonel Sharma is a philanthropist in the true sense as 33, a local mathematician, and Abhayanand, 52, Patna’s he works full-time for Dakshana for a remuneration of deputy director-general of police and a lover of physics. one rupee a year. In 2006, Dakshana signed a memorandum of Dakshana’s team comprises mainly its alumni who understanding with the ministry of human resources and have been beneficiaries and have graduated as engineers development to prepare deserving, but disadvantaged, but have decided to come back and serve Dakshana as students from the 595+ Jawahar Navodaya Vidyalayas Fellows. Heading the team is commander Arun Mishra across India for the IIT entrance exams. (chief administrative officer) with 20 Dakshana does this by offering a twoyears’ experience in the Indian Navy. year scholarship to selected students He runs the Dakshana administration as after they complete class 10, while they a ship that is sailing smoothly towards DAKSHANA FOUNDATION Kadus, Taluka Khed, are studying for their class 11th and success. All donations to Dakshana Pune, Maharashtra 12th of the Central Board of Secondary are exempt under Section 80-G of the Telephone +91.20.2685.3485 Education course. Income-tax Act.  Fax +91.20.2685.5344 Email [email protected] Web www.dakshana.org MONEYLIFE | 25 Nov-8 Dec 2016 | 66

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REGISTERED WITH THE RNI UNDER NO. MAHENG/2006/16653. Postal Registration No: MCW/184/2015-2017. POSTED AT PATRIKA CHANNEL SORTING OFFICE, MUMBAI 400001. Date of Publishing 18 November 2016. Date of Posting Alternate Tuesday & Wednesday.

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