Moneylife 12 November 2015

SUCHETA DALAL ON:

IDENTITY MYTHS: AADHAAR VS US SOCIAL SECURITY

E-COMMERCE: NOTHING FREE, PRIVACY IS THE PRICE

Personal Finance Magazine

RETIREMENT HOMES: NOT A SAFE HAVEN

12 November 2015

Pages 68

Rs 45

(SUBSCRIBER COPY NOT FOR RESALE)

www.moneylife.in

How Banks Are Ever-greening

Bad Loans

STOCK WATCH Steady Growth

Cover Page_253.indd 2

The Strong Get Stronger

Not All Debt Is Bad

Motorcyles in Slow Lane

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ISSUE CONTENTS

12 November 2015

Stress Test for Banks

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on-performing assets (NPAs) and restructured assets are galloping. Over the years many patchwork solutions have been tried. Last year, the Reserve Bank of India introduced a structure for rehabilitating "specified infrastructure and core industry projects" for tenures up to 80%-85% of the projects’ economic life. Is this a sham? Rajendra Ganatra, a banker and expert in stressed assets, rips apart this new structure and the earlier Corporate Debt Restructuring scheme. He finds it will only encourage promoters to play with lenders’ money. In fact, it is our money since it is government-controlled banks that are laden with bad loans. Mr Ganatra gives proof of ‘evergreening’ of bad loans of three infrastructure companies, which raised debt ranging from 47.6% to 167% of their debt-servicing requirement. Don’t miss this eye-opening analysis on page 30. Senior citizens, who invest their hard-earned money in private retirement homes, usually do not get what is promised by developers of such properties. Unfortunately, at present, there are no norms for this sector. Sucheta, in her Different Strokes, highlights the need of proper government advocacy for senior citizens, based on S Krishnamoorthy’s (an 80-year-old air-force veteran) plea, asking the Madras High Court to direct the state government to set up a specific regulatory authority for retirement homes. The Aadhaar number is based on the social security number (SSN) concept used in the US. But did the US SSN simplify government administration? In Crosshairs, Sucheta writes that this may be far from the truth. In 2014, improper payments cost the US government a whopping $124.7 billion. Clearly, a national identity number has not prevented massive leakage of government funds. Why will it be any different in India, where governance standards are worse? Moneylife Foundation will be coming to Chennai on 7 November 2015, with its flagship seminar on “How to Be Safe & Smart with Your Money”. Register online here - goo.gl/z3UoPA. Hope to see you there! Debashis Basu 

28 Cover Story Ever-greening Bad Loans Rajendra Ganatra, a banker and expert in stressed assets, rips apart CDRs and other schemes to fix the huge bad loan problem which are enriching borrowers, bleeding the exchequer while destroying shareholders wealth

14

– How Safe Is Your Identity? – E-commerce Growth Pangs

16 Different Strokes

Retirement Homes Offer No Peace for Seniors

18

Moneylife Quiz no

MONEYLIFE

QUIZ

218

21 Your Money

– HC Directs United India To Reimburse Treatment Cost – Rs18 Lakh Fine for Developer – EPFO To Launch Online PF Withdrawal Facility

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 INTERVIEW

FUND FACTS

Look for Growth at 24 ‘We a Reasonable Price’ Soumendra Nath Lahiri is the chief investment officer at L&T Investment Management, since September 2012

& Worst Mutual 27 Best Fund Schemes FIXED INCOME

28 Flipping Tax-free Bonds? – G-Sec Yields Marginally Up – Yields Unchanged Past Fortnight

YOU BE THE JUDGE

Your Will 55 Will Be Willed Away? Normally, the country where the Will is executed is the country the laws of which apply to the method of execution TAX HELPLINE

at Moneylife 56 Queries Foundation’s Tax Helpline

STOCKS INSURANCE

22 Smart Money Prescription for Pharma Stocks Pharma stocks’ PE ratios range between 30 and 60! These are like FMCG companies, but with a far greater degree of uncertainty

46 Insurance Trends Health Insurance – BMB Nirbhaya: Covering Infertility Regulations – Insurance Discharge Voucher Should Not Close Claims Fine Print

38 Stock Watch Ultramarine & Pigments: Steady Growth Inorganic pigment firm is also into wind power generation and BPO and has interesting expansion plans

The Strong Get Stronger When the market falls, buy the strong stocks, especially those near their 52-week highs

HEALTH

Am I? Where 50 Who Have I Come from? Pulse Beat: Medical developments from around the world

as 52 Investors Consumers Can they get relief under the Consumer Protection Act?

TECHNOLOGY: MOBILE

Market Trend: The Slog Overs Don’t expect a strong up-move soon

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There is no escape from cyberspace and risks cybers associated with it. associ Therefore, we need There strategies to minimise strateg our risks, says Dr Anupam Saraph D

EARNING CURVE

60 Pyramid Fraud – Islamic Indices BEYOND MONEY

66 Malnourishment More Dangerous than Cancer

Motorcyles in Slow Lane

Market Manipulation Aviva Industries

Not To Fall 58 How Victim to Cyber Fraud

Western science has no satisfactory answer for either of these questions

LEGALLY SPEAKING

Not All Debt Is Bad Look out for indebted companies making rising profits

ML FOUNDATION EVENTS

Online 54 Safe Shopping Online shopping is convenient; but, unless you take certain precautions and maintain highest security level, it may cause you headaches and financial losses, warns Yogesh Sapkale

Four out of 10 children being treated for cancer in Mumbai lose the fight because of malnutrition

DEPARTMENTS Readers’ Response ........... 8 Book Review ....................62 Money Facts ....................64

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Volume 10, Issue 19 30 October – 12 November 2015

Debashis Basu

Editor & Publisher [email protected]

Sucheta Dalal

Managing Editor [email protected]

Editorial Consultant Dr Nita Mukherjee [email protected]

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EXPOSING LAPSES IN THE SYSTEM Sucheta Dalal’s “Bhushan Steel’s Dubious Restructuring” is a good article that exposes the lapses in the system. Unless and until the lapses identified can be fixed by way of demonstrative punishment and the brains behind Mutual Fund investments them totally exposed, these things can go on are subject to market risks, read all scheme related forever. There are several such cases in banking documents carefully. which go unnoticed. Write-off of loans, restructuring of loans, offering of concessions and reliefs, accommodating Write to the Editor! defaulters’ accounts and sanctioning fresh loans are common in our banking system; they seldom get reported or detected easily. a prize Knowingly, or unknowingly, the authorities— including Securities and Exchange Board of India (SEBI) and ministry of corporate affairs (MCA)— are parties in this, encouraging camouflaging of bad loans and committing irregularities. More the number of banks, the better they are at hoodwinking the authorities. Likewise, the more the number of subsidiaries for any company, the better it is to fool the banks and authorities. There are several companies with an unbelievable number of subsidiaries enabling the companies to raise capital, bank loans and other funds from market; seldom do declare o they ey d ecla ec lare re any dividend or even a small profit. They continue to always provide encouraging news by fudging their balance sheets. False news is accepted by the authorities and gullible investors. It is a fact that when the companies have many subsidiaries and many lenders, exercising any control on them is difficult and the managements’ intention is only to loot. It is impossible to fix them when the authorities are relaxed and casual in their approach. Good to note that Moneylife makes all possible attempts to expose some of the irregularities and lapses and keeps a vigilant eye. Gopalakrishnan TV, by email 

WIN

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LETTERS

the

Best letter

Leave Small Savings Rate Alone!

I

n the past few days, after the Reserve Bank of India (RBI) cut the repo rate, it is surprising to find banks blaming others for their inefficiency; it is shocking that the government buys—at least publicly—this argument, and tries to tinker with other instruments for investors. The entire banking community seems to operate as a consortium (‘cartel’ is undiplomatic) where they jointly decide the lending and savings rate of the whole system. It is very easy for them to hold the economy to ransom and they are successfully doing it with the help of government as well. Just before the Budget, banks blamed the favourable taxation for debt mutual fund schemes as a reason for being unable to attract deposits; the government obliged, by bringing tax treatment of debt schemes on par with the bank FDs (fixed deposits), even for investors who were earlier invested in the debt schemes. Now, banks blame the small savings rate for their inability to cut deposit rates and the government is more than willing to listen to banks, despite knowing it is irrational to do so. Although RBI has effected 1.25% rate cut in the past one year or so, banks have been able to pass only 0.6% to 0.7% cut to borrowers, despite the majority of loans now being lent at floating rates. Instead of rapping at least the nationalised banks to be more efficient, the government seems to be cunningly poised to lower its own liability of returns on small savings instruments by using the excuse of

NEED FOR AN APP! It is October and soon many people in corporates would start looking for investing in tax-saving instruments to meet the Rs1.5 lakh tax declaration they had given in April. I would request Moneylife to give some space in your upcoming issues educating us on investing and provide more information on tax-saving instruments. In the past, I had suggested a mobile application for your website. The information provided in Moneylife is very valuable for middle-class people like me; but not everyone has the inclination to pick up a magazine and

the outcry from the Mutual Fund investments banks against these are subject to market risks, read all scheme related rates. documents carefully. It is a foolish argument, if one looks at the facts logically. Tarun Agarwal Bank FDs offer both liquidity and security, YOU WIN A compared to debt PERSONALISED schemes and PPF CLOCK (public provident fund). One knows how risky it is to invest in debt schemes, especially after the Amtek fiasco, and banks slyly got the Tarun Agarwal taxation changed to their advantage. Similarly, an instrument like PPF does not offer full liquidity till 15 years, a te tenure which most enu nuree ffor orr w hich hi hm ost os st banks do not even offer FDs! D! If the government has to change the PPF or other savings rates, they should also look at making those instruments completely liquid, like bank FDs, with a penalty rate. Else, it is clear that the government is least interested in protecting the interests of the middle class which voted for it to come to power. Request Moneylife team to help us by publishing their analysis of this issue. Tarun Agarwal, by email

Congratulations

read it. A mobile application would help in reaching out to people who do not subscribe to the traditional way of gaining knowledge. These are days where ‘the well needs to go to the thirsty’. With regard to the article by R Balakrishnan on Consumerism (Moneylife, 17 September 2015), the way he put it was very easy to understand. He rightly identified it as a disease where people spend hours on e-commerce websites doing nothing but gazing at products and rates. Now that the earning capacity of Indians has increased, we should urge our young people to join the work

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LETTERS

 stream and to spend their money judiciously. It is time

to start investing at an early age. Thanks and keep up the good work of bringing people out of financial illiteracy. Shailender Singh, by email

HAGGLING WITH THE DOCTOR? This is with regard to “Our Beef with the Doctors” by Bapoo Malcolm. Two types of malpractice are described in this article. The first kind is where medical staff talks about the patient, imagining him to be unconscious, and then has to pay a hefty sum for causing mental anguish. In the United States, damages are awarded for non-quantifiable losses like pain and suffering; in most other countries, damages are based on actual loss to the patient like, say, loss of use of an arm or a leg. The second incident quoted is fraud, where a doctor treats deliberately for a non-existent problem. This kind would be criminal offence, not just civil one.

About the author’s last comment, where will it end, I guess, that depends on the maturity of the insurance marketplace. There is no reason why a doctor should charge a patient three or four times as much, as soon as he finds out that the patient has insurance. This should be investigated and the insurance company should beat down the doctor’s charges. Or else, the patient should be told to go to another doctor whose charges are more reasonable. Unless patients revolt, doctors will continue to charge higher fees to those who have insurance. Insurance companies are too lazy to haggle with the doctor and will pass the charges on to customers as higher premiums. The bottom line is that patients must stop treating doctors like gods, read up on their conditions on the Internet, ask pertinent questions and get a second opinion wherever feasible. I am a physician and I would much rather deal with a well-informed patient than one who has ‘faith’ but unrealistic expectations. Meenal Mamdani, online comment

OUR READERS WHO CLICK WITH US Here’s a sample of the kind of feedback that we receive from our readers on our vibrant website, www.moneylife.in

IS SEBI ASLEEP? This is with regard to “Big Fines by SEBI, But No Funds” by Sucheta Dalal. Why has SEBI slept for all the years when the funds are being collected? It takes action too late and hardly recovers the fines that are imposed. Anil Agashe

AM I STINGY? This is with regard to “Buy stocks of consumer products companies, not their products” by R Balakrishnan. I have been speaking about this to a few people about this excellent article: some of them agreed; others did not. A friend said that I am

‘stingy’ because I don’t have fancy items like a car, a mobile phone, etc. Time will tell! Mahesh Krishnamurthy

GROUP BRIBING? This is with regard to “Breath of Fresh Air” by Sucheta Dalal. Good initiative. Vested interests will have to be tackled. I know the case of an incometax official in Mumbai I-T office who was caught red-handed while taking a bribe. More money was recovered from his desk drawers. It was surprising to find the officer at his desk again after about two years. Such a thing happens with ‘group bribing’. Ravindra Shetye

HOW TO REACH US Letters: Letters to the Editor can be emailed to editor@moneylife. in or can be posted to: The Editor, Moneylife Magazine, Unit No. 316, 3rd Floor, Hind Service Industries, Off Veer Savarkar Marg, Dadar(W),

Mumbai 400 028 or faxed to 02249205022. Letters must include the writer’s full name, address and telephone number and may be edited. Subscription Service: For new subscription requests,

complaints about current subscription and books, write to us at [email protected] or to Subscription Manager, Unit No. 316, 3rd Floor, Hind Service Industries, Off Veer Savarkar Marg, Dadar (W), Mumbai

400 028 or call 022-49205000 or fax to 022-49205022. Advertising: For information and rates, email us at [email protected] or call 91-022-49205000.

11 | 12 November 2015 | MONEYLIFE

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www.moneylife.in Exclusive news & views with a big difference EXCLUSIVE NEWS News you had better not miss

Why CCD’s coffee vending machines cost Rs1.15 lakh each As per the prospectus, during FY14-15, Coffee Day Enterprises (CDEL) capitalised coffee-vending machines at Rs1.62 lakh per unit. The company, however,

claims that the cost is Rs1.15 lakh and its machines are much superior to those available for Rs15,000-Rs40,000.

SAT order exposes SEBI’s continuous bungling with Osian’s Art Fund SEBI’s bungling includes not being sure about the applicability of its regulation and issuing an order of refunding money with 10% interest

Foreign mutual funds exit: Now Goldman Sachs & Nomura to quit India Goldman Sachs has sold its mutual fund business to Reliance Capital. Nomura, too, is reported to have exited its joint venture with LIC

Maruti’s royalty payouts to Suzuki are ‘extortive’, says report Over the past 15 years, Maruti’s royalty to Suzuki grew 6.6 times when the average sales realisation per car increased by just 1.6 times

IndiGo IPO: Promoters flying high with dividends to themselves InterGlobe Aviation, which runs IndiGo airlines, shows negative net worth of Rs139 crore due to an exceptional interim dividend

EXCLUSIVE VIEWS

On issues that matter to you

Does Aadhaar serve any public interest? – Dr Anupam Saraph

RBI’s Diwali gift to India Inc! But what is there for the common man? – Gurpur

RTI acƟvists cry foul over CIC’s trick to show lower pendency – Vinita Deshmukh

Will mergers & acquisitions improve Indian banking? – Dr B Yerram Raju

During FY14-15, the company had shown Rs378.78 crore as tangible fixed assets under the head of coffee-vending machines. The same item, as on 1 April 2014, is stated as Rs310.68 crore. Therefore, the company added fixed assets worth Rs68.10 crore under coffeevending machines. CDEL’s global vending business has a strong base of 30,916 vending machines across 12,500 corporates and growing at 25%-30%.

ML FOUNDATION Safe & Smart >> Moneylife Foundation is conducting a seminar on 7th November in Chennai on “How to Be Safe & Smart with Your Money!” by Sucheta Dalal and Debashis Basu. You too can benefit from these programmes by registering at www. mlfoundation.in Membership is free

HAVE YOUR SAY Vote in the Moneylife poll on the top issues of the week Do companies/service-providers respond faster on social media while resolving consumer complaints?

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MONEYLIFE FOUNDATION THE RIGHT THING TO DO

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CREDIT HELPLINE The main objective of this helpline is to provide information, advice and preliminary guidance to indiv individuals needing help in credit-related areas. Our objective is to arrive at a solution that is acc acceptable to both the borrower and the lender. We encourage responsible borrowing.

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CROSSHAIRs How Safe Is Your Identity? Busting the myth that Aadhaar is following US Social Security Number

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widely-held misconception in India is that the US social security number (SSN) is a perfect identity that simplified government administration. And that UIDAI’s (Unique Identification Authority of India) innovation of adding biometrics to the Aadhaar number has made it foolproof. Nothing could be further from the truth. Consider a few facts. The US started issuing ssuing SSN in 1936 for social security programmess and retirement benefits; it quickly went on to become a national identifier and authentication number. It is now used for medical records, health insurance, bank accounts, credit cards, ds, driving licences, utility ity accounts, marriage and death certificates es and even private sector tor employee filings. SSN’s problems arose because of the linkage to various national databases, especially when the information went online along with photos, numbers and other identification details. Identity theft exploded. Significantly, the US realised the problem and initiated safeguards way back in 2004. A memorandum titled “Safeguarding against and Responding to the Breach of Personally Identifiable Information” asked various government departments, including the military, to “examine and identify instances” where collection or use of SSN is unnecessary, in 2007. All government agencies that issued identity cards with SSNs displayed were asked to remove the number. SSNs embedded in the bar code of military cards were also phased out since 2011. The US SSN website (www.socialsecurity.gov) has explicit warnings about identity theft and directions

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

to a specialised national resource on how to fight the problem (www.idtheft.gov). Advocacy by www. theVirginiaWatchdog.com has now led to efforts to de-link various personal records from SSN. There is new legislation as well. The Intelligence Reform and Terrorism Prevention Act of 2004 prohibits display of SSN on drivers’ licences, state ID cards or motorvehicle registrations. The Social Security Number Protection Act of 2010 prohibits the display of an individual’s SSN on cheques and payments. But it is, apparently, not enough. An article by Christopher Burns in the bangordailynews.com says that, in March 2015, the office of the inspector general of SSN found that appear to be over 112 years 6.5 million Americans app old. They have active SSN o numbers but are most likely to be dead. This, it says, is a big factor in identify theft and leakage of government ffunds. Mr Burns says iimproper payments by a range of federal programmes cost the o US government a whopping U $124.7 billion in fiscal 2014 $ according to the government ac accountability office. ac Clearly, a national identity number is not enough to prevent nu massive leakage of government ma funds, even in a rich and literate country like the US. All these learnings were clearly available even before the Aadhaar was born. Yet, the United Progressive Alliance (UPA) launched a massive and expensive Aadhaar programme, without proper legislation passed by parliament after a national debate on security measures, restricting its issuance to Indian nationals and linking of national databases. Worse, there is no clarity on costs, renewal of biometrics (which change ever three to four years) or clarity on dealing with identity theft. Instead, successive governments have tried to roll it out by stealth, making it mandatory for admissions, property registration and government services. This continued unchecked until a handful of public interest litigations (PILs) finally reached the Supreme Court. The apex court ordered that Aadhaar cannot be mandated for availing 

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 government benefits and services; but its orders have

been repeatedly flouted. Identity theft is new to India because most government records were not online or linked to a single identification. This will change. Unfortunately, most Indians, enamoured by the life-changing benefits of technology, are still to wake up to its dangerous flipside or the trauma of a stolen identity.

E-commerce Growth Pangs Nothing is free; privacy is the price

“W

oman Stalked across 8 websites by Obsessed Shoe Advertisement,” says a headline in theonion.com. The article is a hilarious take on what we let ourselves in for, by merely browsing an e-commerce site. Its advertisements, displaying the product you were browsing and its variants, then seem to stalk you across the WorldWideWeb for months on end. This may not be such an irritant if it is books, gizmos or travel destinations are stalking you, but can be downright embarrassing when lingerie ads begin to flash on your browser, especially on office computers. Then, again, it is the best time to be a consumer in India since e-commerce firms are burning up piles of cash to woo you with big discounts and deals. How concerned should you be about signing up for that spiffy app which offers Rs100 off on your first order? Most of us are either too busy to read or unconcerned about the privacy policy or terms and conditions (T&Cs) listed by e-commerce sites. Speaking at a Moneylife Foundation seminar, cyber security expert, Dr Rakesh Goyal, warned participants about how free apps effortlessly helped themselves to all your personal data such as “name, age, address, email, phone number, take full network control, call phone numbers, send messages, access your location and record audio and video.” In contrast to their cavalier treatment of our rights and privacy, e-commerce companies have aggressive legal departments to protect their rights, liabilities and trademarks from real and imaginary infringement. Mistakes in their product promotions and discounts are also covered by these disclaimers and usually set right only if the reputational damage is likely to be higher than the price of a problem product. Check a few examples. • A cash-back site, which is aggressively marketing itself, says in the fine print: “we cannot guarantee the absolute security of your information as complete security of information during transmission is virtually impossible.” Most people have touching faith in technology and will be

shocked at this disclaimer. The same company, like others in this space, asks you to indemnify it “against all liability, loss, claim, demand, damage or expense that may occur” during your transactions, or even in T&Cs listed by them. This also covers “error or omission or any loss” due to wrong information posted by them and absolves them from liability even if a virus from the website affects your computer. Can’t you stop any of it? Geeks will tell you a complicated process that may allow you to block cookies and ‘opt out’ from allowing access to some of your personal information. But, often, you have no choice. The smarter ones take extreme and expensive precautions like having separate smart phones and email IDs for all their app downloads including for ordering cabs, food, or even cooking gas and e-shopping. Many are linked through e-wallets, rather than to their credit card. Dr Anupam Saraph recently told Moneylife Foundation members that using a credit card is always preferable to debit cards, since the former will at least gives you time to repudiate a false claim. •

But what about bank accounts, investments and tax filings? Will those go on to your secure phone or e-commerce phones? While private banks have huge teams working on e-security, can the same be said about government databases, which now want to link all our personal and commercial information and identity to our biometrics? While most developed nations, especially European countries, have clear ‘right to forget’ laws, for negative personal information and financial information posted on websites, awareness and concern about privacy issues is abysmal in India. Does any e-commerce site or app allow you to block them or a ‘wipe clean’ option that deletes the information you gave them at the time of registration? Until the demand for such an option gathers momentum, a smart policy is to pause and think before indiscriminately downloading every new app or service that promises a discount or freebie.  15 | 12 November 2015 | MONEYLIFE

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DIFFERENT STROKES SUCHETA DALAL

Retirement Homes Offer No Peace for Seniors Regulation required to stop the harassment of those who have invested in retirement homes

O

nce again, it is probably the judiciary that may demographics, higher income in the hands of seniors, come to the rescue of senior citizens who have security concerns and the paucity of domestic help, wellinvested their nest egg in retirement homes and run and regulated retirement homes and townships will end up fighting bitter battles with developers instead of be essential for future generations. In many cases, it will the restful luxury they expected in their golden years. S be the only way to ensure that a secure environment, Krishnamoorthy, an 80-year old air-force veteran, has filed a companionship, nutritious food and geriatric care or public interest litigation (PIL) asking the high court to direct medical assistance is available on a daily basis for those the Tamil Nadu government to set up a specific regulatory who can afford it. authority to for senior citizens’ homes in the state. At It is the government’s responsibility to remove the the first hearing in September, a two-member bench, regulatory vacuum in which retirement homes operate comprising Chief Justice Sanjay Kishan Kaul and Justice TS and put in place a clear framework to decide who can Sivagnanam, was sympathetic to set up retirement homes, ensure his plea, despite a sketchy petition fair and transparent contracts with and directed the state government seniors, proper supervision and to file a proper response by 24th swift grievance redress. This will November. Irrespective of what require the ministry of social justice happens in the case, there is no and empowerment to work with doubt that the senior citizens, who the finance ministry to put in place invest their hard-earned money effective regulation. Unfortunately, for proper accommodation and this is easier said than done in a facilities (in these private projects), country where the National Policy are not made to run from pillar to for Older Persons (NPOP), framed post to get the services they were in 1999, has yet to be properly promised. implemented and we have no real Retirement homes are a niche estate regulator so far, because of the industry is controlled by land new real estate market segment that sharks and politicians. has grown steadily over the past two decades by promising well-toSeniors will also have to face do Indians all their needs in old age up to the reality that the concerns In most retirement homes – food, house-keeping, laundry, of well-to-do people are not a services and maintenance healthcare facilities, recreation priority for any government. Even standards decline, costs NGOs working in this sector are, and companionship of people of escalate and the terms of the their age group. But the reality is correctly, engaged in mitigating far agreement are changed often vastly different. Services and greater hardships and travails faced maintenance standards decline, by the poor, destitute, infirm and costs escalate and the terms of the original agreement abandoned seniors. While the Madras High Court has are changed with no recourse to the senior residents. Mr taken cognisance of Mr Krishnamoorthy’s plea, real change Krishnamoorthy’s petition arises out of his own experience will require a proper framing of issues and advocacy at and the tribulations of other senior citizens who opted to the national level with the appropriate ministries or even live in retirement homes that have mushroomed around a class-action suit. Here are some of the issues that need thinking and clarity while framing such a policy. the picturesque Coimbatore region of Tamil Nadu. Is it enough for the Tamil Nadu government to create a 1. Who Can Set Up a Retirement Township/Homes: Unlike regulatory framework for the state alone? With changing old-age homes that are run by charitable organisations, 

MONEYLIFE | 12 November 2015 | 16

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DIFFERENT STROKES SUCHETA DALAL

 retirement townships are for senior citizens who can afford

years. While the terms were well thought out on paper and a certain lifestyle and amenities and are willing to pay for seemed to ensure lifetime security for a senior, it turned them. It requires deeper pockets and cannot be set up by out that these entities were not registered, making the lease charitable organisations/NGOs or as a family enterprise. agreement itself legally tenuous. Escalating land prices Although realty is a state subject, the process of granting worked to the advantage of the promoters who were able clearances to set up retirement homes and townships to nudge tenants to leave through unreasonable escalation needs to have a national regulatory framework, under the of monthly charges or poor service. The apartments were ministry of social welfare. These should only be permitted then leased again at higher rates. Several seniors caught in when basics, such as access to specialised medical care, such a trap have filed a court case, but the judicial system are available at a reasonable distance and security, access in India is a slow and expensive grind. and communication are in place. 4. Costs, Supervision, Accountability, Audit & Redress: 2. Minimum Assurance of Services: Regulations should One retirement home in Tamil Nadu has forced at least specify the basic minimum services (security, food, 10 seniors to file lawsuits after they were threatened with housekeeping, laundry, maintenance and basic medical eviction or being denied food and services, when things facilities, as well as recreation and exercise facilities run by turned seriously acrimonious. Only a proper regulatory appropriately trained and supervised staff) that need to be framework will ensure that seniors do not become the in place to set up a retirement project. Decisions regarding victims of such dirty tricks, instead of the peaceful retirement the selection of service-providers, that they paid and signed up for supervision, audit of expenses and and that residents’ representatives have access to accounts to ensure cost escalation must be through a management structure that has that cost escalation is fair and adequate representation from reasonable. residents, chosen through an 5. Exit Option: The government election process. must ensure that no senior is Anyone setting up a retirement trapped into retirement homes by ensuring that there is a clear exit home must be able to commit specified minimum capital to be option in each contract. Ideally, able to ensure maintain and all retirement homes must only have the promised services for at least a lease and deposit arrangement five years. There are plenty of because of the high cost and documented cases where seniors restrictions of selling property in have had a harrowing time a retirement township. because of poor catering, laundry Putting in place a regulatory or housekeeping services and the framework for retirement homes promised medical facilities and Putting in place a regulatory is not a very difficult task, since basic check-ups, which used to lure most developed countries have framework for retirement seniors, are quickly shut down. On already been through this phase homes is not a very difficult the flip side, seniors will have to of development where seniors in task, if we borrow from the be prepared to maintain deposits nuclear families felt the need to experience of the developed move to retirement homes for to meet their monthly payouts countries and to cover emergencies and the benefits they provide. In fact, contingencies. this is a $260 billion industry in 3. Structure of Agreements: Ideally, seniors must be the US and growing; if run well, it will be an important able lease rooms or apartments in such townships with market in India too. Pushing the government to set up an provisions for deposits (refundable and non-refundable appropriate framework needs advocacy from influential components) with monthly payments for food, maintenance seniors, to make it happen. No one else is likely to do the and other costs. India has a few well-run retirement job for them.  homes on outright purchase but they are an exception. In several retirement homes around Coimbatore, retirement complexes have been set up by families but are positioned Sucheta Dalal is the managing editor of Moneylife. She was as not-for-profit societies. The apartments are given out awarded the Padma Shri in 2006 for her outstanding contribution on 20-year lease agreements, renewable for another 20 to journalism. She can be reached at [email protected]

17 | 12 November 2015 | MONEYLIFE

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BOTTOMLINE BY MORPARIA

CURRENT ACCOUNT

MONEYLIFE QUIZ

Moneylife Quiz no

218

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 10 December 2015. Send in your answers to [email protected] with the Quiz no., name, address & telephone number before 18th November.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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

M.Sudheer

1. What was the approximate compounded earnings growth rate of companies listed in the Indian stock market during the period 2008-10? a. 10%-15% b. 20%-23% c. 25%-28% d. 28%-30%

5. Who is responsible for saying, “Organic life, we are told, has developed gradually from the protozoon to the philosopher and this development... is indubitably an advance”? a. Bertrand Russell b. Peter Medawar c. Descartes d. Kropotkin

2. What percentage of Indian roads is concretised? a. 100% b. 50% c. 25% d. 5%

6. What does SSL stand for in communications technology? a. Secured Sockets Layer b. Senior’s Shop on Lease c. Structural Slab Level d. Space Systems Loral

3. Who is the author of the book, The 5 Mistakes Every Investor Makes and How to Avoid Them? a. Warren Buffett b. Philip Kotler c. Peter Mallouk d. Harsha Bhogle

7. Approximately, how many children are diagnosed with cancer every year in India? a. 1,000 b. 10,000 c. 25,000 d. 50,000

4. Which is the latest Indian public sector bank to have tied up 8. How much was the dividend distributed by Ultramarine & with New India Assurance for health insurance policies? Pigments Ltd for FY12-13? a. Punjab National Bank b. State Bank of Mysore a. 150% b. 125% c. Canara Bank d. Bharatiya Mahila Bank c. 113% d. 100% In all, 23 readers got all the answers right last time. The winner of Quiz-216 is M Sudheer, from Kozhikode. Congrats! You win a personalised clock with an investment quote!

The answers to Moneylife Quiz-216 are: • 1- b. 139 schemes • 2- a. -4.28% • 3- d. S&P BSE 200 • 4- d. Road safety • 5- a. Hippocrates • 6- a. 70%-90% • 7- c. Prohibition against an act or condition • 8- b. 15%

MONEYLIFE | 12 November 2015 | 18

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In an era of paid news & half-baked analysis who tells you the truth about financial products?

M

oneylife has always put the reader first. Launched in 2006 by Debashis Basu and Sucheta Dalal, Moneylife delivers brutally honest opinion and hard facts about financial and consumer products. Our deep research and unbiased articles on all aspects of personal finance, such as gold, insurance, saving for your children, Wills & nomination, mis-selling and money circulation scams and even medical malpractices,, have stood the test of time. Unlike other media, we refused to accept paid news. Regular readers know that we argued that unit-linked insurance plans were harmful for your wealth, when others were handing out ‘Best ULIPs’ awards with big sponsorship funds. Naturally, there

was a cost attached to our pro-customer stand. But policy changes implemented by various regulators (usually after the horses had bolted) have proved us right many times over—on ULIPs, on misuse of the Pow of Attorney, on implications of SEBI rules on Power co commissions, or collective investment schemes, etc. M Moneylife Foundation is probably the only nonpr profit trust from a media house. We offer oneonn-one help to savers by handling grievances and on-one c counselling. M Moneylife s subscribers a automatically b become m members of M Moneylife F Foundation. If y are new you t Moneylife, to p please explore t content the Y won’t wo on’t find anything that’s biased of our website. You produucts or compromises comprom in favour financiall products your interests You will find loads lo interests. of pro-investor and proconsumer information.

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17-10-2015 17:11:49

Your Money MEDICLAIM

HC Directs United India To Reimburse Treatment Cost

T

he Madras High Court directed United India Insurance Company to reimburse the treatment expenses of Rs44,581.00 with 9% interest to a petitioner, S Dhanalakshmi, who got

REAL ESTATE

Rs18 Lakh Fine for Developer

A

family of Chakroborti VK Kondapalli booked a 1,600sft (square feet) flat in a project by Mahindra Lifespaces at Mumbai and paid Rs1.06 crore in August 2009. The purchase agreement was executed in September and possession of the flat was to be given by 31 October 2010. The family paid the balance Rs86.11 lakh by then. But the developer gave the possession only in February 2012. The family approached the Additional District Consumer Forum for Mumbai Suburban District, seeking interest on the money they had paid at the rate of 12% a year and

her baby admitted to a non-network hospital due to an emergency. The petitioner had joined the health insurance scheme in 2012 and was subscribing to it regularly. Justice R Subbiah said that the

reimbursement of the amount of the rent they had paid during the delay. The Forum rejected the developer’s contentions, noting that a clause in the agreement—which empowered the developer to charge interest on late payments but restrained the buyer from seeking compensation— was contrary to the law. “Agreements contrary to public policy are void,” said the Forum, while holding the developer guilty of unfair trade practices. The Forum directed Mahindra Lifespaces to pay interest at the rate of 10% a year on the Rs86.11 lakh paid by the buyers, for the period of the delay. The Forum further instructed the developer to reimburse the Rs4.80 lakh that the Kondapalli family had spent on rent during the period and Rs35,000 for litigation costs.

HC had already advised that a person’s claim should be considered on the satisfactory reason that they were unable to get treated in a network hospital, but had been advised to go to a non-network hospital. In this case, Ms Dhanalakshmi’s son had vomited and she was under the impression it was just food poisoning. But his condition worsened and she had taken the child to a nearby hospital, where doctors diagnosed it as obstructed hernia and recommended that he should be operated immediately. On their advice, her son had undergone emergency surgery. The petitioner had obtained the necessary certification, of being a genuine case, from the state health authorities. Hence, the insurance firm could not reject her claim on the ground that treatment was done in a non-network hospital, the judge said.

RETIREMENT

EPFO To Launch Online PF Withdrawal Facility

E

mployees’ Provident Fund Organisation (EPFO) is hopeful of launching an online PF withdrawal facility by March-end after the Supreme Court extended voluntary use of Aadhaar card to government schemes, including provident fund. “We have written to the Labour Ministry for approvals for starting an online PF withdrawal facility,” central provident fund commissioner KK Jalan told news agencies. He said, “We will ensure speedy verification of PF withdrawal cases of those applicants who will mention their Aadhaar in their claims.”

21 | 12 November 2015 | MONEYLIFE

Your Money.indd 2

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SMART MONEY R BALAKRISHNAN

Prescription for Pharma Stocks Pharma stocks’ PE ratios range between 30 and 60! These are like FMCG companies, but with a far greater degree of uncertainty

W

hen picking stocks, I like to use two anchors like a chemicals business and the second is like a lowfor valuation: One, the balance sheet, and, tech services business. There is a third set—engaged in two, the profit & loss (P&L) account. It is a biotechnology—which is an area of intense specialisation very simple approach. The handicap is that I miss out on and high level of unpredictability. companies with no history, or with a small track record On the other hand, we have companies that invest in terms of age of business. in R&D (research and development), have best-selling The balance sheet approach is useful when looking products in their portfolio and have a pipeline of discoveries at companies that are predominantly in commodity that are in queue for further action. This gives a huge businesses, or in sectors not driven by consumer spending. unpredictability to a part of their cash flows. Similarly, they A simple assumption is would have products where that entry-barriers are few they own the patent and some and businesses are prone where they do not. A new drug to cycles. Here, I like to patent gets exploited for about use the replacement cost 10 years. In India, this period could be shorter. as a ‘fair value’. This replacement cost may—or Out of 10,000 new may not—coincide with products which get into the the book value; because a R&D platform, not more business has other assets than 100 get to the stage of and liabilities beyond the trials on humans and not more core assets necessary to than 10 become best-sellers. produce the commodity. The R&D cycle is long and Such businesses are there are no guarantees. Each characterised by moderate pharma company may be RoCE (return on capital working on some drug which You have to really know the employed) over a 10-15 a potential to be a financial industry to take a call on a player has year period, with wild winner. A handful of global who has businesses in this swings. companies fully disclose what The P&L approach is industry across the globe. I have they are working on and a vast applicable to businesses none; so my choices are limited majority just beat around the that are asset-light and are bush, trying to be as vague as possible. Globally, most dependent on consumer spending. These companies have strong brands, high companies spend around 10% of their sales on R&D! In RoE (return on equity) and no debt. You will find them India, it is nowhere near this number. International pharma in consumer products and pharmaceuticals. Of these two, companies derive nearly 70% of their sales from patented the prospects of consumer products businesses are more products; thus, when a product goes off patent, there is a predictable. Pharmaceuticals are a complex group. Let severe drop in sales and profits. This forces them to spend me try to explain why the forecasting of a pharmaceutical heavily on R&D in the hope of keeping the pipeline going. company’s numbers, or arriving at an estimated ‘fair value’ for its shares, is difficult. Empty Noise Firstly, there are two distinct types. One: a pharma In addition to all this, India also has an activist socialist company that makes ‘dull’ products like bulk drugs, or regulator who thinks that controlling drug prices is easy is into contract research manufacture (CRAMs). These and necessary. So far, that regulator has made a lot of are, typically, low-investment and low-entry-barriers empty noise and nothing more. It has not really ruined businesses and do not challenge us much. The first is the fortunes of any company, but does create noises, now 

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SMART MONEY R BALAKRISHNAN

 and then. Yet, analysts try to forecast the future for the

pharma companies! Since earnings from new products tend to be lumpy and unpredictable, a degree of estimation is needed. The preferred method of company valuation is the ‘discounted cash flow’ or DCF. The future cash flows are estimated and brought to a present value, assuming a rate of discount. So, in a sense, there is a high level of estimation, forecasting, etc. Hence, we find that most pharma company stocks always seem expensive. What I like to do is to be very careful when it comes to Indian pharma companies: There are some companies where management quality is an issue and I stay far away from them. Once this screening is done, I like to look at the RoE; then, the spread of domestic vs global business. I prefer a company with more domestic business, since the risks of litigation, pricing, intellectual property issues, etc, are lower in India. You have to really know the industry to take a call on a player who has businesses in this industry across the globe. I have none; so my choices are limited. The stock that you pick could be an Indian or a foreign one. Foreign companies, typically, make money by selling their globally patented drugs and over-the-counter (OTC) drugs at good margins in India. They do not spend much on R&D from the Indian balance sheet. I find the multinational pharma companies relatively safer because they seem easier to understand. I keep away from Indian companies that go on a spree of acquisition, partly because I do not understand the industry enough, and partly, because I suspect the motive behind most acquisitions. Pharma companies with the domestic market as the main driver of earnings are what I limit my exposure to. Not because they are the best of the lot, but because of my own limitations. Thus, pharma does not form a significant part of my portfolio. I find that there are too many approximations in the price estimation.

The one important factor I look for in pharma companies is to make sure that the company is absolutely debt-free, pays a good dividend and is growing at a rate higher than the country’s GDP. The other factor is that they should have a wide range of products. I know this is not easy, but trusting a company with a few products is a big risk. Government policies and respect for intellectual property (IP) are other issues which can throw a spanner in the works for pharma companies. So far, the ‘lobbying’ skills of the industry seem to be good enough to keep the government away from doing any serious damage in their zealous pursuit of affordable healthcare for all. Pharma stocks trade at a premium to those in other sectors, most of the time. The risk/reward is not very good either, at the valuation highs. So, for me, to buy pharma company stocks (even those that I shortlist) means that I have to plunge in without any margin of safety. Or else, I have to back the aggression of a promoter who is talking up a good story. I would say that we should buy pharma company stocks when the valuation comes to a level where it becomes a bargain. The key is to seek established companies that have good RoE/RoCE, no or low debt and derive a large part of their turnover from the domestic markets. If I take a snapshot of pharma companies that have a turnover of more than Rs500 crore, I see that the PE (price to earnings) ratios are scattered between 30 and 60! In a sense, these are like the FMCG (fast moving consumer goods) companies, with a far greater degree of uncertainty. So, happy hunting, for those who like to own this sector in their portfolio! Maybe it is a good option to buy a sectoral pharma fund (run the risk of manager bias) or a pharma ETF. The sector sure does deliver above-average returns, over a long term.  The author can be reached at [email protected]

Invite your friend to subscribe to Moneylife at 25% discount. Get in 4 friends at 25% discount & your subscription is free. Everybody wins! Log in or register with h w ww.m mone ey liife e.in n/reffe rre r.h htm ml to avail this offer

23 | 12 November 2015 | MONEYLIFE

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INTERVIEW EXCHANGES

‘We Look for Growth at a Reasonable Price’

S

oumendra Nath Lahiri is the chief investment officer at L&T Investment Management, since September 2012. He also serves as fund manager for eight

equity schemes of the fund house. He spoke to Moneylife’s Jason Monteiro about the

investing process he follows

Moneylife (ML): With over two decades of investment experience, where would you put the current market climate? Soumendra Nath Lahiri (SNL): This is a tough market. A lot of what happened in the market over the past 18-24 months was driven by hope, without substantial earnings growth. High expectations were built into the stock prices. That was coupled with easy money available globally and the expectation that India will always stand out as a higher-grade investment destination. But, finally, stock prices are slaves of earnings growth and if that does not show up, you tend to worry. Remember that between 2008 and 2010, we were in a phase when earnings growth was flattish and the Sensex EPS remained at about 825, or thereabouts, for three years. Following that period, we saw a pick up in growth

and stock prices. If you look at the cycles that we’ve seen, by far, 2003-07 was the best phase. And the reason for that was that we were in a sweet spot: domestic growth was pretty strong; global growth was supportive; and we started with low valuation. Earnings growth, during that phase, was 20%-23% compounded. This time, however, I am not so sure. In the past five years, a lot of foreign flows have come in, in the hope of higher earnings growth. But this has not happened. Now, there are expectations that interest rates would move up in the United States. The tired money, which has come in to make supernormal returns relative to the other markets, may flee and take the market down a bit. Yes, GDP growth looks better under the new series, compared to the rest of the world; but this has not really translated into earnings growth. As long as Indian 

MONEYLIFE | 12 November 2015 | 24

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 companies do not achieve better rates of profit growth, I

think, you will find the indices to be more range-bound while throwing up opportunities of picking specific stocks.

for the exposure to a company. If you add our holdings across all the schemes put together, we normally do not go over 4%-4.5% of the overall equity capital of the company. Beyond this, it is a function of the conviction that a fund manager has in the idea and the kind of opportunity that exists in a stock. Often, it happens that when I start buying an idea and if the stock runs up 20%, I’m not going to chase the stock. Then, your ideas are no longer your ideas. If it comes back to my price, good; if not, I will look for alternatives. It has happened in a lot of cases, especially in the small- and mid-cap space which has less liquidity.

ML: What is your basic investment strategy, when it comes to picking stocks? SNL: We follow a bottom-up approach to stock selection. Growth at a reasonable price is what we look for. The market has 5,000 listed companies; not all qualify to be a part of the investment universe. We have a team of eight including fund managers and analysts. This gives us a good amount of breadth to cover close to 300-350 stocks, on a regular basis. We have a proprietary process called ML: What if some ideas don’t work as planned? GEM. This comprises three stages—Idea Generation (G), SNL: It’s not that all the ideas that we buy turn out to be Evaluation of Companies (E) and Portfolio Manufacturing great ideas. We believe that when we buy into an idea, we and Monitoring (M). Generation of ideas can come from need to give these companies some time, like six to nine various sources. It can come from something as basic months. At times, even they give a timeline of what they as a screener. It can come from brokers or from talking plan to do or how they see things would progress. Dayto channel partners of various to-day, stock prices can fluctuate, companies. Based on where this sometimes for reasons beyond idea falls, the sector analyst takes the control of the management. it upon him to do an in-depth Therefore, we have a tolerance to We have a proprietary analysis. This is the evaluation these investment ideas; unless, we process called GEM. This process. get it horribly wrong. It happens comprises three stages There are three things that the sometimes. Therefore, after six to analyst needs to study. First, the nine months, if a company falters, – Idea Generation (G), business, the opportunity, and in terms of market share, etc, it Evaluation of Companies the size of the company. Second, raises a red flag that things are who are the people running it, not going as per planned. We may (E) and Portfolio what is their interest, how they give the stock one more quarter Manufacturing and to see how things work out. treat minority shareholders, Monitoring (M) their capital allocation policy; and other things related to the ML: How important do you feel is it to meet the promoters, management, etc. The third part is the valuation metrics management of a company? based on the analyst’s estimates of how he sees the future SNL: Every quarter, we attend a conference call that is of the company. Considering data of 10-15 years throws organised after the results. If a stock is in our portfolio, light on where the company is headed; then he makes a we definitely make it a point to meet the management comparison of the company—both on an absolute basis at least two/three times a year. These days, it becomes and relative to its peer group. much easier because you have conferences where you get It is just a model. To that extent, the analyst has models to meet the management of several companies together. for most companies we would want to own or have a This is necessary if the stock is in your portfolio. Then, potential of being a part of our portfolio. Once the analyst the next categories of stocks are those which may get into evaluates the idea, it comes to the fund management team. your portfolio and you want to understand something If the analyst is able to sell his idea, then it is the prerogative more. And the third category is one where stocks are of the fund manager to put it in the portfolio, driven by competing peers; so we are just keeping a watch on what the mandate and the investment objective of the scheme. is happening. So, where we own a stock, our interaction with the company is much better than with companies ML: How does the fund manager decide the weights whose stock we don’t own. for each stock? I believe that someone who has worked on the sell-side SNL: We do not have any strict limits, apart from the broad has higher ability to look for ideas and do more in-depth regulatory ones. As a fund house, we keep an overall limit work than a buy-side analyst. We started in the markets 

25 | 12 November 2015 | MONEYLIFE

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INTERVIEW EXCHANGES

 in the early-1990s. Those days, there was no Google. You

things will get better. The interests are aligned, in a sense. had to think of an idea, search the documents at the BSE to get a history of the stock. Those days, there were no ML: What is the reason for a high weightage of quarterly results, only half-yearly results (were available) cement and other infrastructure stocks in your as paper-clippings. That was the way we used to study schemes’ portfolios? companies. I think, at that time, the understanding of SNL: The infrastructure pace has slowed down considerably companies was much more because interactions with the which has led to low capacity utilisation of cement management were much deeper. companies. Consumption of But, nowadays, they have specific cement has gone down drastically. people to deal with analysts and Urban housing has also seen a bit In India, even if the investors. of a lull in the past 9-12 months. We use a lot less cement than any promoter holds 7%, ML: What would be the main other neighbouring country. Even he’ll still manage all reasons for exiting a stock? our concretisation of roads is only the cash in the books. SNL: There are three reasons why 5%. There are lot of levers that we exit a stock. First, we may can come into play to energise What we look for have got the idea horribly wrong. cement off-take. As the capacity are professionallyThe basic hypothesis may have utilisation improves, the cash not worked out. Second, when flows generated will be immense. run companies. In a we buy a stock, we evaluate the It could happen in 12-18 months. professionally-run price it could go up to, if all things Therefore, as the economy grows, company, the cash on work out. If the stock gets to we will see volume growth. India that price, we re-evaluate that needs to spend on infrastructure. the book is treated like position to see if there is more Compared to many developing the company’s cash potential. If not, we start cutting countries, we lag behind. The country is making an effort our position. The third instance is to move forward in terms of that, in a portfolio, you may not get constant inflows and you have another stock outside getting things done and should see itself come through your portfolio which has a much better potential. Then, in infrastructure spend. The government is doing its bit. you replace the existing idea with a better idea outside. In Rail, road and defence should benefit from this spending. terms of specific parameters, it is a mix of valuation and growth. Therefore, even if a company becomes seemingly ML: Over the past year, the government has not done over-valued, but still has a significant ant growth potential, much spending. How much more time would we will continue to hold that stock. ock. you wait befor before switching to an alternative idea? ML: How much weightage do o you give to SNL: The government gove has inherited an economy promoter holding in a stock?? which had sl slowed down because of policy SNL: We do give weightage to how much the decisions bein being sluggish, or not implemented, promoter owns. But it’s not so important that to keep up the momentum. There are a lot of we will invest in a stock only iff the promoter unexecuted p projects which are pending for lack holding is high. But, generally, someone omeone of clea clearances. The current government is who owns a lot of his stock will not trying to unclog this. In infrastructure, try want to damage value. In India, a, it takes 18-24 months before you even if the promoter holds 7%, %, ccan see real progress. The intention he’ll still manage all the cash in n of the government is very clear. the books. What we look for aree They have done a few things to professionally-run companies. In make the system transparent and a professionally-run company, are trying to improve the ease the cash on the book is treated of doing business. I guess, we like the company’s cash. At the need to give another six to nine end of the day, you hope that if months before we start seeing tangible improvement.  the promoter holding is high,

MONEYLIFE | 12 November 2015 | 26

Interview.indd 4

21-10-2015 22:25:24

MUTUAL FUNDS FUND FACTS

Best & Worst Mutual Fund Schemes The best# three and the worst three schemes over the past three years ranked by their quarterly rolling returns. Premium members get access to a more refined list of top schemes by logging in to Moneylife Smart Savers - savers.moneylife.in Equity Schemes (Quarterly Rolling Returns) Large Cap (Category Avg: 3.99%, Sensex: 3.11%)

Launch Date

Corpus (Rs Crore)*

Avg. Quarterly Rolling Returns

SBI Bluechip

1-Year 3-Years**

14-Feb-06

2,717

5.09%

Birla Sun Life Top 100

24-Oct-05

1,857

4.91%

12.08%

21.11% 2.34%

HDFC Capital Builder

01-Feb-94

981

4.83%

11.37%

20.75% 2.26%

HDFC Large Cap

18-Feb-94

1,151

2.98%

3.95%

12.46% 2.21%

Reliance Quant Plus

18-Apr-08

1,238

2.83%

1.54%

11.81% 2.41%

Sundaram Growth

24-Apr-97

239

2.03%

-3.60%

8.36% 2.39%

Birla Sun Life India Opportunities

27-Dec-99

100

6.97%

21.84%

30.91% 2.50%

L&T India Value

08-Jan-10

403

6.88%

25.67%

30.49% 2.47%

SBI Magnum Global 94

30-Sep-94

2,308

6.58%

22.18%

29.06% 2.10%

UTI Dividend Yield

23-May-05

2,857

2.88%

3.51%

12.05% 2.30%

IDFC Equity

09-Jun-06

259

2.86%

1.27%

11.93% 2.30%

IDFC Imperial Equity

16-Mar-06

116

2.70%

2.64%

11.24% 2.31%

16.51%

Exp Ratio

21.97% 2.12%

Multi-cap (Category Avg: 4.38%, BSE 200: 3.39%)

Mid-and Small-cap (Category Avg: 6.61%, CNX Midcap: 4.37%) SBI Small & Midcap

09-Sep-09

613

8.56%

37.46%

38.91% 2.53%

Franklin India Smaller Companies

13-Jan-06

2,512

8.05%

22.66%

36.32% 2.40%

DSP BlackRock Micro Cap

14-Jun-07

2,144

7.87%

32.38%

35.40% 2.42%

HDFC Small and Mid Cap

03-Apr-08

927

4.82%

14.59%

20.72% 2.60%

SBI Emerging Business

17-Sep-04

1,570

4.65%

14.43%

19.93% 2.13%

IDFC Sterling Equity

07-Mar-08

1,533

4.57%

11.47%

19.57% 2.02%

Debt Schemes Income (Category Avg: 2.20%, Crisil Composite Bond: 2.21%) ICICI Prudential Long Term Plan

20-Jan-10

787

2.96%

13.46%

12.39% 0.76%

Tata Dynamic Bond

03-Sep-03

980

2.70%

12.51%

11.27% 1.25%

Birla Sun Life Dynamic Bond

24-Sep-04

15,747

2.50%

13.98%

10.39% 1.19%

L&T Triple Ace Bond

31-Mar-97

864

1.91%

10.05%

7.86% 1.48%

Religare Invesco Active Income

02-Aug-07

702

1.90%

9.93%

7.83% 1.70%

DWS Premier Bond

21-Jan-03

945

1.84%

8.53%

7.56% 1.40%

Liquid (Category Avg: 2.16%, Crisil Liquid Index: 2.14%) Escorts Liquid Plan

03-Oct-05

239

2.28%

9.04%

9.46% 0.50%

Taurus Liquid

01-Sep-06

1,391

2.20%

8.71%

9.11% 0.76%

Franklin India Treasury Management Account

30-Apr-98

3,059

2.20%

8.75%

9.11% 0.20%

Reliance Liquid

07-Dec-01

3,349

2.01%

7.87%

8.29% 0.42%

Tata Money Market

22-Dec-03

4,701

2.01%

7.75%

8.28% 1.05%

L&T Cash

27-Nov-06

787

2.00%

7.62%

8.25% 0.84%

# Please note the table represents a comparative performance of mutual fund schemes over a three-year period and it is not a recommendation; * Latest quarter average assets under management; We have only considered schemes having a corpus above Rs100 crore. **Annually compounded

27 | 12 November 2015 | MONEYLIFE

Fund Facts.indd 2

20-10-2015 20:28:51

FIXED INCOME

Flipping Tax-free Bonds? Be Mindful of Capital Gains Tax

T

ax-free bonds have caught the fancy of investors in the current market, as Reserve Bank of India (RBI) has been cutting the repo rate since January 2015 with a cumulative reduction to 125 basis points (bps). While the coupon rates for the recent tax-free bonds of NTPC Limited (National Thermal Power Corporation) and PFC (Power Finance Corporation Limited) were not enticing, investor response has been surprisingly overwhelming. On the very first day of issue opening, NTPC was oversubscribed by 6.31 times while PFC’s bond issue was oversubscribed by 12.09 times. The retail portion for NTPC issue was oversubscribed by 6.60 times. A retail investor, who invested Rs10 lakh in NTPC tax-free bond issue, on the first day, would have been

allotted bonds worth only Rs1.51 lakh (15% of investment). If you applied on the second day, you got nothing.

At a time when tax-free bonds are being offered, RBI has reduced interest rates sharply. The trend seems to be to invest in tax-free bonds and flip them on the first day of listing, to make capital gains. Apparently, those

Yields Unchanged Past Fortnight

B

ond yields remained unchanged in the past fortnight. You can expect to get 8.35%-8.50% for AAA rated bonds and around 9% for lower than AAA rated bonds. Issuer

Maturity Date

Next Last Yield Coupon (%)

ISIN

Rating

Reliance JIO Infocomm 9.25%

16 Jun-24

16 Jun-16

8.71

INE110L08037

CRISIL AAA (unsecured)

LIC HSG FIN 8.67%

26 Aug-20

29 Jul-16

8.34

INE115A07HS2

CRISIL AAA

HDFC 8.45%

11 Jun-18

13 Apr-16

8.29

INE001A07NR4

CRISIL AAA

NSE data as of last trade date of 16 October 2015

Sterlite Industries 9.24%

06 Dec-22 06 Dec-15

10.27

INE268A07129

CRISIL AA+

Family Credit Ltd 10.90%

28 Feb-24

28 Feb-16

9.51

INE027E08012

CARE AA+

Dewan Housing 11%

12 Sep-19

12 Sep-16

9.10

INE202B07654

CARE AAA

BSE data as of last trade date of 16 October 2015

interested in flipping seek to rent demat accounts of those who do not wish to invest so that they can get the retail coupon which is higher than the rate offered to high net-worth individuals (HNIs). NTPC’s tax-free bonds were listed at a 5.3% premium. So, if you got an allotment of Rs1.51 lakh and flipped it on the first day, you may have made capital gains of Rs8,000. If you are in the 30% tax bracket, remember your net gain will be only Rs5,600. There is misconception, often fortified by wrong media reports, about the applicability of long-term capital gains (LTCG) tax while selling these bonds. LTCG tax will be applicable if you sell these bonds after one year @10% without indexation. There is no indexation benefit when selling taxable or taxfree bonds. It is unclear how much capital gains (or loss) you may make after one year. It depends on the interest rates prevailing at the time you sell.

G-Sec Yields Marginally Up

T

he 10-year benchmark G-Sec yield, has marginally risen to end at 7.55% on 16th October. The government may link the interest rate offered on small saving schemes to bank deposit rates of similar tenure or to a market-linked benchmark. Currently, the interest rates on small saving schemes are in the range of 8.4% per annum (pa) to 9.3%pa. Small savings schemes are deposit schemes offered by the government to provide a risk-free investment option to households. Some schemes, like Senior Citizen Savings Scheme (SCSS) offers 9.3%pa, which is taxable, while public provident fund (PPF) gives 8.7%pa tax-free.

MONEYLIFE | 12 November 2015 | 28

Fixed Income.indd 1

23-10-2015 17:40:22

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23-10-2015 18:53:26

COVER STORY

How Banks Are Ever-greening

Bad Loans

Rajendra Ganatra, a banker and expert in stressed assets, rips apart CDRs and other schemes to fix the huge bad loan problem which are enriching borrowers, bleeding the exchequer while destroying shareholders wealth

N

on-performing assets (NPAs) and restructured (stressed) assets in the Indian banking system stood at a worrisome 11.06% of gross advances, as on 31 March 2015, and were increasing rapidly. The situation was alarming for public sector banks (PSBs), including the State Bank of India (SBI) and its associates, due to higher NPAs, relative to those of private sector and foreign banks (see pie chart Gross NPAs). The banking sector, which had clocked a decline in PAT (profit after tax) of 14.1% in FY13-14 according to Reserve Bank of India’s Financial Stability Report (Issue No. 11, June 2015), managed to register a growth of 11.1% in FY14-15, aided mainly by treasury income and the base effect. Lower growth in advances, amidst high growth in NPAs of PSBs, and a share of about 85% in the deteriorating CDR (corporate debt restructuring)

outstanding of approximately Rs2.86 lakh crore, has rendered PSBs’ financial position fragile. The situation is grim, since CDR advances are concentrated in a few PSBs; 10 banks account for 59% of CDR exposure. For one particular bank, the stressed assets equal the its worth. CDR has been around for 15 years: it is time it should be re-evaluated and, if the process is found wanting, remodelled. The fact is that the success rate of cumulative CDR debt of over Rs4 lakh crore up to FY14-15 was low at around 15% (by value); failed projects accounted for 14% of the debt and the remaining 71% debt was locked in live CDR accounts. By FY14-15, the success rate on the cumulative CDR debt up to FY08-09 was a mere 36% (for approximately 24% of accounts), despite falling in a period of economic boom. Going by this benchmark, an optimistic estimate of the success rate of the overall CDR portfolio is about 36%. Correspondingly, many 

MONEYLIFE | 12 November 2015 | 30

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23-10-2015 18:52:09

COVER STORY

 CDR accounts may turn into NPAs which will further

stress PSBs. The CDR mechanism appears to have failed. The CDR mechanism was designed to provide timely

would be naïve to assume that banks do not adopt such innovative ever-greening in coordination with other lenders.

Proof of Ever-greening

Gross NPAs & Restructured Assets to Gross Advances Public Sector Banks Private Sector Banks Foreign Banks

13.50%

4.70%

3.20%

support to genuine cases through restructuring by ascertaining the viability and rehabilitation potential of the borrowing companies and approval of the restructuring package within a specified timeframe. While the Reserve Bank of India (RBI) permitted aggressive restructuring under CDR, based on liberal debt-servicing norms, it was expected that banks, which had seen their original estimates going awry, would adopt effective evaluation to minimise the probability of default. Going by the low success rate of the CDR accounts, it is clear that banks adopted CDR only to postpone provisioning, given the liberal provisioning norms for CDR. Joint Lenders’ Forum (JLF): Banks adopt CDR for accounts on the verge of turning non-performing. To encourage proactive and timely corrective action, RBI, in February 2014, introduced formation of JLF for implementing corrective action plan (CAP), well before the account would become non-performing. Accordingly, JLF is required to implement CAP on SMA-2 (special mention accounts, sub-category 2, i.e., those with default in principal or interest payment overdue of 61-90 days), and evolve a CAP independently or under the CDR mechanism. The JLF mimics the CDR mechanism, going by the general adoption of CDR mechanism by banks for JLF accounts. Debt Rescheduling Without Provisioning (25%/50%): To aid banks further, RBI permits rescheduling of the principal without treating it as restructuring (i.e., without downgrade and provisioning) for increase in the project cost up to at least 25% on account of change in project configuration (not overrun) before start of commercial operations. Similar rescheduling is permitted in case of refinance of at least 50% of the debt. These policies provide elbow room to banks to reschedule debt without substantive change in project configuration, and structure double refinance. It

Here is an analysis of the cash flows of three infrastructure companies which is highly suggestive of ever-greening (see Table: Ever-Greening Cases). During FY13-14 and FY14-15, these companies’ operating cash flow and fresh equity/quasi-equity fell substantially short of the investments. So, they had no option but to raise debt not only for investments, but also for almost the entire debtservicing. As a result, the companies raised debt ranging from 47.6% to 167% of debt-servicing requirement. It resulted in further deterioration of high debt/operating profit levels. For steady cash flow, growing at a CAGR (compound annual growth rate) of around 5%, debt/ operating profit ratio should not exceed five for a repayment period of 10 years. In these three cases, it ranged between 15 and 20.9, which showed high probability of default, unless the companies could immediately enhance their operating cash flows by high multiples. Debt equity ratio in isolation is meaningless. It is time NPA classification is

Gross NPAs Foreign Banks 4% Private Sector Banks 10%

Public Sector Banks 86%

Total Gross NPAs: Rs3.09 lakh crore

not merely linked to debt-servicing, but debt-servicing with operating cash flow unless, of course, negative operating cash flow in the initial years is factored in at the time of evaluation by lenders.

The 5-25 Structure & Its Flaws The CDR, JLF and 25%/50% mechanisms were designed to help banks substantially mitigate the initial provisioning pressure. Still, RBI introduced ‘Flexible Structuring of Long Term Project Loans to Infrastructure and Core Industries’ (popularly called the 5-25 structure), apparently to impart ultimate relief to banks from provisioning. The structure permits banks to adopt original amortisation 

31 | 12 November 2015 | MONEYLIFE

Cover Story.indd 3

23-10-2015 17:56:26

COVER STORY

Ever-Greening Cases Rs Crore

Infra Company – 1

Infra Company – 2

Infra Company - 3

Cash Flow

FY13-14

FY14-15

FY13-14

FY14-15

FY13-14

FY14-15

2,590

2,915

1,392

2,733

1,233

1,294

(5,422)

(3,164)

686

448

(2,895)

(1,105)

634

448

(1,923)

(2,950)

1,562

(252)

(349)

1,831

-

-

-

-

-

-

45

651

212

592 1,641

Operating Cash Flow Investing Cash Flow Financing Cash Flow (Net) Of this: - Equity / Quasi-equity (net) - Short-term Borrowings (net) - Long-term Borrowings

10,785

11,482

3,201

2394

3,514

- Loan Repayment

6,837

9,278

1,484

1,646

356

421

- Interest Paid

3,110

3,445

3,704

4,754

1,875

1,791

(2,198)

199

155

231

(100)

(63)

2,241

4,746

1,392

2,733

1,233

1,294

1,105

TOTAL CASH FLOW INFLOW Operating Cash Flow Plus Equity/ Quasi-equity OUTFLOW Investments / (Disinvestments)

5,422

3,164

(686)

(448)

2,895

Debt-servicing

9,947

12,723

5,188

6,400

2,231

2,212

Total

15,369

15,887

4,502

5,952

5,126

3,317

Shortfall

13,128

11,141

3,110

3,219

3,893

2,023

Fresh Debt Raised

10,785

11,482

3,246

3,045

3,726

2,233

108.4%

90.2%

62.6%

47.6%

167.0%

100.9%

3.6

4.4

15.2

42.3

3.7

5.1

15.0

18.0

20.9

20.6

19.5

19.0

Fresh Debt as % of Debt-servicing Debt Equity Ratio Debt to EBITDA Ratio

 schedule (OAS) for repayment of loans for a period of

about 25 years, i.e., up to 80% of the economic life to projects in infrastructure and core sectors/industries such as transportation, energy, water and sanitation, telecommunications, social and commercial infrastructure, coal, crude oil, natural gas, petroleum refinery products, fertilisers, steel, and cement production. Within OAS, banks can provide initial debt facility (IDF) of five to seven years. The outstanding debt at the end of such IDF can be structured as a bullet repayment to be refinanced by the original lender, or other lenders— with or without the original lender—or by issue of bonds. Extension of OAS is permitted only in cases where the date of commencement of commercial operations is extended in line with RBI’s guidelines. However, in such cases, the revised OAS is limited to 85% of the project’s economic life. For existing standard loans of at least Rs500 crore, the 5:25 structure is allowed up to 85% of the economic life even after the start of commercial operations. The 5:25 structure is appropriate for projects with steady and predictable cash flow which can be controlled

by lenders through ‘cash trap accounts’. Correspondingly, it can be adopted for infrastructure projects under public private partnership (PPP) structure, backed by take-orpay contracts with creditworthy off-takers along with ‘cash trap accounts’ for the concession/off-take period. In such projects, while it can help banks match their assets and liabilities, it can also minimise the major fixed cost component (principal+interest) in PPP projects where user charges are based on two-part tariff structure. Going by this benchmark, barring power purchase agreement (PPA)driven power generation/transmission projects, annuitybased road projects and water-sanitation projects with optimum tariff structure—along with bankable concession agreement—no other borrower from the long list of eligible sectors/projects seems appropriate for 5:25 structure.

Encouraging Bad Behaviour What is the impact of this? It only encourages promoters to play with lenders’ money. Jenson & Meckling (1976), in their seminal study “Theory of the firm: Managerial Behavior, agency costs and ownership structure”, show that 

MONEYLIFE | 12 November 2015 | 32

Cover Story.indd 4

23-10-2015 17:57:03

COVER STORY

Galloping Bad Loans

creditworthy off-takers and conversion of letter of assurances (LoA) from the government coal companies to the Public Sector Banks Private Sector Banks power project companies into takeRs Crore 2,67,065 31,576 or-pay coal supply contracts. Gross NPAs In one ultra-mega power project, 2,16,739 22,738 lenders had treated coal price risk 19,986 1,55,890 mitigated, merely based on the promoters’ investments in overseas coal mines. The lenders’ engineers played a perfunctory role by accepting project costs as proposed by borrowers. In toll road projects, FY12-13 FY12-13 FY13-14 FY14-15 FY13-14 FY14-15 developers often assigned construction contracts to their nominees. Banks were expected to resolve the conflict  even a sole owner of a firm would derive non-pecuniary by evaluating project costs efficiently. However, here benefits from the firm with risky debt, if he believes that also, banks depended on advice from lenders’ engineers such benefits are more valuable than loss in the value of his who justified project costs as proposed by borrowers. own equity. Internationally, research shows the manager/ This is understandable, since the engineering firms often promoter’s propensity to shift the risk to lenders in various have deeper business relations with other companies of ways. In India, there has been grudging acknowledgement the promoters and get away with perfunctory advice, by the regulator of the lack of ‘skin in the game’ by the particularly when they see that the lending bank lacks promoters, as an indirect reference to adoption of asset technical knowledge and adopts a hands-off approach. overstatement for generation of promoters’ equity. If No wonder, in 2011, a study of 66 projects by National the promoter recovers the entire equity by asset over- Highways Authority of India (NHAI) had shown that statement, the entire project risk shifts to lenders. While banks had lent an average of 39% more than the project CDR entailed restructuring of debt, promoters without cost arrived at by NHAI. Similar information asymmetry ‘skin in the game’ were not perturbed due to the lenders’ step-in rights through pledge of shares in unviable projects, CDR Hasn't Worked particularly when they could manage the cash flows to their benefit and leave the assets for recovery through tardy CDR Status: FY-2015 100% legal process with impunity, once the assets deteriorated beyond redemption. 80% According to Report of the Committee to Review Governance of Boards of Banks in India (Nayak Committee report), released in May 2014, the financial 60% % Successful CDRs (Value) % Failed CDRs (Value) position of PSBs is fragile, partly masked by regulatory % CDRs Underway (Value) forbearance which delays, but does not extinguish, the 40% recognition of this fragility. The 5-25 and other structures have all the trappings of delaying and enhancing, but not 20% extinguishing the NPAs. The cause for this has been weak board governance of PSBs. Look at how large NPAs have 0% cropped up in the power generation sector. Upto FY-2009 FY-2010 FY-2011 FY-2012 FY-2013 FY-2014 FY-2015 Until FY13-14, of the total share of PSBs’ advances to power generation sector, 10.1% was standard, and 17.3% was stressed, according to RBI’s Financial Stability Report. These large stressed advances have resulted from sanction applies in working capital advances where, among other of project finance by PSBs (and some private sector banks) issues, stocks are certified by the auditors without any without proper risk mitigation. For example, the banks domain expertise and no one is held responsible for major disbursed debt to power generation projects often before impairment in the value of stocks later. execution of PPAs (power purchase agreements) with What does the ‘weak board governance’ of PSBs 

33| 12 November 2015 | MONEYLIFE

Cover Story.indd 5

23-10-2015 17:57:16

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23-10-2015 18:13:53

COVER STORY

Strategic Debt Restructuring Scheme

R

eserve Bank of India’s ‘Strategic Debt Restructuring’ (SDR) Scheme of June 2015 provides step-in rights to lenders to achieve majority holding through conversion of debt and unpaid interest into equity—in case a restructured account fails to meet the financial and other critical targets. SDR can apply to accounts restructured in the past, if the borrowers agree. SDR can be implemented if lenders determine the project to be viable, despite the failure of restructuring, if at least 60% of lenders, with aggregate debt of 75% or more, support it. The conversion price is lower than the market value or the break-up value. Invocation of SDR happens after the failure of restructuring as evidenced by the company’s inability to meet the requisite financial and other critical covenants. Yet, the Scheme permits banks to invoke SDR without treating the accounts as restructured. Hence, the benign provisioning norms continue postSDR, and the asset classification, which had prevailed at the time of creation of JLF (joint lenders’ forum), applies. Further, when the lending banks divest their holdings in favour of a new promoter, the account is

 connote? Remember how an erstwhile railway minister

had placed his loyal chartered accountant on a PSB board for getting easy loans? Was that an isolated event? Was the SK Jain episode in Syndicate Bank an isolated event? If the owners, who are supposed to place watchdogs for effective management, become nibblers, can employees be far behind? The exponential growth in PSBs’ NPAs refl ects serious employee moral hazard apart from lack of organisational and management bandwidth. While project financing has failed due to lack of banks’ expertise in evaluation, CDRs have failed due to the same reasons, aside from the banks’ anxiety to minimise provisioning. Where do we go from here? It is time the government implemented the seven-pronged ‘Indradhanush’ plan to revamp PSBs in right earnest, lest the financial stability of the banking sector is seriously jeopardised. The regulator may consider implementing a system for accreditation for project financing banks and arrangers/financial advisors. Accredited banks with sectoral/project finance expertise also need to devise innovative structures where, for viable projects, even 100% project cost without over-statement

allowed to be upgraded as standard—with a caveat that the existing provisions would not be reversed. Banks are allowed to refinance such debt (with a fresh repayment schedule) without restructuring; this implies further relief from provisioning. Steps-in rights, through pledge of entire shareholding of the promoters, are meant to serve as an effective security for lenders. Once the lenders exercise the pledge and dislodge errant promoters, they are free to subject the company to a process which can speed up and maximise debt recovery. Provisioning for debt, in such cases, is consistent with the classification of such assets. The pledge of shares has a disciplining effect on the promoters. For example, in the 1990s, Tractebel, one of the promoters of a 260-MW power generation company, viz., Jindal Tractebel Power Company, had stopped work for the project, since it had reached the peak of liquidated damages in terms of the EPC (engineering, procurement, construction) contract, and further delay did not impact it any more. As it was affecting the lenders, they threatened to exercise the pledge of shares and the matter was quickly resolved. However, it is strange that the SDR Scheme does not stipulate pledge of shares first. The only idea seems to go beyond the ultimate, i.e., 5-25 situations, and allow the account to retain the account classification as existed on the ‘reference date’.

is funded with debt, and where the sponsors with requisite credentials take construction and cost overrun risk, and upon completion, get a majority stake and lenders keep a minority stake. Asset over-statement to extract equity seems to have helped some promoters to create speedy assets at a time when project equity participants were not available. But its unrestrained spread has turned India into a high-cost economy and exposed banks to excessive risks, which are now leading them to a precipice. It is time PSBs are revamped urgently, lest the banking sector plunges into crisis caused by bad loans. We have spent too much time experimenting with how to control it while keeping the weak structure intact. 

The author is the managing director & CEO of India SME Asset Reconstruction Company Ltd., promoted by Small Industries Development Bank of India

MONEYLIFE | 12 November 2015 | 36

Cover Story.indd 6

23-10-2015 17:57:41

WRONG LIFE INSURANCE

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All you have to do is to choose the kind of policy you have bought, provide just a few details and we will suggest the right solution for you. ‘Insurance Surrender’ tool is available free to MSSN members. If you are not a member, please become a member today and avail 11 other incredible benefits. Visit: m.savers.moneylife.in/insurance-surrender.html MSSN is a SEBI-registered investment adviser and part of Moneylife, India’s most unbiased and proinvestor 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 36,000 members. MSSN was set up to help investors and savers make the right financial decisions and handhold them through their personal finance issues.

INSURANCE - MSSN.indd 1

23-10-2015 18:15:53

StockWatch A section on stocks and sectors that catch our eye

U lt r a ma r ine & Pigm e nt s

Steady Growth Inorganic pigment firm is also into wind power generation and BPO and has interesting expansion plans

U

ltramarine and Pigments (UAPL) serves its customers with a range of inorganic pigments, detergents and cosmetic-grade surfactants. It is the only film sulphonator in south India and has a capacity of 20,000 tonnes per annum. It has two factories in Tamil Nadu—in Ambattur and Ranipet. It also has a business process outsourcing (BPO) business that contributed 17% of its revenues in March 2015

In the Fast Lane? Volume

Price in Rs 100

96,000

90

72,000

80

48,000

70

24,000

60

0

Oct-14

Apr-15 Shares Traded

Oct-15 Adjusted Closing Price

Key Financials Stand-alone (Rs Cr)

Dec-14

Mar-15

Jun-15

44.66

41.70

50.92

OP

8.64

5.45

8.05

OPM

19%

13%

16%

2%

4%

21%

-3%

-8%

11%

FY13

FY14

FY15

14%

16%

19%

Revenue

Y-o-Y Revenue growth Y-o-Y OP growth March Ending RoNW

OP: Operating Profit, OPM: Operating Profit Margin, RoNW: Return on Net Worth

and recorded an overall operating profit margin of 21%. Much of this comes as exports. Exports of manufactured products are around 16%. For the quarter ended June 2015, UAPL’s revenues were Rs50.92 crore (Rs42.08 crore), up 21.01%, and its net profit was Rs5.22 core (Rs5.04 crore), up 3.57%. For the year ended March 2015, the revenues were Rs172.22 crore (Rs150.22 crore), up 14.64%, and its net profit was Rs18.74 crore (Rs14.39 crore), up 30.23%.

The strongest line of business of UAPL is surfactants. This segment recorded higher margins due to a better supply of imported alpha olefin (a key raw material) in the first two quarters of the year. However, in the latter part of the year, due to the volatility of crude prices, the company faced erratic and inconsistent supply of the raw material. In the wind power generation segment, the directors are optimistic and have said in the annual report (FY14-15), “In the coming years, we hope that the constraints and bottlenecks faced by windmill operators will be reduced, as the Tamil Nadu State Grid capacity is augmented. This will help avoid production loss during peak season.” There are key concerns in the 

MONEYLIFE | 12 November 2015 | 38

StockWatch.indd 2

23-10-2015 17:21:22

STOCK WATCH

 pigment business segment. Demand from the laundry

and white-washing applications is shrinking. However, the bright spot for UAPL is that it plans to expand its manufacturing facilities in Gujarat and its directors have reported, “GIDC (Gujarat Industrial Development Corporation) is in the process of establishing infrastructural facilities at the industrial site at Dahej, Gujarat. The company has paid water contribution charges for the year, and is waiting for further progress.” Over the past five quarters, the average growth in quarterly sales of UAPL was 17% and its average growth in quarterly operating profit was 23%. UAPL’s average operating margin is a solid 17%. Its marketcapitalisation is 1.39 times its sales and 8.33 times its operating profit. Its cash earnings per share were

The Strong Get Stronger When the market falls, buy the strong stocks, especially those near their 52-week highs

O

n 5 November 2010, Nifty hit a high of 6,312 and then fell to 4,751, or nearly 25%, by 5 October 2011. However, even when the market corrected, there were stocks moving higher and which hit their 52-week closing high. Of 1,285 companies (excluding bank and NBFC), 587 companies had RoCE (return on capital employed) of 11%+ in September 2011. Had one bought the entire set

Rs7.50. Its return on net worth (RoNW) was 19% based on four-quarter trailing net profit and its return on capital employed (RoCE) was 27% on the basis of of four-quarter trailing EBIT (earnings before interest and tax). UAPL has distributed dividends of 150% for FY14-15, 125% for FY13-14 and 113% for FY12-13. The face value of the UAPL share is Rs2 and its book value is Rs34. The share price has risen from its 52-week low of Rs60 on 27 March 2015 to its 52-week high of Rs104.75 on 19 October 2015. The shareholding pattern of UAPL includes 51.99% with the promoters, 0.14% with domestic institutional investors and 47.87% with retail investors. The share is currently trading at around Rs97.20. 

of 587 companies, one would have made an average return of 313%. From 5 October 2011 to 1 October 2015, not even a single stock from among these stocks had negative returns, proving—once again—that holding high-quality stocks for longer periods turns out to be worthwhile. Could this return have been bettered? One approach is to buy stocks that are showing price strength, hoping that the momentum would continue. The other approach is to buy stocks that are down in the dumps, hoping that they would revert to mean. Of the two approaches, momentum won. Of the 587 stocks, 19 stocks traded in the range of less than 5% off their 52-week highs. These gave an average return of 369%. There were 196 companies which were trading in off their 52-week lows. Had one bought these stocks, one would have had average return of 274% during the 

Exits & Returns from Erstwhile Street Beat Stocks: We continue to monitor stocks featured in the erstwhile Street Beat section. We will suggest an exit when they are no longer undervalued or not performing as per expectations. Keep an eye on this space. | 50% Return: Our recommendation has so far fetched 50% average annualised return since January 2012, based on booked profit and open positions of more than one year. | Exits: Astra Microwave : Loss of 12% since 30 April 2015; GMDC: Loss of 37% since 5 March 2015; Geometric: Profit of 5% since 8 January 2015; MOIL: Loss of 27% since 25 December 2014; KSE: Profit of 14% since 11 December 2014 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.

39 | 12 November 2015 | MONEYLIFE

StockWatch.indd 3

23-10-2015 17:22:04

STOCK WATCH

Momentum Works

Relaxo Footwears Eicher Motors

Price on 05 Oct-11

Price on 01 Oct-15

Change %

43.15

533.50

1,236%

1,623.30

18,286.35

1,126%

Indag Rubber

22.92

181.30

791%

TVS Srichakra

379.50

2,593.50

683%

Multibase India

34.55

219.80

636%

765.00

3,442.40

450%

7,078.75

19,316.45

273%

135.15

355.05

263%

2,402.10

6,053.85

252%

498.25

963.95

193%

Solar Industries India Bosch Gateway Distriparks GSK Consumer Colgate-Palmolive SKF India

665.55

1,279.65

192%

2,307.60

4,082.30

177%

M&M

784.45

1,250.05

159%

Rallis India

174.00

215.40

124%

1,107.00

1,363.10

123%

Indraprastha Gas

431.00

467.40

108%

Kennametal India

796.40

794.50

100%

87.98

70.90

81%

175.30

76.80

44%

Sanofi India

ACC

Gujarat State Fert Kwality

 the relevant period. Nifty has fallen nearly 16% from

its life-time high of 8,996 at the close of 3 March 2015 to 7,558 on 7 September 2015. So, can we repeat the process of 2010-11, that is, buy stocks that are close to their 52-week highs and hope for substantial gains over the next few years? When stocks are bought at their 52-week highs, they need to have strong fundamentals to move higher. Let us look what supported the up-move of these 19 stocks. The top gainer in the list, Relaxo Footwears, surged 1,236% from 5 October 2011 to 1 October 2015. It was trading 3.21% below its 52-week high at the beginning of the period. Had one avoided this stock, or not bought this stock, just because it was trading at its highest level of valuation, it would have been a big mistake. We had recommended this stock in our Street Beat section in issue dated 4 October 2012, when it was trading at MC/OP (market-cap to operating profit) of 8.61 times and are still holding it. For the five quarters ended September 2011, it recorded an average revenue growth of 25.22% while the average OP growth was weak. It has, since, recorded an average revenue

growth in the range of 16.16% to 25.88%. Over the five quarters ended June 2015, its average revenue growth is 22.44%. After the weak operating profit growth of 2011, its performance started improving. The five-quarter average OP growth moved in the range of 21.01% to 43.74% (March 2012 to June 2015). The current five-quarter average OP is 38.82%. Valuation is at stratospheric heights. Current MC/OP is a humungous 29.07 times. If you buy now, you will not get a repeat performance of 2011-15. Your returns are likely to be good but not spectacular. You will have to find another Relaxo. Eicher Motors, which is up 1,126% over the relevant period, was trading 1.56% below its 52-week high on 5 October 2011. Unlike Relaxo, this was not available cheap in 2011. At the beginning of the period, it was trading at a huge MC/OP of 58.51 times (on a standalone basis) while its current MC/OP is 53.81 times. The growth in its market-cap has been more than matched by the growth in OP. For the various fivequarter periods (December 2011- June 2015), the average OP growth has ranged from 73% to 151% while average revenue growth has gone up from 47% to 82%. Its current five-quarter (ended June 2015) average OP growth is at 106% while average revenue growth is at 66%. RoCE has consistently moved up from 13% to a huge 70% thanks to its growth in commercial vehicles as we all as motorcyles. Kwality was trading at its 52-week high, at the beginning of the period. It has gone up the least in the subsequent period (up 44%). While the five-quarter average revenue growth rose from 46% as at the end of December 2011 to 59% as at the end of December 2012, later the average has consistently fallen from 57% to 14%, its current five-quarter average (as at the end of June 2015). The average OP growth has been no different. Except a small bounce-back for the averages as the end of March 2014 to September 2014, the fivequarter average has moved down from 105% as the end of December 2011 to the current level of 18%. It is important to note that a stock which may be overvalued at any point of time, i.e., it may be trading at its highest level or close to the highest level of valuation, has all the possibility of moving higher if it is supported by continued growth. The least rise in price was seen in Gujarat State Fertilizers and Chemicals (GSFC) (up 81%), Kennametal India (100%) and Indraprastha Gas Limited (IGL) (up 108%). While GSFC and IGL had declining fundamentals, Kennametal India did not have consistent fundamentals to support a strong up-move. 

MONEYLIFE | 12 November 2015 | 40

StockWatch.indd 4

23-10-2015 17:23:40

STOCK WATCH

Not All Debt Is Bad Look out for indebted companies making rising profits

W

hile picking stocks, one usually avoids those with high debt. Nobody knows how things would turn out for indebted companies when it comes to servicing debt. Large debts are usually raised for expansion of capital-intensive projects. Companies must have the ability to execute the project, contain the rising interest cost and still make profit. If a company displays this ability, should we still avoid it? What have been the record returns from such companies in the past?

From the 1,285 companies (excluding banks and NBFCs) in our database, we have considered stocks which have had rising debt-equity ratio over the past three years, have managed to record net profit (NP) in the past 13 quarters and have also recorded a yearon-year (y-o-y) NP growth in at least 10 quarters. From the same dataset, we have applied the same three criteria on companies which have no debt over past three years. In the first set, there were six companies which had rising debt:equity ratio from FY11-12 to FY14-15 and were making profits. Had one invested in these shares on 1 June 2012, the stocks would have given an average return of 493% up to 8 October 2015. There were 21 companies in the no-debt set of profit-making companies. Had one invested in these shares on 1 June 2012, the stocks would have given an average return of 285% up to 8 October 2015. Granules India was among the top two high-debt companies. Its debt:equity ratio moved up from 0.67 times as at the end of FY11-12 to 0.97 times as at the end of FY14-15. It had high inconsistent NP growth.

But the stock surged 1,524% over the relevant period. Apollo Hospitals Enterprise recorded the lowest positive price appreciation during the relevant period (up 126%). However, over the relevant 13 quarters; except March 2015 when its y-o-y NP growth fell marginally by 5%, for the remaining 12 quarters (June 2012-June2015), it recorded an average NP growth of 17%. Mayur Uniquoters was the second-highest gainer, rose 576% for the relevant period; its y-o-y NP growth fell marginally by 2% for the March 2015 quarter; for the remaining period, its NP growth moved in the range of 11% to 52%. Hindustan Tin Works fell 12% over the relevant period. It recorded y-o-y NP growth in 10 out of the 13 quarters. Among the zero-debt companies, Wim Plast surged 905% for the relevant period. It was among the three companies which made y-o-y NP growth in all the 13 quarters, averaging at 20% over the past 13 quarters. The other two companies which recorded NP growth were ITC and GSK Consumer. ITC had recorded its lowest NP growth of 4% in March 2015 and June 2015 quarters. Atul Auto was among the top two gainers in the list, with NP growth in all but one quarter. Its y-o-y NP growth fell by 27% in the June 2015 quarter. The list of no-debt companies includes many software companies, namely, RS Software, Persistent Systems, Cyient and Infosys. Rupee depreciation, over the past few years, has contributed to the bottom-line of software companies. Persistent Systems recorded double-digit y-o-y NP growth in 10 quarters in the range of 12% to 73%. June 2014 and December 2014 quarters recorded marginal positive growth while September 2014 quarter fell by 8%. Infosys recorded a growth in 11 out of 13 quarters but has recorded a falling NP growth in the four quarters ended June 2015. Cyient has witnessed inconsistent NP growth over 13 quarters. RS Software achieved y-o-y NP growth of 89% in 

Debt Tonic Price (Rs)

Granules India

01 Jun-12

08 Oct-15

9.55

155.10

Change % 1524%

Mayur Uniquoters

61.48

415.30

576%

Lloyd Electric

39.40

204.80

420%

Indian Hume Pipe

100.00

428.10

328%

Apollo Hospitals

641.90

1,449.10

126%

62.45

54.75

-12%

Hindustan Tin

41 | 12 November 2015 | MONEYLIFE

StockWatch.indd 5

23-10-2015 17:23:59

STOCK WATCH

Zero-debt Winners Price (Rs)

Change %

01 Jun-12

08 Oct-15

Wim Plast

210.10

2,110.50

905%

Atul Auto

47.40

437.60

823%

Panasonic Energy

48.85

342.10

600%

Stovec Industries

251.05

1,726.75

588%

Panasonic Carbon

129.75

652.00

403%

RS Software

35.35

168.40

376%

Indag Rubber

39.53

180.30

356%

Abbott India

1,422.45

5,789.35

307%

Persistent Systems

172.07

644.95

275%

Cyient

168.00

570.65

240%

ENIL

210.15

706.95

236%

2,278.10

6,175.15

171%

Nesco

597.25

1,473.70

147%

Zydus Wellness

359.55

839.90

134%

GSK Consumer

Procter & Gamble

2,748.75

6,022.10

119%

Hindustan Unilever

419.00

821.35

96%

Infosys

596.95

1,132.45

90%

ITC

233.80

339.15

45%

Bata India

430.15

552.15

28%

Hindustan Zinc

116.65

145.20

24%

55.00

64.50

17%

PTC India

RS Software achieved y-o-y NP growth of 89% in March 2014 quarter but, over the following five quarters, it witnessed a falling trend. Its NP growth has fallen from 55% in June 2014 to negative growth in the four quarters ended June 2015.

Motorcyles in Slow Lane

B

oth Bajaj Auto and Hero MotoCorp, are struggling to increase sales. Hero MotoCorp reported a sales growth of just 1.1% in the September quarter while Bajaj Auto’s sales inched up 2.3%. Total twowheeler sales actually dropped 0.6% year-on-year with motorcycle sales declining by around 2% in urban areas and by around 8% in rural areas. The saving grace for two-wheeler companies is lower input costs which is boosting margins. Hero MotoCorp reported a higher margin of 15.8% over an estimated 15.2%, thanks to lower costs of raw materials (6.3%) and higher realisations. Apparently,

Some Market Terminologies Explained

Cash flow statement: It forms an important and mandatory part of the financial statements of a company. It provides the reader an understanding of the firm’s ability to generate cash and cash equivalents and the manner in which the funds are applied by it. The cash flow statement comprises three parts: cash flow during the period from operating, investing and financing activities. Cash flow arising from operating activities shows the ability of an enterprise to generate sufficient cash flow to maintain the operating capability. Cash flow from investing shows funds generated from various sources and their use such as for acquiring fixed assets. Cash flow from financing activities shows infusion of cash from equity capital or borrowing and items that reduce cash such as repayment of borrowing. 

In short, while is it is prudent to avoid heavilyindebted companies, it may be profitable to screen companies based on rising and consistent profits. If you can combine this with low valuation, returns can be far better than indebted companies that are highly valued. Note that returns from outstanding debt-free companies like Hindustan Lever, Glaxo, ITC and Infosys are pretty modest. This is because of their high valuation. 

the company has suggested that a margin of 15% is achievable in FY15-16. Bajaj Auto reported stagnant sales for the September quarter. Sales volume was 1,056,596 units compared to 1,055,582 units in the September quarter last year. Bajaj Auto showed an even higher margin gain compared to Hero MotoCorp. For the September quarter, operating margin improved to 22.1% from 20.8% in the same period last year. Motorcycle sales in India should be rising steadily, given India’s demographics and the fact that motorcycle use can be essential as well as discretionary. Is the continued weak demand indicative of market saturation or the impact of lower disposable incomes due to drought and sluggish economic growth? 

MONEYLIFE | 12 November 2015 | 42

StockWatch.indd 6

23-10-2015 17:27:48

STOCK WATCH

UN UOTED STORIES OF PRICE MANIPULATION

Aviva Industries (Rs26)

A

viva Industries (earlier known as Ankush Synthetic) was trading in chemicals. Over the past few years, Aviva has not done any business; hence, there is no income. With no income, Aviva reported a net loss of Rs4 lakh for the year ended June 2015. Over the past 15 months, trading in Aviva has been highly suspicious. From its low of Rs8.68 in February 2014, in just about seven months, the stock price shot up 343% to Rs38.45 on 19 September 2014. In the seven months that followed, the stock price crashed

(Rs) 40

194%

30

20

10

0 Feb-14

Dec-14

Oct-15

by 67.85% to Rs12.36 on 23 April 2015. This was not the end. The stock staged

another steep rally, of 144%, before dipping by 30%. The price is up by 194%, at Rs25.50, on 7 October 2015 from Rs8.68 on 17 February 2014. In 2010, the Security and Exchange Board of India (SEBI) had imposed a penalty of only Rs2 lakh on Aviva Industries for trading while in possession of unpublished price sensitive information in the scrip of Nova Petrochemicals in 2006. Will SEBI investigate this suspicious trading activity in a company which has only 626 shareholders and which has been involved in insider trading in the past? 

MARKET TREND

The Slog Overs Don’t expect a strong up-move soon

I

n the previous issue, I had mentioned that we are likely to be stuck in a rut for a while. Two weeks ago, the Sensex was at 27,080. At the time of writing, it is at 27,288. The bulls are really being made to slog to take the index higher. Companies have started reporting earnings for the September quarter but, e nothing great. Among as expected, the results are ata Consultancy the index heavyweights, Tata fter declaring Services (TCS) has fallen after so-so results and Infosys has fallen after declaring better-than-expected results. While Reliance Industries has reported better results, nobody really knows ce iss whether better performance ts 4G adventure sustainable and whether its will succeed. yweights, only pharma Among the index heavyweights, stocks, viz., Lupin and Dr Reddy’s, two HDFC companies, and an odd one, like Maruti, look strong. From Vedanta to Coal India, to Hindalco to M&M, to NTPC, ONGC, Idea, Bharti Airtel, Tata Steel… most

stocks look weak. They have no way of increasing their revenues since Indian industry remains hobbled by many problems. The only way for them to increase profits is to control input costs. However, while manufacturers in the rest of the world can take advantage of lower costs, such as decline in oil prices, in India, businesses have to suffer many frictional costs which have little to do with overall ‘deflation’, as re reflected in the wholesale price index. Costs of utilitie utilities, wages and logistics are not going down. IIndian businesses are stuck between a rock and a hard place. In such a situation, only the best of companies are worth in investing and they happen to be expensive—even the sma smaller ones. C Coming to back to the overa market direction, we overall e don’t expect a strong up-move A best, we will have a rather soon. At Mo likely, the rally from laboured rise. More under 25,000 (of 9th September) is maturing. We would not be surprised with a 5% correction from the recent high of 27,432. — Debashis Basu 

43 | 12 November 2015 | MONEYLIFE

StockWatch.indd 7

23-10-2015 17:28:22

3 Long-term Stockletters for Excellent Returns Panther 96.25%*

Antelope

Lion

49.25%*

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*Annualised. Since 25 April 2014

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Long-term value stocks. More of midcap stocks to be held for 1 year or more

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• A shortlist of stocks to invest in • Fundamental data we rely on • Brief description of the companies • Weekly updates on all stocks

• Weekly market view • A shortlist of stocks to invest in • Fundamental data we rely on • Weekly updates on all stocks

• Weekly market view • A shortlist of stocks to invest in • Fundamental data we rely on • Weekly updates on all stocks

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 30-32 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

Stockletter (MSSN) Ad Oct 15.indd 2

them still? These are all excellent stocks we have selected in long -term stockletters. 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

20-10-2015 14:11:33

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? The stockletter is currently sent as a pdf file by email. Subscribers can also download their stockletter by visiting their MSSN 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]

NOW SIP IN STOCKLETTER STOCKS Subscribers of our can now simply enter the amount they wish to invest. Our tool will divide the amount equally across the stockletter stocks to the extent possible

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. 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 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. 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. Moneylife is a media and information company and not investment advisor. Please consult an advisor about the appropriateness of your investment decisions. 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.

Log on to savers.moneylife.in with your email id and password and check the dropdown menu under Investool to find Stock SIP If you don’t have a login id and password email us at [email protected]

YES, I wish to subscribe for one year to the following stockletters:

Antelope

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Panther

Annual Subscription of Each Stockletter(Antelope/Lion/Panther): Rs2,500; Special Combo Offer for any Two: Rs4,000; Annual Price for all Three: Rs6,000 NAME: ____________________________________________________________________________________________ ADDRESS: __________________________________________________________________________________________ PHONE (Office): ____________ Phone (Res): ____________ E-mail address: _____________________________________________ Date of Birth: ____________________ (MM) (DD) (YY) Profession: _____________________ Designation: ____________________________________________________________ ( ) Please find enclosed ( ) Cheque / ( ) Demand draft number ____________________________________ dated __________________ favouring Moneylife Smart Savers Network Pvt. Ltd. ( ) Please charge it to my ( ) /( ) /( ) My card number is ______________________ & expiry date is ____________ (MM / YY) DATE: ______________________ SIGNATURE: ______________________ Please fill in this order form and mail it with your remittance to Moneylife Smart Savers Network Pvt. Ltd., 316, 3rd Floor, Hind Service Industries Premises, Off Veer Savarkar Marg, Shivaji Park, Dadar (W), Mumbai 400 028. Credit card orders can be faxed to Mumbai 022-49205022. In case payment is through credit card, expiry date of the card should be mentioned. # Rates and offers are valid only in India. This offer is valid for a limited period. # All disputes shall be subject to Mumbai jurisdiction only.

Privacy Policy: We do not give away your e-mail or address, telephone number, or any other information that you provide to us. We use this information solely to service your account

Stockletter (MSSN) Ad Oct 15.indd 3

20-10-2015 14:11:51

INSURANCE TRENDS

BMB Sakhee, for women from marginalised sectors; BMB Nirbhaya, for the working women; and BMB Parivar Suraksha, a family floater scheme that would cover the family of the accountholders. While Sakhee covers up to Rs50,000, Nirbhaya offers cover of Rs1 lakh to Rs5 lakh. The Nirbhaya scheme will cost Rs1,745 for Rs1 lakh cover for a 22-yearold insured. Maternity cover and delivery charges can be claimed after two years’ waiting period.

New products, regulations, features and options, interpreted from your perspective H e a lt h I n s uranc e

BMB Nirbhaya: Covering Infertility Waiting period of two years and subject to maximum of 10% of sum insured

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here is customer segment of young to middle-aged couples who are looking for maternity cover in mediclaim. There is a waiting period of three-four years for maternity cover in a retail product. The premium for such products is high due to the maternity and newborn cover. But what about cover for infertility treatment?

Fine Print Cashless Cover for Accidents on Three Major Highways

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he ministry of road transport and highways has tied up with IFFCO-Tokio General and ICICI Lombard to offer cashless insurance cover for road accident victims. The pilot project is for Jaipur-Delhi, RanchiJamshedpur and VadodraMumbai highways wherein the insurance companies will

Unfortunately, retail mediclaim and critical illness products do not cover infertility treatment. Group mediclaim offered by employers may cover it if negotiated with the insurer. But it depends on the employer who may not provide it, if there is additional cost. Last year, Bharatiya Mahila Bank (BMB) tied up with New India Assurance to offer its women customers, across categories, insurance schemes that would even provide cover for treatment of infertility and maternity. Bankoffered group health insurance products are for account-holders and are usually at a lower premium, due to the volume of business. The three schemes are:

pay for hospitalisation. Cashless cover will be offered; but the claim amount is limited to Rs30,000 per policy. Insurers have tied up with ambulance agencies and hospitals near the highway. The cost of insurance is paid by the ministry which may roll out the insurance cover nationally, based on the experience with the pilot project.

Annuity To Be Minimum Rs1,000pm?

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RDAI in its Minimum Limits for Annuities and other Benefits Regulations, 2015, has stated

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Features of BMB Nirbhaya For all women account-holders of Bharatiya Mahila Bank Cashless facility available Insurance available for maternity cover and infertility treatment Pre-30 days and post-60 days hospitalisation cover Maternity cover for first two living children, if policy continues for at least two years without break (actual subject to a maximum of 10% of sum insured) Treatment for infertility only after two years, if renewed

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that no life insurer shall pay, or undertake to pay, an amount of annuity of less than Rs1,000 per month (pm), excluding any profit or bonus. The gross sum cannot be less than Rs5,000, except under micro insurance and health insurance business and not less than gross sum of Rs1,000 for micro insurance and health insurance business. It is unclear how annuity can be Rs1,000pm when the current minimum investment for LIC Jeevan Akshay VI annuity product is Rs1 lakh. Assuming returns of

 

MONEYLIFE | 12 November 2015 | 46

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INSURANCE TRENDS

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without break (actual subject to maximum of 10% of sum insured) Day-care expenses cover for any surgery due to the advancement of medical technology for which less than 24 hours of hospitalisation is required Gynaecological health check-up (if claim free) from fourth year of policy (1% of average sum insured) Maternity includes miscarriage (after three months of conceiving, within maternity limit) only from the third year, if renewed without break. •

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Regulations

Insurance Discharge Voucher Should Not Close Claims Insured can still pursue claim at a valid forum

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nsurance policyholders may be offered partial settlement of claim

 7%pa, the annuity will be less than

Rs600pm. So, if annuity has to be Rs1,000pm, will insurers increase the minimum investment for the product?

LIC Liable for Misleading Pamphlets

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ife Insurance Corporation of India (LIC) was held liable by National Consumer Disputes Redressal Commission for taking no action against the misleading pamphlets probably printed by dubious agents. The Commission felt that LIC should

which they may not agree on. But, to get even the partial settlement, the insured had to sign ‘discharge voucher’, ‘settlement intimation voucher’ or some document with a similar name. With the thought, ‘something is better than nothing’, the insured would sign such a document. This document was used by insurers to argue that the full and final discharge extinguished the insured’s rights to contest the claim before the courts in case the insured were to approach a valid forum seeking redress for full claim reimbursement. Finally, after paying heed to the aggrieved policyholders about the misuse of the ‘discharge voucher’, Insurance Regulatory and Development Authority of India (IRDAI) has come out with a circular on 24 September 2015. It says, “…insurers shall not use the instrument of discharge voucher as a means of estoppel against the aggrieved policyholders when such policyholder approaches judicial fora.” It further adds, “...execution of such vouchers does not foreclose the rights of policy holder to seek

higher compensation before any judicial fora or any other fora established by law.” It is a good move to protect the policyholders. According to one insurer, “The insured should be able to raise issue within three years of claim settlement.” Insurers will have to rethink about partial claim settlement, unless there is a genuine reason for such deductions. If the insured deserves full claim payment,

have considered taking criminal action against persons responsible for misusing its name. But no such action was taken. The pamphlets promised money invested under the Money Plus plan would multiply 50 times in 20 years. LIC’s business multiplied due to the gullibility of investors trapped by agents to earn hefty commissions. A case was filed by the consumer right organisation, Citizens’ Rights Association (CRA). LIC tried to argue that the pamphlets could be the work of

some competitors. There are also cases wherein agents print pamphlets with data which is a combination of two or more products giving a new name. The buyer may not know the actual products he is buying. Even if there is no promise of extraordinary returns, there can be claims of assured returns of 10%pa or more. An ordinary saver who puts money in bank fixed deposits (FDs) can get lured with 10%pa assured returns promised by shady intermediaries. 

there is every chance of getting justice even if he/she signs the full and final discharge voucher. IRDAI has given a clear-cut way ahead. 

47 | 12 November 2015 | MONEYLIFE

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Warning: Most Insurance Products Destroy Your Wealth

Over the past few years, thousands of savers have bought what are called traditional insurance plans. These were sold under the garb of protecting your capital and saving taxes. But traditional plans are non-transparent, that is, you don’t know where your money is invested. These are inflexible and illiquid too. You cannot change what you have bought. Worst of all, you make pathetic returns on such insurance products. You will end up getting 4%-6% return which is lower than what you get from bank fixed deposits.

Read more on https://www.moneylife.in/promotion/warning_insurance/index.html

GET ONE-ON-ONE HELP: If you follow our choice of safe & smart products you can avoid harmful financial products. That apart, as a Premium Member, you can ask for support on virtually everything you need, in dealing with money matters. 1. Review of existing portfolio? Before acting on our research, do you need to know what should be done with what you have already invested in? Upload your investments and we will review it. 2. Wrong life insurance? Should you surrender the

MSSN Warning Insurance.indd 2

policy you bought? Which online term plan is the best? What about child plans and ULIPs? Ask us. 3. Confidential questions? Ask any other question on any financial issue or problems specific to your situation on a one-on-one basis. 4. Any other doubts? Financial products are complex. The pluses and minuses of different financial products leave us confused. Seek help from us. 5. More help? Issues like nomination, wills, taxes are nagging problems. If you need expert help, we will put you in touch with professionals who will charge you a reasonable fee and offer the right advice. In 98% of the cases, we reply within 3 working days.

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11 GREAT BENEFITS A service for everyone that meets 90% of personal finance needs

INSURANCE 1 Accident cover of Rs2.5 lakhs 2 Which life insurance? 3 Which health insurance? Which critical illness plans? Which personal accident? Which top-up/super-top up and why? Which mediclaim with maternity benefits? Which mediclaim (individual & floater)?

INVESTMENTS 4 Which equity funds? Which large-cap funds? Which mid-cap funds? Which ELSS?

5 Which fixed income products? Which bonds, NCDs? Which long term debt funds? Which short term debt funds? Which liquid funds?

6 Investment Tools For: Regular savings Investment restructuring Lump sum investing Specific goals Stock SIP MF SIP

7 Long term stock picks

UNBIASED INFORMATION

OUR PLEDGE

8 Moneylife magazine

When you become a member of Moneylife Smart Savers’ Network, we promise to: • Put your interests first at all times • Select products with prudence, with a long-term perspective and without any bias • Select investment products that can provide returns that beat inflation • Communicate candidly about risks, costs and rewards, keeping up with our ‘plain truth’ philosophy • Maintain controls to protect your interests and confidential information

10 Product Reviews

9 Handbook: Your Money Life

HELP FOR ALL ELSE 11 Handholding Portfolio X-Ray Answers to any confidential question

www.savers.moneylife.in MSSN Warning Insurance.indd 3

20-10-2015 14:20:31

HEALTH BM HEGDE

Who Am I? Where Have I Come from? Western science has no satisfactory answer for either of these questions

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estern science has no satisfactory answer for either of the two questions asked in the title of this article. Do we need a change in paradigm to get the answers—or go on believing what Western commercial scientists keep telling us so far? The journal Science, in the edition to mark its 125th year of publication, put out a list of 125 vital questions that science has not been able to answer so far. The list includes all important aspects of man’s life on this planet. Nobel Laureate and father of transplant surgery, Peter Medawar, also dealt with this problem in his classic, Limits of Science. Was it the big bang or just a small whimper that started Western science’s world view? We have no evidence for the big bang in evidence-based science! I have been uncomfortable with the science that was taught to me in school, college and, later, in medical school. However, it took me this long, to come out in the open boldly about the irrationality of Western science of reductionism.. The human being is being looked d at in isolation in Western medicine. We now know w that even the genealogy of brain cells—any cell—shows —shows how the neighbouring brain cells might be having different genealogy, while the heart cell or thee liver cell could be closer to the neuron because they y evolved from on onee single cell, the zygote. They had to mutate utate as they evolved evvolve veed and so they are mixed up everywhere. re. We go on stud studying udyi ying ng body parts to irrationally project ourr data on to the whole organism. Rene Descartes was later joined j i d by b Charles Ch l Darwin who brought in the concept of competition among the species for survival. Both these concepts probably were more suited for the business in the monetary economy.

Cooperative Model Peter Kropotkin, on the other hand, proposed a cooperative model of this universe where the universe is self-evolving and it keeps evolving intelligently. A Russian, Kropotkin

wrote in his book while living in exile in England, Mutual Aid: A Factor of Evolution: “I conceived since then serious doubts which subsequent study has only confirmed—as to the reality of that fearful competition for food and life within each species, which was an article of faith with most Darwinists, and, consequently, as to the dominant part which this sort of competition was supposed to play in the evolution of new species.” Kropotkin wrote another beautiful book in 1903 titled Modern Science and Anarchism. Science is usually politicised and, naturally, Kropotkin was demonised in the West as a dangerous man. If one understands the etymology of science, one would know that the real root of science is philosophia (Greek for philosophy). All scientists, in the true sense, must love wisdom. The latter is never available in books and science journals but in our own heads! Now re-read Descartes: Because you think, you are. If you don’t think you are not! As we do not think, we have been trying to destroy the natural resources in this universe for competition. In evolutionary biology, the human body is considered a closed system where outside interventions are not the rule but only the exception. Most illnesses must be healed by the body’s built-in healer—the immune system! The Indian system of Ayurveda (Ayush=life; vid=wisdom) also treats the human body as a closed treat system and believes that it has the capacity to heal itself. The thrust in Ayurveda is ‘swasthasya swasth s rakshitham’ (‘keep the well healthy’) by b boosting the body’s own immune system. “O “Organic Organic life, w we are told, has developed ggradually gr adua ad dualll lly fr lly fro from om the protozoo protozoon to the philosopher, and this development, we are assure assured, is indubitably an advance. Unfortunately U f t t l it iis th the phil philosopher, not the protozoon, who gives us this assurance.” — Bertrand Russell 

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]

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HEALTH BM HEGDE

CANCEROUS CONFUSION

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senior cancer biologist seems to be in a dilemma. “Half a million U.S. women were diagnosed with non-invasive DCIS by January 2005 and the number continues to climb, propelling people to accept medical intervention even when none is needed.” Ductal carcinoma in situ (DCIS), according to majority of cancer biologists, is not a cancer and should, thus, be removed from the carcinoma tab! But who bothers, as long as it is one of the leading causes for breast removal and other therapies! All cancers need not be fatal without treatment; “However, cancers are heterogeneous and can follow multiple paths, not all of which progress to metastases and death, and include indolent disease that causes no harm during the patient’s lifetime,” according to the abstract of a study titled “Overdiagnosis and Overtreatment in Cancer: An Opportunity for Improvement”, published in Journal of the American Medical Association (JAMA).

WHAT IF MEDICINE DISAPPEARED?

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his is the title of an interesting book written by Frances B McCrea and Gerald E Markle. I feel every lay reader of this book would benefit because the main reason why patients get caught in this ‘health scare’ system is fear of disability and death. Although many of my writings, books and speeches have been saying this,

McConnell. By analysing DNA taken from blood samples, we’re missing MEDICAL DEVELOPMENTS FROM a lot of the important AROUND THE WORLD mutations that are hidden in neurons themselves— or in specific pockets of neurons. coming from the West, this book “Maybe the missing heritability lies would give our Indian readers a in these brain genomes.” fresh point of view as opposed to the biased Western mind-set. I wish to stress that the authors SHOCKING REVELATIONS show how almost half of the he journal, Atherosclerosis, cancer diagnosis was only a scare published these findings in its in the first place. But the gravity June 2015 issue: Men who had of the situation is not assessed by measles and mumps as children these numbers. Cancer scare kills suffered 29% less heart attacks as effectively as the most invasive and 17% less strokes! Women with cancer. Enjoy reading the book a history of both infections had a folks! 17% lower risk of cardiovascular disease and 21% lower risk of stroke. This could mean that natural GENOME MYSTERY infection with measles and mumps ost of us think that our prevents millions of heart attacks genome is one single large and strokes. Why is this information entity. Dr Christopher Walsh, from not all over TV and the Internet? the Boston Children’s Hospital, What is the mainstream media thinks otherwise. He has now hiding? shown that most of the cells from the pre-frontal cortex have their neighbours having the genealogy of a heart cell or liver cell, rather than another neuron! This is not surprising, if we understand that we are born as a single nucleated cell (the zygote) which divides and divides to make us what we are today: 100 trillion-odd cells. This cell division, on the way, must have collected enough and more bits and pieces from its environment thus In countries which use BCG giving this genomic mosaic. vaccinations against tuberculosis, Genetic basis of diseases and the incidence of type-I diabetes in predicting genetic predilection for children under 14 is nearly double, hapless patients is so inadequate writes Mike Adams, the editortoday that, for example, many in-chief of Natural News (USA). neurological disorders like I think we must ponder over this, schizophrenia run strongly in if we are interested in our future families; but large studies have generations. identified genes that explain just a To me, somehow, the very small fraction of this heritability. foundation of vaccination looks like Maybe that’s because “we’ve pseudoscience. But, since I am not been looking at blood genomes to a vaccine scientist, I cannot refute understand brain genomes,” says their claims adequately. 

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LEGALLY SPEAKING SD ISRANI

Investors as Consumers Can they get relief under the Consumer Protection Act?

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an an investor seek relief for his grievance under the Consumer Protection Act, 1986, also known as COPRA, or just the Act? Section 2(1)(d) of the Act defines ‘consumer’ as one who buys goods for a consideration or hires/avails services for a consideration. The definition also provides that, if the goods are bought for resale or for any commercial purpose, such a buyer is not a consumer under the Act. There are numerous cases in which consumer forums have dismissed complaints from investors on the ground that they are not consumers since they were engaged in commercial activity, tivity, while other cases have been redressed ed under the Act. An interesting case under COPRA is that of debenture-holders versus Central Bank of India, as the debenture trustees for M/s Synergy Financial Exchange Ltd (the Company), which had issued non-convertible debentures (NCDs). Under the agreement, Synergy and the appointed debenture trustee, i.e., Central Bank of India (paid byy Synergy), had to work for the benefit and nd protection of the interests of the debentureholders. Synergy failed to redeem the debentures as per the issue terms, forcing investors to ask the trustees to get them the redemption amount. Failing to get justice, they approached the Andhra Pradesh State Commission which ruled in their favour; but the Bank went in appeal before the National Consumer Disputes Redressal Commission (NCDRC). The first question was: Whether any ‘complaint’ under COPRA could be maintainable against a paid debenturetrustee for the failure of the company to pay periodical interest/the redemption amount. NCDRC held that, prima facie, if there was any deficiency in rendering service by the trustee in the discharge of its duties, the trustee would be liable and can be proceeded against under COPRA. NCDRC also observed that a professional corporate trustee is liable for breach of trust if loss is caused to debenture-holders because of its negligence in exercising special care and skill which it professes to have.

Deficiency in Service Was a ‘debenture-holder’ a consumer within the meaning of COPRA? NCDRC held that “if there is any fault, imperfection in the nature and manner of performance of duty which is required to be maintained by or under any law for the time being in force, it would be deficiency in service. Therefore, the aforesaid Section leaves no doubt that for deficiency in service by a paid trustee, complaint is maintainable.” In IDBI Bank Ltd vs TK Nagarathna case, the Bank had issued discount bonds and the complainant sought redemption from the Bank, but the redeemed amount was not paid. The complainant alleged deficiency in service by the Bank. The complaint was allowed by the District Forum and it awarded Rs25,000 with interest, holding that the Bank could not escape liability by publishing the intention to exercise call-back option in newspapers. In another case, original share certificates were lost but duplicate certificates were not issued. The shares were transferred in favour of one ‘A’, who had sent the original certificates, and wh without verifying the signatures on the w original certificates. Refund of value of shares with interest was directed and compensation was awarded. It was held that the company was deficient in its service (Sun Pharmaceutical Industries Ltd vs B Subba Rao). However, in a case where the complainant was into share trading, no relief was granted by the sstate commission, which held that the transaction between the parties did not tran come under the purview of COPRA. In fact, the Commission remarked, “Investors investing money in share trading with expectancy of earning profits, also undertake huge risk of loss, for which no one could be held responsible.” (Ramendra Nath Basu vs Sanjeev Kapoor). Investors should remember that their complaints against registered stockbrokers will be dealt with as per the byelaws of the concerned stock exchange. As far as seeking redress of their grievances in other cases is concerned, they will have to ensure that their case falls within the ambit of COPRA, otherwise they cannot expect any relief from the consumer forums. 

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

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TAX-PROOF INVESTMENT THROUGH RELATIVES If you are paying too much by way of tax, especially on investment income, you may be tempted to transfer your assets to family members to lower your tax burden. While you may think you have arrived at an ingenious solution, it could come to haunt you with tax liability.

A New Tool from Moneylife Smart Savers will guide you on investing correctly in the name of relatives

All you have to do is choose in whose name you want to invest and the kind of income from different asset classes. The tool will tell you the right tax rule so that you can take an informed decision.   This tax tool is available free to MSSN members. If you are not a member, please become a member today to avail 11 other incredible benefits. Visit: m.savers.moneylife.in/investing-through-relatives MSSN is a SEBI-registered investment adviser and part of Moneylife, India’s most unbiased and proinvestor 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 36,000 members. MSSN was set up to help investors and savers make the right financial decisions and handhold them through their personal finance issues.

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23-10-2015 18:16:09

TECHNOLOGY

Safe Online Shopping Online shopping is convenient; but, unless you take certain precautions and maintain highest security level, it may cause you headaches and financial losses, warns Yogesh Sapkale

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he festival season is now at its peak. Shopping online is convenient and saves time—but, at the same time, if you are not cautious, it may turn into a nightmare. While using the Internet for any purpose, always remember that there are risks. This is because the same Internet gives attackers/ fraudsters ways to access your personal and financial information. Not every attacker would rob you: he will simply sell your personal information to someone else who will do the job. Attackers are always on the prowl to search for vulnerable computers or PCs, besides creating authentic-looking, but fake, sites and emails and intercepting insecure communication, including that of financial transactions. Here are some basic tips to protect you while shopping online: 1. Use Good Anti-virus and Anti-spyware Software: Avast Free AntiVirus 2015 and AVG AntiVirus Free are two popular free softwares. AntiMalware from Malwarebytes, also free, helps you keep malware away from your PC. But do not forget to keep the virus/malware definitions up-to-date. 2. Keep Your Browser Updated: Although most browsers alert you about updates, keeping auto updates on and regularly updating your browser helps avoid attacks made using loopholes in the browser. For Firefox, you can use two add-ons, viz., No Script and Ad-Block Plus. Depending on the site, you can give temporary or permanent permission for scripts and advertisements which otherwise get downloaded automatically. 3. Browser Security: Not all browsers offer the highest level of security as default and you need to set it for individual browser/s. 4. Shopping Only with Reputed Vendors/Sites: Although high reputation does not always give you peace of mind and the product you ordered, it helps

in avoiding certain issues and get them resolved, if required. Do not get lured to sites that offer the lowest price for any product. If someone is offering a price way below what’s available elsewhere, something is fishy. Stay away from such sites. 5. Avoid Impulse Shopping: Shopping, whether online or offline, should be done only based on needs and not on impulse. Many shopping sites and apps offer you a feature called wish-list (it may differ from site to site). Use this to bookmark a product that you need—or would need—in future. If there is any special offer on this product, you may get an alert as well. 6. Never Share Data over Email: Despite several warnings from regulators and the police, many people still share their personal and financial information. Never do it. The same applies for clicking on links in emails. Unless you have received the mail from a known entity and from a known email ID, never click on any link. It may open the door to attackers. 7. Check Encryption of the Site: Most sites, especially online shopping and email service-providers, provide a security layer (SSL or secured sockets layer) to encrypt information. Check for the additional ‘s’ in the address bar: It should be ‘https:’ and not just ‘http:’. There should also be a lock icon there, which, after clicking, will show details about the website, its certificate and confirm if the connection to the server used by the site is encrypted or not. 8. Use Cash on Delivery: If you are not comfortable with the site or the product, use the cash on delivery (CoD) option. In that case, open the product in the presence of the delivery person and try to do a video recording. Although it is rare now, several buyers have received stones/bricks instead of the product they ordered. So it is better to be cautious than sorry. 9. Keep Records: While buying online, we do get SMS alerts and email intimation from the shopping site. Do not delete these messages. They may come handy, in case you need to track shipment of your product or if there is any other issue and you need to file a complaint about. Happy online shopping! 

MONEYLIFE | 12 November 2015 | 54

Technology.indd 1

23-10-2015 17:43:43

Will Your Will Be Willed Away? Normally, the country where the Will is executed is the country the laws of which apply to the method of execution

W

e have had multiple sessions on “Understanding Wills” at Moneylife Foundation; all rather entertaining and instructive for everyone, including the conductors. The question & answers dealt with immediate personal problems. That is normal. Only a few had questions about multinational assets; but, with the growing diaspora, laws relating to other countries become important. Ruled, as we are, by the system left behind by our colonial past, the clash of different laws with relation to the UK and the USA is minimal. Drawing up of Wills is not that intricate, if these two countries are involved. But Indians are moving far a field and different countries present different kettles of fish. This is more so in the case of rather isolated states, smaller kingdoms, fiefdoms, theocratic states and those removed from the Roman traditions. Normally, the country where the Will is executed is the country the laws of which apply to the method of execution. For example, in India, a holographic Will, one written by hand in the testator’s own writing, needs two witnesses. The same is true in the UK. But, in the USA, which follows a system very similar to that of the other two nations, a holographic Will, not witnessed by even a single witness, is accepted as a valid document. Seems pretty reasonable, if the handwriting can be matched with another valid document. Consider a man, alone and dying, wishing his assets away. Where does he get his witnesses? To each his own. Poland was recently in the news for such a conflict of laws. A man made his Will in England. Perfect in all respects; as per English laws. What was not foreseen was that inheritance laws are different in different countries, especially when it comes to land—immovable property, something that one cannot put in one’s pocket and walk away with. The issue at hand was a thousand acres. Not chickenfeed by any stretch of imagination;

neither can it be simply be laughed at nor given away. You be the judge. The Will was made in England. It was perfectly executed. The English court had no difficulty in granting the probate. Reference was also made to the large estate in Poland, received lawfully by the testator from his father. The son of the testator, whom the testator obviously did not like, was left out. Would you give anything to the son? This is where the conflict of laws steps in, a conflict invariably connected with land. If the land were in India, the son would have got none of it. He would have been left high and dry. Indian courts would have rejected his claims. But Poland is another country, another jurisdiction, another set of intricate laws. How does it work there? Polish law takes into account the validity of the overseas probate but puts other conditions on the transfer of land. It insists that all the beneficiaries under the Will be made parties to the proceedings. To add to the goulash, it calls for ‘potential beneficiaries’ to be added. ‘Potential beneficiaries’ is a scary term. Where does the definition of ‘potential’ end? Brothers, sisters, parents, cousins, second cousins, spouses, children, et al? What if the ‘potential’ ones are known to exist, but cannot be traced? Will public notices be sufficient? Must one employ town criers in remote areas? Is there a waiting period? And will the wait not run afoul of natural justice that calls for immediate resolution, so that no land lies fallow? This is an interesting contrast to the very country where the Will was executed. England has always been against division of ancestral property. It believes that fragmented holdings are uneconomical. Poland, on the other hand, believes in the adage, ‘the-more-the merrier’. We will leave it at that and hope for another time to dissect the conundrum. Should one be confronted with such a situation, there is a simple recourse. Make two Wills, one for each country. Or more, one for each other country. By the way, the ‘disinherited son’ was entitled to a third of the property!  Bapoo Malcolm is a practising lawyer in Mumbai. Please email your comments to [email protected]

55 | 12 November 2015 | MONEYLIFE

You Be the Judge.indd 2

23-10-2015 17:52:24

Supported By

Queries At Moneylife Foundation’s

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

Maintaining Books of Account

I

have got an income-tax notice for AY2014-15 stating that I need to maintain a balance sheet and get it audited by a chartered accountant (CA). I filled ITR Form 4 to show my derivative losses. Should I have filled in ITR Form 4S? Is audit required? All the transactions are done from renowned brokerage firms and they do have the details. I have made a loss and gain. Do I need to pay a CA to show the loss? This is really ridiculous. Please guide. Ameet Patel’s Reply: There is nothing ridiculous in the notice received by you, although it may appear to be so to you. You ought to have known that if you are engaged in any business, you need to maintain books of account if your turnover exceeds Rs10 lakh. Further, if your turnover exceeds Rs1 crore, you also need to get a tax audit done under Section 44AB of the Income-tax Act. While a layman is not expected to know these things, it is always expected that a person takes professional advice on such matters. In your case, you have done transactions in F&O (futures and options). Since there is no information provided by you

about the volumes, I am unable to comment on whether or not you were expected to get an audit done. You need to consult a CA immediately on this. There is also a controversy about what constitutes ‘turnover’ in case of F&O. So, please do not take such matters casually. Whether you make a loss or profit has no connection with whether an audit is required or not.

Tax Rebate on Home Loan for Govt Employee

I

am a government employee living in government accommodation. I pay 30% house allowance from my salary. Can I take tax rebate on my home loan? Ameya Kunte’s Reply: In case of government employees, the standard rent licence charge is reduced from the salary. This is towards the value of accommodation perquisite provided by the employer, i.e., the government. This deduction (as per govt service rules) cannot be reduced as tax rebate in the home loan.

Buying Property in Wife’s Name

I

am a salaried Central government employee and I fall in 30% tax bracket. My wife is a homemaker. My father-in-law is a retired state

government employee and he also has agricultural income (part ancestral, part purchased). I am planning to purchase a house, costing about Rs1.1 crore. My father-in-law will finance 80% cost of the house and the rest will be paid by me. My query: a) Can my wife be the owner of the house? b) Incometax implications for both me and my father-in-law. c) Will rental income be added to my income or owner’s (wife) income? Nikhil Vadia’s Reply: a) Yes, she can. Usually, ownership is counted as a percentage of total contribution made in the purchase of the asset. One can be a 1% owner. Spouse’s name can be added without any contribution. b) At the time of purchase, there is no incometax implication. You need to deduct TDS @1% at the time of paying to the seller. c) Any income from the house, like rent, would be taxable in proportion of the contribution made towards purchase.

No TDS on LIC Jeevan Suraksha Bought in 1998

I

bought LIC’s (Life Insurance Corporation) Jeevan Suraksha Policy in 1998. After paying full premium for 18 years, I surrendered it in June 2015 and received full surrender value without any TDS deductions. My question is whether the amount I received is tax free under Section 10(10D) or will I have to pay tax in the current year? Vaibhav Sankla’s Reply: The surrender value received under the Jeevan Suraksha Policy purchased in 1998 is entirely exempt from income-tax under Section 10(10D).

MONEYLIFE | 12 November 2015 | 56

Tax Queries.indd 2

20-10-2015 14:16:24

MONEYLIFE FOUNDATION THE RIGHT THING TO DO

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TAX HELPLINE This helpline is for tax-related queries for individuals and small businesses who file their own tax returns or want to double-check the advice they have received from others. It will not attempt to substitute a tax advisor or tax expert whose help is required for complex issues. Nor is it a grievance redress forum.

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You can access similar issues faced by other taxpayers

www.moneylife.in/taxhelp elp To use our tax helpline, please confirm that you have read our terms and conditions. Also, this is only for individual taxpayers and small businesses.

IncomeTax Helpline.indd 1

20-10-2015 20:31:39

MONEYLIFE FOUNDATION SEMIANR ON CYBER FRAUD

How Not To Fall Victim to Cyber Fraud There is no escape from cyberspace and risks associated with it. Therefore, we need strategies to minimise our risks, says Dr Anupam Saraph

W

ho is the custodian of your digital assets? Do you have a strategy to de-risk and protect yourself from the modern messiahs promising the wonders of the digital age? Is it really worth the risk to have your smartphone run your life? These were some of the questions raised, and answered, by Dr Anupam Saraph at a seminar organised by Moneylife Foundation on in Mumbai on “Don’t Don t Become a Victim of Cyber Fraud:: Protect Yourself Now”. Dr Saraph, former IT advisor to the chief minister of Goa, Manohar nohar Parrikar, and former CIO of Pune city, said one needs to understand the risks sks associated with transactions in cyberspace, pace, implications of data leaks and privacy y breaches through social media or email transactions and the remedies. “There is no escapee from the cyberspace and risks associated with h it. Therefore, we need to have a strategy ategy to minimise our risks. This includes, protection from obsolescence, protection tion from unfair practices, ces, protecting identity and

digital assets,” he said. He urged people to think for themselves, rather than offering them ready solutions. “Today every transaction is technology-to-technology without any interaction with humans; so it lacks the trust factor. Even in the digital era, it is important to develop trust with the people behind the technology. Remember, you are there to interact with people and not machines,” explained terms such as netsaid Dr Saraph. He also a privacy policies, laws relating to terms neutrality, privac of use and the need n for ‘audit-ability’ of data and systems. For m many in the audience this was their first exposure to these concepts. about net-neutrality, he said, when Talking ab was threatened in the United the net-neutrality net-neutra president Barack Obama himself took States, preside did all he could to ensure that neta stand and di neutrality was not n compromised. Net-neutrality allows fair, just, unrestricted and nonmonopolised access to the Internet; mon access is agnostic to the media and acc content consumed by its customers co across the network. Explaining why ac net-neutrality is worth fighting for, n he said that it will force all other h eentities, services and publications, 

MONEYLIFE | 12 November 2015 | 58

Event.indd 2

23-10-2015 16:29:59

ML FOUNDATION EVENTS

 which were not part of the select ‘free’ access sites, to pay

to be on the free Internet platform. Making representations of ‘free’ or ‘zero’ Internet plans, when providing a bouquet of websites, are unfair trade practice. Providing a few websites while creating misleading representations of providing Internet access, or about the utility of the free plans, is also an unfair trade practice. Ultimately, this will limit the unlimited access to the worldwide web that we enjoy today or increase costs dramatically. Talking about privacy policy and other legal terms of use, he said, there needs to be a right to opt out and the user should be able to prevent sharing her data with third parties. Dr Saraph said, “Users need to be provided with the right to be forgotten besides policies to safeguard them from unauthorised access.” “The systems or websites should have audit-ability, which will have ability to track back a transaction to a person. This will also ensure transacting parties does not deny transaction,” he added. Dr Saraph, who had worked with Malcolm Slesser, et al, in Edinburgh in the late-1990s to develop the

ECCO: Evolution, Complexity and Cognition

T

he Supreme Court of India, in response to a clutch of public interest petitions, has made it clear, for the sixth time, that the Aadhaar number cannot be made mandatory by the government for any benefits or services; it is voluntary. Answering queries on the issue, Dr Saraph clarified that Aadhaar is just a number which has not been verified and authenticated by any government authority. He said, the Unique Identification Authority of India (UIDAI) had disclosed this in response to Right to Information (RTI) queries. Unfortunately, several government departments are violating the Supreme Court’s orders and making it mandatory.

ECCO (Evolution, Complexity and Cognition) modelling paradigm for assessing the economic and energy potential of nations and regions, said, “To protect yourself from obsolescence, you need to use open source formats to store digital assets, upgrade back-ups to current media and avoid using digital platforms that evolve fast.” “Protection from unfair practices can be achieved by choosing to opt out of sharing data whenever possible, and avoiding digital platforms that lack privacy protection and have unfair terms of use,” he added. One safety mechanism was to have multiple IDs and not link multiple important databases to a single ID. He also told people that it was best to avoid digital platforms that lack privacy and have no human help and, most importantly, use a two-step authentication, whenever possible. C y b e r- c r i m e and privacy breach in India has been growing exponentially. Dr Saraph concluded with the advice: “In this scenario, remember your identity, assets and existence are at stake and you only are responsible for your security. So, the next time you are online, be vigilant and try to minimise your risks.” 

Asked what could be done in such cases, Dr Saraph’s suggestion was that people should lodge grievance on the government complaints portal at this link http:// www.pgportal.gov.in/GrievanceNew.aspx With the Aadhaar numbers being widely copied and distributed across the country, there is no way to tell where your Aadhaar number was used by whom through what API (application programme interface), exposing your digital assets to the possibility of being completely siphoned off. Like most of us, the government neither knows nor has an inventory of its digital assets. Certifying or appostiling digital assets are unheard of. Whether it is survey of maps of India, passports, birth certificates—or even Aadhaar numbers—the government knows no way to certify, verify and audit its digital assets, he said. 

59 | 12 November 2015 | MONEYLIFE

Event.indd 3

23-10-2015 16:30:44

Earning Curve Learn the basics of saving and investing

Pyramid Fraud Pyramid and MLM schemes continue to defraud thousands, even in the US

T

he late Indira Gandhi, former prime minister, unable to—or uninterested in—controlling corruption, had famously said “corruption is a global phenomenon.” Indian politicians and regulators, unable to control chain-money or pyramid schemes, could say the same thing: it’s a global phenomenon. Almost every day, get-rich-quick, pyramid or multi-level marketing (MLM) schemes try to entice the gullible and loot their hard-earned money. While this is widespread in India, globally too regulators have a tough time in identifying and prosecuting companies and individuals operating such schemes. Unfortunately, there is no reliable data to estimate whether this decades-old problem and the amount of harm it has caused has gotten worse or better. Moneylife has written extensively about pyramid schemes in India and the harm caused. Individual lawsuits are registered and action initiated against such schemes; yet there are thousands of them being run with impunity. States like Kerala, Andhra Pradesh and Tamil Nadu have been active against fraudulent pyramid and MLM schemes, but it is estimated that each state has more than a thousand

schemes in operation, targeting mostly the poorer sections. Chain-money schemes are pure fraud. Their business is unsustainable. They promise returns from the money raised from a new set of gullible investors, lured on a long-chain, or pyramid. Some of them have a fig leaf of offering goods or services, often of dubious value. The hallmark of these schemes is the promise of sky-high returns in a short period, for doing nothing other than simply handing over your money to them, and getting others to do the same. William Keep, dean and professor of marketing at The College of New Jersey, has written several articles on the fraud spread by pyramid schemes. He also served as an expert witness in the prosecution of pyramid schemes, including Gold Unlimited and International Heritage Inc, at the time the largest pyramid scheme prosecuted by the United States Securities and Exchange Commission (SEC). In a recent article, Prof Keep analysed the US Federal Trade Commission’s (FTC’s) fraud survey and stated with 95% confidence that there are hundreds of thousands (and possibly millions) of pyramid scheme victims in the United States each year. “As legislators and regulators ponder what to do with an MLM industry within which pyramid schemes lurk—in the words of DSA (Direct Sales Association) President (Joe) Mariano, ‘disguise(ing) themselves as legitimate directselling companies’—they may want to first consider who among their friends and family may be the next victim,” he wrote.

Flawed Models “Trying to judge the most frequent and damaging forms of consumer fraud in a country with a population in excess of 300 million people is not easy. Many countries do not even try,” Prof Keep mentioned. It is difficult to identify and prosecute such Ponzi schemes which operate as a legal MLM company. The annual percentage of MLM-scheme members who become victims can range from 100% for a flawed MLM business model to a very low percentage. “Even a low percent would produce hundreds of thousands, and potentially over a million, pyramid scheme victims annually in the United States, causing hundreds of millions of dollars of harm,” Prof Keep stated. The results established a rough baseline but provided no real guidance on whether the problem has gotten better or worse.



MONEYLIFE | 12 November 2015 | 60

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EARNING CURVE



Prof Keep wrote further on the lack of reliable information coming from the three previous FTC fraud surveys. A 2004 survey established that pyramid scheme victims are seventh among the 10 most common forms of consumer fraud, with an estimated 1.55 million pyramid scheme victims in the previous year. The survey also found pyramid scheme victims to be second in terms of individual loss and first—by a large margin—as the least likely to complain. Statistically, the ‘true’ number of pyramid scheme victims in the previous year identified in the survey falls within the range of 800,000 and 2.33 million. In 2005, FTC repeated the survey (results reported in 2007) with some adjustments: the sample size was increased and the definition of a victim changed. In that survey, the number of estimated victims fell from 1.55 million in 2003 to 800,000 in 2005. However, Prof Keep noted that the change to a more conservative definition lowered the number of victim respondents in 2005 by 21%, relative to the number that would have been obtained using the old definition. “Statistically, we have no confidence that the difference in the number of victims reported is a true difference. The actual difference may be negligible,” said Prof Keep. Six years later, in late-2011 and early-2012, FTC repeated the survey. The survey shows another decline, albeit much smaller: an estimated 700,000 victims. And, as before, there is no confidence on these results. The design of the survey is important too. Since the first survey, FTC came to recognise that “modern pyramid schemes generally do not blatantly base commissions on the outright payment of fees, but instead try to disguise these payments to appear as

Even a low percent would of thousands, produce hundreds hu potentially over a million, and potent scheme victims pyramid sc if they are based on the sale of goods or services.” Plus, a smart pyramid scheme servi operator would not likely promise op that th participants will “earn a certain aamount of money or profit.” Hence, there will be some differences in t numbers. While there may be a n debate over whether the number of d victims have decreased or increased, v the fact is that hundreds of thousands fall victim each year. William Keep, Dean,

Islamic Indices Is investing in Islamic stocks profitable?

I

slamic finance refers to financial activities undertaken that are consistent with Shariah Law. This is an alternative investment option that has gained much traction in recent years. In India, too, many investors track Shariah-compliant stocks. The National Stock Exchange (NSE) had launched the CNX 500 Shariah Index in 2008 and the Bombay Stock Exchange (BSE) launched S&P BSE 500 Shariah Index in 2013. Currently, there are two mutual fund schemes—Tata Ethical Fund and Taurus Ethical Fund—which invest in Shariah-compliant stocks. But do Shariah-compliant stocks offer a better investment opportunity? In a report published in May 2015, three researchers in the US studied whether Islamic indices perform better than the market benchmark, after adjusting for volatility. The researchers—Hooi Hooi Lean, Vinod Mishra and Russell Smyth, of Monash Business School, department of economics, find that although the results are mixed when Islamic indices are compared with other benchmark indices after adjusting for risk, in a large downswing, some Shariah-compliant stocks do outperform the market as a whole. Shariah Law prohibits investment in certain sectors that are considered immoral or unethical. Islamic finance is less diversified which implies higher risk for investors and existence of higher volatility than conventional markets. However, in the past, several other studies have found that Islamic finance markets are at least as efficient and, in some cases, more efficient than conventional finance markets. This varies, based on the specific index considered. As such, the findings are mixed. The three researchers compared the performance of different Dow Jones Islamic market indices to the Dow Jones Industrial Average, over a period from January 1996 to December 2014. They do not find any particular group of Islamic indices consistently performing better than the other indices. As there is a higher risk associated with Shariah indices, the researchers found that, for most of the period under consideration, returns of Islamic indices were not better than the market rate of returns, after adjusting for risk. However, in periods of significant downturns, when the market, in general, was declining, some Islamic indices performed better than the market. This outperformance was noted in 2009, 2010 and 2012. 

The College of New Jersey

61 | 12 November 2015 | MONEYLIFE

Earning Curve.indd 3

23-10-2015 16:33:21

BOOKS

THE 5 MISTAKES EVERY INVESTOR MAKES

Fewer Mistakes, Higher Returns A good guide for beginners and intermediates

W

hen it comes to investing, there are probably as many books on what not to do as there are on what to do. This is because the complexity induced by financial products—and the advice that comes while they are being pushed—leave financial consumers dissatisfied, and even angry. Consider stock investing. Over the past 23 years, the Indian stock market has made tremendous strides. We have electronic trading, clearing, settlement system and depository system which has attracted a deluge of money from foreign institutional investors (FIIs). In spite of these favourable factors, most retail investor continue to shun stocks, though mutual funds have started attracting more money now. The reason is simple: consumers have a poor experience with financial products. Many have been lured into the stock market through unit-linked insurance plans, which have performed poorly. Health insurance is too complex THE 5 MISTAKES EVERY and policyholders are often INVESTOR MAKES AND in dispute with insurance HOW TO AVOID THEM companies. The wealthy PETER MALLOUK do not have it any better. Wiley They are goaded to invest Pages 208; Rs1,173 in portfolio management, private equity or structured products or debt mutual funds—often, at the wrong time. Why is the experience of financial consumers so poor when brokers, planners/advisors, financial distributors, insurance agents, banks (and their relationship managers), supported by dozens of print publications and many TV channels, are there to help investors with over 3,000 actively traded stocks, hundreds of mutual fund schemes or insurance products, apart from savings schemes, provident fund and the new pension system? Unfortunately, the dice is loaded against investors

because of several reasons. One, financial products companies have a high-cost structure, leading to steep sales targets which lead to mis-selling. Two, many products are irrelevant or harmful. Insurance products are complicated to understand and do not deliver. Many mutual fund products have fancy names but average performance. Three, regulators are of no help. If there is mis-selling, redress of grievances is not easy. Four, intermediaries are incentivised to sell more and more, which favours turnover/ churn, harming customers’ interest. Five, the big media is driven by what is popular and that may not be in the best interest of investors. Six, India woefully lacks unbiased and well-researched advice. In such an inimical environment, the first job of investors is to avoid mistakes. Author Peter Mallouk, an investment advisor, has a list of mistakes you should avoid at all costs: These are: 1 Market-timing. Market-timing is the graveyard of many ‘experts’; don’t try it. We half-agree with this view. If you buy market-linked products, your returns will be poor, or negative, if you buy high. Conversely, your returns will be very high, if you buy them low. Some rough sense of timing is important. 2 Active trading. This is only meant for full-time professional traders. Most others lose money. 3 Misunderstanding performance and financial information. Mallouk points out nine different ways we misunderstand, including believing that financial media exist to help you make smart decisions or that all-time high indices means that the market is due for a pullback or that financial news is actionable, etc. 4 Letting yourself get in the way. This section covers well-known behavioural biases investors suffer from including fear, greed, herding, overconfidence, confirmation, anchoring, loss aversion, recency, etc. 5 Working with the wrong advisor. In India, independent advisor hardly exist. Mallouk ends the book with a set of rules that will help you get it right: Rule 1: Have a clearly defined plan. Rule 2: Avoid asset classes that diminish returns. Rule 3: Use stocks and bonds as the core building blocks of your intelligently constructed portfolio. Rule 4: Take a global approach. Rule 5: Use index-based positions primarily. Rule 6: Don’t blow out your existing holdings. Rule 7: Asset location matters. Rule 8: Be sure you can live with your allocation. Rule 9: Re-balance. Rule 10: Revisit the plan. We agree with almost all these. Rules 4, 5 and 7 do not apply to Indian conditions. Overall, a good book for beginners and intermediate investors. — Debashis Basu 

MONEYLIFE | 12 November 2015 | 62

Book Review.indd 2

20-10-2015 20:29:59

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AVAILABLE AT CROSSWORD BOOKSTORES Contact details: Mail in your remittances to Moneywise Media Pvt Ltd, 315, 3rd Floor, Hind Service Industries Premises, Off Veer Savarkar Marg, Shivaji Park, Dadar (W), Mumbai 400028. Credit card orders can be faxed to Mumbai 022-49205022. In case payment is made by credit card, date of birth should be mentioned. Rates and offers are valid in India only. This offer is valid for a limited period. Please allow 4-6 weeks for the delivery of your personal copy. All disputes shall be subject to Mumbai jurisdiction only.

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20-10-2015 14:09:52

MONEY FACTS STOCKS

INDIAN MARKET TRENDS

FUND FLOWS

The Sensex and the Nifty rose 1% each, along with the ML Mega-cap Index during the fortnight ended 20th October. ML Large-cap Index and ML Mid-cap Index gained 2% each. ML Small-cap Index advanced 4%. 

Foreigners: Foreign institutional investors were net buyers of stocks (Rs2,862.36 crore). They bought shares worth Rs25,102.02 crore. 

Share prices, April 2015=100

900 740

130

FII Net Investments (Rs Crore)

580 420

115

260 100

100

12 Oct-15

20 Oct-15

Indians: Domestic institutional investors were net sellers of stocks (Rs1,052.73 crore). They sold shares worth Rs10,772.15 crore. 

85 Apr-15

Jul-15 ML Large-cap ML Mid-cap

ML Small-cap ML Mega-cap

Oct-15

20

ML Micro-cap

Nifty Sensex

115

-75

Index

09-Oct

20-Oct

+/-

-170 -265

ML Micro-cap Index

96.14

101.87

6%

ML Small-cap Index

111.99

116.05

4%

ML Large-cap Index

108.82

111.40

2%

ML Mid-cap Index

106.39

108.88

2%

8,189.70

8,261.65

1%

109.41

110.35

1%

5,175

27,079.51

27,306.83

1%

4,750 4,325

Nifty ML Mega-cap Index Sensex Mega-cap Gainers/Losers Adani Enterprises Cairn India Large-cap Gainers/Losers Spicejet D C B Bank Mid-cap Gainers/Losers Castex Technologies Sical Logistics Small-cap Gainers/Losers Emmbi Industries R S Software (India)

09-Oct

20-Oct

Change

83.95

96.00

14%

168.55

153.95

-9%

09-Oct

20-Oct

Change

29.30

44.10

51%

138.15

91.90

-33%

09-Oct

20-Oct

Change

19.85

27.65

39%

170.50

150.25

-12%

09-Oct

20-Oct

Change

39.25

61.05

56%

163.40

135.50

-17%

DII Net Investments (Rs Crore)

-360 12 Oct-15

20 Oct-15

GLOBAL MARKET TRENDS Shanghai Composite

3,900 3,475 3,050 Apr-15

Jul-15

Oct-15

NASDAQ Composite, Korean Composite and S&P 500 rose 1% each, while the FTSE and Nikkei fell 1% each. Bovespa declined 5%.  Index

09-Oct

20-Oct

+/-

Shanghai Composite

3,183

3,425

8%

Taiwan Weighted

8,446

8,654

2% 2%

Hang Seng

22,459

22,989

NASDAQ Composite

4,830

4,881

1%

Korean Composite

2,020

2,039

1%

S & P 500

2,015

2,031

1%

Micro-cap Gainers/Losers

09-Oct

20-Oct

Change

International Combustion (India)

222.50

336.90

51%

FTSE

6,416

6,345

-1%

2.20

1.77

-20%

Nikkei

18,439

18,207

-1%

Bovespa

49,338

47,077

-5%

Spentex Industries (All Prices in Rs)

MONEYLIFE | 12 November 2015 | 64

Money Fact.indd 2

23-10-2015 17:33:19

MONEY FACTS STOCKS



What’s H

T

ML SECTORAL TRENDS

Sugar companies were in demand during the fortnight. Triveni Engineering & Industries, Kesar Enterprises, Uttam Sugar Mills and Upper Ganges Sugar & Industries surged 32%, 31%, 28% and 26%, respectively.  Companies

09-Oct

20-Oct

+/-

ML Sugar Index

Triveni Engineering

28.00

36.85

32%

130

Kesar Enterprises

17.10

22.40

31%

120 110 100 90 80 Apr-15

Jul-15

Oct-15

Uttam Sugar Mills

15.20

19.41

28%

Upper Ganges

46.25

58.50

26%

Oudh Sugar Mills

22.90

28.60

25%

Sakthi Sugars

20.65

25.65

24%

Simbhaoli Sugars

12.46

15.32

23%

Dhampur Sugar

48.00

58.95

Dwarikesh Sugar

48.05

56.35

EID-Parry (India)

154.25

179.85

17%

Stocks of printing & publishing companies and airlines companies soared 31% each and stocks of sugar companies surged 12%. Shares of oil & gas companies, software & IT services companies and consumer products companies declined 3% each. Shares of healthcare companies fell 2%.  ML Sectoral Trends Printing & Publishing

31% Oil & Gas

Airlines

31% Software & IT Serv

-3% -3%

Sugar

12% Consumer Products

-3%

23%

Petrochemicals

10% Retail

-2%

17%

Trading

10% Healthcare

-2%

What’s



All Prices in Rs

URBAN INFLATION

N T

Oil & gas companies were a mixed bag. Cairn India declined 9%, while Oil & Natural Gas Corp and Oil India fell 4% each. Tide Water Oil Co fell 1%. GAIL (India) gained 5%.  Companies

09-Oct

20-Oct

+/-

Cairn India

168.55

153.95

-9%

ONGC

263.65

253.15

-4%

Oil India

456.60

438.85

-4%

100

Tide Water Oil Co

17,745.60

17,610.00

-1%

90

Selan Exploration

234.55

238.90

2%

ML Oil & Gas Index 110

Trending Up? 7%

80 Indraprastha Gas GAIL (India) Hindustan Oil

467.00

479.50

3%

311.60

326.10

5%

35.00

37.15

6%

Combined inflation for urban and rural areas increased to 4.41% in September 2015, from 3.74% in August. Inflation in urban areas increased to 3.61% in September, from 2.75% in August, due to a high base effect. Food inflation in urban areas increased to 3.79% in September from 1.71% in August. In urban areas, prices of

6% 70

Annual Change

5% 4%

60 Apr-15

Jul-15

Oct-15

All Prices in Rs

3% 2% Sep-14

BULK DEALS Date

Company

Buyer

Seller

Rs Cr

16 Oct-15

Hinduja Global Solutions

ML Capital Markets Espana

Credit Suisse (Singapore)

16 Oct-15

Empire Industries

Arjun Transport Company Pvt

Satishchandra Panalal Malhotra

8.56

15 Oct-15

Rubfila International

Minal Bharat Patel

Bharati Bharat Dattani

7.50

12 Oct-15

Goldcrest Corporation

Namrata Tushar Tanna

Viresh Prabhakar Kothari

0.87

19 Oct-15

Urja Global

Malvi and Co

Ajay Multi Projects Limited

0.77

13 Oct-15

Sangam Advisors

Hitesh Chimanlal Doshi

Navratanmal Ashok Kumar

0.54

16 Oct-15

Vedavaag Systems

Gadiyaram Sreedhar

Paramasivam Traders

0.19

16.92

Mar-15

Sep-15

vegetables remained steady yearon-year, due to the base effect. Inflation related to fuel remained steady in August, at around 3%. Inflation for housing increased marginally to 4.74%. Inflation for clothing hovered around 4%; for miscellaneous items, it increased to 2.29% in September from 2.02% in August. 

65 | 12 November 2015 | MONEYLIFE

Money Fact.indd 3

23-10-2015 17:33:34

BEYOND MONEY

Malnourishment More Dangerous than Cancer

a metropolitan city like Mumbai. The travel—and the extra care needed—puts immense stress on the child and, often, malnourishment can be a more potent killer than cancer itself. Dislocation of the family routine should not lead to poor food habits, especially for a cancer-afflicted child. These were the findings of Cuddles Foundation and its founder, Purnota Dutta Bahl, who brings formidable marketing skills to the organisation. Four out of 10 children being treated for Healthy and nutritious meals and supplements are a cancer in Mumbai lose the fight because of luxury for these children. So, what started as a small drive malnutrition among Ms Bahl’s friends and family three years ago, has grown into a well-established NGO (non-governmental organisation). Today, Cuddles supports over 1,500 children every month in seven partner hospitals across four states in India, including leading institutions like Tata Memorial Hospital and All India Institute of Medical Sciences (AIIMS), New Delhi. Treatment abandonment rates have gone down from 21% to 3%. This can be directly attributed to nutritional intervention at Tata Memorial Hospital by Cuddles Foundation. Cuddles is the only NGO in India that provides holistic nutritional support to malnourished children undergoing treatment for cancer. For instance, ‘Chaky’s Food for All’ programme, named after an 18-year-old who is no more, provides ration to families for preparing nutritious meals for children at Wadia Hospital in central Mumbai. Take a look at the website of Cuddles for some heartwarming success stories, or those whose struggle continues. urnota Dutta Bahl’s visits to Tata Memorial Hospital, Nooresa Sutarwala, of Cuddles, tells us about Geeta, who Mumbai, made her realise that families that go to was four months old when she was diagnosed with acute large cities like Mumbai and Delhi to seek treatment, leukaemia, a type of blood cancer. Severely malnourished face a sea of challenges. These include loss of livelihood, at the time of diagnosis, she needed aggressive nutrition problem of finding accommodation, having no funds/access intervention (Ryles tube feeding) to even reach the stage to nutritious meals, apart from high costs of treatment of ‘moderately malnourished’, in two months’ time. She and the emotional turmoil that come as a part and parcel is still on Ryles tube feeding along with weaning diet, as she has been on chemotherapy. Her fight continues. of dealing with cancer. This is how the idea of Cuddles Foundation formed Readers are invited to lend a helping hand by donating, in her mind. or becoming a volunteer, or simply pledging an occasion The statistics are harsh: 50,000 children are diagnosed (your birthday, anniversary or festival, gifting proceeds with cancer every year in India. Only 22% of them make to help put a smile on a cancer child’s face). You can it to hospitals for treatment. Only two out of 10 children also provide logistics support to Cuddles Foundation. survive, compared to worldwide survival rates of eight Volunteers can help facilitate special art & craft classes, out of 10. Four out of 10 children being treated lose play sessions or to conduct drives to obtain essentials like the fight because of malnutrition. This is the need being diapers, clean linen, raincoats, toys and books. addressed by Cuddles Foundation: Cuddles welcomes corporate support as a CSR initiative in the “To reduce the mortality rates and form of nutritional and medicine treatment abandonment rates due to malnutrition and infection.” supplements; hygiene-related products CUDDLES FOUNDATION Children do not smoke or chew are needed to ensure the success of c/o Nangia and Co, 1101, 11th floor, Tower-B, tobacco; yet, they are not immune to the cause. Donations are tax-exempt Peninsula Business Park, cancer. When cancer strikes the young, under Section 80-G of the Income Tax Ganpatrao Kadam Marg, they have to be taken to a doctor in Act.  Lower Parel, Mumbai - 400 013. Telephone: +91 22 6173 7061 Email: [email protected] Web: http://www.cuddlesfoundation.com/ MONEYLIFE | 12 November 2015 | 66

P

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