Moneylife 2 February 2017

SUCHETA DALAL ON: DEMONETISATION EFFORT: LEARN FROM FAILURE Personal Finance Magazine

NSE NEEDS DEEP CLEANING Rs 45

20 January-2 February 2017

Pages 68

(SUBSCRIBER COPY NOT FOR RESALE)

www.moneylife.in

BLACK TO TO

WHITE While PM Narendra Modi has tried to hit at black money, by banning 500 and 1000 rupee notes, thousands of crores of black money is easily converted into white every year in one of the most organised and open money laundering operations through the stock market. Investigation by Debashis Basu & Sucheta Dalal

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ISSUE CONTENTS

20 Jan-2 Feb 2017 Black-ka-White

BLACK

W

hile the prime minister (PM) Narendra Modi has tried to hit at black money, by banning 500 and 1000 rupee notes, which put the entire country through two months of hardship, one of the most organised and open money laundering operation has been happening right under our nose, in the stock market. And that is, converting black cash into long-term capital gains which are tax free under the current regulations. Regular readers of Moneylife would be aware that, since February 2009, we have been highlighting such pumpand-dump operations in every issue of the magazine in the Unquoted section, hoping that the regulators would be nudged into action. We now know what goes on behind such price-rigging. Through an elaborate network of dummy companies, ‘accommodation entries’ a large number of people are laundering thousands of crores of rupees from black to white. Read our investigation in the Cover Story, to know how this is done. In her crosshairs column, Sucheta says that it is now very clear that demonetisation was a needless, badly planned, poorly executed exercise—but it has thrown up important lessons that need to be learnt. The PM, a quick learner will, hopefully, make the necessary course corrections. In Different Strokes, she says that the National Stock Exchange needs some deep cleaning before it becomes a listed entity. SEBI has, indeed, initiated a lot of action; but some conflicts of interest remain! Our next major article will be on financial hygiene such as keeping your documents safely, ensuring that your loved ones have your passwords, if needed, and putting in place nominations and will. We are doing survey on this. Please do not forget to fill it up. The link is on our website. On 4th February, we celebrate the 7th Anniversary of Moneylife Foundation with a talk by Jay Panda and Rajeev Chandrashekhar, two dynamic members of Parliament, on “Transforming India”. If you are in Mumbai, we would be delighted if you could come and introduce yourself to us. The link for registration is on our website. Debashis Basu 

TO

WHITE 32 Cover Story Black to White Thousands of crores of rupees of black money are easily converted into white every year by rigging the prices of listed shell companies. An official report describes the modus operandi. Investigation by Debashis Basu & Sucheta Dalal

12 Your Money

– Consumer Court Slaps Rs10.5 Lakh Penalty on Tata AIG – Aadhaar Is Mandatory for Receiving Benefits under EPS, says Ministry of Labour and Employment – Dosti Vrishti Society Residents Lock Up Builder for Poor Water Supply – Mobile App for Mutual Funds Trading Launched by BSE – Mediclaim Disallowed for Surgery for Morbid Obesity

14 18

MONEYLIFE

QUIZ Demonetisation: Lessons To Be Learnt and Coursecorrection Needed

20 Different Strokes

NSE Needs Deep Cleaning Before Its Public Listing

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

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CONTENTS FUND POINTERS

To Buy or Not To 24 ELSS: Buy?

TAX / FIXED INCOME

Savings ngs 50 Small Schemes’ Rates Unchangedd

– G-Sec Yields Down wn INSURANCE

32 Insurance Trends Accident Insurance – Malaria Death Ruled as Accident Health Insurance – Will Bariatric Surgery Be Covered by Mediclaim? – Keep Emergency Funds for Hospitalisation Fine Print

46

Hot and Cold Stocks of Mutual Funds in December 2016

xSTOCKS

22 Smartrt Moneyy Stockpicking in Good and Bad Times

Angiography, 56 Coronary the Villain of the Piece Pulse Beat: Medical developments from around the world

TAX HELPLINE

at Moneylife 52 Queries Foundation’s Tax Helpline USEFUL APPS

FUND FACTS

HEALTH

Addict:: 54 Podcast An App for All Musical Tastes

– Lumosity: Have Fun, Get Cerebral

– Sudoku Free: Play It on Your Mobile

– Four Letters: Not a Dirty Game at All!

47 Stock Watch

LEGALLY SPEAKING

Dish TV: Is it, at last, at the inflection point?

Need To Give 55 Banks Notice on Loan

YOU BE THE JUDGE

Not 60 Trap, Tempt, a Criminal

TECHNOLOGY

May Need 61 BHIM Government’s Helping Hand

BEYOND MONEY

Social Revolution 66 Athrough Classical Dance

Recovery

SpiceJet: Low-cost Operations

Market Manipulation: Negotium International Trade

Market Trend: Hard Slog Ahead

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

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Volume 11, Issue 25 20 January–2 February 2017

Debashis Basu

Editor & Publisher [email protected]

Sucheta Dalal

Managing Editor [email protected]

Editorial Consultant Dr Nita Mukherjee [email protected]

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Moneylife is printed and published by Debashis Basu on behalf of Moneywise Media Pvt Ltd and published at 315, 3rd Floor, Hind Service Industries Premises, Off Veer Savarkar Marg, Shivaji Park, Dadar (W), Mumbai - 400 028 Editor: Debashis Basu

Total no of pages - 68, Including Covers

RNI No: MAHENG/2006/16653

SEARCHES AFTER DEMONETISATION The searches by income-tax (I-T) department and enforcement directorate (ED) after demonetisation have exposed the illegal activities of some individuals, bankers and bureaucrats. It is a good beginning for unearthing black money. However, it is doubtful whether I-T and ED have sufficient personnel to conduct a larger number of searches to book the wrongdoers. Fortunately, there is a large number of retired officers and staff of I-T department, Central government pensioners and retired defence personnel. Suitable and honest personnel from this pool should be recruited quickly to help in such searches. Unless these searches are intensified, it will not be possible to create fear in the minds of wrongdoers without which they will not come forward to deposit their ill-gotten money in the Prime Minister’s Garib Kalyan Yojana. P Sankaran, by post from Chennai

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

Write to the Editor!

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SHOULD HEALTHCARE BE IN THE PRIVATE SECTOR? This is with regard to “Ills of Healthcare in India” by Sucheta Dalal. The government has its hands in too many pies. It needs to pull out of many sectors and leave them for the private sector. However, healthcare is NOT to be in the private sector. I have come across an interesting, and shocking, statistic. North America (read USA), with 5% of the world population, is responsible for 45% of the global spend on healthcare. Even with such high costs, the US healthcare industry is also prone to corrupt practices. Read the story of Tenet Healthcare (THC)—once the number two hospital operator in the US. Its chairman was a very high-profile person even on the US President’s advisory committee. When the FBI

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LETTERS

the

Best letter

Push towards Less Cash?

T

his is with regard to “5 Hurdles for Cashless Digital Transactions” by Dr Rakesh Goyal in Moneylife (Issue 5 January 2017). I wish to supplement the author’s arguments with the following

points. a. Generally speaking, there is no dearth of laws in our country. The acid test of new laws lies in their effective implementation. Anecdotal evidence suggests failure at the implementation level. A very thorough and comprehensive action is needed to fix the loopholes and lacunae. b. As regards the Internet, the track-record of our existing service-providers has not been exceptionally good when it comes to delivering on their promises, whether it pertains to the robustness of connectivity or inter-operability. In the recent past, we had the case a major player complaining to TRAI (Telecom Regulatory Authority of India) about noncooperation by the other existing players. The largest service-provider, with a pan-India presence even in the remotest corners and the rural hinterland, is still to raise its bar, given that it should have capitalised on the first-mover advantage. Even now, it is only reacting to the competition and is not proactive. The efficiency of service delivery has plummeted. c. Language will be a big barrier in last-mile delivery as well as for developing appropriate content in the local / regional languages.

 (Federal Bureau of Investigation) investigated THC,

the truth was exposed. THC was submitting fictitious bills to the government-funded Medicare and Medicaid. What’s even worse, THC was subjecting innocent patients to unnecessary cardiac interventions including angioplasty and stents! Ralph Rau, online comment

DIVIDEND YIELD SHOULD BE MENTIONED This is with regard to “Navneet Education: Slow Learning”. In most company analyses, Moneylife writers keep mentioning dividend payout as a percentage of face value which may not be relevant. Dividend per share is all we need to know. When it comes to the dividend, would it not be better to

d. Another major barrier is dispelling Mutual Fund investments and allaying the are subject to market risks, read all scheme related fear of technology. documents carefully. This apprehension persists even in the metros and other cities. This barrier needs to Dr TV Ananthanarayanan be dismantled by a YOU WIN A vigorous campaign. PERSONALISED e. I have not been CLOCK able to comprehend the rationale for levying a convenience charge on digital transactions. The ‘convenience’ works both ways—for the Dr TV Ananthanarayanan customer as also the merchant. This fees needs to be abolished. f. The affordability of Smartphones and feature phones is another factor which needs to be addressed. Whatever may have been the merits and demerits of demonetisation, one positive fallout has been the nudge, or the push, towards moving to a less cash economy. Dr TV Ananthanarayanan, by email

Congratulations

provide dividend yield and dividend payout ratio instead? Eswar Santhosh, online comment

MORE MUTUAL FUND ARTICLES NEEDED This is with regard to “What To Expect from Smalland Mid-cap Schemes” by Mitul Patel. Moneylife writers are requested to publish more stories regarding investing in mutual funds, as not everyone is wellversed in direct equity investing. Pushpesh Kumar Sharma, online comment

STOCK EXCHANGES SHOULD PUBLISH LISTS OF MANIPULATING COMPANIES This is with regard to “Stock Manipulation: Mipco

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LETTERS

 Seamless Rings”. The stock exchanges should ensure

that they prepare and publish lists of such companies and make them available on their web portal so that investors can have access to the data of such companies and take precautions before making their investments. Jayendra Pandya, online comment

WHY AN 85% SUBSIDIARY? This is with regard to “Premco Global: Promoters Helping Themselves to Loans?”. It is not clear why the company in Vietnam is an 85% subsidiary and has not been made into a 100% subsidiary. Surely, funds were not a problem with the company. The balance 15% is held by a Sindhi non-resident Indian (not by any local Vietnamese partner). Chandragupta Acharya, online comment

glitch where she is shown as the first-holder. How many more such bloomers will happen is anybody’s guess! The corrupt in the I-T department would be rubbing their hands in glee. The tenor of the government’s policies seems to be to compel people to accept its diktats; the government is not allowing people to make their own choices. Whither democracy and free choice? This overbearing attitude to governance —of herding people to adhere to government diktats on cash handling, Aadhaar compulsions, muzzling voices on social media, ostracising NGOs (nongovernment organisations), etc—is hurtling the country towards a stifled democracy. Is this a thought-out political strategy? SA Narayan, online comment

DEMONETISATION IS COINCIDENTAL?

STIFLED DEMOCRACY? This is with regard to “From Noteban to GST, Brace Yourself for a Turbulent 2017” by Sucheta Dalal. Arun Shourie, in an interview, rightly, said that the prime minister embarked on notebandi because it was being felt that this government was not doing enough on the issue of black money and that nothing was done in the past few months. What a Tughlaq-ian move and at what cost to the aam janta! All the sops announced as antidote would need to be funded and, surely, the equity markets would be tapped. Raid-raj would become the order of the day, since it has become a prestige issue with Narendra Modi to book the tax-evaders. But, in the process, carpet-bombing will happen. Take the case of notice to non-filers. My wife, who is a not a taxpayer, received a notice from income-tax (I-T) department for an investment made by me, where she is a joint-holder. Clearly, this is a case of a technical

This is with regard to “Strong Stocks in A Weak Market” by Debashis Basu. This is a good article. A few of the stocks wentup because they were ‘over-sold’ & exhibiting ‘dead cat bounce’. Demonetisation just happened to be coincidental around the same time. One example is MindTree. How do we eliminate such stocks? Kalyanarao Konda, online comment

TURN OF SMALL-SCALE SECTOR TO PAY TAXES This is with regard to “Fortnightly Market View: Slow Realisation for the Bulls” by Debashis Basu. If the unorganised small-scale sector has to now pay taxes, it may actually be good for the listed companies. But, I agree that it is a very complex process and only time will tell how it pans out. Ramesh Mehta, online comment

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11 | 20 Jan-2 Feb 2017 | MONEYLIFE

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Your Money LIFE INSURANCE

REAL ESTATE

Consumer Court Slaps Rs10.5 Lakh Penalty on Tata AIG

Dosti Vrishti Society Residents Lock Up Builder for Poor Water Supply

N

T

iwas Manohar Joshi had secured a housing loan of Rs10.50 lakh from the Federal Bank branch in Pune. He covered the repayment of the total loan amount in 2008 under the ‘Tata AIG life group single premium mortgage reducing term insurance policy’ by paying a onetime premium of Rs57,246. The insurance company issued the policy on 21 November 2008 giving cover against life or total and permanent disability. Mr Joshi died at a hospital in Kolhapur (Maharashtra) on 16 April 2011 and the cause of death was certified by medical authorities as “sudden massive pulmonary embolism with cardio genetic shock.” When his widow, Sandhya, and minor son, Abhishek, moved a death claim, the insurance

company it same on 19 January 2012. The insurer suggested that the information on pre-existing disease and previous treatment had been suppressed by the insured. The claimants then moved a consumer complaint, alleging deficiency in service on the part of the insurance company for wrongful repudiation of the claim. The Pune District Consumer Court observed, “The insurance company has failed miserably to show any nexus between the previous disease and the disease at the time of death of the insured.” It ordered Tata AIG to pay Rs10.5 lakh with 9% per annum interest since January 2012 and Rs15,000 compensation to widow, Sandhya and her minor son, for wrongfully rejecting the claim against the death of her husband.

RETIREMENT

Aadhaar Is Mandatory for Receiving Benefits under EPS, says Ministry of Labour and Employment

I

n a notification dated 4 January 2017, the ministry of labour and employment has made it mandatory to furnish proof of Aadhaar number to receive pension and benefits for members and pensioners under the Employees’ Pension Scheme (EPS), 1995. Those who have enrolled for an Aadhaar number, but are yet to receive it, are to provide the Aadhaar enrolment ID. A member, or a pensioner, who has not enrolled for the Aadhaar number yet is required to enrol for it by 31 January 2017. Any member, or an individual, who has not received the Aadhaar number or is yet to enrol for it can provide the following documents to continue to receive the benefits under the scheme: (a) Identity certificate issued by the employer or the Employees’ Provident Fund Organisation (EPFO) with the universal account number (UAN). (b) Aadhaar enrolment ID of the member/pensioner or a copy of the request made for the Aadhaar enrolment. (c) A copy of any of the following: (i) voter ID card (ii) PAN card (iii) passport (iv) driving licence, etc.

hane city (Maharashtra) is suffering from a severe water crisis. Residents get only 145 litres of water a day, which is 45% less than what residents of Mumbai Metropolitan Region get. Thane police have been sending teams to housing societies fearing fights over water, according to a report in Mumbai Mirror. Residents of flats constructed by Dosti Realty have been among the worst-hit by the water scarcity. They protested against the builders, as they had promised them 24 hours’ water supply. They said that the builders had failed to address the water problem, despite several pleas. The residents reportedly took Rajesh Shah, director of Dosti Realty, to the clubhouse from where he was not allowed to leave until he signed on a paper that said that the builders will ensure that the problem will be solved within 15 days. Rajesh Shah said these were strong-arm tactics and complained to the police. There have been no arrests so far. MUTUAL FUNDS

Mobile App for Mutual Funds Trading Launched by BSE

“A

ll mutual fund investors/ distributors/ registered investment advisers are hereby informed that the exchange is pleased to announce launch of BSE StAR MF mobile application,” BSE said in a circular. “Users can download BSE StAR MF mobile app (beta release) from Google Playstore now,” it said. The platform provides a range of services for easy transactions and seamless order flow for asset management companies. The app is available for Android mobile users.

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Your Money REAL ESTATE

Mediclaim Disallowed for Surgery for Morbid Obesity

A

Pune housewife had subscribed to a New India Insurance Company’s medical claim insurance policy for the period between 1 March 2012 and 28 February 2013, by paying a onetime premium of Rs17,880 for Rs5 lakh insurance cover. In October 2012, she was admitted to a private hospital for hernia and obesity surgeries and incurred expenses of Rs5.8 lakh. When she submitted her claim, the company sanctioned surgery expenses of Rs2.07 lakh for hernia, rejecting the claim amount for obesity reduction. It informed her that morbid obesity was

excluded from the cover given by the policy. She complained to the Pune District Consumer Court. The substance of her argument was that she had not gone in for

MONEYLIFE QUIZ

cosmetic surgery but had the surgery for medical reasons. The insurance company argued that rejection of her claim was based on a specific clause in the policy agreement that excluded morbid obesity from the reimbursement list. The Consumer Court accepted the insurance company’s argument and rejected the complaint. An insurance company cannot be held liable for deficient service when its policy agreement clearly excludes certain physical conditions from the reimbursement of medical expenses, ruled the Consumer Court.

Moneylife Quiz no

250

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 2nd March. Send in your answers to [email protected] with the Quiz no., name, address & telephone number before 8 February 2017.

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!

Sudesh Kumar Roy

1. Under which Section of the Income-tax Act do taxpayers start evaluating savings options to reduce their tax liability, when the financial year is nearing its end? a. Section 80D b. Section 80G c. Section 80C d. Section 88A

5. Among doctors, what is meant by ‘door to balloon time’? a. Time taken to assign a bed b. Time taken to check body temperature c. Time taken to check if medical insurance is available d. Time taken for patient to be treated on arrival at the hospital

2. What is the minimum lock-in period from the date of allotment, for mutual fund ELSS? a. 1 year b. 2 years c. 3 years d. 5 years

6. What was the closing value of the 10-year benchmark G-Sec yield on 6 January 2017? a. 7.06% b. 6.39% c. 5.58% d. 4.00%

3. For an individual in the 30% tax slab, what will be the maximum savings in the form of tax exemption in a year on investment in ELSS? a. Rs25,450 b. Rs30,550 c. Rs40,050 d. Rs46,350

7. In which country is the Palance film, The Horseman, set? a. Pakistan b. Bangladesh c. Afghanistan d. Burma

4. When did SREI Equipment Finance’s public issue of secured redeemable non-convertible debentures (NCDs) open? a. 3 January 2017 b. 5 January 2017 c. 10 January 2017 d. 12 January 2017 In all, 6 readers got all the answers right last time. The winner of Quiz-248 is Sudesh Kumar Roy from Hyderabad. Congrats! You win a personalised clock with an investment quote!

8. Which organisation has developed and launched the mobile app Bharat Interface for Money (BHIM)? a. Securities and Exchange Board of India (SEBI) b. National Securities Depository Limited (NSDL) c. Bombay Stock Exchange (BSE) d. National Payment Corp of India (NPCI) The answers to Moneylife Quiz-248 are: • 1- a. 7.50% • 2- b. 9 instances • 3- c. Winston Churchill • 4- c. Pushbullet • 5- b. A measure of calculating risk-adjusted return • 6- a. Edgar Wachenheim • 7- a. 7.7% • 8- a. 6.44%

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www.moneylife.in News & views with a big difference Insurance: A widow gets justice from the apex court after 11-year battle It took a gusty woman, and a dedicated consumer activist, almost 11 years to fight the giant Life Insurance Corporation, the largest insurance corporation, for the money due to her on the death of her husband. The result: a Rs21-lakh award on

InGovern questions sudden departure of Infosys’ chief compliance officer and his severance package Proxy advisory and corporate governance advisory firm InGovern Research Services Pvt Ltd has said that the sudden departure of David Kennedy, the general counsel and chief compliance officer of Infosys Ltd, raises serious questions about his departure and its consequences on the company

an insurance claim of Rs15 lakh. She owes her success to the help she received from MY Patil, a former assistant commissioner of police, who is now a consumer activist. She finally received a cheque of Rs21.08 lakh, from the consumer forums, bringing to an end a saga which shows that perseverence and a good activist to support you can eventually win the day. However, very few people have the courage to fight all the way to the apex court

EXCLUSIVE VIEWS On issues that matter to you

Chhatrapati Shivaji Maharaj Memorial: No feasibility report, no technical estimate, reveals RTI The project of Chhatrapati Shivaji Maharaj Memorial in the Arabian Sea is without any feasibility report, reveals a reply received under the Right to Information Act

Is RBI responsible for creation of black money and inflation due to high M0? – Dr Rakesh Goyal

No information on appointment of three information commissioners While the state government is taking credit, for appointment state information commissioners in Maharashtra, in January 2017, their selections violate several norms set for such appointments

Air India: SC asks CBI to probe unnecessary purchase of aircraft during UPA regime

Can fintech companies challenge banks? – Ameet Roy

The Supreme Court has asked the Central Bureau of Investigation to look into the allegation of unnecessary purchase of 111 aircrafts and lease of some others by Air India at a cost of Rs67,000 crore between 2004 and 2008 when the Congress-led United Progressive Alliance (UPA) was in office

NBFCs fail to perform in FY15-16, first half FY16-17 The performance of non-banking financial companies will continue to follow a downward trend. The second half of the current year will also remain affected due the government’s demonetisation move

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CROSSHAIRs

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

Demonetisation: Lessons To Be Learnt and Course-correction Needed

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he New Year began with a sense of relief, after nearly two months of uncertainty and hardship that gripped India since 8 November 2016. The long queues at ATMs have vanished, although the curbs on withdrawal of our own money from banks continue. A New-year Eve scare—that more experimentation would be unleashed on the nation— also turned out to be a damp squib, with the prime minister (PM) merely announcing some recycled sops for the poor without immediate benefits. So, as we head towards an early Union Budget, and elections in several key states and municipalities, the focus is back on the whether the entire demonetisation exercise, and the hardship it caused (mainly to the less privileged), had any tangible benefits at all. Two things are clear. Demonetising currency notes has not eliminated India’s black money; people have found ingenious ways to deposit it in banks. The effort to make them pay will start now. The fact that the Reserve Bank of India (RBI) is dodging answers to questions, about printing of currency and the money deposited, has damaged the central bank’s credibility so much that several of its former governors and deputy governors have felt constrained to speak out. When you have images of the RBI governor

sprinting away from the back door of a public function to avoid the media after such an enormous currency operation, it appears that no lessons are being learnt. This is also damaging to the government. Meanwhile, we know that there is going to be a huge cost attached to demonetisation. The Centre for Monitoring Indian Economy has estimated the transaction cost of the demonetisation exercise was a massive Rs1.28 lakh crore. The is based on the actual cost of printing and supplying new currency, destroying old currency, loss of productive manhours and income—for those at banks and those who stood in queues to exchange or withdraw money. In addition, there is the loss of discretionary spending and its impact on a host of industry sectors, the impact of broken supply chains, etc. While the government has not put out any numbers, we learn from sources in the income-tax (I-T) department that they are under enormous pressure to recover at least this cost of demonetisation through raids on those who deposited tax-evaded money cash. Unfortunately, the government did nothing to plug the big loopholes for laundering money before announcing the demonetisation exercise. Trying to account for three 

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 to four lakh crore rupees, clearly laundered in six short

be interesting to see how seriously SEBI pursues this investigation which was put up for discussion at its weeks, is an indicator of such gaping loopholes that board meeting on 14th January. it is futile to go into all the little tricks that laundered such huge amounts. Another big chunk of the cash deposited has come Yes, people paid advance salaries to their staff in from agricultural income which cannot be questioned old notes and had them converted. Over Rs16,000 since it is officially tax-exempt. A Right to Information crore was deposited in cooperative bank accounts (RTI) application, filed by a retired tax official, Vijay since demonetisation, says an Economic Times report Sharma (who has gone on to file a public interest quoting I-T sources; a similar amount may have been litigation in the Patna High court asking to reveal the stashed in regional rural banks. According to one names of the top 100 assessees), has some startling estimate, between Rs10,000 crore to Rs12,000 crore data. Data obtained by Mr Sharma showed that was sent in suitcases and chartered flights to Nepal, “agricultural income recorded an exponential increase Bhutan and the north-east tribes who are exempted from 2004 to 2013. It touched an unbelievable Rs2,000 from I-T payments (this recovery will be almost lakh crore at the end of this period. This shameful impossible). Over Rs25,000 crore is understood to record is entirely during the United Progressive Alliance have been deposited in dormant bank accounts. (UPA) government and will turn out to be a hitherto Further, data from the financial intelligence unit hidden scam of that period on the lines of 2G and shows that 21 million new bank accounts have been Coalgate. But why hasn’t this government fixed it yet? opened between 15th November and 25 December In fact, why wasn’t it done before demonetisation was announced, especially when Mr Sharma’s findings have 2016. Over Rs3 lakh crore was deposited in these been in the public domain for a accounts, of which Rs50,000 year. crore was in cash, says a media An I-T official says, “Many of PM Narendra Modi has been report. This data is rather my colleagues are just waiting assuring the faithful that nobody shocking. At a time when bank for the returns to be filed. who deposited tax-evaded cash unions tell us that their staff in banks will be spared. “We will was stressed by the burden They know they will make a of currency exchange and life-time killing on settling the go after every one of them,” he thunders to applause from the distribution, which banks were demonetisation cases crowds. But the government simply running this quiet factory of does not have the manpower, or opening millions of new bank machinery, to go beyond a few well-publicised raids. accounts? Surely, this needs a detailed investigation. Tax-evaders know this better than honest taxpayers I, personally, know that genuine people were being and, by the time returns are filed and assessments come shooed away even at the mention of opening an up for scrutiny, it is between them and their newly account amidst the chaos of currency exchange. empowered assessing officers. Many are betting that Similarly, I-T sources tell us that thousands of the media, and the long-suffering public who stood in new companies were opened overnight and money queues would have forgotten about demonetisation, deposited into their accounts. With automated systems by then. An I-T official says, “Many of my colleagues in place, it easy should be easy for the registrar of companies (RoC) to identify these companies and track are just waiting for the returns to be filed. They know they will make a life-time killing on the demonetisation the deposits. Unfortunately, the ministry of corporate affairs (MCA) under which they function and the RoCs cases.” Finally, we, the people, would like to know why so themselves are extremely slothful, callous and corrupt. many studies and reports about black money are not Such shell companies, which support a massive in the public domain. The Indian Express reports that, laundering operation of converting cash to cheques, in 2011, the UPA government had asked three elite is another big loophole that ought to have been academic institutes in Delhi to conduct a study on the fixed. There are innumerable reports about dodgy businessmen having paid off outstanding bills and loans quantum of black money held by Indians in India and in old currency. Those who were owed the money were abroad. The institutes apparently told an RTI applicant that they were not authorised to share the reports. dumped with the burden of converting it or writing it There is no doubt that the demonetisation exercise off. One media report says that the government has has been the most unplanned, least thought-out and already identified as much as Rs80,000 crore of loan arrogant exercise of power by the State in recent repayments in cash. times. Unlike other politicians, PM Modi has often Our Cover Story this time is about the modus demonstrated that he is quick to learn from his operandi of such laundering, safely conducted under mistakes. Hopefully, there will be a lot of learning from the ineffective market surveillance systems of the this exercise and course-correction as well.  Securities & Exchange Board of India (SEBI). It will 19 | 20 Jan-2 Feb 2017 | MONEYLIFE

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DIFFERENT STROKES SUCHETA DALAL

NSE Needs Deep Cleaning Before Its Public Listing

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n 5th January, I forwarded a letter from insiders by SEBI in the multiple applications (to IPOs) scam. The at the National Stock Exchange (NSE), raising matter was eventually buried. Is it any wonder that NSE concerns about conflict of interest at the NSE has got away with a mere warning even in investigations board, to UK Sinha, chairman of the Securities and like fat finger trades and the change of client codes? Exchange Board of India (SEBI). Mr Sinha thanked me This changed in September 2015, after Justice Gautam for drawing his attention to the letter and will, hopefully, Patel’s path-breaking order on the Rs100-crore defamation act on it soon. case filed by NSE against Moneylife. We published the This is the fourth in a series of letters that have exposed exposé by a whistleblower on how NSE’s algo-trading and that the bourse had been functioning like a private fief. co-location system was being rigged, with the connivance The top management comprised a close group that worked of insiders, to ensure substantial profits to a set of brokers. with friends, relatives, useful The NSE management had allegedly papered over the former employees and select issue by sacking those who academics. NSE has never been questioned about this. Nobody were involved. A subsidiary that questions a very profitable provided consultancy services entity that played a pivotal role to brokers for co-location and in transforming India’s capital algo-trading was also quietly market in the 1990s. sold off, at a huge valuation. Over the years, NSE’s rapid Justice Patel dismissed growth to become the fourth NSE’s attempt to gag Moneylife largest exchange in the world, through a hard-hitting order induced awe from those at SEBI and imposed an unprecedented and the finance ministry. This led Rs50-lakh fine. Although NSE to complete ‘regulatory capture’ The top management at National Stock has appealed the order, SEBI’s and, probably, ensured that the technical advisory committee Exchange comprised a close group founding team went on to head confirmed the whistleblower’s that worked with friends, relatives, the exchange in succession for allegations. SEBI has, since, useful former employees and select ensured a change in NSE’s over two decades. The founding academics. NSE has never been managing director (MD), Dr board composition and initiated questioned about this clubbiness RH Patil, made way for the punitive action. It asked the elevation of Ravi Narain as MD bourse to conduct a forensic and he, in turn, passed the baton to Chitra Ramakrishna, audit to pin responsibility on the individuals responsible without the post being advertised or going through a formal for the system’s breach. The consulting firm, Deloitte, selection process. NSE’s selection committee also performed was appointed, and it confirmed SEBI’s finding that a a perfunctory and questionable role, as has been revealed few stockbrokers repeatedly got preferential access to by documents procured by us from SEBI under the Right NSE’s systems. NSE was also asked to deposit the revenue to Information Act on Ms Ramakrishna’s appointment. generated from its co-location business into a separate SEBI officials have rarely dared to question NSE’s bank account and several hundred crore rupees have been clubby senior management or ensured that it complies with set aside for this. the elaborate regulations imposed on listed companies and These actions led to another development. NSE insiders intermediaries. After all, many senior SEBI and finance and employees mustered the courage to write anonymous officials have worked on deputation at the NSE and tend to letters to the SEBI chairman and finance ministry officials. I remain in awe of the bourse. Let’s not forget how CB Bhave have been copied on at least four such letters. The internal was appointed SEBI chairman, despite the National Share rot that they exposed is shocking and, probably, accelerated  Depository Ltd, which he founded, having been indicted the revamp at the top.

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DIFFERENT STROKES SUCHETA DALAL



After the algo-trading scam was established, Ashok Ms Ramakrisha’s action. Instead, he seems to have Chawla became the NSE chairman. Mr Chawla, unlike supported Mr Subramanian’s elevation to GOO and his most of its past chairmen, is not a puppet of senior induction to the board of NSE group companies. Insiders management. The board was also partly revamped. This say that Mr Subramanian was allotted Mr Narain’s former quickly resulted in two important exits—that of Chitra apartment in Mumbai, and that his office was the only Ramakrishna, MD and CEO, and Anand Subramanian, one on the same floor as that of Ms Ramakrishna, with an whom she had appointed as advisor and group operating inter-connecting door. His perks as a consultant included officer (GOO). More on this later. As NSE readies for a first-class international travel and three days every week public listing, investors need to ensure a clean-up of the at NSE’s Chennai office which was headed by his wife irregular appointments and dodgy governance practices that Sunitha Anand. Ms Anand, also appointed as a NSE consultant, drew have crept into what was once an exemplary organisation. When Dr RH Patil passed the baton to Ravi Narain a hefty compensation. But the couple was not among the without a selection process being followed, the then finance 36 key employees listed in the annual report, nor identified minister, Yashwant Sinha, did have some concerns, but as ‘key persons’ for SEBI. Were Mr Narain and NSE’s they were quickly buried. Later, Mr Narain pushed for Ms appointment and compensation committee unaware of this? Ramakrishna’s elevation as MD saying that he did not want A former executive tells us that there was a clear to continue in an executive role. In doing so, he ensured that strategy to appoint semi-retired professionals as consultants he retains power at NSE without to key departments involving accountability. Mr Narain is high security operations rather on all board committees—the than build teams with longaudit committee, nominations term commitments. This is also and remuneration committee, true of NSE group companies. stakeholder relationship In at least two instances, committee as well as the the Exchange skirted the risk assessment and review requirement to advertise a post committee. in order to appoint a ‘favourite’ Importantly, he was the or appointed a ‘consultant’ to executive head of the NSE head it. Other cases of conflict when the algo-trading breach of interest, where spouses of occurred. Yet, Mr Narain was those in key posts at NSE were part of the decision to appoint Mr Ravi Narain was the executive head also consultants, or those Deloitte as the forensic auditor related to influential academics, of NSE when the algo-trading breach and to decide on accountability have been exposed by internal occurred. Yet, Mr Narain was part of of employees! This conflict of whistleblowers in four separate the decision to appoint Deloitte as interest was flagged by the letters. the forensic auditor and to decide on whistleblowers’ letter that I Given how scandalous this accountability of employees! forwarded to the SEBI chairman is, shouldn’t the NSE board on 5th January. Since SEBI has ask for a full review of its HR an elaborate policy to evaluate board members, it will be policies and appointments? NSE’s DRHP reveals that it has interesting to find out what it has to say about Mr Narain’s now decided to observe suitable consultants as employees role in the ongoing upheaval at NSE. and foreclose contracts of others. On 21st October, the NSE board, finally, questioned The SEBI chairman, Mr Sinha, is quoted by the media Anand Subramanian’s appointment, following a SEBI as saying that he is ‘not satisfied’ with NSE’s response to directive on the matter. He abruptly left that day, even the Deloitte report on algo-trading and wants to see action vacating his apartment in a few hours. Mr Subramanian against brokers and employees who colluded with them. was appointed by Ms Ramakrishna, although he had That is necessary, but not sufficient. Investors ought to no technical or financial background for the job. His demand clear evidence of a ‘deep cleaning’ of the bourse, appointment as a consultant also bypassed the appointment before listing.  committee of the bourse. As part of the founding team of the Exchange, who has Sucheta Dalal is the managing editor of Moneylife. She was been with the organisation for over two decades, Mr Narain awarded the Padma Shri in 2006 for her outstanding contribution was probably the only person capable of questioning to journalism. She can be reached at [email protected]

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SMART MONEY R BALAKRISHNAN

Stock-picking in Good and Bad Times

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here are good businesses and great businesses. And there are industries that are ‘sunrise’ or ‘mature’ or ‘sunset’. There are brands which deliver superior returns year on year. There are new ideas which create initial hype and then run into a sea of competition, as new entrants flood the industry. There are companies that struggle for years and then find their space. There are others that seem to be doing well and, suddenly, stumble. Sometimes, they brush it off and bounce back. As an investor, finding opportunities is the challenge. The space is huge and very few winners will emerge. Keeping our eyes open for opportunities is a must. Beyond that, we also keep looking at young companies and choose those, we think, will make the cut ultimately. Not every idea we back will be a winner. The key is to recognise our mistakes and, at the same time, not give in to knee-jerk reactions. No company will have a smooth and easy ride to the top. Thus, we have to be prepared for speed-bumps and some fatalities in our portfolios as we keep investing into ideas. Within an industry, over time, we will see three or four players dominating the scene. Challenging existing leaders becomes well-nigh impossible. Thus, we rarely see new players come in and do something mething big. However, in a country like ke India, where the per capita income starts from a small base, ase, industry characteristics are different. A new entrant can n become a significant player in five to 10 years. For instance, ance, in FMCG (fast moving consumer goods), there ere was Hindustan Unilever Limited (HUL), Proctor roctor & Gamble (P&G) and the unorganised ed sector. Then came Godrej, Nirma, ITC, etc. And, now, Patanjali is challenging the leaders. What we have to understand stand is that the ‘unorganised’ sector in several eral consumerspend areas is many times es bigger than the organised corporate sector ctor players put together. This evolving industry y structure helps investors pick multi-baggers in the stock markets. What we have to understand nd is that not everyone succeeds in building up profitable itable brands. We have seen brands like BPL and Maharaja raja come and go. And those like Symphony have made the he cut. Some brands like Jockey (Page Industries) just swamped mped the market, leaving old

names, like VIP, struggling. It is true that Jockey has the advantage of being a global brand, but VIP had a huge head-start in terms of time and market acceptance. They seemed to have just not dreamt big. The key thing is to reach the first three or four in the industry. We have seen many Indian players start in a protected environment and then fail to make it big. Hubris, lack of attention to quality, inability to raise resources, technology and lack of business acumen are some of the reasons. Hindustan Motors & Premier Automobiles Limited (PAL) once enjoyed a duopoly in a closed industry. Come liberalisation and they just died. Textiles industry stars went out, once licensing was abolished. The other space is technology. For every survivor, there would be hundreds who did not make it. Recall names like Pentafour, Silverline, etc, that just came and went. What I like to see is whether any company has the potential to keep earning consistently ‘good’ return on capital employed/return on equity (RoCE/RoE). By ‘good’, I generally mean more than 20%. This is a high benchmark to sustain year on year. In a 10-year span, a good company will average more than this, with not more than one or two years’ slippage. Year on year, there should be improvement in a company company’ss health rather than continuing misery. The earnings should be on a business calculation basis and not created because of tax-breaks or fiscal benefits. Mishaps do happen. Let me give you some recent examples. MCX had a problem which led to a crash in its share price. However, the c o m p a n y 

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SMART MONEY R BALAKRISHNAN

 bounced back, with a lot of uncertain moves. If someone

At the same time, there will be temporary bad news and had used that crisis as an opportunity to invest, she would revival in many sectors like real estate, micro-finance, public have been a winner. However, not all companies turn out sector banks, capital goods, infrastructure companies, etc. like that. Similarly, Divi’s Laboratories’ share price has had I will be wary of these, since even on good days I am not a steep fall. If I think that the business model is good and very comfortable owning these. The key thing is to keep that the company will overcome its troubles, I am happy the focus on sectors and companies that will enjoy superior to buy that share. RoCE on a steady state basis. Unfortunately, we are not in a position to participate My normal checklist will not change. I am only looking in the white goods segment that is at events based on temporary fall dominated by foreign brands with Will the cost of a power plant from glory which the markets will punish in the short term. I am not no domestic listing. Or even some come down by 25% simply consumption stories like Coke or going to buy a dud share simply because I think that the world because it fell 50% or 90%. For Pepsi. Many MNCs (multi-national companies) listed in India are also has become more honest since example, I see lot of people again 8 November 2016? Will there talking about a company called shifting to setting up their own subsidiaries that will bypass the listed be an ‘investible’ idea that truly Bartronics. They are saying that this gains from these events? entity. Thus, we are forced to dig in company is now selling point-ofthe Indian company space. sale machines and, given the push Let us take demonetisation. If people are going to to digital India, this company will do well. I am very sure shift discretionary expenditure, there would be some hurt that this is not a sustainable or scalable business that will to companies in that space. For instance, I may put off help the company wipe out all its problems. There will painting my house. Which means that paints companies, be many such stories. One other issue that everyone is debating is whether like Asian Paints, could see a small dip in their sales. The cash crunch also means that there is a slowdown this drive against black money will permanently change in construction-related activities. So, all building materials the fortunes of any company or sector. I prefer to remain supplies would suffer a dip in consumption and sales. The a sceptic and wait for things to actually turn around. impact should be felt most in the quarter ended December Human nature is such that it does not accept defeat easily. 2016. And many would also expect the tempo to be slow Will the cost of a power plant come down by 25% simply in the January to March 2017 quarter. because I think that the world has become more honest So, some great companies could experience a small since 8 November 2016? Will there be an ‘investible’ idea dip in performance. If the market prices of these shares that truly gains from these events? react adversely, I will be happy to pick them up. The I will keep looking for good ideas that will translate to important thing I am betting on is that, once things return market leadership or a niche space over the next few years. to normal, these companies will return to the profits that Maybe, one or two out of five or more ideas will work.  The author can be reached at [email protected] are normally expected.

What’s Your Bahana for Not Subscribing? I am not interested in honest & insightful advice on money matters I never have any problems with banks, credit-cards or insurance companies I always invest on the basis of tips from friends and brokers Finance bores me to tears I would rather spend two year’s of knowledge on one evening of eating out I always buy from the newsstands

For subscription offers that are a steal, look for a form elsewhere in this issue or our website at www.moneylife.in

23 | 20 Jan-2 Feb 2017 | MONEYLIFE

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MUTUAL FUNDS POINTERS

ELSS: To Buy or Not To Buy?

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ou will see plenty of savvy salesmen, bank messages, help in wealth accumulation and, often, yield negligible heavy product advertisements, claims of best real returns. The least known among these, the awareness financial service-providers and investment gurus of which is increasing, are equity linked savings schemes pitching year-end tax-saving tips which use their products or (ELSSs). An ELSS is your best bet among the tax-saving advice. The January-March period marks the high earning instruments available. season for them. This is also the time when the maximum We picked the top tax-saving investment products wealth-eroding decisions are taken! and compared how your wealth would have grown over Investment products are carefully designed based on time in each of these investment products. A summary is human behaviour which makes them appear attractive. presented in the graph below. It is based on the following assumptions: Salesmen are trained to coax you to buy into one or the other product. You would have, often, been confronted with 1. All future value adjustments are made as per 30% tax slab; a product which demands a higher premium followed by your acceptance of the one that is lower. This is one of the 2. 6% returns on traditional insurance policies; many selling tricks salesmen use to influence and deceive 3. For NPS, 12% returns on the equity portion and 8% returns on fixed-income products; you. The commissions earned are, at times, as high as 40%. Plenty of tax-saving products are available; but 4. For others, 8.5% return on investment; 5. The entire Rs1.50 lakh (available as investing for the sole purpose of saving Section 80C deduction) was invested in tax is dangerous. There has to be a well Outperformers the particular investment product. thought out process, based on certain HDFC Taxsaver The graph shows how your money calculations. You are sometimes better ICICI Prudential Long Term Equity off paying tax than trying to save it. Do would have grown year-on-year since HDFC Long Term Advantage not get lured by the short-term nominal 2000 had you invested in various investment products. It is clear that tax savings you will make on purchasing Sundaram Taxsaver an investment product. ELSS (market-linked) has outperformed The schemes are filtered on the basis of their performance in 16, 5-year rolling With the financial year nearing its every other investment product—and periods. We chose the schemes that end, it is time when taxpayers start by a huge margin. The gains on other were present in most periods investment products (most of them are evaluating various tax-saving options available under Section 80C. Popular fixed-income products) are more or less products that come to mind are: public provident fund similar. However, remember the other aspects of ELSS; these (PPF), five-year bank fixed deposits (FDs), traditional insurance policies and national pension system (NPS). While investments are market-linked and come with additional these are good investments for the risk-averse, they do not risk. Hence, there are ups and downs. The advantage of 

Future Value of Investment Rs 1,40,00,000

PPF

1,20,00,000

ELSS

Bank FD NPS

Traditional Insurance Others

1,00,00,000 80,00,000 60,00,000 40,00,000 20,00,000 0 2000-01

2003-04

2006-07

2009-10

2012-13

2015-16

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MUTUAL FUNDS POINTERS

3-year Rolling Returns of ELSSs 71.71%

44.30% 35.81% 29.83%

34.68% 29.18%

28.00%

23.61% 15.85%

12.12%

9.97%

5.60%

-13.14%

4.86%

7.15%

-11.49%

Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16

 investing in the other instruments is that they are not see erosion in the value of its portfolio. During a bull run,

volatile and grow constantly over a period, though their an ordinary ELSS will be able to generate returns; but a growth may be slower. Market-linked products are a good bear phase will separate the best from the rest. A list of the option for the aggressive investor while fixed-income ones top consistent performers is shown on the previous page. are suitable for conservative investors.

Seven Points To Remember before Investing in ELSS Aggressive ELSS ELSS is the best performing tax-saving instrument. The primary objective of ELSS is to generate medium- to longterm capital appreciation and provide tax benefit under Section 80C of the Income-tax Act, 1961. The schemes, usually, seek steady growth by maintaining a diversified portfolio of equities across sectors and market-cap ranges. ELSS is not for risk-averse investors. As ELSS investments are, per se, stock market investments, all risks associated with equity investments pertain to ELSS as well. Though these schemes come with a mandatory lock-in period of three years from the date of allotment, don’t be rigid about it. There is a high possibility that yields over three years are low to negative and the timing of investments will determine your future returns. The graph above shows the 3-year rolling returns of ELSS. The simple strategy to overcome the dilemma of balancing higher returns with the inherent risk in ELSS is to increase the tenure of your holdings. Over a long term of 7-10 years, it is reasonably safe to assume that you will not make a loss with equity investments. We believe that equity investment, in any form, should be for a horizon of at least five years, for good results. We worked out the five-year rolling returns of all ELSSs; the results have been summarised in the graph on the next page. You will notice that although the units were held for a relatively longer period, there were occasions when returns were negative. This is the risk with equity investing. If the markets go through a bear phase, even the best ELSS can

1. Risk Profile If an investor’s risk profile is moderately conservative,she should not invest in ELSS, as these are volatile and do not guarantee returns. Even though most people have a low-risk score, they invest in this product. The explanation usually is that they will hold it for long term and, hence, will not lose. While that is true, do not make investments with such a mind-set. Though you may end up accumulating wealth, you will not enjoy peace of mind. Identify your mediumand long-term goals and invest, based on your risk profile. 2. ELSS Do Not Yield Assured Returns By looking at the ups and downs in the total wealth accumulated, the volatility in the three- and five-year rolling returns, you would understand that ELSSs do not yield assured returns. This is the biggest disadvantage of ELSS. Moreover, there is no fixed period over which dividends are paid. If you are looking for fixed income, ELSS is not the right product for you. 3. Returns Are Tax Free ELSS comes with a three-year lock-in period and investments under ELSS are eligible for tax exemptions under Section 80C of the Income-tax Act 1961. An individual in the 30% tax slab can save up to Rs46,350 as tax exemption in a year. If you sell any of your units with gains at the end of the lock-in period, such gains will also not attract any tax liability. 4. ELSS Has Mandatory Three-year Lock-in As specified earlier, ELSSs are market-linked instruments. Given the uncertainty, don’t be under the impression that you will make definite gains at the end of the lock-in 

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MUTUAL FUNDS POINTERS

5-year Rolling Returns of ELSSs 80% No of Schemes Minimum

60%

40%

20% 3

6

7

Mar-03

Mar-04

11

13

13

13

13

14

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

24

25

Mar-12

Mar-13

Average Maximum

31

32

32

Mar-14

Mar-15

Mar-16

19

0%

-20% Mar-02

Mar-11

 period. There is a high possibility that three-year returns in the scheme and the new units will come with a lock-in

may be negative. You should be flexible in your holding tenure. Although this is an advantage in disguise, ELSS has the shortest lock-in period compared to other investment products. If an investor has a goal which is less than five years, she should ignore ELSS. 5. Plan ELSS Investments in Advance Unlike a tax-saving fixed deposit or a traditional insurance policy, where investors can shell out the entire money as a lump-sum, this product requires a different approach. An equity nvestment is exposed to market risks and its performance depends, to a large extent, on the points of entry and exit. When you invest a lump-sum in an ELSS, the timing of entry will have a bearing on the returns. If you invest when the market is at a peak, you could end up with erosion of capital. The loss could even offset any tax-saving while making the investment. Even if you spread your investment over the last three months of a financial year, it will not reduce the risk greatly. If you end up buying at high market valuations, your overall return will be much lower. To avoid such lump-sum risk, it is advisable to phase out your investments over the year. A good strategy is SIP (systematic investment plan)—investing a certain fixed amount every month. This way, you average out your purchases and eliminate the risk of timing. The only disadvantage of this is that every subsequent instalment gets locked in for three years. However, stick to it. 6. Say No to Dividend Re-investment Options Multiple options are available, once you shortlist your preferred ELSS. You can opt for growth, dividend or dividend re-investment option. When investing in an ELSS, it is better to opt for the growth or dividend option—not the dividend re-investment option. The reason is simple; each instalment of the ELSS will be locked-in for a period of three years. If you choose the re-investment option, any dividend that the scheme declares will be re-invested

period of three years. 7. Performance Matters Over the years, the popularity of ELSS has increased. The factor that differentiates the best from the rest is the performance. It is a fact that the outperformers keep outperforming and underperformers keep underperforming. While we know, by now, which schemes Underperformers have consistently L&T Taxsaver outperformed, Kotak Taxsaver investors need to be wary with the schemes LIC MF Tax Plan listed in the table Escorts Tax Plan alongside. UTI Long Term Equity

The schemes are filtered on the basis of their performance in 16, 5-year rolling periods. We chose the schemes that were present in most periods

Conservative Fixedincome Products

Almost everyone today would persuade you to invest in equity without checking whether it is suitable for you. But, remember, there are aggressive investors and conservative investors. While equity investments are suitable for the former, low-risk fixed-income investments are better for the latter. The best tax-saving option in the conservative space is PPF as it enjoys the ‘exempt, exempt, exempt’ (EEE) status, making it more attractive vis-à-vis other products like NSC, five-year bank FDs and others. While it is true that you will be persuaded by a lot of salesmen to pick up fancy investment products, you need to be aware of your finances and opt for only those which suit your investment style and risk appetite. Do not get lured by the figures quoted by salesmen. Make the effort to calculate the rate of returns generated by the investment. If you are still undecided where to put your money, a combination of ELSS and PPF could be an option. — Mitul Patel 

27 | 20 Jan-2 Feb 2017 | MONEYLIFE

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1. Right Life Insurance Insurance is supposed to protect you. But the real business of insurance companies is pooling money; they earn fees and their agents earn commissions. All their income and expenses come out of your money, ‘invested’ with them. And you get poor returns, after all the costs and charges.

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

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

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

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

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16-12-2016 17:29:45

INSURANCE TRENDS New products, regulations, features and options, interpreted from your perspective A c c i de n t I n s uranc e

Malaria Death Ruled as Accident

T

he National Consumer Disputes Redressal Commission (NCDRC) has ruled that the death of a policyholder due to malaria from a mosquito bite is an accidental death and has allowed an insurance claim. The case was National Insurance vs Mosumi Bhattacharjee whose husband, the insured, died of malaria. The insurer had turned down the claim on the ground that malaria is a disease and not an accident. The Commission, headed by Justice VK Jain, said, “Death of policyholder patient due to malaria after mosquito bite is an accidental death and, hence, insurance company is liable to pay the sum assured. It can hardly be disputed that a mosquito bite is something which no one expects and happens all of a sudden.” The Commission relied upon the earlier judgement in the Matbarsingh vs Oriental Insurance case where it was held that snake bite, dog bite and frostbite are also accidents. All three consumer forums, namely, district, state and national, held the insurance company’s stand to be incorrect. The apex consumer court’s

order can be a cause of worry for insurance companies as it can lead to a similar interpretation of accidental death due to dengue and chikungunya. The reason for the insurance companies’ worry is the large number of deaths from malaria and dengue in recent years.

Health Insurance

Will Bariatric Surgery Be Covered by Mediclaim?

H

ealth insurance companies have done a flip-flop on covering bariatric surgery in the past few years. Some insurers have started granting cover, but on a case-to-case basis, to patients with life-threatening risks. But a recent

district consumer court’s decision says that an insurance company cannot be held liable for deficient service when its policy agreement

clearly excludes certain physical conditions from the reimbursement of medical expenses. The policyholder alleged that New India Assurance wrongfully rejected her claim for expenses incurred on surgery for morbid obesity. The company had rejected the claim based on a specific clause in the policy agreement that excluded morbid obesity from the reimbursement list. The bench said that, as per the insurer’s clause, the expenses incurred for the surgery of obesity are excluded. So, insurers seem to find ways to not cover bariatric surgery. Bariatric surgery may be a life-saving procedure for some patients but is considered a cosmetic surgery by insurance companies. However, in mid-2014, the Central Government Health Scheme (CGHS) approved coverage for bariatric surgery which is similar to weight-loss surgery. The new guidelines provide for reimbursement of surgery charges to patients who have body mass index (BMI) of more than, or equal to, 40kg/m2. If the person has obesity-related co-morbidities, like hypertension, cardio-vascular disease and diabetes, surgery can be considered even if the BMI is 35kg/m2. The government has fixed a package rate of Rs2.25 lakh for such surgery. Any expense above the limit will have to be borne by the consumer. Large private hospitals charge higher rates than the amount approved for bariatric surgery under CGHS. Due to this, many prefer to get the surgeries done at government hospitals. CGHS hospitals also have stringent selection criteria and only those with co-morbid conditions, like uncontrolled diabetes, hypertension, osteoarthritis or back pain, are being extended the cover. 

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INSURANCE TRENDS

 Consumers with no associated

ailments are not covered. For non-CGHS, coverage for bariatric surgery depends on the insurance company as there are no clear guidelines. Those covering it have their own evaluation and allow it on a case-to-case basis. With the alarming rise in bariatric surgeries in India, there is need for proper guidelines that make the disease notifiable and bring it under the ambit of Insurance Regulatory and Development Authority of India. There is a need to stop misuse of the treatment which is possible only with clear guidelines from government and regulatory authorities. Recently, surgeons from the Obesity and Metabolic Surgery Society of India and All India Association for Advancing Research in Obesity have approached the Indian Council of Medical Research for guidelines to make the disease notifiable which can help mediclaim policyholders.

Fine Print Insurer and Agents Not Trustworthy

N

either insurance companies nor their agents are trustworthy sources for a wide spectrum of people, a study by ASSOCHAM has found. It says, “Among the first set of people with no specific knowledge of insurance and finance and those who fall in the age group of 18 to 60 years, 72% of those covered in the study said their agent/sales person was the least trustworthy source in the sales process of an insurance policy.” The second least trustworthy source in the sales process was the

Health Insurance

Keep Emergency Funds for Hospitalisation

E

mergency funds are important for financial planning. An emergency can happen any time and money may be required instantly. Keep emergency cash at

home as it may be needed even if you have cashless health insurance. For emergency situations, cashless mediclaim may not be approved before hospitalisation; hence, you may be expected to pay some

insurance company itself, though the percentage on this count was much less at 29%. Those who are financially savvy and can better interpret their insurance policies find their agent and sales person the least trustworthy in the sales value chain.

Max Bupa Penalised for Rejecting Claim

T

he Gurgaon District Consumer Dispute Redressal Forum has imposed a penalty of Rs25,000 on Max Bupa Health Insurance for rejecting the claim of a cancer patient. The insurer was ordered to pay Rs3.23 lakh treatment cost along with interest @9%pa (per annum). First, Max Bupa rejected

advance to the hospital (less than 10% of the estimated cost) which will be adjusted after cashless approval. If there is denial of the cashless claim, for some reason, you have to pay the hospital bill and claim the reimbursement later. Be ready to pay for incidentals (that may or may not be reimbursed). Hospitalisation registration and non-medical expenses are not covered. Easy access to Rs25,000 or more can make the difference between life and death. Cash is still king. A savings or current account is your next best bet. Bank FD and liquid mutual funds offer good liquidity and minimal loss for premature withdrawal/ redemption. New modes of payment have become popular after demonetisation; hence these are worth exploring. Having easy access to money is more important than having money which can take time to be accessed. 

the cashless claim and asked the policyholder to apply for reimbursement. The reimbursement claim was rejected on the grounds of non-disclosure of disorder in the past 7-8 years. Next, the insurer also cancelled the health insurance of the couple. The Forum went through the evidence and found that the customer had mediclaim policy since 2004 from National Insurance and then shifted to Max Bupa. So, the policy was continuous since 2004. The preexisting disease exclusion clause for 48 months should not have been applicable and, hence, the rejection of the claim by Max Bupa was not justified. 

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BLACK TO TO

WHITE Thousands of crores of rupees of black money are easily converted into white every year by rigging the prices of listed shell companies. An official report describes the modus operandi. Investigation by Debashis Basu & Sucheta Dalal

O

n 8 November 2016, prime minister (PM) Narendra Modi demonetised the Rs500 and Rs1,000 currency notes in an effort to strike a body blow at black money. This move inflicted enormous daily hardship on almost every Indian for several weeks in, what was touted as, a nationwide purification yagna. And, yet, this ‘surgical strike’ did not even touch a wide variety of strategies used by people to convert black money into white. One of the cleanest ways of converting black to white is right under the nose of the income-tax (I-T) department and Securities and Exchange Board of India (SEBI). Under the I-T rules, listed shares held for more than a year are considered a long-term holding eligible for taxfree long-term capital gains (LTCG). So, those involved

in the laundering operation select an illiquid listed stock traded at a very low price (sometimes, the price is a few paise) and then get a market-operator to rig it. After a year, the shares need to be sold on the exchange. However, since they are unlikely to find genuine buyers, the sale is effected to entities that are also controlled by the operator and funded by the beneficiary. The operator not only rigs the price but also routes the money to a series of dummy companies to hide its trail, for a consideration. The person laundering his cash gets an official payout from the exchange for his ‘brilliant investment’ and pockets tax-free LTCG—all in white. What we have in our possession the first comprehensive investigation into this rampant is the laundering operation and the exact modus operandi used to convert black-to-white using the LTCG route. 

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COVER STORY

 The investigation report was prepared by Dhruva Purari

entities are under the scanner of both, SEBI and the tax Singh of the I-T department, Kolkata. Titled “Project department, for rampant misuse of tax laws. However, Bogus LTCG/STCL through BSE listed penny stocks” far from actually acting on the issue, SEBI seemed to be it has some explosive material on how a number of, preparing the case for not being able to act on it. Media unscrupulous stock brokers working through scores reports note that the regulator “has so far not received of listed and unlisted shell companies are routinely any other independent, documented evidence and sources laundering black money and also claiming bogus tax say the market regulator is not convinced testimonies alone will stand the test of legal scrutiny.” This is simply exemptions in the form of LTCG. Moneylife has been writing about this brazen price untrue since in March 2016 itself, SBEI had banned 240 entities, from the market for manipulation on manipulation for over seven years. We have highlighted exactly the same grounds that the I-T department’s the rigging of at least one scrip in every in every investigation establishes: connected entities, issue of the magazine. Moneylife also published unusual rise in price, preferential allotment—all a detailed Cover Story in 2012 (http://www. leading to bogus LTCG. moneylife.in/article/stock-manipulation/27957. A Press Trust of India report said that SEBI html) that described how a close network of “plans to clamp down on those involved in stock promoters had manipulated specific stocks right Share manipulations and take action against all listed under the nose of SEBI. Indeed, the video of a Brokers companies, along with their directors, found to Moneylife Foundation’s discussion on money be in cahoots with such operators. Besides, the laundering, which went viral on social media market regulator will refer the findings of all the and WhatsApp just a few of months ago (Please details about the beneficiaries and facilitators of see https://www.youtube.com/watch?v=CI2gI ’Entry’ such trade to the Income Tax Department for wBg35c&feature=youtube) clearly establishes Operators further action. A proposal in this regard would how widely such scams about using the stock be presented before SEBI’s board this week.” market, are known among the market players. This would be another way of passing the We were pleasantly surprised to discover that buck, as we describe later, since the core issue the investigation team referred to Moneylife in the penny stock scam is the failure of SEBI’s Foundation’s video on price manipulation, in BSE-listed expensive market surveillance system. their report. While SEBI has, from time to time Companies The Kolkata investigation report asserts banned certain entities for price manipulation that the evasion has “become much more to take advantage of LTCG, such manipulation organized… and the stakes involved have has continued with impunity over the years. become huge.” The report was also sent to However, after the perspective of the PM's the SEBI chairman. Although SEBI should campaign against black money, SEBI seems Shell have been working with the I-T department to be under pressure to do something. While Companies to nail the scam, it didn’t. But more about we were fi nalising this article, something SEBI’s curious role later. Here are the key interesting happened. On 6th January, well findings of the I-T report: before we planned to finish this article, we • The investigation identified 64,811 had sent a letter to SEBI asking for their beneficiaries who had claimed bogus LTCG views (Please see box). Till the time of of nearly Rs38,000 crore. going to the press, SEBI had not replied. Beneficiaries • The illegal business of claiming bogus On 11th January the media was suddenly LTCG involves three different sets of entities: buzzing with stories of a planned board the promoter of ‘penny stock’ companies, meeting on 14th January, which will take share brokers and a set of ‘entry operators’ up the “misuse of Long Term Capital Gains who accept cash from the tax-evader and (LTCG) and stock price manipulation.” route it through several paper companies This would be SEBI’s first board meeting to bank account(s). Many a time, the three since demonetisation, announced on entities perform overlapping roles. 8th November. • The list of brokers mentioned in the According to the media reports, the Bogus LTCG investigation includes big names like board will be apprised on the course Amount Anand Rathi, Religare and SMC Global, of action SEBI will take on this issue. “who were involved in purchase/sale and  The regulator claims that nearly 32,000

32 25

84

5,000

64,811

Rs38,000 Crore

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MONEYLIFE ADVISORY FIX YOUR FINANCES, FOREVER

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Subscription to Moneylife magazine is included in MAS Premium Membership

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MAS Benefit #4 - 7 Equity Fund Choices •

Which Large-cap Funds?

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Which Mid-cap Funds?

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Which ELSS?

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ELSS SIP Tool

Fixed Income Choices •

Which Bonds, NCDs?

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Which Long term Debt Funds?

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Which Short term Debt Funds?

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Investools with equity funds & stocks •

Monthly Investing

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Investing for Specific Goals

Stocks

MSSN GB Ad_invest.indd 3

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SIP Tool for Stocks

15-12-2016 18:35:28

COVER STORY



price rigging of the penny stocks,” says the report. Many of the brokers ran a country-wide operation that also involved brokers from several cities. • The total transaction of these brokers mentioned by the report is Rs15,970 crore, as against the total trade in the scrips of more than Rs38,000 crore. • The I-T investigation was able to establish full cash trail of Rs1,575 crore.

How It Is Done The game starts with the beneficiaries and operators coming together to run an operation to book bogus LTCG. The commission to be paid to the operators who will run the scheme is decided at this stage; but no money is paid at this time. “Once the booking (plan) is complete, the operators have a reasonably good idea of how much LTCG is to be provided along with the breakup of individual beneficiaries. This data is essential to decide which penny stock or companies to use for the job and which beneficiary (is) to buy how many shares. Once the deal is struck, the market manipulation begins.” The players organise one of two ways of doing the transaction—the conventional method; or the merger

O has a complex network of various paper/bogus entities and is also in control of listed penny stocks.

method (see box on page 39). Next, the operator (see section ‘The Players’ for definition) identifies a shell company, listed on the exchange, with a small capital base, where the majority shareholding is held by “promoters who are also mostly persons of dubious reputation.” The share price is low and listing is only in name. There are usually no public shareholders at all. These are dormant companies with no business activities. The existing shareholders move out and those who wish to procure entry of LTCG to convert their unaccounted cash into tax-free LTCG (beneficiaries) buy the shares, often, through preferential allotment. Though the beneficiaries pay their initial investment by cheque, “the entire amount shown to have been initially invested is either returned to them by the operator in cash or adjusted against the payment to be received at the time of harvesting of the bogus LTCG. Operators promise the beneficiaries 10-20 times the amount initially shown to have been invested,” says the report. After the beneficiaries come in as shareholders, the operator starts ramping up the share prices to astronomical 

O starts rigging the price through circular trading with the help of share brokers and bogus clients. The prices rise to astronomical levels.

O asks B to buy some specific number of shares of a specific penny stock at a low price either on the exchange or through preferential allotment.

Once the cash has been routed O instructs B to sell the shares, in a particular lot size on a particular date and time.

Beneficiary "B" has unaccounted money cash which he wants to launder. He approaches operator “O” who manages the whole scheme. Summary of how such shady scrips are manipulated with impunity for bogus LTCG.

After a year, O asks the beneficiary to deliver the unaccounted cash. The cash is routed to paper/bogus companies which would buy the shares from B.

O instructs the paper/ bogus companies maintained by him to buy the shares of B at the predetermined particular date and time.

How the LTCG Scam Works

B gets paid in white from his broker. The gains are now tax-free.

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COVER STORY

Brokers

All stock market trading is done through stock brokers and so, no LTCG scam is possible without the connivance of brokers. Brokers are supposed to comply with stringent KYC norms before registering any entity as their client. But alarmingly, the report that says that “these brokers perform the trading themselves on behalf of the paper/ bogus entities. Many brokers have accepted this fact in their statements.”

Syndicate Members/ Operator: The operator manages the overall scheme. He controls, directly or indirectly, numerous paper/bogus companies utilised for routing cash and also the listed penny stock companies (usually purchased from the shareholders of a dormant company). Beneficiaries wanting to book bogus LTCG/STCL approach the operator. The operators’ name seldom appears in the actual transactions.

Penny Stocks

The Players

A penny stock trades at very low price and has very low marketcapitalisation. The general public is not interested in them due to poor financials. The operator issues the shares of these companies to beneficiaries through preferential allotment or off-market deals. Shares allotted through private placement, have a lock-in period of one year. Therefore; such allotment qualifies them as exempt from LTCG.

Entry Operators An entry operator gives accommodation entries or accommodates the other party, for introducing their unaccounted cash into their books of accounts. These individuals control a large number of paper/shell companies which are used for routing cash for the transactions as well as buying and selling shares during the process of price rigging. They are paid on a commission basis by the syndicate members.  levels, over a one-year period. The share price is slowly,

but consistently, manipulated upwards on thin volumes through “circuitous and prearranged transactions” until the market price reaches a pre-determined level. The report says, “It is here that the surveillance mechanism of the Stock Exchange has either failed or the persons responsible for surveillance have consciously allowed the manipulations to happen.” The SEBI chairman, who got a copy of this report, is completely unmoved by such a direct allegation. Moneylife wrote to SEBI seeking its comments on the I-T report, but did not receive any response. After a year, the operator arranges to give the beneficiaries an exit “through purely accommodative transactions without an iota of genuineness,” says the

report. At this time, the operator tells the beneficiaries to arrange the cash to be laundered and hand it over to his contact persons. Various small players (entry operators, who create book entries) convert this cash into cheque transactions and transfer it to the account of the dummy buyer of the ramped-up shares. The operator then gets the beneficiary to instruct his stock broker (who is fully in this game) to sell a specific quantity of shares at a specific price and time, in a very carefully timed transaction where two sets of people have to enter data and hit the keyboard simultaneously (usually to a count of three) to ensure that their entries match. The operator charges a commission, in cash, to conduct this operation. All Moneylife stock manipulation reports show that the share prices of companies have all 

37 | 20 Jan-2 Feb 2017 | MONEYLIFE

COVER STORY

Himachal Fibres Adjusted Closing Price in Rs 80

Shares Traded 13,57,150

65

10,85,720

50

Shares Traded Adjusted Closing Price

8,14,290

35

5,42,860

20

2,71,430

5 4 May-15

0 13 May-16

6 Nov-15

 the hallmarks of a typical pump-and-dump operation.

A typical chart will look like the one on Himachal Fibres. Notice the heavy volumes at the initial stage, the pumping operation and the subsequent dump.

The Back Story of Investigation

•

It was widely known that market-players are creating bogus LTCG and STCL, for which Kolkata is the hub of Jamakharchi or what is known as ‘accommodation entry providers’ or simply ‘entry operators’. Accommodation entries are bogus transactions through which an entity accepts cash and issues out cheques. According to the report, “this city runs a very organised and systematic money laundering syndicate.” The directorate of investigation (Kolkata) has unearthed huge accommodation entry rackets, from time to time. Here are some examples, from the past, that the report mentions: • A search and seizure action was conducted in July 2013 on Anand Sharma and Janardan Chokhani group and, subsequently, on Deepak Patwari’s Destiny Security Ltd. This unearthed market manipulation of BSElisted companies, namely Pearl Electronics Ltd, Shree Shaleen Textiles •

Ltd, Cressanda Solutions Ltd, etc, in order to provide entries of bogus LTCG to the interested persons, or ‘beneficiaries’.” In May 2014, an I-T survey was done on Sikaria Share & Stock Broking Services Pvt Ltd which not only established a money trail from cash deposit to beneficiary, via the share broker, but various ‘entry operators’ also confessed to their role in the bogus LTCG scam. Another survey was conducted on 7 August 2008 in the case of Quest Financial Services Ltd and Prakash Jajodia. Here, too, a money trail was established from the deposit of cash right up to the ultimate beneficiary, via share broker. Again, the key entry operator/promoter of the listed company confessed to his role in the bogus LTCG scam. • Another invaluable investigation report about LTCG scam was received from directorate of I-T (investigation), Delhi, which provided critical inputs about the modus operandi and extended reach of the LTCG syndicate, says the Kolkata report. Describing the inputs provided by DITID, the report says that these investigations “unearthed some big syndicates involved in providing accommodation entries for LTCG.” But “the 

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COVER STORY

Transaction Flows Conventional Method Purchase of Shares by the Beneficiary: The beneficiary buys a fixed number of shares through an operator. Price Rigging: After the shares have been purchased by the beneficiary, the syndicate members start rigging the price gradually through brokers who buy shares at a fixed time and at a fixed price. These low volume transactions are managed through paper companies of ‘entry operators’. Sale by the Beneficiary: The beneficiary holds the shares for one year or a bit longer. He then provides the required cash, which is routed through some paper companies of the entry operator and, finally, parked in one company which will buy shares from the beneficiary. Once the shares are sold, the paper company issues a cheque to the beneficiary. The beneficiary, thus, converts his black money (cash) into white (sale proceeds including tax-free LTCG).

Merger Method Step1: In this method, the operators first set up a private limited company and the shares are allotted at low value to beneficiaries. Step2: This private limited company is then amalgamated/merged with a listed penny stock company by following due process and obtaining a high court order. The capital of the penny stock

 approach was to target the individuals and through him

identify the penny stocks and beneficiaries. This yielded results on a limited scale emanating only from individual/ individuals targeted,” says the report. The Kolkata I-T team’s investigation decided to reverse the process. It first identified the ‘penny stocks’ and then started targeting the individuals who dealt in them. Given “the rampant nature and exponential growth of this illegal business,” the changed approach allowed the department “to virtually cover almost all Kolkata-based operators in one investigation itself.” The team identified 84 BSE-listed penny stocks used for generating bogus LTCG. The number of companies used for this scam is in hundreds. It must be mentioned here that the investigation refers to BSE stocks, because these are legacy listings, unlike the rival National Stock Exchange (NSE) which cherry-picked the best companies to permit trading when it began operations 22 years ago. Once the list of 84 stocks was identified, the department conducted searches and surveys on 32

listed company and the private limited company is so arranged that the beneficiaries, post- merger, get shares of the listed company in the ratio of 1:1; thus, the investor gets an equal number of stocks in the listed company. Crucial to this is the stock exchange’s approval for listing. Step3: The beneficiaries hold the shares of the listed penny stocks which they got as a result of merger, for one year (statutory lock-in period for exemption under I-T Act), and then sell it to one of the shell private limited companies of the operator, at a rigged price that could be 20-25 times higher. Such mergers require the stamp of approval of a high court. Since some of these are clearly sham mergers, the high court sometimes refers such cases to the I-T department before passing an amalgamation order. “The department, however, neither has the time nor the wherewithal/jurisdiction to investigate. The result: the blatant tax evasion is getting stamped by the Hon'ble high courts,” says the report. Interestingly, the market also has people looking to buy loss entries to deflate their profit and convert white earnings to black. So, the report says, “Sometimes, this cash is even handed over to the persons interested to take entry of bogus short term capital loss (STCL) in lieu of cheques of equal amount from them, ostensibly for purchase of such shares at artificially inflated market price. In the process, their white money is converted into black and their taxable profit is reduced.”

share brokers. Startlingly, according to the department, the brokers readily “accepted that they were actively involved in the bogus LTCG/STCL scam. Surveys were also conducted in the office premises of many accommodation entry providers and their statements recorded. All have accepted their role in the scam.” The department ended up with a list of more than 60,000 beneficiaries, a stunning Rs38,000 crore of benefit covering more than 5,000 paper/shell companies, also known as Jamakharchi companies, and 25 ‘entry operators’ involved in providing bogus accommodation of various kinds. The department has recorded statements of most of those involved, under oath. The department has prepared a cash trail of Rs1,570 crore which shows how the unaccounted/undisclosed cash of beneficiaries is being routed through this modus operandi to convert black money into LTCG. “We have followed the money trail from the point it is being deposited to the undisclosed proprietorship bank accounts to the accounts of share brokers. Then we 

39 | 20 Jan-2 Feb 2017 | MONEYLIFE

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13-01-2017 17:05:42

COVER STORY

Bogus Short-term Capital Loss

B

ogus LTCG is not the only misuse the stock market is put to. Another important way to reduce taxable profits is to book bogus short-term capital loss (STCL). How does this work? According to the report, “While LTCG is booked when the share price is going up, the downward journey is used by operators for booking bogus losses. People, who have huge profits, take the STCL to set-off their profit. The methodology used is the same. The beneficiary who wants a loss buys the share at a high rate from the beneficiary who is taking LTCG. The loss-taking beneficiary pays a cheque to the LTCG-taking beneficiary and the cash provided by the LTCG beneficiary is returned to the loss-taking beneficiary. As prices crash, the loss-taking beneficiary sells these shares bought at high value for a smaller value resulting in artificial loss.” Suppose company ‘B’ (beneficiary) foresees that it is going to have to report huge profits in its books of accounts. It may wish to reduce its taxable income by taking entry of a bogus loss in its books to reduce its taxable profit. So ‘B’ approaches operator ‘O’

 have recorded statements of share brokers where they

have accepted that this cash has been used for providing accommodation entry of bogus LTCG,” says the report.

Any Action Taken? This report, along with a long covering note (no. F No75A /2015-16/257-273) from Bishwanath Jha, principal director of I-T (investigation), Kolkata, was sent to the director general income tax (DGIT) (investigation) of various Indian cities, including Mumbai, Delhi, Ahmedabad, Bengaluru, and also to director general (international tax) Mumbai, along with a list of beneficiaries and a request that it be shared with their assessment officers. If the beneficiaries are assessed somewhere else, Mr Jha’s letter requested that the information be passed on to the DGIT concerned. So, what happened to all the painstaking work done by

who maintains a complex network of various paper/ bogus entities and is also in control of some companies whose shares are listed on one stock exchange or the other. The operator asks ‘B’ to buy a specific number of shares in a specific listed company on the exchange terminal at a highly rampedup price. These shares are illiquid and are held either by the paper/bogus entities maintained by the operator, or by the beneficiary who wishes to take an entry of bogus LTCG on its books. Thereafter, the operator starts to sell the shares. The stock falls like a stone and remains on the lower price circuit for days together. This is very easy for the operator to manage because there is no public participation in such ramped-up, illiquid stocks. Once the price has fallen to a pre-determined level, the operator asks ‘B’ company to sell the shares in a particular lot size on a particular date and time (in carefully synchronised trades). ‘B’ has bought the shares at a high price and has, thus, incurred a short-term capital loss. This loss is returned to ‘B’ in cash. This allows ‘B’ to get a bogus STCL entry which is set-off against the regular profit.

Dhruva Purari Singh? From what we gather, precious little. DGIT has acted against only five companies of the 84 in the Kolkata list. Almost a year after the report was submitted, on 16 March 2016, the central board of direct taxes (CBDT) issued directions to carry out detailed enquiry into taxpayers who had invested money in penny stocks whose share prices were rigged for booking bogus LTCG or STCL, citing the investigation conducted by Kolkata investigation directorate. But that was all. In July 2015, Shaktikanta Das, then revenue secretary, wrote a ‘secret’ letter to the SEBI chairman, reminding him about the Kolkata investigation on fictitious LTCG. The letter said, “Such rampant manipulations call for concerted and coordinated action by the agencies concerned. SEBI’s proactive role in the above context is crucial.” It is surprising that SEBI needed to be goaded 

MONEYLIFE | 20 Jan-2 Feb 2017 | 40

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COVER STORY

Brokers in the I-T Investigation Net

F

or this report, Moneylife wrote to all 22 brokers mentioned in the report (see list alongside) and sought their responses and reactions. Only Religare and Anand Rathi acknowledged our emails. Religare said “We have not been involved in any illegal conversion of money from black to white.” Ujjwal Punmiya of Anand Rathi Securities kept trying to persuade us to drop the story and then asserted that "Our firm is not at all in any way involved in illegal conversion of money by using Long-term Capital Gains Tax. As a broker, we provide platform to our clients directly or through our subbroker to trade in securities which are permitted by stock exchanges. Transactions are done by the client at their own and we do not keep any track of gain or losses made by our clients. However, the I-T investigation report asserts that "statements of regional head and employees (of Anand Rathi Securities) were

recorded where they accepted that they wilfully allowed known entry

operators like Deepak Patwary and Prawesh Baria run their scam of LTCG. They never bothered to verify the KYC norms as required. The Calcutta Stock Exchange Very interestingly, it was also Gateway Financial Services found that Anand Rathi group SMC Global Securities is receiving share capital in their Anand Rathi Share & Stock Brokers smaller investment companies, Comfort Securities from well-known entry operators Korp Securities of LTCG market, like Jagdish Religare Securities Purohit and Akash Agarwal. This makes a clear nexus between Destiny Securities broker and operator. About SMC Eureka Stock & Share Broking Global, the report says “Many Madhya Pradesh Stock Exchange sub-brokers as well as regional Dynamic Equities office manager have accepted Manu Stock Broking their role in accommodation Nakamichi Securities entry providing syndicate. They Baba Bhootnath Trade & Commerce have also accepted that they Intellect Stock Broking receive cash commission from East India Securities beneficiaries/ key operators Abhinandan Stock Broking for being part of the syndicate. Fort Share Broking We have also impounded such RNA Capital Markets documents from the office of SMC Regional Office, which Sosha Credit suggest that they receive huge Millenium Stock Broking cash commission.” Kayan Securities

 and pushed in this manner. SEBI should have been on

top of this issue on its own, after grandly claiming, in December 2014 and again in April 2015, that it has bust schemes that misuse the stock market platform for money-laundering. In fact, our sources believe that SEBI itself is a stumbling block in exposing the scam, even though it has claimed that it has consistently acted against such companies. Mr Das, in his letter, told the SEBI chairman: “Investigations conducted in the transactions of the aforesaid nature could not bear the desired fruits inter alia for the reasons that in most of such transactions the regulators concerned such as SEBI did not record any adverse finding qua such transactions. Judicial authorities have held that unless the corporate veil is lifted, onus on revenue is not discharged. The action taken by SEBI in such cases unravelling the façade is of critical importance, in these cases for effective handling of menace of bogus LTCG.”

Why did SEBI “not record any adverse finding?” After all, SEBI has draconian powers since 2013 under which it can enter and search buildings, places, vessels, vehicles and aircraft of defaulters. Its officers can break open the lock of any door, box, locker, safe, almirah, etc, to get information. It can ask for information or records from any person, banks, authorities, boards or corporations. It has the powers of search and seizure, attachment of properties and arrest and detention of defaulters; it can also pass disgorgement directions. Finally, the government has also allowed the market regulator to seek information from other regulators within India and abroad with retrospective effect, going as far back as 1998. And, yet, Mr Das had to ask SEBI chairman UK Sinha to tear down the corporate veil. He also had to remind him to take “necessary action in the 84 scrips identified by the Kolkata investigation directorate.” While SEBI has invested in highly sophisticated and expensive market 

41 | 20 Jan-2 Feb 2017 | MONEYLIFE

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13-01-2017 17:06:23

COVER STORY

LTCG Scam: A Failure of SEBI’s Surveillance System

O

ver the past seven years, Moneylife has been publishing reports of one case of market manipulation in every issue. These cases do not require much effort to unearth. We can start looking at the listed companies, alphabetically, and easily find cases of illiquid, closely-held stocks, with no business to speak of, that are rigged a few hundred percent. In other words, price-rigging for booking bogus longterm capital gains is widespread and continuing with impunity. Our objective ctive has to be to prevent such manipulation. ation. But, from 2001, when the JPC (joint parliamentary committee) was as enquiring into the Ketan Parekh ekh scam, up to 2015, when the SIT (special investigation team) of the Supreme Court urt on black money flagged d this off, SEBI has been found nd lagging far behind the curve in catching price-rigging. -rigging. Here is what hat SIT said, in 2015: “SEBI

has recently barred more than 250 entities, including individuals and companies, from the securities market for suspected tax evasion and laundering of black money through stock market platforms… There is an urgent need for having effective preventive and punitive action in such matters to prevent recurrence of such instances.” SIT recommended that “SEBI needs to have an effective monitoring mechanism to study such unusual rise of stock prices of companies… companies We believe that monitoring by SEBI a with effective and timely mon significant number of such instances can be checked in time.” This clearly means singularly failed in its that SEBI has sin over Rs50 job, despite spending sp installing sophisticated crore on inst surveillance systems. real-time su only action SEBI has The on taken, so far, is banning some eentities from the market. But SIT says, stock m “Barring such entities “Barrin from securities market would not be of (sic)  woul

 surveillance software that

cost over Rs50 crore of public money in two rounds of investments, the finance ministry had to tell SEBI to devise a “mechanism to raise triggers on this kind of suspicious trading on real time basis… so that preventive action could be taken before laundering takes place.” Mr Das ended his letter with a reminder that the “income-tax Act, 1961, prescribes time limits within which assessments can be completed and tax demands can be raised. Therefore, timely action from SEBI in such cases

Dear Mr Hariharan, Greetings from Moneylife. l 2015) prepared by Directorate stigation Report (dated 27 Apri This mail is regarding an Inve submitted to SEBI. This report Kolkata, a copy of which was of Income Tax (Investigation), ficiary through stock market. bene Gs) (LTC s gain tal -term capi is about entry of bogus long rt. f Moneylife has a copy of this repo bai also wrote a letter to Chie nd Sawant, a MP from Mum talks MP the from In November 2016, Shri Arvi r n. This lette copy marked to SEBI Chairma misuse of stock vigilance Commissioner, with n by SEBI in cases concerning take n actio al illeg and y . about contradictor well as r lette this LTCG. Moneylife has a copy of exchange system to generate e and would like to know azin mag e eylif Mon in this on r story We are planning to write a cove from SEBI... stigation Report prepared by entities mentioned in the Inve 1. What action was taken on the the I-T Department? y action as suggested in the er investigation and necessar 2. Has SEBI conducted furth er from the MP? g Investigation Report and Lett k market system for generatin SEBI to prevent misuse of stoc by n take s step the are t 3. Wha bogus LTCG benefits? nsistent approach" by SEBI in d that it was a "deliberate inco 4. The MP, in his letter has state SEBI have to say about this? such similar matters. What does at the earliest before Monday. ond resp to able be Hope you would Thanks & regards, Yogesh Sapkale Deputy Editor

would help in ensuring appropriate actions by the Income Tax authorities. SEBI may take note of violations of KYC (know your customer) norms by the stock brokers for further appropriate action.” Ironically, Mr Das has been a member of SEBI’s board of directors and is also in the race to head the regulatory body. But that does not seem to have made any difference. In fact, under his watch, SEBI did something even worse. It has investigated dozens 

MONEYLIFE | 20 Jan-2 Feb 2017 | 42

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COVER STORY



strong deterrence. In case it is established that stock the DWBIS project will “exploit the power of modern platforms have been misused for taking LTCG benefits, technology in terms of computation and speed of data prosecution should invariably be launched under analysis” and “host pattern recognition algorithms”, relevant Sections of SEBI Act. Section 12A, read with to crack insider trading. Despite all this hype and the Section 24 of the Securities and Exchange Board of enormous amount of money spent, stock manipulation India Act 1992, are predicate offences.” SIT went on continues, right under SEBI’s nose. Moneylife had found out, in 2013, that 48 staff to suggest that the enforcement directorate should then be informed to take action under Prevention of Money members are posted in the integrated surveillance department (ISD) of SEBI, Laundering Act for the predicate which houses the IMSS and offences. It is remarkable that SIT had to tell SEBI what it should do The only action SEBI has taken, DWBIS. The IMSS contract so far, is banning some entities value was of Rs20.55 crore. in such cases! In 2013, Moneylife wanted to from the stock market. But SIT Then, SEBI adopted the Rs34.38 know how many cases of price says, “Barring such entities from crore DWBIS which became manipulation, detected by SEBI’s securities market would not be operational in 2010. This is a lot of taxpayers’ money and integrated market surveillance of (sic)strong deterrence nobody knows how effective system (IMSS) and data the surveillance system is. Or warehousing business intelligence system (DWBIS), resulted in prosecution, or consent if anybody in SEBI is truly looking at all the cases orders, or were dismissed due to lack of evidence or were triggered by the systems or are they doing it selectively. still pending investigation. In a shocking disclosure, Despite draconian powers and plenty of funds, SEBI SEBI replied that it did not have information relating to is extremely reluctant to act effectively against price manipulation and LTCG scamsters. Should not the its market surveillance system! SEBI has spent crores of rupees on the so-called SEBI board, revenue secretary and the finance minister state-of-the-art surveillance systems, IMSS and the be asking ‘why’? more modern DWBIS. Earlier, SEBI had touted that



of cases but acted in an arbitrary manner. While it has selectively gone after a few cases of price manipulation and fi led proceedings against them, it has let off certain others involved in similar manipulation. This has ensured that even the cases it claims to be pursuing actively have been significantly weakened. We understand that SEBI’s role in weakening the investigation, or being selective in its approach, has also been raised by Arvind Sawant, member of parliament (MP) from the Shiv Sena. This south Mumbai MP has written to finance minister (FM) Arun Jaitely on 12 November 2016 pointing out the “contradictory and illegal action taken by SEBI” in cases of booking bogus LTCG. He wants the FM to call for the files on these investigations and also check “how long SEBI has been sitting on these matters.” An investor group is also understood to be pursuing the matter of market manipulation. The weakest links in the chain of the bogus LTCG scam are stock brokers, who are regulated by the exchanges and SEBI. What kind of KYC norms do they follow, when they allow clients to rig penny stocks through their terminals? “Brokers often compromise on

KYC norms of clients to help the syndicate members,” says the investigation report. It further says that the “Calcutta Stock Exchange has registered itself as a broker with BSE” and provided a large number of terminals to sub-brokers who are involved in such price rigging operations. Strangely, the regulators have not bothered to act against them, despite a detailed I-T investigation having nailed the involvement of many big names. The National Democratic Alliance (NDA) government has made a lot of noise about going after black money, especially those who had ostensibly hoarded a stash of cash. The demonetisation exercise has caused enormous hardship to people and forced them to make huge sacrifices for ‘purification’ of our corrupt system. Revenue secretary Hasmukh Adhia, under whom the CBDT and I-T department works, is at the forefront of the PM’s note-ban operation. Isn’t it clear that he would have far more success if he shuts down the market manipulation that is routinely allowing people to launder thousands of crores rupees every day? It is time he set up a team to plug the LTCG scam. The work of identifying those involved needs to start at SEBI Bhavan in Mumbai. 

43 | 20 Jan-2 Feb 2017 | MONEYLIFE

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13-01-2017 17:09:43

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

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MUTUAL FUNDS FUND FACTS

Hot and Cold Stocks of Mutual Funds in December 2016 Indian Oil Corporation, ITC and Sun Pharmaceuticals Industries were preferred most in December. Shares of Tata Motors, Aditya Birla Nuvo and Reliance Industries witnessed highest selling by mutual funds. ICICI Prudential Value Discovery Fund purchased Sun Pharma shares worth Rs200.91 crore whereas Birla Sun Life Frontline Equity sold Tata Motors shares worth Rs115.24 crore. Reliance AMC sold AB Nuvo‘s shares worth Rs339.12 crore. Top Bought Companies Company Name

Top Sold Companies Value (Rs Crore)

Company Name

Value (Rs Crore)

Indian Oil Corporation

594.42

Tata Motors

(533.34)

ITC

461.10

Aditya Birla Nuvo

(353.90)

Sun Pharmaceuticals Industries

381.61

Reliance Industries

(320.30)

Infosys

246.17

Hindustan Petroleum Corporation

(139.19)

HCL Technologies

213.66

Axis Bank

(117.70)

Gail (India)

208.35

Bajaj Finserv

(117.37)

Sheela Foam

194.69

Mahindra & Mahindra Financial Services

(109.87)

Larsen & Toubro

193.78

Bajaj Auto

(109.44)

ICICI Prudential Life Insurance Co

187.79

Crompton Greaves

(98.62)

Oil & Natural Gas Corpn

152.90

Bharat Petroleum Corporation

(95.12)

111.60

Bharat Petroleum Corporation

(116.29)

HDFC Mutual Fund Sun Pharmaceuticals Industries Gail (India)

89.23

Coal India

(78.03)

Infosys

80.83

Sun T V N etwork

(77.49)

Oil & Natural Gas Corpn

78.04

Mahindra & Mahindra Financial Services

(55.24)

Adani Ports and Special Economic Zone

71.74

Aurobindo Pharma

(32.35)

ICICI Prudential Mutual Fund Sun Pharmaceuticals Industries

405.98

Reliance Industries

(205.28)

Larsen & Toubro

134.32

Bajaj Finserv

(157.82)

Container Corporation Of India

119.93

Axis Bank

(127.56)

TVS Motor Company

114.85

Bajaj Auto

(111.66)

Housing Development Finance Corporation

102.27

Tech Mahindra

126.35

Aditya Birla Nuvo

(339.12)

(51.94)

Reliance Mutual Fund Indian Oil Corporation ICICI Prudential Life Insurance Co

86.32

Tata Motors

(283.44)

Mahindra & Mahindra

70.53

Reliance Industries

(131.39)

Divis Laboratories

68.13

Cipla

(62.45)

ITC

66.38

Bharat Electronics

(52.75)

Axis Bank

58.90

Tvs Motor Company

(45.17)

Ultratech Cement

47.97

Motilal Oswal Financial Services

(36.74)

Indian Oil Corporation

44.22

Reliance Industries

(36.27)

Berger Paints

42.42

Tata Consultancy Services

(20.88)

Asian Paints

40.29

Tech Mahindra

(17.05)

Franklin Templeton Mutual Fund

MONEYLIFE | 20 Jan-2 Feb 2017 | 46

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13-01-2017 18:27:50

StockWatch Stocks and sectors that catch our eye

DI S H T V

Is it, at last, at the inflection point?

T

he business prospects of Dish TV have appeared promising to investors over the years; but the company has disappointed them. But is it now at an inflection point, finally? Dish TV provides direct-to-home (DTH) satellite television and also provides teleport services to broadcasters of various channels. nels. It has been in the business since October 2003 and now offers more than 582 channels ls and services, including 22 audio dio channels and over 55 HD channels annels and services, distributed through ugh 2,268 distributors and 244,668 68 dealers across 9,322 towns. The business of distributing ng TV channels is tough and Dish, like ike its competitors (mainly Tata Sky), ), has been making losses for years. ears. However, it became the first and only DTH company to reportt profits for two consecutive years for FY14-15 and FY15-16. Net profit was Rs3.14 crore for FY14-15, for the first time in more than a decade, which increased to Rs692.42 crore for FY15-16, of which Rs402.90 crore was contributed by tax refunds. For the quarter ended September 2016, sales grew by 3.57% year-on-year (y-o-y) to Rs779.29 crore (Rs752.42 crore), while net profit was Rs70.08 crore (Rs86.96 crore), falling by 19.41%. For the past five years, average sales growth has been 16.74%. Calculated on the basis of trailing 12-month profits,

Dish is trading at a P/E (price-to-earnings) ratio of 13.92, market-capitalisation to sales ratio of 2.95 and market-capitalisation to operating profit ratio of 8.73. The stock is reasonably valued. The promoters (Zee group) hold 64.44% of the shares, but 41.14% of the promoter holding is pledged. Dish TV has the largest market share (26%), followed by Tata Sky (21%). It had a net subscriber base of 14.5 million for FY15-16 and 0.66 million have been added by 2QFY16-17. Dish is now consolidating its market presence by taking over the business of Videocon D2H through a merger. It will also help bring about synergies, reduce operational costs and increase efficiencies. The merged entity will be renamed Dish TV Videocon re Limited and will be led by Jawahar Li Lal Goel, chairman and managing director of Dish TV and brother of direc Subhash Chandra, founder of the Zee Subhas The promoters of Dish TV will group. Th hold 36% of the shares, Vd2h Principals promoters and senior management of (the promo D2h) will hold 28%; the balance Videocon D will be held by foreign and Indian 36% w institutional and retail investors, in the institu merged company. merge Dish TV Videocon served 27.6 Dis million net subscribers in India, as of 30 September 2016, on a pro-forma basis, out of a total of 175 million TV households in India. Videocon D2H had 16% of the total market share and so the amalgamated entity would capture more than 40% of the market share. According to current plans, under phase-III and phase-IV of digitisation, 120 million homes are to be digitalised. From 2014 to 2016, 41 million set-top boxes (STBs) have rolled out in phase-III and 17.8 million in phase-IV. Analogue cable comprises 38% 

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

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

47 | 20 Jan-2 Feb 2017 | MONEYLIFE

StockWatch.indd 2

13-01-2017 17:13:52

STOCK WATCH

SPICEJET Investors Still Not Convinced?

Low-cost Operations

Adjusted closing Price in Rs 110

A

viation is a tough business. Airlines have no control over fuel cost and the market is competitive. Keeping costs low is the key to efficiency. Of the three terms of aviation companies listed, SpiceJet is the smallest in sales. However, it seems to be more efficient in managing its costs, at least

90

70

Dis-economies of Scale?

50 Jan-15

Jul-16

Jan-17

11.50%

11.28% 11.09%

11.00%

 of the total distribution industry, followed by DTH at

33% and digital cable at 29%. When phase-III and IV of Digital Addressable System (DAS) is fully operational, analogue cables will end and, thus, a huge market is up for grabs for DTH and digital cable providers. Dish has launched special plans starting from Rs99 per month to target subscribers in phase-III and IV, which has 7,709 urban areas and the rest of India (excluding Delhi, Mumbai, Kolkata, Chennai and 38 notified cities which were a part of DAS phase-I and II). The Indian TV industry’s market was predicted to be at Rs61,700 crore in 2016, and is expected to grow to Rs1,09,800 crore in 2020. Subscription revenues account for Rs40,700 crore of the total for 2016 and is expected to grow at a CAGR (compounded annual growth rate) of 15.8%, reaching Rs73,300 crore. The rest comes from advertising revenue. The total number of households for 2016 was 284 million, of which 181 million were TV households.

Analogue is the huge market opportunity that can be captured in future

29%

38%

Analogue Cable DTH Digital Cable

33%

10.50% 10.00%

9.69%

9.50% 0.27%

9.00% 8.50%

Employee Cost to Sales SpiceJet

Interglobe Aviation

Jet Airways

employee costs. SpiceJet has the lowest employee cost as a percentage of sales, at 9.69%, whereas Jet Airways makes the highest sales but also incurs highest employee cost as a percentage of sales, at 11.28%. The net profit margins of Jet Airways are not so impressive either, at just 5.54%, with SpiceJet at 8% and led by Interglobe Aviation at 12.33%. 

The total households are expected to increase to 306 million by 2020 and the TV households to 202 million. Thus, TV penetration is expected to increase from 64% in 2016 to 66% in 2020. The C&S (cable and satellite) households are also expected to increase to 173 million in 2020, from 152 million in 2016, the penetration increasing from 84% to 85%. The distribution industry is heavily taxed; licence fees are 8% AGR (adjusted gross revenue) instead of 10% GR (gross revenue). However, entertainment and service tax will be subsumed after the rollout of GST (goods and services tax). Has the time come for Dish TV to emerge as a stable cash machine? If Dish has, finally, turned the corner in terms of profitability, incremental additions of subscribers will flow straight to the bottom line helping it earn high return on capital. 

MONEYLIFE | 20 Jan-2 Feb 2017 | 48

StockWatch.indd 3

13-01-2017 17:15:23

STOCK WATCH

UN UOTED STORIES OF PRICE MANIPULATION

Negotium International Trade (Rs42)

N

egotium International Trade, formerly known as Mahadushi International Trade, claims to be involved in import and export of goods and also acts as “trainer, consultant and advisors” for various services. The company got listed on the Bombay Stock Exchange (BSE) on 21 March 2014 at Rs360 (face value of Rs10 per share). Within seven months, in October 2014, these shares were split into 10 shares of Re1 each. A year later, in October 2015, these shares were consolidated back into Rs10/share. In

(Rs) 95 80 65

838%

50 35 20 5 Mar-14

Aug-15

Dec-16

October 2016, the company again split the shares of Re1/share. Its sales, for FY15-16, were Rs3.62 crore. However, the net profit was just Rs6 lakh; this included other income of Rs17 lakh.

Otherwise, the company incurred a loss in FY15-16. The stock moved from Rs9.5 on 10 April 2015 to Rs89.1 on 24 October 2016, on an adjusted basis, a rise of 838% over one and a half years. It fell by 50% by January 2017 and was trading at Rs42.40 on 3 January 2017. Now, the operators are back trying to rig it up. We came across an SMS which said, “Earn 100000 Rs profit in 3 days> buy 5000 shares of “NEGOTIUM” IN (BSE CODE: 537838) above 42.40 TGT 55 + SL 40.” When will regulators weed out such companies from the market which are used to turn black money into white through pump-and-dump operations? 

MARKET TREND

Hard Slog Ahead

Lprobably, formed a very short-term bottom and we

ast fortnight, I had mentioned that the indices have,

could see a halting rally over the next week or so. Over the last fortnight, the Sensex has moved from 26,626 to around 27,300. The rise has been slow but steady. The reason is the same that I highlighted last fortnight. Indian investors and domestic institutional investors continued to display exceptional bullishness, despite mounting evidence that the economy has experienced a big jolt from demonetisation. As I write this article, comes some sombre assessment by Centre for Monitoring toring Indian Economy (CMIE), an independent think tank. CMIE has scaled down this year’s growth owth estimate by 164 basis points, following demonetisation. However, the bigger shock is about how long the impact would last. The head of CMIE, Mahesh Vyas, writes, “We expect the long-term damage to be greater than the damage caused to o growth during 2016-17. On an average, growth during th the coming five i fi years up to 2020-21 has been scaled down by 187 basis points compared to our earlier forecast for the same period.”

So, from gradually accelerating real GDP growth rate from 7.5% to over 8% per annum, CMIE now expects this growth trajectory to move down to about 6% for the next five years. The economy is unlikely to achieve a growth of 7% any time during the coming five years, says CMIE. This is because of a sharp reduction in private final consumption expenditure, a fall in retail prices of perishable goods, dislocation of labour and losses in wages and a breakdown of supply chains in some parts. Over 90% of the transactions in India are cash-based. I have reckoned that the dislocation is temporary; normalcy would woul be restored as soon as adequate currency come comes into ATMs and this is about to happen in a few months. But CMIE does not think so. It estimates that “restoration of full liquidity (will) range from mid-January to September 2017. Two thousand rupee currency notes do not provide liquidity like cur the decommissioned currencies provided and so s we believe that liquidity is likely to be restored only towards the early second half of t 2017.” I am not sure whether the market has factored in all this. Expect the market to struggle at the current levels, for a long time. — Debashis Basu 

49 | 20 Jan-2 Feb 2017 | MONEYLIFE

StockWatch.indd 4

13-01-2017 17:15:57

TAX/ FIXED INCOME

Small Savings Schemes Rates Unchanged

T

he government’s move to demonetise Rs1,000 and Rs500 currency notes has led to a lowering of bank fixed deposits eposits (FD) rates. tes. Low bank nk FD rates, coupled oupled with taxes, xes, can be disastrous strous for those se depending ing mainly on income from their savings. vings. Another other option is investing in smalll savings schemess (SSSs) that offer better than b bank FDs. tt rates t th k FD The good news is that government has kept interest rates on SSSs unchanged for the January-March quarter. You can opt for SSS products rather than bank FD, but understand that bank FDs have more flexibility than SSS products. Each SSS has different features, lock-in period, penalty for premature withdrawal, interest rates, etc. Understand the product features before investing. SSS term

G-Sec Yields Down

deposits, like POMIS (post-office monthly income scheme), POTD (post-office time deposits), National Savings Certificate (NSC), Kisan (KVP) and Senior Vikas Patra (K Savings Scheme (SCSS), Citizen Saving will lock in at the existing rate tenure of the product. for the tenu Interest rate on other SSS products, like Sukanya prod Samriddhi Account (SSA) Sam and public provident fund (PPF), may change during the tenure. They durin currently offer interest rate curren of 8.5% and 8%, respectively.

Is SREI Equip Equipment Finance NCD Worth It? SREI E Equipment i Finance’s (a subsidiary of SREI Infrastructure Finance) public issue of secured redeemable non-convertible debentures (NCD) opened on 3 January 2017. The interest rate is 9.50%pa (per annum) for three years and 9.75%pa for five years. The rating is BWR AA+ (BWR Double A Plus) (outlook: Stable) by Brickwork and SMERA AA/ Stable (SMERA Double A/ Stable) by SMERA. Even though there is

Issuer

T

he 10-year benchmark G-Sec yield, which sets the tone of the fixedincome market, has declined by 15 basis points (bps) in the last fortnight to end at 6.39% on 6th January.

Maturity Date

no TDS, the interest on the NCD is taxable. The coupon offered is good, considering that interest rates are on a decline. It is a good option compared with long-term bank FDs which are offering 6.5%pa to 7%pa. But SREI Equipment Finance’s NCD rating is lower than AAA rated NCDs which are a better option. Lower rating translates into a higher coupon rate due to the associated risk.

New Scheme for Senior Citizens Offers 8% The government has announced a new scheme for senior citizens (60 years and above) which will give a fixed 8% return on 10-year bank deposits of up to Rs7.5 lakh. The interest will be paid monthly. Details of the scheme are awaited. An existing scheme which allows Section 80C deduction for the money invested is the Senior Citizen Savings Scheme (SCSS). Currently, it offers interest @8.5%pa on deposits of up to Rs15 lakh with a maturity period of five years. SCSS has a lock-in period of five years. Banks offer an exit option after one year, with penalty.

Next Last Yield Coupon (%)

ISIN

Rating

HDFC 7.90%

24 Aug-26 24 Aug-17

7.6

INE001A07PN8

CRISIL AAA

LIC Hsg Fin 8.35%

18 Oct-19 19 Oct-17

7.57

INE115A07ID2

CRISIL AAA

19 Jan-19 20 Jan-17

7.51

INE001A07MH7 CRISIL AAA

HDFC 9.65%

NSE data as of last trade date of 6 January 2017

G-Sec Maturity Date

Yield to Maturity (%)

Bajaj Fin Ltd 7.50%

02 Dec-19 02 Dec-17

7.67%

INE296A07NG3

CRISIL AA+

01 December 2044

7.06

LIC Hsg Fin 7.60%

30 Mar-20 30 Mar-17

7.60

INE115A07GX4

CRISIL AAA

22 June 2045

7.05

02 May-26 02 May-17

7.36

INE134E08IE1

CRISIL AAA

10 November 2033

7.04

Power Finance Corp Ltd 8.03%

G-Sec yields on 6 January 2017

BSE data as of last trade date of 6 January 2017

MONEYLIFE | 20 Jan-2 Feb 2017 | 50

Fixed Income.indd 1

12-01-2017 20:57:47

HANDHOLDING: MAS Benefit #11

• One-on-on e-Help • Portfolio X-Ray

We are not agents, distributors, brokers or lead generators; so, you get ethically correct advice

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

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

Subscription to Moneylife magazine is included in MAS Premium Membership About MAS

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

MONEYLIFE ADVISORY FIX YOUR FINANCES, FOREVER

advisor.moneylife.in

MSSN Handholding.indd 1

15-12-2016 18:07:06

Supported By

Queries At Moneylife Foundation’s

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

Income from Tuitions

I

have income from tuitions. Earlier, as my income was below the exemption limit, I had not filed income-tax returns (ITRs). However, I filed my returns for AY2015-16 and AY2016-17. I filed my ITR in Form 4. I have not maintained an account book and no audit has been done. I have shown my total income as Rs1.44 lakh, after expenses. Will my ITR be considered defective? In that case, can I revise my ITR? Am I using the correct form for ITR?

Ameet Patel’s Reply: The form you selected, ITR 4, is correct, since ITR 4 is for individual/ Hindu undivided families (HUF) having income from business/ profession. As per Section 44AA of the Income-tax Act, 1961, if the gross receipt from the business exceeds Rs10 lakh, or if net income (taxable income) from the business exceeds Rs1.20 lakh per year, in any of the three years immediately preceding the concerned financial year relevant to the assessment year, the individual/ HUF will have to maintain books of accounts as per Rule 6F of the Income-tax Rules, 1962. In your case, since your net income is more than Rs1.20 lakh,

you should have maintained books of account. When balance sheet/profit & loss account are not filled in ITR 4 utility, it may be processed as a defective return. Non-filling of columns, annexures in the ITR form, or not mentioning net profit or gross profit and not maintaining books of accounts may result in the ITR being processed as defective under u/s 139(9) of the I-T Act. As per Section 139(5), you can revise your return before the end of one year from the end of the relevant assessment year or before completion of assessment, whichever is earlier. Thus, for AY2015-16, the return can be revised by 31 March 2017 at the latest. However, if your original return has been filed beyond the time limit given in the IT Act, it cannot be revised. If you want to revise the original return, you will need to file ITR 4. In the audit information row, against the question, “Are you liable to maintain books of accounts as per section 44AA of the Income Tax Act, 1961”, you should reply “Yes”.

Tax on Sale of E-books

I

am a blogger based in Mumbai. I offer an e-book containing key articles of my blog as a premium download to readers. I need advice about which indirect tax would be

applicable on sale of e-books. My chartered accountant (CA) is of the opinion that service tax under the category of ‘Online information and database recovery service’ may be applicable to e-books. However, both, my CA and I, are uncertain about it. Your opinion would be of great help. Nikhil Vadia’s Reply: If the material is sold as an e-book, I think, you have to pay Maharashtra value added tax (VAT) @6% under entry C-76. The Section says, “Printed material including annual reports, application forms, account books, calendars, diaries, catalogues, race cards and publications which mainly publicise goods, services and articles for commercial purposes would be chargeable to tax.” Turnover limit for this is Rs10 lakh in a year. However, if this is combined with consultation or advisory services and it is only an add-on, service tax would be applicable, as mentioned by your CA. If there is a separate charge for downloading e-books, VAT would be applicable.

Expenditure on Selfoccupied Home

C

an a taxpayer claim any exemption on expenditure incurred for self-occupied home? Ameya Kunte’s Reply: There is no tax deduction available for expenditure incurred for maintenance of the self-occupied house. If the maintenance expenditure is in the nature of capital addition (e.g., permanent civil changes etc), it can be added to the cost of house and is deductible against future capital gains, if any. 

MONEYLIFE | 20 Jan-2 Feb 2017 | 52

Tax Queries.indd 2

12-01-2017 20:59:07

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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.

Tax Helpline.indd 1

29-07-2016 17:49:42

USEFUL APPS YAZDI TANTRA

Podcast Addict: An App for All Musical Tastes

Sudoku Free: Play It on Your Mobile

P

S

odcasts are, typically, audio broadcasts (like radio), available online. You have a choice of channels catering to various interests. Once you have subscribed, updates from the channels ls are automatically downloaded on your phone for you to play, at your convenience. Podcast Addict is a wonderful app to manage multiple podcasts. You can download it on your phone, once, and then search forr channels. My favourites are TED Talks, Freakonomics, Harvard Business Review (HBR), Ideacast and the $100 MBA Show. Among Indian content, I enjoy listening to NewsLaundry - Hafta and CNN IBN. There is a whole load of interesting podcasts on cooking, music and regular radio, TV and news channels. Fish around and you will discover some real gems. Search by channel, interests and more and Podcast Addict will come up with the goods. Podcast Addict is free and also allows you to stream live video, along with your favourite YouTube channels. Try it out and share your own discoveries with me. Android: https://goo.gl/hV5Xh3 iOS: https://goo.gl/Tg4aJQ

Lumosity: Have Fun, Get Cerebral

L

umosity is a set of professionally designed brain games that you can play on your computer online or on your mobile. The games are designed to improve your memory and attention span. Used by over 70 million people worldwide, Lumosity has a personalised training programme that challenges your brain. The games are designed by neuroscientists, in collaboration with neuro multiple universities, to train memory, m attention and more. With roots in the study of neuro-plasticity, Lumosity games are used in research and have been incorporated into studies by top scientists worldwide. The basic games are free and interesting. If you want your brain to be more active and see, and compare, your scoring patterns, there is a paid version with a 30-day money-back guarantee. I enjoy playing these games for 10 minutes a day, threefour days a week. So will you, I reckon. Android: https://goo.gl/v1kEVb iOS: https://goo.gl/6GRKa4

udoku Free from genina.com is a great game to be played on your Android phone. Simple, minimalistic design, a clean interface and many, many options make it so enticing that you will never look for a paper puzzle again. It has four difficulty levels and the facility to carry on from where you were interrupted. So, if you get a phone call and have to exit the game, you will find the puzzle where you left it, when you get back. With auto-save, undo and redo, pencil marks, online competitions and much more, this is a game which can engross you for hours. Enjoy, when you travel or are idling. Android: https://goo.gl/9NMRzd iOS: https://goo. gl/3VD4YH

Four Letters: Not a Dirty Game at All!

F

our Letters is a simple game: You are given four letters and you have to compose a word within a timeframe. Well, it is not as simple as it sounds. Initially, the words are easy, to prod you on, but they become difficult progressively. Keep making the words and keep scoring. The challenge increases, the longer you last. You can correct your mistakes or rearrange the letters, all within the timeframe. You can slide your fingers over the letters to go faster. When the time runs out, you can have another go. Once you have high scores, you can share it with friends on Facebook and compete with them for higher targets. It may sound simple; but, after a couple of rounds, you are hooked. Be warned. Android: https://goo.gl/519f2V iOS: https://goo.gl/glxUB3 

Yazdi Tantra is a chartered accountant by training, computer consultant by profession, entrepreneur-developer by hobby and trainer in his leisure time. He is currently the vice-chairman of Zoroastrian Co-operative Bank Ltd and has been running a medium-sized computer company ON-LYNE for the past 24 years.

MONEYLIFE | 20 Jan-2 Feb 2017 | 54

Tantra - column.indd 1

12-01-2017 20:47:21

LEGALLY SPEAKING SD ISRANI

Banks Need To Give Notice on Loan Recovery

M

ost of us have to deal with banks on a regular basis and, with emphasis on making India cashless, dealings with banks are bound to grow exponentially. Customers have no choice but to bank on their bankers! However, not all experiences of consumers are positive; at the same time, sometimes, consumers fail to discharge their duty vis-à-vis the bank. In one case of a consumer complaint, an individual had obtained a car loan of Rs4,57,690 from a private bank. The amount had to be repaid in 35 EMIs (equated monthly instalments) of Rs18,270. The complainant paid only four EMIs. As a result, the bank, forcibly took away the vehicle from the possession of the complainant. The complainant sent a notice demanding Rs5,01,092.72 and another notice dated demanding Rs3,39,593.72, in spite of having made a payment of Rs73,000. Alleging deficiency of service on the part of the bank, the customer filed a complaint and claimed Rs7,00,000 as compensation. The bank rejected the complaint and submitted that, as the complainant had defaulted in payment of EMIs, the vehicle was repossessed and sold, for Rs1,61,000. At the time of repossession, Rs5,00,593.72 was the loan outstanding. The district consumer forum allowed the complaint and directed the bank to pay Rs10,00,000 as compensation under various heads and Rs10,000 as cost of litigation. An appeal filed by the bank was partly allowed by the state commission and the compensation was reduced to Rs3,00,000 . The bank filed a petition before the National Consumer Disputes Redressal Commission (NCDRC). NCDRC noted that there was default in payment of instalments and the bank had the right to take possession of the vehicle. But the bank could not place any document on record to substantiate that, before repossession, and also before the sale, a notice was served. Therefore, NCDRC concluded that there was deficiency on the part of the bank in repossessing the vehicle and selling it without notice. However, the amount of compensation was reduced by NCDRC. Failure by the bank to follow due procedure helped the consumer to retrieve the situation, to a large extent. [Kotak Mahindra Bank Ltd vs MD Sarif Ansari (2016)].

In IndusInd Bank Ltd vs Gurusiddappa Basavaaj M (2016), the consumer had taken a loan of Rs10,00,000 for purchase of a lorry. He was regular in making payments towards EMI but, due to financial constraints, some monthly instalments were not paid. The bank seized his vehicle without proper notice. The consumer approached the Bank for release of the lorry after making some payments and it was done. Subsequently, the consumer was again unable to keep up the EMI payments. Once again, the Bank seized the lorry. The consumer requested the Bank to release the lorry after mobilising the money to pay the dues but, to his utter surprise, he was told the vehicle has been sold. Alleging deficiency on the part of the Bank, the consumer filed a complaint before the district forum. The matter eventually landed before NCDRC where the Bank submitted that the complainant was a chronic defaulter. Its contention was upheld by NCDRC. In another case, a consumer had taken a life insurance policy from the Life Insurance Corporation of India (LIC). He gave a mandate to his bank to directly pay the monthly premium regularly through ECS from his account. After some time, the purchaser of the policy died. When his legal heirs claimed the amount from LIC, it was refused on the ground that the premium for some months had not been paid. His heirs dragged the bank to the district forum which ruled in their favour on the ground that the bank had failed in adhering to the mandate given by the accountholder. This order was upheld by the state commission. NCDRC concurred with the orders passed by the two lower forums. [State Bank of India vs Kanta Devi and others (2016)]. The lesson to be learnt from this case is that a customer should not take it for granted that the banker will always do its duty as per the mandate and should keep tabs on the payments. 

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

55 | 20 Jan-2 Feb 2017 | MONEYLIFE

Legally Speaking.indd 2

13-01-2017 17:45:10

HEALTH BM HEGDE

Coronary Angiography, the Villain of the Piece “I have said that the soul is no more than the body. And I say that the body is not more than the soul.” — Whitman in 1855

“M

edicine is flying blind. Thousands of medical journal articles are published every month on potential new treatments and diagnostic tests. Precious few of them measure how well doctors are doing in the real world, outside of controlled trials—what they are doing right, what they are doing wrong and what they are forgetting to do entirely. No wonder our medical system wastes billions of dollars a year,” writes Mathew Herper of Forbes magazine. Last week, The Outlook published a detailed article on angioplasties in our hospitals and their hazards. Most of it was about the cost of stents and their misuse and abuse. Little did the writer, or even the interview that followed, touch upon the crucial point—the coronary angiogram, the villain of the piece. I had written about it and have been doing so even before some of the leading American researchers, like Harlan Krumholz, came on the scene. The only area where angioplasty has a proven track record is immediately after (minutes after) a heart attack, if the heart attack-related coronary artery is the blocked culprit with an added clot blocking the vessel. For heart attack patients, Dr Krumholz picked ‘door to balloon time’—how fast the patient is treated upon arrival at the hospital. Hospitals that are doing badly on this measure can’t blame it on how long the ambulance took to get there. Angioplasty is done to make money by frightening patients and their relatives that there are blocks in the coronary arteries. Almost every living human being, including children, has one, two or even three vessel blocks. This was shown so elegantly in the post-mortem angiograms done on 205 American young soldiers shot dead in Vietnam and Korean wars. So, almost all our angioplasties are done unnecessarily. The epicardial vessel blocks (shown to patients and relatives to frighten them) do not usually critically restrict heart muscle blood flow which takes place through collateral vessels (nature’s bypass) and the perforating coronary vessels dilation (coronary reserve) when needed in young healthy individuals. This process is well oiled in nature, called pre-conditioning, helping patients to get over the blocks. In addition, if the doctor studies the FFR (flow fraction

ratio) across a block, almost 90% of the so-called critical blocks become benign and need to be left alone. No hospital, to my knowledge in India, does FFR studies, although they do all and sundry tests to collect money from patients. If one has a two-camera angiogram facility, where all the so-called blocks are simultaneously viewed from two angles at 90 degrees to each other, even the 90% block might just be only 10% block from another angle. No hospital has that facility either, as it will cut down their angioplasty indications to less than 20%! How can they show a profit to their shareholders? They all follow the Wall Street greed! In essence, the only indication for angioplasty is immediately after a heart attack, if the vessel blocked is the one causing the heart attack. Exertional angina (most patients have that) is no indication for angioplasty. Medical treatment is better. Lifestyle change is the basis of all coronary artery disease treatment. Asymptomatic patients have no indication for angioplasty at all. Do understand that coronary artery blocks are not synonymous with coronary artery disease. Therefore, the only way to curb angioplasties, and the attendant exorbitant costs to patients and the exchequer, is to ban routine angiograms to diagnose coronary artery disease. Way back in 1991, the Harvard group of Professor Bernard Lown had shown that a moratorium on coronary angiography alone can save patients from greedy cardiologists. A paper in Journal of the American Medical Association began a debate in the UK to cut down on cardiac centres there, to save money for the NHS and the lives for their patients. Tom Treasure, an aggressive cardiac surgeon, made a plea in The Lancet. The scientific role for angiogram is only when the patient’s clinical assessment demands either an angioplasty or bypass surgery for relief of chest pain just to know where to 

MONEYLIFE | 20 Jan-2 Feb 2017 | 56

BM Hegde.indd 2

13-01-2017 17:43:11

HEALTH BM HEGDE

 plumb. Legislations to control the cost of stents will not

do any good to patients who are now being exploited through unnecessary angiograms for diagnosing coronary artery disease. The government must legislate to have outcome audits of all such procedures; only then will we make cardiologists practise scientific cardiology, nothing else. For big corporations, the idea that ‘you can’t manage it if you can’t measure it’ is an old chestnut. General Electric, Toyota and other companies have had data-driven quality improvement efforts, for years. But medicine—supposedly a more scientific profession—has been slow to measure itself. Dr Krumholz has been one of a handful of pioneers behind the scenes pushing to do this. There are many other reasons to work on banning diagnostic angiograms in asymptomatic patients faster. “Knowledge,” said Karl Popper “advances NOT by repeating known facts, but by refuting false dogmas.” One cannot agree more. Modern medicine abounds in dogmas: many of them have not been scientifically audited. Science is change. Every single hypothesis is true until refuted by new knowledge. Knowledge today, in the medical field, is replaced by information, resulting in doctors relying only on information and not wisdom. The so-called evidence-based medicine really is evidence burdened. Medical muddling seems to be a profitable business.

New tests, new devices and new drugs pour into this arena on an unprecedented scale. It is time to audit all the technologies used in patient-care, just as we have placebo-controlled trials for drugs before releasing them for human use. Even in the case of drugs, in some rare instances, release of drugs for patient use before they are audited by such trials had resulted in major damage resulting in their withdrawal from the market. It stands to reason that we should debate the issue of auditing untested technologies like angiograms

that get into the arena of patient-care. Starting with some of the audits just completed, we could move on to other areas. Many of the unmeasured physiological effects of in-dwelling catheters come to mind first. The Swan-Ganz catheter was introduced without appropriate validating studies to compare with identical groups without the catheter. This catheter, by itself, could be an adverse factor for many critically ill patients. ( Spodick DH, ‘Uncritical critical care’, British Medical Journal, The Swan-Ganz catheter. 1999; 115: 857-858) In an observational study by AF Connors and colleagues showed that in critically ill patients, after adjusting for selection bias, the catheter was associated with increased mortality and increased utilisation of resources. Extrapolating another study done in Worcester, ED Robin estimated that around 15,000 unnecessary deaths could have occurred in 1984 alone and his paper goes on to estimate a total of nearly 100,000 excess deaths in the US since 1975 due to the catheter. Following these studies, there was a justifiable demand for a moratorium on the use of the catheter until further prospective controlled studies cleared the mist. Understandably, strong opinions were expressed against the demand for a moratorium, but the opinion, unfortunately, ignored some of the very valid data in the field. Coronary artery surgery is the next popular surgical procedure crying for proper audit. There was a demand for audit in this area way back in the early 1970s. Indeed, all new surgical procedures are better audited by controlled studies before being routinely performed in practice There was hardly any substantial change in this area even as recently as 1997. (Hegde BM, “Coronary Artery Revascularisation - Time for reappraisal” Proceedings of the Royal College of Physicians Edinburgh, 1997) More recently, an audit showed ethically unacceptable results of overuse of both bypass and angioplasty in the immediate post myocardial infarction scenario. (“Use of cardiac procedures and outcomes in elderly patients in the US and Canada”, New England Journal of Medicine, 1997: 336; 1500-5.) Writing a very balanced editorial in the same issue, Harlan Krumholz from Yale laments: “In a fee-for-service system, cardiac procedures generated billions of dollars in revenues each year. A high volume of procedures brought prestige and financial rewards to hospitals, physicians and the vendors of medical equipment.”  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]

57 | 20 Jan-2 Feb 2017 | MONEYLIFE

BM Hegde.indd 3

13-01-2017 17:43:28

HEALTH BM HEGDE

ANAEMIA MAY BE A REASON FOR HEARING LOSS

use,” explains Thomas Flint, co-first author of the study from the University MEDICAL DEVELOPMENTS FROM of Cambridge School of recent paper in AROUND THE WORLD Clinical Medicine. “This Journal of the inability to generate American Medical energy sources triggers a second Association suggests that anaemia has provided clues as to why cancer messaging process in the body—a could be one of the significant immunotherapy—a new approach hormonal response—that suppresses causes of hearing loss, at all ages to treating cancer by boosting a the immune cell reaction to cancers, but more so in the elderly. This was patient’s immune system—may fail and causes failure of anti-cancer revealed in a large study done at in a substantial number of patients. immunotherapies.” Penn State University (Pennsylvania, Ayurveda relies on this in cancer USA). treatment. Cancer immuno-therapies CHEMO BRAIN involve activating a patient’s his is not an unusual immune cells to recognise and complication of chemotherapy. destroy cancer cells. They have People with chemo brain, often, shown great promise in some report loss of mental sharpness, cancers; but, so far, have only been including increased lapses in effective in a minority of patients concentration, difficulty in with cancer. The reasons behind remembering certain things and these limitations are not clear. problems finishing tasks. Now, researchers at the at the A recent study—led by Michelle University of Cambridge have C Janelsins, an assistant professor found evidence that the mechanism of surgery in the Wilmot Cancer There is an association between behind a weight loss condition that iron deficiency anaemia (IDA) in affects patients with cancer could adults and hearing loss. The next also be making immuno-therapies steps are to better understand this ineffective. The condition, known correlation and whether promptly as cancer cachexia, causes loss of diagnosing and treating IDA may appetite, weight loss and wasting in positively affect the overall health most patients with cancer, towards status of adults with hearing loss. the end of their lives. However, To find out the connection between cachexia often starts to affect the two, the researchers postulated that reduction of the blood’s oxygen patients with certain cancers, such as pancreatic cancer, much earlier in carrying capacity could be one the course of their disease. such factor. But the most important Institute at the University of In research published recently factor seems to be the lack of myelin Rochester Medical Center in New in the journal Cell Metabolism, sheath that covers the nerves. York—has thrown more light on Since both are common diseases, scientists have shown in mice that this problem. The study has been even at the early stages of cancer it is important to know the published in the Journal of Clinical development, before cachexia is connection of treatable hearing loss Oncology. apparent, a protein released by the with anaemia. Generally, hearing Researchers have various cancer changes the way the body, loss is sudden but it could also terms for chemo brain, such as in particular the liver, processes its be gradual. This is an eminently cancer treatment-related cognitive own nutrient stores. treatable problem. impairment, cancer-therapy “The consequences of this associated cognitive change and alteration are revealed at times of post-chemotherapy cognitive WHY CANCER reduced food intake, where this impairment. But many questions IMMUNOTHERAPY MAY FAIL messaging protein renders the liver remain unanswered. We do not IN MANY PATIENTS incapable of generating sources of know when and why chemo brain weight loss condition that energy that the rest of the body can arises and who is most at risk.  affects patients with cancer

A

T

A

MONEYLIFE | 20 Jan-2 Feb 2017 | 58

BM Hegde.indd 4

13-01-2017 17:43:45

Advertisements.indd 4

10-01-2017 20:13:13

YOU BE THE JUDGE BAPOO MALCOLM

Trap, Not Tempt, a Criminal

T

his has to be the horror story of the year. American justice gone Wild West. And a sensible appellate court to the rescue. Readers will recall an article in Moneylife, titled “Is Trapping and Entrapment the Same?”. Trapping is right and entrapment completely wrong. A sequence in the Jack Palance film, The Horseman, set in Afghanistan, explains the sin of enticing a person to do wrong. It calls for punishment for the enticer. Three strikes and you are out In baseball, if the striker fails to connect with the ball three times he is declared out. “Three strikes ‘n’ you’re out”. That thinking has crept into some American states’ judicial rules, when dealing with habitual offenders. Third conviction and he or she is sent away for life. Locked up and the keys thrown away! New Orleans, Louisiana. A man walks past a jeep, window down. He sees a laptop on the seat and two currency notes. They totalled US$15, about Rs1,000. The man picks them up, leaves the laptop behind. The man had three previous convictions. He had walked into a trap. The money was planted by the cops. They were waiting for, what is now called, ‘the catch of the day’. The man was arrested. He was convicted for what, even in India, may not amount to much. The prosecuting advocate reminded the crime court of the three-strike rule. The judge concurred. The man was given a life sentence. For US$15. It would now cost the state 10 times as much, every day, to keep him in prison; for his lifetime! Justice gone haywire? In appeal, usually a court of equity, the judge saw the light. His Supreme Court had noted the harshness of the three-strikes law but, reluctant to interfere with the legislature, had called for a bit of sanity. The matter was remanded to the trial court indicating the street theft ‘shockingly minor in nature’, the amount ‘extraordinary in its triviality’ and the life sentence an ‘unconscionable’ punishment that ‘shocks our sense of justice’. It called for a sentence that was ‘not unconstitutionally excessive’.

There is a conundrum in this. Was the first judge guilty of excess? When the law insists on the harshest punishment, the judge’s hands are tied. It then calls for great courage, and a very reasoned judgement, to nullify what is an unintellectual statute. Few judges want to rock the boat, lest their advancement be impeded. Prosecuting attorneys will try for the severest sentences to boost their careers. It’s a tug-of-war. The question that must agitate any mind is the one of entrapment. We have discussed these issues before. In this case, should the police lay such a blatant trap, just to entice any passer-by who wants to help himself to a few dollars, to prove their effectiveness? For this answer, we revisit an Indian court and the moral courage that a magistrate showed at Umbergam, south Gujarat. Umbergam lies on Maharashtra’s northern border. It has industrial estates to lure then Bombay’s entrepreneurs. With the businessmen came the workers. They would travel by a slow train that would stop at platform No. 3, to allow the following fast train to breeze through on line one. To catch connecting buses, passengers would cross lines two and one, exposing themselves to danger. To curb this, a policeman would round up a dozen or so people every day as they clambered on to platform No. 1 and march them to the local court to be fined. One of them, a lawyer, admitting his guilt, asked the magistrate if the cop were not failing in his duty by not preventing the dangerous crossing, rather than allowing it, just to get his daily quota of fines. The magistrate agreed, returned the fines and reprimanded the policeman. Brave decision. Three cheers. Cops, who hide behind walls to nab errant motorists, encourage, not prevent a misdemeanour.  Bapoo Malcolm is a practising lawyer in Mumbai. Please email your comments to [email protected]

MONEYLIFE | 20 Jan-2 Feb 2017 | 60

You Be the Judge.indd 2

12-01-2017 20:53:26

TECHNOLOGY MOBILE

BHIM May Need Government’s Helping Hand In the past, NPCI had failed to nurture and promote its own products such as IMPS and RuPay. Will its UPI-based app, BHIM, be any different, wonders Yogesh Sapkale

T

he cashless or digital cash push after demonetisation has given rise to new apps and methods. Bharat Interface for Money (BHIM) is another mobile app developed and launched by National Payment Corp of India (NPCI). Available only on Android platform at present, BHIM is inter-operable with other unified payment interface (UPI) apps and bank accounts. However, based on past experience of NPCI not promoting its own apps or instruments, I wonder if the BHIM app would be any different. I was present when NPCI launched unched its much talked about interbank k mobile or immediate payment service (IMPS). IMPS offered instant payment transfer through mobile, a seven-digit mobile money identifier (MMID)) number and mobile personal al identification number (MPIN). N). This was a secure, authentic system, em, but was never really promoted or pushed by NPCI for reasons best known to itself. It is the same story with RuPay, which was supposed ed to offer low transaction cost solutions utions for card payments. But for the Pradhan adhan Mantri Jan Dhan Yojana and the recent push, RuPay would have been languishing i hi far behind MasterCard and VISA, in terms of number of transactions and average value per customer. Coming back to BHIM, it allows you to make instant bank to bank payments through mobile number, payment address or a QR (quick response) code. Also, contrary to popular belief (and WhatsApp messages), BHIM requires a Smartphone, Internet access and a bank account where your mobile number is registered. BHIM supports English and Hindi at present and needs access to phone calls and SMS from the mobile phone. There are small issues, though. BHIM can be used only for banks that are live on UPI platform. Also, before the launch of BHIM, several banks have launched their own UPI apps. Hence, it is doubtful whether customers, who are already using their bank’s UPI app, would move to BHIM. Another issue is that at present BHIM can be

used for only one bank account for receiving money. The user can add more than one bank account but has to use one account as default. After downloading and installing BHIM, the user can register by providing her debit/ATM card details and mobile number. NPCI says it would get all other details from the bank. This, however, makes me nervous about how, with just two pieces of information which may be easily available, NPCI is able to get all my bank details. NPCI says it obtains this information in a masked manner and BHIM, as an app, is unable to see it. In addition, the information is only exchanged and not stored anywhere. Or so claims NPCI. I would prefer my bank to guard all my details rather than allow a third-party app or interface to access it, in whatever manner. ac The user, then, needs to create a UPI PIN (not the M-PIN) by entering UP the last six digits of her debit/ATM card and its expiry date. After that, user will have to fill in the one-time the u password (OTP) received. At present, the passw user is allowed to perform transactions worth Rs10,000 each time and a maximum R of Rs20,000 within 24 hours. Rs20 For sending and receiving money, both the users need to be registered users of the UPI platform. If not, you can carry out transactions using IFSC code, bank account number, MMID and mobile number of the other person. Upon successful transaction, the user gets a confirmation SMS. If she does not, after an hour or so, she needs to contact the customer-care at her bank. Thus, transactions, except refunds, are done online and the customer needs to follow the regular channel to get the money back for a failed transaction. As per NPCI, there are no charges for making transactions through BHIM. However, banks are allowed to levy charges as UPI or IMPS transfer fee. Transfer fee or transaction charges was one of the reasons for IMPS not taking off. Hence, we have to wait and see whether BHIM can stand on its own or whether it would require an additional push from the government. 

61 | 20 Jan-2 Feb 2017 | MONEYLIFE

Technology.indd 1

12-01-2017 20:46:03

BOOKS

Shoe Dog

Building Nike Was No Shoo-in

W

hen was the last time that you felt a little breathless after you finished a business book, as if you had just come back from a three-mile run? When was the last time that you felt a distinct urge to go out and buy the product which the book is about and the only thing that stopped you was your measly cash balance? When was the last time that you called up your friend and used adjectives like unputdownable to describe a business book, a word used more often when describing a thriller? And when was the last time you were distinctly tempted to read a 400-page book at one sitting? Well I don’t know about you, but I don’t remember the last business book I felt that way about. Phil ‘Buck’ Knight’s memoir is a rollercoaster of a journey that has a high for every low and a tear for every smile. It is riveting. The book is divided into several chapters, each being a particular year in the life of Buck Knight and the company, Nike. You are taken on a year-by-year journey—from the creation SHOE DOG of the company till its, finally, PHIL KNIGHT going public. It is the story of Scribner the most iconic shoe brand Pages 386; Rs599 in the world and if you are worried that you need to be a shoe dog (a person completely obsessed with shoes), don’t worry if you are not one at the start of the book; you will be one by the time you end it. The book begins in 1962 when Buck finishes his education at Stanford Graduate School of Business and, on a lark, takes a journey around the world. He gets seduced by the beaches of Hawaii where he spends some time but, ultimately, goes to a shoe company in Japan where he represents that he has a shoe company in America and could he please sell their shoes in America for them. The Japanese economy is still struggling in the aftermath of the Second World War, but is slowly picking up its pieces and has already started dominating the car markets of the world. It is Buck’s hunch that what the Japanese did for the car market they, along with him, can do for the shoe market.

The hunch pays off brilliantly in the creation of a billion-dollar company. But much of the book is about dealing and negotiating with, the Japanese, ‘business Samurai’ and, ultimately, getting the upper hand over them. To students of business, it is a handbook about dealing with the Japanese and a case study about how to come out on top. It is fascinating to see how, by sheer mastery of technology, the Japanese have become an economic superpower. It is also the story of Buck Knight’s genius in surrounding himself with slightly eccentric, but brilliant, men and women who were all shoe dogs completely obsessed with the making and selling of shoes. Many of them happened to be accountants because Buck Knight was also an accountant. And many of them happened to be lawyers because Buck Knight and the company got entangled in several legal snafus with the potential to make or break the company; Nike also had a life and death legal battle almost at its very inception which it won quite handily.

I couldn’t sell encyclopedias to save my life. The older I got, it seemed, the shier I got, and the sight of my extreme discomfort often made strangers uncomfortable One of the unusual things about Knight is that he comes from the laid-back state of Oregon, which is not exactly known for its business prowess, because of which Buck had a continuous problem raising money; he went nearly broke on more than one occasion, including a time when everything came nearly apart and he was almost referred to the FBI (Federal Bureau of Investigation). But, like a cat with nine lives, he managed to survive that. One of his most brilliant moves was to make the legendary running coach Bowerman a partner in the venture. Bowerman came up with many memorable designs, including the waffle shoe, and gave the company credibility among runners. He also hired a lot of runners who knew the product really well. One thing that repeatedly saves Buck is the belief that his company is more sincere and honest than his competitors’. Buck Knight’s is a story that all young entrepreneurs should read. And, if you want to follow Buck Knight when you get into trouble the next time, go for a six-mile run. — Harsh Desai 

MONEYLIFE | 20 Jan-2 Feb 2017 | 62

Book Review.indd 2

12-01-2017 20:32:07

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

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

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Scam Ad.indd 1

21-10-2016 18:07:06

MONEY FACTS STOCKS

INDIAN MARKET TRENDS

FUND FLOWS

The Sensex and the Nifty rose 2% each during the fortnight ended 11 January 2017. ML Mid-cap Index, ML Mega-cap Index and ML Large-cap Index advanced 6%, 5% and 4%, respectively. ML Small-cap Index soared 7%. 

Foreigners: Foreign institutional investors were net sellers of stocks during the fortnight (Rs2,877.53 crore). They sold shares worth Rs26,853.92 crore. 

Share Prices Index, July 2016=100

0 -165

130

-330

FII Net Investments (Rs Crore)

-495 115

-660 -825 2 Jan-17

100

11 Jan-17

Indians: Domestic institutional investors were net buyers of stocks (Rs3,090.71 crore). They bought shares worth Rs18,807.13 crore. 

85 Jul-16

1,125 Oct-16 ML Large-cap ML Mid-cap

ML Small-cap ML Mega-cap

Jan-17 900

ML Micro-cap

Nifty Sensex

DII Net Investments (Rs Crore)

675

Index

450

30 Dec

11 Jan

+/-

ML Micro-cap Index

87.37

94.07

8%

ML Small-cap Index

100.31

107.14

7%

ML Mid-cap Index

108.10

114.18

6%

ML Mega-cap Index

101.95

107.09

5%

ML Large-cap Index

102.64

106.40

4%

8,185.80

8,380.65

2%

9,400

26,626.46

27,140.41

2%

9,300

Nifty Sensex

225 0 2 Jan17

GLOBAL MARKET TRENDS

Taiwan Weighted

Mega-cap Gainers/Losers

30 Dec

11 Jan

Change

9,200

Dalmia Bharat

1,355.85

1,675.10

24%

9,100

565.55

530.35

-6%

30 Dec

11 Jan

Change

52.80

69.35

31%

521.75

488.15

-6%

30 Dec

11 Jan

Change

15.03

21.15

41%

424.20

390.90

-8%

30 Dec

11 Jan

Change

Mphasis Large-cap Gainers/Losers MMTC Mindtree Mid-cap Gainers/Losers Usha Martin Intrasoft Technologies Small-cap Gainers/Losers Sanwaria Agro Oils TGB Banquets & Hotels Micro-cap Gainers/Losers STI India MPS Infotecnics (All Prices in Rs)

5.00

7.96

59%

74.65

63.05

-16%

30 Dec

11 Jan

Change

10.87

24.40

124%

0.26

0.18

-31%

11 Jan-17

9,000 8,900 Jul-16

Oct-16

Jan-17

Korean Composite, the FTSE and S&P 500 rose 2% each, while Nikkei and Shanghai Composite went up by 1% each. Hang Seng advanced 4%.  Index

30 Dec

11 Jan

+ / (-)

Hang Seng

22,001

22,935

4%

Bovespa

60,227

62,446

4%

5,383

5,564

3%

2,026*

2,075

2%

NASDAQ Composite Korean Composite FTSE

7,143

7,290

2%

S&P 500

2,239

2,275

2%

Nikkei

19,114

19,365

1%

Shanghai Composite

3,104

3,137

1%

Taiwan Weighted

9,254

9,346

1%

* 29 Dec 16

MONEYLIFE | 20 Jan-2 Feb 2017 | 64

Money Fact.indd 2

13-01-2017 18:23:45

MONEY FACTS STOCKS



What’s H

T

ML SECTORAL TRENDS

Sugar companies were in demand during the fortnight. Ugar Sugar Works, Uttam Sugar Mills, DCM Shriram Industries, Oudh Sugar Mills and Dhampur Sugar Mills advanced 47%, 36%, 33%, 31% and 26%, respectively.  30 Dec

11 Jan

+/-

ML Sugar Index

Ugar Sugar Works

Companies

25.25

37.10

47%

110

Uttam Sugar Mills

54.80

74.80

36%

DCM Shriram Inds

227.25

302.25

33%

Oudh Sugar Mills

105.40

138.15

31%

Dhampur Sugar

131.20

165.65

26%

Dharani Sugars

33.20

41.85

26%

105 100 95

Dwarikesh Sugar

90 85 Oct-16

What’s

Jan-17

396.20

24%

Dhampure Specialty

16.75

20.40

22%

Upper Ganges Sugar

311.40

377.55

21%

Thiru Arooran Sugars

57.65

69.70

21%

Software and IT (information technology) services companies were punished. MPS Infotecnics tumbled 31%, while Mindtree and Mphasis went down by 6% each. Infosys and Hexaware Tech declined 4% each.  30 Dec

11 Jan

+/-

0.26

0.18

-31%

Mindtree

521.75

488.15

-6%

Mphasis

565.55

530.35

-6%

Info Edge (India)

899.25

852.65

-5%

MPS Infotecnics

Infosys

1,010.70

969.10

-4%

207.15

199.40

-4%

Hexaware Tech Tech Mahindra

488.90

474.05

-3%

Cyient

504.90

492.20

-3%

Zensar Technologies

954.50

933.10

-2%

1.90

1.86

-2%

Gemini Comm

Sugar

15% Software & IT serv

Trading

14% Oil & Gas Services

-2% 0%

Steel

13% Retail

0%

Odds

11% Hotels

1%

Non-ferrous Metals

10% Consumer Products

2%

FOOD INFLATION

N T

Companies

ML Sectoral Trends

All Prices in Rs



Jul-16

320.65

Shares of sugar companies, trading companies and steel companies soared 15%, 14% and 13%, respectively. Stocks of non-ferrous metals companies advanced 10%. Stocks software and IT services companies declined 2%. Stocks of oil & gas services companies and retail companies ended flat. 

ML Software & IT Services Index 110 105

Combined food inflation declined to 2.56% in November 2016 compared with 3.71% recorded for October 2016. For rural and urban areas, food inflation in November 2016 was 3.25% and 1.35%, respectively. Vegetable prices fell by 10.35% in November 2016 compared with those prevailing in October 2016. Inflation in fruit prices was 4.52% in November 2016, while pulses

100

Declining 95 8.00% Annual Change

90 85 Jul-16

Oct-16

Jan-17

5.25%

All Prices in Rs

BULK DEALS Date

Company

2.50% Buyer

Seller

12 Jan-17 Websol Energy System

Parton Commercial Pvt

Prosperous Vyapaar Pvt

2.13

11 Jan-17

Digvijay Dhabriya

Prateek Jain

1.43

Escorp Industries Pvt

Overskud Multi Asset Management Pvt

0.44

Dhabriya Polywood

04 Jan-17 Diksat Transworld

Rs Cr

09 Jan-17 Fair Deal Filaments

Harsh Mahendra Shah .

Pawankumar Durgadutt Kabra

0.30

02 Jan-17 Kavita Fabrics

Ganesh Ramesh Nibe

Sangam Advisors

0.10

05 Jan-17 N2n Technologies

Rohit Saboo

Surendra Shaymsundar Bang

0.10

11-01-2017 Transglobe Foods

Parthasarathi Sibyala

Jignasha N Thesia

0.03

Nov-15

May-16

Nov-16

were dearer by 0.23% year-onyear. Inflation for cereals stood at 4.86% and inflation for milk products was 4.57%. Price rise of non-vegetarian items, such as meat and fish, was 5.83% in November 2016 compared with 6.00% in October 2016. 

65 | 20 Jan-2 Feb 2017 | MONEYLIFE

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BEYOND MONEY

A Social Revolution through Classical Dance

W

ith over 30,000 graduates, 10,000 classical the arts for change. In 2009, the Citizen Resource and Action Initiatives dance performances, audiences in 97 countries and a vibrant performing arts environment, was formed to provide practical guidance to citizens on Darpana Academy of Performing Arts is a centre for artists law, to help them fight their own battles; they were also committed to excellence, innovation and the excitement of trained to use the Right to Information Act, to solve using the arts for change. Darpana is one of India’s oldest problems and get justice. During the past 30 years, Darpana has reached 12.5 performing arts institutions, not only in Gujarat but in the country. It has a beautiful campus on the banks of the million people. “Through the use of television and film, Sabarmati River, only a mile away from Mahatma Gandhi’s theatrical and street performances, quizzes and debates, famous Ashram. Mrinalini Sarabhai, the legendary Bharata puppets and board games, we have been able to effectively Natyam dancer and founder of Darpana who passed talk about a range of sensitive issues,” says a Darpana away on 21st January 2016, wrote, “When Darpana was spokesperson. It organises workshops and runs short- and founded, it was regarded as a cultural oddity and a curiosity long-term courses for people, including children, on topics in this industrial city of Ahmedabad where artistic activity ranging from martial arts to puppetry, mask-making, had hardly any place. But painting and folk dancing. my husband, Vikram, kept Darpana’s library is a telling me that someday resource centre for students Darpana would have a and contains materials on strong influence in Gujarat.” all forms of dance, drama, The early scepticism about literature and other art forms, Darpana, way back in from around the world. It 1949, transformed into houses 10,000 volumes and an awakening, as the has an impressive collection organisation grew from of arts-related periodicals strength to strength and and videos. In 2014, Revanta also diversified its activities Sarabhai took charge of the to work for change in conservatory, to revitalise society through dance and it. While Darpana has been the arts. Mrinalini Sarabhai, producing accomplished in a radical departure from the spiritual core of classical dancers, others can also come to the Academy and perform. Bharata Natyam, used the dance style to depict the horror In 1994, Darpana’s amphitheatre Natarani, a state-ofof dowry violence. the-art venue, came into existence and provides local In 1977, Mallika Sarabhai took over as Darpana’s audiences the opportunity to see world-class performances honorary director and accelerated its growth. In 1980, while also providing an important platform to artists. Darpana for Development was established to focus attention Natarani presents close to 80 events every year, including on changing behaviour through the arts. Government dance performances, concerts, plays, arts festivals and film departments, ministries and other non-government agencies screenings. Darpana’s audiences range from arts-lovers to began partnering with Darpana to educate the public in people in positions of power, the less privileged, children, issues of health, education and empowering women. women, tribal populations and more. Darpana is known For instance, Darpana’s puppeteers worked with the around the world as a centre of innovation in the arts. ministry of rural development to teach Darpana is an institution run rural women the benefits of using a under The Karmakshetra Educational smokeless stove. The theatre department Foundation, a public charitable trust, DARPANA ACADEMY OF created a play called Ma to rally people registered under the Bombay Public PERFORMING ARTS to educate and transform the masses. Trust Act 1950. Readers’ donations are Usmanpura, welcome and are exempt under Section Over the years, two departments were Ahmedabad 380013 80G of the Income-tax Act.  established to focus on the work of using Gujarat Telephone: (079)27551389 Email: [email protected] Web: www.darpana.com MONEYLIFE | 20 Jan-2 Feb 2017 | 66

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