Moneylife 23 November 2017 (1)

SUCHETA DALAL ON:

NEED HOLISTIC APPROACH FOR GRIEVANCE REDRESS

Personal Finance Magazine

TELGI DEAD, HAVE FAKE STAMPS STOPPED? Rs 45

10 November-23 November 2017

Pages 68

(SUBSCRIBER COPY NOT FOR RESALE)

www.moneylife.in

NRIs have suddenly been barred from PPF, NSC, post-office deposits. Resident Indians are barred from many other financial products depending on various eligibility criteria. Avoid trouble, know about these product rules

STOCKS Innovative Tech Pack

Cover Page_306.indd 1

Oberoi Realty

Ganesh Benzoplast

Shree Pushkar Chemicals

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ISSUE CONTENTS

10-23 Nov 2017 Don’t Go Where You are Unwelcome

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s we were finishing this issue, a gamechanging rule has debarred non-resident Indians (NRIs) from investing in public provident fund (PPF), national savings certificates (NSCs) and post-office deposits. All these products will only pay savings account interest rate from the day one becomes an NRI. The notification says that NRIs’ accounts would be ‘deemed closed’ which means that NRIs can freely withdraw their PPF corpus. It will have to be seen if NRIs’ PPF accounts are, indeed, closed immediately. Hopefully, NRIs will not be subjected to PPF lock-in period of seven years after which partial withdrawal is allowed. Similarly, there are products which could pose problems for resident Indians. Raj Pradhan has given a real-life case of alleged violation in post-office monthly income scheme limit which led to an interest recovery notice. If you think you are ineligible for a certain investment product, or unsure about the allowed investment limit, play safe and don’t invest where you are not welcome. The Cover Story has comprehensive details of such investments. Sucheta, in her Different Strokes column, recounts the monumental scam of fake stamp paper run by mastermind Abdul Karim Telgi who died in jail on the 23rd October this year. Barely had the Telgi scam been discovered in early 2000, than another scam was being hatched in 2006-07 at the Stock Holding Corporation of India Ltd in which a Cabinet minister was, perhaps, directly involved. This was the e-stamping scam, exposing which cost Sucheta her columns in the Indian Express and Financial Express. Most of those connected with paper and e-stamping scams got away. Don’t miss the glimpses from these two fascinating episodes. Prime minister Narendra Modi has just spoken out about strong consumer protection. Sucheta’s Crosshairs piece focuses on the government’s ham-handed consumer protection efforts and suggests what needs to be done. A must-read for policy-makers, based as it is on first-hand knowledge of consumer issues gained by Moneylife Foundation. Debashis Basu 

30 Cover Story Don’t Invest Where You Are Not Welcome PPF, NSC post-office deposits have just made NRIs persona non grata for investment. You have to be eligible to invest in a financial product. Raj Pradhan gives examples of violations of eligibility or investment limit which can inflict heavy losses. Be safe with your savings and investments by following rules

12 Public Interest

– Bank Recap: Another Half Step

14 Your Money

– Another Exchange-traded Fund from the Government – PPF Account Will Be Closed, NSCs Encashed if Holder Turns NRI – Government Permits Banks To Sell More Small Savings Schemes – SC: ‘Future Prospect’ of a Road Accident Victim Would Be Considered – Madras HC Directs IRDAI To Increase Accident Cover for Victims – Unitech Asked To Pay Flat-buyer Rs50 Lakh: NCDRC Ruling – Woman Petitioner Allowed To File Income-tax Return without Aadhaar by Madras HC

16

MONEYLIFE

QUIZ

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.

MONEYLIFE | 10-23 Nov 2017 | 4

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CONTENTS

20

TAX / FIXED INCOME

Why a New Consumer Protection Law Alone Is Not Enough

22 Different Strokes

Telgi Dead, E-stamping Still Unchecked

FUND POINTERS

Investing in Too 24 Does Many Stocks Lower Returns?

FUND FACTS

& Worst Mutual 28 Best Fund Schemes xSTOCKS

26 Smart Money 5 Things To Examine for Infrastructure Stocks

46 Stock Watch Innovative Tech Pack: Equity Dilution and Debt May Be a Drag Oberoi Realty: Will Strong Earnings Continue?

Ganesh Benzoplast: Value in Demerger

Shree Pushkar Chemicals: Steady Growth

Market Manipulation: Toyam Industries

Market Trend: No Margin for Error at the Current Valuation

Content.indd 4

PULSE BEAT

Finance FD Is 29 Bajaj Offering 7.85%. Is it

Liver Worsened by 59 Fatty Sugar

– G-Sec Yields Up

– Any Amount of Walking Is Beneficial

Worth Considering?

INSURANCE

40

Insurance Trends

LEGALLY SPEAKING

Is the Remedy 60 What When a Consumer

Forum’s Order Is Not Complied With?

Regulation – Life Insurers Will No Longer Be Able To Manipulate Claims Settlement Data in Ads – Mediclaim To Cover Mental Ailments May Become a Reality? Redressal – Consumer Redressal Forum Pulls Up IRDAI and Max Life

CIVIC ISSUES TECHNOLOGY

s Gag Law: 54 Rajasthan’ Why It Needs To Be Opposed Strongly

The One61 Technology: way Addiction

TAX HELPLINE

at Moneylife 56 Queries Foundation’s Tax Helpline xUSEFUL APPS

58 Myto AllJIO:JioGatewayy

PS

Tries a 66 Sahara Comeback!

Services

– Insight Timer: Get Help for Stress, Sleep or Anxiety – Google Maps: Know Where You Were on a Given Date – AccuBattery: Accurately Monitor Your Battery

– Realty Blues: Unitech and DSK

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

03-11-2017 18:29:18

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Volume 12, Issue 20 10 November–23 November 2017

Debashis Basu

Editor & Publisher [email protected]

Sucheta Dalal

Managing Editor [email protected]

Editorial Consultant Dr Nita Mukherjee [email protected]

Editorial, Advertisement, Circulation & Subscription Office 315, 3rd Floor, Hind Service Industries Premises, Off Veer Savarkar Marg, Shivaji Park, Dadar (W), Mumbai - 400 028 Tel: 022 49205000 Fax: 022 49205022 E-mail: [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

BE A GOOD AND HONEST CITIZEN This is with regard to the Cover Story “Ensure Your Assets Don’t Fall under the Benami Act”, by Raj Pradhan (Moneylife, 13-26 October 2017). Raj Pradhan has covered all the aspects of Benami Property very well in his extensive article. Many ignorant taxpayers act genuinely and without any intention to defraud the law while gifting something to their dear ones; or while investing money in fixed deposits (FDs), shares, property, etc, in the names of their spouse or children. Now the income-tax department has the complete kundali of every PAN (permanent account number)-holder, we should all come clean. An age-old question may be raised on “why a certain class of the people in India is still out of the wrath of this Act, when big announcements were made immediately after demonetisation to catch the culprits in Benami transactions?” Agreed; but can we not be good and honest citizens to mark ourselves as ‘people with difference’? May I suggest that Raj Pradhan prepares FAQs with examples? This will help even the layman. Abhay Datar, by email

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

Write to the Editor!

WIN a prize

BRAVO MONEYLIFE! This is with regard to “Auditor, Regulator, Rater: Can nT They heyy Ge he Gett Aw Away with a Consent Plea?” by Sucheta Dalal (Moneylife, 27 Oct-9 Nov 2017). Bravo Moneylife! It is a brilliant piece. The ‘rot’ in the system is complete as the three examples indicate. The question is: What does the ‘law-abiding’ ordinary citizen of India do? How can we support your cause to strengthen our ‘framework’ amidst these institutional ruins? R Narayan, by email 

MONEYLIFE | 10–23 Nov 2017 | 8

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LETTERS

the

Best letter

Fasting Is the Real Detox

I

have read with great interest the “Fasting for Health” (Moneylife, 27 Oct-9 Nov 2017). I would like to thank Moneylife for bringing out this topic for the benefit of all their readers. Every major religion in the world advises some kind of fasting. Fasting is a natural occurrence for any living organism across the animal kingdom. An animal in the wild will be subjected to fasting due to cyclical availability of food. No organism in its natural habitat is guaranteed a steady supply of food daily. Our feeding system of breakfast, lunch and dinner comes from convenience following the industrial revolution. Throw in the culture of snacking that were promoted by the processed food industry and we have a problem of overfeeding. The ‘facts’, such as breakfast is the most important meal of the day, was pushed by the cereal industry long back in the US. Many of the myths related to nutrition, like inadequate protein intake, were seeded by the meat industry. So, our basic understanding of food and nutrition is flawed as there is a clear conflict of interest. Food gives us energy, but it also requires energy to digest, absorb and assimilate the nutrients. The cost of energy production is the formation of free radicals which cause collateral damage to the body if not neutralised by anti-oxidants. Fasting reduces this energy consumption and lets the body heal by diverting the bodily functions to repair

 RIGHT THING

This is with regard to “Why SEBI Is Trying to Standardise Mutual Fund Classification” (Moneylife, 27 Oct-9 Nov 2017. This is a case of “better late than never” (sorry). SEBI is doing the right thing. Pushpesh Kumar Sharma, online comment

LOTS OF GUTS AND CONFIDENCE NEEDED This is with regard to “Why It’s Time to Revisit Income Tax on Individuals” by R Balakrishnan (Moneylife, 13-28 October 2017). It is a good suggestion worth serious consideration. Income-tax (I-T) can be completely eliminated for individuals. Instead, the government can think of having some transaction tax or suitably adjust the GST (goods

damaged tissues. Fasting can benefit people suffering Mutual Fund investments from a wide range are subject to market risks, read all scheme related of ailments ranging documents carefully. from obesity to cancer. Numerous examples of extended fasts for over a year have been Gopalakrishnan TV published in scientific YOU WIN A literature (e.g., that of PERSONALISED Angus Barbieri). CLOCK Those sitting on the fence can try intermittent fasting. This generally involves a five- to eight-hour feeding window, typically, from 12pm Ankur Bamne to 8pm followed by total fast. Water, black coffee or green tea are allowed during the fasting interval. In this fast-paced world with irregular meal timings and processed calorie-rich food, fasting makes perfect sense. It is the simplest step one can take to dramatically improve one’s health. Fasting is the real detox. And it is much easier than it sounds! Give it a try. Ankur Bamne, online comment

Congratulations

and services tax) to make up for the revenue loss. Making individuals to file returns and maintaining a department exclusively to scrutinise and be after the individuals and running after small evaders of tax are all administratively inconvenient and the gains do not match the efforts. The data collection on goods and services should drastically improve in the country and there should not be any scope for leakage. The I-T department, which is concentrating on individual tax, can be wound up and its personnel can very well be used to identify the leakages of revenues taking place in various institutions and business establishments through ingenious methods and wrongdoing. The removal of I-T will give such a boost to the economy and the government can be sure to win 

MONEYLIFE | 10–23 Nov 2017 | 10

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LETTERS

 in the next elections.

The inequality of income and wealth seen in the country can be gradually minimised by enhancing the governance standards and with the support of individual taxpayers from all walks of life. No doubt, this requires lots of guts and confidence. Gopalakrishnan TV, online comment

CHILDREN WITH GOOD VALUES

are dutybound to come up with a list of changes. V Ramesh, online comment

CHANGE THE CULTURE This is with regard to “End This Obsequious Protocol Now!” (Moneylife, 13-28 October 2017). This is all along the hierarchy and not just top management. This is what we Indians have converted our culture into. This has to be changed at the school and college level. Society has to take this initiative to condemn such cultural aberration. A person must be known by his work and not his ability to lick the boots of his seniors. Dharam Singh, online comment

This is with regard to “Rise of Revenge Porn in India” by Prashant Mali (Moneylife, 13-28 October 2017). Such cases are on the rise and are more reflective of the breakdown of our value systems, beginning with the family. Most youngsters who fall for illicit relationships do so out of lack of adequate affection from within the family. Hence, we should focus on the well-being of family as an institution. A dysfunctional family leads to a dysfunctional society, leading to many crimes which are preventable. It’s a pity that materialism and Westernisation have made people ignore the upbringing of their children with good values which alone would make them strong in adverse situations. Ramesh I, online comment

unfounded. A Banerjee, online comment

DUTY BOUND TO COME UP WITH CHANGES

MORAL OBLIGATION OF GOVERNMENT

This is with regard to “7 Flaws That Have Killed the Kotak Committee Report” by Sucheta Dalal (Moneylife, 27 Oct-9 Nov 2017). The question that has not been raised is: Why was this committee appointed in the first place? What instances of poor corporate governance did the Securities and Exchange Board of India (SEBI) identify and ask the committee to address? It has become fashionable to appoint committees periodically. A committee, particularly a high-powered one, is not going to say everything is hunky-dory. They

This is with regard to “Now, Get Ready To Pay Up Digital ‘Cess’ for Cyber Protection”. The government should understand that they have a moral obligation to provide certain services as part of the fundamental rights to citizens. The government should not charge for cyber-security. If such harebrained schemes continue, the day is not far when we will be asked to put a national security cess for the upkeep of our borders. Sanjay Sinvhal, online comment

SUSPICIONS NOT UNFOUNDED! This is with regard to “Jan Dhan Accounts: Who Do They Serve?” (Moneylife, 13-28 October 2017). I understand from my interaction with some bank executives that Jan Dhan scheme may, ultimately, turn out to be a big fraud. This article shows that my suspicions may really not be

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

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11 | 10–23 Nov 2017 | MONEYLIFE

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30-10-2017 17:17:51

Public Interest Bank Recap: Another Half Step

O

n 24th October, the ministry of finance announced a bank recapitalisation programme that would put Rs2.11 lakh crore into public sector banks (PSBs). Of this, banks will get Rs18,000 crore directly from the government under the Indradhanush programme; they will raise Rs58,000 crore from the market and the government will pump in Rs1.35 lakh crore through recapitalisation bonds. The rating agencies, business community, fund managers and analysts have all heaved a sigh of relief that the heavy weight bad loans have been lifted from the PSBs which had been caught in a vicious cycle. PSBs have accumulated close to Rs10 lakh crore of bad loans, or 12% of their loans & advances. They have no incentives to go after the defaulters. The government, that is, the ministry of finance, does not have the time and resources to go after banks which they part-own and fully control. If PSBs write off these loans, their net worth would be wiped out and they would not have been able to make fresh loans which, in turn, would mean poor economic growth. Poor growth would mean more bad loans. To break this vicious cycle, the government has announced a recapitalisation plan. Unfortunately, not only are the details of the bailout package unclear, there are no strings attached to it either. Such bailouts have been attempted earlier too; they give temporary relief to PCBs at the cost of taxpayers but the core operations, characterised by corruption and inefficiency, remain the same and go on to generate more bad loans. The absence of any conditions attached to the bank bailout is a surprising omission

in a series of ineffectual steps the government is taking to revive PSBs. People had expected this government to make fundamental changes in the way PSBs operate; their expectations have been belied. Fixing the PSB mess was perhaps a priority for the prime minister Narendra Modi in 2015; just seven months after he assumed power, the finance ministry organised a twoday retreat branded ‘Gyan Sangam’ in Pune on 2-3 January 2014. The gathering included the who’s who of banking: heads of all public sector banks and financial institutions, the finance minister, Raghuram Rajan, the then governor of the Reserve Bank of India (RBI), the then minister of state for finance Jayant Sinha, and top officials of the finance ministry, including the finance secretary and financial services secretary. Mr Modi interacted with bankers on the second day of the retreat, “in an attempt to achieve a broad consensus on what has gone wrong and what should be done both by banks as well as by the government to improve and consolidate the position of PSBs.” Foreign consultants made long presentations. Finally, nothing came of it. A second Gyan Sangam was held the next year, but it was a damp squib. Far from becoming competitive, profitable and customer-friendly, PSBs sank further in the morass of bad loans as they were kept busy with opening Jan-Dhan accounts and, later, demonetisation. Many remained headless for a long stretch. Then, on the eve of Independence Day in 2016, the government launched Indradhanush, a sevenpoint programme to rejuvenate PSBs. The plan covered better senior

appointments, setting up a Bank Boards Bureau (BBB), pumping in more capital, reducing bad loans, empowering the management, improving accountability and better governance. Indradhanush did not work either. The government has done a few things that were easy to do, but have little connection to the core problems

that beset PSBs: one, some top-level appointments, two, more capital and three, setting up BBB. Four other components of Indradhanush remained on paper: reducing bad loans, empowering managements, improving accountability and better governance. These objectives have been discussed and debated by many committees in the past.

No Accountability Fixed So Far Even as more capital is injected into PSBs, shouldn’t someone be held accountable for the huge mess?



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 RBI’s role involves framing banking

policies, implementation of plans, banking supervision and senior appointments. It receives scores of reports from banks, conducts regular inspections and nominates directors to bank boards. Despite this, PSBs are in a mess. What has RBI done with the reports that banks are asked to submit? Did its inspections report nothing suspicious about the dubious loans that turned bad? What role did the

RBI-nominated directors play even as banks kept lending recklessly? Who in RBI is responsible and accountable for all this? If no one is accountable, how do we make RBI primarily accountable as the banking regulator? Then come the banks. The spread between the average deposit rates and average lending rates (known as spread) in India is one of the highest in the world, making banking a highly profitable business. If banking is a profitable business, why do PSBs need such repeated

bailouts? The average ratio of bad loans to advances of PSBs is 10% while the average ratio of bad loans to advances of the five largest private sector banks is 1.5%. Why are bad loans six times higher in PSBs? From the RBI governor to bank officials and ministers, everyone says that India needs better bankruptcy laws (we now have it). Why were operations and profits of private sector banks not badly hampered because of weak bankruptcy laws? Bankers are supposed to be cautious people. Indeed, small businessmen tell us that it is very difficult to borrow from banks, without offering collaterals and personal guarantees that are several times the size of loan. Banks also arm-twist businessmen to buy life insurance if they want a loan. If bankers did their due diligence correctly and acquired collaterals and guarantees in excess of the loan, why is recovery so difficult when the loan goes bad? If loans have gone bad on such a large scale, is it correct to conclude that banks have not done the basic job of lending and appraisal correctly? The inescapable conclusion is that behind the colossal bad loans lies corruption and gross inefficiency. But how many bankers have been held accountable for this?

The Solution Lending by PSBs is fundamentally flawed. If the government continues to control these banks, how can we reward exceptional bankers and punish the corrupt and inefficient ones? The Narendra Modi government came to power in May 2014. The same month, the PJ Nayak committee (Committee to Review Governance of Boards of Banks in India) submitted its report to RBI. The report was widely hailed as a fine roadmap for PSB reform. Sadly, the current

government has not picked up anything much from that report. The core problem with PSBs, as the Nayak committee saw it, is this: “Governance difficulties in public sector banks arise from several externally imposed constraints. These include dual regulation, by the Finance Ministry in addition to RBI; board constitution; significant and widening compensation differences with private sector banks; external vigilance enforcement through the CVC and CBI…” The solution suggested by the committee was: “If the Government stake in these banks were to reduce to less than 50 percent, together with certain other executive measures taken, all these external constraints would disappear. This would be a beneficial trade-off for the Government because it would continue to be the dominant shareholder and, without its control in banks diminishing, it would create the conditions for its banks to compete more successfully. It is a fundamental irony that presently the Government disadvantages the very banks it has invested in.” Every solution thought by the government, skirts this core problem and does not come anywhere near this elegant solution. Each government has been conceited enough think that it can set things right. Instead of trying to set things right, we should have a system that automatically prevents wrong things from happening. This is precisely why the Nayak committee had suggested that the government bring down its stake which would eliminate a host of issues automatically. Quite the opposite has happened again—government stakes are going up in the process of recapitalisation, without any strings attached. — Debashsis Basu 

13 | 10-23 Nov 2017 | MONEYLIFE

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02-11-2017 20:49:02

Your Money MUTUAL FUNDS

Another Exchange-traded Fund from the Government

B

harat 22-ETF is the second ETF (exchange traded fund) launched by the finance ministry after the CPSE (Central Public Sector Enterprises) ETF. The government plans to raise Rs8,000 crore from the new ETF to meet its ambitious Rs72,500crore disinvestment target for the current fiscal. ETFs are passively managed funds, which give exposure to a well-diversified portfolio of stocks similar to mutual funds, but with the exception that ETFs can be traded like shares on a recognised stock exchange and have a very low expense ratio. The ETF will comprise 22 companies:

Public Sector Units: SBI (8.6%), ONGC (5.3%), IOCL (4.4%), BPCL (4.4%), NALCO (4.4%), Coal India

(3.3%), Bank of Baroda (1.4%) and Indian Bank (0.2%). Central Public Sector Units: PGCIL (7.9%), NTPC (6.7%), GAIL (3.7%),

RETIREMENT

FIXED INCOME

PPF Account Will Be Closed, NSCs Encashed if Holder Turns NRI

A

mending rules on post-office savings schemes, like the National Savings Certificates (NSC) and Public Provident Fund (PPF), the government has notified that such accounts would be closed prior to maturity in case of holders changing their personal status to become non-resident Indians (NRIs). The amended rules were notified in the official gazette earlier in October 2017. The amendment to the PPF Scheme, 1968, says: “If a resident, who opened an account under this scheme, subsequently becomes a non-resident during the currency of the

Bharat Electronics (3.3%), Engineers India (1.5%), NHPC (1.2%), NBCC (0.6%), NLC India (0.3%) and SJVNL (0.2%). Strategic Holdings of the Government: Larsen & Toubro (17.1%), ITC (15.2%) and Axis Bank (7.7%). Shares of L&T, ITC and SBI aggregate 40% of the ETF’s portfolio; any sharp variation in their prices will affect the ETF’s prices to some degree. ICICI Prudential Mutual Fund will manage Bharat 22-ETF. Subscription for retail investors would open on 15th November and continue till 17th November. An upfront discount of 3% would be offered to all categories of investors. Minimum investment in the public offer of the ETF is Rs5,000 and one requires a trading and demat account to purchase these units. There is no exit-load.

maturity period, the account shall be deemed to be closed with effect from the day he becomes non-resident.” The interest payable would be up to the date of the account closure, it said. A separate notification on NSCs said in case of a similar change of status of the certificate-holder before the maturity period, “The certificate will be encashed, or deemed to be encashed on the day he becomes non-resident,” and interest will be paid accordingly. NRIs are not allowed to invest in NSCs, PPF, monthly income schemes and other time deposits offered by the post-office.

Government Permits Banks To Sell More Small Savings Schemes

T

o encourage household savings, government has allowed banks, including top three private sector lenders (ICICI Bank, HDFC Bank and Axis Bank), to accept deposits under various small savings schemes. According to a recent government notification, banks can also sell National Savings Time Deposit Scheme 1981, National Savings (Monthly Income Account) Scheme 1987, National Savings Recurring Deposit Scheme 1981 and NSC VIII issue. Until now, most of the small savings schemes were sold through post-offices.

MONEYLIFE | 10-23 Nov 2017 | 14

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OTHER INSURANCE

CONSUMER PROTECTION

SC: ‘Future Prospect’ of a Road Accident Victim Would Be Considered

Unitech Asked To Pay Flat-buyer Rs50 Lakh: NCDRC Ruling

I

A

n a path-breaking verdict, the Supreme Court held that ‘future prospect’ of a person killed in a road accident would be considered while awarding compensation to the dependents and laid down standard criteria for computation of such claims, according to a report in The Economic Times. A five-judge Constitution Bench, headed by Chief Justice Dipak Misra, was faced with a vexatious question whether dependents of a road accident victim, who was either self- employed or working on a fixed salary in private or unorganised sector, can get enhanced compensation after addition of certain percentage of the salary drawn by the deceased under the head of ‘future prospect’.

Accepting the principle of standardisation, SC said, “While determining the income, an addition of 50% of actual salary to the income of the deceased towards future prospects, where the deceased had a permanent job and was below the age of 40 years, should be made. The addition should be 30%, if the age of the deceased was between 40 to 50 years. In case the deceased was between the age of 50 to 60 years, the addition should be 15%. Actual salary should be read as actual salary less tax.” The Bench fixed the percentage of salary or income of a self-employed and a person working in private sector which would be computed under the head of ‘future prospect’ for granting compensation to the dependents.

Madras HC Directs IRDAI To Increase Accident Cover for Victims

T

he Madras High Court directed the Insurance Regulatory Development Authority of India (IRDAI) to enhance compulsory personal accident cover from Rs1 lakh to not less than Rs15 lakh, enabling vehicle-owners paying premium to get adequate compensation in the event of death or bodily injury. A division bench, comprising justices R Subbiah and A D Jagadish Chandira, gave the order while allowing an appeal by United India Insurance Co Ltd, Neyveli. Fifteen years had lapsed since IRDAI decided on the issue, and medical treatment costs had sky-rocketed, the judges said and directed IRDAI to enhance the compulsory personal accident cover from the existing Rs1 lakh to not less than Rs15,00,000. The bench directed IRDAI to consult all stakeholders before enhancing the premium for getting compensation under the compulsory personal accident cover. The judges also directed IRDAI to undertake and complete such an exercise within six months from the date of receipt of a copy of the judgement.

complainant to NCDRC (National Consumer Disputes Redressal Commission,) Manish Sharma, had alleged that he had booked a flat, in a housing project which was being developed by Unitech in Greater Noida. It was alleged that despite the complainant having paid more than Rs50 lakh, the real estate developer had failed to give possession of the flat even after nearly four years. NCDRC, on 24 October 2017, directed Unitech Reliable Projects Private Limited to compensate a flatbuyer by paying a sum of Rs50 lakh, after it failed to deliver the possession of the flat within the stipulated time. Holding the developers guilty of deficiency in services, NCDRC said, “It is evident from the allotment

letter of 2010 that the opposite party was required to deliver the possession of the subject flat within 36 months, which would be by the end of November 2013. Undisputedly, Unitech has failed to fulfil its promise although the complainant had paid almost 90% of the consideration amount.” “Unitech cannot take advantage of its own wrong and utilise the money received by them by unfair trade practice for inordinate period,” added NCDRC. Directing the developers to refund the entire amount with interest of 10%, an additional compensation of Rs10,000 has been awarded to the complainant towards litigation costs.

15 | 10-23 Nov 2017 | MONEYLIFE

Your Money.indd 3

03-11-2017 14:51:03

Your Money TAX

Woman Petitioner Allowed To File Incometax Return without Aadhaar by Madras HC

A

s the law mandating linking income-tax (I-T) returns with Aadhaar is yet to be put to the litmus test by the Supreme Court, the Madras High Court allowed a petitioner to file her I-T returns without quoting her Aadhaar number. Justice TS Sivagnanam, passed the interim order on a plea moved by Preethi Mohan. She had moved the plea relying upon the apex court’s decision in Binoy Viswam Vs Union of India, in which the court had

imposed a partial stay on operation of Section 139AA of the Income-Tax Act which mandates linkage of Aadhaar

MONEYLIFE QUIZ

with I-T returns. In his interim ruling, Justice Sivagnanam said: “I am inclined to grant a similar relief, since today being the last day for filing incometax returns. If the returns are filed belatedly and if ultimately, the matter decided by the Constitution Bench of Supreme Court is against the petitioner, then she may be liable to pay interest for belated payment of tax. Accordingly , there will be an interim direction to the income-tax department to permit the petitioner to file her returns for the assessment year 2017-18 either manually or through appropriate e-filing facility without insisting for Aadhaar number,” he said.

Moneylife Quiz no

271

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 21 December 2017. Send in your answers to [email protected] with the Quiz no., name, address & telephone number before 29 November 2017. 1. Who said, “Wide diversification is only required when investors do not understand what they are doing”? a. Peter Drucker b. Michael Porter c. Warren Buffett d. Dan Denning

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!

Ranganath Muthu

5. How much was the highest daily volatility in underdiversified large-cap mutual fund schemes, in the past five years? a. 0.99% b. 0.91% c. 0.92% d. 0.96%

2. Under which Section of the Criminal Procedure Code are public servants protected which prevents them from being prosecuted without government sanction? a. Section 80-G b. Section 80-D c. Section 197 d. Section 213

6. In which field of medicine/health does the mobile app Insight Timer help? a. Pain killer b. Meditation c. Impotency d. Time management for the busy

3. By which magazine was Oberoi Realty awarded the ‘Real Estate Company of the Year’? a. Construction World b. Construction Week India c. Accommodation Times d. Realty Plus

7. What is the name of the chief technology officer of IBM Resilient? a. Buck Rogers b. Thomas J Watson c. Bruce Schneier d. Ginni Rometty

4. Who is the promoter of the Unitech group currently facing legal action? a. Subrata Roy b. Vijay Mallya c. Sanjay Chandra d. Deepak Kulkarni

8. In which part of Uttaranchal does Innovative Tech Pack Ltd have a manufacturing facility? a. Rudrapur b. Ranipur c. Roorkee d. Pithoragarh

In all, 11 readers got all the answers right last time. The winner of Quiz-269 is Ranganath Muthu from Chennai. Congrats! You win a personalised clock with an investment quote!

The answers to Moneylife Quiz-269 are: • 1-a. Germany • 2-c. October 2010 • 3-c. 39.3% • 4-b. Circulating library for books • 5-b. Surendra Kumar Hooda • 6-d. Ashwini Lohani • 7-a. Rs5,000 • 8-d. November 2016

MONEYLIFE | 10-23 Nov 2017 | 16

Your Money.indd 4

03-11-2017 14:48:14

www.moneylife.in News & views with a big difference RCom’s retail mobile business is dead but nobody wants to say so, while Vodafone and Airtel lure its customers Reliance Communications Ltd (RCom), once upon a time the flagship of Anil Dhirubhai Ambani Reliance group, has reportedly closed its mobile retail business leaving millions of subscribers in the lurch. However, nobody, including the company, stock exchanges, market regulator SEBI, telecom regulator TRAI

and even department of telecom (DoT) is ready to say anything officially on RCom’s closure of mobile business. Another

DSK Defaults: Pune Police finally register FIR against DS Kulkarni and his wife Hemanti

Special Court asks SEBI to issue an advertisement seeking appearance of Ketan Parekh

After several months and innumerable complaints, the Pune Police has finally registered a first information report (FIR) against Deepak Sakharam (DS) Kulkarni, and his wife Hemanti, under the Maharashtra Protection of Investors and Depositors Act (MPID)

In a surprise action, the Special Court has asked the Securities and Exchange Board of India (SEBI) to issue an advertisement/ proclamation seeking appearance of Ketan Parekh,the prime accused in the securities scam of 2000-2001. The advertisement/ proclamation has taken the market by surprise since many believed that Mr Parekh was now free to trade, having completed the 14-year ban imposed by SEBI. He is director of Panther Fincap and Management Services Ltd

How is a Khadi Gramodyog Gandhihaat all cash and no GST? How is the implementation of goods and services tax (GST) and the much touted push towards digital payments that began after demonetisation working on the ground? In Ahmedabad, Sanjay Shirodkar, a Pune-based activist, visited a khadi gramodyog store on 27 October 2017, to buy some clothes. The store, using Gandhiji’s name, demands cash payments only and has a completely dodgy system of billing and reporting the goods. Mr Shirodkar also found that the Gramodyog Gandhihaat Ashram Bhandar, located opposite the Gandhi Ashram, refuses to accept digital payments.

RBI doesn’t have information on illegal trading, dealing in virtual currencies, reveals RTI reply While maintaining that it has not issued any licence or authorisation to any company to trade in virtual currencies, like Bitcoin, the Reserve Bank of India has no information about entities dealing in illegal trading, investing and exchange of virtual currencies, reveals a reply received under the Right to Information (RTI) Act

EXCLUSIVE VIEWS

On issues that matter to you Improving BEST: Making city transportation profitable Rahul Deodhar

Do you have a problem with your credit card bill statements? Vinita Deshmukh

For the latest news, exclusives and reports on our activities twitter.com/MoneylifeIndia

Web Content.indd 1

surprising aspect is the advertisement from Bharti Airtel and Vodafone wooing RCom subscribers to switch to their network. As per RCom’s debt restructuring plan, it would convert its debt of about Rs7,000 crore into equity. Promoters will reduce their stake to 26% from 59%. Mukesh Ambani-led Reliance Jio is likely to bid for assets of RCom. Quoting Puneet Garg, executive director of RCom, the reports says, “They [Jio] do not want to deal directly but have shown interest in bidding for many of our assets in a transparent manner.”

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CROSSHAIRs

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

Why a New Consumer Protection Law Alone Is Not Enough

A

t an international conference on 26th October, prime minister (PM) Narendra Modi spoke passionately about a stringent new law that will empower consumers, lower the cost of redress and take into account the business practices prevalent in India. Noted consumer activist Pradeep Mehta, secretary general of Consumer Unity Trust (CUTS), Jaipur, who attended the conference, says that the PM spoke on consumer protection for 50 minutes as against the scheduled 17-20 minute allocated. Mr Modi said that the legislation would show “how seriously we take the needs of our citizens and how we strive hard to solve their problems.” What was music to my ears, says Mr Mehta, was the PM’s thrust on the fact that promoting consumer interest (welfare) is as vital as consumer protection. Over the past several years, Moneylife has repeatedly shown how financial regulators, including a Reserve Bank of India governor with a rock-star like popularity, do not even speak about consumer/investor/depositor/ issues, let alone engage with them directly. So it is heartening to hear the PM speak about this. The Consumer Protection Bill, 2016, which replaces the 1986 statute (with its many amendments), has been in the works for a while now. Despite several amendments, the legislation is due for a major overhaul to align it with changing consumer profiles, products, market needs and multiple delivery mechanisms. The new legislation provides for a consumer redress authority, which is, reportedly, along the lines of the US Federal Trade Commission. It will introduce the concept of product liability and will permit resolution through mediation cells for faster redress. It also proposes to tighten action against misleading advertisements. Several amendments suggested

to the draft legislation are in the process of being incorporated in the final draft and the final bill, going by the PM’s speech, will be introduced in parliament shortly. While these actions are highly encouraging, they still do not provide a holistic approach to effective regulation or redress of public and consumer grievances. Allow me to flag three important issues. First, the government has, probably, gathered a vast body of information from pgportal.gov.in (a centralised public grievance monitoring system under the department of administrative reforms and public grievances), a grievance redress initiative, which, I learn is directly overseen by the prime minister’s office (PMO). This was so effective in the initial days that Moneylife Foundation had begun to recommend it as the go-to place for every possible complaint against public and private organisations, utilities and government departments. Veeresh Malik, a Right to Information (RTI) activist, is among those who had found pgportal more effective than filing RTI, for a time. He has filed over 1,000 public grievances for himself and others across ministries. Mr Malik says that in the past year, pgportal has deteriorated because of a huge resistance from various ministries and ‘nil fear of action’ for failure to redress grievances. Organisations have become adept at ‘evasive tactics’ and finding ways to close grievances without explanation. He says that, barring exceptions such as the railways, finance, road, transport, NHAI (National Highway Authority of India) and Central tax authorities, the rest provide ‘call-centre-like’ responses to complaints. A detailed analysis of the massive, centralised data generated by pgportal should be a goldmine of information on the pain-points for consumers and help the government



MONEYLIFE | 10-23 27 November Nov 2017 2014 | 20 | 14

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03-11-2017 18:14:12

 introduce administrative reforms in public interest.

More importantly, the learning should be part of the new consumer legislation that is still being drafted, so that accountability and liability of manufacturers and service-providers is fixed upfront to reduce complaints. Secondly, online sellers are part of the vast new marketplaces whose conduct needs to be addressed. If the proposed consumer protection authority plans to introduce stringent product liability provisions, making manufacturers responsible for product quality and usage, then how much more strict should the law be on fake and counterfeit products sold online through e-commerce portals? A few months ago, I wrote about how a senior Amazon executive brazened it out before senior consumer ministry officials when cornered over such sales. The global giant, which advertises that you shop on ‘apni dukaan’, suddenly claimed that it was a virtual ‘haat’ or marketplace and not accountable for what is palmed off to trusting consumers by various sellers. Amazon’s argument about not being allowed into retailing in India does not wash with us consumers. But the government also needs to make up its mind—hold Amazon and other sellers accountable or just open up the consumer retail business to foreigners. It cannot turn a blind eye to consumers being cheated. Thirdly, the proposed Consumer Protection Authority will be (CPA) empowered to initiate suo moto investigation, class action and order product recall and penalties, which could include cancellation of licences, without waiting for consumer complaints. Most countries have given these powers to regulatory organisations, like the Competition Commission of India (CCI), but India has chosen to keep it out. CCI’s mandate, says its website, is to ensure “that the ‘Common Man’ or ‘Aam Aadmi’ has access to the broadest range of goods and services at the most competitive prices.” Many of its advocacy and anti-trust actions do redress issues faced by consumers and will overlap with CPA and other regulators. CCI is already in a turf battle with the telecom regulator. A similar Financial Redress Authority (FRA) has been recommended to redress grievances that ought to be handled by our four financial regulators (banking, insurance, pensions and capital markets). Another big chunk is real-estate related complaints that should primarily be redressed by the Real Estate

Regulatory Authority. The irony is that financial, telecom and realty consumers have had a better stab at getting redress or justice only through the consumer courts, while sector regulators have operated as rulemaking bureaucracies. Even after FRA is set up, people can continue to approach consumer courts and civil courts in these sectors. FRA already promises to be an expensive and giant bureaucracy with a consumer advisory council and possibility of closing complaints through mediation. The cost of all these new government ‘authorities’ is, eventually, borne by the consumer and taxpayers in the form of fees, cess or higher taxes. Having created a series of sector regulators over the past 25 years since economic liberalisation, we seem set to create a multiple grievance redress bodies in the coming years, without learning any lessons from the past. We need a single, powerful, grievance redress authority rather than set the stage for new turf battles or create sinecures for retiring bureaucrats. This body could be a part of the CCI and made accountable to parliament. An important suggestion by the Financial Services Legislative Reforms Commission (FSLRC), which promoted the FRA idea, was to create a ‘feedback loop’, where consumer complaints data makes it possible to identify ‘hotspots’ of consumer grievances and forms the basis of modifying regulation and supervision framing/ amending subordinate legislation. Such data should have been available through pgportal.in, but we have not heard of it being mined. The public grievance portal ought to be merged into the single consumer and public grievance redress authority which is suitably empowered and has the ability to gather and analyse data to reduce areas of friction for consumers. Even if the government is not interested in FRA, the feedback loop idea should not get buried. In the final analysis, fair competition or effective deterrence through strict penalties are the best ways to protect consumer interest. It is unclear how this would work if there are multiple authorities with overlapping jurisdiction. Changing this into a single authority to ensure effective grievance redress would require very bold action and the ability to overcome strong bureaucratic resistance. Will the Modi government, which takes pride in its ability to take bold decisions, give it a shot?  21 | 10-23 Nov 2017 | MONEYLIFE

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03-11-2017 18:14:30

DIFFERENT STROKES SUCHETA DALAL

Telgi Dead, E-stamping Still Unchecked

W

hen powerful people collude to infiltrate and from security presses) but printed by counterfeiters; it was compromise institutions responsible for the hard for a layperson to know the difference. No.3 was a highest level of security, the investigation tends fully counterfeit stamp on non-security paper. No.4 was to drag and be buried or is limited to one big scapegoat. the most outrageous; these were used stamps removed from But the scam never ends—it just acquires a new shape and transfer deeds submitted to share transfer departments of modus operandi, since scamsters are always way ahead companies. Only the staff of large brokers knew the last of regulators in mastering new technology, identifying part of the racket since they recycled stamps in connivance regulatory gaps to seize money-making opportunities with company officials. by striking deals with corrupt This man was making the rounds of several newspaper officials. And so it is with the fake offices; and, although we were stamp paper scam of the 1990s. Abdul Karim Telgi, a school fascinated, it was hard to prove; dropout from Belagavi, was thrust but the scam slowly became on the nation as the kingpin of public. Only later did we discover the scam; he was ostensibly the how well-oiled and widespread it was, with patronage by powerful man who managed to infiltrate the high-security government printing politicians, bureaucrats and press to obtain discarded machines police officials. They ensured that on which to print fake stamps. Telgi wasn’t arrested even after He had also created a source for 27 cases were registered against obtaining genuine security paper him between 1991 and 1995. on which to print the fakes and He was arrested only in 2001 also stitched together a network and, eventually, had 48 cases registered against him with 20 of powerful politicians and police Senior police officials say that convictions. The trials were quick officials who helped it thrive and the Telgi scam was unearthed because Telgi used to plead guilty grow, for a price. only because two factions without contest in most cases; he On 23 October 2017, Telgi among the police fought over did not squeal and many of those died at the Victoria Hospital, the spoils of the scam arrested in the scam were slowly Bengaluru, from multiple discharged. A deliberate shortage organ failure, while serving out concurrent jail sentences. The of stamps and stamp paper, with a media, dutifully, noted the event with perfunctory coverage, limited number of stamp vendors, allowed fake stamp and but has the stamp duty and fake stamp racket really ended? dated stamp paper racket to flourish and it soon spread across several states. Well, judge for yourself. In the 1990s, when I worked at The Economic Times, Senior police officials say that the scam was unearthed an agitated individual in a polyester safari suit burst only because two factions among the police fought over into our office to get us to investigate the fake stamp the spoils of the scam. A public interest litigation (PIL) by racket prevalent in the stock market. Affixing of revenue noted social activist, Anna Hazare, and the court orders stamps on transfer deeds that accompanied physical share that followed, finally, led to a special investigation team certificates was mandatory those days. Our man snapped (SIT) being constituted in 2001. Serious investigation by open a plastic-moulded briefcase to show us sheets of SIT, finally, put many high-profile police officers, including stamps that were of four kinds. They were coded No.1, a former police commissioner of Mumbai behind bars. No.2, No.3 and No.4 and priced in descending order, he While the Telgi scam investigation was raging, the said. No.1 was the genuine stamp printed at our security government came up with the idea of e-stamping, as a presses; No.2 was on genuine security paper (purloined clean, transparent and electronic replacement for physical 

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DIFFERENT STROKES SUCHETA DALAL

 stamps that were susceptible to counterfeiting. The size

linked company of Singapore. However, the legal document of the business was estimated at Rs50,000 crore those was actually a contract between Crimson Logic and Unitec days. Such is Indian ingenuity that the Stock Holding Value Solutions. A nice chunk of the money paid out Corporation of India Limited (SHCIL) designed an to Crimson Logic was to be retained by Unitech Value e-scam at the very initiation of the new system. I worked Solutions, which was 80% owned and controlled by extensively on unravelling this scam while writing for the Jayaraman Iyer and S Ramanathan and their friends. In Indian Express, with the help of whistle-blowers inside fact, the skimming had already begun when I was stopped the organisation. India’s top public sector banks and from writing about it. SHCIL was flying so high those days institutions had come together to set up SHCIL. It was a that it expected to sign e-stamping deals with Myanmar, custodian for dematerialised shares of large institutions. Bangladesh and Bhutan and other neighbouring countries. Once e-stamping was announced, it bagged the mandate Thanks to that exposure, which lost me my columns in the to become the central record-keeping agency. Indian Express group, e-stamping was no longer touted At the centre of the scam as the perfect At the centre of the were R Jayaraman alternative. So we e-stamping scam were Iyer, chairman and continue to have managing director R Jayaraman Iyer, chairman physical stamp of SHCIL, and and managing director of paper, stamps and S Ramanathan, his SHCIL, and S Ramanathan, franking, along with e-stamping deputy and CEO his deputy and CEO of of SHCIL Services SHCIL Services Ltd (SSL). even today. Ltd (SSL), a fullyThis scam As in the Telgi scam, owned subsidiary.. happened because they co-opted extremely As in the Telgii SHCIL had no powerful people, probably clear regulatory scam, Mr Iyer and d iincluding a Cabinet minister. oversight and Mr Ramanathan n We wrote a whole cover the fraudsters co-opted extremely y story on this scam managed to powerful people le co-opt anyone (regulators and the he police) in India and who would have objected. At the same time, it conducted abroad, probably including a Cabinet minister. That is why a witch-hunt against suspected whistle-blowers until my writing in the newspaper was abruptly stopped—even everybody eventually clammed up. Even today, it is unclear though prime minister Manmohan Singh had ordered the who regulates, inspects and oversees large e-networks removal of the Jayaraman Iyer-Ramanathan duo and asked like these which handle our tax information, e-stamping, IDBI Bank, the lead promoter of SHCIL, to take charge. corporate filings, etc. As recently as last week, I have The SHCIL scam was audacious and elaborate. Under received anonymous alerts with regard to SHCIL. Many the benign watch of its regulator, the Securities & Exchange officials, who colluded with the dubious-duo, remain in Board of India (SEBI) and, despite a powerful board of top positions at the organisation. bank chiefs, SHCIL began diluting the shareholding of SSL The e-stamping scam is a prime example of how until it had sold 76% of its equity to private and foreign technology can be manipulated for illegal gains and it entities. This was like stealing a quasi-government company will remain hidden for a long time, unless somebody at from under the nose of powerful banks and institutions, the core of operations blows the whistle. Sadly, no lessons such as LIC, ICICI, IDBI, IFCI and others, who were on have been learnt about the dangers of technology. Those the SHCIL board. In all these years, the market regulator, of us who are aware about the past are fighting a pitched which keeps inventing new regulations, compliances and battle opposing the linking of bank accounts to a biometric disclosures to ensure good governance, has never, ever, identifier which will allow even greater manipulation and questioned these board directors who allowed a whole damage. It is a pity that this government is disinclined to subsidiary company to be hijacked under their watch. hear views or opinions contrary to its once-stated beliefs.  SSL went on to create layers of subsidiaries, including a Singapore-based entity called Unitec Value Solutions PTE Ltd. Sucheta Dalal is the managing editor of Moneylife. She was The e-stamping contract was ostensibly signed between awarded the Padma Shri in 2006 for her outstanding contribution SHCIL and Crimson Logic PTE Ltd, a reputed government- to journalism. She can be reached at [email protected]

23 | 10-23 Nov 2017 | MONEYLIFE

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03-11-2017 18:06:48

MUTUAL FUNDS POINTERS

Does Investing in Too Many Stocks Lower Returns?

W

e have heard that one must diversify one’s as Warren Buffett quoted, “Wide diversification is only investments, but should avoid going overboard required when investors do not understand what they are with it, as it lowers performance. One of the doing.” So does the number of stocks in a mutual fund perennial questions in the minds of equity investors is scheme’s portfolio really affect returns? We will find out. For this analysis, we have compared the performance about the optimum size of a portfolio or how many stocks should one hold in one’s portfolio. Put another way, should of over-diversified and under-diversified large-, mid- and you have a concentrated or a diverse portfolio? There are multi-cap schemes. Schemes which have held, on average, lots of arguments for and against each option. Too few more than 90% in equity assets in the past five years are considered. stocks make the portfolio risky. So, academics advise you to diversify; the Large-Cap Schemes advice is summed up in a As one can see from the statement like “Don’t keep table alongside, the more all your eggs in the same diversified the scheme, the higher the returns basket.” There is no free generated. These five lunch in financial markets over-diversified schemes but diversification comes closest to something like a beat not only their underfree lunch. However, most diversified counterparts, successful investors say but even outperformed the no to this free lunch; they category average returns. Large-Cap Schemes run highly concentrated The underlying reason for Scheme Number 3-year 5-year Volatility portfolios. better returns could be of Scrips Returns Returns (Daily) that, with more freedom This is why most of Over-Diversified in choosing stocks, they us choose well-diversified Aditya Birla Sun 73 12.8 17.3 0.89% mutual fund schemes as we could take higher risks by Life Frontline get exposure to a portfolio betting a small percent of Equity of many stocks. But we have the total assets by investing Aditya Birla Sun 66 12.7 17.5 0.90% equity schemes that have the in neglected stocks or Life Top 100 turnaround stories. Due freedom to buy as many Edelweiss Large 63 10.3 14.9 0.86% different stocks as they to this freedom, their riskCap Advantage want. That is why some reward ratio is high and, SBI Bluechip 51 13.2 17.9 0.84% equity schemes will hold if any one stock dips, the ICICI Prudential 48 11.7 15.9 0.88% as many as 85 companies’ overall returns won’t dip Focused scrips while some hold just proportionately. That Bluechip doesn’t mean quality is 15 scrips. Asset management Under-Diversified neglected. It just means companies (AMCs) also Reliance Quant 18 7.8 11.7 0.96% try different strategies that there is more room for Plus and investment styles to testing different strategies Sahara Super 20 22 7.5 10.4 0.91% deliver the best returns; without distorting the ICICI Prudential 22 7.8 13.4 0.92% one such style is keeping broader goal. On the other Select Large Cap a limit on the number of hand, having a limited set Reliance Focused 26 10.9 14.7 0.99% scrips they would hold of stocks, such as 20 or Large Cap in their portfolio. Over25, means stock selection HDFC Large Cap 28 6.9 11.0 0.90% diversification has been seen becomes the highest The average return of large cap schemes in this period was 14.3% as a sign of low confidence priority and one bad news in what one is investing in, or quarterly result from a 

MONEYLIFE | 10-23 Nov 2017 | 24

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MUTUAL FUNDS POINTERS

 company will show up in

the returns immediately. The daily standard deviation (refer column: volatility) of these schemes shows that the difference is minimal; but this minute difference on a daily basis creates a huge difference in the returns at the end of the year. This does show that a portfolio of limited number of large-cap stocks tends to be more volatile and underperforming than a portfolio with many stocks. Apart from the number of scrips held by a scheme, the fundamental drivers of the companies also matter. Buying three large-cap equity schemes instead of one, for example, doesn't add a lot of diversity.

Number of Scrips

3-year Returns

5-year Returns

Volatility

UTI Mid Cap

84

14.20

24.82

0.96%

HDFC Mid-Cap Opportunities

72

18.31

24.07

0.87%

Principal Emerging Bluechip

65

21.21

26.03

1.01%

L&T Midcap

64

21.93

26.91

0.90%

Edelweiss Mid and Small Cap

63

18.58

24.77

0.94%

SBI Emerging Businesses

24

13.41

17.97

0.79%

returns for five years. A look at the portfolio of this scheme showed the winning bets that are still part of the schemes portfolio: Relaxo Footwear (358%), KCP ltd (332%) and Graphite India (332%), among others. Excluding the outlier SBI scheme, the conclusion would be that, again, overdiversification works for mid-cap schemes as well. This is a no-brainer since most of the mid-cap schemes had, on average, 53 stocks in their portfolio.

SBI Small & Midcap

28

25.97

30.88

0.98%

Multi-Cap Schemes

Baroda Pioneer Mid cap

31

Mid-Cap Schemes Scheme Over-Diversified

Under-Diversified

In case of multi-cap schemes, the picture is cloudy—as there seems to The average return of mid-cap schemes in this period was 23.8% be no correlation between the number of scrips and returns. The reason Multi-Cap Schemes could be diversification Mid-Cap Schemes Scheme Number 3-year 5-year Volatility across different size of Even for the purpose of of Scrips Returns Returns companies which makes our analysis, the number Over-Diversified every scheme unique due of under-diversified equity to its unique portfolio. mid-cap schemes is quite L&T India Value 73 19.30 24.52 1.02% A scheme which creates low. The three schemes DSP BlackRock 66 16.19 19.33 0.96% a portfolio more tilted that had a limited number Opportunities towards mid- and smallof scrips, compared to HDFC Top 200 66 9.78 14.94 1.07% their peers, showed a mix cap stocks would probably Aditya Birla Sun 64 16.92 21.17 0.94% performance, without any fetch higher returns. Life Equity Multi-cap portfolios are specific pattern. Instead, UTI Equity 64 10.06 15.28 0.86% it showed similarity with hard to evaluate with such Under-Diversified the other group, that is, the straightforward metrics; JM Core 11 11 18.55 19.78 1.28% over-diversified group. This as a result, a broader and Invesco India 18 11.80 15.69 0.73% set delivered above-average deeper look at each scheme’s Dynamic Equity performance among the historical returns and stock Escorts High 21 22.05 22.04 0.90% mid-cap category of equity selection would be required Yield Equity schemes. So, you can choose to judge their quality. MultiEscorts Leading 22 18.04 21.48 0.91% to invest in a focused midcap schemes are, indeed, Sectors cap scheme which invests risky as there is no control Templeton India 23 13.51 17.27 0.90% in a limited set of scrips, over the categories of stocks Growth but the chances of getting that are in the portfolio and The average return of multi-cap schemes in this period was 16.5%. higher returns will be a shot how they’ll turn out. An in the dark. ideal approach seems to be We were surprised at the performance of SBI Small that one should invest in a bunch of well-diversified large& Midcap Scheme, with a limited set of only 28 stocks, cap and mid-cap schemes. As Peter Lynch correctly said, which has managed to rake in very high above-average “Know what you own, and know why you own it.”  3.23

6.12

1.20%

25 | 10-23 Nov 2017 | MONEYLIFE

Fund Pointer.indd 3

03-11-2017 16:12:30

SMART MONEY R BALAKRISHNAN

5 Things To Examine for Infrastructure Stocks

I

nfrastructure sector is ‘hot’ right now, in the stock markets. Of course, it is still not as rosy as in the heady days of 2007 and 2008, when every contracting company was the darling of the markets. Now, there seems to be a gradual re-emergence of the sector and many infrastructure stocks seem to be in favour. However, my view is that investing in companies in this sector is an act of belief and hope. Belief in the numbers as they are presented and hope that the numbers will get better and bigger. By nature, these companies are in the business of execution of projects, where completion takes a long time. It could be from a few months to over a couple of years or more. It could be a simple road project or a complex bridge. Since revenues accrue over more than 12 months for most ‘jobs’, infrastructure companies need to follow a different kind of accounting system. There are two ways to account for a ‘job contract’. One is to wait till the entire project is handed over and raise the final invoice. This would mean that sales are ‘lumpy’ and there is a high degree of volatility in the sales numbers from year to year. So, this process is usually not followed. The other one is the method being followed by most companies, where they book revenues on the basis of various ‘stages of completion’, taking into account the expenditure incurred on a ‘work-in-progress’ basis in terms of labour, material and overheads. Thus, in a way, this smoothens out the revenue numbers and reflects the economic activity that the firm was engaged in during the year. When you look at the revenues of infrastructure companies, you need to implicitly have some faith that the income booked is right for each project being executed and that the client will accept them in full and pay as per the billing. The auditor relies on some bases and certifications that the management gives. So, to start with, the top-line itself is built on faith and good intentions. I would be very happy if the Institute of Chartered Accountants of India

can consider asking companies to give us a break-up of revenue numbers (in such industries or where ‘revenue’ is based on part completion methods) between the actual billed numbers and the revenue that corresponds to ‘salein-progress’. This will help us get some idea about the health of a company. As a corollary, the ‘receivables’ in a contracting company include some ‘guesstimated’ revenues that have yet to be billed and accepted by a client. Even the receivables include billed and unbilled amounts. Here, again, the accounting principles do not disclose anything about the details. In terms of cash flows, a contracting company is constantly under stress. It gets progressive payments till it completes the work and then there is normally some ‘retention’ money that is released much after the completion of the contract. The other characteristic is that the contractor has a constant investment in fixed assets (machineries) to meet the execution needs of the contract. Hence, it is important that there is constant workflow to ensure that men and machines do not remain idle. In fact, after the 2008 boom, infrastructure companies that were leveraged to the hilt, have now landed up in insolvency courts as they ran out of work and cash flow to repay the debts acquired in the good days. Thus, in the early years, all infrastructure companies are constantly short of capital. Dilution of equity in good times, accompanied by leverage, is taking place constantly. For many aggressive companies, I notice that dilution is also accompanied by increasing leverage. Companies need to reach an age and size where they grow and the leverage starts to reduce. Until then, there is extremely high risk. Today, there are a few good companies in the infrastructure sector that are witnessing investor interest. Here, it is important to pay attention to the cash flows and the extent of promoter holding. I would like to see promoter holding large enough to ensure that a few rounds of dilution still ensure a comfortable majority for the 

MONEYLIFE | 10-23 Nov 2017 | 26

column_Balakrishnan.indd 2

30-10-2017 15:22:48

SMART MONEY R BALAKRISHNAN

 promoter. In India, contracting is still a ‘personalised’

business, needing push and pull. This is a business with definite shades of grey and, to that extent, do not look for high standards of governance. The accounting standards for the industry are not very transparent and disclosure does not amount to much. We will have things like ‘intangible’ capital expenditure (a term that includes things like buying ‘toll’ rights) and ‘intangible’ work-in-progress. Even drawing a cash flow is no guarantee that it has captured all the transactions in the right way. I have seen high-flying infrastructure companies struggle with their cash flows. I find it hard to believe their revenue statements in their entirety. Compliance costs for these businesses are high. Further, they are constantly in the limelight, often for the wrong reasons. Litigation is a common business feature and disputes about the nature of work and revenues collectible are not uncommon. There are also complexities in organising finance, with leverage often being ‘off balance’ sheet, in the form of leasing and hire-purchase arrangements. While this sector is certainly poised to do well, I would pay special attention to a few points, while looking to invest in this sector. Some of them are: 1. Cash Flows: A high level of reliance on the cash flow analysis is called for. Not just the gross cash from operations (profit after tax plus depreciation minus dividend) but also on the cash that goes into financing incremental working capital and capital expenditure; 2. Financing: A study of growth vs increase in external financing is important to figure out whether the company can depend more on equity dilution and keep bringing the leverage down. If the leverage keeps increasing, I would rather keep away. When the crunch comes, the markets may not be kind to capital raising and the pressures to repay debt is relentless;

3. Tax Payout: I like to see the income-tax payout being as close to the corporate rate of taxation. There are companies which aggressively plan on using deferred taxation, but it cascades into one big crisis when the growth slips, or there is one bad year. So, the lower the rate of effective income-tax, the higher is the cash flow risk; 4. Accounting: I would like to see if we can easily understand the annual accounts. It is common for most of them to have dozens of subsidiaries (often, one for each project), special purpose vehicles, joint ventures with other players, minority interests, etc. I would like to see the ‘related parties’ business that is disclosed. The higher the quantum of business with ‘related’ parties, the higher is my level of discomfort; 5. Real Estate: One useful thing to study is the composition of the ‘fixed’ assets. I have seen that there is a general temptation for most promoters to invest in real estate. Given the scarcity of cash for business, this is one diversification that generally backfires. Before you buy stocks of infrastructure companies, please make it a point to read the annual reports, find out a bit more about the contractors, the nature of works they have executed so far and the cash flow. And remember one thing. A company in this sector has value only as long as it is in active business and has people and machines. Once it falters and goes under, there is generally no value that is left to ‘carry forward’. The only assets would be machineries that are used in construction and while their resale values are generally good, those companies will not have any other salvage value. So, I think, it is pointless to dig into the graveyard of dead companies and buy them because they are ‘cheap’.  The author can be reached at [email protected]

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

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27 | 10-23 Nov 2017 | MONEYLIFE

column_Balakrishnan.indd 3

30-10-2017 15:23:06

MUTUAL FUNDS FUND FACTS

Best & Worst Mutual Fund Schemes The best# three and the worst three schemes over the past three years ranked by their quarterly rolling returns. Premium members get access to a more refined list of top schemes by logging in to Moneylife Advisory - advisor.moneylife.in Equity Schemes (Quarterly Rolling Returns) Large Cap (Category Avg: 3.64%, Sensex: 2.03%)

Launch Date

Aditya Birla Sun Life Pure Value

Corpus (Rs Crore)*

Avg. Quarterly Rolling Returns

1-Year

3-Years**

Exp Ratio

27-Mar-08

1700.67

5.72%

33.76%

22.87% 2.42%

L&T India Value

08-Jan-10

5451.08

5.53%

24.33%

22.12% 2.01%

Tata Equity P/E

29-Jun-04

1815.18

5.29%

30.06%

21.15% 2.27%

ICICI Prudential Select Large Cap

28-May-09

640.10

2.80%

14.65%

11.20% 2.68%

Taurus Bonanza

04-Aug-95

113.11

2.73%

14.84%

10.91% 2.67%

HDFC Large Cap

18-Feb-94

1234.90

2.41%

20.35%

9.64% 2.20%

Multi-cap (Category Avg: 3.72%, BSE 200: 2.98%) Motilal Oswal MOSt Focused Multicap 35

28-Apr-14

9178.99

6.33%

26.02%

25.33% 2.08%

Aditya Birla Sun Life Advantage

24-Feb-95

4499.09

5.35%

23.77%

21.40% 2.28%

Kotak Select Focus

11-Sep-09

13947.10

4.90%

22.65%

19.61% 1.97%

Union Equity

10-Jun-11

197.15

2.03%

13.30%

8.12% 2.69%

Tata Regular Saving Equity

23-Jul-97

210.74

1.85%

5.89%

7.38% 1.76%

UTI Wealth Builder

17-Dec-08

962.86

1.74%

11.66%

6.97% 2.54%

762.10

7.67%

32.65%

30.68% 2.35%

Mid-and Small-cap (Category Avg: 5.52%, Nifty Midcap 100: 6.81%) SBI Small & Midcap

09-Sep-09

Mirae Asset Emerging Bluechip

09-Jul-10

4427.79

6.85%

27.62%

27.39% 2.42%

Reliance Small Cap

16-Sep-10

4545.72

6.82%

32.58%

27.27% 2.02%

Axis Midcap

18-Feb-11

1223.94

3.98%

17.95%

15.92% 2.19%

DHFL Pramerica Midcap Opportunities

02-Dec-13

139.34

3.87%

14.42%

15.49% 2.53%

Union Small and Midcap

10-Jun-14

242.42

3.52%

17.11%

14.07% 2.67%

Debt Schemes Income (Category Avg: 2.29%, Crisil Composite Bond: 2.50%) ICICI Prudential Long Term Plan

20-Jan-10

3449.46

2.78%

8.18%

11.14% 1.26%

DHFL Pramerica Dynamic Bond

12-Jan-12

188.66

2.61%

9.71%

10.46% 1.69%

ICICI Prudential Income

09-Jul-98

2230.59

2.58%

7.06%

10.33% 1.46%

L&T Triple Ace Bond

31-Mar-97

506.89

1.95%

3.83%

7.78% 1.03%

DHFL Pramerica Premier Bond

21-Jan-03

1293.33

1.91%

6.17%

7.64% 1.40%

Invesco India Bank Debt

29-Dec-12

110.52

1.70%

5.91%

6.79% 0.65%

Liquid (Category Avg: 1.86%, Crisil Liquid Index: 1.87%) Escorts Liquid Plan

03-Oct-05

183.73

1.97%

6.81%

7.89% 0.90%

Indiabulls Liquid

25-Oct-11

5120.77

1.92%

6.81%

7.68% 0.22%

JM High Liquidity

31-Dec-97

3186.69

1.91%

6.80%

7.64% 0.18%

Reliance Liquid Fund - Cash Plan

07-Dec-01

5414.83

1.71%

5.80%

6.82% 1.04%

HDFC Cash Mgmt Fund - Call Plan

06-Feb-02

100.74

1.65%

5.92%

6.60% 0.31%

L&T Cash

27-Nov-06

482.39

1.63%

5.40%

6.51% 0.78%

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

MONEYLIFE |10-23 Nov 2017 | 28

Fund Facts.indd 2

02-11-2017 20:42:08

TAX/ FIXED INCOME

Bajaj Finance FD Is Offering 7.85%. Is it Worth Considering?

L

arge scheduled commercial banks are offering interest rate of 6.25% to 6.75% on fixed deposits (FDs) for one year. You can get 7% to 7.3% with smaller scheduled commercial banks. If you want interest rate of higher than 7.3%, you may need to explore options with small finance banks (earlier non-banking finance company—NBFC) licensed by the Reserve Bank of India (RBI) or corporate fixed deposits. Bajaj Finance is offering a maximum interest rate of 7.85% on FDs between three- to five-year tenures (36 to 60 months). Senior citizens will get 8.1%, while Bajaj group employees will get 7.95%. Bajaj Finance FDs have a credit rating from ICRA of MAAA (stable) and from CRISIL of FAAA/stable. A corporate FD is less secured and there are higher chances of default than FDs from scheduled commercial banks; hence, it is better to avoid it or put a small amount only in high-rated corporate FDs.

G-Sec Yields Up

T

he 10-year benchmark G-Sec yield, which sets the tone of the fixedincome market, has jumped by 14 basis points (bps) in the last fortnight to end at 6.89% on 1st November.

Corporate deposits are not backed by deposit guarantee. There

are many examples of corporates turning sick which lead to difficulty in getting your principal back. Even well-known companies can default on FD repayment. Unitech Ltd, Ansal Properties and Infrastructure Ltd, DSK Group, Jaypee Infratech, EduTech Ltd, Helios and Matheson and Elder Pharmaceuticals are a few examples. Of course, after the Companies Act, 2013, it has become tougher for weak companies to offer fixed deposits.

Axis Bank FD Offering Apollo Munich Group Easy Cash Insurance

M

arketing emails of Axis Bank are pitching for FDs through Axis Mobile App or Axis Internet Banking, offering complimentary easy cash insurance cover for hospitalisation from Apollo Munich. The group’s easy cash insurance cover has daily cash limit of Rs500 for up to 15 days of hospitalisation. The daily cash limit doubles in case of hospital admission to ICU. To avail the offer, you must book an FD of Rs1 lakh or more for 12 months or more. One-year Axis Bank FD is currently offering 6.75%. The maximum FD interest is 6.85% for a term of 17 months to less than 18 months.

Issuer

Maturity Date

Next Last Yield Coupon (%)

ISIN

Rating

Dewan Hsg Fin 9.30%

16 Aug-26

16 Aug-18

8.59

INE202B07HV0

CARE AAA

HDFC Bank 7.95%

21 Sep-26

21 Sep-18

7.66

INE040A08369

CRISIL AAA (senior unsecured)

Sundaram Fin Ltd 7.69%

23 Mar-20

23 Jan-18

7.65

INE660A07OM6

CARE AA+

NSE data as of last trade date of 1 November 2017

G-Sec Maturity Date

Yield to Maturity

19 December 2034

7.35

28 November 2051

7.34

10 November 2033

7.34

G-Sec yields on 1 November 2017

Tata Capital Fin Serv Ltd 9.95%

24 Dec-19 24 Dec-17

8.91

INE976I08110

CRISIL AA+

Tata Sons Ltd 8.25%

23 Mar-22

23 Mar-18

8.89

INE895D08790

ICRA AAA

State Bank of India 8.39%

31 Dec-00 25 Oct-18

8.31

INE062A08140

CRISIL AA+ (unsecured)

BSE data as of last trade date of 1 November 2017

29 | 10-23 Nov 2017 | MONEYLIFE

Fixed Income.indd 1

03-11-2017 14:44:17

DON’T INVEST WHERE YOU ARE NOT WELCOME

PPF, NSC, post-office deposits have just made NRIs persona non grata for investment. You have to be eligible to invest in a financial product. Raj Pradhan gives examples of violations of eligibility or investment limit which can inflict heavy losses. Be safe with your savings and investments by following rules

R

isk-averse investors want to avoid equities. But is your investment in riskfree investment avenues devoid of all risks? What if you had violated rules by exceeding the investment limit? Are you even eligible for investment in a chosen financial product? Ignoring the rules of the product, knowingly or inadvertently can be disastrous. It may strike you at product maturity which can put your gains in jeopardy. How do you find out what you are eligible to invest in and not get a nasty shock later? The first question to ask yourself is whether you are eligible for investment. Second, is there any limit for the investment? Third, are you putting your name in the investment; if not, does is mean that you are violating

the amended Benami Act? If you are an Indian national and resident of India, you should be eligible for financial instruments in India unless there is any age eligibility like financial products specifically for senior citizens. An overseas citizens of India (OCIs)/persons of Indian origin (PIOs) and non-resident Indians (NRIs) are not eligible for specific investments in India, The latest to join the list with recent amendment are PPF, NSC and post-office deposits. The change makes the popular option of PPF bad investment for current or future NRIs. Even mutual fund investments are not allowed by many asset management companies (AMCs) for residents/ persons of US and Canada. With falling interest rates, there are better options than bank fixed deposits (FDs). 

MONEYLIFE | 10-23 Nov 2017 | 30

Cover Story.indd 2

03-11-2017 19:11:37

COVER STORY

 But be aware of the product rules. Popular instruments,

a long battle taken at different levels all the way up to like public provident fund (PPF) and post-office monthly the directorate of public grievances (DPG), New Delhi. It income scheme (POMIS), have investment limitation. shatters a strong belief that post-office deposits can be a Violate it at your own peril. Investment limitation for trouble-free investment avenue. Here is the story. “After exploring various fixed income schemes, I PPF may be violated when parents invest Rs1.5 lakh in own account as well as PPF for a child where they are the decided to invest in Post Office MIS—a six-year scheme guardians. It is usually done out of ignorance and even with monthly interest payable @ 8%pa (per annum) and banks may not guide properly. If the violation is noticed a bonus of 5% on maturity. I went to the Post Office at maturity after 15 years, all the interest generated from (PO) and was guided to an authorised agent. He seemed to have a lot of influence with the officials there. The PPF account can create tax issues for you. POMIS is another product where postal employees as agent advised me to take the following actions: well as authorised agents seem ignorant of the rules and 1. I opened an account in the names of myself, spouse and son (all adults) in February 2010 for Rs9 lakh. these are not easily accessible by investors. Contrary to popular belief, ELSS (equity linked savings scheme) and 2. I opened another account in the same names after a few days for Rs4.5 lakh. NSC (national savings certificates) do not have any upper I presented the passbook at the counter for maturity limit on investments. But investments of only up to Rs1.5 lakh per year are allowed to be claimed as deductions payment after six years, but was told that the maturity date was one day later. I then requested them to check under Section 80C of the Income-tax (I-T) Act. the maturity date of the second The Benami Transactions investment which is when all (Prohibition) Amended Act, hell broke loose. The assistant 2016, is stringent. It is not just Public provident fund postmaster (AP) then wrote about property, but also includes and post-office monthly on the second passbook that movable, immovable, tangible, income scheme, have the investment exceeds the intangible, any right or interest, prescribed limit. He also stated legal documents, gold, financial investment limitations. that the excess interest paid, i.e., securities and any other financial When parents invest the difference between savings asset. You may be eligible for Rs1.5 lakh in own interest and MIS interest would investment and put money within be deducted from the principal the allowed limit. But what is the account as well as PPF amount and no bonus would be reason behind not putting your for a child where they are applicable. name in the investment? If these the guardians, they are Being aggrieved, I took questions lead to legal ways to up the matter with the senior reduce taxation for money from making a costly mistake postmaster (SP) and had a known sources or to benefit detailed discussion in the from any authentic scheme, the financial transaction will not be treated as benami. Check presence of the AP when both of them confirmed that if you are creating benami assets inadvertently (read our excess interest paid would be recovered as per their rules and that there were many similar cases in the past where Cover Story–http://tinyurl.com/ybzfdbwb). they had recovered the excess interest. They further Post-office Monthly Income Scheme (POMIS) Joint advised me to close the second account immediately but I decided against it. The next day, I visited the post Account Limit Here is his fascinating story from a Moneylife reader office again and closed the first account and received, in about how the senior officers in the postal department full, the principal amount together with bonus. I again themselves may be unaware of the rules and end up met the SP together with the AP and registered a written short-changing you, unless you are prepared for a long complaint about the second account. I brought to their fight. The Post Office website states: “Minimum Deposit attention the following published rules regarding MIS: Maximum Deposit Single INR 1500/-INR 4.5 lakh, 1. Maximum investment is Rs9 lakh in joint deposit. An individual can invest maximum Rs4.5 lakh in Joint INR 1500/-INR 9 lakh. An individual can invest MIS (including his share in joint accounts). maximum INR 4.5 lakh in MIS (including his share in joint accounts)." Here is a shocking case of how an 2. A joint account can be opened by two or three adults. innocent investor was made to run from pillar to post for 3. All joint account-holders have equal share in each joint account. safeguarding his own interest. It is a success story after 

31 | 10-23 Nov 2017 | MONEYLIFE

Cover Story.indd 3

03-11-2017 16:27:50

COVER STORY



My contention was that none of the joint-holders exceeded the individual limit of Rs4.5 lakh and, hence, we were entitled for the full payment against the second account. The AP then produced an internal guidebook which had interpreted that three adults can jointly invest only up to Rs9 lakh (i.e. Rs3 lakh each) and not Rs13.5 lakh (i.e., Rs4.5 lakh each). I, then, mentioned that the public is neither aware nor interested in their guidebook and is only concerned with what is publicly available. I then sent detailed emails to chief postmaster general (CPG) Maharashtra, deputy director general and assistant postmaster general, in February 2016. A response was received in the same month from the assistant director (public grievance) office of CPG directing the officials to resolve the issue. I immediately met the SP and AP and had a detailed discussion on the subject and they continued to insist on deducting the excess interest paid and pay the balance. I requested for a written justification and also told them that, if need be, I would go up to the ministry. I then went to close the second account and was pleasantly surprised to receive the full value, together with bonus. An email from the senior superintendent of post (West) stated ‘As per report received from Senior Postmaster H.O. both the accounts are closed and full payment of interest and bonus were made as per Rule 161 of POSB Volume 1.’ So far, everything was fine. I was, therefore, shocked to receive a letter, in March 2016, from the SP, HO, stating that the matter has been taken up with higher authorities for guidance. Subsequently, I received a recovery notice dated April 2016 from the SP, HO, requesting me to refund Rs1.34 lakh towards excess payment of interest and bonus. This notice was issued based on a letter received by the PO from the senior superintendent of post office (West) on the ground that the second account was irregularly opened beyond the prescribed limit of Rs9 lakh for joint account as per P.O.S.B. Manual Volume 1, Rule 161. I then made an in-depth study of various government circulars, court cases on the subject and then made a detailed representation vide my letter dated May 2016 to the Senior Superintendent of Post and the Senior Postmaster, HO, resulting in a series of letters being exchanged between us. My contentions were: 1. Photocopy of PAN card of all investors were submitted

at the time of investment. Excess investment, if any, could have been easily identified and intimated at initial stage instead of closing stage. 2. Payment by post-office was made by Electronic Clearing System for six long years. Was the department sleeping? 3. Investment was made through an authorised agent appointed by the postal department and, hence, the department is liable. I highlighted the case of Union of India & others Vs George Mathew & others on 26 February 2014 where the department lost the case. The consumer court clearly stated that, for any act of the agent, the principal is liable. 4. In Orissa High Court, Rajat Kumar Rath and Another Vs Government of India and Ors on 15 September 1999, where the department lost the case was identical to the present case. 5. All joint account-holders have equal share in each joint account. 6. An individual can invest maximum Rs4.5 lakh including his share in joint accounts. 7. The Central government has given power of relaxation while considering a case to deal with a particular situation in a just and equitable manner. The rules are beneficial in nature and the object is to give relief to a person who has acted in a bonafide manner. The postal department (PD) rejected my contentions and requested me to make immediate payment. I was faced with two options, fight the case in a court of law, which is expensive and time-consuming, or pay up. I then came across a third alternative, namely, DPG, New Delhi. I made an online detailed representation in November 2016. DPG acknowledged my representation and called for an explanation from the PD. Since some of the points mentioned by the PD were factually incorrect, I had to send rejoinders. There were a series of explanations and counter-explanations resulting in the PD re-examining the case in depth and my grievance was resolved due to the good office of the DPG. The PD confirmed in their online reply, in May 2017, that the investment made by three persons on two different dates were in order as the individual share taking into consideration both the joint accounts did not exceed the maximum limit of Rs4.5 lakh. The Mumbai region was directed to stop recovery in this regard.” 

MONEYLIFE | 10-23 Nov 2017 | 32

Cover Story.indd 4

03-11-2017 16:29:16

COVER STORY



you become an NRI. In short, NRIs are persona non grata for instruments like PPF, NSC, POMIS and other time deposits offered by the PO. The change for NSC can be managed by NRI especially due to feature of actual encashment when you become NRI. The change for PPF is a nasty one due to the lock-in period. Partial withdrawal for PPF is allowed after lock-in period of seven years. It can put NRIs under PPF Rules for NRIs and Minors PPF is a great tool to build a corpus for your children the lock to earn measly 4%. Hopefully, NRIs will be and spouse. Apart from the interest on PPF being tax- allowed to withdraw PPF corpus (encashment) without exempt, a PPF account cannot be attached by any court any restriction instead of being forced to continue with order or decree, but it can be attached by the I-T and 4%pa interest. It will have to be seen how it works in estate duty authorities. The current interest rate on PPF reality due to confusion of the rule change mentioning 'deemed closed'. is 7.8%pa. Those who will become NRI in future will also be Multiple PPFs: An individual can open only one account in his name either in a PO or a bank and he has to declare at a disadvantage. The PPF change for NRIs to earn this in the application form for opening the account. half of what resident PPF account will invite backlash However, if by mistake two accounts are opened, the from investors. PPF is no longer the good, old scheme suggested for investment. If second account will not fetch you had inadvertently opened any interest, unless the two PPF an account after becoming an accounts are merged. NRIs are persona non NRI, it is best to close it before PPF for NRI, OCI/PIO: NRIs, grata for PPF, NSC, POMIS it comes to the attention of including OCI/PIO, are not and other time deposits. the concerned authorities in eligible to open new PPF India. Similarly, if you have not accounts. If you are moving out Hopefully, NRIs will be updated the account status to of India, advisors used to suggest allowed to withdraw PPF NRI after moving abroad, then opening a PPF account before corpus (encashment) make the necessary change even you leave India as PPF opened if it means getting lower interest before you became an NRI can without any restriction of 4%pa. If you are planning to be continued for investment till instead of being forced to become NRI in future, then it is maturity. The suggestion is no continue with a measly best to avoid investment in PPF. longer valid with the new rules. Maximum Financial Year Limit: Government has notified 4%pa interest The maximum amount that can new rules for PPF, NSC and PO be deposited in a PPF account in deposits specifically for NRI investors. The amendment to the PPF Scheme, 1968, a given financial year is Rs1.5 lakh which is eligible for says: “If a resident who opened an account under this tax deduction under Section 80C. You can open a PPF scheme, subsequently becomes a non-resident during account in your own name or on behalf of a minor of the currency of the maturity period, the account shall be whom you are the guardian. This is the combined limit deemed to be closed with effect from the day he becomes of self and minor account. If the contribution exceeds the limit of Rs1.5 lakh, the additional money will not be non-resident.” A separate notification on NSCs says that in case of eligible for any tax deduction or generate any interest. change of status to NRI before the maturity period, “the PPF for Spouse and Minor Child: Ensure that the total certificate will be encashed, or deemed to be encashed on investment in your PPF and the minor child’s PPF account the day he becomes non-resident” and interest will be (for whom you are the guardian) does not exceed Rs1.5 lakh in a financial year. Your contribution to the child’s paid accordingly. Once you become NRI, you will no longer be eligible PPF account will be deemed as a gift and clubbing for current rate of 7.8% for PPF and NSC. The deemed provisions under Section 64 would apply. But since closed PPF account and deemed to be encashed NSC will the interest on PPF is tax-exempt, it does not matter. earn a measly post-office savings account rate (currently Our Cover Story on investment in name of spouse and 4%) till the maturity date of the account. It means the children (http://tinyurl.com/y8nljylz) explains the rules return from PPF and NSC will nearly halve from the day to follow.  Will the PD apply this rule in all the similar cases or will it continue to issue recovery notice to those in similar situation? Will the PD refund to investors from whom recovery was already made? The PD needs to be answerable based on a truly pro-consumer judgement made by DPG .

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03-11-2017 16:29:45

MONEYLIFE ADVISORY FIX YOUR FINANCES, FOREVER

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MONEYLIFE ADVISORY FIX YOUR FINANCES, FOREVER

Finally, Fix Your Finances, Forever Actionable advice on investment that works. Plus continuous one-on-one online support No Bias, No Conflict of Interest

advisor.moneylife.in MAS is a SEBI-registered investment adviser and part of Moneylife, India’s most unbiased and pro-investor research and information group.

Subscription to Moneylife magazine is included in MAS Premium Membership

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COVER STORY



It is clear that that the total investment in your PPF If you have a couple of minor children, open a PPF account for one minor with you as the guardian and the minor child’s PPF account (for whom you are and other minor child’s PPF account with your spouse guardian) should not exceed Rs1.50 lakh in a financial as guardian. You can also deposit the money in your year. The Reserve Bank of India (RBI) does not tamper spouse’s PPF account. Ensure that the total investment with the wordings of the original PPF Act, 1968. For in your spouse’s and minor child’s PPF account (for example, the RBI order of 13 August 2014 states: “In whom s/he is the guardian) does not exceed Rs1.5 lakh paragraph 3, in sub-paragraph (1), for the letters and in a fi nancial year. If the home-maker spouse has other figures ‘Rs1,00,000’, the letters and figures ‘Rs1,50,000’ sources of income, then Section 80C tax benefit can shall be substituted.” Another misgiving about a minor's PPF account certainly be availed. If the spouse has no other source of income, no Section 80C benefit accrues, but the clubbing is about whether it is even permissible. The RBI order of interest with your income will not be applicable as dated 29 March 2010 clarifies: “In view of complaints being received about non-opening of accounts for interest on PPF is tax-exempt. There is much confusion about whether one can minor by some Agency banks, it is reiterated that as per invest Rs1.50 lakh in one’s own PPF account and another Rule 3 (1) of PPF Scheme, 1968, an individual may, on Rs1.50 lakh in a minor’s account. Many financial his own behalf or on behalf of a minor, of whom he is the planners, bank personnel and several tax websites will guardian, subscribe to the Public Provident Fund. It is tell you that you can do it. They incorrectly claim, “An reiterated that as clarified, vide Ministry of Finance letter F.7/34/88/-NS II dated November individual can open a Public 17, 1989, either father or mother Provident Fund Account in his can open a PPF account on own name. He can also open an If you have a couple of behalf of his/her minor child additional account on behalf of minor children, open but not both. You are advised a minor of whom he is guardian. a PPF account for one to reiterate these instructions to He can subscribe for amount not your branches operating the PPF more than Rs1.5 lakh in a year minor with you as the Scheme.” in each of his account.” guardian and other minor How Banks Can Mislead child’s PPF account with Sukanya Samriddhi Yojana You: Even the PPF accountExclusion for NRI, OCI/PIO: opening form of some banks your spouse as guardian. Sukanya Samriddhi Yojana (SSY) can mislead you with statements You can also deposit the is for those investing for the long like: “Ceiling of Rs1.50 lakh money in your spouse’s term and keen to save for the girl in a fi nancial year in each of child. It can be opened any time the following types of Public PPF account after the birth of a girl until she Provident Fund Account— turns 10, with a minimum deposit Individual Self Account and Account(s) on behalf of minor(s) of whom I am the of Rs1,000. A maximum of Rs1.5 lakh can be deposited during a financial year. The account can be opened in any guardian.” What these banks have done is to use only a part of post office or authorised branch of commercial banks. the original text of the government notification which The current rate of interest is 8.3%pa. But, remember, leads to a completely erroneous meaning. The original the term is 21 years or till the time daughter gets married wordings are: “Ceiling of Rs1.50 lakh in a financial year after she turns 18 years. in each of the following types of Public Provident Fund Tax Benefits under SSY: The investments made in SSY Account: A. Individual Self Account and Account(s) on will be eligible for deduction under Section 80C of the behalf of minor(s) of whom I am the guardian B. Hindu I-T Act. The interest accruing on deposits is exempt from Undivided Family Account C. Association of Persons income-tax. The withdrawal from the scheme will be account as applicable in the State of Goa and Union exempt from tax. Territories of Dadra and Nagar Haveli and Daman and NRI and OCI/PIO Exclusion: The new rules for SSY Diu.” The PPF Act, 1968, clearly states the following: issued by the finance ministry in March 2016 exclude “Any individual may, on his own behalf or on behalf of NRIs and OCIs/PIOs. SSY will allow investment only if a minor, of whom he is the guardian, subscribe to the the girl child is a resident Indian citizen. It is possible Fund in such manner and subject to such maximum and that the SSY account was opened when you and your daughter were resident Indian citizens. But if your, or  minimum limits as may be specified in the Scheme.”

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COVER STORY

 your daughter’s, status has changed to NRI, or she has

taken citizenship of another country, no interest shall be paid from the date of changed citizenship or residential status and the account shall be considered closed. It is a tough rule for existing and future NRIs and OCIs. Change in Residential Status: If the residential status changes, the parent or guardian must report it within one month to the bank/PO. If it is not done, interest credited to the account after the change of resident status or citizenship will be returned to the government and the SSY fund value will be returned to the account-holder. Making such strict rules will be a turn-off for investors who may be moving out of India in future. They may just not want to risk their investment and not open the account.

and five-year tax-saver FDs, the account is beneficial for senior citizens in the zero- or low-tax bracket.

Mutual Funds FATCA for US/Canada Person/Resident If you have a financial interest in India and happen to be a resident of US/Canada, or you are a person from US/Canada residing in India, you need to be aware of the implications of FATCA (Foreign Account Tax Compliance Act). India and USA have entered into an inter-governmental agreement (IGA) in July 2015 which provides that the Indian financial institutions (FIs), including mutual funds, will provide the necessary information to the Indian tax authorities which will then be transmitted to US Internal Revenue Service (IRS) periodically. FATCA is part of a comprehensive USA anti-taxevasion global reporting regime designed to locate SCSS Age and Investment Limit Senior Citizen’s Savings Scheme (SCSS) is a good fixed- income and assets held by persons from USA in offshore accounts (either directly or income product that offers taxindirectly through ownership of saving as well. An SCSS account foreign entities) and ensure that can be opened by an individual If you have a financial they are reported to the revenue who has reached 60 years of interest in India and authorities. It is a step towards age on the date of opening happen to be a resident transparent taxation between of the account. It can also be these two countries which came opened by a person of age 55 of US/Canada, or you into effect on 30 September years or above (but less than 60 are a person from US/ 2015. Once you declare your years) within one month of the Canada residing in India, US/Canada status to Indian MF receipt of retirement benefits and fill FATCA declaration, from voluntary retirement you need to be aware of some AMCs may not allow scheme/superannuation; but the implications of FATCA future investment. (Read our the investment should not (Foreign Account Tax Cover Story - http://tinyurl.com/ exceed the retirement benefits. yar7hbdq) A notifi cation from the ministry Compliance Act) of finance dated 3 October 2017 What NRIs Need To Know states that the minimum age limit for investing in SCSS for retired defence personnel 1. Reason for stopping acceptance applications from US and Canadian residents is not because of FATCA. (excluding civilian defence employees) has now been fixed at 50 years. Till now, they were allowed to invest in 2. For selling any investment products/ schemes in US & Canada or to US and Canadian residents/person, SCSS irrespective of when they retired. a scheme needs to be registered US Securities and The maximum amount that can be deposited is Rs15 Exchange Commission. Registering the scheme with lakh. The current interest rate is 8.3%pa. It is a good rate, US SEC will require more reporting and compliance. since the bank FD rate for senior citizens is 6.5%-7.5% for fi ve years, depending on the bank. SCSS investment 3. UTI, Birla, Reliance, Sundaram, PPFAS (Parag Parikh Financial Advisory Services), DHFL Pramerica, qualifi es for Section 80C deduction, but the interest is Canara Robeco, SBI Mutual and L&T Mutual fully taxable. The interest is paid every quarter; there is Funds were supposed to accept investments from no option of cumulative interest. Also, tax is deducted at US/Canadian residents/persons. You will need to source unless you submit Form 15. reconfirm if it is still valid. SCSS locks-in your investment for five years. Banks offer an exit option after one year, with penalty. When 4. Reports quoting financial planners saying that these AMCs have the ‘approval’ to accept investments the deposit matures after five years, the depositor may from those in US and Canada may not be correct. extend the account for a further period of three years. Even though the interest is taxable, like on regular FDs 5. The truth is that none of the Indian AMCs is registered 

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COVER STORY



the responsibility of the customer to provide correct with US SEC or Canadian securities regulator. 6. The AMCs which accept investment from US/Canada information. According to industry sources, “While resident/person have updated their ‘statement of there may not be cross-checks, wrong declaration may additional information’ document or ‘addendum’ get noticed based on different kinds of data which are to give clarifications to investors. Most of them also available. The implications of wrong declaration can be mandate a signed declaration from these investors disastrous.” Why would you be so desperate for mutual which means investors cannot feign ignorance later. If fund investment with incorrect declaration about your the solution were so simple (i.e., take a declaration), profile? Why put your investment at risk? Here are HDFC Mutual Fund’s website contents on why did AMCs stop accepting investment from them this subject, which are similar to what many other AMCs in 2013-14? 7. The issue is mainly for the AMCs (not for investors) have, to safeguard themselves: “... I/We hereby confirm to examine whether acceptance of subscriptions that I/We am/are not giving a false confirmation and/or from US-based persons triggers any registration disguising my/our country of residence. I/We agree and or reporting requirements under SEC regulations, acknowledge that HDFC Mutual Fund/HDFC Asset even though the subscription is by way of a reverse- Management Company Limited (HDFC AMC) is relying upon my/our confirmation and solicitation, i.e., investor in no event shall the directors, approaches the AMC for It is the responsibility of officers, employees, trustees, subscription and is not based agents of HDFC AMC associate/ on any solicitation through the customer to provide group companies be liable for marketing mails, calls, or incorrect information. any direct, indirect, incidental person meetings. Wrong declaration can or consequential damages 8. Many AMCs believe arising out of false confi rmation they should not accept get noticed because provided herein.” funds from US/ Canadian different kinds of data What You Are Made To residents/ persons, unless can be connected to Accept: AMCs and registrar they are registered with SEC and transfer agents (RTAs) and Canadian securities deciper discrepancies. ask for FATCA declaration regulator. The implications can be compliance with a threat to Faking FATCA? What if disastrous block further transactions customers from US & Canada if the required information give a wrong declaration of tax is not provided. Here is a residence, citizenship, etc? Most of customers from US and Canada have Indian names, valid complaint made by a Moneylife subscriber. “I went to the bank’s website and filled up Indian address (maybe of parents) to show, PAN, KYC done, etc; hence, it is easy to fake it. What will be the everything. The final confirmation step required me to impact of faking it on customers and AMCs? Are any accept the declaration authorising the Fund/AMC/RTA cross-checks done by Karvy/CAMS/AMC, or is the to withhold and pay out any sums from your account FATCA declaration accepted without any questions or close and suspend your account(s) without any asked? AMCs are relying on self-declaration. All forms obligation of advising me of the same. This is crazy. Is contain suitable disclaimers in this regard and it is there any recourse or a form that does not give such 

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COVER STORY

 sweeping powers? I have an email threatening to freeze

across the world share the basic information of their USbased clients. my mutual funds if I do not comply!” Indians (OCI/PIO or NRI) residing in the US may The Moneylife subscriber certainly has a point about the clause. But what is the solution? Banks/AMCs will come back to India. Many of them continue their NRE point to SEBI (Securities and Exchange Board of India)/ account to avoid paying taxes in India. It is violation RBI (Reserve Bank of India) who will point to CBDT of FEMA (Foreign Exchange Management Act). As (Central Board of Direct Taxes) who will point to an Indian resident taxpayer, you can no longer hold government who will point to US IRS. FATCA is named NRO/NRE accounts; all your bank accounts should be FATCA for a reason. It is a masterstroke by IRS of the US resident accounts. Similarly, resident Indians moving out to catch a large number of US residents and non-residents of India may not convert their resident account to NRO (staying in India) still evading taxes. It can also impact accounts due to lethargy or to avoid 30% TDS. It is also those who are paying taxes, but still not compliant. Today, a violation of FEMA. The violation can happen not just for bank accounts, it is not just about taxation but about compliance. If foreign accounts are not made transparent to the country but also for mutual fund, demat and any other financial you are supposed to provide the information to, there accounts. Resident Indians moving out of India should convert resident demat account can be hefty penalties which can to NRO non-PIS (portfolio even take away everything from Indians (OCI/PIO or NRI) investment scheme) demat. the account and ask for more. Open new demat non-PIS to It is not just US, but also India residing in the US may transfer resident to non-resident which is doing it. FATCA is the come back to India. Many holdings. You can sell from IRS’s way and the Black Money of them continue with non-PIS demat when you are an Act is the Indian way of ensuring NRI. But if you wish to buy new declaration of foreign accounts. their NRE bank account stocks, you need to open another People putting money in Panama to avoid paying taxes account called PIS demat account and other tax havens may get in India. It is violation (NRE or NRO). away, but those genuinely paying NRIs can purchase up taxes can be harassed if they do of FEMA. All your bank to a maximum of 5% of the not declare a foreign account accounts should be paid-up capital of a company which may have been opened resident accounts and maximum of 5% of paidseveral years ago when they were up value of each series of an NRI. A genuine account can debentures. In addition to these, be put under stringent law to label the money as black even if it were hard-earned money. NRIs, collectively, can hold up to a maximum of 10% But what is the solution? For a Indian resident having of such holding or any higher percentage so permitted nothing to do with another country, FATCA declaration in respect of any particular company. Shares/debentures is simple and nothing to worry about even though the acquired through primary market are excluded for the wording of the clauses seem ominous. The worry is only purpose of above limits. If you move back to India as for those who are going to lie in the declaration. If such a resident, PIS and non-PIS demat accounts need to be ominous clauses were not there, evaders would lie if they converted to resident demat accounts. Pension Fund Regulatory and Development Authority have not declared the account to US IRS. (PFRDA) has increased the maximum entry age for Banking, Demat Violation for Resident vs NRI Accounts National Pension System (NPS) for private sector from Take the example of NRE (non-resident external) bank 70 years. Be careful about your investment products. account which gives tax-free interest in India but the There are regulations in place which can bite you for any interest is taxable in the US. Many investors did not violation. Getting into trouble when the product matures means disclose such interest in the US tax returns, since it was easy to hide because there was no reporting mechanism that all the interest/gains generated over the years can from Indian institutions to the US government. So, be at risk. You may have signed terms and conditions Indians, who were US residents/persons, thought that which can even put your principal in dispute if you had the US government will not know about their assets and knowingly made a wrong declaration to make yourself income arising from India. Hence, FATCA was passed eligible for investment. Be safe with your money rather in US in 2010 to make sure that the financial companies than violate rules. 

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INSURANCE TRENDS New products, regulations, features and options, interpreted from your perspective Regulation

Life Insurers Will No Longer Be Able To Manipulate Claims Settlement Data in Ads

T

he Insurance Regulatory and Development Authority of India (IRDAI) has recently issued a circular directing life insurance companies to follow a standard practice while communicating death claims data in their advertisements. The circular states: “It has been observed that insurers are following different methods to arrive at death claims paid data (i.e., death claims paid ratios), while publishing them in insurance advertisements [as defined in IRDA (Insurance Advertisements and Disclosure) Regulation, 2000]. In order to have uniformity across the industry, instructions are hereby given to the life insurers to use/publish only annual figures of death claims paid ratios, based on the number of policies alone.” The circular also states: “If an insurance advertisement contains death claims paid ratio, then the data for individual and group polices shall not be clubbed together. The insurance

advertisements for group products shall reflect only group death claims paid ratio and individual products shall reflect only individual death claims paid ratio. In case of advertisements promoting the company’s brand without reference to products, only individual death claims paid ratio shall be used.” Are advertisements with annual figures of claims settlement numbers with standard practice enough to help the existing policyholders or potential customers take a decision? There are three major flaws that will continue leading to misleading advertisements. First, the disclosures on claims settlement do not mandate separate reporting based on the types of policies— endowment, money-back, wholelife, unit-linked insurance plans (ULIP) or term insurance plans. There are differences in the medical and financial underwriting

Insurance Company

of these plans. Term plans have low premium compared to the sum assured offered, since it is a pure risk cover product. It is often stated that claims rejection for term plans is higher than those of other life insurance products. How can it be validated unless IRDAI mandates insurance companies to make the disclosures? Insurers do not make data on term plan claims settlement public. Second, the benefit amount rejection for some insurers is higher compared to claims rejection calculated for the number of policies. It is correlated to the term plan possibly having higher claims rejection than those of other products. With private insurers, the difference between death claims benefit rejection versus number of claims rejection is more than three times, in many cases. So, it is better to judge the claims rejection ratio with respect to benefit amount, rather than only on the number of claims rejected. In 2015-16, HDFC Life ranked fifth among private insurers with claims settlement (by the number of policies) of 95.02%; but it fared worse on claims settlement (by benefit amount) at a mere 69.41%. It translates into high claims rejection (benefit amount). HDFC Life claims rejection (number of 

Claims Settlement Ratio (by no. of policies)

Claims Settlement Ratio (by benefit amount)

LIC

98.33%

95.59%

Max Life

96.95%

93.19%

Tata AIA Life

96.80%

94.24%

ICICI Pru Life

96.20%

88.07%

Aegon Life

95.31%

94.16%

HDFC Life

95.02%

69.41%

Reliance Life

93.82%

82.57%

SBI Life

93.39%

83.05%

Insurers with top-8 claims settlement ratio (by no. of policies)

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INSURANCE TRENDS

 policies) is 4.34% while claims

rejection (benefit amount) is a whopping 24.29%. High benefit amount rejection is certainly a worry. Third, claims settlement and rejection ratios have to be looked at from the viewpoint that life insurance companies, which began operations recently, are bound to have lower settlement and higher pending claims. Any death claim within three years of policy issuance gets scrutinised for its veracity. There is possibility of claim repudiation in case of a fraudulent claim or misrepresentation in the proposal form. The claims settlement and rejection data of newer insurance companies cannot be directly compared with insurers in existence for a decade or more.

Regulation

Mediclaim To Cover Mental Ailments May Become a Reality?

A

Moneylife reader complained about the difficulty in obtaining any medical insurance cover for his mother who was suffering from schizophrenia. Even if a customer agrees to have permanent exclusion for the preexisting mental ailment, the insurance company refuses to offer mediclaim policy to cover anything other than mental ailment. The insurance company makes outright rejection of the proposal under the garb

of ‘right to underwrite’. Some customers with a mental ailment may buy mediclaim without disclosing the ailment in the proposal form. This can give the insurance company a chance to reject any future claim if it finds about the pre-existing condition which can make the mediclaim purchase and premium payment for years worthless. Permanent exclusion for mental ailments in mediclaim policy, and even refusal to underwrite those with mental ailments, has been due to insurers’ concerns of adverse-selection, underwriting and disclosures. Just like mental illnesses, there are other disadvantaged persons who are rejected during proposal underwriting. IRDAI has not taken strong steps to make insurance companies underwrite for the disadvantaged persons. Persons with disabilities, including those who are blind or having low vision, can be discriminated when buying insurance. HIV-positive people also find it difficult to get life or health insurance. Mental Healthcare Act 2017 can prompt IRDAI and insurance companies to provide cover to those with mental ailments under health insurance policies. The Act states, “Every insurer shall make provision for medical insurance for treatment of mental illness on the same basis as is available for treatment of physical illness.” It remains to be seen how the Act works on the ground and the steps IRDAI takes for compliance with the Act. The policies will, obviously, come at

a price, but can help those with mental ailments to have health insurance.

Redressal

Consumer Redressal Forum Pulls Up IRDAI and Max Life

C

hennai Consumer Redressal Forum has pulled up IRDAI and asked Max Life to pay compensation to a senior citizen for not taking appropriate action on a complaint he had filed. The policyholder informed the Forum that he paid Rs20,000 in February 2009 to purchase a unit-linked insurance plan (ULIP) from Max Life. The insurance company should have sent him a copy of the original policy document within 15 days of receiving the premium but it did not do so for nearly two years. The policyholder continued to pay the premium for next two years (2010 and 2011). The policyholder was informed in February 2012 that the policy had lapsed due to premium payment default. He asked the Chennai office of the insurer as well as IRDAI for a refund but did not succeed. So, he approached the Forum. The insurer stated that it had dispatched the policy after receiving the premium, but could not provide a proof of the despatch. The Forum asked the insurer to pay the policyholder Rs44,554 along with 9% interest and Rs25,000 for mental agony and Rs5,000 as expenses. It is unusual and commendable that the Forum summoned the IRDAI chairman in person for the case. Hopefully, it will force IRDAI to improve its grievance handling system. 

41 | 10-23 Nov 2017 | MONEYLIFE

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

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

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StockWatch Stocks and sectors that catch our eye

I nnova t i ve T e c h P ac k

Equity Dilution and Debt May Be a Drag

I

nnovative Tech Pack Ltd (ITPL) is a manufacturer of plastic packaging products, with manufacturing facilities located at Rudrapur (Uttranchal), Baddi (Himachal Pradesh), Guwahati and Tejpur (Assam). ITPL is dominant in the northern part of the country and expects to establish a presence in southern India as well. ITPL manufactures polyethylene terephthalate (PET), polypropylene (PP) P) and high density polyethylenee (HDPE) plastic containerss used widely in fast moving ng consumer goods (FMCG)) segment, personal hygienee and liquor products. These plastic compounds have various benefits as they can be recycled into basic monomers; they aree lighter in weight that is about one-tenth the weight ht of glass, are durable and prevent loss in transit. ITPL's present customer base includes Dabur India, Perfetti Van Melle India, Heinz India, Patanjali Ayurvedic, Mother Dairy, Emami, Cadila Pharmaceuticals, Bisleri, Glenmark, Marico, etc. ITPL is currently adding new customers in personal hygiene products, food & beverages and confectionaries, to diversify its customer base. For the past five years, revenue has grown at an average rate of 17% from Rs61.4 crore in FY12-13

to Rs102.9 crore in FY16-17. The he operating margin for FY16-17 was 25.5% while net profit margin was 8.8%. In the past two years,, the compan company has been investing heavily in fixed assetss tto increase its production capacity (data on exact capacity is not available). The company is looking to fund its expansion plans of Rs150 crore through corporate debt, foreign currency convertible bonds (FCCBs) or qualified institutional placement (QIP). This will dilute the current equity heavily to almost twice the current size, when FCCBs are converted or when new equity shares are issued for QIP. At present, the company has outstanding long-term plus short-term borrowing of approximately Rs32.4 cr crore. The current marketcapitalisation of company iis approximately Rs180 crore. The revenue growth in the past r six quarters has been very erratic. quar Also, given that sales growth has g been erratic, we are mystified er by the sudden massive margin expansion since June 2016. The products ITPL makes compete with other vendors and we don’t see that it has any substantial edge over others. Large personal-care and consumer products companies relentlessly squeeze suppliers; so it is difficult to decipher how ITPL’s margins could have increased so much. In the annual report for FY16-17, the management says that this increase in margins is due to economies of scale and efficiencies in productivity, power and labour cost. Another irregularity found in the company is that they have not paid any taxes for three consecutive years from FY1213 to FY14-15, in spite of reporting profits before tax. 

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.

MONEYLIFE | 10-23 Nov 2017 | 46

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STOCK WATCH



Apart from equity dilution, there are some other concerns as well. For instance, the date on FormMGT-9 (that is, extract of annual return) has not changed in the FY15-16 annual report which is copy pasted from the previous year’s. This shows the carelessness of the auditors and management. Further, under non-current investments, the company has an unquoted investment in Innovative Containers Pvt Ltd where the number of equity shares mentioned is incorrect. The value of investment is Rs3,55,00,000 with face value of Rs10 per share which makes the number of shares 35,50,000; but the number of shares mentioned are 3,55,50,000. The promoter has also issued 6,00,000 convertible share warrants to himself at a price of Rs33.37 per share on 10 November 2016 when the price of the share was around Rs55. This also raises questions on corporate governance practices of the company. Another corporate governance issue found with the company is about its directors—Atul Nripraj Barar and Anil Kulbhushan Barar. We have mentioned in our Cover Story ”Stock Manipulation” Moneylife, 23 August 2012) that Anil Barar and Atul Barar were both directors of Barar Industries which had been pulled up for default of dues and had to be wound up finally. ITPL was pulled up by the Bombay Stock Exchange (BSE) for not submitting its shareholding pattern and

O b e r o i R e alt y

Will Strong Earnings Continue?

O

beroi Realty is a real estate company based in Mumbai. It has developed over 39 projects at strategic locations across Mumbai, aggregating about 9.18 million square feet of space. With another 21.98 million square feet in the making, it is an aggressive player in the real estate market. The company claims, on its website, that all its upcoming projects are certified by the Real Estate Regulatory Authority (RERA). Recently, Oberoi Realty was selected as the successful bidder by GlaxoSmithKline Pharmaceuticals for land measuring approximately 60 acres located at Thane, Maharashtra. The company’s bid for purchase of the said land was for a consideration of Rs555 crore. This is a great acquisition by the company which will increase its portfolio considerably. Vikas Oberoi, chairman & managing director, was recognised as ‘India’s Top Builders of 2017’ by Construction World

Sales Growth 30% 25% 20% 15% 10% 5% 0% Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

corporate governance report. It was also suspended from trading for not complying with the listing agreement. Between August 2010 and March 2012, the stock price had rocketed 4487% on very erratic sales. The stock price plunged nearly 75% in the next four months. The stock may not do well over the medium term as there will, probably, be a lot of equity dilution and the company will also raise more debt. The share is currently trading at a price-to-earnings (P/E) multiple of 17, which is fair, given the net margin and debt:equity ratio of 1.1, which is going to increase further. 

Architect and Builder Award. The company also was awarded the ‘Real Estate Company of the Year’ by Construction Week India. The company’s performance improved in the September 2017 quarter. Sales increased 20% year-onyear (y-o-y) from Rs252 crore in the September 2016 quarter to Rs304 crore in the September 2017 quarter. Operating profit increased 30% y-o-y from Rs125.8 crore to Rs163.8 crore in the September 2017 quarter. Operating margin increased from 49.94% in the September 2016 quarter to 53.95% in the September 2017 quarter. Net profit of the company increased 25% y-o-y from Rs84 crore in the September 2016 quarter to Rs104.32 crore in the September 2017 quarter. Revenue of the real estate segment increased 23% y-o-y to Rs274 crore in the September 2017 quarter and for the hospitality segment, comprising the Westin Mumbai Garden City Hotel’s revenue, dropped 1% y-o-y to Rs29.2 crore in the September 2017 quarter. The share of the hospitality segment in the revenue decreased from 12% in the September 2016 quarter to 10% in the September 2017 quarter. Earnings per share of the company increased from



47 | 10-23 Nov 2017 | MONEYLIFE

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STOCK WATCH

The cash flows of the company are intriguing. From the investor presentations on the Oberoi Realty website, we have got the following data:

Cash flow data as provided by the company at its investor presentation

 Rs2.46 in the September 2016 quarter to Rs3.07 in the

September 2017 quarter. Oberoi Realty is trading at a price-to-earnings ratio (P/E) of 41.28% at a market price of Rs464.75 per share. The short-term borrowing of the company increased substantially for the half year ended in September 2017. The short term borrowing was Rs107.08 crore in H1FY16 and Rs337.89 crore in H1FY17-18. The cash and bank balance reduced substantially from Rs298.12 crore in H1FY16-17 to Rs69.35 crore in H1FY17-18. At the investor presentation for the September 2017 quarter results, the company listed its completed investment projects as—Oberoi Mall, Commerz, Commerz TWO and The Westin Mumbai Garden City. In Oberoi Mall, the revenue per square feet (rpsf)/

H1FY1617 Rs Cr

Q3FY1617 Rs Cr

Q4FY1617 Rs Cr

FY16-17 Rs Cr

Operating Cash Flow

-40.64

129.94

79.88

173.53

Investing Cash Flow

-423.19

-84.76

-263.74

-543.74

Financing Cash Flow

375.65

-37.7

4.81

335.56

The figures for H1FY16-17, Q3FY16-17 and Q4FY16-17 do not add up to the full year FY16-17 amounts as per the presentation. We asked for an explanation of the cash flow for FY16-17 from the company and, over a telephone call the company representative attributed the difference due to revised calculations as per Ind-AS (India's Accounting Standard). Another point that caught our attention was the EBITDA margins for the investment properties. As per the analyst presentation for Q2FY17-18, two investment properties—Oberoi Mall and Commerz—had EBITDA Margins of 93.37% and 98.98%, respectively. We contacted the company

Difference between total of 4 quarters and financial year H1FY16-17 RsCr

Q3FY16-17 RsCr

Q4FY17 RsCr

FY16-17 (Adding H1, Q3 and Q4) RsCr

FY16-17 (as per the presentation) RsCr

Operating Cash Flows

-40.64

129.94

79.88

169.18

173.53

Investing Cash Flows

-423.19

-84.76

-263.74

-771.69

-543.74

Financing Cash Flows

375.65

-37.7

4.81

342.76

335.56

month on area leased remained the same as in the September 2016 quarter, at Rs164. In Commerz, the rpsf/month on area leased increased from Rs140 in the September 2016 quarter to Rs142 in the September 2017 quarter. In Commerz Two, the rpsf/month on area leased increased from Rs125 in the September 2016 quarter to Rs130 in the September 2017 quarter. The company has eight residential projects from which revenue of Rs205.16 crore has been recognised in the September 2017 quarter. The promoter shareholding changed from 72.54% in the September 2016 quarter to 72.49% in the September 2017 quarter.

to get a better understanding of how it calculates the EBITDA margin because it seems that there is virtually no cost of running these facilities. The explanation provided orally was that the construction expense was accounted for as capital expenditure and the other expenses were divided and allocated to individual units/ shops in the commercial premises and hence low. No written communication or explanation was provided by the company. The question remains about how the company pays for maintenance expenses and why its quantum is low so as to yield such a high EBITDA margin. 

MONEYLIFE | 10-23 Nov 2017 | 48

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STOCK WATCH

G A N E S H B E N Z OPL AS T

Value in Demerger

G

anesh Benzoplast Ltd (GBL) has two businesses: one is chemicals and the other is liquid storage facilities and cargo handling. The chemicals division makes food preservatives, lubricant additives and specialty chemicals and markets its products through distributors in Africa, North America, North Europe, Australia and the Middle East, apart from supplying in the domestic market. This division makes losses and contributes 38% to GBL’s revenue. The liquid storage terminal and cargo handling facilities (LST) segment is catching the attention of smart investors because it is highly profitable and a cashhgenerating machine. LST provides storage tanks which are leased out for storing g liquid chemicals, acids, phenol, oil products, petrochemicals, molasses and edible oils. GBL has three such facilities located at Jawaharlal Nehru Port Trust (JNPT) (Navi Mumbai), Goa and nd Cochin with a combined storagee capacity of 300,000 kilolitres. Th These ffacilities ili i require specialised infrastructure at port terminals such as fire-fighting equipment, pipelines, transit storage and handling, etc. GBL recently added more capacity at JNPT and also received the necessary approvals for its commercial usage. The company is planning to increase capacity at its Cochin facility as well. Moreover, GBL has plans to set up liquefied petroleum gas (LPG) terminal at its Goa facility for which it has already received regulatory approvals. This facility will take two years to come up. At present, the company is operating at 100% capacity utilisation at JNPT and 80% capacity utilisation at Goa and Cochin. In the LST segment, GBL is consistently reporting an operating margin of around 45% with slow revenue growth; as can be seen in the graph.

terminal and iodised salt at high premium in 1995. Out of GBL's total project outlay of Rs198 crore, only Rs2 crore was debt and Rs196 crore was equity. In the days of frenzied initial public offerings, GBL's issue of fully convertible debentures of Rs170 each was subscribed. Greedy foreign institutional investors too took firm allotment of these debentures at a premium of Rs210 per debenture. What helped GBL was the support of domestic institutional investors like Unit Trust of India which were used as dumping ground by promoters and brokers. For instance, the Deepak Parekh committee, and later the Tarapore Committee, which went into the collapse of UTI, came out with some sordid details recklessly put retail savers’ money of how UTI reckle defaulting companies like Essar Oil, in defaultin Malvika Steel and Usha Ispat, Prag Malv Bosimi Synthetics, etc. The reports B iindicated how UTI was raped by a large collusive cartel of b brokers and shady businessmen b which caused huge losses to w the exchequer and taxpayers. th Dishonourably mentioned in D this list of companies was Ganesh thi Benzoplast. The stock collapsed Benz highly ffrom a hi hl rigged up price of Rs190 in December 1994 all the way to Rs0.86 in March 2004. But the company survived, thanks to haircuts taken by banks. And, then, as has happened with many second- or third-generation business families, the floundering operations of GBL have been turned around through a combination of luck, time and hard work. Rishi Pilani (son of promoter Ramesh Pilani) joined the company in 2006 as the managing director 

LST Segment (Rs Crore) 80

60%

70

50%

60 40%

50

Shady Background GBL has been a poorly run company which went nearly bankrupt. The company’s reputation was terrible. Companies like GBL thrived in an environment of poor research, poor regulation and rampant corruption. GBL was a monopoly producer of benzoate plasticisers—a compound used to enhance the properties of PVC. GBL took full advantage of its past performance to fund diversification into chemicals

40

30%

30

20%

20 10%

10 0

0% Jan-13 Revenue

Jan-14

Jan-15

Operating Profit

Jan-16

Jan-17

Operating Profit Margin

49| 10-23 Nov 2017 | MONEYLIFE

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STOCK WATCH

 and became chairman of the board in 2014. Given the

expansion projects the management has planned, and looking at recent past performance, shareholders hope that the company might be able to successfully turn around completely. In a media interview, Rishi Pilani spoke of his plans to demerge the current company into two separate entities, viz., chemicals and LST. There is no official announcement as yet about the demerger but this could potentially unlock the value for the LST business. On the financial side, the net worth of the company is negative at present but GBL expects the business to have a positive net worth by the end of the current financial year. Negative reserves of Rs90 crore in FY12-13 have come down to Rs29 crore for FY16-17;

S h r e e P u s hkar C he m ic al s

Steady Growth

S

hree Pushkar Chemicals and Fertilisers (SPCF) manufactures chemicals, dye intermediates, dyestuff, fertilisers, etc, from its plant located at Lote Parshuram (Ratnagiri, Maharashtra). SPCF started as a gamma acid manufacturing company in 2001 and has been integrating backwards as well as forwards. The company got listed in FY15-16 and has used the initial public offering (IPO) money towards expanding capacity for dyestuff and dye intermediates. It has also expanded manufacturing capacity through internal accruals and added new products in fertilisers. SPCF is jointly run by Punit Makharia (chairman and managing director) and Gautam Makharia (joint managing director). Punit Makharia has experience of over 45 years in this industry and Gautam Makharia has experience of over 15 years. They have expanded the business, growing existing lines and adding new products to the portfolio. At present, the company has four plants located in close proximity at Lote Parshuram. The dyestuff plant (end application is textiles), which manufactures reactive dyes, has a capacity for 3,000 tonnes per annum (TPA); the company is looking forward to doubling the existing capacity to 6,000TPA. The key raw materials used in dyestuffs are also manufactured in-house as dye intermediates. The dye intermediates plant, with an installed capacity for

borrowing has reduced from Rs280 crore in FY12-13 to Rs180 crore in FY16-17. Revenue growth has been flat for the past four years, but we can expect to see growth as the expansion plan at JNPT is completed and there will be more capacity expansion in the future. Revenues for the September 2017 quarter have jumped 63% year-on-year (y-o-y) and 8% quarteron-quarter (q-o-q), from Rs24 crore in September 2016 and Rs36 crore in June 2017 to Rs38 crore in September 2017. The stock is currently trading at a price-to-earnings (P/E) multiple of 24x, which might look expensive, but, given the possibility of demerger and a successful turnaround, it could be a value creator, provided the management stays the course and does not try some new shenanigans. 

over 8,900TPA, is a zero-effluent plant as the company recycles effluents thus increasing cost-efficiency. The fertiliser division’s capacities include: single superphosphate (commissioned commercial production in February 2016 with 100,000TPA), nitrogen phosphorus potassium (commissioned commercial production in September 2016 with 20,000TPA), sulphate of potash (10,000TPA) and soil conditioner (12,000TPA). In manufacturing of sulphate of potash, hydrochloric acid is generated which is used in production of calcium chloride. So the company has set up granular calcium 

Higher Value Added Products 64.4

81.2

76.4

88.9

78.0

4.1%

9.1%

17.5%

18.7%

20.5%

73.5%

68.2%

58.0%

56.3%

57.6%

16.1% 6.1%

16.5% 6.2%

19.5% 5.0%

21.3% 3.8%

17.6% 4.3%

Q1FY16-17 Dyes

Q2FY16-17 Q3FY16-17 Q4FY16-17 Dyes Intermediates

Fertiliser

Q1FY17-18 Others

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STOCK WATCH

Cash Flow from Operating Activity (Rs Crore) 55

45

35

25

15

5 Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

 chloride manufacturing in February 2016 (6,500TPA).

As per the management, dyestuff is a high-margin business and the company is constantly trying to increase its share in revenue. This is evident in the graph. SPCF has marketing tie-ups for some of its fertiliser products and chemicals which reduces the marketing cost of the company and helps regular sales. The future outlook looks strong. Management has delivered good results and has a well-planned strategy for the future. According to its investor presentation, the company is going to double its capacity for

reactive dyes. to 6,000TPA and, sulphate of potash to 20,000TPA. Within the dyestuff segment, it is looking forward to exports as well which will give volume growth to this segment. The opportunity for auxiliary textiles chemicals is large and the management has already begun test marketing these chemicals and set up a plant for these in the current financial year. With dyestuffs and auxiliary textiles chemicals, the company has a vision to become the complete solution provider to the textiles industry. SPCF has an established clientele, like Atul Ltd, DCM Shriram, Vinati Organics Ltd, Meghmani Dyes and Intermediaries Ltd, etc. On the financial front, the company is growing at a healthy rate. The September quarter results are yet to be published; but, for quarter ending June 2017, revenue grew at 23.5% year-on-year (y-o-y) from Rs63 crore in June 2015 to Rs78 crore in June 2016, while operating profit grew at 30.7% from Rs10 crore in June 2016 to Rs13 crore in June 2017. The operating margin and net margin were 17.6% and 9.7%, respectively. The net profit to capital employed ratio is 16%. The company has a market-capitalisation of Rs800 crore. Given the size of opportunity and execution by management till date, we can expect it to keep growing and foraying into new products which will bring in additional revenue growth. If the company keeps on the growth trajectory, the stock may do well over the coming years. 

Toyam Industries (Rs5)

(Rs)

T

oyam Industries was originally incorporated as Chetram Balkrishan Limited and later changed its name to Ojas Asset Reconstruction Company Limited before it was rechristened Toyam Industries in December 2016. The penultimate renaming was designed to reflect its changed business—from securitisation and asset reconstruction to general business and trading activities. Further, in April 2017, the company decided to expand and diversify its business to “all kinds of activities related to sports, fitness, fashion, films, entertainment or any other genre.” The surprising part is that,

12 10 0

626%

8 6

UN UOTED STORIES OF PRICE MANIPULATION

4 2 0 14 Feb-17

14 Jun-17

14 Oct-17

though the company claims it is has multiple services—sports, gaming, merchandise, fitness, healthy foods and beverages, investments and consultancy—its website provides no substantial information about the businesses, clients or any other important data. The company claims it is launching an integrated fight league 

51 | 10-23 Nov 2017 | MONEYLIFE

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STOCK WATCH

 platform in India, registered as "K1L

Kumite 1 League". The company had announced that it is launching its K1L series of products and services by opening a sports cafe in July 2017 in Mumbai. On its website, the company claims it has trained over 35,000 women students in self-defence at its KIL training facility. However, it is perplexing that no details have been provided on the website of the kind

of training, nor proof off the training having taken place, nor annual reports. The company gives vague explanations in its ‘services provided’ section on the website. Here are a few screenshots which are quite bizarre. Apparently, Toyam’s promoters don’t have much faith in the company. They have an extremely low shareholding of 4.71%. The company has a market-capitalisation of Rs127

crore. crore The sales of the company grew 1366% year-on-year (y-o-y), from Rs0.44 crore in the June 2016 quarter Rs6.45 crore in the June 2017 quarter while the net profit fell 94% y-o-y from Rs0.32 crore in the June 2016 quarter to Rs0.02 crore in the June 2017 quarter. The most amazing aspect is its stock price which rose 626%—from Rs1.31 on 14 February 2017 to Rs9.51 on 27 October 2017. 

MARKET TREND

No Margin for Error at the Current Valuation

Tpast weeks, thanks to two important impulses in two he equity markets have made further gains in the

successive weeks. One, a recapitalisation plan of Rs2.11 lakh crore for public sector banks (PSBs); and two, a jump in India’s position in World Bank’s Ease of Doing Business rank from 130 to 100. The Sensex, which closed at 32,390 on 19th October, was up by 1,295 points, closing at 33,685 on 3rd November. The bullishness is pervasive. Money is gushing into mutual funds and foreign institutional investors have closed October with a positive net inflow after two months of intense selling. What can go wrong? ICICI Securities poses the right question on in a recent research report: “Has the market jumped the gun on d th growth outlook?” According to the report, investors “are anticipating earnings growth to recover at a robust pace and, given the current valuations, there is no margin for error on that front. So far, 21 Nifty companies (free float weight of 54.5%) have declared their Q2FY18 results, which have been largely been in line with expectations

except for the corporate lenders, and the aggregate free float profit growth has been around 5.6% YoY.” While the brokerage believes that “given the positive momentum in stocks, favourable base effect due to demonetisation in Q3FY18 and robust domestic flows, equity markets could remain elevated in the short term. Our view of valuations indicates that the odds are against high performance for stocks from current levels if growth belies ex expectations in the short term, which remains our ou base case given the weak investment cycle, slow export growth and recent slowdown seen in private consumption expenditure.” The killer: cyclicallye adjusted price-to-earnings ratio (P/E) is at adj its highest level since 2008 and the marketcap/gross domestic product ratio is at its cap highest high since 2010. Investors, off course, are in no mood to listen to this. I t Money is pouring into stories that are half-credible— whether in commodities, small-caps or anything that is showing even a semblance of growth. The million-dollar question is whether earnings will catch up or prices will come down. Or will something else emerge? — Debashis Basu 

MONEYLIFE | 10-23 Nov 2017 | 52

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03-11-2017 19:00:02

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15-12-2016 18:10:29

CIVIC ISSUES PRASANNA S

Rajasthan’s Gag Law: Why It Needs To Be Opposed Strongly

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he Rajasthan government, in September 2017, issued an ordinance that dealt a body blow to the cause of transparency and accountability in governance. Ironically enough, the same state saw the birth of the right to information movement in India! The ordinance bars investigation of current and former public servants, including judges and magistrates, for allegations of corruption, or any other offence arising out of acts done, or purported to be done, in the discharge of their official duties, without a prior sanction from the state government. It is worth noting that public servants are already under the protection of Section 197 of the criminal procedure code (CrPC) which provides that they cannot be prosecuted without government sanction. This ordinance goes a step further and requires prior sanction even to start an investigation or even report it. This means that prior sanction is required at two stages—first, before investigation and, once again, before prosecution. The ordinance further made it a criminal offence, punishable by up to two years of imprisonment, to publish the identity or other particulars of such a public servant until a sanction for investigation is accorded. The government gave itself 180 days to make up its mind on according sanction for investigation in each case. This law has, justifiably, received much criticism for being pro-corruption and against media freedom. The Editors’ Guild of India described it as a “pernicious instrument to harass the media, hide wrongful acts by government servants and drastically curb the freedom of the press guaranteed by the constitution of India.” A public interest litigation (PIL) has been filed in the Rajasthan High Court challenging the ordinance on various grounds, including it being malafide. The petitioners have argued that it imposed an unconstitutionally atrocious prior restraint on the press and that it made the process of investigating allegations of corruption almost completely ineffective and quite certainly making it a constitutional and a moral disgrace. However, another aspect that has, perhaps, not received as much attention, is the fact that the law was issued as an ordinance and that the Central government had accorded assent to such an ordinance. The rule in our democracy is that the legislature, being the house elected by the people,

represents public will and, therefore, makes the law; and the executive enforces or implements the law. The device of an ordinance is an exception to this rule. It is promulgated by the executive, when the legislature is not in session, but has the force of law, like any other law made by the legislature. Articles 123 and 213 of the Indian Constitution empower the president of India (i.e., Central government) and the governors of states (i.e., state governments), respectively, to promulgate ordinances. Every ordinance has to be ratified within six months or before the conclusion of the next session of the legislature, whichever is earlier, failing which it loses the force of law. An ordinance, not being a legislation that has the backing of the public will, can only be issued when circumstances are so exceptional and emergent that it would be imprudent to wait for the next session of the legislature to introduce and pass the law. This particular ordinance also required an assent by the president in terms of clause (1) of Article 213 of the Indian Constitution because it was amending a Central law as applicable to Rajasthan. Neither the Central government nor the state government have so far explained why it was necessary to employ the device of an ordinance in this case. Use of such extraordinary powers under the Constitution, when the underlying facts do not justify the use of such powers, is a fraud on the Constitution. It has also now become fashionable to use the ‘money bill’ route to pass legislation at the Central level, completely bypassing the Rajya Sabha, a crucial federalist constituent in the legislative process. The Aadhaar Act (2016) and the Finance Act (2017) could not, and should not, have been passed as money bills, and, a challenge on that is pending before the Supreme Court. Such abuse of legislative devices under the Constitution deserves condemnation at least in equal measure to the outrage that is usually triggered by what is called ‘judicial overreach’, when the judiciary, occasionally, attempts to keep the executive in check.  A Delhi-based lawyer & a constitutional law enthusiast and commentator. @prasanna_s

MONEYLIFE | 10-23 Nov 2017 | 54

Prasanna - column.indd 1

03-11-2017 19:01:00

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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

Buying and Selling IPOs

I

will apply for initial public offering (IPO) online and the same amount will be added and deleted from my account every month as I will buy and sell immediately. Please confirm whether it will come under taxation. If so, what I should do? Nikhil Vadia’s Reply: Your transaction will be treated as capital gains or income from business or profession, based on your choice. However, you will not be able to change that every year. It is advisable to treat it as capital gains since tax rate is lower.

Loan from Relative for Home

I

wish to book a house under the Pradhan Mantri Awas Yojana (PMAY). I am applying for a bank loan of Rs15 lakh and also expecting Rs5 lakh as a loan from a relative of mine. How I can project this loan amount /help from relative in my income-tax or will I be charged any income-tax on this amount of Rs5 lakh from my relative? Nikhil Vadia’s Reply: If the relative is covered by definition of Section 56 (2) of the Income-tax (I-T) Act, it will not be

treated as income, else the gift will be treated as income. A relative means: spouse, brother, sister and any lineal ascendant or descendant of the individual or spouse of the individual.

Tax on Agricultural Income

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gricultural income is exempted under Section 10(1) of the I-T Act. If agricultural income exceeds Rs5,000, an individual can file income-tax return (ITR) in Form 2. I want to file ITR2. My net income, after expenses, is Rs1.80 lakh. However, I cannot find actual income before expenses. How much expense can I fill in the ITR so that my gross total income can be calculated easily? Ameet Patel’s Reply: Presuming that you have taken proper advice and ITR2 is the correct Form that you have to fill up, you need to refer to Schedule EI in the Form. Here, you have to give details of your exempt income including agricultural income. The format requires you to provide gross income and the expenses incurred. There is no rule laid down which tell us that the expenses have to be a certain percentage of the gross income. Therefore, nobody can tell you what amount to mention as gross income and as expenses.

You will need to maintain proper records to justify the amounts that you mention. There cannot be any guesswork involved here.

Tax Rebate for Government Employee

I

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

Tax on Office Expenses

I

received some funds from my company for branch expenditure in my accounts. This is over and above my salary amount. Please guide me about the document I should collect from the employer to avoid income-tax. Subodh V Shah’s Reply: You should take a note / letter from your company stating that the said amount has been transferred to your account for the purpose of branch expenses on behalf of the company and, later, you will be submitting an expense report. This should suffice to explain the transactions for taxation purpose. 

MONEYLIFE | 10-23 Nov 2017 | 56

Tax Queries.indd 2

03-11-2017 17:01:03

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24-02-2017 16:12:20

USEFUL APPS YAZDI TANTRA

My JIO: Gateway to All Jio Services

I

f you are using a Reliance Jio SIM card, getting the My Jio App is absolutely essential. This app is the gateway to all the services that Jio offers. You can use the app to purchase the Jio Prime membership and download and install all Jio apps easily from one place. You can also check the usage details, account balance and get your detailed account statement. Further, you can manage your settings and personalise your profile, using this app. If you have multiple Jio SIM cards (family and friends), you can use this app to manage multiple SIM cards from the same app. Help documents and friends’ invitations, etc, are all available on a single tap. If you have a Jio Wi-Fi device, you can even manage it from the same app. All in all, a very comprehensive app to manage your Jio life! Android: https://goo.gl/zpFZoZ iOS: https://goo.gl/AzGYTa

Insight Timer: Get Help for Stress, Sleep or Anxiety

I

nsight Timer is one of the most popular free meditation apps on the Play Store. If you need help with sleeping, or dealing with anxiety or stress, Insight Timer is the app for you. It also helps in getting through recovery and addictions and achieving higher levels of selfllove and compassion. Insight Timer has the largest community of regular h meditators and generates more meditation minutes than any other app. Everyday, more than 900 of the world’s best meditation teachers upload new content, including free guided meditations, beautiful meditation music, talks and podcasts. With a dynamic worldwide community of meditators, Insight Timer is the fun and connected way to support your meditation practice, whether you’re just starting out, or have been meditating for years. Android: https://goo.gl/Qyz5pF iOS: https://goo.gl/9Xvntk

Google Maps: Know Where You Were on a Given Date

F

orgot where you were on the 19th of last month? Simple, the Timeline feature of Google Maps will jog

your memory. On the Google Maps app, tap the Menu on the left top, and then on Your Timeline and see your whereabouts, in detail. Be sure that you have enabled this feature and rest assured that only YOU can view it. You have options to add a place, delete a day, show your Google Contacts’ addresses on the Map and even show your Google Photos that you have clicked on the way, on your timeline. Google says the feature is designed to help users answer questions such as: “What was the name of that garment store I went to, the other day?” or “Did I drop off the dry-cleaning on Tuesday or Wednesday?” And, if you feel that Google already knows enough about you and you don’t want it to know more of your travel plans, you may turn the feature off in the timeline settings.

AccuBattery: Accurately Monitor Your Battery

E

very time you charge your device, it wears out the battery, lowering its total capacity. Research shows that battery lifespan can be extended up to 200%, when you charge your device to only 80%. AccuBattery measures the actual battery usage. You can monitor precisely how much battery your device is using and know how long you can use your device when it’s active or in standby mode. You can also find out how much power each app uses. Stats include charging time and optimum battery capacity. It allows you to see how much wear your battery sustains with each charge session. You can even look up the discharge speed and battery consumption per app. The (paid) professional version, has real-time CPU (central processing unit) and power usage overlay for spotting battery draining processes and has no ads, besides having many more features. In short, the app is designed to keep your battery in the best shape possible! Android: https://goo.gl/LMh9n3 

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 | 10-23 Nov 2017 | 58

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03-11-2017 18:37:34

FATTY LIVER WORSENED BY SUGAR

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atty liver disease affects one out of every two adults in the Western world. Fatty liver disease is the presence of hepatic steatosis, that is, fat deposited in the liver. There are two main types of fatty liver disease: non-alcoholic fatty liver disease (NAFLD) and alcoholic fatty liver disease. Alcoholic fatty liver disease comes from excessive alcohol consumption. NAFLD is the most common liver disorder in Western industrialised countries (10%-46% in the US). It could be the cause for obesity, type-2 diabetes, dyslipidaemia, male sex and metabolic syndrome. A recent paper in British Medical Journal argues that “data from animal and human studies implicate added sugars (e.g., sucrose and high-fructose corn syrup) in the development of fatty

physical activity at baseline. Among the rest, about MEDICAL DEVELOPMENTS FROM 95% reported AROUND THE WORLD some walking, and nearly half walked as their only form of moderateJ DiNicolantonio, Ashwin M Subramonian and James H O’Keefe, vigorous physical activity. After correcting for risk factors argues that considering that there is such as smoking, obesity and no requirement for added sugars in the diet, dietary guidelines should recommend reducing the intake of added sugars to just 5% of total calories to decrease the prevalence of fatty liver disease and its related consequences.

ANY AMOUNT OF WALKING IS BENEFICIAL

U

S public health guidelines recommend that adults should do at least 150 minutes of moderate walking or 75 minutes of vigorous-intensity physical activity per week. But surveys show only half of US adults are able to meet this norm. However, a study in American Journal OBESITY IN THE US of Preventive Medicine Obesity in US adults has almost says that regular walking, trebled over half a century even if not meeting this 38.2% minimum recommended 40% level, can lead to lower mortality compared to 20% 13.4% inactivity. Walking has been associated with lower risk 0% of heart disease, diabetes 1962 2014 and breast and colon Source: National Health and Nutrition Examination Survey cancers. While several The National Bureau of Economic studies have linked overall Research reports the estimated annual moderate-vigorous physical healthcare costs of obesity-related activity to a reduced risk of illness to be nearly 21% of annual death, relatively few have medical spending in the US examined associations with walking specifically. To learn more, liver disease and its consequences. investigators led by Alpa Patel Added fructose in particular, as a (PhD), looked at data from nearly component of added sugars, may 140,000 participants in the Cancer pose the greatest risk for fatty Prevention Study II Nutrition liver disease.” The paper “Added Cohort. A small percentage (6%Fructose as a Principal Driver of 7%) in the study reported no Non-Alcoholic Fatty Liver Disease: moderate to vigorous intensity A Public Health Crisis”, by James

chronic conditions, the study found walking-only for less than two hours per week was associated with lower all-cause mortality compared to no activity. Meeting one to two times the minimum recommendation (2.5-5 hours/ week) through walking-only was associated with 20% lower mortality risk. Results for those exceeding recommendations through walking-only were similar to those who met recommendations. Walking-only was most strongly associated with respiratory disease mortality, with approximately 35% lower risk comparing more than 6 hours/week of walking to the least active group. Walking-only was also associated with about 20% less risk of cardiovascular disease mortality and with about 9% less risk of cancer mortality. With the near doubling of adults aged 65 and older expected by 2030, clinicians should encourage patients to walk even if less than the recommended amount, especially as they age, for health and longevity, suggest the study. 

59 | 10-23 Nov 2017 | MONEYLIFE

Health.indd 3

03-11-2017 16:46:16

LEGALLY SPEAKING SD ISRANI

What Is the Remedy When a Consumer Forum’s Order Is Not Complied With?

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t is an accepted fact that consumers in India do not have a voice. In fact, it will not be an exaggeration to say that consumers are a neglected lot and nobody bothers about protecting their interest. Although we have a Consumer Protection Act (COPRA), even the prime minister (PM) has recently announced that the government plans to enact a more stringent law along with setting up a consumer protection authority (CPA). Consumers, who had booked apartments in proposed or under-construction buildings, have been the biggest sufferers. Housing is a basic need and the average person is easily swayed by glossy advertisements and beautiful presentations by over-smart builders. Thousands of consumers, who have invested their precious savings or taken bank loans to book apartments, have been left high and dry with no possession in sight, years after the projects were scheduled to be completed. Moreover, the only remedy available used to be to approach civil courts which was a tedious, timeconsuming and costly affair. In such a scenario, COPRA offered simple, speedy and cost-effective recourse against errant builders. But it has not been easy for consumers. Builders start by challenging the jurisdiction of COPRA, even though it is a well-settled law that an aggrieved consumer can approach the consumer fora for seeking relief against builders. They also appeal against favourable orders and drag matters to the National Consumer Disputes Redressal Commission (NCDRC) and the Supreme Court. What can a consumer do if the builder ignores, or fails to comply with, a consumer court’s order directing a refund or imposing damages on a builder? Smita Kawale and her husband Shivajirao Kawale of Gulbarga faced exactly this problem. They won a favourable order against a builder who failed to deliver their apartment. The builder was directed to refund Rs25 lakh to them, along with interest, compensation and legal cost. Instead of paying up, the builder tried every possible trick to deny the consumers their due. In such a case, COPRA offers a specific remedy and empowers the consumer to approach the specific forum

from which she has obtained a favourable order, and make an application for recovery of dues from the other party. Section 25 of COPRA empowers the consumer forum to issue a certificate asking the district collector to recover the amount from the person concerned in the same manner as arrears of land revenue. In the Kawales’ case, the builder against whom the complaint was filed was a private limited company. The person in charge pleaded that he was no longer a director of the company and cannot be asked to pay the amount. In this case, the state commission issued a recovery certificate to be enforced by the collector, Pune, to recover the amount from the company and/or its director. The builder challenged the order and dragged the matter to NCDRC He contended that it was a well-settled law that the company as a legal entity is distinct from its shareholders and directors; therefore, there could be no recovery proceeding against him and he could not be made liable to pay up. NCDRC considered the evidence before it and upheld the recovery order passed by the state commission and confirmed that it was the duty of the collector, Pune, to ensure recovery. It disagreed with the builder’s contention that the directors of a company are not responsible for payment of the amounts in question. It also observed that the directors represented the top management of a company and are in a position to influence the decision taken by the said company. (Vasant Janardan Aher, additional director of Sawali Home Makers Private Limited, Pune v/s Smita Shivajirao Kawale – Order was passed on 17 October 2017). With the PM promising a CPA and a more stringent consumer protection law, hopefully, travails like those of the Kalwes will become a thing of the past. 

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

MONEYLIFE | 10-23 Nov 2017 | 60

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TECHNOLOGY

Technology: The One-way Addiction We need to learn the art of disconnecting from the ever-increasing addiction of remaining online 24x7. This will help in the long run, advises Yogesh Sapkale

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ire was one of the best inventions by humankind. Despite the risks associated with it, fire has proven to be a boon for us. Similarly, new-age technologies, like the Internet, are proving to be great levellers because they treat all users as equal. However, several applications associated with the Internet are turning out to be nuisance. “Now tech companies are under fire for creating problems instead of solving them,” says a report in The New York Times. “Social media might have originally promised liberation, but it proved an even more useful tool for stoking anger. The manipulation was so efficient and so lacking in transparency that the companies themselves barely noticed it was happening. Tech companies have accrued a tremendous amount of power and influence... the Internet long ago became a business, which means the companies’ first imperative is to do right by their stockholders.” As I pointed out in my previous article, we, the users of this technology, especially Internet and Internet of Things (IoT), are now more like a product than consumers for the developers and service-providers. What is more dangerous is the spread of IoT devices, like cameras, watches, house-cleaning robots or smart refrigerators, etc. Not only are these encroaching on our lives, but could also make it us more vulnerable in terms of safety and security. Explaining these aspects, Bruce Schneier, chief technology officer of IBM Resilient, in his blogpost, says, “Markets, as we have repeatedly learned over the past century, are terrible mechanisms for improving the safety of products and services. It was true for automobile, food, restaurant, airplane, fire, and financial-instrument safety. The reasons are complicated, but basically, sellers do not compete on safety features because buyers cannot efficiently differentiate products based on safety considerations. The race-to-the-bottom mechanism that markets use to minimise prices also minimises quality. Without government intervention, the IoT remains dangerously insecure.”

For example, many mobile phones run on Android. Yet, some, like those from Samsung, come preloaded with software (bloatware) installed by the manufacturer, which the user may not even need. Other phones may have plain Android installed. Both run fine; but the user may not know, or may be uninterested in, the security level of any of the mobiles. Unfortunately, even governments, except a few from Europe, are least interested in reining in the spread and, thus, dangers of Internet and IoT devices. In June 2017, the European Union levied a fine of $2.7 billion on Google, for putting its own products above those of its rivals in the searches. Germany has a new law that penalises websites for not taking down hate speeches. As far as India is concerned, the less said, the better. It is really shocking, but true, that in a country that recognises right to privacy as fundamental right, there is no protection available for citizens from threats and coercions originating from the cyberspace and even from government departments. So what is the solution? One could be to disconnect (from Internet) to remain sane and sober. According to a report from the union ministry of health and family welfare, there is an alarming rise in new disorders that occur due to heavy usage of Internet and social media. This report is based on a survey conducted over six months and shows Mumbai, Kolkata and Bengaluru as the top-3 cities where people require psychiatric help. Some may argue that disconnecting from the Internet is not possible anymore. If not all the time, you can at least cut down the time you spend online. Start by putting mobile phones in ‘do-not-disturb’ or ‘privacy mode’ while sleeping. Minimise use of social media, like Facebook, WhatsApp or Twitter, especially from mobile devices. Remember, material things are meant and created for us. We, humans, are not created for materialistic things. Mobile phones were invented for us as a tool for communication. We were not invented for mobiles or any other device that turns us into an addict. 

61 | 10-23 Nov 2017 | MONEYLIFE

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30-10-2017 15:28:40

BOOKS

THE MONEY FORMULA

Quants with a Conscience

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bout 40 pages into The Money Formula, by Paul Wilmott and David Orrell, you start wondering why would someone write another book on investments that forces us to read about all the characters and theories connected to the world of investing—from Isaac Newton (who lost money in the South Sea Bubble, the earliest market crash), to John Law’s monetary gamble with the French exchequer, to Loius Bachelier’s thesis at the turn of the previous century on speculation, to the Chicago School in the second half of the 20th century which spun its theoretically ‘elegant’ but completely useless efficient market theory, to modern portfolio theory (MPT) of Harry Markowitz, etc. I have comes across dozens of books which take us through this obligatory tour before coming the to point. Perhaps, since the field of investment theory is small and ‘circumscribed’ (in the words of Dr William Bernstein, a neurologist and an outstanding writer on investing)! It is well known that the THE MONEY FORMULA biggest influence on modern PAUL WILMOTT & finance has come from the DAVID ORRELL Chicago School’s efficient John Wiley & Sons market hypothesis (EMH), Pages264; Rs1,281 MPT, capital asset pricing model and valuation of options. All these theories are ‘mathematically beautiful’ because what lies beneath them are neat assumptions: investors have access to the same information; they act in a rational manner and drive prices to an equilibrium between supply and demand. It is also well known now that these assumptions are balderdash. Investors suffer from biases. Charlie Munger, Warren Buffett’s partner, last listed 24 types of irrationality that all of us suffer from. It is these biases that drive prices and create volatility not rational people acting on self-interest driving prices to equilibrium. Investors hate losses more than they love their gains; this is why they hold on to poorly performing stocks. They go wild with exuberance in a bull market and are engulfed with pessimism in a bear market.

Quantitative finance started to become mainstream when option pricing theory was published in 1973 that came out of the academicians’ desire to reduce the complexities of the financial markets to neat formulae. The advent of computers enhanced the appeal of mathematical finance by making the calculations easier while allowing traders to trade faster and faster. It is another matter that these developments have made markets more interconnected and dangerous, leading to such things as flash crash and global financial crash. This book is a witty survey of the world of quantitative finance. Paul Wilmott is one of the foremost names in this specialised field. He studied mathematics at Oxford, did a DPhil in fluid mechanics and now has a small business running a distance-learning course in mathematical finance, wilmott.com, a thriving website for quant community. He also runs a recruitment agency for quants and founded the journal Applied Mathematical Finance. David Orrell is a Canadian writer and a mathematician. The book is divided into 10 chapters. The initial chapters describe the run up to today’s quantitative finance; it then gets into the core of the quant world: what quants do, what is wrong with the models and how the financial system has been abused. The final chapter deals with systemic threat. But the threat is not only from models and computers and bottom-line-driven hedge funds. The threat is also ominously from within which this story will prove. In 2010, Paul was contacted by the UK treasury department worried about high-frequency trading (HFT) (the flash crash had just happened in the US). He made six key points. At the meetings, various solutions were discussed. One of them was to apply circuit-breakers to stop the market if the price crashed below a certain level. Paul objected to this idea saying that hedge funds, surely, would find a way to game the system. A year went by and Paul assumed that this was just how committees worked—inefficiently and slowly. But then he got curious and sent a follow-up query. Another meeting followed. The committee members explained to Paul that he was seen as too academic. The “incredibly charming civil servants” found a way to dump him from the committee. In 2012, the final report came out. “To put it briefly,” write the authors, “the finding of the experts was that everything is fine. High-frequency and computer trading are nothing but good for everyone. Nine proposals had been made for pruning the impact of HFT, seven were deemed unnecessary or problematic. Of the remaining two, one stood out. The experts were in agreement that circuit breakers were a good idea.” The industry had managed to influence the treasury to see things their way by getting the officials to weed out people like Paul from the committee. — Debashis Basu 

MONEYLIFE | 10-23 Nov 2017 | 62

Book Review.indd 2

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MONEY FACTS STOCKS

INDIAN MARKET TRENDS

FUND FLOWS

The Sensex and the Nifty rose 3% each during the fortnight ended 1st November. ML Large-cap Index, ML Mega-cap Index and ML Mid-cap Index advanced 3% each, while ML Small-cap Index rose 2%. 

Foreigners: Foreign institutional investors were net buyers of equities (Rs1,498.10 crore). They bought shares worth Rs57,474.81 crore. 

Share Prices Index, May 2017=100

3,590 2,610

120

FII Net Investments (Rs Crore)

1,630 650

110

-330 100

-1,310 1 Nov-17

23 Oct-17

Indians: Domestic institutional investors too were net buyers of equities (Rs 346.13 crore). They bought shares worth Rs37,660.30 crore. 

90

80 May-17

Aug-17 ML Large-cap ML Mid-cap

ML Small-cap ML Mega-cap

Nov-17 Nifty Sensex

600

DII Net Investments (Rs Crore)

345

ML Micro-cap

90

19 Oct

1 Nov

+/-

-165

32,389.96

33,600.27

4%

-420

112.72

116.27

3%

10,146.55

10,440.50

3%

ML Large-cap Index

106.99

110.08

3%

ML Mega-cap Index

108.27

111.06

3%

ML Small-cap Index

104.64

106.53

2%

77,000

ML Micro-cap Index

96.53

97.62

1%

73,800 70,600

Index Sensex ML Mid-cap Index Nifty

Mega-cap Gainers/Losers

19 Oct

1 Nov

Change

Punjab National Bank

129.60

198.90

53%

Yes Bank

358.05

318.80

-11%

Large-cap Gainers/Losers

19 Oct

1 Nov

Change

HEG

1,252.10

1,718.10

37%

537.55

470.90

-12%

19 Oct

1 Nov

Change

244.75

363.70

49%

23.20

18.65

-20%

19 Oct

1 Nov

Change

5.36

9.36

75%

Can Fin Homes Mid-cap Gainers/Losers Butterfly Gandhimathi Appliances Diamond Power Infrastructure Small-cap Gainers/Losers Consolidated Construction Consortium Gyscoal Alloys Micro-cap Gainers/Losers Hindustan Dorr-Oliver Parabolic Drugs (All Prices in Rs)

10.82

7.90

-27%

19 Oct

1 Nov

Change

3.35

5.50

64%

11.35

9.37

-17%

-675 1 Nov-17

23 Oct-17

GLOBAL MARKET TRENDS Bovespa

67,400 64,200 61,000 May-17

Aug-17

Nov-17

NASDAQ Composite and Hang Seng rose 2% each, while Taiwan Weighted and the FTSE ended flat. Bovespa declined 3%, while Nikkei advanced 5%.  Index

19 Oct

1 Nov

+ / (-)

Nikkei

21,449

22,420

5%

Korean Composite

2,473

2,556

3%

NASDAQ Composite

6,605

6,717

2%

28,159

28,594

2%

Shanghai Composite

3,370

3,396

1%

S&P 500

2,562

2,579

1%

10,760

10,806

0%

Hang Seng

Taiwan Weighted FTSE Bovespa

7,523

7,488

0%

76,283

73,824

-3%

MONEYLIFE | 10-23 Nov 2017 | 64

Money Fact.indd 2

03-11-2017 16:05:38

MONEY FACTS STOCKS



What’s H

T

ML SECTORAL TRENDS

Oil & gas companies were in demand during the fortnight. Selan Exploration Technology, Oil & Natural Gas Corp, Oil India, GAIL (India) and Hindustan Oil advanced 26%, 11%, 9%, 8% and 7%, respectively.  Companies

ML Oil & Gas Index

19 Oct

1 Nov

+/-

Selan Exploration

189.75

239.95

26%

Oil & Natural Gas

172.15

191.00

11%

Oil India

340.75

370.30

9%

GAIL (India)

433.25

468.10

8%

90.10

96.25

7%

Shares of oil & gas companies advanced 10%, while shares of lifestyle & leisure companies, banking companies and real estate companies went up by 9% each. Stocks of petrochemicals companies, retail companies and building materials companies fell 2% each. 

110 105 100 95

Hindustan Oil

90 85 May-17

Aug-17

Tide Water Oil Co

6239.65

6482.00

4%

Indraprastha Gas

1557.10

1583.10

2%

ML Sectoral Trends Trading

10% Petrochemicals

-2%

Oil & Gas

10% Retail

-2%

Lifestyle & Leisure

9% Building Material

Banks

9% Healthcare

0%

Real Estate

9% Education

0%

Nov-17

FOOD INFLATION



All Prices in Rs

What’s

N T

Financial services companies were punished. Can Fin Homes, LIC Housing Finance, Indiabulls Housing Finance, Motilal Oswal Financial Services and Muthoot Capital declined 12%, 10%, 9%, 7% and 6%, respectively.  Companies

19 Oct

1 Nov

+/-

Can Fin Homes

537.55

470.90

-12%

ML Financial Service Index

LIC Housing Finance

663.05

598.50

-10%

120

31.65

28.70

-9%

Indiabulls Housing

1,362.45

1,245.60

-9%

Motilal Oswal

1,480.75

1,379.85

-7%

Muthoot Capital

669.45

630.95

-6%

GIC Housing

509.55

482.30

-5%

Bajaj Finserv

5,306.10

5,022.60

-5%

135.35

128.20

-5%

Onelife Capital

Multi Commodity

1,096.70

1,044.65

Combined food inflation fell to 1.76% in September 2017 compared with 1.96% that prevailed in August 2017. For rural areas and urban areas, food inflation in September 2017 was 1.82% and 1.69%, respectively, while, in August 2017, it was 1.88% and 2.11%, respectively. For rural areas, inflation for milk and milk products rose to 3.47%

Inching Up?

115

Geojit Financial

4.50%

110 105

2.50%

100

-5%

0.05% 95 May-17

Aug-17

Nov-17

All Prices in Rs

-1.50% Sep-16

BULK DEALS Date

Company

-2%

Buyer

Seller

Rs Cr

01 Nov-17 OCL India

Maj Textiles Pvt

Shreevallabh Textile Pvt

183.94

01 Nov-17 Emami Paper Mills

Ganpati Industrial Pvt

Niraj Jalan

5.11

23 Oct-17

Mold-Tek Technologies

NG Industries

Uno Metals

1.64

30 Oct-17

RCI Industries Technologies

Bon Lon Securities

Geetha Jain

1.27

30 Oct-17

BC Power Controls

Worldwide Excellent Trade Pvt

Geetha Jain

0.54

30 Oct-17

Comfort Commotrade

Siva Balan Jaipal

Siva Balan Jaipal

0.17

30 Oct-17

Milgray Finance Investment

Sanjay Rambrian Gupta

Bhagavati Prasad Joshi

0.01

Mar-17

Sep-17

in September 2017 from 3.03% in August 2017. For urban areas, milk and milk products inflation was at 4.60% in September 2017 marginally lower from 4.61% in August 2017. For rural areas, vegetables inflation fell to 3.48% in September from 3.95% in August 2017. For urban areas, vegetables inflation fell to 5.10% in September 2017 from 10.04% in August 2017. 

65 | 10-23 Nov 2017 | MONEYLIFE

Money Fact.indd 3

03-11-2017 16:05:58

PS Sahara Tries a Comeback!

T

he Sahara Pariwar, probably India’s biggest money circulation scheme, is storming back into its core business of raising deposits even as regulators struggle to sell its assets. Last week, the group’s patriarch, Subrata Roy, was on an 18-city tour including Ahmedabad, Vadodara, Jaipur, Ranchi, Nagpur, Guwahati, Hyderabad, etc, to pump up his depositor and agent base in a blitz of publicity which included plastering the city with hoardings to welcome him with the reverential pre-fix Param Pujyania! Sahara executives give a positive spin to his two years in jail pointing out that he paid the Securities and Exchange Board of India (SEBI) and did not run away from the country (in an obvious reference to Formula One partner Vijay Mallya). While Mr Roy was touring north India, SEBI was

in the Supreme Court (SC) battling a contempt petition against the group for ‘obstructing’ the sale of the lush Amby Valley, a spectacular weekend

retreat near Mumbai frequented by the rich and famous. The SC had ordered two realty companies of the Sahara group to refund over Rs24,000 crore with 15% interest in August 2012. Sahara presents the image of company wronged by SEBI, despite paying up large sums of moneyRs19,000 crore by its accounts. The issue of its non-existent/fictitious investors (SEBI has found claimants

Realty Blues: Unitech and DSK

T

he case of Sanjay Chandra, promoter of the Unitech group, once the leading realty developer of Gurugram, is going the way of Subrata Roy of the Sahara group. On 30th October, a threemember bench of the SC, headed by the chief justice, denied him interim bail and ordered that he will remain in custody until the firm deposits Rs750 crore for bail by December. Like with Subrata Roy, the Court has allowed him the use of video conferencing facilities and daily meetings with his lawyers, if required, in jail to negotiate a possible sale of his assets to meet the interim bail condition. This once high-flying group has to refund over Rs2,000 crore to hapless home-buyers, who have been running from pillar to post for several years. Unitech failed to deliver around 17,000 flats after collecting over Rs7,800 crore as advance payment.

Meanwhile, the Pune police have, finally, registered a first information report (FIR) against the smooth-talking Deepak Kulkarni, promoter of DSK Developers Limited (DSKDL), on 29th October. For

nearly a year, Mr Kulkarni and his wife have been spinning yarns to depositors and home-buyers crowding his office about repaying them or delivering on apartments long overdue. During this time, information about diversion of funds, mortgaging the same land with multiple lenders, raising public deposits through

for only Rs64 crore, despite huge effort) is also being spun as SEBI’s unwilling to verify investors; it claims the income-tax department had no issue with its interest payments and tax deduction at source between 2009 and 2013. Meanwhile, at the end of October, the SC also dismissed Sahara Mutual Fund’s plea against SEBI cancelling its mutual fund licence on the grounds that it was not ‘fit and proper’. And yet, the Sahara supremo is telling people on his expensive Bharat darshan that the group is set to bounce back. The question is: Bounce back with what business? Media reports say that he is looking at media, online education, hospitals and maybe even a comeback into aviation. These are highlyregulated businesses and it is unclear whether the plans are mere spindoctoring by the audacious group. — Sucheta Dalal 

dummy companies, without regulatory clearances, etc, was ferreted out by social activist Vijay Kumbhar working with DSKDL’s victims. Mr Kulkarni’s line to investors was simple: all businesses face rough times and having him locked up only guarantees that they never receive their money. This is, indeed, true in the Indian context, where businesses are killed by hamhanded police action, and whatever survives is lost in expensive litigation that drags on for decades. Interestingly, while the Pune police have registered an FIR, there is no move to arrest Mr Kulkarni, as has happened with other developers. Apparently, the police are also sold on his arguments, but it remains to be seen if home-buyers and depositors get their money back. At last count, 8,000 depositors were agitating to get back just under Rs500 crore invested with DSKDL. — SD 

MONEYLIFE | 10-23 Nov 2017 | 66

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02-11-2017 20:31:42

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