Moneylife 9 June 2016

SUCHETA DALAL ON: TWO YEARS OF MODI SARKAR Personal Finance Magazine

1000S OF LAWS REPEALED: FIRST STEP IN A LONG JOURNEY 9 June 2016

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ISSUE CONTENTS

9 June 2016 Tax Breaks on Buying or Renting Homes

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ndia is a young country and a large section of the middle class is buying or renting homes. There are plenty of tax benefits around buying homes or renting, including the changes made in the Finance Bill 2016. Getting your facts right will help you to save on taxes. You may be a buyer and renter at the same time, which means you can benefit from deductions on both sides. In our Cover Story, Raj Pradhan gives the details of the different exemptions and the conditions under which you are entitled to these; but these should not be missed or miscalculated. The tax rules may not clarify each situation and, hence, best practices advocated by chartered accountants will help ensure that you don’t end up with tax evasion. Great businesses are backed by sound management. This is why assessing management quality is crucial for long-term stock investors. There is a lot of confusion about how to assess management quality. R Balakrishnan gives a 20-point checklist that one could use on page 24. Fortunately, more and more investors are now aware that returns are low if you buy when the market is overvalued. But this immediately creates confusion about whether they should wait to buy stocks if the market is expensive. In my Value Investing column on page 40, I argue that good stocks go up even if the market is overvalued. If you wait, you would lose out. As the Modi sarkar completes two years, it has done well in scrapping thousands of obsolete statutes. But real legal reform that will help the people is needed, writes Sucheta in her Different Strokes column. This will need a clear and consistent effort to move towards a legal framework to keep up with the times. In her Crosshairs column, Sucheta takes a look at the hits and misses of the government over the past two years. From financial inclusion through the Pradhan Mantri Jan Dhan Yojana to the dealing bad loans of public sector banks, from big-ticket infrastructure projects to the Black Money Bill, Sucheta dispassionately highlights the achievements and the shortfalls of the government. Debashis Basu 

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30 Cover Story Save Tax When Buying/Renting Home The Finance Bill 2016 has introduced three positive changes for homebuyers and renters. Buying property on loan can fetch you tax deductions that are worth exploring. Raj Pradhan analyses situations when you can claim HRA and home loan interest deduction to save taxes

12 Your Money

– I-T Department Launches e-nivaran for Early Resolution of Complaints – ‘Fake Rs100, Rs1,000 currency notes growing’ – ‘No Negative Balances in Savings Account’ – Consumer Fora Rule in Favour of Homebuyers

14 18

MONEYLIFE

QUIZ – Two Years of Modi Sarkar: a Mixed Bag

20 Different Strokes

Repealing Dead Laws: Off to a Commendable Start

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

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CONTENTS FUND FACTS

of Mutual 22 InsFunds& Outs in April 2016 FIXED INCOME

23

Should You Rush for Tax-free Bonds in Secondary Market?

INSURANCE

LEGALLY SPEAKING

26 Insurance Trends Health Insurance – Young Women Make Three Times More Claims than Senior Citizens – Insurance Premium in Instalments? Life Insurance – LIC Online e-Term Open for NRIs Fine Print

HEALTH

– G-Sec and Bond Yields Are Flat VALUE STOCKS

STOCKS

24 Smart Money A 20-point Checklist To Assess Management Quality

42 Stock Watch Omkar Speciality Chemicals: Trying Hard

Ion Exchange (India): Good Chemistry

Cock a 57 Promoters Snook at SEBI

Markets 40 Overvalued Vs Your Stocks

Patients Die from 58 When the ‘Care’ They Get in Hospitals

Pulse Beat: Medical developments from around the world EARNING CURVE

50

Why Hedge Funds Are Overrated

YOU BE THE JUDGE

Mislead, 60 Conceal, Convict; That’s No Victory

TAX HELPLINE ML FOUNDATION EVENTS

at Moneylife 52 Queries Foundation’s Tax Helpline USEFUL APPS

Havells India: Excellent Results but Too Expensive

Pictures to 54 Compress 1/5 Their Size th

– Cut Out Junk Email – City in Your Hands – Track Your Privacy Level Nestlé India: Can It Make a Comeback?

Credit 61 Demystifying Score & Being Safe & Smartt with Your Money

TECHNOLOGY

Skipper: Good March Quarter

Market Manipulation: Energy Development Co Ltd

56

Intel Shows the Future

BEYOND MONEY

through 66 Livelihood Handicraft Development

DEPARTMENTS Market Trend: Headwinds Continue

Content.indd 4

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

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Volume 11, Issue 8 27 May – 9 June 2016

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

A BIG CHALLENGE FOR BANKS This is with regard to “Loan Write-offs: Biggest Scandal of the Century” by Sucheta Dalal (Issue dated 26 May 2016). Dealing with non -performing assets (NPAs) is a big challenge for banks. To reduce the chances of Mutual Fund investments loans turning into NPAs, some measures can are subject to market risks, read all scheme related be taken—proper and timely monitoring of documents carefully. loans of a specified amount, say, more than Rs1 crore; having pre-audit sanction from specialised agencies or professionals with expert knowledge Write to the Editor! and regular audits like stock audit and specialised audit for proper utilisation of funds. This is for the purpose of checking that there is no diversion of a prize funds at end-use by specialised professionals like chartered accountants. At present, high limits are placed for such audits on account of saving of cost which, ultimately, leads to more NPAs. The concerned authorities must reduce the limits of amounts of such audits in public interest—of avoiding / reducing NPAs. Also, there should be independence of audit in public interest. The government’s decision of selection and appointment of statutory central auditors as delegated to individual public sector banks must be withdrawn. For the appointment of statutory branch auditors of banks, off nks, th thee li list st o eligible auditors must be directly sent to each bank by RBI (Reserve Bank of India) as per their requirement, i.e., required number of auditors by them. And, to safeguard public interest to cover more accounts and more branches, there must be audits by reducing (suitably) the limits of exempted branches from audits. Mahesh Kumar, by email

WIN

POOR EXECUTION? This is with regard to “Applied Minds: How Engineers Think—How Engineers Change the World”. I feel that is a very unprofessional and



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LETTERS

the

Best letter

Clear Instructions Needed from CBDT!

W

hile purchasing a real estate, usually a residential flat, from an NRI (non-resident Indian), in the absence of clear rules or guidelines or a circular / instruction from CBDT (Central Board of Direct Taxes), the buyer faces an unenviable situation: How much TDS is to be deducted from the purchase price payable to the NRI? Whether to deduct TDS @ 20% plus applicable cess and surcharge from the gross purchase price, which is usually not acceptable to the seller, often, resulting in cancellation of the deal? Whether to deduct the TDS amount from the capital gains taxable in the hands of the NRI? If yes, who should calculate and certify the amount of capital gains tax deductible? Whether a certificate issued by a chartered accountant would be acceptable to the authorities? Whether it is alright to take into account the deduction available to the seller u/s 54 or u/s 54EC of the Income-Tax Act while calculating the amount of capital gains tax liability? In this connection, it is worth recalling that the Supreme Court as well as various high courts have held, time and again, that TDS u/s 195 is deductible only from the “Sum chargeable under the provisions of this Act.” In view of the uncertainties involved and the lack of authoritative guidance from the tax authorities, buyers usually insist upon deducting the tax from the gross purchase price payable which is grossly unfair to the NRI. Alternatively, the buyer requires the seller to obtain and furnish a certificate u/s 197, which is usually a very time-consuming and costly process (besides being open to corruption and undue harassment) and which is not easily manageable for NRIs who have either no helpful relatives in India or

 unsatisfying book about a great concept. The concept

has been undone by the execution in the book. Mohit Pawnday, online comment

A VICTIM’S REQUEST This is with regard to “Depositors Stunned by RBI’s Benevolence to Jaiprakash Associates” by Sucheta Dalal. I am also one of the victims of JP Associates

have parents who are Mutual Fund investments senior citizens. Thus, are subject to market risks, read all scheme related obtaining a certificate documents carefully. u/s 197 of the Act is not a very convenient and hassle-free way of doing things for an Tarun Singhal NRI, particularly when YOU WIN A the rules for computing PERSONALISED capital gains arising CLOCK from transfer of an immovable property such as residential flat are fairly clear and well settled under the Act and can be easily computed Tarun Singhal and certified by a chartered accountant. I would request the CBDT to issue necessary clarifications and authorise d au utho uth ut horise hori risee cchartered ri hart hart ha rter tered d accountants to issue the requisite certificate the eq isite cer tifi ificatte iin n th he form prescribed by the CBDT. Alternatively, in case payment is made by a buyer to an NRI in rupees, provisions of Section 194-IA which are presently applicable to a resident transferor, may be made applicable to a non resident transferor with suitable modifications. In such an event, the NRI will have to comply with the procedure laid down u/s 195(6) while remitting the funds outside India. It will greatly facilitate real estate transactions by NRIs and go a long way in realising the government’s objective of ease of doing business / making investment in India. Tarun Singhal, by email

Congratulations

having three FDs (fixed deposits) that have already matured. CLN (Credit Linked Note) extended the time up to June 2016. I emailed them citing that their deadline is nearing and, as I am a senior citizen, I have requested them to pay my long-matured FDs immediately. Dr Raghuram Rajan, our Reserve Bank of India (RBI) governor, should have seen the complaints  of FD-holders and then removed the company from

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LETTERS

 the list. Now, at least, JP Associates will honour its

commitments to FD-holders at the earliest. Narayan Kamath, online comment

courts. The fact is that competence, commitment and communication in any profession are hard to find. Happy to see people like Bapoo Malcolm around! Param, online comment

STRICTER ACTION NEEDED! This is with regard to “RBI Digs in Its Heels on Disclosure about Defaulters” by Sucheta Dalal. How come the SME (small and medium enterprise) defaulters’ names are in the newspapers when they are slapped with notice after notice? Why do large defaulters suddenly get this sympathetic treatment? Why are Vijay Mallya-like accounts, though wilful defaulters, tolerated for years together after their delinquency is known? Why are the directors of those defaulting companies shielded by the banks and the government, instead of putting them on notice? Coming to courts and settlements, statistics show that barely 20% is recovered from all the legal processes—lok adalats, DRTs (debt recovery tribunals), and under SAFRAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act). Can’t the Supreme Court prescribe time limits for settlement of the cases as all bank cases have proof of transactions? Yes; producing proof of actions—by the bank and the borrowers—in all the cases take time. But how long? BIFR (Board for Industrial and Financial Reconstruction)—the Bureau of Industrial Funeral Rights—to put it euphemistically, is the most wasteful outfit with no accountability and is allowed even after the related Act is annulled. B Yerram Raju, online comment

KEEP WRITING! This is with regard to “The Lawyer as Juggler” by Bapoo Malcolm. The author’s writing is spot on. My limited understanding of the nuances of civil v/s criminal cases is, thankfully, due to no exposure to

DATA-BASED HARD EVIDENCE NEEDED! This is with regard to “Software Vs FMCG: Visibility Explains Valuation” by Debashis Basu. This is another article that underscores the fact that stocks should not be purchased based on mere perceptions or because your neighbour works for the company. Instead, let data-based hard evidence decide your stock-picks. No need to bring emotions into the equation. Sanjay Saxena, online comment

SOMETHING NATURAL! This is with regard to “Patanjali: Emulating MNCs or Propagating Ayurveda?” by Sucheta Dalal. Nice article. I am regularly using many Patanjali products and I have not faced any adverse effects; except Marie biscuits which make me cough a lot. Their juices are also different in taste and give a feel that I am really drinking something natural. My only concern is that most of these products are marketed and not produced by Patanjali. How do they manage the quality control? Abhay Datar, online comment

POLITICAL WILL NEEDED! This is with regard to “Panama Papers and What They Mean to India” by Sucheta Dalal. There could be motives beyond tax evasion behind keeping huge balances in ‘secret’ accounts abroad. If there is political will, there would be ways to unearth the motives and then handle account-holders. Without belittling the magnitude of the current revelation, one is tempted to say that it has never been ‘lack of information’ that has been preventing pursuit of black money. MG Warrier, online comment

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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Your Money TAX

to the supervisory officers in a paperless environment. The e-portal will ensure that grievances related to any section or domain of the tax department is transferred quickly

The Central Board of Direct Taxes (CBDT), the policy- making body of the department, has recently also created a new structure in the department called Taxpayer Services Unit. According high priority to this issue, CBDT had also brought a new mechanism where top officers of the department have been allotted a specific quota

to the department concerned—like those of refunds issue concerning an assessee.

of complaints to monitor and track, from their origin to successful resolution.

I-T Department Launches e-nivaran for Early Resolution of Complaints

T

he income-tax (I-T) department launched an electronic grievance redress system called ‘e-nivaran’ to fast-track taxpayer grievances and ensure early resolution of their complaints. “The new system is called unified grievance management system and is acronymed ‘e-nivaran’. The system not only records the origin of the grievance on the electronic platform it works on, but it also keeps tracking it till it reaches its logical conclusion for final resolution,” a senior I-T official said. The facility integrates all online and physical complaints gathered by the department on this platform which will be monitored by the assessing officer of the case up

BANKING

‘Fake Rs100, Rs1,000 currency notes growing’

T

he Border Security Force has seized Rs20 lakh worth of fake currency from West Bengal, near the Indo-Bangladesh border. Currency notes of Rs500 and Rs1,000 denominations were found in an abandoned bag. This comes right after the government disclosure of an increase in counterfeit currency. Over the past three years, the number of counterfeit Rs1,000 currency notes has reportedly increased. The number of counterfeit notes stood at 490,000 in 2013-2014, at 590,000 in 2014-15, and in 2015-2016 the number went unto 630,000. The information was made available by the finance ministry in the Lok Sabha.

RBI

‘No Negative Balances in Savings Account’

T

he Negative balances in savings accounts due to penalty charges will not be allowed any more. The Reserve Bank of India (RBI) has asked banks to stop levying charges for non-maintenance of minimum balance once the balance in a savings account touches zero. Although the norms came into effect last year, some banks were continuing with the practice of creating negative balances in savings accounts, until recently. According to RBI, if any bank continues to debit charges on a savings account creating a negative balance, customers can approach the banking ombudsman.

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MONEYLIFE FOUNDATION THE RIGHT THING TO DO

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

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Your Money REAL ESTATE

Consumer Fora Rule in Favour of Homebuyers

H

ere a few examples of consumer fora ruling in favour of home buyers recently: (a) National Consumer Disputes Redressal Commission (NCDRC) ordered realty major Unitech to pay back Rs65.36 lakh to a homebuyer with 18% interest for its failure to deliver the flat in one of its projects in Greater Noida even nine years after the consumer had bought it. NCDRC said, “Keeping in view the bizarre conduct of the opposite party (builder), we further impose costs of Rs50,000, which be paid to the complainant within 90 days from the

date of receipt of copy of this order otherwise it will carry interest at the rate of 9% per annum.” (b) NCDRC has directed the Mumbai-based Lodha group to refund Rs1.02 crore for ‘arbitrarily’ cancelling a flat booked by the two senior citizens along with 18% interest on the principal amount from end-2010. (c) NCDRC has imposed a penalty of 12% per annum on Jaypee group for delaying the possession of homes to buyers in Kalypso Court project on the Noida-Greater Noida expressway. The builder is required to hand over possession of apartments to the

MONEYLIFE QUIZ

buyers by 21 July 2016 failing which it will have to pay a penalty of Rs5,000 per flat per day until the project is completed. The builder has also been told to provide adequate parking space in the project and refund the excess amount, if any, that has been collected from customers for parking slots, with 12% interest per annum from the date of levying the charge. (d) The Chandigarh State Consumer Disputes Redressal Commission (CSCDRC) directed Emaar MGF to pay a penalty of Rs3 lakh each to the three complainants who had not been handed over their flats on the dates as per the agreement. CSDRC awarded that the complainants be refunded their booking amounts.

Moneylife Quiz no

233

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 7th July. Send in your answers to quiz@moneylife. in with the Quiz no., name, address & telephone number before 15th June 2016.

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!

Anil A Shah

1. What was the total stock value of Reliance Industries sold by a. Martin Makary b. Johns Hopkins equity mutual funds in April 2016? c. Barbara Starfield d. Scott Gerson a. Rs332.88 crore b. Rs173.30 crore c. Rs288.27 crore d. Rs86.77 crore 5. Who of the following is not a director on the board of Garima Real Estate & Allied Limited? 2. How many pharma companies are there in the top-10 list a. Banwari Kushwah b. Balkrishan Kushwah of most bought stocks by mutual funds in April 2016? c. Banabarilal Lodhi d. AK Bansal a. Two b. Three c. Four d. Five 6. What is the feature of Jpegmini.com? a. Photo compression tool b. File Compression tool 3. What are research analysts known to be quiet about, c. Anti-virus tool d. Junk mail sorting tool although it is an important parameter for stock selection? a. Accumulated losses b. Management quality 7. How many subsidiaries does Energy Development Co Ltd c. Price-Earnings ratio d. Debt-equity ratio have? a. 10 b. 15 4. Who is responsible for saying, “People are dying from the c. 18 d. 20 care that they receive rather than the disease”? In all, 16 readers got all the answers right last time. The winner of Quiz-231 is Anil A Shah from Kurnool (Andhra Pradesh). Congrats! You win a personalised clock with an investment quote!

The answers to Moneylife Quiz-231 are: • 1- a. Rs4,085 crore • 2- a. Rs3,876 crore • 3- b. 495 stocks • 4- b. Colorado • 5- b. Jewish • 6- a. Google Chrome • 7- d. Mumbai • 8- a. Form 26AS

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www.moneylife.in Exclusive news & views with a big difference SBI has no information on charge created on companies that took loans of over Rs5 crore The cases of fraud in loans above Rs5 crore have alarmingly trebled in the past five years at the State Bank of India (SBI); but more shocking is the revelation that the giant bank does not even know if these companies are filing any annual accounts and whether it has created

or modified any charge on the assets of these entities as required under the Companies Act. Where the loan amount is Rs25 crore or more and the frauds are mandatorily reported to the Central

QNet ‘settles’ violations and misreporting when caught to keep the scam running An explosive set of documents perused by Moneylife have revealed how QNet, the controversial, Hong Kong-based multilevel marketing (MLM), has been caught by the Directorate of Revenue Intelligence (DRI) for falsifying information

Bureau of Investigation (CBI), SBI’s recovery is abysmally low. “They are granting loans wilfully to the fraudulent companies knowing that they are putting bank in a 100% risk. SEBI should educate investors to file class suit against the promoters and management of the listed banking company if it is found that management is involved in granting fraudulent loans and putting bank at risk. They cannot play with the money of public and investors,” Rajesh Mittal says.

ML FOUNDATION Transforming governance

QNet: “It is a chain where a person is fooled and then he is trained to fool others to earn money” says Bombay HC order The Bombay High Court, while rejecting anticipatory bail applications of five accused in the multi-crore QNet scam, has observed that “the deceit and fraud is camouflaged under the name of e-marketing and business”

Why the new bankruptcy law is not a magic wand Both Houses of the Indian parliament have passed the long-awaited Insolvency and Bankruptcy Code 2016. The Code should make it easier for ailing companies to exit operations and for creditors to recover their dues in a timely manner

How the Mauritius Tax Treaty will affect FII inflows into the Indian market India has amended its 33-year old tax treaty with Mauritius that may hit investment inflows, especially since nearly $81.8 billion or 34% of the total inflows routed through that country over the past 10 years

Technology solutions and apps can transform citizens’ access to civic services and governance as shown by Nashik Municipal Corporation. Mumbai and other cities too can use similar app-based platforms to transform governance and ease lives of citizens, said experts at a panel discussion organised by Moneylife Foundation.

EXCLUSIVE VIEWS On issues that matter to you

Kwid, Celerio, Eeco, Scorpio and Eon fail crash test The latest Indian crash test results from Global NCAP continue to disappoint, with all five models rated as zero star. The Renault Kwid, Maruti Suzuki Celerio, Maruti Suzuki Eeco, Mahindra Scorpio and Hyundai Eon all showed low levels of adult occupant protection.

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CROSSHAIRs

Two Years of Modi Sarkar: a Mixed Bag

E

arlier this month, the National Democratic Alliance (NDA) marked the completion of two years in office, with the same planning and precision that it approaches its election campaigns. Specific ministers were dispatched to different cities to participate in discussions on the government’s achievements. Those heading important ministries, such as power, roads, railways and finance, have spewed details of their achievements on social media and were

generous with interviews to Indian and foreign media. That the second anniversary coincided with elections in four important states probably meant that the publicity was an indirect campaign tool as well, and given the results, it seems like a smart move too. I was invited to one such panel discussion on the Modi government’s performance. The questions from the audience and its reactions to the designated minister’s replies made one thing very clear—most people are happy to lap up the hype and the claims,

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

whether or not there is any impact on their own lives even in terms of lower food inflation which is understood by all. Of course, there are plenty of positives that the NDA can justifiably tout. GDP growth is strong; foreign direct investment is high; and overall inflation is under control. Prime minister Narendra Modi’s personal popularity remains higher than that of any other politician today, even though it may have waned a bit under the burden of massive public expectations of high-speed reform and rapid change. There have been no major corruption scandals in the past two years, although corruption issues are just as bad when it comes to dealing with lower rung officials in most government departments. Many of the problems that the government is grappling with, such as the bad loans of banks ballooning to a massive Rs8 lakh crore, are a legacy of the past and cannot be laid at the NDA’s door. However, the bigger worry is that the government has failed to take advantage of the low oil prices that have shown a steady uptrend in recent weeks. Let’s look at some hits and misses of the past two years. Among the earliest successes claimed by the government are the Pradhan Mantri Jan Dhan Yojana (PMJDY) and the two insurance schemes. Going by the government’s figures, it is, indeed, a stupendous success with 218.1 million accounts opened and Rs37,616 crore in deposits. The Jandhan accounts come with a Rupay debit card which has a built-in accident insurance of Rs100,000. The government reports that 94.3 million Suraksha Bima Policies and 29.6 million Jeevan Jyoti policies have been sold since the launch of the schemes. The key to any insurance is the number of claims settled. Here, too, the record is very good, so far, albeit with very low claims. Under the Rs30,000 life cover offered under PMJDY, 2,799 claims were received and 2,425 were settled (with 360 invalid claims), until 13th May this year. The Rupay card has also received 1,080 claims of which 735 were paid, 261 rejected and 

MONEYLIFE | 9 27June November 2016 2014 | 18 | 14

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 84 are under process. The real question here is: How

key projects are stuck for over 50 years and mired in controversy. many PMJDY accounts are examples of true inclusion A big damp squib of the NDA is the Black Money through first-time accounts and how many have used Bill that has only ended up giving draconian powers easy KYC norms to park funds in second accounts? to the income-tax (I-T) department. This has been On the flip side, the same public sector banks partly offset by reworking the double taxation treaty (PSBs) that have been forced to lead the financial with Mauritius with plans to extend this to other tax inclusion effort are also leaders when it comes to havens, to plug treaty shopping designed to avoid massive bad loans estimated at a stupendous Rs8 taxes. The long over due Insolvency and Bankruptcy lakh crore rupees. While the Reserve Bank of India’s (RBI’s) loan recognition norms have exposed the extent Bills touted as another big achievement of the NDA. However, as Debashis Basu wrote in Business Standard, of behest lending, crony capitalism or lax project the plans for a large regulator like SEBI (Securities appraisal in PSBs, the government seems to have no & Exchange Board of India) and cadre of certified clear idea of how to set things right. Is the Bank Board insolvency professionals could turn it into another Bureau going to provide answers? What we know is unwieldy bureaucracy that defeats the intent of the that two Gyan Sangams have not shown the way. legislation itself. There is no change in slow and confused The past two years have been appointment policies, or about huge schemes with catchy any attempt to provide names, launched at mega events more autonomy to senior in a blitz of publicity. Some have management along with increased worked, others have flopped accountability. Meanwhile, and the jury is still out on a few. protests by trade unions are likely These include Skill India, Start to escalate, since most employees Up India, Make in India, Digital are clueless about what the India, Mudra and Swachh Bharat government has in store for them. and improving the ease of doing The unions squarely blame bad business. There is apparently loans on cronyism and political a lot happening with all these interference and have some initiatives, but we have still to see justifiable concerns about their The power ministry, under tangible results in terms of higher future, since the government has employment numbers and greater yet to articulate its plan or policy Piyush Goyal, has been on with regard to bank mergers, new a fast track, in line with the investment. Indeed, we need to worry about the inevitable bank licensing or privatisation. PM’s announcement that slowdown in e-commerce and All of this is already overdue. all un-electrified villages logistics, which has been a big There is a general consensus (18,452 villages have employer of unskilled youth, that three infrastructure ministries been identified) would be who have led the consumption of are doing excellent work: power, electrified within 1,000 days mobile phones, motorcycles and railways and roads. Of these, other consumer goods, usually the power ministry, under Piyush purchased on equated-monthly-instalments. We see no Goyal, has been on a fast track, in line with the prime concern, as yet, on the implications of this slowdown. minister’s announcement on 15 August 2015 that A granular assessment of every ministry of the all un-electrified villages (18,452 villages have been Modi government shows that it has done a lot more identified) would be electrified within 1,000 days. than any previous government; but much of the good According to a Reuters report, the PM is pushing for work is marred by three problems. First, there is the target to be met before the Union Budget of 2017. excessive hype, slogans and announcements. Without In effect, the PM hopes that this will pay dividends in an engagement with key stakeholders, or a clear plan the crucial assembly elections for Uttar Pradesh. Like and vision, such hype raises questions about the targets the PMJDY, there is a dashboard that is constantly claimed to be have been achieved. Second, reliance on updating progress at http://garv.gov.in/dashboard with the same bureaucracy to deliver different results seems details of the officials who can be contacted for work to be tripping up the government too often. This is to be done. evident in the handling of tax issues, whether at the Without going into details about road, rail and corporate level (Vodafone) or individuals. Thirdly, infrastructure projects, one can only say that grand the slogan of “minimum government, maximum announcements and project outlays running into governance” which gladdened our hearts in the run up thousands of crores of rupees must only be evaluated to May 2014, still seems a distant dream.  in terms of actual implementation, because many 19 | 9 June 2016 | MONEYLIFE

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20-05-2016 16:41:23

DIFFERENT STROKES SUCHETA DALAL

Repealing Dead Laws: Off to a Commendable Start

I

n his book In the Dock: Absurdities of Indian Law, secretary Ajit Seth, in a note to all secretaries and heads published in 2000, Dr Bibek Debroy said, there are of government institutions and public sector banks, had an estimated 25,000 statutes at the state level and issued a list of instructions outlining the government’s 2,500-3,000 at the Central level that are old, dysfunctional priorities. The second instruction on that list was that each and redundant and deserve to be junked. Speaking at department should “identify and repeal at least 10 rules a Moneylife Foundation event just after the National and processes, and even archaic Acts that are redundant Democratic Alliance (NDA) government was sworn in, he and would not lead to any loss of efficiency.” said, “We do not readily know The government has the number of statutes in the systematically got cracking on the country. There is no complete easier task of scrapping outdated state list, and we can only guess laws. In his column in the Indian how many state-level statutes Express, Dr Debroy said, the R there are for all states. Then Ramanujam committee set up by there is the problem of counting. the prime minister in 2014 had I mean, whether to count the submitted “a mammoth fouramended statute separately or volume report,” which identified not.” 1,741 Central Acts for repeal. The oldest statutes still Since then, the number of laws surviving, according to identified for repeal has increased Dr Debroy, are the Bengal to 1,877. Districts Act and Bengal In the past two years, several Indigo Contracts Act of 1836 repealing and amendment and Bengal Districts Act, Act legislations (in 2014, 2015 and 21 of 1836, which still have 2016) have led to the scrapping of to be scrapped by the state 1,178 redundant statutes, mainly Action to repeal dead laws government; 140 other statutes Appropriations Acts. The latest began almost immediately go back to the 19th century of these, The Appropriation Acts after PM Modi was sworn in. and another 200 pre-date (Repeal) Act, No 22 and No 23 of R Ramanujam committee set Independence. 2016 received presidential assent These have survived, despite on 6 May 2016. Appropriation up by the PM had submitted a regular efforts to weed out Acts are meant for the limited mammoth four-volume report, redundant laws in the first purpose of authorising specific which identified 1,741 Central decade after India became a expenditures. India does not Acts for repeal which later republic. After the 1960s, there have the doctrine of desuetude increased to 1,877 have been several commissions (whereby certain statutes become and individual efforts to identify unenforceable because of disuse), and repeal redundant statutes through ‘repealing acts’. or what the Americans call a ‘sunset clause’, which allows The first such Act to scrap several British statutes was in a statute to die after it has served its purpose. Indian laws 1961; it was followed by sporadic action over the years. remain technically alive until specifically repealed. In 2001, under the previous NDA government, a few Apart from hundreds of Appropriation Acts of the hundred laws were scrapped and the civil procedure code Centre, various states and the railways, a few statutes was also overhauled. repealed in the latest round include such relics as the The effort has gathered great momentum under prime Excise (Spirits) Act, 1863, The Foreign Recruiting Act, minister Narendra Modi. Action began almost immediately 1874 ,The Indian Law Reports Act, 1875, The Elephants after he was sworn in. On 5 June 2014, the then cabinet Preservation Act, 1879 and The Lepers Act, 1898. And, 

MONEYLIFE | 9 June 2016 | 20

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DIFFERENT STROKES SUCHETA DALAL

 yet, this is the easy part; the real work still has to begin.

How long does it take a government, which has ‘Digital According to Dr Debroy, fixing and reforming our laws India’ as one of its flagship initiatives, to put every rule will allow us to “achieve 1.5% more GDP every year.” online? Once they are online, the whole world will be In a paper titled “Judicial reforms—law and contract able to see how ridiculous the rules are. Our effort to seek enforcement”, he had said, “Most legal reforms since 1991 permission for an outdoor event in Mumbai at a wellhave been triggered by economic reforms, domestic and known public space that is routinely rented out turned external.” There is no such drive or leadership in cleaning into a nightmare with a series of permissions that were up the legal system, despite all the cynicism about it, he necessary and a bribe demanded for each of them. There is no public outrage, because the dirty work of obtaining was concluded in his paper. That is no longer the case under Modi sarkar. And, permissions is done by event-managers and is included in yet, the work done on repealing obsolete laws has received the ‘cost of doing business’. little public attention, because none of this is really relevant While legal reform at the state and municipal level to ordinary Indians. And what is relevant has either not has yet to gather steam, what is more worrying is the changed or the government has government’s stand on two important issues. Chaitanya sent out mixed signals. Today, most of us are seriously worried Kalbag wrote in The Economic about justice being out of reach Times recently: “Twice in the of the average Indian because of past two and a half years, the the slow pace, mind-numbing Supreme Court has ruled with processes and prohibitive costs. a 19th-century mindset on vital The need of the hour is an effort 21 st-century issues affecting to overhaul the legal system and personal freedom using criminal to ensure that obsolete rules and and penal codification that was scrapped right down to state and enacted by India’s British rulers.” municipal levels. So far, only He refers to a 2013 judgement Rajasthan has led the effort by which upheld Section 377 of the scrapping 274 obsolete laws in Indian Penal Code criminalising May 2016. We need to see the homosexuality and the May effort gather momentum in all 2015 judgement upholding the NDA-ruled states. the constitutional validity of But it is even more important Sections 499 and 500 relating PM Modi’s effort to repeal to see action at the municipal to criminal defamation. As obsolete laws has received level. Consider just one example. Mr Kalbag points out, both are relics of a code drafted in 1837 The Municipal Corporation of little public attention, because by Thomas Macaulay. Greater Mumbai (MCGM), none of this is really relevant which is the richest and largest But what is even more to ordinary Indians. And what is municipality in Asia, continues important is that the government relevant has either not changed to enforce a maze of obsolete argued forcefully for their or the government has sent out retention, when this should laws, rules or regulations mixed signals have been part of Modi as a tool of harassment and sarkar’s much touted efforts rent-seeking from business establishments, especially smaller businesses. From white- at modernising and overhauling the legal system. So wash registers (a relic of the British efforts to enforce it is one cheer to the government for the good work hygiene), to mandatory cross-ventilation by disallowing in scrapping thousands of obsolete statutes. But office partitions that go up to the ceiling (again, carried real reform that will help the people would mean forward from the days before air-conditioning), to a licence clear and consistent effort to move towards a legal for shops with a threshold opening to a main street—there framework that is in line with 21st century needs and are innumerable rules that are cited only for rent-seeking. mindsets.  BMC employees who come on their inspection (collection) rounds, when asked for a list of the rules that a shop or Sucheta Dalal is the managing editor of Moneylife. She was business has to follow, will laugh and tell you that you awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected] will not be able to follow them.

21 | 9 June 2016 | MONEYLIFE

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MUTUAL FUNDS FUND FACTS

Ins & Outs of Mutual Funds in April 2016 IndusInd Bank witnessed strong buying from HDFC Mid-Cap Opportunities (Rs137 crore) and UTI Opportunities (Rs67 crore). HDFC was bought by schemes such as Franklin India Prima Plus (Rs79 crore) and Motilal Oswal MOSt Focused Multicap 35 (Rs50 crore). Five schemes of Reliance Mutual Fund sold Rs196 crore worth of shares of Reliance Industries in April 2016. HDFC Equity and ICICI Prudential Focused Bluechip Equity sold shares worth Rs167 crore of Infosys. Top 10 Bought Companies Company Name

Top 10 Sold Companies Value (Rs Crore)

Company Name

Value (Rs Crore)

IndusInd Bank

288.27

Reliance Industries

332.88

HDFC

208.06

Infosys

318.04

United Spirits

177.70

Tata Consultancy Services

173.30

Cipla

172.87

Axis Bank

139.10

HDFC Bank

155.90

Oil & Natural Gas Corpn

126.66

Coal India

126.46

HCL Technologies

105.08

V-Guard Industries

96.36

Tech Mahindra

98.46

Sun Pharmaceuticals Industries

93.23

Hindustan Zinc

93.91

Max Financial Services

86.77

ICICI Bank

83.75

Hindustan Unilever

80.07

TVS Motor Company

83.13

HDFC Mutual Fund IndusInd Bank

137.35

Infosys

149.35 101.34

Max Financial Services

85.11

Kotak Mahindra Bank

Tata Consultancy Services

50.56

ITC

80.91

ICICI Bank

37.89

Bajaj Finance

59.41

Tata Motors

35.46

Aurobindo Pharma

37.26

ICICI Prudential Mutual Fund Axis Bank

131.52

Lupin

131.64

Coal India

90.85

Oil & Natural Gas Corpn

123.14

Cipla

62.20

Tata Motors

103.77

IPCA Laboratories

57.77

Infosys

97.25

Maruti Suzuki India

56.34

HCL Technologies

66.11

ITC

68.59

Reliance Industries

195.70

Yes Bank

45.20

Infosys

94.02

HDFC Bank

33.71

HDFC

29.62

United Spirits

32.67

Mphasis

29.43

Larsen & Toubro

28.51

Maruti Suzuki India

26.29

HDFC

87.76

Tata Consultancy Services

41.71

Sun Pharmaceuticals Industries

39.15

Tata Motors - DVR - A - ORDY

38.10

HDFC Bank

38.01

Aditya Birla Nuvo

33.56

Bharti Airtel

33.04

ICICI Bank

31.97

United Spirits

24.38

TVS Motor Company

30.84

Reliance Mutual Fund

Franklin Templeton Mutual Fund

MONEYLIFE | 9 June 2016 | 22

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TAX/ FIXED INCOME

to maturity (YTM) instead of the coupon rates when buying from secondary market. YTM will be

lower tax bracket. It is true that if interest rates keep falling, there can be an opportunity to make capital gains by selling in the secondary market. But when the interest rate cycle reverses its trend, you may be stuck with the bonds since selling it

the returns a person will receive if he holds the bond to maturity. The current YTM for 10- and 15-year tax-free bonds are around 6.85% and 6.95%pa, respectively. There are liquidity issues in the secondary market and brokerage charges will also eat into your returns. Getting YTM of around 7%pa for tax-free bonds is not a great return, especially for those in the

can lead to capital losses. Holding the investment for rest of the term will give returns of less than 7%pa. For long-term investors keen on buying tax-free bonds to reap the benefit of annual interest payout, the right time will be when the interest rate cycle reverses its trend and climbs up. Buying bonds when the interest rate cycle is at its peak will give higher YTM.

Should You Rush for Tax-Free Bonds in Secondary Market?

T

ax-free bonds issues in FY15-16 in primary market got a tremendous response from investors. Several issues got oversubscribed on the first day itself. The coupon offered was around 7.30% for a 10-year term and 7.60% for a 15-year term. With no new tax-free bonds issues in sight for the current financial year (FY16-17), the secondary market is witnessing buying interest from investors. Experts are also making a call about it being the right time to buy tax-free bonds. Should you follow their advice? The argument for buying taxfree bonds is that interest rates may fall further; the interest rate on bank fixed deposits (FDs) is 7%-7.5%pa which is subject to taxation. Those in the 20% or higher tax bracket will benefit with buying tax-free bonds from the secondary market. But you need to check the yield

G-Sec and Bond yields Are Flat

T

he 10-year benchmark G-Sec yield, which sets the tone of the fixed-income market, increased marginally by one bps (basis point) in the last fortnight to end at 7.44% on 13th May. Bond yields remained flat last fortnight. You can expect to get around 8.25%-8.50% for AAA rated bonds and around 9% for lower than AAA rated bonds. According to CRISIL, “Inflation jumped up to 5.4% in April from 4.8% last month on the back of higher food inflation. Core inflation also inched up to 5.2% led by rising housing and clothing and footwear inflation. We believe this increase to be transitory as a normal monsoon and proactive steps by the government in food

supply management will support lower food inflation this fiscal. For 2016-17, we expect CPI to stay

close to 5% on average, assuming a normal monsoon. Even as it remained positive, IIP growth fell to 0.1% onyear in March from 2.0% in February, despite a low base of last year.”

Issuer

Maturity Date

Next Last Yield Coupon (%)

ISIN

Rating

LIC Hsg Fin 8.69%

17 May-19 18 Feb-17

8.48

INE115A07IU6

CRISIL AAA

LIC Hsg Fin 8.65%

14 May-18 14 May-17

8.45

INE115A07GW6 CRISIL AAA

HDFC 8.65%

18 Sep-20 19 Sep-16

8.38

INE001A07OA8 CRISIL AAA

29 Mar-26 29 Mar-17

10.38

INE220H08016

BWR A (SO)

Oriental Bank of Commerce 9.48%

31 Mar-99 31 Mar-17

9.48

INE141A08027

CARE A+

LIC Hsg Fin 9.35%

19 Aug-19 19 Aug-16

8.47

INE115A07FN7

CRISIL AAA

NSE data as of last trade date of 13 May 2016

Himachal Pradesh State Electricity Board 10.39%

BSE data as of last trade date of 13 May 2016

23 | 9 June 2016 | MONEYLIFE

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SMART MONEY R BALAKRISHNAN

A 20-point Checklist To Assess Management Quality

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anagement quality is something we all worry about. Research analysts and fund managers do not talk about it. Their reports are quiet on this. Everyone agrees that, to create a good investment portfolio, the stocks we choose must be backed by good quality of ‘management’. There are too many promoters who would rather not leave anything on the table for the other shareholders, if they could. Hence, when we talk about RoE (return on equity), we simply refer to the RoE as announced in the published accounts. The RoE to a promoter, or management, is enhanced by legal and illegal routes. Most of us do not bother about it much, as long as the published RoE is a big enough number. Over the years of studying companies and managements, I have come to the conclusion that absolute management integrity is as mythical as it can get. Dig deep enough and everyone has a skeleton to hide—a skeleton which either points to breaking of some law or of some tax evasion or some act which denies something to other shareholders. And I also believe that if I presume ‘mistrust’ as the default parameter, no company or investment can have the capacity to shock us. Yes, of course, structured frauds, like Satyam, may continue to evade normal health-checks, but there is no way to eliminate those. Management integrity is, thus, a relative measure. While investing, I just try and limit my choices on a relative scale. On an absolute scale, I cannot even keep cash in hand. In the old days, the currency notes used to have the words ‘I promise to pay the bearer, ON DEMAND, a sum of Rupees…’. All it meant was that we could go to the Reserve Bank of India (RBI) and get another note. Somewhere, during Indira Gandhi’s regime, the words ‘ON DEMAND” were dropped. So it means that even RBI can tell you to take a walk or ‘come tomorrow’. There are public sector companies (technically owned by the President of India) that have delayed on interest and principal payments. People may explain them as procedural lapses; but, to me, it is the owner’s attitude. So, how do we assess management quality? I will make an attempt to list around 20 attributes to consider: 1. Ability to deliver profits: Past record; 2. Unrelated diversification: The more of them, the worse the management quality; 3. RoE hurdle: If they cannot deliver >15% or so;

4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

Financial flexibility: Ability to raise money at short notice; Debt/equity ratio: Anything higher than 1:1; over time, any good company should become debt-free; Borrowing: Off-market record on borrowings, ICD (intercorporate deposits), bills, etc; Group: Problems evident in group/associate companies; Human resources: Continuity of key employees; Shareholder-friendliness: Attitude to minority shareholders (dividends, buybacks, etc); Unrelated investments: This is a big siphoning tool; Accounting quality: Whether aggressive or conservative; Company reputation: Within industry, with vendors, etc; Market interest: Trading in own shares; Bankers’ view: How foreign banks/private banks see the promoters; Succession issues: For instance, I avoid third-generation companies; Crony board: Number of relatives and above 70-year olds on the board; Capital market reputation: Is the market giving a premium or discount? Gifting themselves: Private placements, warrants to promoters; Promoter reputation: Whether page-three types; Personal: Lifestyles, family backgrounds, etc.

These are some of the main attributes I like to list and do my homework on. Many of these factors call for specialised knowledge and a lot of patience to dig for information. It helps to view all managements with suspicion to begin with. When I look back, I can find few managements that have not gypped the shareholders. For example, in the old days, the management could not take salaries beyond a few thousand rupees a month! Their only income used to be dividend on the shares the family owned. Still, they would unfailingly subscribe to ‘rights’ issues worth crores of rupees. It was obvious what the sources were. Setting up a new project is a bonanza for many promoters. Costs are inflated. Suppliers/vendors give huge kickbacks to promoters. Promoters buy mansions out of shareholders’ money. Or buy apartments, take fat 

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SMART MONEY R BALAKRISHNAN

 deposits from the company and build personal real estate

portfolios. There is no line in the profit & loss account that cannot be inflated or deflated. Auditors are blind to these things. So the canvas for promoters to rob is wide and fresh. What I like to do is to give a score (say, on a scale of one to five—good, above average, average, below average, rogue) to each and every attribute listed above. And then take a total and see what the overall score is. So, a final score will tell me which of the five buckets a company management’s score lies in. If it is the last two or three, I will keep the stock in my trading list. The ones with rogue managements are excellent trading opportunities since the management would also like to keep share prices high. This is HIGH RISK strategy and not recommended, unless you are willing to lose a lot of money. For longer-term investments, I would like to choose companies in the highest category. Of course, there are some ‘veto’ attributes like RoE. My shortlist will never include a company with an RoE below 15%, unless I just want to do short-term speculation. Every management needs to be measured on ability and integrity. Ability can be objectively measured by return ratios. Integrity is a subjective measure; but I am trying to use a combination of quantitative and qualitative attributes. For instance, investing in unrelated ventures, undertaking corporate social responsibility (CSR) activities where the promoters’ spouses are engaged are, to me, poor signs. Or take capital allocation. If an existing business earns 20% RoCE (return on capital employed), new diversifications that have uncertain profit potential, is a bad move. If there is excess cash, the company should return it to shareholders in the form of dividends (or

indirectly as buybacks). An investor, for instance, invests in a company like L&T because of their engineering skills, not for setting up a mutual fund or shipyards or steel plants. That is poor capital allocation. Or when ITC starts putting money into hotels, paper, FMCG, agarbatti, etc. These diversifications, even if they pay off, are reflective of poor capital allocation. I invest in a tobacco company because I want the profits that tobacco can deliver. If I want the deployment of money by investing in hotels, I will buy shares in Indian Hotels or EIH. ITC should not be doing it for me. If they think that the cigarette business will close down (I’ve been hearing it for the past 40 years), let it. I am willing to live with that risk. But when salesmen selling cigarettes start selling soaps and wheat, it is time to worry. The nature of the commercial enterprise, the pressures of the stock markets and, personal ambitions of promoters are a heady combination to disrupt management quality. Add to that the Asian penchant for inheritance of businesses. This does mean that, at some point, every company becomes the battleground for families. When the Ambani brothers split, did the shareholders have a choice of how to split, whether to split, etc? And the Ambanis did not own the majority of shares, to behave in the way they did. They are not the only ones; virtually every Indian company goes through this. There are some south Indian ‘groups’ where the ownership is so complex that it can blow up at some time. Thus, when it comes to management quality, it pays to be sceptical. And, yes, I dislike companies where the promoter holding falls below 30%. Let us say, it is my personal phobia.  The author can be reached at [email protected]

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

25 | 9 June 2016 | MONEYLIFE

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Health Insurance

Insurance Premium in Instalments?

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

Young Women Make Three Times More Claims than Senior Citizens

A

n ICICI Lombard study on claims pertaining to women for the past four years shows how varied the claims and the diseases were for different age groups. The top 10 claims by women for 2015-16 (up to December 15) were: maternity, digestive disorders, eye problems, other ailments, neoplasm, genito-urinary disorders, common infections, respiratory, pre-/postnatal care and gynaecology-related. The topper was maternity claims which formed a major portion, at 27%, while the next in the list (digestive claims) constituted only 9%. Top 10 claims account for

Fine Print Max Bupa: Rs20 Lakh Fine

I

nsurance Regulatory and Development Authority of India (IRDAI) has imposed a penalty of Rs20 lakh on Max Bupa Health Insurance for four violations—claim settlement delay, selling new version of a

H

almost 85% of the total. The maximum number of claims came from the age group of 26-35 years (36%). Surprisingly, only 11% claims were from senior citizens—one-third of the claims

ICICI Lombard Age-Wise Claims Summary Age Group

201415

2015-16 (9onths)

00-18

8%

9%

19-25

15%

15%

26-35

36%

36%

36-45

10%

12%

46-55

11%

11%

56-60

7%

6%

12%

11%

60 and above

which came from the younger group (of 26-35 years). There has been a consistency in the number of claims received across age groups in the past five years.

product before its clearance as well as offering the old version even after approval of the new version, procurement of insurance business through entities not licensed as per the Insurance Act and engaging outsourced vendors for lead generation which is a violation. In 2011-12 and 2012-13, Max Bupa had an average of 64 and 62 days, respectively, for claim registration;

ealth insurance customers may be allowed to pay the premium in instalments soon, to help in increase insurance penetration. Currently, annual premium for health insurance has to be paid in full at the beginning of the policy year. Even if the product offers option to pay for two or three years with discount, full payment is required to avail the discount. Many life insurance products allow premium payment in monthly, quarterly, semi-annually or annual instalments; the annual premium payment mode usually gets some rebate or, in other words, options other than annual payment end up being higher for the same period—of one policy year. The same will be true for health insurance premium paid in instalments. Moreover, if there is a claim, you will have to first pay the remainder premium for the policy year before you can expect to get any claim reimbursement. Insurance companies will have to apply for approval of products to allow customers to pay premium 

the number of days for claim settlement was 70 and 44 days, respectively. The insurer was not capturing the date of intimation of claims in the system. There was lack of proper internal controls and procedures while settling the claims.

Royal Sundaram: Rs40 Lakh Fine

I

RDAI has imposed Rs40 lakh penalty on Royal Sundaram



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INSURANCE TRENDS

 in instalments. Some insurers will

start offering the premium payment flexibility soon. With health insurance premium on the rise, giving the flexibility of premium payment will help. But one still needs to ensure that instalments are not missed, to get continuous cover. According to the latest National Sample Survey (NSS), over 80% of India’s population is not covered under any health insurance scheme.

India and, hence, NRIs should consider buying online term plan. Read Moneylife Cover Story “Can NRIs, PIOs and OCIs buy Indian life Insurance?” http://www. moneylife.in/article/insurance-fornris/38662.html LIC e-Term eligibility states: “He should NOT BE Overseas Citizen of India (OCI) or Person of Indian Origin (PIO). He/she

L i f e I ns u r anc e

LIC Online e-Term Open for NRIs

L

ife Insurance Corporation of India (LIC) e-Term, an online term plan cheaper than its offline version, was launched in May 2014. It was disallowed for NRI (non-resident Indians) and PIO/OCI (person of Indian origin/overseas citizen of India). Two years later, LIC has opened up the product for NRIs. It is still disallowed for PIO/ OCI. Private insurers have been offering online term plans for NRIs. For NRIs wanting to buy online term plan, it is a growing market. The major issue is medical tests which can be handled during visit to India. Life insurance cover is applicable even if death is outside

 Alliance Insurance for violation of

various guidelines. The regulator said that the company was outsourcing core activities, like policy servicing to its corporate agents, banks and brokers, which was in violation of outsourcing guidelines. A penalty of Rs5 lakh was levied for categorising all rubber, nylon or plastic parts as ‘other’ items for motor insurance

must have own earned income. One cannot propose for anyone other than self. Key Man Insurance (KMI)/ Partnership/ EmployerEmployee Cover will not be allowed.” If you are non-smoker who wishes to buy online term plan of Rs50 lakh or more, LIC e-Term will help to save nearly 40% premium compared to LIC’s offline plan. Even though key features of LIC e-Term specify ‘Differential premium rates for smoker and nonsmoker lives’, it is applicable only

and applied depreciation-based on age of vehicle. This led to inconsistency in claims payment.

National Insurance: Rs15 lakh Fine

N

ational Insurance was penalised Rs15 lakh for violation of various regulatory norms including payouts over and above the approved commission.

for sum assured of Rs50 lakh and above. The savings for a smoker may be only 15% compared to LIC’s offline plan. This makes the online version not as attractive for smokers, but it is still worthwhile as an option. The key point to consider is that LIC e-Term for non-smokers as well as smokers will be 35%-50% costlier than many online term plans. It will appeal to those who trust LIC brand. Cost conscious customers who do not mind private insurers will continue with existing policies by paying lower premium. The core product is the same across the insurers and, hence, premium is one of the important criteria for comparison. LIC’s e-Term has minimum sum assured of Rs25 lakh. The differential premium for nonsmokers versus smokers is for sum assured of Rs50 lakh and above. There is no maximum sum assured limit. The minimum age at entry is 18 years while maximum age at entry is 60 years. The maximum maturity age is 75 years; it is a good option, even though you should not need term plan till that age. The minimum and maximum policy term is 10 years and 35 years, respectively. LIC’s e-Term offering maximum policy term of 35 years will also help customers. 

The insurer was making additional payouts to Maruti Insurance Business Agency Ltd and to Hero Corporate Services Ltd on the motor premium solicited through the two corporate agents. The excess payouts to the licensed entities were referred by the insurer as reimbursement towards infrastructure costs. 

27 | 9 June 2016 | MONEYLIFE

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

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

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

Subscription to Moneylife magazine is included in MSSN Premium Membership About MSSN MSSN 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. MSSN was set up to help investors and savers make the right financial decisions and handhold them through the entire process.

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18-11-2015 20:42:13

COVER STORY

Save Tax when Buying/Renting Home SECOND

HOME

HRA De

em

ed

Re

nt

The Finance Bill 2016 has introduced three positive changes for homebuyers and renters. Buying property on loan can fetch you tax deductions that are worth exploring. Raj Pradhan analyses situations when you can claim HRA and home loan interest deduction to save taxes

e m n o H oa L

G

ood housing costs a fortune for the average saver. To help them, the government is offering generous tax deductions for home loan principal and interest amount. Of course, you need to know how to handle the deductions for different situations. A few changes introduced in Finance Bill 2016 will help homebuyers. This article offers a comprehensive picture of all the latest income-tax provisions for home loan, interest and rent, following the recent changes. It is possible that you are a home-renter and have also invested money to buy a home which is under construction. House Rent Allowance (HRA) and home loan interest deduction can go together; but you need to watch out for a few things that can get you into trouble.

You may continue in the rental arrangement, even after your home is ready (whether in the same city or a different city). Know how to handle the tax deductions in such cases. You may even decide to keep renting while letting out your home on rent to get unlimited loan interest deductions. Similarly, you can buy a second home and benefit even more since wealth tax is now scrapped. But be careful as you will have to show rental or notional rent at the market rate for the second home. But first the changes in the Finance Bill 2016. 1. Under-construction home time limit raised from three to five years: Home loan interest deduction of Rs2 lakh (Section 24b) per annum is an incentive for homebuyers to take a loan even if they can afford paying in full. But 

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COVER STORY

 many do not know that if the possession of house is

given after more than three years (now increased to five years) of taking the loan, you may lose 85% tax benefit. The permissible deduction falls from Rs2 lakh to just Rs30,000 a year—a whopping reduction of 85%—for no fault of yours. Such a big fall in your tax benefit will hurt those in higher tax bracket the most. Taxpayers in 30% tax bracket will save taxes up to Rs60,000 by claiming deduction of Rs2 lakh. If the deduction falls to Rs30,000, then the tax savings will be up to Rs9,000. The worst part is that the fall in deduction to Rs30,000 will be applicable for all the future years and not just for one year! So, the loss of Rs51,000 (Rs60,000 minus Rs9,000 in this example) over the entire loan repayment period of, say, 20 years will mean a loss of over Rs10 lakh in tax savings. So, if you are keen for home loan interest deduction of Rs2 lakh instead of Rs30,000pa, then buying under construction house is a big risk. You should look for a completed flat. But what if you find yourself in a situation where your tax deduction may reduce from Rs2 lakh to Rs30,000pa? According to chartered accountant (CA) Pranita Nazar, “If the house is rented the interest deduction is unlimited without conditions of time limit of completion of construction. So if the construction is delayed, the owner may let out the property and claim full interest against the rent received.” The increased time limit from three to five years will help consumers as delay in delivery of real estate projects is a reality which can affect your tax benefits. But with such a relaxation will the developer take even more time for delivery and nullify the incentive given by the government? Remember, even the largest builders have repeatedly failed to deliver projects on time. 2. First time buyer additional deduction of Rs50,000: The Finance Bill of 2016 has offered additional deduction of Rs50,000 for home loan interest under Section 80EE for first-time homebuyers. This deduction is over and above the maximum of Rs2 lakh interest deduction on home loan interest. The additional deduction of Rs50,000 is available only if the value of the house is up to Rs50 lakh and the loan amount is up to Rs35 lakh. If you are able

to deduct up to Rs50,000 more for interest payments on the loans, the annual tax saving for those in 30% tax bracket will be up to Rs15,000; those in 10% tax bracket will save up to Rs5,000. While this will lower the cost of borrowing for taxpayers, the scope of benefit may be limited to smaller cities due to limit for loan amount and value of home. CA Ameet Patel, partner, Manohar Chowdhry & Associates, says, “With a view to encourage first-time homebuyers, the Finance Bill 2016 has substituted its earlier existing provisions under Section 80EE. However, care must be taken to ensure that deduction under the two Sections–24 and 80EE—is not claimed in respect of the same amount. For example, if the total interest paid is say Rs2.10 lakh, one cannot claim a deduction under Section 24 of Rs2 lakh and Rs50,000 under Section 80EE. In such a case, the latter would be restricted to Rs10,000.” 3. Incentive for renters having no HRA: The Finance Bill 2016 has made house rent exemption benefit more

Care must be taken to ensure that deduction under the two Sections –24 and 80EE is not claimed for the same amount. For example, if the total interest paid is say Rs2.10 lakh, one cannot claim a deduction under Section 24 of Rs2 lakh and Rs50,000 under Section 80EE Ameet Patel, CA, partner, Manohar Chowdhry & Associates

attractive for those who don’t have an HRA component in the salary or are self-employed. The existing exemption under Section 80GG was a mere Rs24,000pa which translates into Rs2,000 per month (pm). It is not possible to rent any flat at such a low amount and, hence, the rent exemption benefit made no sense. The limit has been raised to Rs60,000pa. Those in the 30% tax bracket will save up to Rs10,800 more; those in the 10% tax bracket will save Rs3,600 more. So, you have more incentive to continue with a rental arrangement. The income tax (I-T) department has come out with a standard Form 12BB for salaried taxpayers to claim tax deduction on leave travel allowance concession, HRA and interest paid on home loans. For HRA, need to furnish details like name, address and PAN number of the landlord if the aggregate rent paid exceeds Rs1 lakh a year. 

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COVER STORY

 Benefit from HRA or Section 80GG

Rs26,000 minus Rs20,400 = Rs5,600. For those who live in rented houses and don’t get the Salaried individuals can avail HRA exemption under Section 10(13A). HRA is usually a sizable part of your benefit of HRA from any employer, the deduction of rent salary; hence, if you are a renter, you need to claim the paid under Section 80GG has gone up from Rs24,000 to exemption properly. Self-employed professionals cannot Rs60,000pa. Tax exemption on home rent for self-employed get HRA exemption; but they can claim home rent under Section 80GG is limited. It is lower of these three: expenses under Section 80GG. If you are living in your a) actual rent minus 10% of gross professional fees; b) Rs60,000 per annum; and own home or not paying rent c) 25% of gross professional to anyone, you cannot claim fees. If the self-employed is HRA exemption. What if you paying office rent, that can do pay rent, but also have be shown as expense. If not, your own house? Ameet Patel, he most popular blog post on Moneylife home office may be shown says, “The two conditions for Smart Savers Network (MSSN) is on if a specific home area is claiming exemption under “Home loan interest tax savings”; it has over used exclusively for office Section 10(13A) are that the 500 comments. There is obviously great deal of purposes. employee does not own the interest in the subject. So, here are the basics If you live in your parents’ accommodation he is staying of the issue: house and pay them rent, in; and he must actually 1. Principal amount in the repayment of a home you can still benefit from incur the expenditure for the loan can be added to the 80C limit of Rs1.5 the HRA of your salary or accommodation. Therefore, lakh for tax savings. Section 80GG (if no HRA). it is possible for the employee 2. The interest component of home loans is The property needs to be to stay in the house belonging allowed as deduction under Section 24(b) registered in the name of to the parents/siblings and for up to Rs2 lakh annually in case of a selfyour parent. The rent you pay rent to them. The rent occupied house. pay to your father or mother however, should not be less 3. In case the house is in the joint name of will become rental income than or equal to 10% of the your spouse and you (joint loan), each for them which has to be basic salary, otherwise no one can avail Rs2 lakh interest component shown in his/her tax return. exemption can be claimed.” deduction. It usually works well as you The actual HRA for tax 4. This limit is only for self-occupied house. If may be in higher tax bracket exemption is lower of the you have property that is rented out, you during your earning years and following three: a) actual can deduct the full interest paid on the home senior citizen parents may be HRA your employer provides loan. The rent on the property becomes on zero or lower tax bracket. you as part of the salary; b) part of your income. Moreover, the rental income 50% of the basic salary when 5. If the EMI is being paid from one account by can show 30% standard you reside in a metro or 40% ECS (electronic clearing service), pay your deduction, which helps to for non-metro location; and contribution of loan repayment to your reduce taxable income. c) actual rent you pay minus spouse by cheque. It will help in case of I-T 10% of basic salary. For assessment. example, assume your basic Tax Savings on Home 6. You can avail both the benefits of home loan salary is Rs46,000 per month Loan Principal and HRA if you are paying rent on your and the actual HRA offered If you have purchased a accommodation and have also taken a loan by the company is Rs26,000. home, payment of stamp on your home. This is subject to your home You rent an apartment in duty and registration receiving rental income which is taxable. Mumbai for Rs25,000pm. charges will be part of 80C Residence in Mumbai will deduction. You can claim it make you eligible for 50% of the basic pay for HRA even if you have not taken any home loan. Claim these exemption. These values are considered to find out HRA expenses in the year in which you incur the expenditure. tax exemption: a) actual HRA received, i.e., Rs26,000; Your repayment of home loan principal is also part of b) 50% of the basic salary, i.e., Rs23,000; and c) excess 80C; hence, do not miss out on it. Check the repayment of rent paid over 10% of basic salary, i.e., Rs25,000 – amount towards the principal with your lender or look Rs4,600 = Rs20,400. Your HRA exemption is lower at your loan instalment details. There is fine print that of the three (Rs20,400). The taxable HRA amount is you need to understand before you claim it as 80C tax 

The Basics:

T

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COVER STORY

Paying Rent to Your Spouse? Be Careful

I

f you are paying rent to your spouse, logically, you should not claim HRA or Section 80GG deduction even if you get a receipt for the same. There have been cases of I-T scrutiny refusing such an arrangement even if your spouse shows rental income of the money you pay. The reasoning is that husband and wife are supposed to live together and, hence, payment of rent to spouse does not arise. But you can argue. According to Pranita Nazar, “HRA exemption is available even if the house is owned by a close relative (may be spouse or parents) and for which rent is regularly paid as held in Bajrang Prasad Ramdharani V/s CIT.” So, rent to spouse can be taken as HRA exemption. This means that as long as the home is in the name of spouse, one can pay rent and claim HRA. If the spouse may be in zero/low tax bracket; husband and

 deduction. These clauses are:

1. House must be completed by the end of the previous year in which the deduction is claimed. 2. The tax benefit under Section 80C is available only for purchase or construction of a residential property. Housing loan benefit for more than one house can also be claimed. It is not available on commercial property. 3. Unfortunately, unlike the interest component on housing loan, you cannot claim principal repayment of a housing loan during the pre-construction stage in future years (after completion). 4. The property must not be sold for five years from the time you take possession. Doing so will add back the deduction to your income in the year in which you sell.

Tax Savings on Home Loan Interest Home loan interest deduction cannot be availed until your house is completed; at that stage, you can claim tax benefi ts on the total interest paid up to the date of completion, in five equal instalments in five years, beginning from the year of completion. Remember, along

wife benefits from such transaction. But be ready to face I-T scrutiny convincingly. Remember, if it goes against you, you would pay penalty and interest. If you are not confident, don’t go for such exemption as it can be a risky proposition. If you try to buy property in the name of spouse just to benefit from such arrangement, be cautious as there are clubbing provisions under Section 64, to counter your actions of tax evasion. Nikhil Vadia says, “The documents have to be perfect. Also, who has actually paid for buying house and how much was paid matters.” Ameet Patel says, “There is nothing in the law that prevents someone from paying rent to his family members. However, this would obviously be very difficult to defend and justify—especially if the landlady happens to be his wife. Personally, I would never allow a client of mine to do this.”

with the interest on a home loan, even the processing fees for the loan is eligible for deduction under Section 24. Ameet Patel says, “The limit of deduction of interest on home loan applies to the interest for the current year as well as the pre-EMI (equated monthly instalment) interest. Pre-EMI interest is allowable as a deduction over a total of five years beginning with the year in which the house is completed. But the total deduction for interest will, in no case, exceed Rs30,000 / Rs2 lakh per year, as the case may be.” So, if your annual loan interest is already over Rs2 lakh, you will not be able to take benefit of interest you paid before completion of home. As mentioned earlier, if you want unlimited interest deduction, you may let out the property and claim full interest against the rent received. The rental income will have to shown in your tax returns and will be taxable.

Can You Claim Tax Deductions on HRA as Well as Home Loan? If you can claim tax benefit from both HRA and home loan deduction, you can lower your taxes significantly. Many corporates do not allow both the exemptions to be taken if your rental accommodation and own home is in 

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18-11-2015 20:38:17

COVER STORY

Notional Income from Your Second Property is Taxable!

B

uying property is a popular investment option. Many own a second home, but don’t know the tax implications of keeping it vacant. Buying property in the name of spouse is also done to avoid showing rental income in your tax return. But the clubbing rule makes the rental income your headache instead of being shown as spouse’s income. Moreover, if the property is vacant, do you pay tax on notional rent? According to Pranita Nazar, “Many own a second home, but don’t know the tax implications of keeping it vacant. There is a reluctance to declare it for wealth tax (FY14-15 and earlier). Investors want to avoid tax on notional rent. Renting it out for over 300 days in a year is a way out of these troubles.” Ameet Patel concurs. “Even though wealth tax is abolished (with effect from FY15-16), if a person has two self-occupied homes, he/she will have to pay tax on notional income from the deemed to be let out property,” he says. In the ITR forms from FY14-15, house property has separate columns for ‘deemed to be let out’ and ‘let out’ status of property. Maybe, the I-T department is watching closely to ensure that you do not miss out on notional income based on the prevailing rent

 the same city. But what if an employee does not declare

to the employer that he owns a home in the same city where he rents? Ameet Patel says, “What a company does or does not do is not necessarily the correct position in law. An employee having his own house in the same city as the city where he lives in a rented house could conceal this fact from his employer and, thereby, make it easier for the HRA exemption to be granted by the employer. In his tax return, he could then claim the home loan deduction.” If you are a real estate investor who wants to get maximum tax exemption from home loan interest and simultaneously continue with your rental arrangement in the city where you work, you may invest in property in a different city. If both are in the same city, both exemptions are allowed, depending on the conditions

in that area for your second or another home which is lying unoccupied. If you were ignorant about such a tax liability, you are now made aware in the ITR. Owning more than one home is helping you to build your assets; but do not forget about the tax liability, irrespective of whether you keep it empty or rent it out. According to Vivek Rege, of VR Wealth Advisors Pvt Ltd, “Disclosure of deemed income is now a reality. It was often a trade practice not to disclose income from second house property if it was deemed to be let out (vacant). This was a huge revenue loss for I-T department. So the taxpayer is discouraged from accumulating properties for hoarding large capital sums in property without paying tax (on deemed rent). One has to disclose the second, or more, house properties, which are under lock and key; the rent in the locality will now be considered deemed income and the taxpayer has to pay tax on income which he has never earned. It is a huge discouragement for investing community and a great boon to first-time homebuyers.”As you can see, homebuyers, both first and second homebuyers get major tax benefits now. But remember, don’t get overleveraged in your enthusiasm to save taxes, lest you default on the loan.

explained below. Pranita Nazar says, “The two Sections are unrelated; hence, there is no issue while claiming exemption under Section 10(13A) and deduction under Section 24(b) simultaneously provided the conditions of both the sections are met.” According to Nikhil Vadia (CA), “Section 24(b) and 10(13A) are separate Sections. HRA deduction under Section 10 (13A) is a self-contained code. However, the assessing officer can still disallow the claim if he senses misuse/tax evasion.” Situation1: You Have Own Flat and Rent Another in the Same City One misconception is that there needs to be a minimum distance like 50km, so that you can claim both HRA and home loan interest deduction. There is also a confusion whether there is need to show rental income / notional 

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COVER STORY

 rent for own home if you live in rental accommodation.

Nikhil Vadia says, “There is no limit of kilometres specified under Income-tax Act. For own flat, if one has more than one flat, only then deemed rent is applicable. Most corporates do not allow both deductions if both flats are in same city.” According to Pranita Nazar, “There is no minimum distance specified. However, the assessee has to prove to the department that the owned house is away from his workplace and the rented house is convenient in terms of travelling time and distance. If he proves this, there is no need to offer notional rent for taxation (if own home is not given on rent).” But what if the employer refuses to allow exemption for both HRA and home loan interest? Ms Nazar adds, “In this case, the employer can take a declaration from the employee justifying that his stay in the rented house (though in the same city) is for the convenience of travelling and not for any personal benefit.” Check if it works with your employer. Ameet Patel says, “As per the Explanation 3 given in Section 23 of the Income-tax Act, an employee owning a house can claim the annual value of the property to be nil as long as it is not actually on rent and no other benefit is being received by the employee. If the house property is on rent, the actual rental income will be taken as annual value for income from house property. It is further explained that such annual value for such property can only be claimed to be nil as long as it is due to the owner staying in any other place not belonging to him due to his employment. There is no mention of any specific distance or any other condition apart from the ones listed above. Therefore, both deduction of interest under 24(b) as well as exemption for HRA can be claimed by such a person irrespective of the distance between the place of rented house and the owned house.” Situation2: You Own a Flat, but Stay with Parents/ Sibling in the Same City and Pay Them Rent You may be are living with parents/sibling and paying them rent even though you have own home in the same city. Can you argue that you want to stay with the family and, hence, are paying them rent? Does own flat need to

show rental income / notional rent? Pranita Nazar says, “The High Court in the case of Shikharchand Jain V/s CIT held that if the employee has left his house vacant on account of personal convenience and not because of business / employment compulsion, he is not allowed to take the benefit of Section 23(2)(b). This means the annual values will not be zero and the notional rent will be offered for taxation.” It means staying with your parents for personal reasons can force you to show rental income / notional rent for your own home for taxation purposes. HRA exemption for rent payment to parents can still be done when staying with parents in their owned home. According to Ameet Patel, “There is nothing in the law that prevents a person from paying rent to his relatives. However, practically, one must understand the natural presumption that a person would draw when he/she is told that an employee has paid rent to his mother/father/brother/sister. The first reaction to such a

There is no limit of kilometres specified under Income-tax Act. For own flat, if one has more than one flat, only then deemed rent is applicable. Most corporates do not allow both deductions if both flats are in same city Nikhil Vadia, chartered accountant

situation would be of disbelief. Generally, one would not pay rent to his mother/father/brother/sister. It is known that such payments, even if made, are for saving tax and not by way of actual rent. Therefore, one needs to be very careful while claiming exemption for HRA by showing rent payments to family members. Sometimes, people make the mistake of claiming the exemption but not making payments to the concerned relative. In some cases, we have also seen that the rent is actually paid but the so-called landlord/landlady has not shown that rental income in his/her return of income. Both the situations are clearly indicative of the bogus nature of the claim.” Situation3: Own Flat in One City and Work in Another City (Rented Flat) This is easier to handle than the situation wherein you have both rental home and own home in the same city. According to Pranita Nazar, “If the property cannot be 

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COVER STORY

 occupied by the owner due to his employment, business

or profession carried on by him at any other place, he has to reside at another place not belonging to him (rental), the annual value for own home will be zero and there is no need to offer notional rent for taxation (if own home not rented out).” Ameet Patel says, “Yes, the employee can claim both, HRA as exemption as well as interest on borrowed capital as deduction in such a case. As long as the employee has that one house only, he has to reside in a

If the property cannot be occupied by the owner due to employment, business or profession carried on at any other place and he has to stay at another place not belonging to him, the annual value for own home will be zero Pranita Nazar, chartered accountant

place not belonging to him and he is not receiving any rent or benefits from the owned house property, the annual value can be claimed to be nil.” Situation4: Home (Own Flat) in One City Where Family (Parents/Sibling) Live and You Work in another City (Rented Flat) Again, this situation can work smoothly. Pranita Nazar

says, “Yes, both the benefits can be taken and no need to offer notional rent provided that the owner does not derive any benefit from the owned flat used by the parents.” Ameet Patel concurs. He says, “As long as there is no benefit from that owned flat, such as rental income, the annual value for the flat can be taken as nil. HRA can be exempt to the extent as under Rule 2a for the expenditure incurred for the accommodation in the different city.” Tax deductions for homebuyers and renters are worth exploring for your financial planning. Those in a high tax bracket (20% or more) should definitely weigh the different options to save on taxes. Why even limit the deduction of home loan interest to Rs2 lakh per year when you can rent the property and go with no limit on the home loan interest deduction? Buying a property on loan, which is within your capacity to repay, is better than taking a loan for a depreciating asset (car) or any other personal loan. Considering the high rentals in metros, 80GG limit should be more as Rs5,000pm rent is not possible even in smaller cities. Those with HRA component in salary are already able to take advantage of a sizable tax deduction. 

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

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

MONEYLIFE | 9 June 2016 | 38

Cover Story.indd 8

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20-05-2016 17:28:03

VALUE STOCKS DEBASHIS BASU

Overvalued Markets Vs Your Stocks

T

here was a time when awareness about market valuation was not widespread. The price-toearnings (P/E) ratio of markets was not something many people discussed. After all, India has a very short history of reliable P/E ratios. In January 2008, the major market indices hit a P/E of around 28. And then stocks crashed. This was completely ‘against the run of play’ because money had been pouring into emerging markets for four years; asset prices were running high all over the world; and BRIC (Brazil, India, China, Russia) countries were supposed to be new engine of growth. When the market crashed, investors, who had got carried away by the trend of massive global capital flows of the previous four years (explained by the theory of ‘global savings glut’), got a rude jolt. The crash destroyed theories that had predicted continued inflation of asset prices. It also taught everyone a lesson about the perils of ignoring valuation while believing stories that support their investment thesis. As happens during a market crash, the pendulum swung to the other extreme. At its low in October 2008, the market P/E was around 13! Blue-chip stocks were available for a throwaway price. Then a rally started which made the market overvalued again, in late-2010 (though the overvaluation was not as much as in 2008), as the market indices almost regained their previous peaks. From there, it became a struggle for the Sensex to head higher, for three years. Similarly, in March 2015, again, the market was mildly overvalued and, over the next 12 months, fell by 24%. Over these multiple cycles, smart analysts and independent commentators/bloggers have come to realise the importance of market P/E as an important indicator of possible future market performance. Markets tend to reward much less when valuations are high. Of course, as happens in stock markets, there are no hard & fast rules. Nobody can make the argument that market overvaluation can be precisely calculated and, once it is identified, an immediate decline would follow. Nothing in the market works with such formulaic precision. Market theories are imprecise. They are approximations, built from the limited data that is available. Here is some correlation between market valuation and subsequent returns that strengthens the notion that overvaluation leads to poor future market returns. The

Expensive Market, Lower Returns Nifty P/E Range

1 Year

Average Returns 3 Year

5 Year

11-13

54.19%

30.14%

23.06%

13-15

51.08%

32.18%

26.98%

15-17

22.31%

20.58%

22.43%

17-19

17.42%

13.20%

13.51%

19-21

5.18%

8.19%

8.96%

21-23

-4.30%

1.05%

7.27%

23-25

-13.01%

-2.48%

6.71%

25-27

-30.19%

-5.29%

3.18%

27+

-51.79%

-0.02%

-0.77%

table indicates, each time the market P/E has been in the higher ranges, subsequent returns have been poor. There is a greater realisation now among serious investors about this trend. Thanks to the social media, this idea has spread far and wide. Blog posts have sprung up tracking market valuation, from time to time. But, remember, all this analysis applies to the market index, tracking overall market valuation. What is its practical utility? The utility is twofold: if you are investing in the index itself, like the Nifty or the Sensex index fund or in the Nifty ETF, it is of immense value to know what to expect at different levels of market valuation, based on historical data. You can avoid investing in periods of overvaluation and invest more in periods of undervaluation. You can do this also with equity mutual fund investments. Since most equity funds are: a) heavily invested in index stocks; and b) fully invested at all times, it makes sense to follow the index valuation while investing in them.

Market Overvaluation Vs Individual Stocks But should we be mindful of market overvaluation when we buy individual stocks? In other words, should we wait for the market valuation to come down before buying stocks that we have identified as investment-worthy? This is a common question from our subscribers. This question is posed often to us because we do discuss market overvaluation periodically, more than any other publication. Unfortunately, market overvaluation is usually uncorrelated to individual stocks. Let me give an 

MONEYLIFE | 9 June 2016 |40

Value Stocks.indd 2

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VALUE STOCKS DEBASHIS BASU

Market Overvaluation Can't Hold a Good Stock Down

Cumulative Return Supreme: 194% Sensex: 3%

300 Cumulative Return Supreme: 104% Sensex: -5%

250 Cumulative Return Supreme: 22% Sensex: -25%

200

150

Supreme Industries

100 S&P BSE Sensex 50 Dec-10



Dec-11

example of a company whose earnings are rising against the backdrop of market overvaluation. In such cases, the stock will be unstoppable. Let’s go to November 2010. Thanks to massive quantitative easing in the US, the global markets received billions of dollars of cash. The Sensex P/E crossed 23, not the gross overvaluation of January 2008 but, a time to be very cautious. As happens during market overvaluation, bad news started appearing. Major problems in the Eurozone surfaced in 2011. In July, the Reserve Bank of India, which was found behind the curve in managing inflation, raised interest rates and sent the market into a tailspin. Also, the European Monetary Union threatened to break up and send the Euro into extinction in the August-December period. This pressured the equity markets further. The Sensex was down from 20,500 in December 2010 to 15,450 in December 2011, a fall of 24.6%. Now let us see what happened to a stock like Supreme Industries in this period. The chart tells its own story. Over that one year, when the Sensex was down 25%, Supreme was up 22%. Over the next two years (2012 and 2013), the Sensex recovered from the 2011 fall. By that time, Supreme was up another 142%. So, assuming you had identified Supreme as a stock to buy and were dissuaded by an overvalued market and waited to buy it when market valuation was lower, you would rue your decision. We have, of course, decided to highlight a stock that has gone up when the market headed lower. This amounts to cherry-picking, some would say. Such cherry-picking would be wrong, if I were trying to prove that stocks go up when the market is overvalued. I am merely raising this question: What is the correlation between stocks and overall market condition? It could well be that the Supreme Industries also falls along with an overvalued market the next time. But that would be for reasons that are intrinsic to the stock. It is the job of

Dec-12

Dec-13

the investor to be extremely selective when she chooses to identify a stock to buy, especially when the market is overvalued. Once such as stock has been identified, market valuation should not be a consideration for deciding whether to buy it or not. There is one exception to the rule, though.

When All Fall Down When fear and panic grips the market, everything falls. It is hard to identify such instances, you would say. Well, look for an extremely overvalued market, for one. This was the situation in April 1992, just before the Harshad Mehta scam; then, in 1994 September, in March 2000 and in January 2008. In all these cases, the market crashed from grossly overvalued situations. That apart, there has been one case of panic decline—in May 2004—as the Vajpayee government unexpectedly lost the general elections. When panic strikes, stocks get sold at any valuation. Asian Paints had hit a high of Rs132 in January 2008. By October, it had lost almost half the value. So, in cases where the market is coming off gross overvaluation, you never know what could hit the stocks you hold. It could be as simple as an institutional investor dumping his portfolio because he is facing redemption pressures. Or, you may not get hit at all. Hindustan Lever and Nestlé were hardly affected by the 2008 crash. So, follow whatever methodology you need to, to identify stocks to buy, including the right price. To pull the trigger, all you need to do is check whether the market is grossly overvalued. If not, go ahead and buy for the long term. Do not bother about mild overvaluation. It is uncorrelated to your returns, assuming that your stock selection was good. If the market is grossly overvalued, you need to think twice, especially if the stock is not one of those multinational blue-chip ones. And, remember, smaller stocks get absolutely crushed in a market crash. 

41 | 9 June 2016 | MONEYLIFE

Value Stocks.indd 3

20-05-2016 17:30:49

StockWatch A section on stocks and sectors that catch our eye

O m k a r S p e c i a l i t y C he m ic al s

Trying Hard

Spark Missing

here is a lot of interest in Indian speciality chemicals companies. The assumption is that China will relinquish some of this sector due to environmental concerns. Over the past six months or so, stocks of many chemicals companies have shot up. Omkar Speciality Chemicals is actually two businesses in one. One part makes bulk drugs for veterinary segments and the other makes of specialty chemicals, comprising iodine derivatives, inorganic and organic intermediates as well dissolving agents. These products find applications in pharmaceuticals, chemicals, glass, cosmetics, ceramic pigments and cattle and poultry feeds. Omkar is exporting its products to Europe, Canada, Asia, South America and Australia.

240

407,000

220

325,600

200

244,200

180

162,800

160

81,400

140

0

T

Volume

Price in Rs

Jun-15

Nov-15 Shares Traded

May-16 Adjusted Closing Price

Key Financials Consolidated (Rs Cr)

Jun-15

Sep-15

Dec-15

Revenue

90.48

101.25

108.34

OP

17.27

18.23

17.52

OPM

19%

18%

16%

Y-o-Y Revenue Growth

69%

52%

53%

Y-o-Y OP Growth

98%

37%

9%

FY13

FY14

FY15

16%

10%

15%

March Ending RoNW

OP: operating profit, OPM: operating profit margin, RoNW: return on net worth

These two businesses are completely different from one another, given the regulatory requirements, raw materials sources, buyers, etc. Hence, the veterinary drugs business, which Omkar had acquired in 2012 and comes under LASA Laboratory, is being de-merged. Post the de-merger, shareholders who hold shares in Omkar will get a share free in LASA; Omkar will hold 10% stake in it. The promoters hold 65.70% in Omkar and the public holds 34.30%. At the time of writing Omkar had not declared its March 2016 quarter profits. It consolidated revenue in the December 2015 quarter was Rs108.34 crore (Rs70.94 crore), up 52.72%, and the quarterly profit

MONEYLIFE | 9 June 2016 | 42

was Rs9.40 crore (Rs7.49 crore), up 25.50%. The annual revenue earned by Omkar in FY14-15 was Rs265.13 crore (Rs240.28 crore), up 10.34%, and the annual net profit was Rs24.28 crore (Rs13.56 crore), up 79.05%. One of the most important aspects of Omkar is the domain knowledge of the management. The chairman & managing director, Pravin Herlekar, is a BTech in chemical engineering from Indian Institute of Technology (IIT), Bombay, and is a post-graduate in management studies from Mumbai University. One of his sons is BE (chemicals) and MTech in pharmaceuticals. To create faster growth, Omkar is getting into the vitamins segment, according to media reports. “We 

STOCK WATCH

 have applied for Therapeutic Goods Administration

(TGA) approval, the regulating authority, for exports to Australia and New Zealand. We are expecting the TGA approval soon and expect to start exporting by March-April next year,” Omkar Herlekar, director of the company, was quoted as saying recently. Omkar is also looking at acquisitions of a domestic company dealing with formulations in dosage form with good overseas marketing network. “We have already shortlisted two companies and are in advanced stage of negotiations with them. These domestic companies deal in formulations in dosage form and have all approvals intact with good overseas marketing network. We will acquire one company with an investment of Rs75-85 crore by swapping of shares,” he said. Omkar has set a target of Rs620 crore revenue and profit after tax (PAT) of Rs60 crore in FY16-17. That looks hugely ambitious; but Omkar has been continuously looking for growth, sometimes through acquisitions. The problem with the company is that, so far, it does not earn a very healthy return on capital employed (RoCE) and its debt is high—which is reflected in negative free cash flows, although this is reducing. However, valuation is reasonable. Over the past five quarters, the average growth in sales of Omkar was 41% and the average growth in operating profit was 44%. The average operating

I o n Ex c h a ng e ( I ndia)

Good Chemistry

M

ost engineering, procurement and construction (EPC) companies are struggling to complete their projects and recover money from completed projects. But Ion Exchange (India) Ltd (IEL) is on a strong wicket. The stock has had an extraordinary run in the past two years delivering nearly 250% returns. IEL offers water and nonwater treatment solutions for infrastructure, industry, institutions, municipality, homes and communities. The solutions range from pre-treatment to process treatment

Negative Free Cash Flows (Rs crore)

Debt Equity Ratio

0

1.50

-10

1.30

-20 1.10 -30 0.90 -40 0.70

-50 -60

10-11

11-12 Free Cash Flows

12-13

13-14

14-15

0.50

Debt Equity Ratio

margin was 19%. The market-capitalisation of Omkar was 0.99 times its sales and 5.51 times its operating profit. The company has a return on net worth (RoNW) of 19% based on trailing four-quarter profit computation. Its cash earnings per share were Rs16.82. The debt-equity ratio was 1.35 and the return on capital employed (RoCE) 14% on four-quarter trailing EBIT (earnings before interest and tax). The book value of its share is Rs78.27. Omkar shares were trading at around Rs178.10 on 19 May 2016 and could be worth considering for the long term. It depends on how the management handles the ongoing restructuring. 

for water, sewerage, waste water, etc. Its revenues come from the three segments, namely, engineering, chemicals and consumer products. Under engineering segment, the company designs, engineers, builds and maintains water and waste water treatment plants. The chemicals segment includes manufacturing of water treatment chemicals, ion exchange resins and other specialty process chemicals used in different industries. Its consumer business includes water purifying solution under the brand name Zero B. IEL is the largest player amongst ion exchange resin players with around 40% market share. Revenue from resins accounts for approximately 50% of its revenues from chemicals segment; the rest is contributed by 

Exits & Returns from Erstwhile Street Beat Stocks: We continue to monitor stocks featured in the erstwhile Street Beat section. We will suggest an exit when they are no longer undervalued or not performing as per expectations. Keep an eye on this space. | 43% Return: Our recommendation has so far fetched 43% average annualised return since January 2012, based on booked profit and open positions of more than one year. 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.

43 | 9 June 2016 | MONEYLIFE

STOCK WATCH

Free Cash Flows Improving?

Revenue Mix (%)

(Rs crore)

Debt-Equity Ratio

30

0.60

20

0.40

10

0.20

10% Engineering

36%

54%

Chemicals Consumer Products

0

0

-10 11-12

12-13 Free Cash Flows

 industrial chemicals. Its engineering segment has been

under pressure. However, a rise in industrial spending in waste water treatment due to stricter implementation of norms may serve as a catalyst for its growth. The jewel in the crown is the chemicals segment which accounts for 36% of the revenues, but contributes 75% of the stand-alone earnings before interest and tax (EBIT). The chemicals business has an EBIT margin of around 15%, while the engineering segment has an extremely low EBIT margin of 4%. Its consumer products business has been a drag, with revenues consistently declining over the past four years. The business makes losses.

13-14

14-15

-0.20

Debt-Equity Ratio

including the Sri Lanka order, according to Edelweiss. IEL’s free cash flows, over the years, have been uneven. The debt-equity ratio has been rising marginally. However, it generated healthy free cash flows of Rs27 crore for the year ended 31 March 2015, leading to a marginal reduction in debt to R77 crore from Rs89 crore. The company’s return on capital employed (RoCE), based on trailing 12 months standalone earnings, is around 17% and its corresponding return on equity (RoE) is around 14%. 

Havells India Chemicals Makes the Money Revenues (Rs crore)

EBIT (Rs crore)

Engineering

449.17

18.97

4.22%

Chemicals

301.64

45.83

15.19%

85.35

-3.69

-4.32%

836.16

61.11

7.31%

Consumer Products

EBIT Margin

Due to a slowdown in the engineering business, IEL’s average revenue growth was just 5% over the past eight quarters. However, it reported good growth in net profits at 37%. The stock trades at a price-to earnings (P/E) multiple of 16, based on trailing 12 months’ stand-alone earnings. International expansion is an important opportunity for IEL. It has an order book of Rs400 crore in large EPC projects with a special focus on Sri Lanka where it has been selected by the water board to execute its water supply project worth US$194 million (financial closure pending). The total order book from the engineering business currently stands at more than Rs1,600 crore, executable over the next three years,

Excellent Results but Too Expensive

E

lectrical goods maker Havells India reported a revenue growth of 9% to Rs1,475 crore in Q4FY15-16 compared to Rs1,349 crore in the corresponding year-ago period. Its net profits rose by 200% to Rs366 crore from Rs122 crore. However, its growth in net profit was the result of an extraordinary item of Rs202 crore which came from divesting its 80% stake in Sylvania Malta and Havells Exim, due to which it made this profit. Excluding this one-time gain, Havells’ net profit before exceptional item shot up by 35% to Rs164 crore, up from Rs122 crore in Q4FY14-15. Though Havells posted volume growth in different segments, its growth, in value terms, was lesser due to weak commodity prices. In FY15-16, its stand-alone revenues grew merely by 4% to Rs5,437 crore. It has four business segments—cables, switchgears, lighting & fixtures and electrical consumer durables. The



MONEYLIFE | 9 June 2016 | 44

StockWatch.indd 4

20-05-2016 17:32:24

STOCK WATCH

Rising Free Cash Flows and Falling Debt Equity Ratio

Revenue Mix (%)

(Rs crore) 800

20%

24%

Switchgears Cable

14%

Debt Equity Ratio 1.60

600

1.20

400

0.80

200

0.40

Lighting & Fixtures

42%

Electrical Cons. Durables

0 10-11

11-12 Free Cash Flows

 switchgears and cable segments was stagnant during

the year. Its revenues for electrical consumer durables segment rose by 11%, while lighting and fixtures by 8%. The stock has had an extraordinary run in a little more than six months, rising by more than 50% from a low of Rs236 on 9 November 2015 to around Rs366 currently. Its cables segment contributes to around 41% of its revenues. The management has indicated a Rs260 crore-Rs280-crore expansion plan in FY16-17 to add capacity in the low-entry barrier cables and switchgear businesses, as well as the electrical consumer durables business. Its switchgears business has the highest st margin among the different segments with its EBIT (earnings before interest and tax) margins at 39%. Its cable and wire segment reported relatively low EBIT margins of 15%. It can easily fund this capex as it generates robust free cash flows. The company has a return on equity (RoE) of around 19% based on trailing 12 months stand-alone earnings excluding the extraordinary item of Rs202 crore.

Debtors Turnover Ratio Particulars Average Debtors (RS cr) Sales (RS cr) Receivables Days

Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 735

831

876

931

812

5,613

6,518

7,248

8,687

9,108

48

47

44

39

33

On the operating front, its receivables days have reduced over the years to 33 days for FY14-15 from

12-13

13-14

14-15

0

Debt Equity Ratio

48 days in FY10-11. Havells generates robust free cash flows which have shown a rising trend over the years. It has used these free cash flows to pare off debt. Its debt level reduced to Rs296 crore on 31 March 2015 from Rs957 crore on 31 Ma March 2011 on a consolidated basis. Its debt-equity debt-equ ratio reduced to 0.16 from 1.46 over these yea years. In FY15-16, it further reduced its debt to R Rs85 crore, becoming almost debt-free currently. currently Havells has been liberal in distribution dividends; its dividend payout ratio was of d nearly 50% in FY14-15. n The company’s average price-toearnings (P/E) ratio over the past 10 years on a stand-alone basis stands at around 20. Currently, its stand-alone P/E stands 2 at aaround 44, excluding the exceptional item of Rs202 crore from its net profit. While the longterm average is not comparable because free cash flows have shot up over the past three years, the stock looks expensive. 

Nestlé India

Can It Make a Comeback?

F

ast moving consumer goods (FMCG) major Nestlé India’s revenues increased by 18% in the March 2016 quarter to Rs2,296 crore on a quarter-on-quarter (q-o-q) basis. Correspondingly, its net profits rose by a stellar 41% to Rs259 crore. The company witnessed a huge jump in operating profit margin by 400 basis points to 19.4%. However, the figures for the March 2016 quarter were less flattering



45 | 9 June 2016 | MONEYLIFE

StockWatch.indd 5

20-05-2016 17:32:38

STOCK WATCH

 compared to the year-ago period due to the impact of

Maggi noodles issue. It revenues declined by 8% and net profits by 19%. Its exports declined by 4.8%. The Street reacted positively to the results; the stock gained more than 7% the day after thee results were declared. The stock had declined by 13% % during the past year. Maggi is performing well after fter its re-launch in November 2015, with a market share of 51% in March 2016. However, this is far less than the market share (of 77%) one year back. In June 2015, the Food Safety and Standards Authority of India (FSSAI) had banned Maggi noodles, following a Bombay High Court order, after finding the lead content beyond permissible limits. Nestlé has priced its Maggi Masala noodles at the same price when it was taken off from the market. ITC, which sells noodles under brand Sunfeast Yippee noodles, is a key competitor. Baba Ramdev’s Patanjali Products' noodles (made of

atta) are priced at a discount to Maggi, but Patanjali has not been able to make significant inroads into the noodles segment. Nestlé is trying to win back tthe market share through innovation by launching four variants of Maggi noodles. It has also launched new categories such as Munch products in other cate chocolate, nuts, Kitkat duo choco Nestlé a+ Grekyo and Ne Nescafé Sunrise InstaN Filter coffee. According Fi to the management, these products are precursors pro other products which to o are in different stages of readiness. Will these new launches turn the ne fortunes for Nestlé? fo For FMCG companies, F constant new launches co are the name of the game. They need to continuously surprise consumers with new flavours and taste. In that sense, it is on the right track. And that, too, far removed from the debilitating attacks of Patanjali. 

Skipper: Good March Quarter

W

e had written about Skipper, a diversified company with revenues coming from transmission & distribution and PVC and tanks and pipes, in the 26 November 2015 issue of

Moneylife. Skipper has reported good numbers for Q4FY15-16 led by the poly vinyl chloride (PVC) segment which reported revenue growth of 29%.

Overall, the net profit was up Rs36 crore, or 19% y-o-y. Its earnings before interest, taxes and depreciation (EBITDA) margins stood at 13.9%. Engineering products is the largest segment of the company (Skipper claims to be world’s largest integrated transmission tower manufacturing company) and contributed to around 88% of its revenues in Q4FY15-16. It had an order book of Rs2,429 crore on 1 April 2016 for the engineering products and infrastructure segment and has submitted bids worth Rs1,200 crore. Around 75% of its order book came from the domestic market in FY15-16. Over the past five quarters, its average growth in quarterly sales was 17%, while the average growth in quarterly net profits was 50%. The return on net worth (RoNW) is around 25%, based on trailing 12 months’ earnings. It trades at 16 times its trailing 12 months’ earnings. It has a debt-equity ratio of 1.15. Its credit rating has been upgraded by the rating firm CARE from A- to A+. The stock has corrected sharply in the past few months—from a high of Rs220 on 6 January 2016 to Rs140 currently. 

MONEYLIFE | 9 June 2016 | 46

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STOCK WATCH

UN UOTED STORIES OF PRICE MANIPULATION

Energy Development Co Ltd (Rs67)

(Rs)

E

60

nergy Development Co Ltd (EDCL) deals in power generation and infrastructure development and has as many as 18 subsidaries. Former Samajwadi Party leader Amar Singh and his wife Pankaja Kumari Singh are the promoters of the BSE-listed EDCL. As on 31 March 2016, Mr Singh and his wife individually held 1.93 million shares, equivalent to a 4% stake. They hold 57.24% of shares through Sterlite Merchants LLP, Startrack Vinimay Pvt Ltd and Sarvottam Caps Pvt Ltd in which they are the promoters. In June 2011, actor Amitabh Bachchan, who

75

45 30

409%

15 0 Jun-15

Nov-15

May-16

was a director of the EDCL, resigned. Up to June 2009, Mr Bachchan held one million shares. On a stand-alone basis, EDCL reported revenues of

Rs17.65 crore for the four quarters ended December 2015, down 32% from Rs25.93 crore reported for the same period a year ago. It reported a loss of Rs0.43 crore for the year ended December 2015 and a profit of Rs1.74 crore for the same period a year ago. The consolidated financials have not yet been reported for FY15-16. Despite the poor financials, the stock, which was trading flat between 2013 and 2015, shot up 409%, to Rs67.65 on 18 May 2016 from Rs13.30 on 29 June 2015. Trading volumes, too, increased significantly. What led to this massive rally, even though EDCL was reporting losses? Will the regulator investigate? 

MARKET TREND

Headwinds Continue

L

ast fortnight, I had suggested that the Sensex probably would move around 26,000, unless some major events (short-term or medium-term) strike us. There are no signs of higher earnings growth, so it could well be global factors. The market continued to be buffeted by global factors last fortnight. Right now, nd Europe is calm the economic news from China and rve would hike but whether the US Federal Reserve interest rate in June continued to influence the global markets. So, just when the bulls all but managed to push the Sensex past 26,000 in midMay, the release of the minutes of Fed’s April meetings surprised ket lower. investors and pushed the US market The Fed minutes said that it is likely to raise interest rates in June if economic data points to stronger growth and inflation and employment are up too. The market interpreted this as a much higher chance of hiking rates than previously expected. Before the release of April meeting minutes, CME

FedWatch tool implied that investors only saw a 19% chance of a rate increase next month. After the release, this jumped to 32%. A majority of them now expect a rate hike at the July meeting. The Fed’s policy-setting committee said that the recent economic data made them more confident that inflation was moving up towards their 2% target and that they w were less concerned about a global economic slow slowdown. This is comforting for long-term stoc stock-pickers because good-quality stocks thrive on economic growth. The US market declined further on Thursday, 1 19th May, when New York Fed President Wi William Dudley said the US economy cou be strong enough to warrant an could inter interest rate increase in June or July. Another probl problem for the Indian bulls is that the rupee, after a long pe period of stagnancy, suddenly weakened by more than 0.53% on Thursday 19th May, which is a significant move in the forex market. If the dollar gets stronger, the Sensex may head lower in the absence of much intrinsic strength. — Debashis Basu 

47 | 9 June 2016 | MONEYLIFE

StockWatch.indd 7

20-05-2016 17:33:28

3 Long-term Stockletters for Excellent Returns Panther

Antelope

Lion

(includes dividend)

(includes dividend)

(includes dividend)

63.69%*

43.61%*

40.84%*

*Annualised. Since 25 April 2014

*Annualised. Since January 2012

* Annualised. Since January 2012

For small-cap/ low-price stocks with big growth potential

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

Long-term value stocks. Usually large companies are selected

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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

Facts about the Stockletters What is the difference among these stockletters? The stockletters are for stocks for long term but with specific emphases. We hope to have a maximum of 30-32 stocks at any time. What is the investment horizon for these stockletters? The best results from good stocks come when they are held for five years or more. What is the investment strategy? Our investment strategy for the long-term stockletters is to select quality stocks at a reasonable price. We identify companies that are reporting high return on capital but are available cheaper than similar high-quality stocks. We then apply our knowledge of managements, including corporate governance. How much should one invest in each stock? You should invest equal amount in every single stock suggested. What if I cannot invest in all the stocks? If you cannot invest in all the stocks, invest equal amounts in as many stocks as possible, starting from the lowest in rupee terms to the most expensive in ascending order. It is also very important that you invest in stocks ONLY the money you will NOT NEED to touch for the next 5 years. Good quality stocks are likely to grow at 20%-22% annum but not in a smooth fashion. If some stocks have already run up sharply, will it be wise to invest in

Stockletter (MSSN) Ad Oct 15.indd 2

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

06-05-2016 18:12:07

bought. We suggest investors hold stocks for at least five years. On our part, we will try to suggest stocks that are not expensive. How do subscribers get the stockletter? The stockletter is currently sent as a pdf file by email. Subscribers can also download their stockletter by visiting their MSSN dashboard on our site savers.moneylife.in What is the frequency? You will receive your chosen stockletter every Saturday evening. Can I share the stockletter? The stockletters are meant for a single user and is backed by years of research. Hence, we urge you not to share them. What if I have any queries about specific stocks? Well, we would rather let our performance do the talking but if you have any serious doubts email us at [email protected]

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06-05-2016 18:13:05

EARNING CURVE

Why Hedge Funds Are Overrated

and multi-strategy hedge fund. According to HFR’s global index, hedge funds gave the poorest performance since 2008, losing 1.9% in the first quarter of 2016. Hedge-fund boss, Daniel Loeb of Third Point Capital, in the quarterly letter to investors, called the first three months of 2016 as one of the most catastrophic periods edge fund managers live a grand lifestyle, of hedge fund performance that they could remember buying multiple large homes, collecting since the inception of this fund. art, riding expensive cars and going for Clearly, these funds cannot outperform the luxurious vacations. But are they really any good or is it that the spectacular performance of a few, benchmark indices and so their huge fees have come over a short period, allows many to get away with very under criticism. Legendary investor, Warren Buffett, recently criticised the high fees at many hedge funds average to poor performance? According to Hedge Fund Research (HFR) estimates, and the high pay given to their managers for subpar performance at the annual Berkshire Hathaway hedge funds have grown by leaps and bounds—from shareholder meeting. In his humorous style, he 610 such funds managing $38.9 billion in 1990, to remarked, “Our two managers at Berkshire (Todd over 10,000 funds managing $2.9 trillion in 2015. But Combs and Ted Weschler) each manage $9 billion. their performance is coming under increasing scrutiny. They would get $100 million each at a hedge fund just for breathing. The compensation scheme at hedge funds Growth of $1,000 since 2002 is unbelievable.” $ Generally, hedge funds charge a management 2,500 Vanguard 60/40 fee which is 2% of assets and 20% of profits. On Long Short Hedge Fund the other hand, Vanguard 500 Index Fund Admiral Multistrategy Hedge Fund 2,000 Shares charges expenses of only 0.05% a year. One of the problems with high management fees is that 1,500 it significantly affects returns, especially in the long run. The portfolio of hedge funds has to significantly 1,000 outperform the portfolio of index funds, given these 2002 2007 2013 high management fees for investors to derive the same Source: Morgan Housel returns from the two of them. Recently, New York City’s pension for civil employees voted to exit its Investors pulled out $15 billion in only the first quarter $1.5 billion portfolio of hedge funds, determining that the investments didn’t perform well enough to justify of 2016, disappointed with poor performance. This is high fees. the highest level of outflows from hedge funds since Interestingly, Warren Buffett had placed a famous the second quarter 2009, when investors redeemed $43 billion, following the global financial crisis. Hedge-fund 10-year wager that an inexpensive plain shutdowns outnumbered start-ups last year for the first stock index fund will outperform highfee hedge funds. Vanguard 500 Index, time since 2009, according to HFR. It may surprise you to know that, as a group, hedge Fund Admiral Shares, tracking the S&P Index has risen by 65.7%. funds have consistently underperformed a basic S&P These returns are far higher than the 500 index fund over the past five years, according to 21.9% gain of unnamed five funds Morgan Housel, a columnist at The Motley Fool and of hedge funds which were chosen by a former columnist of The Wall Street Journal. If we assume that the goal of a hedge fund is to manage risk, money management firm Protege Partners. Given the we can compare its performance to a fund that invests huge gap in performance in stocks and bonds. Morgan Housel adds that 60/40 after eight years, it is Vanguard Fund, which has 60% allocation to stocks and 40% to bonds, beat the average multi-strategy and highly unlikely that Warren Buffett will long-short hedge fund over the past decade. lose this wager in Between 2002 and 2013, Vanguard 60/40 delivered the remaining two returns of 7.57%. This is slightly higher than 7.33% and 7.01% delivered by average long-short hedge fund years. 

H

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20-05-2016 17:35:06

UNBIASED INFORMATION: MSSN Benefit #8-10

• Moneylife Magazine • Handbook • Product Reviews

8. Moneylife Magazine:

9. Handbook:

Since March 2006, Moneylife magazine empowers individuals to invest and spend wisely by offering hard facts, insightful opinions, unbiased options and useful tips on fixed-income products, mutual funds, insurance, stocks, taxes. This bold and practical fortnightly guide is included in your MSSN premium membership.

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

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Moneylife’s habit of calling a spade a spade comes in handy when our analysts review a financial product available in the public domain. Our reviews will leave you with no doubt about the good, the bad and the irrelevant. Part of your MSSN premium membership.

About MSSN

MSSN 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. MSSN was set up to help investors and savers make the right financial decisions and handhold them through the entire process.

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MSSN - Unbiased.indd 1

20-11-2015 17:05:43

Supported By

Queries At Moneylife Foundation’s

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

Gift from Relative

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y maternal grandfather (nanaji) gifted his shop to my wife in 2014 with market value of Rs15.59 lakh. He also paid stamp duty on it. My wife is a homemaker and has no extra source of income. Will my wife have to pay income tax (I-T) on this gifted shop, valued at Rs15.59 lakh? According to my chartered accountant (CA), this property is tax-free because, as per the I-T rules, this comes under ‘lineal ascendant of spouse’ category. But, surprisingly, last month, one officer from the I-T department visited us and told us that we have to pay tax because my wife does not come under the relative category of my nanaji (as per the I-T rules). Who is correct? Ameet Patel’s Reply: As per Section 56, if a person gets a gift in excess of Rs50,000 in a year from a non-relative, it would be treated as the income of that person for that year. For this purpose, the term ‘relative’ is defined as under (and I am reproducing the Section itself so that if anybody questions you, you can show this): “(e) relative means,— (i) in case of an individual— (A) spouse of the individual (B) brother or sister of the

individual (C) brother or sister of the spouse of the individual (D) brother or sister of either of the parents of the individual (E) any lineal ascendant or descendant of the individual (F) any lineal ascendant or descendant of the spouse of the individual.” Thus, in your case, your maternal grandfather would fall in the definition of your lineal ascendant. Therefore, he would fall in the definition of ‘relative’ as per clause (F) quoted above, for your wife. Consequently, any gift received by your wife from her relative (your maternal grandfather) would not be treated as her income.

TDS on US Dollar Deposits

O

ne Mr X has around Rs1 crore equivalent of US dollar as well as Indian rupee deposits with a bank, say, SBI. Tax is not deducted at source on this deposit and, hence, it is not appearing in 26-AS. The tax is calculated, deducted and shown in the statement only on maturity, say, five years from now. How will such a case be accounted for annually? Subodh Shah’s Reply: From the information, I surmise that you were earlier a non-resident Indian (NRI) and now are resident in

India. Income from other sources is taxed based on your method of accounting, a. Cash basis, i.e., taxable at the time of receipt. b. Mercantile basis, i.e., taxable at the time of accrual. In case you decide to follow the cash system, there is no problem at all. In case you decide to follow mercantile system, you will offer interest accrued on annual basis to tax. At the end of five years, you can claim the credit for TDS. you may have to give some explanation to I-T department, if some query is raised at that time. However, in my opinion, the bank is legally incorrect in not deducting tax on accrual basis.

Insurance Agency in Wife’s Name

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y father-in-law has taken an insurance agency in my wife’s name. I believe IRDAI (Insurance Regulatory Development Authority of India) does not yet allow multiple agencies in the name of a single agent. My father-in-law carries out all the business and my wife gets commission credited to her account after deduction of applicable TDS. We transfer this money to my father-in-law’s account. The amount credited to my wife’s account is now appearing in the Form 26AS. My wife’s own income is below the taxable threshold. Should the insurance commission be shown in my wife’s ITR? What can we do to keep this arrangement within the legal framework? Nikhil Vadia’s Reply: In my opinion, your arrangement is not legal and contravenes various laws. Please take the professional help of a CA or tax lawyer, to resolve it. 

MONEYLIFE | 9 June 2016 | 52

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

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Every new query posted will be sent to our panel of tax experts

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When we get the opinion/advice from our expert, we will post the reply

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You can access similar issues faced by other taxpayers

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

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06-05-2016 18:46:36

USEFUL APPS YAZDI TANTRA

Compress Pictures to 1/5th Their Size

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pegmini.com is a photo compression tool which compresses your .jpg photos significantly without affecting their visual resolution or quality. The compression can be up to five times, i.e., the converted photo could be up to one-fifth the size of the original. With JPEGmini, you can store more photos on your hard drive and online photo service accounts, attach more photos to your emails and upload your photos faster to the Web. If you have an imageintensive website, your pages will load faster, improving user experience and you’ll also reduce your storage and bandwidth costs. You may download the free trial version and, if you are satisfied, you can continue using it for a small price. For high-end users, they have a professional version and for image-intensive websites, they also have a server version. It’s a real treat. Easy to understand and simple to use.

Cut Out Junk Email

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very day, we receive hundreds of mails, the majority of which are junk. Mailing companies pick up your email ID from various sources and sell it to marketing organisations. Besides, we ourselves voluntarily give our email IDs to various websites to receive special offers, periodically. A time comes when we are overwhelmed and want to stop receiving such mails. Simply visit www. unroll.me and go through a simple signin process. After you sign up, see a list of all your subscription emails. Unsubscribe instantly from whatever you don’t want. It is that simple. The site’s email management tool also groups all your continuing subscriptions under one head and delivers only one mail per day for all your subscriptions. Pretty neat, huh?

City in Your Hands

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onobo is just the city in your hands. It covers all major Indian cities with street views. Wonobo can help you find directions across several cities, search for places, even look inside thousands of businesses and interesting places. It saves you time and money. Simply click to rediscover your neighbourhood. Use it to revisit your school, share

your favourite restaurant, or find out what people have to say about the places they call home. The street views are a treat and, sometimes, better than Google Maps’ street views, which, unfortunately are not so good for India. Search using the address bar or simply browse through. You can even search tourist spots and visit the Taj Mahal when you are online or get the best of local tips to browse through. An interesting feature is that you can share places of importance with your family and friends easily. It is a collaborative effort. So, if you find any errors or inaccuracies, you can point them out and they will be rectified. You also have the freedom to create content for others.

Track Your Privacy Level

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f you have many apps, each with multiple updates, you are used to accepting the terms and the invasions in your privacy. Clueful Privacy Advisor gives you a re-look at your privacy compromises. Simply put, it shows you how your installed apps use and, sometimes abuse, your privacy. It is like your personal privacy assistant and advises you on what each of your installed apps is doing in the background, without your knowledge! Some free apps can surprisingly leak your data, spam you, upload your calendar and do many such things in the background without your even knowing it. Use Clueful Privacy Advisor to track those rogue apps and, if you do not agree with what they are doing, you are free to uninstall them immediately! It also has a privacy score where it calculates and displays an index on how private or exposed your data is. If you value your privacy, get clued on to Clueful Privacy Advisor! 

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 | 6 June 2016 | 54

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20-05-2016 16:19:40

HANDHOLDING: MSSN Benefit #11

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

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

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

MSSN 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. MSSN was set up to help investors and savers make the right financial decisions and handhold them through the entire process.

MONEYLIFE SMARTSAVERS FIX YOUR FINANCES, FOREVER

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20-11-2015 17:04:55

TECHNOLOGY

Intel Shows the Future Intel has decided to focus on cloud and datacentre chips, memory, FPGAs, Internet of things and 5G devices. Will this be the shape of future technologies? Yogesh Sapkale explores

W

hile we are being flooded by mobile handsets made in China, Intel Corp, the world’s largest chipmaker, has decided to move away from mobile chips. Instead, Brian Krzanich, chief executive officer of Intel, expressed in a blogpost (https://goo.gl/6MuI4U ): “We see tremendous opportunity in the growth of this virtuous cycle—the cloud and data centre, the internet of things (IOT), memory and field programmable gate arrays (FPGAs) all bound together by connectivity and enhanced by the economics of Moore’s Law—which will provide a strong and dynamic future for Intel.” This peek into future is important for a mobileobsessed country like India. There are hardly any devices that can be called real ‘made in India’. Almost every mobile and accessory sold in India is sourced from China, directly or indirectly. This makes perfect business sense. But it makes us dependent on what is available rather than what best can we have. This is where the move by Intel assumes significance. Intel a latecomer in the was mobile chip and, thus, ended ip business up spending ding too much money in catching up. Intel’s atom processor is available in only a few mobile handsets and tablets. Also, since mobile chips ips are smaller and nd less complex, there is not much margin gin in this, except if you can play with volumes. mes. Intel clearly was far behind ehind ARM Holdings, the leader in this his segment. While there was a drop in volumes and nd margins, Intel’s other business, ness, Brian Krzanich, mainly thee CEO Intel data-centree

group, was reporting robust performance. For the first quarter of 2016, the data-centre group earned revenues of $4 billion, producing an operating margin of 49%. Intel supplies almost 99% of all the data-centre chips. Therefore, it makes perfect business sense for the chipmaker to focus its attention on what brings in more profit and also help shape future technologies. The question is: How is this important for you and me? First thing, the cloud, irrespective of whether you like it or not, is going to be an important trend that would help the smart and connected world in the future. Add to this, memory and programmable solutions which aim to deliver an entirely new class of products for data-centres as well as the Internet. The FPGAs, which can be re-programmed to the desired application or functionality requirements after manufacturing, might allow end-users to tailor microprocessors as per their needs. Even as India is testing 4G networks, Intel is getting ready with its end-to-end 5G systems, from modems to base stations that would provide connectivity for consumption in various forms. IOT is the network of physical objects—devices, vehicles, buildings and other items—embedded with electronics, software, sensors and network connectivity that enables these objects to collect and exchange data. In IOT, 5G will play an essential part. Last, but not the least, as the Intel CEO points out, Moore’s Law is still working fine. The Law says that transistor dimensions can be shrunk by roughly 50% at a fixed cost. In other words, we can place the same number of transistors for half the cost or double the numbers at the same cost. “In my 34 years in the industry, I have witnessed the semiconductor industry Moore’s Law no less advertised death of M we progress from 14 than four times. As w technology to 10 nanometre and nanometre technolog plan for 7 nanometre and 5 nanometre and plans are proof that Moore’s even beyond, our plan well,” Mr Krzanich says. Law is alive and w end-users, like you and me, For endthe future looks very exciting, especially with super speeds of 5G. It is expected that 5G around 2020) (to be launched lau would deliver data rates of up d to 10Gbps 10Gb over the air with a latency of 1millisecond and also enable Internet devices to run on battery for up to 10 years. batt It will change our lives in ways c that we ccannot even imagine! 

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20-05-2016 17:39:30

LEGALLY SPEAKING SD ISRANI

Promoters Cock a Snook at SEBI

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n our country, ordinary citizens are put through the grind even for a small mistake. On the other hand, there are people who get away with even the worst crimes. Something similar had happened in the case of M/s Garima Real Estate & Allied Limited whose directors, as per the SEBI (Securities and Exchange Board of India) order, are Banwari Kushwah, Balkrishan Kushwah, Banabarilal Lodhi, Shivram Kushwah, Bijendra Pal Singh and Jitendra Kumar. On 24 November 2014, SEBI had passed an ex-parte interim order, in a case involvingg them. SEBI observed that,, prima facie, the fund mobilisation tion activity of the company, ny, Garima Real Estate and nd Allied Limited (‘the company’ mpany’ or ‘Garima’) was a collective investment scheme eme (CIS) in terms of the SEBI Act, for which no certificate ertificate of registration on was obtained. The company ompany and its directors rs were ordered not to collect any fresh money; ey; not to launch any y new schemes or plans, to immediately submit the full inventory of the assets including land obtained through money raised, not to dispose of or alienate any of the properties/assets obtained directly or indirectly through money raised by Garima; not to divert any funds raised from public at large which are kept in bank account(s) and/or in the custody of Garima. SEBI ordered the company to furnish all the information/ documents within 15 days. The company ignored this. On 9 February 2015, AK Bansal, advocate, told SEBI that he represents the company and requested for extension of time to file a reply. But no reply was received. SEBI sent a reminder on 19 April 2015 advising the company to provide the status of compliance with the interim order. Once again, there was no reply. On 21 May 2015, the company and the directors were advised by SEBI to file a compliance report and offered an opportunity of personal hearing on 10 July 2015 at the local office of SEBI at Indore. As the previous letters/notices were undelivered to a few of the directors, SEBI had also issued a public notice in

leading Hindi and English newspapers on 30 June 2015. At the personal hearing, the same advocate appeared for the company. He was permitted to file additional submissions and documents within three weeks. However, nobody appeared for the directors. The advocate claimed that the findings of SEBI in the interim order were based solely on a forged letter dated 5 December 2013. He claimed that it seemed that someone with fraudulent intent had mischievously created/fabricated documents and sent to SEBI. SEBI gave the company another opportunity of personal hearing on 1 February 2016. The advocate requested for a postponement of this hearing; the matter was rescheduled to 16 February 2016. One day before the date, the advocate sent an email, stating that, despite his best efforts, he was not able to contact the company; so he would not attend the hearing. hearin Also, for good measure, he add added that directors contacted at their could be co addresses in New Delhi and Dholpur (Rajasthan). Dholpu Finally, the wholeFin time member SEBI, passed a detailed order, passe on 3 May M 2016, directing the ccompany and all the directors to: abstain dire from collecting any fro money from investors or launch any new scheme; wind up the existing collective investment schemes and refund, through bank, the money collected under the schemes; submit a winding up and repayment report; produce proof of such repayment and sell the assets of the company only for the sole purpose of making the refunds; and deposit the proceeds in an escrow account. In addition, SEBI would make a reference to the state government/ local police to register a civil/ criminal for offences of fraud, cheating and criminal breach of trust and misappropriation of public funds. SEBI will also initiate attachment and recovery proceedings. However, the question that needs to be asked is: Why this kid-glove treatment, till now, to a bunch of cheats? 

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

57 | 9 June 2016 | MONEYLIFE

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20-05-2016 17:40:15

HEALTH BM HEGDE

When Patients Die from the ‘Care’ They Get in Hospitals

T

he hospital care system is anything but what it is meant to be. A recent study of the hospital scenario, even the US, is scary. Martin Makary, a professor of surgery at the Johns Hopkins University School of Medicine who led a research, said in an interview that problems include “everything from bad doctors to more systemic issues such as communication breakdowns when patients are handed off from one department to another. People dying from the care that they receive rather than the disease for which they are seeking care,” Makary said. The study is published in a recent issue of British Medical Journal (BMJ). In 1999, the Institute of Medicine had warned of the same issues. Late Barbara Starfield had commented in her excellent article in the JAMA (Journal of American Medical Association) in 2000, showing that the medical establishment was one of the leading causes of death. Martin Makary’s figures are depressing compared to the 1999 study. In 1999, about 98,000 people had lost their lives unnecessarily in the hospital, where they went for help. That number, today, is 251,000 which translates into 700 people dying daily due to medical errors and related mistakes in US hospitals. If a couple of Jumbo jets had fallen from the sky daily, do you think planes would be flying regularly? That would have been prime-time and all-time news for our 24x7 electronic media. This study in the BMJ has not made it, so far, to the mainstream media. There is an epidemic of mumps at the Harvard University threatening their new entrants this time; but that does not make news because the epidemic occurred in fully vaccinated students and shows the vaccine claims to be a fraud! Spreading that truth would hurt the most powerful vaccine industry. Immunity boosting is the basis of Ayurveda; many successful doctors who were treating cancer (like Dr Scott Gerson) were almost deported from America. Cancer

research has come to grief and is turning towards expensive and reductionist chemical molecules to boost the immune system to control cancer. Now billionaires are funding immune system booster research to convert “death into chronic disease status for cancer.” News media highlighted the large-heartedness of the philanthropists who have donated money for cancer research. While they are doing good, they are looking for hefty returns by way of cancer drug sales, the new ones which they can sell at phenomenal costs for a long time, as researchers are trying to make cancer a chronic illness like diabetes. Kenneth Sands, director of healthcare quality at Beth Israel Deaconess Medical Centre, an affiliate of Harvard Medical School, said that the surprising thing about medical errors is that only hospital-acquired infections have shown improvement. “The overall numbers haven’t changed, and that’s discouraging and alarming,” he said. Even more glaring is the news that just about seven operations in the emergency rooms were responsible for over 80% deaths and costs! These are: upper gastro-intestinal surgeries, gall bladder removals, peptic ulcer surgery, intestinal obstructions, colonic surgeries, peritoneal adhesions and appendectomies. Almost 50% of surgeries create drug-related complications and death. If doctors accept that, and report medical errors honestly, the errors will come down. Unfortunately, today, the atmosphere is such that medical errors are rarely accepted. That topic is still a taboo in hospital circles. God save the hapless patients in hospitals. So far, “patients were coming to our hospital to lose their money and their lives,” wrote a noted cancer specialist. Now, they might not die but become permanent patients for the cancer industry which is much more lucrative than quick death for cancer patients. What is lost sight of, in this whole drama, is the inexpensive plant-based immune boosters used in Ayurveda for centuries. Those could be used in research to see if they could help recovery from many simple cancers. Will our well-meaning politicians take a lead in this direction?  Professor Dr BM Hegde, a Padma Bhushan awardee in 2010, is an MD, PhD, FRCP (London, Edinburgh, Glasgow & Dublin), FACC and FAMS. He can be reached at [email protected]

MONEYLIFE | 9 June 2016 | 58

BM Hegde.indd 2

20-05-2016 17:41:08

HEALTH BM HEGDE

DRIVING AND LISTENING TO THE RADIO

claim that statins help in preventing heart attacks, although now the US MEDICAL DEVELOPMENTS FROM government’s USDA recent study showed AROUND THE WORLD (United States Department that listening to radio of Agriculture) says that news can adversely affect cholesterol is a friend and not an makes the infant’s immune system driving. Researchers, led by Gillian enemy—as was claimed in the past. robust. Murphy from University College That makes the risky statin therapy The researchers found that Cork and Ciara Greene, PhD, from redundant. How they come to that children who experienced University College Dublin (both conclusion is anybody’s guess. respiratory tract infections between Ireland), show how important it is birth and 2.9 months of age or to keep our attention firmly on the between 3 and 5.9 months of age road. “Anything that draws our ANTIBIOTIC RESISTANCE were more likely to be diagnosed ne of the leading causes of with type-1 diabetes by the age of the serious threat of super 8 years, compared with children bugs that do not respond to who did not develop respiratory most new antibiotics comes from tract infections during those age inappropriate use of antibiotics for ranges. simple upper respiratory infections. A recent study, published in JAMA (Journal of the American Medical STATINS DO NOT PREVENT Association), puts that figure at HEART MUSCLE DAMAGE more than 50% of antibiotics iving daily doses of statins prescribed without proper for a few days before indications. and after heart surgery does not “Half of antibiotic attention away from driving can be prevent heart muscle damage or the prescriptions for acute problematic, even if it’s auditory development of atrial fibrillation like listening to the radio or having (AF), according to an international a hands-free phone conversation.” clinical trial led by the University of That doesn’t mean that we should Oxford and funded by the British ban radios in cars, but that we Heart Foundation (BHF).” should all be aware of the limits The trial, which is the largest of our attention, says Guillian of its kind, showed that shortMurphy. term statin treatment did not Paying attention to one sense benefit heart surgery patients and (hearing) might decrease attention increased the risk of developing to another sense (seeing). kidney damage. These results, published recently in the New England Journal of Medicine respiratory conditions may RESPIRATORY INFECTION IN (NEJM), rule out a clinical benefit have been unnecessary, representing INFANTS & DIABETICS of the rapid anti-inflammatory and 34 million antibiotic prescriptions retrospective observational antioxidant effect of statin therapy annually. Collectively, across all study in Germany points in heart surgery and are expected to conditions, an estimated 30 per at the possibility of early onset change international guidelines on cent of outpatient, oral antibiotic respiratory tract infection with preventing AF and other in-hospital prescriptions may have been viruses, especially respiratory complications after heart surgery. inappropriate,” says Dr Katherine syncytial virus, associated with a One by one, all the tall claims E Fleming-Dutra. some soulsignificant increase in the incidence of statin manufacturers are being searching seems to be going on of type-I diabetes in those kids. demolished. This is the latest in the to see how best we can curb this This is connected to the lack of list. Interestingly, the researchers tendency and rules are framed development of the immune system. go too far in claiming that this to stop unwanted antibiotic One of the preventive measures study does not invalidate the prescriptions.  might be breast-feeding which

A

O

“G

A

59 | 9 June 2016 | MONEYLIFE

BM Hegde.indd 3

20-05-2016 17:41:25

YOU BE THE JUDGE BAPOO MALCOLM

Conceal, Mislead, Convict; That’s No Victory A lawyer died His wake was big, The cortege long. Seems that he had Done no wrong. He lay in state, Seemed free of sin, But in hand, each mourner, Had a pin. Each pricked the corpse, No word was said, They just made sure, The man was dead. Readers are free to decide on the veracity. Lawyers get a bad name because our system of litigation is adversarial. One person has to lose and, therefore, the other’s advocate becomes the villain. No one faults the adversary himself. Always the lawyer. Sometimes, however, the lawyer deserves to be vilified. Courts decide matters on proof. Documentary proof is best. Followed by verbal testimony and cross-examination. Almost every time proof exists; yet, often, the courts are unaware of its existence. A decision by a court, in such a case, may be flawed. Who, then, is to be blamed? Our laws require that all proof must be put on the table; even if is adverse to one’s interest. This follows from the belief that the primary duty of a court of law is to find the truth. Orders, judgements, convictions, acquittals, awards, fines, dismissals—all flow from that. What is stated above must be news, or anathema, to our readers. The standard reaction of most litigants is: ‘Why should I produce this as evidence?’, when asked to present the inconvenient truths. But the law demands it. Hide-and-seek is not a game that courts play. They can come down heavily on those who conceal vital evidence. The same is also true with concocted proof and perjury. Public prosecutors are appointed by the State— meaning the government—to conduct criminal trials.

Their results are showcased for all to see, especially in high publicity issues. Often, they become superstars. But what if they fail? That is not palatable to most lawyers. They will die a thousand deaths for a conviction. It is this pressure that leads some astray, and the police is often there to help with manufactured proof. You be the judge in these trials. a) Mr X knows that his opponent, Mr B, has some vital documents that will prove X right. B wants to hide them. X asks the judge to force B to produce the important proof. What can the judge do? b) X says that he needs some documents to prove his case but does not have them. B has them. What should B do? c) A man is convicted because the prosecutor did not reveal all he knew about the man’s innocence. Later on, the proof is out; but, by then, the man has spent 18 years in prison. Can the prosecutor be punished? In the first case, if the judge demands the papers from B, B will have to produce them. Otherwise, B can lose his case. He may also be held in contempt, obstruction of justice and wrongful harassment of X, beside a host of other crimes. In the second case, it is the duty of B to inform the court that B has the documents with him and will produce them, not to help the opponent, but to ‘assist the court’. We did exactly that a few days ago, in a civil case. The third is an example of many such trials culminating in wrongful imprisonment. After a recent American study, 20% of those convicted were set free; all victims of malicious prosecution. Many of the affected sued the government agencies and were compensated. Unfortunately, only ONE prosecutor was punished. A low-level functionary, he lost his licence to practise. That’s all! Faced with similar situations, what can litigants do? They must ask their lawyers to apply to the court for documents withheld by the other side. The law permits this and it is codified in Order 11, Rule 21 of The Code of Civil Procedure. It can save months of delay. It’s a law just waiting to be used.  Bapoo Malcolm is a practising lawyer in Mumbai. Please email your comments to [email protected]

MONEYLIFE | 9 June 2016 | 60

You Be the Judge.indd 2

20-05-2016 17:42:28

MONEYLIFE FOUNDATION SEMINAR ON CREDIT BUREAU

Demystifying Credit Score & Being Safe & Smart with Your Money

I

t has been around 12 years since Credit Information Bureau (India) Ltd (CIBIL), the country’s first credit bureau, started its operations. However, there still are several myths and apprehensions among people about the functioning of, and the role played by, credit bureaus like CIBIL as well the credit score they assign to borrowers. To demystify such myths and explain easy ways to improve one’s credit scores for becoming responsible borrowers, CIBIL, along with Moneylife Foundation and Softcell Technologies, held a seminar in Mumbai. The speakers included Harshala Chandorkar, chief operating officer (COO) of CIBIL, Sucheta Dalal, and Debashis Basu, trustees of Moneylife Foundation. The first session began with Ms Dalal speaking about the mistakes that affect your financial life. Many have lost huge amounts of money in pyramid schemes, Ponzis, multi-level marketingg (MLM) schemes, chain marketing schemes and chit funds nds such as Herbalife, Amway, Saradha, Rose Valley,, SpeakAsia, Gold Quest or QNet. Most individuals uals are oblivious of how costs and compounding ing interest can impact borrowings or investment. ment. Mr Basu explained ed that, to save and invest smartly, one needs eds just a few products. Based on one’s financial ncial goals, investment horizon and tax bracket, ket, one should invest in a mix of equity and fixed-income xed-income products. He advised, “make the power wer of compounding work to your benefit.” ” So, save as much as possible, as early as possible and in the right Harshala products, he Chandorkar, said. COO of CIBIL

Ms Chandorkar provided some facts about the credit bureau’s operations. She also explained, various sections of a CIBIL credit report and how to read and understand it.“However,” she said, “A CIBIL credit information report does not show information like savings account, transactions details on your cards, investments like mutual funds, stocks or insurance and utility payment details.” Ms Chandorkar then demystified some common myths about the credit bureau. people believe mistakenly that ‘CIBIL is a defaulters’ list’, ‘CIBIL rejects loan applications’, ‘CIBIL blacklists an individual’ and ‘CIBIL should make changes on its own in the database’. She said none of these statements is true. CIBIL is not a defaulters’ list, neither does it reject loan applications nor does it blacklist anyone. “Credit applications are accepted or rejected by lenders and not by CIBIL. It is the only the lenders or banks who can make changes in their records and an then submit to credit bureaus,” she added. There are many credit ‘repairing’ ‘repa firms that promise to remove, for a fees, th the ‘settled’ remark from a CIBIL report. “How “However, this status cannot be changed unless the th customer pays back all the dues and the loan loa or credit card is closed. Many people, who fin find that they have a low CIBIL score, want to improve im it overnight and, often, easily get lured to credit repairing agents. Ms Chando Chandorkar says, “Your credit re report and score is a reputational collateral. repu Cultivate financial Cul discipline in order to disc enjoy all the benefits enjo associated with it.”  asso

61 | 9 June 2016 | MONEYLIFE

Event.indd 2

20-05-2016 17:43:13

BOOKS

Heroes and Villains of Finance

Fascinating Characters from the World of Finance

B

ooks that give thumbnails of interesting characters are always interesting. Heroes and Villains of Finance does exactly that—provides sketches of the lives and ideas of the 50 chosen characters from the history of finance. While the stories of famous people in finance like Warren Buffett, George Soros, Muhammad Yunus, Bernard Madoff, Charles Ponzi and others are known to many, it’s the other, lesser-known, colourful characters (to the current generation) that make this book interesting. Take a brief look at a few of them. Michael Milken: ‘Junk Bond HEROES AND King’ Michael Milken was VILLAINS OF FINANCE an American bond trader A BALDWIN well-known for his role Wiley in the development of Pages 208; Rs399 the market for high yield bonds. He started work as a bond researcher and was reportedly so dedicated to his work in the first year that he wore a miner’s headlamp while commuting on a bus early in the morning so that he could read company accounts. With his huge knowledge of the bond market and razorsharp mind, he was the ‘go-to’ man for raising money quickly. On one occasion, he reportedly raised $1 billion for MCI Communications in less than an hour! He is the man responsible for garnering funds for Ted Turner when nobody would fund Turner’s idea of a 24-hour news channel called CNN. At the peak of his career, he was reportedly earning over $500 million per year. However,

in a twist of fate, he had to spend 22 months in prison after pleading guilty to charges brought against him for violations of US securities laws. After his release from prison, he added a new dimension to his life by funding medical research. In 2004, Fortune magazine called him ‘The Man Who Changed Medicine’. Hetty Green: When you think of billionaires, what comes to your mind is a flamboyant lifestyle characterised by luxury yachts, villas and glitzy parties. But what if somebody told you that a female tycoon of the Wall Street was a miser? Hetty Green refused to use hot water or heating. When her son broke his leg, she admitted him to a free clinic for the poor! When she developed hernia, she refused to treat it, as its treatment was a pricey $150. She reportedly amassed a fortune of $200 million ($4 billion in terms of current purchasing power). When she died, she left one of the largest inheritance packages in the history of the US. Her investment strategy consisted of conservative buying backed by substantial cash reserves to cover any movements in her positions. She invested in railroads, mines and real estate and lent money while acquiring mortgages. Medici Family: If you thought that private banking is a concept pioneered by modern bankers, think again! The Medici family, which operated the largest bank in Europe, acted as private bankers for most European royalty and nobility. In a sense, they acted as central bankers when there were no central banks. At one point, the currency issued by Medici Bank was accepted tender throughout Europe. Nonperforming assets (NPAs) were a problem in the 15th century too. The Medici family had their tryst with NPAs when they found that many of their high net worth (HNI) clients were unreliable. Connoisseurs of art and architecture would have to be thankful to the Medici family who sponsored Renaissance artists like Michelangelo, Leonardo Da Vinci and Raphael. They contributed to the development of the double-entry system of accounting that is a norm throughout the world. 

MONEYLIFE | 9 June 2016 | 62

Book Review.indd 2

20-05-2016 17:46:34

BOOKS

 Sir John Blunt: The

phenomenon of stock price speculation and manipulation, boom and bust is not limited the modern era. Sir John Blunt created the South Sea Company in 1711. The crash in its stock price bankrupted thousands of investors; hundreds of investors committed suicide. The ‘greater fool theory’, where speculators buy stocks in the hope that ‘a greater fool’ will pay even more for them before the bubble bursts, led to the South Sea bubble. Sir Isaac Newton, after losing huge money in the company, famously said, “I can calculate the movement of the stars but not the madness of men.” Waddill Catchings: The pitfalls of leverage are apparent from the story of Goldman Sachs employee Waddill Catchings who came very close to bankrupting the Goldman Sachs Bank during the stock market crash of 1929. He created an innovative structure—fund of funds—with leverage. He convinced Goldman Sachs Bank to open a closed-end fund, called Goldman Sachs Trading Corporation (GSTC). Catchings was hailed as a financial genius when these funds performed exceedingly well. However, the problem is that leverage works both ways—it magnifies profits as well as losses. The GSTC stock crashed from a high of $280 to $1.25 in 1932. Hyman Minsky: US economist Hyman Minsky’s work centred on debt. He theorised that during prosperous times, i.e., unusually long periods of economic stability, a speculative level euphoria develops, where investors are lured into taking excessive debt which metamorphoses into a financial crisis. A ‘Minsky Moment’ occurs when over-indebted investors are compelled to sell good assets to repay their loans, leading to sharp declines in financial markets and a sudden, inexplicable,

major collapse in asset values. His theories about debt accumulation became popular during the global financial crisis in 2008. Amadeo Giannini: Amadeo Giannini’s frustration with banks lending to only wealthy clients led to the creation of the Bank of America. He was determined to fight for the ‘little people.’ In the wake of the San Francisco earthquake in 1906, he went down to the beachfront, setting up shop by placing a plank of wood over two barrels. He started to lend money to small businesses and individuals desperately in need, without collateral in many cases. From these humble beginnings, he developed his Bank into a nationwide system of branches. Bank of America went on to become the largest bank in USA at the time of Giannini’s death. Movie enthusiasts have a lot to thank Amadeo Giannini for, as he funded many Charlie Chaplin films and Walt Disney’s early movies. He left much of his fortune to a foundation for medical research. The Order of the Knights Templar: Multinational banking is not something that happened in the modern age. The Order of the Knights Templar, in the Middle Ages, was the world’s first multinational corporation. The Order generated letters of credit for pilgrims journeying to the Holy Land. Pilgrims deposited their valuables with a local Templar before embarking and received a document indicating the value of their deposit. The pilgrims used that document upon arrival in the Holy Land, to retrieve their funds. This innovative arrangement was an early form of banking and was perhaps the first formal system to support the use of cheques. The book consists of many other stories including those of the biggest scamsters and stock price manipulators— John Law, Charles Ponzi, Alves dos Reis and Bernard Madoff. Why read this book? Because these stories are fascinating and history has a habit of repeating itself. — Ram Bhimani 

63 | 9 June 2016 | MONEYLIFE

Book Review.indd 3

20-05-2016 17:46:57

MONEY FACTS STOCKS

INDIAN MARKET TRENDS

FUND FLOWS

The Sensex and the Nifty rose 2% each during the fortnight ended 18th May. ML Large-cap Index and ML Mega-cap Index also rose 2% each. ML Small-cap Index and ML Midcap Index advanced 3% and 5%, respectively. 

Foreigners: Foreign institutional investors were net buyers of stocks (Rs1,153.31 crore). They bought shares worth Rs32,864.10 crore. 

Share Prices Index, November 2015=100

1,500 1,125

130

FII Net Investments (Rs Crore)

750

120

375 0

110

-375 09 May-16

100

18 May-16

Indians: Domestic institutional investors were net buyers of stocks (Rs2,570.44 crore). They bought shares worth Rs14,390.85 crore. 

90

80 Nov-15

Feb-16 ML Large-cap ML Mid-cap

ML Small-cap ML Mega-cap

May-16

DII Net Investments (Rs Crore)

560

ML Micro-cap

Nifty Sensex

735

385

Index ML Mid-cap Index

06-May

18-May

+/-

210 35

98.59

103.91

5%

ML Small-cap Index

100.54

103.44

3%

ML Large-cap Index

99.31

101.33

2%

25,228.50

25,704.61

2%

7,733.45

7,870.15

2%

ML Mega-cap Index

99.02

100.59

2%

ML Micro-cap Index

97.76

97.91

0%

Sensex Nifty

Mega-cap Gainers/Losers

-140

GLOBAL MARKET TRENDS 3,635

06-May

18-May

Change

351.40

427.55

22%

20,216.80

18,720.15

-7%

Large-cap Gainers/Losers

06-May

18-May

Change

Monsanto India

1,793.35

2,329.05

30%

189.70

165.80

-13%

Mid-cap Gainers/Losers

06-May

18-May

Change

Tasty Bite Eatables

1,687.00

2,508.00

49%

Index

Bharat Bijlee

1,077.20

894.85

-17% Change

Sun T V Network

18 May-16

09 May-16

3,335

Shanghai Composite 3,035

Eicher Motors

Century Plyboards (India)

Small-cap Gainers/Losers

06-May

18-May

Store One Retail India

61.50

147.90

140%

Lakshmi Energy & Foods

22.85

19.00

-17%

06-May

18-May

Change

Micro-cap Gainers/Losers Mangalam Timber Products Jindal Photo (All Prices in Rs)

18.90

31.35

66%

178.20

85.10

-52%

2,735 Nov-15

Feb-16

May-16

Nikkei and the FTSE rose 3% and 1%, respectively, while Hang Seng and Bovespa fell 1% and 2%, respectively. NASDAQ Composite ended flat.  06-May

18-May

+/-

Nikkei

16,107

16,645

3%

FTSE

6,126

6,166

1%

Taiwan Weighted

8,146

8,160

0%

NASDAQ Composite

4,736

4,739

0%

S&P 500

2,057

2,048

0%

Korean Composite

1,977*

1,957

-1%

Hang Seng

20,110

19,826

-1%

Bovespa

51,718

50,562

-2%

2,913

2,808

-4%

Shanghai Composite * - 4 May 2016

MONEYLIFE | 9 June 2016 | 64

Money Fact.indd 2

20-05-2016 17:48:10

MONEY FACTS STOCKS



What’s H

T

ML SECTORAL TRENDS

Hotel companies were in demand during the fortnight. Taj GVK Hotels & Resorts and Indian Hotels soared 17% and 10%, respectively. EIH, Advani Hotels & Resorts and Royal Orchid Hotels advanced 9% each.  Companies

06-May

18-May

+/-

81.35

95.00

17%

ML Hotel Index

Taj GVK Hotels

130

Indian Hotels Co

104.45

114.50

10%

EIH

115

100

85 Feb-16

What’s

May-16

110.30

9%

49.25

53.85

9%

Royal Orchid Hotels

77.50

84.65

9%

Jindal Hotels

39.15

42.00

7%

Viceroy Hotels

16.15

17.25

7%

Oriental Hotels

21.60

22.95

6%

Savera Industries

59.10

61.90

5%

1,012.25

1,045.50

3%

Benares Hotels

Office Equipment

9% Non-ferrous Metals

-2%

Paints

8% Airlines

-2%

Hotels

7% Trading

-2%

Media

7% Odds

-1%

Petrochemicals

6% Steel

-1%

URBAN INFLATION

N T

Combined inflation for urban and rural areas increased to 6.44% in April 2016, from 5.44% in March 2016. Inflation in urban areas increased to 4.85% in April, from 3.60% in March. Food inflation in urban areas increased to 5.97% in April, from 3.98% in

Non-ferrous metals companies were a mixed bag. National Aluminium, Hindalco Industries, Arcotech and Hindustan Zinc declined 5%, 3%, 2% and 1%, respectively. Alicon Castalloy advanced 3%.  Companies

ML Sectoral Trends

All Prices in Rs



Nov-15

100.75

Advani Hotels

Shares of office equipment companies and paints companies advanced 9% and 8%, respectively. Shares of hotel companies and media companies rose 7% each. Stocks of non-ferrous metals companies, airlines companies and trading companies fell 2% each. Stocks of steel companies fell 1%. 

06-May

18-May

+/-

National Aluminium

43.50

41.50

-5%

ML Non-ferrous Metal Index

Man Industries

63.80

61.65

-3%

130

Hindalco Industries

91.90

89.15

-3%

Arcotech

377.40

368.60

-2%

Hindustan Zinc

169.95

167.95

-1%

Hindustan Copper

52.10

51.70

-1%

Gravita India

24.30

24.45

1%

348.20

359.80

3%

35.25

38.70

10%

On the Rise? 115

5.00% Annual Change

100 Alicon Castalloy Ram Ratna Wires

3.50%

85 Nov-15

Feb-16

May-16

All Prices in Rs

2.00% Apr-15

Oct-15

Apr-16

BULK DEALS Date

Company

Buyer

Seller

Rs Cr

13 May-16 Lakhotia Polyesters

Gazi Estates Pvt

Sanwaria Vincomm Pvt

0.74

13 May-16 Agi Infra

Sajankumar R Bajaj

E Tricks Enterprises Pvt

0.60

17 May-16 Vaksons Automobiles

Sajankumar R Bajaj

Pankaj Piyush Trade And Invt

0.55

13 May-16 Relicab Cable

Sajankumar R Bajaj

Kavita Shashi Choudhary

0.42

13 May-16 Vaksons Automobiles

Sajankumar R Bajaj

Tia Enterprises Pvt

0.29

13 May-16 KK Fincorp

Hanuman Freight And Carriers

Hrishikesh Impex Pvt

0.25

16 May-16 Franklin Leasing

Sonal Mercantile

India Finsec

0.21

March. In urban areas, prices of vegetables increased by 4.51% since last year. Inflation related to fuel & power declined by 0.17% in April. Inflation for housing increased to 5.37%. Inflation for clothing hovered around 4%; for miscellaneous items, it increased to 3.50% in April from 3.08% in March. 

65 | 9 June 2016 | MONEYLIFE

Money Fact.indd 3

20-05-2016 17:48:23

BEYOND MONEY

Livelihood through Handicraft Development

finding markets for Sabala’s products was a challenge, since Bijapur is not well-connected. That was a long time ago. Sabala, today, is a member of the Export Promotion Council for Handicrafts and participates in national and international exhibitions and shows. The organisation is also a member of the World Fair Trade Organisation and Ms Yalawar is vice-president of the Asia Board. There was the issue of finance. Initially, when women he slick website of Sabala handicrafts, offering chic formed SHGs (self-help groups), banks denied loans to ethnic cloths, jewellery and footwear at premium these women. Ms Yalawar was involved in setting up prices provides no clue about the humble beginnings Chaitanya Mahali Sahakari Bank Ltd at Bijapur. It is and hard grind behind its current status. a cooperative bank which started with 1,520 women Mallamma Yalawar, who founded Sabala, hails members and a capital of Rs23.6 lakh. Ms Yalawar says, from a small village in Bijapur district. A girl child in a “Personally, I have not invested my personal money in this family of eleven children, born at a time when parents Bank, but I have invested my time, energy and commitment did not think it was important, or necessary, to educate to set it up.” The Bank now has 8,000 women members, their daughters, she worked on farms as a daily wage Rs48 crore in deposits and Rs1.98 crore as share capital; labourer and earned her school fees. She went on to do but, as she correctly says, those funds are not available for Sabala’s initiatives. her BCom and also obtained a diploma in industrial relations So what is next on Ms and personnel management, Yalawar’s agenda? Apparently while giving tuitions to fund plenty; both on the personal her education. front as well as for Sabala. She She was only 24 years of plans to expand Sabala’s area of age when she founded Sabala. operations to the neighbouring She was helped by the NGO district of Bagalkot. The goal Oxfam to create awareness is also to educate and organise about women’s rights. She women in the unorganised realised that empowering sector to develop a focus on women is not possible if they sustainable development. She are not financially stable. She takes pride in Sabala’s ability got the women artisans at to transform the lives of women Sabala to choose an activity that could be done from like Boramma, who was married off at 14 but lost her home and was not dependent on the erratic availability husband and a little child within two years of marriage. of electricity. Traditional crafts and embroidery, which is She learnt embroidery and tailoring at Sabala and is taught and passed on from mother to daughters in tribal an independent woman today. There are many others communities, was the answer. whose lives have been transformed because of Sabala’s After several rounds of training and effort, Sabala has contribution. started to make high-quality products suitable for the Ms Yalawar is now working at promoting craft urban market. Today, its handicraft and products are sold tourism around Bijapur which has many famous historical in various parts of the country and it supplies to Fabindia monuments including the Gol Gumbuz and a strong and also exports to USA, Spain, Italy and France. In the Lambani tribal base with their rich embroidery and dances. initial days, Ms Yalawar tells us that Sabala hired designers Interestingly, Sabala is self-sustaining enough not to from NIFT (National Institute of Fashion Technology) and have a donation request on its website. Ms Yalawar says NID (National institute of Design) to that the organisation already has a design clothes and jewellery. Over time, tax exemption on foreign donations Ms Yalawar herself learnt designing under the FCRA (Foreign Contribution SABALA and, today, her daughter Tejashwini, Regulation Act) and is in the process Samatha Building, Keertinagar, who had done a course from NIFT, seeking a tax exemption under 80-G B Bagewadi Road, Bijapur - 586 101 helps out. People also bring their own of Income Tax Act mainly for support Karnataka designs if they want customised items. received under corporate social Telephone: 91 - 08352 - 278204 But sourcing raw materials and responsibility (CSR) schemes.  Fax: 91 - 08352 - 278890 Mobile: 91 9448118204 Email [email protected] Website: www.sabalahandicrafts.com MONEYLIFE | 9 June 2016 | 66

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