Personal Finance Magazine Moneylife 11August2011 by Moneylife Digital

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11 August 2011

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Stay away from glamorous sectors, promoters or companies. Here is why

CURRENT ACCOUNT 13

– RCom: Cooking its Books – Sterling Holidays: Yet another fund-raising exercise

Cover Page_142.indd 2

FUNDS 26

– Buying sector funds is a bad idea – Some sector funds benchmarks are opaque

STREET BEAT 36

– Supreme Infrastructure – Ajanta Pharma – Andhra Petrochemicals

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Volume6,Issu e 12 29July–1 1 August 2011 DebashisB asu Editor& P ublisher editor@moneylife.in SuchetaD alal ManagingE ditor suchetadalal@yahoo.com EditorialC onsultant DrN itaMukher jee

Editorial, Advertisement, Circulation& S ubscription Office 315,3 rdFl oor,H indS ervice Industries Premises,Of fV eerS avarkarMarg,S hivaji Park,D adar(W ),Mumbai -400028 Tel:022244410 59/60 Fax:02224442771 E-m ail:mai l@moneylife.in E-m ail: sales@moneylife.in Subscriptione-m ail subscribe@moneylife.in Pune JitendraGar sund “SANSHREY”,N anaiB augS ociety, BTK awadeR oad,Ghorpadi , Pune-41 1036 Mobile:9881309801 E-m ail:j rg.pune@gmail.com NewD elhi DDAFl ats,J-3/66,K alkaji, NewD elhi-1 10019 Chennai 14,Mi anS ahib,II ndS treet, NearMadras YouthH ostel,C hepauk, Chennai-600005 Tel:0 44 4215 5442 Bengaluru 1st Floor,13/1,7 thMai nR oad, 1 C ross,S aibabanagar,S rirampuram, Bengaluru-560 021 st

Kolkata 395, Lake Gardens, Kolkata - 700 045 Tel:03324221 173/4064 4318 Hyderabad C/oR ajnidev, 15-2-16,1 stFl oor,S hop No.9, (BesideR amdasP aper Mart), GowligudaC haman, Hyderabad-500 012 Moneylife is printedandpubl ished by DebashisB asuonb ehalf of Moneywise Media Pvt Ltd and printed at MagnaGraphi cs,101C&D, GovernmentIndustri al Estate, Kandivli (West),Mum bai - 400 067 andpubl ishedat315, 3rd Floor, HindS erviceIndustri es Premises, Off VeerS avarkarMar g, Shivaji Park, Dadar(W ),Mumbai - 400 028 Editor:D ebashis Basu

RNIN o:MA HENG/2006/16653

Letters to the Editor JAYA HO! Political alliances are fragile. Even as they are being conceptualised, the cracks appear. These tie-ups are just marriages of convenience. Actually, the coalition era, starting in 1989, has Write to the Editor! The only investment that brought in a phase where Win jewellery the politicians’ venality enhances your face value. has risen exponentially. In fact, the regional satraps, their cronies and flunkies are aware of their electoral prowess as legislators or MPs (members of Parliament). They take Congratulations SK Shah from New Delhi! maximum advantage of Your letter to the Editor wins a Surat Diamond gift. their electoral prowess Keep writing! Keep winning! and the existence of a government hinges, at times, on a single vote. After any election, the elected ‘Independent’ representatives are up for grabs. The narrower the margin of victory for the party voted into power, the higher the premium these fence-sitters command. Thanks to the mire that the DMK (Dravida Munnetra Kazhagam) finds itself in, the whole party is in disarray; it is demoralised and has become politically irrelevant. AIADMK (All India Anna Dravida Munnetra Kazhagam) head and Tamil Nadu chief minister J Jayalalithaa will warm up to the current UPA (United Progressive Alliance) regime. Should the PM (prime minister) bite the bait? After all, Ms Jayalalithaa has been known to switch camps whenever she knows that the going is not good. I think the Congress should tread cautiously. Now it is for the UPA (read, the Congress Party) to decide whether it wants to court imminent disaster with the AIADMK or mend fences with the DMK—a Hobson’s Choice, if there ever was one. SK Shah, New Delhi, by email

GRAFT? CASH IN!! The Radia tapes have ave clearly shown that the business i iness community is calling n ng the shots in the country—by a long g margin. Pliable and weak-kneed politicians serve as agents for India Inc. c c. The super-rich havee become so powerful that no o one can stand up to their eir money power. In fact, they y are the ultimate decision-makers m makers in today’s India. They decide the ``

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LETTERS

` structure of politics; these wealthy individuals can run

India now like no politician can. Of course, like good businessmen, all their activities are either to feed their greed or boost their profits. Despite the sheer magnitude of politicians’ chutzpah and lobbying by private agents like Niira Radia—the rampaging and assertive loose-cannon journalists are merely assisting businessmen in furthering their interests. The aim of business is to place weak politicians in power—those who will let them loot the country. To loot the public sector companies and public banks; to loot the mines and oil & gas wells and loot pension funds... But the middle class should wake up. It should know where its self-interest lies. It must stop this systematic loot of the country. The super-rich make immense money by forcing politicians to hand over public assets very cheaply and by armtwisting governments to install a non-competitive monopolistic system, helping players to reap super-profits. Without these, their companies cannot show 20%-40% increase in profits every year. Should this loot continue? On a lighter note, I have a different point to make. We all know the amount of bribes these politicians make—even small fry like Madhu Koda (from Jharkhand) allegedly pocketed Rs4,000 crore while handing out mining licences in his assetrich state. But here’s the math. Big industrial houses must have benefited by at least Rs2,00,000 crore, considering the value of these mines. First, politicians do not truly realise the worth of what they are handing over. Second, they are desperate for cash—and so they are poor bargainers. These alleged bribes have actually given a great return on investment for mining companies! If the people of India have lost Rs2,00,000 crore on Mr Koda’s case, so be it. We, the middle-class (at least the brokers and market investors, that is), will make some gains. These gains would be nothing compared to what these big firms will reap, but we can surely make some money from the markets by investing in these firms! Of course, I am being sarcastic, but I feel that we should care for ourselves before we turn over-

moralistic. It appears counter-intuitive, but we must all support the business community to loot this country’s wealth. Block agitations which try to stop the corporate looting. Anyway, the business community is too powerful and it cannot be stopped. If blame has to be apportioned, it should be to the politicians. The business community must be treated with kid gloves. Otherwise, all looting will stop and corporates will stop making profits; then, how will investors and brokers gain? Narsimhan Srinivasan, by email

DUMB INTELLECTUALS When a number of countries made the transition from monarchy to democracy, the prevalent conventional political thinking had to be subverted. But a number of monarchs tried to hold on to power... saying that monarchy was necessary for ensuring stability. But the hollowness of this argument was exposed over time. More representative forms of government started taking root across the world. Can we not compare this movement to the attack that civil society is making on corruption? In fact, a number of ‘intellectuals’ want to retain the status quo and are working overtime to attack any change. Governments in power always use this strategy—and fire from the shoulders of these intellectuals—to undermine the wishes of the people. The civil society is a vocal minority which is expressing the views of the silent majority—a majority struggling to earn a living. This majority has no time or energy to come onto the streets. “Greed is good” seems to be the mantra now. Unregulated greed is the operative philosophy of people in power. On top of this, when the head of government is weak and permits his ministers to do as they please, corruption becomes easy. People have figured out that this unbroken sequence of scams represents a deeper structural malaise. The unregulated greedy political class is the weak spot which is being exploited by unscrupulous businessmen to grab the nation’s assets for minor considerations. One has to keep in mind that democracy has evolved ``

MONEYLIFE | 11 August 2011 | 6

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Here’s what is coming up! HOW TO BE SAFE & SMART WITH YOUR MONEY July

Seminar at the Sadhana Centre for Management & Leadership Development, Pune, exclusively for its management students

HOW TO USE THE RIGHT TO INFORMATION ACT EFFECTIVELY July

HOW TO BE SAFE & SMART WITH YOUR MONEY August

These were the events Moneylife Foundation held over the fortnight

A workshop on financial literacy, exclusively for the medical community in association with the Indian Medical Association

Narayan Varma, ma, a chartered accountant with 55 years of experiencee addressed a packed halll on how to use the RTI Act effectively

INVESTOR EMPOWER YOURSELF! July

First full-day seminar in Bengaluru which was also Web-casted live for the very first time

UNDERSTANDING PYRAMID SCHEMES ILLEGAL MINING—BLOOD AND IRON August

Screening of the documentary on illegal mining—Blood and Iron by Paranjoy Guha Thakurta, an independent journalist

HOW TO USE THE RIGHT TO INFORMATION ACT EFFECTIVELY September

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How to use the RTI Act effectively at the Ravindra Natya Mandir, ndir, Prabhadevi, Mumbai, by Shailesh Gandhi, Central Information Commissionerr

July

Workshop on Understanding Pyramid Schemes by Sucheta Dalal. Ms Dalal spoke on how to invest safely by avoiding pyramid yramid schemes as well as multiltilevel marketing eting schemes

Call 022-24441058-60, or email us at mail@mlfoundation.in or log on to www.mlfoundation.in

7/23/2011 5:18:56 PM

LETTERS

` over the decades.

former chairman of Bulls and bears are Write to the editor! the Atomic Energy Intellectuals are failing unpredictable. Invest in diamonds. Win jewellery Commission of India us—are they too and ex-secretary in the comfortable with the Department of Atomic powers-that-be? They are Energy), “How well are ignoring the rising tide we equipped to handle a of public opinion. People disaster in terms of fast are beginning to make response to evacuation, up their minds about Write to the editor. If your letter is the best, You’ll medical assistance this form of democracy Win Surat Diamond jewellery. and rehabilitation of which is for everyone’s the locals, in case of a benefit... except the disaster in Jaitapur?” people. When representatives can get away without Mr Kakodkar’s response was: “Unless we have this representing the people, I think the political system system in place, we will not be granted a licence to set itself should come under public scrutiny. up a nuclear power plant.” Yes, Mr Kakodkar, these Jasmeet Singh, by email clauses exist in bold letters on paper. But they have remained only on paper. Recently, a mock drill was BIG BROTHER held at Tarapur plant, but it failed. This refers to the article, “Banks & Financial The interaction with the audience at the Worli seminar Literacy—Ears to the Ground” (Moneylife, 14 July was also a disaster. Mr Kakodkar’s replies to most 2011). The article states, “We do know this; banks are questions were evasive. I feel that by conducting such quietly making plans for unique identification numbers (UINs) to be mandatory as part of know your customer discussions, nothing constructive can be generated. We have to ask ourselves a fundamental question—can (KYC) requirements without consulting the consumers we do away with nuclear power? Is it time to pass a or looking into privacy issues.” Why are the banks (at worldwide ban against nuclear power projects? a cost of millions of rupees) duplicating this process? The government is already Subrahmanian SH, by email issuing Aadhaar numbers; banks should capture this HELP US TO HELP YOU number in their existing Moneylife offers its readers a unique service—helping databases. Banks should redress grievances on a best-effort basis. However, we avoid duplication and have limited resources to devote to this effort and can further complicating the only pursue complaints that come to us by email. We issues that will arise from request readers to please send us crisp complaints, with these UINs. Aadhaar has all the facts on email (not as an attachment) and send the biometrics and PAN us the supporting documents, only if we ask for them. (permanent account We cannot handle physical letters. — Editor number) along with the address (and other HOW TO REACH US Letters to the Editor can be emailed to editor@moneylife.in or details) of a customer. can be posted to: The Editor, Moneylife Magazine, Unit No. 315, 3rd The government should Floor, Hind Service Industries, Off Veer Savarkar Marg, Dadar (W), have looked into Mumbai 400 028 or faxed to 022-24442771. Letters must include privacy issues before the writer’s full name, address and telephone number and may be edited for clarity or space. getting into this exercise. It has to ensure that any New Subscriptions & Customer Service form of wastage of funds is avoided and duplication of For new subscription requests, complaints about current processes and data is done away with. subscription and books, write to subscribe@moneylife.in or Adi Daruwalla, by email to Subscription Manager, Unit No. 315, 3rd Floor, Hind Service

NUKE NUKES! At a seminar held recently at Nehru Science Centre, Worli (Mumbai), I asked Anil Kakodkar (an eminent Indian nuclear scientist and mechanical engineer;

Industries, Off Veer Savarkar Marg, Dadar (W), Mumbai 400 028 or call 022-24441059-60 or fax to 022-24442771. Advertising For information and rates, email us at sales@moneylife.in or call 91-022-24441059-60.

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LETTER

ISSUE CONTENTS

11 August 2011

FROM THE

EDITOR Pen Power

re you not tired with various media outlets falling over themselves to claim credit (with screaming headlines and even louder anchors) for the same exposés? But not all journalists are the same. Read about the struggle of an editor from Pune, who preferred not to unsheathe her pen, but instead used the RTI (Right to Information) Act to create civic awareness to keep eco-vandalism in check. There’s more inside this Moneylife issue about how the credibility of the Fourth Estate has been shattered recently, thanks to the politician-tycoon-media terrible troika. Our readers are aware that our markets suffer from poor participation, loose regulation and brazen manipulation. The number of instances of fraudulent manoeuvring that we have highlighted over the past five years are too numerous to be recounted here. And nothing has changed over half a decade—the situation actually seems to have taken a turn for the worse... but that only strengthens our resolve to keep unearthing situations where investors are left in the lurch. Of course, just writing about these issues that affect investors is not enough. The Moneylife Foundation held another seminar to spread consumer awareness in Bengaluru. And this event was our first attempt to reach a global audience as it was streamed live over the Internet. Apart from the 300 or more attendees, this event was watched by over 4,000 viewers. And the breaks that we had were for Q&A sessions, not advertisements. The Foundation also held its fourth seminar on the RTI Act—the focus of this event was to educate the participants on Section (4) of the Act, which involves suo moto disclosure of information by public authorities. We are also in the process of forming a Voluntary Experts Group and I invite readers to write in if they can help in pro bono work to further the activities of the Foundation. Our next stop is Chennai—another foray outside Maharashtra. Glamorous stocks grab the headlines everywhere and investors seem to be drawn to them again and again. But they will leave you with a hole in your portfolio. Read our Cover Story to know how. Debashis Basu

30 Cover Story

Glamour Stocks, Ugly Returns

It is easy to fall for the stocks of glamorous sectors, promoters or companies, especially since they figure prominently in the popular media all the time. This is a recipe for disaster, as Moneylife Research Desk shows

13 Current Account – Veritas Research has created history. It has alleged that Reliance Communications has been cooking its books – There is a lot of capital for the education business but student loans are elusive – The Fed Chairman thinks that the yellow metal is useless. It has stirred a huge debate – Researchers claim that googling for information affects memory – Sterling Holidays is on yet another fund-raising drive – A group of disparate entities have come up with a “superaerodynamic time trial bike”

19 LOOSE CHANGE Moneylife Quiz; Soundbites

Fourth Estate? Our media is a paper tiger; Vaswani’s Stock: Manipulation, time & again; Ashika Escapes: SEBI ignores machinations

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

MONEYLIFE | 11 August 2011 | 10

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CONTENTS DIFFERENT STROKES

EVENTS EVENT

on 22 Check Misgovernance

Foundation 51 Moneylife Seminars

India needs to encourage proxy services to check corporate misgovernance, but ensure that conflict, regulation and compensation issues are addressed right now

• •

“Beware “Be of Pyramid Schemes” “Implement “Im Section (4) of the RTI Act Correctly”

LEGALLY SPEAKING LEGAL

STOCKGRADER 41

SMART MONEY

with 24 Bond the Best Option

Momentum

Prime Focus jumped 18% and EID Parry climbed 2%, while Orchid Chemicals plunged 8%

A few alternatives for investors who cannot directly invest in bonds either through their brokers or through other financial intermediaries

Supreme Petrochem jumped 9%, while Shoppers Stop fell 5% and Asian Paints lost 2%

Fund Pointers

Buying sector funds is a bad idea. But if you must buy one, which should you go for? – Several funds are benchmarked to proprietary indices, making it impossible to measure their performance

Long Term

Amara Raja Batteries jumped 5%, while Cadila Healthcare tumbled 7% and TCS fell 4%

–

INSURANCE

46 Insurance Trends – – –

36 Street Beat Supreme Infra: Strong backward integration model; Ajanta Pharma: Growth drivers for the company are firmly in place; Andhra Petro: Better capacity & latest technology

SAVING AND INVESTING

55 Earning Curve Never invest in something you don’t understand TRAVEL

–

STOCKS

The d doctrine of ‘buyer beware’ applies to any transaction. You have legal recourse if you are cheated, but always keep this adage in mind before any purchase

Medium Term

FUNDS

Emptor Holds 54 Caveat Good: In all cases

Guaranteed returns from Bharti AXA Monthly Income Plan: just 2.5% a year! Birla Sun Life Protector offers higher sum assured Future Generali Bima Advantage costs a packet for enhanced cover Fine Print: Motor insurance for diesel engine cars may be hiked; SBI Life fined Rs70 lakh

& Nature’s 60 Mankind Grand Creations Visited by millions of people, Las Vegas and the Grand Canyon represent the grandest of spectacles that mankind and nature can provide

POWER OF ONE

Crusading Beyond the Printed Word

When governance breaks down, it is critical to empower and inspire the ordinary, faceless person, says Vinita Deshmukh based on her own experience

BEYOND MONEY

66 ANewBraveLife

Kripa Foundation helps people afflicted with chemical dependency and HIV infection to get back on their feet, says Disha Shah

WHICH WAY

40 Follow the Price? There are too many conflicting scenarios and we know little about them—or beyond

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AUTO

Showrooms with a View

Customer-oriented car firms? It’s the Japanese, finds Veeresh Malik

DEPARTMENTS Letters ............................ 4 Book Review .................... 56 Money Facts .................... 63

7/22/2011 9:46:59 PM

www.moneylife.in If you haven’t clicked on the Moneylife website yet, here’s why hy you sh should. news 14 reasons why you must visit the Moneylife website TOP STORIES News you should not miss >> Veritas Investment Research says RCom and RIL shortchanged shareholders by Rs25,000 crore at the time of the reorganisation of the companies >> Sector funds are overstepping their mandate by investing more than 40% of their total assets in stocks not related to their sectors, in trying to boost returns >> Asset reconstruction companies in India are very diﬀerent from the global ones and have been operating contrary to the purpose they are meant to fulfil

MARKET WATCH The rise and the fall S&P CNX NIFTY

PTI

WEB EXCLUSIVES Issues that matter to you R Vijayaraghavan

MUMBAI ATTACKED, AGAIN Our commentators zero in on what is causing terror The home department has virtually conceded that it has not implemented the nearly three-yearold directive of the Supreme Court to constitute proposed security and police institutions to facilitate accountability and better governance

— Vinita Deshmukh The war on terror has taught the US that technology-based intelligence alone cannot prevent terrorist attacks, as many terrorists are increasingly relying on human couriers and faceto-face communication

From rampant corruption to open rebellion in the ranks after the Union Cabinet reshuﬄe, things seem to be falling apart for the UPA government

Sudhir Badami Small things matter a lot for the safety and convenience of pedestrians. It actually requires only a little thought and a big desire to improve conditions and see the diﬀerence

Anil Thakraney The Vodafone ad is simple and it is humane without using human beings. It is a good example of how even an average creative work fares well when the strategic thought is strong

HAVE YOUR SAY Is the government too preoccupied with its own contradic ons to be able to deal with terrorism?

12% No

— Ramesh S Arunachalam

Can’t Say

5,800

88%

5,740 5,680

MONEY WISE

5,620

What’s right, what’s not

5,560

11 Jul-11

21 Jul-11

Did you know that the Sensex has gained in trading on the day after a terror attack in India over the past 20 years?

on twitter

NEWmoneyweb.indd 1

ML FOUNDATION Investor, Empower Yourself!

5,500 1 Jul-11

Yes

If you are a tweeter, ttype http://twitter. com/Mldigital to c pick up Moneylife exclusives, up-to-date e news and reports on our activities

>> Insurers are focusing on single premium ULIPs for the relative ease of sale and convenience of one-time payment. But are they missing the principle of insurance? >> SKS Microfinance, the do-gooding company, is now a playground for the punter, its shares often getting locked in the circuits >> Blue Chip Infraprojects’ MLM scheme pages disappear from its website following a complaint by Moneylife to SEBI

Moneylife Foundation conducted its first seminar in Bengaluru on 16 July 2011 on the basics of savings and investments for common investors. Log on to www. mlfoundation.in and register yourself as a member and you too can participate in regular programmes, free of cost

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7/22/2011 9:17:14 PM

CURRENT ACCOUNT

C O R P O R A T E GOVERNANC E

Cooking the Books Veritas Research has created history. It has alleged that Reliance Communications has been cooking its books

Canadian firm has accused Reliance Communications (RCom) of large-scale cooking of books to boost book equity (BE). RCom came into being on 31 August 2005 at an asset value of Rs15,389 crore following a scheme of demerger from Reliance Industries Ltd. RCom’s pro-forma consolidated financial statement for 31 March 2006 lists BE at Rs11,751 crore. Subsequently, audited financial statements for the 15-month period ended 31 March 2007, shows BE at Rs22,930 crore, implying an increase of Rs11,179 crore over that of the previous 12 months. How did this come about? In FY06-07, the company reported an after-tax profit of Rs2,408 crore, and paid a dividend of Rs102 crore and a tax on dividend of Rs17 crore. On that

basis, BE should have increased by approximately Rs2,289 crore. How does one account for the difference of Rs8,890 Call Drop 780

Reliance Communications 640

500

360

220

80 Mar-06

Nov-08

Jul-11

crore? This is attributable to the merger of Reliance Infocomm, Reliance Telecom, and Reliance Communication Infrastructure. According to Veritas Investment

Sharp PracƟces FY

Amounts booked What RCom did to reserves (Rs Cr.)

9,030 (1,986.60)

Valued its subsidiaries on the account of amalgamation and arrangement in 2006, when it got demerged from RIL. The excess of fair value of assets of Rs23,207 crore over the loan liabilities of Rs7,953 crore and consideration paid in the form of allotment of equity shares of value Rs410 crore was Rs14,843 crore out of which Rs9,030 crore was transferred to the securities premium account.

2,625 (577.50)

Also, a part of the above gain of Rs14,843 crore, Rs2,625 crore was transferred to the general reserve account.

2006-07

2007-08 1,287 (283.10)

When it transferred passive infrastructure from RCom and RTL to RITL, the company revalued its investment in RCIL, the holding company of RITL, at its fair value by Rs4,487 crore and transferred Rs1,287 crore after adjusting the write-off of passive infrastructure assets, transferred to RITL, having book value of Rs3,200 crore.

2008-09 12,344 (2,715.60)

Amalgamated its subsidiary, Reliance Gateway Net Ltd (RGNL), into itself. In accordance with this amalgamation, it valued its assets and Rs12,344 crore was transferred to general reserve.

Source: RCom annual reports and Veritas Investment Research

Research, “In the normal course of business, BE should grow on an after-tax, after-dividend basis from retained profits or via the issuance of securities at a premium. RCom’s BE is growing by leaps and bounds at the mere stroke of a pen. In FY08 and in FY09 the company once again undertook various reorganizations of its subsidiaries and related parties, and fair-valued its subsidiaries, booking enormous gains, thereby boosting reported BE in every instance.” Veritas concludes that, “we do not find the reported BE of the company credible. Unless RCom makes each and every one of its fair-valuation reports public, investors should be wary of the company’s claimed BE.” Not only has Veritas accused RCom of boosting its BE from dubious revaluation gains, “the company is also booking some investment gains twice on its income statement: PBT (profit before tax) in one year, and net income in another.” Veritas finds RCom’s account so smelly that is has coined a new term for it. “There are various kinds of accounting practices that Veritas has witnessed over the years: conservative, creative and aggressive. To that category we now add clandestine… to avoid paying capital gains taxes in India, the company booked income on the sale of shares in a subsidiary, through an offshore trust.” If the I-T Department gets hold of the report and takes the same view, RCom would be in trouble. It calls RCom’s position tenuous, “since it booked a capital gain on share sale and has circumvented Indian taxes. Investors should be aware that a tax liability not recognized on the books of the company could exist, and that the Indian authorities could scrutinize this transaction at any time and slap a back tax with punitive damages on the company.”

13 | 11 August 2011 | MONEYLIFE

Current Account.indd 3

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CURRENT ACCOUNT

E DU C A T I O N L OANS

reported on how four pieces of legislation, which are likely to improve the current education system, such as the Education Tribunals Bill, Foreign Educational education business but Institutions Bill and two others are gathering dust. Ironically, on the one hand, students are being deprived of large in the sector, despite the fact education because of lack of funds, that banks insist on guarantees and and, on the other, we have a collaterals from the borrowers. continuous inflow of private equity In the loan category of up to Rs4 investment into the education sector lakh, defaults are especially high which is now a booming and fastand the Indian Banks’ Association growing business segment. Investors is pushing for extending the are betting on this sector as the repayment period. Banks have ‘next-big-thing’. It is probably the also asked for a mechanism which hottest sector going today. Private would rate educational institutes equity (PE) players are targeting to ensure a job guarantee to the everything—from test preparation student which, in turn, would lead to preschools, to the ‘K-12’ segment to timely repayments. Despite all these recommendations and reforms, (kindergarten to Class 12), to IT-enabled services for education. In already worried and confused students continue to be harrowed to 2010, PE investment in this sector rose to $183 million from $129 get loans approved. According to a recent media report, the government million in 2009. It may make the has asked banks to make the process sector more organised, but it will also raise user prices—to fund this of sanctioning and disbursal of hike, education loans must be made student loans ‘customer-friendly’ through a draft guideline. Banks tell available. In other fields, shortage of us that they will do things their way money is a problem. In education, and the guidelines would remain there is no dearth of money—but just that—guidelines. the structure and policies are such A number of long-term reforms that students are still getting the in education loans need to be short-shrift. undertaken. Moneylife recently

More for Business, not Students There is lots of capital for the student loans are elusive

hile there is no dearth of foreign capital chasing education as a business, Indian students continue to be deprived of education loans. The education loan portfolio of public sector banks stood at Rs43,074 crore on 31 March 2011. Banks, especially public sector ones, state that they are keen to fund students. They believe that their loan books will pick up—even accelerate—with more students availing of the benefit.

However, the size of the loan book is misleading. Defaults are

G O L D V S P AP E R M ONEY

claims that the world is flat (no, Thomas Friedman is not its chairman). David Wallechinsky cannot fill his Book of Lists with these nutty US myths. But could it be true (as one conspiracy theorist had The Fed Chairman thinks that the yellow metal is useless. it) that, if you knock on Fort Knox, it It has stirred a huge debate will not have any gold, if they open the vault? That, surely, seems to be the case. ed (Federal Reserve Board, USA) head America is a nation that cannot have its fill of conspiracy theories—UFO sightings, After all, when you can spew out a Ben Bernanke is not turning yellow. million greenbacks before you can spell Elvis spotted in a neighbourhood Ben is not bothered even when gold is ‘dollar’, Ben’s thought balloon will keep watering hole drowning his blues, or threatening to breach new levels (way saying, “What, me worry?” Money does Al Gore accidentally discovering the past $1,600/oz). The US central banker not grow on trees, but you can surely Internet… It even has a society that has told Congress, “Gold isn’t money.” ``

Ben Is Not Going for Gold

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Google, and Forget Researchers claim that googling for information affects memory

t is difficult for many to imagine the pre-Google way of life; but, maybe, hitting the search button for every bit of information you need is not such a good idea. At least, that’s what a team of scientists from universities in Columbia, Harvard and Wisconsin is pointing out. According to their studies, widespread use of search engines and online databases is affecting the way people remember. The scientists arrived at the creepy conclusion after performing several memory tests to know whether people were more likely to remember information that could be easily retrieved from a computer. Betsy Sparrow, an assistant professor of psychology at Columbia and her collaborators, Daniel M Wegner of Harvard and Jenny Liu of the University of Wisconsin, Madison, discovered that availability of a computer and access to the Internet not only determine a person’s willingness to remember information, but also what they

` chop trees to make money. But Ben’s predecessor Alan Greenspan disagrees, as he ought to. In 2010, he told a gathering that fiat money has no place to go but to gold. Ben might sorely want to raise the bar and knock back a few. (Maybe, he did that when he made the gold-is-not-money gaffe). But Greenspan had more faith in gold than in the greenback. Last year, the former Fed Chairman had said that the Allies in World War II found that it was easier for them to use gold for bribing their way through hostile land, and bills with the

actually remember. The experiment explored an aspect of what is known as ‘transactive’ memory—the notion that we rely on people around us as well as reference material to store information for us. In one experiment, where participants typed 40 bits of trivia, the team found that the subjects were more likely to remember information if they thought they would not be able to find it later. In another, participants were asked to remember a trivia statement and then recall which of the five computer folders it was saved in. The researchers were surprised to find that people seemed better able to recall the folder. “That kind of blew my mind,” Dr Sparrow says. We feel that she, and we ourselves, are no less spooked. Reports on personality disorders caused by Internet addiction and use of social media are surfacing everyday. Just Google (no comments on irony here, please) Asperger Syndrome, online OCD

$ sign on them were of no use. “Gold is the canary in the coal mine” is what Greenspan had said.

(obsessive compulsive disorder) or intermittent explosive disorder, and you will soon have alarm bells ringing in your head every time your kid goes online or sneezes. It’s one thing to read these reports and quite another to realise that a bug is already in our brains— in our normal, social, non-psychotic,

non-nerdy brains. And we don’t even feel the effect. Dr Sparrow says that her experiments have led her to conclude that the Internet has become our primary external storage system. “Human memory,” she says, “is adapting to new communications technology.” She would have meant it in a comforting way, but the imagery only adds to our paranoid imagination of a cyber zombie apocalypse.

Of course, one can take Ben’s outburst with an ounce or two of salt, but he better stay well clear of Salt Lake City. Utah has declared that gold—and its fast-playing catch-up cousin, silver—to be legal tender. And not every central bank shares Ben’s sentiment on gold. They are tanking up on it like it might run out of supply tomorrow (it very well could). And, as you finish reading this, a few millions of dollars would have gushed out of Washington’s perpetual money press. — Devarajan Mahadevan

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was on the scene long before Club Mahindra emerged—but after a decade of its launch (in 1986), it has been a downhill ride for this Chennai-based company. Sterling Holidays on yet another fund-raising drive After a failed takeover deal with Days Inn, in 2006, Sterling admitted earlier, in what appears to be a case that it had accumulated debt of he troubled Sterling Holidays of insider trading and price rigging. Rs211 crore and declared a threeis looking to raise Rs120 crore year clean-up plan. In the same Sterling Holidays, which owns ($27 million) through a preferential year, it failed to raise $15 million 14 indifferently-maintained resorts allotment of shares and convertible through an issue of foreign currency in 12 destinations across India, is equity warrants to a group of convertible bonds, followed by investors. A few individual investors, in dire need of cash. The company another failed attempt to raise investment funds and the company’s Rs100 crore through the sale of promoter are going to aid in its Irrational Exuberance? timeshares and asset sales worth latest exercise, after a series of failed 120 Rs50 crore. Earlier this year, the attempts at raising money. Sterling company said that it was looking was a pioneer of time-share in India, Sterling Holidays to raise up to Rs100 crore and but poor execution and a plethora 105 it seems that the target has been of customer complaints have badly pushed up a bit. Meanwhile, the damaged its reputation—which a 90 company’s control passed into the clutch of large investors is trying to hands of private equity investors. revive. 75 In 2009, Indus Hospitality Fund, The preferential allotment will be which is now known as Bay at a price of Rs75 per share, against 60 Capital Investments, acquired over the last traded price of Rs111.50 Jul-10 Jan-11 Jul-11 15% stake in Sterling (through per share, leading to an equity preferential allotment) for around dilution of as much as 32.5%, postRs28 crore. This Fund and India conversion of warrants. As soon as reported revenues of Rs39.50 crore Discovery Fund held 19.37% stake the company announced its intent for the last financial year (ended to raise money, the scrip crashed March 2011) and has been running after the acquisition. Bay Capital, 9.28% (on 20th July). The scrip had losses for the past five years. Sterling together with India Discovery Fund, had raised its stake and, as of lost its first-mover advantage—it shot up almost 60% within a week 31 March 2011, held 22.80% in the company. Sterling has hired Ramesh Ramanathan as the new managing director, who has experience of leading Mahindra Holidays and Resorts. To invest in this company is like succumbing to a case of financial amnesia or overarching optimism. While it remains debatable how successful its clean-up operation will be, the company’s visible desperation reflects that it is still in dire straits. Add to that a limited market share and the presence of heavyweight rivals, like Mahindra Holidays and Country Club, and the company’s prospects look even bleaker.

C O R P O R A T E GROW T H

Desperate Measures

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One year of financial literacy, one year of pro-investor & pro-consumer advocacy

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MI ND- C O NT R OL L ED DE V IC ES

Bind over Matter

BOTTOMLINE BY MORPARIA

the PXP into the right gear; ‘shift up’ and ‘shift down’ will move the contraption. Of course, the first question that comes to your mind is: “Do

A group of disparate entities have come up with a “super-aerodynamic time trial bike”

“A

computer is like a bicycle for our minds,” said Steve Jobs a few moons ago. So how about a bicycle that can be controlled by your mind? Electroencephalography (EEG) sensors have made that possible. This futuristic bike is called PXP, the brainchild of Toyota, Saatchi & Saatchi LA, Deeplocal, and Parlee Cycles (according to www. fastcodesign.com). Just slip on an EEG helmet and you do not have to bother about moving your left forearm to move

you need a thought sensor to shift gears?” And of course, the second logical thought that follows is:

Why does a bike need gears in the first place? Whatever happened to good old pedal-pushing? And, if somebody revisits Jerome K Jerome in the near future (wait for Spielberg to do that after he finally runs out of ideas and pre-sequels), will a futuristic machine with three men on a tricycle—with their individual EEG helmets firmly perched on their respective heads—actually be able to move... forward? And whatever will they think of next? A microwave controlled by EEG sensors? Heaven forbid, if you harbour some dark thoughts at the end of a tiring day before you even think of switching it on. And we are not even trying to imagine a future when weapons can be controlled by thought. Coming back to the current contraption, you have to be careful with this PXP, though. What if a thought like ‘slip’ slips into your mind?

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LOOSE CHANGE

Surprise Gift for Quiz winners from:

Moneylife Quiz - 107 Another quiz to tickle your brain. The answers to this quiz are in this very issue. The winner will be chosen by a lucky draw from correct entries. The answers will be published in the next issue. Send in your answers to quiz@moneylife.in with the Quiz no., your name, address and telephone number before 7 August 2011. 1. When did the work on building the Hoover Dam on the Colorado River start? a. 1931 b. 1938 c. 1942 d. 1956 2. With whom did Ajanta Pharma sign a deal on 3 May 2011? a. Sun Pharmaceutical b. Dabur India c. Glenmark Pharmaceuticals d. Cipla Ltd 3. With whom does Supreme Infrastructure India have a joint venture, to execute turnkey power projects for Maharashtra State Electricity Distribution Co Ltd? a. Jindal Power b. Larsen & Toubro c. Patwari Electricals d. Gammon India 4. Which prestigious award was conferred on Dr Anil K Khandelwal by Asian Banker, Singapore? a. Leadership Achievement Award b. Banking Innovation Award c. Promising Young Banker Award d. Lifetime Achievement Award 5. Who is the author of the book How a Second Grader Beats Wall Street? a. Alan Roth b. Richard Lehman c. Jim Rogers d. Michael D’souza 6. Which insurance company has launched new term plan offerings— ‘Protector’ and ‘Protector Plus’? a. New Life Insurance b. Birla Sun Life Insurance Company c. National Insurance d. Oriental Life 7. In 2008, Vinita Deshmukh was the editor of which weekly tabloid? a. Janakalyan b. Intelligent Pune c. Sakaal d. Lokmat 8. Who is the founder of InGovern Research Services? a. Kartik Narayan b. Anil Mathews c. Shriram Subramanian d. Nilesh Joshi The answers to Moneylife Quiz-106 are: • 1-a. Society for Capital Market Research & Development • 2-b. Itaewon • 3-c. Queen Munjeong • 4-d. Volzhsky Abrasive Works • 5-c. January 2010 • 6-b. Chandulal Shah • 7-c. Goa • 8-b. 12 In all, 18 readers got all the answers right last time. The winner of Quiz-106 is Alexinho Rodrigues from Mumbai. Congrats Sir! You will get a surprise gift from Surat Diamond Jewellery.

Sound Bites “Curbing corruption may not make corporates prosperous, but it would definitely not let them suffer. They don’t have to worry about protecting their positions in tenders” – AM NAIK, CMD, LARSEN AND TOUBRO, in The Hindu Business Line

“People I trusted—I’m not saying who, and I don’t know what level—let me down. They betrayed the company, and it’s for them to pay” – RUPERT MURDOCH, CHAIRMAN & CEO, NEWS CORPORATION, in The Washington Post

“As long as the middle class remains small, there will be rampant corruption. But once it expands and jobs and services improve, patronage

will die out” – DIPANKAR GUPTA, SOCIOLOGIST, in The Times of India

“Large revisions in GDP estimates in recent years have led to questions on the robustness of these estimates” – ROOPA KUDVA, MD & CEO, CRISIL, in The Times of India 19 | 11 August 2011 | MONEYLIFE

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

T H E P O L I T I C AL -M EDIA C ABAL

Fourth Estate? Our media is a paper tiger

“T

he News of the World was in the business of holding others to account. It failed when it came to itself. We are sorry for the serious wrongdoing that occurred. We are deeply sorry for the hurt suffered by the individuals affected. We regret not acting faster to sort things out. I realise that simply apologising is not enough. Our business was founded on the idea that a free and open press should be a positive force in society. We need to live up to this. In the coming days, as we take further concrete steps to resolve these issues and make amends for the damage they have caused, you will hear more from us.” With this signed statement, Rupert Murdoch abruptly pulled the plug on the News of the World. The scandal that roils his media empire today has plenty of parallels in India. We have our own tight cabal of politicsmedia-business-government that controls all institutions of profit, influence and power. It decides who gets to share the spoils and who is cut down to size, from time to time. Powerful politicians formed the nucleus of these groups—until public anger and court action in connection with the spate of

corruption scandals upset the balance. In the UK, public anger at reports of phone hacking and bribery are directed at the media. James Murdoch said that the News of the World often hired private detectives to help their investigation. In India, media barons will never dip into their own wallets to fund news; they are happy recipients of leaked tapes, planted documents and video recordings. Most sting operations by the media are done by smaller publishing houses and their funding and functioning remains hazy. The only variable in these closed networks are businessmen who don’t need to have fixed loyalties, because it is their bucks

Murdoch is sorry, but do our barons worry?

that buy information and also control people’s perception by paying the media. In many ways, India currently has an advantage. Some pathbreaking decisions by an activist judiciary has pumped much-needed adrenalin into civil society, and called to account the police as well as investigation and enforcement

agencies, and empowered bodies like the Lok Ayukta or the Comptroller and Auditor General of India. It remains to be seen if this leads to a lasting change.

REGULATION

Vaswani’s Stock Manipulation, time & again

he Securities and Exchange Board of India’s (SEBI) action in the Vaswani Industries’ IPO (initial public offering) whose listing was halted in May, raises more questions than it answers. This is a company caught in the most brazen episode of stock manipulation. Consider this. A group of intermediaries engineered an 11.3 times oversubscription of the IPO in the high net-worth individuals and 6.8 times in the retail category. There was little interest from institutional investors. Immediately after the issue closed, the bulk of the subscription vanished when over 3,000 ‘investors’ issued stoppayment instructions, leaving just over a one-time subscription of the issue. Many investors bid for IPOs on the last day after watching the subscription pattern. An oversubscribed IPO requires them to bid for more shares on the expectation of a lower proportionate allotment. In this case, the fraudsters clearly ``

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` wanted to saddle genuine investors

with a higher number of shares. While SEBI halted the listing, its subsequent actions are strange. In its latest order, it has said that allotment will be on the basis of the original over-subscription and the investment banker will arrange to underwrite or bring in new investors. It is fairly well known among market circles that such brazen manipulation is not possible without the involvement of the company as well as the investment banker. Why would Vaswani Industries choose Ashika Capital, a relatively unknown investment bank, as its sole, book-running lead manager? SEBI is happy to believe Vaswani Industries’ contention that it is a victim in this case. It makes it a point to mention that “the order, at this stage, will not be construed to cast any adverse imputation to the company in any manner whatsoever.” Interestingly, Vaswani Industries was represented by RS Loona, a former executive director of SEBI, who headed its legal division. SEBI has directed the bourses to list the share, however, trading will remain suspended until Ashika Capital cobbles together a full subscription, in case there is a shortfall, failing which the entire issue proceeds will be refunded. Dr KM Abraham (whole-time member, SEBI) poses the issue as a dilemma. Should innocent Vaswani Industries be penalised? The 500+ investors pleading for the listing is another strange aspect to this story.

The real question is: Why do these investors want the company to be listed instead of simply getting their money back? And then there is Ashika Capital, the investment bank, whose group entity Ashika Stock Broking is directly involved in the manipulation of subscription. More on that below.

M ARKET MANIPULATION

Ashika Escapes SEBI ignores machinations

s SEBI extraordinarily soft on the Ashika group, for some reason? Judge for yourself. The group entities are so openly involved in various kinds of market manipulation, that it would be hard for SEBI to ignore it entirely. But the penalty is always so mild—it seems like a slap on the wrist. As Moneylife reported in March, Ashika Stock Broking was among the favoured intermediaries which received an ‘administrative warning’ for indulging in synchronised trading in shares of HFCL Infotel (in 2008). This is just a reprimand without punitive action. SEBI has yet to explain how these ‘administrative warnings’ figure in its regulatory structure at all. In 2008, Ashika Stock Broking paid Rs5 lakh as a fine and filed consent proceedings in a case involving fraudulent and unfair trade practices. SEBI’s adjudication order by D Ravikumar, a chief general manager, is delightfully

opaque about the nature of its mischief and offers no explanation about why Rs5 lakh is considered an adequate settlement. Next is the Sanjay Dangi case, where SEBI conducted a detailed investigation into how nearly a dozen entities of the Ashika group, along with Dangi’s firms, were manipulating the shares of Ackruti City. Here too, it is probably the leak of an Intelligence Bureau report that forced a probe, rather than a quick burial through consent, payment and settlement. SEBI had then barred the Dangi entities as well as Ashika Stock Broking from markets. Isn’t it strange then that Ashika Stock Broking was involved in the withdrawal of shares in the Vaswani IPO? The SEBI member did not even comment on this in his order dated 11th July. Yet, on 19th July, there is another interim SEBI order in the Sanjay Dangi-Ashika-Ackruti case again by Dr KM Abraham. This time, SEBI dilutes charges against some ‘alleged’ Ashika group entities while reconfirming those against others. It also revokes its 2nd December ex parte order against Ashika Stock Broking, to the extent of permitting the acquisition of new clients, but restrains it from dealing in its own account. This means that it is business as usual for Ashika where other investors and entities are concerned. Will SEBI’s actions deter it from its habitual practices? Ashika Capital’s website claims its business is built on “uncompromising ethical standards!”

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DIFFERENT STROKES SUCHETA DALAL

P R OXY ADVIC E

Check on Misgovernance India needs to encourage proxy services to check corporate misgovernance, but ensure that conflict, regulation and compensation issues are addressed right now, while it is still a nascent business

ndian companies, or rather their owners/managers, bothered to publish InGovern’s recommendations. And, tend to be extremely touchy and thin-skinned about as far as Wipro was concerned, the recommendation any public discussion regarding board decisions, was probably just ignored. I say, probably, because a role of independent directors, auditors or retirement of day after the AGM of this blue-chip company, it had directors. Yet, a new proxy advisory firm—InGovern not reported the general body’s decisions to the stock Research Services—set the cat among our corporate exchanges. The media, obsessed only by profit numbers, pigeons by openly recommending that some big-name does not even bother with issues such as executive remuneration, appointment of independent directors independent directors do not deserve re-election. InGovern issued a press release mid-July announcing or auditors. What better signal than this about the low its vote recommendations regarding two companies— importance we accord to corporate governance and Wipro and IDFC. Just ahead of Wipro’s 19th July executive compensation issues? We will watch what Annual General Meeting (AGM), it advised against the happens at the IDFC meeting... but we are not holding re-appointment of BC Prabhakar as an independent our breath. Meanwhile, Shriram Subramanian, founder of director; and ahead of IDFC’s 27th July AGM, it has suggested that Shardul Shroff (a leading corporate InGovern, plans to watch 100 companies that are part of lawyer) and SH Khan (former chairman of IDBI) should the Nifty and Junior Nifty (two indices of the NSE) from various perspectives. And there is not be independent directors. plenty to watch. For instance, many Mr Prabhakar has been a Proxy advisory services companies like Cadila Healthcare director of Wipro for over 14 years are an important check on do not reveal the consideration which is in violation of Clause (49) publicly- listed companies at which an acquisition is made. of the recommendatory guidelines and can ensure that an Will it make a difference to how of the listing agreement of stock expert and independent institutional investors, with exchanges that favour a nine-year tenure for independent directors. firm studies and comments substantial chunks of equity, exert their rights as shareholders? After nine years, directors are as on corporate decisions More pertinently, do institutional good as married to the company. Shardul Shroff has been on the IDFC board for over investors or mutual funds really need a proxy advisor nine years and probably has plenty of other offers to be when they are already watching the companies they have an independent director. Moreover, he hasn’t found time invested in like hawks? In the US, there are proxy advisors telling institutional to attend more than 67% of IDFC’s board meetings or its AGM last year, although he is part of the audit, risk investors how to vote and proxy firms to actually cast and compensation committees. SH Khan has been on the the votes on their behalf. Will this trend catch on in India? A lot depends on the success or otherwise of board for 13 years. InGovern also points out that the fees earned by the InGovern and, reportedly, its two other competitors, audit firm Deloitte Haskins & Sells, for ‘other matters’ namely, the global giant ISS (promoted by MSCI) and is close to 80% of its audit fees. This could affect its Amit Tandon (formerly of Fitch Ratings), who are independence, it says, and suggests that investors need just setting up the proxy advisory business in India. Interestingly, the Securities and Exchange Board of India to inquire into this. So what happened? Only a couple of publications (SEBI) has created a business opportunity for them last ``

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DIFFERENT STROKES SUCHETA DALAL

` year by mandating that mutual fund houses have to

disclose their proxy voting policies on their websites by 31st May each year (it was 30th June as a first time this year). There is no specific timeframe for disclosing actual votes on resolutions. But if fund companies wait until the deadline, the information will have little relevance for their investors. Indian mutual funds choose to remain publicly silent about dubious corporate decisions; objections, if any, are usually raised by foreign institutional investors. So it is safe to bet that mutual funds will farm out the job of studying corporate resolutions and voting on them to a proxy advisor. That way, CEOs and fund managers can also protect themselves from corporate wrath when they have to vote against the appointment of directors, auditors or not-sosavoury corporate dealings. What is, however, not clear is whether or not SEBI has studied global developments in the world of proxy advisors and ensured that we fix potential problems even before they crop up. In the US, too, the proxy advisory business has been empowered by regulatory fiat that institutional investors have a fiduciary duty to their investors to vote on all resolutions (irrespective of the relevance to investors or the ability to understand their implications). All this activity happens in a small window of a couple of months when thousands of companies hold their AGMs and seek shareholder approvals on executive pay and appointment of directors and auditors. The power and influence of proxy advisors received a boost from the Dodd-Frank Law which mandates that US companies “with more than $75 million shares trading publicly must let shareholders cast a nonbinding vote on whether they approve of the company’s pay practices.” This meant proxy advice directly affected the wallets of top management—a backlash and disputes were inevitable. The US proxy advisory business is dominated by two firms—Glass Lewis (promoted by Ontario’s Teachers’ Pension Fund) and ISS—and both have issued thousands of advisories worldwide on behalf of powerful institutional investors. While companies need to get a 75% approval for their resolutions, studies have indicated that negative advisories can sway as many as

20% of voters. Worried about proxy advice wielding stronger influence in 2010, corporate America is pushing for regulation of proxy advisors and raising questions about their integrity and accuracy. Some companies, such as Disney, General Electric, Northern Trust and Tyco International, have even challenged their negative advisories. In January this year, The Center on Executive Compensation, an advocacy group representing some of the biggest companies (including IBM and McDonalds), wrote to institutional investors seeking their support in monitoring proxy advisory firms. The letter expressed concern that proxy advisors had “gained undue, and generally unchecked, influence over the pay practices of companies.” It asked institutional investors to take additional steps to ensure that “proxy advisory firm recommendations are accurate, tailored to individual companies, unbiased and truly supportive of sustained longterm returns to shareholders.” Corporate America wants the opportunity to comment on recommendations and correct factual inaccuracies before they are released to institutional investors. The Securities and Exchange Commission has also put out a discussion paper on the issue, raising questions about accountability, ability and conflict of interest— among others. A frequent allegation about proxy advisors is that, like rating agencies, they have a conflict of interest if they accept consultancy assignments from companies. Proxy advisors, of course, deny the charge and claim Chinese walls exist between advisory and consultancy businesses. Clearly, proxy advisory services are an important check on publicly-listed companies and can ensure that an expert and independent firm studies and comments on corporate decisions. They are also a useful counter-balance to companies packing their boards with pliant yes-men as independent directors. India needs to encourage proxy advisory services, but it is important to ensure that issues of conflict, regulation and compensation are addressed right now, while it is a nascent business. Sucheta Dalal is the managing editor of Moneylife. Subscribers get free help in resolving their problems with select providers of financial services. She can be reached at suchetadalal@yahoo.com

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SMART MONEY R BALAKRISHNAN

BOND INVE S T M E NT S

Bond with the Best Option Here are a few alternatives for investors who cannot directly invest in bonds either through their brokers or through other financial intermediaries

onds issued by companies have become attractive. We have also written about these as an investment option. Many readers have written back, saying that they are not able to buy these bonds through their brokers or through other sources. For them, here are a few alternatives. Most of the bond issuances from companies happen through ‘private placement’. An arranger or a bank ties up the demand and then there is virtually a simultaneous placement and issue. A part of it can be retained by the banker—or arranger—to create a post-issuance price benchmark. Listing is virtually certain, but trading is not. Typically, there would be an active market for a short period after the bond is issued and then liquidity dries up. So far, the largest investors, by value, in the bond markets have been banks, insurance companies, provident funds and mutual funds. This is the main class of investors that buys bonds. There are other classes of investors such as trusts, private investment companies and individuals who, typically, tend to hold the bonds to maturity. The first class of investors trades in blocks (lots) of Rs5 crore per transaction and, by default, this has become the ‘tradable’ or the ‘market’ lot. Anything outside this gets clubbed as ‘odd lots’. The institutional segment, typically, trades between themselves directly, on a platform created by the RBI (Reserve Bank of India), called the ‘Negotiated Dealing System’ (NDS). Other trades happen between a buyer and a seller through a broker note (often it is just a kind of a contract note on the plain letterhead of the parties concerned). There is some ‘reporting’ done on the debt segment of the NSE (National Stock Exchange of India) or the BSE (Bombay Stock Exchange). However, one can rarely get a trade executed on the screen, due to the lack of market-makers. There are a few players who try and sell bonds to the retail segment as well as other investors who need smaller lots of bonds (typically, between Rs5 lakh and a couple of crores). What they do is buy a single lot of Rs5 crore,

and then parcel it out to smaller buyers. Most of them do not have the capacity to hold it for any length of time and endeavour to push it out as quickly as possible. In this segment, prices are higher than if one were to buy through the NDS, because the trader, who undertakes the exercise of buying a ‘market’ lot, expects some profit. The price difference could range from a few paise (if it is a large buyer, with regular activity) to a few rupees when

it comes to a retail buyer, who will, typically, hold it to maturity. Institutional investors keep trading between themselves in lots of Rs5 crore, while the retail buyer has to do some hard searching with a handful of players. The sellers to the retail buyers cannot guarantee availability of all the bonds at any given time. Most likely, the retail buyer in the secondary markets can only access or get hold of the very recent issuances. It is a sale which is tagged ‘till stocks last’. Primary issues remain the best avenue for a retail buyer. However, these tend to be few and far between. A recent Rs500-crore bond issue of Shriram Transport Finance was oversubscribed by nearly 10 times in a few days! The company retained Rs1,000 crore. In this case also, it is likely that institutional investors had subscribed to the bulk of the issue. It is likely that when ``

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SMART MONEY R BALAKRISHNAN

` trade in the secondary market starts, some retail buying

Therefore, you are paying back the difference of opportunity can emerge. There are only a few players in interest and adjusting it for time value, by paying a this business—due to the need to invest large amounts of higher price for the bond. In a 10-year bond of around money to buy the bonds, hold them and then sell them. 12% coupon, and having a residual life of more than nine The absence of market-makers is the biggest deterrent to years, you would be paying an approximate premium of around Rs7. a vibrant retail debt market. Similarly, if interest rates rise, you would expect a Now, let us look at the pricing. Many retail buyers shy away from paying a ‘premium’ to the face value of yield higher than 12%. In this case, you would be buying the bonds. In a bond, there is a typical half-yearly interest the bond at a ‘discount’ to the face value. The simple payment on fixed calendar dates. For instance, if a bond rule is that when interest rates fall, the prices of bonds go has a coupon of 12% and face value of Rs1 lakh, it would up and, when they rise, bond prices fall. One important thing to note is that, currently, have interest payouts of Rs6,000 there is no TDS (tax deduction each on two dates (say, 31st March Investing in bonds in source) on bonds listed on the and 30th September each year). today’s illiquid markets at stock exchanges. So, if you are a buyer and make is a long- term play. Some People have written in and your payment on 1st July, you would be paying the agreed price brokers will help you sell asked us for names of brokers/ from where they could buy on the bond plus the proportionate them at a price, but that banks the bonds. At the risk of omitting a interest amount from 1st April (the would be a function of few names due to low awareness, day after the last interest payout) th I am listing a few of these: Karvy, to 30 June (the date up to which interest rates AK Capital, Darashaw, ICICI the previous seller had held the bonds). On 30th September, you will get the full interest Securities, Brics Securities, Religare, etc. These names payment for the period from 1st April to 30th September. are not the only ones and I hope that the brokers who So, if you buy a Rs1 lakh bond at a price of Rs1.01 lakh deal in retail bonds would write in to Moneylife for the (a premium of Rs1,000 to the face value), you would benefit of our readers. It would be nice if a platform have to pay Rs1.01 lakh plus the interest for the period can be created for price dissemination and trading for from the last date of interest payment till your date of the retail segment. Even the players that I have named purchase. In the above-mentioned example, you would do not have a national presence and are restricted to the be paying an approximate amount of Rs3,000 as ‘accrued metros and a couple of tier-II cities. Investing in bonds in today’s illiquid markets is a long-term play. Some interest’ to the seller, in addition to the agreed price. Why does the premium rise? If the bond carries brokers will help you sell them at a price, but that would interest at 12%pa for its life of 10 years, and you are be a function of interest rates. The credit rating of the willing to buy it at a yield of 11%, you have to pay issuer is important; it is perhaps the sole guide for the life the difference. It is not straight and simple arithmetic, expectancy of the bond. though. You are, in any case, going to get interest at the coupon rate of 12%. You are happy with 11%. The author can be reached at balakrishnanr@gmail.com

What’s Your Bahana for Not Subscribing? I I I I I I

am not interested in honest & insightful advice on money matters never have any problems with banks, credit-cards or insurance always invest on the basis of tips from friends and brokers prefer to keep my money in a bank and let it be eroded by inflation would rather spend two years of knowledge on one evening of eating out always buy from the newsstands

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25 | 11 August 2011 | MONEYLIFE

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MUTUAL FUNDS POINTERS

S E C T O R F U NDS

Awful Choice T

he theoretical case for sector funds is strong. After all, the case can be based on two very strong tenets of investing: one, focus and concentration on a few stocks works wonders; two, identifying the right sector is an important component of stock market success. Sector funds incorporate both these aspects of investing. They focus on just one sector at a time and, if the sector does well, the fund’s performance can be among the best. Well, this is all theoretical. Firstly, fund managers have rarely proven to be smart at selecting the winning sectors. They were caught unawares by the tech bust of 2000 and also the construction boom (albeit with current unsold inventories) since 2004. That is why we believe that while the theoretical logic of sector funds is attractive, in practice, it is best to avoid them. The concentration argument cuts both ways. They are launched not when a sector is about to start a major rally but when it has already reached a peak. And, because such funds’ bets are concentrated on one sector, they carry a huge risk of underperformance. This is why they cannot beat the best of diversified equity funds or index funds. We had demonstrated this in a three-year analysis of sector funds in our 7 April 2006 issue (“Sector Funds? Bad Idea”). Here is the updated evidence. Sector funds have earned an average return of 11% since their inception. And what if you had invested your money in equity diversified funds? The average return would have been 13% since inception. But if you are hell-bent on buying a sector fund, which ones should you look at and which are the ones to avoid?

Sector funds focus on the stocks of just one sector. Buying them is a bad idea. But if you must buy one, which should you go for? ML Research Desk finds out

The Best Sector Funds There have been 43 sector funds with a history of three years or more. Of these, UTI Services Industries Fund and DSP BlackRock Natural Resources and New Energy Fund-Retail emerged as the best-performing sector funds with a three-year return of 20% and 13% since inception and they outperformed their respective benchmarks by 33% and 13%. Now service industry is hardly a sector and, no wonder, this UTI Services Industries Fund looks like a diversified fund. Its top five stocks are ICICI Bank, Tata Consultancy Services, Infosys, Bharti Airtel and Axis Bank. DSP BlackRock Natural Resources and New Energy Fund has only one mid-cap stock; all others are large-cap stocks. The top five picks of this Fund are Castrol India, Reliance Industries, SRF Ltd, Hindustan Petroleum Corporation and Petronet LNG. The problem is that there are few genuine sector funds. For instance, the database of Mutual Funds India puts Birla Sun Life Buy India as a sector fund. This makes no sense at all. This Fund claims to be focused on the consumer and healthcare sectors. But its investment is spread across dozens of sectors like auto ancillaries (Maruti), hotels (Taj GVK), banks (ING Vysya Bank), FMCG & food processing (ITC and United Spirits). This is really a diversified equity fund. The remaining three (of the five best performing sector funds) are power, pharma and infrastructure funds. Reliance Diversified Power Sector Fund has given returns of 31% since inception. However, while the top picks of the Fund include Torrent Power, Cummins India and Jaiprakash Associates, it also has Jindal Steel & Power and ICICI Bank in its portfolio. Almost 27% of ``

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MUTUAL FUNDS POINTERS

` the Fund’s assets are invested in these five stocks.

Reliance Pharma Fund has earned a return of 28% since inception. Among its top picks are Divis Laboratories, Aventis Pharma, Sun Pharmaceutical, Cadila Healthcare and Ranbaxy Laboratories. HDFC Infrastructure Fund has notched up a return of 4% since inception and has outperformed its benchmark S&P CNX 500 which is down by 6%. Well, it thinks ICICI Bank, Bank of Baroda, State Bank of India, Oil and Natural Gas Corporation are infrastructure companies— as also Motherson Sumi Systems, an auto-ancillaries company. The Worst Sector Funds In terms of risk-adjusted returns among equity schemes, infrastructure funds were among the worst performers. The worst three performers include Escorts Infrastructure Fund, L&T Infrastructure Fund and Kotak Indo World Infrastructure Fund. Even if you want to invest in sector funds, you must certainly avoid these worst performers for some more time. In fact, Escorts Infrastructure Fund tops the list of the worst-performing sector funds earning a pathetic return of -9% against its benchmark Nifty which earned a return of 4% for the same period. Its five top picks are McNally Bharat Engineering, Motherson Sumi Systems, Tata Motors, Voltas and Titagarh Wagons. Out of the top five stocks of this ‘infrastructure’ fund, two are from auto-ancillaries and one from consumer durables. L&T Infrastructure Fund has ended up with a return of -10% since inception, with stocks such as ICICI Bank, Reliance Industries, State Bank of India, Bharti Airtel and Larsen & Toubro in its portfolio. ICICI Bank, State Bank of India and L&T have grown significantly in the past three years; so what was the Fund doing? Timing the market? The Fund’s size is tiny with just Rs38 crore of assets as on 31 May 2011. The Fund was launched in September 2007, at the height of the bull market. The next worst-performing fund was Kotak Indo World Infrastructure Fund. The Fund has Rs324 crore in

assets, of which 15% is invested in international mutual funds. Its top five stock picks are ICICI Bank, HDFC Bank, Bharti Airtel, Reliance Industries and L&T. The Fund earned a return of -10% since inception while its benchmark S&P Nifty earned 1% for the same period. The Fund was launched in January 2008, at the peak of the bull market. And if you see the returns of its top five stocks—except Reliance—all have done very well in the past three years. So what was the fund manager doing?

Performance Report Scheme#

Launch Date

Since Inception

Benchmark

BMR+

27 May-99

20%

CNX Service Sector

-13%

DSP BlackRock Natural 25 Apr-08 Resources & New Energy

13%

BSE Metal

-0.67%

Reliance Diversified Power Sector

8 May-04

31%

Sensex*

18%

Reliance Pharma

5 Jun-04

28%

BSE-HC

16%

HDFC Infrastructure

8 Jan-08

CNX 500

-6%

6 Jul-07

-3%

BSE 100

Best Performers UTI Services Industries

Worst Performers SBI Infrastructure LIC Nomura MF Infra

24 Mar-08

-4%

BSE 100

Kotak Indo World Infra

25 Jan-08

-10%

S&P Nifty

L&T Infrastructure

27 Sept-07

-10%

S&P Nifty

Escorts Infrastructure

21 Sept-07

-9%

S&P Nifty

*Original index (India Power Index) data is not available; #All funds are growth funds; + Benchmark returns; Source: Mutual Funds India

If funds from the same sector figure in the list of the top five as well as the bottom five performers, what does it indicate? Simply that fund managers do not know enough about the sector, the stocks and their possible price movements—even though such intense focus is the cornerstone of investing in sector funds. This is precisely ``

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MUTUAL FUNDS POINTERS

F U N D B E N C HM ARKS

Mutually Opaque Several funds are benchmarked to proprietary indices, making it impossible to measure their performance. SEBI remains unconcerned, so far

utual fund (MF) performance is not based on the returns that a fund earns but against an external standard called the benchmark index. MFs are supposed to be doing well, if they have beaten their benchmarks. MFs usually choose a popular benchmark like the BSE 500, the Ni y or the Sensex. The

while analysing the performance of sector funds: • We found that around seven sector funds (Read “Oddball”) are benchmarked to indices which are strange constructs. • The data for these benchmarks are not available in the public domain.

Oddball Scheme

Launch Date

Return Benchmark

Reliance Diversified Power Sector 8 May-04

31% India Power Index

UTI Energy (Petro)

15 Jul-99

16% UTI Energy Index

Franklin Pharma

31 Mar-99

17% Lifex

UTI Transportation and Logistics

9 Mar-04

15% UTI Transportation and Logistics Index

Reliance Media & Entertainment

30 Sept-04

16% S&P CNX Media and Entertainment Index

UTI Pharma and Healthcare

27 May-99

13% CNX Pharma

Birla Sun Life New Millennium

15 Jan-00

6% BSE TECk

Two funds, namely, Franklin Infotech idea is that through a process of active and Birla Sun Life New Millennium stock selection, MFs would do be er (earlier Alliance New Millennium), than their benchmarks. were launched when the data of their But what if fund companies get so respective benchmark indices—BSE IT carried away with the way they create and BSE TECk—were not available in schemes that they end up selecting the public domain. peculiar benchmarks? And what if the performance of these benchmarks • Funds also use indices like the S&P CNX Media and Entertainment Index cannot be tracked at all by retail which are paid indices. The data for investors? It makes a mockery of the these indices are accessible only very idea of benchmarks. We have tried to subscribers. How is an ordinary to bring out the diﬃculties one faces

investor supposed to check the performance of these funds against such benchmark indices? • Many of these sector funds are products of innovative ideas of fund companies. Sector funds come in all kinds of flavours (like UTI Transportation and Logistics Fund and UTI Energy Fund) whether they make sense or not. Such ‘innovative’ sector funds demand innovative benchmarks which are customised by the fund company. • The data for these customised indices are available only on the fund fact sheet and that too, only for periods that the fund company finds appropriate for comparing the scheme with its benchmark. • When a particular scheme’s name is changed, the launch date changes to the date on which the change takes place. UTI Energy Fund was earlier known as UTI Petro Fund and the launch date was July 1999. In November 2007, its name changed to UTI Energy Fund and so the launch date changed to November 2007 which is not reasonable at all for analysing returns. • Funds which have been taken over by other fund houses also suﬀer from the same date change. Apple Goldshare was launched in April 1994. In November 1998, this was taken over by Birla Sun Life and the name was changed to Birla Sun Life MNC Fund– Growth, and its launch date was also changed to November 1998. So, when you look for ‘since inception’ data, be aware of these problems.

` why diversified equity funds usually do better than sector was hot in 2006 and many infrastructure funds were

funds. They do so by depending less on the smartness of the fund managers and more on the performance of good companies. Sectoral schemes tend to move in cycles. And when a sector is hot, several new mutual funds are launched to cash in on the trend but you should stay away from them because that hot sector is invariably headed for a rough period. For example, the infrastructure sector

launched. Their performance has been disastrous. If at all you want to invest in sector funds, choose funds that are long-term value creators. There are two such sectors: pharma and FMCG. Stocks in these two sectors have created great long-term value which is why sector funds focused on these two sectors have done exceptionally well. Keep an eye on them.

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COVER STORY

ix the following and shake well: glamorous businesses, dumb institutional investors, ambitious promoters and market valuation (not cash flow) as the key result area for the top management. You get a deadly cocktail that will boost your spirits for a while but could kill you in the end. This is the business of glamour stocks. We had said this about the TV18 group some time ago but the same thing applies to many such stocks. Retail investors buy them on every fall—for a while—many large institutional investors hold them for a very long time, assuming that they would come back. But glamour stocks don’t come back. They may survive and get taken over for dubious reasons; but for retail shareholders, they are an abyss. Look at glamorous businesses like New Delhi Television (NDTV), TV18, Kingfisher Airlines, SKS Microfinance and the mother of them all—the companies of Reliance group comprising Reliance Infrastructure, Reliance Communications (RCom), Reliance Power and Reliance MediaWorks. Why, even Zee Entertainment ``

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COVER STORY

` Enterprises (Zee) and Pantaloon Retail (India) and

now Sun TV Network fit into the same category. These companies are run by ambitious promoters and have a clutch of famous ‘brands’ or big projects. But either they are bad businesses or are run badly. The businesses could span infrastructure, power, finance, media, aviation and others. Most of them are losing money profusely or making too little money. Losses were a bit lower when the economy was growing fast and the market euphoria fetched these promoters, newer dumb investors and more money to keep going. But now, the losses are endemic. Their only hope is a takeover (with the promoters holding on by the fingernails till the last day) or backdoor funding for non-business reasons. These businesses are in the public eye and, if India had capitalism in the best sense of the term, they would have gone bankrupt long ago or got taken over. Instead, they lumber along, restructuring, raising more money, bending the laws and generally hanging around. These companies are traps for everyone. The promoter has to keep the show going and the music playing as investors change seats in a game of musical chairs. This means more acquisitions or expansions. This also means when promoters run out of equity money, they have to borrow. Big businesses can’t cut costs beyond a point. Indeed, to keep the show going, costs may even keep rising. Revenues may be cyclical and, therefore, variable. But the costs are fixed and growing. Meanwhile, more competition, legal issues and economic sluggishness can hurt severely. The result? Large debts and huge losses can push a company to a now-or-never situation, which is hard to decipher, looking at the glitzy exterior. Look at the shareholder returns of some of these glamour stocks over the past five years. NDTV got listed in 2004 and is trading below its listed price after seven years. It has given a negative return of 19% compounded in the past five years and a total shareholder return (TSR) of negative 66% for the same period. Its viewership claims, like those of all TV channels, are impossible to verify. Its credibility is at a nadir (after the recent phonetapping controversy) and its finances are in a mess. NDTV has rarely made money from operations. For the past few years, its consolidated operations have been making cash losses and it has been running on money made by selling loss-making subsidiaries to strategic investors. But capitalism is not at work in India. NDTV won’t fade away in a hurry. Indeed, every few months, the financially-beleaguered NDTV manages to get ‘strategic’ investors with deep pockets and top-flight private equity investors to step in and pick up big chunks of its equity at fancy valuations. In the 3rd week of June, DE Shaw, a $20-billion hedge

fund which prefers to call itself an ‘investment and technology development company’, picked up a 14.2% stake in NDTV providing an exit to Goldman Sachs, another blue-chip investor that probably exited at a loss. NDTV’s stock was listed at Rs100 in 2004; the stock rose to Rs511 in January 2008 on the promise of a financial performance which has never materialised. It is now at Rs63—down 32% even from the issue price, after seven years of listing—and down a whopping 86% from its peak.

Prannoy Roy, chairman, NDTV

Anchored Losses 475

New Delhi Television

87%

390

305

220

135

50 Dec-07

Oct-09

Jul-11

Interestingly, despite the DE Shaw acquisition, the stock has barely moved. Maybe, the market doesn’t quite trust this information. That says a lot about not just NDTV but DE Shaw as well. As happens with glamour stocks, DE Shaw could be a front for someone else. Coincidentally, DE Shaw has a tie-up in India with Reliance Industries to sell financial services. Zee has given a compounded return of just 6% in the past five years—far lower than that of safe bank fixed deposits. Subhash Chandra of Zee pioneered cable broadcasting in India. But he is also a flamboyant businessman with a variety of other interests (lottery, cricket, fun parks and packaging). Zee is the flagship of its media business, which includes all Zee entertainment channels. Zee has done better than the others because ``

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COVER STORY

` of controlled costs. Unfortunately, this is as good as it

gets. For Zee to do far better than this, calls for sensible business practices—and selection of excellent leaders. Mr Chandra may not care much for either. The business is a family-run affair, controlled by Mr Chandra, his son and his brother Laxmi Goel. Dozens of top managers pass through the revolving door each year. Every few years, Mr Chandra announces a reorganisation and rebranding—the most recent one took place in July this year. Glamorous business, yes. Profitability? That’s another matter. Sun TV Network has 20 channels in four Indian languages and 43 FM radio stations targeted at the south Indian population globally. It also has two daily newspapers and four magazines. Sun has no long-term debt. Its standalone revenue was up 38% in FY10-11 over the corresponding year-ago period, while operating profit was up 40%. Sun’s operating margin of 81% is among the highest in India. It earns a very high RONW (return on net worth) of 32%. It gave shareholders a compounded return of 32% over the past five years. Even if genuine, this is all in the past. Sun’s business was not built on competitive advantage alone but also through strong-arm tactics and political muscle. Sun is controlled by the Maran brothers—Kalanidhi and Dayanidhi—who have been close to the ruling DMK (Dravida Munnettra Kazhagam). It has a lock on the television business in Chennai, mainly the cable business. But political connections can be fragile, as we wrote a few years ago. In 2008, the Maran brothers got into a spat with M Karunanidhi, the chief minister of Tamil Nadu, who suspected them of working against his family’s interests. Dayanidhi Maran had to give up his ministerial position at the Centre and Sun came under severe competitive threat from the new channels and the cable business backed by Mr Karunanidhi. The stock was hammered. When the Marans and Mr Karunanidhi patched up, the Sun stock went up. Investors were happy but what investors always ignored was the huge political risk attached to this glamour stock. We had pointed out that political alignments in Tamil Nadu are highly unpredictable and politicians there are crude and vengeful. In other words, Sun’s spectacular profi tability is because of a moat—but that moat can run dry anytime. This is exactly what has happened. Dayanidhi Maran ran into the 2G controversy; DMK lost the elections; Sun’s CEO was arrested; and the stock is sharply down. Glamour stocks are not run for shareholders. They are run for promoters’ egos and employees. Look at the high salaries and generous stock options, on the one hand, and low return on capital, on the other. For

some employees, like Sun’s CEO, even huge salaries were not worth being arrested and jailed. That is what has also happened to three top executives of RCom, which is embroiled in the 2G scam. The telecom business is a glamorous business, but try and say that to either the shareholders of RCom or to Gautam Doshi (managing director), Surendra Pipara and Hari Nair of RCom who have been in jail since early April. Satish Seth, a close aide of Anil Ambani, told the Central Bureau of Investigation (CBI) that he was only a consultant and Gautam Doshi was responsible for all decisions relating to RCom, which

Anil Ambani, chairman & CEO, Reliance group

Call Disconnect 605

Reliance Communications 500

84%

395

290

185

80 Jan-08

Oct-09

Jul-11

led to the exit of Hasit Shukla, a compliance officer and company secretary of RCom. This is how glamour stocks can unravel sometimes. What has it meant for shareholders? RCom was listed at around Rs300 in March 2006, shot up to Rs844 in January 2008 and then crashed by a stupendous 90%. New research suggests that it has been cooking its books. RCom has given a TSR of negative 70% over the past five years and a compounded annual return of -21% for the same period. Reliance Power, which was listed with great fanfare on 11 February 2011, gave a negative TSR of 40% since its inception and has given a compounded return of -14% since listing. On the first day of listing, the stock opened at Rs342 and ``

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COVER STORY

` reached its all-time high of Rs374.94 on the same day.

Ever since then, it has declined, and it is now trading at Rs114.10, down by 68%. Reliance MediaWorks has given a compounded return of -7% in the past five years and a negative TSR of 31% for the same period. Reliance Infrastructure has made shareholders richer by 6% returns compounded every year over the past five years. Another glamorous business is airlines and what has made it even more glamorous is the presence of Vijay Mallya, one of the most flamboyant businessmen in India with a liquor franchise that should be the envy of everybody. His beer brand Kingfisher is one of the top brands in the world. It is so popular that Mr Mallya named his airline after this popular brand. Ironically, Kingfisher Airlines has the dubious distinction of having the maximum cases of pilots found under the influence of alcohol before take-off, in 2009. Mr Mallya, who needs lakhs of rupees a day just to maintain his stable of houses, cars, planes, horses and other assets, is determined to blow up his considerable wealth on running Kingfisher. The business has run up thousands of crores of losses and is literally running on borrowed time and money. In midJuly, a couple of Kingfisher flights were delayed by more than an hour because Hindustan Petroleum Corporation would not supply fuel unless its earlier dues were cleared. Kingfisher and Jet Airways need an unending supply of capital to stay afloat. Jet Airways needs $400 million, while archrival Kingfisher Airlines needs $300 million. But market conditions are likely to thwart their fundraising plans. Over the last year, Jet is down by 50%, Kingfisher by 60% and SpiceJet, controlled by the Marans of DMK, has dropped 66%. All of them desperately need money. What has the stock done for its shareholders? Kingfisher has given a compounded return of -15% in the past five years and TSR of -57% in the past five years, whereas Jet Airways has given a compounded return of -4% in the past five years and TSR of -18% for the same period. Shareholders of leading retail chain Pantaloon Retail should be a worried lot. The stock has fallen by a sharp 36% over the past eight months—from Rs502.25 on 1 October 2010 to Rs323.85 now. If these shareholders look a little bit closer, they will wonder for whom the company is being run—shareholders or bankers? Research analysts tracking retail stocks say that the current high interest rate regime is the key reason for the underperformance of the stock, even as the company is planning an expansion and restructuring exercise. But is there a problem with the business model itself? Pantaloon’s turnover is erratic and it is essentially pushing sales with borrowed money. A large part of the

company’s operating profit has been eaten up by interest cost. Consider this. The operating profit of the company was Rs111.66 crore in the March 2011 quarter. In the same quarter, the interest cost was Rs 48.37crore. It will only get worse. Analysts tracking the stock say that interest costs will go up. The stock has given a compounded negative return of 4% in the past five years and its TSR in the past five years have been -20%. Doing good for the poor while making money is as glamorous as one can get. And there is only one listed company with such a halo—SKS Microfinance.

Vikram Akula, executive chairman, SKS Microfinance

Loan Crisis 1,350

SKS Microﬁnance 1,140

60%

930

720

510

300 Sept-10

Feb-11

Jul-11

No wonder it secured money from some of the finest investors including Catamaran of NR Narayana Murthy and Sequoia Capital, one of the world’s best private equity firms. As it happens, glamour stocks are expensive and vulnerable to disappointment easily. The share price of SKS had opened for listing at Rs1,036 in August 2010 and hit a high of Rs1,490 in the next month. From early October, however, it has declined consistently and hit a low of Rs262 in May 2011, down 75% from its listing price, causing massive losses to many smart investors. And it ‘delivered’ a total return to shareholders of -45% for the same period. Even if SKS were not involved in ugly loan recovery tactics, the suicide deaths of some of its poor borrowers in Andhra ``

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COVER STORY

` Pradesh and was not hit by laws that affect microfinance

companies, rest assured that the stock would not have made much of an advance from the time it was listed. TV18 is another glamour stock. Whether it is Colors, CNBC or moneycontrol.com—TV18 touches your life daily. The group created dozens of top Web properties, TV channels for news & entertainment, print publications, is into film production, a home shopping network, events, sports and even private equity investment. The best and brightest are featured in these media properties, daily. The group has shown tremendous entrepreneurship, in

Kishore Biyani, founder & CEO, Future group

Uncertain Future 775

Future Capital Holdings 640

79%

505

370

235

100 Feb-08

Nov-09

Jul-11

less than a decade. Unfortunately, for the shareholders, it has been a long ride downhill ever since the stock got listed in February 2000 and hit a high of Rs781. It went through a restructuring (always the preferred option for non-performers—look at NDTV, Zee and the Anil Ambani group) a few years ago. The performance has not changed. In a year when the economy was booming (March 2011), the group reported a net loss of Rs17 crore, though it was a big improvement from the Rs114 crore loss of FY10-11. It is undergoing another round of restructuring just now. Only the diehard media watcher can keep track of the constant changes and shuffling of businesses. Usually the corporate Indian has used restructuring to effect book

adjustments and asset valuation that favours promoters and short-changes minority shareholders. Attracted by the glamour, retail and institutional investors have periodically come and gone, disappointed by how difficult it has been for the group to make any money for years together. Nothing much will change now that the core business of the group—business news—constitutes only 60% of the business. This is because while revenue growth is sluggish, ET Now has made sure that TV18’s cost structure remains permanently bloated. Future Capital Holdings (FCH) went public in February 2008, raising Rs490 crore through a sale of shares at Rs765 a piece. The stock listed at Rs909. It was a glamour stock, run and partly owned (11.85%) by Sameer Sain. FCH was supposed to be Kishore Biyani’s dream financial vehicle not just to extract value from the footfalls in Pantaloon stores, but also to make money through smart investment. When Mr Sain joined FCH last year, institutional investors pumped in money, banking on his stellar track record. Mr Sain was a managing director with Goldman Sachs and head of the special investments group, co-head of wealth management for Europe, the Middle-East and Africa, and a member of the executive committee of Goldman Sachs Bank Zurich. The glamour faded soon after. By early 2010, Mr Sain stepped down from his position as chief executive and managing director of the company and sold his stake. Now, after three-and-a-half years of listing, the stock is quoting at Rs155, resulting in 80% erosion in investors’ wealth. We have given a small selection of stocks that are glamorous and have delivered terrible results. Admittedly, our selection is anecdotal and random, contrary to what our standard approach is—which is going by a method. The reason is, you cannot define “glamorous” in definite financial terms. But hopefully you know that a stock is glamorous if you draw from Judge Potter Stewart’s definition of pornography way back in 1964, “I know it when I see it”. The risk of glamour stocks are disproportionately higher compared to the returns you make. This is because promoters may get carried away by their own acts, the company, the sector; the promoter is constantly in the public eye giving you the impression that all is well; and of course, the media and the analysts are producing a steady stream of positive news about them. Meanwhile, if returns are poor, they constantly need capital to stay afloat—reducing the value of shareholders. Stay away. The best bets are companies that are in mundane businesses, carry a low valuation and generate high return on capital—the kind of stuff we regularly write about in our Street Beat section and occasionally in cover stories.

MONEYLIFE | 11 August 2011 | 34

Cover Story.indd 6

7/23/2011 4:49:06 PM

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SOME RECOMMENDATIONS Company

Issue Date

Recomm. Price

Exit Price

Return*

Surya Pharmaceutical

28 Jun-10

184

294

60%

Godrej Consumer Products

24 Feb-10

262

372

42%

Petronet LNG

18 Apr-11

133

175

32%

Titan Industries

31 Jan-11

3,468

4,560

31%

Dish TV India

28 Mar-11

24%

* Non-annualised; Price in Rs

YES, I wish to subscribe for one year to the following winning stock letters Cheetah: Short-term momentum Antelope: Medium-term growth stocks Lion: Long-term value Annual Price of Each Stock Letter: Rs995; Special Combo Offer for Any Two: Rs1,495; Special Combo Offer for All Three: Rs1,995 NAME: ADDRESS: PHONE (Office): Phone (Resi): E-mail address: Date of Birth: (MM) (DD) (YY) (Please ensure correct date of birth if payment is by credit card) Profession : Designation: Monthly Household Income: (Please tick the appropriate) ( ) Below Rs25,000 ( ) Rs25,000 - Rs50,000 ( ) Above Rs50,000 ( ) Please find enclosed ( ) Cheque / ( ) Demand draft number favouring Kensource Information Services Pvt. Ltd. ( ) Please charge it to my ( ) /( ) /( ) My card number is & expiry date is DATE:

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Stock letter new.indd 1

7/23/2011 5:43:18 PM

STOCKS STREET BEAT

Unbiased & Methodical Stock Picking that Works!

S U P R E ME I NF RAS T RUC T URE

Concrete Structure

tio n St or ies of Pr ice Ma nip ula

Strong backward integration model

upreme Infrastructure India (SIIL) is one of the few listed infrastructure companies that is doing extremely well. SIIL is present in seven verticals—railways, bridges, buildings, power, sewerage, irrigation and roads—across Maharashtra, Haryana, Punjab, Rajasthan, Uttar Pradesh and West Bengal. Each vertical functions as a business unit, thus increasing focus on execution as well as order book growth. SIIL started with executing orders of Mumbai’s municipal corporation and the public works department of Maharashtra and, when the infrastructure boom started in India in the mid-1990s, it expanded its activities by procuring contracts of urban development and municipal authorities in various cities. SIIL’s construction business has an integrated business model with in-house asphalt, ready-mix concrete, crusher and wetmix plants, ensuring timely supply of construction material and saving of tariffs & taxes due to captive material transfers. This also ensures lower costs. For the financial year ended 31 March 2011, SIIL’s total income jumped 72% to Rs918.70 crore from Rs534.10 crore, while net profit surged by 91% to Rs74.80 crore from Rs39.20 crore in FY09-10. Its net profit for the March 2011 quarter zoomed 148% to Rs27.40 crore from Rs11 crore in the corresponding period last year on an 88% rise in total income to Rs328 crore from Rs174.30 crore. At present, SIIL has five BOT (build, operate, transfer) projects in Maharashtra. These include Kasheli Bridge which is expected to be complete by Q2FY11-12, while the PanvelIndapur and Manor-Wada-Bhiwandi projects are expected to be completed by July 2013 and the Ahmednagar-KarnalaTembhurni project is expected to finish by March 2014. The Haji Malang project is a ropeway project having a construction period of two years. The Manor-Wada-Bhiwandi project—an ``

Ashiana Agro Industries dustrie (Rs3) Rajasthan-based Ashiana Agro Industries was incorporated in June 1990. The company has sold its edible vegetable oil plant & machinery and has not undertaken any manufacturing activities since 2006-2007. It has primarily invested its surplus funds pending its final decision on starting a new business venture. It generates income as interest on loans and advances given during (Rs)

Ashiana Agro

7 6 5

59%

4 3 2 Jan-11

Apr-11

Jul-11

the year. It did not generate any revenue in the past nine quarters. On the other hand, it reported an operating loss of Rs3 lakh in each of these nine quarters. The company has no revenues and is still listed. There are days when there is no trading at all. From Rs6.15 on 20 January 2011 the stock has fallen to Rs2.55 on 15 July 2011, down 59%. It may even go up a few hundred percent. The regulators are blissfully unaware.

Recommended Price Rs145

MONEYLIFE STOCK IDEAS

THAT WORK

Moneylife Issue 25 February 2010

109%*

Exit Price Rs263

(Stop Profit triggered on 25 November 2010)

(EXCEL CROP CARE)

* Annualised returns

MONEYLIFE | 11 August 2011 | 36

Stock-Streetbeat.indd 2

7/23/2011 5:10:52 PM

STOCKS STREET BEAT

Unbiased & Methodical Stock Picking that Works!

` industrial belt connecting Gujarat and Maharashtra—is the

company’s first BOT road project. The company has also won contracts in the irrigation, railways, building and power sectors. Its Osmanabad (Andhra Pradesh) irrigation project is scheduled to be completed by June 2012. SIIL, in a joint venture with Patwari Electricals, is executing turnkey power projects for Maharashtra State Electricity Distribution Co Ltd. In the railways Rs Cr. Sept-10 Dec-10 Mar-11 segment, SIIL has won Net Sales 165.71 240.48 327.96 many orders from 50.68 Mumbai Railway Vikas OP 27.77 41.36 88% Corporation. Also, in Y-o-Y Sales Growth 47% 68% 83% the building segment, the Y-o-Y OP Growth 39% 39% company has won several 15% OPM 17% 17% orders from government OP: Operating Profit, Y-o-Y: Year-on-Year, OPM: Operating Profit Margin agencies as well as private companies. Some of the Firm Ground major projects include (Rs) construction of Edge 295 Towers worth Rs255 Supreme Infrastructure crore at Ramprastha City, 270 Gurgaon, construction 245 of Hexcity worth Rs138 220 crore for Armstrong group at Navi Mumbai. 195 The company is 170 looking to expand its Jan-11 Apr-11 Jul-11 capabilities in the marine projects segment and deepening vertical strength in each state. In Kolkata, it has joined hands with Bengal Tools to undertake orders in the ``

tio n St or ies of Pr ice Ma nip ula Gomti Finlease (India) (Rs29) Gomti Finlease (India) is engaged in the business of investment and investment advisory services. In FY06-07, the company focused mainly on fee-based activities as the Reserve Bank of India had rejected its non-banking financial company application in 2002-03. Since then, Gomti Finlease has not undertaken fund-based activities, except recovery of dues. Out of the past (Rs)

Gomti Finlease

30 25 20 15

215%

10 5 Mar-11

May-11

Jul-11

nine quarters, the company had revenues of Rs1.46 crore only in the March 2010 quarter. It reported operating losses in the past nine quarters ranging from Rs1.2 lakh in the March 2009 quarter to Rs1 lakh in the March 2011 quarter. However, the company’s stock vaulted 215%—from Rs8.90 on 31 March 2011 to Rs28 on 15 July 2011. Don’t expect SEBI or BSE to do much about this clear case of rigging.

Recommended Price Rs125

MONEYLIFE STOCK IDEAS

Moneylife Issue 23 September 2010

THAT WORK

109%*

Exit Price Rs150

(Stop Profit triggered on 29 November 2010)

(AHMEDNAGAR FORGINGS)

* Annualised returns

37 | 11 August 2011 | MONEYLIFE

Stock-Streetbeat.indd 3

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STOCKS STREET BEAT

` industrial infrastructure space.

However, currently, most of the company’s orders are from Maharashtra (around 76%). Any slowdown in the order book from this state may affect the cash flows of the company. SIIL has a track record of timely completion of projects. But, being a new player in the BOT segment, there could be a potential execution risk. Land acquisition is also another problem—any delay in project execution would affect the revenues of the company, going forward. Over the past five quarters, SIIL has reported an average growth in revenues and operating profit of 59% and 56%, respectively. Its average operating margin is 17% and return on net worth is 29%. Its market-cap to revenues is 0.33, while its market-cap to operating profit is 2.16 times. The stock is an attractive buy at the current market price.

A J A NT A P H ARM A

Health Tonic Growth drivers for Ajanta Pharma are firmly in place

janta Pharma is a small company with a presence in the anti-malarial, cardiology, dermatology, gastroenterology, musculoskeletal, ophthalmology and respiratory segments, with four manufacturing facilities in India and one in Mauritius. One of the Indian units, located at Paithan (Maharashtra), is approved by the USFDA (United States Food and Drug Administration) and health authorities of Brazil and Colombia and it also holds a WHO (World Health Organization) prequalification for one of its products. This modern manufacturing facility

Unbiased & Methodical Stock Picking that Works!

provides flexibility to the company, thus ensuring efficient and timely delivery of products. In the Indian market, Ajanta ranks 63rd among pharma companies in revenues. Its revenues have been growing at 27% CAGR (compounded annual growth rate)

10-12 new product launches, line extensions and therapy expansions. During FY10-11, domestic revenues contributed 37% to the company’s total revenues, while the exports business contributed 63% of the total revenues; Asia and Africa collectively contributed 95% to the export revenues and the rest was from the Latin American region. The return on equity of the company was a healthy 24.5% for FY10-11. During the quarter ended March 2011, the company’s revenue was Rs125.85 crore, a growth of 16% over Rs108.12 crore in the previous corresponding quarter. Profit after tax was Rs17.47 crore over Rs10.04 crore in the year-ago period, a jump of 74%. Operating profit for the March quarter was Rs28 crore, a rise of 32% over Rs21.15 crore in the fourth quarter of FY09-10. Mar-11 Rs Cr. Sept-10 Dec-10 Over the past five quarters, Net Sales 112.51 120.51 125.85 Ajanta Pharma has reported average 28 OP 20.91 22.80 revenue and operating profit growth 16% of 20% and 22%, respectively. Its Y-o-Y Sales Growth 19% 27% 32% operating profit margin for the Y-o-Y OP Growth 19% 31% 22% March quarter was 22%; for the OPM 19% 19% past five quarters, it was 19%. OP: Operating Profit, Y-o-Y: Year-on-Year, OPM: Operating Profit Margin On 3 May 2011, Ajanta Pharma Strong Dose signed a deal with Dabur India to offload its over-the-counter (OTC) (Rs) brand ‘30 Plus’—one of Ajanta 335 Ajanta Pharma Pharma’s key healthcare energiser 305 brands that was launched in 1990— 275 for an undisclosed amount. The company is expected to use the 245 funds generated to pay off a part of 215 its debt. The company has planned a 185 capital expenditure (capex) of Jan-11 Apr-11 Jul-11 Rs100 crore to Rs125 crore over FY13-14E to gear up for its entry into the regulated market of the US. over FY06-11 due to its strong A large part of the capex will be foothold in ophthalmology (CAGR towards setting up of manufacturing 35%), dermatology (CAGR 57%) units. The company anticipates and cardiology (CAGR 34%). The management has provided guidance 10-12 ANDA (abbreviated new for 16%-18% CAGR from domestic drug application) filings. The company has already filed two revenues over FY11-13E, driven by ``

MONEYLIFE | 11 August 2011 | 38

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STOCKS STREET BEAT

` ANDAs, the approval for which is

expected within a year’s time. Introduction of mass healthcare projects, such as the National Rural Health Mission (NRHM), and increasing rural penetration by pharmaceutical companies would contribute to the growth of domestic drug sales. The Indian pharma industry is expected to grow at a CAGR of 13.1% and would touch $11.20 billion by 2011-12. The stock is reasonably priced. Based on the annualised results for the March 2011 quarter, its marketcap to revenue was 0.72 times and market-cap to operating profit was 3.24 times. Ajanta Pharma makes a good buy at the current price.

A NDH R A P et roc hem ic al s

Unbiased & Methodical Stock Picking that Works!

production capacity of 30,000mtpa (million tonnes per annum) of oxoalcohols which later went up to 39,000mtpa. In March 2007, APL announced its plans to expand the

Rs Cr. Net Sales

Sept-10

Dec-10

Mar-11

112.63

114.25

156.75

Right Equation

20.61

25.31

28.63

Y-o-Y Sales Growth

110%

—

Enhanced capacity & latest technology

Y-o-Y OP Growth

203%

—

18%

22%

18%

ndhra Petrochemicals (APL) was promoted by Andhra Pradesh Industrial Development Corporation and Andhra Sugars as a joint sector company in 1984. It makes oxo-alcohols, 2-ethyl hexanol, normal butanol and iso-butanol. These are used in plasticisers, stabilisers, solvent extractions, acrylates, finishing compounds for ink lubes & fuel additives, surfactants, adhesives, detergents, etc. APL uses naphtha and propylene as feedstock which is supplied by Hindustan Petroleum Corporation’s Vishakhapatnam refinery. APL was established with a

OPM

OP: Operating Profit, Y-o-Y: Year-on-Year, OPM: Operating Profit Margin

Perfect Chemistry (Rs)

Andhra Petrochemicals 20 Jan-11

Apr-11

Jul-11

capacity of the oxo-alcohols facility in Vishakhapatnam. The expansion was completed in May 2010 at a cost of around Rs273 crore and increased the plant’s production

capacity to 73,000mtpa. After the expansion, the company can meet around 55% of the country’s total demand of oxoalcohols against the earlier 27%. The enhanced capacity, coupled with efficiencies associated with the latest technology is expected to improve the bottom-line of the company. Among APL’s competitors are Tata Chemicals, Bodal Chemicals, Vision Organics, Amines & Plasticizers, Ganesh Benzoplast, etc. For the financial year ended 31 March 2011, APL reported a net profit of Rs35.63 crore against a net loss of Rs5.38 crore in FY0910. In the same period, its net revenues increased to Rs456.59 crore from Rs137.14 crore. In FY10-11, its earnings per share (EPS) stood at Rs4.19 compared to a negative figure in FY09-10. APL has recommended a dividend of Re1 (10%) on equity shares of Rs10 each for FY10-11. APL’s net profit for the March 2011 quarter increased to Rs13.62 crore from a net loss of Rs4.42 crore in the corresponding period last year. In the same period, its net revenues rose to Rs156.75 crore from Rs1.60 crore. The outlook for APL has improved substantially because of capacity expansion and technology upgradation, which have placed it in a globally-competitive position. The market for oxo-alcohols is expected to grow due to high demand from plastic and paints industries, which are growing in excess of 15% y-o-y (year-on-year). APL’s market-cap to revenues is 0.37, while its marketcap to operating profit is 2.01 times. Buy the stock at the current price.

Disclaimer: Street Beat stocks are selected from over 1300 stocks in the Moneylife database. This report is for informational purpose only. None of the stock information, data and company information presented herein constitutes a recommendation or a solicitation of any offer to buy or sell any securities. Information presented is general information that does not take into account your individual circumstances, financial situation or needs; nor does it present a personalised recommendation to you. Individual stocks presented may not be suitable for you. Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and the information may be incomplete or condensed. All opinions and estimates constitute our 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. Exit Strategy: Please exit if the stock closes 25% below the purchase price. This is called stop loss. However, if the market price is above 50% of the purchase price, exit if the stock falls by 25%, below any day’s closing price. This is called stop profit. Data Source: Centre for Monitoring Indian Economy’s Prowess database.

39 | 11 August 2011 | MONEYLIFE

Stock-Streetbeat.indd 5

7/23/2011 5:11:32 PM

STREET BEAT WHICH WAY

Debashis Basu

Follow the Price?

around the world which we cannot make sense of. And much else that we don’t know about—these will surface later. In this situation, the two things we need to look at are: price trend and valuation. The price trend, There are too many conflicting scenarios and we know little about them—or beyond as I have mentioned earlier, is strong, relative to the negative news flows. On the valuation front, we are fortnight ago, I had not in undervalued territory. We suggested that it was time still maintain that the consensus to be cautiously optimistic. earnings of analysts are too high. We Well, the market seems to have done have not seen forecasts of Sensex nothing over the past 14 days. It is earnings below Rs1,200, whereas exactly where it was. That in itself is we think that the number could well not such a bad thing. The positive be nearer Rs1,150. If this number is view is that despite a gush of correct, the Sensex starts looking negative factors, the market hasn’t Foreign Interest undervalued near 17,250—which broken down. Indeed, we have Week ending Purchase Sales Net (Rs Cr.) we almost hit in late June. We are a had two sharp dips in the past two 9,313.30 8,841.60 471.70 good 1,500 points above that. But months and each ended higher than 10 Jun-11 17 Jun-11 11,675.80 13,151.80 -1,476 there is a possibility that the Sensex the previous one. 24 Jun-11 10,400.60 11,526.70 -1,126.10 will not go down sharply—except Interestingly, during the last 30 Jun-11 13,590.80 8,990.20 4,600.60 when driven by an event. one month of sluggish market 08 Jul-11 18,470.10 12,716.20 5,753.90 What can make my optimism action and strong pessimism, 15 Jul-11 11,434.10 10,712.90 721.20 wane? New evidence that the Indian foreign institutional investors have 21 Jul-11 7,488.80 7,010.20 478.60 corporate sector will not be able kept investing in India. The table 82,373.50 72,949.60 9,423.90 to grow at 12%-15% over the next “Foreign Interest” shows the weekly three quarters and/or a hugely net inflows/outflows of the past negative global… or local event. seven weeks. Last time, I had written that after On the negative side, there are the July quarter results and the just too many high-quality experts RBI (Reserve Bank of India) policy who are warning that the largest meet on 26th July, we should have economy in the world is about to collapse into a deep slowdown, if some sense of where the market is not a recession. There are perennial headed. By the time you read this worries about China as well; and article, we would have had a sense these worries come from some of the smartest people off both. l b h Meanwhile, M hil the early signs of earnings growth in the business, such as Vitaliy Katsenelson. are not too bad. Banks like HDFC Bank and Kotak My guess is that it is impossible to Mahindra Bank have reported excellent follow the torrent of news and views and numbers and so have many consumerMedium-term: Up develop a viable investment strategy. facing companies. Long-term: — There are just too many events happening (Feedback at editor@moneylife.in)

investment that is

not subject to market risks

Attractive gifts, invitation for events and free online help. For a subscription offer that is unique, look for a form elsewhere in this issue or on our website at www.moneylife.in

MONEYLIFE | 11 August 2011 | 40

Which way.indd 1

7/23/2011 4:59:21 PM

STOCKGRADER MOMENTUM

Prime Time

45%

Compounded Annual Return

Prime Focus jumped 18% and EID Parry climbed 2%, while Orchid Chemicals plunged 8% Gainers: Prime Focus jumped 18% in the fortnight. Sesa Goa reported a consolidated net profit of Rs840.59 crore in the first quarter ended 30 June 2011 against a consolidated net profit of Rs1,301.79 crore in the June quarter of the last fiscal. The results were not comparable consequent to merger of erstwhile subsidiary Sesa Industries with the company. The stock rose 1%. The Indian sugar industry output is expected to touch 25MT in the current season against 18.92MT in the previous season. The prices will more or less stabilise at the current level. Despite adverse climatic conditions across the world, India will end with a minor surplus over demand. EID Parry (India) rose 2% and Federal-Mogul Goetze (India) surged 6%. Bank of Baroda and Mahindra & Mahindra rose 1% each. Losers: The Q1FY11-12 results of Magma Fincorp reflected strong growth in disbursals with growth in revenues and assets under management over the corresponding quarter last year. Disbursements grew 36% to Rs1,422 crore, while revenue increased 23% to Rs221crore. Despite increasing cost of funds, the Company

RS Grade

Funda Grade

Final Grade

Entry Date

Dish TV India

06 Aug-10

72%

Sadbhav Engineering

28 Apr-11

Yes Bank

22 Jun-11

—

Return*

company improved its net interest margin from 4.4% in Q4 FY10-11 to 4.6% in Q1 FY11-12. The company recorded net profit of Rs17.13 crore. The stock lost 3%. Orchid Chemicals & Pharmaceuticals’ Chennai manufacturing facility had been issued a closure notice by the Tamil Nadu Pollution Control Board (TNPCB). The Alathur facility was issued a closure notice by the TNPCB, citing non-compliance of some regulations relating to the disposal of solid waste. Orchid Chemicals said that it was in dialogue with the TNPCB; it was confident about resolving the issues and bringing the plant to a fully operational stage at the earliest. The stock tumbled 8%. Oracle Financial Services Software tanked 6%; Shree Renuka Sugars declined 1%. Changes: We are removing Oracle Financial Services and adding Punjab National Bank, Siemens Ltd and Yes Bank. Note: Please read our changed methodology for grading stocks (given below). We have also added a column showing returns since the stock’s appearance in the table. Returns from new stocks added are counted after one issue.

Company

RS Grade

Funda Grade

Final Grade

Entry Date

Power Grid Corp

07 Jul-11

Balkrishna Industries

07 Jul-11

-1%

M&M

28 Apr-11

-6% -7%

Return*

Bank of Baroda

29 Apr-09

176%

Shriram Transport

18 Feb-11

Titan Industries

16 Apr-10

116%

Shree Renuka Sugars

06 Aug-10

Sintex Industries

01 Apr-11

16%

Federal Bank

13 May-11

Prime Focus

07 Jul-11

14%

EID-Parry (India)

12 Nov-10

HDFC Bank

04 Mar-11

13%

Sesa Goa

21 Jan-11

-15%

Divi’s Laboratories

07 Jul-11

Orchid Chemicals

28 Apr-11

-28%

Siemens

22 Jun-11

—

Bhushan Steel

28 Apr-11

-16%

Magma Fincorp

07 Jul-11

-7%

GSK Consumer

29 Apr-09

186%

HDFC

15 May-09

83%

Hindalco Industries

23 Jul-10

12%

Fed-Mogul Goetze

28 Apr-11

18%

Bank of India

21 Jan-11

-10%

Punjab NaƟonal Bank

22 Jun-11

—

Cadila Healthcare

12 Nov-10

13%

*Non-annualised

Methodology: Momentum Stockgrader is a fortnightly ranking of stocks, based on two key factors that drive stocks—one, market-related or quantitative and, two, fundamental. The quantitative factor is the relative strength (RS), which is a stock’s relative outperformance during the past 10 weeks over select companies. For arriving at fundamental grades, we have used only operating profit growth and sales growth over three quarters. For momentum stocks, RS carries a higher weightage. Focus only on stocks with final grade A. When we include a stock in the grader, it is based on the fortnightly closing price of the scrip that coincides with our issue and that would be the entry price. Similarly, when we drop a stock from the grader, it is based on the closing price on Friday, as we go to print.

41 | 11 August 2011 | MONEYLIFE

Momentumnew.indd 2

7/23/2011 5:16:54 PM

STOCKGRADER MEDIUM TERM

Sun Shine

44%

Compounded Annual Return

Supreme Petrochem jumped 9%, while Shoppers Stop fell 5% and Asian Paints lost 2% Gainers: Supreme Petrochem’s revenues and operating profit for the June 2011 quarter rose by 11% and 35%, respectively, over the previous corresponding quarter. The stock jumped 9%. Vivimed Labs surged 9%. Kajaria Ceramics reported good June quarter results with revenues and operating profit growth of 38% and 34%, respectively. The stock gained 9%. Petronet LNG, which rose 18% over the fortnight, also had good June quarter results with revenues and operating profit growth of 83% and 77%, respectively, over the June 2010 quarter. Sun Pharmaceutical has received the US health regulator’s nod to market Alfuzosin hydrochloride tablets used in the treatment of prostatic hyperplasia. It has also received approval from the USFDA to sell a generic version of AstraZeneca Plc’s cancer drug Arimidex. The stock ended flat. HCL Technologies and Eli Lilly have signed a partnership for developing technologies and have opened a co-innovation lab in Singapore. HCL Technologies ended flat. Losers: Shoppers Stop has opened a new store in

Company

RS Grade

Funda Grade

Final Grade

Entry Date

Petronet LNG

29 Apr-09

Return* 227%

Vijayawada (Andhra Pradesh). The company now has 42 ‘Shoppers Stop’ stores in operation. The stock fell 5%. Ipca Laboratories also fell 2%. Ashwin Dani, one of the promoters of Asian Paints, has quietly consolidated his stake in Asian Paints by buying shares, thus taking his shareholding to nearly 21%. Mr Dani has bought shares with money raised by pledging his existing shares which are held by various holding companies. Asian Paints fell 2%. Robust performance of the auto sector over the past 24 months has enlarged the replacement market, mainly for tyres and batteries. Tyres are replaced around three years after the original sale, says a survey. Apollo Tyres is banking on the replacement market to ramp up growth. The stock fell 6%. Changes: We are replacing Oracle Financial Services with Praj Industries. Note: Please read our changed methodology for grading stocks (given below). We have also added a column showing returns since the stock’s appearance in the table. Returns from new stocks added are counted after one issue.

Company

RS Grade

Funda Grade

Final Grade

Entry Date

CRISIL

29 Apr-09

165%

Return*

Kajaria Ceramics

26 May-11

22%

Nestlé India

29 Apr-09

150%

Motherson Sumi Sys

23 Jun-11

15%

Sun Pharmaceutical

29 Apr-09

104%

Munjal Auto

26 May-11

10%

Dabur India

01 Apr-10

39%

Vivimed Labs

26 May-11

Amara Raja Ba eries

28 Apr-11

27%

Lupin

29 Apr-09

211%

3M India

23 Jun-11

Titan Industries

01 Apr-10

140%

Asian Paints

23 Jun-11

HDFC Bank

29 Apr-09

125%

Linc Pen & Plastics

26 May-11

Supreme Petrochem

27 May-10

72%

Praj Industries

21 Jun-11

Siemens

27 May-10

32%

Orient Paper & Inds

26 May-11

-6%

Supreme Industries

26 May-11

24%

Cadila Healthcare

20 Jan-11

Time Technoplast

26 May-11

14%

Apollo Tyres

23 Jun-11

Shoppers Stop

23 Jun-11

Akzo Nobel India

23 Jun-11

Ranbaxy Laboratories

20 Jan-11

-5%

TCS

10 Jun-10

50%

Ipca Laboratories

20 Jan-11

HCL Technologies

29 Apr-09

288%

—

*Non-annualised

Methodology: Medium Term Stockgrader is a fortnightly ranking of stocks, based on two key factors that drive stocks – one, market-related or quantitative and, two, fundamental. The quantitative factor is the relative strength (RS), which is a stock’s relative outperformance during the past 26 weeks over select companies. Our grading methodology of fundamental factors includes two key scores, growth score (GS) and value score (VS), carrying equal weightage. We then combine the RS grade and fundamental grades. Focus only on stocks with final grade A. When we include a stock in the grader, it is based on the fortnightly closing price of the scrip that coincides with our issue and that would be the entry price. Similarly, when we drop a stock from the grader, it is based on the closing price on Friday, as we go to print.

MONEYLIFE | 11 August 2011 | 42

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STOCKGRADER LONG TERM

Strong Charge

45%

Compounded Annual Return

Amara Raja Batteries jumped 5%, while Cadila Healthcare tumbled 7% and TCS fell 4% Gainers: Motherson Sumi Systems (MSSL) has executed a binding agreement with Cross Industries for acquiring an 80% stake in German auto-component maker Peguform for a consideration of €141.50 million, of which MSSL’s share will be worth €72.165 million. The stock surged 5% in the fortnight. Amara Raja Batteries jumped 5%. Adani Enterprises gained 2%. Hindustan Unilever (HUL), with the largest ad spend, has cut its advertising budget for FY11-12 by Rs200-Rs300 crore. In FY10-11, HUL’s advertising & sales budget was Rs2,764 crore. Of this, advertising alone was Rs2,200 crore. The stock ended flat. Losers: Cadila Healthcare’s June quarter earnings resulted in the stock tumbling 7%. Sales growth was flat, while operating profit fell to Rs190.42 crore from Rs240.41 crore in the June 2010 quarter. Tata Consultancy Services’ (TCS) revenues and operating profit rose 34% and 31%, respectively, for the June 2011 quarter over the year-ago period. TCS stated that higher wages affected

Company

RS Grade

Funda Grade

Final Grade

Entry Date

Ador Fontech

29 Apr-09

665%

Titan Industries

03 Feb-11

Emami

26 May-11

Motherson Sumi Sys

23 Jun-11

its operating margin. But, it expects margins to improve, going forward, and the pricing environment to remain stable. The stock was down by 4%. Ipca Laboratories, too, fell by 2%. HDFC Bank’s June quarter revenues grew by 31%, while operating profit grew by 16% over the year-ago period. The stock fell 3%. Lupin is looking for a suitor for its India formulations business. Experts say that Lupin, if it decides to dispense with its domestic drug-making venture to concentrate on its overseas business, would not settle for anything less than $3.70 billion. Billionaire investor Rakesh Jhunjhunwala has halved his stake in the drug major. His stake has come down to 1.73% (77 lakh shares) as on 30th June from 3.22% (1.43 crore shares) at the end of March 2011. The stock fell 2%. Note: Please read our changed methodology for grading stocks (given below). We have also added a column showing returns since the stock’s appearance in the table. Returns from new stocks added are counted after one issue.

Company

RS Grade

Funda Grade

Final Grade

Entry Date

CRISIL

29 Apr-09

165%

25%

HDFC Bank

29 Apr-09

125%

17%

ITC

27 May-10

50%

15%

Godrej Consumer

26 May-11

15%

Return*

Wyeth

23 Jun-11

Amara Raja Batteries

23 Jun-11

14%

TCS

29 Apr-09

260%

Hindustan Unilever

25 Nov-10

12%

Lupin

29 Apr-09

211%

Castrol India

28 Apr-11

12%

Nestle India

29 Apr-09

150%

Power Grid Corp

03 Feb-11

10%

Asian Paints

27 May-10

48%

Cadila Healthcare

20 Jan-11

Petronet LNG

26 May-11

26%

Apollo Tyres

23 Jun-11

Supreme Industries

23 Jun-11

21%

Akzo Nobel India

23 Jun-11

Shoppers Stop

26 May-11

15%

Adani Enterprises

29 Apr-09

241%

Marico

26 May-11

15%

Sun Pharmaceu cal

29 Apr-09

104%

Ipca Laboratories

20 Jan-11

GSK Pharmaceu cals

29 Apr-09

98%

Berger Paints India

26 May-11

Ranbaxy Laboratories

20 Jan-11

-5%

*Non-annualised

Methodology: Long Term Stockgrader is a fortnightly ranking of stocks, based on two key factors that drive stocks: one, market-related or quantitative and, two, fundamental. The quantitative factor is the relative strength (RS), which is a stock’s relative outperformance during the past 26 weeks over select companies. The fundamental factor includes growth score (GS) and value score (VS). GS is based on operating profit growth and sales growth. VS is calculated considering market-cap as a multiple of five quarters of average sales and operating profit, as well as latest Return on Net Worth (RoNW). The long-term list carries more large-cap stocks. Focus only on stocks with final grade A. When we include a stock in the grader, it is based on the fortnightly closing price of the scrip that coincides with our issue and that would be the entry price. Similarly, when we drop a stock from the grader, it is based on the closing price on Friday, as we go to print.

43 | 11 August 2011 | MONEYLIFE

Long Term.indd 2

7/22/2011 10:17:04 PM

“You Can’t Time the Market.” Maybe.

21,100

18-31 Jan ‘08

12-25 Oct ‘07

It is easy to describe market moves. It is hard to predict them which is why fund managers tell you that you “The huge over-speculation... cannot time the market. You will get vivid descriptions should now lead to some painful correction...” of the past everyday from business channels and the 6 -19 Jun ‘08 next day from newspapers. You will get sensible and “Time for a Break?” occasional predictions from only one source. You know 2-16 Aug ‘07 what’s more valuable 9-22 Nov ‘07

17-31 Jul ‘08

15 Feb-1 Mar ‘07

17,325

“Time to Go Neutral” “The market may correct “We don’t have a forecast” 10%-15% before the next move up” “If the government moves to slay the monster of inflation, stocks will suffer collateral damage”

23 Apr-7 May ‘06

“A new downleg may start soon”

28 Mar-10 Apr ‘08 31 Aug-13 Sept ‘07

13,550 2-15 Jan

“Is the market due for a fall?”

“A short-term bottom may be very near”

16-29 Mar ‘07

“A Rally Now?” “Weakness has r 4-17 August ‘06

“The panic looks done for now”

9,775

Sensex “Might the markets be ready to surprise us on the upside?” “Expect another leg of stock market rally” “

6,000 Apr-06

Aug-07

Nov-08

We have no compulsion to issue breathless market calls like TV channels or brokers, who make money by getting you to trade frequently. We are a fortnightly magazine. But we don’t issue market calls every fortnight. Moneylife market calls are infrequent. But they have been reasonably accurate so far. But, of course, the past is no guide to the future.

Sensex.indd 2

7/22/2011 7:36:49 PM

13-26 Aug'10 18-31 Dec‘09

23 Apr-6 May'10

The Coming Decline

Short-term Top?

4-17 Dec‘09

Time To Sell? 19 Jun-2 July ‘09

15-28 July ‘11

Headed Down?

“Is the market about to crack?”

Signal Yellow? 6 Nov-19 Nov ‘09

11-25 March '10

“We have no Forecast”

A Buyers' Market

31 July-13 Aug ‘09

2-15 Jan ‘09

“Buy the dip”

27 Feb-12 Mar ‘09

ness has resurfaced” “A Breakdown?”

30 Jan-12 Feb ‘09

“A weak rally now”

Nov-08

13-26 Mar ‘09

“Another weak rally”

Mar-10

Jul-11

Moneylife Stock Analysis

KNOW WHAT’S COMING

Sensex.indd 3

7/22/2011 7:37:45 PM

Insurance Trends New products, regulations, features and options, interpreted from your perspective T R A DI T I O N AL PL AN

In the above example, the death benefit is Rs1.92 lakh (Rs2,000 monthly income for eight years). If the policyholder expires during the policy term, the monthly income Guaranteed returns from Bharti AXA Monthly Income benefit period will start immediately to pay Rs2,000 per month for Plan: just 2.5% a year! eight years. The accrued annual reversionary bonus (if declared) is paid out immediately on death. harti AXA Life Insurance— This payout is made over and above Monthly Income Plan is a the monthly income benefit made traditional policy that guarantees before the death of the life insured. a monthly income for a certain The rate of return is low from the period, called ‘monthly income investment angle, but there is an benefit period’ during the policy insurance benefit in case of death term which can be 15, 25 or 30 which has to be kept in perspective. years. For example, a policy term of 15 years has a premium payment There is a discount of 2% on the premium for monthly income of term (PPT) of seven years and Rs5,000 or more for policy term monthly income benefit period of of 15 years; discount of 4% on eight years. To get monthly income the premium for monthly income benefit of Rs2,000 for eight years, of Rs3,000 or more for policy the policyholder has to pay annual term of 25 and 30 years. There are premium of Rs23,000 (assuming optional riders like critical illness good health) for seven years. The benefit and premium waiver rider. rate of return (guaranteed) for this The minimum annual premium for example is 2.22%. There is an a 15-year policy term is Rs23,000; annual ‘reversionary’ bonus which for a 25-year policy term it is is paid at the end of the policy Rs18,000; for a 30-year policy term term. The bonus rate is declared it is Rs7,500. The PPT is seven by the company every year, but the years for a 15-year policy term; PPT policy is not eligible for any bonus is 10 years for a 25-year policy term for the first three years. The rate and PPT is 15 years for a 30-year of return (non-guaranteed) may be policy term. The minimum monthly 5.58% based on the current bonus income is Rs2,000 for a 15-year declaration of the company for policy term; Rs1,000 for a 25-year another product. Traditional plans will not give high returns as they are policy term and Rs700 for a 30-year mainly invested in debt instruments. policy term.

Avoidable

TERM PLAN

Expensive Flexibility Birla Sun Life Protector offers higher sum assured without increase in premium

irla Sun Life Insurance Company has launched new term plan offerings—‘Protector’ and ‘Protector Plus’. These offer flexibility to customers by giving them the option to increase their sum assured by 5% or 10% every year due to increasing responsibilities and inflation, at no extra premium. The annual premium is high, to give you flexibility. Does your term plan really need to increase sum assured every year? The insurance need will increase with dependents and inflation, but so will your income level and savings. Your need to provide a cushion for dependents should decrease under normal circumstances with financial commitments like expenses for education of children coming down, near your retirement age. So, with age, given normal earning cycles, the need for life insurance should decline and at some point, it should be zero. If not, then you have not planned for your retirement. One approach would be to go for an additional term plan when your insurance need increases and terminate the policy close to retirement when your insurance need decreases. Both these plans have a policy term of 5 to 30 years and maximum age on maturity of 75 years. The Protector plan offers a maximum sum assured of Rs49.99 lakh and Protector Plus plan Rs50 lakh. For a person aged 35 going for a ``

MONEYLIFE | 11 August 2011 | 46

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INSURANCE TRENDS

` Rs20 lakh sum assured and policy

term of 30 years, the premium is Rs6,060; while it is Rs13,360 if the policyholder wants flexibility of 10% increase in sum assured every year. The premium is double in this case. The company will charge the additional premium every year to be able to afford 10% annual increase in the sum assured. For added protection, both plans can be enhanced with the following riders—accidental death and disability rider, critical illness rider, surgical care rider, hospital care rider and waiver of premium rider.

ULIP

Expensive Option Future Generali Bima Advantage costs a packet for enhanced cover

uture Generali Bima Advantage is a ULIP (unit-linked insurance plan) that offers an option to possibly double your insurance cover if taken at inception. However, this will be suitably reduced if the enhanced insurance cover premium is in excess of 30%

Fine Print Motor insurance for diesel engine cars may be hiked

nsurance companies in India are said to be considering hike in premium by 30% for diesel engine cars when compared to equivalent petrol-fuelled cars. The insurers are contemplating the premium hike for diesel cars because such vehicles are usually bought by people who drive longer distances than those driving petrol-

of the basic premium. The premium for enhanced protection cover will be calculated separately and added ed to the basic premium. m. The mortality rates for the enhanced insurance nce cover are expensive. For example, the annual ual mortality charge for a 25-year-old having basic sum assured Rs10 ed of R lakh is Rs1,140 (one of the cheapest rates); the annual mortality charges for enhanced insurance cover of Rs10 lakh is Rs2,110 to Rs3,190 (depending on the policy term). The average mortality charge for ULIPs across insurers in the above case is Rs1,420. The enhanced sum assured plus basic sum assured or fund value (if higher) is paid in case of demise of the life assured. There is no option to decrease the basic or enhanced sum assured any time during the policy term. It is unclear why the mortality charges are higher for enhanced insurance cover. As such, the mortality rate for the policy term (Bima Advantage basic sum assured) is much higher than the premium

for online term plans that are available in the market (for the same policy term). term This was proved in the t Moneylife Cover Story, Stor “Online Term Plans” Plan (16 June 2011). It will w not make sense to opt o for enhanced insurance cover in insu Bima Advantage. Take a term plan instead. The total charges of premium allocation h and policy administration are also expensive when compared to many other ULIPs. The premium allocation charge is 10% of basic premium in the first year, 6% in the second through fifth year and 3% from the sixth year onwards. The policy administration charge is 2% of basic premium for first five policy years and from the sixth year onwards, inflating at 5% per annum annually with a maximum of Rs6,000 per year. The policy term is 10 to 30 years and is available for customers in the age group of 7 to 65. The maximum age at maturity is 75. The minimum annualised basic premium is Rs20,000 for a policy term of 10-14 years; Rs15,000 for policy term of 15 years and above.

fuelled cars, leading to higher exposure to risk. Fuel has become an important rating parameter with the growing preference for diesel vehicles.

within a limit. Excess commission was paid to corporate agents which include group companies like SBI (State Bank of India), State Bank of Bikaner & Jaipur, State Bank of Hyderabad and so on; and to group master policyholders like Union Bank of India, Sundaram Home Finance, Dewan Housing Finance Corporation, Federal Bank and Kerala Transport Development Finance Corporation. Out of Rs204 crore excess commission paid over the period from 2005 to 2010, Rs186 crore was paid to State Bank group companies.

SBI Life fined Rs70 lakh

he Insurance Regulatory and Development Authority (IRDA) has fined SBI Life Insurance for paying excess commission in 14 instances (Rs5 lakh penalty for each instance) to corporate agents and group master policyholders in violation of the group insurance guidelines which allow commission

47 | 11 August 2011 | MONEYLIFE

Insurance.indd 3

7/19/2011 8:02:12 PM

POWER OF ONE VINITA DESHMUKH

P U B L I C A C T IV IS M

Crusading Beyond the Printed Word

creaming headlines and follow-up stories with captions that claim ‘Impact’ or ‘Effect’ are the done thing these days and media houses often have no qualms about appropriating and claiming credit for campaigns/crusades launched by others too. I was fortunate to be part of a team headed by the late Prakash Kardaley, a stalwart journalist and activist who strongly believed that effective and relevant journalism was an integral part of a newspaper. This meant that even a neighbourhood story about a road disturbing the eco-balance by cutting through a hill wasn’t just ‘reported’ but was taken to a logical end by inspiring citizens to protest and compel corrective action. And the only appreciation one received was the reminder that “You are as good as your last story”. This grounding made one realise that however active, effective or pro-active one may be, journalism is often going to be a thankless endeavour. It is when you send out 5,000 emails urging people to attend a public meeting or rally for a cause that affects them directly and only 50 turn up that you realise that ‘citizen action’ is easier said than done. Paradoxically, while commercialisation of news has often forced journalists into submission and

When governance breaks down, it is critical to empower and inspire the ordinary, faceless person, says Vinita Deshmukh based on her own experience compromise, the Right to Information (RTI) Act has allowed civil society to cut their dependence on the media for getting accurate information. Journalists too, don’t need to depend on ‘sources’ for accurate and official information; they can demand to see official documents by seeking inspection of files under Section (4) of the RTI Act. For me, the most effective demonstration of the power of this Act was in our ability to drive out a multinational company which came into Pune with all the secrecy, influence and political backing that has become the norm for mega-projects these days. In 2008, as the editor of Intelligent Pune, a weekly tabloid devoted to public causes, I was approached by a few activists to write about Dow Chemicals’ plans to set up a ‘research centre’ at Shinde Vasuli in Chakan, a suburb of Pune. They felt that Dow, which had acquired Union Carbide—and which was responsible for the world’s worst industrial disaster in Bhopal—had no moral right to enter Pune. Could my writing make a difference? I decided to investigate what Dow had planned on the 100 acres of precious land allotted to it at a throwaway price. I sought the details of permissions and clearances granted to Dow Chemicals from the member secretary, ``

MONEYLIFE | 11 August 2011 | 48

Power of One.indd 2

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POWER OF ONE VINITA DESHMUKH

` Maharashtra Pollution Control Board (MPCB) in

Mumbai. He curtly told me that he had no information and I could invoke the RTI Act to get answers. The Act was a handy tool for upright officials who didn’t want to annoy or upset their ministers by providing sensitive information to the media, but were willing to share it when officially demanded under the Act. The documents showed me that Dow Chemicals had been permitted manufacturing rights, not a mere research centre. They also listed over 60 chemicals that would be used in the plant. Of these, 24 required stringent environment clearances under the Environmental Impact Assessment (EIA) which was not adhered to. MPCB had also flouted its own River Regulation Policy under which no chemical plant can be set up within 2-km range of a major river—in this case it was the Shuda, the biggest tributary of the Indrayani River. A further inspection of files at the Maharashtra Industrial Development Corporation’s regional office at Pune revealed instructions to release land extra quickly for the Dow project. Armed with this information, I held a press conference instead of confining the findings to a report in Intelligent Pune. I wanted to motivate villagers to protest by educating them about Dow’s plans and its potential dangers. The effort paid off and the media took up the campaign when villagers protested violently and burnt equipment at the Dow plant site. Soon, Maharashtra’s warkari community staged street protests in various parts of the state. I wrote about various aspects of the Dow issue for 10 continuous months in Intelligent Pune. Finally, the then chief minister Vilasrao Deshmukh, who has signed the original memorandum of understanding with Dow, had to make a hasty call to the chemical giant, asking it to stop construction. But villagers kept up the pressure; Dow officials couldn’t visit the plant site. Ultimately, Dow dropped the Pune project plans and issued an official release. I learnt two lessons from this whole saga. First, authentic information obtained through the RTI Act is powerful ammunition for stakeholders, even if they are not literate. Second, politicians fear upsetting their vote bank more than the legality of issues or protests. I cannot take sole credit for Dow abandoning Pune, but the campaign was triggered by the might of the pen. “What’s the use of only screaming through headlines?” Prakash Kardaley was fond of saying; it inculcated an effort to be an integral part of action on the ground. Another example is our work to save the hills of Pune from being torn down by rampant construction. In true fashion, the government issued

a public notice in one of the least read Marathi newspapers announcing its intention to permit 8% residential construction on the hills of 23 villages that would be included in the Pune Municipal Corporation (PMC). The state published detailed reports on the implications of the proposal and urged people to lodge complaints within the statutory 60 days of the announcement. It spurred NGOs and youth groups to initiate a campaign. An unprecedented 90,000 objections were submitted to the PMC, forcing it to announce a ‘Green DP’ (Green Development Plan) for the 23 villages (hills were declared as no-development zones and earmarked for bio-diversity parks). But the bureaucracy again tried to impose public utility and hill zones instead of residential zones. Again, I helped the Green Pune movement to get support to lodge 70,000 objections. The proposal is lying with the town planning department. Yet another effort was in connection with the haphazard detailed project report (DPR) prepared by the Delhi Metro Rail Corporation for the Pune Metro. Vijay Rane, a railway expert, analysed the DPR for me while Prashant Inamdar, a civic activist, showed me a Power Point presentation which demonstrated how the choice of an elevated metro was going to cut through the most congested streets of the city, with no benefit to citizens. I decided not to stop with writing articles. Instead, I formed the Pune Metro Jagruti Abhiyaan which brought together activists, individuals and youngsters from the railway engineering group, architects and urban planners from the Pune Technical Committee. We made a series of presentations in different neighbourhoods, organised a public rally of 350 people and held interactions with MLAs and Pune’s guardian minister. At an interaction with local politicians (‘Metro mahacharcha’), some confessed that they had voted on the metro alignment in five minutes without even reading the DPR. After persuading civic activist Aruna Roy to hold a press conference on our behalf, we forced PMC to hold the first ever jansunwai (public consultation). Ultimately, though the ruling Congress-NCP combine insisted on passing a flawed proposal, there may be a victory in this defeat, because the plans remain on paper with questions—because of doubts about its technical and financial feasibility. Rousing people into joining a public campaign is a tough and frustrating task. Often, support through emails does not translate into active participation and people are happy to suffer injustice silently even though it is clear that governments are only afraid of visible citizen’s power.

49 | 11 August 2011 | MONEYLIFE

Power of One.indd 3

7/22/2011 7:55:52 PM

PERSONAL BUSINESS AUTO

C AR S AL ES

Showrooms with aView Customer-oriented car firms? It’s the Japanese, finds Veeresh Malik

orty years ago, on my first Japanese trip, I was fascinated by their cars. I had seen these vehicles in the Persian Gulf, Europe & the US by then, but this experience was different. They seemed shinier in Japan; the locals added bells & whistles like huge tail lamps and fancy names. A Toyota Crown could be a ‘Super Deluxe Toyota Wagon Thundery’ or something even more exotic. My Japanese friends told me their manufacturers made different ‘qualities’ for different parts of the world. India was not a direct market back then—most products ‘landed’ up here through various places like Singapore, Hong Kong and the UAE. But as a seafarer, if you wanted a quality wrist-watch or 2-in-1, you bought it in Japan. It is the same with the recently-launched Toyota Etios Liva J/G/V/VX/V-SP versions in India. Suzuki tried a change with the Maruti 800, the Maruti Van and the Maruti 1000; at best, the variants were with AC. Now, Maruti Suzuki has tried to maintain ‘global’ quality; its vehicles have a range of alphanumeric suffixes. But Toyota needed the Japanese fix, with a more complicated twist, though. The Toyota Etios Liva is a low-cost challenger to the Maruti Suzuki Swift. Both cars are similar, with the ‘new’ Swift not very different from the existing one—just visit both showrooms. Again, even competitors are praising the engine inside the Etios and the Etios Liva. Especially the engine layout. But the interiors, more specifically the Etios cabin soundproofing leaves a lot to be desired.

I went to a Toyota showroom, and as expected, the Liva enquirer is made aware that he is being sold Toyota’s bottom-end car in India. But at a Maruti Suzuki showroom, the potential Swift buyer is treated like a top-end customer. A Liva somehow does not give the same gut feel as does the costlier Corolla, but the SX4 has a sensory good feel—somehow like the Swift. One manufacturer gets a message across that its complete range is similar in terms of basic quality and customer experience. The other manufacturer manages to send a subtle message across that his smaller car is not just cheaper but is also for—and from—a different world. I think they should have just called it Etios Liva, instead of risking the Toyota badge, and if I had to buy a new hatchback—I would look at competition.

N I S S A N ’S G A M E -P L A N

Local Insight, Global Vision Making India a base for global sales makes immense sense

totally different approach seems to be Nissan’s game-plan with its Micra. It does not have too many showrooms and dealers here as yet, but the local ones are a pleasure to visit. Whether you are in the market for a small car or a large one, the approach seems similar, which is not true with many other manufacturers. The car itself looks and feels like an ‘international’ product—inside and outside. Currently exporting in its own name, as well as some amount of multi-badging for other cars, Nissan appears to be busier trying to make India a base for global production. This strategy could pay off in the ongoing slump in overall auto sales. The Maruti A-Star—also built, named and exported as the Nissan Pixo and the Suzuki Celerio, is a car that will sell well in other countries when the market goes down in India. Here, it is viewed as a premium micro-mini small car, and will likely lose sales when the slump really kicks in to the cheaper Alto. Elsewhere, it will snap up space when people stop buying bigger cars, due to rising fuel prices.

Veeresh Malik started and sold a couple of companies, is now back to his first love—writing. He is also involved actively in helping small and midsize family-run businesses re-invent themselves.

MONEYLIFE | 11 August 2011 | 50

Auto.indd 2

7/22/2011 8:01:08 PM

ML FOUNDATION EVENTS

INVESTOR, EMPOWER YOURSELF!

“Beware of Pyramid Schemes” Moneylife FoundaƟon held its first seminar at Bengaluru on 16th July that 4,000 people watched live over the web

o invest in pyramid schemes like Speak Asia may seem lucrative, but their collapse is inevitable, even if it takes some years to happen, said Sucheta Dalal, founder-trustee of Moneylife Foundation and managing editor, Moneylife magazine. Ms Dalal was speaking at a seminar in

Bengaluru, titled “Investor, Empower Yourself!” The seminar was organised by Indiabulls. The event was also webcast live. “Moneylife has been writing about Speak Asia-type schemes abou repeatedly, but the regulators repea keep passing the buck and we get aattacked everyday,” Ms Dalal said. “The problem is that the people who continue to attack us peop have brainwashed themselves into overlooking the fact that they are over involved with a fraud company invo which is going to take them down.” whic Citing the example of Sahara, a C participant raised a question about parti method of determining whether the m company/scheme is genuine or a com

Sucheta Dalal, founder-trustee of Moneylife Foundation Fou

Event.indd 2

not. Ms Dalal replied that the first step would be to check whether the scheme is registered with the regulator or not. “I am not saying that a valid registration certificate guarantees that you wouldn’t lose money and you are safe; but, in case something goes wrong, you can approach the regulator,” she said. Ms Dalal also spoke about getting the right insurance cover and warned the audience about trusting their banks unquestioningly, because relationship managers often engage in aggressive mis-selling to achieve their targets. She also spoke of the various hidden charges and riders that come attached with credit cards. Debashis Basu, founder-trustee, ``

51 | 11 August 2011 | MONEYLIFE

7/21/2011 7:13:59 PM

ML FOUNDATION EVENTS

` Moneylife Foundation and editor,

Moneylife magazine, told the audience that investing is really simple as long as one understood the basics of investing and stuck to them. He elaborated on the risk and returns urns of different investment products ts such as stock, mutual funds, fixed deposits eposits and insurance. ce. He explained ed why it is essentiall to know the historical al returns from differentt asset classes so that onee is not misled led by the sales pitch tch of financial ncial services companies nies

and their agents. Mr Basu explained how to invest smartly in equity schemes and stocks, and pointed out the merits of compounded income over the long term. He also warned investors about sinking money into exotic ideas such as art funds and f portfolio management schemes. sc Later, he presented an exhaustive ex analysis of mutual funds fund and how to choose sensibly to maximise m gains and reduce risks. risks When he was asked about the method of choosing the t right mutual fund, he pointed out po that one must look at the l long-term record reco of the fund houses and a keep track of the fund manager. When a good fund fu manager leaves a fund, it is instantly a red flag.

A participant discusses a point with the panellists

Mr Basu was asked about investing in gold which is believed to be the ‘most solid’ and ‘lucrative’ form of investment. He pointed out that gold is a speculative asset. One has to buy and sell it at the right time, like any speculative asset. With data going back to 35 years, he explained that the value of gold mainly depends on the movement of the dollar and rupee.

Sachin Choudhar Choudhary, director, Indiabulls Housing Housin Finance

RTI

“Implement Section (4) of the RTI Act Correctly” Narayan Varma addressed the fourth Moneylife FoundaƟon seminar on the Right to InformaƟon Act, saying people must build pressure so that public authoriƟes voluntarily disseminate informaƟon

It was a full-house at the workshop

ow do you access information through the Right to Information (RTI) Act without filing a query? By invoking Section (4) of the Act, which allows spot inspection of files, pointed out Narayan Varma, chartered accountant and a consultant on several official committees for the effective implementation of the RTI Act. Speaking at a seminar organised by Moneylife Foundation on 12th July, Mr Varma also said that a committee has been formed at the Centre which will look at expanding the scope of Section (4)

MONEYLIFE | 11 August 2011 | 52

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ML FOUNDATION EVENTS

Moneylife has conducted three other seminars on RTI, where activists and journalists shared their experiences and offered tips on proper utilisation of the Act. Mr Varma focused on Section (4) which primarily involves suo moto disclosure of information by public authorities. According to this Section, all records should be maintained and indexed properly in a way that facilitates easy access to information. It further gives citizens the right to inspect files physically without making an application, and states that public authorities should disseminate as much also voluntarily disseminat information as possible and raise awareness awa through seminars. semi When asked ask about which institutions institu could be considered c public authorities, Mr autho Varma replied, “When “Wh the definition defin of public pu authority says auth that it i has to be ‘substantially ‘sub funded’ by the government, it governm opens the th ground to debate. debat But we have got information in informa many cases by c establishing that establis the institution inst concerned concern is a public pub authority.” authori However, How whether whethe a cooperative coopera society can be considered consider as a public authority or au not is debatable. deb

Mr Varma said it would be different for each case, since its nature will be defined by its constitution, method of registration and way of functioning. But, he said, cooperative banks can possibly be considered public authorities. “We can say that RBI (Reserve Bank of India) rules apply to cooperative banks as well and, since RBI is definitely a public authority, the domain its jurisdiction applies to can also be classified as a public authority,” he said. Questions were asked as to why courts charge a different amount

“

Unfortunately, there are a lot of public authorities who do not favour voluntary dissemination of information

“

` and its proper implementation.

from the standard one and demand it in the form of court fee stamps and not postal orders in some places. Mr Varma said, “Though the RTI Act is the overarching legislation in this matter, there are individual laws formulated by states and public authorities like the

Varma said, “Unfortunately, the government has failed to provide guidelines to public authorities on suo moto dissemination of information, nor do the bureaucrats have the political will to implement Section (4).” “But what do we do when the authorities reply that the records/ documents are not available?” asked a participant. Mr Varma replied that Section (4) requires the ‘reconstruction’ of lost/destroyed documents and one must go for appeal if the documents are not restored. He cited the example of a man who was entitled to a substantial estate duty (which was abolished 50 years ago) compensation from the government. Mr Varma helped the man claim his inheritance and helped the concerned government department to reconstruct the lost documents on the basis of the documents that the man had in his possession. He also spoke about other success stories. He talked about how activists had compelled governmentaided hospitals to put up information on their websites about the number of free beds reserved for the poor. “Unfortunately, there are a lot of public authorities who do

A section of the audience

courts. The norms and fees are also subject to such rules.” When asked as to why some public authorities have failed to come up with effective means for voluntary disclosure, Mr

not favour voluntary dissemination of information,” Mr Varma said. “They think it is a nuisance. But that mindset has to change. And we must create public pressure to that effect.”

Narayan Varma

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LEGALLY SPEAKING SD ISRANI

B U Y E R B E WARE

Caveat Emptor Holds Good: In all cases The doctrine of ‘buyer beware’ applies to any transaction. You have legal recourse if you are cheated, but always keep this adage in mind before any purchase

ow many times have you felt cheated while buying something tangible (a product) or intangible (securities), realising only later on that you have been taken for a ride? It has been happening over the ages; so what should the consumer or investor do to protect his own interest? Well, every consumer/investor should adhere to the old adage, ‘caveat emptor’ a Latin phrase which means ‘buyer beware’. In general, the doctrine of caveat emptor has been associated with property law. Under the doctrine of caveat emptor, the buyer could not recover from the seller for defects on the property that made the property unfit for ordinary purposes; the only exception was if the seller actively concealed latent defects. Under English Law, historically, the courts have taken the view that their function is not to protect individuals from making a bad bargain or from doing something that they later regret. English courts have seen their function as providing a ‘level playing field’ which would enable individuals and corporations to carry out their business dealings. The rule, which was a creation of the common law courts, is now circumscribed by statutory provisions. The rule of caveat emptor is quite straightforward as it implies that the buyer, while entering into a contract, has to make sure that he knows everything he needs to know about the subject matter of the contract. As far as Indian law is concerned, Section (16) of the Indian Sale of Goods Act (1930) enunciates the principle involved in the maxim caveat emptor. It states that, subject to statutory provisions, there is no implied warranty or condition about the quality of fitness for any particular purpose of the goods supplied under the contract of sale. The principle of caveat emptor lays down that it is the duty of the buyer to satisfy himself before purchasing the article—that the article which he buys, is the one he wants. So what is the effect of caveat emptor? It means that a person has no duty to disclose problems voluntarily. Thus, if one person is under a wrong notion, there is no duty on the other person to correct it. At the same time, it is not an absolute rule as it is subject to certain exceptions:

• Misleading statement of truth: A statement that does not present the whole truth may be regarded as a misrepresentation. • Where a statement was true when made but, due to a change of circumstances, has become false by the time it is acted upon, there is a duty to disclose the truth. • Contracts of utmost good faith (uberrimae fidei) impose a duty to disclose all material facts because one party is in a strong position to know the truth. Examples would include contracts of insurance and family settlements. So also is the case where there is a fiduciary relationship between the parties to a contract; a duty of disclosure will arise, for example, between a solicitor and client, a bank manager and client, a trustee and beneficiary, etc. It is the primary duty of the buyer or the investor to ensure that he has made himself aware of all the facts concerning the product he intends to buy so that, later on, problems are avoided. However, at the same time, it is not that the buyer is totally at the mercy of the seller; in fact, to an extent, caveat emptor has been weakened due to certain statutory provisions, e.g., the Consumer Protection Act, etc. Today, a seller is also under certain obligations while supplying goods or materials. Similarly, a company offering its securities to the public is also subject to regulations and is duty bound to make adequate disclosures, to enable potential investors to make an informed decision. There is no doubt that, over the years, with the advent of new legislation and growing awareness of consumer rights, the rule caveat emptor has been chipped away at the edges. But remember, it is better to be safe than sorry; so at all times, caveat emptor or ‘buyer beware’ still applies.

Dr SD Israni has spent over 38 years as a corporate lawyer.

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Learn the basics of saving and investing

Earning Curve

MO N T I E R ’ S 7 L AW S OF INVES T ING

Knowledge Edge Never invest in something you don’t understand

re stocks new to you? Is ‘sector funds’ a term you are hearing for the first time? Does ‘balanced funds’ make you go blank? If so, you have no business buying any of these. You are more than likely to make losses if you buy a financial product without knowing much about it. Learn the basics before investing in these assets. The guiding principle is: “Never invest in something you don’t understand.” It is the last law of James Montier’s seven immutable laws on investing. There is nothing embarrassing about not knowing and not investing in financial products you can’t understand. Warren Buffett didn’t invest in tech stocks of the late 1990s because he couldn’t understand the business. At the Berkshire Hathaway Annual Shareholders’ Meeting (1998), he said, “I could spend all my time thinking about technology for the next year and still not be the 100th, 1,000th or even the 10,000th smartest guy in the country in analysing those businesses. In effect, that’s a 7- or 8-foot bar that I can’t clear. Different people understand different businesses. The important thing is to know which ones you

do understand and when you’re operating within your circle of competence.” When individuals see an ‘attractive’ stock, they invest without understanding a firm’s business. It takes discipline, like that of Buffett’s, to follow the ‘invest in what you know’ principle. By avoiding the ‘dot-com’ boom, he also avoided the ‘dot-com’ bust. “Never invest in something you don’t understand,” seems to be just good old, plain common sense,

The 7 Immutable Laws of Investing 1. Always insist on a margin of safety 2. This me is never diﬀerent 3. Be pa ent and wait for the fat pitch 4. Be contrarian 5. Risk is the permanent loss of capital, never a number 6. Be leery of leverage 7. Never invest in something you don’t understand

according to James Montier, a member of GMO’s asset allocation team. But people tend to think that the more complicated a financial product is, the better it must be. This complexity is the cause of major fiscal disasters. “If something seems too good to be true, it probably is. The financial industry has perfected the art of turning the simple into the complex, and in doing so managed to extract fees for itself!” says Montier. Agents explain an investment product in a complicated and sophisticated manner, explaining benefits and returns with no explanation of the risks. Before investing, study the product. It’s your job to protect your savings from ‘get-rich-quick’ schemes. If you can’t see through the concept and get to the heart of the process, then you shouldn’t be investing in it. As Alan Roth, writer of How a Second Grader Beats Wall Street, says, “If you can’t explain your investment strategy and every product in your portfolio to a second grader, you are probably doing something wrong.” In stocks, ‘investing in what you know’ should not be limited to only understanding the business. There are annual and quarterly reports to be read, financial statements and ratios to be understood, the company’s competition evaluated, effects of macroeconomic factors analysed, etc. Doing this will give you an advantage over other investors who ‘invest’ in the stock market. If you want to invest in stocks and don’t want to go through the hassle of going through financial reports, etc., index funds would be the best bet. They offer you broad diversification and, going by history, are sure to make money for you in the long term, especially if you use a consistent investment strategy.

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BOOKS

Da r e t o L e ad

Elephants Can Dance Dr Anil K Khandelwal scripts the story of how he turned around Bank of Baroda

ack in the days when nationalised banks dominated the industry, it was a given that these public-sector behemoths would dominate the sector. However, post liberalisation, heads of these public sector banks (PSBs) had their task cut out just to stay in business—let alone put up a fight against the new, private entrants. In Dare to Lead, Dr Anil K Khandelwal writes about how he managed to change the firmly established status quo at Bank of Baroda (BoB)—not with an iron hand, but with his ability to empathise with his employees. As Dr Khandelwal says— he speaks from his position as chairman and managing director (CMD) of BoB—his Bank was no different from other PSBs. He says in this tome, about the current banking scenario, “PSBs have begun responding to the challenges and many have DARE TO LEAD improved their financials, ANIL K KHANDELWAL adjusted to the new Sage Publications prudential norms, improved India Pvt Ltd their productivity, deployed Pages 403; Rs795 advanced technology in most of their branches, rolled out core banking, set up a vast network of ATMs, launched many innovative products and enlarged the basket of offerings to the customer. It will be quite a while before they harness their full potential and emerge as highperforming financial entities.” The author has told Moneylife earlier that the skill-sets that he had brought to run BoB were born out of empathy, observation and application of his diverse personal experiences from a tough childhood of hardship and discrimination. Dare to Lead is about how Dr Khandelwal managed to make his employees more customer-centric—and to rise to the challenge of competitive times. He has documented his achievements—which include ‘The Baroda Sun’ (the Bank’s new brand identity); achieving

the magical figure of Rs2,500 billion in total business; implementing the core banking solution (CBS) in over 1,700 branches, with Internet banking; introduction of e-products, and 1,100 ATMs on a pan-India basis; ushering in 12-hour banking (8am to 8pm) and 24-hour banking with employees manning the counters, in select branches. The strength of the book is the candid description of the collective passion of the management team and its vital foot soldiers (38,000 employees). Dare to Lead is dedicated to them. Almost single-handedly, Dr Khandelwal transformed BoB on the basis of intangibles—leadership, rebranding, customer-centricity, technology and people processes. Dr Khandelwal holds a BSc, BE, MBA, LLB and PhD (in management), and post-graduate diplomas in labour law and in training & development. He has been conferred the prestigious ‘Lifetime Achievement Award’ from the Asian Banker, Singapore. For a professional

The best of strategy and technology cannot help achieve business goals unless human resources of an organisation are continuously rejuvenated through new skills who has achieved a lot in life, it is his candidness that comes out in this book: “I was a mediocre student and used to get only a second class. In the kind of schools we studied, we had not heard of anyone aspiring for anything more than just passing their exams.” Dena Bank was his first brush with leadership and he made sure that the Bank emerged as a smart and strong mid-size lender. According to Pradip Khandwalla, former director, Indian Institute of Management-Ahmedabad, the ‘contingency’ model best fits Dr Khandelwal’s leadership style. He remained a transformational leader, but he also drew upon the charismatic model, the transactional leadership model and the participative model. His work philosophy was ‘tough love’, which meant toughness on performance (high standards) and compassion for people. His core strategy on trade unions was neither mollycoddling them, nor unnecessarily provoking them. Read Dare to Lead to get an insight into where the author received his inspiration both to lead BoB and to write this book. This work must be read and re-read, by leaders who want to transform their organisations. — N Madhavan

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BOOKS

T H E WA R R E N BUF F E T T S NEXT DOOR

Keep It Simple Stories of individuals who have done very well in picking stocks

n average saver systematically investing in the stock market over a long period would be able to multiply his wealth hugely. However, this calls for a strong commitment to learn the basics of stock picking and an iron will to deal with internal and external demons. Investing is a difficult task. There is only one Warren Buffett. However, there are people who have been able to learn and consistently apply the simple principles of stock picking. The book provides case studies of 10 such investors. People like Michael Koza, Christopher Rees and Bob Krebs have made enough money to enjoy a lifestyle of their choice. These 10 have their own approach to investing, but they share two characteristics—hard work and discipline. They don’t rely on tips from talking heads THE WARREN BUFFETTS NEXT DOOR on TV channels or friends. While they spend hours MATTHEW SCHIFRIN searching for information and Wiley interacting with people on the Pages 194; $29.95 Web and elsewhere, they take their own decisions. Christopher Rees, who was once a vagabond, earned enough to keep him going till his next stop. Later, he became a master at understanding how to stretch a dollar. His motto is, “Don’t lose money.” An electrical engineer, Bob Krebs invests mainly in high-yielding dividend stocks, and ‘call’ and ‘put’ options. He regularly logs into ValueForum.com, to discuss investment ideas. He prefers selling naked short puts to covered call writing on stocks in his portfolio. Structural engineer Justin Uyehara also spends time each day studying his portfolio, before and after his work. Like others, Uyehara tries not to be emotionally attached to any stock. He adds, “I don’t hold anything for long. This limits my gain but also limits my loss.” A civil engineer, Michael Koza doesn’t accept company-

provided figures while analysing a stock. If stocks in his portfolio either appreciate greatly or deteriorate from his estimation of their value to the point where their intrinsic value-to-price ratio goes below 1.25, he sells. Kai Petainen, a computer lab manager, is a selftaught quant. His selects his investments based on statistical models that scout for various measurable attributes in companies and stocks. He ignores stocks that get a lot of media attention. Retired educationalsoftware executive Alan Hill successfully blends ‘steadyeddy’ conservative yield-oriented picks with high-risk micro-cap stocks. His investing rules include navigating the tax code. He says that it is very important to get as much of your investment capital as you possibly can into a tax-free environment because if it is in a taxable account, the government is going to take a huge amount of your gains. Jack Weyland, 33, of Reno, Nevada, has developed expertise in healthcare and biotech stocks. He has had an average annual return of 36% since July 2002. Neither he nor Chris Rees ever completed college. Weyland has spent much of his time picking stocks—while on the road, driving a tractor-trailer. Randy McDuff, of The Pas, Manitoba (Canada), spent hours in the town library reading financial papers that were delivered once a week. This helped McDuff develop two important investing attributes: patience and discipline. He is also an avid comic book collector. True to his value-investor bias, he selects comics that he thinks are undervalued with the hope that they will become television shows or movies, causing their value to appreciate. Andrew Swann invests in commodity stocks. Besides researching online, Swann also talks to the managements whenever possible, attends mining trade shows and has travelled around the world to many of the gold mines. He says, for mining companies, cash flow is essentially a calculation of the cash costs of producing the ore subtracted from the price that the company is getting for its gold. Former radio DJ and stock broker, John Navin, is a technical analyst. Once Navin has identified a tradable pattern in a stock, he checks other technical indicators to see if they confirm the bullish or bearish pattern he sees developing. According to Navin, if your trade produces 25% gain, sell one-third of your position and, at 50% gain, sell another one-third. The 10 ‘Warren Buffetts Next Door’ investors state that the only condition for being a good investor is committing the time to educate oneself. Investing— like many of life’s endeavours—requires passion, hard work and discipline that can far outweigh theory and education. An inspiring read. — Dolly Mirchandani

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SPENDING TRAVEL

BIGGER THAN THE BIG APPLE THE NEW YORK, NEW YORK HOTEL AT LAS VEGAS

YON GRAND CAN E H T & S A G LAS VE

MANKIND & NATURE’S

GRAND CREATIONS Visited by millions of people every year, Las Vegas and the Grand Canyon represent the grandest of spectacles that mankind and nature can provide, says Jaideep Mukerji

THE GRAND CANYON THE YAVAPAI POINT: NATURE DOESN’T GET BETTER THAN THIS

ver the past many months, I have shared with you a number of travel destinations that may be thought of as being away from mainstream tourist trails. Las Vegas and the Grand Canyon are anything but that; both are visited by millions of people every year and each represents the grandest of spectacles that mankind and nature can provide. Experiencing the glitter of Las Vegas’ famous ‘Strip’ allows one to appreciate the solitude of a remote mountain valley ``

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SPENDING TRAVEL

` from a completely different perspective.

In 1829, a trading caravan of 60 men led by a Mexican merchant Antonio Armijo was charged with establishing a trade route from what was then Mexican territory to Los Angeles. By following a route through a tributary of the Colorado River, the caravan came upon a green valley amidst the arid desert. The travellers named the area ‘Las Vegas’ which was Spanish for ‘The Meadows’. Las Vegas has seen unbelievable expansion since it emerged from the desert just over 100 years ago. In the early 20th century, water from natural wells was piped into the town, providing a reliable source of fresh water as well as the means for additional growth. The increased availability of water in the area allowed Las Vegas to become a water stop, first for horsedrawn wagon trains and, later, for trains, on the trail between Los Angeles in

destination. The Las Vegas Strip is where every visitor wants to go. The Strip is a nickname for the road named Las Vegas Boulevard and is ground zero for the shows, nightlife, luxurious hotels, exciting casinos and all the best things to do in Vegas that make the Strip famous the world over. Study a Las Vegas Strip map before your visit and familiarise yourself with the highlights to be found. The Stratosphere is an observation tower at the north end of Las Vegas Boulevard and has great views of the Las Vegas Strip hotels when they light up at night. It is easy to be dazzled by Vegas; the sheer number of things to see and do seems overwhelming at first. With the large number of celebrities who come to Vegas frequently, people-watching can be the main entertainment. And there are no better ‘spot people’ than the Mon Ami Gabi at the Paris Hotel, a French bistro right on the Strip, directly across the street from the famous Bellagio fountains or the Bar & Grill at Planet Hollywood, from ROOM AT THE TOP THE GRAND CANYON SEEN FROM MATHERS POINT-2

THE VEGAS STRIP THE CASINO ROYALE, PALAZZO AND THE VENETIAN HOTELS ALONG ONE OF THE GRANDEST SPECTACLES THAT HUMANKIND CAN PROVIDE

California and regions to the east. In 1931, work started on building the well-known Hoover Dam on the Colorado River; the Las Vegas population increased from around 5,000 to 25,000, with most of the newcomers looking for a job on the dam building site. However, the workforce consisted entirely of males from across America and this created a market for largescale entertainment. A combination of local Las Vegas business owners, Mormon financiers and Mafia crimelords helped develop the casinos and showgirl theatres to entertain the largely male dam construction workers. Now, the sights and sounds of Las Vegas are enjoyed by millions of visitors every year. They stay in some of the most glamorous, unique, themed hotels in the world. They eat at five-star restaurants and expensive buffets. They play at casinos, pools, health spas and golf courses. The state is also relatively liberal in handing out marriage permits—Vegas is a major marriage

where you can scan CityCenter, the Bellagio and the Strip all at once. Walking the Strip is a must for any first-timer and, as you cruise, check out the signs for the famous Cirque du Soleil shows. Besides being home to the top hotels, casinos and resorts, the Las Vegas Strip is a hub for other attractions like the Showcase Mall, Thomas & Mack, Sands Expo and the Fashion Show Mall that draw visitors to their world-class shops and designer boutiques. Thirty mega hotels and resorts, with a variety of themes, pride themselves on being strategically situated near the Las Vegas Strip. Billions of dollars have been invested in the creation of this hotel wonderland; each of the major Las Vegas hotels tries to outdo the other in style and magnificence. From the pirate-themed Treasure Island, the Mirage Hotel with its artificial erupting volcanoes, to the elegance of the Venetian, a walk down ``

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GLITZ, GOLD & GLAMOUR YOU CAN CHECK INTO THE EXCALIBUR, MANDALAY OR THE LUXOR HOTELS

SPENDING TRAVEL

` the Strip wows the visitor.

The Bellagio, Venetian, Caesars Palace and the Luxor are representative of the luxury that you will find along the Las Vegas Strip. The names alone tell you what to expect; names like New York, Luxor, Paris, Orleans, Monte Carlo and Circus Circus make it clear what you can find. Other hotels have replicas of famous monuments like the Eiffel Tower, the ancient temples of Egypt, the canals of Venice or the New York skyline including a mock Empire State Building. All Las Vegas hotels feature shows with international music stars, the best of Broadway musicals and the world’s best magicians. While in Las Vegas, you almost have to gamble a little; many hotels offer free lessons for the beginner. Until recently, Las Vegas used to be famous for buffets; now, it’s more about celebrity chefs. Still, the buffet at the Bellagio with its international selections, the Cravings Buffet at the Mirage Hotel with 11 live cooking stations or the Rio Hotel’s Carnival World Buffet are experiences in their own right. Caesars Entertainment offers a 24-hour buffet pass valid at seven different hotel buffets while MGM Mirage has an allday pass valid at other hotels, all priced between $35-$45. If you are seeking adventure, then SkyJump at the Stratosphere which, at 108 stories, is the longest controlled freefall of its kind, the Fremont Street Flightlinez where you get hooked to a harness and zip right over the crowds on Fremont Street or swimming with the sharks at the Shark Reef Aquarium at Mandalay Bay, are all possibilities. Once you have had enough of the manmade attractions in Las Vegas, take the daily sightseeing coach for the five-hour long drive to the powerful and inspiring landscape of the southern rim of the Grand Canyon in the neighbouring US state of Arizona. The drive across the flat and mostly arid landscape of Arizona is dull and an opportunity to unwind from the intense

experiences of Las Vegas. The Grand Canyon is considered one of the Wonders of the World, largely because of its natural features. The exposed geologic rock strata— from the bottom-most 1.8 billion years old layer called Vishnu schist—to the topmost called the Kaibab limestone, represents one of the most complete records of geological history that can be seen anywhere in the world. The Grand Canyon overwhelms your senses with its immense size—446km long river, up to 29km wide, and 1.6km deep, layer upon layer of rock seems to rise over a mile above the Colorado River. Given US government protection (in 1893) as a Forest Reserve, the Grand Canyon became a full-fledged National Park in 1919 and, today, receives close to five million visitors each year, a far cry from the 44,173 people that the Park received in 1919. Given the considerable distance from Las Vegas, a day trip allows you only a few hours at the Canyon itself split between the spectacular viewpoints at Mathers and Yavapai Points and some time at the Grand Canyon Visitor Center with its interpretive displays and exhibits. If you visit during the winter months, as I did, a passing squall can result in a dusting of snow highlighting the rock layers while shafts of sunlight breaking through the storm clouds dramatically illuminate the rock spires and canyons. If you wish to spend more time at this dramatic landscape or walk down to the Canyon floor along one of the many trails, you will have to spend a night at one of the hotels in the area. Some are located outside the National Park gates while others, operated by local indigenous people, are located within the Park boundary. Allow yourself at least three days to experience the entertainment capital of the world and see one of the world’s greatest natural wonders. — With Veeresh Malik

ESSENTIAL AL FACTS Why Go There: Las Vegas is unique— there is no city in the world that can offer a grand mix of larger-thanlife experiences. Round-the-clock entertainment, the world’s best shows and hotels like you have never seen or stayed in before, Vegas has it all. The Grand Canyon is one of the world’s must-see natural wonders. Getting There: There are direct flights to Las Vegas from several European cities with convenient connections from most major metro cities in India. There are flights to Las Vegas from most major American cities. Visas: Indian nationals require US visas. Where To Stay: It is easy to book Las Vegas hotels online. The official Vegas tourism website has a wealth of information and includes a hotel booking facility: www.vegas.com. Also, check out www.visitlasvegas. com.

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MONEY FACTS STOCKS

INDIAN MARKET TRENDS

FUND FLOWS

The Sensex and the Nifty both fell 2% in the fortnight. The ML Small-cap Index gained 3%, the ML Large-cap Index rose 2%; the ML Mid-cap Index and the ML Micro-cap Index both added 1% each, while the ML Mega-cap Index lost 1%.

Foreigners: Foreign institutional investors were net buyers of stocks (Rs1,199.80 crore) in the fortnight. They pumped in funds worth Rs18,922.90 crore.

Share Prices, January 2011=100

700 360

115

20 110 -320 105

FII Net Investments (Rs Crore)

-660

100

-1,000 11 Jul-11

21 Jul-11

Indians: Domestic institutional investors were also net buyers of equities (Rs835.72 crore). They sold shares worth Rs8,492.09 crore in the fortnight.

85 Jan-11

Apr-11

ML Mid-cap ML Large-cap

ML Small-cap ML Mega-cap

Jul-11 Nifty Sensex

525

DII Net Investments (Rs Crore)

345

ML Micro-cap

165

Index

8 Jul

21 Jul

+/(-)

MLS mall-capIndex

94.74

97.73

MLLarge-capIndex

110.98

113.01

MLMi d-capIndex

99.59

100.36

MLMi cro-capIndex

89.30

89.81

MLMega-capIndex

101.31

99.84

- 1%

GLOBAL MARKET TRENDS

5,660.65

5,541.60

- 2%

12,900

18,858.04

18,436.19

- 2%

Nifty Sensex Mega-cap Gainers/Losers

8 Jul

21 Jul

Change

PetronetLN G

142.20

168.20

18%

CromptonGreav es

252.95

181.30

- 28%

Large-cap Gainers/Losers

8 Jul

21 Jul

Change

HimadriC hemicals & Inds

44.70

51.95

16%

LancoInfratech

24.50

20.95

- 14%

Mid-cap Gainers/Losers

8 Jul

21 Jul

Change

Aptech

95.25

131.60

38%

Sanwaria Agro Oils

29.85

20.30

- 32%

-15 -195 -375

11 Jul-11

21 Jul-11

Dow Jones Ind Avg 12,680 12,460 12,240

Small-cap Gainers/Losers

8 Jul

21 Jul

Change

TTKH ealthcare

415.6

641.70

54%

MudraLi festyle

42.65

25.70

- 40%

Micro-cap Gainers/Losers

8 Jul

21 Jul

Change

SuperS pinning Mills

8.01

11.12

39%

FlawlessD iamond (India)

1.49

1.19

- 20%

12,020 11,800 Jan-11

Jul-11

The Dow Jones Industrial Average gained 1% in the fortnight. The Hang Seng declined 3% and the Bovespa fell 2%. Index

8 Jul

21 Jul

Dow Jones Ind Avg

12,657

12,724

Korean Composite

2,139

2,145

Taiwan Weighted

8,750

8,717

Nasdaq Composite

2,860

2,834

- 1%

2,798

2,766

- 1%

10,138

10,010

- 1%

Shanghai Composite Nikkei FTSE

(AllP ricesi nR s)

Apr-11

+/(-)

5,991

5,900

- 2%

Bovespa

61,513

60,293

- 2%

Hang Seng

22,726

21,987

- 3%

63 | 11 August 2011 | MONEYLIFE

Money Fact.indd 2

7/23/2011 5:44:13 PM

MONEY FACTS STOCKS

What’s H

ML SECTORAL TRENDS

Stocks of chemical companies were in demand during the fortnight. India Glycols soared 21%, Atul surged 18%, Himadri Chemicals & Industries climbed 16% and Gujarat Fluorochemicals rose 8%.

ML Chemical Index 1,200 1,130

Companies

8 Jul

21 Jul

+/-

IndiaGl ycols

134.60

162.60

21%

Atul

191.70

226.95

18%

DeepakN itrite

185.00

218.55

18%

44.70

51.95

16%

296.55

323.25

HimadriC hemicals NavinFl uorineIntl

1,060

AndhraP etro

990

27.05

SOTL

920 850 Jan-11

Apr-11

Jul-11

29.45

566.55

615.80

BhansaliE nggP oly

30.05

32.65

Alkyl Amines Chem

86.25

93.50

GujFl uorochemicals

404.15

436.90

Software and IT services stocks were punished. Excel Infoways tumbled 16%, Sonata Software tanked 11%, Allied Digital Services declined 10%, MphasiS fell 9%, Tanla Solutions fell 8% and Rolta India shed 7%. Companies

8 Jul

21 Jul

ExcelInfow ays

25.05

21.05

-16%

ML Software & IT Service Index

SonataS oftware

42.90

38.20

-1 1%

425

OnmobileGl obal

107.95

96.30

-1 1%

49.70

44.65

-10%

463.90

422.05

-9%

8.92

8.12

-9%

54.90

50.10

-9%

134.60

123.65

- 8%

16.18

14.96

-8%

131.40

121.70

-7%

410 AlliedD igitalS ervices MphasiS ViseshInfotecni cs

395 380

KLGS ystel InfiniteC omputerS ol TanlaS olutions

365 350

RoltaIndi a

Jan-11

Apr-11

Jul-11

AllP ricesi nR s

BULK DEALS Date

Company

Buyer

Oil& GasS ervices

9% Telecomequi p

Printing& P ubl

8% Software& IT Serv

- 5% - 5%

Chemicals

4% Sugar

- 4%

Office Equipment

4% Auto

- 4%

BuildingMateri al

4% Odds

- 3%

INSIDER TRADES

N T

+/-

ML Sectoral Trends

AllP ricesi nR s

What’s

Shares of oil & gas companies climbed 9%, printing & publishing stocks advanced 8%, chemicals and office equipment sectors gained 4% each. Telecom stocks tumbled 5%, sugar and auto sectors declined 4% each and odds fell 3% in the fortnight.

Seller

Rs Cr

15Jul -1 1

JagranP rakashan

JagranMedi aN etworkInvtP vt

MahendraMGupta

272.06

18Jul -1 1

AssamC ompanyInd ia

CrestaFund

InvestIndi a(Mau)Ltd-FD I

19.89

22Jul -1 1

PrajIndustri es

CPRC apitalS erv

15.88

11Jul -1 1

OrchidC hemicals

TodiS ecuritiesP vt

10.98

22Jul -1 1

VarunInd ustries

HeenaV ora

6.14

13Jul -1 1

LovableLi ngerie

ManishV S arvaiya

5.09

20Jul -1 1

EsselP ropack

Ganjam TradingC oP vt

LazarusInvts

4.63

Leela Lace Software Solutions Pvt Ltd bought 14,29,334 shares in Hotel Leelaventure (stake up to 5.81%). Sezal Finance bought 15,00,000 shares in Sezal Glass (stake up to 1.25%). Ekta Kapoor, joint managing director of Balaji Telefilms, bought 20,787 shares in the company (stake up to 15.78%). G Padmavathi, wife of G Bhaskara Rao, executive vice chairman of Lanco Infratech, bought 6,00,000 shares in the company (stake up to 0.22%). SPS Capital & Money Management Services Pvt Ltd bought 10,08,846 shares in Infomedia 18 (stake up to 2.01%). Pramod P Shah bought 22,10,515 shares in Infomedia 18 (stake up to 4.46%). Surana Infocom Pvt Ltd bought 33,945 shares in Surana Telecom and Power (stake up to 1.12%). The Royal Bank of Scotland NV (London Branch) sold 16,97,975 shares of Excel Infoways (stake down to 2.06%). Albula Investment Fund c/o International Management (Mauritius) sold 8,06,486 shares of Excel Infoways (stake down to 3.11%). T Rowe Price New Asia Fund sold 1,12,75,295 shares of Redington (India) (stake down to 0.60%).

MONEYLIFE | 11 August 2011 | 64

Money Fact.indd 3

7/23/2011 5:44:23 PM

MONEY FACTS COMMODITIES

INDEX TRENDS

COMMODITY TRENDS

MCX Commodity Indices

Rubber

Particulars

8 Jul

22Jul

Change

52- Week High

52- Week Low

Metal

4,542.24

4,714.06

4,926.75

3,274.71

Comdex

3,434.25

3,550.36

3,739.05

2,682.24

Agri

2,709.78

2,791.64

2,989.16

2,170.21

Energy

3,031.91

3,121.06

3,585.96

2,434.89

COMMODITY FOCUS MCX Silver Futures (Rs/kg) 72,200 66,200 60,200 54,200 48,200

ndia’s natural rubber production increased by 4% to 59,200 tonnes, while consumption rose by more than 6% to 80,500 tonnes in June 2011. According to Rubber Board data, production and consumption in the year-ago period stood at 56,850 tonnes and 75,450 tonnes, respectively. But, production of natural rubber fell marginally on a month-on-month (M-o-M) basis in June to 59,200 tonnes from 59,700 tonnes in May. Likewise, the consumption of natural rubber on a M-o-M basis also declined marginally in June to 80,500 tonnes from 81,000 tonnes in May.

Soyabean

42,200 Jan-11

Apr-11

Jul-11

On the Multi Commodity Exchange, silver for delivery in December rose by Rs570, or 0.95%, to Rs60,875 per kg, with a business turnover of 145 lots on 21st July. Similarly, the metal for delivery in September moved up by Rs453, or 0.93%, to Rs59,732 per kg, with a turnover of 4,694 lots. Market analysts said fresh buying by speculators in tandem with a firming global trend on concerns over Europe’s debt crisis, is fuelling demand for the metal as an alternative investment—and this has been the major factor behind higher silver futures prices.

MCX PRICE TRENDS Particulars

Active Contract

5Jul2011

19Jul 2011

Change %

High

Low

Global Commodities SilverR s/kg

Sept-1 1

53,222

59,255

11.34

75,543

41,513

GoldR s/10gm

Aug- 11

21,968

23,040

4.88

23,320

20,181

CrudeOi lR s/barrel

Aug- 11

4,382

4,412

0.68

5,346

4,114

CopperR s/kg

Aug- 11

428.05

440.45

2.90

461.10

391.60

LeadR s/kg

Jul-1 1

119.85

120.10

0.21

123.40

100.30

NickelR s/kg

Jul-1 1

1,044.40

1,073.40

2.78

1,237.50

974

ZincR s/kg

Jul- 11

106.75

109.60

2.67

109.80

94.25

NaturalGasR s/mmBtu

Jul- 11

195.50

201.70

3.17

225.80

182.50

MenthaOi lR s/kg

Jul- 11

1,018.4

1,117.90

9.77

1,159.60

814.40

CPOR s/10kg

Jul-1 1

474.60

482.20

1.60

538.50

466

SugarMK olR s/100kg

Jul- 11

2,712

2,826

4.20

2,891

2,458

CardamomR s/kg

Aug- 11

864.20

868.10

0.45

1,130

801.50

Potato Agra Rs/100kg

Aug-1 1

460.80

458.30

- 0.54

480.10

415

Others

rea under coverage for soyabean has reached 9.12 million hectares so far across the country, slightly lower than the targeted 9.31 million hectares for the entire season, according to the Soybean Processors Association of India. The acreage of soyabean, which is grown only in the kharif season, stood at 9.3 million hectares and production was a record 12.65 million tonnes in the 2010-11 crop year (July-June).

Rice

n 22nd July, the Ministry of Consumer Affairs, Food & Public Distribution said it is not in favour of allowing immediate export of additional quantity of non-basmati rice. Recently, the government had allowed export of 1 million tonnes (MT) at a minimum export price of $400 a tonne. The Ministry of Agriculture has recently revised upwards the projected rice output for the 2010-11 crop year (July-June) to 95.32MT from 94.11MT for the same period. Besides, government godowns are overflowing with rice stock of 27MT. 65 | 11 August 2011 | MONEYLIFE

Money Fact.indd 4

7/23/2011 5:44:38 PM

BEYOND MONEY

a brave NEW LIFE Kripa Foundation helps people afflicted with chemical dependency and HIV infection to get back on their feet, says Disha Shah

KRIPA FOUNDATION 81/A, Chapel Road, Mt Carmel Church, Behind Lilavati Hospital, Bandra (West), Mumbai 400 050 Tel: 022 2640 5411 www.kripafoundation.org krishna.iyer@ymail.com

n 1981, when awareness about alcoholism and drug addiction being akin to a disease was very low, an alcoholic came to Fr Joseph Pereira for help. Fr Pereira, with a doctor, started Kripa Foundation to rehabilitate those afflicted with chemical dependency and HIV. Kripa adopted a two-pronged approach—rehabilitation of people with a substance abuse disorder by a residential rehab facility; and a community rehab facility for the underprivileged who cannot afford residential rehab. The other approach is preventive; “it includes awareness programmes in schools and colleges because they are high-risk groups,” says Krishna Iyer, development manager, Kripa Foundation. Kripa looks for complete rehabilitation. Over 95% of the counsellors are recovering addicts, trained to help others. This group is backed by paramedics, medical staff, psychologists, physiatrics and social workers. It also conducts in-house training for counsellors to update their knowledge for treatment of addiction. The entity also has a corporate assistance programme where employees struggling with substance abuse and addiction get help. Substance abusers are prone to relapses. Kripa tries to work with other NGOs to create support for those who want complete rehabilitation. Ms Iyer says, “We are associating with the Tata group for a major training convention centre which will look at in-house training for Kripa’s staff. We’ll develop courses for professionals interested in specialising in the field of addiction counselling.” When a person seeks admission to a recovery programme, Kripa uses global screening tools and customises programmes. It has a three-month programme called ‘Kripa model of treatment’ where therapeutic treatment is used—including yoga practices and meditation techniques

(developed by the BKS Iyengar Institute, Pune), individual counselling and family counselling for people undergoing rehab. Residential treatment takes 90 days to enable a lifestyle change. The programme costs Rs19,500 (including boarding and lodging). Kripa also offers different kinds of accommodation—from a simple dormitory to air-conditioned and special rooms, depending on the availability of these facilities and what the patient can afford. The treatment remains the same for all. Counselling and OPD (out-patient department) facilities at Kripa are free. Patients who come back after a relapse are also put through a ‘relapse prevention programme’ which tries to identify the causes that led to the relapse, to ensure that it doesn’t happen again. “In spite of growing awareness (about substance abuse), there is an increase in the number of patients coming with additional problems,” says Ms Iyer. The major reason for this is increased stress at work, in the education system, disintegration of family units as well as hereditary addiction (due to genetic causes). A community-based rehab programme in Dharavi (north-west Mumbai) is conducted for people who cannot pay, and live on the streets. “We look at having a day & night care shelter for such people so that they have a place to stay,” says Ms Iyer. There are vocational courses for their economic rehab even as psychiatrists, counsellors and doctors attend to their medical needs. Kripa also works closely with the government and is affiliated with the Ministry of Social Justice and Empowerment. It assists the government in implementing prevention & treatment programmes, along with data collection required at the national level. It also works with the AIDS control society and the Narcotics Control Bureau (NCB) at the zonal level. Many people caught during rave parties by the AntiNarcotics Department and the NCB are referred to Kripa for rehabilitation after the raids. Over 2,700 people come to Kripa to its 19 centres in 11 states every year—and it has treated nearly 29,700 people since inception.

MONEYLIFE | 11 August 2011 | 66

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