ML 13 december by Moneylife Digital

SUCHETA DALAL ON: MLM FIRMS EASILY CHEATING MILLIONS Personal Finance Magazine

WALMART BRIBERY PROBE MEANS NOTHING

SEBI’s CORPORATE FILING IS A SHAME

13 December 2012

Rs 30

moneylife.in

15 Stocks High Dividend A large part of long-term returns from stocks comes from dividends. Here is a list of stocks that should work fine

with

A Total Guide to Stocks

Yield

VALUE PICKS 36

A shortlist of value stocks

STREET BEAT 38

– Jammu & Kashmir Bank – Foseco India – OUR REPORT CARD

WHICH WAY 42

Are market indices reflecting corporate India’s strength?

MUTUAL FUNDS POINTER

Piggybacking the Index 24

POPULAR PICKS 43

Our view of popular stocks

Why do the portfolios of many top schemes have Sensex and Nifty stocks? Should this matter?

STOCKGRADERS 44

Stocks graded by our formula

INSURANCE 46

Cover Page_177.indd 2

TRAVEL 52

HEALTH 50

FINANCIAL LITERACY 56

BOOK REVIEWS 60

11/24/2012 5:43:04 PM

Blank Page

Fund pointer.indd 5

10/21/2011 6:03:03 PM

Blank Page

Fund pointer.indd 5

10/21/2011 6:03:03 PM

Sucheta Dalal

Letters to the Editor

Editorial Consultant

‘UNPRODUCTIVE

Volume 7, Issue 21 30 November – 13 December 2012 Debashis Basu

Editor & Publisher editor@moneylife.in

Managing Editor sucheta@moneylife.in

Dr Nita Mukherjee nitamuk@gmail.com

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

E-mail:

sales@moneylife.in

Subscription e-mail subscribe@moneylife.in

Pune Jitendra Garsund

“SANSHREY”, Nanai Baug Society, BT Kawade Road, Ghorpadi, Pune - 411 036 Mobile: 9881309801 E-m ail:j rg.pune@gmail.com

New Delhi

DDA Flats, J-3/66, Kalkaji, New Delhi - 110 019

Bengaluru

1st Floor, 13/1, 7th Main Road, 1 Cross, Saibabanagar, Srirampuram, Bengaluru - 560 021 st

Kolkata

395, Lake Gardens, Kolkata - 700 045 Tel: 033 2422 1173/4064 4318

Moneylife is printed and published by Debashis Basu on behalf of Moneywise Media Pvt Ltd and printed at Magna Graphics,101C&D, Government Industrial Estate, Kandivli (West), Mumbai - 400 067 andpubl ished at 315, 3rd Floor, HindS ervice Industries Premises, OffV eerS avarkar Marg, Shivaji Park, Dadar (W), Mumbai - 400 028 Editor: Debashis Basu

Total no of pages - 68, Including Covers RNI No: MAHENG/2006/16653

IMPORT’

and gold bonds given in lieu thereof. Charity trusts should only encash and use the money for social welfare objectives. Such a scheme would reduce the need for immediate FDI (foreign direct investment) in retail which can be deferred for mature debate. Bakul Gandhi, Mumbai, by email

CAUTION ON SERVICE TAX

Please refer to Assocham’s report: “India’s gold import-its impact and sustainability”. It is an eye-opener. Next to the import of crude oil, gold import is draining our scarce foreign exchange reserves. If it is curbed and managed properly, the rupee value will be more positive. Better rupee value will reduce cost of crude import and, thereby, reduce the subsidy burden. It will reduce the revenue deficit and help in controlling inflation. To manage gold demand, the government should come out with a Gold Bond Scheme. Under this Scheme, subscription may be allowed for up to, say, 500gm per person. This Bond will carry 1% to 3% interest. It can be redeemed in cash or in physical gold. Such a scheme will reduce the demand of physical gold. Simultaneously, all gold lying with charitable trusts/ temples should be compulsorily acquired

How the restaurants loot your money... Beware. We had been to an upmarket restaurant recently. I observed that ‘service tax’ has been purposely calculated wrongly on the food items to loot the public. Let me give an example: Food and beverage = Rs1,000 Service charges @ 10% = Rs100 (10% on the food and beverage amount) Service tax @ 4.94% = Se Rs54.34 (4.94% on F&B + R service charges) s VAT @14.5% = Rs145 V Total = Rs1,299.34 T As A per the definition: “Service Tax can be charged only for the services provided to the customer.” Now, see what is happening in this example. Service tax should be charged only on the service charges amount, i.e., Rs100 and not on the entire amount (Rs1,000+100). So, the customer should be charged only Rs4.94, Write to the Editor! whereas he has The only investment that Win jewellery been charged enhances your face value. Rs49 extra. Where does this money go? Only to the restaurant owner. Every bill must carry the TIN Congratulations Bakul Gandhi from Mumbai! number and Your letter to the Editor wins a Surat Diamond gift. service tax Keep writing! Keep winning! number, if they ``

MONEYLIFE | 13 December 2012 | 4

Letters.indd 2

11/24/2012 3:43:33 PM

Blank Page

Fund pointer.indd 5

10/21/2011 6:03:03 PM

LETTERS

` charge it. So, ask for the service tax number, if it is not

available in the receipt provided. NN Bala, by email The ‘incorrect’ calculation of service tax has been doing the rounds of social media sites as well, especially after a notice published by The Delhi High Court Bar Association. The notice claimed that restaurants were incorrectly charging 4.94% service tax (40% of the current service tax rate of 12.36%) on the total bill of a customer and that service tax payable at a restaurant is only payable on the ‘service charge’ component of the bill, the same way as pointed out by our reader. However, calculating service tax on only the “service charge” component is in fact wrong. According to Rule 2C in the Service Tax (Determination of Value) Second Amendment Rules, 2012 (Notification No. 24/2012 Service Tax, dated 06 June 2012), “the service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity, at a restaurant shall be 40% of the total amount payable”. The notification further explains ‘total amount’ as sum total of gross amount charged, after deducting the value added tax or sales tax, if any, levied to the extent they form part of the gross amount or the total amount. For further clarification you could go through ‘Taxation of Services: An Education Guide’

at <www.servicetax.gov.in/st-edu-guide.pdf> This does not mean you should not cross check your bill every time. You should still verify whether the calculation of service tax is correct and not more than 4.94% of the total amount. — Editor

FUND MANAGERS’ STRATEGIES I am a regular reader of Moneylife. I have been tracking the articles on mutual funds. Can you please feature an article on how fund managers manage funds? What kind of strategies do they employ? How do they seek to generate returns for investors? Basically, what I have noticed is that some funds have very high turnover ratio and some funds don’t. There are funds which do well irrespective of the turnover ratio and vice versa. For example, Quantum Long Term Equity Fund has a very low turnover ratio and still it has managed to give very good returns. However, if you take the case of IDFC Premier Equity Fund, it is a different strategy altogether. Morningstar says that this Fund has a very high turnover ratio (800% or 1,000%). But if I look at its monthly portfolio, there is hardly any change in the top five holdings since a year or so. Not just that, this Fund holds very few stocks (<20-25). It also has very high exposure to derivatives and, as of now, almost 10% of its corpus is in cash. I wonder how the Fund is able to deliver the best in ``

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

PROMOTER RETURNS

his is with regard to “United Spirits shareholders have little to look forward to immediately”. It will be interesting to watch the developments. Diageo enjoys nearly 30% PBT (profit before tax) margins worldwide. The economics should be better in India, given the lower selling costs. If Diageo is able to bump up profits, it will clearly prove that promoter returns are very different from the returns shown on the balance sheet. R Balakrishnan

REDEEM RATHER THAN INVEST

his is with regard to “Equity mutual funds witness net outflow for the fifth consecutive month”. There seems to be a perception in the ‘ivory tower’ circles that

mutual fund inflows would increase with rising equity markets. These pundits have been proven wrong so far, as the equity markets have gone up by approximately 20%; with the rising markets, more mutual fund investors have chosen to redeem than invest. About 50% registered MF agents/distributors have gone out of business; who is going to sell and bridge the widening gap and how? Instead of stopping misselling, we may have succeeded in stopping sales in a very big way, while doing nothing to penalise those who have indulged in client abuse by churning/misselling in the past. Although investing in mutual funds is simple, past mobilisation data would reveal that not many like to invest directly; they prefer going through an agent. Even the direct route, offering 0.5% - 0.7% savings per annum, may not be a game-changer as envisaged. Nilesh Kamerkar

MONEYLIFE | 13 December 2012 | 6

Letters.indd 4

11/24/2012 3:43:52 PM

Blank Page

Fund pointer.indd 5

10/21/2011 6:03:03 PM

LETTERS

` class returns. Is the fund

resulting in massive Bulls and bears are Write to the editor! losses to the public manager continuously unpredictable. Invest in diamonds. Win jewellery exchequer—rattled the dabbling in derivatives? people in power. The Or is he churning his minister in the PMO portfolio aggressively, as (prime minister’s office) one of your articles had disclosed that the pointed out once. government is actively Also, if you take the considering making the case of ICICI Discovery Write to the editor. If your letter is the best, You’ll office of the CAG a Fund, it also has a high Win Surat Diamond jewellery. ‘multi-member’ body. turnover ratio. The same This is a move that is the case for ICICI only goes to curb its independence. It does not further Dynamic Fund, mainly because both are managed by empower the office to ensure a thorough follow-up on the same fund manager. They have delivered good returns. Some of the older established funds, like HDFC reports, bring in stricter accountability. It only seeks to enfeeble this watchdog into becoming a handmaiden of Equity, Franklin Blue-chip, etc, have a lower turnover the party in power. The government has bungled even ratio. Their returns are stable, though a bit lower than in mooting the idea, especially at a time when it lacks the above-mentioned funds. the requisite numbers in Parliament to carry out the Can you also explain how turnover ratio affects the constitutional amendment to alter the CAG’s status. expense ratio? How can a retail investor keep track of the expense ratio? Most of the fact-sheets have only the This ill-fated move only exposes its male fide intentions. In the current political scenario of coalition politics, it maximum limit or the expense ratio table, but not the is doubtful whether any party/ alliance can propose, or exact expense ratio percentage. push through, such major constitutional amendments. Pravesh Pandya, by email Nagesh Kini, by email We would like to conduct such analysis but it is impossible. A really meaningful analysis can be done only when we have a searchable data of all buys and HELP US TO HELP YOU sells of all funds on a monthly Moneylife offers its readers a unique service—helping se basis. We buy a database from redress grievances on a best-effort basis. However, we ba Mutual Funds India (MFI) have limited resources to devote to this effort and can M but only pursue complaints that come to us by email. We b when we wrote about the request readers to please send us crisp complaints, with th actual stock movements of all the facts on email (not as an attachment) and send o an IDFC scheme, the fund company told us that us the supporting documents, only if we ask for them. f it We cannot handle physical letters. — Editor i was wrong information. We took it up with MFI and they had no explanation HOW TO REACH US for the inaccurate data. Letters to the Editor can be emailed to editor@moneylife.in We had to immediately or can be posted to: The Editor, Moneylife Magazine, Unit No. 315, 3rd Floor, Hind Service Industries, Off Veer Savarkar Marg, stop doing what is called Dadar (W), Mumbai 400 028 or faxed to 022-49205022. Letters ‘attribution analysis’. It must include the writer’s full name, address and telephone may be shocking that one can number and may be edited for clarity or space. suggest fund X or Y is good but no one can say why. New Subscriptions & Customer Service For new subscription requests, complaints about current subWe cannot attribute it to any factor. — Editor

‘MULTI-MEMBER CAG’ The plain speak of the CAG (Comptroller and Auditor General of India) at the World Economic Forum at Gurgaon—expressing shock and dismay at the brazenness of the government, in taking decisions

scription and books, write to subscribe@moneylife.in or to Subscription Manager, Unit No. 315, 3rd Floor, Hind Service Industries, Off Veer Savarkar Marg, Dadar (W), Mumbai 400 028 or call 022-49205000 or fax to 022-49205022. Advertising For information and rates, email us at sales@moneylife.in or call 91-022-49205000.

MONEYLIFE | 13 December 2012 | 8

Letters.indd 6

11/24/2012 3:44:12 PM

Saturday, 1st December, at Mangalore After successful seminars at Gurgaon, Bengaluru, Chennai, Hyderabad and Ahmedabad, Moneylife Foundation with the support of Indiabulls, is making its sixth national foray—this time in Mangalore. Get sound financial knowledge from seasoned financial experts which will transform your financial life for the better.

VENUE: GOLDFINCH HOTELS, BUNTS HOSTEL ROAD, NEAR JYOTI CIRCLE, MANGALORE 575003. PHONE: +91 82 44245678 Session One: (10:00am – 1:15pm)

Admission Free Hurry! Limited Seats!

Registration on a first-come-first-served basis! Contact: Preetham Sheni - 09916877575 or email us at seminar@indiabulls.com or mail@mlfoundation.in Call between: 10:00am – 6:00pm Monday to Friday Supported By

10:00am – 10:15am Introduction 10:15am – 11:30am How to be Safe with Your Money Sucheta Dalal, trustee, Moneylife Foundation Tea break (11:30am – 12noon) 12noon – 1:15pm How to be Smart with Your Money Debashis Basu, trustee, Moneylife Foundation Lunch (1:15pm – 2:15pm) Session Two: (2:15pm – 4:15pm) 2:15pm – 3:15pm Dos and Don’ts of Housing Mortgages Sachin Chaudhary, chief executive officer, Indiabulls Housing Finance Ltd

Presented By

3:15pm – 4:15pm Investing Smartly in Mutual Funds Mr Basu, trustee, Moneylife Foundation Followed by tea

Moneylife Foundation, launched on 6 February 2010, is the voice of Indian savers. We believe that we who earn, spend, save and pay taxes need to have a voice in policymaking because we are not a vote bank. In just two years, the Foundation has enriched many lives with 136 events across the country and many advocacy initiatives. We have over 16,000 registered members; had 49,700 attendees and 89 speakers. Moneylife has been founded by Debashis Basu and Sucheta Dalal who, between them, bring in a combined experience of 50 years of understanding business, regulatory and consumer issues. Ms Dalal is a Padma Shri awardee in 2006 for her investigative journalism and Mr Basu is a CA by qualification and the author of several business books.

STRENGTHEN OUR VOICE SO THAT POLICIES ARE MADE WITH SAVERS IN MIND. JOIN 16,000 OTHERS. BE A FOUNDATION MEMBER. Investor Empower Mangalore.indd 1

11/23/2012 9:33:38 PM

LETTER

ISSUE CONTENTS

13 December 2012

FROM THE

EDITOR A Slice of the Pie

tocks are often pitched as something you buy and sell, your gains (or losses) coming from the difference in the prices of the two. But did you know that 50% or more of long-term returns of stocks come from dividends? If so, how does one go about buying stocks which offer high dividends and simultaneously, avoid the losses that come from price declines? That is the topic of our Cover Story which I am sure you will find different from others on the same topic. Apart from dividend investing, in our Fund Pointer section, we look at the concept of closet investing (a form of passive investing), where mutual funds buy mostly the same stocks as are present in their benchmark index in order to outperform it. Is that a bad thing? Find out for yourself. If there’s one thing you should avoid like the plague, it is MLMs or multi-level-marketing schemes. These schemes are operating in India, right under the nose of regulators and even flourishing! In her Different Strokes section, Sucheta writes, again, in detail about how politicians and regulators turn a blind eye to these schemes even as millions of investors are being conned daily. In Crosshairs, Sucheta talks about the revelations brought up by IAC against HSBC regarding Swiss Bank accounts; yet, nothing has been done. Moneylife has constantly highlighted the shocking cases committed by HSBC in India, including looting of Suchita Krishnamoorthy, a well-known celebrity. Sucheta also laments SEBI’s shoddy surveillance systems and corporate filing which has made it easier for companies, like HSBC, to get away with blue murder. Our petition for awarding the prestigious Bharat Ratna to late Dr Verghese Kurien, ‘milkman of India’, who revolutionised cooperatives and provided livelihoods to millions of farmers, has received terrific response of over 10,000 signatures from all over India. We thank all those who signed the petition. Our twin RTI workshops conducted by Shailesh Gandhi, in November, received fantastic response as well. Two more are scheduled for December. Do take the opportunity to learn from the best. Debashis Basu

28 Cover Story

15 Stocks with High Dividend Yield Investing in high dividend yield stocks is a traditional way to make money on the stock market. Here is a screened list of high dividend yield companies which you could consider adding to your portfolio. Analysis by Jason Monteiro & Pratibha Kamath

13 Your Interest Draconian IT Act; Godrej Boyce Penalised; Stock Exchange Arbitration; Apollo Munich Charged

14 Your Money Mutual funds: Investors continue to flee equity funds, MFs levy more charges, Equity NFOs, Banking: IDBI loses title deeds; penalised; Net payment: Boom Continues; SEBI: SEBI to access call data; RBI: RBI bans banks from lending for gold

16 Current Account Want To Win a Nobel? Eat Chocolate

17 Loose Change Moneylife Quiz; Sound Bites: S Gurumurthy, RSS ideologue; Christopher Fordyce, Regional Commercial Manager (South Asia) British Airways; Surjya Kanta Mishra, West Bengal Opposition leader; Anurag Basu, film maker 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 | 13 December 2012 | 10

Content.indd 2

11/24/2012 5:18:47 PM

CONTENTS 2

18 Corporate Data: Designed To Fail?; Corporate Governance: Foreign Corruption Law; Money Laundering: HSBC Revelations

DIFFERENT STROKES

SMART MONEY

LEGALLY SPEAKING

22 Valuing Bank Stocks

Your 55 Know Banking Rights

Private sector banks are expensive and State-controlled banks are weighed down by bad loans

RBI has laid down what you can expect from banks, in great detail. Utilise the rules

MUTUAL FUNDS POINTERS

20 Con Quest

24 Piggybacking the Index

Thanks to supportive politicians and shirking regulators, MLMs continue to con millions with impunity

Why do the portfolios of many top schemes have Sensex and Nifty stocks? Are these fund managers closet indexers? If so, should you be worried? Jason Monteiro analyses

EARNING CURVE

56 False Information Global Learning – Be Happy, Earn More! – Behavioural bias of regulators!

xSTOCKS INSURANCE

36 Value Picks Taking Stock

38 Street Beat – Jammu & Kashmir Bank – Foseco India STOCK PERFORMANCE: Our Report Card

42 Which Way Are market indices reflecting corporate India’s strength?

46 Insurance Trends

58 Moneylife Foundation Events

– Life Insurance: IndiaFirst Life Simple Benefit – Life Insurance: Married Woman Protection Act – Extended Warranty: Bajaj Allianz Extended Warranty Plan – Fine Print

– From the advanced RTI Workshop, participants got useful insights for filing RTI appeals

AUTO

48 Discounts Galore Should you buy now or wait till next year? HEALTH

43 Popular Picks Mess Media

44 Medium Term Atul Auto rocketed 14%, Kajaria Ceramics went up 11%, while Shree Cement tanked 3%

Shriram City Union Finance went up 9%, Bajaj Finance moved up 1%, while UltraTech Cement tanked 6%

Content.indd 3

– Moneylife Foundation members were given a detailed analysis whether gold offers good returns and the safer options for investing in gold

50 Limitations of Science Science is completely dependent on evidence but absence of evidence is not evidence of absence – Pulse Beat: Medical developments from around the world TRAVEL

45 Long Term

EVENTS

for 52 Money Your Foreign Trip You may be going abroad for studies, medical reasons or just for fun. How much money can you carry? Here are the rules, explained in simple terms, by Gurpur

BEYOND MONEY

66 Skin Protection Sunday Friends established a first of its kind ‘skin bank’ to save the lives of victims of burns, diabetics and trauma finds Aditya Govindaraj

DEPARTMENTS Letters ............................ 4 Book Review ....................60 Money Facts ....................63

11/23/2012 8:42:00 PM

www.moneylife.in Exclusive news & views with a big diﬀerence e EXCLUSIVE NEWS

Use the Married Woman Property Act to safeguard your life insurance policy

News you had better not miss Over 10,000 people signed on a petition seeking Bharat Ratna for Dr V Kurien. What next? Over 10,180 people across India have signed a petition seeking a Bharat Ratna for Dr V Kurien, be er known as India’s milkman. Public support is now being sought to bring it to the a ention of decision-makers

EXCLUSIVE VIEWS On issues that matter to you

The Married Woman Property (MWP) Act can protect the life insurance death claim benefit from creditors and ensure that your wife and children are secured. Find out how you can benefit from it

Sucheta Dalal

RTI activist Agrawal has demanded information pertaining to misuse of the airlines by daughter of former aviation minister

QNet, the MLM, has resurfaced in India; will people be duped again? QuestNet and GoldQuest, which all but closed down in 2009, have emerged bigger and stronger as QNet. The hype and hard-sell by this MLM company to ensnare people is worrying

The Balasaheb Thackeray phenomenon: A hatke view We Indians breathe regionalism; hence, regional leaders become icons. How exactly did Balasaheb Thackeray touch the heart of the ‘Marathi Manoos’?

Term plan with return of premium: Should you go for it?

Vinita Deshmukh

Pure term plans do not give anything on maturity, while a ‘return of premium’ term plan gives you back all the premiums paid

The deadly delisting itch of AstraZeneca Pharma India AstraZeneca is on course to achieve its decade-long plan to de-list its shares from the Indian bourses, by hook or by crook

Stockguru, a chainmoney scheme, openly flouted various SEBI rules. Moneylife pointed this out in December 2010 and again in April 2011

Prof Dr BM Hegde

No one has shown that the HIV virus is the sole cause of AIDS. Apart from propaganda by drug companies, anti-viral drugs have not made an impact on AIDS An RTI query reveals that EPFO, Nagpur has 50% of its current deposits in the ‘unclaimed’ category!

Legal liability of a stolen cheque Who is responsible for a stolen cheque and the amount which the original customer duly deposited but did not get? Veeresh Malik

HAVE YOUR SAY

ML FOUNDATION

Vote in the Moneylife poll on the top issues of the week

RTI – Appeals Process

Is the government lying on black money, hawala and the 700 bank accounts in HSBC? Karan Kharb

The Track II strategy is a conspiracy hatched by Pakistan to make its sinister scheme appear transparent to evict Indian troops from Siachen

97% Yes No Can’t Say

>> Moneylife Foundation conducted a session on “Understanding how to navigate the RTI appeals process” by Shailesh Gandhi, former CIC on 19 November 2012 at Moneylife Foundation Knowledge Centre. You too can benefit from the programmes by registering at www.mlfoundation.in. Membership is free.

For the latest news, exclusives and reports on our activities http://twitter.com/Mldigital

Moneyweb.indd 1

http://www.facebook.com/moneylife.in

Nathaniel Rothschild, teamed up with the Bakries and the Roeslanis of Indonesia to exploit its mineral wealth William Gamble

TO GET THIS AND MUCH MORE INSTANTLY, SUBSCRIBE TO OUR DAILY & WEEKLY NEWSLETTER FREE

11/23/2012 8:45:45 PM

Consumer Interest

Draconian IT Act You can get arrested for that innocuous tweet or facebook post

ritish Airways (BA) has apologised and launched an investigation for an offensive and racist message that was apparently re-tweeted from its official Twi er account. However, in India we are grappling with a larger issue: A realisation that the State has draconian powers to act on n social media communication. Two young girlss from Palghar (near Mumbai) faced arrest forr posting some ‘offensive’ comment on Facebook ook about the Shiv Sena. A small-scale industrialist ist

Public Interest

Investor Interest

from Puducherry also faced arrest a er tweeting that the finance minister P Chidambaram’s son had amassed more cash than Robert Vadra, the son-in-law of Congress president Sonia Gandhi. Indians are becoming aware of the dangers of Ind SSection 66-A of the Information Technology (IT) Act which provides for imprisonment of up to three years plus fine for sending oﬀensive messages through computers or mobile phones. Besides, there are provisions mo the Indian Penal Code (IPC), under Section in th 505(2), using which the police can initiate 505 on. Oﬀence under this Section also has actio punishment similar to that under Section 66-A punis of the IT Act. The girls from Palghar were arrested under SSection 505(2).

Godrej Boyce Penalised

Stock Exchange Arbitration

For defective microwave oven

Investors don’t need to pay deposit for claims up to Rs10 lakh

odrej & Boyce Mfg Co Ltd has been directed by a consumer forum in Delhi to pay Rs6,499 to a customer for selling him a defective microwave and failing to replace or repair it. Delhi resident Deep Chand had complained that he had booked a Godrej Boyce FLORA microwave for Rs5,499 on 23 February 2012 and it was delivered to him at his office. During a demonstration at his home the next day, the microwave did not work. He made several complaints; despite assurances by the firm to replace the microwave oven, the company did not do so.

Apollo Munich Charged For denying insurance claim alleging that policyholder concealed information

he East District Consumer Disputes Redressal Forum, Delhi has ordered Apollo Munich Health Insurance Co Ltd to pay over Rs1.8 lakh to a policyholder for not reimbursing his treatment expenses and illegally cancelling his insurance cover after he submitted his claim. Delhi resident, Ashok Kumar, had bought a Health Shield

he Securities and Exchange Board of India (SEBI) has said that investors seeking arbitration reference for claims up to Rs10 lakh would not be required to make any deposit with the stock exchanges and expenses on such applications would be borne by the bourses. Until now, investors were exempted from making any deposit only if they filed the application within six months. The arbitration committees on the BSE and the NSE help settle disputes between clients and brokers. Investors are highly dissatisfied with the process and have reasons to believe that it works in favour of brokers who have much more resources to influence the outcome.

insurance policy from Apollo Munich valid from 25 November 2010 to 24 November 2011 for Rs2 lakh. Mr Kumar alleged that Apollo Munich had rejected his claim for medical expenses arbitrarily. The insurance firm in its defence had contended that Mr Kumar’s policy was terminated and his premium refunded as he had concealed that he was a diabetes patient. The Forum rejected the contention saying the insurance firm had renewed the policy not once but twice and “it was their duty to have him medically examined before renewal of the policy.” Compiled by: Yogesh Sapkale

13 | 13 December 2012 | MONEYLIFE

Your Interest.indd 2

11/23/2012 8:47:17 PM

Your Money MFs levy more charges

MUTUAL FUNDS

Investors continue to flee equity funds 6,700

ecurities & Exchange Board of India, has allowed mutual fund houses to levy brokerage and transaction costs on investors. The costs carry a ceiling of 0.12% for cash transaction and 0.05% for derivatives.

Total Sales (Rs in Crore) Redemptions / Repurchases (Rs in Crore)

5,650

4,600

3,550

2,500 Jan-12

Mar-12

May-12

Jul-12

Sep-12

nvestors continued to withdraw money from equity mutual fund schemes resulting in a net outflow, for the fifth consecutive month. High redemptions, coupled with poor sales, led to net outflow of Rs1,984 crore, according to monthly data from The Association of Mutual Funds in India (AMFI). Over the past few years, equity mutual fund sales have declined

and redemptions continued to be high. For CY 2012, equity mutual funds have seen a total outflow of Rs12,377 crore. Such high redemptions were witnessed for CY 2010. The additional incentive to fund houses, in the form of higher expense ratio, as per the regulators new reforms to “re-energise the mutual fund industry”, has yet to create an impact on sales.

BANKING

negligent in taking proper care of the documents. Once it had examined the veracity of the title deed, it should have sent the documents to its own office in Bombay by a official messenger or an officer personally rather than through a courier. The Forum said that it shows “utter deficiency on IDBI’s part resulting in incalculable loss to the complainant (borrower).”

IDBI loses title deeds; penalised

he New Delhi District Consumer Disputes Redressal Forum has directed IDBI Bank to pay Rs 3.5 lakh to a home loan borrower, for losing the title deeds of his flat. In addition, IDBI has also been ordered to issue a certificate to the borrower stating that it was in possession if the title deals of the borrower’s flat, but lost them later. Holding the Bank to be ‘negligent’, the bench said that the bank should have “exercised the same prudence and care as it would do in case of its own property.” It said that IDBI was

NET PAYMENT

Boom Continues

nline payments are booming. According to data released by RBI, electronic transactions worth Rs14,88,353 crore were made in

Besides this, fund houses are allowed to charge an additional expense of 0.30% of daily net assets, if the new inflows from places other than to top 15 cities are 30% of the gross new inflows in the scheme, or are 15% of the average assets under management (year to date) of the scheme, whichever is higher. For fund of funds, the total expenses would be capped at 2.50% of daily net assets of the scheme. These measures are designed to improve the health of inefficient mutual fund industry at the cost of retail investors.

India in the first nine months of the current fiscal year, rising by 53% over the same period last year. Electronic transactions include

electronic clearing services (ECS), national electronic funds transfer (NEFT) and card payments (credit and debit). Out of these constituents of electronic transactions, NEFT had the largest chunk in electronic payments at Rs12,54,210 crore, the

MONEYLIFE | 13 December 2012 | 14

Your Money.indd 2

11/23/2012 8:51:58 PM

Equity NFOs Even as investors flee equity schemes, funds are planning new ones. Here are three: ICICI Prudential Dividend Yield Equity: Dividend yield schemes have performed well in the past few years; now ICICI Mutual CI Prudential Fund plans to launch ICICI nd. This Dividend Yield Equity Fund. h seven other scheme will compete with ategory. schemes present in this category. er document, According to the draft offer the fund manager would e endeavour to maintain the portfolio’s dividend yield g higher than the prevailing dividend yield of the S&P CNX own that Nifty. Our analysis has shown dend yield the stocks picked by dividend schemes do not necessarily have a high dividend yield and the top 10 holdings are similar to those of other equity diversified schemes. Their performance in earlier periods has been inconsistent as well. A lot would depend on the stock-picking skills of the fund manager.

` data showed. ECS transactions were worth Rs1,43,286 crore followed by credit and debit cards. The number of debit cards in the country crossed 300 million mark for the first time. The number of outstanding credit cards also continued to rise for the eighth consecutive month, at 18.3 million. HDFC Bank is the largest issuer of the credit cards in the country followed by State Bank of India.

SEBI

SEBI to access call data

oon, SEBI will get access of all the data of calls made and received by people who are being probed

Motilal Oswal MOSt Prime Equity: This scheme would invest around 65% to 100% of its assets in blue-chip companies. There are already around 30-odd schemes with a similar objective and a proven track record; the new scheme of Motilal Oswal may find it difficult to lure in investors. For large-cap oriented schemes investing in blue-chip stocks, the returns tend to be stable and less volatile compared to other multicap equity diversified schemes.

fund scheme—IDFC League 1 Fund. The scheme would invest 65%100% in equities and equity-related instruments of companies outside the top 300 companies by marketcapitalisation. The performance of the scheme would be benchmarked to the BSE 500 index. IDFC League 1 Fund has a term of five years but investing primarily in small- and mid-cap stocks, putting your money in this scheme with no exit route except through the exchange could be risky. Unless, of course, the scheme changes its investment mandate and converts into an open ended scheme at the end of the term, like we have seen some schemes do in the past.

RBI Therefore Therefore, over a long term, one can expect reasonable returns from the scheme if the fund manager picks stocks diligently.

RBI bans banks from lending for gold

IDFC League 1 Fund: IDFC Mutual Fund plans to launch a fiveyear close-ended equity mutual

and questioned for malpractices in the capital markets. With this move, the firepower of SEBI is expected to increase. What it will do with that power is anybody’s guess. Apparently, SEBI has been asking for such access for a long time now. The finance minister P Chidambaram has said that the government is making provisionss for SEBI to get accesss to call data records of people being probed bed by it in specific cases, ses, but it will not get the power to directly tap phone calls.

n a bid to dissuade people from indulging in speculation of gold, the Reserve Bank of India (RBI) has directed banks to not to lend for buying gold in any form, be it primary gold, bullion and jewellery, gold coins, units of gold Exchange Traded Funds (ETF) and units of gold mutual funds. The notification further said that no advances should be granted by banks against gold bullion to dealers or traders in gold if, in their assessment, such advances are likely to be utilised for purposes of financing gold purchase at auctions or speculative holding of stocks and bullion. However, this ban does not include providing credit for genuine working capital requirements of jewellers.

15 | 13 December 2012 | MONEYLIFE

Your Money.indd 3

11/23/2012 8:52:09 PM

BOTTOMLINE BY MORPARIA

CURRENT ACCOUNT

Want To Win a Nobel? Eat Chocolate

hocolate is one of the most consumed confectionery in the world. But can it also be a predictor for Nobel Prizes? This is what a research paper published in the New England Journal of Medicine said. It argues that chocolate increases cognitive abilities that could lead to greater chances of winning a Nobel Prize. The higher a country’s chocolate consumption, the more Nobel laureates it spawns per capita. These were the findings of the research paper titled, “Chocolate Consumption, Cognitive Function, and Nobel Laureates” authored by Franz H Messerli. He said that there is “a close, significant linear correlation between chocolate consumption per capita and the number of Nobel laureates per 10 million persons in a total of 23 countries.” Switzerland topped the list (see graph for rankings). Furthermore, Messerli says, “Since chocolate consumption has been documented to improve cognitive function, it seems most likely that in a dose-dependent way, chocolate intake provides the abundant fertile ground needed for the sprouting of Nobel laureates. Obviously, these

35 Switzerland

Sweden 30 Nobel Laureates per 10 Million population

That's the finding of a whimsical research

Smart Chocolate

r=0.791 p<0.0001

Denmark

Austria

Norway

United Kingdom

15 The Netherlands

Belgium Poland Portugal Greece

5 0

China 0

Japan

Ireland

United States

GGermany

France Canada Australia

Correlation bet between countries’ annual per capita ca chocolate consumption and a the number of Nobel Laure Laureates per 10 population million popula

Finland

Italy Spain

Brazil 5

Chocolate Consumption (kg/yr/capital)

findings are hypothesis-generating only and will have to be tested in a prospective, randomized trial.” This study has drawn wide reactions, most notably from the research community, due to a palpably whimsical correlation. Some wonder whether chocolate-makers sponsored the research. Interestingly, Dr Messerli makes a disclosure that he consumes chocolates daily, mostly Lindt’s dark varieties. He even mentions the brand in the report!

MONEYLIFE | 13 December 2012 | 16

Current Account.indd 2

11/23/2012 8:59:50 PM

LOOSE CHANGE

Surprise Gift for Quiz winners from:

Moneylife Quiz - 142 Another quiz to tease 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 issue dated 10 January 2013. Send in your answers to quiz@moneylife.in with the Quiz no., your name, address and telephone number before 20 December 2012. 1. Which category of victims is most suited for utilising skin donation? a. Burns b. Epilepsy c. Cancer d. Leprosy 2. Who authored the research paper, “Chocolate Consumption, Cognitive Function, and Nobel Laureates?” a. Albert Einstein b. Dr Franz H Messerli c. Jonah Berger d. Johan Martensson 3 How many companies are listed on the Bombay Stock Exchange? a. Around 3,000 companies b. Around 5,000 companies c. Around 25,000 companies d. Around 1 lakh companies 4. How many dollars are authorised foreign exchange dealers permitted to release to resident Indians for medical treatment abroad on selfdeclaration basis, without insisting on any estimate from a hospital or doctor in India or abroad? a. Up to $100,000, or its equivalent b. Up to $500,000, or its equivalent c. Up to 1 million dollars, or its equivalent d. Up to 10 million dollars, or its equivalent 5. Who authored the article, “There is no heaven; it is a fairy tale”? a. Stephen Hawkins b. John OM Bockris c. Mary Curie d. John von Neumann 6. What is the chemical name for purified white salt? a. Potassium chloride b. Soda bicarbonate c. Sodium chloride d. Urea 7. In the IndiaFirst Simple Benefit Plan, the death benefit is sum assured (SA) plus how may times the annualised premium? a. Five times b. Ten times c. Fifteen times d. Twenty times 8. What is the percentage of dividend declared by Jammu & Kashmir Bank for FY11-12? a. 25% b. 50% c. 100% d. 335% The answers to Moneylife Quiz-140 are: • 1-b. 6 • 2- d. Notre Dame • 3-a. Re1 • 4-b. March 2010 • 5-d. Hospital Cash • 6-b. Randomised Control Trials • 7-a. Ontario • 8-b. Jonah Berger In all, 36 readers got all the answers right last time. The winner of Quiz-140 is S Aswin from Chennai. Congrats! You will get a surprise gift from Surat Diamond Jewellery.

Sound Bites “I have not given clean chit to (Nitin) Gadkari. I cannot give clean chit to any one who I don’t know fully. I don’t know Gadkari at all”– S GURUMURTHY, RSS IDEOLOGUE, WHO HAD EARLIER SAID GADKARI IS LEGALLY AND MORALLY CLEAN, on Twitter

“India is very significantly costly place to run an airline” – CHRISTOPHER FORDYCE, REGIONAL COMMERCIAL MANAGER (SOUTH ASIA) BRITISH AIRWAYS, at a press meet

“She (Trinamool Congress chief Mamata Banerjee) went from door to door seeking support for her no-confidence motion. But actually it is she on whom nobody has confidence” – SURJYA KANTA MISHRA, WEST BENGAL OPPOSITION LEADER, to the media

“I am not scared to release my film along with movies like Spiderman or a Tom Cruise flick. Soon Hollywood will have to see our release calendar before releasing their movie”– ANURAG BASU, FILM MAKER, to PTI 17 | 13 December 2012 | MONEYLIFE

Loose Change.indd 3

11/23/2012 10:25:38 PM

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

C O R P O R A T E DAT A

Designed To Fail? Corporate filing and market surveillance systems of SEBI are in a shambles

n early November, the central information commissioner ordered the Securities and Exchange Board of India (SEBI) to reveal the names of 12 entities that had short-sold Reliance Petroleum shares in the derivatives market, just before Reliance Industries sold shares in the cash market. This has led to speculation that the Right to Information (RTI) Act will force SEBI to be more transparent. At Moneylife, we think otherwise. Not long ago, SEBI mindlessly refused to provide information on the performance of portfolio management schemes (PMS) citing fiduciary reasons. It did this even though PMS schemes are individually required to put the data on their website. Now any regulator knows that performance data is useful only if the investor can compare performance of schemes over a period. And it ought to be SEBI’s job to put out collated data to help investors, instead of the senseless rejection of a request for information. This is only one example. Successive chairmen—from the time

of DR Mehta—have suppressed key information from ordinary investors by failing to implement database projects geared to provide complete information on corporate disclosures, compliances and statutory filings to investors. Moneylife has repeatedly pointed out how EDIFAR (electronic data and information filing and retrieval system) a searchable, statutory (emphasis deliberate) database similar to the US EDGAR, was abandoned within two years of its 2005 launch and formally abandoned in April 2010. Even

M Damodaran

CB Bhave

before this happened, a new CorpFiling system began to be implemented by the Bombay and National stock exchanges which has never worked effectively. Ironically, in November 2010, an India White Paper by the Asian Corporate Governance Association said that EDIFAR had a better structure than CorpFiling and the two should

be merged. The suggestion was ignored. A third, almost sinister, example is the apparent failure of SEBI’s expensive intermarket surveillance system (IMSS), which was to track real-time trading data from multiple sources to flag cases of possible insider trading. IMSS, an Australian system, was procured through HCL by chairman M Damodaran. But at the end of chairman CB Bhave’s tenure, it was suddenly junked without explanation, to be replaced with a data warehousing and business intelligence system (DWBIS) from TCS Ltd. Neither government nor parliament has questioned the move and it is almost certain that the SEBI board has never questioned such capricious decisions. A year and a half ago, I wrote to T Mohandas Pai, former board member and later head of SEBI’s primary market advisory committee seeking answers. After two reminders, he told me on 22nd November, that he will “push this (EDIFAR) as a strong recommendation.” This means that nothing has happened. On IMSS, Mr Pai simply said that his tenure had ended before he could raise the issue. It is not as though the SEBI board is packed with unintelligent people who don’t see the need to ask questions about surveillance systems or fail to grasp the need for ``

MONEYLIFE | 13 December 2012 | 18

Crosshair.indd 2

11/23/2012 9:05:05 PM

MO N E Y L AUNDE RING

HSBC Revelations No Action Whatsoever

few weeks ago, the charges of India Against Corruption (IAC) against HSBC and the 700 accounts, obtained from Geneva, truly seem like a case of ‘hit and run’. Everyone named by Arvind Kejriwal has got away by mouthing meaningless denials. HSBC itself has maintained a Sphinx-like silence

` a ‘statutory’ corporate reporting

system where delays in compliance or filing incorrect information will lead to punitive action. It is clear that there is a deliberate lobby at work to ensure that such accurate data is never mandated by the regulator and not available to investors.

C O R P O R A T E GOVE RNANC E

Foreign Corruption Law Walmart’s investigation will go nowhere

oes history have a way of repeating itself? As the controversy over foreign direct investment (FDI) seems likely to stall the winter session of parliament, we have news that Walmart Inc, the global retail giant, is investigating bribery by its own staff in many countries including India. Immediately, one hears that the Enforcement Directorate has jumped on to the investigation bandwagon and is probing if any rules have been violated. This reminds us of the early 1990s when controversy raged over how laws were re-written and techno-economic feasibility reports doctored to clear a gold-plated contract for Enron’s Dabhol power

that would do Sonia Gandhi proud. Here is one bank whose high-profile chairperson in Naina Lal Kidwai, is never asked uncomfortable questions during her many public appearances. That Moneylife provided specific evidence that the income tax department had started investigations over a year ago and had raided and questioned several Indians on that very list made no difference. Meanwhile, it is exactly the opposite elsewhere in the world. HSBC is likely to face serious money-

laundering charges over 8,000 Jersey accounts under investigation by the British tax authority provided by a whistle-blower. These include 4,000 non-British accounts including 100 American ones, leading to speculation that a fresh investigation may be started in the US. Once again, it is clear that the rules of the game are different when it comes to corrupt countries like India where the tight nexus between politicians and corporate houses can be trusted to keep the lid on uncomfortable disclosures.

project in costal Maharashtra with a hefty sovereign guarantee. The collusion between politicians and bureaucrats (at the state and Centre—with key ones continuing to occupy powerful positions in government today) was evident, but there was no proof. Around then, an Enron employee told the US senate that the company spent $6 million to ‘educate’ Indian officials. ‘Education’ immediately became a euphemism for bribery and LK Advani had even thundered, “I want to see some of those Graduates educated by ENRON.” Subsequent events are a lesson in what happens to such investigations when politicians are forever open to ‘education’. The BJP-Shiv Sena government

‘education’ involved bribery, but quickly wound it up. The US has a strong Foreign Corrupt Practices Act, but in reality, it doesn’t probe too closely when its companies do what is required in extremely corrupt countries like India, to gain access to a large market. It had the same tolerant attitude when its banks were involved in the securities scam of 1992 as well. The US is more likely to initiate tough action if its companies hurt American interests. It was a lucky break for India when Enron collapsed under the weight of its own dubious practices and accounting scandals. The lesson is that we needn’t hold our breath about Walmart’s US investigation leading to major revelations about

came to power in Maharashtra and, after having cancelled the Enron contract, signed a worse deal that trebled the project cost. There wasn’t the slightest push to clean up power distribution and Maharashtra continues to pay the price. The US ordered a token investigation into whether

bribery, despite the tough talk about not tolerating non-compliance with laws and the sacking of its Indian CFO. In fact, most Indians would find it hard to believe that Walmart can get FDI laws changed without inducement, or that the political parties opposing it are doing so to protect small Indian retailers. 19 | 13 December 2012 | MONEYLIFE

Crosshair.indd 3

11/23/2012 9:05:17 PM

DIFFERENT STROKES SUCHETA DALAL

MU LTI- L EVEL MAR KE T I N G

Con Quest Thanks to supportive politicians and shirking regulators, MLMs continue to con millions with impunity

he con artists who scammed over Rs1,000 crore 1978. How global direct-selling companies entered from gullible savers through Stockguru India were India with FIPB (foreign investment promotion board) finally arrested on 14th November. Moneylife had by side-stepping the Prize Chits act probably merits warned about this scam in December 2010, well before an entire book. It involved deliberate obfuscation of the fraudsters absconded with investors’ money to evade rules by a deeply corrupt government. The ministry of the police for nearly two years by assuming different corporate affairs (MCA) also issued a circular to give them questionable legitimacy. disguises and identities. Unlike many developed countries, India does not Immediately after, we received a flurry of questions about QNet, an international (Singapore registered) distinguish between multi-level marketing (MLM) pyramid scheme that has been busy luring youngsters companies and pure Ponzi operations or pyramid in dead-end jobs with the promise of extraordinary marketing companies. This means that MLMs such wealth. Moneylife first wrote about QNet, when it was as Amway and Tupperware are lumped with shady hawking ‘numismatic’ gold coins for Rs30,000 through operations such as QNet, NMart, PACL, SpeakAsia and others. Since SpeakAsia and a company called GoldQuest QNet are global operations, (now operates as QI, QNet they had deep pockets and could or QuestNet in different survive for years by moving geographies). This was in money from one country to 2009, well before SpeakAsia, a another. A quick Google or Singapore-based scam operator Wikipedia search would show walked away with over that they repeatedly face arrest Rs1,300 crore collected from and legal action all over the around 1.2 million persons. world. GoldQuest, which boasts Indian operations of powerful political connections, pyramid companies like QNet was completely destroyed after a police action in Chennai in Most big Ponzi schemes like and SpeakAsia are possible 2009, but has bounced back, QNet silence the media with purely because of the slothful bureaucracy of the MCA. bigger and stronger, this time ads and build credibility by These are Singapore-registered with an array of ‘products’ sponsorships, recruiting companies with no Indian priced between Rs30,000 to Rs7 lakh, depending on the sportspersons and supporting presence. However, they quietly gullibility of the victim. What causes to burnish their image register several tiny entities all over India, which open should worry us all is that these are among tens of thousands of such schemes that are bank accounts to collect money and quickly transfer it overseas. This was clearly revealed in the SpeakAsia case robbing naive people all over India. Most big Ponzi schemes, like QNet, silence and seems to be the pattern in QNet as well. Consider this. QNet claims to be in operation for 14 mainstream media with advertisements, build credibility by sponsoring events, recruit sports personalities through years although it was completely wiped out as recently as endorsement contracts and flaunt a charity to burnish 2009. It asks its dealers or independent retailers (IRs), to their image. All this hides their dodgy legal status. deposit money in a company called Vihaan Direct Selling Legally, every scheme that recruits new members falls Pvt Ltd, incorporated only in October 2011 with a Rs10 foul of India’s ineffective (but tough-on-paper) Prize lakh capital at a Bengaluru address. The MCA website Chits & Money Circulation Schemes (Banning) Act, shows no founders/directors and nobody knows how ``

MONEYLIFE | 13 December 2012 | 20

DIFFERENT STROKES.indd 2

11/23/2012 9:22:48 PM

DIFFERENT STROKES SUCHETA DALAL

` much of money it has collected or transferred. What is

constituted to “consider framing legislation and rules the due diligence done when such entities are registered to regulate unregulated direct selling businesses”. This to mop up funds? After SpeakAsia’s network of such is worrying the bigger players. Over the past year, collection entities was discovered, the RBI (Reserve Bank representatives of the Indian Direct Selling Association and of India) gathered some information, only to discover Amway sought meetings with Moneylife to explain that that over Rs800 crore has already been transferred to their own operations are genuine multi-level marketing Singapore. The RBI did nothing to stop other pyramid (MLM) schemes, as opposed to dubious pyramids with companies from using the same route to transfer funds binary (a left leg and right leg formation) recruitment abroad. Nothing. QNet is clearly following the same models, that sell products or surveys as a cover and offer path as SpeakAsia, but who will investigate it? More extraordinary returns. The problem is that “genuine” importantly, Moneylife has been writing to the RBI MLMs also use hype and cult-like strategies to recruit governor and deputy governors (Usha Thorat) since new members because the tough direct-selling business 2009, but they claim lack of jurisdiction. Our question has an extraordinarily high churn of distributors. Only is simple. If the RBI pretends helplessness in checking the top 0.5% making any significant money. We posed a scams that are looting millions of people why is the set of questions to ISDA, Amway and QNet but have not RBI governor heading the High Level Coordination received answers from any of them. Mr Richard Holwill, vice president at Amway Corp Committee on Financial Markets? Is it only play referee when regulatory bodies break into unseemly public who met us recently says the company is only seeking clarity of rules. He says Amway has scrapped its entry squabbles? In the past seven years of its existence, Moneylife fee, has a products-only model and enrolling new dealers has exposed scores of Ponzi schemes, in most cases well is not mandatory. However, he had no answer when we before their founders have decamped with the money. pointed out that its expensively priced nutraceuticals had found a market We have written to by persuading an army various ministries If the RBI pretends of doctors, whose and regulators and helplessness in relatives were recruited petitioned the prime checking scams that as Amway dealers, to minister’s office with are looting millions prescribe the products. little effect. Instead, why is the RBI governor Both ISDA and Amway as one international consultant wrote to heading the HLCC on were also unclear about who vouches us—India is “overrun Financial Markets? for the contents and with pyramid schemes.” As losses and complaints have been mounting, dosage of these over the counter products. Mr Holwill the collusion between politicians, the investigation arms further agreed that an Amway dealership can, at best, of government and Ponzi operators is becoming more supplement one’s income; it is not the path to untold glaring. Consider the Stockguru example. Ordinary riches. Why then is it hyped-up as the path to quick investors shy away from the stock market because of riches? His answer: Amway does not do it, but it has cumbersome know your customer (KYC) rules and no control over over-enthusiastic distributors down procedures and poor grievance redressal, but Ulhas- the chain who create their own promotional material. Raksha/Lokeshwar Dev who scammed 200,000 people, Amway initiates action when this is brought to its notice, managed to open 94 bank accounts in 13 different banks, he says. Well, the net result is people get fooled and end buy property and vehicles and obtain PAN cards and up losing money and wasting a lot of time chasing a false driving licences at will. It will be no surprise if they have dream. So long as MLMs and Pyramids remain a big source multiple passports as well. Doesn’t this mean that tedious tax compliance requirements only harass law-abiding of revenue for politicians (especially regional ones), there is no incentive to frame tough regulation. Otherwise, the citizens in legitimate businesses? One reason why every crooked money-circulation inter-ministerial group would be holding public meetings scheme escapes regulatory scrutiny is that regulators are or reaching out to people to gather information to curb not held accountable. They ignore market intelligence, the fraud. because our system of parliamentary oversight through Sucheta Dalal is the managing editor of Moneylife. Subscribers ministries or standing committees simply does not get free help in resolving their problems with select providers of work. Yet, an inter-ministerial committee was recently financial services. She can be reached at sucheta@moneylife.in

21 | 13 December 2012 | MONEYLIFE

DIFFERENT STROKES.indd 3

11/23/2012 9:23:07 PM

SMART MONEY R BALAKRISHNAN

IN VESTIN G

Valuing Bank Stocks Private sector banks are expensive and State- controlled banks are weighed down by bad loans

hen we invest in stocks, we are betting on the bank owned by him cannot lend monies to it. The profits that a bank makes cannot be disposed off premise that we will be able to sell them to someone else, at a price, when we want to. at will. Dividend payments have to be approved by the This is the liquidity that stock exchanges provide. We regulator. The regulations cover virtually every aspect, make many assumptions while arriving at the price we are including the remuneration that a CEO can draw. The willing to pay. This, in turn, boils down to what money promoter cannot use the bank’s money to do any single (earnings) the company will make from its business. act that is not permitted by the regulator. And there is The other big investor (the promoter) also, theoretically, not much that is permitted. A bank cannot promote gets the same benefits as we do, apart from other non- a company in another industry, for instance, a car financial benefits that may come his way. I am not talking manufacturing business. Of course, instances abound of about any money he may make other shady promoters who have bent the than the legitimate dividends and the law to have higher ownership apart management compensation he gets. from diverting loans to friends and His wealth is represented by his share family. But these cannot be a factor in the market capitalisation. on which one would base a decision For the promoter, the company is to buy shares in a bank as an investor. a real asset and he is at full liberty to And, of course, we have businessmen deal with the profits of the company. who have ‘used’ a bank to push He can pay dividends, buy assets or business in other financial services simply keep the cash. He can use Don’t Bank on Them like mutual funds, stock broking funds from one company to promote or wealth management. They have another. In short, he is the absolute used their banking clout to build and master of all the assets of the company. Banking is a very closelyregulated business with strengthen other businesses. However, He has a high level of motivation in limited upside in this, the bank’s shareholders may keeping the company as profitable as not be participants. possible. The promoter also wants to Private banks are too To my mind, a bank is very own as much of the company as he expensive—almost priced for much like a mutual fund. A mutual can and has the freedom to take the perfection fund invests in shares and bonds company private by buying out all the of different companies and the unit shareholders. Other investors have State-controlled banks are value is computed every day. No one the confidence that the fate of their weighed down by bad loans; will ever pay a ‘premium’ to the NAV shares will be the same as those of the confidence in them is low of a mutual fund. promoters. If I extend the same logic, a bank I wonder whether this premise can be applied to someone who sets up a commercial takes money from various people and lends it to different bank. A bank is not at all like other industries in respect people for a fixed return. There is no upside on what it of ownership. In fact, being an owner of a bank is very lends. If it lends a rupee, it will not get back anything demanding and legally complex. Firstly, the Reserve Bank more than a rupee. The book value of the share of a of India (RBI) puts a limit on the ownership in a bank. bank represents the value of all its assets (loans) less its The main promoter cannot have a clear majority. The liabilities (deposits, borrowings, etc). The only difference day-to-day functioning, the deployment of the bank’s between the mutual fund and the bank is the fact that a assets, etc, are all subjected to guidelines laid down by bank has ‘capital’ that is provided by shareholders. In a law. If the promoter has interests in other industries, a mutual fund, there is no such thing. ``

MONEYLIFE | 13 December 2012 | 22

column_Balakrishnan.indd 2

11/21/2012 6:08:28 PM

SMART MONEY R BALAKRISHNAN

The argument in favour of banks is that a bank’s profits grow. So does the NAV of a mutual fund. A bank has to provide for assets that are stressed. A mutual fund’s NAV rises or dips as per the market prices. So, if we are paying three times or five times the book value of a share of a bank, is it solely on account of the incremental profits that we expect the bank to show? And these profits are not available for disposal, except at the time of liquidation. No bank will voluntarily liquidate when the going is good. When it liquidates, it is generally because it has blown away all the money by lending for dubious businesses. The owner of any business can sell off the business to anyone at any point. The promoter of a bank cannot do that. At best, it can merge or sell itself to another bank. Again, we come to the question of who can take that call. Typically, someone with no personal stake will take the call, if it is ‘professionally’ managed or a Statecontrolled bank (SCB). Someone who takes a decision would have reasons beyond the balance sheet to make the corporate event happen. All in all, buying or selling a bank is a cumbersome process and not very exciting. So why do we buy bank shares? And why do we pay so much for them? Of course, one can argue that when it comes to SCBs, we are already paying close to or less than the book value. However, here we do not know the true book value since there is a debate on what the actual quantum of bad debts is and whether it has liabilities, like employee pensions, that have not been fully provided for. On the other hand, we seem to go to extremes, paying several times the book value for stocks of private banks, expecting 30%+ growth in perpetuity. The world believes in bank stocks. For markets like ours, the wise men tell me that banking will lead economic growth. So much so that we have created structures like exchange-traded funds for bank stocks, to bend the rules laid down by RBI about foreign ownership

levels in banks. Not too long ago, we saw a ‘premium’ on the foreign shareholding part of SBI!

Growth in Book Value If we have to find a basis for investing in bank stocks, I would recommend using what I call growth in book value. It means paying attention to the profitability after provisioning. The sad part is that banks continually need capital, and dividend compounds the problem as it reduces the book value. The key would be to take a call on a price relative to its book value. That, in turn, would be dependent on its profitability (return on equity) and the expected rate of growth in the profits. It is not very complex to figure out. Of course, the interesting thing is when we start adding in the factor of belief (or disbelief) in the quality of the assets that a bank has. This is clearly the factor that is responsible for the very high valuations accorded to the private sector banks. If I go back in time and look at relative valuations of, say, 2008 (after the Lehman crisis), the credibility gap seems to have widened even more, with private banks’ stocks being valued even higher. Going by the faith that the markets seem to repose in private banks, one small accident can derail the entire applecart. Stocks of SCBs are already low in trust so their valuations are unlikely to drop as steeply, should there be a crisis in the banking industry. Stocks of private sector banks have to meet the very high expectations that investors are reposing in them. The stock prices of private sector banks have risen far more than the change in their book value. In case of public sector banks, the prices have risen less significantly, implying a lack of confidence in the numbers. While I do not advocate investing in SCBs, investing in private sector banks, at this stage, is unlikely to fetch very high returns. The author can be reached at balakrishnanr@gmail.com

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

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

23 | 13 December 2012 | MONEYLIFE

column_Balakrishnan.indd 3

11/21/2012 6:09:10 PM

MUTUAL FUNDS POINTERS

Why do the portfolios of many top schemes have Sensex and Nifty stocks? Are these fund managers closet indexers? If so, should you be worried? Jason Monteiro analyses

CLOSET INDEX ING

Piggybacking the Index T

here are over 5,000 companies listed on the Bombay Stock Exchange and nearly 3,000 stocks are listed on the National Stock Exchange. Yet, actively managed equity schemes in India have handpicked just 273 stocks for their top 10 holdings. A majority of these make up the S&P CNX 500 stocks. All but six of the 30 most picked stocks are present in the Nifty. Most actively managed schemes, in reality, are like closet index funds. Closet index schemes are mutual fund schemes that are supposed to be actively managed in theory, but, instead, look similar to their benchmark indices. Closet index schemes exist because their managers believe that it is generally safer to have their portfolios include stocks that are present in the indices than to take on the higher risks associated with more active management. The performance of a scheme is judged by comparing its returns to the returns of the benchmark. It is no surprise that the schemes are heavily weighted in the stocks that are present in their benchmark index. And, therefore, they tend not to deviate much from the Sensex stocks to keep the returns in line with those of the benchmark. Though the Sensex consists of 30 stocks, nearly 70% of the weightage is skewed towards the top 10 stocks. Therefore, if mutual fund schemes invest heavily in these stocks, as most of them do, the returns may be in line with those of the index. Have the top performing largecap and multi-cap schemes done anything different? In fact, even their portfolios comprise many of the stocks included in the Nifty. Should this worry you? After all, you pay 2.5% annually to a fund company for actively selecting, buying

and selling stocks. If your fund manager is putting your money in Infosys, ITC, HDFC and so on, you might as well buy an index fund which charges 1.5%. However, things are not so simple. We analysed the entire universe of mutual fund equity diversified schemes which includes small-cap and mid-cap schemes as well. An analysis of their portfolio showed that though the companies remain more or less the same over a period, their weightage is what fluctuates over time; this is what impacts the performance of the scheme. Of greater importance is the stocks they have picked. Stock-picking is a skill and comprises the knowledge of which stocks from an index should be left out—which an index fund will never do. From the top ten best performing schemes, except for two schemes from Reliance Mutual Fund, the remaining eight schemes had more than 50% of their assets invested in index stocks. Leading the list was DSP BlackRock Top 100 Equity Fund which has the maximum weightage to the index stocks going up to as much as 78.02%. This was followed by HDFC Top 200 and UTI Opportunities Fund with a weightage of 75.06% and 70.43%, respectively. Of the schemes which invest in the highest number of index stocks, HDFC Top 200 invests in the maximum number of Nifty stocks; understandably, as it has the largest corpus as well. It is now invested in a total of 35 stocks. Of the 64 stocks present in the portfolio of Birla Sun Life Frontline Equity Fund, 33 stocks are present in the Nifty. DSP BlackRock Top 100 Equity and Canara Robeco Equity Diversified invest in 28 index stocks each, of their total stocks of 38 and 49, respectively. A high portion of the top 10 holdings of these schemes ``

MONEYLIFE | 13 December 2012 | 24

Fund pointer.indd 2

11/23/2012 9:10:37 PM

MUTUAL FUNDS POINTERS

Top schemes: Where do they invest? Scheme Name

Total No. of Stocks

No. of Index Stocks

Percentage of Index Stocks

Weightage of All Index Stocks

Weightage of Top 10 Index Stocks

HDFC Top 200

48.6%

75.06%

47.86%

Birla Sun Life Frontline Equity Fund - Plan A

51.6%

66.55%

36.17%

DSP BlackRock Top 100 Equity Fund

73.7%

78.02%

48.71%

Canara Robeco Equity Diversified

57.1%

70.15%

42.61%

UTI OpportuniƟes Fund

63.4%

73.78%

43.94%

HDFC Equity Fund

34.9%

61.30%

47.27%

HDFC Growth Fund

43.2%

64.69%

51.75%

Quantum Long-Term Equity Fund

54.2%

54.31%

47.39%

Reliance RSF - Equity

31.7%

30.40%

26.45%

Reliance Growth

38.7%

35.37%

32.19%

` are also present in the Nifty. Which are the top picks index part of the portfolio.

Closet indexing is widely prevalent in the fund from the index? Infosys, Larsen & Toubro, HDFC Bank, ICICI Bank and State Bank of India are among the top industry worldwide. A research by a Yale professor in 10 holdings of most of the top-performing schemes. January 2011 (“The Mutual Fund Industry Worldwide: These stocks are the top five favourites of other large-cap Explicit and Closet Indexing, Fees, and Performance”— schemes as well. It is also pertinent to note that out of Martijn Cremers, Yale School of Management) found the 50 stocks that make up the Nifty, there are 22 stocks that actively managed schemes in many countries choose which find a place in the top 10 holdings of the selected portfolios that track their stated benchmark index closely. The research showed that only a fifth of fund managers schemes put together. The top 10 Nifty stocks enjoy a weightage above 45% worldwide manage money on a truly active basis. According to data from the US equity in the schemes of HDFC Growth, DSP mutual fund sector between 1990 and BlackRock Top 100 Equity Fund, 2009, roughly a third of purportedly HDFC Top 200, Quantum Long-Term Despite picking active managers were actually closet Equity Fund and HDFC Equity Fund. the index stocks, indexers. The study revealed that at Not surprisingly, the most-picked least 40% of the fund’s benchmark Nifty stocks have heavy weightage what makes a big index is mirrored in their portfolio. in the Sensex as well. Infosys, State difference is the Though the report mentioned Bank of India, ICICI Bank, Larsen & Toubro, Reliance Industries, ONGC, weightage and timing that fund managers with the highest HDFC Bank, TCS and Hindustan and a combination of active share (whose holdings are most different from their benchmarks) Unilever are not only the top picked these two tend to outperform, on average, their Nifty stocks that command a high benchmarks net of expenses and weightage in most of the schemes; they are among the top 10 stocks in the Sensex by weightage. trading costs, much of this depends on the term for which This is not the complete story. Despite picking the the stocks are held. Just because the scheme invests less index stocks, what makes a big difference is the weightage in index stocks doesn’t make it superior. Mutual fund and timing and a combination of these two. Also, a schemes declare their portfolio on a monthly basis, i.e., scheme that looks like an index can outperform an index the stocks and their weightage at the end of the month. by avoiding a non-performing heavyweight like Reliance However, which stock and what quantity they buy or Infosys. That apart, what makes a scheme do better or sell during the month, has a significant impact on than another is the stocks they have selected for the non- performance.

25 | 13 December 2012 | MONEYLIFE

Fund pointer.indd 3

11/23/2012 9:09:09 PM

6000 Stocks.

Just 30 minutes a day. A Winning Edge.

Let us do it all for you: screening, research, analysis, grading and tracking Weekly stock letters for high profits with low-risk strategies, delivered by email

oneylife magazine has been bringing you the finest approach to stock picking – methodical, non-impressionistic and ethical. The same team that created a proven system that beats the major indices year after year now offers stock letters in different flavours for investors with different investment horizons and objectives. Here is what you get:

Cheetah: Short-term momentum Antelope: Medium-term growth stocks available at reasonable prices Lion: Long-term value—stocks that have a reasonable chance of beating the market over time. Only large companies are recommended Annual Price of Each Stock Letter: Rs995 Special Combo Offer for Any Two: Rs1,495 Special Combo Offer for All Three: Rs1,995

Stock letter new.indd 2

What’s Inside - Weekly market view - A short list of stocks to buy, with reasons - Weekly updates on all recommended stocks, and clear recommendations on when to sell Email us at mail@kensource.com for a sample Our Investment Philosophy 1. Value is a subjective idea impossible to capture in any financial formula 2. Price is the most important information and should normally overrule most other factors 3. An open mind about value and closed mind about price allows us to go wherever the opportunities currently are. We do not limit ourselves to specific styles and themes

11/24/2012 12:17:36 PM

Investment Process: We crunch thousands of numbers to spot trends, unearth bargains and use our years of perspective and knowledge of companies and managements to select the stocks that best meet the relevant investment criteria. We suggest holding at least 50 stocks in the portfolio, it improves your chances of owning those rare few stocks that everyone wishes they had spotted too—earlier. How are we different from a mutual fund and your stockbroker? 1. Unlike mutual funds that hold your stock through a sharply falling market and often end up with poor returns, we believe that the only objective of an investment is to earn positive returns. Buying scrips of good companies is not an end in itself. 2. Unlike mutual funds, we do not benchmark ourselves against arbitrary indices. We aim to earn positive returns in all markets.

Company

Issue date

V-Guard Industries# Kajaria Ceramics Surya Pharmaceutical Titan Industries Balkrishna Industries Godrej Consumer Products BGR Energy Systems Kajaria Ceramics Tata Global Beverages Petronet LNG Titan Industries

7-May-12 22-Aug-11 28-Jun-10 24-May-10 11-Jul-11 22-Feb-10 13-Feb-12 22-Aug-11 26-Dec-11 18-Apr-11 31-Jan-11

3. Mutual funds propagate that you cannot time the market. This is because it gives them an excuse to invest lazily—hold on to companies in a declining market. We believe that timing is crucial. The best stocks will decimate your portfolio if you don’t sell them on time. 4. Unlike stockbrokers, we are not concerned with whether you buy 50 shares or 5,000; whether you buy/sell once a week or 20 times a week. Our income is not tied to your actions. We earn by selling ideas that we have to be responsible for. Our stock letters will survive only if you make money. In contrast, brokers earn their commissions irrespective of whether you make money or not. Cancel within four issues. You can cancel your subscription within four issues. We will return your money for the remaining period of subscription. You can cancel by email or phone.

Recommended Price (Rs) 187 103 184 2,237 166 262 242 103 89 133 3,468

Exit Price (Rs) 482.70 170 294 3,316 236 372 340 140 119 175 4,560

Return* 158% 65% 60% 48% 42% 42% 41% 35% 34% 32% 31%

* Non-annualised; Price in Rs; # continuing investment

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 (Res): ____________ E-mail address: _____________________________________________ Date of Birth: ____________________ (MM) (DD) (YY) 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 ____________________________________ dated __________________ favouring Kensource Information Services Pvt. Ltd. ( ) Please charge it to my ( ) /( ) /( ) My card number is ______________________ & expiry date is ____________ (MM / YY) DATE: ______________________ SIGNATURE: ______________________ Please fill in this order form and mail it with your remittance to Kensource Information Services Pvt. Ltd., 315, 3rd Floor, Hind Service Industries Premises, Off Veer Savarkar Marg, Shivaji Park, Dadar (W), Mumbai 400 028. Credit card orders can be faxed to Mumbai 022-24442771. In case payment is through credit card, expiry date of the card should be mentioned. # Rates and offers are valid only in India. This offer is valid for a limited period. # All disputes shall be subject to Mumbai jurisdiction only.

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

Stock letter new.indd 3

11/24/2012 4:18:39 PM

COVER STORY

15 Stocks High Dividend with

Investing in high dividend yield stocks is a traditional way to make money on the stock market. Here is a screened list of high dividend yield companies which you could consider adding to your portfolio. Analysis by Jason Monteiro & Pratibha Kamath

Yield

hen you buy a stock, what do you expect to get from it? A higher selling price is the most obvious answer. But come to think of it, the most rational measure of returns should be dividends. After all, dividends are the only tangible and definite returns an investor gets from his share of part-ownership of the company. This brings us to the strategy of investing in stocks based on their dividend yield. Dividend yield, by definition, is the return a shareholder gets on the current stock price by way of dividends received. Why is dividend yield

important? Because it draws our attention to the income aspect of the scrip—away from its resale value. If you had bought Madras Cements, a south-Indiabased cement company in 2003, you would have got a compounded annual growth rate (CAGR) of nearly 60% over 10 years. That growth comprises two things: stock price appreciation and dividends, together making up what is called total shareholder returns (TSR). Now, if you look closely at that 60% TSR of Madras Cements over the 10 years, nearly 90% of the returns came from dividends! Take another company, Orient Abrasives: over 80% of the TSR came from dividends, over the past

MONEYLIFE | 13 December 2012 | 28

Cover Story.indd 2

11/24/2012 5:23:07 PM

COVER STORY

10 years. This does not mean that dividends are the beall and end-all of investing. It simply underlines the huge importance of dividends in long-term returns. Companies with strong cash flow and commitment to investors usually give out decent dividends. You can almost judge the quality of management by how consistent and sizeable its dividend payout is. Moreover, dividends are paid by these companies regardless of market gyrations, as long as the fundamentals are strong. In other words, if you invest in a company that has a great track record of management, healthy cash flows and a good dividend history, and hold it over the long term, the chances are that your returns will be magnified due to the dividend component. How to select companies whose dividends would be substantial? The answer is dividend yield which indicates, as a percentage, the dividend you get for the price you pay (market price of the stock). If you pay Rs90 for a share and get a dividend of Rs4.5, the dividend yield is 5%. Clearly, the higher the dividend yield, the better it is. But dividend yield can lead you into a trap, if you’re

not careful. Dividend paid is historical data while price reflects the future. There may be a reason why the price is low. It may be revealed later, leading to still lower prices. If the price drops and the dividend paid out remains the same, the dividend yield will be even higher. But what you gain in dividend, you lose in price. Worse, a company that has run into problems may lower the dividend, destroying the reliability of the data that attracted you in the first place. Companies with a high dividend yield may be good investments if their fundamentals do not deteriorate. Dividends are paid from the cash which comes from earnings. Therefore, one should look at factors like sales growth, earnings growth, the size of operations, and so on, to ensure that the high dividend yield you are seeing today is not a chimera. One should be careful when one indicator looks good and the rest are questionable. That’s a sure sign that not all is right with the company. We have screened the companies in our database not by high dividend yield but also by a consistent dividend paying record (over the past three years). This was

Yield Matters Company Name

Avg DivLast 3 FY

Dividend Payout Rato (Cash Profit)

Average Sales Growth

Average OP Growth

RoNW

RoCE

Cash EPS

Debt Equity

HCL Infosystems

8.61%

83.78%

-6.85%

-47.60%

2.50%

2.35%

4.08

0.35

Ultramarine & Pigments

6.43%

45.65%

18.14%

4.00%

16.72%

19.42%

6.57

0.12

SRF

6.10%

14.90%

3.32%

-30.37%

21.69%

22.59%

95.62

0.54

Clariant Chemicals (India)

5.61%

49.62%

4.47%

14.42%

62.68%

26.63% 120.92

0.02

Samkrg Pistons & Rings

5.30%

24.35%

3.79%

5.59%

19.19%

20.65%

22.72

0.64

Chaman Lal SeƟa Exports

5.27%

20.95%

43.26%

28.37%

17.24%

13.99%

8.19

1.36

AarƟ Industries

5.23%

19.40%

18.03%

34.98%

17.01%

16.76%

17.73

1.22

GIC Housing Finance

5.08%

40.47%

28.78%

66.10%

11.88%

9.45%

11.12

7.23

Cosmo Films

5.07%

12.84%

0.99%

-28.07%

12.72%

9.45%

38.95

0.93

Gandhi Special Tubes

5.02%

25.68%

7.46%

-4.91%

21.48%

27.05%

23.37

0.00

Hinduja Global SoluƟons

5.01%

41.70%

16.29%

-10.33%

9.58%

8.81%

47.97

0.20

Panasonic Carbon India Co

5.00%

76.89%

39.79%

277.06%

6.98%

1.05%

9.10

0.00

Andhra Sugars

4.95%

14.30%

29.93%

62.78%

19.95%

19.75%

48.97

0.56

Nippo BaƩeries Co

4.93%

27.84%

-0.45%

-45.59%

5.92%

7.26%

35.92

0.06

Rane (Madras)

4.82%

23.40%

7.44%

17.90%

23.81%

19.64%

40.57

1.00

OP- OperaƟng profit, RoNW-Return on Net Worth, EPS-Earning per Share, RoCE-Return on Capital Employed

29 | 13 December 2012 | MONEYLIFE

Cover Story.indd 3

11/24/2012 5:23:25 PM

COVER STORY

further refined to eliminate companies where corporate governance is suspect. (These companies may declare a high dividend but whether many shareholders other than the promoters will actually get the dividend cheque is doubtful). Here goes the list of companies offering high dividend yield (DY), Dividend Payout Ratio (DPR) and our idea of whether or not they will be able to sustain the high dividend yield in the future. HCL Infosystems (DY: 8.61%, DPR: 83.78%): This company operates in three segments: computer systems, telecommunications and Internet-related services. Sales growth has not been impressive, though and it has a negative average sales growth (of -6.85%) over the past five quarters. It had a return on net worth (RoNW) of just 2.50%. Its return on capital employed (RoCE) was 2.35% and cash EPS was Rs4.08. The company’s stock price is at a multi-year low. This makes it a reasonable candidate for a high dividend yield investment. Ultramarine & Pigments (DY: 6.43%, DPR: 45.65%): The company’s main products include ultramarine blue, synthetic detergent cakes and synthetic detergent powder. Sales have grown at an average rate of 18.14% over the past five quarters and operating profit has grown at an average of 4%. It has a RoNW and RoCE of 16.72% and 19.42%, respectively. The company has a debt to equity ratio of 0.12. Another worthwhile dividend yield candidate. SRF (DY: 6.10%, DPR: 14.90%): The company operates in three business segments: textiles, chemicals & polymers and packaging films business. Over the past few quarters, revenues have been declining, averaging a sales growth of just 3.32%. But it has a high RoNW at 21.69% and RoCE at 22.59%. Its cash EPS is among the highest compared to the others on the list at Rs95.62. It has a relatively low dividend payout ratio as well. This is another good long-term bet. Clariant Chemicals (DY: 5.61%, DPR: 49.62%): An affiliate of Switzerland-based Clariant, this company makes colours, and dyes and specialty chemicals. An excellentlymanaged company, it has been struggling to grow its business in the current environment of manufacturing slowdown. Sales growth has averaged 4.47% over the past five quarters but RoNW is an exceptional 62.68% and RoCE is 26.63%. It is almost a zero-debt company and qualifies as one of the best dividend yield candidates.

Samkrg Pistons & Ring (DY: 5.30%, DPR: 24.35%): Makes auto components and accessories of motorcycles, which include pistons, piston pins, piston rings, etc. However, this micro-cap company has an average sales growth of just 3.79%, registering negative sales growth in the past two quarters. The company has a RoNW of 19.19% and RoCE of 20.65%. It is a well-run company whose stock price will rebound, once the economy gains momentum. Chaman Lal Setia Exports (DY: 5.3% DPR: 20.95%): The company sells basmati rice under the brand, Maharani, which is exported to UK, Singapore and the US. The company has a high average sales growth of 43.26% along with an operating profit growth of 28.37%. RoNW and RoCE of the company works out to 17.24% and 13.99%, respectively. It has low cash EPS of Rs8.19 and a relatively high debt to equity ratio of 1.36. Unless there is a serious governance issue, the stock is not likely to decline much, making it a good candidate for dividend yield. GIC Housing Finance (DY: 5.08%, DPR: 40.47%) is a home finance company set up by the governmentowned General Insurance Corporation which offers housing loans to individuals and to those engaged in construction of residential spaces. It also has tie-ups with corporates for various housing finance needs. It has a good and consistent average revenue growth of 28.78% with an average operating profit growth of 66.10%. The company has a RoNW of 11.88% and RoCE of 9.45%. This is one company that is certainly not going to disappear. It ranks very high as a good bet for those looking for dividend yield stocks. Gandhi Special Tubes (DY: 5.02%, DPR: 25.68%) makes steel tubes for the automotive and refrigeration business. It has delivered average sales growth of 7.46% over the past five quarters. This company enjoys a small market of highvalue products and, so, has always earned excellent return on capital. RoNW is 21.48% and RoCE is 27.05%. It has low debt and is a top choice for dividend yield. Panasonic Carbon (DY: 5.00%, DPR: 76.89%) manufactures carbon rods (midget electrodes) which are a component of dry-cell batteries. Sales almost doubled for the quarter ended September 2012 over those in the previous year, from Rs4.95 crore to Rs.9.80 crore.

MONEYLIFE | 13 December 2012 | 30

Cover Story.indd 4

11/24/2012 5:23:36 PM

Blank Page

Fund pointer.indd 5

10/21/2011 6:03:03 PM

COVER STORY

The sales growth over the past five quarters averaged 39.79%. Operating profit growth also improved in the recent quarters. But the business suffers from terrible margins. RoCE is just 1%. On the positive side, it has no debt. It’s a Japanese company and, hence, is unlikely to disappear like a small-cap Indian company. Rane (Madras) Limited (DY: 4.82%, DPR: 23.40%) makes steering, suspension linkages and steering gears for the automotive industry. For this small-cap company, which is a subsidiary of Rane Holdings, revenue has declined in the past two quarters; operating profit has taken a dip as well. Still, the capital is used so effectively that it has a RoCE of 19.64% and a RoNW of 23.81%. It has a debt:equity ratio of 1. But that is not of much concern, unless the business declines sharply. The management quality of Rane is excellent and stock is reasonably valued. These are some of the best dividend yield stocks. If you want a few more choices, consider the following companies. Be warned, though, these stocks are riskier because they make low returns on capital. Hinduja Global Solutions (DY: 5.01%, DPR: 41.70%) is a business process and customer relationship management company. Revenues have been growing consistently over the past five quarters averaging 16.29%. Operating profit growth improved in the previous quarter to 34%. The company has a low RoNW of 9.58% with a RoCE of 8.81%. Cosmo Films (DY: 5.07%, DPR: 12.84%) makes packaging films such as bi-axially oriented polypropylene film, synthetic paper and thermal lamination. Business is sluggish. Average sales growth of the past five quarters has been just 1%. Operating profit growth has not been too impressive either. The company has an RoNW of 12.72% and a debt:equity ratio of 0.93. The stock is not expensive which is why the risk of price erosion is somewhat low. Nippo Batteries (DY: 4.93%, DPR: 27.84%) manufactures batteries under three categories, including rechargeable, non-rechargeable and solar powered cells. The company also manufactures battery-chargers, torches and emergency power back-up products. Revenues of the company have been stagnant over the past five quarters and operating profit has been on a

decline. The company is not attractively valued with a RoNW of just 5.92% with a RoCE of just 7.26%. It has cash EPS of Rs35.92. The Andhra Sugars (DY: 4.95%, DPR: 14.30%) is into the manufacture and sale of sugar, organic and inorganic chemicals. The company has registered a strong average sales growth of 29.93% with a high operating profit growth of 62.78%. The company is reasonably valued with a RoNW of 19.95% with an RoCE of 19.75%. The company has high cash EPS of Rs48.97. Aarti Industries (DY: 5.23%, DPR: 19.40%) is a manufacturer of specialty chemicals with diversified end-uses into agro-chemicals, pharmaceuticals, paints, rubber chemicals, additives, and home and personalcare applications. Sales growth of the company has been strong averaging 18.03% over the past five quarters with a huge average operating profit growth of 34.98%. The company has a reasonable RoNW of 17.01% with a RoCE of 16.76%. The dividend payout ratio has been low and the company also has a high debt:equity ratio of 1.22. A risky choice, especially since the stock has run up a lot.

Final Thoughts We have provided a list of high dividend yield stocks. And as the saying goes—“don’t put all your eggs in one basket”, you should not look to just chase high dividend yield stocks but diversify your portfolio of dividend paying stocks across different yields and different sectors. If you plan to hold just stocks with high dividend yields, you would be taking on too much risk. A company paying a high dividend yield of say 8% may not continue doing so forever, and if it plans to cut dividends the share price may slide considerably. On the other hand, if you have stocks of companies with a lower dividend yield of 2%-3%, like ITC and Hindustan Unilever, they would continue paying out dividends as they have done so for decades. You should also look to avoid companies when the payout ratio begins to climb, a low payout ratio means there is more room to grow, but for a company with high payout ratio, the dividend paid may not be sustainable and a decrease in earnings may lead to a reduction in dividend. As with all stock investments, you should look for a holding period of at least five years. If you want to boost your returns even further from dividend stocks, the dividends if reinvested and compounded over a longer period can enhance the returns considerably.

MONEYLIFE | 13 December 2012 | 32

Cover Story.indd 6

11/24/2012 5:23:54 PM

India’s largest & most successful FINANCIAL LITERACY EFFORT

S EVENT ERS K A E P S RS MEMBE DEES N E T T A

ION T A D N FOU

Moneylife Foundation AD.indd 1

11/24/2012 3:39:57 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 “The huge over-speculation... that you cannot time the market. You will get vivid should now lead to some descriptions of the past everyday from business painful correction...” channels and the next day from newspapers. You 6 -19 Jun ‘08 “Time for a Break?” will get sensible and occasional predictions from only one source. You know what’s more valuable 2-16 Aug ‘07

17-31 Jul ‘08

9-22 Nov ‘07

17,325

19 Jun-2 July ‘09

Hea

15 Feb-1 Mar ‘07

“Time to Go Neutral” “The market may correct 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

“We don’t have a forecast”

“A new downleg may start soon”

“Is the market about to crack?”

28 Mar-10 Apr ‘08

31 July-13

31 Aug-13 Sept ‘07

13,550

“Is the market due for a fall?”

“A short-term bottom may be very near”

2-15 Jan ‘09

16-29 Mar ‘07

27 Feb-12 Mar ‘09

“Buy th

“A Rally Now?”

“Weakness has resurfaced” 4-17 August ‘06 9,775

“The panic looks done for now”

“A Breakdown?”

Sensex

13-26 Mar ‘09 30 Jan-12 Feb ‘09

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

“Another weak rally” “A weak rally now” 6,000 Apr-06

Dec-07

Jul-09

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

11/24/2012 6:04:55 PM

30 Dec-13 Jan’11

13-26 Aug'10 18-31 Dec‘09

23 Apr-6 May'10

New Year, New Surprise?

4-17 Dec‘09

Time To Sell? The Coming Decline

Short-term Top?

15-28 July ‘11

27 Jan-9 Feb ‘12

Signal Yellow?

Baby Bull?

Headed Down?

6 Nov-19 Nov ‘09

31 July-13 Aug ‘09

“We have no Forecast”

11-25 March '10

A Buyers’ Market

“Buy the dip”

ally”

Jul-09

Mar-11

Nov-12

Moneylife Stock Analysis

KNOW WHAT’S COMING

Sensex.indd 3

11/24/2012 6:06:12 PM

STOCKS VALUE PICKS

Taking Stock

ith many earnings results for Q2 FY12-13 already announced, it is time to take a look at what a value portfolio looks like. Market price is a reflection of earnings and, by extension, value. Stocks that have come in and gone out are a reflection of this phenomenon. Most of the churning occurred in the micro- and small-cap segments. This is where price sensitivity is the highest. In the small-cap segment, we saw some of our stock picks—RS Software, JVL Agro Industries and Balaji Amines—become dearer. All three had reported good results in their respective sectors. Kajaria Ceramics, one of our favourites, has stepped in the mid-cap segment, replacing Kaveri Seed. Earlier, we Company

Results Declared

ML Sector

had recommended Kaveri Seed and advised investors to exit the stock at a 42% profit. We get comments about why we have included this and that stock in the list. Please be sure to read the adjoining text “How to read use the table.” Remember, this is a rough and ready basic list and only a starting point for you. How To Use the Data: This list is mainly designed to reduce your effort while making a shortlist of value picks. Stocks have been sorted and displayed according to a composite rank of high return on net worth and low valuation. You cannot buy these stocks mechanically. To actually select a stock to buy, you may want to glance at other parameters and apply your own understanding of a sector or a company. Remember, for value investors, there is something called a ‘value trap’. This refers to a situation when an attractive company is reasonably valued but its internals are deteriorating – which is probably why the stock was cheap to start with. One way to avoid this is to consider sales growth; so look at the ones with strong sales growth. Also, keep an eye on the tax payout, which is a measure of corporate governance. The best combination is great financials, low valuation and a rising stock price. One should buy in an uptrend, though a flat trend of a value stock is perfectly fine too. A ‘value’ stock in a strong downtrend is best avoided. Remember, price could go down due to an adverse event relating to the company or a severe market decline; in either case you don’t want to catch a falling knife.

Latest Qtr Revenue Growth

Average 3-Qtr Revenue Growth

Valuation (MC/OP) **

Return on Net Worth (%) *

Tax Rate

Price Trend

40% 3% 26% 186% -19% 65% 9% 64% NA 21%

0.34 0.78 0.37 1.99 1.14 2.35 2.10 1.69 0.68 0.42

32% 179% 23% 49% 23% 28% 26% 21% 19% 18%

39% 0% 0% 29% 33% 39% 31% 32% 1% 33%

Up Up Up Up Flat Up Down Up Flat Up

84% 36% 36% 69% 69% 14% 50% 40% 31% 41%

1.20 0.86 1.00 1.19 1.22 2.57 2.74 2.02 0.42 0.89

101% 27% 24% 24% 24% 38% 40% 26% 21% 21%

33% 13% 46% 18% 30% 53% 32% 27% 25% 6%

Up Up Up Up Flat Up Up Down Down Flat

Micro- cap ( Market Capitalisation less than Rs100 crore)

Indo Count Inds Maral Overseas Welspun Syntex De Nora India Ansal Buildwell Chaman Lal Setia Exports # Bharat Gears # Orient Bell HB Stockholdings KG Denim

Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12

Textiles Textiles Textiles Steel products Real estate Foods & Beverages Auto Components Building material Financial Services Textiles

42% 2% 37% 402% -22% 102% 2% 57% NA 26%

Small- cap (Market Capitalisation Rs100 crore- Rs500 crore)

Cochin Minerals & Rutile Ankit Metal & Power Welspun India Thirumalai Chemicals Parekh Aluminex Gujarat Sidhee Cement Thangamayil Jewellery # Supreme Infrastructure India# Shri Lakshmi Cotsyn Hanung Toys & Textiles

Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12

Chemicals Steel products Textiles Chemicals Non-ferrous metals Cement Lifestyle & Leisure Infrastucture - EPC Textiles Lifestyle & Leisure

68% 20% 17% 45% 58% 30% 27% 34% 48% 44%

Mid- cap (Market Capitalisation Rs500 crore- Rs2,000 crore)

Ratnamani Metals & Tubes Force Motors

Sep-12 Sep-12

Steel products Auto

-2% -4%

9% 12%

2.14 4.77

29% 73%

28% 19%

Up Flat

KRBL India Glycols Vinati Organics # Infinite Computer Solutions Shree Ganesh Jewellery House

Sep-12 Sep-12 Sep-12 Sep-12 Jun-12

Foods & Beverages Chemicals Chemicals Software & IT Services Lifestyle & Leisure

46% 28% 27% 67% -15%

35% 52% 35% 34% 10%

2.03 1.12 4.57 4.70 1.88

27% 25% 38% 34% 22%

25% 33% 33% 18% 1%

Up Up Up Up Up

MONEYLIFE | 13 December 2012 | 36

Stocks Value Pick.indd 2

11/24/2012 6:07:21 PM

STOCKS VALUE PICKS

Company

` Atul Ajanta Pharma # Kajaria Ceramics #

Results Declared

ML Sector

Latest Qtr Revenue Growth

Average 3-Qtr Revenue Growth

Valuation (MC/OP) **

Return on Net Worth (%) *

Tax Rate

Price Trend

Sep-12 Sep-12 Sep-12

Chemicals Pharma Building material

19% 38% 21%

19% 38% 29%

3.38 5.69 6.43

26% 31% 33%

28% 17% 31%

Up Up Up

25% 39% 42% 12% 39% 33% 34% 21% 19% 32% 33% 31% 26% 34% 35% 48% 55% 28% 34% 24%

3.37 3.67 4.49 3.65 2.12 2.67 4.23 10.58 2.29 8.03 9.33 8.63 7.23 7.49 6.12 10.61 6.35 3.58 4.54 1.74

35% 32% 27% 24% 23% 23% 24% 38% 21% 32% 35% 33% 30% 30% 26% 36% 25% 21% 23% 19%

31% 33% 32% 12% 27% 33% 18% 32% 21% 30% 16% 33% 32% 16% 29% 9% 33% 31% 30% 8%

Flat Flat Down Flat Up Up Up Up Down Down Up Up Up Up Flat Down Up Up Down Up

51% 29% 4% 32% -15% 40% 8% 4% 45% 26% 22% 25% 26% 6% 6% 32% 29% -6% 19% 35%

7.33 4.28 13.05 10.62 9.93 7.02 7.96 14.48 8.77 3.46 2.81 13.16 11.58 7.25 7.00 17.74 5.41 10.46 23.34 13.94

32% 23% 53% 34% 29% 24% 28% 50% 28% 21% 20% 32% 29% 22% 21% 49% 20% 24% 117% 31%

32% 26% 17% 17% 32% 33% 36% 25% 19% 22% 31% 27% 7% 33% 33% 18% 33% 32% 24% 20%

Flat Flat Down Up Flat Up Flat Up Up Flat Down Flat Flat Flat Up Up Flat Up Up Up

Large- cap (Market Capitalisation Rs2,000 crore- Rs10,000 crore)

MRF # Balkrishna Industries # Indraprastha Gas Arvind Dena Bank Jammu & Kashmir Bank # City Union Bank # Supreme Industries # Indian Bank Gujarat Gas Co Torrent Pharmaceuticals # Amara Raja Batteries # Gujarat Mineral Devp Corp # Mindtree # Coromandel International # Hexaware Technologies Bajaj Finance # Madras Cements # South Indian Bank # Syndicate Bank #

Jun-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12

Auto Components Auto Components Oil & Gas Textiles Banks Banks Banks Plastics Banks Oil & Gas Pharma Auto Components Energy Software & IT Services Farm & Farm Inputs Software & IT Services Financial Services Cement Banks Banks

17% 33% 43% 26% 33% 30% 30% 23% 12% 28% 36% 28% 60% 31% -9% 36% 50% 22% 23% 16%

Mega- cap (Market Capitalisation above Rs10,000 crore)

Petronet LNG # Rural Electrification Corp # Hero MotoCorp # HCL Technologies # NMDC Yes Bank # Bharat Heavy Electricals # Bajaj Auto # Shree Cement # Bank of Baroda # Punjab National Bank # Infosys Adani Ports & SEZ Oil & Natural Gas Corp # Shriram Transport Finance # Tata Consultancy Services # Axis Bank # Sun TV Network Colgate-Palmolive (India) # Lupin #

Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12 Sep-12

Oil & Gas Services Financial Services Auto Software & IT Services Steel Banks Engineering Auto Cement Banks Banks Software & IT Services Infrastucture - EPC Oil & Gas Financial Services Software & IT Services Banks Media Consumer Products Pharma

41% 29% -11% 36% -15% 37% 1% -4% 55% 20% 15% 22% 24% -21% 9% 30% 27% -4% 17% 25%

MC: Market-cap (as of 30 September 2012); OP: Operating Profit; * Return on net worth is based on trailing four quarters of net profit; ** valuation is based on the recent quarter operating profit annualised; # - these stocks are recommended either in our Stockgrader, Street Beat or Kensource stockletter;NA - Not Applicable

37 | 13 December 2012 | MONEYLIFE

Stocks Value Pick.indd 3

11/24/2012 6:07:32 PM

STOCKS STREET BEAT

Unbiased & Methodical Stock Picking that Works!

J a mmu & K a s hm ir Bank

Sound Fundamentals Well-run and faces little competition

n November 2012, the share price of Jammu & Kashmir Bank breached its 52-week high on the Bombay Stock Exchange, following the September 2012 quarter results. Investors bid up the shares from a little over Rs930 to over Rs1,300 in just two months as the Bank's yield on advances increased significantly more than its cost of deposits. And the management appeared confident of sustaining margins around 4% over the next few quarters as well. This level of performance has been maintained by the Bank over the past few quarters; the chairman said in the Bank’s Annual Report 2012: “The Bank demonstrated sheer resilience and soundness of fundamentals to record unprecedented growth in all spheres. This sterling performance is way above industry averages.” The Bank posted a net profit of Rs269.53 crore for the quarter ended 30 September 2012 compared to Rs199.65 crore for the quarter ended 30 September 2011. Total income increased from Rs1,226.82 crore to Rs1,591.51 crore. Banks have a problem of NPAs (non-performing assets) and Jammu & Kashmir Bank is no exception. Yet, the Bank’s performance was better compared to other banks and, according to the Annual Report 2012, “The Bank’s performance in the recovery of NPAs during the year continued to be good. The Bank effected cumulative cash recovery, up-gradation of NPAs and technical write-off of Rs316.91 crore compared to Rs232.63 crore in the previous year.” J&K Bank is also strong in retail banking and, during 2011-12, 55 new business units were established, taking the number of branches to 603, spread over 20 states and one Union Territory. The commissioning of new ATMs was dealt with even more aggressively: 147 ATMs were commissioned, taking the total number to 508. The aggregate business of the Bank stood at Rs86,424.32 crore at the end of FY11-12. The total business of the Bank increased by Rs15,554.75 crore from the previous year’s figure of Rs70,869.57 crore, registering a growth of 22%. The Bank registered its highest ever net profit—of Rs803.25 crore—for FY1112 compared to Rs615.20 crore for FY10-11, a jump of 30.57%. The Bank declared record dividend of

Key Financials Stand-alone (Rs Cr)

Mar-12

Jun-12

Sep-12

Revenue

1,479.81

1,569.53

1,591.51

417.62

415.17

422.68

OPM

28%

26%

27%

Y-o-Y Revenue Growth

31%

40%

30%

Y-o-Y OP Growth

41%

31%

35%

March-ending

FY10

FY11

FY12

RoNW

17%

18%

20%

Cash EPS

113.31

134.73

174.76

OP: Operating Profit, Y-o-Y: Year-on-Year, OPM: Operating Profit Margin, EPS: Earnings Per Share

Jammu & Kashmir Bank (Rs) 1,330 1,240 1,150 1,060 970 880 Jun-12

Aug-12

Nov-12

335% for FY11-12. High deposit rates, on account of inflationary pressures, and the lower appetite for loans from quality customers are likely to be a drag on new business in the immediate context, until there is faster growth in the economy. The Bank is, however, more favourably placed than its peers to handle pressures on NIM (net interest margin) from high deposit rates. The Bank will continue to retain its market leadership in the state of Jammu and Kashmir and focus on qualitative growth. But its increasing non-J&K exposure on the asset side is ``

MONEYLIFE | 13 December 2012 | 38

Stock-Streetbeat.indd 2

11/24/2012 4:53:41 PM

STOCKS STREET BEAT

Unbiased & Methodical Stock Picking that Works!

` of some medium-term concern to analysts.

The sound fundamentals of the Bank are reflected in its high book value of Rs844.34 (face value Rs10); its earnings per share in FY11-12 were Rs165.69. The price-to-earnings ratio is at 7.10, while the share is trading at Rs1,307.10. Its 52-week low was Rs645 on 15 December 2011. The shareholding percentage with the public is only 18.16%. Foreign institutional investors hold 24.76%, domestic institutional investors hold 3.91% and the promoters’ shareholding is 53.17%. Over the past five quarters, Jammu & Kashmir Bank’s average growth in revenues and operating profit was 32% and 27%, respectively. Its average operating margin is 26% and return on net worth is an excellent 20%. Its market-cap to revenues is 0.99, while its market-cap to operating profit is 3.74 times. While the share is an attractive buy, given its performance, the stock has run up a lot. You should wait for a pullback to Rs1,100 or so, to buy.

company Foseco Plc, listed on the London Stock Exchange, has been associated with the metal industry for over 75 years and is acknowledged as a world leader in the supply of consumable products for use in foundries. The share of Foseco India was doing well in the earlier part of 2012. From a 52-week low of Rs502 on 3 January 2012 on the Bombay Stock Exchange, it scaled a 52-week high of Rs791 on 26 April 2012—a

Key Financials Stand-alone (Rs Cr)

Mar-12

Jun-12

Sep-12

Revenue

63.04

63.62

62.27

11.03

9.76

7.97

OPM

17%

15%

13%

Y-o-Y Revenue Growth

13%

Y-o-Y OP Growth

21%

-32%

December ending

FY09

FY10

FY11

F O S E C O I NDIA

RoNW

21%

29%

30%

A Dip in Performance

Cash EPS

25.12

35.98

46.30

OP: Operating Profit, Y-o-Y: Year-on-Year, OPM: Operating Profit Margin, EPS: Earnings Per Share

Foseco India (Rs)

Regular dividends hidden attraction

665 645

une-based Foseco India has a portfolio of over 400 complex products, including resins, coatings, feeding systems, ferrous and non-ferrous metal treatment products and additives. Integrated steel plants and foundries are among the company’s clients. The company exports its products mainly to the Middle East, Sri Lanka, Nepal, Kenya, Ghana, Bangladesh, Singapore and Taiwan. The Indian foundry industry is expected to grow in the next few years. The parent

625 605 585 565 Jun-12

MONEYLIFE STOCK IDEAS

Aug-12

Nov-12

Recommended Price Rs28

THAT WORK

Moneylife Issue 21 May 2009

135%*

Exit Price Rs86

(Stop Profit triggered on 10 December 2010)

(Jay bharat maruti)

* Annualised returns

39 | 13 December 2012 | MONEYLIFE

Stock-Streetbeat.indd 3

11/24/2012 4:54:18 PM

STOCKS STREET BEAT

Unbiased & Methodical Stock Picking that Works!

VHCL Industries (Rs32)

Stories of Price Manipulatio

VHCL Industries (Rs) 40

Share not traded between 7 June 2012 and 21 August 2012

1,196%

0 Oct-11

Apr-12

Nov-12

HCL Industries, erstwhile Jhaveri Weldflux Limited, saw its stock price balloon by an unimaginable 1196% between 19 October 2011 and 16 November 2012, when its stock price went all the way to Rs35 from just Rs2.70! We’re talking about a stock that was suspended, in 2007, by BSE for non-compliance of listing norms. The suspension got revoked on 30 May 2011. Additionally, the company had failed to comply with shareholding and corporate governance norms as well. A closer

` rise of 57.57%. But it declined due to poor September

analysis of volume data reveals that there was scant number of trades between October and March, with just one trade clocked on several days. More pertinently, if one looks at the financials, one could smell something fishy. Just after volumes picked up, out of the blue, the company reported Rs83.9 crore of sales for the June 2012 quarter, after reporting sales of less than a lakh for the preceding two quarters. Likewise, net profit was Rs1.46 crore, when it had reported losses in two of the previous five quarters. What did the regulators do? Nothing.

2012 quarter results; it is now trading at around Rs582.05 and is an attractive buy again. Foseco is a tightly held company; 75% of its shareholding is with the promoters, 0.02% is with domestic institutional investors and 24.98% shareholding is with the public. On 23 October 2012, the company declared an interim dividend of Rs2 per equity share of face value of Rs10. Dividends distributed by the company have been liberal in the past year or two: interim dividend of Rs4 per share on 27 July 2012, interim dividend of Re1 per share on 7 May 2012 and final dividend of Rs7 per share on 23 March 2012. In the September 2012 quarter, the company’s revenues were Rs62.27 crore against Rs63.62 in the previous quarter—a fall of 2.12%. The company’s net profit was Rs4.87 crore in the September 2012 quarter

against Rs5.98 crore in the previous quarter—a fall of 18.56%. In FY11, the company’s revenues were Rs234.57 crore against Rs190.09 crore in the previous year. During the same period, the company’s net profit was Rs25.28 crore against Rs19.30 crore in the previous year. Over the past five quarters, Foseco India’s average growth in revenues and operating profit both were 12%. Performance has not been great because of a slowdown in manufacturing activity in India and several parts of the world. Its average operating margin is 16% but return on net worth is an excellent 30%. Its market-cap to revenues is 1.50, while its marketcap to operating profit is 11.76 times, not too high for a multinational company earning high return on capital. This stock will not do much in the medium term but is a good long-term buy, given the attractive dividends it regularly declares.

About Our Stock Selection Process: The Street Beat stocks are selected from over 1150 stocks in the Moneylife database. We normally look for companies that are small, growing, reasonably valued and are in an uptrend. After having selected stocks based on these criteria we try to eliminate the ones that could throw up governance issues. How To Use this Section: Our buy suggestions are given at the end of each analysis. We also publish a list that contains all the selections made cumulatively. It provides updated views on whether a selected stock is still a buy, a hold or a sell. Disclaimer: 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. Data Source: Centre for Monitoring Indian Economy’s Prowess database.

MONEYLIFE | 13 December 2012 | 40

Stock-Streetbeat.indd 4

11/24/2012 4:54:41 PM

STOCKS STREET BEAT

Unbiased & Methodical Stock Picking that Works!

Our Report Card

s the curtains begin to fall on the earnings season, it is time to take stock of any portfolio and see how it has performed. In our universe, our average stock return is 23%; 24 out of 35 stocks, or 7 out of 10 stocks, have exhibited positive returns. The best Price (Rs)

performers in our portfolio continue to be stocks which are rarely tracked by analysts—RS Software, V-Guard Industries and Somany Ceramics—all of which have triple-digit returns. The most disappointing stock has been Britannia (-14%), which is under review. About this Table: This is an ongoing review of the stocks recommended in Moneylife since January 2012 The comment column carries some relevant information about the stock on its financials and valuation that you need to know.

Company This Issue

Issue

Change (+/-)

Comments

Jammu & Kashmir Bank

13 Dec-12

1,100

See Pg- 36 for analysis

Foseco India

13 Dec-12

To be announced

See Pg- 37 for analysis

Previous Selections Atul Auto

29 Nov-12

142.10

Assured of large customer for seven years; virtually debt-free

Venus Remedies

29 Nov-12

280.35

-3%

Focus on high growth therapeutic segments; good RoNW (16%)

JVL Agro Inds

15 Nov-12

16.60

-8%

Strength in economies of scale, branding and packaging. Low valuation

Adi Finechem

1 Nov-12

63.35

Decent 2nd quarter results; high RoE (43%) but risky so keep a 20% stop-loss Rebound continues with good 2nd quarter results; long-term potential

Tide Water Oil Co

1 Nov-12

7,875.85

-3%

GMDC

18 Oct-12

200.15

High mineral demand, good fundamentals, long-term potential

Insecticides (India)

18 Oct-12

412.55

-4%

Moderate performance in 2nd quarter, avg 3-quarter OP growth stood at 24%

Suprajit Engineering

4 Oct-12

25.05

Average 2nd quarter results with high RoE of 36%

Lumax Auto Technologies

20 Sep-12

146.25

Good RoNW of 28%; reasonably low valuation

VST Tillers Tractors

20 Sep-12

441.45

-10%

Poor 2nd quarter results due to weak monsoons

Wim Plast

6 Sep-12

275

27%

Steady historical performance; high RoE, low valuation

Narmada Gelatines

6 Sep-12

131

12%

Exceeded 2nd quarter expectations; attractive valuation

Bharat Gears

23 Aug-12

65.05

-12%

Subdued 2nd quarter; preferred supplier to OEMs; attractive valuation

Thangamayil Jewellery

23 Aug-12

200.55

60%

High RoE, but operating profit under pressure

Apcotex Industries

9 Aug-12

165.40

39%

Solid 2nd quarter performance; good RoE (18%)

Supreme Infrastructure

9 Aug-12

290.80

-6%

Posted good 2nd quarter numbers but has a short history

Chaman Lal Setia Exports

26 Jul-12

33.10

-8%

Outstanding 2nd quarter results; sales up 102%

Deccan Cements

26 Jul-12

205.45

19%

Poor 2nd quarter results; being reviewed

Rane (Madras)

12 Jul-12

155.20

-2%

Good small-cap company but reported poor 2nd quarter results

Siyaram Silk Mills

12 Jul-12

265.45

12%

Low valuations, good RoE but somewhat subdued 2nd quarter results

Swaraj Engines

28 Jun-12

400.50

High RoE; improved 2nd quarter results, despite erratic monsoons

Yuken India

28 Jun-12

170.20

-13%

Disappointing 2nd quarter results; operating profit a worry

HIL

14 Jun-12

366

30%

Excellent sales growth (29%) in 2nd quarter; low valuations

RS Software (India)

31 May-12

67.30

152%

Exceeded expectations with brilliant 2nd quarter results

VST Industries

31 May-12

1,834

Margins continue to be under pressure, despite high RoE

Balaji Amines

17 May-12

39.50

28%

Steady performance in 2nd quarter; high RoE (25%) Continues turnaround with operating profit (OP) growing 42%

Mirza International

17 May-12

18.80

23%

Amara Raja Batteries

3 May-12

157.50

62%

Steady sales growth in tough market; high RoE (33%)

Madras Cements

3 May-12

150.70

36%

Solid 2nd quarter performance and attractive valuations

Britannia Industries

19 Apr-12

550

-14%

Average 2nd quarter performance; high RoE (38%); being reviewed

V-Guard Industries

22 Mar-12

186.35

157%

Continues to fire all cylinders with outstanding performance in 2nd quarter

Pratibha Industries

8 Mar-12

47.45

Reported good revenues; a good stock in a lagging sector

Indag Rubber

23 Feb-12

169.90

54%

Decent sales growth, high rubber prices affected operating profits

Jayant Agro-Organics

23 Feb-12

113.20

27%

Dismal 2nd quarter performance; high RoE

Somany Ceramics

9 Feb-12

133%

Despite good 2nd quarter showing, valuations are low

Exits so far: Kaveri Seed 42% profit, Navin Fluorine 16% profit, Fairfield Atlas 7% profit and Minda Industries 17% loss.

41 | 13 December 2012 | MONEYLIFE

Stock-Streetbeat.indd 5

11/24/2012 4:55:47 PM

STREET BEAT WHICH WAY

Real Strength?

corporate results are not deteriorating much further. Like market-players, businessmen may wrongly hope; but, fortunately, they know what to do to adjust to the ground realities. Many quality companies (several Are market indices reflecting corporate of them are present in the main indices) are doing what India’s strength? needs to be done to grow their sales and protect their profits. No wonder, a stock like Mahindra & Mahindra is here is an emerging consensus that the Indian at an all-time high. economy is poised to recover rapidly in 2013, This is what, perhaps, explains the strength of the thanks to a variety of positive factors such as Indian market indices. As I mentioned the previous rate cuts, ‘reform initiatives’ of the government, ‘return time, the Indian market has been remarkably strong, of the investment cycle’ that will take up the baton of unconcerned about the ephemeral nature of either growth from the consumption cycle at the right time, the ‘reforms’, the ham handedness and so on. This would, of course, of raising money by selling stakes lead to a strong bull market. One Many quality target is of the Sensex at 25,000. companies (several of in government companies to the Insurance Corporation, the At least, a new high (above them are present in Life coming period, or global negative 21,200) seems certain. The astute the main indices) are factors (slowdown in China, US forecasters of storied brokerage doing what needs to and Eurozone). The steady inflow houses surely know what they are be done to grow their of money from foreign institutional talking about but they may well sales and protect investors is possibly a combination turn out to be right for the wrong their profits of round-tripping (Indian money reasons—just in time for a big nasty coming back, with the rupee being surprise. so weak) and genuine foreign buyers impressed by Here is what I think will go right for the bulls—for Indian corporate results. Last fortnight, I had suggested a while. One, the Indian corporate sector, as always, that paying attention to consistent price action is of will find ways and means to adjust to the problems paramount importance and price action is positive. of slow growth and delays, corruption and so on. Therefore, we are not bearish about the market They have been hoping for long direction. That said, a Nifty level of 5,900 will that ‘reforms’ will change attract a lot of selling. everything. We have had Over a longer timeframe, I two governments under the am much less sanguine because ‘reformist’ Dr Manmohan Singh; market-players are likely to but, I guess, by now, even the be blindsided by the political most credulous optimist should developments around the general elections have serious doubts about what of 2014 and beyond. In fact, since the song, “2013, a this government can do. Does this year of revival and a strong bull market”, mean that the market is headed is being sung like a chorus, you may be sharply lower? Not quite. Stock Medium-term: — tempted to look at other scenarios. prices are determined finally by changes Long-term: Up (Feedback at editor@moneylife.in) in corporate results and we find that

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 | 13 December 2012 | 42

Which way.indd 1

11/24/2012 5:02:14 PM

STOCKS POPULAR PICKS

Mess Media

over 52 times operating profit. There are serious issues of governance also. Deccan Chronicle was in the news recently when its politically-connected promoters seemed to have blown up hundreds of crores of rupees nvestors ought be wary of and stay away from, leaving investors and bankers in the lurch. Shree no matter the brand or attractiveness, media & entertainment stocks. It’s a messy sector to be in. Most, Ashtavinayak Cine Vision is a shady company driven by punters. Reliance Mediaworks, an entertainment if not all, have flawed business models, negative cash company, is another Anil Ambani-promoted company flows and are running empty. Newspapers, magazines, that is in a mess; it had overpaid TV channels and multiplexes Share prices, November 2010 = 100 for many properties and deals. are all built on high costs 100 It was involved in an expensive and low ad revenues; the tussle with Inox when it wanted advertising pie has too many 80 to take over Fame India. contenders. Even the well60 Instead, Inox came out strong known TV Today Network 40 but there’s not much room for Ltd is in dire need of funds, appreciation for shareholders. while clocking negative 20 Unless there is a severe purge on operating profit. Siti Cable 0 the supply side, these businesses Network does not make Nov-10 Nov-11 Nov-12 will never create wealth for much money and its marketReliance Mediaworks Sensex shareholders. capitalisation is valued at

Company

Results Latest Declared Qtr Rev. Growth

Average 3-Qtr Rev. Growth

Valuation (MC/OP) **

RoCE (%) *

Tax Rate

Comments

Aptech

Sep-12

14.60

Famous investor Rakesh Jhunjhunwala had high hopes for this company even entering the board. His hopes have been belied

Reliance Mediaworks

Sep-12

-5%

(0.78)

-12%

Another big mess of ADAG group. No revenue growth & profits

Jubilant Foodworks #

Sep-12

42%

45%

35.54

67%

32%

The strong growth momentum continues but extremely expensive stock. Stay away

Gitanjali Gems

Sep-12

27%

13.11

Poor revenue and profit growth. Expensive

Globus Spirits

Sep-12

33%

3.33

21%

29%

Decent fundamentals; little confidence in the management

Crew BOS Products

Jun-12

-1%

-26%

0.53

11%

26%

Hot stock of the last bull market. Pathetic financials today, poor quality of management

Shree Ganesh Jewellery

Jun-12

-15%

10%

2.36

21%

Extremely low valuation but there is hardly much growth. Are the reported numbers credible?

Goenka Diamond & Jewels

Sep-12

-8%

23.10

11%

Surprisingly poor topline growth given that most jewellers are doing well. Pathetic ROCE

Jindal Photo

Sep-12

47%

22%

13.31

36%

Decent growth, pathetic ROCE and expensive valuation

Inox Leisure

Sep-12

21%

27%

4.54

27%

The strongest player in the multiplex business. Wait for a consolidation for Inox to emerge as the leader

Deccan Chronicle Hldgs

Mar-12

-32%

-7%

0.88

31%

Politically powerful promoters and shaky business model don't make a great combination

Raj Television Network

Sep-12

48%

29%

16.37

14%

Reasonable growth, low ROCE and valuation is expensive

Siti Cable Network

Sep-12

40%

44%

52.38

-12%

Should you pay when the company makes no money?

TV Today Network

Sep-12

-5%

(73.56)

36%

No growth, racked by losses, needs funding

Shree Ashtavinayak Cine

Sep-12

1.31

-8%

25%

Completely shady and speculative. Punters control the stock

MC: Market-cap; OP: Operating Profit; * Return on Capital Employed is based on trailing four quarters of earnings before interest and taxes; ** valuation is based on the recent quarter’s operating profit annualised; # - these stocks are recommended either in our Stockgrader, Street Beat or Kensource stockletter; NA - Not Applicable About this table: We have created this table to show our readers the most widely held stocks and what we think of them. Not many of these companies are on our recommendation list. You don’t make good money by following what is popular. However, many of our readers may be holding stocks and have often asked us what we think of them. Hence, we have come up with this section, which carries in a nutshell what we think of these companies. How do we define what is popular? There are two ways to do

define this. One, find out the stocks that are popular with institutional investors, and two, find out stocks that are popular with retail investors. To arrive at the first list we have looked at all large-cap oriented diversified equity schemes and shortlisted their top picks. For the second list, we have considered stocks which have healthy volumes, or liquidity, as defined by average traded volumes to their market cap. A final list is a combination of these two.

43 | 13 December 2012 | MONEYLIFE

Stock Popular Picks.indd 1

11/23/2012 10:02:10 PM

STOCKGRADER MEDIUM TERM

Shiny Tiles

35%

Compounded Annual Return

Atul Auto rocketed 14%, Kajaria Ceramics went up 11%, while Shree Cement tanked 3% Gainers: Atul Auto, one of the largest manufacturers of three-wheelers, plans to double its capacity to 48,000 units by 2014 fiscal and introduce a new model next year which will make inroads into the CNG and LPG segments. The stock rocketed 14%. Kajaria Ceramics, up 11% touched its 52-week high of Rs245.70 on the BSE on 22 November 2012. Cera Sanitaryware, whose current capacity is two million pieces per annum, plans to increase supply to meet the demands of an expanding market. The stock jumped 6%. Mahindra & Mahindra remains cautiously optimistic about capturing a fair share of the premium SUV market with their new model—Rexton. The stock moved up 5%. Losers: Castrol India reported a decrease of 9.88% in consolidated net profit to Rs85.7 crore for the quarter ended 30 September 2012 compared to Rs95.10 crore in the same period last year. Disappointing results caused the share price to drop 5%. Despite the success of Shree Cement in obtaining a stay order from Competition Company

RS Grade

Funda Grade

Final Grade

Entry Date

Bajaj Finance

02 Feb-12

Ajanta Pharma

Shree Cement

Lupin

V-Guard Industries

Amara Raja Ba eries

Cera Sanitaryware Motherson Sumi Repro India

Appellate Tribunal, against the Competition Commission of India, against coercive action by the government to recover a penalty of Rs397.51 crore, the share tanked 3%. Bank of Baroda reported deterioration in its asset quality and is likely to make a provision of Rs125 crore on that account as per the revised requirements of the RBI which raised the provisioning from 2.0% to 2.75%. The stock declined 3%. Colgate Palmolive saw accelerated growth in sales driven by its premium portfolio in the urban markets and Cibaca in the rural markets. It hopes to grab market share from its competitor, Hindustan Unilever. The stock ended flat. Changes: We are recommending to exit from BHEL, Kennametal India and we are adding ONGC and Bharti Airtel to our Medium term list. 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

72%

FAG Bearings India

02 Feb-12

24 Nov-11

16%

Kajaria Ceramics

26 Apr-12

31%

25 Oct-12

Solar Industries India

10 May-12

16%

29 Apr-09

293%

Colgate-Palmolive

02 Aug-12

14%

15 Mar-12

158%

Kansai Nerolac Paints

24 Nov-11

12%

26 Apr-12

70%

Grindwell Norton

24 Nov-11

26 Apr-12

55%

Chettinad Cement

02 Aug-12

10 May-12

46%

Axis Bank

25 Oct-12

24 Nov-11

44%

Bharti Airtel

22 Nov-12

—

Return*

Return* 37%

J&K Bank

05 Jul-12

35%

Castrol India

02 Aug-12

M&M

05 Jul-12

32%

Supreme Infra

02 Feb-12

17%

Atul Auto

01 Mar-12

22%

MRF

15 Mar-12

H C L Technologies

02 Aug-12

20%

Balkrishna Industries

26 Apr-12

-12%

GMDC

02 Aug-12

ONGC

22 Nov-12

—

Bank of Baroda

05 Jul-12

Wabco India

24 Nov-11

23%

Sun Pharmaceutical

29 Apr-09

182%

Foseco India

24 Nov-11

Nestlé India

29 Apr-09

171%

Hero MotoCorp

10 May-12

-2%

Supreme Industries

15 Mar-12

43%

Carborundum Univ

24 Nov-11

-7%

*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 | 13 December 2012 | 44

Medium Term.indd 2

11/23/2012 10:20:17 PM

STOCKGRADER LONG TERM

Easy Money

37%

Compounded Annual Return

Shriram City Union Finance went up 9%, Bajaj Finance moved up 1%, while UltraTech Cement tanked 6% Gainers: Shriram City Union Finance Ltd, which finances two-wheelers, tractors, three-wheelers, four-wheelers (passenger and commercial), new and pre-owned, went up 9%. Rural Electrification Corporation Ltd plans to raise Rs500 crore of tax-free bonds through the private placement route and plans to raise Rs9,000 crore by the year-end (of which 25% this is reserved for retail investors). The stock rose 2%. Bajaj Finance, a consumer financing company providing loans for automotive twowheelers, etc, moved up 1%. Losers: UltraTech Cement Ltd has allotted 56,172 equity shares of Rs10 under the company’s employee stock option scheme which increased the equity share capital of the company to 27,41,56,510 equity shares. The stock tanked 6%. Nestlé India Ltd has announced net profit of Rs267.31 crore for the quarter ended 30 September 2012 compared to Rs261.18 crore for the quarter ended Company

RS Grade

Funda Grade

Final Grade

Entry Date

Amara Raja Batteries

23 Jun-11

30 September 2011. The disappointing results were due to portfolio optimisation and pricing for value in certain products. The stock went down 5%. Tata Consultancy Services announced that it is collaborating with SAP AG on development of SAP® Retail Execution mobile app version 3.0 which is slated to aid sales representatives on product placement, distribution and promotion activities. The scrip fell 4%. The Oil and Natural Gas Corporation (ONGC), India’s largest upstream company, plans to raise as much as $900 million in dollar-denominated bonds in 2013. The stock dipped 2%. ITC, a business conglomerate, is planning to expand its agarbatti business. ITC ended flat.  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

140%

Ultratech Cement

08 Dec-11

56% 54%

Return*

Bajaj Finance

02 Feb-12

72%

Godrej Consumer

02 Feb-12

Shriram City Union

02 Feb-12

63%

Berger Paints India

26 May-11

35%

Yes Bank

25 Oct-12

Colgate-Palmolive

10 May-12

14%

Lupin

25 Oct-12

-2%

GSK Consumer

10 May-12

10%

Kajaria Ceramics

02 Feb-12

97%

Bajaj Auto

24 Nov-11

Gruh Finance

24 Nov-11

94%

Balkrishna Industries

24 Nov-11

39%

Marico

26 May-11

51%

MRF

15 Mar-12

Divi’s Laboratories

02 Feb-12

50%

Hero MotoCorp

24 Nov-11

-14%

M&M Financial Serv

05 Jul-12

46%

Automotive Axles

02 Feb-12

-22%

Madras Cements

02 Aug-12

13%

Crisil

29 Apr-09

205%

J&K Bank

25 Oct-12

12%

GSFC

02 Aug-12

RECL

02 Aug-12

Vivimed Labs

02 Feb-12

TCS

08 Dec-11

LG Balakrishnan

24 Nov-11

-21%

City Union Bank

05 Jul-12

-4%

Wabco India

08 Dec-11

24%

Sun Pharmaceutical

29 Apr-09

182%

GSPL

25 Oct-12

-3%

Nestlé India

29 Apr-09

171%

Wyeth

23 Jun-11

-4%

ITC

27 May-10

109%

ONGC

02 Aug-12

-9%

Hindustan Unilever

25 Nov-10

76%

—

*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.

45 | 13 December 2012 | MONEYLIFE

Long Term.indd 2

12/1/2012 11:41:03 AM

Insurance Trends New products, regulations, features and options, interpreted from your perspective

L i f e I ns u r anc e

IndiaFirst Life Simple Benefit Endowment plan with decent life cover and nonguaranteed bonus

ndiaFirst Simple Benefit Plan is an endowment plan that offers life insurance cover and additionally accumulates non-guaranteed bonus which may be declared based on the surplus generated by the insurance company. The death benefit is sum assured (SA) plus five times the annualised premium. It will be enhanced with the addition of bonus till death. The product qualifies for tax savings at entry and exit under 80C and 10(10D). The maturity benefit of this endowment plan will be SA plus bonus that may be declared every

Fine Print Government Insurers To Go for Combined TPA

overnment general insurance companies are setting up a common third-party administrator (TPA) to settle health insurance claims. The partners include general insurance companies, viz, New India Assurance, Oriental, National, United India, reinsurer General Insurance Corp and biggest life insurance

year and the terminal bonus. The bonus is non-guaranteed and, hence, the performance of investment is unknown now. For example, someone who is 37 years of age, buying the product for 10 years and paying a premium of Rs10,000 will have SA of Rs91,828. The death benefit will be SA of Rs91,828 plus five times the premium of Rs10,000=Rs1,41,828. The maturity benefit will be SA of Rs91,828 plus non-guaranteed annual bonus and the terminal bonus. The entry age is between 18-60 years while the maximum age at end of the Plan term is 70 years. The customer can choose plan term of 10 to 20 years. Customers can also avail a loan of up to 90% of the surrender value. While the Plan is simple to understand, the returns from traditional products are a concern. Moreover, offering a

company (LIC). The insurers believe that an in-house TPA will help reduce the claims ratio. Government insurers had planned to have an in-house TPA with a foreign partner last year. TPAs had successfully scuttled this move. It needs to be seen if government insurers can really free health insurance from the clutches of TPAs.

Faster Settlement of Third Party Motor Claims

he finance ministry has asked government insurance companies to go for negotiated settlement

decent insurance cover also means less money going into investment which limits the corpus that is available at maturity.

Life Insurance

Married Woman Protection Act Lack of awareness and loss of control keep the insured away

he Married Woman Property (MWP)) Act can protect the life insurance ce death claim m benefit from m creditors and ensure that your wife and children n are secured.. A policy under er MWP Act is a good feature ure for families that have debt. Section 6 of the MWP WP Act allows an individual ndividual to buy a policy olicy for himself under der the Act and create eate a trust ``

or out-of-court settlement of motor third party (TP) claims. The compensation will depend on negotiation, but the process is faster than that of the Motor Accident Claims Tribunal (MACT). Private insurers are also expected to participate. The TP liability cover, which is mandatory in India, does not provide any benefit to the insured; however, it covers the insured's legal `` liability for death/disability of TP

MONEYLIFE | 13 December 2012 | 46

Insurance.indd 2

11/23/2012 9:18:14 PM

INSURANCE TRENDS

` for it. There is no need to create

a trust under the Trust Act. The policyholder has the option to change the trustees at any time, but the beneficiaries cannot be changed. The beneficiaries (wife and/or children) can also be trustees. The procedure is simple but has to be done at the time of buying the policy. While applying, a separate from has to be filled by the proposer for the policy to be covered under the MWP Act. The form seeks details of the beneficiaries, the share of the benefits that are to be accrued to be them and the details of trustees. th The policyholder of MWP policy loses all control over the po policy with the exception of paying po premiums; the policy becomes a pr trust property (of his wife and/ tr or children). Further, no changes whatsoever can be effected without w the consent of the beneficiaries. The th proposer cannot take any loan or pr assign the policy to another person. as The policy maturity/surrender Th value will go to the trust (hence, va to the beneficiaries only). Lack of awareness and loss of control has aw prevented husbands so far from pr going for this option. The MWP go Act is applicable for all married A women irrespective of religion.

` and loss or damage to TP property.

MACT is a tribunal that decides cases related to road accidents and appropriate compensation to the victims or their next of kin.

Car Security System for Lower Premium

eneral insurers want more manufacturers to install an anti-theft device in motor vehicles as it significantly reduces claims of car theft. Maruti Suzuki is offering a security system in many of its models which has reduced claims

But before you jump in to go for Section 6 of MWP, do it only for genuine reasons. If the policy has been purchased with an intention to defraud creditors, the protection under MWP will not work. Creditors can assert their right to get paid out of the proceeds of the policy.

Extended Warranty

such as television, refrigerator, etc., as well as the invoice price of the appliance. Launched in association with Bajaj Finserv Lending, this product is specifically for customers who have availed the company’s 0% interest consumer durable finance for purchasing durables. The fine print includes deduction of 10% of the claim

Bajaj Allianz Extended Warranty Plan Cover after the expiry of the manufacturer’s warranty

ajaj Allianz General Insurance has launched an extended warranty plan for consumer durables. This plan gives the customer a protection for consumer durable appliances against unforeseen manufacturing defects or poor workmanship for 12 months after the expiry of the manufacturer’s product warranty. The sum insured of the policy shall be equal to the invoice price of the consumer durable or appliance. The premium depends on the category of the consumer durable,

for insurers. Insurance companies are offering 2.5% discount on the premium to encourage more policyholders to go for it. This device can also be installed for twowheelers.

Punish Insurance Companies for Claims Rejection

Delhi consumer court has asked the Union finance ministry to deal strictly with private insurance firms and consider cancelling their licences for harassing customers and illegally rejecting their claims. Apollo

amount, subject to a minimum of Rs500 for each claim. There is exclusion for loss or damage arising out of the insured asset not being used in accordance with the manufacturer’s instructions. It does not include loss or damage arising out of any external cause like fire, theft, explosion, water damage, acts of God, etc. It does not cover assets that are subject to commercial, rental or profit-generation purposes.

Munich Health Insurance Company was asked to pay Rs1.8 lakh to a policyholder for not reimbursing his treatment expenses and illegally cancelling his insurance cover after he submitted his claim. The court’s bench, presided by NA Zaidi, was quoted as saying: “Private insurance firms are resorting to such acts just to save the amount which they are legally bound to reimburse to policyholders. This needs to be dealt with by appropriate authorities and licence of such companies may be considered for cancellation .”

47 | 13 December 2012 | MONEYLIFE

Insurance.indd 3

11/23/2012 9:18:38 PM

PERSONAL BUSINESS AUTO

M A RU T I S U ZU K I

Tempting Offer

S T N U DISCOORE GAL MARKETIN

ou Should y or buy nownext wait till ? year

his season, the pre-Diwali discounts and automobiles marketing efforts for a variety of au and two-wheelers have reached new highs (or lows, depending on how you look at things). Players like General Motors and Toyota have made far more noise than their meagre market shares justify; it was left to Tata Motors to bring up the most amazing series of discounts and add-ons to their range of cars which gave market watchers an insight into what is happening in the showrooms. People who have skipped these bargains will, in many cases, now hold out longer—till 2013. The discounted vehicles will see the offers carried forward on the 2013 vehicles, while stocks from 2012 will command even higher discounts. The brands with a long waiting list—Hyundai Verna, Maruti Swift and Royal Enfield motorcycles—will continue to command rack rates and even premiums. It is high time some of the slow movers changed their marketing tactics from gadgets, gizmos and discounts, swallowed their misplaced pride and offered straight uncomplicated price cuts with direct sales and better after-sales service. Honda Jazz is the best example of such a case. Honda reduced the price of the Jazz drastically instead of adding gadgets and offering discounts.

ften, the best of ideas and intentions fail, for reasons which are never clear. One such product is the Maruti Suzuki Kizashi, which is almost as good as international brands such as the acclaimed Toyota Camry or Honda Accord, but did not take off. The manufacturers are reportedly offering fantastic discounts for the remaining stock. If you are able to get one for about Rs11 lakh to Rs12 lakh, ex-showroom (all other costs extra, which can easily amount to Rs2 lakh to Rs3 lakh additional tag depending on factors like location and registration, etc), then this is a great car to own. As of now, Kizashi has an automatic as well as a manual transmission model, with actual city performance of 7km-10km per litre. Please do remember to check what fuel they expect you to use, though, whether normal or high octane. Downside: Since future sales will only be against specific orders, at least for the near term, you may want to double-check on what sort of warranties and aftersales service guarantees are being provided. Upside: Quite a few have been sold to government buyers and should be available second-hand soon.

D I R E CT S A L E S

Skip the Middleman

ut that’s if you are buying or using luxury cars or bikes which about 99% of buyers are not. It’s ‘ordinary’ cars, bikes, scooters that make up for the chunk of the sales. This is where another interesting fact emerges: some manufacturers, such as Nissan, are now reaching out to end-customers through in-house subsidiaries for direct sales, thereby skipping the middleman or the dealers. More are expected to follow. This is good news for 2013. But it won’t happen without you. This writer, therefore, encourages more of you to write to manufacturers and ask them how you can buy direct and save on dealer margins. A collective effort would be required and that’s the only way the message will get across, like it did in the case of the no-frills low-cost airlines. After all, the EMI on your new car or bike will be way below the price of an air ticket. So why not get to take advantage of that fact and let the manufacturers know that middlemen are not needed? What value does a buyer derive from a dealer, at the time of purchase, anyway? ``

MONEYLIFE | 13 December 2012 | 48

Auto.indd 2

11/22/2012 3:51:34 PM

PERSONAL BUSINESS AUTO

` GENERA L MO TO R S IN DIA

Made in China

t is still too early to pass any judgement on the new Chevrolet U-Va. Few understood their television ad, while General Motors India (GM) is busy patting itself on the back. Existing and current Chevrolet (or GM) owners are already wary of low resale values for this marquee car, in India. However, it is interesting to see how GM has played the origin card: It re-entered India in the late 1990s using the Opel (German) brand with the Astra, then they for some time used the Daewoo (South Korean) brand with the Matiz/Optra and other cars, and now they appear to be promoting their Chinese linkages with the U-Va. Where the brand comes from does not really seem to matter anymore. Hopefully, somebody at GM will wake up and realise that what we need is cars for India, from India.

POLLUTION

Faulty Catalysts

he smog that covers much of north India is largely attributed to automobiles. This could well be true, given that checks on fuel quality have once again become an almost invisible art. An ineffective ‘pollution under control’ (PUC) regime will be flogged to squeeze more out of the already suffering middle-class. Meanwhile, internal tests by a leading manufacturer reveal that catalytic converters are, in almost half the cases, packing up and becoming totally ineffective in less than two years or before 30,000 to 40,000 kilometres. Therefore, what comes out of the tailpipe is even more poisonous than what would have been emitted if there was no ‘cat’ fitted. There are no official results on this and, in typical ostrich head–in-the-sand mode, this matter is not being taken any further. We continue to choke on the poison we breathe.

LPG

What You Should Do

he rise in price of LPG cylinders (aka cooking gas) has, once again, brought to the fore the issue of LPG-powered automobiles into question. By and large, these have been illegal conversions of petrol vehicles, both cars as well as three-wheelers, and have also been an issue as far as safety is concerned. In addition, what’s inside most cooking gas cylinders does not make

for the most efficient of fuels used. Sooner they go off the roads, the better. However, what will you do with the conversion kit? My advice is that if you do have an LPG cooking gas cylinder conversion kit installed, then get rid of it as soon as possible, for whatever price you can get. Very soon you will get nothing for it.

CA R M A I N T E N A N CE

Parking Costs

ith the cost of car parking now reaching crores of rupees in some cities, the potential rentals of parking space often run into five figures per month if not more. At those prices, along with other aspects of automobile ownership, it may make sense to simply sell your wheels, forego your parking expenses and use taxis instead. Of course, the value of parking space seems to appreciate faster than the value of the primary property, so that’s another parameter to put into your calculations. Be careful, however, that your car parking tenant does not get permanent rights like tenants elsewhere. Due diligence is always called for.

L U X U R Y CA R S

Strategic Corner

he German brand luxury car battles in India have shifted from the sublime to the amazing. Mercedes Benz is in hibernation mode, seemingly unable to have the same grip on the luxury car market in India as they had in the past. BMW appears to be holding on to its prices but passing comments about others, while its range of available products gets smaller but dearer, and the issue of grey market vehicles carrying the BMW badge gets stranger with each passing day. Audi/VW brands are now right out there in front, selling more, but also trying to confuse potential buyers. What is happening is this: as platform and engine sharing across VW brands, which now also include Audi and Porsche, becomes even more common, so do other aspects. Which leave customers asking questions like: what are they really getting beneath the outer skin of their car? Why not simply buy Skoda?

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.

49 | 13 December 2012 | MONEYLIFE

Auto.indd 3

11/22/2012 3:51:55 PM

HEALTH BM HEGDE

Limitations of Science

US universities, trying to document after-life. Many of their papers are published in indexed journals. Hawking bases his claim on the ancient work of people, like the neurosurgeon, Penfield, that when you stimulate a part of the brain, some part of the body responds. Hawking thinks this is same as the GI-GO computer. The problem Science is completely dependent on with conventional physics is that it does not accept evidence but absence of evidence is not consciousness as a scientific concept. My rudimentary evidence of absence knowledge of human physiology does not permit me to agree that brain is a simple computer. It would be an was reading an article by the celebrated Cambridge insult to Jagadish Chandra Bose if we deny the existence physicist, Stephen Hawking, titled “There is no of consciousness which, he showed, exists even in plants! Hans Peter Durr, emeritus president of the Max heaven; it is a fairy tale”. It is an interesting read, although it lacks any semblance of logic does not present Planck Institute in Munich, has elegantly shown the any scientific basis for his claims. However, when fallacy in some of the physics formulae which Hawking someone of his stature makes a statement, it becomes claims are sacrosanct. One example is enough. In his gospel truth for the gullible readers. He has written paper, Matter is not made out of matter, Hans goes books, most of which, according to a great scientist, John to show how E=M (a duality) is the future physics. OM Bockris, makes for an interesting read, but is far Physics had changed for good when Werner Heisenberg removed from science. Present medical science avers that propounded the, now famous, uncertainty principle (pq is not equal to qp). Heisenberg patients with motor neuron disease was asked by the reporters about should not live beyond a couple of where he did his experiments; his years of its diagnosis. In the case of What Is Science? immediate response was Gedanken Stephen Hawking, this scientific rule experiment (experiments in his mind). has been proven completely wrong! Science is organised If Heisenberg’s brain were to be just We are glad for that. May he live curiosity, with a touch of logical scepticism a computer, as claimed by Hawking, long! he would not have been able to If “science is measurement and Science has limitations propound his theory. The book, measurement is science,” as defined even though scientific temper Occult Chemistry, by Annie Besant by Mary Curie, heaven cannot be a is vital for human growth and Charles Leadbeater (originally scientific concept. Even if one were from Cambridge, like Hawking), in to take the definition of science by Some things cannot be 1920 had graphically described their a noted Hungarian-born American scientifically measured, like idea of the atomic structure of nine scientist, John von Neumann, that human consciousness elements from hydrogen to helium, “science is making models, mostly using their ‘third eye’ during yogic mathematical constructs, which with verbal jargon, are supposed to work,” also makes the sidhis in the Himalayas. Their atom is close to reality concept of heaven untenable. Unfortunately, in biology now. One could just say that having a scientific temper including human physiology, one cannot measure a lot of things. One simple example could be human thought. is vital for human growth and to save mankind from No one can deny that all of us get different thoughts dangerous superstitions. At the same time, one needs to at different times, but can a scientist measure human be aware that science, as it is known today, is not the be thought? Does that mean that thought does not exist? all and end all of human wisdom. A wise scientist knows Absence of evidence does not scientifically allow one to that science is just organised curiosity with a touch of logical scepticism. infer that it is scientific evidence of absence! All that one could say is that human consciousness, at the moment, does not permit us to show the presence Professor Dr BM Hegde, a Padma Bhushan of heaven or God. Hawking goes on to make some awardee in 2010, is an MD, PhD, FRCP atrocious claims that the human brain is just a computer. (London, Edinburgh, Glasgow & Dublin), When the computer shuts down, man dies, there is no FACC and FAMS. He can be reached at after-life, etc. Hawking does not realise that there is hegdebm@gmail.com research data, going back to 60 long years in one of the

MONEYLIFE | 13 December 2012 | 50

BM Hegde.indd 2

11/21/2012 5:01:20 PM

HEALTH BM HEGDE

Junk Food Damages

effect of stem cells was no better than simple saline “Every junk-food meal you infusion as a placebo. The eat damages your arteries, advertisements for stem while Mediterranean-type MEDICAL DEVELOPMENTS FROM cells seem to offer the moon meals do no harm and AROUND THE WORLD to the hapless patients. may even have a beneficial Logically, in vitro stem cells effect.” This study was salt is much better as it contains less cannot do what the researchers presented on 30th October at the sodium and some potassium also. intend them to do in vivo. The boss Canadian Cardiovascular Congress. Too much of anything is bad anyway. inside the human system is the “The study included 28 non-smoking immune system and not the stem cell men who ate a Mediterranean-style researcher. meal first and then a junk-food Multi-vitamin Pills No meal a week later.” After eating the Good junk-food meal, the participants’ Studies of 11,000 elderly men Chelation Helps showed after a long-term observation A study presented at the American that multivitamins were of no use in Heart Association meeting in Los preventing heart attacks and strokes. Angeles in the last week of October Good diet, including fruits and 2012, said this about chelation regular exercise, did a lot more to therapy: “a treatment that many prevent these than all the drugs put doctors consider to be fringe together. This study was published in the Journal of the American Medical Association and was also presented at the recent American College of Cardiology meet. arteries dilated 24% less than they did when they hadn’t eaten. Omega-3 Supplements Do After a Mediterranean meal, the Not Help participants’ arteries dilated normally Data from studies of nearly 8 lakh and maintained good blood flow. This patients, with a total of 34,817 is not good news for our younger cerebro-vascular events over a period generation which has been made to of several years, showed that taking go after such junk food by the heavy medicine, unexpectedly showed some extra supplements of Omega-3 in advertisements of junk foods. promise in a federal study clouded pills or capsules DOES NOT seem to by ethical and scientific controversy, prevent any vascular events in all causing debate about the results.” age groups. This study was done Excess Salt Is Bad Even for Heart-attack survivors who had in Cambridge and reported in the Youngsters chelation were less likely to have British Medical Journal. Eating two to Salt is the much-advertised culprit future cardiac complications after four servings of fish a week reduced of human illnesses. Although recent undergoing chelation, according to stroke risk by 6% compared with studies have shown that salt might a US government-funded study that eating one serving or less; having not be that bad for the heart, blood immediately drew scepticism from five servings a week reduced the pressure and stroke, a new study, top doctors in the field, naturally. risk by 12%. The good effect of fish followed by an advisory from the American Heart Association, says that might be offset by eating bad protein such as red meat. Cooking meat, the incidence of heart attacks and Bypass Surgery Vs especially frying it, might be one of strokes goes up exponentially due Angioplasty the stimulants for cancer growth. to extra salt in diet and especially A recent large study in the US if one takes too much of junk food. showed that of the two evils, bypass It is better to restrict salt even for and angioplasty, the former is a Stem Cells Useless? healthy adults. The worst offender better devil for patients! Bad news This study involved 120 patients who is purified white salt which is pure for the divine interventionists, had a recent bypass or angioplasty sodium chloride. Our good old sea indeed. procedures for a heart attack. The

51 | 13 December 2012 | MONEYLIFE

BM Hegde.indd 3

11/21/2012 5:01:34 PM

SPENDING TRAVEL

Money for Your Foreign Trip You may be going abroad for studies, medical reasons or just for fun. How much money can you carry? Here are the rules, explained in simple terms, by Gurpur

hen going abroad, you need to have enough foreign exchange. Over the years, the Reserve Bank of India (RBI) has liberalised the issue of foreign exchange for international travel. Under the Foreign Exchange Management Act (FEMA), you can buy foreign exchange according to the rules framed by RBI only from dealers in foreign exchange authorised by the central bank. At present, there are two types of authorised dealers approved by RBI. Commercials banks authorised to deal in foreign exchange fall into Category I; full-fledged money changers (FFMC) authorised by RBI are called as Category II dealers; both are permitted to release foreign exchange for private and business visits abroad. However, a resident Indian is allowed to take Indian rupees of denomination of Rs100 or lower to Nepal and Bhutan without any limit. Forr the purpose purpos of entitlement of foreign exchange, RBI has divided foreign travel into six different purposess for visits to countries other than Nepal and Bhutan.. 1. For Pleasure: Any resident Indian can n obtain foreign exchange up to $10,000, in any financial cial year on self-declaration basis, irrespective of the number of visits undertaken during the year. 2. For Business Purposes: A person can obtain foreign exchange ge up to $25,000 5,000 per visit. Attending an international conference, seminar, specialised spec training, traini study tour, to apprentice training, tr business etc, are considered bu visits for the purpose of exchange. If eligibility of foreign exchang exceeding you need foreign exchange exc visits $25,000 per visit for business visi

abroad, irrespective of the period of stay, you have to obtain prior permission from RBI. 3. For Medical Treatment: Authorised dealers in foreign exchange are permitted to release up to $100,000, or its equivalent, to resident Indians for medical treatment abroad on self-declaration basis, without insisting on any estimate from a hospital or doctor in India or abroad. A person going abroad for medical treatment can obtain foreign exchange exceeding the above limit, provided the request is supported by an estimate of expenditure from a hospital/doctor in India or abroad. Up to $25,000 is allowed towards maintenance expenses of a patient going abroad, or to a person for accompanying as attendant to a patient. This amount of $25,000 is in addition to the limit of $100,000 mentioned above. 4. For Studies Abroad: The limit for this is the estimate received from the institution abroad or $100,000 per academic year, whichever is higher. Students going abroad can make use of the proceeds of the educational loans, if any, availed by them from the banks to purchase foreign exchange while going for studies abroad. Besides, the student may avail an amount of $10,000 for incidental expenses, of which $3,000 may be carried in the form of foreign currency. 5. Going Abroad for Employment: You can draw foreign exchange up to $100,000. 6. Going Abroad on Emigration: You can draw $100,000 for this purpose. This is only to incidental expenses in the meet the inc country of emigration. Any requirement above this amount requires am uires prior permission from RBI. per No amount of foreign exchange can outside India, without RBI’s be remitted outsid become eligible or for prior permission, to be for emigration purposes. earning points or credits fo

General Guidelines 1. The limit of $10,000 or its equivalent per financial year visits can also be availed by ar permitted for private visi one who is availing foreign ex exchange for travel abroad for any purposes. 2. Travellers going to all countries other than (a) and (b) below are allowed to purchase foreign currency notes/coins only up to $3,000. The rest can be carried in the form of travellers’ cheques (TCs)or banker’s draft. Exceptions to this are: (a) travellers to Iraq and Libya who can draw foreign exchange in the form of

MONEYLIFE | 13 December 2012 | 52

Gurpur column.indd 2

11/21/2012 5:03:59 PM

SPENDING TRAVEL

and Bhutan) Indian notes up to Rs7,500 per person. foreign currency notes and coins not exceeding $5,000; 8. While RBI has broadly laid down these guidelines, (b) travellers to the Islamic Republic of Iran, Russian authorised dealers are empowered to call for any Federation and other Republics of Commonwealth of documentary proof from the applicant to satisfy Independent States can draw entire foreign exchange in themselves that the request for release of foreign the form of foreign currency notes or coins. exchange is for genuine purposes and the costs and 3. Permissible foreign exchange can be drawn 60 days estimates submitted by the applicant for education, in advance. In case it is not possible to use the foreign medical treatment are genuine and reasonable. exchange within the period of 60 days, it should be General Information: These rules are subject to change immediately surrendered to an authorised dealer. and, hence, for the latest information or guidance, Residents are free to retain foreign exchange up to please approach any bank authorised to deal in foreign $2,000, as foreign currency notes or TCs for future use exchange or regional offices of the Foreign Exchange or credit to their resident foreign currency (domestic) Department of RBI nearest to you. [RFC (Domestic)] accounts. How To Make the Best Use of Foreign Exchange: 4. Foreign exchange for travel abroad can be purchased Though RBI has stipulated the limits for availing from an authorised dealer against rupee payment in foreign exchange in US dollars, you are free to take cash only up to Rs50,000. If the rupee equivalent the equivalent amount in any other exceeds Rs50,000, the entire convertible currency of your choice, payment should be made by way of a depending upon the country of your crossed cheque/banker’s cheque/pay Tips for Carrying Forex visit. If you are visiting only UK, for order/demand draft/debit card/credit instance, it is advisable to take the card/prepaid card only. For pleasure, any resident foreign exchange in pounds in India 5. Within 180 days of return, Indian can obtain foreign itself so that you do not have to travellers are required to surrender exchange up to $10,000 lose money while converting twice, unspent foreign exchange to any i.e., first while converting Indian authorised dealer. However, they are For studies abroad, a rupees into US dollars and again free to retain foreign exchange up to student can obtain foreign from dollars into pounds. But if you $2,000, as foreign currency notes or exchange up to $100,000 are visiting several countries having TCs for future use or credit to their different currencies, it is advisable resident foreign currency (domestic) For medical purposes, one to take in US dollars which are [RFC (Domestic)] accounts. The can obtain upto $100,000 as foreign exchange universally accepted. residents can hold foreign coins International cards issued by without any limit. banks in India can also be used 6. A resident individual may If you are visiting several countries, take US$ which is through ATMs abroad, but within open, hold and maintain with any universally accepted the limits permitted by RBI for commercial bank authorised by RBI, purposes as mentioned above. a resident foreign currency (domestic) However, exchange rates charged account, out of foreign exchange vary from bank to bank; these rates are generally acquired from any source like payment for services higher than the rates offered by banks in India. So it is rendered abroad, as honorarium, gift, or in settlement advisable to buy foreign exchange before leaving India. of any lawful obligation from any person not resident You would have read in the press a few days ago in India. The account may also be credited with/opened about the hawala transactions in foreign exchange. out of foreign exchange earned abroad like proceeds of There are unauthorised persons who accept cash from export of goods and/or services, royalty, honorarium, etc, and/or gifts received from close relatives (as defined you here in India and deliver foreign currency in cash at an agreed rate in a foreign country of your choice in the Companies Act) and repatriated to India through or accept foreign currency from your people abroad normal banking channels. The account has to be and give you Indian rupees in cash in exchange here. maintained in the form of a ‘Current Account’ balances These are called ‘compensatory payments’ or hawala in which do not bear any interest. There is no ceiling transactions in local parlance. Avoid them. Not only are on the balances in the account. The account may be they illegal, they are also not in our national interest. debited for payments made towards permissible current /capital account transactions. (The author is a banking analyst and he writes for 7. Residents can take outside India (other than to Nepal Moneylife under the pen-name ‘Gurpur’)

53 | 13 December 20122 | MONEYLIFE

Gurpur column.indd 3

11/21/2012 5:49:37 PM

LEGALLY SPEAKING SD ISRANI

C O NS U ME R BANKING

Know Your Banking Rights RBI has laid down what you can expect from banks, in great detail. Utilise the rules

he article “Don’t bank too much on banks” in Moneylife (15 November 2012) attracted responses from several readers sharing their rough banking experiences. The next time you are faced with a misdemeanour by a bank, here is some information that can be useful. Banks are regulated by the Reserve Bank of India (RBI) which issues various ‘Master Circulars’ periodically. One of the circulars is on ‘Consumer Service in Banks’. The most recent one, issued on 2 July 2012, ran into 114 pages and covered 33 aspects of banking. However, this article deals with a few crucial ones; the entire Circular can be easily accessed from the Internet. Bank Policies: Every bank has to formulate its policies in respect of deposit-holders’ rights, timeframe for collection of outstation cheques, interest payable on delay in collection of cheques, etc. In addition, every bank is expected to have a policy in respect of: wrong debits; payment of interest for delays in collection; payment of interest for delay in issue of duplicate drafts; other unauthorised actions of the bank leading to a financial loss to customer. Customer Grievance Redressal Policy: Banks have to have a well-documented policy to deal with complaints and improve customer relationship: complaints/suggestions box; complaint book/register; complaint forms; and analysis and disclosure of complaints. Grievance Redressal Process: Every bank has to have a mechanism for addressing complaints from its customers. Banks have to keep complaint registers at prominent places. Banks should acknowledge the complaints received through letters/ forms. Banks have to fix a timeframe for resolving the complaints. Banks are supposed to prominently display, at the branches, the names of the officials who can be contacted for redressal of complaints, together with their direct telephone number, fax number, complete address (not a post box

number) and e-mail address, etc. Banks have also to display on their websites, the names and other details of the officials at their head office/ regional offices/ zonal offices who can be contacted for redressal of complaints, including the names of the nodal officers / principal nodal officers as also the CMD / CEO of the bank. The Master Circular enunciates that where the complaints are not redressed within one month, the concerned branch/controlling office has to forward a copy of it to the concerned nodal officer under the Banking Ombudsman Scheme and keep him updated regarding the status of the complaint. This would enable the nodal officer to deal with any reference received from the Banking Ombudsman regarding the complaint more effectively. Also, in the final letter sent to the customer regarding redressal of the complaint, the bank has to indicate that the complainant can also approach the concerned Banking Ombudsman, whose details have to be provided by the Bank. Awareness of Redressal Machinery: The Master Circular stipulates that banks should give wide publicity to the grievance redressal machinery through advertisements and also by providing the information on their websites. Acceptance of Cash over the Counter: It has recently come to the knowledge of RBI that some banks have introduced products whereby the customers are not allowed to deposit cash over the counters; this is also incorporated in the terms and conditions that cash is required to be deposited through ATMs. The Master Circular clarifies that ‘banking’, by definition, means acceptance of deposits of money from the public for the purpose of lending and investment. Hence, banks cannot design any product which is not in tune with the basic tenets of banking. In fact, RBI has gone to the extent of calling any such practice of restricting deposit of cash over the counters as an unfair practice. Customers dealing with banks should familiarise themselves with all the applicable rules and regulations as also the duty cast on the banks by RBI so that they can protect their rights more effectively.

SD Israni is a corporate lawyer and Fellow of ICSI. Email: sdisrani@gmail.com

MONEYLIFE | 13 December 2012 | 54

Legally Speaking.indd 2

11/23/2012 9:49:57 PM

TION MONEYLIFE FOUNDA

* DONATE to

make our voices heard

Since February 2010, Moneylife Foundation, the Voice of Savers has enrolled 16,200 members, conducted 137 workshops, handled scores of grievances & made four representations to policymakers. We need to do much more As the Voice of Savers, Moneylife Foundation is proud to have been one of the fastest growing NGOs, reaching out to savers across India (Gurgaon, Kolkata, Bengaluru, Chennai, Nashik, Pune, Hyderabad and Goa), covering a wide variety of subjects. On advocacy, we continued to pursue the government for appropriate legislation to prevent people from being looted by thousands of money-chain schemes. We took up the issue of harassment of senior citizens because of problems with TDS. In August 2011, Moneylife Foundation was accepted as an affiliate member of OECD’s International Network on Financial Education (INFE).

(50% tax exemption). Please send a Cheque/Demand Draft in favour of ‘MONEYLIFE FOUNDATION’ accompanied by a letter indicating if it is a corpus donation.

We did all this with very limited resources. We need to strengthen our institutional and financial base to grow into a powerful entity that speaks for savers and can intervene in policy debates.

“I have made a donation of Rs ________to Moneylife Foundation. This donation shall form a part of the corpus of Moneylife Foundation. My PAN is ________________.” (Please also enclose details of your contribution through cheque/ demand draft/cash.)

There is an urgent need for neutral and non-partisan voices that strongly pitch for more sensible laws, better regulation and more accountability on behalf of the savers. We are sure you have seen the value in our work and recognise the need to help us achieve our objectives by donating to Moneylife Foundation. *Donations to Moneylife Foundation are eligible for tax benefits under Section 80G of the Income-Tax Act 1961

We will also need your Name, Address, Contact No., Email and PAN card details in order to send you the tax-exemption certificate. Donations may please be accompanied by a letter to Moneylife Foundation with the following declaration:

Our Address: Moneylife Foundation, 305, 3rd Floor, Hind Service Industries Premises, Off Veer Savarkar Marg, Shivaji Park, Dadar (W), Mumbai 400 028 Tel: 022-49205000

MF Trust Reg No: E-26571; MF Pan: AACTM4377J MF 80(G) Reg No: DIT(E)/MC/80G/685/2010-11 dated 7.2.11 effective 8.9.2010 Moneylife Foundation is a not-for-profit initiative of Moneylife Magazine & Moneylife Digital, which provide fair, fearless and unbiased information on business, industry and personal finance. The Trustees are Debashis Basu, Sucheta Dalal & Dr Nita Mukherjee

Donate Ad.indd 1

11/23/2012 8:45:25 PM

Learn the basics of saving and investing

Earning Curve

I NVE S T ME NT BEHAV IOUR

False Information

nformation is critical for any kind of decision-making, especially in the realm of investment and finance. Information can be of two types. One, firsthand information, based on your own homework. The second type is collecting information from third parties, such as news, media, friends, advisors, etc. The first

Global Learning Studies, surveys, regulation, misconduct and savers’ behaviour from around the world

Be Happy, Earn More! Sadness makes people more myopic and willing to forgo greater future gains

id you know that being sad can aﬀect not just your health but your

type is a lot more reliable than the second type. Unfortunately, most investors are reluctant to collect information on their own and, therefore, rely heavily on the second type of information which is what they get from news channels, friends, analysts and so on. We, all, are aware how much mis-selling is there due to ‘false

financial well-being as well? We read a lot about how to handle your money safely and smartly. But, we rarely pay a en on to the most powerful mo vator of them all—human emo on. There are mes, when we are happy and mes, when we are sad. We rarely realise how emo ons subconsciously feed into our brains which aﬀects our daily decisions. New research from psychological scien st Jennifer Lerner of the Harvard Kennedy School of Government and colleagues Ye Li and Elke U Weber of Columbia University explores how impa ence brought on by sadness can, in turn, produce substan al financial loss. Their study was published in Psychological Science, a scien fic journal. The authors found that subjects randomly assigned to view a video that induced sadness exhibited impa ence

information’. Investors with low, or no, financial literacy will tend to view information given by analysts, media and advisors as genuine and ‘true’ when it may be exactly the opposite. A paper, titled, “Brief Exposure to Misinformation Can Lead to Long-Term False Memories”, published in Applied Cognitive Psychology, brings out that even a small exposure to misinformation can lead to a deep imprinting. A large number of subjects participated in a standard threestage misinformation procedure (saw the event slides, read the narrations with misinformation and then took the memory tests). For instance, they would be shown a sequence, say, of a car going fast (true information) while they would be asked “why was the car going slow (false information)?” This experiment was to check not only their memory (retention) but the ability to distinguish between lies and truth. The initial tests

and myopia which were manifested in financial decisions that elicited higher gains in the short term, but lesser gains over the longer term. Thus,

subjects in their state of sadness earned significantly less than subjects in the neutral condi on. “These experiments, combining methods from psychology and economics, revealed that the sadder person is not the wiser person when it comes to financial choices,” they ``

MONEYLIFE | 13 December 2012 | 56

Earning Curve.indd 2

11/23/2012 9:26:48 PM

EARNING CURVE

` showed that misinformation led

to a significant amount of ‘false memory’. One and a half years later, the participants were tested again. About half of the misinformation memory persisted—the same rate as for true memory. Put simply, exposure to false information will lead to people remembering it as much as true information, if not more. True information tends to fade over time while false information gets stronger. Investors sometimes tend to retain wrong information rather than make the effort to find out the correct information. This is linked to what fund manager and author Michael Mauboussin calls the ‘availability heuristic’. He says, “Investors and managers spend a lot of time focusing on information that is available (even if it is ‘false information’), like current earnings and multiples, rather than on information that is more meaningful (‘true information’).” Markets are

` concluded. “Instead, compared with neutral emotion, sadness—and not just any negative emotion—made people more myopic, and therefore willing to forgo greater future gains in return for instant gratification.” “Across three experiments, the median sad participant valued future rewards (i.e., those delayed by three months) 13% to 34% less than the median neutral-state participant. These diﬀerences emerged even though real money was at stake and even though discount rates in the neutral condition were already high,” the authors reported. Your long-term success depends on how much you save today—the more, the better. Thus, having control of your emotions in important in investing. Don’t let that sadness come in the way. Be happy, safe and smart!

complex and humans aren’t evolved to deal with complexity. There is wrong information, misleading information, correct information and important information and so on. The challenge for investors is to distinguish between true and false information, which can prove daunting at times, even for accomplished investors. This would explain why investors are more likely to view the information gathered from analysts and financial advisors as ‘true’ even in the face of conflicting information and fact that proves the opposite. If the price of gold is rising, it is the only information available to the

Behavioural bias of regulators!

he malaise of poor regulation in India is a result of much focus on ‘rule-setting’ rather than setting good principles. This actually hurts more than it helps, according to David Hirshleifer in his study titled ‘Psychological Bias as a Driver of Financial Regulation’. He explains why regulators, who are driven by certain behavioural biases, create one bad policy after another. When public anger is strong (i.e. greedy bankers, subprime crisis, mutual fund entry load), regulators often switch oﬀ their rational mindset and, instead, focus on creating a set of rules, act with ‘good intentions’, to keep the public happy. This is known as Ideological Replicator bias, which states that regulators are bound to replicate by

common investor. Financial advisors tend to push gold as a long-term investment (‘false information’) when gold is hard to value and it can be valued at any price (‘true information’). The role of the media in today’s investing is powerful (and misleading). Since we live in the digital age, misinformation travels faster than ever, through Internet and social media. Rumours get whipped up in no time and spread like wildfire. Human recall tends to be greater when rumours are swirling around and fresh in people’s minds; this often trumps relevant information that is essential. This influences our decision, to a large extent. It is more important to do your own homework and dig for facts (true information) rather than rely on hearsay (false information). Few advisors are genuine and will act in your best interest. For the most part, investors are left to their own devices.

fixing one negative event after another, and this leads to hasty decision making. Hirshleifer’s theory predicts a general tendency for overregulation, and for rules to accrete over time like barnacles, impeding economic progress. The

theory also predicts occasional drastic increases in regulation in response to market downturns or disruption. To put is simply—human beings are too complex to be managed, and going after rulebased regulation rarely works because there will eventually be a way around it.

57 | 13 December 2012 | MONEYLIFE

Earning Curve.indd 3

11/23/2012 9:27:33 PM

ML FOUNDATION EVENTS

MONEYLIFE FOUNDATION SEMINAR ON RTI

Winning Your RTI Appeals From the advanced RTI Workshop, participants got useful insights for filing RTI appeals

n a highly interactive workshop for advanced RTI users, held on 19th November at Moneylife Foundation, Shailesh Gandhi advised RTI (Right to Information) users to utilise effectively the inspection provision during the appeal process, as the chances of getting information are better. Mr Gandhi, the former central information commissioner (CIC) with the highest record of disposing cases, dwelt on the common misconceptions of RTI provisions, especially on how and why RTI queries are refused. He offered a wealth of information as well as tricks and tips on how to succeed in the appeal process and avoid delays in getting information. Mr Gandhi constantly stressed that activists must keep their language civil, avoid rambling applications and not take an adversarial attitude towards public information officers (PIOs) or at the appellate hearings. That would be counterproductive. He also advised activists to focus on getting information rather than teaching the PIOs a lesson. Mr Gandhi provided plenty of examples and anecdotes from his own vast experience of disposing cases to help participants use the RTI Act effectively and to succeed in the appeal process through smart strategising. One suggestion was to quote previous orders of the CIC. He cited several specific orders that participants could quote in certain situations. The provisions of RTI are contained in Section

8(1), and its sub sections, on which Mr Gandhi devoted much of the session time. The contents of this Section are often used to refuse information sought through RTI queries. He also gave several examples of how PIOs refuse RTI queries. The most common excuse by information officers for arbitrarily refusing information is that they hold it in a fiduciary capacity. He advised participants to go through the case number CIC/SG/A/2012/000857/19484 in order to get the background of a case where the claimed fiduciary relationship refusal was overturned in favour of the appellant. Likewise, an RTI query can be refused on the grounds that “information which would impede the process of investigation or apprehension or prosecution of offenders.” The keyword here is ‘impede’ and most PIOs misuse this word. However, the PIO must give the reason how and why it impedes an investigation. Mr Gandhi cited case number: CIC/ SG/A/2012/000365/18351, and advised participants to use this as a background while filing an appeal in order to ask for the reasons. Mr Gandhi advised participants to be brief while drafting an RTI appeal and only highlight specific and important information. For this purpose, he told the participants that they should maintain a file of all the RTI queries and appeals in an orderly fashion so that they can easily refer to it at the appellate hearing.

MONEYLIFE | 13 December 2012 | 58

Event.indd 2

11/23/2012 10:34:20 PM

ML FOUNDATION EVENTS

MONEYLIFE FOUNDATION SEMINAR ON GOLD

Buying Gold for Investment Moneylife Foundation members were given a detailed analysis whether gold offers good returns and the safer options for investing in gold

in more money? If this is the case, someday, the chain is n nominal terms, the price of gold has more than going to break and investors would start selling driving tripled in the past 20 years. Should this be enough the price of gold down. Mr Basu reminded the audience reason to make gold a significant part of your of the difficulty of measuring the returns on gold since investment portfolio? Without analysing an asset there is no income attached to it. In India, the price of class in detail and what influences its price, one should gold is mainly based on the movement of the dollar and not jump into it, cautioned Debashis Basu, founder the rupee. The movement of these is too complex to trustee of Moneylife Foundation and editor Moneylife, understand—leave alone predict. who addressed the workshop. For those who want to buy gold, Mr Basu explained Gold has an history that goes back almost 4,000 the pros and cons of the different modes of investing. years and is unlike any other financial asset, explained Physical gold is the best option for those who would be Mr Basu. He gave the participants a detailed view of using gold in future for traditional the history of gold, pointing out purposes. When it comes to gold how the price of gold has been ETFs, it is easy to buy or sell determined over the ages. Gold How do we know gold is cheap? has often been thought of as a What determines gold prices? Is gold only if there are high volumes. really a hedge against inflation? This would even involve a fee or hedge against inflation. But in expense ratio of 1%-1.5% per inflation-adjusted terms gold year apart from a demat account has not been a great performer. maintenance charge. In many of these schemes, the An analysis of the date for over 100 years shows that liquidity is low and one would be left in the lurch in only in the last seven years that gold prices have shot the event of a market panic. The same is true for gold up much higher than the level of inflation. Over this mutual fund schemes as they, in turn, invest in gold period, a lot of money has moved into gold as an ETFs. Jewellers’ gold deposit schemes and purchasing investment; much of this is due to the introduction of financial gold of in other words—gold exchange traded gold in instalments from jewellers has an element of risk as these schemes are not regulated. Before investing in funds (ETFs). But, is more and more money coming such schemes, one should read the fine print carefully in to gold ETFs driven the price up or has the upward and ensure that the product fits in with one’s needs. movement of the price of gold driven investors to put

59 | 13 December 2012 | MONEYLIFE

Event.indd 3

11/23/2012 10:34:35 PM

BOOKS

L O N G - T E R M S E C RET S t o S HORT- T E RM T RA DING

Trading in Real Life The battle-tested views of a successful trader

racie is a world-class athlete. He fights real prize-fights in which there are no boxing gloves; just about anything is legal—from kicking to gouging. In the over 100 fights he has fought, Gracie has never been beaten. “Never as in never, ever by anyone: boxers, kickers, elbow punchers, Tai kickers. No one has been able to beat this man,” writes Larry Williams, top trader and author. Gracie’s victories look even more awesome when you find that he weighs about 180 pounds while most of his opponents weigh from 225-300 pounds. Williams is fascinated with fighters and winners (they have a lot in common with speculators). He has followed Gracie’s career and listened intently to his words of wisdom. In one interview, these prizefighters were asked if they ever felt any fear going into these LONG-TERM SECRETS TO SHORT- fights. After all, contestants have TERM TRADING ended maimed, losing their sight, LARRY WILLIAMS breaking their bones, suffering Wiley Trading severe concussions and, at least, Pages 300; $85 one fighter died in these fights. However, in the interview, all the tough guys maintained that they have no fear of anyone or anything. Not Gracie. He admitted that he is scared to death every time he enters the ring. But that is an advantage for him. It enables him to “respect his opponent and not take reckless action or deviate from his personal fighting style.” He said: “without fear, you cannot win. Fear pumps me up for the fight but also assures that I will not lose control. What we do is very dangerous; my best protection is to be afraid, so I protect myself in all the ways of my craft.” What does it have to do with trading? “Like Gracie, I have an immense fear of trading. I have seen people wiped out, losing all they owned from poor speculation. Some really did go crazy and several killed themselves. I suspect all these people had one thing in common: They did not fear the markets. I think you need to fear the markets and fear yourself.”

Words of wisdom like these are what make this book outstanding. First published in 1999, it was re-issued as a new edition with substantial additions. Larry Williams is a legendary commodity trader best known for his blow-out performance (11,000% returns in 12 months) in the 1987 Robbins World Cup trading contest. The real value of the book is the experience he shares as a wisened, battle-scarred trader. Several points he makes may be obvious but are extremely important: • Exits are more important than entries. • A successful speculator plays a waiting game. Most people cannot wait; they would rather wager—the sooner the better. • There are only three or four times a year you can take advantage of immediate and substantial changes in price. You don’t want to get stuck in the mud of a choppy, trendless market. • I have always done my best when I have traded just one or two markets. • Rich people make more money by finding a good investment or two and investing an optimal amount in those investments. • The winners made their fortunes by consistently doing the right thing. When you step out to make a killing, you are more likely to be killed than to survive. • Continue following a system, even while it is in a drawdown and losing money. • I use stops when I don’t feel like it. Williams devotes a lot of space to money management and position-sizing. Most books on trading ignore this. The fact is that an average trading system with good money management may be a great winner whereas a good trading system with bad money management will inflict losses. This is an expensive but very useful book for experienced as well as novice traders. However, the best way to use it is to take its principles (later in the book) more seriously and give less importance to the specific trade setups. Williams pinpoints market turns and also provides trading strategies (such as trading on certain days of the week) that work very well. But these strategies can be misleading. They may not work in the markets you are trading. Williams claims that a simple set-up of higher intraday lows on day 1 and 3, flanking a lowest low on day 2 with day 3 recording a higher high compared to day 2, signifies a short-term low. Also, two such higher short-term lows, flanking a day of lowest low, signify an intermediate term low and so on. He does give a few examples of this at work, but does not show how many times this fails, which is really far more important. As I said, his words of wisdom are more important than the actual set-ups. — Debashis Basu

MONEYLIFE | 13 December 2012 | 60

Book Review.indd 2

11/21/2012 6:19:07 PM

BOOKS

Ma nu f a c t uring

Next Big Thing? Manufacturing can regain prominence as consumers gain access to technologies

hat do Facebook, DropBox, Google, Twitter, Pinterest have in common? These are companies created with meagre resources that have grown into million-dollar businesses and have used Internet as a lever to become successful. The world has come a long way since the Industrial Revolution. With the advent of Internet, the world has become, as Thomas Friedman put it—flatter. It has democratised and changed the way people communicate. It has reduced costs of businesses and services and has also destroyed many traditional businesses by changing the barriers of entry. Many businesses worldwide are in the services sector like the above-mentioned companies. They do not manufacture anything tangible. Manufacturing MAKERS has declined while services have CHRIS ANDERSON ballooned. How can we make Random House manufacturing relevant again? Pages 257; £12.99 Inspired by Cory Doctorow’s science fiction book titled Makers, Chris Anderson explores how individuals and businesses can harness the power of today’s technologies to bring about a ‘New Industrial Revolution’. The book is a collection of his ideas and personal commentary on how to bring about a shift in thinking and inspire artisans, craftsmen, tinkerers, and even ordinary people, to start making things and grow them into big businesses. With new tools emerging, there’s massive scope for manufacturing. The latest example is the 3-D printer, wherein anyone with a curious and creative bent of mind can create objects from a personal computer. In fact, 3-D printing was featured on the cover of The Economist way back in February 2011. It said, “Three-dimensional printing makes it as cheap to create single items as it is to produce thousands and thus undermines economies of scale. It may have as profound an impact on the world as the coming of the factory did. And it is likely to disrupt every field it touches. Companies, regulators and entrepreneurs should start thinking about it now.”

In a nutshell, this is what the book Makers is all about— how one can leverage technologies, like 3-D printing, to reshape the world of manufacturing and everything else. One chapter of the book is devoted to tools like the 3-D printer. One of the key issues discussed is the rise of so-called ‘open hardware’—known as Maker Movement. It is just like open source which reshaped the software movement. By having access to hardware design, regardless of qualifications, one will be able to design or redesign the hardware, make something out of it, from the confines one’s own garage. Anderson says, “The Maker Movement is beginning to change the face of industry, as entrepreneurs instincts kick in and hobbies become small companies.” Already thousands of ‘Maker’ projects have raised million of funds online.

The biggest transformation is not in the way things are done, but in who’s doing it. Once things can be done on regular computers, they can be done by anyone. And that’s exactly what we’re seeing happen now in manufacturing Apart from this, Anderson talks about how small businesses can get funding and also cites successful real world examples. However, I found the Appendix the most interesting part of the book. It contains ideas on how one can get started in tinkering and consists of DIY (do-it-yourself) resources. Anderson is a prolific writer and has written the critically acclaimed book The Long Tail which showed how important it is to service niche segments to grow a business. He called it ‘Long Tail of Bits’. As an editor of Wired, a popular and well-known technology magazine, he has the pulse and feel of the rapidly changing world of technology. This time, he has written another insightful book about manufacturing in the Internet era. This book doesn’t contain any advice, at an individual level, for budding entrepreneurs on how to successfully grow a business or for that matter how to make things. It is aimed more at policy-makers, communities and thought leaders who will get inspired to make manufacturing relevant once again. After all, successful countries are built upon manufacturing prowess and we all remain 'makers' at heart. The day when a 16-year-old kid manufactures a Stradivarius is, perhaps, not too far away. — Aditya Govindaraj

61 | 13 December 2012 | MONEYLIFE

Book Review.indd 3

11/23/2012 9:32:03 PM

Get Now

your copy

Choice

PAYMENT DETAILS

BASIC DETAILS

(Please tick)

Period 12 Months 24 Months 36 Months

NEW SUBSCRIBER

No. of Issues 26 Issues 52 Issues 78 Issues

Cover Price Rs780 Rs1,560 Rs2,340

EXISTING SUBSCRIBER YOUR SUBSCRIPTION NO.

NAME: ________________________________________________________________________________________________________________ ADDRESS: _____________________________________________________________________________________________________________ _____________________________________________________________________________________________________________________ PHONE: (Office):_______________________Phone (Res): _________________________E-mail address: ______________________________________ DATE OF BIRTH: _______________________(MM) (DD) (YY) (Please ensure correct date of birth if payment is by credit card) PROFESSION:_________________________DESIGNATION: ________________________ ( ) Please find enclosed ( ) Cash, ( ) Cheque / ( ) Demand draft number ___________ Dated: ________________________ for (tick one) ( ) Rs780 ( ) Rs1,560 ( ) Rs2,340 Favouring Moneywise Media Pvt Ltd ( ) Please charge it to my ( ) /( ) My card number is ___________________________________________ & expiry date is _________ (MM/YY) DATE: __________________

Add Rs50 extra for outstation cheques

Please fill in this order form and mail it with your remittance to Moneywise Media Pvt Ltd, 315, 3rd Floor, Hind Service Industries Premises, Off Veer Savarkar Marg, Shivaji Park, Dadar (W), Mumbai 400 028. Credit card orders can be faxed to Mumbai 022-49205022. In case payment is through credit card, expiry date of card should be mentioned. # Rates and offers are valid in India only. This offer is valid for a limited period. #Please allow 4-6 weeks for the delivery of your personal copy. #All disputes shall be subject to Mumbai jurisdiction only. Introduce a friend/Fill in the details below and we will send a free copy to your friend. * Name: ___________________________________________________________________________________________________________________________ Address: __________________________________________________________________________________________________________________________ E-mail: _______________________________________________ Tel: ___________________________ *Free copy will be sent only to addresses which can be verified prior to sending

Subscription (1 Page Ad).indd 3

11/19/2012 4:03:15 PM

MONEY FACTS STOCKS

INDIAN MARKET TRENDS

FUND FLOWS

The Sensex and the Nifty fell 1% each. The ML Large-cap Index and the ML Mid-cap Index ended flat. The ML Megacap Index, the ML Small-cap Index and the ML Micro-cap Index fell 1% each.

Foreigners: Foreign institutional investors (FIIs) were net buyers of stocks worth Rs1,573.38 crore. They bought shares worth Rs20,277.93 crore. 520

Share prices, May 2012=100

410

120

FII Net Investments (Rs Crore)

300 115

190 80

110

-30 12 Nov-12

105

23 Nov-12

Indians: Exactly matching their trades, domestic institutional investors (DIIs) were net sellers of stocks worth Rs1,854.12 crore.

100

95 May-12

Aug-12 ML Large-cap ML Mid-cap

ML Small-cap ML Mega-cap

Nov-12

-75

ML Micro-cap

Nifty Sensex

-185

Index

9 Nov

22 Nov

+/(- )

-295

MLLarge-capIndex

107.77

107.66

-405

MLMi d-capIndex

113.73

113.36

MLMega-capIndex

117.47

116.46

- 1%

Sensex

18,683.68

18,517.34

- 1%

Nifty

5,686.25

5,627.75

- 1%

MLS mall-capIndex

108.90

107.70

- 1%

9,370

MLMi cro-capIndex

102.60

101.10

- 1%

9,180

-515 12 Nov-12

Nikkei

22 Nov

Change

8,990

UnitedS pirits

1,360.50

1,829.15

34%

8,800

TataMotors

280.65

258.85

- 8%

8,610

Large- cap Gainers/Losers

9 Nov

22 Nov

Change

1,099.60

1,386.20

26%

OptoC ircuits(Indi a)

124.70

102.95

- 17%

Mid- cap Gainers/Losers

9 Nov

22 Nov

Change

AccelyaK aleS olutions

269.50

336.85

25%

ManIndustri es(Indi a)

177.75

140.85

- 21%

Small- cap Gainers/Losers

9 Nov

22 Nov

Change

MPS

64.55

96.10

49%

TataC offee

RicohIndi a

64.50

49.95

8,420 May-12

Aug-12

Nov-12

The Nikkei surged 7%, the Hang Seng, the S&P 500 and the Nasdaq Composite rose 2% each, while the Shanghai Composite fell 2%. Index

9 Nov

23 Nov

Nikkei

8,758

9,367

+/(- ) 7%

Hang Seng

21,384

21,914

Nasdaq Composite

2,905

2,967

S & P 500

1,380

1,409

FTSE

5,770

5,819

Taiwan Weighted

7,293

7,326

Micro- cap Gainers/Losers

9 Nov

SreeR ayalaseemaH i-S trengthH ypo

48.40

58.35

21%

Bovespa

57,358

57,574

TricomIndi a

4.65

3.62

- 22%

Korean Composite

1,904

1,911

Shanghai Composite

2,069

2,027

- 2%

(AllP ricesi nR s)

22 Nov

- 23%

23 Nov-12

GLOBAL MARKET TRENDS

9 Nov

Mega- cap Gainers/Losers

DII Net Investments (Rs Crore)

Change

63 | 13 December 2012 | MONEYLIFE

Money Fact.indd 2

11/24/2012 6:39:13 PM

MONEY FACTS STOCKS

What’s H

ML SECTORAL TRENDS

Shares of cellphone service companies were in demand during the fortnight thanks to the failure of new round of spectrum sales. Bharti Airtel soared 12%, Reliance Communications surged 10%, while Idea Cellular ended flat.

ML Telecom Service

Companies

9 Nov

22 Nov

+/-

Bharti Airtel

275.80

308.20

12%

Reliance Comm

57.40

63.30

10%

IdeaC ellular

93.35

93.05

120

Shares of airlines soared 11%, shares of telecom service companies surged 8%, shares of media companies and lifestyle & leisure companies rose 6% each. Stocks of oil & gas services companies and cement companies declined 5% each. ML Sectoral Trends

110

Tata Teleservices

11.15

10.95

- 2%

100 TataC omm

239.60

MTNL

90 May-12

Aug-12

26.85

230.50

-4%

24.55

11% Oil& GasS ervices

- 5%

Telecom Services

8% Cement

- 5%

Media

6% Office Equipment

- 4%

Lifestyle& Lei sure

6% Steel

- 4%

Healthcare

4% Retail

- 4%

- 9%

Nov-12 AllP rices in Rs

SECTOR FOCUS

What’s N

Airlines

Shares of small cement companies were punished last week. Sanghi Industries tanked 15%, Saurashtra Cement slumped 12%, OCL India fell 7%, while NCL Industries and Ultratech Cement went down by 6% each. Companies

9 Nov

22 Nov

+/-

SanghiIndustri es

26.20

22.20

-15%

ML Cement Index

SaurashtraC ement

29.60

25.95

-12%

475

OCLIndi a

157.50

146

-7%

NCLIndustri es

43.05

40.30

-6%

UltratechC ement

2,022.90

1,899.45

-6%

IndiaC ements

88.80

83.60

-6%

AmbujaC ements

214.05

202.10

-6%

JKC ement

323.20

305.45

-5%

DeccanC ements

249

237.15

-5%

MadrasC ements

211.85

202.45

-4%

425

375

325 May-12

Aug-12

Nov-12

AllP ricesi nR s

BULK DEALS Date

Company

Buyer

Seller

Rs Cr

12N ov-12

UnitedP hos

Nordea1S ICAV

Nordea1ndi aFund

36.13

12N ov-12

JBFInds

Nordea1S ICAV

Nordea 1ndiaFund

5.60

22N ov-12

ShekhawatiP oly-Y arn MadhukarC S heth

SatyaprabhuInfrastructureP vt

2.58

19N ov-12

AnkitMetal

DharaD ealersP vt

ConcastIspat

1.88

22N ov-12

LKPFi n

IndiaMaxInvestmentFund

BelaP ropertiesP vt

15N ov-12

IndustrialInvest

Pushpak TradingandC onsultancyP vt RdmkImpexP vt

1.31

22N ov-12

AmulyaLeas

ConsolidatedS ecurities

0.35

Manohar Lal Gupta HUF

1.88

The 2G telecom spectrum auction may have got the government just Rs9,407 crore compared to their expectations of Rs14,000 crore but leading telecom players would be happy. The poor response and fewer players in the market meant less competition and more stability in tariff pricing. Brokerage firms expect potential tariff hikes in coming months as operators focus on reducing losses. Bharti Airtel, Idea Cellular, and Tata Teleservices have begun reducing offers and slashing talktime on pre-paid discount vouchers. In some circles telecom companies have started to hike tariffs and reduce the number of free minutes or free sms on certain discount vouchers. These steps will help increase revenue for telecom companies. This has pushed up the stock price of India and Bharti. The stock of Tata Teleservices faced the heat as it has begun winding up services in J&K, north-east as per SC’s 2G case judgement. The company decided not to participate in the re-auction of CDMA airwaves. The government had fixed an unproductive high reserve price.

MONEYLIFE | 13 December 2012 | 64

Money Fact.indd 3

11/24/2012 6:39:31 PM

MONEY FACTS COMMODITIES

COMMODITY TRENDS

INDEX TRENDS

Gold

MCX Commodity Indices Particulars

9N ov

23 Nov

Change

52- Week High

52- Week Low

Agri

2,193.89

2,294.44

3,723.15

2,062.61

Energy

3,329.57

3,471.29

3,705.68

3,048.13

Comdex

3,705.46

3,858.69

4,069.14

3,578.22

Metal

5,207.67

5,414.10

5,540.53

4,550.83

COMMODITY FOCUS Natural Gas (Rs/mmBtu) 220 210 200

old is once again shining, as festive demand and lower dollar pushed up the price of gold. For the quarter ended September, in the domestic market, gold demand showed signs of recovery and was up 9% to 223.1 tonnes when compared to the same period last year. Jewellery demand was up 7% to 136.1 tonnes and investment demand rose by 12% to 87 tonnes. The decline of the rupee against the dollar pushed the price of gold up 3.39% to Rs32,150 per 10 gm at the time of writing since November 1. The value of the rupee depreciated from Rs53.60 to Rs55.80 during the same period.

190

Wheat

180 170 Aug-12

Oct-12

Nov-12

Storage of natural gas in the US was recorded at 3,873 Bcf on 16th November, a net decline of 38 Bcf from the previous week. According to experts, this is a significant decline which pushed prices up, even though it is above the five-year historical range of 3,705 Bcf. The winter season is beginning to set in the US and the rest of the northern hemisphere, including Iran, from which India imports natural gas. These countries will stock up and restrict supply for exports. Prices on the MCX rose 12% to Rs216.2 per mmBtu between 9th November and 22nd November.

MCX PRICE TRENDS Particulars

Active Contract

6N ov2012

20N ov2012

Change %

High

Low

Global Commodities GoldR s/10gm

Dec- 12

31,273

31,744

1.51%

32,783

29,020

SilverR s/kg

Dec-12

59,910

61,536

2.71%

65,723

53,913

CopperR s/kg

Nov-12

422

427.75

1.36%

462.95

408.70

NickelR s/kg

Nov- 12

880.90

909.50

3.25%

998

859.50

ZincR s/kg

Nov- 12

102.55

105.05

2.44%

116.10

98.25

LeadR s/kg

Nov-12

118.80

119.60

0.67%

124.10

105

CrudeOi lR s/Barrel

Dec- 12

4,846

4,806

- 0.83%

5,550

4,652

NaturalGasR s/mmBtu

Nov-12

194.70

209.90

7.81%

215.40

171

Nov- 12

1,189.40

1,250.90

5.17%

1,482

1,124.80 396

Others MenthaOi lR s/kg CPOR s/10kg

Nov- 12

427.60

435

1.73%

579.70

CardamomR s/kg

Dec-12

868.40

888.20

2.28%

1,285

815

CottonR s/bale

Nov- 12

16,190

16,270

0.49%

18,570

15,450

KapaskhaliR s/100kg

Dec- 12

1,499

1,449.50

- 3.30%

1,504

1,324.50

abinet Committee on Economic Affairs (CCEA) has approved allocation of 6.5 million tonnes of wheat for tender sale by FCI to traders and allocation of 0.5 million tonnes wheat for sale to retail consumers through State governments and national cooperatives like NAFED NCCF and Kendriya Bhandar under Open Market Sale Scheme. This will increase the availability of these commodities in the market and will have moderating influence on prices of wheat and rice in the open market.

Chana

hana (chick pea) sowing dropped this year owing to erratic monsoon conditions. With the reduction in domestic supply, traders expect imports to rise sharply over the next two months which is likely to pull down chana prices. In the past two weeks, the price of chana has declined in local mandis as well as chana futures. As on 23 November 2012, the spot price in Delhi fell by 4.09% from Rs4,600 per quintal to Rs4,412 per quintal over five days. An increased supply in the spot market against subdued demand has led to a drop in prices. 65 | 13 December 2012 | MONEYLIFE

Money Fact.indd 4

11/24/2012 6:40:07 PM

BEYOND MONEY

Skin Protection

When a person suffers serious burn injuries, the body loses proteins when there is no skin; this, often, leads to death. Synthetic skins are available today, but they are very expensive and out of reach for many victims. Sunday Friends established a first of its kind Donated skins are stored in freezers and retrieved to be ‘skin bank’ to save the lives of victims of applied to the exposed and burnt body parts of victims. burns, diabetics and trauma finds Aditya It acts like a biological bandage by covering the exposed Govindaraj body and prevents the entry of bacteria and controls the loss of protein. This ensures protection until the victim starts to develop skin on his/her own. Beneficiaries are victims of burns, diabetics and to trauma patients. So, how does one go about donating one’s skin? Anyone above the age of 18 can donate skin. Older persons with wrinkled skin can also donate and Mr Damani tells us that a 102-year-old man had donated skin, probably making him the oldest person ever to do it! An important condition is that one must not have any communicable disease, such as hepatitis, HIV, skin cancer or skin diseases. The blood type e make a living by what we get, of the donor is irrelevant and but we make a life by what we need not be known. The family give.” That is the motto of Sunday of potential donors can call the Friends—a Mumbai-based nonhospital and a doctor’s team will government organisation (NGO) formed by 100 likearrive within two hours to collect minded friends who work at looking after the welfare the skin. The skin can be harvested of the helpless and downtrodden. Sunday Friends was up to 24 hours after a person established in 1982 by youngsters inspired by the work A 102-yeardies, since the doctors only take of Narayan Sewa Mandal at Vile Parle (Mumbai). As the a thin layer of the epidermis from name suggests, most of the work happens on Sunday. A old man had team of volunteers regularly visits different wards of the donated skin, the thigh and back of a person. Anyone wanting to donate the LTMG Sion Hospital in Mumbai and helps out along probably making him skin of a recently deceased kin can with medico social workers (MSW) and doctors. call the Sunday Friends’ helpline One of the most distinguishing features of this NGO the oldest numbers. is their creation of a ‘Skin Bank’, the first of its kind in person ever Apart from conceptualising Mumbai. Most people don’t even know that skin can be to do it! the skin bank and donating the donated after death or stored like in a ‘blood bank’. The Gaurang Damani freezer, Sunday Friends has also biggest challenge before Sunday Friends is to educate established a life-saving ‘drug and motivate people to donate skin after death. The process started with educating doctors, especially family bank’ to subsidise the supply of insulin injection, physicians, who are best placed to encourage donations. dialysers, and provides financial assistance and rations Gaurang Damani, who is active in this movement, to needy patients. What makes Sunday Friends unique is the decision says that the education process started with a seminar in February 2007 attended by over 150 doctors. The not to register it as a formal body with office-bearers, process is repeated at every opportunity, including but to raise funds for specific activities as and when required. It also follows a no-names policy participation in exhibitions by setting up a stall to ensure that there are no disputes or to explain the process and the need. He power tussles and the money received is says, “Donating your skin after death SUNDAY FRIENDS utilised optimally without wastage. saves the life of at least two burn 211 / 5, ‘Beas’, Sion Main Road, If you are interested in victims or patients.” Interestingly, Opp LTMG Sion Hospital, Sion (E), contributing/volunteering in any more than 540 families have Mumbai - 400 022. manner whatsoever, contact already taken interest and have Web: www.sundayfriends.in Sunday Friends. donated their skin. E-mail: info@sundayfriends.in/ contribute@sundayfriends.in Contact details for Skin Donation only: 9820075645, 9821119451, 9821523076 MONEYLIFE | 13 December 2012 | 66

“W

Beyond_money.indd 1

11/23/2012 9:20:06 PM

Blank Page

Fund pointer.indd 5

10/21/2011 6:03:03 PM

Blank Page

Fund pointer.indd 5

10/21/2011 6:03:03 PM