Personal Finance Magazine Moneylife 14 July 2011 by Moneylife Digital

SUCHETA DALAL ON:

SCAM AFTER SCAM: HOW LONG WILL THIS LAST?

BANKING ON INEFFICIENCY & FINANCIAL INTRUSION

Personal Finance Magazine

SEBI CHIEF HAS HIS TASK CUT OUT Rs 25

14 July 2011

moneylife.in

irculation c ye n o m r o s e m e h sc Dubious pyramid dians across economic strata, schemes are lootingl. InThis will continue since Central finds Sucheta Dala rnments seem unconcerned and state gove

FIXED INCOME 26

Investors have never had it so good in a long time

Cover Page_140.indd 2

FUNDS 28

Is it the right time for mid-cap funds?

STREET BEAT 38

– AVT Natural Products – Wyeth

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Volume6,Issu e 10 1July–14July 2011 DebashisB asu Editor& P ublisher editor@moneylife.in SuchetaD alal ManagingE ditor suchetadalal@yahoo.com EditorialC onsultant DrN itaMukher jee

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

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RNIN o:MA HENG/2006/16653

Letters to the Editor SHATTER THE RIGHT PYRAMID Your column “Different Strokes—Pyramid Schemes–Daylight Robbery” (Moneylife, 16 June 2011), has brought forth the phenomenon of scheming financial wizardry being introduced by innovative marketers, by craftily masquerading pyramid marketing schemes as ‘direct-selling offers’ or ‘multi-level marketing’ in recent times. The trouble lies in the concept of ‘direct sales’; it has the good objective of reducing the cost for consumers by eliminating conventional trade channels like distributors and retailers. Again, there Write to the Editor! is a perception that the high The only investment that Win jewellery cost of advertising adds to enhances your face value. the landed cost of a product substantially which can be eliminated by direct selling. The idea appealed to me greatly several years ago and, even today, I am quite positive that the idea of Congratulations Gopinath Mavinkurve from Mumbai! ‘direct selling’ must not be Your letter to the Editor wins a Surat Diamond gift. abandoned. The idea of Keep writing! Keep winning! direct selling needs to be introduced for daily needs of urban citizens. Why cannot farmers form cooperatives regionally and sell to urban cooperative societies directly? ‘Cooperative-tocooperative’, so to speak. Or why can’t vendors appoint direct selling agents in urban areas? Alternative channels for sales, like too many players in a product category, can only mean better deals for consumers, we would all agree! When I blogged about the phenomenon of pyramid schemes, I ended up posting the first such comment wherein, the remark was one-sided—against all such schemes. (Please see http://whatnonsanz.blogspot.com/2011/05/flawed-concept-mlms.html). A fellow blogger, Ravi Kiran posted a counter-view to present his option. (His response: http://networkmarketer.posterous.com/response). Several direct selling firms, which are not involved in chain marketing, are being mistaken for fraudulent Ponzi schemes! On the other hand, there is no dearth of pyramid schemes popping pping up from nowhere and vanishing again with our money!! This problem has to be b approached more by way of education and awareness campaigns, rather than by legal recourse. As you have vee correctly pointed out, t, such schemes don’t at attract ttract any action under existing s sting laws until several thousands o ousands lose a tidy sum to conning n nning business houses. The custodians of law have the excuse s of not se ``

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LETTERS

` receiving any complaints of being duped, don’t they?

To distinguish the fraudulent schemes from the genuine direct selling marketing agencies, I would like to share with the readers of Moneylife some questions the common man needs to ask before jumping on to the direct-selling bandwagon: 1. Does the proposal focus more on the product/service being offered or the high returns that one is likely to earn? 2. Does the price sought for the product/service seem unreasonable in comparison to similar products/ services available in the market? 3. Is there undue focus on bringing your friends and relatives into the fold even before you yourself have been in a position to evaluate the scheme/ product/service? 4. Are the returns offered by the scheme much higher than alternative streams of income today? 5. Am I entering the scheme only to try my luck at such ‘opportunities’ that my friends and relatives have already joined and wouldn’t mind losing a small amount of money if it doesn’t work? (Small sums collected from friends and relatives can add up to a huge amount.) 6. Am I trying to keep the question: How in holy hell is this business able to give me such a high return? Is my decision to join it justified? 7. How long is the association of the offerer of the scheme/product/service with what is being offered? (Often, the peddlers are just new entrants, pressurised to get more members.) 8. Is there a proper address where the business operates from or is it a post-office box number in place of a proper office address? 9. Will I be chasing friends and relatives to join a scheme, when I myself have a nagging doubt of whether I will recover the amount invested? There can be more such questions—and the answers to such questions will reveal whether the scheme is, indeed, viable for small investors like us or not. A pyramid scheme helps only those who introduce it. A direct selling marketing network never focuses on getting more members, but on more volumes through existing appointed distributors. In fact, the investment

involved in such organisations is minimal—even zero— as such a scheme will try to exploit the networking and social connections of the direct sales agent. In a number of such schemes, unique products are offered which are usually not available in conventional retail markets or even over the Internet. Moneylife Foundation has taken up investor education with a great missionary thrust focusing on small investors—if this subject is taken up for discussion along with other investment ‘opportunities’ that they ought to be careful about, it would serve a great social cause. After all, investing is more about identifying where NOT to invest rather than where to! Gopinath Mavinkurve, Mumbai, by email Your comments are very pertinent but, as our Cover Story shows, people ignore the obvious pitfalls when lured by the promises of extraordinary returns. — Editor

SNAIL MAIL, PLEASE! Under Section 219 of the Companies Act, 1956, shareholders have to receive a copy of the balancesheet (including the profit & loss account, the auditors’ report and every other document required by law to be annexed or attached to the balance-sheet) 22 days before the date of the meeting. The MCA (ministry of corporate affairs, government of India) has now issued a circular as a ‘green’ initiative under good corporate governance that allows companies to send copies of annual reports through electronic mode. However, those who ask for these documents have to be sent copies in physical form. Though this is a good initiative from the MCA, it is creating practical problems for shareholders—just like unwanted telemarketing calls. They are being asked to make a request by email, if they want to receive documents in physical form. But that is a problem—many shareholders, especially senior citizens—are not computer-savvy and they are being asked to register to continue to get physical documents. There is a simple solution to this problem—companies should continue to send ``

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16th July, Saturday at Bengaluru

For the first Ɵme, the event will be streamed LIVE!

You can watch it from anywhere in the world. For those who are not in Bengaluru, you can sƟll be a part of the event by tuning in to www.webtv.in/moneylife/live.html

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Venue: The Chancery Pavilion 135, Residency Road, Bengaluru - 560 025 Tel: 080 4141 4141

RegistraƟon on a first-come-first-served basis!

Contact: Shanthi Jagadeesh: 080 4155 6012 seminar@indiabulls.com mail@mlfoundaƟon.in

Session One: (10:00am -1:00pm)

‘How To Be Safe with Your Money’ Sucheta Dalal, Trustee, Moneylife FoundaƟon

‘How To Be Smart with Your Money’ RegistraƟon Ɵmings: 10:00am – 6:00pm Monday to Friday

Debashis Basu, Trustee, Moneylife FoundaƟon Lunch: (1:00pm-2:t00pm)

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Session Two: (2:00pm-3:30pm)

Supported By

Dos and Don’ts of Housing Mortgages Sachin Choudhary, Director & Head, Indiabulls Housing Finance Ltd

InvesƟng Smartly in Mutual Funds Presented By

Debashis Basu, Trustee, Moneylife FoundaƟon

Wills & NominaƟons Sucheta Dalal, Trustee, Moneylife FoundaƟon Session Three: (3:30pm- 4:00pm) Live streaming partner

Panel discussion (Sucheta Dalal, Debashis Basu & Sachin Choudhary) Followed by tea

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LETTERS

` physical documents to

been conducted, or their Bulls and bears are Write to the editor! tax returns scrutinised, all shareholders. Further, unpredictable. Invest in diamonds. Win jewellery to check how the they can despatch a politicians’ wealth has letter with a reply increased manifold over prepaid envelop to all the short term of their shareholders; those who political reign. want annual reports M Kumar, by email in e-mode can reply to the company. In case a Write to the editor. If your letter is the best, You’ll shareholder does not use THANK YOU Win Surat Diamond jewellery. this prepaid envelope My late father (who and does not reply to expired in 2000) had 50 the company, it should be assumed that he wants to shares of ICICI Bank with ICICI Securities (Kozhikode continue to receive documents in the physical mode. branch) in demat form. I had wanted to transfer the While electronic transmission of documents is more shares to my mother, who is the legal heir. eco-friendly, it can bring about problems like computer I had approached ICICI Securities, but they had said fatigue; it is a fact that in spite of e-media, the print that the account was ‘untraceable’. media continues to hold value, as it is more convenient I would like to thank Moneylife for the initiative taken and affordable for the common man. for solving the issue of my father’s demat account. The MCA should immediately issue a notice on the On 16th June, ICICI Securities staff called me and lines suggested above. told me that they have traced my father’s account Mahesh Kapasi, by email and they will help transfer the shares to my mother’s DP (depository participant) account. The issue had remained unresolved for the past two years—and was ABOLISH INCOME-TAX, ERADICATE GRAFT solved within 48 hours because of your intervention. I This is with reference to “Tax Evasion—The Farce thank you again for your great effort. Continues” (Moneylife, 30 June 2011). It is possible to TV Krishnakumar, by email solve the problem of black money in our country if we take a single simple step and abolish income-tax. This is one of the direct causes of black money generation. HELP US TO HELP YOU The net revenue from income-tax—after meeting Moneylife offers its readers a unique service—helping collection costs—is, in any case, negligible. A rise in redress grievances on a best-effort basis. However, we indirect taxes can raise revenue. Once income-tax is have limited resources to devote to this effort and can abolished, black money can come back into circulation, only pursue complaints that come to us by email. We feeding legitimate channels. request readers to please send us crisp complaints, with Obviously, this will help all the facts on email (not as an attachment) and send economic growth. us the supporting documents, only if we ask for them. Again, a large amount We cannot handle physical letters. — Editor of black money is with politicians, rather than HOW TO REACH US Letters to the Editor can be emailed to editor@moneylife.in or businessmen. The current can be posted to: The Editor, Moneylife Magazine, Unit No. 315, 3rd home minister, Floor, Hind Service Industries, Off Veer Savarkar Marg, Dadar (W), P Chidambaram, was a Mumbai 400 028 or faxed to 022-24442771. Letters must include tough finance minister, the writer’s full name, address and telephone number and may be edited for clarity or space. but he failed to make New Subscriptions & Customer Service politicians accountable For new subscription requests, complaints about current and file correct incomesubscription and books, write to subscribe@moneylife.in or tax returns. Most to Subscription Manager, Unit No. 315, 3rd Floor, Hind Service Industries, Off Veer Savarkar Marg, Dadar (W), Mumbai 400 028 politicians have amassed or call 022-24441059-60 or fax to 022-24442771. wealth worth corers of rupees after joining politics Advertising or holding important portfolios. They admit it by For information and rates, email us at sales@moneylife.in or call declaring their amassed wealth at the time of filing of 91-022-24441059-60. their nomination papers, etc. But never has any inquiry

MONEYLIFE | 14 July 2011 | 8

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

56 SPEAKERS 5791 ATTENDEES 69 EVENTS 5827 MEMBERS 1 FOUNDATION In just one year, Moneylife Foundation has enriched many lives with unique events, opinions, actions and advocacy initiatives

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LETTER

ISSUE CONTENTS

14 July 2011

FROM THE

EDITOR Chain Game

ndians are definitely not gullible. But this country is a happy hunting ground for predators who want to take your money and run, especially through money-circulation schemes. Moneylife has been constantly writing about these operators who come out with impossible ‘get-rich-quick’ ideas. The latest to join the list of controversial schemes is Speak Asia. Even a cursory look at what this pyramid scheme has to offer should have cautioned any potential investor to keep away from it. We wrote about Speak Asia in 2010. But it managed to rake in the stuff (of course, many other ‘media’ outlets are now claiming credit for exposing Speak Asia). And if you thought only these 1.9 million ‘Speak Asians’ were the gullible lot, think again. These schemes, which have been propping up with astonishing regularity, have managed to snare people from almost all strata of our society. The law is ineffective; a few of these fly-by-night operators have been grounded, but surely more will crop up—unless there is an outright ban on these multi-level marketing schemes. Unfortunately, apart from our readers, nobody—neither the ‘regulators’ nor the government—seemed to be bothered. Read the first comprehensive story on money-circulation schemes on page 30. This issue also features the story of a senior citizen who managed to bring a few mighty financial institutions to their knees—which indicates how powerful the Right to Information Act can be, if wielded effectively. It also indicates how much an individual can achieve. The Moneylife Foundation held its 69th free seminar to educate investors on how to choose the right mutual fund scheme. As usual, we had a packed audience—you can read all about it in this issue. And the Foundation will hold its first Bengaluru seminar on 16th July. For the first time, we will have a live feed—do click on http:// foundation.moneylife.in/ and watch it live, if you cannot head south for this event. Debashis Basu

30 Cover Story Chain Game

Dubious pyramid schemes or money-circulation schemes are looting Indians across economic strata, finds Sucheta Dalal. This will continue since Central and state governments seem unconcerned

13 Current Account – -– -– -–

Analysts have turned bearish on emerging markets Online Shopping: Will buying fresh produce online take off? Use the RTI Act to force authorities to avoid water-logging The Internet has been flooded with PF-related complaints College is a waste, say two successful investors Paulson & Co has lost some $720 million in a Chinese stock Beyond the Headlines: Fund Facts; Retail Interest: Is SEBI barking up the wrong tree?

19 LOOSE CHANGE Moneylife Quiz; Soundbites

How do scamsters vanish—and make comebacks? Banks are fleecing taxpayers and giving out doles; The BSE has thrown out Reliance Communications and Reliance Infrastructure from its elite index

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 | 14 July 2011 | 10

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CONTENTS DIFFERENT STROKES

SAVING AND INVESTING

Chief’s 22 SEBI Agenda

58 Earning Curve

Will the SEBI chairman leave behind a better legacy than many of his predecessors?

Montier’s 7 Laws of Investing: Leverage Kills

STOCKGRADER 43

SMART MONEY

A Double Whammy

Inflation is eroding investments and the central bank’s monetary policy regime is preventing money from flowing into avenues of growth FIXED INCOME

26 High Interest

Momentum

EID Parry was 8% up; GSK Healthcare rose 2%; while Educomp declined 9%

Medium Term

Time Technoplast jumped 12% & Sun Pharma gained 4%; whereas HCL Tech plunged 6%

Long Term

ML FOUNDATION EVENTS

Long & Short 59 The of Mutual Funds The 69th programme of Moneylife Foundation focused on mutual funds. The previous ones were on real estate, credit cards, wills & nominations and a range of personal finance related subjects

Hindustan Unilever gained 2% and Emami rose 1%, while Cairn India plunged 8%

Fixed-income investors have never had it so good in a long time INSURANCE

48 Insurance Trends FUNDS

28 Middle Ground Is it the right time for mid-cap funds? STOCKS

Street Beat

AVT Natural Products: Unique business and attractive price; Wyeth: One of the cheapest multinational stocks; Banking Stocks: A few solid nation-wide lenders are now undervalued WHICH WAY

Three Factors To Bear in Mind

The bear market will end when these three factors come to the fore

Content.indd 3

– Six insurers penalised for a meagre Rs5 lakh each – IDBI Federal’s Senior Termsurance for even an 85-year old! – Max Fast Track: But there is no short-cut to investment – Chola ‘Healthline’ Offers Add-ons: OPD, dental cover, etc—at a price – Fine Print: Complaints from Policyholders; Buying insurance from your grocer

POWER OF ONE

Banks 50 Keeping on Their Toes Vinita Deshmukh profiles the struggle of a senior citizen whose fight has prompted a systemic change in how banks treat their customers

AUTO

Be 52 F1:TakenWillforIndiaa Ride? The government is unclear about who will regulate the proposed Noida Grand Prix. Preparations are also behind schedule. Will we never learn from our past sports fiascos, asks Veeresh Malik

TRAVEL

In the Shadow 60 Sikkim: of Kanchenjunga Jaideep Mukerji explores this former Himalayan monarchy’s stunning mountain landscapes, rich Buddhist culture and relatively short distances— that make it an ideal destination for avid trekkers and travellers BEYOND MONEY

on 66 Back Their Feet

Shukti Sarma profiles Saathi which works to rehabilitate destitute children and also deals with the problems faced by trafficked and runaway youth

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

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www.moneylife.in If you haven’t clicked on the Moneylife website yet, here’s e’s whyy you sshould. TOP of the LIST News you had beƩer not miss Flash crash, roaring rallies On 20th June, the market was down 550 points in a few minutes. A couple of months back, it rallied for almost no reason at all. What makes the Indian market so bipolar?

news reasons

why you must visit the Moneylife website MARKET WATCH

Sluggish demand in the eight core industries, together with stubborn infla on, could well retard economic growth somewhat

Vote in the Moneylife poll on the top issues of the week Do you believe that the government can tackle corrup on and the economic slowdown?

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Stay ahead of the indices Spreading slowdown

HAVE YOUR SAY

Tracking the stock market ac on; analysing domes c and global factors; mapping the movement; describing the outlook and deriving the likely direc on, day a er day

81% Yes

Can’t Say

Because your opinion makes the change...

Short cut Banks flout RBI rules on con nuing with exis ng account numbers a er the demise of a joint account holder

S&P CNX NIFTY 5,600

MONEY WISE

Staying anchored

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The right and the wrong opƟons

Moneylife research finds that the mutual fund industry is driven by just 42 key stocks in 215 equity diversified schemes

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>> Some corporates are oﬀering higher interest rates than banks on FDs. But there are a few things you must know

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Empowering ciƟzens

>> If you have an investment plan of Rs10 lakh in fixed income, corporate bonds are a good op on with yields as high as 12%

WEB EXCLUSIVES On issues that maƩer to you

>> Moneylife Founda on is forming a Voluntary Experts Group to address specific issues like insurance, banking, capital markets, RTI, senior ci zens’ issues and property ma ers, as part of its mission to empower ci zens and spread financial literacy. Membership of the Founda on is free. Visit www.mlfoundaƟon.in

on TwiƩer

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If you are a twi erer, type hƩp://twiƩer. com/Mldigital to pick up Moneylife exclusives, up to date news and updates and reports on our ac vi es and events.

R Vijayaraghavan

Veeresh Malik

William Gamble

Anil Thakraney

There is a way to fight corrup on. We must begin by saying, “We will not pay bribes to get what is righ ully ours”

Did the MV Wisdom, being towed to the Alang junkyard have permission to sail so close to the coast and the sensi ve Bombay High installa on?

Labour laws, far from protec ng labour, o en limit compe on, discrimina ng against foreign companies and workers

Castrol has decided to break away from the tried and tested method and has taken the emo onal, lifestyle route that brings freshness to the category

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6/24/2011 10:58:51 PM

Governance, Inflation & Interest Rate

CURRENT ACCOUNT

E ME R G I NG M ARKE T S

The Party’s Over; Wait for the Hangover Analysts have turned bearish on emerging markets, after singing the ‘growth story’ tune for a long time

inally, the bears are sharpening their attack on ‘emerging’ markets. There are lots of triggers but the key issue is rising inflation and slower growth. The two, together, make for a strong headwind. Governments of China and India are struggling to deal with higher inflation, despite repeated rounds of monetary tightening. According to the Credit Suisse Global Investment Returns Yearbook 2010, “Emerging markets are still appreciably riskier than developed markets, both individually and as a group.” The Yearbook also says that “over the longest interval that is possible to examine,” from 1976-2009, emerging markets have underperformed the MSCI World Index by 1% per annum. Indeed, the report echoes what Moneylife has been constantly pointing out. “Many investors are mistaken in the belief that investing in the stock markets of countries that have achieved higher rates of economic growth will generate superior returns.” High economic growth has absolutely no correlation with stock market returns. Returns depend entirely on valuations at the point of entry and Indian valuation is not cheap. A recent Reuters report quotes Deutsche Bank’s emerging equities strategist John-Paul Smith as saying that he “sees emerging market equities underperforming developed markets by some 15% by the year-end.” He has also warned of

a ‘significant chance’ of a major sell-off. At a summit held in June in New York, market strategist Richard Bernstein felt that emerging markets face ‘monstrous risks’. And we are not even getting into the dire predictions that analysts like Nouriel Roubini—‘Dr Doom’—have been spouting for some time now. Why is this oft-touted growth story coming apart? Just a few months back, we could not get enough of the BRICs (Brazil, Russia, India and China) story. The answer is simple—there was too much ‘hot’ money artificially propping up market indices in developing countries. It is all too obvious that a number of global fund managers have been chasing returns in emerging markets. The latest (June) Bank of America-Merrill Lynch’s fund managers’ survey indicates that 23% of them were overweight on global emerging markets (which remained the most popular region, clearly indicating that the herd syndrome is on). But the survey also shows that a few funds are beginning to get the picture right— as 29% of the managers surveyed in May were overweight on emerging markets. In 2010, the Credit Suisse Global Investment Yearbook warned that “emerging markets have been accident-prone in the past, and could suffer setbacks in the future.” The Yearbook shattered the perception that was the flavour of the season (“future growth means

higher returns”). Of course, nobody was listening. A recent Bloomberg report quotes Jing Ulrich, chairman of global markets for China at JP Morgan Chase (who made it to the Forbes’ list of the “world’s 100 most powerful women”) as saying that Chinese stocks may not witness a sustained rebound “until the market sees clear signals that inflation has peaked.” Author George Magnus said in his recently-released book Uprising—“One dollar invested in emerging market indices at the start of 2003 would, by 2009, have been worth $4.80 in Latin America; $3.30 in emerging Asia; $3 in emerging Europe... but only $1.70 in the Asian Tigers... Many of today’s emerging country stock markets typically include a relatively small number of quoted companies... earnings of these are strongly related with exports and commodity prices.” One big issue with emerging markets has been governance. In good times, it is ignored but it never really goes away. Corruption, vested interests, dysfunctional justice system, cronyism and perennial wastage act as huge drags. No wonder, more and more diehard bulls now say that India does not have a chance of a sustained market rally, unless we have another round of ‘reforms’. Keep your fingers crossed. — Devarajan Mahadevan

13 |14 July 2011 | MONEYLIFE

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CURRENT ACCOUNT

O NL I N E S H OP PING

Click To Buy Apples Will buying fresh produce online take off?

in 2009. He had experience in the vegetable retail market in Surat for two years, and the hard work paid off. He designed a portal where one could see the vegetables, check prices and place orders. Now, other websites have caught up with the idea too. Websites like sabzimandionline.com, freshsubzi. com or belivefresh.com offer fruits

oathe the idea of slugging in a puddly narrow gully to buy vegetables after a long and sweaty day at work? Just log on to websites like www.farm2kitchen. com or www.vegoncall.com, and you are spared those long sessions of haggling with the sabjiwallah and the irksome journey back with the heavy bundle of fruits and vegetables. These websites now allow customers to make their vegetable purchases online, and ensure home delivery. One has to visit the website; select what to buy; make a phone call or send an SMS detailing the order; and the bag will be delivered to your doorstep. The concept developed when Akrosh Sharma, an IIM-Ahmedabad graduate decided to launch an online portal for buying vegetables

While Web shopping is no threat to local mandis, it can provide many farmers a way of directly selling their produce and vegetables—some of them also display nutrition facts for each fruit or vegetable. Payment, in most cases, is done only on delivery.

Regular customers also get several discounts and can get special offers in exchange of loyalty points. In belivefresh.com, one can get bills reduced once you earn 180 points. “The idea of points is to encourage the customer to continue shopping with us,” says the website. Not only do these websites offer all kinds of vegetables and fruits, one can also get dry fruits and other stuff, like on the Thane-based sabzimandionline.com. Almost all the websites also provide recipes and tips on storing and handling of vegetables. Generally, for items which are sold in numbers, the weight is mentioned, and the price depends on the weight of the number of items purchased. The prices depend on stock and freshness, so while they may not be set everyday, there are frequent revisions. Unfortunately, the facilities are limited to cities like Delhi and Mumbai. Online shopping for vegetables can come as a relief for busy working women; the chore may seem too taxing after their office hours. But, since Indians still like to physically see and touch the food they purchase, the idea may have limited appeal. This is why online shopping in India has been limited to lifestyle products, gadgets and books, where a certain consistency of product quality can be assumed. Plus, there is no scope for bargaining online, and the prices appear slightly higher than the market. This is especially needed since “1 unit” of papaya costs Rs68 and watermelon costs Rs79 in farm2kitchen. While Web shopping is no threat to local mandis, it can provide many farmers a way of directly selling their produce, instead of depending on middlemen in the supply chain. It’s a long way to go, but it is certainly a fresh start. — Shukti Sarma

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CURRENT ACCOUNT

T H E R I G H T T O INF ORM AT ION AC T

the debris and the encroachments. To heighten the pressure and prove to the authorities that they were serious about their demands, the residents even joined a relay hunger protest. The commissioner Citizens can use the RTI Act responded by sending excavators to clear the rubble. The residents to force authorities to avoid volunteered to monitor the work water-logging—and save so that the rubble cleared from their homes the rivulet was not dumped in the nearby area. One of the developers has demolished the compound walls he monsoon has arrived and, of his buildings. with it, flooding and water “Relentless vigilance by citizens logging in cities. The 26 July 2005 is the only way to get work done deluge in Mumbai that caused in a proper manner,’’ says Vinod immense destruction of life and property is still fresh in memory. But Bodhankar, member of Biradari, an it doesn’t appear that the authorities have taken that tragedy seriously. In Pune last year, an entire slum was submerged under five to six feet of water as a result of a compound wall that was constructed on a nullah by a housing society in the neighbourhood. In another incident, a young mother and her infant were miraculously rescued from being washed away by floodwaters that gushed in through a bathroom window. The cause of the flooding was some 200 illegal structures. Surely, there would be similar stories in other parts of the country. Is there something citizens can do to make the authorities more accountable? The residents of Bavdhan, in organisation in Pune that has taken Pune, came together to study their up the matter of encroachments on neighbourhood, particularly the water bodies in a big way. Ram nadi that flows through the In the upmarket Baner Road area. They found worrying piles area, residents of housing societies of debris dumped at various places took an equally big step to stop along the rivulet by developers the encroachment and oppose the of more than half-a-dozen new concreting of the Dev nadi that constructions. They also collected passes behind their apartments and evidence of compound walls of some of these new projects that had to preserve the natural environment. Last month, on a petition of encroached upon the banks of the the residents, the Bombay High water channel. Court ordered the Pune Municipal In April 2011, the residents Corporation to stop concreting the dashed off a letter to the municipal commissioner demanding removal of Dev nadi and shelve the ambitious

Avoid Pain during the Rain

Rs400-crore project under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM). The success was due to the effective use of the Right to Information (RTI) Act demanding information about the plans and the action taken by the civic department on the matter. Vijay Kumbhar, an RTI activist, is working with Justice PB Sawant, and is collecting complaints from citizens which will be handed over to the civic authority in Pune to compel it to act. Some of the things that citizens can do through Section (4) of the RTI Act are: • Demand a map of your neighbourhood from the municipal corporation to get a proper idea of the nullahs, streams and rivers in your area. Set up a neighbourhood committee to inspect if encroachments have taken place. • Demand documents/ correspondence pertaining to encroachments and the action taken against them. • Ask for documents of tenders for de-silting of water bodies and the expenditure incurred. • Apply for copies of circulars/ government resolutions (GRs) on preservation of water bodies. • Ask about the work undertaken by the municipal corporation on storm-water drains, de-silting of water bodies, and any other steps taken to free the water bodies from encroachments. Citizens have learned that floods are not simply the outcome of nature’s fury; they are often due to mismanagement of the neighbourhood. They have now taken it upon themselves to care for the area where they live, to preserve it from further damage and revive the ecosystem. They are invaluable examples for others to follow. —Vinita Deshmukh

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E MP L OY E E PROV IDE NT F UND

Online Track At last, things are improving for harried employees

mployees have a tough time tracking the status of their provident fund (PF) accounts over the Web. Of late, the Internet has been flooded with PF-related complaints. “I have made a PF withdrawal claim 5-6 months back from my previous organisation, but, as of now, I have not received my claim amount in my account... I have been contacting the HR (human resources) department of my previous organisation. According to them, they have sent the request (of the claim) and also have the acknowledgement copy, so they are not liable on any further issue over not receiving the claim,” complains Shailendra Mathur, from Gurgaon on www.consumercomplaints.in. Deepak Kapoor, from Indore, says that his former organisation claims that the office of the additional PF commissioner (Gujarat & Madhya Pradesh) has not received his PF form. But Mr Kapoor asserts, “The form was received on 5 May 2011. I sent the proof (to my ex-employer) but it has

Fund Facts: Information Without Interpretation

he Securities and Exchange Board of India (SEBI) is apparently asking mutual funds to disclose the track record of their fund managers. If implemented, this would offer investors more information. But there are hidden perils of information overload without interpretation. Look

not responded.” For harassed employees like these, the Employees’ Provident Fund Organisation (EPFO) will be making subscribers’ account details available online on its website (http://www.epfindia.com/) from 1st July. The move will benefit 47.20 million EPF (Employees’ Provident Fund) account-holders, who can check their account balance online with ease, eliminating the existing cumbersome process. The updating

process by all the 120 offices of the EPFO across India is currently taking place. The majority of the complaints pertain to subscribers not being able to find their exact balance in their individual PF accounts and employers and local PF officers not being able to answer the queries. This facility to check the online balance will ensure that employees

at this example. UTI MastershareGrowth Fund gave a return of 61% in the five-year period from FY94-95 to

Beyond the Headlines FY99-2000. It was number one for that period among 17 funds. However, in the next five-year period from FY95-96

can track their account details—it will also usher transparency in the system. EPF members have to login using their account number, through which they can check their account balance. Currently, the EPF balance of the previous year will be provided and in around three-four months; the current balance will also be updated. This initiative by the EPFO will give power to the employees who are often at the mercy of their employers. Employees would now be in a position to put pressure on their employers for making timely deposits. Also, if an employee quits an organisation, she can keep track of her balance. Many employees have little or absolutely no knowledge of their PF account balances. In India, contributing to the EPF account is easy, but the withdrawal process is harrowing. Even the HR departments of many private organisations are unaware of the EPF rules and regulations. For instance, they don’t know that an employee can contribute more than the standard PF amount deduction, although the employer will not increase its share of the contribution. One cannot call the EPFO ‘employee-friendly’ yet, but providing relevant details online would be a big step forward. — Alekh Angre

to FY2000-01, the returns were just 2%. Its rank was down to 20 among 23 funds. The main reason: the Fund had invested in Ketan Parekh stocks which boosted returns in 1999 but the returns shrunk in 2001 when the scam was exposed. Just wonder what the SEBI chief, who was the CMD of UTI Mutual Fund for the past few years, would have to say about a situation like this.

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CAREERS

he president of Clarium Capital, a San Francisco-based investment management firm and hedge fund, is thinking out of the box. Or rather, out of the school. In a talk show, Clarium’s president Peter Thiel (who co-founded

about big things early in life.” With the money, the students (or wouldbe drop-outs) would not have to worry about debts and loans but rather focus on ‘doing great things’, as Mr Thiel puts it. He’ll be accepting applications for this grant up to the end of the year for enrolment in 2011. At the other extreme of the investment spectrum is William H Gross, founder, managing director and co-CIO (chief intelligence officer) of investment consulting firm PIMCO. He is called the ‘bond king’ or the

Peter Thiel

William Gross

PayPal) revealed that he is going to offer grants up to $100,000 for kids to drop out of school. This novel initiative is creatively termed “stopping out of school”. Mr Thiel says he is going to fund some 20 young adults under 20 who apply for this grant which will enable “the best minds thinking

‘Warren Buffett of the bond market’. He too thinks that a mind is “too precious a thing to waste on college.” In a recent article on the company’s website, Mr Gross said: “An undergraduate education is primarily a four-year vacation interrupted by periodic bouts of cramming or Google plagiarising.

Retail Interest: Is SEBI barking up the wrong tree?

and he has indicated that scrapping entry-load was a wrong thing to do. What he has not yet said is that who will pay for this capriciousness of the regulator. But will incentivising the distributors ensure retail participation and lead to large inflow of funds? Before you answer that, ask why has retail participation in stock market dwindled so much? The fact is, SEBI cannot look

We Don’t Need No Education College is a waste, say two successful investors

n August 2009, SEBI suddenly banned the mutual fund industry and distributors from charging entryloads while selling mutual funds, without much debate. Coincidence or not, billions of rupees have flown out of fund companies after this decision. We now have a new chairman in SEBI

And a degree represented that the graduate could ‘party hearty’ for long stretches of time and establish social networking skills that would prove invaluable later on, at office cocktail parties or interactively via Facebook. College was great as long as the jobs were there.” Yes, college is all about developing your social networking skills via Facebook, as these experts say. So, Mr Thiel is going to give away a huge amount to teenagers “who will drop out of school and become not just tech entrepreneurs but world-changing visionaries.” And Mr Gross thinks it is a great idea. Does the ideal remind you of a certain face on the Time magazine cover, the world’s youngest billionaire who created Facebook that aided the end of a regime in Egypt? Yes, Mr Thiel wants teenagers to become Mark Zuckerberg, just by dropping out of school. And, in case you are wondering, Mr Thiel was among the first investors in Facebook. Is this the new-age version of the American Dream? Arthur Miller’s play ‘Death of a Salesman’ is still relevant in pointing out that for every lucky face that made it big, there are thousands who could not. If every ‘underdog’ would win, the term wouldn’t exist. — Shukti Sarma

at mutual funds in isolation. It has to create confidence among retail investors first about the entire stock market system before they come into mutual funds in large numbers. And, for that, the regulator has to curb price rigging, rampant manipulation in the IPO market, different kinds of misselling, lethargic complaint redressal and the lack of financial literacy. Is SEBI up to it?

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E ME R G I NG M ARKET S

Look before You Reap A top hedge fund, Paulson & Co, has lost some $720 million in a Chinese papertiger stock, Sino-Forest

BOTTOMLINE BY MORPARIA

from the Fed’s perpetual printing machine) in a company called SinoForest Corp. Paulson’s hedge fund (Paulson & Co) manages some $37 billion in assets. But when Muddy Waters LLC, an investment firm, said that the forestry company had

few months ago, we wrote about how hollow Chinese companies dubbed ‘fraudcaps’ are doing reverse listing on the New York Stock Exchange—right under the nose of the US market regulator. Now, a top hedge fund manager John Paulson has been taken for a royal (Chinese) ride by such a fraudcap. Mr Paulson (55), who made a killing in the 2008 crash and in gold a year later, decided to sink $815.80 million (in Canadian dollars, not greenbacks

Top hedge fund manager John Paulson

‘overstated’ its timber holdings (the allegation was denied, of course, by Sino-Forest) Paulson realised his blunder. According to (mandatory)

regulatory filings, Paulson owned 40.70 million Sino-Forest shares, a 19% stake, as of June 2009. Now, Paulson & Co has dropped its hot Chinese potato—it had sold its entire stake (34.70 million shares), on 17th June. The loss: $720 million or 2% of the portfolio value of about $15 billion. Paulson’s experience just goes to show the perils of investing in ‘emerging’ markets where corporate governance norms are often iffy. Well, Paulson would not have made this mistake if he’ had a taste of Indian companies in the 1990s when a procession of them duped foreigners during the 1994-95 mania. But the Chinese are probably just about warming up. Even experienced fund managers have been taken in by constant reports on how the next big opportunity lies in these exotic, unexplored lands, called emerging markets. —Devarajan Mahadevan

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LOOSE CHANGE

Surprise Gift for Quiz winners from:

Moneylife Quiz - 105 Another quiz to tickle your brain. The answers to this quiz are in this very issue. The winner will be chosen by a lucky draw from correct entries. The answers will be published in the next issue. Send in your answers to quiz@moneylife.in with the Quiz no., your name, address and telephone number before 10 July 2011. 1. In which year did Antti Ilmanen obtain his PhD in finance? a. 1994 b. 1997 c. 2005 d. 2010 2. When was People’s Republic of China founded? a. 1930 b. 1949 c. 1950 d. 1951 3. Who wrote The Great Crash, 1929? a. William Johnson b. George Stalin c. John Kenneth Galbraith d. Jackson Miller 4. What is Rumtek Monastery complex also known as? a. Royal Hills b. Ramtek Monastery c. Tawang Monastery d. Dharma Chakra Centre 5. Which is the parent company of Wyeth? a. Pfizer Inc b. Kranti Laboratories c. Polar Pharma d. Sujata Biotech 6. Who is the author of the book Uprising? a. John D’souza b. Wilson Lobo c. George Magnus d. Anand Srivastava 7. According to the Reserve Bank of India, how many days do banks have now to re-credit a customer’s account in case of a failed ATM transaction? a. 9 b.13 c. 15 d. 26 8. Who is the promoter of Japan Life? a. Keshav Mishra b. Anil Mathews c. Vasant Raj Pandit d. Reena Agarwal The answers to Moneylife Quiz-104 are: • 1-a. Arvind Kejriwal • 2-b. Kochi • 3-c. Ashish Bose • 4-a. Viceregal Lodge • 5-b. Naggar • 6-c. Dr Rajat N Agrawal • 7-a. 1988 • 8-c. Life Insurance Corporation of India In all, 29 readers got all the answers right last time. The winner of Quiz-104 is Vinubhai Popatbhai from Surat. Congrats Sir! You will get a surprise gift from Surat Diamond Jewellery.

Sound Bites “Central bank governors are known for being elliptical in their pronouncements. They are supposed to know better and, because they are mortals, they often go wrong in their policy, and forecasts” – SURJIT BHALLA, CHAIRMAN, OXUS INVESTMENTS, in The Financial Express

“I’ve seen several patients who had only 30-50 per cent blockage but were stented… There should be routine medical audits to curb such practices” – DR RAJIV BHAGWAT, CONSULTANT CARDIOLOGIST, NANAVATI HOSPITAL, in Mumbai Mirror

“Hardly a good word is said (about mutual funds). Every small detail is exaggerated and whatever good we do is completely ignored. We were made to feel like a bunch of no-good people” – MILIND BARVE, CHAIRMAN, AMFI, in Business Standard

“The goodwill for India that existed a couple of years ago, has gotten diminished now. There is no doubt. It is absolutely clear” – NR NARAYANA MURTHY, FOUNDER, INFOSYS, to PTI 19 | 14 July 2011 | MONEYLIFE

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

DU B I O U S C OM P ANIES

Again & Again How do scamsters vanish— and make comebacks?

t can only happen in India. Companies that escaped punishment in older scams, continue to be involved in new mischief or dirty deals. Consider this. The Essar group has achieved the most amazing financial turnaround in Indian corporate history—or so we thought. Yes, public sector banks and financial institutions, helped fund the Ruias’ massive business empire and wrote off a few thousand crore rupees when they landed in a financial mess caused by reckless borrowing and ill-timed rampaging growth. Then Essar hit the jackpot with investment in telecom (Vodafone) and reaped stupendous returns without having to build or run the business. Again, greed got the better of them and, today, the story of Loop Telecom’s dubious strategies to bag scarce telecom spectrum is as bad as the Anil Ambani group’s Swan deal. It is only pure luck that only a few players are behind bars and not others. Reliance is another example. We have often written about how Reliance group companies have been repeatedly let off by regulators over the decades. Consent orders and settlements are

a handy tool for them. Another notorious company back in the limelight is GTL and its sister company GTL Infrastructure (earlier Global Tele-Systems Ltd). Like most of the K-10 companies, which were named in the Joint Parliamentary Committee report that investigated the Ketan Parekh scam, GTL also escaped regulatory action, changed its name, restructured and resurfaced several years later. A little over a year ago, The Economic Times celebrated the return of Manoj Tirodkar, GTL’s promoter and a close buddy of Ketan Parekh, with a front page report. SEBI (Securities and Exchange Board of India), under chairman CB Bhave did nothing—

in September 2010. In India, companies sometimes announce mega-deals and foreign investments to boost stock prices or to facilitate fund-raising. When the deal is eventually called off, it is impossible to prove wrongdoing. Was it the case here? The sudden and extraordinary 62% fall in GTL’s stock price and 43% in GTL Infrastructure on 20th June ought to trigger a serious investigation. If the promoters, who hold over 50% of the equity, insist there was no sale of pledged shares, then what provoked the fall? Will SEBI’s expensive market surveillance system ever yield results? Or will it be another slow investigation that, ultimately, leads to a consent deal and small penalty?

BANKS & FINANCIAL LITER A CY

Ears to the Ground Banks are fleecing taxpayers and giving out doles GTL promoter Manoj Tirodkar

after all, the Zee group was let off with a mild warning and Himachal Futuristic Communications Ltd paid a minuscule Rs10 crore under a consent order. GTL powered ahead; it acquired Aircel’s towers in June 2010 and announced plans to merge with Reliance Infratel. It also went on a borrowing spree in India and abroad. The tower deal fell through

t is over a year since the Customer Service Committee, headed by M Damodaran called for public suggestions but there is no sign of the report being released. Even Committee members admit with frustration that they are clueless about the cause of delay, when they have signed the report several weeks ago. Comprehensive action on customer service issues will only ``

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` emanate from an open discussion of

the report’s recommendations. What we do know is this: banks are quietly making plans for unique identification numbers (UINs) to be a mandatory part of know your customer (KYC) requirements without consulting the consumers or looking into privacy issues. This is against the Unique Identification Authority’s original claim that the biometric numbers will not be mandatory. Examining this issue is important because biometrics identification has not been a solution to beating either the literacy problem or identity issue so far. NGOs who worked with biometric ATMs installed with much fanfare a few years ago, say they are a nightmare for users because fingerprints of people who work with their hands and with chemicals and detergents are too blurred for the machines to recognise. No-frills accounts, which were to boost financial inclusion, are another non-starter. Banks and the ‘State of the Sector Report’ reveal that at least 80% to 97% of no-frills accounts are inactive. Yet, even the urban poor find it difficult to open bank accounts. Has the RBI or the Damodaran Committee examined the problem? Moneylife Foundation, our NGO associate, finds that poor financial awareness is the key problem. Merely recruiting NGOs as banking correspondents is not the answer. Many of them quickly turn into micro-financiers and push people

into debt or sell them insurance policies for fat commissions. The suggestion that no-frills accounts have an overdraft facility (in other words, a disguised loan mela) is also ridiculous. Smart farmers have already turned hugely subsidised 7% agriculture loans into an arbitrage opportunity by depositing the borrowing in bank fixed deposits at 9% or more. Some are even being lured by dubious realty companies offering 19%21% interest. If they fail to repay, these greedy farmers would have sunk into a nice debt trap. The answer to this is serious financial

taxpayers or investors. The money wasted in non-productive accounts or micro-overdrafts can never be recovered. Skoch Development Foundation, a powerful lobbying group based in Delhi, says that these amounts are minuscule compared to what banks spend on advertising. But advertising brings fresh business, not losses, while giveaways end up being paid out of taxpayers’ money in the form of re-capitalisation of banks. It’s time we demand some account of the money that banks are forced to spend on ill-considered giveaways.

Fall from Grace

F M Damodaran, head of the RBI Customer Services Committee

literacy. It explains why banks are safer than unstable but friendly ‘path peedis’. Forcing payments under the MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) through bank accounts also leads to a one-time transaction. The RBI needs to be genuinely interested in engaging with people to take financial literacy to the masses; it cannot be done by fiat and setting targets. It is important to remember that all these giveaways and experiments forced on banks—which are all listed entities—come at the cost of

or decades, Dhirubhai Ambani was credited with singlehandedly creating an equity cult in India. And, despite the fact that it has always been embroiled in controversy, the capital market and bourses were in awe of the Reliance group. All that ended in June when the Bombay Stock Exchange threw out two Reliance (Anil Ambanicontrolled) companies—Reliance Communications and Reliance Infrastructure—from its elite index. Reliance Industries, Mukesh Ambani’s flagship, has also given investors nothing to cheer about for four years now. Those who remember Anil Ambani’s histrionics just prior to the split between the brothers will agree that last week marked the end of a capital market legend about how the extended ‘Reliance family’ has always gained from its investment.

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DIFFERENT STROKES SUCHETA DALAL

R EGU L ATIO N

SEBI Chief’s Agenda Will the SEBI chairman leave behind a better legacy than many of his predecessors?

hree months after taking over as capital market watchdog, UK Sinha has revealed his priorities in a series of public meetings and media interactions. In effect, he has said: ‘my clock starts ticking now’. We, at Moneylife, are happy that he did not wait to put in place his top team (two whole-time directors and at least four executive directors are set to change) before speaking his mind. Mr Sinha has started by defining his mandate as chairman of the Securities and Exchange Board of India (SEBI). He says, it is to protect investors’ interests, promote market development, regulate intermediaries and ensure that the three tasks do not contradict each other. He also promises to remove ‘irritants’ to investment and to improve disclosures. This, in a nutshell, covers most of what has gone wrong in the capital market over the past decade. If Mr Sinha also ensures that SEBI is fair, unbiased and non-partisan, he will leave behind a better legacy than many of his predecessors. Interestingly, Moneylife has written about several of the issues flagged by SEBI’s new chairman; we have even raised many of these with his predecessors. So we will watch with interest how Mr Sinha deals with the issues that he has himself identified in the past three months. These are: • Incentivise Mutual Fund Distribution: Since August 2009, Moneylife has repeatedly pointed out that ‘disruptive’ changes in mutual fund regulation have caused investors to exit. The fund industry used to dread the weekend circulars that mandated drastic changes in policy or ways of doing business without even the pretence of consultation with stakeholders. Its zero-load policy, while good for investors, didn’t bother to take them into confidence or work out a viable alternative and smooth transition for those who are not tech-savvy. Consequently, the investor ended up paying the same amount of money or more—not as a load, but to banks, who offered to manage their accounts. The new SEBI chairman has now put some statistics

on the table. He says, direct sale of mutual fund units is up 2%, while those sold through financial advisors is down 7%. In effect, the industry is a loser. Mr Sinha has openly abandoned CB Bhave’s stubborn no-load stand and admitted that rural penetration of mutual funds will not happen without incentives for distributors; he also says he will avoid disruptive changes. Unfortunately, the initial attempt at deciding incentives is already controversial with the lone investor representative on the mutual fund advisory committee accusing it of ignoring his views. The committee’s suggestion of a flat Rs100 fee is also illconceived and expensive for small investments. • Increase Retail Participation: Changes in demat, IPO (initial public offering) and secondary market trading rules should enhance this. Mr Sinha says, disclosures in IPO prospectuses are ‘too voluminous and too unstructured’. Funny, but this is something that was repeatedly raised at the Primary Market Advisory Committee (PMAC) by several members at least six to seven years ago. Isn’t it worth asking why SEBI has consistently ignored this obvious fact? In fact, the complex and turgid nature of disclosures created the need for IPO ratings. Again, investor activists had demanded that ratings fees be paid out of investor protection funds to avoid rating-shopping. We are glad that Mr Sinha has expressed concern about rating-shopping and plans to make it mandatory for companies to disclose negative ratings as well. This will be an important step towards improving transparency. Getting merchant banks to disclose the performance of IPOs managed by them and attacking the cosy nexus between them and other intermediaries with regard to IPO pricing and subscription will also ensure a much needed clean-up in this sector. • KYC Reforms: Mr Sinha plans to introduce uniform ‘know your customer’ (KYC) norms for all SEBIregulated entities in the capital market. He is also quoted as saying, “I found out that different market intermediaries regulated by SEBI have different KYC ``

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DIFFERENT STROKES SUCHETA DALAL

•

requirements, only after I joined SEBI.” While we welcome Mr Sinha’s intention, it is hard to believe that as joint secretary-capital markets division and later as chairman of UTI Mutual Fund, he has not read or heard about the hardships faced by investors in dealing with KYC requirements. Investors have long demanded that the KYC by a depository must be accepted by all capital market intermediaries; but SEBI hadn’t been listening. Retail Investors' Problems: We, at Moneylife, have repeatedly pointed out that complicated norms, mindlessly lengthy documentation and high entry costs have driven retail investors away from the market. Today, when India’s investor population has dwindled from 20 million in 1992 to 8 million (the D Swarup Committee says this includes mutual fund investors), it is hard to accept that the market regulator was unaware of the hardship. Or the fact that it costs well over Rs10,000 just to prepare oneself for equity investment (this covers the cost of opening a brokerage account, a bank account and demat account as well as their charges and minimum cash requirements insisted by brokers). Things have reached such a pass that brokers who do not earn revenues by encouraging mindless speculation, daytrading or pattern-trading are rapidly shutting down branches. The share prices of all listed brokerages reflect the true state of their business (most are down 80% from their peaks), but neither the finance ministry nor the regulator is even looking for ways to address the problem. Revive EDIFAR: Mr Sinha has asked mutual funds to reveal the track record of fund managers as a step to increase inflows into better-performing funds. This is a positive move, which will work even better if SEBI asks fund companies to report performance to a statutory database in a manner that makes data comparable. In fact, all market intermediaries,

including portfolio management schemes and mutual funds, must be asked to report performance to a statutory database. SEBI must revive the Electronic Data Information Filing and Retrieval (EDIFAR) system, which was abandoned without explanation in April 2011 so that detailed annual reports and announcements by listed companies are available to existing and potential investors. Today, companies send abridged annual reports or e-reports to existing investors, while those who want to research a potential investment have little information available in the public domain. If SEBI is serious about attracting equity investment, it must fix all the things that its past three chairmen had steadfastly ignored. A few other issues, which embarrass the regulator everyday, need to come on Mr Sinha’s main agenda. First is the rampant market manipulation in existing and newly-listed securities. These require SEBI to act instantly, at least by announcing an investigation. A starting point would be the extraordinary trading in Timbor Home on the day it was listed and the collapse of the GTL stock on one fine June morning. SEBI has to show that it is alert to speculators’ tricks. Another is the non-transparent and erratic nature of consent orders. The Supreme Court’s observations in the NSDL (National Securities Depository Ltd) case ought to be a wake-up call for SEBI. After two decades of existence, it must realise that its quasi-judicial rulings must be transparent, speaking orders that can stand scrutiny in a court. Former SEBI director, Dr Mohan Gopal, has raised this in a letter to the PM. The truth is that if the regulator and an intermediary work out a ‘consent deal’ whereby the order is deliberately vague regarding the nature and gravity of offences, nobody has the incentive or power to challenge it. Sucheta Dalal is the managing editor of Moneylife. Subscribers get free help in resolving their problems with select providers of financial services. She can be reached at suchetadalal@yahoo.com

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SMART MONEY R BALAKRISHNAN

INF L AT ION & INT ERE S T RATES

A Double Whammy Inflation is eroding investments and the central bank’s monetary policy regime is preventing money from flowing into avenues of growth

nflation is the biggest destroyer of wealth. If I had to park money anywhere else, we need higher returns. put aside a sum of Rs100, 10 years ago, I would have If the savings interest rate were zero, our expectation of earned around 7%pa as returns. Today, I would have return from other instruments or avenues would have had around Rs200 in hand. Ten years ago, I could buy dal been lower. Similarly, the RBI has hiked interest rates across the at under Rs20 a kg or buy a litre of petrol at under Rs25. Today, dal is close to Rs100 a kg and petrol is over Rs60 board. Now, we are seeing 10-year instruments being a litre—and climbing. Of course, vegetable and food floated with yields of 12%pa, and higher! It is not as prices have more than tripled over this time. In essence, if banks are flush with money and that RBI will reduce what I saved 10 years ago is today worth less than half credit offtake due to this move. In fact, banks do not my original investment. Half of my ‘savings’ has been have enough money to lend. And a company will not destroyed because I did not spend it. More important, stop borrowing for its regular needs simply because my assumptions of 10 years ago, that what I put aside the interest rate has gone up by a couple of percentage would suffice for me today, have gone terribly wrong. If points. In fact, due to lack of additional supplies coming I cannot earn additional income (10 years ago, my plan in, competition is minimal in most industries. This gives was to stop having to go to work at this stage in my life, companies the leeway to pass on the increased burden of presuming that my savings were enough), I have to scale higher interest rates to the buyer. Inflation gets worse due to this vicious cycle. What will get impacted is capital down my expectations or sell off some other assets. Inflation is not going to come down anytime soon. expenditure. Large projects will get postponed due to To me, the biggest damage has been done because of high interest rates. In this environment, the the increase in interest rates on villain of the piece is retail savings account deposits, by the The villain of the piece is lending. It continues to grow RBI (Reserve Bank of India). retail lending. The race unabated. Increase of a couple It virtually amounts to the for market share and the of percentage points in interest regulator giving up on inflation. rates has not deterred spending. I would, in its place, have gambler- like urge to keep reduced the savings account growing the retail ‘book’ has The consumer durables and automobile industries are deposit rate to zero! Until a few years ago, diverted the focus of banks to growing at record rates. Most of this growth is on account savings account balances size rather than quality of credit purchases. Of course, beyond Rs1 lakh would not earn interest on any excess amount invested beyond it does help these industries, but these goods are this cut-off level. Today, banks pay interest on the virtually immune to price hikes in today’s environment entire balance. The result of this move by the RBI is of unfettered ambition and consumerism. Banks are that people tend to create a higher benchmark in terms continuing to grow this portfolio, unmindful of credit of expectation of returns. If the savings rate had been quality. The race for market share and the gambler-like brought down to zero, not many (barring some vested urge to keep growing the retail ‘book’ has diverted the interest groups) would have protested. At the same time, focus of banks to size rather than quality. Many banks it would have had the magical effect of lowering people’s and lenders have outsourced even the critical function expectations. Today, the savings account interest rate has of origination of loans to third parties. Obviously, this become a kind of base point of expectation. Naturally, will result in mounting bad debts. I am seeing consumer ``

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SMART MONEY R BALAKRISHNAN

So what do we do? One assumption I would like to lower) of the outstanding value to other banks or asset- make is that the RBI will stop its misguided driving-up of interest rates sooner rather than later. I will accept reconstruction companies. Consumer activism and a benign regulatory attitude that inflation in India is going to have a run rate of 8% to defaulters have made it very easy for an individual to to 10% annually, given the fact that our combined state default—and not change his lifestyle in any way. Smart and central fiscal deficits will remain in double digits borrowers are using this aspect to run up loans, negotiate and the base savings rate interest has been raised to 4%. them after deliberate default and go on with their normal I will put in as much of my savings in short-term assets lives. I do not think that the scores from a credit bureau as possible. I will wait for a stock market correction to will have much impact in the near term, so long as it is add to my equities portfolio. But to what extent? Maybe used only as a pricing tool, rather than a denial of credit another 20% fall in market indices from this point—or the market remaining at the same levels two years down mechanism. Credit is a useful mechanism to bring buyers and the road (assuming that average profit growth of listed sellers together. However, when the number of buyers is companies would still be around 15%pa). I’ll postpone most of my purchases of consumer more than the sellers, credit will only serve as a tool to push prices up. As the old saying goes, when credit has to durables and push back the buying of my second home. In fact, I will follow the Shakespearean dictum of ‘neither be ‘sold’, it will end up as a bad debt. This cycle will end either by supply catching up with a lender nor a borrower be’. I would look out for fixed deposits or bonds to park some demand or by prices going up to such an extent that, at When buyers are more than of my money. Liquid funds are in fashion, with decent some point, buyers will vanish, sellers, credit will only serve back returns. I will avoid income or their numbers will shrink dramatically. Supply does not as a tool to push prices up. As funds until I am sure that the look like it is going to catch up the saying goes, when credit RBI is done with jacking up rates. in a hurry. What is most likely is has to be ‘sold’, it will end up interest What I have outlined is that we will go through a phase as a bad debt perhaps a pessimistic outlook. of rising prices. However, if I can be prepared To me, this is scary. We will see apparent prosperity, without increase in the number for this, I can only have positive surprises. I am still not of jobs. We will see fixed-income earners (like pensioners so pessimistic as to believe that we will go all the way or retired persons) struggle to make ends meet. Income to hyperinflation or a severe bout of stagflation. I bank disparities will rise to levels not seen before. Rising on domestic entrepreneurs to fight their way out of this, interest rates cannot benefit all. Only to those with rather than expect the Indian government to do anything continuing inflow of money will rising interest rates be constructive to correct the situation. Politicians are of some gain. If I have already locked in my money, I busy fighting their survival battles... and, unfortunately, cannot take advantage of rising interest rates. Even if I go economics has no place in that. through the mutual fund route, I will not gain. As interest The author can be reached at balakrishnanr@gmail.com rates rise, we will see the prices of assets fall.

` portfolios that have gone bad, being sold at 10% (or

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

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25 | 14 July 2011 | MONEYLIFE

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FIXED INCOME

B A NK F D s & C ORP ORAT E BONDS

High Interest Fixed- income investors have never had it so good in a long time

o control rising inflation, the Reserve Bank of India (RBI) has been tightening money supply and interest rates have been going up. This has led to a bonanza for those who want to invest money in fixed-income instruments. Interest rates offered by banks on their fixed deposits (FDs) are suddenly attractive. Currently, banks are offering at least 8.25% (on deposits of more than a year) and 9% (for deposits of more than two years). Some are offering even more. For senior citizens, there is an extra 0.25%. We have compiled a list of banks and the FD rates they are offering. But bank FDs are not the only option for yieldseeking fixed-income investors. There are alternatives such as deposits from companies, including nonbanking financial companies (NBFCs) that are raising money from savers at attractive rates. For instance, there is Ansal Properties & Infrastructure with one year FD rate of 12%, Ansal Housing & Construction with one year FD rate of 11% and Unitech with one year FD rate of 11%. Should you go for them? Like bank FDs, they are a good source of fixed-interest income. The tenure is flexible, ranging from six months to seven years. The other benefits are that no tax is deducted at source in case the interest is only up to Rs5,000 in a year. These corporate FDs have a nomination facility and the operating process is simple too. Even a PAN (permanent account number) is not required. But anything that offers a higher interest rate comes with higher risk. A company offering 15% interest rate would be riskier than that one offering 11%. These

Bank FDs - Less than 2 years Bank City Union Bank

deposits are not secured, unlike in banks where deposits up to Rs1 lakh are covered by a deposit insurance. Besides, deposits with public sector banks are totally safe. Even when the government banks went almost bankrupt in 1996-97, the Centre stepped in and bailed them out. But in the case of a corporate default, the investor is likely to lose his entire money. This is why they are riskier and offer higher interest. Therefore, the way to invest in corporate FDs is to strike a balance between interest and risk. Choose the right tenure of deposit. Ideally, you should invest for a period of one year. Blocking your investment for more than one year could be risky. Make a periodic review of the company and on the maturity of the deposit. This will help you to decide whether you should renew or reshuffle the deposit. In the case of company FDs, it is necessary to check whether they have been rated by ``

Corporate FDs Interest rate

Company Name

I Year FD Rate

10.00%

Jaypee Infratech

10.50%

Punjab & Sind Bank

9.55%

First Leasing Company of India

Syndicate Bank

9.55%

Plethico Pharmaceuticals

Allahabad Bank

9.25%

Kerala Transport Development Finance Corporation

Axis Bank

9.25%

United Spirits

Compiled

10% 11.00% 9.75% 11.00%

Source: Bajaj Capital

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FIXED INCOME

` agencies like CRISIL, ICRA, etc. Also check the number

of years that the company has been in business, the profitability of the company and the reputation of the promoters. If you know of people who have invested in company FDs, try to find out if these companies have been prompt in sending interest cheques and maturity proceeds, and how responsive they are to queries. How can you avoid getting trapped in poor-quality corporate FDs? Here are a few tips to ensure higher returns with low risk. Never go for companies offering the highest interest rates, because it will mean taking a huge risk. Before investing, ensure that you choose companies that have a good credit rating (‘A’ or above). Be safe rather than sorry. Specifically, here is what you should avoid: • Companies which offer interest rates that are 3% higher than those offered on bank FDs; • Companies that are not paying dividends; • Companies whose balance sheet shows losses; • Companies which are below investment grade ‘A’ (or under) rating; and • Unlisted companies, since no public records are available. Spread your risk by spreading your investment in FDs over a number of companies in different businesses. Do not put more than 10% of your investment in one company. This has two benefits. First, your risk will be diversified among various industries. Second, the interest from one company may not exceed Rs5,000 and, hence, there will be no tax deduction at source. Corporate Bonds For those who are a little more aware and can invest about Rs10 lakh or so, corporate bonds are suddenly an excellent new option. Unfortunately, there is very little awareness of these bonds and their features among retail investors and so they miss out on the opportunity. Many of the new bonds even offer you a higher rate of interest compared to fixed deposits, postal savings or similar investments. Some bonds floated by the Tata group currently yield more than 11% per annum. Many of these bonds are listed on the BSE (Bombay Stock Exchange) and the NSE (National Stock Exchange of India) and can be bought through stockbrokers who have a presence in the debt segment, who immediately transfer them into your demat account. The bonds currently worth buying are: 12.90% bond from the Indian Railway Finance Corporation earning around 13%; 9.48% bonds from CitiFinancial Consumer Finance India yielding around 12%; bonds from Power Grid Corporation of India earning around 12%, etc. Shriram Transport Finance has also

Corporate Bonds Bonds

Issuer

IRFC 12.90% ’12

Indian Rly Finance Corp

12.68%

LTY*

9.48% Citifinancial Consumer ’13

CitiFinancial Consumer

12.02%

6.10% PGC ’12

Power Grid Corp of India

11.60%

9.90% Cholamandalam ’12

Cholamandalam Investment

11.02%

Tata Steel Perpetual

Tata Steel

11.28%

Tata Power Perpetual

Tata Power

11.47%

Source: NSE, *Latest traded yield

announced plans to raise money through 11.50% bonds. Then there are high-yield bonds from builders which are riskier. For instance, bonds from Vijay Associates (Wadhwa) Construction Pvt Ltd yield 16%. The way the average investor can participate is through a broker who would be willing to locate small lots and sell them to him. One way to invest in corporate bonds is through off-market purchases. Take an example where an institution has Rs1 crore worth of bonds while you want to buy Rs20 lakh worth of bonds. You can approach the broker, negotiate the purchase price, pay via cheque and the bonds get transferred to your demat account. Corporate bonds are mainly secured—backed by assets of the issuing company. Theoretically, they do carry a risk of default, though it is hard to see how Power Grid and Tata Power or Tata Steel/TISCO would default. Another form of corporate bond that is now becoming popular is perpetual bonds. These have been issued by Tata Power and Tata Steel. Perpetual bonds pay interest forever. They are never redeemed. This instrument made its entry into the Indian financial markets in 2005. The issuers of perpetual bonds are primarily scheduled commercial banks. In January 2006, RBI allowed banks to shore up their capital through issuance of perpetual bonds. In March this year, Tata Steel was the first private sector company to have issued perpetual bonds. Some perpetual bonds yielding more than 10% include Tata Steel with a coupon rate of 11.50%. Interestingly, if Tata Steel does not call the bonds after 10 years from the date of allotment, the interest rate would be revised upwards by 300 basis points, i.e., to 14.50% per annum payable semi-annually. Tata Power issued a perpetual bond of 11.40% coupon which can be bought at Rs101.40 now, leading to an effective yield of 11.47% (annualised). Other such bonds have been issued by Punjab National Bank, Oriental Bank of Commerce (yield of around 10.50%) and State Bank of Travancore which offer yields of around 10%.

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MUTUAL FUNDS POINTERS

MI D- C A P F UNDS

Middle Ground Is it the right time for midcap funds?

he 24 small-cap and mid-cap funds have lost a lot of value over the past six months, even as mid-cap stocks got trashed. But don’t write-off small- and mid-cap funds. After all, 20 of them have outperformed their respective benchmarks in the past six months, three funds have underperformed and one fund managed to just equate its benchmark. Sure, this class of investments does come with its extra bit of volatility, but that’s precisely why these funds do very well when the markets are rebounding. Indeed, when the market stabilises, which of these funds would be worth buying? Look at the table. The top three performers in the past six months have been Reliance Small Cap with a return of -6%, while its benchmark BSE Small-Cap index is down -25%. This is a significant outperformance of about 20%. HDFC Mid-Cap Opportunities is down -7% while its benchmark CNX Midcap has fallen -17%. Sundaram Select Small Cap is down -16% while its benchmark BSE Small-Cap has declined -25%. The worst performers were SBI Magnum Multi Cap (-15%), HSBC Small Cap (-32%) and HSBC Midcap Equity (-29%). The longer-term prospects favour the small- and mid-cap funds. The good thing about the stocks that are in their portfolios now is that the valuations factor in a slowdown. Given that the bear hammering was severe, many of these stocks are cheap now. If the tight liquidity situation eases, and sentiment improves, these stocks may go up fast. Well-managed small companies clock faster growth rates than larger companies, but the stock price depends substantially on sentiment—and not just the fundamentals. The real challenge lies in

picking the right fund to make the best of the investing environment. If you can take the risk of a little volatility and illiquidity, these funds can still provide 25% compounded return. On another note, see if the fund you choose fits your investment style. If yes, then over the long-term period, volatility gets ironed out as midcap funds are expected to outperform the markets. Two funds of Sundaram (Sundaram Select Small Cap & Sundaram Select Midcap) were among the top five performers. Their portfolios as on April 2011 were excellent. They have a clutch of quality mid-cap stocks —not exorbitantly valued. Sundaram Select Midcap has stocks such as Amara Raja Batteries that has risen 7% in a declining market, Apollo Tyres (-7%), Dish TV (up

Report Card Scheme Name Top 5 Reliance Small Cap HDFC Mid-Cap Sundaram Select Small Cap Sundaram Select Midcap Religare Mid N Small Cap Bottom 5 Birla Sun Life Mid Cap Birla Sun Life Small & Midcap SBI Magnum Multi Cap HSBC Small Cap HSBC Midcap Equity

Return Benchmark

Return

-6% -7% -16% -14% -11%

BSE Small Cap CNX Midcap BSE Small Cap BSE Mid Cap CNX Midcap

-25% -17% -25% -20% -17%

-17% -17% -15% -32% -29%

CNX Midcap CNX Midcap BSE200 BSE Small Cap BSE Mid Cap

-17% -17% -13% -25% -20%

Source: Mutual Funds India

12%), Indraprastha Gas (up 2%) and Ipca Laboratories (-2%), while the Sensex for the same period (from 5 November 2010 to 31 May 2011) was down -12%. Also consider HDFC Mid-Cap Opportunities. The top bets of this Fund as on 29 April 2011 (& their return from 5 November 2010 to 31 May 2011) are: IPCA Laboratories (-2%), Carborundum Universal (-1%), Lupin (4%) & Vesuvius India (10%).

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6/20/2011 12:39:56 PM

COVER STORY

Dubious pyramid schemes or money-circulaƟon schemes are looƟng Indians across economic strata, finds Sucheta Dalal. This will conƟnue since Central and state governments seem unconcerned

ince greed knows no economic barriers, people across the financial spectrum are suckers for fraudulent pyramid or Ponzi schemes that promise quick riches through spectacular returns. They go by many names—multi-level marketing, direct marketing, referral marketing, integrated marketing, network marketing, chain marketing or ‘precision marketing’—as in the case of Speak Asia—which is the latest and most audacious pyramid scheme that has taken the country by storm. An NGO (non-governmental organisation) working to improve financial literacy in Asia’s largest slum at Dharavi (spread across central and western Mumbai) says the biggest lure is the ‘double-your-money’ schemes that proliferate among low-income groups that are desperate to improve their lot with the quick, high returns that these schemes promise. At the other end of the spectrum are schemes such as Speak Asia, Gold Quest, Swiss Mutual Fund or Japan Life which are international operations headquartered

abroad. The latter require a higher initial investment, but tend to last longer since they have deeper pockets. There are tens of thousands of Ponzi schemes operating in every Indian state and they have spread their tentacles deep into rural India as well. In a note to the government, the Andhra Pradesh police had said that there are 2,000 pyramid schemes operating in Hyderabad alone and over 10,000 in the entire state. Similar numbers operate in almost every state. These schemes usually fly below the regulators’ radar and dupe Indians of several thousand crores of their hard-earned money every year. All of them have one thing in common—a mathematically unsustainable business model, where extremely high promised returns are linked to enrolling new members into the scheme. More importantly, since most sensible countries have placed outright bans on pyramid marketing schemes, they tend to disguise their true nature by pretending to sell a product or a service, often of doubtful value. India is a happy hunting ground ``

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COVER STORY

Many doctors recommend Amway India’s expensive nutraceuticals; Gold Quest had Michael Ferreira and Speak Asia called in a host of cine starlets ` for pyramids because our legislation is deliberately

unworkable. Technically, even India bans pyramid schemes under a flawed and impractical statute called the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. But more on that later. The way these schemes work is simple: The first few people who ‘join’ the pyramid are carefully chosen for maximum credibility. They pretend to be outsiders who have discovered a great opportunity. Even their downstream enrolments are fixed, because nobody trusts a scheme unless they actually see proof that it delivers returns (via cash or a cheque). Once the first few layers of the pyramid are able to exhibit high returns, the growth is geometric. It is important to remember that those who enter early always get the promised returns (anywhere between 100% and 500%)—it is part of the game. The fraudsters usually abandon a pyramid and vanish when new enrolment begins to flag—the scheme goes bust, inflicting huge losses on victims. Worse, when pyramids collapse, most of those who invested early and earned handsome returns confidently re-invest in the pyramid and are equally big losers. Women, particularly homemakers with no independent income, are especially susceptible to the lures of pyramid schemes because of the promise of easy returns and independent income. Women are also more effective in persuading new enrolment within the family-and-friends circle. It is not without reason that many pyramid companies market themselves as an opportunity to: ‘Work from home’, ‘Work four hours and earn Rs50,000 per month’ or with slogans such as ‘U R the boss of your business, so enrol immediately’; ‘Earn up to Rs35,000+ Monthly by just working 2 hours at home’; ‘Do u want to earn extra by sitting at Home? Then contact us’. For instance, Speak Asia has an enrolment fee of just Rs11,000 per identity; but new members, especially those who joined late, have tried to accelerate returns by acquiring anywhere between three to 21 memberships simultaneously. Those who have already earned hefty returns have also ploughed back large chunks of money to maximise profits. How is the pyramid built

and why do these schemes proliferate so quickly? It is simple. These schemes invariably enrol people who inspire faith and trust or have aspirational impact. So tiny schemes operating among low-income groups will rope in the local constable’s wife or the neighbourhood dada; those that target middle-income groups will look at doctors, lawyers, accountants or their wives (check out how many doctors recommend Amway India’s expensive nutraceuticals) and the most audacious ones will rope in celebrities (Gold Quest had Michael Ferreira and Speak Asia called in a host of cine starlets to perform at Goa and lend credibility to their activity). The modus operandi is this. The schemes offer a ‘great business opportunity’ that guarantees instant riches. It requires an initial investment/deposit and offers a trail of returns based on enrolling new members. The trail earnings for enrolling new members and creating a ‘downstream’ is usually through binary schemes (each member enrols two, those two in turn enrol two each and so on) or a 9:6:3 or 6:4:3 combination. The latter combinations are tougher and require serious persuasion. A 9:6:3 scheme requires every new member to enrol nine members; these, in turn, have to enrol six members each and each of the six will have to enrol three more to ensure that the original member continues to earn an income. This ensures that the original member works hard to ensnare nine and also develop a two-level ‘down-line’ to expand the base of the pyramid. Initial members are lured with promotional foreign tours, multiple conferences and cult-like meetings at fivestar locations. In fact, one could easily argue that Speak Asia’s downfall was a mega rock show-like event that it organised at Goa with a pack of Bollywood celebrities to sing and dance for its members. While Moneylife was the first to warn about Speak Asia’s shady scheme and write to the Reserve Bank of India (RBI), the Goa bash attracted coverage from mainline television channels. How does one recognise a pyramid scheme? The Hon’ble Supreme Court of India in the case of Kuriachan Chacko & Others Vs State of Kerala-JT2008(7)SC614 puts it succinctly: The promoters of the scheme very well knew that it is certain that the ``

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COVER STORY

Since the returns for early members are extremely high, they flatly refuse to listen to reason and have no qualms on using blatant lies about the prospects ` scheme was impracticable and unworkable, making tall

promises, which the makers of the promises knew fully well that it could not work successfully. It could work for some time in that ‘Paul can be robbed to pay Peter’ but ultimately when there is a large mass of Peters, they will be left in the lurch without any remedy as they would by then have been deceived and deprived of their money. That is why Wikipedia says that pyramid schemes are banned in many countries including Albania, Australia, Brazil, Bulgaria, Canada, China, Colombia, Denmark, France, Germany, the Dominican Republic, Hungary, Iceland, Iran, Italy, Japan, Mexico, Nepal, the Netherlands, New Zealand, Norway, the Philippines, Poland, Portugal, Romania, South Africa, Spain, Sri Lanka, Switzerland, Taiwan, Thailand, Turkey, the United Kingdom and the United States. However, some countries also make a distinction between pyramid marketing schemes and direct selling/multi-level marketing schemes (MLMs). Pyramid vs Multi-Level Marketing A number of large, multinational companies such as Amway, Oriflame and Tupperware have banded together under the Direct Selling Association, in the US and have persuaded many countries to legalise their activities. MLMs also tend to be controversial due to the pyramid-like sales where income is based on enrolling new members. These companies usually have a genuine but expensively priced product or service attached to them. These could include cosmetics (Oriflame, Avon); home products, nutraceuticals (Amway); herbal cures (Herbalife) or plastic containers (Tupperware) or insurance (in India many top insurance companies turn a blind eye to agents using MLM techniques to sell insurance) and time-share holiday packages. MLM firms are also known as ‘direct selling’ or ‘referral marketing’ companies, but continue to face lawsuits because their hard-selling techniques are seen as a form of entrapment. Wikipedia puts it succinctly: MLM companies have been a frequent subject of criticism as well as the target of lawsuits. Criticism has focused on their similarity to illegal pyramid schemes, price-fixing of products, high initial start-up costs, emphasis on recruitment of lower-tiered salespeople over actual sales, encouraging if not requiring salespeople to purchase and

Controversial nutraceutical products from Amway

use the company’s products, potential exploitation of personal relationships which are used as new sales and recruiting targets, complex and sometimes exaggerated compensation schemes, and cult-like techniques which some groups use to enhance their members’ enthusiasm and devotion. Not all MLM companies operate the same way, and MLM groups have persistently denied that their techniques are anything but legitimate business practices. While pyramid schemes are banned by most sensible countries, MLMs or direct selling is usually legal, but often heavily regulated. In India, there is a whole body of litigation and court judgements which detail what is a ‘money-circulation scheme’ under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. Yet pyramid and Ponzi schemes proliferate in most states, since the implementation of the Act is completely ineffectual. The fraudsters assiduously work at creating a cult-like selling environment wherein their members begin to view all criticism as a personal attack on their personal road to prosperity. Since the returns for early members are extremely high, they flatly refuse to listen to reason and have no qualms on using blatant lies about the prospects of the scheme, in order to ensnare and enrol new members. This was clearly demonstrated by Speak Asia. Hundreds of its 1.9 million panellists, calling themselves ‘Speak Asians’ have been bombarding the media with abuse at any attempt to expose the company’s shadowy operations and money transfers to Singapore. Moneylife has been especially targeted by the group. ``

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COVER STORY

` Why doesn’t the Prize Chits and Money Circulation

Schemes (Banning) Act work? Although it is a national Act, action against the schemes has to be initiated by the state police, who are either ignorant of its provisions or under pressure not to initiate action unless there is a complaint about non-receipt of payment. By the time investors complain to the police, it is usually too late. For instance, by mid-June, comments posted by Speak Asia panellists on Moneylife’s website clearly indicated that they were not receiving their money. But most were still being told that the problems would be sorted out and it would be business as usual. Interestingly, although the Act comprehensively bans pyramid or chain-marketing schemes, even the police seem unclear about when action can be initiated to protect investors. Worse, the fine-print usually reveals that the investor has not made a deposit that entitles him/her to extraordinary returns—but has purchased a product or service at an exorbitant price. This makes the complaint itself rather untenable. It also allows the companies to pose as MLM firms or direct-selling companies rather than dubious ‘double your money’ gimmicks. For example, Gold Quest required the purchase of what they claimed were numismatic (limited edition) gold coins worth maybe around Rs6,000 for a huge Rs32,000. It claimed that these were collectibles and their value would rise but, in reality, there is no market for such coins. They also played on sentiment by engraving the coins with symbols of various religions and had managed to ensnare over 2.5 million people. A scheme called ‘Pearls’ promised agricultural land in Hyderabad; Gemini Tech and Vinson claimed to offer

C ave a t E m pt or

Information on a Few Pyramid Schemes Check this out before your cheque is in

blog at h p://www.strategyindia.com/blog/is providing yeoman public service by lis ng the hundreds of Ponzi and pyramid schemes as well as every trick in the trade that they use to dupe people every year. The blog, with archives going back to 2007, also lists the ac on ini ated against many of them. Here is a small list of examples: UniPay2U: A popular scheme, is unable to make payments any more a er its accounts were frozen by a Court order. Moneylife had wri en about it—“Pyramid Schemes—Novel

Status of Major Pyramid Schemes That Have Raised Over Rs1,000 crore Company

Names of Promoters

Residential Status

Has Any Money Been Recovered?

Gold Quest

Vijay Eswaran

Malaysian-Indian

Pushpam Appala Naidu

Malaysian-Indian

Money seized from her locker by Chennai Police—in litigation

Vasant Raj Pandit

Indian

Speak Asia Harender Kaur & Others

Indian, company registered in Singapore

Banks have frozen accounts

Agri Gold

Indian

Japan Life

Avvas Venkata Ramarao

Web space while eBIZ.com Pvt Ltd offered educational courses. Japan Life sold magnetic mattresses (police sources say they were worth Rs2,000) at Rs1.32 lakh each and ensnared 3 million people when the Andhra police initiated action and it came to a halt. Speak Asia claimed to empanel members at a fee to earn from filling out surveys (it later changed the story) and several others work with insurance companies. The key is that benefits/returns are always linked to enrolment of new members. However, the law is clear about the illegality. Section 2(C) Prize Chits and Money Circulation Schemes (Banning) Act, 1978 reads as follows: “Money circulation scheme means any scheme, by whatever name called, for the making of quick or easy money, or for the receipt ``

Pitch”—in the 9 September 2010 issue. Aryarup Tourism and Club Resorts: It had its accounts frozen by the Mumbai Economic Offences Wing on 10 November 2010. Way 2 Life: Its office is shut, its promoters untraceable and the website down. Red Carpet Entertainment: It has changed its website and company name. Payouts have been blocked. Fine India: See Moneylife Cover Story, “Money Chain”, on a fraud inves gated in Orissa. Its accounts have been frozen by the police. Ram Survey: A clone of Speak Asia; lures people big me. Paazee: It had raised Rs211 crore. It was raided by the Tamil Nadu police and its directors arrested on 6 October 2010. BK Jewellers: This was a scam amoun ng to Rs128 crore. It was shut down by the Economic Offences Wing of the Delhi Police.

33 |14 July 2011 | MONEYLIFE

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COVER STORY

` of any money or valuable thing as the consideration for

a promise to pay money, on any event or contingency relative or applicable to the enrolment of members into the scheme, whether or not such money or thing is derived from the entrance money of the members of such scheme or periodical subscriptions.” In simple language, it means that if quick money and high returns are tied to enrolment of members, it is a money-circulation scheme (MCS) and can be banned under the Act. Recently, the Manipur government banned MLM companies from operating in the state by using the provisions of the Act. The state government notification says, “The MLM, though called by very attractive names, squarely falls within the definition of ‘Money Circulation Scheme’ under the Act and hence is prohibited.” That is also why the Andhra police acted against Amway and Japan Life. Who should regulate? The obvious regulator for pyramid schemes is the RBI, since none of the big ones operate without bank accounts

a c h a i n’ s we ak l inks

Is Speak Asia Unravelling? We were always hot on its trail

and the best technology to transfer funds rapidly. Also, RBI is an independent regulator and in a better position to initiate action than individual police officials around the country who are subject to intense political pressure. S Jaipal Reddy, now a minister in the UPA government, had called pyramid companies a ‘menace’. In a calling attention motion in 2003, he told the Lok Sabha that “senior police officers at the Central and State Levels are not aware of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978.” The Madras High Court echoed similar sentiments in a judgement in M/s Apple FMCG Marketing (Pvt) Ltd vs Union of India and others (W.P.No. 22674 & M.P.No. 27411 of 2004). It said: “It is true that several companies including multinational companies carry on the business of ‘Multi Level Marketing’ and it is also true that the executive and the law-enforcing authorities turn a blind eye on such activities. This also does not make an illegal act legal. It is always a fact that the law-enforcing authority would try to close the stable only after the horse had escaped.” The learned judges went on to say ``

a further commission of Rs1,000. In eﬀect, an aggressive panellist could earn a return of over 500%. Since all the early panellists received the promised payout, word spread like wildfire and, by 16th May, when the company held its first press conference in Mumbai, it claimed a whopping 1.9 million panellists with plans to increase the number to 10 million by the end of 2011. Of course, the growth had slowed

ike all pyramid-marke ng schemes, Speak Asia also flew below the radar un l the number of panellists and their fat earnings caused a steady buzz. Moneylife decided to inves gate when several readers posted queries on our website asking if the scheme was safe and above board. A er all, Moneylife had exposed schemes like Gold Quest and the Orissa bank deposit scheme in the past. We discovered that Speak Asia had Indian promoters, but was registered in Singapore by the name Haren Technology Pte Ltd. Earlier, it claimed that there was no legal presence in India; our inves ga ons have gradually discovered otherwise. The scheme: Speak Asia requires people to enrol as ‘panellists’ by deposi ng Rs11,000 per iden ty for the job of filling out ‘surveys’ which it claims to conduct on behalf of client companies. Each iden ty is en tled to receive up to two surveys per week fetching a compensa on of Rs500 each. However, the real moolah comes from enrolling new panellists in a binary scheme. This fetches a further Rs1,000 per new recruitment to Speak Asia. The comple on of a right and le leg recruitment entails

Speak Asia used various means to spread rapidly

down drama cally a er the media exposed its inability to answer basic queries as well as its many falsehoods. Here are some examples: It claimed to conduct surveys for companies such as ICICI Bank, Bhar Airtel, Nestlé and Bata. All of them denied

MONEYLIFE | 14 July 2011 | 34

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COVER STORY

Japan Life was linked to BJP leaders; Gold Quest had Nalini Chidambaram as advisor; Amway flaunted links with an Andhra Pradesh politician ` that law-enforcing agencies “do not take preventive

action to enforce the provisions of the existing law.” Senior police officers tell us that even those among them who are aware of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, are reluctant to take action without a specific complaint because pyramid schemes first take care to lure influential people, including wives of senior police officers themselves. For instance, Japan Life’s promoters were linked to top BJP politicians; Gold Quest had Nalini Chidambaram as advisor; Amway openly flaunted connections with an Andhra Pradesh politician when faced with action. Agri Gold, a scheme that was extremely popular in Andhra

any associaƟon with Speak Asia and the company admiƩed as much at its press conference. Worse, it couldn’t name a single client and hid the fact by asking journalists to sign a confidenƟality agreement. In fact, a genuine company would have boasted about its blue-chip clients. While ING Vysya and ICICI Bank were supposed to be its bankers, both denied holding its accounts. Moneylife has since unearthed that the accounts were held in the two banks by companies such as Speak India, Speak India Online, Kritanj Management Services, Star Enterprises and Tulsiyat Tek Pvt Ltd. Sources say that there are dozens of other enƟƟes which have collected money paid by panellists, each reporƟng a mulƟtude of businesses to the banks, to explain their source of funds. They include mobile services, intellectual property, agency fees, etc. Income-Tax Department sources say these enƟƟes have accounts in several banks including Allahabad Bank, CiƟbank, Yes Bank, HDFC Bank, State Bank of India, Axis Bank, etc, which have remiƩed the funds to core accounts for transmission abroad. The money, in turn, was transferred to Haren Ventures Pte Ltd of Singapore. We learn that over Rs500 crore has already been sent out of the country so far. An interesƟng bombshell at its 16th May press conference was Speak Asia’s claim that panellists do not pay for filling out surveys, but for an annual subscripƟon to an e-magazine that nobody seems to have seen. Moneylife later learnt that the company had to make this claim, because the enƟƟes that transferred funds to Singapore had claimed to be distributors for the e-magazine and were repatriaƟng subscripƟons. Banks

Pradesh, built credibility by having a certain chief minister inaugurate its various offices. And senior police officers who have initiated action against pyramid schemes in the past admit that they have faced tremendous political pressure to back off or have even been transferred. In West Bengal, previous Lok Sabha Speaker and former leader of the CPI (M), Somnath Chatterjee, had exposed dubious pyramids as far back as in 1982. However, in the past decade, many pyramid schemes in the state had the tacit support of the ruling party. It remains to be seen if this will change under the Trinamool Congress (TMC) leadership. Whether it is Andhra Pradesh, Orissa (see the Cover ``

were also told that the money was being paid for ‘survey soŌware’. Again, Moneylife found that Haren Ventures has not developed any special ‘survey soŌware’ which is used by Speak Asia. In fact, they used a free online site called www. surveymonkey.com and recently bought Novi Survey. Singapore-based Speak Asia online Pte Ltd was previously known as Haren Technology Pte Ltd and is owned by one Harender Kaur. The company has been in trouble for not submiƫng accounts. While Speak Asia claims to be in existence since 2006, the website was actually launched only on 21 January 2010. The company had hired two adverƟsing and PR agencies. Aurum Media is sƟll holding on to the Speak Asia account, but Lintas Lowe has resigned. Apart from a high-profile beach bash at Goa for its panellists, Speak Asia also released television commercials during IPL (Indian Premier League) matches and issued adverƟsements in leading print publicaƟons. It conƟnues to quietly announce plans to get into a slew of new businesses including a TV channel and providing feedback on adverƟsements. However, the fact is that none of these pay the kind of money that Speak Asia has been dishing out. The money (reward points, as they like to call it) earned by panellists goes into an electronic account which is drawn down at their convenience. Ever since it has been subject to invesƟgaƟon by the Income-Tax Department and others, Speak Asia has been telling panellists that they can redeem their earnings for buying books, products or services from them instead of cash.

35 |14 July 2011 | MONEYLIFE

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COVER STORY

` Story, “Money Chain” in our 10 September 2009 issue)

Is money ever recovered? or Tamil Nadu, the police openly tell us that their actions Police sources tell us that when action is initiated quickly do not yield proper results because very little support and enough and properties seized, some small amounts are collaboration is available from agencies such as the RBI recovered; but these are often inconsequential, compared or the ministry of corporate affairs, etc. They also say with the loss. Most often, the promoters simply vanish. that fraudsters themselves approach the lower court and Also, since transactions are shown as ‘sales’ of certain find ways to put hurdles in the path of investigation or goods or services and not ‘deposits’, investors have reporting on their activities. “As against our demand for no right to get their money back. For instance, in the effective regulation to ban fraudulent schemes, the bigger Speak Asia case, the promoters announced at a press ones have the active support of powerful politicians and conference on 16th May that the money collected was policymakers,” says a police source. In fact, far from not an empanelment fee, but the cost of an expensive banning pyramids, there is active lobbying by MLM e-magazine subscription. Most panellists were clueless companies to have them comprehensively removed from about the existence of this e-magazine and had paid up in the purview of the Prize Chits the belief that it was an entry fee and Money Circulation Schemes to be able to earn money by filling (Banning) Act. out childishly simple surveys. We, at Moneylife, believe Gold Quest had several FIRs that even if MLMs as a selling (first information reports) filed technique are not completely against it in Andhra Pradesh fraudulent, it is time for a alone and litigation is going on dispassionate study on whether in several courts in Tamil Nadu the ‘downstream’ agents as well as Andhra Pradesh. It really make money through claimed 500,000 members. these selling techniques, or Litigation is also on against Japan are they merely lured by the Life in Hyderabad. All these promise of big returns. Several schemes seem to have collapsed international studies have after action by the Andhra police. shown that while there are star In one known case—Southern salespersons, the average mean Wonder World—some property return earned through MLM was, indeed, seized and proceeds is never enough for it to be an distributed among the victims/ alternative job opportunity. depositors. But, in all cases, it An article in The Times (David is not possible because all the Moneylife Cover Story, “Money Chain”, Brown, 27 November 2007) transactions are being shown on a fraud investigated in Orissa quoted on Wikipedia says, “The as ‘sales’ and not deposits or Government investigation claims securities. The Andhra Pradesh to have revealed that just 10% of Amway’s agents in police, under DIG V Sajjanar, has been most effective in Britain make any profit, with less than one in ten selling shutting down several of these get-rich-quick schemes. a single item of the group’s products.” This was part of The police also issued a detailed public warning on how a lawsuit in the UK. In the book, The 10 Big Lies of these scheme dupe investors. However, inherent issues Multi-Level Marketing, Robert L Fitzpatrick says, “The with the Prize Chits and Money Circulation Schemes MLM type of business structure can support only a small (Banning) Act have allowed pyramid operators to number of financial winners. If a 1,000-person down- proliferate freely. line is needed to earn a sustainable income, those 1,000 Our not-for-profit affiliate, Moneylife Foundation, will need one million more to duplicate the success. How has written to the prime minister of India asking for many people can realistically be enrolled? Much of what an outright ban on pyramid marketing schemes which appears as growth is in fact only the continuous churning have duped so many Indians. At the very least, we want of new enrollees. The money for the rare winners comes the companies to seek registration and clearance by a from the constant enrolment of armies of losers. With financial regulator who has to vet each scheme offered no limits on numbers of distributors in an area and and frame the rules for effective regulation of their no evaluation of market potential, the system is also activities. See http://foundation.moneylife.in/promotion/ inherently unstable.” speakasia/index.html for more details.

MONEYLIFE | 14 July 2011 | 36

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Let us do it all for you: screening, research, analysis, grading and tracking Weekly stock letters for high profits with low-risk strategies delivered through 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. What’s Inside:

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Email us at mail@kensource.com for a sample Our Investment Philosophy: We believe that price is the most important information and should normally overrule most other factors. This allows us to go wherever the opportunities currently are. We do not limit ourselves to specific styles and themes. Investment Process: We crunch thousands of numbers to spot trends, unearth bargains and use our years of vast knowledge of companies to select the stocks that best meet

SOME RECOMMENDATIONS Company

Issue Date

Recomm. Price

Exit Price

Return*

Surya Pharmaceutical

28 Jun-10

184

294

60%

Godrej Consumer Products

24 Feb-10

262

372

42%

Titan Industries

31 Jan-11

3,468

4,560

31%

Ambuja Cements

26 Jul-10

115

142

23%

Dr. Reddy’s Laboratories

23 Aug-10

1,326

1,617

22%

* Non-annualised; Price in Rs

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

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Stock letter new.indd 1

6/24/2011 10:34:33 PM

STOCKS STREET BEAT

Unbiased & Methodical Stock Picking that Works!

AV T NA T U R A L P RODUC T S

Sweet Aroma

tio n St or ies of Pr ice Ma nip ula

Unique business and attractive price

VT Natural Products is a small dormant stock that suddenly started moving up sharply in mid-June— unfortunately, just around the time we stumbled upon its attractiveness. AVT Natural is into cultivation, harvesting, processing and extraction of crops. It makes marigold oleoresins, spice oleoresin and essential oils, and value-added tea. As it is situated in the port city of Kochi, it enjoys the advantage of proximity to the source of raw materials and logistics benefits of import & export facilities. The company’s main product, marigold oleoresin, is a key ingredient used in eye healthcare. It is also used widely in the poultry sector. Formed in 1994, AVT Natural started marigold cultivation on 200 acres of land that has gone up to 35,000 acres producing 100,000 metric tonnes (mt) of flowers. The marigold business is an integrated project, starting from seed development and going on to oleoresin with capability to produce nutraceutical-grade products. AVT Natural has also ventured into the safe food natural flavours and colours production business. Its product range includes paprika oleoresin, turmeric extracts, marigold extract, rosemary extract, green tea, paprika capsicum and other specialties. Credited with being the largest exporter of marigold oleoresins, the company also exports cured vanilla beans. The manufacturing plants are located in Tumkur and Bydagi (Karnataka), Sathyamangalam (Tamil Nadu), Hindupur (Andhra Pradesh), Chichkeda (Madhya Pradesh) and Aluva (Kerala). The company has a wholly-owned subsidiary AVT Natural Pte, Singapore (including its subsidiary, Heilongjiang AVT BioProducts in China). To meet the objectives of maximising net farm returns, de-risk the business from the vagaries of nature affecting the availability of marigold and ensuring quality produce at ``

Pasari Spinning Mills (R (Rs20) Karnataka-based Pasari Spinning Mills is engaged in trading in cotton yarn and silk fabric. The company was reported as a sick company to the Board for Industrial and Financial Reconstruction (BIFR) in 1999, which recommended a rehabilitation scheme. It has since come out of the BIFR’s purview. Revenues for the last nine quarters have ranged from Rs1.31 crore in the March (Rs)

Pasari Spinning Mills 34

419%

4 Jun-10

Dec-10

Jun-11

2009 quarter to Rs8.99 crore in the March 2011 quarter, whereas its operating profit figures have not been that good. It posted an operating profit of Rs17 lakh in the March 2009 quarter and an operating loss in the March 2011 quarter. Who says stock prices move on fundamentals? The stock jumped 419% from Rs4.19 on 18 June 2010 to Rs21.75 on 21 June 2011. Don’t ask what the regulator has been doing.

Recommended Price Rs145

MONEYLIFE STOCK IDEAS

THAT WORK

Moneylife Issue 25 February 2010

109%*

Exit Price Rs263

(Stop Profit triggered on 25 November 2010)

(EXCEL CROP CARE)

* Annualised returns

MONEYLIFE | 14 July 2011 | 38

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STOCKS STREET BEAT

Unbiased & Methodical Stock Picking that Works!

` optimum price, AVT Natural has adopted backward integration

programmes—the contract farming model—in various geographical locations. The post-harvest processing centres are also located close to agricultural areas to reduce cost of transportation as well as to cut down the loss of the active ingredients. These centres are spread across various locations in Tamil Nadu and Karnataka. AVT Natural has two large continuous extraction plants that can process up to 100mt of Sept-10 Dec-10 Mar-11 raw materials per day, a 53.64 Sales* 30.52 35.41 medium-sized batch plant 9.67 that can process about OP* 6.22 8.11 119% 4mt of raw materials per Y-o-Y Sales Growth 71% 56% 65% day and small pilot plants Y-o-Y OP Growth 205% 29% 18% that can process 15kg OPM 20% 23% per day. The company’s OP: Operating Profit, Y-o-Y: Year-on-Year, OPM: Operating Profit Margin R&D team focuses on *Figures in Rs crore seed development that Full Bloom maximises net farm returns. It also works in (Rs) collaboration with Illinois215 based Ball Helix in seed 190 development to suit local AVT Natural Products 165 agro-climatic conditions. It has also formed alliances 140 with Iowa-based Kemin 115 Health, a nutritional 90 ingredient manufacturer. Jan-11 Mar-11 Jun-11 AVT Natural is also planning to diversify further into other crops, to produce raw material for flavouring and colouring. It is also working on a couple of new crops. Since November 2010, AVT Natural has outperformed the benchmark Sensex. For the financial year ended 31 March 2011, ``

tio n St or ies of Pr ice Ma nip ula Rander Corporation tion (Rs74) (Rs Promoted by Amarchand Rander, Rander Corporation was set up in 1983. It is engaged in construction, finance, sharebroking and investments. The Mumbaibased company was formerly known as Rander Finance and Leasing. In December 1993, its associate company Shanti Constructions was merged with Rander Corporation. The company’s revenues in the (Rs)

100

Rander Corporation 80 60 40

654%

20 0 Jun-10

Dec-10

Jun-11

last nine quarters went up gradually from a meagre Rs6 lakh in the March 2009 quarter to Rs30 lakh in March 2011. The operating profit picked up from just Rs5 lakh in the March 2009 quarter to Rs19 lakh in the March 2011 quarter. The speculators are, of course, having a field day. The company’s shares soared 654% in the last one year— from Rs9.72 on 16 June 2010 to Rs73.25 per share on 21 June 2011.

Recommended Price Rs125

MONEYLIFE STOCK IDEAS

Moneylife Issue 23 September 2010

THAT WORK

109%*

Exit Price Rs150

(Stop Profit triggered on 29 November 2010)

(AHMEDNAGAR FORGINGS)

* Annualised returns

39 | 14 July 2011 | MONEYLIFE

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STOCKS STREET BEAT

Unbiased & Methodical Stock Picking that Works!

B A N K I NG S T OC KS

Bank on Them

down too. Bank of Baroda is down from Rs588 to Rs407, Andhra Bank from Rs190 to Rs130… and so on. These scrips, along with Union Bank

(Rs)

500

Federal Bank 465 430

A few solid nationwide lenders are now undervalued

Contrarian Call

anking stocks have been under selling pressure for the past few months. A stock as important as the State Bank of India has crashed from Rs3,500 on 5 November 2010 to around Rs2,300 at the Ɵme of wriƟng. Other banks have not fared so badly—but they are sharply

` AVT Natural recorded a standalone

net profit of Rs10.69 crore against Rs6.52 crore in FY09-10. In the same period, the company’s standalone net revenues increased to Rs138.41 crore from Rs82.97 crore. In FY10-11, the company’s standalone earnings per share (EPS) rose to Rs14.04 from Rs8.56 in FY09-10. For the March quarter, net profit increased to Rs5.12 crore from Rs2.99 crore in the corresponding period last year. The company’s standalone net revenues for the March 2011 quarter stood at Rs53.64 crore compared to Rs24.49 crore in the corresponding period last year. Its standalone EPS for

395 360

An occasional series on stocks that have been beaten down too long or are being ignored

325 Jul-10

Dec-10

Jun-11

30%-40% price correcƟon a good opportunity to invest in them? Yes, provided we look at the right stocks in the banking space. Two banks stand out: Karur Vysya and Federal Bank. Both are worth buying at the current prices.

of India and Bank of India, are all solid large naƟon-wide banks. The Reserve Bank of India is also trying to improve financial inclusion, which will encourage these lenders to enhance their retail reach. Is a

the March 2011 quarter increased to Rs6.72 from Rs3.93 in the corresponding period last year. Over the past five quarters, AVT Natural has reported an average growth in revenues and operating profit of 55% and 40%, respectively. Its average operating margin is 17% and return on net worth is 13%. Its market-cap to revenues is just 0.78, while its market-cap to operating profit is just 4.33 times. The stock price has doubled to around Rs210 in the last four months. Wait for it to cool off to Rs170 and buy for the long term. Promoted by AV Thomas group, AVT began as a 100% export oriented unit—as a single-product,

single-customer company—but has now become a multi-product, multicustomer company. The AV Thomas group of companies has diversified businesses that include tea, rubber, and consumer products such as spices, food ingredients, leather and healthcare products.

WYETH

Health Shot One of the cheapest multinational stocks

yeth has gone through many avatars as Lederle

Recommended Price Rs87

MONEYLIFE STOCK IDEAS

Moneylife Issue 8 April 2010

THAT WORK

65%*

Exit Price Rs125

(Stop Profit triggered on 9 December 2010)

(TAMIL NADU NEWSPRINT)

* Annualised returns

MONEYLIFE | 14 July 2011 | 40

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STOCKS STREET BEAT

` Laboratories (India), Cyanamid

India, a merger with Geoffrey Manners when the name was changed to Wyeth and, in 2009, Wyeth of USA merged with Wagner Acquisition, a wholly-owned subsidiary of Pfizer. Pfizer Inc is now the parent company of Wyeth. The company has achieved market leadership in the segments of folic acid, oral contraceptives and depilatory cream in India. Wyeth and Pfizer continue to operate as separate companies In India. Formulations contribute about 70% to Wyeth’s total turnover. Exports account for about 30% of its total turnover and yield relatively higher realisations. Wyeth introduced several new therapies in India. It was the first to launch hormone therapy. The company introduced vaccines against HI-B (Haemophilus influenzae type B) and pneumococcal diseases in the country. Enbrel, a breakthrough treatment for rheumatoid arthritis and Rapamune, an immunosuppressant that prevents rejection of renal transplants; Prevenar, a pneumococcal conjugate vaccine and Tygacil, the world’s first glycilcycline antibiotic are among the internationally-known products launched by Wyeth in India. The Indian pharmaceutical formulations market includes the export markets as well. The domestic market accounts for nearly 61% of total formulation sales. The share of exports has steadily risen from 30% in 2005-06 to around 39% (market size: $5.20 billion in 2009-10) in 2009-10. The domestic formulations market has expanded

Unbiased & Methodical Stock Picking that Works!

at a CAGR (compounded annual growth rate) of 14%-15% over the past three years and reached a size of Rs417 billion in 200910. This was primarily driven by robust growth witnessed in the anti-diabetic, cardiovascular,

Sept-10

Dec-10

Mar-11

122.59

118.95

169.27

40.73

39.17

64.80

97%

58%

Y-o-Y OP Growth

22%

414%

50%

OPM

33%

38%

Sales* OP* Y-o-Y Sales Growth

OP: Operating Profit, Y-o-Y: Year-on-Year, OPM: Operating Profit Margin *Figures in Rs crore

Strong Dose (Rs)

920 890 860 830

Wyeth

800 770 Jan-11

Mar-11

Jun-11

gynaecology, respiratory and neuro/ CNS (central nervous system) segments. In 2009-10, the lifestyle diseases segment grew by nearly 25% compared to the overall industry

growth of 17.7%. In the domestic market, lifestyle segments such as anti-diabetic, cardiovascular and gastrointestinal segments have emerged as chief growth drivers over the past three-four years. Acute segments, mainly anti-infectives, have continued to expand at a steady rate due to inadequate sanitary & hygiene conditions. The domestic market is concentrated with the top 10 players controlling about 38% of total formulations sales. Within exports, entry-barriers are significantly higher in regulated markets compared to semi-regulated markets, due to stringent guidelines in the former. Wyeth’s revenue for the quarter ended March 2011 was Rs169.27 crore compared to Rs106.92 crore in the corresponding previous period, a stupendous growth of 58%. Operating profit for the reporting quarter was Rs64.80 crore, a 50% increase over the Rs43.30 crore achieved in the yearago period. Average revenue and operating growth in the past five quarters were 38% and 111%, respectively. Its operating profit margin in the March quarter was 38% and that for the past five quarters was a healthy 38%. Based on the annualised results for the March 2011 quarter, Wyeth’s market-cap to revenue was 3.02 times and market-cap to operating profit was 7.89 times. This makes it one of the cheapest multinational stocks. Return on net worth for the 16-month period ended 31 March 2011 was a splendid 43%. The stock makes a good buy at the current price.

Disclaimer: Street Beat stocks are selected from over 1300 stocks in the Moneylife database. This report is for informational purpose only. None of the stock information, data and company information presented herein constitutes a recommendation or a solicitation of any offer to buy or sell any securities. Information presented is general information that does not take into account your individual circumstances, financial situation or needs; nor does it present a personalised recommendation to you. Individual stocks presented may not be suitable for you. Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and the information may be incomplete or condensed. All opinions and estimates constitute our judgement as on the date of the report and are subject to change without notice. Past performance is no indication of future results. Investors must do their own research before acting on them. Exit Strategy: Please exit if the stock closes 25% below the purchase price. This is called stop loss. However, if the market price is above 50% of the purchase price, exit if the stock falls by 25%, below any day’s closing price. This is called stop profit. Data Source: Centre for Monitoring Indian Economy’s Prowess database.

41 | 14 July 2011 | MONEYLIFE

Stock-Streetbeat.indd 5

6/25/2011 3:15:17 PM

STREET BEAT WHICH WAY

Debashis Basu

Three Factors To Bear in Mind

to rally. If interest rates or inflation begin to recede, we will have a rally for sure. At that stage, the issue of lack of governance may not matter as much as it does now. Price Point: If the market is sufficiently cheap, it The bear market will end when these three will stop falling as institutional players, who really determine where the market is headed, would stop factors come to the fore selling in a big way. In fact, it is the third factor that is of greatest s regular readers would have noticed, we importance. Keep an eye on the valuation front to start wondered last August whether it was time to buying quality stocks. Here is the math. We project an get out of the market. The Sensex was at 18,500 EPS (earnings per share) of Rs1,150 for the Sensex. at that time. The index rallied and then staggered Below a P/E (price-to-earnings ratio) of 15, or at 17,250, downwards; it shows no sign of being able to make the Sensex starts to look undervalued. We had barely a comeback. Since then, every single rally has met hit that level on 20th June. An extreme event could even with fresh selling. As I write this, we are firmly in bear territory. We don’t know how long this would last. Some take it down to 15,000 when the market would be truly bear markets last for a few months. In 1998, it lasted cheap and a strong rally would be highly likely. seven months. The current one has already been that But be hopeful. “Emerging markets are still in a long. The one of 2008-09 was spread over 15 months. powerful long-term upward trajectory,” said Rob Arnott, In any case, the negative factors, founder of Research Affiliates, an which could not even be imagined investment management firm, to It’s important to late last year, are all in full view now: MarketWatch.com. A keen researcher remember the high valuation, inflation, rising costs, of portfolio asset allocation, indexing original bullish poor governance, etc. Once the and risk management, Arnott points negatives are known and the market out that emerging markets have arguments about has reacted to them, there comes a India as we approach 10% of the world’s debt and 40% of juncture when prices start discounting world GDP (gross domestic product) a buying point the negatives. In other words, a point while the US, Japan, Great Britain, is reached from which prices cannot France and Germany have 70% of the go down much further. When we world’s debt and 40% of its GDP. Emergingare at that point, we will begin to markets stocks are also positioned see a rally. How does one identify for economic growth on the back that juncture and find out whether we of ‘demographic tailwinds’. The are near it? There are three factors to working-age population in emerging watch out for: markets is expanding, while the situation Time: We are only six months into is reverse throughout the developed world. These the bear territory. You have to give the were the original bullish arguments in favour of India— market enough time to get back on its it’s important to remember them as we feet. approach a buying point a few months Medium-term: — Receding Negatives: The market doesn’t later. Long-term: — have to get out of the woods completely (Feedback at editor@moneylife.in)

investment that is

not subject to market risks

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

MONEYLIFE | 14 July 2011 | 42

Which way.indd 1

6/25/2011 3:16:23 PM

STOCKGRADER MOMENTUM

Sweet Treat

43%

Compounded Annual Return

EID Parry was 8% up; GSK Healthcare rose 2%; while Educomp declined 9% and Orchid plunged 7% Gainers: The EGoM (empowered group of ministers) has approved an additional half a million tonnes of sugar exports after the agriculture minister Sharad Pawar sent a note to the PMO (Prime Minister’s Office) on this issue. Sugar mills have sought permission for additional exports; output may rise in the next season (commencing October) to around 26 million tonnes (MT)-26.5MT compared to 24.2MT in the 201011 season on the back of higher acreage for sugarcane. EID Parry India gained 8% in the fortnight. Farm equipment major M&M’s Swaraj division aims to perform better than the industry’s expected growth of 10%-15% during the current fiscal—due to an expected good monsoon and higher minimum support price for food grain. It operates at 120% capacity; it plans a Rs50 crore spend for doubling foundry capacity to 60,000 tonnes. M&M rose 1%. Bhushan Steel rose 8% and Dish TV India rose 6%. GlaxoSmithKline Consumer Healthcare rose 2%. Losers: Educomp Solutions is seeking shareholders’ nod to restructure its outstanding foreign currency convertible bonds (FCCBs) worth $78.50 million (Rs353 crore). It plans to raise up to $250 million through an institutional placement of shares. Educomp sold Rs80 Company

RS Grade

Funda Grade

Final Grade

Entry Date

Dish TV India

06 Aug-10

62%

Titan Industries

16 Apr-10

123%

HDFC Bank

04 Mar-11

Return*

million in FCCBs in 2007 for five years, maturing in July 2012. It declined 9%. Shriram Transport Finance Company plans to raise Rs500 crore through sale of secured non-convertible debentures (NCDs) of face value of Rs1,000 each. It has around 20% share in commercial vehicle financing. STFC fell 8%. Orchid Chemicals & Pharmaceuticals’ new cephalosporin active pharmaceutical ingredient (API) manufacturing facility at Alathur (near Chennai) has cleared the recent USFDA inspection. It makes a range of oral and sterile cephalosporin APIs and caters to the US, Europe and Japan; the successful inspection would help continue supply to these markets. The stock plunged 7%. Shree Renuka Sugars tumbled 7%, Hindalco Industries sank 6% and Sesa Goa declined 2%. Cadila Healthcare’s US unit has agreed to acquire the assets of US-based pharma firm Nesher Pharmaceuticals for an undisclosed amount. Cadila said this will allow its US arm to manufacture and sell generic drugs in the US which cannot be imported. The stock fell 1%. 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

Sintex Industries

01 Apr-11

-3%

Bhushan Steel

28 Apr-11

-14%

M&M

28 Apr-11

-15%

Return*

GSK Consumer

29 Apr-09

190%

Shriram Transport

18 Feb-11

-21%

Oracle Financial Serv

23 Dec-10

-6%

HDFC

15 May-09

65%

Cadila Healthcare

12 Nov-10

14%

Hindalco Industries

23 Jul-10

EID-Parry

12 Nov-10

-14%

Fed-Mogul Goetze

28 Apr-11

Sadbhav Engineering

28 Apr-11

-5%

Federal Bank

13 May-11

-3%

Orchid Chemicals

28 Apr-11

-20%

Bank of India

21 Jan-11

-12%

Sesa Goa

21 Jan-11

-21%

Educomp SoluƟons

27 May-11

-18%

Bank of Baroda

29 Apr-09

159%

Shree Renuka Sugars

06 Aug-10

-14%

*Non-annualised

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

43 | 14 July 2011 | MONEYLIFE

Momentum.indd 2

6/24/2011 9:54:35 PM

STOCKGRADER MEDIUM TERM

Health Issues

44%

Compounded Annual Return

Time Technoplast jumped 12% & Sun Pharma gained 4%; HCL Tech plunged 6% and Ranbaxy lost 4% Gainers: Time Technoplast jumped 12% in the fortnight. Sun Pharmaceutical has got USFDA’s approval for launch of its generic Sumatriptan Succinate injections used for migraines. The US market size for Sumatriptan is around $190 million. The stock rose 4%. Amara Raja Batteries is increasing its battery capacity by 67% to 10 million units in the current fiscal. The stock rose 4%. Losers: Cognizant Tech and Capgemini are among the bidders for buying Oracle’s India-based financial services business unit. Oracle is also reported to have scaled down its original expectation of $400 million-$500 million for the services business, which includes software services and business process outsourcing (BPO). For FY10-11, software services and BPO revenues were together around $222 million. Oracle Financial Services Software fell 4%. Pharma firms have seen growth of rural market sales doubling due to aggressive marketing. India’s largest drug-maker by sales, Ranbaxy Laboratories, increased its field force by 1,500 or 50%, the largest recruitment drive in the past

Company

RS Grade

Funda Grade

Final Grade

Entry Date

Petronet LNG

29 Apr-09

Return* 171%

decade. Pharma firms have aligned product portfolios for under-penetrated rural markets. The stock fell by 4%. Lupin may find it tough to improve its operating margin this fiscal year through March, but the Indian generic drug-maker’s profitability is expected to jump in a couple of years, helped by the launch of lucrative products in the US and lower R&D costs. The stock fell 2%. HCL Technologies and Vivimed Labs plunged 6% and 8% respectively. Supreme Petrochem and Nestlé India tumbled 8% and 6%, respectively. Changes: We are replacing Orchid Chemicals & Pharmaceuticals, SEL Manufacturing, Bajaj Auto, Suprajit Engineering, HDFC, Whirlpool of India, Unichem Laboratories and CMC with Asian Paints, Shoppers Stop, 3M India, Akzo Nobel, Apollo Tyres and Motherson Sumi Systems. 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

Dabur India

01 Apr-10

43%

Return*

Kajaria Ceramics

26 May-11

Motherson Sumi Sys

23 Jun-11

—

Amara Raja BaƩeries

28 Apr-11

11%

3M India

23 Jun-11

—

Munjal Auto Inds

26 May-11

Lupin

29 Apr-09

200%

Asian Paints

23 Jun-11

Linc Pen & PlasƟcs

26 May-11

-1%

Titan Industries

01 Apr-10

145%

Orient Paper & Inds

26 May-11

-5%

HDFC Bank

Siemens

29 Apr-09

112%

Oracle Financial Serv

23 Dec-10

-6%

27 May-10

20%

Cadila Healthcare

20 Jan-11

Time Technoplast

Supreme Industries

26 May-11

10%

Akzo Nobel India

23 Jun-11

—

26 May-11

Apollo Tyres

23 Jun-11

—

Shoppers Stop

23 Jun-11

—

Ranbaxy Laboratories

20 Jan-11

-9%

Ipca Laboratories

20 Jan-11

Vivimed Labs

Nestlé India

29 Apr-09

131%

TCS

26 May-11

-11%

10 Jun-10

46%

CRISIL

29 Apr-09

127%

Supreme Petrochem

27 May-10

37%

Sun PharmaceuƟcal

29 Apr-09

97%

HCL Technologies

29 Apr-09

262%

-2%

—

*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 | 14 July 2011 | 44

Medium Term.indd 2

6/24/2011 9:53:47 PM

STOCKGRADER LONG TERM

Strong Demand

46%

Compounded Annual Return

Hindustan Unilever gained 2% and Emami rose 1%, while Cairn India plunged 8% and TCS lost 8% Gainers: Hindustan Unilever and Adani Enterprises gained 2% each in the fortnight. Emami is looking to buy some personal-care brands of Paras Pharmaceuticals that have been put up for sale by Reckitt Benckiser which bought Paras Pharma last year. The stock rose by 1%. Losers: Cairn India, which had made four discoveries in the KG-DWN-98/2 block before selling 90% (of its 100% stake in the block) to ONGC in 2005, has written to the Directorate General of Hydrocarbons that the State-owned firm has grossly overstated the reserves in the block. It believes that the hitherto discovered oil & gas resources in the block are only marginal because of their small size. The potential high development costs, due to water depth, make them unattractive at the prevailing gas prices. Cairn—recognised for its expertise in assessment of hydrocarbon resources—wants a correct reserve estimation of the block through an independent agency. Cairn India plunged 8%. Tata Consultancy Services does

Company

RS Grade

Funda Grade

Final Grade

Entry Date

Ador Fontech

29 Apr-09

586%

Titan Industries

03 Feb-11

27%

Emami

26 May-11

Motherson Sumi Sys

23 Jun-11

Return*

not see any weakening of demand in overseas markets, contradicting brokerage firm CLSA’s report which has downgraded India’s software services sector. The stock fell by 8%. Karur Vysya Bank has launched sale of KVB pure silver bars. The Bank has introduced 50gm bars and is planning a rollout of 100gm bars. The Bank offers finest quality silver bars of 99.99 purity. The stock fell by 6%. CMC tumbled 16% and Ador Fontech declined 14%. Changes: We are substituting Cummins India, Karur Vysya Bank, Cairn India, CMC, Orchid Chemicals & Pharmaceuticals, Ambuja Cements, SRF, Bajaj Auto, Mahindra & Mahindra and HDFC with Akzo Nobel, Wyeth, Apollo Tyres, Motherson Sumi Systems, Amara Raja Batteries and Supreme Industries. Note: Please read our changed methodology for grading stocks (given below). We have also added a column showing returns since the stock’s appearance in the table. Returns from new stocks added are counted after one issue.

Company

RS Grade

Funda Grade

Final Grade

Entry Date

TCS

29 Apr-09

Return* 252%

CRISIL

29 Apr-09

127%

HDFC Bank

29 Apr-09

112%

—

ITC

27 May-10

39%

Wyeth

23 Jun-11

—

Hindustan Unilever

25 Nov-10

Lupin

29 Apr-09

200%

Cadila Healthcare

20 Jan-11

Power Grid Corp

03 Feb-11

Amara Raja BaƩeries

23 Jun-11

— —

Nestlé India

29 Apr-09

131%

Asian Paints

27 May-10

40%

Shoppers Stop

26 May-11

Akzo Nobel India

23 Jun-11

Godrej Consumer

26 May-11

Apollo Tyres

23 Jun-11

—

Petronet LNG

26 May-11

Castrol India

28 Apr-11

Supreme Industries

23 Jun-11

—

Adani Enterprises

29 Apr-09

213%

Ipca Laboratories

20 Jan-11

GSK PharmaceuƟcals

29 Apr-09

98%

Marico

26 May-11

-1%

Sun PharmaceuƟcal

29 Apr-09

97%

Berger Paints India

26 May-11

-6%

Ranbaxy Laboratories

20 Jan-11

-9%

*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 | 14 July 2011 | MONEYLIFE

Long Term.indd 2

6/24/2011 9:51:25 PM

“You Can’t Time the Market.” Maybe.

21,100

18-31 Jan ‘08

12-25 Oct ‘07

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

17-31 Jul ‘08

15 Feb-1 Mar ‘07

17,325

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

23 Apr-7 May ‘06

“A new downleg may start soon”

28 Mar-10 Apr ‘08 31 Aug-13 Sept ‘07

13,550

“Is the market due for a fall?”

2-15 Ja

“A short-term bottom may be very near”

16-29 Mar ‘07

“A Rally Now?”

“Weakness ha 4-17 August ‘06

“The panic looks done for now”

9,775

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

6,000 Apr-06

Jul-07

Nov-08

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

Sensex.indd 2

6/24/2011 7:19:47 PM

13-26 Aug'10 18-31 Dec‘09

23 Apr-6 May'10

The Coming Decline

Short-term Top?

4-17 Dec‘09

Time To Sell? 19 Jun-2 July ‘09

Headed Down?

“Is the market about to crack?”

6 Nov-19 Nov ‘09

11-25 March '10

31 July-13 Aug ‘09

“We have no Forecast”

A Buyers' Market

2-15 Jan ‘09

“Buy the dip”

27 Feb-12 Mar ‘09

akness has resurfaced” “A Breakdown?”

30 Jan-12 Feb ‘09

“A weak rally now”

Nov-08

13-26 Mar ‘09

“Another weak rally”

Mar-10

Jun-11

Moneylife Stock Analysis

KNOW WHAT’S COMING

Sensex.indd 3

6/24/2011 7:21:00 PM

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

‘Maruti’ Agencies Create Trouble Six insurers penalised for a meagre Rs5 lakh each

he Insurance Regulatory and Development Authority (IRDA) has discovered that Maruti Insurance Business Agency, Maruti Insurance Distribution Services, Maruti Insurance Agency Network, Maruti Insurance Agency Solutions, Maruti Insurance Agency Services and Maruti Insurance Agency Logistics were 99.99% owned by Maruti Suzuki India Ltd and were corporate agents of National Insurance, Bajaj Allianz, Royal Sundaram, New India Assurance, Iffco-Tokio and ICICI Lombard, respectively. As per IRDA regulations, only one licence of a corporate agent can be granted to one business group, provided that the group does not carry out any other insurance activity. All companies in which a single promoter group holds 10% equity or more will be considered as belonging to the same business group. For granting corporate agency licences to group companies, insurers need prior approval from the insurance regulator. However, the six Maruti subsidiaries were

granted licences by insurers (between 2002 to 2007) without complying with these regulations. “This was clearly possible by circumventing the provisions and guidelines to their advantage and such blatant violations itself calls for stringent action,” the insurance regulator said. The six insurers were penalised by IRDA for a meagre Rs5 lakh each.

W HOLE LIFE POLICY

IDBI Federal’s Senior Termsurance Insurance for even an 85-year old!

enior Termsurance from IDBI Federal is a whole life plan with unique features. It is for those who are over 50. The minimum sum assured is just Rs2,338 and maximum sum assured is Rs5 lakh (maximum premium is Rs2,13,890 for age 85 years). The premium is obviously expensive if anyone wants to be insured in his old age. The plan offers guaranteed acceptance with no medical tests. In the event of demise in the first two years of the policy, 125% of total premiums paid shall be returned. After two years, the policyholder is insured

for the sum assured for life. The amount of premium and cover remain the same throughout the life of the policy, except after age 90. At age 90, the premiums will stop, but your life insurance cover will continue. Any takers?

ULIP S

Max Fast Track But there is no short-cut to investment

ax New York Life is offering consumers the opportunity to catch up on lost time for life needs which they may have de-prioritised for more immediate needs. It claims that the ‘Fast Track Plan’ helps plan savings in a faster and more efficient manner to fulfil an investor’s goals. The Plan provides faster accumulation through choices of shorter policy tenure, faster and safer growth through fund options and an added feature of a ‘Systematic Transfer Plan’ to benefit from market volatility. The concept of catching up on lost time may sound fantastic, but it is not realistic. If the company is offering faster accumulation by virtue of high premium every year (minimum Rs1 lakh), it is hardly an innovative approach. There is just no way to accumulate wealth faster with a short policy tenure (it is a contradiction in terms). For the non single-pay option, the premium allocation charge is 4% of annual premium and policy administration charge is Rs1,500 per annum (pa), inflating @5%pa compounded annually from the 2nd policy year. The single-pay option is 2% premium allocation charge and policy administration charge is Rs900pa with the same inflating factor as detailed above. The charges are in line with other ``

MONEYLIFE | 14 July 2011 | 48

Insurance.indd 2

6/24/2011 8:28:04 PM

INSURANCE TRENDS

` ULIPs in the market. The product

offers single premium and ‘5-pay’ for a 10-year term and ‘10-pay’ for a 20-year term. In case of the ‘5-pay’ or ‘10-pay’ variants, one can opt from either of 10 or 20 times annual premium as insurance cover, depending on one’s age. The death benefit is the sum assured plus fund value which also means higher mortality charges. There are no charges up to 12 switches in a year. The minimum and maximum entry age is 30 and 60 years, respectively. The maximum age at maturity is 70 years. The product offers riders of medical check-up) can buy the personal accident and dread disease. policy which offers lifetime renewal. It also offers free health check-ups ME DI C L A I M in every two claim-free years. No third party administrator (TPA) is involved for handling claims. The policy covers 141 daycare procedures that don’t require hospitalisation. Pre-existing diseases OPD, dental, ayurvedic are covered after four years of cover, etc—at a price continuous coverage. The premiums are on the expensive side. Mediclaim hola MS General Insurance has premium starts at Rs3,000 for Rs3 lakh coverage for a person of launched a health insurance 28 years, while the Standard option product, Chola Healthline. of this product carries a premium of The product has three variants Rs5,000. (Standard, Superior and Advanced) Every mediclaim product in the with covers ranging from Rs1 market has differences in coverage lakh to Rs10 lakh. Individuals up details to justify premium rates due to 55 years (without any medical to product differentiation. check-up) and up to 65 years (with

Chola ‘Healthline’ Offers Add-ons

Cover Charge Standard

Superior

Advanced

Sum insured (SI) option (in Rs)

1/2/3/4/5 lakh

3.5/4.5/5.5 lakh

4.5/5.5/7.5/10 lakh

Maternity (5-year waiting period)

—

Rs15,000 for normal and Rs25,000 for normal and Rs25,000 for cesarean births Rs40,000 for cesarean births

OPD dental (3-year — waiting period)

—

1% of SI with a maximum of Rs5,000 with 30% co-pay

Ayurvedic treatment

—

7.5% of SI (specific treatments only) and 20% co-pay

Home care

—

15% of SI (maximum of Rs70,000)

Up to 25%of SI (maximum of Rs1 lakh)

Premium for age 28 years

Rs3,881 (Rs1 lakh), Rs7,632 (Rs5 lakh)

Rs6,474 (Rs3.5 lakh), Rs8,364 (Rs5.5 lakh)

Rs1,0134 (Rs4.5 lakh), Rs15,488 (Rs10 lakh)

Fine Print Complaints from Policyholders

olicyholders who have complaints against insurers are required to first approach the Grievance/Customer Complaints Cell of the concerned insurer. If they do not receive a response from insurer(s) within a reasonable period of time or are dissatisfied with the response of the company, they may approach the Grievance Cell of IRDA. For contact details, please visit IRDA website http://www. irdaindia.org/grievancescell.htm. You may also file a complaint with the Insurance Ombudsman in your state. The Insurance Ombudsman is an independent office to provide speedy and cost-effective resolution of grievances to the customers. For more details on Insurance Ombudsman Scheme and their contact numbers, please visit http:// www.irdaindia.org/ins_ombusman. htm.

Buying Insurance from Your Grocer

RDA is apparently working on easing guidelines for selling general insurance products. Simpler products like travel, home or personal accident cover may be allowed to be sold through different avenues including grocery store. The concept could be applied to motor, some health insurance products as well. Such initiative may be welcome by the industry, but can also lead to mis-selling. After all, even the simplest insurance policy is not like selling an FMCG product and a buyer at a grocery store may not be interested in listening to an insurance peddler. Even mallassurance in India is useful only for getting leads and not selling.

49 | 14 July 2011 | MONEYLIFE

Insurance.indd 3

6/24/2011 8:28:33 PM

POWER OF ONE SHARAD PHADKE

C U S T O ME R aware ne s s & Banks

Keeping Banks on Their Toes Vinita Deshmukh profiles the struggle of a senior citizen whose fight has prompted a systemic change in how banks treat their customers

reputed bank like BoI would take action, as it was the e looks such a mild man that you wouldn’t customer’s right to have his money credited back. But think he breathes activism; you wouldn’t BoI still took no action. Meanwhile, Mr Phadke was believe he would fight with a missionary zeal trying to legally pin the Bank down for its inefficiency. against injustice. But he did—so effectively, that service On 7th January, a week after the written complaint, providers had to mend themselves. And even after his triumph, he continues to crusade for the issue that so he came across a circular issued by the Reserve Bank many people are saved from undergoing the experience of India (RBI) on its website, stating that it was that he underwent. mandatory for banks to restore a failed ATM Pune-based senior citizen Sharad Phadke’s fight transaction amount of any customer within 12 days. has prompted a systemic change after his failed ATM If the concerned bank failed to do so, then it had to transaction of Rs1,000 was debited from his account pay Rs100 per day of delay as penalty. RBI had issued but not restored for 65 days by Bank of India (BoI), this circular on 17 July 2009 under the Payment and despite repeated reminders. Here’s how he won. On 18 Settlement Systems Act, 2007. October 2009, Mr Phadke, a former entrepreneur of The reason for such a circular was clearly stated an engineering firm (now retired), went to a BoI ATM by RBI as follows: “The Reserve Bank of India has to withdraw Rs1,000. He inserted the card but no cash been receiving a number of complaints, regarding the came out. The second time, money rolled out. He was non-adherence of banks to the instructions stipulated sure that the failed transaction meant that the amount therein. Further, it has come to our notice that different would not be debited, but he banks have put in place different decided to check it out when he cut-off limits for permitting cash reached home. withdrawals from/for other bank The net banking statement customers. These issues have been showed that his failed transaction comprehensively reviewed by the reflected as a debit. Though RBI and all banks may follow the he withdrew Rs1,000 from his following directives: ATM, the statement showed he • Banks are required to had withdrawn Rs2,000. He reimburse to the customers, promptly sent an online complaint the amount wrongfully debited to BoI, asking it to immediately on account of failed ATM restore Rs1,000 to his account. transactions within a maximum He waited for 40 days, checking period of 12 days from the date of his account statement regularly, receipt of the customer complaint. but the amount was not credited. • For any failure to re-credit On 1 December 2009, he sent the customer’s account within 12 another online complaint. BoI still working days from the date of did not respond. On 1 January receipt of the complaint, the bank Phadke came across an 2010, he visited the Bank and shall pay compensation of Rs100 RBI circular that it was handed over a written complaint. per day to the aggrieved customer. mandatory for banks He demanded that Rs1,000 The compensation shall be to restore a failed ATM be immediately credited to his credited to the customer’s account transaction amount of any automatically, without any claim account, as 65 days had gone by. `` One would have thought that a from the customer, on the same customer within 12 days

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POWER OF ONE SHARAD PHADKE

days (ii) who have not been paid compensation and (iii) day when the bank affords the credit for the failed who have been paid compensation. ATM transaction. (e) What corrective action have you taken from your • The issuer bank is entitled to claim such side to avoid this type of delays?” compensation paid to the customer from the Not surprisingly, on 24th February, the compensation acquirer bank if the delay is attributed to the latter. By the same logic, ATM network operators shall amount of Rs6,500 was credited to his account. On compensate the banks for any delay on their part. 13 March 2010, BoI, in its reply, confessed that the • Each bank shall present a quarterly review of ATM ATM Reconciliation Team had ‘no time’ to attend to transactions to its board of directors, indicating inter Mr Phadke’s complaint; however, it took the necessary alia, the quantum of penalties paid, reasons thereof action in 12 days after it got the RTI application. As and the actions taken to avoid recurrence of such for the customer list of those who have been paid instances. A copy of the note along with observations and who have not been paid compensation, BoI, HO, of the board shall be forwarded to the chief general Mumbai replied that there were 53 people whose manager, RBI, Department of Payment & Settlement ATM transactions had failed in the period and the Systems, Mumbai.” compensation paid was to the tune of Rs1,73,500 (this For Mr Phadke, this circular was a tool to demand includes all branches of BoI all over the country in his money along with the penalty of 65 days’ delay 2009-10). In reply to a subsequent RTI query, the Bank (amounting to Rs6,500). He made another written said that it had paid Rs2,90,300 between 2009 and complaint and submitted it to BoI, Laxmi Road (Pune) 2011. Only four cases were registered in 2010-11. branch. An amount of Rs1,000 was credited to his This would mean that each of these four cases was account on 7 February 2010. BoI was mum about the paid an average compensation of around Rs30,000! penalty. Mr Phadke filed an RTI (Right to Information) Mr Phadke put up his case on the rtiindia.org website application at BoI's head office in Mumbai, on the same and a former bank official and RTI activist, JP Shah, day. He attached a copy of the RBI circular and sought also invoked the RTI Act on this issue with other the following information under banks like IDBI Bank, Bank of the RTI Act: Maharashtra, ICICI Bank and “(a) What action have you Bank of Baroda. taken against the person who After Mr Phadke’s story is responsible for this delay in appeared on the Moneylife ATM section of the HO (head website on 4th May, managing office)? Give (me) the name and editor Sucheta Dalal sent the designation of the person who is article to the RBI, pointing to its responsible for the delay. contents as well as complaints (b) Why was my account not of frequent breakdown in bank credited on that day, with ATMs. compensation? Who is the The RBI has now reduced the person responsible for this type banks’ timeframe from 12 days of illegal act on the part of the to nine days for depositing back bank? Supply me the name and the failed transaction amount to designation of the person acting the customer’s account. A couple against the rules laid down by of other banks have made the After my fight was taken the government and/or the RBI. procedure automatic so that they (c) In how many cases till this do not have to be burdened by the up by Moneylife with date (from 17 July 2009 to penalty. the RBI, banks now have 31 January 2010), was this law While Mr Phadke continues 9 days (from the earlier violated? his mission to find out what 12) to re- credit a customer (d) Supply me the full list other banks are doing to avoid account in case of a failed of customers at present, in customer inconvenience in this transaction numbers, in an Excel sheet, regard, it’s a great story about according to your regions and how an individual’s dogged fight Sharad Phadke branches with (i) who have not can discipline large organisations Customer Activist been paid within 12 working like banks. Kudos to him!

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PERSONAL BUSINESS AUTO

GRAND PRIX CONUNDRUM

The government is unclear about who will regulate the proposed Noida Grand Prix. Preparations are also behind schedule. Will we never learn from our past sports fiascos, asks Veeresh Malik

he big news in the motor sports world has to be the flip-flop over the Noida and Bahrain F1 Grand Prix. At one stage, a few days ago, after persistent rumours, it was announced on 6th June by the FIA (Fédération Internationale de l’Automobile) that the Indian Grand Prix scheduled for October 2011 at Noida had been rescheduled for December 2011 without so much as a by-your-leave to the Indian authorities. That’s because the Bahrain Grand Prix had to be given that slot. That, in itself, raises a question—are we, as a nation, to continue to be the favourite stepchildren for international events, just because another country, for whatever reason, is back in the running? But national pride aside for the moment, the bigger question is: What exactly is going on in the world of F1? Because the Bahrain F1 race for October 2011 has been cancelled, again, the Indian race appears to be back on schedule for October 2011. Multiple announcements saying ‘yes’, ‘no’ and ‘maybe’ emanate from all corners. So what gives, actually, in the complicated and increasingly murkier world of international motor sports? Certainly, F1 races are brilliant events, with eyeballs on television and in the stands worldwide—but the constituency is not the sponsor, it is the viewer, and he is being taken for granted. Here is a brief wrap up on how it impacts us in

India—FIA, the world governing body for motor sports, decided to shift dates around. Meanwhile, FMSCI (the Federation of Motor Sports Clubs of India), the governing body for motor sports in India, finds itself out of the recognised list of sports federations in India, as per the latest list put out by the department of sports, government of India, (for more, here’s the link: http://yas.nic.in/writereaddata/linkimages/2544648041. pdf). So the first question is this: Which is the Indian sports federation conducting these races? As of now, direct questions to FMSCI and an RTI (Right to Information) application to the government of India on the subject remain unanswered—though multiple messages and Internet postings on the subject imply that things are not as they should be. So, anything that FMSCI says does not really carry a stamp of government approval. As yet. Next, within the FIA itself, there is Jean Todt, who is the president, and there is Bernie Ecclestone, who represents the commercial interests. Both, apparently, do not see eye to eye on many things, influenced undoubtedly by the simple fact that there is a complex mix of ‘ownership’ of various teams by friends and relatives of the above named gentlemen, in association with a multitude of Arab princes and others, leading which is the McLaren team—which is 40% owned by ``

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PERSONAL BUSINESS AUTO

` the Bahraini royal family’s sovereign wealth fund.

The Arab world is currently in political turmoil and taking new directions—if not towards democracy, then certainly towards frugality in spending—and one of the casualties will be expensive automobile-related habits. And, also, much of the support services for the Noida F1 race was to come from people in Bahrain— marshalls, doctors and similar worthies. Unfortunately, quite a few of the circuit employees and volunteers find themselves on the wrong side of the sectarian divide currently creating turmoil in Bahrain and are reported to have been arrested. There is also the littlediscussed side issue of the ongoing DRI (Directorate of Revenue Intelligence) investigation on import of stolen and mis-declared luxury cars which, according to the grapevine, appears to be linked in some nebulous sort of way with the world of motor sports. And, finally, like the Commonwealth Games (CWG) in 2010, the big question is whether the Noida track will be ready in n time or not. And at what cost—that remains to be seen..

USED CA R SAL ES

its value the best in this is none other than our very own Maruti Suzuki Gypsy—now available new only on specific orders.

M A RU T I S U ZU K I S T R I K E

Hire & Tire The new labour from India’s largest carmaker is fed up with the existing unions

et’s now take a look at the labour issues at Maruti Suzuki sweeping the Gurgaon industrial belt. What appeared to be, until a few days back, a minor spark, is now a full-fledged forest fire, threatening to spread even further. The basic issue is that workers from Maruti Suzuki don’t appear to trust the existing mainstream unions anymore and want to form a fresh union of their own which is being resisted. The existing unions are controlled by the same old

Luxury Is Out, but SUVs Rule Top-end expensive second-hand autos are being sold at rock-bottom prices, but used smaller Japanese sports utility vehicles are commanding decent rates

n expensive automobiles, a side-reaction to the recent upheavals caused in industry as well as politics due to an assortment of scams already uncovered (and soon to be uncovered) is the amazing drop in prices of second-hand luxury cars, with a good German origin top-of-the-line car, something with a three- or four-litre engine and all the bells and whistles, in the age range of four-six years, quoting asking prices of below Rs10 lakh. There is the unsaid ‘no questions asked, preferably cash’ rider, of course, and caveat emptor (buyer beware) locked in. Matching class luxury cars, bought new from a showroom, would be in the Rs60 lakh-Rs80 lakh pricerange today, plus extra costs for registration and other sundries, taking it up to a crore of rupees or so. The drop is even steeper for the larger SUVs (sports utility vehicles), American or German. Hummers, especially, are no longer the status symbols they used to be, though smaller SUVs seem to be holding values better, especially if they are of Japanese origin. And the one that holds

Maruti Suzuki: Stoppped in its tracks

Communist stalwarts, linked apparently to the Congress Party! The new proposed unions, however, appear to be starting off as social groups of young people who are more aware of what the world is really about. Whatever the politics of the industrial action, the eventual outcome is that disruption in production in the automobile hub is not going to impact Maruti Suzuki alone, though it might help in moving the backlog of unsold cars and bikes currently clogging the pipeline. The Maruti Suzuki diesel-engine plant, for example, impacts the manufacture of other makes and models using the same diesel engine too, like Tata’s Vista and Manza and the entire range from Fiat.

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.

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BOOKS

Past Is No Future A brilliant contribution to the historical analysis of investment returns

here are few books on one of the most crucial areas of investment analysis—how much to expect from different asset classes. Almost all explore the long-term record of equities. Indeed, there is probably no book which has put in one place the historical record of different sources of returns from stocks, bonds and alternative investments, which kind of strategy has yielded those returns better (value investing, momentum, etc) as well as which risk factors (like growth, inflation and liquidity) influence returns. This is what makes this book unique, probably one of its kind. Antti Ilmanen has presented a huge array of data going back decades which are extremely valuable in themselves. But his insights deserve the attention of every serious investor, mainly fund managers. Some of these are: Beware of Extrapolation: Having meticulously surveyed the past, Ilmanen repeatedly stresses the limitations of extrapolating from it. After all, he has had to rely on the EXPECTED RETURNS data of 1990-2009; complete ANTTI ILMANEN data of older periods are not Wiley available. And that could be Pages 570; £45.00 misleading. “The results for 1990-2009 may be samplespecific, reflecting an abnormally benign environment for certain asset classes.” This is a warning for those who look at the recent performance of Indian equities and confidently extrapolate to assume that 15%-17% average return over the coming decades is our birthright. If the recent past sample period ‘includes a significant re-pricing’, the future is going to be disappointing. Indeed, as Ilmanen notes, “Although I present large amounts of empirical evidence about historical returns and forward-looking indicators, as well as numerous theories in an attempt to make sense of the data, I believe it is important to stress humility. Hindsight bias makes us forget how difficult forecasting is, especially in highly competitive financial markets. Expected returns are unobservable and our understanding of them is limited. Even the best experts’

forecasts are noisy estimates of prospective returns.” What Works Better: A second important insight is that forward-looking indicators like valuation ratios (price to earnings, price to book value etc), have a better track record in forecasting future asset class returns than rearview mirror measures such as average historical returns. Long-term Factors: Four factors are most important for determining long-run returns: growth, inflation, liquidity and tail risks (risk of extreme events). But while growth drives equity returns, overall economic growth sets speed limits to aggregate profit growth. It is worth noting that in the developed world, “The real trend rate of growth in earnings or dividends per share is only 0% to 2% over long periods, lagging the real GDP (gross domestic product) growth rate and aggregate profit growth rate because of dilution (the necessity for companies to issue more shares to raise the capital needed for growth).” This is a stunning piece of information that fund managers will ignore at their investors’ peril. GDP Growth Vs Equity Returns: Ilmanen found that the “link between equity markets returns and economic growth is surprisingly tenuous.” We have made this point repeatedly over the last five years in Moneylife and it remains one of the biggest myths peddled by investment professionals. “Even over long-time windows, countries with high economic growth have not had particularly high equity returns. The predictive relation from growth to returns is even worse… because abnormal growth appears mean-reverting. Buying the fastest-growing countries, sectors, or stocks of the preceding 5 to 10 years is often a bad investment idea. One reason is excessive extrapolation and overpricing of growth.” Momentum and Market Timing: One surprising insight that will raise eyebrows among analysts and fund managers is that market-timing is essential for superior performance and that momentum strategies (including technical indicators such as moving averages and breakout) work especially well for commodities. Ilmanen started as a central bank portfolio manager in Finland in 1986 and earned a finance PhD in 1994 from the University of Chicago’s Graduate School of Business (under Eugene Fama and Kenneth French). He then spent a decade at Salomon Brothers/Citigroup as a bond researcher, strategist, managing director and a trader. He joined Brevan Howard, a macro-hedge fund, in 2004. Ilmanen has advised many institutional investors, most regularly Norway’s Government Pension Fund Global, on its long-run investment strategy. If you are really serious about investing, buy this book and read it repeatedly for full assimilation. — Debashis Basu

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BOOKS

Over the Wall A seminal work on China

number of good books have been written on the Middle Kingdom (China: A History by John Keay is one such work that comes to mind immediately), but Henry Kissinger’s On China is possibly a view from the very top. The modern Sino-US relationship started off on an extremely volatile note—both countries were at each other’s jugulars during the Korean War, turned frosty during the Cold War and, now, it resembles a mutually parasitic relationship. The focus of this book is on the interaction between Chinese and American leaders since the People’s Republic of China was founded in 1949. The sweep of the narrative of this book, as can be expected, is vast. And a few nuggets will surely surprise even an avid Indian reader— like when Kissinger writes on the 1962 Sino-Indian War: “China executed a sudden, devastating blow on the Indian positions and then retreated to the previous line of control, even going so far as to return the captured Indian heavy weaponry (emphasis added).” As the author says, “As late as 1820, it (China) produced ON CHINA over 30% of world GDP (gross HENRY KISSINGER domestic product)—an amount Penguin exceeding the GDP of Western Pages 586; Rs899 Europe, Eastern Europe and the United States combined.” Now, China is clawing its way back up the economic pecking order. The Chinese ideal in warfare, as can be witnessed in the way it wields its current economic clout, has always been to employ subtlety, indirection and the patient accumulation of relative advantage. In this context, as Kissinger explains, Sun Tzu and his The Art of War trumps Carl von Clausewitz’s On War. We have seen how the Clausewitz doctrine pushed Europe beyond the brink of destruction—and The Art of War is what modern militaries follow now. As a parallel, Kissinger compares the Chinese game of wei qi which generates strategic flexibility, while chess produces single-mindedness. The author also describes the SinoIndian 1962 clash as one where China practised what he calls: “the exercise of wei qi in the Himalayas.” Indian leaders, one can infer, were staring at their chessboards.

In fact, as Kissinger says, Ho Chi Minh adopted Sun Tzu’s tactics during the Vietnam War and we all know how that ended. Indeed, this reviewer is tempted to ask: Why did not Dwight D Eisenhower, John F Kennedy, Lyndon B Johnson, Richard M Nixon and Gerald R Ford listen to Kissinger and continued America’s worst misadventure (the Afghanistan quagmire and the Iraq blunder pale in comparison) in Vietnam? Kissinger served as the national security advisor and, subsequently, secretary of state under the regimes of Nixon and Ford. In the author’s own words, “The disregard of (Sun Tzu’s) precepts was importantly responsible for America’s frustration in its Asian wars.” But Neil Sheehan’s A Bright Shining Lie chronicles the Vietnam War much more objectively.

On China has it all: Mao’s reign, the Korean War, China trying to play its diplomatic games with both superpowers during the Cold War, the unresolved question of Taiwan and the Sino-Soviet split Diplomacy is an art that China has always excelled in, and master diplomat Kissinger acknowledges that Chinese diplomacy has stood the test of time. When China was confronted with colonial domination, it “relied not on technology or military power, but instead on two deeply traditional resources: the analytical abilities of its diplomats, and the endurance and cultural confidence of its people.” But Kissinger conveniently glosses over how Japan laid waste to the country when Tokyo went on a rampage in 1937 in Nanking (see the Rape of Nanking by the late Iris Chang for more on this). Is this because of the excellent relations that Japan now enjoys with the US? If so, it just proves how astute a statesman Kissinger continues to be. On China has all of the rest: Mao’s reign, the Korean War, China trying to play its diplomatic games with both superpowers during the Cold War, the still-unresolved question of Taiwan and the Sino-Soviet split. Kissinger devotes the last few chapters to the SinoUS equation, and the possible course that it can take in the future. If ever there was an insider’s account on America’s dealings with China, it is this. Well worth a read... and a re-visit in the future. — Devarajan Mahadevan

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Learn the basics of saving and investing

Earning Curve

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

Leverage Kills Borrowing money to buy stocks is the road to ruin

everage—using debt to finance assets—is a double-edged sword, especially if you finance risky assets like stocks. When it goes in your favour, your profits accelerate. But, when you lose money, your losses are magnified. The outcome of leverage depends on how it is being used. In the hands of all but the most skilled investors, it is a tool for selfdestruction. James Montier, a member of GMO’s (Grantham, Mayo, Van Otterloo & Co) asset allocation team, in his paper, “Was It All Just A Bad Dream? Or, Ten Lessons Not Learnt”, says that leverage can never turn a bad investment into a good one but it can turn a good investment into a bad one. The use of leverage necessitates decisions be based on the time horizon of investment and the amount of risk one is willing to take. To pile leverage onto an investment having a tiny return, and hope it will turn things around, is never a good idea. This applies to corporate investments as well. “Whenever you see a financial product or strategy with its foundations on leverage, your first

reaction should be scepticism, not delight,” says Montier. If a firm buys assets with borrowed money, then under extreme market conditions, it may owe more money than it has and default. Therefore, during a market downturn, leverage can reduce the company’s staying power, turning a temporary impairment into a permanent loss of capital. If this happens on a sufficiently wide scale, then it can severely stress creditors and cause them to fail as well. Therefore, Montier says, “Be leery of leverage.” It’s one of his seven immutable laws of investing. For a firm, excess leverage is as bad as too little. For an investor, it is equally dangerous to borrow money and invest in stocks. John Maynard Keynes also opined, “An investor who proposes to ignore near-term market fluctuations needs greater resources for safety and must not operate on so large a scale, if at all, with borrowed money.” But when investors see huge returns, they tend to over-leverage; greed is what blinds them from seeing the risks involved with the asset. John Kenneth Galbraith, in his bestseller, The Great Crash, 1929, identifies leverage as the

underlying cause of both the boom and the crash. John Stuart Mill, a British philosopher, economist and civil servant of the 18th century, in his work on understanding the pattern of bubbles, states that “the critical stage (of a financial bubble), is often characterised by insiders cashing out, and is rapidly followed by financial distress, in which the excess leverage that has been built up during the boom becomes a major problem.” Mill was aware that when leverage goes wrong, it could result in firesale of assets. The 2008 market decline, considered the worst since the Depression, is said to have had its roots in leverage. Stephen J Brown, professor of finance at the New York University, who has published numerous articles and five books on finance and economics, shares his view on the crisis saying: “It was believed to be rather easy to make money investing… investors borrowed heavily to invest… The resulting increase in leverage and resulting heavy burden taken on by financial institutions was a leading factor in the recent financial crisis.” Leverage, if used properly with understanding, can produce great rewards, but it’s a speculation game. As Warren Buffett says, “You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing… Leverage is the only way a smart guy can go broke… You do smart things, you eventually get very rich. If you do smart things and use leverage and you do one wrong thing along the way, it could wipe you out, because anything times zero is zero.”

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ML FOUNDATION EVENTS

HOW TO CHOOSE THE RIGHT MUTUAL FUND SCHEME

The Long & Short of Mutual Funds The 69th programme of Moneylife FoundaƟon focused on mutual funds. The previous ones were on real estate, credit cards, wills & nominaƟons and a range of personal finance related subjects

n 21st June, Debashis Basu, trustee, Moneylife Foundation and editor, Moneylife, advised investors that they should study the performance of mutual funds (MFs) before deciding to invest in them. Mr Basu dwelt on various aspects of MF investments during an hourlong presentation at the Moneylife Knowledge Centre, Mumbai. He gave participants an overview on MFs, explaining the different types of schemes available—equity funds, ELSS (equity-linked savings schemes), bond funds, liquid funds and SIPs (systematic investment plans). He explained the benefits and risks associated with each of these schemes and investment strategies. ELSS is an investment option that is usually picked by investors for tax benefits, but investors should invest in ELSS for the entire year to get investment benefits too, Mr Basu pointed out. “Bond funds are not for average savers,” he said. They often give lower returns than bank fixed deposits (FDs) and have costs and

volatility attached to them. Bonds are not risk-free. They come with interest rate risks—if the rate rises, bond prices fall. Investing in bonds is speculative, said Mr Basu. One needs a thorough understanding of bonds before investing in them; else bank FDs would be better. Hybrid funds—with their portfolios in equity & debt—and gold ETFs (exchange traded funds) are to be avoided too. The fund performance is at the mercy of the asset class and the fund manager’s market-timing ability. Investors with some financial knowledge should do their own asset allocation and not opt for these funds. SIPs are flawed if they are not adjusted for the growth option. Investors don’t consider inflation and invest the same amount over years. The time value of money falls—investors should incrementally increase their investments. Mr Basu introduced the idea of value averaging, a better option compared to SIP. It is a strategy through which investors should buy more when the NAV (net asset value) is less and vice-versa.

Equity schemes help to create longterm wealth. But less than half of these schemes outperform their benchmarks—the difference between the best-performing fund and the worst is huge, Mr Basu pointed out. Returns over a five-year rolling period should be used for performance analysis of a fund. Moneylife regularly puts out such analyses. Just four-five fund houses register consistently good performance. A portfolio diversified across all sectors should be chosen; therefore, sector funds should be avoided. Investors should avoid NFOs (new fund offerings) and funds with fancy names. Investors who don’t have any market experience can still make money from the market through index funds. This was the 69th seminar conducted by Moneylife Foundation since its inception in February 2010. These free programmes have been conducted at the Moneylife Knowledge Centre in Dadar (central Mumbai), and in various other cities. The Foundation has more than 5,800 members.

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SPENDING TRAVEL

THE MAGNIFICENT KANCHENJUNGA THE WORLD’S THIRD-H IGHEST PEAK IS LOCATED ON SIKKIM’S BORDER WITH NEPAL

SIKKIM

shadowof Kanchenjunga In the

he Eastern Himalayas, dominated by the world’s third-highest summit, Kanchenjunga, hold a particular fascination for me. Having travelled extensively in this region over many years, I continue to be amazed by the diversity of ethnic groups, languages, dress and customs, landscapes as well as vegetation in the area and how these change from valley to valley. In predominantly Buddhist Bhutan that I had featured earlier in this series (Moneylife, 2 June 2011), the diversity of ethnic groups is less evident than in Sikkim where history has created a melting pot of diverse people. Not long ago, Sikkim was a semiindependent Himalayan monarchy, sharing its borders with Nepal in the west, Bhutan in the east and with the Tibetan plateau rising from its northern border. Once a part of

Jaideep Mukerji explores this former Himalayan monarchy’s stunning mountain landscapes, rich Buddhist culture and relatively short distances— that make it an ideal destination for avid trekkers and travellers who want to savour the culture an important trading route (from India to China and Tibet), Sikkim’s history is closely linked with the market town of Kalimpong that lies immediately to its south. Kalimpong, located at 4,100ft on a ridge overlooking the Teesta River, is a tourist destination in its own right due to its temperate climate. In 1706, the king of Bhutan won

this territory from the Sikkimese ruler and renamed it Kalimpong. Until the mid-19th century, the area around Kalimpong was governed in succession by the Sikkimese and Bhutanese rulers. After the AngloBhutan War in 1864, Bhutanese territory east of the Teesta River, including Kalimpong, was ceded to the British East India Company. To escape the scorching summer heat in the plains, the British developed the town as an alternative hill resort to Darjeeling. Kalimpong soon became an important outpost for trade in furs, wool and food-grains between India and Tibet. The increase in commerce attracted a large number of migrants from Nepal leading to an increase in population as well as economic prosperity. Following India’s Independence in 1947, Kalimpong became a ``

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SPENDING TRAVEL

` part of the state of West Bengal.

With China’s invasion of Tibet in 1959, many Buddhist monks fled Tibet, established monasteries in Kalimpong and brought with them rare Buddhist scriptures and painted scrolls. The Buddhist Zandogpalri Monastery has a number of rare Tibetan Buddhist texts. Kalimpong now has an active floriculture industry known for its wide array of orchid nurseries which export Himalayan-grown orchids, flower bulbs and tubers globally. Now, home to ethnic Nepalis, indigenous Himalayan ethnic groups and nonnative migrants from other parts of India, the town is a religious centre of Buddhism. With just slightly over 500,000 residents, nearby Sikkim is the least populous state in India, but a popular travel destination, due to its culture, scenic beauty and biodiversity. Despite its small area, Sikkim is geographically diverse due to its location in the Himalayas. The climate ranges from warm subtropical in the south to the cold high alpine areas of northern and western Sikkim. Kanchenjunga, the world’s third-highest peak, is located on Sikkim’s border with Nepal. In 1947, the time of Indian Independence, a popular vote rejected Sikkim’s joining the Indian Union and then prime minister Jawaharlal Nehru agreed to a special protectorate status for Sikkim under which India controlled its external affairs and defence & communications, while Sikkim retained complete autonomy in other matters. In 1973, with the ruling monarch, the Chogyal, proving to be unpopular with the Sikkimese people, riots in front of the palace led the Kazi (the Sikkimese prime minister) to make a formal request to India for protection. In April 1975, the Indian Army took over the city of Gangtok

and disarmed the Chogyal’s Palace guards. A referendum was held in which 97.5% of the Sikkimese voted to join India and, a few weeks later, Sikkim officially became the 22nd state of the Indian Union and the monarchy was abolished. Located at an altitude of 4,715ft, Gangtok is the capital and largest town of Sikkim. Nestled in middle Himalayas, Gangtok enjoys a mild temperate climate year round and is the centre of Sikkim’s tourism industry. A day’s sightseeing is enough to cover the highlights of the city. I suggest a visit to the Enchey Monastery, located on the ridge top above the town. The present building dates back to 1909, though the monastery itself is over 200 years old. The Namgyal Research Institute of Tibetology, established in 1958 as a major centre for research on Tibet and Tibetan Lamaistic Buddhism, is definitely worth a few hours of browsing; it houses many rare books, thangkas (Tibetan silk paintings with embroidery, depicting a Buddhist deity, famous scenes, or mandalas) along with statues and manuscripts smuggled out of Tibet after the Chinese occupation. Do plan to visit the permanent and attractive ‘flower show’ that exhibits a number of native Sikkimese orchids and flower species. A drive along the scenic route to north Sikkim will bring you to the Phodong Monastery set amidst fields of cardamom. Built sometime in the first quarter of the 18th century, Phodong is one of the major monasteries of Sikkim with beautiful mural paintings adorning its walls. On the slope across the valley from Gangtok is located the famous Rumtek Monastery complex also known as the Dharma Chakra Centre. Rumtek Monastery is one of the most important seats of the Kagyu sect of Tibetan Buddhism outside Tibet. In the early 1960s, the ``

THE PEMAYANGTSE MONASTERY FOUNDED IN 1705, PEMAYANGTSE IS ONE OF THE OLDEST AND PREMIER MONASTERIES OF SIKKIM

STEEPED IN CULTURE PRAYER FLAGS ON THE ROAD TO NORTH SIKKIM

AN ANCIENT TRADITION, KEPT ALIVE THE RUMTEK MONASTERY IS ONE OF THE MOST IMPORTANT SEATS OF THE KAGYU SECT OF TIBETAN BUDDHISM OUTSIDE TIBET

61 | 14 July 2011 | MONEYLIFE

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SPENDING TRAVEL

` 16th Karmapa (head of the Kagyu

sect) founded this Centre following his escape from communist China’s invasion of Tibet. The present Rumtek Monastery, built as a replica of the Chhofuk Monastery in Tibet, is about 2km away from the older Kagyu Monastery built in the 16th century by the fourth king of Sikkim. The senior monks of the Kagyu sect are trained in a tradition of study and meditation practice which began over 800 years ago. Rumtek Monastery is an enormous complex made up of a beautifully structured main temple and monastery with monks’ quarters, the Karmapa’s residence, a Shedra, or monastic college, a place where the most important relics brought from Tibet are enshrined, a place for nuns—and several other establishments. The line of the Karmapas is self-announced; each Karmapa leaves a letter predicting his next rebirth. Currently, there is a tussle, going back several years, between two rival groups of claimants to the Karmapa’s seat. The

When To Go: A small state with stunning mountain landscapes, a rich Buddhist cultural tradition and relatively short distances (because of the small size of the state) that make travelling easy, Sikkim is suitable for both adventure and travellers who want to study culture. For trekkers, a number of trails are waiting to be explored and photographers have opportunities at every corner.

comfortable Martam Village Resort located in a tranquil rice-growing village near Rumtek is a wonderful place to experience the peace and beauty of rural Sikkim. Travelling to western Sikkim, I arrived at the Pemayangtse Monastery near the village of Pelling located 140km west of Gangtok. Founded in 1705, Pemayangtse is one of the oldest and premier monasteries of Sikkim and follows the Nyingma sect of Tibetian Buddhism. It controls all other monasteries that belong to this sect across Sikkim and the monks of this monastery are normally chosen from the Bhutia community, the original residents of Sikkim. Pemayangtse, located at an elevation of almost 7,000ft, has a spectacular backdrop of the high summits of the Kanchenjunga range. The main prayer hall, the Dukhang, and the main temple, the Lakhang, have colourfully painted doors and windows of traditional Tibetan design. The main statue of Guru Padmasambhava (also known

ESSENTIAL IA AL FACTS

airlines have scheduled services to Bagdogra with connections to all parts of India. New Jalpaiguri and Siliguri are the two rail stations nearest to Sikkim. Other than the wet monsoon months, from June to September, Sikkim’s moderate climate makes it suitable to visit anytime.

Where To Stay:

Getting There: The airport nearest to Sikkim is at Bagdogra—close to the Siliguri in north west Bengal—124km away from Gangtok. Most

as Guru Rimpoche who revived Buddhism in Tibet) is seen here in his wrathful form with multiple heads and arms. Of particular note is an impressive seven-tiered painted wooden model, built over five years, portraying Guru Rimpoche’s Heavenly Palace known as Zandogpalri, on the top floor of the monastery. About 40km further is the village of Yuksum closely linked with the rulers of Sikkim who were crowned king here. It was the first capital of Sikkim established in 1642 and has special religious and cultural significance for the Bhutia community of Sikkim. The main office of the Kanchenjunga National Park is located here and Yuksum is the starting point for spectacularly scenic treks towards the base of Kanchenjunga. The Yuksum villagers, who arrange the load-carrying yaks and the staff for supporting treks and climbing expeditions, have played a significant role in promoting eco-tourism in the area. — With Veeresh Malik

GATEWAY TO PARADISE THE WELCOME SIGN SAYS IT ALL...

Hotel accommodation and local travel arrangements are best arranged directly with Sikkimese tour operators and hotels listed with Sikkim Tourism at the website—www.sikkimtourism. travel. Local transport can easily be booked either through your hotel or the local central taxi stand.

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MONEY FACTS STOCKS

INDIAN MARKET TRENDS

FUND FLOWS

The Sensex and the Nifty fell 3% each in the fortnight. The Mid-cap Index, the ML Small-cap Index and the ML Micro-cap Index all declined 5%. The ML Large-cap Index and the ML Mega-cap Index shed 3% each.

Foreigners: Foreign institutional investors were net sellers of stocks (Rs3,085.70 crore) in the fortnight. They sold shares worth Rs23,006.10 crore.

Share Prices, December 2010=100

0 -120

105

-240 100 -360 95

-480

FII Net Investments (Rs Crore)

-600 13 Jun-11

23 Jun-11

Indians: Domestic institutional investors were net buyers of shares (Rs2,722.97 crore). They purchased stocks worth Rs10,167.16 crore.

75 Dec-10

Mar-11

ML Mid-cap ML Large-cap

ML Small-cap ML Mega-cap

Jun-11

Nifty Sensex

880

DII Net Investments (Rs Crore)

695

ML Micro-cap

510

Index

10 Jun

23 Jun

+/(- )

100.45

97.51

- 3%

18,268.54

17,727.49

- 3%

5,485.80

5,320

- 3%

MLMega-capIndex

95.36

92.03

- 3%

MLMi d-capIndex

94.14

89.80

- 5%

GLOBAL MARKET TRENDS

MLS mall-capIndex

89.36

84.74

- 5%

2,900

MLMi cro-capIndex

83.86

79.37

- 5%

MLLarge-capIndex Sensex Nifty

Mega- cap Gainers/Losers

10 Jun

23 Jun

Change

Sun TVN etwork

307.60

352.55

15%

UnitedB reweries

606.95

498.70

- 18%

Large- cap Gainers/Losers

10 Jun

23 Jun

Change

GodfreyP hillips India

2,078.40

2,401.20

16%

31.10

25.25

- 19%

10 Jun

23 Jun

Change

ShriramE PC

134.70

154.55

15%

GTL

409.25

108.20

- 74%

325 140 -45

13 Jun-11

23 Jun-11

Nasdaq Composite

2,840 2,780 2,720

LancoInfratech Mid- cap Gainers/Losers

Small- cap Gainers/Losers AVTN aturalP roducts SuryachakraP ower Corp Micro- cap Gainers/Losers

10 Jun

23 Jun

Change

171.85

220.45

28%

15.72

11.08

- 30%

10 Jun

23 Jun

Change

FlawlessD iamond (India)

0.90

1.44

60%

Rishabhdev Technocable

6.62

4.35

- 34%

(AllP ricesi nR s)

2,660 2,600 Dec-10

Mar-11

Jun-11

The Nasdaq Composite gained 2% and the Nikkei added 1%, while the Korean Composite remained unchanged. The Hang Seng fell by 3%. Index

10 Jun

23 Jun

+/(- )

Nasdaq Composite

2,644

2,687

Nikkei

9,514

9,597

Dow Jones Ind Avg

11,952

12,050

Korean Composite

2,047

2,056

Shanghai Composite

2,705

2,688

- 1%

FTSE

5,766

5,674

- 2%

Bovespa

62,697

61,194

- 2%

Hang Seng

22,420

21,759

- 3%

8,838

8,567

- 3%

Taiwan Weighted

63 | 14 July 2011 | MONEYLIFE

Money Fact.indd 2

6/25/2011 3:43:50 PM

MONEY FACTS STOCKS

What’s H

ML SECTORAL TRENDS

Stocks of telecom companies were on the buyers’ radar—Idea Cellular climbed 4% and Bharti Airtel gained 2%. Tata Communications plunged 15% and Mahanagar Telephone Nigam declined 8%.

ML Telecom Service Index

Companies

10 Jun

23 Jun

+/-

IdeaC ellular

72.15

75.10

Bharti Airtel

373.95

382.15

16.30

16.20

1,050 1,010 Tata Teleservices

-1%

970 RCom

92.60

90.65

- 2%

930 MTNL

890

44.60

41.15

- 8%

Printing & publishing stocks gained 2%, telecom services, consumer products and media stocks rose 1% each. On the other hand, stocks of telecom equipment companies nosedived 35%, odds plunged 14%, textiles declined 12% and real estate fell 9%. ML Sectoral Trends Printing& P ubl

2% TelecomE quip

- 35%

Telecom Services

1% Odds

- 14%

ConsP roducts

1% Textiles

- 12%

Media

1% Airlines

- 12%

Trading TataC ommunications

850 Dec-10

Mar-11

216.75

184.35

Jun-11

Textile stocks were punished. S Kumars Nationwide dived 26%, Loyal Textile Mills sank 21%, Super Spinning Mills slipped 19%, Sutlej Textiles & Industries tumbled 18% and Morarjee Textiles declined 17%. 10 Jun

23 Jun

+/-

66.55

48.95

-26%

ML Textiles Index 750

SK umarsN ationwide Loyal TextileMi lls

287.15

226.95

-21%

SuryajyotiS pngMi lls

35.75

28.60

-20%

MaxwellIndustri es

21.60

17.30

-20%

SuperS pinningMi lls

9.59

7.80

-19%

Sutlej Textiles& Inds

228.80

187.20

-18%

17.45

14.40

-17%

JJE xporters

18.20

15.15

-17%

NitinS pinners

10.03

8.40

-16%

TTLtd

32.15

26.95

-16%

Morarjee Textiles

710 670 630 590 550 Dec-10

- 9%

INSIDER TRADES

N T

Companies

RealE state

-15%

AllP ricesi nR s

What’s

-1%

Mar-11

Jun-11

AllP ricesi nR s

BULK DEALS Date

Company

Buyer

Seller

Rs Cr

23Jun-1 1

DalmiaB haratE nt

StellarInvestm ents

DhartiInvestment And Holdings

23Jun-1 1

APL Apollo

AmaxN etworkP vtLtd

Madhukar C Sheth

4.15

15Jun-1 1

ITP eople

ITP eopleP vtLtd

TaibB ankE C

3.15

17Jun-1 1

AsianH otels(W est) AnitaR ajgarhia

ForexFi nance

3.12

17Jun-1 1

SurajD iamond

Su-R ajJew elleryIndi a

SoniaJMehta

2.21

24Jun-1 1

VMFS oft Tech

UdayanK anubhaiMandavi a

Hitesh R Joshi

0.03

23Jun-1 1

AdityaForge

NitinR asiklal Parekh(H UF)

Rahulbhai Bhailal Shah

0.02

11.62

Ekta Kapoor, joint MD, Balaji Telefilms, bought 50,000 shares in the company (stake up to 15.75%). XPS Cargo Services bought 13,331 shares in Transport Corporation of India (stake up to 1.31%). Manish Surana, executive director, Surana Telecom and Power, bought 25,148 shares in the company (stake up to 3.18%). Surana Infocom Pvt Ltd bought 42,260 shares in Surana Telecom and Power (stake up to 0.78%). MG Shanthakumari bought 18,000 shares in Jyothy Laboratories (stake up to 2.19%). MR Deepthy bought 32,498 shares in Jyothy Laboratories (stake up to 3.05%). Dinesh Shahra (HUF) bought 11,31,951 shares in Ruchi Soya Industries (stake up to 5.23%). Samena Capital Management LLP bought 54,000 shares in Dynamatic Technologies (stake up to 5.05%). Amit Dahanukar, CMD, Tilaknagar Industries, bought 50,000 shares in the company (stake up to 14.98%). Punarvasu Builders and Developers Pvt Ltd bought 50,36,000 shares in Indiabulls Real Estate (stake up to 2.43%). Reliance Long Term Equity Fund sold 2,50,000 shares of Bombay Rayon Fashions (stake down to 2.86%).

MONEYLIFE | 14 July 2011 | 64

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MONEY FACTS COMMODITIES

INDEX TRENDS

COMMODITY TRENDS

MCX Commodity Indices

Rice

Particulars

10Jun

24Jun

Agri

2,587.44

2,566.59

Metal

4,477.99

4,414.22

Comdex

3,444.79

Energy

3,184.75

Change

52- Week High

52- Week Low

-1%

2,989.16

2,144.05

-1%

4,926.75

3,223.54

3,315.57

-4%

3,739.05

2,621.80

2,922.97

-8%

3,585.96

2,434.89

COMMODITY FOCUS MCX Crude Oil Futures (Rs/barrel) 5,200 4,980

lobal rice production is expected to touch 713 million tonnes (MT)—about 476MT (milled)—due to improved weather conditions, as the influence of La Nina is expected to neutralise by June, according to the Food and Agriculture Organization. World rice production stood at 464MT (696MT of paddy) in 2010, up 1.8% from the previous season. According to the third advance estimate of India’s agriculture ministry, rice production in the country in the 2010-11 season is pegged at 94.11MT.

4,760

Rubber

4,540

4,320 4,100 Jan-11

Apr-11

Jun-11

The International Energy Agency (IEA) said that 28 countries have agreed to release 60 million barrels of crude oil in the market to offset disruptions prompted by Libya’s war. These countries will make 2 million barrels a day available over an initial period of 30 days. Months of fighting in Libya had withheld 132 million barrels of crude oil from the market by the end of May. Prices have remained high in recent months. They eased to below $93/barrel on 23rd June, due to concerns about US economic growth that may weaken crude demand.

MCX PRICE TRENDS Particulars

Active Contract

7Jun2011

21Ju n2011

Change %

High

55,572

54,433

- 2.05

74,560

ndia’s natural rubber production increased by nearly 6% in May 2011 to 59,700 tonnes, while consumption rose more than 2% to 81,000 tonnes. According to the Rubber Board, production and consumption in the year-ago period stood at 56,400 tonnes and 79,150 tonnes, respectively. However, demand for natural rubber, on a month-on-month basis, declined by almost 2% in May—to 81,000 tonnes from 82,500 tonnes in April.

Low

Coffee

Global Commodities SilverR s/kg

Jul-1 1

31,500

CrudeOi lR s/barrel

Jul- 11

4,463

4,221

- 5.42

5,225

4,144

GoldR s/10gm

Aug- 11

22,622

22,659

0.16

23,148

20,181

CopperR s/kg

Jun- 11

411.50

403.90

- 1.85

471.75

386.80

NickelR s/kg

Jun-1 1

1,024.20

983.10

- 4.01

1,255

964.30

LeadR s/kg

Jun-1 1

115.30

109.80

- 4.77

133.30

98.45

ZincR s/kg

Jun- 11

102.05

98.35

- 3.63

118.95

92.90

NaturalGasR s/mmBtu

Jun- 11

215.10

197.40

- 8.23

223.50

187.90

Others CPOR s/10kg

Jun-1 1

522.50

493.70

- 5.51

538.40

487.30

MenthaOi lR s/kg

Jun- 11

886.60

871.20

- 1.74

975.30

811.40

CardamomR s/kg

Jul- 11

818

871.50

6.54

1,149.90

763.20

SugarMK olR s/100Kg

Jul- 11

2,525

2,534

0.36

2,891

2,458

PotatoR s/100kg

Jul- 11

476.40

492

3.27

565

463

ccording to the Coffee Board of India, the country’s coffee exports are expected to cross the Rs4,000-crore mark in the current crop year (ending September), due to the higher prices of the commodity in the global market. In India, the crop year for coffee cultivation runs from October through September. The export revenue for the previous crop year was Rs2,754 crore. India’s revenue from coffee exports rose to Rs3,610 crore in the current crop year (up to 15th June) from Rs1,895 crore in the same period last year. Volume of shipments jumped to 0.27MT from 0.19MT during the period. 65 | 14 July 2011 | MONEYLIFE

Money Fact.indd 4

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BEYOND MONEY

back on THEIR FEET Shukti Sarma profiles Saathi which works to rehabilitate destitute children and also deals with the problems faced by trafficked and runaway youth

SAATHI Agripada Municipal School Room G-4, Ground Floor Opp YMCA Swimming Pool, Mumbai Central (E) Mumbai 400 011 Tel: +91 (22) 2300 9117 www.saathi.org info@saathi.org

n 1986, Altaf Shaikh was volunteering for an NGO. At that time, few institutions dealt with street children; working for adolescents living on the streets was unheard of. The plight of street-dwellers used to concern him but it took him nine years to get other workers concerned about the issue together and set up Saathi (in Mumbai), which became a friend for teenagers living on streets and railway stations. Saathi now runs a shelter for destitute girls and another for adolescent boys at the Agripada Municipal School (Mumbai Central). It also deals with problems faced by trafficked and runaway children. Since there are few social workers who concern themselves with homeless adolescents or those who are past the age of staying at juvenile centres, Saathi provides educational and professional training as well as counselling so that these youths can be independent after they leave the shelters. “When we started, there was little awareness about the issue,” says Arif Kapadia, acting project coordinator of Saathi’s youth initiative programme. “People found it difficult to believe that someone can actually think of rehabilitating these youths. Our team had no experience about how to deal with them. We learnt and, now, we are much better equipped.” The initial years, Mr Kapadia says, were stressful. Street-dwelling youths or trafficked children are viewed negatively in India; they are considered anti-social elements. “Even the law and police view such youth with suspicion. People were not willing to commit financially or otherwise. Now awareness has built up, and we find it easier to convince authorities and donors about our cause,” says Mr Kapadia. He says, few common people and government officials (including policemen) are aware of the rights of these children. “We still meet a lot of people who do not know about the Juvenile Justice (Care &

Protection of Children) Act,” Mr Kapadia says. Saathi has several programmes— the youth initiative, vocational training programme ‘Kria’, therapeutic programmes which help these children bond with each other and become more confident socially and psychologically. They have trained volunteers and field staff, who identify children on railway platforms or on streets. “The railway police have helped us in a lot of cases by identifying these children. We provide them with shelter. Sometimes, when we identify runaway children, we try to reunite them with their families, but that is not always successful,” Mr Kapadia says. Many teenagers identified and rehabilitated by Saathi are today more confident about themselves. For example, the field staff came in contact with Santosh alias ‘Mama’ at CST (Chhatrapati Shivaji Terminus) in August 2008. After repeated counselling, he got involved with Saathi’s activities. Finally, Mama decided to move out of the street and, since the past four months, he is living in Sion-Koliwada (central Mumbai) and working as a labourer with a firm at Fort (south Mumbai). There are also teenagers like Raju, from Tardeo (central Mumbai), who was living with his family on the streets. They could not access facilities because they lacked identity proof. Raju now holds a ration card; 50 other families living in that area have also got their identity cards. Raju is now working to organise these families into a group so that they can avail of government schemes and facilities for the urban poor. The staff and volunteers at Saathi have to undergo special training programmes for dealing with these adolescents. Sometimes, counsellors and professionals are invited for providing specialised training. “The runaway kids, whom we are in contact with, now work with us and help other runaway kids get home,” says Mr Kapadia. One can join Saathi as a volunteer or offer one’s professional expertise. Money can be donated via cheque or demand draft. All donations are exempt under Sec 80(G) of the Income-Tax Act.

MONEYLIFE | 14 July 2011 | 66

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