Personal Finance Magazine Moneylife 19 May 2011

SUCHETA DALAL ON: OSIAN ART FUND: DIRTY CANVASS?

NIIRA RADIA’S LONG REACH

Personal Finance Magazine

19 May 2011

MLM SCHEMES THRIVE: SEBI, RBI REMAIN SILENT Rs 25

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5-YEAR

19 PERFORMANCE

Fund Houses

INCLUDES:

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MONEYLIFE MUTUAL FUND SURVEY

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Volume6,Issu e 6 6May–19May 2011 DebashisB asu Editor& P ublisher editor@moneylife.in SuchetaD alal ManagingE ditor suchetadalal@yahoo.com EditorialC onsultant DrN itaMukher jee

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

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

RNIN o:MA HENG/2006/16653

Letters to the Editor SWEETLY SHORT-CHANGED Pune is witnessing a new form of economics—it is in the form of ‘toffee-nomics’.

The humble 50-paise coin is as rare as rare and has resulted in a new form of currency. It has been replaced by a candy with the same MRP (maximum retail price). But the cost of this Write to the Editor!

The only investment that candy must be less than Win jewellery 50p for the retailer. It is enhances your face value. worth Rs1,000! given in lieu of the coin and this indicates that money is making money.

Something bought for 40p or less is being circulated with a value of 50p.

The consumer humbly Congratulations Sunil Melwani from Pune! accepts the candy instead Your letter to the Editor wins a Surat Diamond gift of the coin but someone worth Rs1,000. Keep writing! Keep winning! has made a profit. The candy-makers are happy and so is the retailer. The consumer is conned at the end of the chain. This method is being used by prominent retailers and is a new form of currency. We need to look at the value of the 50p coin or simply bury it forever.

If one buys a jar of 100 sweets one gets 10 free. This way money is being used to augment value. Has the time come for the consumer to use these sweets as currency and pay the retailers back in their own coin?

Sunil Melwani, D22 Gita Society, Near Lal Deval, Pune – 411 001, by email

A DRAFT ON GRAFT The present government is the most corrupt one that the country has ever had.

Some of the biggest scams have surfaced. The prime minister (PM), in a press conference, tried to blame other ministers and other people, all the while claiming that he was innocent—but nobody believed him. Manmohan Singh himself may be honest, but corruption has flourished under his nose.

The 2G scam surfaced in 2008. The Radia tapes were with the government in 2008 and 2009. But the PM was not concerned. It is because of the NGO, Centre for Public Interest Litigation, ggation,, and a few other individuals that the Supreme p preme Court of India (SC) intervened d and an investigation was ordered. Although the case was registered in October 2009, no investigation was carried out despite the harsh CAG (Comptroller l ler and Auditor General off India) report. The RBI (Reserve rv ve Bank of India), governor, D Subbarao S (who was finance secretary e etary then), admitted before the PAC A (Public `` AC

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LETTERS

` Accounts Committee) that the issue was discussed at

the PM’s level too.

It has been two years (or more) since the Radia tapes have been with the government, but the CBI (Central Bureau of Investigation) did nothing till the SC’s intervention. A number of ministers feature in the Radia tapes. But no thorough investigation has yet been ordered (the recording was done ostensibly at the behest of the Income-Tax Department). Even the then national security advisor’s name appears in the Radia tapes. Former telecom minister A Raja disobeyed the PM as well as the GoM (Group of Ministers) and was still tolerated—all for the sake of political power, illusions of grandeur and privilege of office.

The government is not serious about unearthing black money. Even the names of money launderers (which the Centre reportedly has in its possession) have not been disclosed. The US and Germany have managed to trace the list of their tax-evaders and moneylaunderers; why can’t India do the same?

Even in the Commonwealth Games (CWG) scam, a number of worthies (former Union sports minister MS Gill, former urban development minister Jaipal Reddy and Delhi CM Sheila Dikshit) have not even been questioned. An investigation will reveal whether these three are involved in the CWG scandal, but it is evident that they were incompetent in checking the loot. Only junior officers are being penalised.

In the matter of the selection of the (now expelled) central vigilance commissioner (CVC) PJ Thomas, the government—especially the PM and the home minister—kept mum.

A man like Prithviraj Chavan is put at the helm of a state as important as Maharashtra. In fact, Kerala CM, VS Achuthanandan, termed as baseless the statement by Mr Chavan that the Kerala government had ‘suppressed the fact’ that the expelled CVC was involved in a vigilance case. Mr Achuthanandan was responding to a statement made by Mr Chavan in the Maharashtra State Assembly. The Maharashtra CM was the former Union minister of state for personnel and training. It has become very convenient to blame ‘systemic failure’ for the CVC imbroglio.

As far as the Adarsh scam is concerned, senior politicians Sushilkumar Shinde, Vilasrao Deshmukh and Ashok Chavan are all allegedly involved—flouting all laws, regulations and norms. How can a 30+ storey building be constructed, when the sanction was only for eight storeys? Further, the structure was built on disputed land. Can such a tall building be constructed overnight? The authorities and the military establishment remained mute spectators. In fact, former Maharashtra CM Vilasrao Deshmukh has also been pulled up by the Supreme Court. The SC has raised questions on how Mr Deshmukh was still in the Union Cabinet quoting his interference with the police from taking action against shielding a moneylender MLA Dilip Sananda. The then CM had issued a circular asking police stations not to keep records of phone calls by politicians. The Bombay High Court’s fine of Rs10,000 on the former CM was subsequently enhanced to Rs10 lakh after it was revealed that Mr Deshmukh’s office had called the police station asking the officer to go slow against the MLA—and the officer had noted it down in the station diary.

Vishwanath Poddar, 82/3A, Ballygunge Place, Kolkata – 700 019, by email

SAVE THEIR SOULS I am a psychiatrist specialising in de-addiction. I found the story on Muktangan Rehabilitation Center (Moneylife, 21 April 2011) interesting as addiction to drugs is a social as well as a psychiatric problem. Surveys carried out over the past few years have thrown up facts which are alarming.

Almost 40%-60% of young adults in the age-group of 18 to 35 years are addicted to some substance of abuse. How can we rid our society of this problem? A whole generation seems to be in its vice-like grip.

Your story answers this question in a constructive and pragmatic way.

No amount of sloganeering or political cacophony will be of any use. A partnership between mental health professionals, social welfare organisations and corporate resources is the key to overcoming this tricky problem just as the one initiated by Dr Anita and Dr Anil Awachat. Well-equipped drug de-addiction and rehabilitation centres are woefully lacking in Punjab. ``

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LETTERS

` The initiative of the

Awachats, if replicated in Punjab, could change the fate of a whole generation of our state for the better.

Moneylife deserves to be commended for focusing on a success story with such far-reaching implications.

Dr Deepali Gul, 73-B, Gurjaipal Nagar, Jalandhar City, Punjab – 144 001, by email

KUDOS, AND NOW...

Kudos for your unique and comprehensive Cover Story, “Gold: All Told” (Moneylife, 7 April 2011). We now await a similar Cover Story titled: “Silver: Total Cover” from your talented, dedicated team as soon as possible. I thank you for the excellent work all the members of the Moneylife family consistently put in for us, issue after issue.

Pinakin Mamtora, by email

DON’T SHOOT THE MESSENGER Anna Hazare is ‘the most corrupt individual and a hypocrite,’ says a former Maharashtra minister, Suresh Jain. He has been engaged in cross-defamation criminal complaints against Mr Hazare since 2003.

His complaints revolve around certain charitable trusts set up by Mr Hazare, with foreign funds received as awards (like the Magsaysay Award) but not reported to the charity commissioner.

Mr Hazare later admitted to the same.

I’m angry to hear such allegations being levied against a person who has a history of working for the people and for promoting democracy. His efforts in enactment of the Right to Information Act in India and launching clean governance campaigns in Maharashtra are proof of his being a leader of the people.

However, isn’t it a fact that when the cooperative banks in question demanded a copy of the approvals from the charity commissioner, Mr Hazare, instead, unleashed his RTI army on them and made all sorts

of allegations about cooperative banks/ cooperative societies, many of which he later withdrew? Also, he had made insinuations against Justice PB Sawant, who had found prima facie material to continue these cross prosecutions.

The allegations are pending before criminal courts where both parties are represented. It’s said that Anna Hazare had questioned Justice Sawant’s integrity.

One may, perhaps, even wonder whether Anna Hazare is a professional faster averaging two fasts-unto-death per year! So far, he has had six ‘ultimate’ fasts to weed out corruption in this decade. These fasts defy all science. Anna Hazare’s fasts last for about 12 days during which he has claimed not to have drunk even any liquid. Even during the latest fast the doctors examined him and found him to be ‘normal’. Is the fast then a fake? At 40 degrees Celsius (in the shade), even a healthy person cannot survive without fluid beyond four days without hospitalisation. Yet, Mr Hazare is normal and his blood pressure is also normal.

Subrahmanian SH, by email HELP US TO HELP YOU Moneylife offers its readers a unique service—helping redress grievances on a best-effort basis. However, we have limited resources to devote to this effort and can only pursue complaints that come to us by email. We request readers to please send us crisp complaints, with all the facts on email (not as an attachment) and send us the supporting documents, only if we ask for them.

We cannot handle physical letters. — Editor

HOW TO REACH US

Letters to the Editor can be emailed to editor@moneylife.in or can be posted to: The Editor, Moneylife Magazine, Unit No. 315, 3rd Floor, Hind Service Industries, Off Veer Savarkar Marg, Dadar (W), Mumbai 400 028 or faxed to 022-24442771. Letters must include the writer’s full name, address and telephone number and may be edited for clarity or space.

New Subscriptions & Customer Service For new subscription requests, complaints about current subscription and books, write to subscribe@moneylife.in or to Subscription Manager, Unit No. 315, 3rd Floor, Hind Service Industries, Off Veer Savarkar Marg, Dadar (W), Mumbai 400 028 or call 022-24441059-60 or fax to 022-24442771.

Advertising For information and rates, email us at sales@moneylife.in or call 91-022-24441059-60.

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LETTER

ISSUE CONTENTS

19 May 2011

FROM THE

EDITOR Safe as (Fund) Houses

H

ere we go again with our annual review of the top Indian mutual fund houses but with an expanded scope. What makes our ranking different from that of others? As we said in our previous study (25 February 2010), the most common approach that other publications follow is to focus on fund houses which have been recent top performers. Such an approach is not only flawed— and myopic—but also misleading.

Separating the wheat from the chaff as far as mutual funds are concerned cannot be based on a simple factor like performance. As we explain in detail in our Cover Story, fund houses, financial ‘advisors’ and, of course, retail investors, often fall into the trap of ‘performance-chasing’—selecting, promoting and buying ‘hot funds’ that have been on a recent winning streak.

This is where Moneylife’s methodology scores over other tired efforts.

We have selected 19 fund houses with the unique Moneylife four-factor methodology (performance, downside risk, frequency of new fund offers and size of equity assets). This methodology was developed over four years ago and has been further refined now.

On another note, there are 41 fund houses in the fray now—and the schemes that they offer are a veritable alphabet soup. However, as we explain, after the market regulator has recently eased norms, some consolidation of mutual fund offerings may be on the cards.

To complete the Cover Story package, we carry the results of a detailed survey on mutual funds—over a wide and varied sample of Moneylife readers—which brings out parameters ranging from key factors influencing fund buying, modes of investments and much more. Our most important finding is that 82% of the respondents invest in shares; 96% invest in mutual funds—and 93% hold their fund investment for a year. This is unique in a market where the country’s investor population has been shrinking rapidly.

This issue also features two seminars that Moneylife Foundation has held in the month of April. It has been just over a year since the Foundation was set up, but the demand for our seminars has been so overwhelming that we will be having our first seminar to promote financial literacy in New Delhi in May! See you there, Delhiites.

Debashis Basu

24 Cover Story

Best Fund Houses–2011

Our new, improved methodology ranks 19 fund houses based on five-year performance of their equity schemes. Analysis by Megha Vora and Pratibha Kamath

12 Current Account – Regulations allow banks to sell insurance from only one life and one general insurance company. Should it change?

– Premium Renewals: The new mantra is not lapsation but ‘persistency’ – The evolution of technology and changing social habits has made social media marketing an integral part of communication strategies

17 LOOSE CHANGE Moneylife Quiz; Soundbites

18 SMART MONEY ULIPs: No Child’s Play

20

Niira Radia is still untouched; Public anger against corruption has rattled the government to permit arrests in the telecom scandal; Ponzi schemes: Why are the regulators silent?

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

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CONTENTS Here’s why you should click on www.moneylife.in Exclusive News

EVENTS

Foundation 56 Moneylife Seminars

Get the latest on business & corporate news and other developments in the financial world

Get Insights

Our leading analysts and columnists dissect the issues that are impacting you. Read the Moneylife magazine articles and join in for discussions

Daily Market Forecast

Keep track of short-term market movements and long-term trends to know what’s coming

DIFFERENT STROKES

WHICH WAY

22 Dirty Canvass

45 Broken Relationships

Investors in Osian Art Fund have been taken for a ride. Despite pressure from Moneylife and investors, the saga has been one of broken promises

Why did Bernanke’s promise of low rates lead to weaker metal prices and lower Asian equities?

STOCKS

38 Street Beat Will the coming quarters reverse the declining trend of Birla Corporation?; Will the overseas parent deliberately weaken MphasiS? The next two quarters will show the intention

Workshop on Good Governance & Legal Compliance Issues for NGOs by Noshir Dadrawala

INSURANCE

48 Insurance Trends • • • • •

Motor Insurance: Rates To Rise by 10%-65% IRDA has warned that insurance policies may turn costlier Pension Plans: Regulatory Changes Coming Soon Future Generali Wealth Protect Mediclaim: Hospitals free to decide rates for customers

Seminar on the RTI Act for customer protection, environment and civic issues by Ashok Ravat

TRAVEL

The Heart 60 Argentina: of Latin America

Tango on the streets, lush sub-tropical forests, spectacular mountains and a vibrant culture. Jaideep Mukerji discovers that Argentina has all this... and more

STOCKGRADER 42

BEYOND MONEY

AUTO

Momentum

Sintex Industries jumped 6%, while Shriram Transport Finance lost 3%

Medium Term

HCL Tech jumped 6% and Bajaj Auto climbed 4%, whereas CRISIL fell 4%

Long Term

Ador Fontech jumped 37%, while CMC declined 4% and ITC ended flat

Content.indd 3

50 Formula None

Will Indians ever take to motor sports, wonders Veeresh Malik

66 Learning Steps Door Step School makes the dreams of education of underprivileged children come true, discovers Shukti Sarma

DEPARTMENTS Letters ............................ 4 Book Review .................... 54 Money Facts .................... 63

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CURRENT ACCOUNT

B A NC A S S U RANC E

The More the Merrier?

Current regulations allow banks to sell insurance from only one life and one general insurance company. Should it change? Raj Pradhan asks the experts

T

“

We are still underinsured as a country. So, prima facie, it will be a good move to have this. However, we believe there should be adequate thought given to how complex we want to make it for a bank customer

“

he Insurance Regulatory and Development Authority (IRDA) set up a committee in 2009 to examine whether banks could be allowed to sell policies of more than one life and general insurer. The report of the committee is still awaited. The subject is debatable and we found varying replies, based on insurance companies’ dependency on bancassurance. Insurers who have little business from bancassurance have less to lose and, hence, don’t mind allowing banks to sell products from more than one life and general insurance company.

On the other hand, some insurance companies with significant support from bancassurance even refused to talk about it.

According to Kamalji Sahay, managing director and chief executive officer, Star Union Dai-ichi Life, “I am not in favour of allowing banks to sell products of more than one life and one general insurance company. Availability of products of different companies through banks would cause more confusion for the banks as well as for their customers.

Even now, when they sell products of one insurance company, I observe that bankers do not show any inclination to learn and understand the merits of available products; and I am sure that, with the variety of products offered by two to three companies, we would be exposing bancassurance customers to misselling. Open architecture may also lead to unhealthy practices on the part of companies to

— Amitabh Chaudhry, managing director and chief executive officer, HDFC Life

encourage bankers to patronise their products.”

Amitabh Chaudhry, managing director and chief executive officer, HDFC Life, says, “We are still underinsured as a country. So, prima facie, it will be a good move to have this. However, we believe there should be adequate thought given to how complex we want to make it for a bank customer. We should draw lessons from the experience of China and other markets where a ‘many-to-many’ model ended up in a downward spiral for everyone involved. We think any change here should be incremental for it to be assimilated by the bank and the end-customers before taking the next step. We believe that if a multi-product sales model comes in place, effective regulation should ensure justice and fairness. I am sure the regulator is giving this a lot of thought to get it right the first time.”

According to Atrey Bhardwaj, head–insurance, Bonanza Portfolio, “Banks always perceive value with a distribution model that gives a fair chance for its customers to derive maximum benefit from the association. Thus, giving some choice to the customer is the right thing to do. The regulator has to ensure that if we proceed towards a scenario where a bank has an option of distributing products from multiple insurers, due care is taken to the operations that happen at individual branches of the bank. Banks should be allowed to distribute products of more than one life and non-life insurer to set a level playing field in the insurance domain that would also ensure that customer service becomes one of the factors of retaining a customer by banks and insurance companies.”

The jury is still out on this important debate. We have to wait to see what IRDA comes up with.

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CURRENT ACCOUNT

Renew, Please The new mantra is not lapsation but ‘persistency’.

Raj Pradhan checks what it means

B

efore regulatory changes to unitlinked insurance plans (ULIPs) came into effect on 1 September 2010, insurers benefited if a policy lapsed within the lock-in period.

Moreover, agents made hefty commissions due to front-loading of ULIPs. There was less incentive to chase customers for policy renewal.

Today, things are different. Lapsed ULIPs don’t yield much for the insurers and front-loading of ULIPs is gone.

The new commission structure for ULIPs will improve renewals due to spreading of first-year commission over the lock-in period of five years. The agent has to rely on policy renewal to earn commission. No wonder, insurance companies now have a lot of interest in policy renewal.

Moreover, the Insurance Regulatory and Development Authority (IRDA) issued guidelines mandating agents to maintain at least 50% persistency (renewal) till 2013-14 and 75% from 2014-15. The renewal of agent licence is subject to meeting the persistency rates. Will it be a challenge for life insurers and agents to meet the new persistency requirements?

According to Kamalji Sahay, managing director and chief executive officer, Star Union Dai-ichi Life, “Meeting the persistency standard prescribed

by IRDA is definitely going to be a major challenge for all insurers.

Historically, the average longevity of life insurance agents is not more

than four to five years—the main reason is that many salespersons crumble under the pressures of this profession. Hence, to make them ensure 50% persistency is going to be a difficult task. A policy does not lapse necessarily because of failure on the part of an agent to collect the renewal premium.”

Many insurers now allow online payment and numerous other options for renewals. Jasleen Kohli, head–renewals, Bajaj Allianz Life Insurance, says, “Bajaj Allianz Life Insurance has multiple modes of paying renewal premiums like Bill Junction, Bill Desk, Citibank gateway for online payments; any Axis Bank branch to drop cheques; auto debit from major banks—in addition to our own Bajaj Allianz branches for payments by cash (if below Rs50,000) or cheque or credit card. These multiple payment modes

Meeting the persistency standard prescribed by IRDA is definitely going to be a major challenge for all insurers

“

“

P R E MI U M R ENE WAL S

— Kamalji Sahay, managing director and chief executive officer, Star Union Dai- ichi Life

are for ensuring easy, secure and convenient modes for customers. It is about ease of paying the renewal premiums. There is also a dedicated team for pursuing renewals which has increased our persistency.

The renewal notice is bilingual, in English and any one of the 13 official languages, depending on the state in which the policyholder resides or as chosen by him.”

Life insurance is a long-term product and if customers buy it with the objective that suits them, renewal of policy should not be difficult for an insurance company.

The non-serious agents who were in the business to make a quick buck when ULIPs were the flavour of the season, with a high commission, have gone out of the system. Serious players will remain in the system, but after shifting gears to sell traditional products which still give good commission.

Amitabh Chaudhry, managing director and chief executive officer, HDFC Life, says, “We have done an internal assessment of the potential impact of this draft guideline. At HDFC Life, the quality of our book has been consistently rated the best in business. We don’t think it will be a challenge to meet those thresholds, particularly for agents who are looking for a long-term relationship with the life insurance industry. In fact, we believe such a phased approach as suggested by the regulator is the right way to introduce a long-range change.”

Getting an SMS reminder for policy renewal is common, but now insurers send an SMS to also remind the policyholder of fund value and to remind them of top-up options, to invest over and above the existing premium amount. A little nudge is needed to make the policyholder buy—as well as renew—a life insurance policy. After all, insurance is still a ‘push’ product in India.

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CURRENT ACCOUNT S O C I A L ME D IA M ARKET ING

Click Clique The evolution of technology and changing social habits has made social media marketing an integral part of communication strategies. This medium is now destined for a bigger canvas, says Anand Datla e live in an age of short memories and shorter attention spans, as individuals adapt themselves to an environment of rapidly changing technology on board the information train that runs in a continuum. As more and more organisations deal with the challenges of communicating with their various stakeholders, a new medium is gaining credence in the crowded marketplace.

While traditional channels like outdoor advertising, event-related promotions, print and visual media all retain their place—the evolution of technology and changing social habits of people have thrust social media marketing (SMM) into the forefront of many organisations’ communications strategy.

Wikipedia describes SMM as the use of social networks, online

communities, blogs, wikis or any other online collaborative media for marketing, sales, public relations

Social Boom Generated exposure for my business

88%

Increased traffic/ subscribers

72%

Improved search rankings

62%

Resulted in new business partnerships

Source: Social Media Marketing Report 2011

W

their target market. Businesses are investing time to create a presence on Facebook and Twitter, by building brand pages and luring customers with updates and offers.

The communications landscape is changing at a blinding clip; Twitter has gained 40 million users in the past year. Facebook is often referred to as the third populous ‘nation’ after India and China, because it has an active population in excess of half a billion people. In

56%

Generated qualified leads

51%

Reduced overall marketing expenses

49% 43%

Improves sales 0%

25%

and customer service—a tool to communicate and engage with

50%

75%

100%

an average 20-minute period during 2010, there were 15,870,000 wall posts, users uploaded 2,716,000 photos and 10,208,000 comments were posted, according to http://www.allfacebook.com The impact of activity of this scale leaves a human footprint that is waiting to be tapped, and advertisers are latching on to the opportunity. Customers are constantly chirping and it provides businesses with a great opportunity to listen and understand their needs, before making them an offer that is in tune with their interests at a fraction of the price they would have spent advertising on television during a premier event like the recent World Cup. In many cases, the investment is only a portion of ``

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CURRENT ACCOUNT

` an employee’s time during the day

instead of the bundles of money that had to be spent on making and delivering other forms of advertising.

It is an accepted fact that online advertising had overtaken other physical forms of communication some time ago; what is more interesting is the phenomenon taking shape in the online world. Banner ads which show up on search pages and websites are steadily losing ground to social media advertising— with recent research showing that communication on social media is as much as 6 to 10 times more effective than a banner ad, that may largely go unnoticed.

Michael Stelzner’s ‘Social Media Marketing Report’ which was released this month by the Social Media Examiner has many insights that assert the growing popularity of the medium and integration of SMM into mainstream

BOTTOMLINE BY MORPARIA

communication planning and design.

Among the key benefits of SMM is increased exposure to the business, growth in traffic and improved search results which can potentially help growth and improve services. A substantive 43% of respondents believed that SMM helped improve sales, a growing trend that supports the idea that there is indeed a good RoI (return on investment) for the time and money spent on this medium.

At this stage, a large number of businesses aggressively using SMM are small, micro and medium entrepreneurs; big businesses are slowly but surely latching on to the idea and developing the systems and resources to adopt this form of communication. Recently, Walmart invested $300 million to acquire social media technology platform Kosmix to increase its online presence.

Frametrics Consulting, a Delhi-

based communication consulting company, says, “Our conjecture is that the composition of media share is changing rapidly, with more people spending more time on the Internet for news, entertainment and social networking. Leveraging our strength in research and technology, we decided to invest our energies for understanding the medium and help our clients to communicate in the new age media.”

Facebook, Twitter and LinkedIn are the leaders in SMM and the manner in which these tools are being leveraged promises to redefine the advertising model of the future. A restaurant in a small highway town in the US deputed an employee to follow hashtags on Twitter that pointed to the town and offered visitors a complimentary drink if they dropped in for dinner.

Business registered a healthy 40% jump, reason enough to believe the medium has a future.

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LOOSE CHANGE Surprise Gift for Quiz winners from:

Moneylife Quiz - 101 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 15 May 2011.

Sound Bites

1. In which year was Birla Jute Manufacturing Company incorporated? a. 1919 b. 1956 c. 2000 d. 2007

“The products that were earlier sold were incorrect.

Now consultants and agents are not interested in selling them” – AMITABH

2. Who is the chief executive of the Centre for Advancement of Philanthropy? a. Asif Lokhandwala b. Khurshid Merani c. Noshir Dadrawala d. Praful Shah 3. Which is the only insurance company to offer a regular premium pension product guaranteeing a 4.5% return on an annual basis? a. Life Insurance Corporation of India b. Wealth India Insurance c. New Age Insurance d. Sujata Life Insurance 4. In which year was Door Step School set up? a. 1950 b. 1988 c. 1999 d. 2003 5. Who is Argentina’s independence hero? a. General Kyu Sovui b. General San Martin c. General Gran Buenos d. General Casa Rohiantch 6. When did MphasiS become part of Electronic Data Systems Corporation? a. January 1990 b. September 2001 c. April 2006 d. March 2010 7. From when has the Insurance Regulatory and Development Authority raised the premium rates for third-party motor insurance policies? a. 1 January 2010 b. 27 July 2010 c. 24 February 2011 d. 25 April 2011 8. Who set up the Osian Art Fund? a. Kajal Khetwani b. Manisha Das c. Neville Tuli d. Kartiki Desai The answers to Moneylife Quiz-100 are: • 1-c. 1970s • 2-d. 1803 • 3-b. Halol • 4-c. James Montier • 5-a. Max Bupa Health Insurance • 6- b. Hindustan Lever • 7-a. 1 July 2011 • 8-d. Oriental Insurance In all, 14 readers got all the answers right last time. The winner of Quiz-100 is Anthony Andrade from Goa. Congrats Sir! You will get a surprise gift from Surat Diamond Jewellery.

CHAUDHRY, MD AND CEO, HDFC LIFE, in The Economic Times

“The people in MindTree are the biggest asset we have. Go down the line; these people are still happy minds, though not the happiest” – ALBERT HIERONIMUS, CHAIRMAN, MINDTREE, in Business Standard

“You now have may be four banks in the United States which account for may be twothirds of all the lending and also they have been allowed by the authorities to earn extra profits in order to rebuild their balance sheets. They have been paying very high bonuses and they also have exercised influence over the Congress” – GEORGE SOROS, TRADER, in The Economic Times

“Mr Buffett was told twice, not once, about Mr Sokol’s ownership of Lubrizol stock before Mr Buffett engaged in any discussions with Lubrizol” – BARRY WM LEVINE, DAVID SOKOL’S LAWYER, in The Wall Street Journal 17 | 19 May 2011 | MONEYLIFE

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SMART MONEY

R BALAKRISHNAN

UL IP s

No Child’s Play Investing in ULIPs to provide for your child? Think again

I

t bothers me to see so many plans for children being would be the tax implications. The first thing you have floated by insurance companies. They lure you with to firmly get into your head is not to put money into sentimental but irrational and false advertisements. ULIPs for your child.

Why no ULIPs? Let me explain. The periodic amount All of them promise that if you buy their products, your you pay under ULIPs is not fully invested. Some part of it children’s education is fully provided for.

In essence, each of them is a ULIP (unit-linked is deducted towards insurance (if insurance is provided), insurance plan), wrapped in mush to lure you into a false some towards ‘policy administration’ expenses, some sense of comfort. This plays on your sentiments; most towards ‘fund management charges’, etc. In addition, there could be charges such people don’t care to see that as ‘surrender charges’, ‘rider the returns are not high and premium charges’ etc. In effect, you would be better off with a the minimum amount that will mutual fund for the purposes NOT be invested, out of your of long-term savings. I also cheque, may be in excess of see that financial planners 2.25%. Why 2.25%? Well, invariably include a dollop of that is the typical maximum ULIPs in developing a financial a mutual fund scheme can plan for a child. charge. In effect, with a mutual To me, ULIPs are an fund, you can be sure that at expensive way to save.

The insurance cover that a least 97.75% (for schemes The insurance cover that a ULIP provides is very little, that have a minimum corpus ULIP provides is very little, of Rs400 crore) of money sometimes. That apart, ask sometimes. That apart, ask earns something. yourself: Does a child need yourself: Does a child need Now, the key question is: to be covered by insurance? to be covered by insurance?

Are the fund management Assuming something happens skills of the insurance to the child, does it leave companies so fabulous that behind anyone who is financially dependent on it? So, get it into your head that they earn a return that is so high (compared to that of the last thing a child needs is to be covered by insurance. a mutual fund investment manager) that the net result Yes, maybe the parent needs to be covered with ample is more money? Not quite. I do not see any compelling life insurance, if s/he does not have enough money saved reason for choosing an insurance company fund manager over a mutual fund industry person. to provide for the child.

You have to provide for a child till s/he is at least 23A simple investment of Rs5,000 per month will grow to around Rs17 lakh at the end of 25 years, assuming a 25 years of age. This is today’s minimum. Unfortunately, return of 8%pa. This return is available, with zero risk, we do not let our children work after graduation and from a public provident fund (PPF) account. Look at the take care of their own post-graduate studies. The child power of compound interest. If the return were to be will need money for regular schooling and the first lump 15%pa, the same investment would amount to a little sum would perhaps come when the child enrols for over Rs71 lakh! Now, if you get rid of the thought of graduation and for post-graduation. I assume that you insurance/ULIP from your mind, we can look at where will have sufficient money to enrol the child in a school to park the money, what returns can be earned and what of your preference and affordability and pay the tuition ``

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SMART MONEY

R BALAKRISHNAN

` and related fees up to completion of the schooling.

Given the poor state of the Indian education system and the intense level of competition, most children have to opt for ‘paid’ seats in private colleges. This number is unpredictable. Rather, we have to take into account the amount of money we have and try to find an institution that would fit the bill.

The other expense Indian parents would like to provide for is marriage. Indian marriages are comparatively expensive affairs. Alas, even the children get caught in the spending trap and put pressure on their parents to spend more. In effect, the numbers on both counts—education and marriage—are open-ended. Of course, one can reasonably estimate education costs. If we assume an annual increase of 10%, it would mean a doubling of the requirement every seven years. At best, we can get a number which can be a goal, which has to be continuously reset, depending on the costs of education, the likelihood of availability of educational loans, the talent of the child, etc.

Instead of giving you concrete plans, let me give you a choice of two or three instruments that will help you to save for your children’s tomorrow. But keep one thing in mind. First, save for your retirement. Only after that, provide for the children (however selfish it may sound, it is more logical and ensures that you do not depend on your children by becoming a guest with them). Of course, you may have to sacrifice some of your own needs, but do not lose sight of it. Often, it may mean skipping some eating out or a holiday, to ensure that you can do so when you do not earn.

The first thing would be to start a PPF account in the name of the child, preferably at the age of one. Put in the maximum—of Rs70,000 each year. This will start at the bottom of the returns table (hopefully) giving an annualised tax-free return of 8%. The account is for 15 years and can be extended five years at a time thereafter.

Initially, one of the parents can be a guardian and, once

the child becomes a major, the account would be in his/ her name.

Next, invest in equity mutual funds through SIPs (systematic investment plans). These can be expected to give a return of around 15%pa. This has the highest risk on paper, but an SIP over 20 years minimises the risk of cycles in a very big way. I would recommend a mix of index ETFs (exchange-traded funds) and a couple of large diversified equity funds.

If you desire to have a stock of gold at the end of 20 years or so, without breaking into a sweat, I would urge you to buy gold ETFs. No physical storage, no making charges loss (surely fashions change), no wastage losses, etc. You are locking into actual gold at various prices over 20 years. At the time you want to buy jewellery, just sell the ETF and use the money to buy jewellery. The way inflation is headed, gold may turn out be a good investment.

The third investment I would suggest, if you can, is to buy a plot of land for your child. Maybe in a tier-II or tier-III city, in a gated community. This will be a great gift. The house you live in can be used by you for doing a reverse mortgage and you can enjoy your sunset years.

If you still have money left, maybe you can look at direct equities through the SIP route. You can make a list of two to five blue-chip stocks and keep buying them regularly. Choose companies that will be in business for long. Avoid second-generation companies because they will very likely be split in the next couple of decades.

Perhaps, you could buy global shares too. Each year, you are allowed to use up to $200,000 for investments overseas.

The basic thing is to realise that money is fungible.

Many people advocate earmarking each saving for a particular expenditure or commitment. That is not realistic. The value at the maturity point would depend on the market cycle.

The author can be reached at balakrishnanr@gmail.com

What’s Your Bahana for Not Subscribing?

I I I I I I

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

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

19 | 19 May 2011 | MONEYLIFE

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

T H E R A DI A T APE S

The Lady Speaks Niira Radia is still untouched; so are corrupt bureaucrats

O

ne woman’s telephone conversations with India’s movers and shakers, cutting across business, politics, media and bureaucracy unleashed a chain of events that has led to a slew of arrests in the telecom scam. Niira Radia’s indiscreet conversations over a tapped line are easily available on the Internet; yet, her deposition before the Central Bureau of Investigation (CBI) filled some key gaps and caused another flutter. Her statements, that the Anil Ambani group controlled Swan Telecom, and that Sharad Pawar had indirect control over DB Realty as well as the greedy demands of the former telecom minister A Raja and his ex-personal secretary RK Chandolia, are already in the public domain. But many other nuggets have interesting revelations.

Almost every clarification regarding Ms Radia’s conversations with Ratan Tata and top Tata executives only underlines the fact that her role went far beyond public relations, quite contrary to the Tata Code of Conduct. She officially represented them on telecom matters with regard to nonallocation of spectrum and cross-

licences for Jammu & Kashmir, North East and Assam. She discussed demerger of government land in VSNL (the erstwhile Videsh Sanchar Nigam Ltd) with executives and the “funding and equity of Jaguar Land Rover and Tata Motors” with Ratan Tata. She cultivated bureaucrats ‘sympathetic’ to her big two clients—the Tatas and Reliance. And, happily enough, many of them went on to chair regulatory bodies such as TDSAT (Telecom Disputes Settlement & Appellate Tribunal) and TRAI (Telecom Regulatory Authority of India) or joined her consulting firm.

While there have been many arrests in the 2G scandal, the lady who set up many sleazy deals remains untouched—will she turn approver?

More importantly, Ms Radia’s tapes establish how bureaucrats, who align themselves with powerful corporate houses and tweak policy in their favour, smoothly transition to cushy corporate assignments, often without even the mandatory cooling period. This rot in the steel frame must be attacked to root out rampaging corruption,

because while politicians need to be re-elected every five years, corrupt bureaucrats can damage the country for several decades.

ROT AT THE TOP

Who Takes the Rap? Head honchos sit pretty, while their flunkies feel the heat

P

ublic anger against corruption has rattled the government to permit an unprecedented set of arrests in the telecom scandal. The enormity of the action is evident seen against the perspective of how corruption scandals have been handled in independent India.

Ever since the Haridas Mundhra scam in the mid-1950s, politicians have protected co-conspirators and financiers. Politicians and big business remained untouched, despite innumerable mega-scams— whether it was the Jain hawala scandal (payoffs to top politicians by the Jain brothers who were hawala dealers), Harshad Mehta’s charge of having bribed the then prime minister (PM) PV Narasimha Rao in 1992 or Ketan Parekh who flaunted his corporate and political contacts. In fact, under the BJP government, some of Ketan’s cronies were in the Joint Parliamentary Committee, while the corporates who financed and helped him amass wealth through stock ``

MONEYLIFE | 19 May 2011 | 20

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` manipulation were let off. It is

different this time and only because people across India showed their willingness to take to the streets to fight corruption. Yet, even today, the biggest corporate honchos, who took key decisions, are still being protected. As a policy, Moneylife is against the practice of investigation and enforcement agencies misusing their power to arrest people merely as a media spectacle, a threat or a pressure tactic. We also believe that, in most cases, custodial interrogation is a sham and is only done to avoid a speedy trial and conviction. It is the same with the telecom and Commonwealth Games scandals. As Prashant Bhushan correctly argued, owners of major telecom groups involved in the 2G spectrum allocation case (Anil Dhirubhai Ambani group, Essar and Tatas) have not been touched, while the lesser-known ones (Shahid Balwa and his brother as well as Vinod Goenka of DB Realty and its associates, Sanjay Chandra of Unitech and senior executives of Reliance Telecom), who have recently acquired stupendous wealth, are jailed.

Clearly, no executive could have decided on payments running into thousands of crores. The apex court has not gone into the issue at this stage, but it is clear that the beleaguered Congress government is unlikely to be in a position to assure protection when the PM and former finance minister are also under attack from the Public Accounts Committee.

M ULTI-LEVEL MARKETING schemes

Jago, Grahak, Jago!

Ponzi schemes are born every second, but why are all our regulators silent?

T

he ministry of consumer affairs as well as every independent regulator in the country spends tens of crores of rupees on advertisements warning people against scams or telling them to stand up for their rights. Yet, when it comes to the systematic plunder of gullible people through false claims by multi-level marketing schemes (MLMS), every regulator and ministry passes the buck.

In December 2010, Moneylife warned about a dubious investment company called Stockguru India which, in April 2011, ended up duping two lakh investors of Rs1,000 crore. On a minimum investment of Rs11,000, Stockguru offered to pay Rs12,000 in six months and return the principal of Rs10,000 over the next six months (Rs1,000 was a registration charge). In effect, a 120% return per annum. Lokeshwar Dev, its

promoter, who claimed to earn these returns through stock trading, is now absconding. The Securities and Exchange Board of India (SEBI) ought to have halted this sham company that wasn’t registered with it. It did nothing, despite our warnings.

It is the same with SpeakAsia (SpeakAsiaonline.com), an online survey company that claims to have enrolled 7.5 lakh ‘panellists’ and intends to take that number to one crore by December 2011 through multi-level marketing and the promise of extraordinary returns.

SpeakAsia claims a Singapore domicile and has no promoters or legal registration in India. It is silencing mainstream media through expensive advertising campaigns, but surely it requires the permission of the Reserve Bank of India (RBI) to transfer funds overseas? We have written to RBI but it remains silent.

In the past, RBI passed the buck for regulating dubious MLMS like Gold Quest (another international operation) to the state governments.

Dubious deposit schemes proliferating in states like Orissa and West Bengal are collecting thousands of crores and launching TV channels and newspapers. High financial illiteracy and growing incomes make India an ideal market for the proliferation of chain and pyramid marketing frauds.

Unfortunately, neither the finance ministry nor its regulators are interested in introducing legislation to ban this menace. Until they do, it is ‘investor beware’!

21 | 19 May 2011 | MONEYLIFE

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DIFFERENT STROKES SUCHETA DALAL

OS IAN ART F UND

Dirty Canvass Investors in Neville Tuli’s art fund have been taken for a royal ride. Despite constant pressure from Moneylife and collective action from investors, the saga has been one of broken promises—and the payback cheque is still not in the mail

T

he Osian Art Fund of Neville Tuli was a creation AMRO) and BNP Paribas earned fat commissions of the unprecedented four-year bull run in marketing it to HNIs. The scheme was locked in for stocks, commodities, real estate—and art— three years, but used to declare high net asset values between 2003-07. With rising corporate paycheques (NAVs) that suggested a 30% return for at least a year and wealth from all asset classes touching stratospheric after it was launched. However, several things happened highs, there was a whole new population of high net- as the redemption day approached. The Securities and worth individuals (HNIs) seeking what seemed to be Exchange Board of India (SEBI) issued it a show-cause a more cultured and sophisticated investment option. notice in November 2007 asking why it should not Works of good artists, especially those like MF Husain, be regulated as a collective investment scheme. Osian Bikash Bhattacharjee, VS Gaitonde, Akbar Padamsee, appeared for a hearing before SEBI in 2008. Even before Jogen Chowdhury, Somnath Hore and Tyeb Mehta that, in February 2008, SEBI issued an official advisory were rising sharply; so the timing was perfect for an that art funds were collective investment schemes and ‘Art Fund’. Unfortunately, what should have been would have to be registered with it or be liable to civil the next big investment opportunity is looking like a and criminal action.

However, there was no follow-up action by SEBI, sham. Did Mr Tuli’s dream hit the hard rocks in the upheaval caused by the global financial crisis or was since Osian was wound up on 10 July 2009. Neville it a case of reckless diversification, mismanagement Tuli wrote a personal letter to investors in July 2009 assuring them of decent returns, and a poor understanding of the SEBI has called Osian despite ‘tough’ times, and telling mechanics of investing? Whatever the a collective investment them that they would be paid as real reason, investors in Mr Tuli’s art scheme. But the Fund per the ‘redemption guidelines’. fund have earned no returns. Worse, although the Fund was wound up in blatantly denies this. The Essentially, he gave himself 120 days 2009, many are fighting to get back market watchdog has not to make the payment.

By October 2009, there was no anything between 60% and 100% of taken any action yet—and sign of payments being made which the principal invested. investors are in the lurch is when Moneylife first wrote about A couple of years ago, Mr Tuli used to unfailingly promise to return the money—just it. After constant pressure from Moneylife, Osian paid a few months down the line. He is doing it again. This many of the investors who had written to us. Some time, however, he is resorting to not-so-subtle threats received 85% of their investment; others 90% and some and says nothing about when he will return it. After a got their principal back. We now discover that these flurry of emails, and when investors began to gang up were either investors who had approached the media or to initiate collective action, Mr Tuli finally wrote to say were influential in the financial world—like the head of that ‘a statement’ would go out to investors and there a brokerage firm and of a mutual fund. Many investors was “no question of not paying the Unit holders.” But were not as lucky, especially those who came through RBS. For two years, they have been fobbed off with let’s first look at what Mr Tuli promised.

In June 2006, the Osian Art Fund artfully side- promises. They have now turned restive.

On 25 April 2011, Mr Badri, a unit-holder of Osian, stepped regulatory clearances and raised a neat Rs102.40 crore from 656 unit-holders spread across 39 cities. managed to get hold of over 50 investors’ email IDs and Banks such as Royal Bank of Scotland (RBS, then ABN wrote to them seeking to initiate collective action against ``

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DIFFERENT STROKES SUCHETA DALAL

` Osian. Dozens of them responded (we have access to

all these emails) and agreed to join in. Immediately thereafter, on 26th April, Osian’s president, ‘Ambassador (retd) Niranjan Desai’ offered Mr Badri an option to ‘buy art against amount owed’. When he refused to accept it, Mr Desai said, Osian was ‘fully committed’ to the redemption of investment in the art fund, but was “unable to give an exact timeframe when this would happen.”

Meanwhile, another investor, Pankaj Butalia, recovered his full investment (at an NAV decided by the Fund) in instalments that ended in January 2010 after threatening to file a police complaint and go to the press. Mr Butalia even started a blog—http:// cheatedinvestorosians.blogspot.com.

Interestingly, the cheques were issued from Neville Tuli’s personal account. Mr Butalia claims that he was told not to disclose that he had received full payment and was to swap it for money from Osian when that payment was made.

Moneylife reader Bosco Menezes received 85% of his investment a couple of years ago and is waiting for the rest. Pankaj Prakash, who invested Rs10 lakh, has got nothing and is planning to file a police complaint.

There are many others in the same boat who want to join the collective action. Murthy Rojukhirdu is another in a similar plight. Each investor has his own story of fruitless follow-up and empty promises. For instance, on 15 June 2010, Mr Badri was told by Shubhendu Chakravorty of Osian that an auction of its artworks was to be held in Mumbai on 23 June 2010 to mobilise funds and hoped that redemptions would start by July 2010. Nothing happened.

Vinit Chordia, another RBS customer, claims he was ‘forced’ to accept art work at ‘exorbitant valuation’ on which he also ended up paying sales tax. He says, the Bank told him that the fate of his money was uncertain if he did not take this option. Interestingly,

he was promised a buyback if the artwork was held for 12 months. Another HNI customer of RBS, Rai Ajai Kumar, a former Air Force pilot, writes that the Bank aggressively marketed Osian to its customers.

Mr Kumar is angry that he hasn’t received a single penny back, nor has he got answers about the method of NAV calculation.

Mr Tuli has always claimed that Osian still holds valuable art works. Since the price of good art has not declined, he needs to come clean and explain why he is unable to liquidate the collection and raise funds for more than two years. He must also explain how much of the money went into his collection of Hindi film memorabilia or other film-related acquisitions that had nothing to do with art and probably had suffered value erosion. Instead of explaining the situation, Mr Tuli resorted to copying his lawyer Nishit Desai on emails to Moneylife and accused us of publishing distorted information. At the same time, he was calling investors asking them to hold off action. Late evening, on 27th April, Mr Tuli wrote to say that unit-holders waiting for their first payment would be paid between 17th and 29th May. It remains to be seen if that happens.

In one of his emails, Mr Tuli even made the preposterous claim that “art funds are not declared as collective investment schemes by SEBI; they merely suggested that the collective investment scheme could be a possible option and/or a base to study a regulatory framework for art funds in the future.”

This, when SEBI had issued an advisory in February 2008, threatening civil and criminal action against art funds that fail to register with the regulator! Mr Tuli’s assertions only underline the need for more proactive action from SEBI. Since the regulator is silent, investors continue to suffer.

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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23 | 19 May 2011 | MONEYLIFE

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COVER STORY

5-YEAR

19

PERFORMANCE

Fund Houses

Our new, improved methodology ranks 19 fund houses based on five-year performance of their equity schemes. Analysis by Megha Vora and PraƟbha Kamath

T

he commonest approach to ranking funds is to choose from among the recent top performers.

Indeed, performance is all there is to it. The outcome in an investment process is binary—either it is up or down, making a profit or a loss. However, as Moneylife has shown in its analyses over the years, many funds do well for a brief period (called winning streaks) and then start sliding on the performance tables.

You can choose your time period of analysis but any selection based on recent performance would be flawed.

Often, fund houses promote funds that have done well recently; financial advisors are only too happy to play along, selling such hot funds. Retail investors also fall for this fallacy while selecting funds. It’s called performancechasing.

While staying focused on performance, can one expand the selection criteria? One option is to focus on the outcome of a process rather than just the performance of a scheme. We would like to know whether there is a process applied by a fund house. If there is, it would be

reflected in the performance of all the schemes from that stable collectively. The most obvious way to find that out is to aggregate the returns of all the schemes of the fund house, in a certain category, over a period and rank them. One particular scheme may have been lucky to be on a winning streak, but it is doubtful if a fund house, as a whole, will be lucky when its performance is measured across all schemes. Hence, when the next new scheme of a top-performing fund house comes along, you know that it has a better pedigree.

But while performance is the most important measure, it is not enough. So, to make our findings more compelling, can we add parameters other than performance that are uniquely relevant in the Indian context? Certainly, we can. Our ranking is based on three other factors—downside risk, frequency of new fund offers (NFOs) and the size of equity assets. Let us explain the rationale of adding these three factors to the model.

Downside Risk: We believe that when investors buy ``

MONEYLIFE |19 May 2011 | 24

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COVER STORY

How They Came In Fund Houses

ML Rank Returns*

Rank

Sortino

Rank

NFO

Rank

AUM**

Rank

Composite Score

Reliance Mutual

1

22.42

1

(0.51)

9

27

18

37,410

1

17

Fidelity Mutual

2

21.28

2

(0.51)

10

6

4

6,492

10

16

HDFC Mutual

3

18.34

6

(0.48)

5

6

5

29,678

2

15

Franklin Templeton Mutual

4

17.25

7

(0.47)

2

6

6

14,456

6

14

DSP BlackRock Mutual

5

19.25

4

(0.51)

12

15

14

12,574

7

14

IDFC Mutual

6

20.72

3

(0.51)

14

16

15

4,655

12

14

Sundaram Mutual

7

18.50

5

(0.51)

13

27

19

10,143

9

12

ICICI Prudential Mutual

8

16.93

8

(0.52)

16

20

17

15,622

5

11

Canara Robeco Mutual

9

16.42

9

(0.47)

3

8

10

1,265

18

11

Tata Mutual

10

15.77

11

(0.51)

8

3

2

6,190

11

10

Birla Sun Life Mutual

11

16.08

10

(0.51)

11

19

16

11,782

8

10

SBI Mutual

12

14.84

13

(0.50)

7

8

11

18,644

4

9

UTI Mutual

13

14.25

14

(0.49)

6

10

12

24,115

3

8

Kotak Mahindra Mutual

14

15.76

12

(0.54)

19

6

7

3,526

13

8

Principal Mutual

15

13.65

15

(0.53)

17

7

9

2,458

14

6

Morgan Stanley Mutual

16

13.28

17

(0.52)

15

0

1

2,258

16

5

HSBC Mutual

17

13.56

16

(0.54)

18

6

8

2,298

15

5

LIC Nomura Mutual

18

11.65

18

(0.47)

4

4

3

1,009

19

5

JM Financial Mutual

19

3.15

19

(0.45)

1

14

13

1,409

17

4

*5-year CAGR Average (%), **Equity Assets Under Management in Rs crore, Data source: Mutual Funds of India

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In our model, the more numerous the NFOs during a rising market, the lower is the rank. NFOs in a rising market are an exercise in asset- gathering ` into an equity scheme, they assume that there would

be an upside. What they need to be concerned about is losses in a falling market. The Sortino ratio isolates the downward volatility of a scheme. The higher the Sortino ratio, the lower is the risk of large losses occurring with a given portfolio.

Frequency of NFOs: This factor is used negatively. In our model, the more numerous the NFOs during a rising market, the lower is the rank. This is because NFOs in a rising market are essentially an exercise in assetgathering and therefore detrimental to investors’ interest.

Asset Size: This is a debatable factor. We recognise that size (of equity assets) alone has nothing to do with performance and should not be a factor in making investment decisions. But the reason we bring in equity asset size as a measure of performance is that, over the years, a scheme that does various critical things right, would have growing asset size. If it does most things wrong, its assets would shrink. There is no better example to illustrate this than JM Financial Mutual Fund and LIC Nomura Mutual Fund. If the asset base is sizeable, one can conclude that it has won the support and trust of investors. A low asset base could also mean the fund management company has been unsuccessful businesswise. Their main job is to gather assets since their revenue and profit are directly linked to the asset base.

Our unique four-factor model (performance, downside risk, frequency of NFOs and the size of equity assets) ranks top fund houses on criteria that are completely different from the approach adopted by others. In our 25 February 2010 issue, when we ranked the best fund houses, there were 37 fund houses with 290 equity growth schemes on offer; many were awaiting SEBI’s (the Securities and Exchange Board of India) nod to enter the market. That number has now gone up to 41 and equity growth schemes on offer to investors have increased to 312. But we have not ranked all of them.

This time, we bring you a rating of 19 fund houses with an improved methodology which we developed four years ago and have refined it further.

The Top Honours A fund house which is among the top performers at one time may not necessarily repeat its performance

the second time. Consistency in remaining at the top is what actually counts. Look at the top performers on our list this time and it would be clear what we mean by consistency. The ranking has changed substantially since the previous time—partly because of the changed methodology but mainly because of performance attributes. Despite change in methodology, three of the top five fund houses last year are in this year’s list as well.

One fund house that retains its slot is Reliance Mutual Fund (RMF), right at the top. It was the best fund house last year and clinches the first position this year too. What weighs heavily in its favour is its returns.

With a five-year average annualised return of 22.42% of its 10 schemes, RMF simply beats most other fund houses by a mile. Its performance has been so good that it overcame the low rank it got on two of the crucial parameters—downside risk and frequent launches of NFOs (as a many as 27 over the past five years).

According to Sundeep Sikka, CEO, Reliance Capital Asset Management, “It feels good to be recognised for our work, especially since it is for the second consecutive year that we have achieved the leadership position. It’s

a testament to our robust systems and processes along with the best fund management practices.”

However, despite the fund house delivering excellent financial performance since inception, our Survey (see page 31) indicates that it has to drastically improve its customer relations—RMF has received the maximum number of investor complaints. Our Survey reveals that 93 investors ranked RMF as the worst fund house.

The second rank goes to Fidelity Mutual Fund which too has achieved exceptional returns in the bull market that we enjoyed since 2006. Frankly, there is ``

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METHODOLOGY

O

ur study covers a period of five years which have been excellent for Indian investors and for the fund industry. The number of fund houses operating in India has gone up to 41 (from 37) in the past three years.

However, for this study, we have considered fund houses with equity assets of at least Rs1,000 crore that have been operational in the Indian market for more than five years. This left us with only 19 fund houses to rank. The ranking was based on four factors.

The first factor is the average performance of equity growth funds which have been in existence for more than five years. This gave us 146 equity growth schemes of 19 fund houses in three categories—diversified, sector and index funds. We calculated the average returns provided by them during the past five years and annualised them.

We then took the average of such returns provided by the various schemes of each fund house to arrive at the

` little to choose between RMF and Fidelity in terms of

performance. Though Fidelity still lags behind other major fund houses in terms of size, it has launched only six schemes in rising market cycles. We value that approach. The riskiness of its schemes are also low which has pushed it up the order. “We believe that many short-term market movements are noise; our investment theses take account of the longer-term outlook for the companies that we invest in. We believe that our global network of analysts provides one of the best research capabilities in the world, and that a long-term fundamentally-driven approach will stand us, and our investors, in good stead,” says Alexander Treves, head of investment-India, Fidelity International. But Fidelity’s

average return for each fund house. This yielded the performance rank.

Second, we believe that returns are just one part of the story and equity investors must be concerned about losses as well. This is captured by an average of the Sortino ratio for schemes offered by each fund house, which gave us the measure of the downside risk associated with each fund house. This was aggregated and averaged for each fund house and was ranked again. The Sortino ratio allows investors to better assess the risk. It is a variation of the Sharpe ratio which captures all volatility.

Sortino separates downside volatility from volatility in general.

Third, we ranked fund houses by the number of NFOs offered by them when the going was good (periods of rising markets). We have provided negative weights for NFOs—the more the NFOs, the lower is the rank.

The fourth factor that we considered was the size of assets managed, as of December 2010. The larger the size, the better; to some extent, this reflected the acceptability of funds among distributors and investors.

We weighted each of these four parameters and arrived at a composite rank based on them. This gave us our final list of best fund houses. We have changed the ranking values this time. We have ranked the schemes on a scale of 1-19, instead of ranking them on a scale of 1-100. This has yielded more accurate relative ranks.

asset size is much smaller, which goes against it, for now.

The third slot goes to HDFC Mutual Fund which, according to the Moneylife Survey, is the most popular fund house. It has the second largest equity asset base, a better Sortino rank than both RMF and Fidelity. But what has pulled down HDFC’s rank is the performance of its schemes; their returns were 18.34% annualised—sixth in the pecking order on the parameter of performance.

Franklin Templeton, which was languishing at the 12th position last year, has jumped to the fourth position this year with a composite score of 14. This is not due to the performance of its schemes. The annualised return of 17.25%, over the past five years, fetches it the seventh rank in performance. Franklin’s Sortino ratio is among ``

Fidelity lags behind other major fund houses in terms of size, but it has launched only six schemes in rising market cycles. We value that approach

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` the lowest; it has launched only six NFOs and its asset

base is a sizeable Rs14,456 crore. “Our objective is to capitalise on the fact that opportunity lies in predicting what will happen in the future, rather than being steeped in the momentum of the present and the past. A fair comment on our investment style would be to describe it as bottom-up, research-based, and a dynamic ‘blend’ of growth and value,” according to a statement from Franklin Templeton Investments.

DSP BlackRock, in the fifth slot, notched an annualised return of 19.25% over the past five years and has sizeable assets as well; but the Sortino ratio of its schemes is higher and its NFO rank is low, since the fund house has launched 15 schemes over the past five years.

IDFC Mutual Fund reported an excellent annualised return of 20.72%—the third best in the industry but the downside risk of its schemes is high; its asset base is small and it has launched as many as 16 new schemes in a rising market.

Laggards What happened to the leaders of last year? Kotak Mahindra was at the third position last year and has slipped to the 14th position this year with a composite score of 8. It has been pushed down the ladder due to its higher Sortino ratio and the lower average five-year returns. Sundaram Mutual runs a clutch of excellent funds but, coinciding with rising market cycles, the fund house has launched a total of 27 new schemes, 15 of

NE W F U ND OF F E RS

Unhappy Returns Fund companies float NFOs when the market is hot. This usually leads to poor returns for years

F

und management is a business. Fund companies make money on the money they are able to collect from the public through existing and new funds. Because of investors’ ignorance and lack of adequate regulatory oversight, fund houses prefer to launch new schemes in different flavours whether investors need them or not.

They time their launches when the market is hot. This usually leads to poor returns for years.

One of our parameters for ranking fund houses is their greed to raise fresh funds from the public as reflected in their hurry to launch NFOs during rising market cycles. To get the public’s interest and attention, fund companies

which were launched in 2008, a year that witnessed a market crash. In terms of performance, of course, the fund house ranks fifth and its asset base is not as large as those of some of the top players.

Among the other fund houses that have lagged this year (like in the previous year) are Principal, Morgan Stanley, HSBC, LIC Nomura and JM. Morgan Stanley, HSBC and LIC Nomura Mutual Fund emerged with a composite score of 5 each. This means that there is little to choose between these three funds. HSBC maintained the highest downside risk profile among the three and

has launched six new funds in rising market cycles. On the returns front, it hasn’t done much worse than the others—giving a 13.56% return on a five-year average.

Another parameter which pulls down its rank is its small size. ``

come out with funny NFO ideas, sold under various marketing gimmicks with incentives for distributors. Many of these ideas are untested and unproven. Moneylife has been consistently critical of NFOs and, not surprisingly, most of the NFOs took very long to deliver returns—if at all. This is a peculiar phenomenon, to capture which we have aggregated NFOs launched by fund houses timed with a strong market uptrend. We have identified seven such uptrends in the past five years. Among those that have rushed to raise money from investors during peak market cycles were: Reliance Mutual Fund (RMF) and Sundaram Mutual (27 NFOs each), ICICI Prudential Mutual Fund (20 NFOs) and Birla Sun Life Mutual Fund (19 NFOs). Notice that Fidelity and HDFC have achieved top honours without launching too many schemes, while DSP BlackRock Mutual Fund, another top fund house, launched a moderate number of NFOs. The exception is RMF, which has managed high returns and stood first among all the other funds, even though it has brought in a large number of NFOs timed with a strong market rally.

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`

LIC Nomura Mutual Fund was the second-worst performing fund house on a five-year basis. It ranked the third-highest in launching NFOs but has continued to generate poor returns and, justifiably, had a small asset base of just Rs1,009 crore. The fund performance is so poor that even the formidable LIC agent network cannot sell its schemes.

Morgan Stanley Mutual Fund is a new entry this year with a five-year average return of 13.28%. Apart from average fund performance, the fund house had a low score because of the downside risk of its schemes and the small size of its equity assets under management.

For Principal, things have not improved; it was again positioned pretty low down the ladder—at the 15th place.

Its equity asset size is small and the downside risk of its schemes is higher. Its schemes have returned 13.65% over the past five years.

Here are some more observations from our study. JM Financial Mutual Fund failed on three parameters and has proven to be the worst fund house. It launched 14 new funds in rising market cycles. Its returns have been pathetic. JM’s schemes managed to earn just 3.15%, on an average—not even beating bank fixed deposits on a post-tax basis. All this is not a surprise. An article in Moneylife (1 July 2010) had pointed out that JM Financial Mutual Fund has created a unique position for itself in the mutual fund industry. Its schemes continue to be among the worst performers—whichever the category they belong to—and virtually across any time period. Be it equity diversified funds, index funds or balanced funds, JM’s schemes figure right at the bottom of the performance charts in all categories. It is hard for any fund house and its schemes to be such consistent underperformers.

UTI Mutual Fund was among the major laggards in 2010; it has done better in this year’s study with a composite score of 8, thanks to a better downside risk, relative to its peers. It also had the good sense to launch fewer schemes in rising market cycles. The performance of UTI schemes has improved recently. Over the past five years, its schemes have given an annualised return of just 14.25% which is almost as good as SBI Mutual Fund’s and a shade lower than Kotak’s.

Winners & Losers How can you use these rankings when you buy into a mutual fund scheme next? We repeat what we had said in 2010. To start with, avoid fund houses that are consistently poor performers and, yet, are selfishly launching new funds. This is a deadly combination.

Not only do they not care much about your returns, but also are singularly focused on their own. The best fund

houses usually have a top-quality fund manager, buy less risky stocks and launch fewer funds. All these lead to better performance. Good fund houses are characterised by the collective depth of the managers’ experience and an emphasis on process, rather than outcome, which lifts the performance of all schemes. Take a hard look at the new manager if the current top fund manager quits.

Process Vs Outcome It is important to remember that the high overall ranking of these fund houses is based on the performance of their schemes in totality. Therefore, even if you do not manage to choose the best scheme of the best fund house, it may not matter much. The one you choose may turn out to be good enough for the long run. The winning fund houses, obviously, employ a process that ensures that the performance of most of their schemes is better than those of the others. Conversely, you may find a good scheme from a low-ranking fund house; however, this may really be an exception and a matter of luck for the fund manager. Would you want to risk your money on an outcome rather than a process? We think you should opt for the latter.

Mix and Match Just as mutual funds are the biggest proponents of the theory of diversification, you should diversify your portfolio across various fund houses and not just across various schemes and themes. For instance, RMF launched a comparatively larger number of NFOs in rising market cycles over the past five years, yet it has been able to deliver the best returns which ensured that it topped the list of fund houses. A mix of schemes from RMF, Fidelity and HDFC would be a good option.

Size Does Matter, Maybe Often, it is worthwhile to bet on large-cap and megacap stocks to avoid irrational market mood swings.

Similarly, fund houses with larger assets under management (AUM) seem to be doing well and report ``

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` a balanced overall performance. Check out RMF.

It manages Rs37,410 crore in equity assets and has managed to return an annualised 22.42% over the past

M O N E Y L I F E M UT UAL F UND S URVE Y

Fund Fare Our poll indicates that our readers prefer to stay invested for the long term

O

ur mutual fund survey shows that Moneylife readers are extremely investment savvy. Out of a sample of 976 nationwide respondents, a massive 82% (798) invest in shares and an overwhelming 96% (936) invest in mutual funds. Of these, 859 or (88%) think mutual funds are a tool for long-term wealth creation and 93% (912) of them hold their mutual fund investments for over a year. This is quite unique in a market where the investor population has been dwindling steadily over the past 20 years (since liberalisation) and, according to the D Swarup Committee, is down to a third—only eight million people.

Another indicator of how the Moneylife reader is different is that as many as 688 respondents said that their investment is based on their own research, while a high 324 depend on financial planners. As many as 255 people said that media reports also play a role in deciding investment options. Three categories appear overrated— advertisements (52 respondents); bank relationship managers (80) and advice from friends and family (109).

As many as 713 respondents said that they invest through systematic investment plans (SIPs) while 550 preferred lump sum investments. And interestingly, 60% said they had never bought ULIPs (unit-linked insurance plans). Maybe they have been reading Moneylife regularly. An overwhelming majority (865) invest in equity diversified funds, by far the most popular choice.

Nearly half the investors (461) also invested in tax-saving

five years. The same holds true of HDFC Mutual Fund.

It has an asset size of Rs29,678 crore in equity assets and has returned an annualised 18.34%. UTI Mutual Fund stands out as an exception. It has a large size (Rs24,115 crore) of equity for historical reasons but is way below other fund houses in terms of returns (14.25%). What about Fidelity Mutual Fund which has notched a return of 21.28% over the past five years but has equity assets of just Rs6,492 crore? The only reason Fidelity has a smaller asset base is because it has come on the scene much later. Adjusted for that, its AUM size is not small.

The same is true of IDFC Mutual Fund.

Large fund houses grab your attention with large advertisement budgets and frequent NFOs. Be wary of them but size is currently correlated to performance.

schemes like equity-linked savings schemes (ELSS).

Thanks to rising gold prices, gold exchange traded funds (ETFs) are the third most popular choice. We did not capture data for the more exotic funds. One of our questions was: ‘which asset class would deliver higher long-term returns’. The choices were gold, property, 1. Do you invest in shares?

Yes-82%

Four in five invest in shares.

No-18%

2. Do you also invest in mutual funds (MFs)?

Yes-96%

Only 4% of Moneylife readers do not invest in MFs.

No-4%

bank fixed deposits, mutual funds, PPF (Public Provident Fund) and ‘others’.

Interestingly, mutual funds are clearly seen as the best asset for long-term wealth creation, followed by property.

Since our sample comprises an extremely savvy class of investors, their perceptions on brands, companies and investment categories are also significant.

HDFC: A Hands-down Winner!

While the fund industry has been reeling from the impact of regulatory changes, we find that Moneylife readers are, by and large, satisfied with their investment choices. A large 66% of respondents were satisfied with ``

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` their mutual fund investment; only 19% were unhappy

with their choice and 15% were ambivalent. Our next question was on the best and worst mutual fund—this was an unprompted question, where investors listed one or more fund houses. Only 655 respondents actually named a fund house and several named more than one.

Where investor perception is concerned, HDFC Mutual Fund is miles ahead of its rivals. While HDFC is, indeed, a rock-solid, blue-chip brand and the good 3. If yes, are your decisions based on:

4. If you invest in MFs, how do you do so?

688

600

560 420

17 Not applicable

Systematic Investment Plan (SIP)

Any other system

0

A majority of respondents consider SIP as a good option to invest in MFs. 5. In order of preference, which asset class do you think will deliver higher long term returns?

45%

44.30%

41.00%

43.10% 39.50%

34.20%

15%

Bank FD

30%

PPF

performance of its schemes is unquestioned, the positive impression about the fund house is disproportionate to its performance. Our Cover Story this time is on the best fund house and based on four parameters and HDFC ranks after RMF and Fidelity.

As many as 755 respondents answered this question about the best fund house. Of them, a massive 354 (47%) said that HDFC Mutual Fund was the best. Another 175 said it was their second choice. Taken together, it means that 70% of the savvy investors rank HDFC Mutual Fund as their best or second-best fund house. HDFC Top 200 was the overwhelming favourite as ‘the most rewarding scheme’ with 167 respondents rooting for it, followed by HDFC Equity with 96 votes. Even those who are not sure which scheme was rewarding for them, simply filled HDFC (51). Such is its brand power.

Compare this with RMF and Fidelity, which have emerged as the top two fund houses based on our parameters, and you have a case study for the benefits of good corporate governance and goodwill built over many years.

RMF got the second highest endorsement as the best fund house, but the number of respondents was a mere 74. In fact, more respondents (90) said they couldn’t say which was the best fund house. Another 108 ranked it

71

Gold

Most respondents invest in MFs by doing their own research

150

Property

Other sources

Advice from financial planners/financial advisors

Advice from friends & family

Media reports

Advertisements

22

A lumpsum

80

52 Own research

0

300

109

Advice from bank relationship/ wealth managers

280

550

450

324 255

140

713

750

Mutual Funds

700

the second best fund house. Even taken together (182), its votes are nearly half that of HDFC. In terms of the most rewarding scheme, RMF, while ranked second, lags far behind. A big surprise is that 93 investors (the second highest in that category) also ranked RMF as the worst fund house, despite its excellent financial performance since inception, as mentioned earlier.

This may also be a case of the negative perception about Reliance, or the Reliance Anil Dhirubhai

First

Second

Third

Fourth

Fifth

0%

44.3% of respondents think MFs will deliver higher long-term returns.

Ambani Group (R-ADAG) having cast a shadow on the perception about the mutual fund house. Or its gaps in investor service. This is one clear case of a fund house that needs to change its systems and processes and how it deals with investors.

How did the other fund houses fare?

Since HDFC, the overwhelming favourite, skewed the ranking, we thought it best to add the first and ``

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Yes-88% No-4% Can’t Say-8%

88% of the respondents think MF is a tool for long-term wealth creation.

Worst Perception An astonishing 207 rated JM Financial Mutual Fund as the worst fund house. So bad is the perception that over 120 investors listed its schemes as their ‘worst 10. If you invest in MFs, what kind of schemes do you choose?

900

865

720 540

461

360

7. How long do you hold your MF investments?

184 180

No-60%

147 61

22

Index funds

Gold ETFs

Fixed maturity plans

Most respondents (865) invest in equity diversified schemes.

8. Have you bought ULIPs?

Yes-40%

Liquid funds

Not applicable-8%

242 152

0 Bond funds

Less than a year-2%

93% of the respondents hold MF investments for more than a year.

Equity diversified

More than a year-93%

102

None of the above

6. Do you think an MF is a tool for long-term wealth creation?

=25) when taken together with the second rank. More importantly, it ranks way ahead of bigger established brands such as Tata Mutual Fund, L&T Mutual Fund, LIC Nomura Mutual Fund and others.

All of the above

yardstick, HDFC and RMF remain the top two, while DSP BlackRock (32+62=94) comes third, Franklin Templeton India (36+53=89) is next; Birla (35+49=84), ICICI Prudential (17+42=59) follows and Fidelity figures only after them (22+30=52).

Fidelity is one of the best-known fund houses, but it needs to work on its reach, branding and investor perception. In fact, even UTI Mutual Fund, which is

ELSS

` second rank to arrive at the perception ranking. By this

60% of the respondents have not bought ULIPs.

11. Are you satisfied with the performance of your MF schemes?

Yes-66% No-19%

9. If so, did you make a comparison between ULIPs and Mutual Funds+Term Plans before making your decision?

Can’t Say-15%

Two-third of the respondents are satisfied with the returns on their MF schemes.

12. Are you satisfied with the service of your MF company?

Yes-40% No-28%

Can’t say-14% Didn’t reply-18%

Yes-66% No-19%

40% of the respondents have made a comparison between ULIPs and MF+Term Plans before making a decision.

pretty low on our rankings, has a slightly better ranking than Fidelity. Sundaram Mutual (13+27=40), another good fund house with an excellent image in south India, also loses out on the perception scale because it is seen as a regional player. It could do well to extend its geographical reach and make itself better known nationally.

Quantum Mutual Fund, a very small player, is also worth a mention. Its score (12+9=21) is almost on par with that of SBI Mutual fund (12+17=29) in the first ranking and just slightly behind SBI and IDFC (4+21

Can’t Say-15%

Two-third of Moneylife readers are satisfied with the service of MF schemes.

investment’. We have ignored other names, because no other scheme by any fund house had more than 19 votes as the ‘worst investment’. As we said earlier, RMF has the dubious distinction of being ranked the second best as well as the second worst fund house in terms of pure investor perception. UTI (67) and SBI Mutual Fund (42) were the next on the worst funds list. Sundaram, ICICI and Principal, with around 30 responses, followed. Only 566 investors answered this query (of which 28 were negative about all funds) and as many as 181 respondents panned more than one fund house.

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FUND SCHEME MERGERS

Look Deeper

If your mutual fund scheme is being merged, should you stay put?

F

und houses are looking at clubbing some of the existing schemes with similar features to trim their offerings. To support such a move, the market regulator, the Securities and Exchange Board of India (SEBI), has recently come out with a circular easing the merger norms of mutual fund schemes. Since January 2010, six fund houses have merged schemes from within their stable. The table shows some of the major mergers.

ICICI Prudential Mutual Fund merged its ICICI Prudential Fusion Fund, ICICI Prudential Equity Opportunities Fund (IPEOF; formerly known as ICICI Prudential Fusion Fund Series-II) and ICICI Prudential Fusion Fund Series-III into ICICI Prudential Dynamic Fund (IPDF). UTI Mutual Fund merged UTI Variable Investment Scheme-ILP with UTI Balanced Fund and UTI Infrastructure Advantage Fund–Series–I will be merged into UTI Infrastructure Fund, JM Financial Mutual Fund merged its seven schemes into three: JM Agri & Infra and JM HI FI were merged into JM Basic Fund. JM Financial Services Sector Fund, JM Telecom Sector Fund and JM Large Cap Fund were merged into JM Equity Fund. JM Contra, JM Mid Cap and JM Small & Mid Cap were merged into JM Multi Strategy Fund.

If you find that the scheme you are holding is getting merged, should you exit or stay invested in the merged scheme?

Firstly, we should understand the reasons for these mergers. Mergers of schemes usually take place due to three reasons. One, fund houses look at merging schemes when their investment objectives overlap, leading to confusion among customers and distributors. Fund houses find themselves saddled with too many schemes

in a bear market or a sideways market, if they have had launched too many new schemes during the previous bull market. Two, schemes are merged when there is continuous underperformance. Poor performance could

Just a Name Game Old Schemes ICICI PrudenƟal Fusion ICICI PrudenƟal Equity OpportuniƟes Fund ICICI PrudenƟal Fusion Fund Series-III

Merged Scheme ICICI PrudenƟal Dynamic Fund

UTI Variable Investment Scheme-ILP

UTI Balanced Fund

UTI Infrastructure Advantage Fund–Series–I

UTI Infrastructure Fund

JM Agri & Infra Fund JM HI FI Fund

JM Basic Fund

JM Financial Services Sector Fund JM Telecom Sector Fund

JM Equity Fund

JM Large Cap Fund JM Contra JM Mid Cap JM Small & Mid Cap

JM MulƟ Strategy Fund

Source: Mutual Funds of India

be the result of sheer mismanagement which is why JM is merging so many schemes. Or it could also be caused by too many NFOs (new fund offers) launched during the bull market. While fund companies launched a flurry of new schemes during 2006-2008, timed with the stock market boom, the years thereafter saw fewer ``

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` new launches. According to Mutual Funds India, a data

provider on Indian mutual funds, in 2007 and 2008, 113 and 112 equity diversified (including index and sector) schemes were launched, respectively. The number of new equity diversified (including index and sector) schemes came down in 2009 to 78 and to 46 in 2010. In 2011, six schemes under the same category have been launched till the end of March.

Three, schemes are also merged if the corpus is too small. In the case of ICICI Prudential, the corpus of the three funds put together aggregated Rs1,100 crore and the assets under management (AUM) of the target fund stood at Rs3,000 crore.

Track Record To decide whether you should stay put when schemes are being merged, figure out which of the three reasons is applicable. Start with the historical performance of the target scheme as well as the overall performance of the fund house. In our Cover Story this time, we have ranked fund houses on the basis of the above-mentioned three factors and the downside risk, i.e., the Sortino ratio. If the fund house going for the merger is among the top performers and is only consolidating its asset size, then one can choose to stay invested in the particular fund house after the merger. But if the fund house is among

R E g u l a t i on

New Norms SEBI’s consolidation process is pro-investor

S

EBI has been informally asking fund companies what purpose does it serve to have dozens of different schemes, with very similar objectives, which invest in the same kind of stocks. Many of these schemes were simply asset-gathering ploys, launched during the last bull market. Partly due to the regulator’s prodding and partly due to the fact that funds are finding so many schemes unwieldy, mergers of schemes are taking place. And SEBI’s new norms have helped the process. Fewer schemes are in the best interest of the investors.

Under the earlier norms, any merger of schemes was viewed as a change in the fundamental attributes tes of the surviving scheme and, hence, ce, it was mandatory for fund houses to follow certain procedures laid down wn by the regulator. Asset management nt

the laggards, then you had no business to invest in its scheme in the first place. Don’t assume that the merged scheme will suddenly start doing better, especially if the fund manager has not changed.

Very simply, since you are already stuck with a fundamentally poorly-performing scheme, even mergers of schemes would not make much difference. The best option is to take a ‘sell’ call and shift your money to a better quality scheme. JM Financial Mutual Fund comes last in the list of fund houses virtually in any kind of study.

In our Cover Story too, it scores lowest in our ranking of fund houses. Seven of its schemes being merged into three would hardly make any difference to their overall performance. So, the best option is to take an exit route.

Historically, fund houses which do not perform well, on the whole, go for mergers of their schemes. The merger is mainly done to reduce their cost of operations as well as to club the underperforming schemes with the better performing schemes to boost the performance of the fund house as a whole. It also helps them erase their poor track record. Notice that among the three fund houses putting through the mergers, there is no Reliance Mutual Fund or HDFC Mutual Fund. There is JM and UTI which are lagging fund houses. ICICI Prudential is an exception to this rule. It is not effecting a merger to hide poor performance.

companies were required to give the unit-holders the option to exit the schemes to be merged at their prevailing NAVs (net asset values) without exit load. In its new circular, SEBI has made merger procedures less tedious and has allowed more schemes with almost similar features to be merged or consolidated. Further, the circular says that the merger or consolidation would not necessarily mean change in fundamental attributes of the surviving scheme, if there are no changes in the features of the surviving scheme—if the fund house is able to establish that unitholders’ interest is not adversely affected by the merger.

Therefore, a fund house is not required to offer an exit option to the investors of the existing scheme.

Simply put, if scheme A is merged with scheme B of the same fund house, after the merger, only scheme B will exist and if there is no change in any fundamental th feature ssuch as the investment objective and asset allocation of scheme B, then the fund house need not offer an exit option to ho investors. But, the fund house has to offer inv an exit option to unit-holders in scheme A and provide unit-holders in both the schemes all relevant information.

35 | 19 May 2011 | MONEYLIFE

Cover Story.indd 13

4/28/2011 9:47:20 PM

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M

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

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

Stock letter new.indd 2

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

4/28/2011 5:24:05 PM

Investment Process: We crunch thousands of numbers to spot trends, unearth bargains and use our years of perspective and knowledge of companies and managements to select the stocks that best meet the relevant investment criteria. We suggest holding at least 50 stocks in the portfolio, it improves your chances of owning those rare few stocks that everyone wishes they had spotted too—earlier.

How are we different from a mutual fund and your stockbroker?

1. Unlike mutual funds that hold your stock through a sharply falling market and often end up with poor returns, we believe that the only objective of an investment is to earn positive returns. Buying scrips of good companies is not an end in itself.

2. Unlike mutual funds, we do not benchmark ourselves against arbitrary indices. We aim to earn positive returns in all markets.

3. Mutual funds propagate that you cannot time the market.

This is because it gives them an excuse to invest lazily—hold on to companies in a declining market. We believe that timing is crucial. The best stocks will decimate your portfolio if you don’t sell them on time.

4. Unlike stockbrokers, we are not concerned with whether you buy 50 shares or 5,000; whether you buy/sell once a week or 20 times a week. Our income is not tied to your actions. We earn by selling ideas that we have to be responsible for. Our stock letters will survive only if you make money. In contrast, brokers earn their commissions irrespective of whether you make money or not.

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COMPANY

Issue Date

Recommended Price (Rs)

Exit Price (Rs)

Return

Crompton Greaves Aptech Shree Renuka Sugars Coromandel International Chambal Fertilisers Oil Country Tubular* Titan Industries* Sterlite Technologies* Financial Technologies* Torrent Pharmaceuticals* Yes Bank*

05-Jan-09 05-Jan-09 15-Dec-08 26-Jan-09 05-Jan-09 24-Aug-09 28-Dec-09 28-Dec-09 09-Nov-09 24-Aug-09 24-Aug-09

147 101 66 109 41 83 1,420 71 1,347 238 173

257 165 104 170 63 110 1,809 86 1,571 274 196

76% 63% 59% 55% 54% 32% 27% 22% 17% 15% 14%

* Non-annualised

YES, I wish to subscribe for one year to the following winning stock letters: Cheetah: Short-term momentum Antelope: Medium-term growth stocks Lion: Long-term value Annual Price of Each Stock Letter: Rs995; Special Combo Offer for Any Two: Rs1,495; Special Combo Offer for All Three: Rs1,995 NAME: ____________________________________________________________________________________________ ADDRESS: __________________________________________________________________________________________ PHONE (Office): ____________ Phone (Res): ____________ E-mail address: _____________________________________________ Date of Birth: ____________________ (MM) (DD) (YY) (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 ____________ (MM / YY) DATE: ______________________ SIGNATURE: ______________________ Please fill in this order form and mail it with your remittance to Kensource Information Services Pvt. Ltd., 315, 3rd Floor, Hind Service Industries Premises, Off Veer Savarkar Marg, Shivaji Park, Dadar (W), Mumbai 400 028. Credit card orders can be faxed to Mumbai 022-24442771. In case payment is through credit card, expiry date of the card should be mentioned. # Rates and offers are valid only in India. This offer is valid for a limited period. # All disputes shall be subject to Mumbai jurisdiction only.

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Stock letter new.indd 3

4/28/2011 5:24:27 PM

STOCKS STREET BEAT

Unbiased & Methodical Stock Picking that Works!

B I R L A C O R PORAT ION

Ready To Bounce?

Will the coming quarters reverse the declining trend?

B

irla Corporation is the flagship company of the MP Birla group. It was incorporated as Birla Jute Manufacturing Company in 1919 by the late Madhav Prasad Birla who transformed it from a jute manufacturer into a leading multiproduct corporation. Under the chairmanship of Priyamvada Birla, the company crossed the Rs1,300-crore turnover mark.

The company is now controlled by Harsh and Aditya Lodha, sons of the late RS Lodha who inherited the MP Birla group companies from the late Priyamvada Birla.

The Birlas and the Lodhas have been involved in a legal tussle after the death of Priyamvada Birla (in July 2004) who had bequeathed the entire assets of the MP Birla group to late RS Lodha. The Birla-Lodha legal tussle was going the Lodhas’ way when RS Lodha suddenly died in London in October 2008.

The case took another turn on 9 February 2011 when in an interim order, Justice DR Deshmukh, chairman, Company Law Board, threw out the Birlas’ plea of removing the Lodhas from Birla Corp. He said, “With every such application being filed and the wide publicity being given and notices published by the petitioners (the Birla family) regarding any interim orders passed, it is becoming clearer as broad daylight that a onepoint programme of removal of HV Lodha as chairman and managing director of the R-1 Company (Birla Corporation) is being followed by the petitioners.”

Increasingly, the Birlas seem to be losing ground, leaving the Lodhas to run Birla Corp. And the Lodhas are running it well. Birla Corp is into cement, jute goods, PVC goods and iron & steel components. The main business is cement (90% of revenues) which is produced at seven plants. The cement division also has two high-ash coal-based captive power plants at Satna (27MW) and Chanderia (29.8MW). ``

tio n St or ies of Pr ice Ma nip ula Inca Finlease (Rs119) Rs119) Inca Finlease was originally set up as a private company on 1 March 1994 and converted into a public limited one on 8 July 1994. The Mumbai-based company is ostensibly engaged in bill discounting.

In the quarter ended June 2010, the company reported revenue of Rs72 lakh and operating profit of Rs1 lakh. In September 2010, Inca’s revenues simply collapsed. It (Rs)

125

Inca Finlease 100 75 50

695%

25 0 Feb-10

Sept-10

Apr-11

posted an operating loss of Rs2 lakh on revenue of just Rs5 lakh. Revenue in the December 2010 quarter was Rs15 lakh and operating profit was Rs1 lakh. No matter.

Some investors obviously found this stock extremely attractive. The stock soared 695% from Rs14.49 on 9 February 2010 to Rs115.25 on 26 April 2011. Manipulation, did you say?

Well, neither the BSE nor SEBI seem to be concerned.

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 | 19 May 2011 | 38

Stock-Streetbeat.indd 2

4/28/2011 9:42:29 PM

STOCKS STREET BEAT

`

Unbiased & Methodical Stock Picking that Works!

The jute division manufactures over 120 tonnes of a variety of jute products and the PVC division has a production capacity of 4.86 million square metres of cushion vinyl flooring, PVCcoated wallpaper, coated fabric and cellular plastic sheets. The company has an impressive export presence with its cement, jute products and PVCfloor covering. Its export markets include North America, South America, Europe, the Asia-Pacific region, Asia, Africa and the Middle East.

Jun-10 Sept-10 Dec-10 The growth of the Sales* 580.90 491.95 488.63 Indian cement industry is OP* 170.70 84.29 100.26 correlated to the growth Y-o-Y Sales Growth 17% -4% -13% of the country’s economy.

Y-o-Y OP Growth -7% -57% -40% Driven by real estate and infrastructure industries, OPM 29% 17% 21% almost all cement OP: Operating Profit, Y-o-Y: Year-on-Year, OPM: Operating Profit Margin companies over the past *Figures in Rs crore couple of years have Standing Tall added to their capacities.

In 2009-10, Birla Corp (Rs) achieved its highest ever 450 Birla Corporation production of cement 410 at 5.70 million tonnes 370 (MT). The jute division, which has been suffering 330 for more than 15 years, 290 finally turned around 250 during fiscal 2009-10 due Oct-10 Jan-11 Apr-11 to various management initiatives. The measures have resulted in improved working of the division, despite an industry-wide strike of about two months. The PVC division of Birla Corp has been suffering on account of lack of orders from ``

tio n St or ies of Pr ice Ma nip ula IT People (Rs29) IT People (India) is supposedly into promoting software solutions to financial markets and IT consulting services. The company reported revenue of Rs2.13 crore and operating profit of Rs1.33 crore in the June 2010 quarter. Operating profit fell to Rs88 lakh and revenue to Rs1.53 crore in the September 2010 quarter. Financials improved again in the December quarter— (Rs)

40 35 IT People 30 25 20

501%

15 10 5 0 Feb-10

Sept-10

Apr-11

revenue was Rs3.25 crore and operating profit was Rs2.48 crore. Despite such fluctuating financials, the company’s stock surged 501% from Rs4.89 on 26 February 2010 to Rs29.40 per share on 26 April 2011. While the company has an interest in the controversial Universal Commodity Exchange, nobody knows what drives IT People’s stock. Don’t bet on regulators checking... or asking any questions.

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 | 19 May 2011 | MONEYLIFE

Stock-Streetbeat.indd 3

4/28/2011 9:43:17 PM

STOCKS STREET BEAT

` original equipment manufacturers.

The financial year 2009-10 was great for Birla Corp. Net profit shot up by 72.23% to Rs557.18 crore from Rs323.51 crore in the previous fiscal on the back of 20.46% rise in revenues. The company declared a final dividend of Rs3.50 (35%) per share. This, along with an interim dividend of Rs2.50 (25%) per share, worked out to a total dividend of Rs6 (60%) per share for 2009-10.

“Increasingly, the Birlas seem to be losing ground, leaving the Lodhas to run Birla Corp.

And the Lodhas are running it well” After a further improvement in the June 2010 quarter, revenues went down in the September (4%) and December (13%) quarters. The fall in operating profit was sharper (7%) in the June quarter followed by 57% and 40%, respectively, for the next two quarters. However, operating profit margin for the December quarter was 21%.

Following such poor results, the stock fell from around Rs440 in September 2010 to Rs290 in March 2011. Since then, it has bounced back to Rs360. Based on the

Unbiased & Methodical Stock Picking that Works!

annualised results for the December 2010 quarter, the company’s market-cap to sales is around 1.42 times and market-cap to operating profit is 6.94 times. Return on net worth, based on the last three quarters, was 19%. The stock is a good investment at the current market price of around Rs362.

M P HASIS

Chancy Bet Will the overseas parent deliberately weaken MphasiS? The next two quarters will show the intention

M

phasiS, a unit of HewlettPackard (HP), is a midsize company into application development and maintenance services, infrastructure technology outsourcing (ITO) services and business process outsourcing (BPO) services for global clients.

The company has 29 offices in 14 countries with delivery centres in India, Sri Lanka, China, North America and Europe. MphasiS has grown through acquisitions and has been acquired as well. In March 2005, it acquired Eldorado Computing Inc, a US-based healthcare benefits management solutions company, to strengthen

its US footprint and enter the healthcare insurance and payment market. In April 2006, MphasiS became part of Electronic Data Systems Corporation (EDS). In May 2008, after HP took over EDS, MphasiS became an HP company.

HP owns close to 62% in MphasiS. To establish its presence in insurance solutions, in 2008-2009, MphasiS acquired AIG Systems Solutions Pvt Ltd, a subsidiary of the troubled American International Group Inc, US. ITO or remote infrastructure management (RIM) is one of the fastest growing segments in the infrastructure services market.

To give impetus to the direct ITO business with a focus on the SME (small and medium enterprises) segments, the company acquired California-based Fortify Infrastructure Services Inc. MphasiS follows a fiscal year from November through October, in line with the practice at HP. During the financial year ended 31 October 2010, the company’s consolidated revenues were Rs5,036.52 crore compared to Rs4,263.88 crore for the financial year ended October 2009. Significant growth came through HP and its subsidiaries.

The consolidated net profit was Rs1,090.75 crore in FY09-10, compared to Rs908.68 crore in FY08-09. Total revenue increased ``

Recommended Price Rs28

MONEYLIFE STOCK IDEAS

THAT WORK

Moneylife Issue 21 May 2009

135%*

Exit Price Rs86

(Stop Profit triggered on 10 December 2010)

(Jay bharat maruti)

* Annualised returns

MONEYLIFE | 19 May 2011 | 40

Stock-Streetbeat.indd 4

4/28/2011 9:52:09 PM

STOCKS STREET BEAT

` from Rs3,405.02 crore for the

year ended 31 October 2009 to Rs3,770.09 crore. However, the results for the first quarter ended January 2011 were a

Sept-10

Dec-10

Mar-11

Sales*

857.17

952.88

821.29

OP*

271.71

291.47

186.88

-6%

7%

-17%

4%

14%

-24%

32%

31%

23%

Y-o-Y Sales Growth Y-o-Y OP Growth OPM

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

Slipped Disk (Rs)

700 630 560 490

MphasiS 420 350 Oct-10

Jan-11

Apr-11

shocker. The consolidated net profit was Rs226.67 crore for the November-January quarter, as against Rs268.27 crore in the year-ago period, even as total revenues increased to Rs1,233.50 crore from Rs1,191.60 crore.

Among the causes for concern is

Unbiased & Methodical Stock Picking that Works!

that despite being a subsidiary of HP, MphasiS reported a 10% fall in revenues from HP to Rs840 crore, while its non-HP revenues declined 3% to Rs380 crore. The results were dismal on account of rate reduction by HP on a few engagements, sluggish growth from HP’s Enterprise Services segment and a non-repeating item from the previous quarter. The stock crashed from a high of Rs659 to a low of Rs421.15 over three days (24th, 25th and 28th February) on the Bombay Stock Exchange over such shockingly poor results.

Is HP slowly smothering MphasiS to buy out minority shareholders in the same way as it did in Digital Globalsoft in 2004?

Leading brokerage house CLSA raised concerns over the collapse of corporate governance at the Mumbai-based outsourcing firm to serve HP’s interest. “MphasiS’ financial performance is now peripheral to the central issue of the shocking collapse in its governance standards,” CLSA analysts wrote in a note to investors.

Apparently, in 2003, Digital Globalsoft—then an HP-owned listed entity—went through a similar phase of massive price cuts from HP before HP bought out the minority shareholders in 2004.

What is making CLSA analysts raise the alarm are the massive price cuts from HP—68% of total revenues—which has pushed down MphasiS’ dollar revenues 8.5% sequentially to $271 million in the quarter ended 31 January 2011.

The question some are asking is: Is this deliberate? Is HP planning to report poor results deliberately

to bring the price down and then delist the company? If this is not so, then the stock has suddenly become undervalued. If HP is not planning any such move, the scrip remains a risky bet. MphasiS also earned the wrath of the investing community by stopping reporting on revenues/ segment profits by earlier segment definitions (application, ITO and BPO); instead, it now presents segment-wise reports by verticals.

The company has also stopped reporting details like revenues by geographies and billing rates. But, bowing to pressure from investors and analysts, MphasiS has disclosed

“The question some are asking is: Is Hewlett- Packard slowly smothering MphasiS to buy out minority shareholders in the same way as it did in Digital Globalsoft in 2004?” figures under the various revenue segments as it used to do in the prior quarters.

Over the past five quarters, MphasiS reported an average growth in revenues and operating profit of 6% and 7%, respectively.

Its average operating margin is 28% and return on net worth is 34%. Its market-cap to revenues is 2.90, while its market-cap to operating profit is 12.73 times. Its price to earning ratio is a low 9.55.

Buy the stock at the current market 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 20% 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 20%, below any day’s closing price. This is called stop profit. Data Source: Centre for Monitoring Indian Economy’s Prowess database.

41 | 19 May 2011 | MONEYLIFE

Stock-Streetbeat.indd 5

4/28/2011 9:52:27 PM

STOCKGRADER MOMENTUM

Flat Tyre

50%

Compounded Annual Return

Sintex Industries jumped 6% and Hindalco gained 4%, while Shriram Transport Finance lost 3% Gainers: Sintex Industries gained 6% during the fortnight. Jewellery players continue to face competition from local jewellers. To gain market share, Tanishq— part of Titan Industries—is focusing on new designs.

Titan Industries surged 6%. Helm Bank, a Colombian private financial institution, has selected Oracle Financial Services Software’s programs to run its core banking, customer-facing services and marketing functions. Oracle climbed 1%.

Hindalco may reap two kinds of benefits from Aditya Birla Chemicals’ acquisition of the chloro-chemicals unit of Kanoria Chemicals. Hindalco gained 4%. In the quarter ended 31 March 2011, Sesa Goa reported consolidated net profit growth of 21% to Rs1,461.76 crore and revenue growth of 50% to Rs3,623.64 crore. Sesa Goa rose 1%. Dish TV India, which launched 30 HD (high definition) channels, is expected to benefit from the government’s announcement of advancing the digitisation deadline to 31 December 2014 from 31 December 2015. The company stated that subscribers from the HD segment will go up to 15% in the current fiscal. Dish TV rose 3%.

Losers: The Income-Tax Department has refunded Rs2,300 crore to Bank of Baroda (BoB). The report adds Company

RS Grade

Funda Grade

Final Grade

Entry Date

Return*

Titan Industries

A

A

A

16 Apr-10

101%

Dish TV India

A

A

A

06 Aug-10

42%

Sadbhav Engineering

A

A

A

28 Apr-11

—

Sesa Goa

A

A

A

21 Jan-11

-5%

Bank of Baroda

A

B

A

29 Apr-09

203%

that the I-T Department has also refunded Rs1,500 crore to State Bank of India (SBI) and Rs800 crore to Central Bank of India. BoB ended fell 4%. Sugar production in India may rise for a third year as farmers increase plantings, pushing down global prices. The harvest will increase at least 5% in the 12 months starting 1st October from 25 million tonnes this year as per the National Federation of Cooperative Sugar Factories. Shree Renuka Sugars fell 5%.

HDFC Bank’s March 2011 quarter income and operating profit grew by 36% and 24%, respectively, over the March 2010 quarter. The Bank also plans to raise Rs1,500 crore through private placement of Tier-II bonds having a maturity period of 15 years with a call option after 10 years. The Bank’s stock fell 1%. Shriram Transport Finance fell by 3% and Bank of India shed 1% in the fortnight.

Changes: We are adding Bhushan Steel, Federal-Mogul Goetze, Mahindra & Mahindra, Orchid Chemicals and Sadbhav Engineering.

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

GSK Consumer

A

C

A

29 Apr-09

HDFC

A

C

A

15 May-09

86%

Hindalco Industries

A

C

A

23 Jul-10

39%

Return* 185%

Cadila Healthcare

A

C

A

12 Nov-10

10%

HDFC Bank

A

C

A

04 Mar-11

6% 6%

Sintex Industries

A

B

A

01 Apr-11

9%

Bank of India

A

C

A

21 Jan-11

Shriram Transport

A

B

A

18 Feb-11

8%

Fed-Mogul Goetze

A

C

A

28 Apr-11

—

PTC India

A

B

A

01 Apr-11

2%

Oracle Financial Serv

A

D

A

23 Dec-10

-10%

Bhushan Steel

A

B

A

28 Apr-11

—

EID-Parry

A

D

A

12 Nov-10

-10%

M&M

A

B

A

28 Apr-11

—

Shree Renuka Sugars

B

C

B

06 Aug-10

6%

Orchid Chemicals

A

B

A

28 Apr-11

—

—

—

—

—

—

—

*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.

MONEYLIFE | 19 May 2011 | 42

Momentum.indd 2

4/28/2011 10:17:25 PM

STOCKGRADER MEDIUM TERM

Ratings Downgrade

48%

Compounded Annual Return

HCL Tech jumped 6% and Bajaj Auto climbed 4%, whereas CRISIL fell 4% Gainers: HCL Technologies is boosting its business process outsourcing (BPO) arm and expects the business to be on track by the January-March quarter next year.

Three deals in the BPO space have been inked in the logistics, media and banking verticals; one is worth $100 million while the other two range between $20 million-$50 million each. HCL jumped 6% in the fortnight. Lupin has entered into a licensing pact for various patents of cholesterol-lowering drug ‘Antara’ capsules with US-based Abbott Laboratories and France’s Laboratoires Fournier. The agreement covers eight patents in the US for the drug. Lupin rose 6%. Bajaj Auto has launched the DTS-i powered Discover 125cc motorbike. The market share of the Discover brand has increased from 8% two years back to 23% at present. The company expects to sell 10,000 units per month (in Karnataka) and 150,000 Company

RS Grade

Funda Grade

Final Grade

Entry Date

Bank of Baroda

A

A

A

29 Apr-09

Petronet LNG

A

A

A

29 Apr-09

Titan Industries

A

A

A

01 Apr-10

across India. The stock climbed 4%. Seshasayee Paper & Boards surged 6% while Jain Irrigation gained 4%.

Siemens ended flat.

Losers: CRISIL, the largest credit rating agency in the country, plans to cover over 200,000 small and medium enterprises (SMEs) over the next few years, ten times the number it has rated so far. CRISIL estimates that there are 29 million SMEs, and says it is responsible for half the SMEs rated.

CRISIL declined 4% in the fortnight.

Suprajit Engineering also fell 4%. Axis Bank fell by 7%. Petronet LNG and Infosys Technologies fell 2% each.

Changes: We are replacing Infosys Technologies with Amara Raja Batteries.

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

203%

Lupin

A

C

A

29 Apr-09

195%

159%

CRISIL

A

C

A

29 Apr-09

118%

120%

HDFC

A

C

A

29 Apr-09

109%

Return*

Return*

Supreme Petrochem

A

A

A

27 May-10

52%

Seshasayee Paper

A

C

A

01 Apr-10

46%

Bajaj Auto

A

A

A

03 Feb-11

22%

Dabur India

A

C

A

01 Apr-10

25%

Suprajit Engineering

A

A

A

11 Nov-10

-3%

Amara Raja Batteries

A

C

A

28 Apr-11

—

Punjab National Bank

A

B

A

29 Apr-09

155%

Ipca Laboratories

A

C

A

20 Jan-11

-3%

Axis Bank

A

B

A

29 Apr-09

141%

Hindalco Industries

A

C

A

03 Feb-11

-11%

Nestlé India

A

B

A

29 Apr-09

131%

Shriram Transport

A

D

A

29 Apr-09

265%

HDFC Bank

A

B

A

29 Apr-09

114%

Dr Reddy’s Labs

A

D

A

27 May-10

25%

Sun Pharmaceutical

A

B

A

29 Apr-09

79%

Unichem Labs

A

D

A

29 Apr-09

18%

TCS

A

B

A

10 Jun-10

57%

Shree Renuka Sugars

B

B

B

03 Feb-11

-21%

Siemens

A

B

A

27 May-10

22%

Jain Irrigation Sys

B

C

B

29 Apr-09

81%

Cadila Healthcare

A

B

A

20 Jan-11

2%

Oracle Financial Serv

B

C

B

23 Dec-10

-10%

Orchid Chemicals

A

B

A

20 Jan-11

0%

CMC

B

C

B

23 Dec-10

-22%

Whirlpool of India

A

B

A

11 Nov-10

-12%

Ranbaxy Laboratories

B

D

B

20 Jan-11

-17%

HCL Technologies

A

C

A

29 Apr-09

297%

—

—

—

—

—

—

*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.

43 | 19 May 2011 | MONEYLIFE

Medium Term.indd 2

4/29/2011 5:33:58 PM

STOCKGRADER LONG TERM

Chill Pill

50%

Compounded Annual Return

Ador Fontech jumped 37% and HUL rose 1%, while CMC declined 4% and ITC ended flat Gainers: On 20th April, Ador Fontech said that it will take on record the audited financial results for the year ended 31 March 2011 and also recommend dividend (if any). Ador Fontech jumped 37% in the fortnight. ITC was among the world’s 50 fastest growing consumer firms during the June 2009-June 2010 period, according to a study by market research firm Deloitte.

Deloitte’s fourth annual report on ‘Global Powers of the Consumer Products Industry 2011’ has ranked ITC 15th on the list. The Deloitte report identified 250 largest consumer products companies, based on data available for the 12-month period between June 2009 and June 2010. During the period, ITC’s net sales stood at $4.04 billion at a growth rate of 17.2%. The stock ended flat.

Hindustan Unilever surged 6% and 1%, respectively.

Company

RS Grade

Funda Grade

Final Grade

Entry Date

Ador Fontech

A

A

A

29 Apr-09

Losers: CMC fell 4% in the fortnight. Ranbaxy Laboratories has launched Olanzapine tablets, the generic version of Zyprexa. Zyprexa is from Eli Lilly and has a market size of $210 million. The company has received regulatory approvals and will launch it in Spain after patent expiry. Ranbaxy Laboratories fell 2%.

Tata Consultancy Services (TCS) will apply for 1,500 H1-B visas for 201112, indicating robust growth in the US. TCS fell 3%. Karur Vysya Bank and Ipca Laboratories fell 1% each.

Changes: We are replacing Infosys Technologies and Oracle Financial with Mahindra & Mahindra and Castrol India.

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

657%

HDFC Bank

A

C

A

29 Apr-09

114%

Return*

Return*

SRF

A

A

A

27 May-10

55%

Cairn India

A

C

A

29 Apr-09

88%

Bajaj Auto

A

A

A

03 Feb-11

22%

GSK PharmaceuƟcals

A

C

A

29 Apr-09

87%

Titan Industries

A

A

A

03 Feb-11

15%

HDFC

A

C

A

01 Apr-10

30%

M&M

A

A

A

28 Apr-11

—

Power Grid Corp

A

C

A

03 Feb-11

6%

TCS

A

B

A

29 Apr-09

279%

Orchid Chemicals

A

C

A

25 Nov-10

4%

Bank of Baroda

A

B

A

29 Apr-09

203%

Hindustan Unilever

A

C

A

25 Nov-10

-5%

Lupin

A

B

A

29 Apr-09

195%

Karur Vysya Bank

A

C

A

10 Jun-10

-19%

Axis Bank

A

B

A

29 Apr-09

141%

CMC

A

C

A

23 Dec-10

-22%

Nestlé India

A

B

A

29 Apr-09

131%

Adani Enterprises

A

D

A

29 Apr-09

204%

ITC

A

B

A

27 May-10

40%

Sun PharmaceuƟcal

A

D

A

29 Apr-09

79%

Asian Paints

A

B

A

27 May-10

26%

Ambuja Cements

A

D

A

19 Aug-10

21%

Cadila Healthcare

A

B

A

20 Jan-11

2%

Dr Reddy’s Lab

A

D

A

20 Jan-11

0%

Castrol India

A

B

A

28 Apr-11

—

Ipca Laboratories

A

B

A

20 Jan-11

-3%

Canara Bank

A

C

A

29 Apr-09

CRISIL

A

C

A

29 Apr-09

Shree Renuka Sugars

B

A

B

05 Aug-10

6%

Jain IrrigaƟon Sys

B

B

B

29 Apr-09

81%

232%

Ranbaxy Laboratories

B

C

B

20 Jan-11

-17%

118%

—

—

—

—

—

—

*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.

MONEYLIFE | 19 May 2011 | 44

Long Term.indd 2

4/29/2011 5:35:17 PM

STREET BEAT WHICH WAY

Debashis Basu

Broken Relationships

of the first occasions when a sharply lower dollar did not lead to higher metal prices. A bigger surprise was in store the next day. A lower dollar and Mr Bernanke’s pledge to the world that rates will stay lower for a long time should have sparked a rerun of what we Why did Bernanke’s promise of low rates repeatedly saw in the Greenspan era—higher values lead to weaker metal prices and lower of all assets. This time, it only invited a sell-off. Has Asian equities? the relationship between low US rates and risk assets snapped? I have not seen too many comments on this. n Wednesday, 27th April, Ben Bernanke, Maybe, I am reading too much into it. chairman of the Federal Reserve Board of But if the relationship has, indeed, changed, it will the US, addressed his first post-meeting have a profound impact on risk assets, especially when press conference. This followed the release of the combined with another of Mr Bernanke’s statements.

Federal Open Market Committee (FOMC) statement in He hinted at the press conference that there would be which he presented the FOMC’s economic forecasts. no quantitative easing (QE), round three. If risk assets Following the meeting, the Dow quickly rose by don’t rise when rates are low, and we cannot expect 40 points. After Mr Bernanke concluded the further easing, several asset classes are headed down. conference, the mood was more upbeat. By the end Is this why copper and Chinese and Indian equities of the day, the Dow was up 96 points. Wall Street went have declined? If this is so, expect a 10%-15% across home happy. This was because of what the Fed chief the board decline in virtually everything except gold, hinted to the world. In the words of a Goldman Sachs which remains supported by a weak dollar, and crude analyst: “Bernanke’s remarks were consistent with our oil which remains supported by geopolitical issues. forecast for no rate hikes for a long time to come.” The As for the other assets, everything that has rates are at barely 0.25%. prospered from a generous QE2 will be down. And that We have been here before. We know what low US includes Indian equities. After all, it is easy to forget rates can do. It was the extraordinarily low rates from that the Nifty was 5,400 on 31 August 2010. From 2001 onwards (under Alan Greenspan) that created 1st September, it embarked on a massive rally excess liquidity and, therefore, a global bubble of commodities, real estate that took it all the way to 6,284 (a 16% and stocks in 2003-07. But one leap) in just 29 trading days. This interesting aspect this time was entirely due to QE2. Of is how the market for gold, oil course, the market came off and other commodities reacted sharply thereafter but the to the promise of low rates. While rally of February-April has gold was up and crude stayed put, only succeeded in making a the dollar went down relentlessly second lower top at 5,944 on the Nifty. as Mr Bernanke’s press conference Accordingly, we are turning neutral again from progressed. However, copper, which is this week. Our short-term forecast is down seen as one of the most reliable gauges which regular readers of our website Medium-term: — of economic activity, sagged. And so did would have noticed.

Long-term: — zinc and lead. This would have been one (Feedback at editor@moneylife.in)

O

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Which way.indd 1

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“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 cannot time the market. You will get vivid descriptions of the past everyday from business channels and the 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

“The huge over-speculation... should now lead to some painful correction...”

6 -19 Jun ‘08 17-31 Jul ‘08

9-22 Nov ‘07

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

“A short-term bottom may be very near”

16-29 Mar ‘07

“A Rally Now?”

“Weakne 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

Oct-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

4/29/2011 7:34:11 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 ‘08

Headed Down?

“Is the market about to crack?”

eg may n”

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

“Weakness has resurfaced” “A Breakdown?”

30 Jan-12 Feb ‘09

“A weak rally now”

Oct-08

13-26 Mar ‘09

“Another weak rally”

Jan-10

Apr-11

Moneylife Stock Analysis

KNOW WHAT’S COMING

Sensex.indd 3

4/29/2011 7:34:40 PM

Insurance Trends New products, regulations, features and options, interpreted from your perspective MO T O R I N S URANC E

Rates To Rise by 10%-65% Heavy losses in third-party cover prompt the move

T

he Insurance Regulatory and Development Authority (IRDA) has raised the premium rates for third-party motor insurance policies by 10%-65% across different categories of vehicles and ownerships from 25th April. While third-party premiums for personal cars and two-wheelers were raised by 10%, premiums for commercial vehicles would now be higher by 65%. The increase comes after a gap of four years. Transport associations are against IRDA’s decision to increase these rates and have planned a nationwide strike.

Nearly seven million commercial vehicles and about 400 transport associations all over the country may take part in the strike. Only time will tell whether the increased rates get implemented, or whether the government buckles under pressure. Transport operators are a formidable group. Insurance companies wanted an even higher increase of premium due to heavy losses in the third-party pool. The claims ratio is well over 200% which means that for every rupee

of premium collected, claims of two rupees have been settled. Thirdparty insurance is mandatory for every vehicle owner and is still under a tariff regulated by IRDA. Each insurer collects the thirdparty premium and it is ceded to a pool which is administered by the General Insurance Corporation of India. Losses of the pool are shared by all non-life insurers in the proportion of their overall market share. Industry experts have called for abolishing the third-party pool.

GE NERAL INSURANCE

Cough Up More This does not come as a surprise

I

RDA has warned that health insurance, motor insurance and other general insurance policies might turn costlier, with settlement claims going up. “The demand and supply position in the non-life industry will be such that prices should harden and I expect to see evidence of that in the course of the next few years. It will become even harder as we go along,” IRDA chairman J Hari Narayan told reporters at a recent Federation of Indian Chambers of Commerce & Industry conference on insurance.

The insurance industry does not work with detailed and segregated

data and is, therefore, unable to set its premiums accurately. It also runs a high-cost operation. So, rates can go only higher.

PENSION PLANS

Regulatory Changes Coming Soon The amendments made last year did not help the industry

I

RDA will come up with changes for pension products soon due to the dismal six-month performance of pension products. Before 1 September 2010, pension products accounted for 20% to 25% of life insurance business. Sales of pension schemes under unit-linked insurance plans (ULIPs) have tumbled after the new rules came into effect mandating a guaranteed return of 4.5% for pension ULIPs. A guarantee of 4.5% is not great for customers, with current high interest rates offered for FDs (fixed deposits). An insurer will invest mostly in debt to avoid uncertainties of the equity market. The returns to customers will be low. Insurers are not enthused about these products as they have to offer guaranteed returns over a long period of time and finding instruments to invest with such returns for future annual premium is difficult. Private insurance companies have been restricted to single-premium pension ULIPs. Life Insurance Corporation of India (LIC) is the only insurer to offer a regular premium pension product guaranteeing a 4.5% return on an annual basis. It will be interesting to see if there is any pick up in sales of pension ULIPs as the guaranteed returns are set to increase this fiscal to 6%. IRDA ``

MONEYLIFE | 19 May 2011 | 48

Insurance.indd 2

4/28/2011 10:13:03 PM

INSURANCE TRENDS

` has kept the flexibility of returns to

‘Wealth Protect’ is a misnomer as protection of wealth is possible only where the investment options are for money-market and fixedincome instruments (Future Secure and Future Income). The other options have good equity exposure and, hence, the returns will depend ULIPs on the performance of the stock markets.

The premium allocation charge is 5% in the first year, 3% in the second through fifth years and 2% Flexibility is now all the thereafter. The policy administration charge is 3% to 3.75% in the first rage in ULIPs year and 2.45% to 2.85% from the second year onwards. The total uture Generali Wealth Protect charges are in line with the ULIPs comes after other ULIPs have been introduced recently purporting launched after 1 September 2010.

If these charges are considered for flexibility for policy features. five or more years, they are not less Flexibility has now become a than those of old ULIPs and, hence, necessity to compete in the ULIP indicate that ULIP charges have not market. It has good rider options really come down. The mortality and guaranteed loyalty addition. charges are on the lower side The ULIP comes with flexibility compared to those of most other on premium amount, policy term, insurers. sum assured and six fund options Entry and Maturity Age: Minimum to invest in. There is no flexibility age at entry is seven years and of the premium payment term. maximum age at entry is 60 years; Overall, it is a competitive product maximum age at maturity is 75 in the ‘flexible’ ULIP market. The years. The minimum age at entry for plan has common optional riders riders is 18 years and maximum age like accidental death benefit and at entry is 60 years (except the life accidental total & permanent disability benefit. The plan also has guardian rider which is seven to 17 years for life assured and 20 to 55 optional riders like ‘life guardian’ years for proposer). The maximum and critical illness cover. The life age at maturity is 65 years. guardian rider is useful when life Minimum Premium: Premium is assured is seven to 17 years. In Rs25,000 (yearly/half yearly), if the case of a proposer’s death (and premium is more than Rs25,000, minor life assured alive), all future payment is yearly/half yearly, premiums are waived until the life assured attains 24 years of age. The quarterly/monthly (ECS) mode. critical illness rider covers six critical Maximum Premium: Rs2 lakh.

Policy Term: The term is 15 to 40 illnesses. years.

The plan offers guaranteed Minimum Level of Protection: Seven loyalty addition which is 5% of to 20 times annualised premium the first year annualised premium depending on age and policy term. (where premium is equal to Maximum Level of Protection: Rs25,000) or 7.5% of the first Fifteen to 30 times annualised year annualised premium (where premium is greater than Rs25,000). premium depending on age.

3%-6%, based on 50 basis points over the reverse repo rate, the rate at which the Reserve Bank of India absorbs funds from banks.

Future Generali Wealth Protect

MEDICLAIM

Hospitals Free To Decide Rates But this move spells bad news for customers

I

RDA had washed its hands of the mediclaim fracas after the cashless medical insurance facility was stopped by government insurers.

Policyholders were left in the

F

lurch due to the battle. Hospital rates are not regulated and government insurers are now acting as a proxy to negotiate rates with hospitals to bring them on their preferred provider network. In response to a recent public interest litigation (PIL) by social worker Gaurang Damani, the Centre has told the Bombay High Court (HC) that there cannot be a blanket direction to a hospital or a doctor to charge a fixed amount for a medical procedure. The government has put the onus on IRDA, saying that the regulator has to promote and ensure orderly growth of the business. The HC has told IRDA to file a reply by 9th June when the PIL will be heard next.

49 | 19 May 2011 | MONEYLIFE

Insurance.indd 3

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PERSONAL BUSINESS AUTO

MOTOR SPORTS

Will Indians ever take to motor sports, wonders Veeresh Malik

Formula One cars Headed towards India in October

T

he Formula One (F1) car racing business seems to be going through a few convolutions worldwide, as it heads towards India, for the first time ever, in October this year, on a purpose-built track in and around Greater Noida (close to Delhi). Over the past few weeks, several people from India who are going to be part of the organisation and support functions were at Kuala Lumpur for the Malaysian Grand Prix; feedback from some of them is interesting.

The Bahrain event had to be cancelled; Japan is still a wide open question mark after the tsunami and more so with the nuclear radiation issue; and recessionary trends worldwide are causing some concern. In addition, turbulence within the organisers of the F1 itself is causing some re-think, and as rules become more complicated, it remains to be seen exactly how strong the F1 wave worldwide remains, by the time the circus reaches India.

Interest in motor sports has always been very specific in India. There are those who can be classified as ‘rich people with money to burn’, who can risk their automobiles and also their lives, which move into the rally circuit. Then there are those who are even richer, who manage to race cars on the very few tracks and circuits we have in India, in vehicles specially built for the purpose. Finally, there is Go-karting, more of a fun option for people on a day out which is affordable for the great Indian middle-class in bits and pieces—and gives a perception of fun, if handled safely.

Beyond that, motor sports are a great television sport, like cricket, but probably not on the same scale.

Certainly, getting sponsors for motoring events in and around India is not easy, for a variety of reasons. And that’s for the television part of things. And this has never been a ‘paid’ event in India of the sort seen so often in developed countries.

Getting people to pay minor fortunes to get into the stands, especially in a part of India where the ‘free pass’ rules paramount for all events, is going to take skill-sets of the kind which did not work even during the Commonwealth Games. Still, who knows, this might be just the ticket which gets us off our television sets and on to the grandstands.

But this fact does remain—F1 cars sound wonderful in real life, and no amount of television or screen can replicate that.

FORD’S NEW RELEASES

Affordable, But Ford Has To Do Better

F

ord has released yet another version of its Fiesta car in India. With that, the company seems to be joining the trend of running older versions of the same sub-brand in parallel with newer evolutions. This tactic is aimed at satisfying the private car as well as the taxi

``

MONEYLIFE | 19 May 2011 | 50

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PERSONAL BUSINESS AUTO

Harley- Davidson Tough on the Indian wallet, for now...

` market; so it seems, because underneath the exteriors,

much remains the same.

Small cars from Ford have had a mixed run in India.

Their hatchback Figo is said to be doing well, and the now older version of the Fiesta, re-badged ‘Classic’, is seen on the roads too. However, they have a lot of hard work cut out for them, especially in fuel-efficiency and after-sales service segments.

Likewise, Ford was known for running some grand junkets for the motoring media which, in keeping with recent trends, seem to have come down. In any case, it appears as though the management at Ford is aiming for the mass market and has figured out that word-of-mouth is a better tactic to work on.

Having owned a Ford car in India in the past, I have my own reservations on how much they’ve actually improved, and will watch the market’s response to the new Fiesta eagerly. The big ticket is going to be fuel economy as well as resale value and, on both these parameters, the jury is out.

C RU DE O I L PRIC E S

High Time To Tank Up Now

C

ome May, and expect fuel prices to go through the roof, after the state elections are over. Crude oil prices are only one part of it, and they have been at alltime high levels for some time now—while refining as well as other costs are going up too. The eventual actual landed price of petrol and diesel at the retail outlet is way below the actual cost thus being achieved, and the difference continues to grow every day.

But the bigger worry is the way other costs are going up, due to the increasingly higher frequency of piracy at sea, with parts of the Arabian Sea and waters nearby being declared a ‘war zone’ for shipping. The cascading effect of higher insurance fees, vast costs being paid for carrying armed personnel on board, and the sheer amount of time and energy spent in running ships in convoy cannot be calculated.

The word is out—fuel economy has been the biggest selling point for motor vehicles in India. Fuel prices, by some estimates, are likely to go up by 15%-25% in the next few months. At least two manufacturers I know of are taking serious steps to introduce ‘fuel economy’ versions of their existing vehicles which are shorn of all ‘performance’ tags, and will be projected as vehicles which are focused only on saving fuel.

And it’s about time too.

HARLEY’S INDIA FORAY

Running on Empty

W

atching the prices of Harley-Davidson motorcycles in India going down on a regular basis makes one wonder—what next?

Launched with great fanfare a few years ago in the face of dwindling sales of heavy motorcycles worldwide, Harley-Davidson had great hopes from the Indian ‘market’, on the basis of all sorts of market research as well as what can best be called ‘voyeur window shopping’.

More power to the canny Indian customer. Of course, there are whispers that the legitimate market for superbikes is under-cut tremendously by the flood of ‘grey’ motorcycles entering India by an assortment of routes—but that was not a secret at any stage.

Just like computer and mobile phone manufacturers had to accept and then live with the ‘grey’ market in India, superbikes too might have to follow suit, that is probably what will set the pricing levels too. In the interim, if you ever dreamt of buying a superbike, this is the time to go check out the dealerships—and leave your contact details with them.

There are great bargains waiting to be snapped up in this segment, and this column has said it before, you just need to know how to bargain. And analyse the way the prices on Harley-Davidson’s bikes are moving.

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.

51 | 19 May 2011 | MONEYLIFE

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4/28/2011 5:26:50 PM

BOOKS

Trading Forex At the core of this book is the use of a well- known trading technique

T

he Little Book series by Wiley, one of the finest efforts at introducing investment ideas to the masses, has now run into 17 books (only Moneylife has reviewed every single one of them).

The series has gone into every aspect of trading and investing; but the latest book on currency trading is a disappointment. It is really a few pages of technical analysis masquerading as a book-length offering of trading techniques and advice on how to trade currencies.

Currencies, like stocks, are driven by fundamental economic factors. But, unlike stocks, dabbling in currencies is a matter of pure speculation. While you can buy shares of blue-chip stocks and hold them for the long term, enjoying dividends and capital appreciation, you cannot do that for currencies. Currency trades are done through leverage—sometimes as high as a 50:1. In that situation, a 2% move will wipe out your capital. It is the playground for some of the biggest traders. In 1992,

The Marx on Our Soul Is the force and the philosophy of Karl Marx still relevant?

I

magining the 20th century is impossible without Karl Marx. And no discussion on Marxism is complete without Eric Hobsbawm, probably the most prolific Marxist historian today. This book is a collection of Hobsbawm’s essays and lectures on Marxist writings and the later Marxists, and Marxism in the 21st century. Marxism, as history shows, is more than just a ‘philosophy’. Born out of the labour movements of a rapidly industrialising Europe in the 19th century, it heralded revolutions, helping to create worlddominating power blocs, but ultimately, saw a speedy dissolution of its main avatar—the USSR. In the process, Marxism stands accused of standing for the totalitarian excesses. The Chinese government, the Gulag of Russia, the Balkan struggles and socialist parties that gave birth to Nazis and Fascists—all have been tagged with Marxism.

But Hobsbawm, instead of making accusations, examines how it has been assimilated by politicians over time, thus, retaining its importance as a creed. Not only because it survives in China (and other Communist

George Soros bet $10 billion on the pound and encashed $2 billion. Soros worked his economic and monetary theory and bet a large sum of money (he has not reaped that kind of payoff since). You cannot THE LITTLE BOOK OF do that. So what is the secret CURRENCY TRADING of making ‘big profits in the KATHY LIEN world of forex’, as Kathy Wiley Lien promises? It is applying Pages 198; $19.95 a technical indicator called ‘Bollinger Band’, named after John Bollinger. The bands trace out the area that falls with two standard deviations from the mean (usually the 20-day average). As those who understand elementary statistics, know that 95% of data should fall in this range, for a normally distributed series. Lien takes this a step forward. She applies a ``

countries), but also because the modern world owes a debt to it in its evolution.

Hobsbawm maps a historical trajectory of the development of Marxism, right from the pre-Marxists to the obvious Marx-Engels era, the Russian Revolution to the World Wars, the Cold War era to the turn of the 21st century. This work is not a revolutionary interpretation; it is an exhaustive commentary on Marxism and the Marxists.

Having said that, it is strictly for Marx-enthusiasts. The approach is academic, and many parts will appear unfathomable to those who do not have a basic idea of Marxism or modern history.

Hobsbawm is so thorough in his analysis that, at times, the details he explores seem unending. But, without them, it is not possible to understand Marx.

What Hobsbawm does is what can be expected from HOW TO CHANGE someone of his calibre—look at THE WORLD Marxism beyond Das Kapital ERIC HOBSBAWM and the Communist Manifesto.

Little Brown In painstaking detail, he not only Pages 470; Rs795 examines all that was written ``

MONEYLIFE | 19 May 2011 | 54

Book Review.indd 2

4/28/2011 9:58:07 PM

BOOKS

` second Bollinger Band which is one

standard deviation from the mean.

The author writes: “Of the hundreds of technical indicators out there, the Double Bollinger Bands are hands down my favourite… they provide a wealth of actionable information. They tell me whether a currency pair is in a trend or range, the direction of the trend, and when the trend has exhausted.

More importantly, Bollinger Bands also identify entry points and proper places to put a stop.”

I have several problems with this view. One, this is the core of the book and, yet, Lien deals with it in just a few pages. Her rules are not clearly articulated because they don’t take into account all situations. Two, she provides no back-tested results and a comparison of how using Double Bollinger Bands gave better results than other techniques. Three, traders use

` by Marx and Engels, but tracks how

it grew into something bigger—beyond merely serving as an inspiration for the Russian Revolution. Marxism, in its present form, is a result of assimilations and interpretations; it has become something which the original writers couldn’t have anticipated.

However, while Hobsbawm’s analysis of Lenin, Stalin, Mao and Gramsci is commendable, his exclusion of Louis Althusser is a loss. So is his overlooking the contribution of Marxist feminists like Rosa Luxemburg, Alexandra Kollontai and Michelle Barrett, who, along with Althusser, laid the foundation for Marxist thought in the post-War era.

How To Change the World is a must read for anyone interested in political and cultural theory. But, the ‘difficult countries’, especially the NAM (nonaligned movement)-affiliated Asian and African nations, are still excluded from the purview of Marxism. India, with her ambiguous socialist aspirations at the time of Independence and her cosy

the bands in any market and, so, why write a book on forex trading if using the bands was all there is to it? But Lien is a successful trader and one can only assume that she has tested hundreds of indicators and is offering something that she has seen to work best. All technical indicators work well at times and fail at others. It is impossible to know in advance what to use and when.

This is why for technically-guided trades, profits come from using exits intelligently (and that too stop loss) rather than mechanically following an entry. Lien makes this point as well.

Once you know that you are reading a book on trading and not on forex, it looks more useful. A chapter titled “Top Ten Mistakes” is one of the very best set of guides for traders I have come across.

Read the book not to trade in forex but to improve your trading technique for any market. — Debashis Basu

relations with Russia and, later, with China and the USA, occupies a position that defies categorisation.

Other social movements, too, find it difficult to assimilate Marx, maybe because of its restricted approach. Be it the labour movements in the West or the ‘Maoist’ uprisings in the Indian subcontinent or the now defunct Dalit Panthers—Marx has been seen as the saviour. But how to change the world, or rather, how to adopt Marx? The question remains unanswered.

However, why turn to a philosophy which, except in academic discussions, has been discredited after the Soviet regime collapsed? As Hobsbawm explains, with the cracks of the capitalist economy becoming more apparent, it is time to revive Marx or, at least, to revisit him. In short, ‘to change the world’ may be impossible now, because the world itself (and capitalism, too) is changing fast and in ways Marx did not imagine. But it is always useful to remember the formula.

— Shukti Sarma

Hotchpotch

W

ant a recipe for churning out a book on Indian consumers? Just pick up these words: ‘karma’, ‘middle-class’, ‘tradition’, ‘Bollywood’, ‘caste’, ‘daunting complexity’ and a few assorted terms you will find in your average Indian newspaper editorial, throw them into an algorithm that will arrange them at random, and you will come up with something better than Consumer India (Dheeraj Sinha; Wiley; Pages 192; Rs400).

The ‘author’ falls back on Bollywood to explain the India growth story (along with many other observations that could very safely have been avoided).

This book was published in 2011, but it has citations that have whiskers.

Sinha could have spared us observations like “Vedic mathematics has come to the rescue of Indian students.” You can get a heavy school bag thrown at you for that! Sinha has been in advertising (one would presume in account planning) for a long time.

Couldn’t he have worked on a few case studies, to indicate how consumers have changed, brands have evolved and strategies have been radically transformed? Read Subroto Sengupta’s Brand Positioning: Strategies for Competitive Advantage—the second edition was out in 2005, but it will teach you much more on how to read the mind of the modern Indian consumer.

— Devarajan Mahadevan

55 | 19 May 2011 | MONEYLIFE

Book Review.indd 3

4/28/2011 9:58:24 PM

ML FOUNDATION EVENTS

GOOD GOVERNANCE & LEGAL COMPLIANCE ISSUES FOR NGO s

“Read your charter, follow guidelines” Noshir Dadrawala, chief executive of the Centre for Advancement of Philanthropy, discussed the several laws, rules and guidelines laid down for NGOs

M

r Dadrawala explained that it is important for the voluntary sector to understand legal definitions relating to the sector and keep abreast of the latest rules and regulations. He was speaking at a seminar held on 21st April by Moneylife Foundation on ‘Good Governance & Legal Compliance Issues for NGOs.’ He said, “Whether you like it or not, there are several rules you have to abide by and you must follow them to avoid trouble.” While charitable institutions help people in many ways, they themselves are often accused of bad management and dismal accounting.

Mr Dadrawala explained how NGOs (non-government organisations) can manage their affairs better and the rules they should follow, so that they remain credible, accountable and efficient.

He gave a brief overview of the required form of a charitable organisation, the implications of the impending Direct Taxes Code (DTC), the ambiguities in relevant laws and the problems the voluntary sector faces. Mr Dadrawala emphasised how audit reports have to be filed, what records have to be kept and the notifications that must be adhered to, to ensure legal and financial compliance. He explained that several exemptions and concessions will vanish when the DTC comes into existence, and charitable institutions must prepare themselves to cope. “Norms are going to change for NGOs,” he said, “there will be new rules for registrations and renewals, different rules for operation of bank accounts for foreign contributions and local funding and other administrative and revenue requirements. We have to wait and watch.”

Governance deficit is about authorities not fulfilling the requirements. NGOs are increasingly filling in this gap.

But, to be more effective, NGOs must have a vision, a working plan and a reliable system for implementing

MONEYLIFE | 19 May 2011 | 56

Event.indd 2

the plan. Mr Dadrawala discussed guidelines for voluntary organisations in the light of his experience as chief executive of the Centre for Advancement of Philanthropy, an NGO specialising in charity laws and good governance. “Non-profit does not mean that you cannot make profit, but that the profits should not be distributed among the members of the charitable institutions or the trustees,” he said.

He discussed the rules pertaining to NGOs’ income and expenditure, and financial transactions between NGOs. Mr Dadrawala’s tip to NGOs was: “Have a detailed vouching system and a cash & receipt system in place, maintain records and go for audits regularly.”

He also elaborated on the restrictions placed on receipt of foreign donations and the rules and procedures governing the FCRA (Foreign Contribution Regulation Act). He discussed the tax exemption rules pertaining to NGOs and donors. “One cannot be exempt from taxes simply by y virtue of being a charitable institution. Unless less NGOs fulfil certain criteria that thee Income-Tax Act specifies, they are not exempt xempt from taxes,” he clarified.

He said, “Itt is a misconception that NGOs must bee allowed concessions or exemptions because cause they are charitable institutions.

Nowhere is the trustee important, butt what is taken into account is how the beneficiary eficiary is served. So charitable haritable institutions must ust fulfil their social goals better tter to reap benefits and enjoy independence.” ependence.”

Noshir Dadrawala talks on how NGOs can manage their eir affairs better and the rules they should follow to remain credible, redible, accountable and efficient as the audience listens in raptt attention

4/28/2011 10:12:42 PM

Advertisements.indd 4

4/26/2011 2:26:08 PM

ML FOUNDATION EVENTS

USING THE RTI ACT

“Pressure the authorities” Ashok Ravat, social activist & honorary secretary, All- India Bank Depositors’ Association, shared his views for effective implementation of the RTI Act

O

n 16th April, Ashok Ravat shared his experience on using the RTI (Right to Information) Act for customer protection, environment and civic issues. Mr Ravat specified how greater involvement from citizens would pressurise authorities to disclose information voluntarily. He discussed how to formulate specific queries and advised on the correct format for application. Mr Ravat also gave details of the websites from where these formats can be obtained.

He clarified the fact that filing an RTI application does not necessarily result in grievance redressal.

If the information accessed reveals irregularities in administration or shows mismanagement of resources, one must then file a complaint with the police or the authorities concerned, providing the RTI reply as proof. “The RTI Act and grievance redressal go hand in hand. So all activists should be aware of redressal mechanisms, so they can force authorities to right these irregularities,” he said.

The RTI Act,, with certain exceptions, p , can be used to get information about decisions taken by public expenditure, authorities, details of public ex other status of projects and many o administrative issues. An eeffective tool to prevent corruption, it iis essential that citizens use this Act rregularly to authorities. keep a check on public auth Mr Ravat told RTI users user to keep their queries crisp and specific and limit it tto one particular aspect falls under which fal domain of one the doma information public info

MONEYLIFE | 19 May 2011 | 58

Event.indd 4

officer. “If you ask questions which fall under more than one information officer, things will get complicated and the information may be delayed,” he said. He asked activists to use the RTI Act responsibly, and to understand that seeking information is not equivalent to complaining. “Some people keep on posting irrelevant and endless queries, which is unacceptable,” Mr Ravat said. He also reiterated that not everything requires taking recourse to the RTI Act. The public can access much information for free from the government authorities. He talked about the processes of filing appeals and complaints with higher authorities in case the information obtained is unsatisfactory. “And remember, always reserve your right to check the relevant documents in your RTI query,” he said.

Prominent RTI activist Bhaskar Prabhu was also present. Authorities often try to be evasive about providing information, he said, with various excuses.“One can complain to the state information officer if unreasonable amounts are quoted. One must then approach the authorities or file an RTI query, asking for steps that have been taken to recover the files. In most cases, the files resurface miraculously after the query is made,” he quipped. Prominent RTI activist Krishnaraj Rao provided Web links to articles related to the Act which will help a citizen understand the Act better. He gave URL details on the bilingual versions of the RTI Act in Hindi and Marathi.

He provided details of URLs for a simplified version of the Act with interpretation of the Sections of the Act, key High Court judgements on various related cases, and various tips for petitioners. He also gave Internet links for public information officers (PIOs), from where PIOs can learn about the Act and their duties.

An attentive audience takes in Ashok Ravat’s detailed account of how the RTI Act can be used as an effective tool against corruption

4/28/2011 10:13:30 PM

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

49 SPEAKERS 4913 ATTENDEES 62 EVENTS 5232 MEMBERS 1 FOUNDATION In just one year, Moneylife Foundation has enriched many lives with unique events, opinions, actions and advocacy initiatives

It’s Only the Beginning Moneylife Foundation financial literacy events have covered: • Credit Cards

• Long-term Investing

• Mobile Payment Systems

• Consumer Banking Services

• Credit Scores

• Wills, Nominations & Transmission

• Co-operative Housing Society Laws

• Tax Returns & Scrutinies

• Chain Marketing Schemes

• Reverse Mortgage

• Legal Compliances for NGOs

• Being Financially Safe & Smart

BECOME A MEMBER. IT IS FREE

To become a member of Moneylife Foundation and to receive invitations to these workshops, please contact: Dione/ Pritika/ Judith: (022 24441058-60) Or mail us at: mail@mlfoundation.in. Or visit www.moneylife.in

newmlf.indd 1

4/29/2011 4:55:01 PM

SPENDING TRAVEL

IGUAZU FALLS YOU CAN’T MISS THIS SIGHT

ARGENTINA

Theof Heart Latin America Tango on the streets, lush sub-tropical forests, spectacular mountains and a vibrant culture. Jaideep Mukerji discovers that Argentina has all this... and more

O

ne of the countries that appears distant to visitors from India is, in reality, easily accessible and makes a great travel destination. The origin of its name goes back to the first voyages made

by Spanish conquerors. The survivors of a shipwrecked expedition found native people in the region who gave them silver objects as presents. The news about a legendary Sierra del Plata—a mountain rich in silver— reached Spain around 1524 and since that date, the Spanish named the river as Río de la Plata or River of Silver and the area as Argentina from the Latin word argentum or silver.

From the sub-tropical forests of the north to the spectacular mountains and glaciers of the southern tip, Argentina has them all. An ethnically diverse country built with the hard work of thousands of immigrants

who came from 1895 to 1915 mainly from Spain and Italy, Argentina is the second largest country in South America, after Brazil. Further waves of money and immigration from Europe before and after that period led to Argentina becoming one of the 10 richest countries in the world. Immigrants from other parts of Europe and from Syria and Lebanon came to Argentina during the first half of the 20th century to settle in this vast country that has become one of the G-20 world economies. The Argentine wine industry, amongst the largest outside Europe, is now the fifth most important in the world.

Argentina is about 3,900km long from north to south and has the fertile central plains, called the Pampas, the source of Argentina’s great agricultural wealth. The rugged Andes range forms the western border with Chile and includes Mount Aconcagua, which, at 22,841ft (6,962 metres) is also the highest summit in the southern and western hemispheres.

After landing at the Ezeiza International Airport located 27km southwest of Buenos Aires, it is convenient to go to one of the taxi booths at the airport and get a private taxi or to the Manuel Tienda Leon Company counter in the arrivals area to get a shuttle bus ride to the city centre. The fare to the city is 50 pesos ($12) with a travel time of 45 minutes.

The following morning, I took a short taxi ride to Buenos Aires’ Jorge Newbery domestic airport located ``

MONEYLIFE | 19 May 2011 | 60

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PERITO MORENO GLACIER

THE CASA ROSADA

ONE OF THE WORLD’S FEW ADVANCING GLACIERS

TRAIN RIDE—USHUAIA TO LAPATAIA BAY IN THE TIERRA DEL FUEGO NATIONAL PARK

LOCATED AT THE EASTERN END OF THE PLAZA DE MAYO

TANGO DANCERS PERFORMING AT STREET CORNERS IN LA BOCA

` not far from the city centre for the two-hour flight to

Iguazu Falls. One of world’s ‘must see’ sights, Iguazu Falls is located where the Iguazu River tumbles over the edge of the Paraná Plateau. The United Nations has declared Iguazu Falls a ‘World Heritage Site’. Several islands along the 2.7-km long edge divide the Falls into about 275 separate waterfalls and cataracts varying between 200ft and 270ft high. About half of the River’s flow falls into a long and narrow chasm called the ‘Devil’s Throat’ and the border between Argentina and Brazil runs through the Devil’s Throat. A boat ride to the base of the falls cost me 200 pesos ($55) and, later, I took the local bus to Iguazu town where one can visit the place known as ‘Hito de las Tres Fronteras’, a point where the borders of three countries, namely, Argentina, Brazil and Paraguay, converge.

After an overnight trip to Iguazu, I was back to Buenos Aires the following afternoon. There are many historic and cultural attractions in dazzling Buenos Aires where nearly 40% of the country’s 41 million people live. Gran Buenos Aires (Greater Buenos Aires), in terms of population, is a city almost as large as New York or London. However, after a brief orientation, you will find that the compact city centre is accessible and easily explored on foot, by bus, taxi and underground.

In the historic Plaza de Mayo or May Square, the place where Buenos Aires was founded, is located the Pink House (Casa Rosada) which houses the historic

STREET CAFÉ A LIVELY VIEW OF A CAFÉ AT BUENOS AIRES

balcony from where Evita Peron, made famous by the song ‘Don’t Cry for Me, Argentina’, used to address people. Within easy walking distance is the Cabildo, the colonial city-hall, the Metropolitan Cathedral and the spectacular mausoleum of General San Martin, Argentina’s independence hero.

The older parts of Buenos Aires are most colourful. The area of San Telmo is a neighbourhood of bohemians, artists, antiques shops and cobbled streets and includes Dorrego Square, popular for its weekly antiques market. In the ‘Bar of the Imaginary Characters’, you can see a traditional café much frequented by intellectuals and artists. The neighbourhood of La Boca, with its colourful painted houses, is where a lot of artists open their studios and workshops. Walking along the charming street of Caminito, one can breathe the typical atmosphere of the area with its love for tango and soccer. Tango dancers performing live at street corners in La Boca is a common sight. Tango originated at the end of the 19th century in the suburbs of Buenos Aires and quickly grew in popularity. Buenos Aires and sensual tango dancing go together and tango’s lyrics and music are marked by nostalgia, expressed through melodic instruments similar to the accordion-like bandoneón.

The provinces of Santa Cruz and Tierra del Fuego (Land of Fire) on the southern tip of Argentina, a region also known as Patagonia, have magnificent ``

61 | 19 May 2011 | MONEYLIFE

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SPENDING TRAVEL ` glacier vistas, some of the finest national parks in South

America with photo-worthy opportunities including shimmering turquoise lakes, snow-capped mountain peaks, roaring waterfalls and pristine forests.

I took the two-and-a-half-hours long flight to Calafate, a small town located on the shores of Lake Argentino. From Calafate, there are several conducted day-tours that can easily be arranged. I booked a tour to the Glacier National Park with the Fernandez Campbell Company. After an early morning pickup from the hotel, we drove through sub-Antarctic forest which marks the gateway to Parque Nacional Los Glaciares, a World Heritage Site. The park’s centrepiece is the Perito Moreno Glacier which, because of unusually favourable local conditions, is one of the world’s few advancing glaciers. The huge icebergs on the glacier’s 180-ft high face calve and collapse into the Canal de los Témpanos as they advance about 300ft a year. The roar of the gigantic ice wall as it crashes into the surrounding channel is an unforgettable experience. It is possible to stand on a hill with spectacular viewpoints directly opposite the huge imposing wall of ice. Generally the nose of Perito Moreno is characterised by cold wind and highly changeable conditions and you should be prepared with layered warm clothing and a warm hat.

A three-hour (220-km) drive north of Calafate is the village of Chalten built in 1985 to help secure the disputed border with Chile. Also located within the boundaries of Los Glaciares (Glaciers) National Park, Chalten village is well-visited by trekkers and climbers who hike to the base of Cerro Torre and Cerro Fitzroy mountains, both spectacular granite towers.

An hour-long flight south of Calafate is Ushuaia, considered the world’s southernmost city and the takeoff point for all tours to the Antarctica. Ushuaia has one of the world’s most dramatic settings—surrounding jagged glacial peaks rise from sea level to nearly 4,500ft.

Ushuaia lies on the north shore of the Beagle Channel, just east of the Tierra del Fuego National Park. Since 1950, the town has played host to an important naval base, supporting Argentine claims in Antarctica.

I took a short but scenic steam train ride from Ushuaia to Lapataia Bay in the National Park where you can see the southern end of the Pan-American Highway which starts in Alaska and runs 17,848km all the way through Canada, the USA, Central and South America down to the southern-most tip of the continent. A boat cruise on the Beagle Channel is highly recommended as, in addition to spectacular scenery, you see many species of marine mammals and birds. The Channel is named after the ship on which Charles Darwin sailed here in 1832. The Beagle Channel forms a part of the border

USHUAIA ON THE NORTH SHORE OF THE BEAGLE CHANNEL

ESSENTIAL FACTS Why Go There: Occupying the southern half of South America, Argentina is a large country with a huge diversity of natural and cultural attractions. Home of tango, spectacular natural scenery, the western hemisphere’s highest mountain and eight World Heritage Sites, Argentina will not disappoint.

Getting There: The US as well as European airlines offer connections to Buenos Aires either via US or via Frankfurt, Madrid or London. From almost everywhere, South America is a relatively costly destination, but discount fares can reduce the bite considerably. Contacting a travel agency that specialises in the USA and South America often offers the cheapest fares.

Visas: Tourist visas are easily available from the Embassy of Argentina in New Delhi. Please visit www.indembarg. org.ar Where To Stay: It is strongly recommended that you go through a reputed Argentinian tour operator who will be able to provide you with guides, transportation and hotel bookings in a country where language can be a problem. I made my travel arrangements through a well-established company, Troelsen Travel— www.troelsentravel.com.ar

between Argentina and Chile.

A country the size of Argentina requires several weeks to tour and, on this first visit, I was able to see only a small part of its attractions. On the three-hour flight back from Ushuaia to Buenos Aires, I made plans to come back and visit Bariloche, Mendoza and Trelew, places that my fellow travellers said were some of the most interesting cities in Argentina.

— With Veeresh Malik

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4/25/2011 5:46:03 PM

MONEY FACTS STOCKS INDIAN MARKET TRENDS

FUND FLOWS

The Sensex ended unchanged, while the Nifty fell by 1% in the fortnight. The ML Large-cap Index and the ML Mid-cap Index gained 1% each, while the ML Micro-cap Index and the ML Small-cap Index remained unchanged.

Foreigners: Foreign institutional investors were net buyers of stocks in the fortnight. They invested Rs21,369.60 crore and sold Rs20,721.10 crore.

2,100

Share Prices, October 2010 =100

FII Net Investments (Rs Crore)

1,420

110

740 60

100

-620 90

-1,300

80

Indians: Domestic institutional investors were net buyers of equities. They bought Rs10,035.65 crore and pulled out funds worth Rs8,228.44 crore.

18 Apr-11

28 Apr-11

700

70 Oct-10

Jan-11

Apr-11 500

ML Mid-cap ML Large-cap

ML Small-cap ML Mega-cap

Index

Nifty Sensex

DII Net Investments (Rs Crore)

ML Micro-cap 300 100

15 Apr

28 Apr

+/(- )

MLLarge-capIndex

94.69

95.93

1%

MLMi d-capIndex

86.93

87.84

1%

MLMega-capIndex

95.73

96.29

1%

MLMi cro-capIndex

80.26

80.51

0%

MLS mall-capIndex

83.58

83.50

0%

GLOBAL MARKET TRENDS

19,386.82

19,292.02

0%

2,900

5,824.55

5,785.45

- 1%

Sensex Nifty Mega- cap Gainers/Losers

15 Apr

28 Apr

Change

Oil& N aturalGasC orp

286.05

317.75

11%

ContainerC orpofIndi a

1,311.85

1,172

- 11%

Large- cap Gainers/Losers

15 Apr

28 Apr

Change

SadbhavE ngineering

121.75

139.95

15%

Sanwaria Agro Oils

121.30

96.50

- 20%

15 Apr

28 Apr

Change

KirloskarB rothers

148.95

202.60

36%

Atlanta

117.55

86.65

- 26%

-100 -300

18 Apr-11

28 Apr-11

Nasdaq Composite

2,820 2,740 2,660

Mid- cap Gainers/Losers

Small- cap Gainers/Losers

15 Apr

28 Apr

Change

JVL Agro Inds

18.40

28.95

57%

ZanduR ealty

2,745

2,226.70

- 19%

Micro- cap Gainers/Losers Nile RegencyC eramics (AllP ricesi nR s)

15 Apr

28 Apr

Change

143.30

197.30

38%

7.75

5.83

- 25%

2,580 2,500 Oct-10

Jan-11

Apr-11

The Nasdaq Composite rose 4%. The Shanghai Composite slipped 5% and the Hang Seng ended 1% down.

Index

15 Apr

28 Apr

+/(- )

Nasdaq Composite

2,765

2,873

4%

Taiwan Weighted

8,718

9,041

4%

Dow Jones Ind Avg

12,342

12,763

3%

Korean Composite

2,141

2,208

3%

Nikkei

9,592

9,850

3%

FTSE

5,996

6,070

1%

Hang Seng

24,008

23,806

- 1%

Bovespa

66,684

65,673

- 2%

3,051

2,887

- 5%

Shanghai Composite

63 | 19 May 2011 | MONEYLIFE

Money Fact.indd 2

4/29/2011 8:21:33 PM

MONEY FACTS STOCKS

5

What’s H

T

ML SECTORAL TRENDS

Companies

15 Apr

28 Apr

+/-

ONGC

286.05

317.75

11%

OilIndi a

1,310.55

1,396.90

7%

Shares of oil & gas companies surged 7%, packaging stocks gained 5%, building material and plastics stocks rose 3% each. On the other hand, real estate stocks slipped 7%, transport & logistics stocks declined 5% and telecom equipment stocks were down 4%.

TideW aterOi l

6,978.90

7,384.35

6%

ML Sectoral Trend

339.30

345.35

2%

Stocks of oil & gas companies were in demand. ONGC jumped 11%, Oil India surged 7%, Tide Water Oil Company climbed 6%, Cairn India gained 2% and GAIL (India) added 1%. Gujarat Gas Company remained unchanged.

ML Oil & Gas Index 650 620

CairnIndi a

590

GAIL( India)

469.35

475.25

1%

GujaratGas

376.85

376.15

0%

560 530

IndraprasthaGas

500

320.30

316.25

- 1%

226

210.90

-7%

HindustanOi lE xpl

Oct-10

Jan-11

Apr-11

5

N T

Real estate stocks were hammered by investors. Unitech and Indiabulls Real Estate plunged 15% each, Orbit Corporation tumbled 13%, DB Realty declined 10%, DLF fell by 7% and DS Kulkarni Developers (DSKD) was down 5%.

Companies

15 Apr

28 Apr

+/-

44.20

37.40

-15%

ML Real Estate Index 4,400

Unitech IBR ealE state

149.50

127.80

-15%

IVRCL Assets& H lds

71.45

61.65

-14%

OrbitC orporation

56.20

48.75

-13%

3,920 LokH ousing& C onst

30.35

26.95

-1 1%

1 10.20

98.85

-10%

26.25

23.60

-10%

HDIL

188.25

174.85

-7%

DLF

245.05

228.30

-7%

56

52.95

-5%

DBR ealty BLK ashyap& S ons

DSKD

3,440 2,960 2,480 2,000 Oct-10

7% RealE state

- 7%

Packaging

5% Transport& L og

- 5%

BuildingMateri al

3% Healthcare

- 4%

AutoC omponents

3% Telecomequ ip

- 4%

Plastics

3% Con_EPC_Infra

- 4%

INSIDER TRADES

AllP ricesi nR s

What’s

Oil& Gas

Jan-11

Apr-11

AllP ricesi nR s

BULK DEALS Date

Company

Buyer

Seller

Rs Cr

25 Apr-1 1

AKC apital

IndianN ationalP ressB ombayP vt

Lippo Properties Pvt

3.28

25 Apr-1 1

AKC apital

IndianN ationalP ressB ombayP vt

Dipco Estates Pvt

3.28

21 Apr-1 1

CharteredLog

LalitkumarGGa ndhi

AlkaGandhi

2.66

18 Apr-1 1

Rohit Ferro

Kanta Agarwal

Panchmukhi Agrochem Pvt

2.59

19 Apr-1 1

Shrenuj

KeynoteC ommodities

SystematikFi nvestP vt

2.28

18 Apr-1 1

IntlC onveyors

InvestmentP rofessionals

Mavi Investment Fund

0.89

18 Apr-1 1

BAMPSLS ec

KaushalayaGarg

Gurmeet Singh Sawhney

0.18

Lumax Finance Pvt Ltd (formerly Sheela Finance Pvt Ltd) bought 55,499 shares in Lumax Auto Technologies (stake up to 11.79%). Babulal M Bhansali, managing director of Bhansali Engineering Polymers, bought 44,164 shares in the company (stake up to 7.64%). AK Jain, director of ISMT, purchased 16,296 shares in the company (stake up to 2.20%). Meera Gupta, non-executive director of Technofab Engineering, bought 17,506 shares in the company (stake up to 11.95%).

Govindbhai B Desai, chairman and independent director of Godawari Power & Ispat, purchased 57,977 shares in the company (stake up to 1.38%). Reliance Capital Trustee Company sold 10,12,867 shares of GeeCee Ventures (stake down to 3.29%). Shavjjibhai Valji Gada-HUF offloaded its stake in Sezal Glass (stake down to nil). Abhinav Dhar, senior vice president, Educomp Solutions, offloaded his entire stake in the company. PD Narang, group director, corporate affairs, Dabur India, sold 25,000 shares in the company (stake down to 0.15%).

MONEYLIFE | 19 May 2011 | 64

Money Fact.indd 3

4/29/2011 8:21:46 PM

MONEY FACTS COMMODITIES

INDEX TRENDS

COMMODITY TRENDS

MCX Commodity Indices

Copper

Particulars

15 Apr

29 Apr

Change

52- Week High

52- Week Low

Metal

4,640.31

4,857.45

5%

4,926.75

3,119.82

Energy

3,395.84

3,533.54

4%

3,566.32

2,377.39

Comdex

3,575.54

3,713.66

4%

3,739.05

2,566.68

Agri

2,520.51

2,528.56

0%

2,989.16

2,110.09

COMMODITY FOCUS Silver (Rs/kg) 72,000 66,000 60,000 54,000 48,000 42,000 Jan-11

Feb-11

Apr-11

Silver prices ended higher on 28 April on the back of a weak greenback after the US Fed kept key policy rates unchanged at near zero indicating that the world’s largest economy is still not out of the woods. Again, data showing unexpected rise in weekly jobless claims heightened investors’ concerns about the state of the US economy.

On the New York Comex, May silver contracts increased by $1.562 to a record $47.520/troy ounce. Dealers say that strong investment demand for silver would cushion the metal at record level. th

MCX PRICE TRENDS Particulars

Active Contract

12 Apr2011

26 Apr2011

Change %

High

Low

Global Commodities SilverR s/kg

May-1 1

59,368

66,741

12.42

73,600

28,484

GoldR s/10gm

Jun-1 1

21,259

21,884

2.94

22,172

19,710

CrudeOi lR s/barrel

May- 11

4,802

4,995

4.02

5,223

3,898

CopperR s/kg

Apr-1 1

432.15

424.90

- 1.68

469.90

674.65

NickelR s/kg

Apr- 11

1,192.50

1,187.50

- 0.42

1,338.50

1,122.50

LeadR s/kg

Apr-1 1

124.20

115.30

- 7.17

135.35

108.80

ZincR s/kg

Apr-1 1

109.50

100.75

- 7.99

117.50

99.75

NaturalGasR s/mmBtu

Apr- 11

182.50

195.20

6.96

212.90

174.10

Others CPOR s/10kg

Apr- 11

515.70

520.30

0.89

600

502

MenthaOi lR s/kg

Apr-1 1

1,039.30

1,075

3.44

1,143

1,012.10

SugarMK olR s/100kg

May- 11

2,699

2,685

- 0.52

3,074

2,678

Potato Agra Rs/100kg

May-1 1

593.40

580.20

- 2.22

780

547.20

CardamomR s/kg

May- 11

1,139.10

1,029.80

- 9.60

1,666

1,018

G

lobal demand for copper in 2011 is likely to exceed production and annual deficit of refined copper is expected to aggregate 380,000 tonnes in 2011, said the International Copper Study Group (ICSG). Industrial demand in major consuming countries may stay up, helped by Japan’s reconstruction and Indian projects. Mine production in 2011 would increase by around 740,000 tonnes; actual production is likely to be lower due to project delays. World refined copper production for 2011 is projected to increase by about 3.5% to 19.7 million tonnes. For 2012, refined production may grow by 5% due to continued ramp-up of projects.

Sugar

T

he US Department of Agriculture (USDA) has revised India’s sugar production estimates to 24 million tonnes (MT) for the 2010-11 sugar year (October- September) from 23.6MT. USDA’s estimates are lower than the Indian government forecast of 24.5MT. The USDA has revised its forecast after higher cane production of 340.5MT in the 201011 sugar year. Maharashtra and Uttar Pradesh are likely to produce 9.3MT and 6.2MT, respectively, this year.

Wheat

P

rocurement was down by 28% year-on-year (y-o-y) at 13.04MT so far this year due to lower crop arrivals in Punjab and Haryana.

Procurement has improved over 10 days. FCI had purchased 18.01MT in the same period last year. Till 10th April, procurement dropped by 75%.

Punjab’s procurement fell by 38% (y-o-y) to 5.61MT while Haryana’s was at 4.64MT, down 32% y-o-y.

Procurement in Madhya Pradesh has increased by 0.03MT, to 2.33MT. 65 | 19 May 2011 | MONEYLIFE

Money Fact.indd 4

4/29/2011 8:21:57 PM

BEYOND MONEY

learning STEPS Door Step School makes the dreams of education of underprivileged children come true, discovers Shukti Sarma

DOOR STEP SCHOOL 2nd floor, Jagannath Shankarsheth Municipal School Building, Grant Road, Nana Chowk, Mumbai – 400 007 Tel: 98210 58655 bina@doorstepschool.org www.doorstepschool.org

D

uring her MSW (master’s in social work) internship with a municipal school in Colaba (Mumbai), Bina Lashkari was required to do a follow-up on drop-outs. On her field visits then, she came to know that children were not coming to school because they were working at the docks nearby, loading and unloading cargo and assisting the fishermen. Many such children were well past their school-going age but had no avenues to study because their job timings were inflexible.

“At that juncture, I started teaching a small group of children in the Babasaheb Ambedkar Nagar slum,” Ms Lashkari recalls. “Interaction with these children inspired me to continue teaching. After completing my post-graduation, with the guidance of my teacher Rajani Paranjpe, I continued teaching the kids. This is how the idea of setting up a school emerged.

This school was to deliver learning at the doorstep of every child,” she explains.

So Door Step School was set up in 1988 in Mumbai with the aim to facilitate the education of children from impoverished backgrounds. The NGO helps children of pavement- and slum-dwellers, construction workers and daily wage-earners. Since inception, it has reached out to more than 50,000 children in 125 different locations.

A year after it was started in Mumbai, Door Step School extended its reach to Pune. Initially, Ms Lashkari had to fund the programme herself. Then, Shaila Welfare Trust and CRY came forward to support the initiative. “The earlier days were hard,” she says, “there was no support from local authorities; no space for classrooms; no funds for paying the programme staff; shortage of staff willing to work in slums; and absence of students due to time constraints and migration.”

However, after 23 years, Door Step School now enrols 1,000 children annually in municipal schools. Regular surveys are conducted at slums and other pockets of

the city where out-of-school children are likely to be found. The staff follows up on the visits, meeting the children and their parents to convince them of the benefits of education. The initial aim is to enrol children and make them attend classes regularly. Parent-teacher meetings are conducted periodically and, through intercommunity networks, more children are included in the programme. “The children are enrolled in Door Step School classrooms (i.e., their non-formal classrooms) any time of the year,” said Ms Lashkari.

Apart from support classes and out-ofschool guidance, the NGO also runs care centres for younger siblings of the students, arranges for school transport, runs mobile classrooms and provides library facilities.

“Many students from our school have gone on to finish high school and obtain college degrees. They have returned to take leadership at Door Step School and in their communities,” said Ms Lashkari.

Take Hanumanta Deora, for example.

At the age of nine, while working at the docks, he started his studies with Door Step School. He graduated with a diploma from the Institute of Hotel Management, Catering Technology and Applied Nutrition in Mumbai, and is now working in New York at the Carnival Cruise. Rehmuddin Shaikh was enrolled in the balwadi class at the age of three and also developed his passion for rugby. Today, he balances his time as an administrative assistant and is coaching the Mumbai Magicians rugby team. He is still associated with Door Step School. He recently won a gold medal in the National Games for a team rugby event.

Door Step School plans to scale up its activities this year to include more children and extend its outreach. Professionals like doctors, counsellors, lawyers and social entrepreneurs can voluntarily offer their service to the organisation. Door Step School also welcomes volunteers who can help design teaching aids, provide teacher training, organise activities and act as coordinators or software developers for various projects. Donations to Door Step School are exempt under Section 80(G) of the Income-Tax Act.

MONEYLIFE | 19 May 2011 | 66

Beyond_money.indd 1

4/28/2011 9:20:16 PM

NOW A FUND THAT’S TRULY GOOD AS

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