Personal Finance Magazine Moneylife 22 September 2011 by Moneylife Digital

SUCHETA DALAL ON: SAHARA GROUP: CHEEKY, CASH-RICH & COMPLEX Personal Finance Magazine

GOVERNANCE: HEAD HONCHOS SPILL THE BEANS

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GRAFT: OUR PEOPLE HAVE HAD ENOUGH

22 September 2011

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S A V E on Your

Car Insurance CURRENT ACCOUNT 16 Poor Governance, Poor Returns A New Pension Bill. But Will It Work?

FUND POINTERS 25 Hybrid Schemes Post Hybrid Returns Capital-protection Funds’ Poor Returns From where you buy, your vehicle, and your personal profile—all can reduce your car insurance rates

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Volume 6, Issue 15 9 September – 22 September 2011

Debashis Basu

Editor & Publisher editor@moneylife.in

Sucheta Dalal

Managing Editor suchetadalal@yahoo.com

Editorial Consultant Dr Nita Mukherjee

Editorial, Advertisement, Circulation & Subscription Office 315, 3rd Floor, Hind Service Industries Premises, Off Veer Savarkar Marg, Shivaji Park, Dadar (W), Mumbai - 400 028 Tel: 022 2444 1059/60 Fax: 022 2444 2771 E-mail: mail@moneylife.in

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C/o Rajnidev, 15-2-16,1st Floor, Shop No.9, (Near Ramdas Paper Mart), Gowliguda Chaman, Hyderabad - 500 012 Moneylife is printed and published by Debashis Basu on behalf of Moneywise Media Pvt Ltd and printed at Magna Graphics,101C&D, Government Industrial Estate, Kandivli (West), Mumbai - 400 067 and published at 315, 3rd Floor, Hind Service Industries Premises, Off Veer Savarkar Marg, Shivaji Park, Dadar (W), Mumbai - 400 028 Editor: Debashis Basu

RNI No: MAHENG/2006/16653

Letters to the Editor HIGH MEDICLAIM COMMISSION

Agents selling mediclaim policies get a commission of 15% on the premium policyholders pay. While this huge commission may be justified to a certain extent for acquisition of new customers in this highlycompetitive field, there is no justification whatsoever for doling out this percentage on an ongoing basis, year after year, to these agents. There was a time when these agents kept a tab on the maturity date of a mediclaim policy and visited the house of the beneficiary and got the policy renewed. Nowadays, most insured persons (beneficiaries) renew the policy on their own either through electronic transfer, or pay across the counter. These days, there is no need to coax people to renew their policies because everyone knows about the high cost of hospitalisation. So where is the justification to pay commission to these agents every year?

In all cases where the beneficiaries do not route the premium through agents (i.e., pay the premium across the table or via bank transfer), the concerned development officer/ manager in these assurance companies stands to benefit immensely. The 15% commission is shared between the manager and the agent who is close to him. Records are created to show that these premiums are routed through this (dummy) agent. The ongoing rate is 5% for the ‘agent’ and 10% for the manager. The 1 ‘agent’ would probably take whatever is doled out, even a cut lesser than 5%, because anyway he has not put any effort to collect the premium. IRDA (the Insurance Regulatory and Development Authority) should intervene and stop this daylight robbery. NN Bala, Bengaluru, by email

STREET REPEAT

I am a regular subscriber to your magazine. I really enjoy and appreciate the articles that are published with such truthfulness and integrity. Truly, Moneylife stands head and shoulders above of all other personal finance magazines. I would like to point out that every issue has at least two stocks which are covered under Write to the Editor! The only investment that the Street Beat Win jewellery section. But there enhances your face value. is no periodic review of these recommendations. It will be great to have such a review. At a time when the markets Congratulations NN Bala from Bengaluru! are choppy, it Your letter to the Editor wins a Surat Diamond gift. may be prudent Keep writing! Keep winning! to do some ``

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LETTERS

` selective stock shopping. I would

like you to revisit some of the Street Beat stocks and provide a fresh recommendation or review to help readers pick up some real gems. Jimmy Thomas, Ahmedabad-380 015, Gujarat, by email Thanks for writing in. We do carry periodic reviews of our stock picks on a regular basis. — Editor

SECTOR FUNDS ANALYSIS

I refer to your article on sector funds “Awful Choice” (Moneylife, 11th August). I would like to thank

you for bringing out this report, as I have not come across such a study for a long time. However, the report does not appear to be exhaustive. There are a lot of gaps in the arguments over investment decisions. For instance, the analysis should have compared sector-wise top 10 funds with their respective benchmarks to reach a conclusion on their performance compared to diversified equity funds and their performance respective to their benchmarks. I am sure this will reveal a very different picture as far as the performance of sector funds is concerned. Please refer to Morningstar’s report

on 2010 Fund Performance. The top 20-30 schemes are sectoral. Surely, the guiding principle is choosing the right scheme by looking at the fundamental and technical side before investing (something which is not mentioned in your report). Even in the equity diversified space, not more than 60% of the available schemes manage to beat their benchmark. So to say that it is better to invest in broad-based schemes may be a principle that is followed only by the uninformed and risk-averse. Another way of looking at a sector is that it rises faster then the entire economy as a whole. So if Indian ``

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

SEIZE THE MOMENT

read with great interest the highly thought-provoking article of Vinita Deshmukh on “Understanding the Heart and Soul of Anna Hazare’s Movement” — Moneylife website exclusive (on 23 August 2011). The issue, today, is that the so-called intellectual writers and indifferent politicians are not able to visualise the demographic shift that has taken place in the country. They somehow seem to mistake the young crowd, which has voluntarily come out in the open to support team Anna, as something similar to the hired crowd of goons and thugs seen at election and political party meetings. One has to be blind not to appreciate the groundswell of support to the anticorruption movement pioneered by Annaji as it affects every citizen of India—cutting across class, creed and colour. The people of India have seen through the machinations of the present government, its dillydallying and delaying tactics and trying to take cover of parliamentary rules & procedures to hoodwink the people from getting a strong Lokpal Bill. What our country needs to understand is that it cannot depend solely on politicians and elected members of Parliament to pass an anti-corruption law which will be mainly targeted at them and the bureaucrats serving them. Like the several failed attempts made in the past 30-40 years to enact a Lokpal Bill, the

present Jan Lokpal Bill would not have seen the light of day if it were not brought into the public domain by Team Anna. However, the logjam between the government and civil society members on which Bill should be passed, needs to be broken at the earliest so that the present popular demand of the public is not hijacked by vested interests or allowed to wither away. The issue of corruption requires national debate and participation of all right-thinking people and the best way to go forward is to form an apolitical ‘National Advisory Council’ comprising serving/retired judges, notable public figures and NGOs, etc, who will look into the various legal and social aspects of the governmentsponsored Lokpal Bill and the Jan Lokpal Bill to elicit the views of various public bodies. This process should be completed within a reasonable timeframe of, say, two-three months. The government, if it is sincere, should then present the final draft Bill to Parliament for debate and enactment into a law. It’s time that the nation seized this ‘Anna Hazare movement’ against corruption and created a sense of national emergency to have strong and effective Lokpal & Lokayukta Acts at the Centre and in the states. A taste of what the Lokayukta can do to pin down political corruption was recently witnessed in Karnataka. I hope this message will not be lost on the nation in the din and fury of enacting an effective Lokpal Bill. GR Chari, Hyderabad, by email

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LETTERS

` GDP (gross domestic product)

or the Nifty? Bulls and bears are Write to the editor! If yes, could grows at 8.5%, the auto or pharma unpredictable. Invest in diamonds. Win jewellery you please sector will grow at a pace of 15%mention 20% year-on-year. You could have those? There done value-addition by educating are a few readers on how to identify business advantages cycles, factor in economic reforms to buying a and capturing the macroeconomic normal fund landscape before specifically Write to the editor. If your letter is the best, You’ll compared to identifying mismanaged schemes. Win Surat Diamond jewellery. an ETF. So your analysis which states that 2. When I go “several schemes are benchmarked investing in something which has to any bank’s ATM, the machine to proprietary indices, making already rallied does not make much asks me whether I have a savings it impossible to measure their sense. — Editor account or a current account. This performance” cannot make these happens even if the ATM and the funds unreliable or underperformers. card are of the same bank! Why do You also say that around “seven TELL ME WHY ATMs waste time on asking this sector funds are benchmarked Thanks for bringing out a very question? Once I have inserted my readable magazine. The content card and keyed in the PIN (personal that you cover, and the views you identification number), the machine express, are unmatched in any other should identify the type of account I hold, right? Or is it the case that a personal finance magazine. Thanks single ATM card can be linked with a lot. two different accounts? I have two questions for you. As long as a single ATM card is 1. When the topic of index funds linked with only one account, this comes up, why does everyone mention only ETFs (exchange-traded question of again having to specify the account type (‘savings/current’) funds) like NIFTY BeES? Are there is pointless. no ‘normal’ mutual fund schemes Sujay Patankar, by email that track an index like the Sensex

to indices which are strange constructs” and called them “oddball” schemes. But, in this list, a fund like Franklin Pharma has a positive alpha and a good Sortino ratio and has performed well above its benchmark. Vikram Singh, Noida-201 301, Uttar Pradesh, by email The basic problem of sector funds is that they are launched not when a sector is about to start a major rally but when it has already run up a lot. It is hard to tell in advance which sectors would do well. And

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

22 September 2011

FROM THE

EDITOR Drive Your Rates Down

e don’t pay much attention to our car insurance. As a Moneylife survey reveals, most people hardly pay any attention to it. But you can save money there too, as our Cover Story this time reveals. It is another comprehensive and first-of-its-kind analysis on insurance, the leastunderstood aspect of personal finance. It also tells you about the enormous changes that are likely to come. Today, cars are being insured; it will also become insurance for drivers. After all, drivers cause accidents and not the vehicles. Today, good drivers pay for bad drivers. But this will change. Be ready to take advantage of it. Why does Mumbai, one of the world’s biggest cities, come to a grinding halt for a few days every year? Because the exits for rainwater are clogged with garbage. We bring you the story of an NGO which has been trying to improve sanitation and put in a waste-management system—doing the work that our civic authorities are paid for from our taxpayers’ funds. I am really overwhelmed by the quantity and quality of responses that we have been receiving on our website www.moneylife.in. Beginning with this issue, we bring you a section which will bring you the best of reader responses from our portal. Small enterprises can have the biggest of ideas. And these ideas draw capital funding from private equity. The Enterprise section in the Moneylife issue you are about to read will tell you about one such successful entrepreneurial effort which started off with a need that was sorely waiting to be fulfilled—and it just proves that the best of efforts never go unrewarded. Our Earning Curve section will help you to understand your requirements in your twilight years and ensure that inflation does not destroy your nest-egg. Travel with us to Washington (the US state, not the capital) and explore a few wonders of America which are not manmade, but shaped by nature. For those of you who could not attend the Moneylife Foundation session on managing your credit history, we have a report. And very soon we will be in a position to at least bring you some of the essential parts of these programmes. Our video vertical is taking shape rapidly. Become a Foundation member, if you already have not. Debashis Basu

28 Cover Story

Save on Your Car Insurance

The insurance channel from where you buy, your vehicle, and your personal profile can reduce your car premium rates. An exhaustive analysis of car insurance by Raj Pradhan

13 Your Interest Pharmas reap profits from harmful combo drugs; Fewer doctors for Indians; Rickshaw body chief attacked on licences; IMEI of your mobile: It helps; Resolve complaints in a month: SEBI

14 Your Money Life insurance premium dips 22%; JPMorgan’s NFOs; SEBI: More disclosures in ads needed; Wealth management: RBI steps in; Only 0.60 million service-tax payers file returns; IndusInd Bank launches IndusMobile; ICICI Bank improves online mobile payment service; India to have 46 million mobile Web users

16 Current Account – Politically backed companies have performed badly and repelled investors – Even if the Act is passed, the NPS is full of holes – WikiLeaks is leaking—and a mole could be causing the trouble

19 LOOSE CHANGE Moneylife Quiz; Soundbites 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

LEGALLY SPEAKING LEGAL

52 Beyond Anna

Never be-Sahara: The group is a strange entity—high profile & shadowy; Regulatory Reforms: When were they transparent? Lawyers & accountants (caught) breaking their silence

India possibly has the largest number of law laws. But what about their effective implementation? imple ML FOUNDATION EVENTS

DIFFERENT STROKES

People’s Wrath

The public is disgusted and angry over rampant corruption. Will politicians listen? SMART MONEY

Corporate Bonds

The rush of NCDs, especially of NBFCs, is fraught with risks

STOCKGRADER 41 Momentum

Renuka Sugars rose 11% and Balkrishna Industries climbed 7%, while Dish TV fell 1%

Medium Term

Dabur jumped 8% and Shoppers Stop rose 6%, while 3M India declined 5%

Long Term

Titan gained 7%, Berger Paints added 1%, while Godrej Consumer Products fell 1%

FUNDS

History 53 Credit & Credit Score Mohan Jayaraman, COO, Experian Credit Information, addressed a workshop on credit information records and credit scores which influence bank decisions in sanctioning loans SAVING AND INVESTING

58 Retirement Fund How much is enough? TRAVEL

25 Fund Pointers – Hybrid schemes post hybrid returns – Which schemes are best placed to ride up? – Capital-protection funds’ poor returns

INSURANCE

46 Insurance Trends Life Insurance: Why do customers let life policies lapse? “There is more awareness of life insurance than medical insurance, thanks to LIC” — Max Bupa Health Insurance Fine Print: Mediclaim for Seniors; Small Car Premiums May Rise

60 Washington: Rainforests & Volcanoes Jaideep Mukerji visits an iconic state in the US which offers grand landscapes and endless opportunities to visit historic and scenic locations

AUTO

New Maruti Swift: 48 The More of the Same STOCKS

37 Street Beat Vivimed Labs: Expansion of facilities & new projects will ensure growth; SML Isuzu: Strong financials and good growth prospects WHICH WAY

New Consensus

The herd has done a U-turn

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The interiors have been altered, but its headlights and tubeless tyres need some modification, says Veeresh Malik

ENTERPRISE

50 AinClick Time What can you do if you are faced with a medical emergency that requires immediate treatment from a super-specialist? MediAngels marries medicine with technology—to deliver a doctor on call via the Internet, reports Disha Shah

BEYOND MONEY

66 Waste to Wealth

Garbage Concern tackles the problem of rubbish and imparts knowledge on the matter of filth, finds Shukti Sarma

DEPARTMENTS Letters ............................ 4 Book Review ....................56 Living .............................59 Money Facts ....................63

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www.moneylife.in

If you haven’t clicked on the Moneylife website yet, here’s ’s why yyou ou sh should.

news 13 reasons

CAMPAIGN AGAINST

Understanding Anna’s Movement The snobbery of intellectual writers and insensitivity of the political class is a shame — Vinita Deshmukh

Check Big Deals India is one of the few countries that does not have a law on public procurement and, in the context of the scams that have occurred over the past 12 months, this cannot go on unchecked — Ramesh Arunachalam

We Are the Change The movement led by Anna Hazare shows there’s a lot that can be done even without an anti-graft law — R Vijayaraghavan

Pornography of Elite Corruption If one digs deeper into why the Jan Lokpal is not progressing, with the mainstream media focusing on ‘small corruption’ and business media maintaining silence, one finds huge numbers — Veeresh Malik

why you must visit the Moneylife website HAVE YOUR SAY Vote in the Moneylife poll on the top issues of the week Do you believe that our elected representatives will enact an eﬀective Lokpal law once Anna Hazare gives up his fast?

11% 71%

Hall of Shame The economic incentives of agents who run the institutions are to enrich themselves. But if corruption is exposed and disincentives high, corruption would cease — William Gamble

Yes No Can’t Say

18%

ML FOUNDATION

OTHER NEWS

MARKET WATCH

Investor, Empower Yourself!

You had better not miss

Bounce Back

>> Mohan Jayaraman, COO, Experian Credit Information Co of India, addressed a workshop hosted by Moneylife Foundation on 23rd August, on the importance of maintaining a good credit. To register log on to www.mlfoundation.in as a member and you too can participate in these regular programmes and benefit from the services of the Foundation. Membership is free

Do It My Way

The market has bounced back just like we expected. But can this sustain? We analyse the movement for you, day after day

on twitter

Moneyweb.indd 1

If you are a twi erer, type http://twitter. ty com/Mldigital to pick co up Moneylife exclusives, u up to date news and u reports on our activities

An internal study by SEBI confirms what Moneylife has been saying—total subjectivity in the way consent orders are passed

SEBI Drags Its Feet The ombudsman scheme for the capital market was notified by SEBI eight years ago, but it has not been implemented

S&P CNX NIFTY 5,180 5,090 5,000

Jewel Cut Short by Diamonds

4,910

On 25th July, Shehla Masood (38) wrote against diamond mining by Rio Tinto in MP. Three weeks later, she was shot dead outside her house in Bhopal. Is there any protection for whistleblowers in the country?

4,820

PEs Slip The crash of the KS Oils stock underlines the perils of how big-time private equity funds can also get it very wrong

4,730 10 Aug-11

21 Aug-11

02 Sept-11

Weighing Options The markets are poised on a tightrope and could go anywhere from here. We consider three possible scenarios and probable outcomes to help time your investments

TO GET THIS AND MORE... SUBSCRIBE TO OUR DAILY NEWSLETTER FOR FREE

9/3/2011 4:35:19 PM

Your Interest

Consumer Interest

Pharmas Reap Profits from Harmful Combo Drugs

own to Earth, the environment fortnightly, has reported that Indian pharma companies are flooding the market with irrational drug combinations that are freely prescribed by doctors and sold over the counter. These formulations, which combine two or more active ingredients in a pre-determined ratio, are said to be harmful. For instance a combination of ferric ammonium citrate, B12, folic acid and alcohol prescribed for anaemia, can be harmful as ferric

salt is poorly absorbed by the body and alcohol is not necessary for treating anaemia. Pharma firms earn bigger profits through these combos which enable them to circumvent the Drugs (Prices Control) Order that has a price ceiling on

Fewer Doctors for Indians

tatistics from the Medical Council of India (MCI) show that 767 doctors have le the country in the first seven months of this year, even as the Planning Commission estimates that the country needs 0.6 million doctors, 1 million nurses and 0.2 million dental surgeons. The numbers from MCI are based on ‘Good Standing Certificates’ it issues to doctors going to work abroad. India has one doctor or for every 1,700 people, compared ared to China which h has 1 for 1,063,, the UK 469, the USS 350 and Germany any 296.

Rickshaw Body Chief Attacked on Licences

TI activists continue to be targeted for asking questions about matters of public interest. Jaisukh Bambhania, 39, president of the auto-rickshaw drivers’ union, was attacked with swords and pipes and acid thrown on him on 24th August, allegedly at the behest of government officials and local politicians. Mr Bambhania who is from the Union Territory of Diu sought information about had sou licences being issued by bogus li the RTO to vehicle operators who to tourists rent two-wheelers two and a an d the illegal construction of a restaurant on government land. restaura

Remembe Yo Mobile. Mo Remember IMEI of Your It Helps

he Chandigarh Consumer Disputes Redressal Forum has penalised an authorised dealer of Sony Ericsson India for interchanging a customer’s handset with a second-hand instrument, and ordered it to give him a new handset with the original configuration and a fresh warranty. Sohan Singh had given his phone to be repaired and, when, he received the instrument back, he found from the International Mobile Equipment Identity (IMEI) number that it was not his phone. So he approached the consumer court and won the case.

Edited & Compiled by: Mario Rodrigues & Alekh Angre

Your Interest.indd 1

Public Interest

Investor Interest

74 basic drugs. Ciplox TZ, an antibiotic prescribed for stomach-related problems, is a combination of ciprofloxacin and tinidazole. While ciprofloxacin has a ceiling of Rs24 for a packet of 10 tablets, tinidazole is not covered by price control and is sold at Rs51 for 10 tablets. The combination is sold at Rs105, four times the ceiling price of ciprofloxacin. Moneylife has reported how drug companies are selling medicines at hugely inflated prices, taking advantage of the poor knowledge of consumers, malpractices indulged in by doctors and weak regulation.

“Garibi Hatao is as much a slogan as Bhrashtachar Hatao. Why is one acceptable and the other not?” — Shekhar Kapur filmmaker, on Twitter

Resolve Complaints in a Month: SEBI

tock brokers and sub-brokers are required to redress investor complaints within a month and failure to do this could invite penal action. This was announced by the SEBI in June after the market regulator established the SEBI Complaints Redress System (SCORES) that will collect complaints electronically, to quicken the redressal process. The system will also pursue complaints against stock brokers and sub-brokers. SEBI has also asked llow bourses to follow aints up on complaints with brokers and devise a m penalty system for noncompliance.

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Your Money LIFE INSURANCE

Premium dips

22% A

fter mutual funds, is the insurance business on a downturn? According to the insurance regulator, life insurance premium collection fell 21.77% during the April-July period. In Q1 FY11-12, premium collection of LIC fell 20.56% to Rs19,406.67 crore from Rs24,430.73 crore in the same period last year. For 22 private life insurers, the drop was 24.76% to Rs7,387.80 crore (Rs9,818.50 crore a year ago). One reason for the drop: pro-consumer regulatory changes.

REGULATION

More Disclosures

EBI has asked mutual funds (MFs) to include more details in their ads to help investors take informed decisions. Apart from the current norm of disclosing returns from the benchmark index, MFs will now have to disclose returns since inception and one-, two- and three-year returns. For a scheme in existence for at least a year (but less than three years), returns since inception along with oneand two-year returns have to be declared. Returns from the broader index will also have to be declared for comparisons over

MUTUAL FUNDS

JPMorgan’s NFOs

PMorgan Mutual Fund has filed an offer document with SEBI to launch two schemes. India EDGE (Equity Debt Gold Exposure) Fund is an open-ended hybrid fund offering two schemes—Regular Income Scheme (RIS) and Next Gen Scheme (NGS). RIS will invest 65%-95% in debt and money-market instruments. NGS will invest 65%-95% in equity and equity-related securities and 5%-

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15% in gold. India Focus Fund is an open-ended equity growth scheme. JPMorgan’s two existing schemes have done quite badly. JPMorgan India

Equity and JPMorgan India Smaller Companies, launched in 2007, have given returns of 5% and -8%, respectively, since inception.

the same time periods. SEBI has specified indices for all funds now, in addition to those that MF houses fix for their schemes. MFs also have to give absolute return figures in rupees with the compounded annual growth rate expressed in percentage points which will make comparison easier for investors. If a fund manager manages more than six schemes, MFs have to disclose the total number of schemes managed, with performance data of the top three and bottom three schemes. To curb misselling, SEBI has said that MFs need to ensure that a distributor being empanelled with them has its sales and relationship department de-linked to the department which evaluates customer risk profile and investment objective.

NEW LAUNCHES

Mobile, Online Banking

ndusInd Bank has launched IndusMobile which allows customers to bank anytime through their mobile phone. Customers can transact at no cost, with a high level of safety. Customers will also be able to perform mobile-to-mobile funds transfer, NEFT and RBI’s interbank mobile payment service. ICICI Bank has made its online moneytransfer tracking service ‘Money2India. com’ more convenient to access through

Edited & Compiled by: Mario Rodrigues & Dolly Mirchandani

9/2/2011 9:34:10 PM

WEALTH MANAGEMENT

PLASTIC CARDS

RBI Steps In

Mutual Cards

n tandem with SEBI, the RBI will formulate rules for wealth management services, as it feels that banks are offering services beyond the regulatory framework. This was discussed at a meeting of the subcommittee of the Financial Stability and Development Council in August. Guidelines permit banks to give only non-discretionary (advisory) services. There has been a ‘blurring of activities’ between non-discretionary and discretionary services (like investment management), according to FSDC. There have been cases of banks offering a wider gamut of services than permitted under the existing guidelines. RBI and SEBI had circulated a questionnaire to banks offering these services. These norms are being revised after a Rs460.91-crore fraud at Citibank’s Gurgaon branch last year, when depositors and HNIs were duped. Citibank’s global wealth manager Shivraj Puri is an accused in the scam. RBI has imposed a Rs25-lakh fine on the Bank for not following accountopening and anti-money-laundering norms at the branch. These services are targeted at HNIs.

mobile phones with GPRS connections. NRIs can track exchange rates, money transfer request status and place new requests for money transfers from any bank in 15 countries to any account with more than 100 banks in India. The website also features the ‘Fixed Rupee’ facility that offers confirmed at the request rates a initiation stage init and enables NRIs to meet NR their fixed rupee thei payout needs in payo India. India

TI Mutual Fund is offering its investors an option to invest in MF units byy usingg their Visa-enabled debit cards and SBI debit deb cards. So MF offered its far, UTI M investors an online investor investment inve facility which f enabled them to purchase, redeem, switch redeem for systematic units and register fo using the Internet investment plans (SIPs) usi banking platform.

Rupee Wise

early a year after the launch as a limited-service debit card, Rupay Card will offer full-service debit card services by the end of FY11-12, the National Payments Corporation of India (NPCI) has said. In April, NPCI had developed the Card that is used by cooperative banks offering limited service. The Card, once commercially launched as a full-service debit card, may replace global real-time payment processing leaders—Visa and MasterCard—from the domestic payment system.

TAX

Service Tax: Only 0.6mn File Returns

he revenue department is trying to locate 0.90 million business entities which have stopped filing service-tax returns, with a view to improving collections, to meet the Rs82,000-crore target in 2011-12 and to ascertain whether there is any tax evasion. There are 1.50 million registered service-tax payers in India. According to the Central Board of Excise and Customs (CBEC), only 0.60 million servicetax payers are filing their returns. The Department is taking a number of steps to increase indirect tax collection. In the April-July period, the growth in service tax collection was estimated at 35.5%, CBEC said.

MOBILE WEB USERS

India to Have 46mn Mobile Web Users

ndia will have 46 million mobile Web users by September, says a report from the Internet & Mobile Association of India and research f rm IMRB. Mobile applications (with 5.40 million active users) are being used for work and fun. Digital literacy, cheaper smart-phones, lower subscription rentals and greater awareness of the medium are spurring mobile Web growth.

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CURRENT ACCOUNT

b u s i ne s s & p ol it ic s

Right over Might One fallout of the anti-corruption agitation: politicallybacked companies are having a tough time

e recently published an article on our website on how several construction and pharmaceutical companies in the Visakhapatnam and nearby regions have flouted several environmental norms. Like Lohitha Lifesciences, whose environmental impact assessment (EIA) report is lifted verbatim from that of a sponge-iron factory! Or Nagarjuna Construction’s Nelcast, which got clearance for its thermal power plant through dummy coal linkages. What makes such dubious practices flourish? Political connections, of course. This is the reason many Indian companies which are in construction, infrastructure and raw materials have done so well in good times. Many of them are based in Andhra Pradesh, were links between business and politics is very close. How have investors treated these companies? They have been in bed

with these promoters thinking that their clout will earn them super normal profits. Writing in www.vccircle.com, Saurabh Mukherjea, now head of equities, Ambit Capital, recalls that in 2008, when he looked at the financial statements of a Hyderabad-based infrastructure company, he could not make sense of them. When he asked some tough questions, the chief financial officer of the company told him: “Look, this is the way things are in India. You need to get used to it.” When Mr Mukerjea published his ‘Sell’ note on the company, he was threatened by the CFO in Bollywood-style language. And investors? Some of them reminded him that “You have to accept these political connections… This company is a prime play on the ‘power deficit’ story in India.” In the next couple of years the

company’s stock trebled, as it won more contracts and was given water and fuel linkages. And then came the countrywide scandals and the stock crashed. Will fundamentals be more important in future? “It won’t be enough for these companies to have one or two powerful people sitting on their boards and expect a premium valuation from investors due to the presence of these luminaries,” Mr Mukerjea writes.

This is one positive fallout of the anti-corruption agitation. In the past two years, a series of major scams have been exposed in India and popular mandate has turned against tainted leaders. This has spelt doom for businesses owned or backed by politicians. DB Realty, Sun TV, Reliance ADAG group, Kalaignar TV—all are in the doghouse. Investors deserted these and turned towards companies which were credible, accountable and transparent. Even names like the Jindals and the Tatas took a blow because of their association with these companies. In the next bull run, the stocks that have strong or medium political ties but with weak fundamentals, might not be able to outperform. In contrast, companies with clean accounting and solid franchises should be in high demand. At least that is the hope.

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CURRENT ACCOUNT

R E T I R E ME N T

PFRDA Bill, A Long Road Ahead Even if the Act is passed, the NPS is full of holes

he Pension Fund Regulatory and Development Authority (PFRDA) Bill is about to be converted into an Act. On 30 August 2011, the Standing Committee on Finance, headed by Yashwant Sinha, former finance minister, presented the Bill to the Lok Sabha after a lot of changes and suggestions. However, it is not certain whether the New Pension System (NPS) will achieve its basic purpose, after the Bill is passed. For instance, returns from the NPS for Central government employees, has been anything but smooth. It has ranged between 16.38% (State Bank of India, SBI) and 8.05% (SBI) during the period from 2008-09 to 201011. In contrast, the Employees’ Provident Fund Organisation (EPFO) has declared rate of return for subscribers to the Employees’ Provident Fund (EPF) at the rate of 8.5% for the year 2008-09 and 2009-10 and 9.5% for 2010-11— although by a sleight of hand. Now, we know that investors shun volatility. There is limited participation in mutual funds due to the very same reason. Certain mutual funds may have a tremendous track record (giving yearly compounded returns of 22% since inception); yet, investments in these funds are low because Indian investors look for investments with guaranteed returns. Therefore, without adequate investor literacy and handholding, it would be difficult to get investors to participate in the NPS or any other market-linked investment product. As mentioned by the

Committee, “It requires a huge educational and awareness effort to inform and enthuse the workers to join a pension system with no easy withdrawal benefits for 30-40 years.” So it is not a surprise that from the unorganised sector, only around 0.3 million subscribers have so far joined the ‘Swavalamban’ pension scheme, and that only around 51,000 have joined the voluntary part of the NPS so far.

The committee is rightly concerned about volatility of returns vis-à-vis the old pension system, under which a retiree is guaranteed a monthly pension amounting to 50% of the average of the pay drawn in the last ten months of service and the facility of commutation.

The Committee has proposed that the investment guidelines should be framed by PFRDA in such a manner that, besides the other financial instruments, an option would be given to the subscribers of the NPS where 100% investment in government securities would be permitted. This would be similar to bank fixed deposits for investors as they would earn interest along with capital protection. How far this would influence participation still remains a big question. Withdrawal Flexibility A big problem of NPS is that it provides for a ‘non-withdrawable’ and compulsory Tier-I account and a voluntary Tier-II account. Anyone who wants a ‘withdrawable’ facility has to opt for the Tier-II option also. This is messy. The Committee, therefore, suggests that even in the case of a Tier-I account, an element of flexibility should be provided under the NPS to enable subscribers to withdraw funds to meet unforeseen and urgent expenses. For instance, subscribers could be allowed to take one repayable advance from their accounts after completion of 15 years of service and also permanently withdraw up to 50% of their contribution after completion of a minimum of 25 years of service to meet expenses on exigencies which should be appropriately listed by regulations. While laudable, wouldn’t this introduce an element of arbitrariness? India is famous for red-tape and corruption. This regulation would just put an additional burden on the investors who wish to withdraw from their fund. Instead, the Committee should have suggested a minimum percentage of withdrawal from the Fund for a particular period. This would have been easier to understand and implement.

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CURRENT ACCOUNT

me di a

Hacking the Messenger WikiLeaks is leaking—and a mole could be causing the trouble

he whistleblower site has been hit by a cyber-attack. According to a Reuters report, the website which had governments all across the globe thinking that Armageddon would have been a better thing to have happened to them, is itself under siege. The report quotes a message on giant-killer Julian Assange’s Twitter page which says that “WikiLeaks.org is presently under attack.” Now, what could have triggered this admission from the site? Other reports indicate that there has actually been a leak in WikiLeaks. This ‘message’ from the site could

BOTTOMLINE BY MORPARIA

selectively leaked to a few ‘chosen’ publications around the world, ostensibly to protect the identities of the people responsible for the leak. Now, Der Freitag claims that it has the unvarnished stuff. There are sure to be claims and counter-claims floating around, with a few Australians, Germans and, of course, the Swiss, having a go at all comers. But the reason for all this brouhaha can be summed up in two simple words—media fatigue. When the first bunch of cables hit the world, it seemed like many skeletons (each the size of Tyrannosaurus rex) would come tumbling out of many official cupboards. Sure, some of the revelations were damning and nobody who was anybody in WikiLeaks founder Julian Assange authority questioned the veracity of these cables, but the whole issue website. The German magazine’s editor claims that a former employee seemed to have died a (natural) death. Now what better means than of WikiLeaks was responsible for a controversy to breathe some life this leak. Assange used to ‘edit’ into WikiLeaks again? the diplomatic cables that were have been triggered by German magazine Der Freitag claiming that it had ‘uncovered’ a bunch of unedited diplomatic cables from the

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LOOSE CHANGE

Surprise Gift for Quiz winners from:

Moneylife Quiz - 110 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 18 September 2011.

Sound Bites “Corruption has become worse and if you choose not to participate in this, you leave behind a fair amount of business” – RATAN

1. How many capital protection funds were in existence before January 2011? a. 13 b. 15 c. 18 d. 22 2. Who is the co-founder of MediAngels? a. Dr Wilson D’costa b. Dr Debraj Shome c. Dr Praful Surana d. Dr Kartik Prabhu 3. Who is the marketing head of Pizza Hut? a. Shyam Singh b. Nirav Mehta c. Sunay Bhasin d. Mohan Padhye 4. When was Olympic National Park designated a World Heritage Site by the United Nations? a. 1965 b. 1969 c. 1979 d. 1981 5. Who is the chief operating officer of Experian Credit Information Company of India? a. Nandan Joshi b. Mohan Jayaraman c. Anirudh Roy d. Aniket Shah 6. Which NGO did professor Francin Pinto join in 2004? a. Clean City b. Green India c. Oasis d. Environment Solutions 7. When was Le Waterina Resorts & Hotels incorporated? a. July 1987 b. January 1989 c. August 1995 d. April 2000 8. What percentage discount does ICICI Lombard General Insurance offer on online transactions for car insurance? a. 1.5% b. 2% c. 2.5% d. 3.5% The answers to Moneylife Quiz-109 are: • 1-a. Mussoorie • 2-b. Robert Arnott • 3-c. 1994 • 4-d. Yashish Dahiya • 5-a. 2010 • 6-b. Shakil Ahmed • 7-c. Wabco TVS (India) • 8-b. Sony Corporation In all, 24 readers got all the answers right last time. The winner of Quiz-109 is Krishna Priya from Bengaluru. Congrats! You will get a surprise gift from Surat Diamond Jewellery.

TATA, CHAIRMAN, TATA SONS, to PTI

“The centre of gravity will surely move to Asia as India and China grow, but smaller populations like Canada or New Zealand/Australia will still continue to do their own thing. You can have the centre of gravity on Mars, it doesn’t matter. What matters is how you spend the money on improving living standards for your population” – SP KOTHARI, DEPUTY DEAN, SLOAN SCHOOL OF MANAGEMENT, MIT, in Business Standard

“Our leadership is fine. We are drinking tea and coffee” – SAIF AL-ISLAM GADDAFI, SON OF OUSTED LIBYAN LEADER, MUAMMAR GADDAFI, in Time

“Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank” – BEN BERNANKE, CHAIRMAN, US FEDERAL RESERVE, to Bloomberg 19 | 22 September 2011 | MONEYLIFE

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

G A ME S C O MPANIES P L AY

Never be-Sahara This group is a strange entity—high profile and shadowy

ahara India Financial Corporation’s (SIFC) frontpage ad about its plan to prepay a huge Rs73,000 crore, four years before a Reserve Bank of India (RBI) mandated wind-up, had financial intermediaries sniggering and regulators red-faced. As a pink paper said, Rs73,000 crore amounts to 1% of India’s GDP (gross domestic product). If the group could generate that kind of cash, why was it in a hysterical war and litigation with SEBI (the Securities and Exchange Board of India)—involving many newspaper advertisements criticising SEBI— after it was asked to refund just over Rs6,500 crore raised through hybrid debentures in unlisted entities—Sahara India Real Estate Corporation and Sahara Housing Investment Corporation? Now, Sahara is a strange conglomerate—both high-profile and shadowy. It seems to have endless funds to spend on expensive indulgences like building a brand new hill station, sponsoring the Indian cricket team, buying the Pune IPL franchise far away from its Lucknow headquarters or snapping up the famous Grosvenor Hotel in London. At

the same time, group finances are extremely complex, they cover a clutch of listed & unlisted entities and the source of their enormous revenues and profits are hard to decipher. Sahara has long been under close regulatory scrutiny; yet, its audacious announcement is opaque and unclear on detail. For instance, in 2008, SIFC, a residual non-banking finance company, apparently had Rs20,000 crore in deposits, which were to be wound up by June 2015. So what is the composition of this Rs73,000 crore, especially when the RBI order had asked it to gradually

strangely unperturbed by any regulatory action against group entities. At the time of going to press, the RBI had no answers. However, the fact that a financial conglomerate can issue such a preposterous advertisement (there is no logo; nor does it identify any signatory by name) with no intimation to the RBI only shows the regulatory system in very poor light.

REGULATORY REFORMS

Cleaning Up Appointments When were they ever transparent?

Subrata Roy—The eternal survivor

bring down aggregate liabilities to Rs15,000 crore by June 2009 and Rs9,000 crore by June 2011? More importantly, where will the money come from? The group’s total finances and profitability have always been a mystery. According to sources, the Sahara group has got permission to set up a multistate cooperative and could simply transfer deposits from SIFC to that entity. It is not clear if this will happen; the company certainly has not said so. Interestingly, Sahara’s enormous depositor base is also

set of high-profile retired government officers have filed a public interest litigation (PIL) in the Supreme Court of India (SC) challenging the composition of the search-cum-selection committee to shortlist the chairman and members of SEBI. According to a report in The Times of India on 27th August, the SC disapproved of the personal attack on finance minister Pranab Mukherjee, contained in the petition. Legal sources said that the petition will be filed again after removing the offending remarks. However, the contents of the petition are not known so far. According to the news report, the petitioners comprise Air Chief Marshal S Krishnaswamy (retd), former Mumbai supercop Julio ``

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` Rebeiro, former CBI (Central

Bureau of Investigation) joint director BR Lall and Professor HC Pande. The four were also part of a group that filed a petition for the removal of former CVC (chief vigilance commissioner) PJ Thomas. At the time of going to press, I received a call from an advocate who said that the PIL intended to seek the removal of the SEBI chairman. Interestingly, the caller seemed unaware that appointments to SEBI had been fairly strange, to put it mildly, even in the past. For instance, CB Bhave was appointed SEBI chairman, despite the National Securities Depository Ltd (NSDL), which he headed for over a decade, being indicted in the IPO (initial public offering) scam. NSDL had challenged the SEBI order. The finance ministry claimed to ‘ringfence’ Mr Bhave from the NSDL investigation, which only caused serious embarrassment to the regulator later. Similarly, MS Sahoo, a member-secretary to the selection committee (as director, finance ministry) was suddenly declared the selected candidate—no questions asked about the lack of propriety involved. Even this time, there is this lurking suspicion that many of Dr KM Abraham’s charges against the finance minister and the incumbent SEBI chairman are only intended to obfuscate the investigation into his purchase of an apartment in the Kohinoor complex, where the National Stock Exchange (which they are accused

of favouring) had purchased huge property and a block of apartments for its senior executives. Hopefully, the PIL would formalise and clean up the process of deciding senior appointments at SEBI. Today, the unseemly lobbying and desperation to bag these attractive assignments (which come with enormous power and perks, including plenty of foreign travel and generous allowances) signal a clear need for transparent selection. However, the petition would make more sense if the petitioners had any knowledge or concern about investor protection and the worrying exodus of retail investors from the market.

C ORPORATE GOVERNANCE

Home Truths for Foreign Diplomats Lawyers and accountants (caught) breaking their silence

ur corporate sector and key intermediaries, like lawyers and accountants, follow a nice code of silence when it comes to doubtful practices. But a batch of WikiLeaks cables released on 26th August shows that they are frank and loquacious in briefing US diplomats. After the Satyam Computers scandal, these honchos told Mumbai consulate officials how corporate governance at family-controlled local companies was ‘an illusion rather than reality’ and that firms were reluctant

to appoint ‘truly independent directors’ who would challenge management decisions. A financial expert mentioned a corporate takeover where an acquisition price of Rs1,000 per share was publicly announced while owners were paid an additional Rs600 per share into a Swiss bank account. Rumours of such deals abound around major mergers & acquisitions. Lawyers, accountants and investmentbankers—who were making candid disclosures to US diplomats facilitate these deals. Shishir Tamotia, CEO of Ispat Energy, a subsidiary of the controversial JSW Ispat Steel Ltd owned by Pramod and Vinod Mittal (acquired by Sajjan Jindal) said, “most businesses in India are run like Satyam, with little regard for true governance.” Mr Tamotia probably saw many strange practices close-up, also said that shareholders are usually unconcerned as long as stocks keep rising. Darius Shroff of Crawford Bayley & Co told the diplomat that ‘revenue fraud’ and dubious practices in transfer pricing and asset valuation was more ‘rampant’ in Indian companies than outright frauds like Satyam. All in all, top corporate executives painted quite a sorry picture about Indian companies to the US consulate— now, if only they dared to voice these opinions in public meetings and seminars, it would ensure better corporate governance, accountability and transparency. But then, it would also mean less corporate business for them.

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DIFFERENT STROKES SUCHETA DALAL

R EGU L ATIO N

People’s Wrath The public is disgusted and angry over rampant corruption. Will politicians listen?

ll the Congress chickens seem to be coming less known is the dangerous expropriation of public & home to roost, all together. But worse, they private property that was happening all over the country. seem determined to stop at the prime minister’s In Maharashtra, the Adarsh housing society scam exposed (PM) door. Only recently, a former telecom minister how politicians, senior bureaucrats and army officials (A Raja) and a Member of Parliament (MK Kanimozhi) colluded to waive rules and grab extremely lucrative threatened to call the PM as a witness in the scandal defence land. The scandal has forced out one Congress over allocation of 2G spectrum licences. Then a former chief minister and two others are in the dock. Mumbai, whole-time member (WTM) of the board of SEBI (the which is one of the most expensive places in the world Securities and Exchange Board of India) claims to be for property, faces repeated politician-backed attempts a ‘whistleblower’ and accuses the PM, or his office, of to grab prime land in the name of redevelopment. One disclosing his identity and putting himself and his family such was a controversial proposal to redevelop the under ‘grave risk’. Dr KM Abraham had written to the famous Crawford Market in contravention of heritage PM, levelling serious allegations against the finance rules. After holding out for six long years, the proposal minister (FM), several of the ministry’s top officials has, finally, been scrapped in what is seen as a reaction and SEBI chairman UK Sinha. Someone else has filed a to the Anna Hazare agitation. There are similar stories all over the country; but public interest litigation (PIL) questioning the selection it is only in times of a political transition that the process for the post of SEBI chairman and WTMs. This column has already written about the damage media summons up the courage to publish them. This caused to financial institutions and regulatory bodies by is evident in both Andhra Pradesh and Tamil Nadu, where thousands of cases of thoughtless appointments to key usurping land and perverting posts. In many cases, the buck, Under the now-deified infrastructure rules remained indeed, stops at the PM’s office, YSR Reddy, almost anybody buried under powerful chief since the appointments carry could be targeted and arrested. ministers. his signature. The arrogant and In Tamil Nadu, controversial appointment of the The police as well as parts of the judiciary were co-opted in this J Jayalalithaa’s landslide victory Central Vigilance Commissioner harassment and people were is attributed to the five-year PJ Thomas, the SEBI chairman reign of terror and lawlessness and heads of public sector simply too terrified to speak of DMK’s (Dravida Munnettra insurance giants (LIC chairman TS Vijayan was suspended and demoted while Kazhagam) ruling family. Influential politicians had M Ramadoss has been suspended as chairman of New been grabbing land and businesses through coercion, India Assurance Corporation for issues pertaining to his filing fake cases and falsification of documents. They stint at Oriental Insurance) are examples. Then there even grabbed land belonging to trusts and temples. is Ramnath Pradeep, chairman & managing director Chief minister (CM) Ms Jayalalithaa has followed up of Corporation Bank, who was appointed ignoring the on her poll-promise to initiate legal and police action two-year residual service rule and now has strictures by setting up special, anti-land grabbing cells. Her passed against him by the Central Vigilance Commission government has registered over 2,500 cases. While the DMK accuses her of political vendetta after a (CVC). Bilking of financial institutions, deliberate weakening former minister and hundreds of DMK functionaries of regulators and the misuse of government investigation were arrested, Moneylife writers, indeed, have personal and enforcement bodies is a daily affair in India. What is knowledge of many cases of coercion rampant in the ``

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DIFFERENT STROKES SUCHETA DALAL

` earlier regime. CM Ms Jayalalithaa says that over Rs400

deliberately ignoring “dubious sources of funding” as crore worth of land has already been restored to rightful well as “clandestinely concluded shipping contracts and owners and it is clear that her action on this front has unauthorised coal linkages.” He warned the PM that “the entire merchant power capacity in the pipeline is enormous popular support. The Andhra Pradesh story is even worse. Under concentrated in the hands of a few influential industrial the now-deified YSR Reddy, almost anybody could families who have formed a strong cartel to arm-twist be targeted and arrested. The police as well as parts the government to reopen concluded Power Purchase of the judiciary were co-opted in this harassment and Agreements on highly questionable grounds.” He calls people were simply too terrified to speak. Ironically, the merchant power policy a “scam of the proportion it is the latest WikiLeaks disclosure of US government of 2G spectrum scandal or even larger than it!” Yet, this cables of 2007 that puts it most succinctly. One titled issue has not even made it to the national media. Nor is “Corruption beyond the pale, even for India” says, there any indication that the PM is ready to order the inquiries and investigations “widespread corruption in the requested by Mr Sarma. Congress government seems Interestingly, around to be an open secret in Andhra the same time, the Central Pradesh, but the political Bureau of Investigation impact is unclear.” It quotes (CBI) raided the properties sources which apparently of Jaganmohan Reddy, the said that corruption was extremely controversial son of acceptable to people so long YSR Reddy; but only after as some money flowed to he fell out with the Congress them. If this is the political government. So questions wisdom that was flowing to about his sudden access to the top, is it any wonder then stupendous wealth are, finally, that the Congress-led UPA being asked by an official (United Progressive Alliance) investigation agency. This had miserably failed to grasp happened often enough in the extent of public anger the past. Even the Bharatiya and disgust about rampant corruption? The entire merchant power capacity Janata Party, during its short stints of political power, Sadly, things have only in the pipeline is concentrated chose to drag or bury scams worsened since the 2007 in the hands of a few influential perpetrated by its political cables. Over the past few weeks, EAS Sarma, former industrial families who have formed opponents. Will it be any a strong cartel to arm-twist the different this time? Well, parts finance secretary and one of India’s finest bureaucrats, government to reopen concluded of the Establishment and the intelligentsia, mostly those who is now based in Power Purchase Agreements on who enjoy political patronage, Visakhapatnam has been highly questionable grounds continue to live in denial and sending the PM a series of letters seeking action against mega-scams involving the quibble over details of the Hazare campaign. And, indeed, the long-term political impact of Anna Hazare’s loot of public funds or natural resources. Here are a few issues that he flagged to the PM August kranti is unclear; but one thing is certain—people in the last week of August alone. First, he said, “the across the country have made it clear that corruption is government has either unwittingly or otherwise cleared no longer acceptable. On 30th August, even a Supreme a mind boggling number of private coal-based power Court Bench was irked enough at the poor preparedness projects far in excess of the demand (projects sanctioned of government; it remarked that unless things changed or being approved are equal to thrice the demand “the people will teach you a lesson.” It remains to be projected by the Planning Commission for the year seen whether this will happen. 2032).” The genesis of the scam, says Mr Sarma, is apparently the allotment of “a large number of captive Sucheta Dalal is the managing editor of Moneylife. Subscribers coal blocks to private parties using non-transparent get free help in resolving their problems with select providers of procedures.” He further alleges that the government is financial services. She can be reached at suchetadalal@yahoo.com

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SMART MONEY R BALAKRISHNAN

C ORP ORAT E BONDs

Don’t Bond with Them The rush of NCDs, especially of NBFCs, is fraught with risks

ndian companies are quick to seize any fund-raising be careful and understand the issuer’s business. Lending is done mainly to the retail segment. Take opportunity. A couple of non-convertible debenture (NCD) issues have mopped up money from the retail lending against gold, for instance. Everything is fine as market; now non-banking financial companies (NBFCs) long as gold prices keep rising. There have been reports are lining up one issue after another. They announce an of officials in a bank who took the pledged gold of the issue size of Rs300 crore-Rs400 crore, with a right to clients and sold it. This can happen in finance companies, retain 100%! The standard excuse—if there is business, where enormous discretion is given to branches— and if they can make more money, they will raise more advertising proclaims propositions like ‘loan in 15 minutes’, etc. To cater to ‘growth’, there will be more resources by the same route. Can an NBFC disburse all the money it raises? recruitment at fancy salaries. The higher the headcount, Investors also do not know how much the company has the greater are the risks. Even for rating agencies, Indian retail lending is a borrowed. The only document for analysis is a (dated) balance sheet. In addition to public offerings, NBFCs new experience. They don’t have details of a long track constantly tap the ‘private placement’ market for debt. record or ready credit check, to come to any definite So investors don’t know the total debt burden. There conclusions about credit quality. Even credit ratings can was a subsidiary of India Infoline which raised money change over time—there is no assurance that credit rating will remain unchanged over the through the NCD route. How life of the debenture or bond. could investors know that The recent NCD issues For microfinance companies, the proceeds were going to be are on a ‘first-come, first- data was robust and default utilised for a subsidiary? In the 1980s, there was a craze for fixed served’ basis. This makes rates low. But when resources microfinance companies deposits from leasing companies, investors rush in without grew, started taking high risks to thanks to high interest rates and analysis. The SEBI should deploy the money. Multiple fancy incentives paid to investors and intermediaries. The lure was keep the issue open for a companies lent to the same set of borrowers. Defaults were the the promised rate of return and fixed period and ensure logical outcome of this reckless not credit quality. The same herd pro-rata allotment if there lending. mentality is on display now. At All the recent NCD issues some point, there will be some is oversubscription are on a ‘first-come, first-served’ defaults. basis. This makes investors rush This easy access to public money will make some finance companies take in without analysis. The Securities and Exchange Board unreasonable risks to deploy the raised funds. Lending of India should keep the issue open for a fixed period and processes and standards will be diluted. These companies ensure pro-rata allotment if there is oversubscription. have to keep raising money to keep growing. I look at the The offer document must mention the business that the reported asset size of some finance companies that have company is involved in—and the quantum of borrowing grown at a furious pace and start worrying. Do these it has done after filing its latest books of accounts. As for companies have systems and processes in place? Do they you, read the fine print. Do not take risks for a limited understand their customer segment? It is one thing to be gain of higher interest—and high risk of downside. a specialist lender in one region of India and another to replicate it on a pan-India basis. If you invest in bonds, The author can be reached at balakrishnanr@gmail.com

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MUTUAL FUNDS POINTERS

HY BRID F UNDS

No Glitter Hybrid schemes post hybrid returns

ver the past two years, we have had a new class of mutual fund schemes that are neither debt nor equity nor balanced. These schemes are supposed to glitter because they have a bit of gold in them. In this period, the equity market has gone down sharply and gold has glittered over the past few months. So, how have these hybrid schemes done since gold has headed for the sky? Look at the table, and you find that their performance has been erratic. Why is this so? The clue lies in the percentage of the net assets invested in gold by hybrid schemes at the end of July 2011. Some funds had asked for a mandate to hold

July 2011, Taurus MIP Advantage and ING Optimix Financial Planning Fund-Aggressive (note the loaded name of the scheme) had only 7% and 5%, respectively, in gold. So how did these Funds protect investors from the downside of equity and offer the upside of gold? The concept of hybrid schemes itself is suspect but the market regulator, of course, does not have the knowledge to figure it out. Schemes that combine equity, gold and fixed income were the flavour of 2010. Religare Mutual Fund was the first to launch such an asset-allocation

All-in-One All-in-O Scheme

In Gold

Axis Triple Advantage A

31%

Canara Robe Robeco InDiGo

31%

Sundaram Equity E Plus

26%

Peerless MF Child

21%

Fidelity India Children’s Plan-Marriage*

18%

Religare MIP Plus

13%

ING Optimix Financial Planning-Conservative

12%

ING Optimix Financial Planning-Prudent

10%

Kotak Multi Asset Allocation

Taurus MIP Advantage

ING Optimix Financial Planning-Aggressive

Source: Mutu Mutual Funds India, *As of June 2011

proportions of gold ranging from 5%-30%. Thus, investors were dependent on the great market-timing skills of the fund manager to magically move in and out of equities, bonds and gold. If that were possible, the schemes should have had a substantial portion of their investment in gold and almost nothing in equities, since gold has soared and equities tanked. While schemes such as Axis Triple Advantage Fund and Canara Robeco InDiGo Fund had 31% of their assets invested in gold at the end of

product in April 2010 (Religare Monthly p Income Plan Plus). Similarly, Canara Robeco I launched its own hybrid plan called InDiGo Fund, lau which would combine interest, dividend and gold. These wo funds claim to offer exposure to different asset classes cla within the th same scheme, especially those that have a low correlation. correlatio So if you have a period when equity is not looking bullish, then gold will deliver. Similarly, there are b phases when equity would do well and not gold. So, the w investor gets to ride different assets in different cycles g through the t same scheme. At least, that is the rationale for these ‘all-in-one’ schemes. Unfortunately, there are two problems with this Unfor idea. One, On you are at the mercy of the market-timing skill of the th fund manager to move from one asset class to another. anothe Well, predicting the movement of gold and interest rates ra are really challenging tasks, even for the best of professionals. Second, even if it works, where would profes you place such a scheme in your portfolio? How will an investor invest decide how much to put into such schemes when he already has money invested in equities, bank fixed deposits and gold separately? And how would she dep know when wh to sell? ``

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MUTUAL FUNDS POINTERS

CA S H HOLDIN GS

Buying Power Which schemes are best placed to ride up?

rom January to August this year, the Sensex has been down by 20.60%. Global markets corrected sharply too on concerns of a possible slowdown in the US economy and the euro-zone debt crisis. Asian stocks, the EU (European Union) and US stocks posted their biggest monthly drop in the last three years in August 2011. Mutual fund managers are saying that this is the best time to step in and invest. But which funds can take advantage of the low prices of equities? Funds that have a lot of cash. They can invest now, when the markets are low and they would be able to see their investment grow with a rising market. Which are these?

Mutual fund managers are “saying that this is the best time

to step in and invest. But which funds can take advantage of the low prices of equities?

“

The top five funds holding the maximum percentage of their total assets in cash were Edelweiss Absolute Return Fund (25%), IDFC Equity (25%), Sundaram Select Small Cap (25%), Religare Equity (25%) along with Edelweiss Diversified Growth Equity (DGE) Top 100 Fund—Plan A , Plan B and Plan C—all 21% each. These schemes were actually able to time the market correctly. Investors who want to take advantage of short-term earnings can invest in IDFC Equity Fund-Plan A and the two Edelweiss funds, Edelweiss Absolute Return and Edelweiss DGE Top 100 Fund-Plan A, Plan B and Plan C. These Funds were also able to outperform the Sensex in the last one year (ended July 2011). IDFC Equity Fund-Plan A gave a return of 3%, Edelweiss Absolute Return gave a return of 5% and Edelweiss DGE Top 100

Fund-Plan A, Plan B and Plan C gave a return of 3% each, while the Sensex was able to rise only by 0.64%. At the same time, they were also able to time the market as they had as much as 25% cash which they can use for investment now. Watch them. On the other hand, five schemes holding the least amount of cash were UTI Mid Cap Fund, Birla Sun Life Advantage Fund, Reliance Natural Resources Fund, Tata Equity Opportunities Fund and Tata Equity P/E Fund—all held less than 1%.

CA P I T A L -P R O T E CT I O N FU N D S

Safe Money But what about returns?

quity markets have fallen sharply. A lot of investors looking for safety of capital were advised to invest in capital protection funds between January 2011 and August 2011 to get both safety (debt) and the upside (equity). The past eight months, when markets were down drastically, have been really testing for these funds. Investors in capital-protected funds would be regretting their decision. Some of the funds protected the capital of investors—but what about performance? A total of 13 capital protection funds were in existence before January 2011. The outperformers, on an average, gave a return of 1%. The outperformers among fund houses were: Franklin Templeton, UTI, Birla Sun Life, Sundaram and SBI. The underperformers were: JP Morgan, IDFC, Birla and Sundaram. Their returns ranged from nil to 1%. Out of the 13, seven have underperformed and six have outperformed their benchmark CRISIL MIP Blended Fund Index. Capital-protection funds are pitched at investors who want safety. But would they bite if they knew that returns could even be negative or zero over nine months? We have wondered in the past, what kind of money and what kind of investors would move money into capital protection funds? We don’t have an answer. Those who pulled out money from bank deposits would be regretting it. FDs (fixed deposits) of scheduled banks offer capital protection with fixed returns which look terrific at times like these. But, most importantly, capital protection funds invest money in tradable securities which go up and down. Even the best of bonds can lose value when interest rates go up and equities can lose value quickly as witnessed in the market movement of the past few months. So, theoretically, an average saver, who moves money from FDs to these schemes, is exiting from a totally safe instrument to a less safe one, often without realising it.

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COVER STORY

S A V E on your

Car Insurance The insurance channel from where you buy, your vehicle, and your personal profile can reduce your car premium rates. An exhaustive analysis of car insurance by Raj Pradhan

arlier this year, Sarita Agarwal (name changed) was close to renewing the insurance on her 2006 Honda City ZX VTEC vehicle with her existing insurer ICICI Lombard General Insurance. She was quoted a premium of Rs8,138. However, when she inquired about the premium from other insurers, she was told that Bharti AXA General Insurance charged only Rs5,378, through the same Honda dealer—a good 34% less. Bharti AXA’s rate was the lowest—but there were others too who quoted lower than ICICI Lombard.

There is usually some difference in premiums between different companies. But this has usually been small; and, if customers did negotiate, companies have been known to try to match the rivals’ offer. Also, the difference has not been such that it spurs customers to change their insurer. In this case, the Honda dealer was able to offer 50% discount on the basic premium rate of Bharti AXA. ICICI Lombard couldn’t match it and Sarita changed her policy to Bharti AXA. Unlike health insurance (where portability has not yet been implemented) and life insurance (which is a long-term contract), auto insurance ``

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COVER STORY

` is price-sensitive as the no-claim-bonus (NCB) can be

migrated easily to a new insurer. According to an official at Arya Honda, an authorised dealer for Honda vehicles, “Each insurance company gives us the authority to offer discounts on different models. In this case, Bharti AXA allowed us to give up to 50% discount, apart from an NCB of 45% for Sarita. It has made a big difference with respect to the premium offered by the other insurance company (ICICI Lombard). But there are cases where customers do not switch even if there is a substantial difference in the offered rates. It depends on the customer.” Dr Amarnath Ananthanarayanan, chief executive officer & managing director, Bharti AXA, told Moneylife during an interview (earlier this year), “We have the data to understand trends using complex algorithms. The pricing is based on the car make, model, year, place and so on. If there are good customers, based on the parameters that we analyse, the rates go down and vice-versa.” Car insurance pricing is based on market opportunity, risk assessment and claims experience of the insurance company—apart from other factors like the channel (used for buying insurance), the vehicle and your profile. Let’s look at these factors in detail and how you can benefit from them. Who Should You Buy Car Insurance from? If the car insurance buying process were transparent, it would have ave been easy for customers shopping for it. According to Deepak Yohannan, chief executive officer, www.MyInsuranceClub.com, suranceClub.com, “There exist differences in the premium mium rates offered for the same plan from different sourcing ourcing channels. The customer has no way of knowing wing where the best rate can be obtained. Yes, this is currently intentional, but I see this practice gradually disappearing isappearing as the customer becomes more aware of thee options which are on offer.” Most off the customers rely on insurance offered by car dealers, but it may not be the optimum premium in many cases, ses, according to Vijay Kumar, head– motor insurance, urance, Bajaj Allianz General Insurance. He says, “For new vehicles, the car manufacturer anufacturer does not want variations in n pricing from one dealer to the other. The dealer may not be able to give additional onal discount. It has also to do with quality ality assurance and service guarantees by the dealer.” Insurance ce companies woo car dealers to sell ell their products for new cars by offering ering up to 55% discount

to the car dealer. The dealer will not budge on insurance premium as new car buyers usually do not shop around (for insurance) and are gullible targets for an insurance product. If the customer creates a ruckus about insurance premium (or the car price itself), dealers may sweeten the insurance premium deal as they have a lot of leeway to do it. According to an industry source, “The strategy of the company plays a very important role in deciding whether to go for the top line or be more selective and protect the bottom line. A new company tries to grab market share and, hence, offers higher discounts while an established player would balance the top line and bottom line.” Insurance brokers are an option for an unbiased view of different products and companies when buying insurance, but how many customers are even aware of which insurance broker to approach—unless they are car dealers too? The broker channel is still in its infancy for the Indian retail customer. The insurance company agent can give you quotes for one company and it will be tedious to call numerous

If the intermediary is recognised as a ‘profitable’ one, he may have some small advantage in terms of rates — KN Murali Senior vice president & head–motor vertical, Bharti AXA agents to get comparative quotes. Another problem is ‘channel conflict’. Specific channels may have the authority to give discount up to a certain extent which may be lower than the discount allowed by another channel. In Sarita Agarwal’s case, Moneylife found that the Bharti AXA agent was allowed to offer a maximum discount of 40%, while Honda ``

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COVER STORY

L a x s t a n dards

Americans Love Cars, Indians Flaunt Them But you have to shell out much more for a policy in the US; you are better off here

car is not a car. It is a status symbol everywhere in the world. Many believe that the car colour and the type of car you choose for yourself directly reflect your traits and your personality. Indians buy cars in diﬀerent segments from the much-hyped price tag of the Rs1 lakh Tata Nano to the whopping Rs16 crore for the Buga Veyron. The new and used car markets in India are growing. Car loans have made it easy for a person with a limited budget to buy expensive cars. The launch of the Nano was a historic moment. More and more customers in the middle-income segment today are upgrading to high-end vehicles, even if it involves stretching themselves financially. Today, Bollywood stars are living it up like Hollywood stars.

` dealers could allow 50% discount. Other Honda dealers

initially offered 45% discount and later agreed to 50% discount. KN Murali, senior vice president and head–motor vertical, Bharti AXA, says “We do not distinguish between the two channels. Bharti AXA has adopted the model of having multiple channels. In our business model, every channel is important to us and we would not like to discriminate between channels. However, there are certain intermediaries who give us higher business and better terms. If the intermediary is recognised as a ‘profitable’ one, he may have some small advantage in terms of rates.” Other insurers have confirmed that in multiple distribution channels, the volume of business that each channel brings in does make an impact on the premium offered and, hence, this is a common practice in the car insurance industry. Comparison and purchase from Web aggregators like policybazaar.com, MyInsuranceClub.com and apnapaisa.com is easier in life and health insurance. According to Akshay Mehrotra, chief marketing officer, policybazaar.com, “Motor insurance rates are tougher to offer than, say, health or travel insurance. So those are the areas where insurers integrate first. Channel conflict is common. In theory, most insurers have a rack price and a lowest available rate, which is usually available

The good news is that car insurance in India is much cheaper than in the US for the same value of car. In the case of Sarita Agarwal’s car, Bhar AXA’s annual premium was 1.26% of the depreciated insured declared value (IDV) of the car. In the US, the annual insurance premium is more than 10% of the current value of the vehicle. There are numerous reasons for this, including the legal system that gives high compensa on for disability injuries or death, high medical costs, high cost for car repairs and so on. In India, in some cases, drivers walk away scot-free even a er a major accident. Moreover, the tariﬀ for third-party (TP) car insurance is specified by IRDA. The loss ra o for insurers in this category was 180%, which means that for every Rs100 of premium collected, Rs180 of insurance claims were paid. Recently, IRDA has hiked the premium which may bring down the loss ra o to 150%. The bad news is that good drivers in India are crosssubsidising bad drivers. The insurance is s ll specific to the vehicle, not the driver. Customer segmenta on has just started but, to implement it fully, it needs the approval of the insurance regulator which, in turn, will need a change in the insurance contract and even an amendment to the Motor Vehicles Act. (See box: Matching Profile to Pricing)

online or through aggregators, but in practice, based on distribution muscle and negotiation, discounts vary, so it helps to shop around, for now at least.” Elaborates, Yashish Dahiya, chief executive officer, policybazaar.com, “There is reluctance from the insurer to share car insurance premium. The transparency we bring may not be appreciated in some cases. There are also differential discounts offered through different distribution channels. We have been working with insurance companies and, very soon, will be able to give proper comparison rates for eight or more car insurance policies.” Mr Yohannan says, “Insurers are reluctant to share car premium with any third party. Increasingly, insurance companies are now offering Web services which give access to the real-time rates displayed on their websites. However, this will not solve the problem of differential rates being offered. With increasing awareness, consumers would start questioning any large differential which exists between different channels—especially when it is not publicly available.” Bajaj Allianz General Insurance indicated that it shares car premium data with IRDA (the Insurance Regulatory and Development Authority) licensed Web aggregators and brokers. Royal Sundaram General Insurance does not operate through Web aggregators. Another company which does not seem to be happy with Web aggregators ``

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` is ICICI Lombard. According to Amitabh Jain, vice

president–customer service motor, ICICI Lombard, “Web aggregators provide the user an option for comparing insurance premiums across the industry. They generate the comparisons with the least possible number of common variables used by the insurance companies. Hence, the insurance rates seen on Web aggregators’ sites might vary from the actual rates offered by the insurers, given that certain variables might not have been taken into account. Also, car insurance premiums change frequently and sometimes the aggregator websites may not reflect the more recent rates.” The online channel is worth exploring as many insurers offer purchase and renewal on their website with discounts. According to industry sources, “ICICI Lombard offers 2.5% discount for online transactions.” Insurers do not like to explicitly specify the discount for online channels to avoid conflict with other distribution channels, whose business will be impacted due to online channel purchases. According to Avadhoot Mavlankar, principal officer, Shinrai Insurance Broking Service Pvt Ltd, “The differences of rates is smaller in the current scenario compared to earlier days when the difference was higher. An individual agent may get 40% discount, while the dealer may get 42%, on a case-to-case basis. Customers give undue importance to just one aspect, namely, premium. They need to understand who will support them best at the time of claims—an agent or a broker who may have served them for years or it may be a dealer who has an authorised service centre of that vehicle and gives good service.” Buying a Car? Check the Insurance Practice According to Anurag Rastogi, vice president–actuarial, Bajaj Allianz, “Prior to 2007, the type of vehicle (private car, two-wheeler, commercial vehicle, etc), vehicle age, engine capacity, price and zone of registration were (the parameters) used for pricing the premium.” Car models: After insurance pricing was de-tariffed, additional parameters like car make/model came into the picture. Insurers discovered that it was a great differentiator as some car models were highly profitable while some were loss-making. Mr Mehrotra says, “The more expensive cars tend to carry higher discounts. This is because the more expensive cars are usually driven by chauffeurs or more experienced drivers, while the cheapest car is driven by the less experienced. Tata Indica, Tata Sumo, Toyota Qualis and Chevrolet Tavera are mainly used as rental vehicles and, hence, insurers charge higher premium.” According to insurance industry sources, “Most insurers

including Tata AIG General Insurance are reluctant to insure the Tata Indica, but are willing to insure new models like the Tata Aria or the Manza.” Indians are not used to buying cars based on insurance premium, but knowing that, insurers are averse to insuring certain vehicles that are usually used for commercial purposes or long-distance driving. It may mean higher premium for these vehicles even if you intend it for personal use and so usage is limited. According to Mr Mavlankar, “Usually, all high-end vehicles fetch good discounts on insurance—Toyota Corolla, Altis, Camry, Prado, Honda Civic, Accord, Mercedes-Benz, etc. However SUVs (sports utility vehicles) and MUVs (multi-purpose utility vehicles), like the Toyota Innova, Mahindra Scorpio, etc, don’t attract the same discount. Most private insurers do not underwrite these vehicles if they do not have proper antitheft devices, since theft claims are a major concern for these vehicles. Some insurers underwrite the premium only if the vehicle is part of a corporate fleet.”

High-end vehicles are increasingly being used on city roads for daily commuting in contrast to the trend a few years rs back where high-end vehicles hicles were sparinglyy used — Vijay Kumar Head–motor insurance, nce, Bajaj Allianz However, it may not be true ue that luxury cars always attract a higher discount ount on insurance. Vijay Kumar, head–motor insurance, Bajaj Allianz adds, “High-end vehicles icles are increasingly being used on city roads forr daily commuting in contrast to the trend a few years ars back where highend vehicles were sparingly used. As a result, these vehicles are moree prone to accidental damages leading ng to a higher burden on the customer omer and insurer.” Moreover, cars that use imported spare parts will attract act a higher premium. This is true ue for small cars too. Imported d components are used for small ll ``

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` cars from manufacturers like General Motors, Toyota

and Volkswagen, among others. Location: The definition of a ‘zone’ given under the IRDA motor tariff was too broad and the whole of India was divided into just two zones and claims experience was very different within the same zone. Insurers have started using the location of policyholders as a selection parameter to fine-tune premium rates, based on claims experience. Cars used in non-metros attract a lower premium. According to an industry source, “Some geographies are more prone to theft and accidents than others; hence, the differentiation in premiums. Some companies limit it to zones and regions while others go more granular and drill down to state or city levels.” There are some pitfalls here. According to Mr Mavlankar, “Not all insurers give importance to zones as the vehicle registration process of various Road Transport Offices (RTOs) is itself not clean and transparent. The registered address (of a vehicle) may not be authentic.” In Mumbai, one can notice cars registered in Thane used by residents of Greater Mumbai. This is done to evade taxes. In the US, the police check car plates in the night for parked vehicles. If they find a car plate registered outside the state present in their state of jurisdiction for a number of days, the owner will get a notice asking for change of registration, or face a penalty. Fuel option: The premium for cars that run on petrol is lower than the premium for those that run on diesel, or liquefied petroleum compressed natural gas (CNG) ( gas (LPG). The reasoning is that a person who opts for higher usage and probably uses a diesel engine clocks hig the automobile as a commercial vehicle. Diesel engines com maintenance and repair costs. As a also have higher mainte result, these variants experience high claim ratios for ex insurers. A diesel car’s premium could be 10%-15% higher than that of a petrol car. pe According to Mr Jain from ICICI Lombard, “Vehicles which spend more time on the road are generally referred to as ‘riskier’ vehicles. Also, certain like seating capacity, vehicle models with characteristics chara fuel type, etc, are indicative of specific customer in behaviour as far as usage of the vehicle is concerned. Based on this, the premium amount amoun charged for them also varies.” var Security and safety systems: Se Locks, airbags, and anti-theft L devices help reduce premium. d Mr Ananthanarayanan says, “The challenge is more from car thefts rather than accidents. The northern

region of India is more loss-prone. Security features in the car will help reduce premium.” That is another good reason to go with a comprehensive insurance policy (CIP) and not just third party (TP) insurance. According to carazoo.com, “In India, the most stolen cars are usually the ones that have a reasonable resale value such as the Maruti Suzuki Swift, Maruti Suzuki Alto, Mahindra Scorpio, Tata Indica, Mahindra Bolero, and Tata Sumo. According to a survey, vehicles like Toyota Qualis and Tata Sumo are in great demand in south Indian states and the car stealers offer them at prices that are much lower than the market rate.” If the customer can prove that his car is parked in a secured parking space, the insurer can lower the premium. It is worth negotiating with a car insurer after declaring as much information as possible about your vehicle and customer profile before the purchase, as these details can impact insurance premium. Too Futuristic? There are two major impediments to implementing profile-based pricing—the existing law and availability of data. The insurance contract, as of today, is still for the vehicle, not for a driver. IRDA will have to approve the change to capture information of one or more drivers and make the insurance specific to those allowed to drive the car. Mr Rastogi says, “To be able to implement customer profile-based differential pricing, insurers need customer data for a significantly long period to ascertain the driving risk of different segments of policyholders.” This seems to be a major hurdle. According to Mr Murali, “There is no repository of authentic data regarding age of drivers and accident track record. Even RTO records are not automated across the country. Each insurer has to develop its own data and project loss ratios through the actuarial model. Bharti AXA is working on such data and would like to provide a scientific rating tool—it will ensure that customers with a clean record will not cross-subsidise those with a bad record.” Mr Jain adds, “We are trying to capture maximum information possible, which shall, in turn, be used for offering differential pricing.” According to a senior IRDA official, “IRDA does not have a common database on driver-specific information. However, in the future, this will be a critical component for the driver’s liability insurance.” Even if this data were made available or insurers developed their own systems to accurately assign premium for specific customer profiles, there will be other implementation issues. According to Mr Mavlankar, “In case of OD claim, who will verify the details of who was driving at the ``

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COVER STORY

` time of the accident? Currently an FIR (first information

report) is needed only in case of TP claims and theft claims. It’s totally impractical to insist for an FIR for each OD claim. For TP claims, the above amended drivers’ clause will hold no sign significance as the Motor drivers Vehicles Act needs tto be amended—which looks impossible now.” According to another senior from IRDA, “While at official fro the current juncture, filing curr of an FIR is not necessary, going forward, if the Motor Vehicles (Amendment) Ve Bill is passed by B Parliament, then P ssuitable changes in the procedures will have to p be undertaken in order

Dr i ve r , N ot c ar ins uranc e

Rate Driver Good drivers are now subsidising bad drivers. Will that change?

ndia has car insurance. What it should also have is driver insurance, as in the US. Recently, IRDA chairman J Hari Narayan said: “In other countries, the driver is insured as accidents are caused by drivers and not the vehicles and I think we will get there (insuring the driver)." According to Vijay Kumar, “By providing a little more information, policyholders can significantly reduce their car insurance premium. Bajaj Allianz has already started encouraging more information to lower the premium.” A senior IRDA official adds, “While most of the insurers do not charge premium based on the profile of the policyholder, some insurers are considering the age of the policyholder for the Motor-Own Damage (OD) Section.” HDFC Ergo General Insurance gives 5% discount on OD premium for age 36 to less than 46 years and 10% discount for age 46 to 60 years. It also gives 5% discount on OD premium to doctors, chartered accountants (CAs), teachers and government & defence employees. Some insurance companies may offer discounts on a case-to-case basis, if the customer asks for it (and providing supporting documentation), but insurers cannot offer different base rates for different age groups, as of today. The key here is that the customer has to ask for it. Insurers do want customers with a profile that they consider ‘safe’ to do business with. Getting the maximum discount allowed for a particular

to give effect to the new provisions.” He adds, “It is true that until the Motor Vehicles Act is amended the driver’s clause will not be of any significance. The Sundar Committee has submitted its report on road safety and management to the ministry of road transport & highways and one of the recommendations is the amended driver’s clause. We are hopeful that Parliament will consider this amendment as it will fix responsibility on the person responsible for negligent driving.” Once the amendment is passed, a separate premium table only for drivers may have to be worked out keeping in mind the driver’s experience, educational qualifications and factor in the frequency of change of the vehicles being driven, among other parameters. Perhaps the concept of NCB can be introduced for a driver’s third-party policy for claim-free years, as an incentive.” What if your friend or relative wants to occasionally drive your car? Do they register that on your insurance ``

channel may need negotiation. Remember, every distribution channel is allowed a specific discount that it can pass on to a customer… if demanded. However, Mr Mavlankar says, “Customer profile discounting cannot work today as the owner may have a ‘good’ customer profile (like a middle-aged doctor), but how does an insurer know who drives the car? The driver may be a chauﬀeur; or a family member could be driving the car. On the other hand, we have examples of owner-driven luxury cars where the oﬃce is close to the residence, but a couple of claims are made every year. There is no data available to substantiate customer profile discounts.” Mr Murali adds, “Insurers are working on rating factors around the vehicle owner/driver. Indian markets will move towards rating of risks based on customer profile. We are trying to create complete information about owners, drivers, etc, based on the data of one million policies that we have written. AXA, which has been in business in developed markets, has been supporting Bharti AXA in this initiative. We are confident of moving to risk-based pricing once the segment is totally opened up.” How would it benefit you? Age: In the US, car premium is high for those <25 and >65 years. Will the same happen in India, if IRDA adds driver information to the insurance contract? Mr Murali says, “The age group of 30-60 is very favourable for our business.” In India, the practice is to give only the basic vehicle information and no information on the driver. If the premium is charged based on the age of the driver, obviously, the drivers in the age band getting involved in higher number of accidents will have to pay higher premium. Marital status: Mr Murali adds, “It is expected that a married person gains maturity over age and would be ‘extra’ careful ``

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COVER STORY

` contract? An insurance company has indicated that it

would reject a claim if the driver at the time of accident is not on the contract (when IRDA implements driverspecific insurance).

7 Key Points about Motor Claims 1. Policyholders think that insurance covers only third-party liability and damage to own vehicle. Some insurers may even charge additional premium for insuring passengers. But a CIP (comprehensive insurance plan) covers persons travelling in a private car or pillion of two-wheelers (provided such occupants are not carried for hire or reward). 2. Disclose your claims history when you change your insurance company to get a lower premium. When there is a claim, the new insurer will contact the previous insurer to verify your history. If there is any discrepancy, your claim can be rejected.

3. NCB of your old car can be transferred to the newly purchased car’s insurance policy. 4. Insurers have a ‘knock-to-knock’ agreement, which means if you claim own damage due to the other person’s fault in an accident, it will be paid by your insurance company which entails losing your NCB. 5. Check your car’s IDV. It should approximately reflect the resale price of your car at the time of insurance. It can be manipulated to reduce insurance premium, but avoid it. 6. Ensure you have all the papers of your motor insurance—insurance certificate, policy wordings and claim forms. You should get it within 15 days of processing. It is the only proof of insurance. 7. While selling a car, you need to put the date and time of sale on the memorandum of understanding. Accidents can happen on the same day—used cars are traditionally used by drivers who are novices.

` while driving a vehicle, considering the responsibility of the the situation that prevailed in the tariﬀ era.” He adds, “Insurers were not collecting any detail from family that he shoulders.” OccupaƟon: Professionals like doctors or CAs are considered customers apart from vehicle details and place of vehicle to be a lesser risk. An employee with an oﬃce job at a single registration. At times, the proposal forms contained several place will also be a be er risk compared to a businessman who questions that were most o en le blank. This created a culture where neither the agent nor the policyholder was travels a lot. Credit history: An individual’s track record regarding willing to provide any additi ditional information that could be payment and defaults has been used in developed countries used for be er pricing. Now w even when for calculating car premium. Owning a home translates into a responsible and stable status in most cases. Distance travelled: If the distance of commute to work and approximate annual travel is declared, many US insurers consider it for reduced premium. According to Amitabh Jain, “The area of operation/distance expected to travel (for work) is one of the factors considered — Avadhoot Mavlankar, for deciding premium. There are Principal officer, Shinrai Insurance Broking Service Pvt Ltd certain practical challenges to obtaining accurate information insurers want to collect on this front.” ect information According to Mr Rastogi, “The Indian industry is moving additional towards this form of pricing at a fast pace and insurers are about customers, they face ce making an a empt to capture some or all of this information strong opposition from m from their customers. If the information available is less, all the insurance distributorss policyholders will pay an average price for insuring their vehicle coupled with policyholder and good ones will cross-subsidise the bad ones—similar to apathy.”

Customer profile discounting cannot work today as the owner may have a ‘good’ profile, but how does one know who drives the car?

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MONEYLIFE SURVEY

Driving Blindly Car buyers can do with a lot of improvement in the way they buy policies

he Moneylife online survey on car insurance from 406 readers shows that two in three readers want the premium to take into account the driver’s profile (age, profession, lifestyle, marital status)—that’s a positive. However, 26% of respondents do not understand what car insurance covers and who will reimburse them in case of an accident. Customers are confused over what ‘thirdparty’ or ‘own damage’ insurance means and what exactly is covered if it is one’s own fault in an accident or the other driver’s fault. And what does a comprehensive insurance 1. Do you think the car premium should be based on driver profile (age, profession, lifestyle, marital status) along with car model & location?

Almost two-thirds of the respondents think car premium should be based on driver profile with car model and location.

Yes-63% No-31% Can’t Say-6%

plan cover? Try asking a few insurance questions to a car salesperson and don’t be surprised if you receive a halfbaked response. Only 30% of respondents purchased car insurance based on the recommendation of a car dealer, which is a good sign, but 51% of respondents did not shop around for the lowest insurance rate. Car insurance is a price-sensitive business, yet this is not the deciding factor, because a large number of car owners will not change even if offered a discount. What rules is probably sheer inertia. 5. Did you shop around for the lowest insurance rate?

Yes-41% No-51%

Can’t Say-5% Not applicable-3%

Half of the respondents did not shop around for the lowest insurance rate. 2. Do you think the car premium should be based on number of kilometres driven in a year, distance to work place?

Almost two-thirds of the respondents think car premium should be based on number of kilometres driven and distance to workplace.

Yes-64% No-32% Can’t Say-4%

6. Will you change your car insurer based on lower premium offered by another insurer at a 20% lower premium?

Yes-57% No-23%

Can’t Say-18% Not applicable-2%

More than half of the respondents will change car insurer if 20% lower premium was offered by another insurer. 3. Do you understand what your car insurance covers and who will reimburse you in case of accident?

Yes-65%

One-fourth of the respondents do not understand what car insurance covers and who will reimburse in case of accident.

No-26% Can’t Say-9%

4. Did you buy car insurance based on recommendation of car dealer?

Yes-30% No-62%

Can’t Say-3% Not applicable-5%

Almost one-third of the respondents bought car insurance based on recommendation of car dealer.

7. Have you used Web aggregator sites like policybazaar.com, MyInsuranceClub.com to compare car premium?

Yes-27% No-71% Can’t Say-2%

Over one-fourth of the respondents have used Web aggregators to compare car premium.

8. If yes, did you find value in the comparison offered by Web aggregator sites?

Yes-21% No-16%

Can’t Say-11% Not applicable-52%

Over one-fifth of the respondents have found value in the comparison offered by Web aggregator sites.

MONEYLIFE | 22 September 2011 | 36

Cover Story.indd 10

9/2/2011 8:38:46 PM

STOCKS STREET BEAT

Unbiased & Methodical Stock Picking that Works!

V I V I ME D L A BS

Right Chemistry Expansion of existing facilities and greenfield projects will ensure growth

ivimed Labs is current into specialty chemicals (used mainly in the personal-care and cosmetics industry), pharmaceuticals, active pharmaceutical ingredients (APIs) and formulations. It also has a presence in the areas of health & personal care and contract research and manufacturing (CRAM). The Indian specialty chemicals market—including knowledge chemicals—has doubled to $40 billion in 2011 registering a 17% annual growth rate. Global specialty majors are establishing their base in high-growth Asian economies not only to participate in their growth by offering products and services tailored to meet the exact needs of local customers, but also to leverage their low-cost advantage. Till now, much of this investment has been in China, a trend that is likely to be altered in future as India establishes itself as a reliable and cost-effective supplier. India has become a major hub for manufacturing and R&D as well as an attractive investment destination. Besides having a rich pool of knowledge-workers, India provides a robust legal and regulatory framework for research-based development. It became a signatory to Trade-Related Aspects of Intellectual Property Rights in 1995. Several international companies are now getting their products patented in India. The Indian pharmaceutical industry has grown from a turnover of merely $0.32 billion in 1980 to approximately $21.26 billion in 2009-10. The country now ranks third in terms of volume of production (10% of global share) and the 14th largest by value. During FY09-10, pharma was among the few sectors that managed to expand revenues, despite global recession and financial crisis. Strong domestic demand, growing preference for generics worldwide and a favourable rupee-dollar exchange rate helped the Indian pharmaceutical sector. ``

tio n St or ies of Pr ice Ma nip ula Le Waterina Resorts orts & Hotels H (Rs9) Chennai-based Le Waterina Resorts & Hotels was incorporated in July 1987. The company is supposed to be in promotion and construction of apartments for the middle- and lower-income groups in Tamil Nadu. Well, this listed firm reported revenue of Rs1 lakh in the quarter ended March 2009 and nil for the next three quarters. It reported operating losses in the range (Rs)

Le Waterina Resorts & Hotels

15 12.30 9.60 6.90

513%

4.20 1.50 Mar-10

Nov-10

Aug-11

of Rs3 lakh in the March 2009 quarter to Rs7 lakh in the December 2009 quarter. Revenues witnessed gradual increase from Rs1.97 crore in the March 2010 quarter to Rs2.89 crore (June 2011 quarter). It reported operating profit between Rs13 lakh in the March 2010 quarter and Rs14 lakh in the June 2011 quarter. Based on such financials, the stock soared 513% from Rs1.52 on 12 March 2010 to Rs9.31 on 30th August.

Recommended Price Rs18

MONEYLIFE STOCK IDEAS

THAT WORK

Moneylife Issue 8 April 2010

88%*

Exit Price Rs28

(Stop Profit triggered on 26 November 2010)

(SURYA PHARMACEUTICAL)

* Annualised returns

37 | 22 September 2011 | MONEYLIFE

Stock-Streetbeat.indd 2

9/2/2011 9:42:03 PM

STOCKS STREET BEAT

Unbiased & Methodical Stock Picking that Works!

The domestic pharma market in India is expected to grow at a CAGR (compounded annual growth rate) of 9.5% till 2015. Many Indian companies meet stringent international standards in purity, stability, safety, health and environmental protection in production and supply of bulk drugs. Several of them are now seeking regulatory approvals in the USA in specialised segments like anti-infectives, cardiovasculars and the CNS (central nervous Rs Cr Dec-10 Mar-11 Jun-11 system) group. It was recently Net Sales 85.81 109.11 103.95 reported that, 20.78 OP 16.53 13.63 International Finance 92% Y-o-Y Sales Growth 60% 81% Corporation, Washington 74% Y-o-Y OP Growth 58% 28% (IFC) plans to invest 20% $15 million to support OPM 19% 12% OP: Operating Profit, Y-o-Y: Year-on-Year, OPM: Operating Profit Margin the expansion project of Vivimed Labs. Profit Injection The project involves (Rs) expansion at its existing 325 sites in Bidar (Karnataka) Vivimed Labs and Bonthapally (Andhra 305 Pradesh), besides 285 greenfield projects in Choutuppal (Andhra 265 Pradesh) and in an 245 SEZ (special economic 225 zone) in Srikakulam Feb-11 May-11 Aug-11 (Andhra Pradesh). The project envisages a total investment of about $42 million of which IFC proposes investment of up to $15 million. Vivimed Labs reported revenue of Rs103.95 crore in the June 2011 quarter, a growth of a whopping 92% over Rs54.27 ``

tio n St or ies of Pr ice Ma nip ula MP Agro Industries ries (Rs2) (Rs MP Agro Industries, incorporated in 1975, is supposed to be in the business of manufacturing and marketing NPK (nitrate, potash and phosphorous) granulated fertiliser mixtures. The company was originally promoted by the MP State Agro Industries Development Corporation and Dharamsi Morarji Chemicals. It has negligible operational income and MP Agro Industries

(Rs)

11.85 9.60

80%

7.35 5.10 2.85 0.60 Oct-10

Mar-11

Aug -11

‘operates’ on other income. Its operating losses fluctuated between Rs1 lakh and Rs2 lakh in the past 10 quarters. The company’s stock ran up last year and then tumbled 80% from Rs11.80 on 5 October 2010 to Rs2.34 on 24 August 2011. How do companies like these, with such absurd financials, still stay listed and traded on the BSE? Neither the Exchange nor the market regulator is bothered.

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 | 22 September 2011 | 38

Stock-Streetbeat.indd 3

9/2/2011 9:42:23 PM

STOCKS STREET BEAT

` crore in the previous corresponding

quarter. Net profit rose 71.16% to Rs10.80 crore in the quarter ended June 2011 as against Rs6.31 crore during the quarter ended June 2010. Operating profit for the June quarter was Rs20.78 crore against Rs11.93 crore in the yearago period, a 74% jump. Operating profit margin (OPM) for the June 2011 quarter was 20%. Over the past five quarters, the company’s average revenues and operating profit growth were 53% and 43%, respectively, while average OPM was 19%. Based on the annualised results for the June 2011 quarter, the company’s market-cap to revenue was 0.65 times and marketcap to operating profit was 3.24 times. The stock is a good buy at the current price.

S ML I S U ZU

Heavy Machine Strong financials and good growth prospects

handigarh-based SML Isuzu, maker of the Swaraj brand of commercial vehicles, now operates as a subsidiary of Sumitomo Corporation of Japan, after a series of ownership changes. SML Isuzu also exports its products to countries like Nepal, Bangladesh, Kenya, Tanzania, Ghana, Ivory Coast, Rwanda, Seychelles, Syria and Jordan. For the financial year ended 31 March 2011, SML Isuzu’s net profit grew to Rs36.56 crore from Rs21.46 crore in FY0910, while its net revenues stood at Rs885.09 crore compared to

Unbiased & Methodical Stock Picking that Works!

Rs716.76 crore. In FY10-11, its earnings per share (EPS) rose 30% to Rs25.3 from Rs19.4 in FY09-10. The company’s sales volume zoomed 27% to 12,870 vehicles in FY10-11. According to the company, volume growth and better sales realisation contributed to improved financial

Rs Cr

Dec-10

Mar-11

Jun-11

Net Sales

222.40

282.11

239

18.70

22.86

Y-o-Y Sales Growth

18%

29%

21%

Y-o-Y OP Growth

23%

36%

58%

OPM

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

Top Gear (Rs)

400

SML Isuzu 380 360 340 320 300 Feb-11

May-11

Aug-11

performance. For FY10-11, the company recommended a 65% dividend and a special dividend of 15% on completion of 25 years of its commercial operations. SML Isuzu’s net profit for

the March 2011 quarter leapt to Rs12.46 crore from Rs8.86 crore in the corresponding period last year on the back of sharply rising net revenues (Rs278.69 crore against Rs219.46 crore). Net profit for the first quarter ended 30 June 2011 almost doubled to Rs9.90 crore from Rs5.10 crore in the corresponding period last year due to rising net revenues (Rs237.20 crore against Rs196.20 crore). In March 2010, it raised funds through a rights issue. Proceeds were utilised for repayment of bank loan (Rs50 crore) and corporate purposes (Rs10.51 crore). Rs18 crore was for financing the expansion project, of which Rs3.21 crore has been used for expansion of Phase I project till 30 June 2011. SML Isuzu is controlled by Sumitomo Corporation (54.9%); private equity player Actis and Reliance Capital are passive investors while the company is controlled by Isuzu which has a small stake. Sooner or later, Sumitomo and Actis will exit; Isuzu will take control. SML Isuzu is targeting turnover close to Rs1,100 crore in 2011-12, against Rs973 crore in 2010-11. It plans to manufacture of 15,000 vehicles under the SML brand and 400 under the Isuzu brand. The firm has outperformed the Sensex since November 2010. Over the past five quarters, average growth in revenues and operating profit were 24% and 30%, respectively. Average operating profit margin is 8%; return on net worth is 17%. Market-cap to revenues is 0.53, market-cap to operating profit is 7.01 times. Attractive buy 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 25% below the purchase price. This is called stop loss. However, if the market price is above 50% of the purchase price, exit if the stock falls by 25%, below any day’s closing price. This is called stop profit. Data Source: Centre for Monitoring Indian Economy’s Prowess database.

39 | 22 September 2011 | MONEYLIFE

Stock-Streetbeat.indd 4

9/2/2011 9:42:39 PM

STREET BEAT WHICH WAY

Debashis Basu

New Consensus

scandals which has paralysed policymaking. For a historical analogue, recall the period 19941998 when the Indian markets performed very badly. The herd has done a U-turn This was so, despite a fabulous start in 1992 when the current prime minister was the finance minister and the darling of the domestic and global business ntil a few months ago, bears were scarce. Now, if community. Under his watch, interest rates rose so you listen to the idiot box, bulls are hard to find. sharply that the economy was crippled. The governor While Indian fund managers and a smattering of experts remain bullish, they are a small minority. The of the Reserve Bank of India (RBI) at that time? Dr C Rangarajan—the same person who now heads the majority—the herd—is now parading a known litany PM’s Economic Advisory Council. of global economic woes that are yet to be addressed. The fact is, the government does not make From weakness in the euro-zone to America’s troubles policies with your investment returns in mind. The RBI to high inflation and interest rates in India—the experts couldn’t be bothered whether its tight money policy have just too many things to worry about. Over the will strangle growth and, thereby, bring markets short term, though, these worries are now part of the down. It’s not their mandate. Consider also the fact mainstream. Everybody knows about them. So, there is that domestic savings are not going into the market a strong likelihood that they are ‘priced-in’. Of course, through insurance companies, mutual funds and some strongly negative news can easily bring the market down below the recent low of 4,720 on the Nifty. pension systems in a big way. A lot of savings are lying in banks. This is because of poor policymaking. But, as I said, these are shorter-term issues. Over Does it bother the 540-odd parliamentarians who are the longer term, even the diehard bears are bullish. supposed to be people’s representatives? Not a chance. The longer-term Indian ‘growth story is intact’, Does it bother the finance minister? He has too many according to the market consensus, primarily driven things on his plate—including such emergency jobs as by demographics. India has a young & growing cleaning the mess left behind by lawyers Kapil Sibal population, smaller families, rising incomes, rising and P Chidambaram in handling Anna Hazare. The aspirations and wide penetration of credit. Indeed, lawmakers, supported by the Executive, make policies some fund managers even think that, over the next to mostly help themselves. Sometimes, they act in the 10 years, India should grow at a faster rate than it has interest of the nation, when forced by the turn of over the past decade, and could emerge as the fastest events. growing economy in the world. However, To put it differently, persistently rallying don’t take these factors for granted. markets is the final consequence of They sound right; they are supported a series of events—right public by history, but remember that policies, low interest rates and future economic performance hugely rising corporate earnings. It is a not a depends on supportive monetary and given. Right now, poor policies, higher interest fiscal policies. And policies substantially rates and stagnant corporate earnings are depend on politicians. Right now, we the reality. Don’t expect to see markets head don’t have a political climate that Medium-term: — higher until this basic scenario changes. supports strong economic growth. The Long-term: — (Feedback at editor@moneylife.in) ruling party is besieged by corruption

investment that is

not subject to market risks

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

MONEYLIFE | 22 September 2011 | 40

Which way.indd 1

9/2/2011 9:32:25 PM

STOCKGRADER MOMENTUM

Sweet Treat

37%

Compounded Annual Return

Shree Renuka Sugars jumped 11% and Balkrishna Industries climbed 7%, while Dish TV fell 1% Gainers: Industry body CII (Confederation of Indian Industry) has demanded that the government should give freedom to the sugar industry to sell sugar in the open market and also stop taking the sweetener from mills at a subsidised price for ration shops. CII said the levy obligation as well as monthly release mechanism should be removed for vibrant growth of the sector. Shree Renuka Sugars jumped 11% in the fortnight. Balkrishna Industries, among the top players in off-highway tyre (OHT) solutions, is expected to benefit from rising demand for its products with capacity expansion and easing rubber prices bolstering its operating margins. It would also benefit from increased focus on mining & infrastructure development in regions that would ramp up demand for off-road tyres for earthmoving & construction equipment. The stock climbed 7%. Mahindra & Mahindra (M&M) is among the four shortlisted entities for taking up defence projects. If selected, it will actually see other group companies collaborating in the projects. The company is eyeing a Company

RS Grade

Funda Grade

Final Grade

Entry Date

Return*

$12-billion order to supply 2,600 vehicles for the Indian Army’s future infantry combat vehicles programme. M&M advanced 7%. PI Industries surged 6%, Sintex Industries gained 10% and Yes Bank rose 6%. HDFC Bank rose 2%. Losers: Direct-to-home (DTH) operator, Dish TV India is set to launch conditional access module, a device that will enable consumers with set-top boxes of other DTH service providers to switch to Dish TV’s feed of television channels. The stock tanked 1%. Sadbhav Engineering has bagged a road project worth Rs202 crore from the Bihar government. The project will be undertaken by Sadbhav Engineering as a joint venture with GKC Projects. The former will have a 50% stake in the joint venture and will lead it. The stock declined 4%. Punjab National Bank tumbled 8%. 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

Return*

PI Industries

19 Aug-11

Titan Industries

16 Apr-10

105%

Indraprastha Gas

19 Aug-11

Sintex Industries

01 Apr-11

-4%

HDFC Bank

04 Mar-11

Siemens

22 Jun-11

-7%

Carborundum Univ

19 Aug-11

Fed-Mogul Goetze

28 Apr-11

-10%

Solar Industries India

19 Aug-11

Magma Fincorp

07 Jul-11

-11%

Chambal Fertilisers

19 Aug-11

Divi's Laboratories

07 Jul-11

-11%

Balkrishna Industries

07 Jul-11

GSK Consumer

29 Apr-09

184%

HDFC

15 May-09

70%

Shree Renuka Sugars

06 Aug-10

-14%

13 May-11

-17%

M&M

28 Apr-11

-1%

Shriram Transport

18 Feb-11

-10%

EID-Parry (India)

12 Nov-10

-7%

Federal Bank

Dish TV India

06 Aug-10

63%

Prime Focus

07 Jul-11

-19%

Sadbhav Engineering

28 Apr-11

-4%

Punjab National Bank

22 Jun-11

-22% -32%

Yes Bank

22 Jun-11

-15%

Bank of India

21 Jan-11

Orchid Chemicals

28 Apr-11

-39%

Cadila Healthcare

12 Nov-10

Bank of Baroda

29 Apr-09

123%

Power Grid Corp

07 Jul-11

-9%

*Non-annualised

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

41 | 22 September 2011 | MONEYLIFE

Momentum.indd 2

9/2/2011 10:20:48 PM

STOCKGRADER MEDIUM TERM

Healthy Diet

44%

Compounded Annual Return

Dabur jumped 8% and Shoppers Stop rose 6%, while 3M India declined 5% Gainers: Dabur is among the three FMCG (fast-moving consumer goods) majors to participate in an auction process initiated by Reckitt Benckiser for the sale of its personal-care products division in India, which the latter had acquired as part of the acquisition of Paras Pharma last year. Reckitt Benckiser expects the bids to be priced at around Rs1,000 crore for the unit that contributed nearly 45% of the revenues of Paras Pharma. The stock climbed 8% over the fortnight. Nestlé’s probiotic dahi (yoghurt with beneficial micro-organisms) brand Nesvita will soon be phased out of Indian shelves as it makes way for a newlylaunched brand, Nestlé Actiplus Dahi. This new brand was recently launched in metros and select cities. Nestlé advanced 7%. Shoppers Stop will open Paris Hilton shop-in-shops across its metro stores wherein the 30-year-old American celebrity will launch her handbags and fashion accessories. Shoppers Stop will position the brand at a premium, targeted at the rich and upper middle-class consumer base. The stock rose 6%. Supreme Industries hopes to clock a turnover of over Rs2,800 crore in the current fiscal. Under the company’s five-year (including last year) expansion

Company

RS Grade

Funda Grade

Final Grade

Entry Date

Return*

plan of Rs1,000 crore, it intends to invest around Rs200 crore this year. The stock gained 2%. HDFC Bank gained 2%. Petronet LNG, which saw strong volume growth of 40% in the first quarter of the current fiscal, expects the trends to be more or less similar. The stock added 4%. Amara Raja Batteries is looking for a location to set up a new manufacturing plant and expects to start construction in 2012-13. The company is in the process of expanding its existing facility to achieve a capacity of about 10 million batteries for the automotive sector by the end of the current fiscal. It is also pursuing a deal with two-wheeler-makers to be their original equipment manufacturer (OEM). The stock ended flat. Praj Industries, a global EPC contractor and technology developer too ended flat. Losers: Auto-parts-maker Motherson Sumi Systems and diversified company 3M India declined 6% and 5% respectively in the fortnight. Time Technoplast, manufacturer of multi-polymer products, lost 1%. Note: Please read our changed methodology for grading stocks (given below). We have also added a column showing returns since the stock’s appearance in the table. Returns from new stocks added are counted after one issue.

Company

RS Grade

Funda Grade

Final Grade

Entry Date

Return*

Petronet LNG

29 Apr-09

245%

Supreme Industries

26 May-11

25%

Munjal Auto Inds

26 May-11

29%

Amara Raja Batteries

28 Apr-11

21%

Kajaria Ceramics

26 May-11

18%

3M India

23 Jun-11

17%

Titan Industries

01 Apr-10

125%

Asian Paints

23 Jun-11

10%

HDFC Bank

29 Apr-09

115%

Akzo Nobel India

23 Jun-11

Supreme Petrochem

27 May-10

78%

Shoppers Stop

23 Jun-11

-5%

Siemens

27 May-10

24%

Sun Pharmaceu cal

29 Apr-09

104%

Time Technoplast

26 May-11

12%

Dabur India

01 Apr-10

41%

Orient Paper & Inds

26 May-11

Praj Industries

21 Jun-11

-13%

Lupin

29 Apr-09

226%

Motherson Sumi Sys

23 Jun-11

-10%

CRISIL

29 Apr-09

166%

Cadila Healthcare

20 Jan-11

Nestlé India

29 Apr-09

163%

—

*Non-annualised

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

MONEYLIFE | 22 September 2011 | 42

Medium Term.indd 2

9/2/2011 10:20:15 PM

STOCKGRADER LONG TERM

Fresh Coat

44%

Compounded Annual Return

Titan Industries gained 7%, Berger Paints added 1%, while Godrej Consumer Products fell 1% Gainers: Titan Industries is eyeing a near threefold increase in its turnover from its watches division to Rs3,500 crore by 2014-15, driven by new designs and network expansion. The company also expects its eyewear division to break even by 2012-13. The stock gained 7% in the fortnight. Gujarat Fluorochemicals and Lupin gained 9% and 7%, respectively. Hindustan Unilever (HUL) and Star Bazaar, the hypermarket brand of the Tata group’s retail arm Trent, are again running a month-long campaign promoting a social cause through joint marketing. Titled ‘India’s Favourites’, this campaign was launched in September 2010 to raise money for underprivileged children. HUL rose by 1%. Berger Paints India is setting up a new plant in Tamil Nadu with an investment of Rs200 crore which is likely to be operational by the next fiscal. The company that manufactures and markets decorative and industrial paint products under various product brands also said that it is looking to diversify into the industrial chemicals segment over the long term. The stock added 1%. Losers: Godrej Consumer Products has commenced

a nationwide launch of HIT, with a malaria control campaign. HIT is a leading brand in the householdinsecticide spray market. The key objective of the campaign is to spread awareness about malaria and encourage preventive action. The stock fell by 1%. Emami Biotech, part of the Rs3,700crore Emami group, is planning to treble its edible oil refining capacity with an investment of around Rs550 crore. This would help the company capture 10% of the Rs15,000-crore branded edible oil market in the next three years. The company is expanding its existing refinery in Haldia to process palm oil and soybean oil from 1,000 tonnes per day (tpd) to 2,000tpd, with an investment of around Rs100 crore. Emami fell 1%. Mumbai-based drug-maker Ipca Laboratories, fast moving consumer goods firm Marico and auto-parts-maker Motherson Sumi Systems fell by 1%, 3% and 6%, respectively. 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

Ador Fontech

29 Apr-09

520%

CRISIL

29 Apr-09

166%

Petronet LNG

26 May-11

33%

HDFC Bank

29 Apr-09

115%

Titan Industries

03 Feb-11

17%

ITC

27 May-10

47%

Wyeth

23 Jun-11

12%

Amara Raja BaƩeries

23 Jun-11

Guj Fluorochemicals

18 Aug-11

10%

Hindustan Unilever

25 Nov-10

Nestle India

29 Apr-09

163%

Castrol India

28 Apr-11

Asian Paints

27 May-10

55%

Marico

26 May-11

Supreme Industries

23 Jun-11

22%

Sun PharmaceuƟcal

29 Apr-09

104%

Godrej Consumer

26 May-11

Akzo Nobel India

23 Jun-11

Return*

Company

RS Grade

Funda Grade

Final Grade

Entry Date

Return*

Emami

26 May-11

Cadila Healthcare

20 Jan-11

Shoppers Stop

26 May-11

Motherson Sumi Sys

23 Jun-11

-10%

Berger Paints India

26 May-11

-3%

Ipca Laboratories

20 Jan-11

-5%

Lupin

29 Apr-09

226%

Power Grid Corp

03 Feb-11

*Non-annualised

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

43 | 22 September 2011 | MONEYLIFE

Long Term.indd 2

9/2/2011 10:20:33 PM

“You Can’t Time the Market.” Maybe.

21,100

18-31 Jan ‘08

12-25 Oct ‘07

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

17-31 Jul ‘08

15 Feb-1 Mar ‘07

17,325

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

23 Apr-7 May ‘06

“A new downleg may start soon”

28 Mar-10 Apr ‘08

31 Aug-13 Sept ‘07 13,550

“Is the market due for a fall?”

2-15 Jan ‘09

“A short-term bottom may be very near”

16-29 Mar ‘07

“A Rally Now?”

“Weakness has resurfac 4-17 August ‘06

“The panic looks done for now”

9,775

Sensex

30 Jan

“Might the markets be ready to surprise us on the upside?” “Expect another leg of stock market rally” “A wea 6,000 Apr-06

Aug-07

Dec-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

9/2/2011 9:08:00 PM

13-26 Aug'10 18-31 Dec‘09

23 Apr-6 May'10

The Coming Decline

Short-term Top?

4-17 Dec‘09

Time To Sell? 19 Jun-2 July ‘09

15-28 July ‘11

Headed Down?

“Is the market about to crack?”

Signal Yellow? 6 Nov-19 Nov ‘09

11-25 March '10

31 July-13 Aug ‘09

“We have no Forecast”

A Buyers’ Market

an ‘09

“Buy the dip”

27 Feb-12 Mar ‘09

s resurfaced” “A Breakdown?”

30 Jan-12 Feb ‘09

“A weak rally now”

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Apr-10

Sept-11

Moneylife Stock Analysis

KNOW WHAT’S COMING

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Insurance Trends New products, regulations, features and options, interpreted from your perspective L i f e I ns u r anc e

Policy Lapses

policy. If, for some reason, the insurer fails to remind customers of their obligations, the policy is likely to lapse.

Why do customers let life policies lapse?

INT ERVIEW

he lapsing of term insurance products tends to be the highest. One reason for this is policyholders’ feeling that they no longer need death protection. Over 20% of life insurance policies lapse after payment of the first year of premium. A recent study by IRDA (the Insurance Regulatory and Development Authority) categorises some of the reasons for insurance policy lapsation. It is helpful to understand these reasons and avoid lapsation—unless there is a genuine reason to do so. A surprisingly large number of people do not even realise that their policies have lapsed as most of them do not systematically keep track of their finances. Often, insurers send reminder notices or call consumers to remind them to renew their

In many instances, policyholders terminate a policy deliberately. Quite often, termination is instigated by the advisor, driven by his desire to earn first-year commission once again. This is called ‘replacement of policies’ and is illegal in many countries, including India. Then there are cases where the customer is mis-sold a policy. On becoming aware of this, s/he decides to terminate the policy. This is a serious breakdown of the solicitation process. It is not enough to say that all policy details were provided in the terms & conditions of the policy. Insurers and ``

“There is more awareness of life insurance than medical insurance, thanks to LIC” The chief executive officer of Max Bupa Health Insurance, Dr Damien Marmion, spoke with Moneylife’s Raj Pradhan on developments in the industry ML: Apollo Munich is coming out with a product that will allow no upper age for entry. Wouldn’t the entry premium be exorbitant at that age? DM: We too don’t have entry age restriction for our products (subject to underwriting). The premium for the older age group is high. The reality is that, all over the world, healthcare costs are the highest for the first two and the last two (expected) years of life. Senior citizens need comprehensive coverage. We cannot claim to solve the high premium problem. One approach will be risk-sharing with other segments, if a lot of young people start buying medical insurance. ML: Many senior citizens don’t believe in medical insurance. What are your views? DM: It is the perception of that generation in India. Life insurance has much more awareness than medical insurance, thanks to LIC (Life Insurance Corporation). Many senior citizens have never heard of health insurance. It may have been fine in the past as medical expenses were low. Today, medical inflation is high and heart surgery is a major expense. Those who have experienced the cost of treatment know the significance of medical insurance. The current generation has much more awareness of medical insurance. ML: Your products are targeted for people who can afford high premium. Is it easy to sell to the rich? DM: It is not that simple to sell to the rich. The amount of wealth is not a predictor of buying insurance; the savings rate is a better predictor. A saver is

MONEYLIFE | 22 September 2011 | 46

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INSURANCE TRENDS

` intermediaries have a responsibility

to make sure that customers understand all conditions clearly. Finally, customers let a product lapse if their financial needs

Over 20% of life insurance policies lapse after payment of the first year of premium change or new, improved products become available in the market. An improvement in prosperity or changed financial circumstances can lead to this. Often customers

realise that significantly cheaper term products have become available. Lapses can also occur due to a financial emergency or a cash crunch. During a liquidity crunch, some policyholders may seek to cash out their policies. The immediate cash requirement supersedes the long-term benefits of keeping the policy active. Life insurance requires long-term discipline and rupee cost averaging of investments. A lapsed policy is not in the interest of the customer, in most cases. Don’t be enticed by new investment avenues at the cost of an existing policy.

` more conscious about protection and will go in for insurance. Those who

travel internationally are aware of medical inflation and are likely to buy insurance. ML: How will you attract the youth segment? DM: It is difficult to market a product and attract the young (below 30). We do want to engage with them. The initiative of ‘Your Health First’ (yourhealthfirst.in) will engage the young to make a promise that they will take care of their loved ones’ health. Timely reminders, health tips and expert advice will help develop the commitment to stay healthy. Insurance is a by-product of our health awareness movement. ML: You must have read our Cover Story on bank mediclaim being the cheapest. Can you give us your observations? DM: Government insurers do have low premiums, but they are suffering losses. Bank mediclaim offered by private insurers is at a much higher premium. Do you think private insurers are making a lot of money? No, they are not. Customers may get low premium with government insurers, but who funds it? It’s funded by the government. IRDA (the Insurance Regulatory and Development Authority) has squeezed government insurers due to huge losses in group mediclaim, which was cross-subsidised ross-subsidised in the past. The losses of 150% have come me down to 110% due to adjusted pricing—which iss a step-wise improvement. Corporate governance att government insurers has started doing the right things ngs to avoid making losses. ML: Is it difficult to sell group mediclaim m policies? DM: Due to the loss-making portfolio held eld by government insurers in the past, companies anies still have expectations of paying a premium mium of Rs100 and making claims of Rs150. We have sold group mediclaim policies where customers understand that we are offering superior service and product ct benefits.

Fine Print Mediclaim for Seniors

pollo Munich Health Insurance has filed for a health insurance policy with no upper age for entry. Existing policies from Apollo Munich allow life-long renewal as long as the customer qualifies with maximum entry age of 65 years. Max Bupa Health Insurance also allows no upper age for entry. An insurance company has the prerogative of issuing a policy subject to underwriting. Even if Apollo Munich allows no upper age of entry, it will come with a host of restrictions—as well as a hefty premium. A Rs3-lakh cover for a 90-year-old may come at an annual premium of Rs57,000—which is more than 20% of the cover, after adding service tax. There will be a co-payment clause which requires the buyer to pay a percentage of the claim. Under the sub-limit clause, there are limits on expenses such as room rent, doctor's fee, nursing charges and so on. There will be a standard four-year wait for covering pre-existing diseases as well as waiting period of one year before the plan covers all diseases.

Small Car Premiums May Rise

he high proportion of imported components in small cars is steadily eating into the profits of motor insurance companies. According to Vijay Kumar, head-motor insurance, Bajaj Allianz General Insurance, “The average claim in the passenger car segment has increased (from a range of) Rs8,000Rs10,000 to Rs10,000-Rs15,000 over the last three years. This has started to eat into the profitability of insurers.” Small car premiums are on the rise as multinational car manufactures like General Motors, Toyota and Volkswagen look to push their small car models in the Indian market.

47 | 22 September 2011 | MONEYLIFE

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PERSONAL BUSINESS AUTO

The interiors have been altered, but its headlights and tubeless tyres need some modification, says Veeresh Malik

W I F T: THE NEW MARUTI S

e m a S e h t f o e r Mo A

s we have already reported in Moneylife (25th August), the motoring event of the fortnight was the launch of the ‘new’ Swift, for which there was a large number of pending orders... about 35,000 of them. That aside, the new Swift looks quite a lot like the existing version, except for some fairly drastic changes in the interiors, console and a salient 4cm-5cm of critical additional space in the rear seat. The upgrade in the interiors has been forced on Suzuki in India by competition; the increase in rear seat space has been done at the cost of cargo space in the hatch. One big thing that the manufacturers have still not fixed, at least in the Indian version, is the quality of the light beam that emerges from the headlights. Compared to the newer technologies available, these headlamps are still rooted in the past; and driving a Swift at night requires more effort than driving other cars with better designed lights. That aside, there are also some welcome additions on the safety aspects, by way of new-generation airbags and some more tweaks to the braking circuits. Of course, the manufacturer charges a slightly higher price for these tweaks which is very brave of Maruti-Suzuki. If you look around, it is raining

discounts everywhere. The new Swift is bound to follow suit, especially when the petrol version is launched—this variant might hit the streets in three-four months. At the other end of the value-for-money (VFM) spectrum, the Swift diesel will continue to be one car that does not

MARKETING

A Nano Push Showroom salesmen need training lose value as rapidly as others do. he marketing (or rather, discounting) strategy games continue full throttle. The latest offers on the block are the numbers being pushed around for the Tata Nano. For the price of a second-hand scooter as down-payment, and Rs3,000-Rs4,000 as EMI (equated monthly instalment) for 60 months, you can now bring home a decent brand new car with a fouryear/60,000km warranty. This print media advertising blitz, coupled with a strong push on television, would undoubtedly get people interested again in what is essentially a VFM product. The upper-end model, especially, is kitted out with all that you may need in a

MONEYLIFE | 22 September 2011 | 48

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PERSONAL BUSINESS AUTO

` city car. It really

doesn’t matter if Swift’s price has been the parking valets jacked up, when it’s sneer at you at raining discounts 5-star hotels when you arrive in this vehicle. The Internet is the All you are going best vehicle for selling to use it for is to lower-end automobiles go to the market or office; or be stuck inside an It is high time we efficient airturned to renewable conditioned energy sources for fuel enclosure in a traffic jam. But showroom pre-sales service has some way to go. This writer’s friend, who is very tall and owns a few luxury cars, went across to a Tata dealer to learn more about the Nano—after getting reports from another friend who is 6’8” tall—that it was one of the few cars that he could ease into. First of all, it took a long time to attract a salesperson, since it appeared that none of them was even interested in trying to be helpful. There were a few who simply turned away. Eventually, he got someone who looked like a trainee salesman. My friend asked to be shown a high-end Nano, wanted a test drive and a few referrals from some existing customers. None of this was possible. In short, he was made to feel like an urchin who lands up in a grocery store asking for some boiled sweets, while the rest of us are looking for Swiss muesli or Belgian chocolates. You know who the shopkeeper is looking after, right? Coming back to my friend’s experience—on the way out, one of the salespersons spotted him getting into the upmarket luxury car that he had driven up in and ran outside. ‘Sir, would you be interested in taking a closer look at the new Tata Aria? He could send one home.’ No, he would not, said my friend; he would only be interested in buying a small car like the Nano because he needed one for local short distance usage. Why is this so difficult for manufacturers to understand? I have said this before, and I say it again—

• • •

especially for lower-end cars with very fine margins and nominal commissions for dealers, it would be better to give potential buyers the option to buy directly off the Internet and then either deliver the vehicle to his house or get him to pick it up from a stockyard. Dealers are obviously always on the lookout for higher commissions—and they can get these only from highend cars. This business of being sniffed at by callow youth in ill-fitting shirts with ties that have been used as napkins, who are only interested in selling the costliest cars, is probably one reason the Nano is not moving off the Tata showroom floors. It was, and is, the other way around in the case of Maruti Suzuki—they have it in their DNA, since they started with selling nothing but the 800cc car and van which are still their bread & butter models. If you ask me, I would love to buy a Nano, try to convert it into a two-door runabout, work on the engine and most of all—repaint it along some 1970s’ optical art concepts—you know, the genre that uses optical illusions. And, when and if the engine packs up, I’ll work on converting the Nano into an electric battery operated local car.

I N T E R N A L CO M B U S T I O N E N G I N E S

Green Sheen Battery-powered scooters are the way to go

n the subject of battery-powered scooters, I am glad to inform readers that, with some persistent follow-up, I have been able to convince, and convert, the local newspaper-delivery person to change from petrol two-wheelers to battery-powered scooters. The winning argument was not just cost or environmental aspects—it was the recognition that delivery boys now get from the morning walkers in our colony who smile at them and thank them for not polluting the place. A beginning has to be made somewhere. I would encourage readers to ask their newspaper-delivery merchants to do the same. The next target should be the vehicles used for (free) home-delivery of food. Why wait for legislation, when some social activism can work, as Anna Hazare is proving?

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. TATA NANO Do they want to sell it? 49 | 22 September 2011 | MONEYLIFE

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ENTERPRISE

Me di - A ng e l s

A Click in Time What can you do if you are faced with a medical emergency that requires immediate treatment from a super-specialist? MediAngels marries medicine with technology—to deliver a doctor on call via the Internet, reports Disha Shah

any lives have been lost because the correct medical treatment was not delivered on time. In urban India, a number of households have Web connectivity. But getting through to a medical expert anywhere in the world, who is ready to help you out at that crucial juncture, can prove to be an impossible task. That’s the gap that an entity called MediAngels is trying to bridge. Here’s the story of how the

business was conceptualised. In 2008, Dr D Shome (63), an ENT surgeon, was diagnosed with lung cancer. He also suffered multiple-organ failure and the chances of his survival were slim. But his son, Dr Debraj Shome—a super-specialist in facial plastic supe surgery—was able to get an opinion surg the right time from Dr Katherine at th Pisters, a US-based oncologist who Piste does research in rare forms of lung cancer. Thanks to the medical advice canc provided by Dr Pisters, Dr D Shome prov survived. He is alive due to the surv prescription which was provided pres on ttime. Debraj, being a medical professional himself, could avert prof tragedy. But he realised that not a tra everyone could be as lucky. ever Debraj wanted to start an entity D which could give more people easy whic and timely access to expert medical help from professionals across the globe. He founded MediAngels, glob healthcare service which uses a he technology for delivery, along tech with Dr Arbinder Singal, a superwit specialist in paediatric urology. spe Debraj says, “At MediAngels, the world’s first e-Hospital, our website (www.mediangels.com) web is a small part of our complete healthcare delivery mechanism. We heal also provide help over the phone and utilise interactive doctor-driven call centres along with other centres on tthe ground. MediAngels also uses software which allows a doctor

to provide consultancy over the Internet. A patient can store medical records on an online basis.” Medical records can also be downloaded on your phone, to boost accessibility. MediAngels has helped more than 1,500 consumers globally over the past two months. Since a lot of work is done via the Internet, MediAngels regularly goes in for technology upgrades. For protecting the medical privacy of patients, MediAngels follows HIPAA (the Health Insurance Portability and Accountability Act 1996, passed in the US) guidelines which help the entity to maintain client confidentiality and develop trust with consumers. In case a patient wants the opinion of his own doctor, MediAngels allows him to do so. It has 21,000 accredited labs across India. Debraj says, “If you are on the Indo-China border at Tawang (Arunachal Pradesh), you may not get drinking water, but you will have two MediAngels labs within 4km from where you are.” An ‘e-consult’ session with an Indian doctor costs Rs500; an international doctor charges $100. MediAngels accepts payment via credit, debit or cash cards, over the Internet and in cash. Once a patient pays the application amount, the online software identifies the closest accredited lab using the postal pin-code. Next morning, a lab professional makes a house visit and collects a blood sample which is taken to the central processing centre. The reports are delivered to the patient’s house. The profile includes a personalised account which can be accessed via a password. After the information is uploaded, a mobile text message is sent to both the selected doctor and the patient. This ensures that the end-to-end consultancy-diagnosismedical delivery cycle is completed ``

Dr Debraj Shome, co-founder, MediAngels

MONEYLIFE | 22 September 2011 | 50

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ENTERPRISE

Debraj and Arbinder managed the initial funding from their own savings, with help from their family and friends. After two years of planning, MediAngels started its operations. It now has access to more than 300 doctors from 22 countries—the US, Singapore, Norway, Australia, China, Japan, Middle East and other countries, providing their services to patients across the world. The MediAngels panel of doctors is chosen by a stringent process of accreditation by a neutral ‘Health Quality Assurance Committee’ (comprising Dr Hayes Gladstone from Stanford University; Dr MSR Ayyangar from Andhra Pradesh; Dr Anna Stratis from Canada) to maintain quality standards. The Committee selects and appoints doctors for MediAngels thorough a rigorous process. This Committee selects the best doctors across the globe. The process is rigorous—typically, it takes between six and eight weeks to verify the credentials of a prospective doctor. MediAngels has a policy: it selects specialised doctors, chooses those who are the best in their fields. Debraj’s belief is that it will not be difficult to garner capital for MediAngel’s expansion, if an investor is convinced about the

idea behind the mission and plan of execution. Private equity (PE) firm HDFC Holdings Ltd performed due diligence over a period of four months before providing seed capital of Rs3 crore. Debraj says, “HDFC noticed us because of our innovative approach.” MediAngels started with a team of seven people in 2008; it now employs 35 people. Because most of the work is done online, it does not require the kind of manpower that a brick-and-mortar hospital has to employ. Despite this, Debraj says that due to its expansion plans, MediAngels may employ 150 people by the end of this year. Physical proximity should not necessarily dictate the choice of a

to hire the best doctor for you, no matter where he is located physically,” says Debraj. If you are based in Mumbai and the most qualified doctor for your ailment is based in south India, MediAngels uses the most advanced technology tools and allows consultation with the identified doctor, facilitates uploading of all medical reports and seeks an opinion on the illness— without the patient having to leave his residence. But innovation comes with its fair share of risk. Debraj says, “A concept like MediAngels, requires a change in the users’ mindset. People need to understand that healthcare can be delivered through

if the doctor who is in your particular “What area is not the best for the treatment of your disease? Are you ready to suffer the

consequences of not going to the doctor with the best training and the most expertise to treat your particular problem?

“

` with the use of technology.

hospital. “What if the doctor who is in your particular area is not the best for the treatment of your disease? Are you ready to suffer the consequences of not going to the doctor with the best training and the most expertise to treat your particular problem? The advantage of an e-hospital is that we are able

a revolutionary process.” With healthcare becoming a basic need all over the world, Debraj believes that MediAngels has an expanding horizon. He says, “The evolution of MediAngels is a continuous process and we will concentrate on driving the best quality healthcare to the most distant parts of the world.”

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

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51 | 22 September 2011 | MONEYLIFE

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LEGALLY SPEAKING SD ISRANI

G O VE R NA N C E

Beyond Anna India possibly has the largest number of laws. But what about their effective implementation?

he fast undertaken by Anna Hazare against corruption has taken the country by storm. Today, Anna has become a hero; people from all sections of society throng to show their support to him. The UPA (United Progressive Alliance) government and the Congress Party have played a stellar role in making a national hero out of a regional crusader against corruption, because of their ham-handed approach. The arrest of an old man, who was getting ready for a peaceful protest, and bundling him into Tihar jail, resulted in outpouring of support throughout the length and breadth of the country. There can be no doubt that citizens have been victims of rampant corruption; they would like to see some quick and effective action for eradicating corruption. As is known, the Lokpal Bill introduced in the Lok Sabha by the government is very weak and will not achieve the desired objective of bringing the corrupt to book. On the other hand, the Jan Lokpal Bill, proposed by Anna and his team, while laudable in its objective, raises serious practical issues. The question that needs to be considered is: How many of those who have been thronging the grounds, not only in Delhi but other parts of India or sitting at home and watching television and extending support to Anna, have read the Jan Lokpal Bill and understood its implications? There seems to be a blind, and dangerous, belief that if Anna’s Bill is passed, India will become a different place. If the Bill does not deliver, it will lead to widespread frustration and discontentment. We need to remember that India is amongst the most legislated countries in the world; we have a law for almost every conceivable issue, but to what effect? We are suffering not because we have fewer laws; the culprit is extremely poor and, often, selective implementation of the available laws. We need to remember that ‘corruption’ is a hydraheaded monster that requires multi-pronged action. It requires sincere government intent coupled with active participation by civil society. It should not be forgotten that in a democracy, discussion, dissent and decision are part of the process. Just as the government should

not claim that the Lokpal Bill introduced by it is the best, the Anna team, too, cannot make that claim. An effective Lokpal Bill requires discussion, not mutual threats and attempts to undermine each other. There is a need for some good advisers on both sides. Presently, it appears to have become an ego tussle between both sides; one has State power, while the other has people’s power. Such a stand will certainly not help solve the problem and the country will continue to suffer. The major flaw with Anna’s Bill is that it is too wide in its sweep and simplistic in approach. Ideally, there should be a simple and straightforward law to enable aggrieved citizens to seek justice and redressal against corruption, but reality does not permit that luxury. There is a need to evolve a more effective system for curbing corruption at the grassroots. This can be

Anna Hazare’s supporters in a rally at Lucknow

achieved by: curtailing or withdrawing discretionary powers of ministers and babus which enable them to indulge in corruption; reducing the distortions in pricing of products that give rise to malpractices; simplifying procedures and minimising the interface with government servants, thereby minimising chances of corruption. While the debate on the Lokpal Bill continues, there is a need to ensure that the existing institutions like the Central Vigilance Commission and the Comptroller and Auditor General of India are given adequate powers to handle corruption-related cases. There should be a focus on implementing police reforms pending for years and making the police independent of politicians. Let the protest be for improving the working of institutions and laws already available with us.

SD Israni is a corporate lawyer. Email: sdisrani@vsnl.com

MONEYLIFE | 22 September 2011 | 52

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ML FOUNDATION EVENTS

CREDIT HISTORY & CREDIT SCORE

‘Poor credit record of spouse may impact you’ Mohan Jayaraman, COO, Experian Credit Information, addressed a workshop on credit information records and credit scores which influence bank decisions in sanctioning loans

ohan Jayaraman, chief operating officer, Experian Credit Information Company of India, advised borrowers about the need to fulfil their repayment commitments on schedule. If they don’t, their ability to secure a fresh loan would be affected. Addressing a workshop on “Understanding the Importance of Your Credit History & Credit Score”, at the Moneylife Knowledge Centre on 23rd August, Mr Jayaraman said, “Regularly check your credit report, especially while taking a fresh loan. A bad credit history may create problems while trying for a fresh loan.” Many are not aware of credit bureaus that keep track of the creditworthiness of individuals. These firms collate financial information and assign a credit score. This report contains a customer’s repayment epayment record. It is shared with banks and other financial agencies. For a charge, they ey share it with the customer too. Mr Jayaraman said, “Regularly check your credit history, spot mistakes akes and contact your bank to correct them.” hem.” He had himself discovered unsettled d dues for an insurance product in his own n credit records. The firm had not updated the cleared dues. “Customers are unaware ware of loan repayments and defaults, causing rejection of loan applications. ns. One should be more vigilant about credit history,” he said. Different credit bureaus have various ways of evaluating credit history and

assigning scores; banks have their own grade to judge loan viability and customer reliability. “If a customer has a long history of delinquency, and the record is with a certain bureau, and the lender happens to approach another bureau that does not have the information, the customer will get a better credit score.” Older bureaus would have a longer credit history of an individual and credit score will be averaged over a longer period of time. Newer bureaus would have a lower volume of historical data—this means a narrower base to assign a credit score. There are four credit bureaus in India: Credit Information Bureau (India) Ltd (CIBIL), Experian, Equifax Credit Information Services and Highmark Credit Information Services. Mr Jayaraman aalso said that a good credit record identity theft. He said instances of could stop ident credit rejection and personal information are not the credit report. The number of included in th person accesses his credit report would times a perso impact his credit score. He clarified that also not impa a customer had no say in the choice of the credit bureau by the llender and that once a customer loan document, he automatically signs the lo authorises the bank/lender to share data autho about payments and repayments with ab a credit bureau. “If you become a cco-guarantor for a loan, like taking a loan together with your spouse or ffriends, defaults by the other person would affect your credit history and w ccredit score,” Mr Jayaraman said.

Mohan Jayaraman, COO, Experian Credit Information Company of India

53 | 22 September 2011 | MONEYLIFE

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BOOKS

A DA P T

Duelling with Chance The recipe for success: embrace failure

im Harford has tried hard—perhaps too hard— to drive home the point that there is no simple way to solve any problem. What is required is repeated trial & error, endless groping in the dark, flashes of brilliance, oodles of persistence and, of course, a fair share of luck. Harford could have tried to concentrate on the subject at hand—how failure is almost inevitable before the solution emerges. But he has packed in too many examples—and the sweep of the book is a little too vast. This is an attempt to cover topics ranging from share-buying behaviour (“We tend to hang on grimly, and wrongly, to shares that have plunged in the hope that things will turn around. We are far happier to sell shares that are doing well.”), to the American misadventures in Vietnam, Afghanistan and Iraq, the invention of the Spitfire, how an American prisonerof-war discovered that Marmite can be used as an antidote to vitamin deficiency, behavioural psychology,

T H E N E X T C ONVE RGE NC E

Prosperity Code What makes some countries keep growing?

“W

hat do countries do, and not do, to sustain growth?” This is just one of the key questions that have baffled economists for generations. Some years ago, Jared Diamond wrote his classic book Collapse. In this book, Michael Spence (Nobel laureate along with George A Akerlof and Joseph E Stiglitz for their work on the dynamics of information flows and market development in 2001) attempts to answer this question. Coming from an academic, this book is a breath of fresh air. The language is simple; the contents are thought-provoking; and the issues covered range from how Europe managed to get its act together after World War II, to how the emerging markets’ growth stories are going to play out and the limits to globalisation. It’s astonishing how Spence has managed to cover the range

the shoddy functioning off bureaucracies... and how Muhammad Yunus founded the Grameen Bank. This is just a short list of the topics that Adapt tries to cover. Now that’s the problem—Adapt reads more like a condensed almanac off the developments over the past 300 years. The author’s attempt to find a common thread among all of them and string them together comes across as an innovative but a forced endeavour. Coming from the ADAPT American perspective, there TIM HARFORD are too few of ‘Eastern’ Hachette India examples. In fact, too much Pages 320; Rs499 space has been devoted to Operation Shock & Awe—and how soldiers on the ground managed to recover some lost ground by ignoring the directives from their commanders-in-chief. When reports last came in, these episodes of individual heroism have done little to help the inevitable, disgraceful (to the rest of world) American pullout that we are going to witness. America is also the shock and awe of the ``

of topics without making the work look like a textbook for students of an advanced course in economics. Nor does he trivialise issues. This book must be read by policy-planners across the world—especially in emerging economies. The author has drawn a definite roadmap for them. As the author rightly says, “Leadership, politics, government structures, and the effectiveness of government have crucial parts to play in this (development) drama.” He does not oversimplify the complex issues that he grapples with smoothly in the book—he leaves enough ``

THE NEXT CONVERGENCE MICHAEL SPENCE Random House India Pages 296; Rs499

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BOOKS

` world in financial matters. It does not seem to be adapting.

You will stumble across some passages that are rich with (inadvertent) humour. “Google’s corporate strategy is to have no corporate strategy.” Try convincing its competitors that this statement is true. Stating the obvious (this keeps recurring in the book) seems to be Harford’s penchant. Try these: “Organisations which ignore internal criticism soon make dreadful errors” or “Better decisions emerge from a diverse group.” And then there are truisms that pepper the book. “Our instinctive reaction is denial. That is why ‘learn from your mistakes’ is a wise advice that is painfully hard to take.” And some sentences sound good, but could appear hard to fathom. “Pluralism encourages pluralism. If you want to stimulate many innovations, combine many strategies.” The core of the book is sound: “The three essential steps are: to try new things, in the expectation that some will fail; to make failure survivable, because it will be common; and to make sure that you know when you have failed.” This is simply an intelligent application of probability, assuming that life is a sequence of random events. But how many would understand it, without a sound grounding in the theory of probability? After all, we are brought up to look for certainty in an essentially uncertain world. Adapt is an engaging read, but many readers would find that they are familiar with a number of cases and successful experiments that have been detailed in this book. — Devarajan Mahadevan

` room for the reader to make up her mind.

Coming back to the developing world, Spence points out the key parameters needed for sustained growth—good governance, the ability to correctly predict the economic future, investment in human capital & knowledge, continuous structural change and better systems of economic & political organisations that permit the productive deployment of a country’s assets. Possessing natural resources is no indicator of prosperity. The author clearly explains this with a number of examples; a few countries have actually had their economic future ruined because of the discovery of assets like oil, diamonds or natural gas. Nor does nationalism ensure that a country will be able to sustain growth. For example, almost all of China has convinced itself that the country is Han territory, compared to India (our mosaic does not have to be taken apart here). Spence says nationalism can “sometimes facilitate farsighted collective choice within the country, which can get in the way when it comes to global cooperation.” This book must form part of curricula across India— and grace the shelves of all people in any decision-making capacity in our country. — DM

Trend Qualification & Trading

Befriending Trend A new way to identify trending stocks

rends are the primary tool for almost all traders. The expression, “The trend is your friend,” is very common. Being able to identify and follow substantial trends (like the Sensex rise from 9,000 in March 2009 to 21,000 in November 2010), is what traders are desperately trying to achieve. A ‘trend’ is generally understood as a series of higher highs and higher lows (uptrend) or lower lows and lower highs (downtrend), but can one identify short-term and long-term trends in advance? There are some tools to help you, such as moving averages of 20-, 50-, and 200-day periods. Price movement is also the basis for a host of other tools like moving average convergence divergence (MACD); and Bollinger Bands are nothing more than +/- standard deviation bands from the underlying moving averages. Apart from averages, traders look at trend lines. Momentum is another tool based on trends. According to LA Little (Trend Qualification & Trading; Wiley; pages 298; $60), despite such widespread use, a ‘trend’ is never defined properly. This creates a situation where entry/ exit rules are based on perceived trends which are not really strong, leading to many failures. Little introduces a ‘neo-classical’ definition of a trend based on (among other things) previous lows and highs (swing points) and volumes at these swing points. This helps separate suspect trends from confirmed trends, says Little, leading to a much higher degree of success. This is a new and thoughtprovoking hypothesis for traders. If only he had given one complete sequence of trades, instead of the many illustrative charts, it would have made his case more scientific and less empirical. — Debashis Basu

57 | 22 September 2011 | MONEYLIFE

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Learn the basics of saving and investing

Earning Curve

How Much Is Enough? The answer will surprise you

ost of us, typically, don’t know how much to save for retirement, especially since people are living longer. Thanks to rising longevity, you should hope to live at least 20-25 years after retirement which means that many years of expenses. Many experts say that after retirement, your expenses would come down only by about 20%-30% because, while some expenses would be cut, others would rise. Where will all that spending money come from, if you have no regular income? From your savings? But how much savings are needed so that you can get an investment income that is equivalent to 70%-80% of your current expenses—and this for 25 years? Consider Sunil, 58 years old with annual expenses of Rs5 lakh at the time of retirement. He would see his spending shrink to 70% of that level or Rs3.50 lakh a year, postretirement. That means he needs to have Rs87.50 lakh to fund his expenses over 25 years. But would it be enough if he retires with Rs87.50 lakh? We have to take into account not only his income from savings but also inflation.

Sunil and his wife spend approximately Rs100 per meal. With three meals a day, his food expenditure per day is Rs300. Therefore, his yearly food expenses would come to Rs300x365=Rs1,09,500. Sunil leads a healthy life, would be living around 25-30 years into his retirement. His food expenses would work out to Nest Egg 400 Post-retirement Fund (Lakh)

R e t i r e me nt F UND

food expenses. But, of course, he would be earning income on his savings. Let’s factor that in. Assume that after Sunil retires, he earns 8% annually on his savings. How much savings would he need? To cover his yearly food expenses alone, he would have to have Rs13.70 lakh and he will draw down 1% of his costs from his savings each year (9% is the inflation and 8% is the income growth). By this process, his savings would be exhausted in 12 years. But Sunil is not only spending on food. He has a whole lot of other expenses as well, such as utility bills, medical bills, household expenses, repairs, etc. Assume that he does not want to be in the dreadful situation of running out of his savings. How much money does he need at the time of retirement?

300

Reqd Corpus of plan funded by only interest

Expenses

200

Reqd Corpus of plan funded by interest & principal

100

0 1

Number of years in retirement

Rs1,09,500x25=Rs27.38 lakh. Seems like a lot to spend on food? Here’s another shocker, these calculations have not factored in inflation. The current food inflation is at 9.80% and it had risen to as high as 17% earlier this year and was above 20% at the beginning of last year. Over the past seven years, food inflation has risen annually by 9%. For Sunil, his expenditure for the 25 years after retirement on food would be a whopping Rs93 lakh, after factoring in inflation. Shocking, isn’t it? And this is just

To cover expenses of Rs3.50 lakh a year through investment income alone that lasts for 25 years (without dipping into corpus), Sunil needs Rs1.42 crore at the time of retirement (look at the chart). That’s not a small sum and cannot be built overnight. This is why the one thing that everybody from financial planners to personal finance experts to market intermediaries agree on is this: start saving as much as possible, as early as possible and put your money in assets that grow more than inflation, over time. The answer: select mutual funds.

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Living

Lifestyle

FOOD & WINE

Pizza & the Bubbly

Leisure

People

Hobbies

Wellness

HOBBY

Tipu Sultan’s Emerald Tipped for or Auction

ne of the few surviving pieces from Tipu Sultan’s jewellery collection, a rare pendant, will be auctioned ed next month at London. Estimated to fetch up to £120,000, 0, it was at Lord Glenconner’s St Lucian’s home in London. It is set with a 38-carat emerald with topaz, pearl, blue sapphire, diamond and ruby. Tipu’s treasury was looted after the Tiger of Mysore fell in1799 to the British.

health

issing the sparkle while gorging on pizza? Don’t fret; Pizza Hut is going to serve wine and beer at all its outlets now. Having tested the formula in Delhi and Bengaluru successfully, this popular pizza haunt is going to extend the service to other ciƟes. The chain currently runs 120 restaurants across 34 ciƟes. Sunay Bhasin, markeƟng head, Pizza Hut, says that the current strategy was to ‘change the concept’ of Pizza Hut from the tradiƟonal quickservice restaurant to a casual dining restaurant. So, now, you can uncork, burp... and taste.

Parkinson’s: Finally, a Breakthrough

“

We all want to make money, but what makes a great firm is adherence to ideals”

— Robert Steven Kaplan Professor, Harvard Business School

lifestyle

Ladies Special: Stressful Journey

PEOPLE

Closing the Book of Jobs

he most recognised face from the tech-world, Steve Jobs, has resigned as chief executive officer im Cook of Apple. Chief operating officer, Tim d co-founder will step in. The ailing visionary and of Apple (the most valuable brand, surpassing aluable Google, briefly became the most valuable sing Exxon), said company earlier this month bypassing ector or chairman, that he would like to serve as a director man of Apple’s and has been appointed the chairman leneck and blue jeans, board of directors. In his black turtleneck nstant innovation. Jobs became synonymous with constant

Edited & Compiled by: Devarajan Mahadevan & Shukti Sarma

Your Life_145.indd 3

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SPENDING TRAVEL

THE HE CA CASCA S DE MOU SC O NTA NTAINS TAIN INS INS OF OFFE FFE ER R A MAGN MA MAG IFIC FIC CENT VIEW IEW W WHER HEREVER EVER R YOU U TUR TU URN

WASHINGTON

Rainforests & Volcanoes Jaideep Mukerji visits an iconic state in the US which offers grand landscapes and endless opportunities to visit historic, cultural and scenic locations

MT T BAK AK KER’ ER R S AC CT CTI TIVE T VE VOL VO V OLCAN O CANO AN N AW WESO WES E ESO SOME ME SIGHT SIG IGH IGHT GH GH GHT HT T IN N WASH WASH WA HINGT HINGT GT TON S STATE TATE TA TATE TAT

n the far northwest of the continental United States is located the state of Washington. Not to be confused with the American capital, the city of Washington, DC, the state of Washington was carved out of land which had been surrendered by Britain in 1846. The state is named after George Washington, the first president of the US and is the only American state named after a president. Approximately 60% of Washington’s residents live in the Seattle metropolitan area, the centre of transportation, business and industry along the Puget Sound region, an inlet of the Pacific Ocean consisting of innumerable islands, deep fjords and bays carved out by glaciers during the last Ice Age. The rest of the state comprises dense rainforests in the west, mountain ranges and a semi-arid (almost desert like-centre), given over to agriculture. The Cascade Range, which dominates Washington state, `` contains five volcanoes that

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SPENDING TRAVEL

` tower over the other mountains.

From the north to the south, these volcanoes are: Mt Baker, Mt Rainier, Glacier Peak, Mt St Helens and Mt Adams. Mt St Helens is currently the only actively erupting volcano in the US, though all of these are considered active volcanoes. The 14,411-ft high Mt Rainier, the prominent snow-covered volcanic cone 80km south of the city of Seattle, is considered the most dangerous volcano in the US due to its nearness to the Seattle metropolitan area. On clear days, it dominates the south-eastern horizon in most of the Seattle metropolitan area to such an extent that locals sometimes refer to it simply as ‘the Mountain’. With 26 major glaciers and 93sq km of permanent snowfields and glaciers, Mt Rainier is the most heavily glaciated peak in the US with its summit topped by two large volcanic craters. After Mt Rainier, Mt Baker is the most heavily glaciated of the Cascade Range of volcanoes with its volume of snow and ice more than that of all the other Cascade volcanoes (except Mt SEATTLE’S SPACE NEEDLE A MAJOR LANDMARK OF THE PACIFIC NORTHWEST REGION OF THE US

SK S SKA KA AGI GI V GIT VA ALLE LLE LL LEY’S Y’S ’S FI FIEL ELD E LD L DS OF TULI UL LIPS S BRIN BR R NG CO RIN COLOUR LO LOUR L LOU O OUR AN AND A ND BE ND BEA EA E AUTY UT TY YT TO O NORT NOR NO ORT O R HE HERN ERN E ER R W WAS AS SHING HING NG N GTON TON TO ON STAT TAT TA A E AT ATE

From the top of Space Needle, one can see not only the Seattle city skyline, but also the Olympic and Cascade Mountains, Mt Rainier, Mt Baker, Elliott Bay and the surrounding islands Rainier) combined. It is also one of the snowiest places in the world; in 1999, the Mt Baker Ski Area, located 14km from the mountain itself, set a world record for highest snowfall in a single winter season—1,140 inches or about 95ft of snow fell that year! At the extreme northwest corner of Washington is the unique Olympic National Park. A mustsee for any visitor to the state, the Park became an International Biosphere Reserve in 1976 and was designated a World Heritage Site by the United Nations in 1981. With no obstruction for thousands of kilometres to the west in the vast Pacific Ocean, impressive waves that form come crashing ashore along the rugged coastline of the Olympic Peninsula in showers of spray and foam. To the east, are ancient temperate rainforests, including the Hoh Rainforest which receives annual rainfall of about 150 inches (380cm)

making this perhaps the wettest area in the US. Because this is a temperate rainforest, unlike a tropical one (like the Amazon Rainforest in South America), it is dominated by dense coniferous trees and mosses that coat the bark of the trees and drip down from their branches in green, moist tendrils. Prior to the arrival of European settlers, the area’s human population consisted of Native Americans, indigenous people who used the peninsula mainly for fishing and hunting. Most, if not all Pacific Northwest indigenous people, were severely affected by European diseases and their numbers were greatly reduced. A number of indigenous cultural sites have been identified in the Olympic peninsula; important sites and artefacts are now protected and are worth a visit to appreciate the region’s native history. Located only an hour’s drive north of Seattle, and just south of ``

61 | 22 September 2011 | MONEYLIFE

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SPENDING TRAVEL

` the Canadian border, is Washington

state’s scenic Skagit Valley which comes alive with brilliant colours each spring. Acres and acres of daffodils, tulips, irises and lilies bring visitors to the towns of La Conner and Mount Vernon. The flower-viewing season begins with dainty yellow daffodils in mid- to late-March; a rainbow of tulips takes the stage in April. Irises and lilies follow, providing colour well into the month of May. The fields are also cultivated to produce bulbs of flowers, a major industry in the Skagit Valley. In addition to viewing and photographing the fields of colour, visitors to the Skagit Valley tulip festival (held every April) can explore the different display gardens and garden centres to learn about bulb-gardening. While driving to the Skagit Valley, do not miss The Future of Flight Aviation Center & Boeing Tour located in Mukilteo, 40km north of Seattle. The 90-minute public tour of Boeing’s Everett aircraft factory is available seven days a week and you can see the Boeing 747, 767, 777 and 787 Dreamliner airplanes being built for Boeing’s worldwide customers. During the tour, you will also see the world’s largest building by volume (472 million cubic feet) where some of the aircraft are assembled. Finally, end the tour with a visit to Seattle’s Space Needle and the waterfront Pike Place Market. The Space Needle Tower is a major landmark of the entire region of the US and a symbol of Seattle. Located at the Seattle Center, it was built for the 1962 World’s Fair and is 605ft (184m) high. The Space Needle features an observation deck, a gift shop and the rotating SkyCity restaurant that rotates 360 degrees in exactly 47 minutes, all at a height of 500ft. From the top of Space Needle, one can see not only

OLY YMPI MPIC C PE ENI EN NINSU N SU ULA’ LA S HOH O RA R NFO RAI F RES ST A LA LAN ND N D OF M MIS MIST, ST ST, T CLOU OU UD AND A D ANC AN CIEN EN NT MO M SS COV OVER VER ERED TREES ER EES S

ESSENTIAL NTIAL FACTS the Seattle city skyline, but also the Olympic and Cascade Mountains, Mt Rainier, Mt Baker, Elliott Bay and the surrounding islands. Seattle’s Pike Place Market is a public market built on the edge of a steep hill on the waterfront of Elliott Bay. Pike Place opened in 1907 and is one of the oldest continuallyoperated public farmers’ markets in the US. It is a place of business for many small farmers, craftspeople and merchants and remains one of Seattle’s most popular tourist destinations. Local farmers and craftspeople sell year-round in the arcades in accordance with the Market’s mission and founding goal: allowing consumers to ‘Meet the Producer’. Though often overlooked, this corner of the US offers grand landscapes and endless opportunities for visiting historic, cultural and scenic locations. — With Veeresh Malik

Why Go There: Washington and the Pacific northwest of the US is an area bordering the Pacific Ocean consisting of innumerable islands, deep fjords and bays carved out by glaciers. The rest of the state consists of dense rainforests, mountain ranges and an almost desertlike centre, apart from bustling Seattle and its many attractions. Getting There: There are direct flights to Seattle from several European cities with convenient connections from most of the major metros in India as well as from all major American cities. Visas: Indian nationals require a US visa. Where To Stay: It is easy to book Washington state hotels online on any of the popular hotel sites like Expedia, Travelocity or Hotels.com. The official tourism website of the state—www. washingtonbeautiful.com—has a wealth of information on the dozens of attractions.

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MONEY FACTS STOCKS

INDIAN MARKET TRENDS

FUND FLOWS

The Sensex and the Nifty gained 3% each in the fortnight as did the ML Mid-cap Index, the ML Mega-cap Index and the ML Micro-cap Index. The ML Small-cap Index and the ML Large-cap Index both rose 2%.

Foreigners: Foreign institutional investors were net sellers of stocks (Rs3,982 crore) in the fortnight. They pulled out funds totalling Rs22,772.40 crore.

Share Prices, March 2011=100

500

FII Net Investments (Rs Crore)

100

130

-300 120

-700 -1,100

110

-1,500 22 Aug-11

100

30 Aug-11

Indians: Domestic institutional investors were net buyers of equities worth Rs1,561.65 crore. They invested Rs7,663.01 crore in the fortnight.

80 Mar-11

Jun-11 ML Large-cap ML Mid-cap

ML Small-cap ML Mega-cap

index

Sept-11

390

ML Micro-cap

Nifty Sensex

570

210

19 Aug

30 Aug

+/(-)

16,141.67

16,676.75

4,845.65

5,001

ML Mid-cap Index

99.10

102.24

ML Mega-cap Index

94.27

96.69

ML Micro-cap Index

88.17

90.39

GLOBAL MARKET TRENDS

ML Small-cap Index

91.10

93.06

3,065

ML Large-cap Index

112.37

114.21

Sensex Nifty

Mega-cap Gainers/Losers

19 Aug

30 Aug

Change

Tata Consultancy Services

929.80

1,042.40

12%

Punjab National Bank

993.70

930.50

-6%

30 -150 -330

DII Net Investments (Rs Crore) 22 Aug-11

30 Aug-11

2,955 2,845 2,735

Shanghai Composite 2,625

Large-cap Gainers/Losers

19 Aug

30 Aug

Change

Pipavav Shipyard

62.10

72.70

17%

Aurobindo Pharma

137.10

125.70

-8%

19 Aug

30 Aug

Change

Bannari Amman Sugars

472.15

620.10

31%

JB Chemicals & Pharma

140.45

94.25

-33%

Mid-cap Gainers/Losers

Small-cap Gainers/Losers

19 Aug

30 Aug

Change

Energy Development Co

23.85

37.90

59%

Consolidated Construction Consortium

21.70

-17%

Micro-cap Gainers/Losers

19 Aug

30 Aug

Change

2,515 Mar-11

8.25

11.75

42%

Visesh Infotecnics

6.19

3.72

-40%

(All Prices in Rs)

Aug-11

All global indices settled in the positive. The Nasdaq Composite surged 10%, Dow Jones Industrial Average jumped 7% and the Nikkei gained 3%. Index

19 Aug

30 Aug

+/(-)

Nasdaq Composite

2,342

2,576

10%

Dow Jones Ind Avg

10,818

11,560

Korean Composite Bovespa FTSE Hang Seng

Duncans Industries

Jun-11

1,745

1,844

52,448

55,385

5,041

5,269

19,400

20,204

Taiwan Weighted

7,343

7,646

Nikkei

8,719

8,954

Shanghai Composite

2,534

2,567

63 | 22 September 2011 | MONEYLIFE

Money Fact.indd 2

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MONEY FACTS STOCKS

What’s H

ML SECTORAL TRENDS

Stocks of shipping companies were in demand in the fortnight. Bharati Shipyard soared 22%, Global Offshore Services surged 18%, Great Eastern Shipping advanced 6% and Mercator Lines added 1%. 19 Aug

30 Aug

+/-

ML Shipping Index

Companies Bharati Shipyard

85.95

104.45

22%

625

Global Offshore Serv

90.90

107.60

18%

Pipavav Shipyard

590 555

62.10

72.70

17%

ABG Shipyard

339.75

371.10

GE Shipping

224.05

238.45

SCI

520

80.80

Seamec

485

85.90

Shares of shipping companies jumped 10%, software & IT services climbed 7%, textiles advanced 6% and sugar stocks rose 5%. Airlines and oil & gas stocks fell 3%, media companies shed 1%, while energy and paper & paper products remained unchanged. ML Sectoral Trends Shipping

10% Airlines

-3%

Software & IT Serv

7% Oil & Gas

-3%

Textiles

6% Media

-1%

Telecom Services

6% Energy

Sugar

5% Pap & Paper Prod

94.5

100.05

Varun Shipping

19.45

20.15

Shreyas Ship & Log

26.30

26.80

Mercator Lines

24.25

24.55

450 Mar-11

Jun-11

Aug-11

INSIDER TRADES

What’s

(All Prices in Rs)

N T

Shares of oil & gas companies received a lukewarm response. ONGC tanked 5%, GAIL (India) declined 4%, Oil India shed 1%, Indraprastha Gas rose 2% and Cairn India gained 3% in the fortnight. Companies

19 Aug

30 Aug

+/-

276

263.30

-5%

429.70

410.60

-4%

1,310.75

1,301.95

-1%

580

Indraprastha Gas

420.50

429.30

565

Cairn India

269.90

279.05

Tide Water Oil

6,427.3

6,653.95

Gujarat Gas

432.10

455.70

Hindustan Oil Expl

115.70

122.60

ONGC GAIL (India) Oil India

ML Oil & Gas Index 595

550 535 520 Mar-11

Jun-11

Aug-11

(All Prices in Rs)

BULK DEALS Date

Company

Buyer

Seller

Rs Cr

30 Aug-11

India Sec

Essar Capital

Essar Teleholdings

289.20

25 Aug-11

India Sec

Essar Capital

Essar Teleholdings

288.00

25 Aug-11

Magma Fin

Clsa (Mauritius)

Citigroup Global Markets Mauritius Pvt

29.66

25 Aug-11

Tulip Telecom

Clsa (Mauritius)

Citigroup Global Markets Mauritius Pvt

28.71

25 Aug-11

Zuari Inds

Morgan Stanley Mauritius Co

Citigroup Global Markets Mauritius Pvt

17.67

25 Aug-11

Fedders Lloyd

Clsa (Mauritius)

Citigroup Global Markets Mauritius Pvt

9.90

29 Aug-11

Man Inds

Deepadevi R Mansukhani

Jhamaklal M Mansukhani

7.49

D Reddy, MD of Orient Hotels, bought 26,114 shares in the company (stake 3.52% up). Dodla Reddy bought 25,960 in Orient Hotels (stake up to 0.15%). MP Ramachandran, CMD of Jyothy Laboratories, bought 1,33,000 shares in the company (stake up to 44.08%). Raman Chopra, CFO of GHCL, bought 6,000 shares in the company (stake up to 0.01%). Nishit Radia, VP of GHCL, bought 20,000 shares in the company (stake up to 0.02%). Sunil Bhatnagar, president-marketing of GHCL, bought 10,000 shares in the company (stake up to 0.01%). BRD Krishnamoorthy, presidentHR & legal, GHCL, bought 13,817 shares in the company (stake up to 0.04%). D Ashok, chairman of Nava Bharat Ventures, bought 15,000 shares in the company (stake up to 0.76%). V9 Avenues Pvt Ltd bought 10,000 shares in Nava Bharat Ventures (stake up to 1.18%). R Sarabeswar, CEO, Consolidated Construction Consortium, bought 37,738 shares in the company (stake 4.69% up). Leela Lace Software Solutions Pvt Ltd bought 1,00,000 shares in Hotel Leelaventure (stake up to 6.23%).

MONEYLIFE | 22 September 2011 | 64

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MONEY FACTS COMMODITIES

INDEX TRENDS

COMMODITY TRENDS

MCX Commodity Indices

Coffee

Particulars

19 Aug

2 Sept

Change

52-Week High

52-Week Low

Energy

2,706.99

2,821.43

3,585.96

2,448.49

Comdex

3,464.23

3,609.45

3,739.05

2,742.24

Agri

2,822.53

2,905.20

2,989.16

2,170.21

Metal

4,974.82

5,110.55

5,113.41

3,505.81

COMMODITY FOCUS MCX Silver Futures (Rs/kg) 72,900 66,780 60,660 54,540

ccording to the International Coffee Organization, world coffee exports declined by more than 10%, to 7.35 million bags of 60kg each, in July 2011. The global export of coffee stood at 8.20 million bags in the yearago period. On a month-on-month basis, global coffee shipments fell by 19% to 7.35 million bags in July 2011 against 9.07 million bags in June 2011. However, in the first 10 months of the current coffee year (October 2010-September 2011), exports rose by 14% to 88.90 million bags from 77.90 million bags in the same period of the previous year.

Cotton

48,420 42,300 Jan-11

May-11

Sept-11

At the Multi Commodity Exchange of India, silver prices for delivery in September spurted by Rs1,046, or 1.68%, to Rs63,200/kg, with a business turnover of 671 lots. Likewise, silver prices for delivery in December shot up by Rs994, or 1.55%, to Rs65,139/kg, with a trade volume of 12,663 lots. Market analysts said that fresh buying by speculators on the back of a firm global trend mainly contributed to higher silver futures prices. Meanwhile, silver rose by 1.5% to $42.21 an ounce in London.

MCX PRICE TRENDS Particulars

Active Contract

16 Aug2011

30 Aug2011

Change %

High

Low

Global Commodities

ue to higher planting and plentiful rains, India is expected to produce 35.50 million bales of cotton for 2011-12 (October-September), compared to 32.50 million bales in the corresponding period last year, the Cotton Advisory Board (CAB) has said. But the surplus stocks available for exports will still remain at current year’s level of 7 million bales due to rising domestic demand. CAB has forecast an 11% rise in domestic consumption to 28.10 million bales in 2011-12.

Gold Rs/10gm

Oct-11

26,225

27,272

3.99

28,284

20,681

Onion

Silver Rs/kg

Sept-11

59,718

62,121

4.02

75,543

41513

Crude Oil Rs/barrel

Sept-11

3,955

4,085

3.29

5,433

3,747

Copper Rs/kg

Aug-11

399.25

418.30

4.77

461.10

387.10

Nickel Rs/kg

Aug-11

982.10

1,003.40

2.17

1,113.60

941.40

Lead Rs/kg

Aug-11

107.40

114.90

6.98

124.05

99.10

Zinc Rs/kg

Aug-11

97.85

103.90

6.18

108.30

91.70

Natural Gas Rs/mmBtu

Sept-11

179.70

0.00

207.70

173.20

CPO Rs/10kg

Aug-11

485.70

490.20

0.93

538.80

466.10

Mentha Oil Rs/kg

Aug-11

1,130

1,270.20

12.41

1,174.50

817.50

Potato Agra Rs/100kg

Sept-11

432.60

483.20

11.70

485.30

400

Sugar M Kol Rs/100kg

Sept-11

2,679

2,672

-0.26

2,974

2,597

Cardamom Rs/kg

Sept-11

811.40

725.40

-10.60

975.20

702.10

Others

n August, the Directorate General of Foreign Trade raised the export price of onion by $25 to $300 a tonne, for the second time in a month, to discourage exports and boost domestic supply. The minimum export price (MEP) of onions other than ‘Bangalore Rose’ onions and ‘Krishnapuram’ onions will be $300/ tonne. On 12th August, MEP was increased to $275/tonne. However, the MEP of two superior varieties— Krishnapuram onions and Bangalore Rose onions—would continue to be $400/tonne. 65 | 22 September 2011 | MONEYLIFE

Money Fact.indd 4

9/3/2011 4:28:05 PM

BEYOND MONEY

waste to WEALTH Garbage Concern tackles the problem of rubbish and imparts knowledge on the matter of filth, finds Shukti Sarma

GARBAGE CONCERN WELFARE SOCIETY 501/2, Royal Apartment Sector VI, Charkop Kandivli (W), Mumbai 400 067 Tel: 022 3225 6427 www.garbageconcernindia. org garbageconcern@gmail. com

ne of the most pressing problems of India’s unplanned urban expansion is the lack of sanitation and wastemanagement system. To top that, Mumbai is running out of space for dumping grounds. It is precisely to tackle this problem that Professor Francin Pinto started a nongovernmental organisation called ‘Garbage Concern Welfare Society’ in 2005. A former lecturer in Zoology at the University of Mumbai, Professor Pinto is currently doing her thesis on effective waste management and working as a visiting lecturer on environment & waste management at St Xavier’s College. “I never believed in one-day clean-up drives. I had a long-term vision and wanted to find an alternative to plastic bags. With that aim, in 2004, I joined an NGO called Oasis,” says Professor Pinto. She started pursuing her PhD and, after a year, launched her own NGO, Garbage Concern, in Kandivli and registered it as a trust. It is a research & education based NGO which has educated more than a thousand people on the environmental hazards caused by unattended and untreated garbage. “The problem of indifference, which we face now, has been there since the start,” Ms Pinto says. “Initially, funding was a problem because nobody wanted to invest for the environment, where the results are not apparent immediately.” To support the initiative financially, Ms Pinto started an environmental consultancy company called 3-S Envo Solutions whose profits funded the NGO. Now, the consultancy too has grown and boasts a turnover of Rs70 lakh. Today, Ms Pinto and her team are approached by many corporates for their CSR (corporate social responsibility) and ‘green’ initiatives. Ms Pinto has recently been nominated for a ‘Woman Entrepreneur Loan’ from the State Bank of India for furthering her work. Through seminars, workshops and photo exhibitions, Garbage Concern

teaches local residents about proper ways of waste management, segregating dry and wet garbage at source and vermicomposting by making compost out of garbage by introducing worms and microbes in it. It even collaborates with BMC (Brihanmumbai Mahanagar Palika) and hospitals, sensitising staff and educating them in proper ways of collecting and segregating waste. The NGO also specialises in environmental awareness programmes at various institutions, and provides training to boys who are local school dropouts to take care of composting. “We are involved in a lot of projects, like waste management in 192 slums apart from schools, colleges, public gardens and even many housing societies nearby,” said Ms Pinto. The strategies of waste management vary, because a compost pit is not viable everywhere. “In some places, we aim for biogas generation,” she says, “but if we have compost, we persuade the residents/corporates to use it for window ledges or terrace gardens. Marketing the compost without proper infrastructure is problematic; using it for gardening instead adds to greenery and releases oxygen.” Thanks to Garbage Concern’s efforts, K Raheja College of Architecture and Environment Study at Juhu (western Mumbai) adopted a ‘zero-waste’ policy, which entails 90% of waste generated being reused and recycled. Starting with a two-bin system for segregating waste, the college constructed a unit to convert biodegradable waste into valuable vermicompost. “Today, more people are realising that waste management is a big problem; there are companies and authorities ready to take up the drive with gusto,” Ms Pinto says. Her students participate in the NGO’s activities, for which they also get stipends and certificates. “It’s not just a matter of charity,” she says, “We want people to profit from it too. I say that the job must promise dignity, so that rag-pickers or our waste-collectors take up the profession with pride.” All contributions made to Garbage Concern are exempt under Section 80(G) of the Income-Tax Act.

MONEYLIFE | 22 September 2011 | 66

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