Personal Finance Magazine Moneylife 28 July 2011 by Moneylife Digital

SUCHETA DALAL ON: THE PM HEARS, BUT IS HE LISTENING?

Personal Finance Magazine

THE BSE’S ANTI-INVESTOR STANCE CONTINUES

INVESTORS HAVE VANISHED, BROKERS ARE BROKE

28 July 2011

Rs 25

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ce This is the insuran world’s best- kept secret. For the first d time, we reveal an s analyse the product

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FUNDS 26

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– National Peroxide niversal – Carborundum U

ING 50 LEGALLY SPEAKn m Starting a new colu by Dr SD Israni

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Volume6,Issu e 11 15July–28July 2011 DebashisB asu Editor& P ublisher editor@moneylife.in SuchetaD alal ManagingE ditor suchetadalal@yahoo.com EditorialC onsultant DrN itaMukher jee

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

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

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Letters to the Editor FREEDOM AFTER TWILIGHT Last year (15 July 2010, Cover Story, “Retirement Havens”), Moneylife had carried a comprehensive report on retirement homes for senior citizens situated in various parts of the country. The issue was welcomed and appreciated by Moneylife readers. As a staunch believer Write to the Editor! The only investment that in sharing information Win jewellery enhances your face value. regarding public interest, I would like to share the details of a retirement home that I recently visited. A group of retired officials— most of whom have their children living abroad or in far-off places across India— Congratulations Anantha Ramdas from Bengaluru! have joined hands and Your letter to the Editor wins a Surat Diamond gift. formed a not-for-profit Keep writing! Keep winning! welfare trust for the purpose of meeting this critical need of old people, who need shelter with a loving touch. This group has established the SB Dharmik Samaj Senior Citizens’ Welfare Trust in Bengaluru, and it has been in operation since February of this year. Accompanied by my two sisters and their husbands—these couples are from Mumbai and Tiruchirapalli (Tamil Nadu)—I contacted one of the trustees of the Trust, PV Ramakrishnan, who arranged for transport to take us from Bengaluru city to the site. The site is situated around 10km away from Electronic City at the outskirts of Karnataka’s capital. We visited Panchavati, the first phase of this project, located at Vakil Townscape, a scenic location and in a gated community. The Trust has contracted to buy around 10 plots from this township. The Trust was in the final stage for the third building which is under construction, when we visited the site. When the township is completely built over the next couple of years, it will be a mini-city in itself, with all the requisite facilities located close to it. All general services required by a resident are available at actual cost, since profit is not the motive behind establishing ishing this welfare Trust. We were pleasantly su surprised urprised i d by b the th various types of accommodation ommodation which the Trust offers. r rs. There are studio apartments along with single- and twin-bedroom flats to suit the needs of the elderly. The basicc furniture is in place—beds, — —beds, dining tables & chairs r and rs cupboards—and a nice icce kitchen facility (in the penthouse o ouse apartments). All the fixings f are top-class: be it the he skid- ``

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LETTERS

` proof flooring or the bedrooms and Western sanitary

facilities, which makes it convenient for the elderly. The Trust has also installed microwave ovens—the trustees have taken care to ensure that nothing is missing, and all that the occupants need to do is to walk in with a suitcase! In fact, even household help is provided for cleaning rooms on a daily basis; the Trust also provides a laundry service, along with a caretaker who will attend to every need of the inhabitant. The catering is done by an experienced couple; the food is vegetarian, wholesome and nutritious. Currently, there are no set menus for the occupants; in fact, the system set by the Trustees is so flexible that all that one needs is to ask for any kind of food, and it will be served the next day! This is ideal for vegetarians, especially for those who are accustomed to south Indian fare. And all this comes at a monthly cost of just Rs3,000—on a sharedcost basis for food- and community-related services. This tariff can be reviewed and restructured by the Trust’s Residents’ Welfare Committee, based on the actual expenses incurred. All this might sound too good to be true, but there is no catch. These facilities are meant only for residents who have purchased the apartments—but they can be resold, at market prices, only to the Trust. Anantha Ramdas, Bengaluru, by email

PARTY TIME? NOT EXACTLY Public memory is short. Though the general elections are three years away, let’s be ready for another cruel phase ahead. Do we need a lame-duck Lokpal Bill? Just to save the PM-in-waiting to be free from its ambit? There is no credible Opposition. In fact, the role Anna Hazare and Baba Ramdev are playing is actually that of the Opposition. There is no credible alternative for ethical politics. Nothing much will change even if the Opposition is in the seat of governance. Most importantly, the Congress Party is already obviously working for a win in the next general elections. Instead of handing out ration-cards to the needy, they would rather prefer a ‘direct cash transfer (DCT) scheme’ instead of a subsidy. No UID

(Unique Identification) number for me! The timing chosen by the Congress makes it a frontrunner for the next elections. Sometime in 2013, the government will launch the DCT scheme for 120 million families. With about Rs2,500 in hand every month—and an average of four votes per family—the Congress is home and dry... and in power for the next five years. This money belongs to the people and they will get hard cash in lieu of the items through the existing PDS (public distribution system). But, given the current level of awareness in society and our maai-baap culture, this is the tool that every political party plays with and the Congress Party has mastered the art. Last time, it was the farm-loan waiver and the MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) and now it will be the ‘DCT Scheme’. How can one go about creating this awareness and build an alternate credible and ethical political platform? Subrahmanian SH, by email

BREAKING BONDS This is with reference to “Bank FDs & Corporate Bonds—High Interest” (Moneylife, 14 July 2011). Rural Electrification Corporation (REC) issued its REC Long Term Infrastructure Bonds, with tax deduction eligibility under Section 80 CCF of the Income-Tax Act, in March 2011. Shockingly, no bonds have been issued to date (as of 29 June 2011), and most investors have not even received their allotment advice. It is high time a deadline be made mandatory by the concerned authorities for all companies which issue bonds or fixed deposits (FDs) to issue the bonds or FD receipts by a fixed date. Else a penalty should be levied—and interest should be paid to investors for such a delay! Mahesh Kumar, by email

KYC… OH, NO! I am writing with reference to “Banks & Financial Literacy—Ears to the Ground” (Moneylife, 14 July 2011). Know your customer (KYC) norms are necessary not only for non-resident Indians (NRIs) for investment in Indian stock markets, but certain banks also require KYC forms to be filled up for fixed

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

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LETTERS

` deposits for Indian

any loss of interest. Bulls and bears are Write to the editor! This ultimately speaks citizens! This requires unpredictable. Invest in diamonds. Win jewellery volumes of the quality the disclosure of a lot of of the employees of the personal information for Union Bank’s Mahim genuine investments. In branch, who are sensitive fact, these cumbersome to the customers’ norms cause many concerns… and actually investors to opt out address them. of such investments Write to the editor. If your letter is the best, You’ll Nagesh Kini, Mumbai, because they feel that Win Surat Diamond jewellery. by email they are divulging too much of their personal information. The details of bank accounts alone should VACANCY TAX be enough instead of KYC norms for all kinds of Two years back, when I wanted to buy a home with a investments. renowned builder in Kandivli-East, (a Mumbai suburb), Mahesh Kapasi, by email I was told that the builder had only eight flats left… and all others had been sold. But the shocking fact is that the builder still issues advertisements and puts up DON’T TINKER WITH THE RTI hoardings, proclaiming that these flats are up for sale. I read your ‘Power of One’ (Moneylife, 14 July 2011); Investors with black money invest in flats without I do agree that the Right to Information (RTI) Act can registration in the pre-launch phase, and at the time work wonders. Perhaps that is why the RTI Act only of possession, these properties are sold to end-users at recognises individuals and not NGOs or entities who a higher cost. However, now prices are so high that can seek information. For once, the lawmakers are in investors are not able to sell and builders don’t want the right. investors to reduce prices... In fact, a vacancy tax will The RTI Act should not be allowed to be tinkered bring the much-needed transparency into this sector. with. Its first five years have indeed been glorious. It Vijay Mantra, by email has opened enough cans of worms and has managed to stem the rot as the first step in the fight against HELP US TO HELP YOU corruption. Attempts at Moneylife offers its readers a unique service—helping abusing this Act need to be redress grievances on a best-effort basis. However, we nipped in the bud. Possibly have limited resources to devote to this effort and can a clause requiring the only pursue complaints that come to us by email. We establishing of the locus request readers to please send us crisp complaints, with standi of the applicant can all the facts on email (not as an attachment) and send help mitigate the misuse of us the supporting documents, only if we ask for them. this legislation. We cannot handle physical letters. — Editor However, quite contrary to Sharad Phadke’s nasty HOW TO REACH US Letters to the Editor can be emailed to editor@moneylife.in or experience with the can be posted to: The Editor, Moneylife Magazine, Unit No. 315, 3rd Bank of India (BoI), my Floor, Hind Service Industries, Off Veer Savarkar Marg, Dadar (W), experience with the Union Mumbai 400 028 or faxed to 022-24442771. Letters must include Bank of India (Mahim, the writer’s full name, address and telephone number and may be edited for clarity or space. central Mumbai) branch has been extremely pleasant. New Subscriptions & Customer Service When the first transaction in the ATM at this branch For new subscription requests, complaints about current failed, I brought it to the notice of the chief manager subscription and books, write to subscribe@moneylife.in or of the Branch. He instructed the officer-in-charge of to Subscription Manager, Unit No. 315, 3rd Floor, Hind Service Industries, Off Veer Savarkar Marg, Dadar (W), Mumbai 400 028 the ATM to ascertain this failure by going through the or call 022-24441059-60 or fax to 022-24442771. transactions at the end of the day and confirm that Advertising the amount is not disbursed by verifying the balance For information and rates, email us at sales@moneylife.in or call of cash in the ATM. This exercise was carried out and 91-022-24441059-60. the amount debited was promptly credited without

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LETTER

ISSUE CONTENTS

28 July 2011

FROM THE

EDITOR Extra Cover

uying insurance—especially mediclaim—has become a tough task, thanks to the clutter of policies that are flooding the market with various exclusions and conditions. Then there is the issue of getting your claims passed, with the insurers, hospitals and third party administrators not always working in your interest. So, it was a surprise when we came across one of the bestkept secrets of the health insurance business— something that your advisor (or agent) does not want to tell you. For the first time, we explain that you can get extraordinary mediclaim deals from nationalised banks. Find out what is the optimum health policy for you and your family, with no tests and no premium escalation. This issue has it all, starting from the advantages and disadvantages of bank mediclaim, pre-existing diseases and medical test comparisons, additional benefits, room limits, co-pay options, service issues... It does not get more comprehensive than this. From this issue, we are proud to present yet another dimension to your money and life. Dr SD Israni, one of Mumbai’s well known lawyers and a friend of Moneylife, will be commenting on the legal issues that affect you. Of course, all of us need a work-life balance. Join us for a trip to Seoul—with our ace travel expert Jaideep Mukerji who has visited every major travel site you can think of. India is home to the largest English-speaking population in the world, but it is unfortunate that this language is not understood by a huge section of our people who need to understand the intricacies of the world of money and savings. To reach a part of this target audience, Moneylife Foundation held its first seminar on financial literacy in Marathi—continuing the Foundation’s mission to spread not just its reach—we have visited Pune, Nashik, Gurgaon and Kolkata so far—but also its inclusiveness. Of course, we have many more events coming your way. Stay tuned at www.moneylife.in to know what we have in store—and as I said earlier, our Bengaluru event will be beamed live to you. Debashis Basu

28 Cover Story

Cheapest Mediclaim

This is the insurance world’s best-kept secret. For the first time ever, Raj Pradhan reveals and analyses the products that can cover you and your family—at the most inexpensive premium

13 Current Account – – – – – – – – –

Are 3D glasses unhygienic? The BMC thinks so... Mediclaim for domestic workers will be a challenge The market has rallied, hoping that earnings would be good A sole mosquito has supposedly caused 3,000 cases of malaria Keep a close watch on your iPad and iPhone Is there gain from rain? Phony ad blitzes are too common Greenwich is dotted with ultra-luxury homes Beyond the Headlines: The Damodaran Committee report

19 LOOSE CHANGE Moneylife Quiz; Soundbites

The shocking attitude of the BSE; SEBI drags a report through adjudication on a Rs3 lakh penalty; ignores price manipulation; Broking companies are paying for grave systemic flaws

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 AUTO

DIFFERENT STROKES

Good Enough, 22 Not Mr Prime Minister Manmohan Singh is an honest man. He should not support those who are not SMART MONEY

Little 24 Too for Too Many

STOCKGRADER 45

The SEBI chief wants to keep the no-load system in place. But it offers too little incentive for many small fund distributors and small investors

Momentum

Shree Renuka Sugars soared 24%, while Bhushan Steel declines 4%

Medium Term

FUNDS

Shoppers Stop gained 13%, 3M India was up 5%, and Petronet LNG was down 1%

Fund Offers: 26 New More is Less

Long Term

Mutual funds are not thriving. But more and more fund companies are coming onto the scene

Castrol India surged 16%, ITC rose 4%, while Petronet LNG fell by 1%

52 InLanea Slow Gl Globally, prototypes of vehicles running on electricity and ru solar power are out. But our policymakers seem oblivious

SAVING AND INVESTING

58 Earning Curve Patience is a key virtue in stock investing TRAVEL

INSURANCE

48 – STOCKS

40 Street Beat National Peroxide: Good growth prospects and excellent market share; Carborundum Universal: Strong integration and expansion plans; Contrarian Call: Are FMCG stocks overvalued?

– – –

Insurance Trends

LEGALLY SPEAKING

Can you inherit company shares even if you are just a nominee?

ML FOUNDATION EVENTS

44 Signal Yellow? Time to be cautiously optimistic

Content.indd 3

The capital of South Korea is a perfect example of the harmony between the past and the future

Tata AIG Gyan Kosh—feature-rich but costly Be safe and smart, avoid SBI Life Flexi Smart Mediclaim: ‘Family’, as defined by insurers, excludes parents of married women Fine Print: Portability Postponed; Max Bupa Integrates with IGMS; UID for Insurance KYC?

& 50 Nomination Share Ownership

WHICH WAY

Traditions 60 Seoul: & Megacity

BEYOND MONEY

Joy 66 AForever

Umang Foundation has been bringing happiness into the life of the underprivileged by helping orphanages and providing care to cancer patients

Your Money 51 “Make Work for You”

DEPARTMENTS

“Holding a bag full of money is not enough, one needs to invest it appropriately,” said investment advisor Dilip Samant

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

7/9/2011 3:56:49 PM

www.moneylife.in If you haven’t clicked on the Moneylife website yet, here’s why you shou should.

News you had better not miss

TOP of the LIST Not for aam investor

Nowhere to hide

Parent rap

Have a heart

In 2010-11, in an unusually favourable market for disinvestment, the government barely achieved half its target, while squandering a chance to return wealth to the people

Central Vigilance Commissioner says pulling out the Central Bureau of Investigation from the scope of the RTI Act is a violation of the law itself

Call it gender discrimination or just a technical rule, most family floater products don’t cover parents of a married woman, even if they are dependent on her

In the absence of oﬃcial guidelines on the quality and pricing of stents, hospitals appear to be duping patients on this life-saving component

MARKET WATCH

news reasons

Ahead of the pundits S&P CNX NIFTY 5,700

why you must visit the Moneylife website

5,600 5,500 5,400 5,300 5,200 16 Jun-11

26 Jun-11

06 Jul-11

As pundits speculate on the impact of Q1 results, we track the action and map the movements day by day

ML FOUNDATION Save and invest wisely

MONEY WISE >> While SEBI’s attempt to get investors to buy mutual funds through exchanges hasn’t worked, some funds are trying to collect money that will be channelled into ETFs which, too, stock brokers are not able to sell >> Compact Disc announced a buyback plan in January, but has not paid the dividends it declared over the past couple of years. Now its banker, HSBC, has filed a suit for recovery

Vote in the Moneylife poll on the top issues of the week 12%

Does the prime minister look less and less in control of the government?

on twitter

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

On issues that matter to you Karan Kharb The enemy within our country is graft. Even the armed forces, the true backbone of our country, are now simmering with discontent. The time to stem the rot is now

What’s right, what’s not

HAVE YOUR SAY >> Investment advisor, Dilip Samant, explained at a Moneylife Foundation workshop why it is not enough just to earn, but more important to save and invest wisely. To participate in these programmes and benefit from services of the Foundation, log on to www.mlfoundation.in and register your name. Membership is absolutely free

WEB EXCLUSIVES

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William Gamble Understanding the distortions created by governments trying to control the markets can help investors win. But buying into a bubble requires knowing when it will burst

R Vijayaraghavan Why not make Rahul Gandhi prime minister now? It’s a job for a young team led by a 41-year-old and not for a bunch of septuagenarians

Anil Thakraney The new Domino’s TV ad warms the heart. But there’s a problem on the rash riding the delivery boys have to do to deliver the pizza within the tight deadline

7/9/2011 4:02:55 PM

CURRENT ACCOUNT

3D GLASSES

More Than Meets the Eye Are 3D Glasses Unhygienic? The BMC thinks so...

f you are planning for Harry Potter’s latest instalment in 3D, you must do two things: book in advance and bring your own 3D glasses. At least that is what the Brihanmumbai Municipal Corporation (BMC) would suggest. The civic body feels that 3D glasses are spreading conjunctivitis. Apparently, the glasses are not sterilised before they are passed on for the next show; this way, they

The health cost of entertainment

end up accumulating a lot of dirt and germs. End result: walk in for Deathly Hallows and come out with a pink eye. According to the BMC, the number of conjunctivitis cases in the city has gone up, thanks to unsterilised glasses. “All theatre owners have been asked to sterilise these glasses or provide disposable spectacles to viewers,” said Manisha Mhaiskar, additional municipal commissioner. She added that cases

of conjunctivitis rose in areas where 3D movies have been released. Far-fetched as it may sound, the BMC is not alone in embracing this theory. In 2010, Italy banned 3D glasses during the screening of Avatar, dubbing them ‘unhygienic’. While Avatar continued its triumphant run, no one knows how many conjunctivitis cases it contributed to. Around the same time, a little-known US health magazine published an article saying that a large number of 3D glasses have been found to contain germs that cause conjunctivitis and staph infections. However, the report did not state how many glasses were analysed. Some ophthalmologists have already debunked the BMC’s claims, saying that during the monsoon, more cases of conjunctivitis are reported anyway. Despite the prevailing myth, eye contact does not spread conjunctivitis; one has to come into direct or indirect contact with germs, like when you wipe your eyes with the same towel. Conjunctivitis may be viral or bacterial, and there is a variety of factors that can cause it, including pollution. 3D movies have a really narrow audience base, and it is highly unlikely that a handful of people who watch an occasional 3D movie will contribute to the increase in the number of cases. A pair of 3D glasses costs about Rs150-Rs750, and no theatre is going to throw them out after one screening, as the BMC has suggested. While it is possible to clean these glasses, to sterilise each one is just being paranoid. If you want to be on the safer side, buy your own pair and carry them with you for the shows. Better still, use medicated wipes to clean your glasses before putting them on and fearlessly watch the Battle of Hogwarts.

MEDICLAIM

Right Idea But… Mediclaim for domestic workers will be a challenge

he government intends to pay an annual premium of Rs750 for a sum insured mediclaim of Rs30,000 under the Rashtriya Swasthya Bima Yojna (RSBY). There will be a huge premium payment of Rs300 crore in four years to the selected insurance company. The government will begin with a target to cover 10% of 4.75 million domestic workers in the first year and scale this up. The

If a domestic worker quits and gets a job with a private company, will s/he surrender the card? fulfilment, right from submission of identification certificates to securing the mediclaim smart card and all the way to getting cashless benefits, will be a bumpy ride. With the government paying the annual premium, it may be difficult to control leakages at different levels. If the domestic worker quits the household and takes up employment with a private company, will s/he surrender the smart card and opt out of the system? Will there be a system in place to check ‘active’ domestic workers? It can work, if properly implemented. There is a need for proper infrastructure and technology to run the scheme successfully and offer cashless treatment. The hospitals will benefit with volumes of business and, hence, offer low-cost surgery packages. The entire system has to be streamlined with the hospitals.

13 | 28 July 2011 | MONEYLIFE

Current Account.indd 3

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CURRENT ACCOUNT

J U N E E A R N INGS

Hoping for the Best The market has rallied, hoping that earnings would be good

s we enter the first quarter earnings season, institutional investors don’t appear to be bothered with the gloomy scenario that broking companies and the media are projecting. Will their hopes turn out to be misplaced? The conventional wisdom is that high inflation and high interest rates continue to be a drag on overall economic growth and are likely to hurt the performance of companies in the first quarter of 2011-12 while maintaining that the tough economic conditions could ease in the second half of the year, making it possible for growth to rise to 15%+. But the way the market has rallied in late June, it does seem that many investors are either looking beyond the first quarter earnings or assuming that the June quarter

earnings would be good. Will the reality turn out to be different? It could well be. The Reserve Bank of India (RBI) has hiked interest rates 10 times in 16 months to control inflation. This sledgehammer has also controlled demand. How much? We will know as the June quarter results come in. As companies report their first quarter results this month, one would know how much of a squeeze on margins is being imposed by

rising commodity prices and how much the hike in interest rates is dampening demand. A large number of growth sectors have been directly affected. The worst-affected are automobiles, real estate and infrastructure. Of

these three, there is no hope of immediate revival of real estate and infrastructure. While all automakers are doing badly compared to their robust growth last year, within that, the bright spot is two-wheeler sales which are robust. But cost pressure is also a factor. Profitability of even two-wheeler companies has been affected, as the June quarter results would show. Four-wheelers have struck a bad patch. Maruti Suzuki was especially affected by a labour strike at its Manesar facility which hurt volumes after nine successive quarters of double-digit growth. Among the financial firms, banks are still doing alright but other financial services—stock-broking, mutual funds and insurance are all doing especially badly because of a combination of high cost and misselling against which there is now a backlash. Software stocks will be watched—whether they are able to garner some pricing gains to offset gains from rupee appreciation and higher wages. Telecom companies would report a decline in profits, despite substantial top-line growth. Finally, hanging over the economy is the heavy burden of rising oil prices. Oil had fallen recently when the International Energy Agency released 60 million barrels of crude (even less than the world’s consumption for one day). The government recently decided to hike prices of several regulated fuels due to rising under-recoveries of oil marketing companies. The recent decline in crude prices is expected to contain inflationary pressures within comfortable levels, going forward. The US Fed has said that it expects pressures from the global commodity and energy prices to dissipate as it modulates its accommodative monetary policy. We will know soon whether all these are factored into stock prices already.

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CURRENT ACCOUNT

H E A LT H C A R E

APPLE’S BUGS

Sole Mosquito on the Rampage

These gizmos can be hacked

A sole mosquito has supposedly caused 3,000 cases of malaria in June in Mumbai

uperheroes, step aside to make way for Mumbai’s megamosquito! This super-powered vector manages to infect a hundred people a day with malaria, and has catapulted Mumbai to the ranks of Gotham and Manheim by giving the city its very own superhero (for mosquitoes anyway). That is what the National Vector Borne Disease Control

(NVBDC), National Institute of Malaria Research (NIMR), Goa and the Directorate of Health Services, Maharashtra, have found out after an intensive city-wide survey. Some 14 officials scoured the city for three nights, searching for mosquito and larvae with the help of torches. They searched drains, open tanks, puddles and garbage dumps, but could find only one mosquito

after this exhausting operation. One larva was detected at NM Joshi Marg in Byculla, (central Mumbai) and the second one was found at the HDIL site in Kurla (a Mumbai suburb). And the glorious winged crusader was found at a construction site at Chitra Nagar in Goregaon (a western Mumbai suburb). We do not know whether it was the mosquito-wonder woman costume that gave her away. We don’t know what mutant genes are at work here, but this mosquito is responsible for all 3,520 cases of malaria reported in June. If the agencies are to be believed, this vector beats even the deadly Africanised killer bee in speed, ferocity and sheer awesomeness. It may also possess the power of being ubiquitous, considering the havoc it has created. In that case, it will take a long time to get over that image of a mosquito with a jet-pack and an evil smile. Sir Ronald Ross would be turning in his grave for not having taken this into account during his research.

Keep a close watch on your iPad and iPhone

uddenly, hackers seem to be sprouting like mushrooms after a cloudburst. After hitting at a number of major global websites, a recent Reuters report says that hackers have “disclosed a bug in software from Apple Inc that security experts said could be exploited by criminals looking to gain remote control over iPhones, iPads and iPod Touch devices.” Apple’s head honcho Steve certainly has his job cut out for him now. After Samsung’s lawsuit (it wants the US to ban the imports of iPads and iPhones), this shocker will surely have him singing the blues. Apple customers can choose to “jail-break their devices so (that) they can download and run applications that are not approved by Apple or use iPhone phones on networks of carriers that are not approved by Apple,” says the report. And of course, all hackers are not of the ethical sort. Will Jobs take a call on this?

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MO NS O O N & M ARKE T S

Is there Gain from Rain? Link between monsoon and demand is weak, says a study

ou have been told time and again that India’s agricultural sector depends on a good monsoon… that’s because a number of our economists have grown up on a Mahalanobis diet. Agriculture contributes to just a little below 15% of our gross domestic product (GDP). It does continue to be the mainstay of a majority (58%) of our rural population, but it is time we started questioning this deep-seated belief that a good monsoon would always have a positive impact on the economy and, in turn, on the markets. Take a look at how our markets have performed over the past few years—they have performed well even when there has been ‘average’ to ‘above average’ rainfall. According to a research report by ICICI Securities, in the past decade, five out of six times when India saw an average-to-above average monsoon, the Sensex posted strong gains June through October, the only exception was in 2008 (we all know what happened during that year). When the heavens open

After the Limbo, a Murky Twist

Damodaran, former chairman of the Securities and Exchange Board of India (SEBI), was a surprise choice for a committee on customer service set up by the Reserve Bank of India (RBI); he has hardly ever run a bank and is not known to have deep empathy for investors or customers. But what

up, rural demand does pick up in sectors like automobiles, fastmoving consumer goods (FMCG) and, in some cases, construction activities have gone up. However, the ICICI Securities’ study says that the “link between monsoons and the demand impetus is at best tenuous.” A good

monsoon (across the country, with El Nino’s grace) does not guarantee that state governments will exercise fiscal prudence. Over the past decade, on each of the four occasions when monsoons were ‘moderate’ to

took everybody by surprise is his strange behaviour regarding the submitting of the report. The report of the committee was ready in late January, but as the

chairman, Mr Damodaran would not give his final go-ahead. He took months to ‘redraft’ the report, and in the third week of March, he told Moneylife that

‘good’, agricultural growth has been strong. And everybody loves a good shower—even inflation has cooled down after steady downpours. But here’s the clincher—‘bad’ monsoons or deficit rainfall does not necessarily mean high inflation— factors like high crude oil prices or, indeed, political instability can throw a spanner in the economy’s works-in-progress. During FY10-11, for the first time in a decade, both the southwest (SW) and northeast (NE) monsoon surpassed their respective long period averages (LPAs) improving reservoir levels significantly. Kharif crops bloomed and our (mismanaged) granaries are now overflowing. The current storage position is more than last year’s figure of 21.54 billion cubic meters (BCM) and the average of the last decade’s storage of 20.52 BCM. While a good monsoon boosts sentiments, it is no longer the key growth driver for good demand and consumption. Rural demand and consumption have so far remained alienated from rainfall, whether ‘good’ or ‘average’. Stock market returns and the monsoon have a strong correlation, but the effect of the monsoon on the broad economy has become less pronounced. Ready, wet, set go? No, not exactly.

the report would be ready in 10 days. Then the report got ready after some pleading and pushing but there was no sign of Mr Damodaran’s ‘transmittal’—a formal letter handing over the report to the RBI. Nobody knew when it would be out. Mr Damodaran was silent. Recently, while replying to a Right to Information (RTI) application which inquired about the status of the report, the RBI said that the report is yet to be transmitted. And now, by a strange turn of some ``

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C O N S U ME R ADVE RT IS ING

False Claims Phony ad blitzes are too common

few weeks ago, an RTI (Right to Information) application showed that water purifier ‘Pureit’ (a brand of Hindustan Unilever) had made a false claim that it could “destroy one crore viruses in one litre of water.” The Pune-based National Institute of Virology (NIV) warned HUL of legal action if it did not amend the television commercial of its water purifier which had made unsubstantiated claims. In a letter to HUL dated 2 June 2011, AC Mishra, the director of NIV, explained the details of the tests conducted by the Institute and said, “Your (HUL’s) advertisements are not based on facts. You are requested to refrain from twisting and misrepresenting the facts. Failing to take immediate corrective measures may force us to resort to legal action against your company.” Along with claiming that Pureit could destroy these ‘one crore viruses’, more importantly, HUL had announced that NIV had confirmed these claims. Dubious claims like these by

consumer companies are all too common and won’t stop unless we have stricter laws, not just gentlemanly advertising codes. Over a decade ago, Hindustan Lever Ltd (HLL), called Hindustan Unilever (HUL) now, had its dirty linen washed in public when it was found that its ‘Wheel’ detergent did not contain any lime despite the multinational’s claims, (and of course, and an ad blitz) to the contrary. When HLL was hauled up by the Advertising Standards Council of India (ASCI) in 1999, it was forced to admit that

you see in these massive campaigns, supported by bloated ad budgets, is just not what you get. ASCI’s Consumer Complaints Council (CCC) had also pulled up Gillette India (in February) for a commercial that it had aired in October 2010. Gillette India had claimed that its product ‘Oral B Cross Action Pro-Health toothbrush’, could “remove 99% plaque.” This product was priced at Rs69. But through the same ad, Gillette was pushing another product ‘Oral B Shiny Clean’ for Rs13. This was another toothbrush.

(L-R): The Pureit from HUL and Garnier’s Fructis: Are you being served the right stuff?

Wheel only contained perfume, and not the actual stuff. Indeed, consumer companies, especially the multinational companies (MNCs) seem to have always assumed that they can get away with fooling consumers, most of the time. What

` unrelated events, the report would see the light of day. While hearing a public interest litigation (PIL), the Karnataka High Court was being repeatedly told that all the banking service-related issues would soon be reviewed, after the Damodaran committee submits its report. After a few such promises, the Court became impatient. A division bench comprising Chief Justice JS Khehar and Justice HG Ramesh came down heavily on the apex bank for

Another standard ploy is to (falsely) quantify the benefits—like a shampoo from Garnier that makes your hair 5x stronger and smoother. How long will companies get away with such unsubstantiated— and downright false—claims?

not submitting the report, even after the Court had granted many adjournments. In fact, the High Court warned that it would not hesitate to summon the governor of the RBI, if the report were not placed before the next date of hearing. The RBI has informed the Court that the report has finally been submitted on 4th July— sans Mr Damodaran’s ‘transmittal’. We are not holding our breath to see the recommendations it contains.

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U S R E A L - E ST AT E BUBBL E

Greenwich’s Mean Time Greenwich is dotted with ultra-luxury homes... and it is awash with unsold inventories

BOTTOMLINE BY MORPARIA

stuck in a real Catch-22 situation— drop prices, and there goes (down) the ask price... and hold on to them prices and inventories will just stay where they are. In fact, if sellers could just snare (or catch) 22 buyers, the situation will improve. Tyler Durden’s popular blog says that currently, this place is stuck with “over four years of supply.”

fund managers—being the animals they are—are often too optimistic. As Durden admits, the bulk of American hedge funds are now underperforming the markets and their respective benchmarks. If these managers do not know when to sell their stocks and walk away from their trading desks, isn’t it too much to expect them to know when the

Durden says, “The current inventory backlog in the most expensive real estate segment in this hedge fund playground is the biggest since 2004.” This is no surprise. Hedge

Greenwich bubble will pop? All the people who own these ‘ultra-luxury’ homes are not hedge-fund managers, of course. They are in the ‘buy and hold’ category.

reenwich, in Connecticut, has just 60,000 denizens—but has earned epithets like ‘12th of the 100 best places to live’ in the US and ‘biggest’ earner in the world’s largest economy. But this place (infested with hedge fund managers and other Wall Street biggies) has got one tony home too many to sell. Latest reports indicate that Greenwich is sitting on a pile of 52 ultra-luxury homes in the $10 million+ (yes, you read that right) category. Just five such ‘homes’ were sold this year. The masters of the universe are

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LOOSE CHANGE

Surprise Gift for Quiz winners from:

Moneylife Quiz - 106 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 24 July 2011. 1. Who conducted the Indian Household Investors Survey–2004? a. Society for Capital Market Research & Development b. Securities and Exchange Board of India c. National Institute of Securities Market d. Bombay Stock Exchange 2. Which is the global village of Seoul? a. Seodaemun b. Itaewon c. Hongdae d. Sinchon 3. Who revived Buddhism in Korea in the mid 16th century? a. King Gojoseon b. King Geumwa c. Queen Munjeong d. Queen Hyeon 4. Which is the subsidiary of Carborundum Universal in Russia? a. Blastech Abrasives b. Russian Abrasives c. Zhengzhou Abrasives d. Volzhsky Abrasive Works 5. When did National Peroxide Ltd sign a long-term gas supply agreement with GAIL (India)? a. December 1998 b. August 2005 c. January 2010 d. April 2011 6. Who was the founder of Ranjit Studio, Mumbai? a. Dev Anand b. Chandulal Shah c. Ardeshir Irani d. Abdul Nadiadwala 7. Where is the National Institute of Malaria Research located? a. New Delhi b. Chennai c. Goa d. Kolkata 8. How many offices of insurance ombudsman are there in India? a. 10 b. 12 c. 13 d. 15 The answers to Moneylife Quiz-105 are: • 1-a. 1994 • 2-b. 1949 • 3-c. John Kenneth Galbraith • 4-d. Dharma Chakra Centre • 5-a. Pfizer Inc • 6-c. George Magnus • 7-a. 9 • 8-c. Vasant Raj Pandit In all, 25 readers got all the answers right last time. The winner of Quiz-105 is Rabindranath Faleiro from Goa. Congrats Sir! You will get a surprise gift from Surat Diamond Jewellery.

Sound Bites “There is a decline in investment in India by Indian companies because there is so much uncertainty around. This is not healthy” – DEEPAK PAREKH, CHAIRMAN, HDFC, in The Times of India

“We should be growing only at 8.5%, and since we allowed us to grow at 9%, we are suffering from inflation now” – YV REDDY, FORMER GOVERNOR, RBI, on Bloomberg UTV

“I expect banks to be accurate on four basic characteristics, which may include unbiased, consistent, efficient and sufficient (data). I do agree that the last two may be difficult for the banks to achieve, but there is always a scope for improvement on the first two counts” – KC CHAKRABARTY, DEPUTY GOVERNOR, RBI, to PTI

“If the world economy gets better, you’re going to make money in commodities because of the shortages. If the world economy does not get better, you’re going to make money in commodities because then they’re going to print money” – JIM ROGERS, PRIVATE INVESTOR, on CNBC 19 | 28 July 2011 | MONEYLIFE

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

S T O C K E X C HANGES

Anti-investor The shocking attitude of the BSE

t the end of an 11-year battle, the Securities Appellate Tribunal (SAT) has ordered the Bombay Stock Exchange (now BSE Ltd) to pay Rs2.21 crore with interest to Emmel Financial Services (which was an investor/ client of Nikko Stock Brokers). The twists and turns in this fight for justice are enough to drive investors permanently away from the market. Emmel Financial probably fought a dogged and expensive battle (it was not awarded any costs) only because it is a corporate entity. Fortunately for it, even if the BSE appeals, only the payment of interest will be stayed. Here is what happened. In 1999, Emmel Financial had a dispute with its broker Nikko, which went into arbitration. It won the case and the broker was asked to pay Rs2.60 crore. Nikko also agreed that Rs2.21 crore out of its funds available with the BSE would be paid to the Income-Tax Department on behalf of Emmel. In January 2002, the BSE’s governing board ratified this payment along with a tiny sum owed to another investor. Meanwhile, the BSE began to

discover Nikko’s massive financial problems as claims from more aggrieved investors began to surface. It learnt that Nikko owed over Rs19 crore to 46 clients while its funds (margins, deposits, etc) with the BSE were a mere Rs3.11 crore. So the BSE declared Nikko a defaulter and quickly reneged on the commitment to pay Emmel on the grounds that it would be unfair to other investors. In effect, an investor who had won an arbitration award in 1999 was denied money, because of claims from other investors that emerged after the broker was declared a defaulter in 2002. Emmel

divisional bench, where in 2010, most of the contentions of the single judge were overturned. But again, the BSE dug in its heels and refused to pay. Finally, Emmel approached SAT and obtained partial justice but without costs, or interest. After 11 years, the value of that money itself has more than halved. The irony is that the BSE hired expensive lawyers to fight an 11-year battle against an investor and will spend even more in going to the Supreme Court. But it is probably safe to bet that Nikko’s 45 other clients have not been paid in the past decade. There is no indication from the SAT order that the BSE ever empathised with Emmel Financial or attempted to find a fair resolution. It merely seems to have been cussed. This attitude of bourses is probably one reason why millions of investors have vanished from the markets for good.

REGULATOR Hallowed portals: To what effect?

Financial approached SEBI (the Securities and Exchange Board of India) which ordered the BSE twice to pay out of its funds, if necessary. When the Exchange refused to comply, Emmel approached the Bombay High Court and encountered more drama. A single judge disagreed with SEBI’s directives and the case went to the

SEBI Is Just as Bad SEBI drags a report through adjudication on a Rs3 lakh penalty; ignores price manipulation

f the Emmel Financial case makes SEBI appear investor friendly, then a 16th June SAT

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` order quickly dispels the notion.

Religare Securities, a stock broker and depository participant (DP), which claims half-a-million clients, was inspected by SEBI in 2007. Its report found over 60 “deficiencies/ irregularities” in the broking as well as DP operations and called for an explanation. After Religare’s submission, the adjudication officer issued a show-cause notice in 2009 but whittled the charges of deficiency/irregularity down to six in the brokerage business and 12 in the DP operations and finally imposed a penalty of Rs3 lakh. Most brokers would have paid up, but Religare decided to contest the charge. The SAT order says, “The inspection carried out by the inspecting team was faulty, which compels us to give the benefit of doubt to the appellant.” Apparently, SEBI accused Religare of failing to produce documents at the time of inspection. But, as SAT emphasises, neither documents nor explanation was asked during the inspection. In another case, SEBI’s grounds for levying a penalty seem like petty nitpicking over whether a stamp paper was dated. As SAT has correctly ruled, the purpose of an inspection is not punitive and ‘every minor discrepancy’ is not culpable. SEBI feels impelled to drag a simple inspection report through adjudication and appeal, on a paltry Rs3 lakh penalty, but seems unable to investigate cases of rampant price manipulation which Moneylife has been writing about for years. This

is a sorry reflection on the state of regulation and supervision.

S T OCKBROKING

Tough Times Broking companies are paying for grave systemic flaws

he two SAT orders discussed above reflect how thoughtless actions by both first-line and second-line regulators are hurting the Indian capital market. Contrary to the shining image of a booming market conveyed by 24x7 business

Rakesh Jhunjhunwala is downsizing business

news channels and soaring stock indices, the actual picture is rather bleak. According to official reports, India’s investor population has declined from 20 million to 8 million (including investment in mutual funds) in the two decades of economic liberalisation. Trading is concentrated in the near-monopoly National Stock Exchange (NSE), which has a market share of over 90%. And the NSE’s footprint

is hardly national because 65% of trading (mainly institutional) originates from Mumbai, despite its claim of having 1,000 centres across India. The IPO (initial public offering) market is also in the doldrums and there is hardly any accretion to the mutual fund population because there is no serious attempt to understand investors’ hassles in dealing with intermediaries. If investors have vanished, how can brokers survive? Pre2008, brokerage firms rushed to raise funds to set up hundreds of branches. But they can no longer hide the consequences of high wages and operating costs, cutthroat competition for business and lack of investors. Over the past year, brokerage firms have been shutting down branches and franchise operations by the thousands. Last month, even Alchemy Share & Stock Brokers funded by Rakesh Jhunjhunwala followed Motilal Oswal, Angel Broking, Tower Capital and Mangal Keshav in cutting staff and downsizing business. Most top brokers are reporting losses or steep decline in profits and nobody is pretending anymore that this is just a temporary phase. The SEBI chairman needs to do some radical thinking to restore investor confidence and widen market participation. But ideas will only come by reaching out to people—not by appointing more committees comprising the usual set of intermediaries.

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DIFFERENT STROKES SUCHETA DALAL

F IGH T AGAIN ST GR AFT

Not Good Enough, Mr Prime Minister Manmohan Singh is an honest man. He should not support those who are not

ere is a lesson for the Indian prime minister’s (PM) minders and advisors: It is not merely enough to hear social media chatter; you must listen to it carefully. An angry India wanted its prime minister to speak to the people, an editor ruminated about it in his column and in days we had a press interaction. If the idea was to ‘counter Opposition propaganda’ that the PM ‘had power without authority’, it ended up doing more damage. The fallout is best described by Tamil Nadu chief minister J Jayalalithaa’s scathing observation that the interaction was “…not just a damp squib; it was a wretched exercise which showcased a weak-kneed head of State at his helpless best, taking cover for all the ills plaguing the nation using the fragile shield of ‘coalition dharma’!”. Strong words from a senior leader; but even Dr Singh’s admirers would admit that the meeting failed to showcase him as a leader or an economist determined to press on with an economic agenda. In fact, his team of aides and advisors also came off looking silly at the end of this badly choreographed interaction before a carefully-chosen audience of six editors. For starters, what could have provoked the PM to say that “at least 25%” of Bangladesh’s population was “very antiIndian”? Was it even relevant to the context in which the interaction was organised? How did that comment make it to the official release and stay on the PM’s website right until it sparked off anger in Bangladesh? The PM’s press advisor seems quite blasé about the incident, merely saying that ‘it was a mistake that had been corrected’. Had Bangladesh not been looking for financial aid from India, this would surely have been a much bigger embarrassment for India. Let’s look at the more serious issues that triggered the PM’s interaction and his responses to them. Predictably, the PM accused the media of being judge, jury and executioner rolled into one and blamed it for the environment of ‘cynicism’. He also criticised the Anna Hazare movement for an independent Lokpal. While that was to be expected, the naïve belief that the stupendously

expensive programme of biometric tagging—the UIDAI (Unique Identification Authority of India) project— would eliminate graft and help reach subsidies to the poor is a shocker. As was the PM’s implication that in exposing corruption through hard-hitting reports, the Comptroller and Auditor General of India (CAG) has overstepped its Constitutional mandate. These astonishing comments have to be seen in the context of mounting evidence of how politicians and big business was systematically looting public resources across the spectrum—telecom, aviation, sports, petroleum, mining, realty, infrastructure and even poverty-alleviation programmes. Not only did Dr Singh fail to stop this—but he couldn’t even prevent his power-drunk ministers from using pliant investigation and enforcement agencies from raiding, persecuting, and terrorising anyone who dared to question their actions. In each instance, the PM’s personal reputation for honesty does not absolve him of the charge of failing to act. Thanks to the CAG and the Supreme Court, the 2G spectrum scam and the Commonwealth Games (CWG) scandal have already exposed the cost of the PM’s silence. But there are plenty of other questions that he must answer. It is to Dr Singh’s credit that there isn’t even a whiff of financial impropriety on his part, but the prime minister’s job demanded decisive action. Dr Singh did nothing to rein in telecom ministers Dayanidhi Maran or his successor A Raja, despite specific knowledge of their strong-arm tactics and corruption. In fact, the tapping of Niira Radia’s phones alone ought to have given the PM enough ammunition to initiate a series of corrective actions. After all, let’s not forget that Ms Radia was working overtime to keep Dayanidhi Maran out of the telecom ministry only to help her client Ratan Tata. Can Dr Singh truly say that Mr Tata, who is on the prime minister’s advisory council, has never complained to him about Mr Maran’s behaviour and actions? Did he also not know about the Aircel case? In fact, Tamil Nadu’s businessmen have innumerable tales of being threatened ``

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DIFFERENT STROKES SUCHETA DALAL

` with fake police complaints and being coerced to

that marked the UPA’s decision-making, Murli Deora, a sell their businesses to DMK (Dravida Munnettra close friend of the Ambanis, who had not even contested elections from his South Mumbai constituency, was Kazhagam) goons for a fraction of their true value. One needs to analyse the Radia tapes objectively brought in as petroleum minister. He was accused of and go beyond middle-class outrage to understand the being openly partisan. When the 2G spectrum allocation milieu that made her so powerful. At a time when all scandal spun out of the government’s control, Mr Deora the important jobs and government contracts were for was quickly shifted to the ministry of corporate affairs sale, she had the guts and the intelligence to skillfully (MCA) where he immediately got busy with the job of manipulate all key players in the process—the netas, giving an outrageous clean chit to the controversial Loop babus and the media. And she had big bucks from Telecom (it declared that Loop was not an associate of the Essar group) and her clients to grease the Telecom (where process. Ms Radia’s The PM says that the CAG Swan it said there was no phones were being has overstepped its mandate connection with Anil tapped for two years. by exposing graft. This view Ambani). Mr Deora is Did the PM never ask is astonishing, looking at known to be extremely for the findings? And how politicians and big close to both these if not, why not? Surely businesses have been looting business groups. What the invasion into the public resources ‘compulsion’ forced personal privacy of Ms Dr Singh to appoint an Radia and her many unelected Murli Deora to such key ministries? Was he powerful clients had a purpose and a finite goal? The PM appears weakest when it comes to brushing was merely obeying orders from 10 Janpath? Politicians hope that the Anna Hazare-led movement off the responsibility for the CWG fiasco. It is now clear that his then minister of state, Prithviraj Chavan, warned will fizzle out, but when the educated middle-class, Mani Shankar Aiyar, a staunch Congress Party loyalist notoriously self-absorbed and caught up in its social about the CWG loot. The PM incorrectly dismissed and financial aspirations takes to the street in protest, Mr Aiyar’s letters (posted on Moneylife’s website) as it is a sign of a deep and dangerous malaise. The PMO being mostly ‘ideological’. Mr Aiyar has since said that has quietly ended any serious discussion on the many letters by his two predecessors—MS Gill and the late gaffes during the media interaction (it is easily done Sunil Dutt—were also ignored and that P Chidambaram by threatening exclusion from important briefings and as finance minister did not even acknowledge his letters. junkets); but this is unlikely to suppress voices of dissent Surely there was no coalition dharma compulsion in and discontent anymore. It is crises time, Dr Singh. India needs you back in the allowing Suresh Kalmadi to plunder resources? One editor justified Mr Singh’s inaction by saying, 1991 mode—but, this time, you are the prime minister “When all of politics is funded by corruption, did it make and the buck stops with you! sense for an honest Prime Minister to risk the cohesion of Sucheta Dalal is the managing editor of Moneylife. Subscribers his rickety coalition and the survival of his government get free help in resolving their problems with select providers of to stop individual acts of corruption?” In the free-for-all financial services. She can be reached at suchetadalal@yahoo.com

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SMART MONEY R BALAKRISHNAN

M ut ual F und dis t ribution

Too Little for Too Many The SEBI chief wants to keep the no- load system in place. But it offers too little incentive for many small fund distributors and small investors

he Indian mutual fund industry got caught in growing regulatory pressures, even before it grew up. The result is stagnation; the industry has not even pierced tier-2 cities. SEBI (the Securities and Exchange Board of India) chairman UK Sinha has indicated that he wants to find a way to remunerate distributors of mutual funds, without hurting the investor. I am sure all of us are eager to discover this magic formula. One thought that comes to mind immediately is whether he will permit asset management companies (AMCs) to pay from their pockets, the higher amounts that fall outside the amount that is paid by the investor. If that happens, distributors won’t mind. The only drawback is that it will make sure that those fund houses that pay more, will get pushed. Well, maybe it will not happen like this. Maybe we will find a way that will help compensate the distributor on the basis of any number of variables. In the same breath, the SEBI chairman also wants to ‘regulate’ the distributors and he wants to make a beginning with the larger ones first. He wants to bring in ‘more’ transparency. Actually, I wonder if there is any other industry in the world that is as transparent as our Indian mutual fund industry, with respect to charges and costs. Let us not talk about returns here (half of the mutual funds have bested their benchmarks which, to me, is a great achievement). This set me thinking based on the responses I have come across from different sets of investors. I must confess that the audience I have met is only from the larger cities and kind of ‘anglicised’ and used to financial products. I will divide them into a few categories. First comes the smart rich investor. His ticket size for a single investment is anything between Rs50 lakh and a couple of crore of rupees (even higher in some cases). These people are extremely aware of selling commissions, and get visited by fund house honchos. These investors make it a point to remain aware of each selling top-up or extra that is given by every fund house at all points. They know of the contests for intermediaries (which,

ultimately, result in a junket) and the qualifying amounts also. They do their investment plans and switches on their own. For this segment, the distributor is only a ‘facilitator’. The client wants 70%-90% of all the selling incentives back, preferably in cash. There are some who will take it in cheque under different names. These clients are so well informed that some small distributors keep in touch with them for commission updates. So, any change in distribution compensation will not at all influence the distributor. This segment, according to me, accounts for the single largest chunk of non-institutional assets under management (AUM). This segment will not change its investment vehicles, irrespective of the commission structure. Their only desire is that everything that the distributor gets should come to them. Institutional money accounts for almost all of the liquid funds and a large chunk of the debt funds. In this segment, there are two types of investors. One is the treasurer, who invests directly with a mutual fund, without bothering much. These are in the minority. Then there is a set of banks that uses each other as a ‘distributor’. The objective is simple. Since the mutual fund cannot pay commission on its ‘own’ investment, this is a convenient arrangement. For banks, it makes sense. It also keeps away the element of corrupting someone in the treasury (though it is easy to argue that some treasurer could divert money to a specific mutual fund for an extra charge). Some corporate entities take back the commission from the distributor in cash or through cheques to third parties (as ‘referral fees’ or ‘sub-brokerage’). In some cases, the distributor is made to pick up the tab elsewhere, equivalent to the pass-out agreed upon. In all cases, the corporate entities do their own homework and use the distributor only as a vehicle to facilitate the pass-out. Then, there are some companies which have their own ‘distribution’ companies that are legally kept outside the framework of ‘related’ entities. ``

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SMART MONEY R BALAKRISHNAN

The mutual fund industry is at a stage where the The next segment is the mid-level investor (individuals, typically) who invests anything up to a crore of rupees existing ones will make money, provided they have (could be higher; but I think the median is generally sufficient equity assets. New players will find it well-nigh impossible to create a base. Small ones would have to around this) and trusts his bank distributor. Here, pass-outs are very rare, unless it is a very remain content with what they have or sell out. Maybe it large customer. Instead, the client gets taken care of by is time someone took up the business of bringing AMCs preferential treatment and through other freebies like and life insurance companies within the same regulator. movie tickets, tickets to cricket matches, etc. Often, In any case, most large ones do both the businesses. And banks scan the ledger balances and the relationship fund management can be entrusted to the AMC, giving manager (RM) misuses this information by trying to sell it some extra income so that it can grow its mutual fund other products to the customer. The RMs are generally business. Regulators can learn to adjust with this duality rather given stiff targets on revenue and end up pushing products which give them the highest commissions (unit- than prohibit this. I think we have already reached a linked insurance plans, structured products and portfolio stage in the mutual fund industry, where there is so much attention focused on transparency management schemes). I have seen this segment If a client has just Rs10,000 and costs that it is now almost to carve out more going slow on mutual funds ever to invest, the fees from him impossible money to pay the distributor. In since upfront commissions were reduced. However, this segment will not cover what the IFA fact, things are so bad that even the is perhaps the most important will spend on servicing. So, registrar & transfer (R&T) agents their business stagnating. one for the mutual fund industry, the mutual fund industry find They are treated as ‘cost centres’ since it accounts for assets that are ‘sticky’, given the fact that will continue to be an urban and instead of consolidating, we see them losing business as fund bankers know which customer phenomenon houses start this service in-house. has spare money at any given For an IFA to prosper through the mutual fund point of time. This leaves the typical ‘small’ investor who wants to start an SIP (systematic investment plan) or platform, the present reward system is clearly inadequate. put in an occasional Rs10,000. So far, the independent From a client who invests Rs1 lakh, he will make less financial advisors (IFAs) used to serve him. But now, than Rs1,000 a year. From this thousand, he will have to even IFAs are reluctant to do a ‘transaction’ oriented deal recover his marketing and servicing costs. If a client has due to the dismal economics. He is trying to convert his just Rs10,000 to invest, the fees from him will not cover customer into a person who pays the advisor a ‘fee’. It what the IFA will spend on servicing him. So, the mutual is happening, but not at a pace that is encouraging. In fund industry will continue to be an urban phenomenon. fact, the withdrawal of the upfront commission has hurt I will keenly watch how SEBI is going to increase the this segment the most. Yes, the urban and semi-urban kitty available to the IFA segment, rather than the biggies investors, who are savvy, can use the Internet to do their who have their own model. mutual fund transactions. Beyond this, there is absolutely The author can be reached at balakrishnanr@gmail.com no push for any mutual fund.

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

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

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

25 | 28 July 2011 | MONEYLIFE

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MUTUAL FUNDS POINTERS

NE W F UND OF F E RS

More is Less

Mutual funds are not thriving. But more and more fund companies are coming onto the scene

ost of us like to try out new things—whether it which both the fund companies and regulators are to be is dining at restaurants, buying mobile phones blamed—Indian investors are simply not that keen on or automobiles. Some go to the extent of investing in mutual funds. So, bringing more funds and changing mobile phones every year (they don’t last much increasing the choice—and confusion—of investors does more than that anyway) and a car every three years— not seem very logical. In any case, fund analysts would suggest that one even if it is only for tax purposes. When it comes to consumer products, a large menu should not be in a hurry to invest in a new fund offer of choices may be useful. But when it comes to financial (NFO) of a new fund house. Moneylife looks at the track products, more is not better. When it comes to mutual record of over five years before we suggest investing in a scheme. It is understandable that the funds, it is even less so. The Securities (Rs Cr.) new schemes have no past performance and Exchange Board of India (SEBI) has Struggling Total Equity which can be tracked; but some of them rightly been pressuring fund companies to Fund House Mar-2011 are not even managed by experienced fund go slow in launching new schemes unless LIC Nomura 905.37 managers. We don’t know what has been the there are significant differences. It has Axis 893.36 fund manager’s track record of managing also been asking them to merge smaller Religare 673.22 earlier schemes—if any. Especially what has schemes into bigger ones. A large number JPMorgan 589.94 been his performance during tough times of schemes is a legacy of the furious fund Deutsche 338.22 like the 2007-2010 period. launches of 2005-07. But SEBI can hardly 337.19 A second issue is the size of assets that do anything about new fund companies Taurus 333.60 a fund house is managing. A small size coming in. A few months back, Union ING 309.33 prevents funds from realising economies KBC launched its new equity scheme. AIG 300.00 of scale and offering a lower expense ratio. And now, Indiabulls has decided to file a Motilal Oswal* L&T 274.69 Among 42 fund houses, a large number have prospectus to launch its maiden offering. 255.86 less than Rs1,000 crore of assets in equity. New schemes can hardly have Mirae 251.74 These include Quantum, Sahara, Edelweiss, anything new to offer. They invest in the BNP Paribas 203.03 etc (see table). A small asset size should same handful of large-cap and mid-cap Baroda Pioneer 182.83 not be a handicap for performance, but stocks, especially now that SEBI has subtly IDBI 156.52 somehow it is. Apart from higher expense barred them from offering complex and Bharti AXA 146.94 ratio, another important drawback of a exotic products. A marketing spiel such as Union KBC 94.61 small fund size is the inability to appoint “Invest in India’s Growth Potential” is a Sahara 70.48 and retain good fund managers. New fund yawn. If the existing ones were not doing Edelweiss 69.16 houses have this handicap and so it does not that well, there would be a case to launch Quantum 39.49 help investors in any way to go with new new ones. If the new funds were offering Pramerica 27.07 funds—except in exceptional circumstances something totally new—as Motilal Oswal Escorts 9.35 like a top fund manager with an outstanding Mutual Fund has done—that too would Daiwa 0 long-term track record, coming in as part of be a valid reason. But neither of this is Peerless the team. true. Worse, for a variety of reasons—for Source: Mutual Funds India; *Equity ETF

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COVER STORY

This is the insurance world’s best-kept secret. For the first Ɵme ever, Raj Pradhan reveals and analyses the products that can cover you and your family—at the most inexpensive premium

ive years ago, Jagdish Kumar (name changed) wanted to buy mediclaim for his family. He spoke to many agents to get information on different policies. He found it a challenge to get coverage for his parents at the budgeted premium. That is when someone suggested the family floater mediclaim as an option. The premium rates for family floater policies were a minimum Rs20,000 per year for Rs5 lakh sum insured (SI). Jagdish thought of settling for a lower sum insured, to remain within his budgeted premium. But then he happened to visit a nationalised bank for some routine bank work and discovered something startling. The bank was offering family floater mediclaim (including coverage for parents) for an annual premium of Rs12,000 to its customers. The insurance policy was from a government insurer. There were no medical tests; premium rates were not age-specific; there was no copay (the part of the medical expense to be borne by the policyholder); and no loading (premium increase) in future years due to claims. The bank manager was not hard-selling the product, unlike unit-linked insurance plans (ULIPs). It seemed to be a perfect match for his requirements and he signed up to ensure that his family is protected for healthcare costs. Soon, he realised that the insurance cards he was supposed to have received from his third party administrator (TPA) had not reached him. These cards

were an important document proof for getting cashless services during hospitalisation. The policy was supported by only one TPA and, hence, there was no option of getting a TPA of his choice. It took a long time and a lot of calls and continuous follow-up with the TPA based in another city to get insurance cards. The next hurdle was at the time of policy renewal. The auto-debit feature did not work. Jagdish issued cheque payments before the expiry of the policy. The cheque had to be from the same bank as the policy was only for accountholders. In the following year, Jagdish did not receive a renewal letter. However, he remembered the expiry date and sent the premium payment well in advance. The insurer did send him an acknowledgement of the premium receipt each year and, hence, it was the proof of continuous policy coverage. Earlier this year, Jagdish’s father had to undergo a minor surgery. He found that the insurer did not offer cashless facilities at his chosen hospital. Nevertheless, Jagdish decided to opt for reimbursement and went ahead with his father’s surgery. The claim was submitted on time, but getting the payment was a hassle and needed many calls to the TPA’s office over a period of three months. After nearly three months, Jagdish received his claim payment and was relieved. He soon realised that the insurer had hiked the premium by 30% for all customers. It did pinch his pockets, but he felt it was understandable, since the hike had come after a period ``

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COVER STORY

` of five years. The altered premium rates were still 20%

lower than the market rate for retail mediclaim. Jagdish does not want to let go of the policy at this juncture. He and his family have served their mandatory waiting time with the policy and now they don’t have to worry about pre-existing disease (PED) coverage. Neither are they pinning too much hope on mediclaim portability that is supposed to commence from October this year. Best-kept Mediclaim Secret No, the story has no catch. One of the best-kept secrets of the insurance industry is the extraordinary y mediclaim deals that you get from nationalised ationalised banks. To repeat: coverage for the family, no tests and no escalation. We have checked what’s available and are happy to report that for unbelievably low premium m rates, you are getting great health th covers. A family floater covering the he account holder, spouse and two children of Rs5 lakh sum insured is available for a premium of just Rs7,000.. It is a steal. The premium for a majority ority of them have not risen in many years rs and is often still 50% lower than buying ying the policy directly from the insurance company. In an era of high healthcare thcare inflation and corresponding mediclaim aim premium hikes, it is unreal to find policies olicies with premium that is 50% lower wer than the market rate. What is even ven more unbelievable is that the premiums are the same for all ages; there are no medical tests; no increase in premium due to claims (loading); parents rents can be covered; no co-pays; entry age up to 65 years (even up to 80 years in one case); coverage is up to age 80; and the benefits as good as (or even better than) off retail h ) those h il policies li i sold directly by insurers. The best part is that one only has to be a bank accountholder to get these products. These are good options for those who don’t mind a little bit of inconvenience in service and are prepared for a reimbursement of claim instead of a cashless facility, despite the fact that a cashless facility will be offered for hospitals on a preferred provider network (PPN). We know of a veteran agent working for United India who himself had a United India policy. He took a family floater mediclaim from the bank where he had an account and stopped the United policy. Of course, service is poor sometimes. As long as you are able to

tenaciously work your way through the system, the bank mediclaim options are worth exploring. Why hasn’t anyone told you about this? Banks have not trained their branches to sell them. There is lack of commission for bank employee to sell mediclaim. Most branches did not have the product brochures. In other cases, the bank staff hand out brochures without knowing what they are selling. We tried to get a soft copy of these brochures by email or download it from various websites, but could not. A bank employee who knew about the policy believes that customers should not be encouraged to open an account mediclaim. According to him, “It just to benefit from the medicl way round. Bank mediclaim should be the other wa should be an additional benefit for doing ad business with the bank.” But there is nothing much banks can do to stop a person from opening an account with a minimum balance just to get the these products. Isn’t that so? benefit of th Who sshould go for it? Bank mediclaim products are beneficial ci for young families that can build a track record of paying may have no claims in the premium and m will also benefit them to add initial years. It w plan if they have missed the parents to the p boat and have not taken mediclaim when they were yyounger. Buying individual mediclaim ffor parents is expensive. can be easily added to family Children ca When the children turn into floaters. Wh adults, most insurance companies will option to move them to an have the opt policy, so that the PED waiting individual poli period does not start afresh. Senior citizens not having an existing mediclaim di l i policy li can opt ffor bank mediclaim as the entry age is up to 65 years. It is better to have some mediclaim policy rather than not having any mediclaim. In the absence of an agent/broker, it will be advisable to educate yourself about the policy wording, claim filing, TPA communication and so on. The premiums are low for bank mediclaim, but Moneylife would not encourage a senior citizen who has an existing mediclaim to move to these products, unless they are in really good health (which in itself is difficult to know) or can’t afford the existing mediclaim premium. There is value in having a track record of premium payment to the insurance company (private or public) ``

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COVER STORY

Bank Mediclaim Compared Bank

Insurer & Product

*Premium for Rs5 lakh sum insured family floater

Coverage—Account holder, spouse and 2 children. Parents if specified

Punjab National Bank

Oriental Insurance—Royal Mediclaim policy

Rs6,705

Children up to age 26. Female child till marriage or up to age 26

Syndicate Bank

United India Insurance— SyndArogya

Rs7,182 (without parents); Rs11,944 (with parents)

Children up to age 21. Female child till marriage or up to age 21. Dependent parents are also covered

Canara Bank

United India Insurance— Canara Mediclaim policy

Rs7,316 (without parents); Rs12,167 (with parents)

Silent about dependent children age. Dependent parents are also covered

Andhra Bank

United India Insurance— Arogyadan

Rs10,090 (without parents); Rs17,006 (with parents)

Dependent children up to age 26 subject to being unmarried and unemployed. Dependent parents also covered

Indian Bank

United India Insurance— Arogya Raksha

Up to 35, it is Rs5,741; 35-65 is Rs10,046; 65-80 is Rs24,805 (with parents)

Union Bank of India

New India Assurance—Union Health Care policy New India Assurance—Health Care Support New India Assurance—Corp Mediclaim

Up to 45 is Rs6,801; 45-55 is Rs8,954; Above 55 is Rs11,055

Dependent male child till marriage or employment or up to age 25. Dependent female child till marriage or employment. Dependent parents are also covered Silent about dependent children age

Up to 35 is Rs5,361; 36-45 is Rs5,819; 46-55 is Rs7,621; 56-65 is Rs8,837

Silent about dependent children age

Up to 35 is Rs5,273; 36-45 is Rs5,731; 46-55 is Rs7,533; 56-65 is Rs8,749; 66-70 is Rs10,622; Above 70 will be charged 5% extra for each year

Dependent children up to age 25

Bank of Baroda

National Insurance—Baroda Health

Up to 65 is Rs6,997; 65-80 is Rs8,686

Silent about children age

Bank of India

National Insurance— Swasthya Bima policy

Rs7,071

Silent about children age

Citibank

Royal Sundaram— Health Forever (Individual premium rates. No family floater option) Royal Sundaram— Family Health Floater (Premium for maximum sum insured of Rs3 lakh) Universal Sompo Sampoorna Swasthya Kavach

Age 91 days-18 years is Rs3,962; 19-45 is Rs6,754; 46-60 is Rs10,583; Age 61-75 is Rs15,523

This is not a family floater policy. You can add family members, but at an additional premium

Up to 35 is Rs7,988; 36-45 is Rs9,048; 46-55 is Rs14,784; 56-65 is Rs17,936; 66-70 is Rs21,525

Dependent children up to age 21

18-25 is Rs10,453; 26-35 is Rs11,461; 36-45 is Rs12,709; 46-55 is Rs14,718; 56-65 is 21,139; 66-70 is 25,826

Silent about dependent children age

Universal Sompo— Health Care Plus

0-25 is Rs7,658; 26-35 is Rs8,424; 36-45 is Rs9,190; 46-55 is Rs9,956; 56-65 is 11,487; 66-70 is 13,785; 71 to 80 is 14,550 (without parents); 0-25 is Rs12,939; 26-35 is Rs14,233; 36-45 is Rs15,527; 46-55 is Rs16,821; 56-65 is 19,409; 66-70 is 23,291; 71-80 is 24,585 (with parents)

Dependent male till 21 and female till 25 or marriage. Parents covered

Catholic Syrian Bank Corporation Bank

Standard Chartered Bank Allahabad Bank Indian Overseas Bank

*Premium for account holder, spouse and 2 children. Rates are based on age of the oldest member. Parents not covered unless specifically mentioned. **PED clause will not be de

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COVER STORY

Entry & Exit age

PED & medical test

Additional benefits

Limits & Co-pay

3 months for dependent. 80 years (for both maximum entry age and maximum exit age)

Silent on PED. No medical test

Ambulance charge is 1% of sum insured or Rs1,000 (lesser). Hospital cash maximum of Rs1,000 per policy year. Funeral expenses up to Rs1,000

3 months for dependent. 65 years for maximum entry age. 80 years is maximum exit age

PED covered after 3 years. No medical test

3 months for dependent. 65 years for maximum entry age. 80 years is maximum exit age

PED covered after 3 continuous claim-free years, provided, there was no hospitalisation due to PED during these 3 years. Silent about medical test

Ambulance up to Rs1,000. Hospital cash maximum of Rs1,000 for child below 12 years. Maternity & baby care expenses up to 5% of sum insured. Personal accident cover inbuilt. Health check-up 1% after 3 claims-free years Ambulance up to Rs1,000. Hospital cash maximum of Rs1,000 for child below 12 years. Maternity & baby care expenses up to 5% of sum insured. Personal accident cover inbuilt. Health check-up 1% of SI after 3 claimsfree years

Room is 1% of sum insured. ICU is 2% of sum insured or Rs10,000 (lesser) —

3 months for dependent. 60 years for maximum entry age. 80 years is maximum exit age

PED covered after 3 continuous claim-free years, provided, there was no hospitalisation due to PED during these 3 years. Silent about medical test PED covered after 3 continuous claim-free years. No medical test needed

3 months for dependent. Silent about years for maximum entry age. 80 years is maximum exit age 3 months for dependent. 65 years for maximum entry age. 80 years is maximum exit age 3 months for dependent. 55 years for maximum entry age. 65 years is maximum exit age 3 months for dependent. 65 years for maximum entry age. Silent about maximum exit age

Silent about minimum entry age. 65 for maximum entry age. 80 maximum exit age

—

Room is 1% of sum insured ICU is 2%. For above 60, 10% co-pay

—

Maternity benefit eligible after 9 months (5% of SI). Health check-up 1% of SI after 3 claims-free years. Child care up to 3 months from birth (5% of SI)

—

PED covered after 3 consecutive continuous claim-free years. No medical test needed PED not covered. No medical test needed

Includes personal accident insurance up to Rs1 lakh

—

**PED covered after 4 continuous claim-free years, provided, there was no hospitalisation due to PED during these 4 years. No medical check-up up to 55 years PED covered after 3 continuous claim-free years in the policy. No medical test needed

Ambulance up to Rs1,000

3 months for dependent. 65 years for maximum entry age. Renewal up to 80 years at premium loading of 25%

PED covered after 3 continuous claim-free years in the policy. No medical test needed

3 months for dependent. 75 years for maximum entry age. 80 years maximum exit age

PED covered after 4 years. No medical checkup up to age 60 years

3 months for dependent. 65 years for maximum entry age. 70 years maximum exit age

PED covered after 4 years. No medical checkup up to 50

Silent about minimum entry age. 65 years for maximum entry age. 70 years maximum exit age

PED covered after 4 continuous claim-free years. No medical check-up up to 45

Silent about minimum entry age. 65 for maximum entry age. 80 maximum exit age

PED covered after 3 continuous claim-free years. No medical test needed

—

Health check-up 1% of SI after 3 claims-free years. Hospital cash of Rs1,000 for age less than 12. Ambulance charge of Rs1,000 Health check-up 1% of SI after 3 claims-free years. Maternity and baby care up to 5% of SI. Funeral expenses up to Rs1,000. Hospital cash of Rs1,000 for age less than 12. Ambulance is Rs1,000 Rs150 per day hospitalisation cash. Convalescence is Rs15,000 for more than 15 days hospitalisation. NCB is 15% with maximum 60%. Certain critical illness will pay Rs15,000 once in policy year (from 2nd year) Reimbursement up to Rs1,500 per insured person toward check-up after 4 consecutive claims-free years

Health check-up after 4 claims-free years. Hospital cash of 0.1% SI or Rs250 (lesser). Maximum is Rs2,500. Ambulance is 1% or Rs1,000 Health check-up 1% of SI after 3 claims-free years. Hospital cash of Rs1,000 for age less than 12. Maternity and baby care up to 5% of SI. Ambulance is Rs1,000. Funeral is Rs1,000

ot be deleted for ailments of cancer, renal failure, thalassemia, psychiatric disorders and organ transplant.

Does not cover cancer, renal failure, thalassemia, psychiatric disorders and organ transplant —

Renewal up to 80 years at premium loading of 25%

—

Room is 2% of sum insured, ICU is 4%

Room is 1% of sum insured. ICU is 2% Age above 55 years, 20% co-pay

Source: Moneylife Research

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COVER STORY

F A MI LY F LOAT ERS

Do They Work? How you can cover all your folk

amily floater policies are an enhanced version of the mediclaim policy. The sum insured value floats among the family members. Most of the policies will cover husband, wife and a couple of children; some may cover parents too. The coverage for the en re family is limited to the sum insured. The family floater mediclaim from banks have a maximum sum insured of Rs5 lakh. The premium for family floater plans is typically less than that for separate insurance cover for each family member. Moreover, the premium of family floater mediclaim from banks is lesser than a family floater purchased directly from an insurance company by about 50% (in many cases). If a family of four (two children) takes a family floater of Rs5 lakh, they can claim up to Rs5 lakh of medical expenses in one policy year. If one person is hospitalised and gets a claim paid for Rs3 lakh, there will be only Rs2 lakh worth of medical expenses that can be

` which will work in your favour when you make the claim.

Most bank mediclaim products don’t need a medical test and they rely on self-declaration. It is a double-edged sword. It may be easy to get in but insurance companies can pick up a dispute in self-declaration while dealing with a large claim from the elderly. According to Nagesh Kini, a chartered accountant, who has been a statutory auditor of General Insurance Corporation of India and four insurance companies, “I had an account with Citibank which offered ‘Good Health’ mediclaim from New India Assurance at a 45% discount. I renewed the policy for 15 years. There were issues related to getting a renewal notice; it used to take a few calls to get it. At one time, I did not get the policy document after renewal. A complaint to the insurance

reimbursed in that year. The next policy year will start with a fresh Rs5 lakh. A family floater makes sense for a family because, that way, each one in a family gets a big cover and the probability of more than one family member ge ng hospitalised in the same year is too low unless the whole family is travelling together most of the mes in a year or has a history of medical problems that can happen concurrently. Advantages: • It is less expensive than an individual mediclaim policy. • You can add your immediate family members like your spouse and kids. Oriental ‘Happy Family Floater’ will cover parents or parents-in-law too. • It is great for younger families with members having low health risk. • Instead of individual mediclaim of Rs3 lakh, if the family opts for a floater of Rs6 lakh, they will benefit if there is a big claim in a year of, say, Rs5 lakh. Disadvantages: • Some family floaters like Star Health–Family Health Op ma have a maximum age limit of 60 years. They may oﬀer portability to a senior ci zen mediclaim plan a er the policyholder completes 60 years, but it is be er to find a family floater that has maximum age of 75 years (or more). • Instead of an individual mediclaim of Rs3 lakh, if the family opts for a floater of Rs6 lakh, they will lose if total claims from diﬀerent family members are more than Rs6 lakh, even if individual claims are less than Rs3 lakh. • Most policies are silent about renewal in case the proposer dies. The spouse may be elderly at that age—and may not easily get an individual policy. Moreover, the PED wai ng period will start afresh, unless con nuous coverage is allowed for an individual plan by the insurer. • An elderly family—with higher medical needs—will benefit from individual mediclaim.

ombudsman resolved the issue. The policy document had been incorrectly mailed to a wrong address. There were lakhs of bank accountholders who had mediclaim and, hence, service was an issue. “Over the years, Citibank has also increased the minimum balance requirement for its Suvidha account. I decided to move to a retail policy from New India Assurance. After making a request, I was given a certificate for continuation which enabled me to continue without a PED waiting period. I did not have a single claim and that could also have worked in my favour. I did end up paying higher premium.” Choosing the Right Bank Mediclaim We have highlighted the pitfalls, but there are more, ``

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COVER STORY

Many of these products don’t need a medical test. So you have to be even more careful to provide the right information ` according to Rohan Dukle, director, Magus Corporate

Advisors, “I don’t recommend bank mediclaim because of the lack of portability to retail mediclaim policy (unless agreed upon by the same insurance company), just like corporate group mediclaim cannot be ported to retail mediclaim in most cases. The customer is better off with retail mediclaim of an individual or a family floater—even if it is more expensive. The service quality of bank mediclaim products will be an issue.” Bank mediclaim is good as long as you are fine with the family floater concept. You can consider the following parameters to help in getting the correct product based on your requirement. The sum insured is between Rs50,000 and Rs5 lakh (except for Punjab National Bank–Oriental Insurance with Rs1 lakh to Rs5 lakh). According to an official of Catholic Syrian Bank, “We have a mediclaim product through New India Assurance for over five years offered to customers and our staff. The premium rates are low and have not increased till now. There are no medical tests, but we tell customers to submit a self-declaration of medical condition in utmost good faith. TPA Mediassist India has been issuing cards on time. Our employees make our customers, who walk in, aware of the product.” The premiums are low due to the volume of annual premium business generated by the bank for an insurance company. A senior official with a government insurer says, “Bank mediclaim has not affected our normal sales which may be due to lack of awareness. Service could be an issue. We have taken a conscious decision to not allow parents in the family floater policy. Some banks which allow parents have high claims ratio and the insurer may follow up with increase in premium.” Here is a comparison of the different products available. Premium: Indian Overseas Bank (which offers Universal Sompo insurance policies), which had the same low premium for any age group, now has different premiums for various age bands. It is expensive for the higher age group. It is a logical step, but only New India Assurance (among government insurers) has this differential pricing. The others are still offering the same premium for all age groups which, in itself, is incredible. We suggest going with government insurers. Private insurer Reliance General increased its premium by 500% last year for its

‘HealthWise product’ and left customers really aggrieved. Coverage: Indian Overseas Bank’s mediclaim covers parents, but the premium is expensive. If covering parents is your requirement, choose from one of the banks offering a United India Insurance product. If covering parents is not your requirement, you can opt for other products since United India Insurance has constraint about intimation within 24 hours of hospitalisation and filing of claims within seven days of hospital discharge. Moneylife came across some hospitals in Mumbai which provide a bill nearly a week after discharge. This is because the bulk of the money is paid in advance and the bill is prepared after the residual charges are consolidated from different departments in the hospital. A policyholder ends up getting caught between the hospital’s timeframe for submitting a bill and an insurer’s claim for filing deadline of seven days. Intimation within 24 hours of hospitalisation is sometimes unfeasible. Entry & Exit Age: Hemant Sharma, chief executive officer, Mediclaim Solutions, claims to have come across a 70-year-old man who wanted to buy mediclaim at a cheap rate. “I suggested that he go for Punjab National Bank–Royal Mediclaim from Oriental Insurance, which accepts customers till age 80, to enter the policy with an unbelievably low annual premium of Rs6,705. It is a really beneficial product for all ages.” PED and Medical Test Comparison: The standard clause for PED is a four-year waiting period. Some define it as ‘PED covered after four years of continuous consecutive claims-free period’. Some others define it as, ‘PED covered after four consecutive continuous claim-free years—provided there was no hospitalisation due to PED during these four years of insurance’. Beware of something like ‘PED clause will not be deleted for ailments of cancer, renal failure, thalassemia, psychiatric disorders and organ transplant’. The most restrictive condition is one which does not cover PED at any time. On the other hand, Punjab National Bank, offering Oriental Insurance–Royal Mediclaim policy does not specify a PED waiting period in the prospectus. According to Oriental Insurance personnel, “There will be standard four-year PED waiting period even if it is not mentioned in the prospectus.” ``

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“You Can’t Time the Market.” Maybe.

21,100

18-31 Jan ‘08

12-25 Oct ‘07

It is easy to describe market moves. It is hard to predict them which is why fund managers tell you that you “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

“A short-term bottom may be very near”

16-29 Mar ‘07

“A Rally Now?”

“Weakness has 4-17 August ‘06

“The panic looks done for now”

9,775

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

6,000 Apr-06

Aug-07

Nov-08

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

Sensex.indd 2

7/8/2011 5:23:03 PM

13-26 Aug'10 18-31 Dec‘09

23 Apr-6 May'10

The Coming Decline

Short-term Top?

4-17 Dec‘09

Time To Sell? 19 Jun-2 July ‘09

Headed Down?

“Is the market about to crack?”

6 Nov-19 Nov ‘09

11-25 March '10

31 July-13 Aug ‘09

“We have no Forecast”

A Buyers' Market

2-15 Jan ‘09 27 Feb-12 Mar ‘09

“Buy the dip”

kness has resurfaced” “A Breakdown?”

30 Jan-12 Feb ‘09

“A weak rally now”

Nov-08

13-26 Mar ‘09

“Another weak rally”

Mar-10

Jul-11

Moneylife Stock Analysis

KNOW WHAT’S COMING

Sensex.indd 3

7/8/2011 5:23:57 PM

COVER STORY

Many products don’t need a medical test. They rely on self-declaration of the customer regarding his medical condition. It is imperative for customers to provide information about their health in utmost good faith. Even if you don’t have any PED, ensure that the proposal form clearly says so. If the column is left blank on the proposal form or kept vague, the insurer may write a note on your proposal form saying, ‘PED not declared or unclear’ and this will be a major issue when there is a claim to be paid. With insurers, policies change based on their experience and a medical test may be needed on a caseto-case basis, especially for the older age group. Additional Benefits: The more the product benefits, the better for customers. If a benefit is specific to your requirement, it is even better—otherwise, many addon benefits are never used. Please refer to the policy document for a comprehensive list of benefits. Room Limits, Co-pay and Other Limits: Please note that there will be different limits for surgeries (e.g., cataract

B A NK ME DIC L AIM

Are They Bankable? The pros and cons of these policies

f you feel that a family floater is the right policy for your requirements, it can be purchased from banks oﬀering mediclaim—here are the advantages and disadvantages: Advantages: • Unbelievably low premium rates that are 50% lower (in many cases) than a family floater policy directly from an insurance company. • Many products don’t need a medical test even at a higher age. • Many products have the same premium for all ages and, hence, are beneficial for the older age group—which costs a lot if purchased directly from the insurer. • There is no loading (in most cases) and, hence, it is a great op on for those with health risks as the claims will not impact future premium rates. • Some products cover parents and that too at a reasonable premium. • Almost all these family floater policies can be renewed ll the age of 80. • The benefits and features are as good as policies sold directly by insurers. • Having an account with a bank is the only eligibility criterion.

surgery), waiting periods for specific surgeries, first-year/ second-year exclusions, permanent exclusions and other restrictions that cannot be covered in this article. Readers will have to refer to the policy document to understand the details before buying any mediclaim policy—whether it is through banks or directly from the insurer. Moreover, the policy details may be changed by the insurer by the time you purchase in the future. The Service Issues Even if you had purchased a mediclaim through a broker or an agent who promises to help you in claims processing, the onus is on you to understand what is covered/not covered, PED waiting period, specific procedure waiting period, claims filing procedure along with time-limits, procedure for intimating a TPA at the time of hospitalisation, TPA contacts and so on. Some insurance companies have a rule that policyholders must contact them or the TPA within 24 hours of hospitalisation. Insurance companies are also not obliged ``

Disadvantages: • Bank mediclaim product is not a ‘push’ product; interested persons will have to follow up with banks to get informa on, submit a proposal form and again follow up with the bank to have the policy issued. • There is no agent or broker involved. Renewals of policy, claims filing and follow-up with the insurance company will have to be done by the policyholder. The bank won’t help at all. • Inexpensive bank mediclaim policies are offered by public sector insurers, which means dealing with a TPA is a must. Trying to get a TPA card may be an uphill task in some cases. • Many products have only one or very few TPA op ons. • The TPA has an agreement with individual hospitals for cashless facili es. If the TPA servicing you does not have an agreement with the hospital of your choice, you will have to forego the cashless facility and se le for the reimbursement of a claim, which carries a risk factor of claim rejec on or amount deduc on. • Most of the policies don’t have a ‘no-claim-bonus’ (NCB). • A couple of policies offering low premiums have increased premium from this year by 30% and others may follow sooner or later. • It is possible that banks may end the product offering due to various reasons. As such, mediclaim products are a oneyear contract and, hence, there should not be a problem as long as the IRDA ensures that the exis ng policyholders are moved to other mediclaim products with waiver of the PED wai ng period.

MONEYLIFE | 28 July 2011 | 36

Cover Story.indd 10

7/8/2011 6:48:00 PM

COVER STORY

` to send the policyholder renewal notices.

The onus is on the policyholder to be aware of his responsibilities and the fine print in his mediclaim policy. This is true for retail mediclaim or mediclaim from banks. A United India Insurance circular specifies that claim documents have to be submitted within seven days from the discharge date. Any delay up to 15 days can be condoned by the divisional manager. Beyond 15 days, the power to condone has been vested in the hands of the regional officer. Don’t depend on the regional/divisional officer to allow your late filing, as it invariably may not be in your favour. Complying with the rules may be difficult, especially in case of medical urgency. If you really need cashless benefit with your bank mediclaim, you will have to deal with the TPA. Dealing with a TPA is a problem irrespective of whether you are going for retail mediclaim or bank mediclaim. TPAs have earned notoriety in recent times with accusations of misconduct from policyholders, hospitals and insurers.

Whether you are buying retail mediclaim from a broker/agent or going in for mediclaim offered by banks, there can be hiccups in getting your claim passed. An agent or broker can help you only to a certain extent, beyond which you are on your own. Today, there are more claims ending up in litigation than in the past. Understanding your rights is important. If you purchased the policy in utmost good faith and believe that the policy wordings are in your favour for any claim you have filed, but have got a rejection notice from your insurance company (even after approaching its grievance cell), you have to take the fight to the next level. Grievance Redressal There are 12 insurance ombudsman’s offices across the country. It may take up to six months before an insurance ombudsman gives you time for hearing due to the backlog of work. Interestingly, the post of the insurance ombudsman in Ahmedabad has been lying vacant for nine months and, hence, even more cases are piling up. A

consumer court may take a few years to grant justice and dual filing (both before an ombudsman and a consumer court) is not allowed. According to an insurance broker, “In many cases, just the first notice from the consumer court is enough for insurance companies to settle the claim. Even if the insurer does not pay and it goes for hearing, we have got the cases settled within a year (this may be an exception).” According to a veteran insurance agent, “TPAs have overpowered PSU insurers who don’t overturn the TPA decision in most cases. The reason insurance company officers would not take any decision to solve the matter to settle the claim is that they would like to be free from taking any responsibility. If the ombudsman approves the claim settlement, the onus of answering to the audit is taken away from the officer. Often, the ombudsman’s office telephonically talks to the grievance manager and instructs him to settle the matter.” Which One Should You Buy? If you feel that a bank family floater mediclaim is the appropriate choice for your requirements, Syndicate Bank’s SyndArogya offered by United India is a good choice that will cover your parents too. The policy has been operational for over six years. The premiums are low with PED covered after three years, which is less than the standard waiting period of four years. The additional benefits include maternity and baby-care expenses up to 5% of sum insured. Health check-up will be paid at 1% of sum insured after three claim-free years. There are no room limits. Treatment is allowed in India, Nepal and Bhutan in Indian currency. The product also covers an inbuilt personal accident policy. United India Insurance offers a choice of seven TPAs empanelled for the policy. United India has constraint about 24-hour intimation on hospitalisation and a seven-day submission of a claim. It has more to do with prevention of fraudulent claims, but it can also adversely impact genuine cases. If you don’t want to cover your parents, you can go with Punjab National Bank’s Royal Mediclaim policy offered by Oriental Insurance which was launched over one year back. It is also possible to take a policy for you, your spouse & children (Royal Mediclaim–Oriental) and a separate policy for parents (SyndArogya–United India) as long as parents are below 65 years at the time of entry. The total premium will increase by less than Rs2,000. New India Assurance is also a good option, but bank mediclaim premiums are high for the older-age group. The other good options are Bank of Baroda or Bank of India’s mediclaim (Baroda Health and Swasthya Bima, respectively) from National Insurance. The policies are running for five and four years, respectively.

37 |28 July 2011 | MONEYLIFE

Cover Story.indd 11

7/8/2011 6:45:21 PM

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oneylife magazine has been bringing you the finest approach to stock picking â&#x20AC;&#x201C; methodical, non-impressionistic and ethical. The same team that created a proven system that beats the major indices year after year now offers stock letters in different flavours for investors with different investment horizons and objectives. Here is what you get:

Cheetah: Short-term momentum Antelope: Medium-term growth stocks available at reasonable prices Lion: Long-term valueâ&#x20AC;&#x201D;stocks that have a reasonable chance of beating the market over time. Only large companies are recommended Annual Price of Each Stock Letter: Rs995 Special Combo Offer for Any Two: Rs1,495 Special Combo Offer for All Three: Rs1,995

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Whatâ&#x20AC;&#x2122;s Inside - Weekly market view - A short list of stocks to buy, with reasons - Weekly updates on all recommended stocks, and clear recommendations on when to sell Email us at mail@kensource.com for a sample Our Investment Philosophy 1. Value is a subjective idea impossible to capture in any financial formula 2. Price is the most important information and should normally overrule most other factors 3. An open mind about value and closed mind about price allows us to go wherever the opportunities currently are. We do not limit ourselves to specific styles and themes

7/8/2011 3:51:02 PM

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

Company

Issue date

Surya Pharmaceutical Titan Industries Godrej Consumer Products Ambuja Cements Dr. Reddy’s Laboratories Bajaj Auto Lupin Rural Electrification Corp Punjab National Bank Tata Chemicals Colgate-Palmolive

28 Jun-10 24 May-10 24 Feb-10 26 Jul-10 23 Aug-10 26 Jul-10 23 Aug-10 24 May-10 26 Apr-10 26 Apr-10 19 Apr-10

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

Recommended Price (Rs) 184 2237 262 115 1,326 1,235 371 276 1,032 341 734

Exit Price (Rs) 294 3,316 372 142 1,617 1,487 442 328 1,196 393 846

Return 60% 48% 42% 23% 22% 20% 19% 19% 16% 15% 15%

YES, I wish to subscribe for one year to the following winning stock letters: Cheetah: Short-term momentum Antelope: Medium-term growth stocks Lion: Long-term value Annual Price of Each Stock Letter: Rs995; Special Combo Offer for Any Two: Rs1,495; Special Combo Offer for All Three: Rs1,995 NAME: ____________________________________________________________________________________________ ADDRESS: __________________________________________________________________________________________ PHONE (Office): ____________ Phone (Res): ____________ E-mail address: _____________________________________________ Date of Birth: ____________________ (MM) (DD) (YY) (Please ensure correct date of birth if payment is by credit card) _____________________ Profession: _____________________ Designation: ____________________________________________________________ Monthly Household Income: (Please tick the appropriate) ( ) Below Rs25,000 ( ) Rs25,000 - Rs50,000 ( ) Above Rs50,000 ( ) Please find enclosed ( ) Cheque / ( ) Demand draft number ____________________________________ dated __________________ favouring Kensource Information Services Pvt. Ltd. ( ) Please charge it to my ( ) /( ) /( ) /( ) My card number is _______________ & expiry date is ____________ (MM / YY) DATE: ______________________ SIGNATURE: ______________________ Please fill in this order form and mail it with your remittance to Kensource Information Services Pvt. Ltd., 315, 3rd Floor, Hind Service Industries Premises, Off Veer Savarkar Marg, Shivaji Park, Dadar (W), Mumbai 400 028. Credit card orders can be faxed to Mumbai 022-24442771. In case payment is through credit card, expiry date of the card should be mentioned. # Rates and offers are valid only in India. This offer is valid for a limited period. # All disputes shall be subject to Mumbai jurisdiction only.

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

Stock letter new.indd 3

7/8/2011 3:51:38 PM

STOCKS STREET BEAT

Unbiased & Methodical Stock Picking that Works!

NA T I O N A L PE ROXIDE

Good Chemistry

tio n St or ies of Pr ice Ma nip ula

Good growth prospects and excellent market share

ational Peroxide Ltd (NPL) makes hydrogen peroxide, sodium perborate and peracetic acid. Established in 1954, NPL is one of the largest manufacturers of hydrogen peroxide in India. The company currently commands a market share of around 40% in the hydrogen peroxide market. The Mumbai-based company has its fully-integrated manufacturing plant for hydrogen peroxide at Kalyan, on the outskirts of Mumbai. Hydrogen peroxide is used for bleaching, chemical synthesis, effluent treatment, sterilisation, etc, in paper & pulp industries, followed by cotton textiles. Besides, there is a growing demand for water-treatment applications. Hydrogen peroxide is an environment-friendly agent. NPL’s competitors include Amines & Plasticizers, Asian Peroxide (unlisted), Gujarat Alkalies and Chemicals, Hindustan Organic Chemicals, Sree Rayalaseema Hi-Strength Hypo Ltd and Tata Chemicals. The company has gradually increased the production capacity of hydrogen peroxide at its Kalyan plant from about 30,000 million tonnes per annum (mtpa) in March 2004 to around 65,000mtpa (50% concentrated) in March 2010. It has further started expanding the production capacity of its plant to 84,000mtpa and is investing Rs46 crore for this through internal accruals. NPL has chalked out plans to expand capacity to 1,50,000mtpa over the next five years. The financial performance is set to improve further on the back of expanded capacities. Until December 2009, NPL did not have long-term supply agreements for natural gas—feedstock for hydrogen peroxide— so the company was purchasing natural gas on a spot basis. In January 2010, NPL signed a long-term gas supply agreement with GAIL (India) which has ensured steady supply of feedstock at a predefined structure and brought down NPL’s costs considerably. ``

Parsharti Investment ment (Rs36) (R Mumbai-based Parsharti Investment is supposed to be engaged in the capital markets & financial consultancy, lease and hire-purchase syndication, etc. It plans more fund-based activities and secondary market operations to its business portfolio. For a listed company, its operations are nonexistent. Revenues in the past nine quarters have been fluctuating from Rs21 (Rs)

Parsharti Investment

35 30

234%

25 20 15 10 Jan-11

Apr-11

Jul-11

lakh in the March 2009 quarter to a low of Rs11 lakh in the December 2009 quarter and to a high of Rs36 lakh in the March 2011 quarter. Its operating profit was Rs3 lakh in the March 2009 quarter, nil in the March 2010 quarter—operating loss was Rs7 lakh in the March 2011 quarter. The stock has soared 234%—from Rs10.79 on 6 January 2011 to Rs36 on 5 July 2011. What are the regulators doing?

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

MONEYLIFE | 28 July 2011 | 40

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STOCKS STREET BEAT

Unbiased & Methodical Stock Picking that Works!

For the financial year ended 31 March 2011, NPL reported a net profit of Rs58.17 crore against Rs16.38 crore in FY09-10. In the same period, its total income increased to Rs182.96 crore from Rs122.45 crore, while its net revenues grew to Rs181.63 crore from Rs121.90 crore. Compared to the net-worth of Rs128.73 crore in FY10-11, NPL has loan funds of just Rs8.85 crore which means the company has minimal dependence on external funds. In FY1011, its earnings per share (EPS) stood at Rs101.23 Rs Cr. Sept-10 Dec-10 Mar-11 compared to Rs28.52 in 52.98 Net Sales 43.28 49.46 FY09-10. The company 29.20 OP 20.58 27.47 has recommended a dividend of Rs12 per 58% Y-o-Y Sales Growth 37% 62% equity share of Rs10 each 178% Y-o-Y OP Growth 98% 257% (120%) for FY10-11. 55% OPM 48% 56% NPL’s net profit for OP: Operating Profit, Y-o-Y: Year-on-Year, OPM: Operating Profit Margin the March 2011 quarter increased to Rs15.71 Dose Pose crore from Rs5.91 crore (Rs) in the corresponding 665 period last year. In the National Peroxide same period, its total 625 income rose to Rs52.64 585 crore from Rs33.58 crore. 545 NPL has outperformed the benchmark Sensex 505 since August 2010. Over 465 the past five quarters, Jan-11 Apr-11 Jul-11 NPL has reported an average growth in revenues and operating profit of 42% and 153%, respectively. Its average operating margin is 46% and return on net worth is a superb 45%. Its market-cap to revenues is just 1.44, while ``

tio n St or ies of Pr ice Ma nip ula Proto Developers s & Technologies Tec (Re1) Proto Developers & Technologies is ostensibly in the business of real estate, communications and basic amenities. The firm markets and installs broadband technology equipment and GPS systems and disaster-management products. Revenue rose from Rs12.15 crore in the March 2009 quarter to Rs43.10 crore in the March 2010 quarter to Rs48.23 crore in the December (Rs)

3.05

Proto Developers & Technologies 2.6 2.15

68%

1.7 1.25 0.8 Nov-10

Mar-11

Jul-11

2010 quarter and to Rs39.03 crore in the March 2011 quarter. Operating profit was Rs41 lakh in the March 2009 quarter; it leapt 10 times to Rs4.16 crore in the March 2010 quarter and sank to an operating loss of Rs2.95 crore in the March 2011 quarter. From 3 November 2010 to 25 November 2010, the stock surged 182%—from Rs1.08 to Rs3.05—and crashed 68% since then to Rs0.99 on 30 June 2011. Who’s 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

41 | 28 July 2011 | MONEYLIFE

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STOCKS STREET BEAT

` its market-cap to operating profit

is 2.62 times. The stock is an attractive buy at the current market price, given its market dominance and growth prospects.

Unbiased & Methodical Stock Picking that Works!

at around 25 locations across India, Russia, South Africa, Australia, China, Thailand and Canada. It exports its products to about

C A R B O RU N DUM UNIVE RS AL

Rock Solid Strong integration and expansion plans

arborundum Universal (CUMI) is a Murugappa group company which is into coated and bonded abrasives in India, super refractories, electrominerals, industrial ceramics and ceramic fibres. An abrasive is a hard substance used for grinding & polishing and removing metal. Electro-minerals are used as raw material in making abrasives and refractories. They are also used for surface preparation and in the tiles and paints industries for silicon wafer slicing in solar cell manufacture, dental care and skin therapy. Abrasives are the company’s largest business segment. Electro-minerals, the second-largest business, has three major product groups—silicon carbide, brownfused alumina and white-fused alumina. CUMI makes over 20,000 varieties of products manufactured

Rs Cr. Net Sales OP

Sept-10

Dec-10

Mar-11

238.15

243.02

259.01

47.51

47.57

53.65

Y-o-Y Sales Growth

28%

26%

24%

Y-o-Y OP Growth

36%

35%

66%

OPM

20%

21%

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

Hard Stand (Rs)

300

Carborundum Universal 280 260 240 220 200 Jan-11

Apr-11

Jul-11

43 countries. About 44% of the company’s total revenues come from international sales. For FY1112, CUMI expects around 47%

of revenue to be from outside India and 53% from within India. Its subsidiaries include Volzhsky Abrasive Works in Russia and Foskor Zirconia Pty Ltd in South Africa. The acquisition of Volzhsky Abrasive Works and Foskor Zirconia gave CUMI access to key and scarce raw materials—silicon carbide and zirconia used in highend abrasives and ceramics. For the financial year ended 31 March 2011, CUMI recorded a standalone net profit of Rs124.25 crore against Rs58.01 crore in FY09-10 with a rise in total income to Rs936.25 crore from Rs751 crore. In FY10-11, its standalone earnings per share (EPS) stood at Rs13.29 compared to Rs6.21 in FY09-10. In FY10-11, CUMI’s abrasives segment (on a standalone basis) registered net revenues of Rs515.53 crore compared to Rs428.20 crore for the corresponding period last year, while net revenues of its ceramics segment rose to Rs246.82 crore from Rs199.05 crore. In the same period, the electro-minerals segment recorded net revenues of Rs209.99 crore from Rs156.56 crore. All its business segments are doing well. For FY10-11, CUMI recorded a consolidated net profit of Rs170.79 crore compared to Rs101.73 crore in FY09-10 on consolidated net revenues of Rs1,600.74 crore, up ``

Recommended Price Rs62

MONEYLIFE STOCK IDEAS

THAT WORK

Moneylife Issue 16 July 2009

62%*

(Ap paper mills)

Exit Price Rs83

(Stop Profit triggered on 29 January 2010)

* Annualised returns

MONEYLIFE | 28 July 2011 | 42

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STOCKS STREET BEAT

f mc g s t oc ks

Soap Bubble Are FMCG stocks overvalued?

n the suggestion of one of our readers, we have discussed buying beaten-down stocks and sectors in the past few issues. What we have suggested, has worked out well. Shree Renuka Sugars, highlighted when the stock was around Rs58, has rocketed to Rs71. Banking stocks suggested when they were down in the dumps, have recovered well. Now, we suggest a set of stocks to avoid—those of fastmoving consumer goods (FMCG) companies.

` from Rs1,279.75 crore. In FY10-

11, on a consolidated basis, the company’s abrasives segment registered net revenues of Rs699.01 crore compared to Rs550.73 crore for the corresponding period last year, while net revenues of its ceramics segment increased to Rs347.61 crore from Rs285.71 crore. In the same period, the electro-minerals’ segment recorded net revenues of Rs597.88 crore from Rs478.91 crore. All its business segments grew by more than 20%. CUMI’s standalone net profit for the quarter ended 31 March 2011 increased to Rs38.02 crore from Rs14.53 crore in the corresponding period last year. Its standalone total income for the March 2011 quarter stood at Rs259.01 crore compared to Rs208.14 crore in the

Unbiased & Methodical Stock Picking that Works!

Over the past few months, FMCG stocks have been in a super bullish mode because of massive herding by fund managers. The reason is simple. Almost all the sectors of the economy are slowing down thanks to higher inflation and higher interest rates. But amidst a general slowdown, FMCG

Contrarian Call A look at stocks that are too cheap and ignored or ones that are too pricey

they wait for manufacturing to turn, fund managers have latched onto this growth story. But while

Herd Instinct 325

ML Consumer Products Index

310 295 280 265 250 Jul-10

Jan-11

Jul-11

companies are seen to benefit from a massive consumption boom across the country especially in the semi-urban and rural areas. At the same time, these companies are not aﬀected by higher interest rates because they are all almost debt-free. So, while

the investment logic is sound, no investment is worth at any price. And the price you would pay to buy a Hindustan Lever (P/E of 31.53) and Nestlé (P/E of 52.24) is simply not worth it. The time to buy them is a er a massive market crash.

corresponding period last year. CUMI’s consolidated net profit for the March 2011 quarter rose to Rs49.43 crore from Rs32.43 crore in the corresponding period last year. In the same period, its consolidated total income for the March 2011 quarter stood at Rs434.42 crore compared to Rs365.35 crore in the corresponding period last year, while its consolidated net revenues grew to Rs433.01 crore from Rs351.38 crore. The company is entering the renewable energy materials manufacturing industry. It is planning to supply material parts for renewable energy generators including silicon wafers, along with material for processing these wafers. It is in the process of finalising three joint ventures (JVs) for its proposed

renewable energy materials manufacturing plants. The company expects to announce the formation of two of these three JVs by August 2011. The JVs would be set up in a 25-acre Central governmentapproved renewable energy SEZ (special economic zone) in Kochi, Kerala. On a consolidated basis, CUMI has planned capex of Rs150 crore for 2011-12. This does not include the investment in the JVs. Over the past five quarters, CUMI has reported an average growth in revenues and operating profit of 24% and 38%, respectively. Its average operating margin is 19% and return on net worth is 24%. Its market-cap to revenues is 2.56, while its marketcap to operating profit is 12.36 times. Buy it at the current price.

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

43 | 28 July 2011 | MONEYLIFE

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7/8/2011 6:58:06 PM

STREET BEAT WHICH WAY

Debashis Basu

Signal Yellow?

priced in the coming economic headwinds about which everyone knows now. It is said that markets usually bottom a few months before economic growth picks up and so, we should start to follow the price to weigh the Time to be cautiously optimistic pros and cons of the soft patch ending soon. This may seem like looking through the opposite fortnight ago, I had suggested that we should end of the telescope but that’s how market forecasts not forget the original bullish arguments in are made. If you wait till all the economic data is in to favour of India “as we approach a buying point figure out that the economy is growing again, the stock a few months later.” Well, it now seems that the buying prices would be fully valued by then. point was virtually on the day I was writing the piece Indeed, I had already had touched upon this last and not a few months later. We have been working fortnight when I wrote, “Once the negatives are known on the assumption that the EPS (earnings per share) and the market has reacted to them, there would be a for the Sensex would be Rs1,150 in March 2012. I had point when the prices start discounting the negatives.” I written that “below a P/E of 15, or 17,250, the Sensex had suggested that we look out for enough time to have starts to look undervalued. We had barely hit that level passed, negatives to be receding on 20th June. An extreme event could and a low price point, to decide even take it down to 15,000 when whether the buying point has come. the market would be truly cheap If you wait till all the It is time to be cautiously and a strong rally would be highly economic data is in optimistic now. After the July quarter likely.” Well, life is not fair. From to figure out that the results and the RBI (Reserve Bank that barely undervalued level, the economy is growing of India) policy meet, we should Sensex has rallied sharply, without again, the stock have some sense whether we going down any further. For 12 days, prices would be fully are back on the path of a steady starting from 23rd June, the Sensex valued by then upward trajectory or whether the has jumped 6%. market has become too optimistic As I had said, the market too soon. If it is the first case, we was somewhat undervalued should be in the ‘buy-the-decline’ following the sharp decline in mode, switching from ‘sellJune. And that’s exactly what the the-rally’ which has been foreigners were waiting to buy our mantra for almost a into. They have put in thousands year. If the earnings are of crores in the last week of June not affected much (say, and the first week of July. Part of this they clock around 10% growth), money could be hot money or shortvaluation would look reasonable, given term money coming into exchangethe coming decline in inflation and interest rates. traded funds. But it has certainly After the last two weeks’ of powerful rally, created a floor for the market now at the market trend has turned to a mediumaround 17,250. Indeed, the rally we saw Medium-term: Up term buy. in late June-early July could be the first Long-term: — (Feedback at editor@moneylife.in) early signs that the Indian market has

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 | 28 July 2011 | 44

Which way.indd 1

7/8/2011 8:01:37 PM

STOCKGRADER MOMENTUM

Wheel Deal

45%

Compounded Annual Return

Shree Renuka Sugars soared 24%, Shriram Transport zoomed 12%, while Bhushan Steel fell 4% Gainers: In the recent investor meetings on 5th July, Shree Renuka Sugars said that it is well placed to benefit from higher sugar prices, due to its sugarcane fields in Brazil and refineries in India. The company expects sugar prices to remain high, despite new capacity created in Brazil. Sugar fundamentals are also boosted by the rising prospect of sugarcane demand for making ethanol as a substitute for gasoline. The company will focus on reducing its debt in the medium term. The stock soared 24% over the fortnight. EID Parry (India) rose 11%. Shriram Equipment Finance Company (SEFC), a 100% owned subsidiary of Shriram Transport Finance Company (STFC), is looking at a market share of 15%-20% in the Rs20,000 crore per annum equipment business industry. SEFC expects to do business of Rs2,500 crore-Rs3,000 crore in the current financial year and scale it up to Rs6,000 crore by 2013. STFC rose 12%. Hindalco Industries rose 9%. Sintex Industries and HDFC Bank rose 11% and 8%, respectively. Mahindra & Mahindra (M&M) has rolled out its Rs5.46 lakh premium double-cabin pickup vehicle Genio DC that can carry cargo as well Company

RS Grade

Funda Grade

Final Grade

Entry Date

Dish TV India

06 Aug-10

80%

Sadbhav Engineering

28 Apr-11

Magma Fincorp

07 Jul-11

—

Sesa Goa

21 Jan-11

-12%

GSK Consumer

29 Apr-09

as passengers. M&M reported a 29.11% jump in its total sales in June 2011 at 35,584 units against 27,562 units in the corresponding month of 2010. M&M rose 6%. The US Food and Drug Administration (USFDA) has issued a warning to Cadila Healthcare for violation of current goods manufacturing practice (CGMP) regulations for finished pharmaceuticals at its new plant in Sanand (Gujarat). The regulator has given the company 15 days to take corrective measures and submit a report on the action taken. However, according to the company, production from this facility is yet to commence and it doesn’t expect any impact on the business. The stock rose 5%. Sadbhav Engineering rose 4%. Losers: Bhushan Steel fell 4%. Changes: We are removing Educomp Solutions and adding Balkrishna Industries, Divi’s Laboratories, Magma Fincorp, Power Grid Corporation of India and Prime Focus. 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

Hindalco Industries

23 Jul-10

24%

Cadila Healthcare

12 Nov-10

21%

Fed-Mogul Goetze

28 Apr-11

12%

Federal Bank

13 May-11

202%

Divi’s Laboratories

07 Jul-11

Return*

—

Bank of Baroda

29 Apr-09

178%

Power Grid Corp

07 Jul-11

—

Titan Industries

16 Apr-10

123%

Prime Focus

07 Jul-11

—

Sintex Industries

01 Apr-11

16%

M&M

28 Apr-11

-6%

HDFC Bank

04 Mar-11

16%

Shree Renuka Sugars

06 Aug-10

Oracle Financial Serv

23 Dec-10

Balkrishna Industries

07 Jul-11

—

Shriram Transport

18 Feb-11

-10%

EID-Parry

12 Nov-10

-4%

Bhushan Steel

28 Apr-11

-12%

Orchid Chemicals

28 Apr-11

-14%

HDFC

15 May-09

87%

Bank of India

21 Jan-11

-11%

*Non-annualised

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

45 | 28 July 2011 | MONEYLIFE

Momentum.indd 2

7/8/2011 8:21:24 PM

STOCKGRADER MEDIUM TERM

Novel Idea

47%

Compounded Annual Return

Shoppers Stop gained 13%, 3M India was up 5%, and Petronet LNG was down 1% Gainers: Shoppers Stop has opened one ‘Crossword’ store at Mega Mart in Banashankari (Bengaluru). The store has been opened by the company’s wholly-owned subsidiary, Crossword Bookstores. With this launch, there are now 75 Crossword stores across India. The stock rose by 13% in the fortnight. Kajaria Ceramics has introduced its digital print collection of wall tiles. This ‘random printing’ technology produces tiles to recreate variations found in naturallyoccurring stones. The technology will ensure that no two tiles will look the same in design and colour distribution. This collection is available in a 30x60cm size with different colours and in marble, satin and matte finish. Prices will vary from state to state. The stock rose by 8%. Apollo Tyres has planned an investment of Rs2,300 crore at its Chennai plant. Out of the total capacity, 70% will be reserved for truck and bus radials. This will boost Apollo’s domestic radial-manufacturing capacity. The stock rose by 6%. 3M India plans to increase revenue to $1 billion (Rs4,450 crore) by 2015; sales

Company

RS Grade

Funda Grade

Final Grade

Entry Date

Petronet LNG

29 Apr-09

176%

Return*

will have to grow at an annual average growth rate of 29%. The firm is adding new products, customising them for India, creating capacity, widening market reach and hiring to drive these initiatives. The stock rose by 5%. Supreme Petrochem and Munjal Auto Industries rose by 14% and 9%, respectively. India’s largest software services provider, Tata Consultancy Services (TCS), will invest Rs2,300 crore as capex for FY11-12, and focus on adding more clients in the retail sector, which currently contributes just 10% to total revenues. TCS is actively looking at acquisitions and expects to increase its market share in Latin America, the Middle East and Asia. The scrip rose 5% over the fortnight. Losers: Orient Paper & Industries and Petronet LNG fell by 2% and 1%, 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

HCL Technologies

29 Apr-09

Return* 292%

Kajaria Ceramics

26 May-11

12%

Nestlé India

29 Apr-09

152%

Motherson Sumi Sys

23 Jun-11

CRISIL

29 Apr-09

144%

Munjal Auto Inds

26 May-11

Sun Pharmaceutical

29 Apr-09

104%

Vivimed Labs

26 May-11

-5%

Dabur India

01 Apr-10

43%

Lupin

29 Apr-09

221%

Amara Raja Ba eries

28 Apr-11

20%

Titan Industries

01 Apr-10

145%

Asian Paints

23 Jun-11

HDFC Bank

29 Apr-09

133%

3M India

23 Jun-11

TCS

10 Jun-10

59%

Linc Pen & Plastics

26 May-11

Supreme Petrochem

27 May-10

58%

Oracle Financial Serv

23 Dec-10

Siemens

27 May-10

27%

Orient Paper & Inds

26 May-11

-6%

Shoppers Stop

23 Jun-11

15%

Cadila Healthcare

20 Jan-11

13%

Time Technoplast

26 May-11

14%

Apollo Tyres

23 Jun-11

Akzo Nobel India

23 Jun-11

Ranbaxy Laboratories

20 Jan-11

-4%

Supreme Industries

26 May-11

11%

Ipca Laboratories

20 Jan-11

*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 | 28 July 2011 | 46

Medium Term.indd 2

7/8/2011 8:23:00 PM

STOCKGRADER LONG TERM

Power Surge

48%

Compounded Annual Return

Castrol India surged 16%, ITC rose 4%, while Petronet LNG fell by 1% Gainers: US confectionery major Hershey’s and the Godrej group have called off their joint venture (JV) in India following management differences. The firms will scrap the JV signed in 2007; Hershey’s will sell its 51% stake to Godrej Consumer Products (amount undisclosed). Lazard Capital will handle the deal. Godrej Consumer Products rose 8% in the fortnight. Castrol India soared 16%, Asian Paints climbed 7%. Ador Fontech and Nestlé India also rose by 7% each. Marico rose 12%, Wyeth rose 7%, Emami rose 9% and Power Grid Corporation of India went up by 6%. Lupin has announced that its US subsidiary Lupin Pharmaceuticals Inc had obtained final approval from the USFDA for its abbreviated new drug application for amlodipine/benazepril 5mg/40mg, and 10mg/40mg capsules. The approval completes the product line, as the company was granted final approval for amlodipine/ benazepril in 2.5mg/10mg, 5mg/10mg, 5mg/20mg and 10mg/20mg capsules in February last year. The

Mumbai-based company said that it has commenced commercial shipment of the drug. The stock rose 7%. ITC Infotech, fully owned by ITC, will expand its alliance with Intalio, a private cloud computing solutions provider—these companies will provide business process management solutions. ITC rose 4% over the fortnight. Losers: Petronet LNG is in talks with US-based Cheniere Energy Inc and Freeport LNG to source liquefied natural gas (LNG). Petronet has a 10 million tonne per annum (mtpa) capacity LNG terminal at Dahej. It is building another terminal with a capacity of 5mtpa at Kochi and is considering a new terminal on India’s east coast with a capacity of up to 5mtpa. The company is also in talks with Australia, Russia and Qatar to source LNG. The stock fell 1%. Note: Please read our changed methodology for grading stocks (given below). We have also added a column showing returns since the stock’s appearance in the table. Returns from new stocks added are counted after one issue.

Company

RS Grade

Funda Grade

Final Grade

Entry Date

Ador Fontech

29 Apr-09

649%

Titan Industries

03 Feb-11

28%

CRISIL

29 Apr-09

144%

Emami

26 May-11

18%

HDFC Bank

29 Apr-09

133%

Wyeth

23 Jun-11

ITC

27 May-10

47%

Return*

Company

RS Grade

Funda Grade

Final Grade

Entry Date

TCS

29 Apr-09

Return* 284%

Motherson Sumi Sys

23 Jun-11

Castrol India

28 Apr-11

17%

Lupin

29 Apr-09

221%

Hindustan Unilever

25 Nov-10

13%

Nestlé India

29 Apr-09

152%

Cadila Healthcare

20 Jan-11

13%

Asian Paints

27 May-10

52%

Power Grid Corp

03 Feb-11

11%

Shoppers Stop

26 May-11

25%

Apollo Tyres

23 Jun-11

Godrej Consumer

26 May-11

16%

Amara Raja Batteries

23 Jun-11

Marico

26 May-11

14%

Akzo Nobel India

23 Jun-11

Supreme Industries

23 Jun-11

Adani Enterprises

29 Apr-09

237%

Petronet LNG

26 May-11

Sun Pharmaceu cal

29 Apr-09

104%

Ipca Laboratories

20 Jan-11

GSK Pharma

29 Apr-09

101%

Berger Paints India

26 May-11

Ranbaxy Laboratories

20 Jan-11

-4%

*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.

47 | 28 July 2011 | MONEYLIFE

Long Term.indd 2

7/8/2011 8:24:46 PM

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

At a Price Tata AIG Gyan Kosh— feature-rich but costly

ata AIG Life has launched its ‘Gyan Kosh’ unit-linked insurance plan (ULIP). A parent has two protection options with inbuilt waiver of premium (WoP): ‘Security Net’ and ‘Safety Net’. Both the options provide dual benefits, i.e.,—payment of death benefit (sum assured) to the nominee in case of death of the insured, and policy benefits will continue. The company will waive all future regular premiums in the case of death or total permanent disability of the insured. The Security Net option provides your family with an income of 1% of the basic sum assured for 100 months or until the end of the policy term, whichever is earlier, on death or total permanent disability. The maximum sum assured is 12.5 times of annualised premium. The basic mortality charges are on the lower side and hence beneficial. As expected, the WoP and the Safety Net charge will levy additional charges which are age-specific and also depend on the policy term balance. The options given for WoP are either that the insurer pays 100% of future premiums or

50% of future premiums paid into the policy and 50% paid to the nominee. The additional benefit given by the Security Net to provide family income benefit will also have charges depending on the benefit period of 100 months (or lesser, depending on the policy term balance). All the innovative features come at a cost. The premium allocation charges in the first three years are 2% (premium Rs30,000 and above) or 3% (premium less than Rs30,000). From the fourth to the 10th year, the charge will be 2%, while from the 11th to 15th year, it will come down to 1%. There is no premium allocation charge from the 16th year. The policy administration charges are high at Rs70 per month

for premiums between Rs20,000 and Rs 29,999; Rs100 per month for premiums between Rs30,000Rs49,999; and Rs150 per month for premiums of Rs50,000 and above. The charges will increase by 5%, compounded every year, which will make it expensive in the later years. To reduce policy administration

charges, it will make sense to have the premium at the higher end of the band (Rs29,999 or Rs49,999— or much higher than Rs50,000). The fund management charge is between 0.65% and 1.20%. If the insured survives till the end of the policy term, a guaranteed maturity addition of 1.5% (policy term less than 20 years) to 3% (policy term above 20 years) of regular premium is paid to increase the maturity corpus.

VARIABLE INSURANCE PLA N

No Gain, Only Pain Be safe and smart, avoid SBI Life Flexi Smart

BI Life has launched a variable non-participating insurance plan, ‘Flexi Smart Insurance’. This variable insurance plan (VIP) was a new identity (after revamping) given to the banned toxic universal life policy. VIP combines the worst of both—ULIPs and traditional plans. The charges are transparent like those of ULIPs. Flexi Smart has charges up to the maximum allowed by the Insurance Regulatory and Development Authority (IRDA). It is 27.5% in the first year; 7.5% in the second & third years and 5% thereafter. There will also be a risk premium based on mortality charges based on the policyholder’s age, to cover the sum assured—which is 10 to 20 times of annualised premium. The heading of the product brochure is ‘No pain, only gain’. You should read it as ‘No gain, only pain’. The investments are opaque like traditional plans and will be mostly in the debt market and hence, will fetch low returns. The plan provides a guaranteed annual interest rate of ``

MONEYLIFE | 28 July 2011 | 48

Insurance.indd 2

7/8/2011 6:08:58 PM

INSURANCE TRENDS

` 2.5% which is absolutely pathetic.

The carrot offered to lure the customers is 7% interim interest rate for 2011-12. The product offers interim and additional interest rates, flexibility of a premium holiday option, facility of increasing or decreasing the sum assured as per the changing needs and an option of top-up premium. The premium holiday option offers the flexibility of not paying the premium for one to three years after completion of five annualised premiums. Many ULIPs offer a limited premium payment term wherein the policy remains in force until the policy term, without the payment of premium. The flexibility of increasing sum assured is not allowed after age 50; cost of medical expenses is to be borne by the life assured and it will not be allowed if the policyholder has already exercised the option to decrease the sum assured. Needless to say,

Fine Print Portability Postponed

RDA has pushed the portability implementation till 1st October. This is to buy time for providing a Web-based facility for insurers to feed in all relevant details on health insurance policies issued by them to individuals which will be accessed by the new company to which a policyholder wishes to port his policy. Such a system will enable the new insurer to obtain data efficiently on the history of health insurance of the policyholder wishing to switch over. The question remains if this system can be developed in three months. After all, mobile number portability with no major issues took a long time for actual implementation.

the increase in sum assured will be accompanied by increase in risk premium (mortality charges). Neither the increase nor decrease in sum assured will reduce the premium amount. The death benefit will be the sum of the policy account balance and the sum assured. The maturity benefit will be the terminal interest rate along with the balance in the policy account.

M E DICLAIM

Parents-in-law not allowed ‘Family’, as defined by insurers, excludes parents of married women

amily floater policies are an enhanced version of the mediclaim policy. The sum assured value floats among the family

Max Bupa Integrates with IGMS

ax Bupa Health Insurance claims to have successfully integrated with IRDA’s Integrated Grievance Management System (IGMS) in real time; this makes it the first health insurance company in the country to have such a system in place. The integration will provide a platform for policyholders to easily access and log their complaints or concerns to either Max Bupa or IRDA and track them from either place. Both systems would have all the required information in real-time sync.

members. Policies will cover husband, wife and a couple of children, while some may cover parents too. It does not include parents-in-law and, hence, if a married woman wants to include her dependent parents in the same family floater policy, it is not allowed, even if parents of her husband are not on the policy. The same condition applies even if a married woman is the proposer of the policy. IRDA should allow the term ‘family’ to include parentsin-law and ensure that the family floater allows parents or parentsin-law (or both) to be on the policy. There are some products, like the Oriental Insurance Happy Family Floater policy, which allow parents or parents-in-law (either of them only). Also, Max Bupa Health Insurance’s Heartbeat–Family First can cover up to 13 relationships, including parents, parents-in-law and so on.

insurance companies. IRDA is considering creating a database of all insurance policy holders using the Aadhaar, or UID number, in a move

that experts say will help insurers assess risk and price their offerings he Unique Identification Authority of better. Insurers have long wanted a India (UIDAI) and IRDA are discussing database because they believe it will the use of the UID (Unique Identification) help them curb instances of frauds. But will this one work? Keep your number to satisfy the ‘know your fingers crossed. customer’ (KYC) requirements of

UID for Insurance KYC?

49 | 28 July 2011 | MONEYLIFE

Insurance.indd 3

7/8/2011 6:09:10 PM

LEGALLY SPEAKING SD ISRANI

P A S S I NG I T ON

Nomination & Share Ownership Can you inherit company shares even if you are just a nominee?

any people keep their savings in bank deposits as they feel that bank deposits are the safest among different modes of investment; while there are others who invest in shares & debentures, real estate, insurance, etc. A thought that is always at the back of an investor’s mind is: What will happen to his savings/investments after his death and, in case of joint holdings, on the death of both the investors. Therefore, investors are normally advised by experts that it is safer and better to appoint a nominee in respect of shares, bank accounts, insurance, etc, so that in case of any eventuality, the underlying property is transmitted by the company, bank or insurance company, as the case may be, in favour of the nominee without any glitch. Even in the case of membership of a co-operative housing society, members are encouraged to register a nomination with the society. It is generally understood that the nominee is only a trustee and the property would eventually go to those entitled either under the will or, in the absence of a will, in accordance with the personal laws applicable to the testator (the person owning the properties). It is not uncommon to find legal heirs being also nominated by a testator to avoid complications when he is not on the scene. However, a judgement of the single judge of the Bombay High Court that was delivered last year, on nomination in respect of shares and other securities, has created turmoil in the minds of many investors and rightly so. Prior to the incorporation of Sections 109A and 109B, into the Companies Act, 1956, by the Companies (Amendment) Act, 1999, there was no provision for nomination in respect of shares and debentures. These two sections enable the nominees of members and debenture-holders to have the shares or debentures transferred in their names, without having to produce a probate or letters of administration or succession certificate. Transmission of shares/debentures is particularly problematic in case of single holdings, and also in case of joint holdings if all the joint holders were to die, legal heirs could face a problem in getting the shares/

debentures transmitted in their favour. Therefore, when the provision for nomination was brought into the Companies Act, it proved to be a boon. But the Bombay High Court’s decision in the Harsha Nitin Kokate vs Saraswat Co-op Bank Ltd (Harsha Nitin’s case) has virtually turned the tables on hapless investors. Once the import of this judgement dawns upon the investors, many of them may not be keen on appointing a nominee—as the nominee himself could become the owner of the shares/debentures to the exclusion of the legal heirs. So what exactly has the High Court said in Harsha Nitin’s case that has raised the hackles of investors, particularly in Maharashtra? It is evident that the learned Judge went by the ‘literal rule’ and did not attempt to ascertain the true intent or purpose behind Section 109A by comparing similar provisions in other statutes. The Section has been interpreted by the learned Judge as having the effect of conferring all the ownership rights in respect of shares and other securities in favour of the nominee, to the exclusion of the rights of legal heirs. So the question that needs to be answered is: Can the learned Judge be blamed for such interpretation? The answer is a resounding no. The Judge has just interpreted Section 109A, the way it is on the statute. Although it is tempting to say that the Judge should have gone into the intent of the provision, it is settled law that if the provision is very clear, and can be literally interpreted, the Judge need not refer to the intent of the legislature. We are yet to hear the final word in the matter until the Supreme Court has the opportunity to consider the Section and give its verdict. Until then, investors will have to keep their fingers crossed. Does a nominee get the ownership of shares?

Dr SD Israni has spent over 36 years as a corporate lawyer. He was on SEBI’s committee on disclosures—the Malegam Committee—and is a columnist for financial publications and journals.

MONEYLIFE | 28 July 2011 | 50

Legally Speaking.indd 2

7/4/2011 6:37:04 PM

ML FOUNDATION EVENTS

THE FIRST SEMINAR IN MARATHI

“Make Your Money Work for You”

n 2nd July, Moneylife Foundation conducted its financial literacy seminar in Marathi at the Moneylife Knowledge Centre in Dadar, Mumbai. Dilip Samant, a Mumbai-based columnist and investment advisor with Golden Investments, began by stating that it’s not how much you earn that is important; what matters is how much you can save and for how long. One spends about 200-250 hours a month to earn, but spending continues for more than 720 hours every month. He cited Chandulal Shah’s (Mumbai’s Ranjit Studio founder) example, who ended up penniless, because of a careless attitude towards earnings, and practically no savings. He elaborated on the basics of the financial circle—bank accounts & transactions, various insurance policies and types of loans. He explained the documentation required to open a bank account, different types of accounts, interest rates, income-tax rules, penalties and the security of funds. Mr Samant spoke on credit & debit cards and how to be careful with PINs (personal identification numbers). He explained the types of insurance policies—life, education and health—and how to buy the right policy. He said that insurance should not be considered an ‘investment’ and one should buy a policy to take care of uncertainties. Mr Samant explained how to take a bank loan. He also advised that while taking a loan for buying property, you should carefully assess the interest rates, EMIs (equated monthly instalments) and read the loan document in detail. He also described various investment options like fixed deposits, mutual funds, equities, gold & silver, real estate, and how to earn

“Holding a bag full of money is not enough, one needs to invest it appropriately so that it can work for you,” said investment advisor Dilip Samant

enough money for the future. “Make your money work for you. Just stacking up money is not good; investing it in appropriate instruments is the wise thing,” he said. Mr Samant said, historically, the returns on fixed deposits are negative due to high inflation—the real interest on fixed deposits erodes. He explored various options in gold investments like gold exchange-traded funds, gold saving funds and e-gold/silver. Mr Samant said that one should avoid buying jewellery as an investment, because during redemption, jewellers usually deduct a certain percentage from the value. He also explained the pros and cons of real-estate investments. Mr Samant explained the difference between investing in newly-built property compared to buying a piece of real-estate under construction. He discussed various investment platforms such as banks, cooperative societies and even bhishis (chit-fund schemes). He also advised investors not to get lured by money-multiplier or multi-level marketing schemes (MLMs). Mr Samant said, “Any scheme promising huge returns and not regulated by any authority like the Reserve Bank of India or the Securities and Exchange Board of India should be avoided.” On MLMs, Yogesh Sapkale, deputy editor of Moneylife, warned against investing in money-chain schemes. “Savings accounts give about 4% interest, fixed deposits close to 9% and Employees’ Provident Fund Scheme about 10%. So any scheme that promises returns of more than 10% and promises to pay additional money if one gets two or more people to invest, should be scrutinised very strictly and most of the time avoided altogether,” Mr Sapkale said.

51 | 28 July 2011 | MONEYLIFE

Event.indd 2

7/7/2011 6:07:18 PM

PERSONAL BUSINESS AUTO

RENEWABLE ENERGY

In a Slow Lane Globally, prototypes of vehicles running on electricity and solar power are out. But our policymakers seem oblivious, says Veeresh Malik

am writing this article looking out of the window from inside a railway train—which is taking me from New Delhi to Bengaluru—a distance of about 2,400km which it will cover in just 36 hours. This journey almost across the length of India will cost me the princely sum of approximately Rs550. The weather is just brilliant outside, monsoon clouds hovering all over and there is coolness everywhere. Inside the bogey, the ‘ordinary’ 3-tier sleeper coach has cushioned comfort. It has been disinfected to a point where there are no insects, and the cabin is spotlessly clean. The toilets actually function and they are regularly sanitised every few hours, and the train is not chugging along. An average journey speed of over 65kmph means that this mode of transport is often belting along at around 110kmph. This journey from New Delhi to Bengaluru will cost me almost the same as the 70km-round trip—in terms of fuel burnt—which will ferry me from the railway station to my residence. This round trip will burn up around 10km/litre, achieved in an air-conditioned Maruti Suzuki Alto that appears to be permanently below the third gear on the congested roads of our capital. And this mileage is achieved only when my vehicle is not stopped at traffic jams, red-lights, toll booths and what have you. Again, that is when you forget your toilets (or the lack of them), the bumper-to-bumper traffic, dusty roads and the polluted air—all these are enough to

make one feel sick and exhausted, as well. As fuel prices have gone up—again—it is easy for the authorities to throw up their hands, and pass on the burden of fuel conservation to the public, and also to expect people who drive automobiles or are driven in them, to keep absorbing price increases. But what are ``

NITROGEN AIR TYRES

Hot Air Don’t go in for fancy ‘nitrogen’ air for your tyres. The normal version will do

aveat emptor (buyer beware) cannot be emphasised enough in the Indian context. A new scam is launched on the poor suffering Indian customer everyday. At a close relative’s house, I observed that her car was running extremely soft, due to low air pressure in the vehicle’s tyres. When I asked her if I could go across and have the air filled, she told me that during the car’s last service, the dealer had charged her about Rs900 more for ‘special nitrogen air’ in the tyres, and told her not to refill “ordinary air”, but come back to them for the ‘special nitrogen’. First of all, manufacturers need to get a grip on this, and tell their dealers not to place all this garbage ``

MONEYLIFE | 28 July 2011 | 52

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PERSONAL BUSINESS AUTO

` the authorities doing about these matters concerning

fuel policy—and more importantly, where can we step in to demand that they do so? Delhi has been blessed with a sociologically-brilliant Metro Railway; Hyderabad seems to be getting there; Bengaluru is all dug up for public transport. But take the rest of the country—try getting in or out of a local Mumbai train, peak-hour or non-peak hour—your everyday commute is nothing short of a full-blown war. Many citizens are stuck with personal transport, the type that will burn litres of fuel, with costs steadily going up. In fact, our oil companies need to be at the forefront of the alternate energy revolution which is currently sweeping other parts of the world. It is not enough setting sales targets for higher and higher fuel sales at retail outlets. What we need is to see new products in alternate energy options from filling stations.

A UTO PRICE C U TS

Ticket to Ride Why were these vehicles priced higher earlier?

aruti Suzuki made an announcement that sales growth this year would be scaled down from the anticipated 10%-12% to around 8%. Senior board

` in their customer’s

minds. Next, readers need to know that unless they have specialised highspeed and longdistance usages, ordinary air is good enough. And finally, more damage can be done by driving Ordinary air is good enough for this wheel on soft tyres than can be imagined, especially on new generation cars, to engines as well as the transmission mechanism. With summer giving way to colder weather in some parts of the country, when it is time to repressurise air in your tyres, never mind what garbage the dealers say about ‘special nitrogen’.

members are on record saying that in their personal estimations, growth will be as low as 5%. Off the record, some automobile manufacturers are predicting negative growth rates, especially in certain unpopular models. The silver lining here is that exports of fuel-efficient vehicles are jumping ahead by leaps and bounds. One quiet success story in exports from India has to do with Nissan, which is also picking up cars made by other manufacturers, sticking its own labels on these vehicles, and exporting them, in addition to its own product, the Micra. By contrast, other manufacturers, who tried to protect their non-Indian markets from Indian-made products, are taking a bit of a big bath. Toyota immediately comes to mind. It is a manufacturer which has extremely low sales in India, and close to nil export possibilities, mainly because of an India strategy—that simply consists of ‘import’ and ‘assemble’. A bit late in the day in India with the Etios, and now the Brio, both of which are not really justifying the global volumes that Toyota controls elsewhere. In this context, the heavy price cut announced by Honda for its City, has downstream implications for all other fuel-efficient automobiles. Once known as the standard bearer as far as efficient and clean engines were concerned, Honda in India has been having a bit of a tough time against competition thrown up by other manufacturers providing equally reliable and fuelefficient cars. But the bigger question here is this—were the previous high ‘premium’ prices one paid for a Honda City a case of gouging, then? And how does this give solace to existing customers, who bought Honda City cars for the supposed high resale value, now gone adrift due to the heavy price cuts? On one side, inflation and increase in costs brings up the bill of material higher—on the other side, competition forces a price cut. But either way, Honda in India continues making a profit. This, if nothing else, would be a fit test case for the Competition Commission of India. With a demand that this price cut be passed on also to existing customers who have bought the same car at higher prices. Veeresh Malik started and sold a couple of companies, is now back to his first love—writing. He is also involved actively in helping small and midsize family-run businesses re-invent themselves.

53 | 28 July 2011 | MONEYLIFE

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BOOKS

T H E L I T T L E BOOK OF ALT E RNAT IVE INVE S TMENTS

Beyond Stocks and Bonds Hedge funds for the masses and other ways to diversify ou only need to invest regularly in well-chosen bank and corporate fixed deposits and a few equity funds and mix them intelligently (60:40 is supposed to be the optimum choice) to create longterm wealth with ease. But anyone who has gone past the mandatory bond fund, equity funds and stockpicking and either has money or curiosity, or both, is a prey to exotic financial products with a fancy name— ‘alternative’ investments. These encompass commodities, precious metals, art and also smart trading and investing strategies other than buying and holding for the long term. Wealth managers in foreign banks constantly talk about it, high net-worth investors are drawn to it—to their regret later on—and the great unwashed retail investors can only press their noses against the glass for a peek into the alternative world, thanks to occasional, but ill-informed articles in business papers. But, unknown to you, some smart people have been trying to break that glass. They want to bring products other than simple stocks, bonds and real estate, to the masses. They have scanned thousands of hedge funds and have tried to offer the most successful strategies in

a benign mutual fund format. Genuine alternative investing, not the currently popular flaky ideas, may well be on its way to becoming the mainstream, hope the authors of this new book in the Little Book series, written in a breezy and highly entertaining THE LITTLE BOOK OF ALTERNATIVE way. The authors start the book INVESTMENTS BEN STEIN & with why we need to look at PHIL DEMUTH alternative investments. As they Wiley write: “The financial services Pages 257; $19.95 industry has been flat-footed in its response to the financial crisis of 2008. Their business model is to sell stocks when the market is good and then hide under the desk when they come tumbling down. Then, repeat.” This has not worked for more than a decade now. Returns have been poor and two big crashes—in 2000 and 2008—have destroyed a lot of wealth. To avoid this, investments will have to be made in assets that don’t go up and down ``

S T U MB L I NG ON HAP PINES S

we feel happy, how our brain decides when we should feel happy and the situations it conjures when we should feel so and how we judge the state of other people’s happiness based on our own perception. Confident as we are about our feelings, we often fail to imagine how others can be happy in dire circumstances and, conversely, why we are not happy when we imagined we ought to be. So, this book is a blow to our perceptions about ourselves. There are more people who may not actually be happy when they should be, and more who are happier even when they are stuck with a predicament we imagine to be tragic—like turning into a quadriplegic or waiting our turn on Death Row. Stumbling on Happiness by a Harvard psychologist with a sense of humour has a lucid structure, hilarious anecdotes and surprise findings. But underneath all that, the book makes the reader think: Are we really happy? Or rather, will we be happy like we are imagining now? As Gilbert points out, our brain can only imagine how we will feel now about a future situation and decides ``

Imagining Happiness The tricks your mind plays about being happy or unhappy

ow would you carry on with your life a year after you lose your child? There is only one answer to this question: ‘I’ll be devastated’. But Daniel Gilbert says that years later you will have your usual morning coffee with a buttered toast with the same routine boredom and here-goes-another-day voice in your head as you did today. Only, you are not able to imagine it now when I have asked you that awful question and you are feeling an urge to smash my face for putting that image in your head. Stumbling on Happiness is a treatise of human imagination and the way it works to project and interpret happiness. Author Daniel Gilbert explains why

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BOOKS

` together. We need uncorrelated investments.

What are these? “Some very smart people have been quietly at work trying to intelligently design a better investment mousetrap… to systematically diversify risk and to expose people to sources of risk and return beyond those of stocks and bonds.” This takes us to these new ‘alternative’ investments.

Although most of us don’t have access to real hedge funds, “lite” versions of their basic strategies are now being packaged inside mutual funds. This represents a giant step forward in the history of investing. Or maybe it’s all hype. We shall see The authors start with the ‘faux alternatives’, like collectibles and private equity; then they talk about the conventional alternatives: commodities and real estate. Then they discuss hedge-fund strategies—the core of this book. Finally, they suggest how you can put together a portfolio that combines your traditional investments with some new alternatives, adding growth potential and minimising risk. The authors have drawn upon research that has asked questions such as: What is the secret

` how happy (or not) we are likely

STUMBLING ON HAPPINESS DANIEL GILBERT Harper Press Pages 277; £14.99

to be when we reach that place. And this is where it falters, feeling disappointed when that future is actually realised. Which is why we are better off asking someone else. These people, who are now living the life that we will be experiencing in the future, are far more trustworthy than our brains. Gilbert makes things interesting by including simple tests and exercises in his book which break the monotony of the text and an extremely narrow premise. The flow is smooth, the tone conversational and friendly, and there are enough surprises to keep the reader going. But, as

X–factor behind alternative returns? How does it make money? Is it reliable? Will the returns persist? How risky is the strategy? How expensive is it? Does it add value when parked alongside more conventional investments? How much should we use and what kind of results can we expect when we do? The new products are complicated and cost more to administer; but the authors believe that these would help people build wealth over time, because they don’t put investors on a roller-coaster. Some of these, based on successful hedge fund strategies, are the Merger Fund or the Arbitrage Fund (Event-driven strategy); PowerShares DB G10 Currency Harvest Fund (Global Macro strategy); Elements S&P CTI ETN (Managed Futures strategy) and so on. As the authors hope, the recommended products “won’t make anybody’s year-end list of 10 hot stocks that are set to pop. They don’t grab headlines. However, if they work in the field the way they do on the whiteboard, better-engineered products will gradually become the core of most smart investors’ portfolios, exactly as index funds have replaced active stock picking (and with the financial services industry dragging its feet the whole way).” Among the hundreds of investment books we have reviewed, this one is truly unique. It is the first one that fundamentally expands your investment choices in the pursuit of the holy grail of investing—higher returns at a lower overall portfolio risk. — Debashis Basu

Gilbert himself says, ‘hammering’ the fact that our imagination will fail to tell us whether we will be happy or not is somewhat a tiresome thing to endure. That is why it is easy to skip pages without feeling guilty. Added to that is the lack of a solution to this ‘problem’ of happiness. But this is not really Gilbert’s fault, since happiness, memory and emotions are fleeting, uncountable things and we cannot say for sure how to handle the issues we have with them. After seeing our imagination fail repeatedly, an exasperated reader may come to the nihilistic conclusion of not having any expectations from any situations and not plan anything beforehand. This is something human beings are incapable of doing. Asking other people how they are feeling to know how we will be feeling is again something not quite feasible. Finally, it comes back full circle, concluding that we may never know how happy we will be unless we stumble upon it. Stumbling on Happiness is the perfect read for a lazy monsoon evening when you are in the mood for enjoyable contemplation. — Shukti Sarma

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Learn the basics of saving and investing

Earning Curve

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

Inactive Investor Patience is a key virtue in stock investing

f value investing—buying wellperforming companies when they are cheap—is the way to pick stocks smartly, what is the crucial ingredient of value investing? It’s patience. It’s not often that stocks are cheap—they must become expensive sometimes for you to exit and cash in! They become cheap sometimes, thanks to market mood; one must patiently wait for that opportunity. Benjamin Graham, the US economist and value investor wrote, “Undervaluation caused by neglect or prejudice may persist for an inconveniently long time, and the same applies to inflated prices caused by over-enthusiasm or artificial stimulants.” However, most investors seem unable to wait. As John Maynard Keynes, the most influential economist of the 20th century (and a smart investor himself) noted, “Compared with their predecessors, modern investors concentrate too much on annual, quarterly, or even monthly valuations of what they hold, and on capital appreciation... and too little on immediate yield... and intrinsic worth.” If we replace ‘quarterly’ and ‘monthly’ with ‘daily’ and ‘minute-by-minute’, then

we have today’s world. Investors are the same everywhere and in all periods— impatient with buying and selling. According to the Indian Household Investors Survey–2004, conducted by the Society for Capital Market Research & Development, 18% of the sample households sold their shares within a few days or a month; 36% held on to their shares

for more than 30 days and less than one year. It looks like the average investor is concerned with the next couple of earnings reports, despite the fact that equities work best only over the very long term. The media worsens this shortterm position of most investors; fomenting the view that it is possible and necessary to have an opinion on everything relevant to the markets with a minuteto-minute detail, opposed to the patient and highly selective approach endorsed by Benjamin Graham and David Dodd, who laid

the foundations for value investing. In the short run, there is no way to predict what the market will do. If you are impatient with that lack of knowledge, you will suffer losses. An investor may be tempted to be a ‘man of action’, but it makes sense if such actions are taken only at extremes. Discipline is required to ‘do nothing’ for long periods. Being a patient investor is one of the seven immutable laws of investing of James Montier, a member of GMO’s asset allocation team. Montier has written: “If I was clairvoyant, I would be fully invested until the day before a crash and never buy until the bottom. Since I don’t possess a crystal ball, I can see no alternative but to continue to act in a patient, cautious fashion. This means positions need to be built slowly over time.” Buying value stocks generates long-run returns, but tells us nothing about short-term prospects. In the short term, cheap stocks may get cheaper; expensive stocks may get more expensive. Montier says a value investor must be patient, especially when bargains are scarce; compromising standards is a slippery slope to disaster. New opportunities will emerge, even if we don’t know when or where. In the absence of a compelling opportunity, holding at least a portion of one’s portfolio in cash awaiting future deployment may be the most sensible option. Being patient does not mean being immune from the market. When a scrip experiences steep depreciation and is mistaken to be a value stock, patience can cause disaster. Review holdings on a timely basis, especially when a position seems to have gone ‘bad’. If nothing fundamental has changed and it is just a case of price volatility the holding should be maintained patiently.

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India International Taxation Summit 2011 4th – 5th August 2011, New Delhi , India An Overview of the Future! International Taxation is high up on the agenda for domestic and multinational companies operating in India. 2011 will see a wide- scale period of change for the Indian tax market forcing tax directors to completely reconsider strategies and identify the best methods for integrating into the new systems while deriving the most tax benefits. At the same time, tax regulators want to make sure that everyone is complying with the new rules and that they are getting their fair share of tax revenue. This means that the risk of disputes and assessments have become a critical sector for taxpayer’s. India International Taxation Summit 2011 will exclusively bring together top- level tax experts and officers to discuss the current trends and future outlook of finance and tax laws in India that impact taxpayer’s practices. The program will address key practical issues faced by tax practitioners, and corporate tax executives, with private sector and government panelists discussing the new Direct Tax Code 2012, transfer pricing issues and permanent establishment, dispute resolution, managing international tax issues in the corporate taxpayer setting, ethical issues in international tax practice, and the latest inbound, outbound, and treaty current developments. Testimonials A high- level symposium; was very honoured to attend this event, thanks! - IBA Provided us with a platform to share different ideas and opinions with peers, external consultants/ lawyers and government officials - Robarts Interiors & Architecture The event was a great platform as I was able to communicate with Taxation Officials from the National Tax Administration face to face - PHILIPS Unique mix of government, MNC and advisors, also very good topics - Baker & McKenzie Valuable tax forum, very beneficial, communicated with tax- related personnel face to face and properly solved some tax uncertainties - DOOSAN Exclusive Opportunities Available! At the India International Taxation Summit you will meet face- to- face with key buyers actively seeking technological solutions for their existing and future projects. • Meet pre- qualified industry leaders • Increase your brand recognition within the Chinese marketplace • Create new partnerships and alliances • Develop relationships through new networking opportunities • Showcase new technologies and applications to a targeted audience of decision makers Media

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SPENDING TRAVEL

SEOUL

TRADITIONS & MEGACITY The capital of South Korea is a perfect example of the harmony between the past and the future, finds Jaideep Mukerji

THE GYEONGBOKGUNG PALACE THE ‘PALACE OF SHINING HAPPINESS’ WAS FIRST BUILT IN 1394 AND RECONSTRUCTED IN 1867

eoul, the capital as well as the largest city of South Korea, is a true megacity. Connected by a direct seven-hour long flight from Mumbai, the Seoul National Capital Area is the world’s second-largest metropolitan area with over 25 million inhabitants; almost half of South Korea’s population lives here, making it the country’s foremost economic, political and cultural hub. The area has been settled for over 2,000 years and the founding of Seoul itself dates back to 18 BC when one of the Three Kingdoms of Korea, established its capital in what is now south-east Seoul. The city continued as the capital of Korea during the Koryeo and Joseon Dynasties from 918 AD onwards right until 1910 when Japan annexed the country. Harsh Japanese colonial occupation lasted for 35 years and many Korean cultural treasures were destroyed or damaged during this period. Today, Seoul is considered a leading global city, one of the world’s top 10 financial & commercial centres, home to major multinationals such as Samsung, LG and Hyundai as well as home to four historic UNESCO (United Nations Educational, Scientific and Cultural

Organization) World Heritage Sites. International flights arrive at Incheon, a satellite city located about 30km west of Seoul. Fast express trains, airport bus & taxi services are available for the ride to your city hotel. The greatest advantage of the express train (cost 3,700 Korean won or about $3.50) to the Seoul central train station is that travellers can avoid the daily morning and evening traffic jams. A comfortable way to unwind after your flight and ease into life in Seoul is with a walk along the restored Cheonggyecheon River in the heart of Seoul. During the 1970s, it was considered a symbol of progress to pave the river and build a road and elevated highway above it. By 2000, the Cheonggye area was considered a congested and noisy part of Seoul, urgently in need of revitalisation, and people agreed that nothing could be done to improve the area as long as the highway remained. In 2001, a newly elected mayor of Seoul made a campaign promise to remove the freeway and restore the Cheonggyecheon River. He developed a dramatic plan to remove Seoul’s main highway and accommodate the displaced traffic by building an efficient Rapid Bus Transit system. ``

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SPENDING TRAVEL

Now, the restored stream has become a haven of natural beauty amidst the bustle of city life. The Narae Bridge, expressing a butterfly in flight, the Gwanggyo Bridge, symbolising the harmony of the past and future, are just two of the more than 20 beautiful bridges along the path of the stream. The ‘Rhythmic Wall Stream’, lined with fine marble, various sculptures and wall murals adorn the riverbank and can be appreciated as you take a leisurely stroll along the stream. Before taking a guided tour of the historic monuments in Seoul, I decided to spend a day exploring the markets to get a feel of the range of products and prices. There is no better place to start than spending a

mainly used to sell vegetables, fruits & groceries—but now deals in fabrics, utensils, electronics, local produce, traditional crafts, imported goods and much more. It distributes more than 90% of the children’s clothing sold in South Korea. Over 5,400 small stores sell goods either directly or by wholesale at hugely discounted prices. More than half-a-million visitors stop daily by the market and browse through the shops and stalls that speak of a bygone era. The market teems with life, filled with buyers from Korea and other countries (mainly Southeast Asia, Europe and the United States) who jostle to strike bargains. There are no language barriers here, as owners have a long history of interacting with

THE KORYEO DYNASTY PALACE A REMINDER OF THE KORYEO AND JOSEON DYNASTIES WHICH RULED KOREA FROM 918 AD TILL THE 1910 JAPANESE INVASION

KOREAN FOOD IT DOES MUCH MORE THAN TICKLE YOUR PALATE

international visitors. Even couple of hours walking down though it can be crowded and pedestrian-friendly Insa-dong SEOUL IN ITS NIGHTLY SPLENDOUR THIS IS A CITY THAT IS ALIVE THROUGH THE NIGHT hectic, a visit to Namdaemun Street which represents the focal Market is a must if you want point of Korean traditional to experience a traditional Korean market and buy a culture and crafts. Shops in Insa-dong specialise in a variety of goods at bargain prices. wide variety of goods that can only be purchased in Itaewon is another unique place in Seoul where one Korea. Stretching along 700 metres, Insa-dong is a can meet people of diverse nationalities and cultures. centre for the arts; painters, craftsmen and art-lovers It is a 1.4km-long street full of shops, restaurants and set up shop along the narrow alleys making it a unique stalls that specialise in imported clothes, leather goods, place full of paintings, hanbok (traditional clothing), fur goods, handbags, shoes and antique furniture. hanji (traditional paper), traditional tea, pottery and Another one of Itaewon’s many attractions is its food folk crafts. culture which features cuisine from around the world, A number of art events and festivals are regularly with restaurants from Korea, Britain, India, Thailand, held along Insa-dong Street. Also located in the heart China, Greece, Italy, France, Mexico, Australia... and of the city, within easy walking distance of most city more. Exotic and unique flavours, interiors and diverse centre hotels, is the Namdaemun Market in the area between Seoul Station and Myeong-dong. As the largest nationalities help to make Itaewon the global village of Seoul. Korean cuisine is largely based on rice, noodles, traditional market in Korea, Namdaemun Market

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SEOUL’S HEART THE WORLD’S SECOND- LARGEST METROPOLITAN AREA; HALF OF SOUTH KOREA (25 MILLION CITIZENS) LIVES HERE

SPENDING TRAVEL

` tofu (called dubu in Korea), vegetables

and meats. Traditional Korean meals are noted for the number of side dishes called banchan served in small bowls that accompany steam-cooked shortgrain rice. Kimchi, cabbage spiced with red chilli peppers, is usually served at every meal. Seoul has very clearly-defined seasons with cold winters and hot, humid summers. Travelling from March to mid-June provides the chance of seeing spring blossoms and visiting in September until midNovember offers the possibility of seeing the brilliant autumn foliage in the mountain resorts east of Seoul. The following morning, I started my tour of historic Seoul with a visit to the Gyeongbokgung or Gyeongbok Palace which translates into English as “Palace of Shining Happiness”. First built in 1394 and reconstructed in 1867, it was the main and largest palace of the Five Grand Royal Palaces built by the Joseon Dynasty. Nearly destroyed by the Japanese government in the early 20th century, the palace complex is slowly being restored to its original form prior to the destruction. During the rule of King Daewongun in 1867, many buildings were rebuilt and the Palace formed a massive complex of 330 buildings with almost 5,800 rooms. Gyeongbok Palace was a symbol of both the majesty of the Korean nation as well as the seat of the Korean royal family. From 1911 onwards, the Japanese government, during their occupation of Korea, systematically demolished all but 10 buildings in order to eradicate the symbols and heritage of the Korean Joseon Dynasty. In

1989, the Korean government started an initiative to rebuild the structures that were destroyed—and by 2010, it is estimated that approximately half of the structures that were standing before the Japanese occupation of Korea were restored. Now the palace is open to the public and houses the National Folk Museum of Korea and the National Palace Museum of Korea. In the southern part of the city in the Gangnam district—one of the most affluent areas of Seoul—is the Bongeunsa, one of Korea’s 14 major Buddhist temples, located across the street from the enormous Coex Mall. Buddhism in Korea was severely repressed during the Joseon Dynasty when Confucianism was in favour by the rulers. Queen Munjeong revived Buddhism in Korea for a time in the mid 16th century and made Bongeunsa the main temple of the Korean Zen sect of Buddhism. A fire in 1939 destroyed many of the buildings while other parts of the temple were damaged during the Korean War. The temple has undergone extensive repairs and is now again a large, large thriving complex and also a major tourist ma destination offering an offe attractive ‘Temple Stay ‘Tem Programme’ in which visitors can lead tthe life of a Buddhist monk for a few fe hours. Thirty kilometres to the south of Seoul, in the th busy city of Suwon, is the impressive im Hwaseong Fortress and Suwon Castle, a UNESCO World Heritage Site and recognised re by experts as the best be preIndustrial Revolution Revolutio structure of its kind. Built in 1794 during 1 Jeongjo, the the reign of King Jeo constructed with fortress was construc technology the most advanced te of the day using the very first Korean crane. — With Veeresh Malik

ESSENTIAL IAL L FACTS Why Go There: With ancient Asian lth cultural traditions, a wealth of historic sites, a pleasant climate and world-class shopping at bargain prices, Korea offers an attractive destination and an alternative to Hong Kong and Singapore. Direct flights from India and relatively short distances within Korea make it easy to travel using the efficient train and bus system. Getting There: Korean Airlines offers direct flights from Mumbai. Carriers like Singapore Airlines, Malaysia Airlines, Thai Airways International and Cathay Pacific Airways all offer flights to Seoul using their hub cities. Where To Stay: Although you may be able to book Seoul hotels online, it is strongly recommended that you go through a reputable Korean tour operator who will be able to provide you with guides, transportation and hotel bookings in a country where it is useful to have some support during your first visit. The Korean Tourism website offers a wealth of information for visitors: www.visitkorea.or.kr. Visas: Tourist visas are easily available from the South Korean Embassy in New Delhi.

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MONEY FACTS STOCKS

INDIAN MARKET TRENDS

FUND FLOWS

The Sensex and the Nifty jumped 5% in the fortnight. The ML Mid-cap Index surged 7%, the ML Large-cap Index and ML Small-cap Index both climbed 6% each and the ML Mega-cap Index gained 5%, while the ML Micro-cap Index rose 4%.

Foreigners: Foreign institutional investors were net buyers of stocks (Rs9,604.50 crore) in the fortnight. They invested Rs29,211.80 crore.

Share Prices, January 2011=100

2,700

FII Net Investments (Rs Crore)

2,200

110

1,700 105 1,200 100

700

200 27 Jun-11

7 Jul-11

Indians: Domestic institutional investors were net sellers of equities (Rs4,319.79 crore). They sold stocks worth Rs14,148.20 crore in the fortnight.

80 Dec-10

Mar-11

ML Mid-cap ML Large-cap

ML Small-cap ML Mega-cap

Index

Jun-11

Nifty Sensex

-50 -220

ML Micro-cap

-390

24 Jun

7 Jul

+/(-)

89.97

96.53

MLLarge-capIndex

100.43

106.71

MLS mall-capIndex

85.14

89.83

MLMega-capIndex

95.38

99.98

5,471.25

5,728.95

GLOBAL MARKET TRENDS

18,240.68

19,078.30

2,900

81.76

84.91

MLMi d-capIndex

Nifty Sensex MLMi cro-capIndex Mega-cap Gainers/Losers

24 Jun

7 Jul

Change

UnitedS pirits

942.60

1,107.80

18%

Sun TVN etwork

364.75

324.30

- 11%

24 Jun

7 Jul

Change

167.25

214.25

28%

34.10

33.40

- 2%

24 Jun

7 Jul

Change

PrimeFocus

52.10

67.75

30%

Sanwaria AgroOi ls

38.85

29.15

- 25%

-560 -730 -900

27 Jun-11

DII Net Investments (Rs Crore)

7 Jul-11

Nasdaq Composite

2,840 2,780 2,720

Large-cap Gainers/Losers JubilantLi feS ciences EdelweissC apital Mid-cap Gainers/Losers

Small-cap Gainers/Losers

24 Jun

7 Jul

Change

VardhmanP olytex

78.45

97.70

25%

MudraLi festyle

55.00

44.65

- 19%

24 Jun

7 Jul

Change

Micro-cap Gainers/Losers MountS hivalikI nds

25.75

34.20

33%

7.95

6.76

- 15%

2,660 2,600 Jan-11

(AllP ricesi nR s)

Jul-11

All global indices ended up in positive territory. The Nasdaq Composite jumped 8%, the Dow climbed 7%, the FTSE gained 7% and the Nikkei rose 4%. Index

24 Jun

7 Jul

+/(-)

Nasdaq Composite

2,653

2,873

Dow Jones Ind Avg

11,935

12,719

FTSE

5,698

6,055

Korean Composite

2,091

2,181

Nikkei

9,679

10,071

Taiwan Weighted

8,533

8,773

61,017

62,207

2,746

2,794

22,172

22,530

Bovespa ZenithB irla

Apr-11

Shanghai Composite Hang Seng

63 | 28 July 2011 | MONEYLIFE

Money Fact.indd 2

7/9/2011 4:15:01 PM

MONEY FACTS STOCKS

What’s H

ML SECTORAL TRENDS

Stocks of chemical companies were in demand. Jubilant Life Sciences soared 28%, Asahi Songwon Colors jumped 24%, Gujarat Alkalies and Chemicals climbed 15% and Balaji Amines advanced 12%. 24 Jun

7 Jul

+/-

ML Chemical Index

Companies JubilantLi feS ciences

167.25

214.25

28%

1,075

AsahiS ongwonC ol

94.70

1 17.65

24%

GujFl uorochemicals

345.40

417.05

21%

IndiaGl ycols

1 13.70

133.50

17%

Guj Alkalies & Chem

131.95

151.65

15%

1,030 985

BASFIndi a

940 895 850 Jan-11

Apr-11

Jul-11

588.00

HimadriC hemicals

38.60

Balaji Amines Punjab Alkalies PhillipsC arbonB lack

663.50 43.50

13%

37.50

41.90

12%

22.55

24.95

11%

131.20

143.65

Shares of media companies were sold during the fortnight. Sun TV Network plunged 11%, Network 18 Media fell 6%, Zee Entertainment Enterprises fell by 3%, Den Networks shed 2% and DB Corp ended 1% lower. 24Jun

7Jul

Sun TVN etwork

364.75

324.30

-1 1%

Network18Medi a

135.25

127.70

-6%

ZeeE ntertainment

136.90

132.55

-3%

79.70

77.75

-2%

+/-

ML Media Index 360 340

IBN18B roadcast DenN etworks

88.45

87.00

-2%

DBC orp

235.00

231.85

-1%

Sandesh

275.00

276.95

JagranP rakashan

120.75

121.75

HTMedi a

160.80

165.00

ZeeN ews

1 1.55

1 1.90

320 300 280 260 Jan-11

Apr-11

Jul-11

AllP ricesi nR s

BULK DEALS Date

Company

Buyer

Retail

15% Printing& P ubl

- 3%

Odds

14% Media

- 2%

Chemicals

12% Refineries

Sugar

11% Cement

RealE state

9% Oil & Gas

INSIDER TRADES

N T

Companies

ML Sectoral Trends

13%

AllP ricesi nR s

What’s

Stocks of retail companies surged 15%, chemical stocks climbed 12% and shares of sugar companies were up 11%. On the other hand, stocks of printing & publishing companies declined 3%, media stocks fell by 2% and refineries were up 1%.

Seller

Rs Cr

07Jan-1 1

Mukand

Sharanya TradingP vt

Pace Stock Broking Serv Pvt

14.33

30Jun-1 1

RaneE ngine

ENAMS hares& S ecP vt

TRW Automotive JV LLC

5.92

08Jul -1 1

CableC orp

ClarevilleC apIndi aMasterFu nd

Swiss Finance Corp Mauritius

5.51

29Jun-1 1

JostsE ngr

AkshayR ajanR aheja

Varahagiri Invts & Fin Pvt

1.61

07Jul -1 1

NandanE xim

ChiripalIndu stries

Brijmohan Devkinandan

0.84

08Jul -1 1

LordsC hloro

AshokK umar

Alok Dhir

0.66

29Jun-1 1

NeoC orp

VPP atel

Planet Invts & Fin Pvt

0.49

Ram Devidayal, director of Banco Products, has bought 25,433 shares in the company (stake up to 0.76%). Maxopp Investments has bought 50,00,000 shares in Max India (stake up to 7.35%). B Malla Reddy, managing director of Astra Microwave Products, has bought 25,000 shares in the company (stake up to 4.13%). Malini Kashyap, vice president (finance) of BL Kashyap & Sons, has bought 19,940 shares in the company (stake up to 0.01%). Lanco Group has bought 1,32,61,586 shares in Lanco Infratech (stake up to 13.80%). XPS Cargo Services has bought 20,000 shares in Transport Corporation of India (stake up to 1.34%). Vineet Agarwal, executive director of Transport Corporation of India, has bought 10,000 shares in the company (stake up to 2.55%). Rhodes Diversified sold 15,00,000 shares of GTL (stake down to 2.1%). Shailendra Mohan Gupta, director of Jagran Prakashan, sold his entire stake of 1,81,46,355 shares in the company. Sudhir Trehan, managing director and CEO of Crompton Greaves, sold his entire stake of 1,80,320 shares in the company.

MONEYLIFE | 28 July 2011 | 64

Money Fact.indd 3

7/9/2011 4:15:11 PM

MONEY FACTS COMMODITIES

INDEX TRENDS

COMMODITY TRENDS

MCX Commodity Indices

Cotton

Particulars

24Jun

8Jul

Change

52- Week High

52- Week Low

Agri

2,566.59

2,709.78

2,989.16

2,170.21

Energy

2,922.97

3,031.91

3,585.96

2,434.89

Comdex

3,315.57

3,434.25

3,739.05

2,653.57

Metal

4,414.22

4,542.24

4,926.75

3,223.54

COMMODITY FOCUS MCX Gold Futures (Rs/10gm) 23,500 22,800

otton planting in Gujarat—the leading producer of cotton in India—is down by half so far this year due to a paucity of rains. Cotton sowing starts in June and continues till the end of July. According to the state agriculture department, cotton has been sown in 576,000 hectares of area so far in Gujarat, compared to 1.74 million hectares during the corresponding period last year. The industry is hoping that the late monsoon, which is expected to hit the western state soon, might cover up this loss.

22,100 21,400

Coffee

20,700 20,000 Jan-11

Apr-11

Jul-11

Snapping its four-day rising streak, gold prices slipped by Rs45 to Rs22,385 per 10 grams on 8th July on reduced offtake by stockists at existing high levels, amid a weakening global trend. Gold in global markets, which normally sets the price trend on the domestic front, declined by 0.3% to $1,527.15/ounce. On the domestic front, gold of 99.9% and 99.5% purity slipped by Rs45 each to Rs22,385 and Rs22,265 per 10 grams, respectively. Gold had gained Rs610 in the last four trading sessions.

MCX PRICE TRENDS Particulars

Active Contract

21Jun2011

5J ul2011

Change %

High

Low

Global Commodities SilverR s/kg

Jul-1 1

54,433

50,706

- 6.85

74,560

31,500

CrudeOi lR s/barrel

Jul- 11

4,221

4,332

2.63

5,225

4,062

GoldR s/10gm

Aug- 11

22,659

21,968

- 3.05

23,148

20,181

CopperR s/kg

Aug- 11

409.20

428.05

4.61

461.10

391.60

LeadR s/kg

Jul-1 1

110.80

119.85

8.17

120.10

100.30

NickelR s/kg

Jul-1 1

991.90

1,044.40

5.29

1,237.50

974

ZincR s/kg

Jul- 11

99.40

106.75

7.39

107

94.25

NaturalGasR s/mmBtu

Jul- 11

200.20

195.50

- 2.35

225.80

189.60

Others CPOR s/10kg

Jul-1 1

494.90

474.60

- 4.10

538.50

469.30

MenthaOi lR s/kg

Jul- 11

874.30

1,018.40

16.48

1,018.40

814.40

SugarMK olR s/100Kg

Jul- 11

2,534

2,712

7.02

2,891

2,458

CardamomR s/kg

Jul- 11

871.50

817.20

- 6.23

1,149.90

763.20

Potato Agra Rs/100kg

Jul-1 1

492

500.30

1.69

565.00

463

ccording to the International Coffee Organization, global coffee exports in May rose by 16% to 9.2 million bags of 60kg each due to increased demand. International exports of the brew in the year-ago period stood at 7.94 million bags. World shipments in the first eight months of the coffee year (October 2010-May 2011) increased by almost 17% to 71.94 million bags, compared to 61.62 million bags in the same period of the previous year.

Sugar

he Indian Sugar Mills Association has said that sugar prices in retail markets are unlikely to surge due to an additional export of 0.5MT of the sweetener. In June, the government allowed export of 0.5MT of additional sugar under the open general licence in view of higher domestic production this year. It had earlier permitted 500,000 tonnes of shipment in April. Export of additional quantity of sugar has ensured that ex-mill prices do not fall further. Mills were losing Rs3/kg in comparison to the cost of production because of the wide gap between the ex-mill and retail prices of sugar. 65 | 28 July 2011 | MONEYLIFE

Money Fact.indd 4

7/9/2011 4:15:22 PM

BEYOND MONEY

a joy FOREVER Disha Shah explores how Umang Foundation has been bringing happiness into the life of the underprivileged by helping orphanages and providing care to cancer patients

UMANG FOUNDATION 1506/7, Ruby, Nirmal Lifestyles, LBS Marg, Mulund (West) Mumbai 400 080 Tel: 91 98199 40222 www.umangfoundation.org mail@umangfoundation. org

t was 2008. Ashish Goyal, an IT professional working in an investment bank, was looking for fulfilment beyond his personal and professional life. He felt indebted to society; this resulted in the formation of Umang Foundation in July 2008. The mission to bring joy to the underprivileged began with two friends. Umang is a now a registered NGO that helps orphanages, street children, old-age homes, organising eye-care & blood donation camps and promoting eye donation, distributing clothes and helping cancer patients. It took a while to earn the trust of corporates as well as enrol volunteers. Mr Goyal says, “In the beginning, we hardly had any funds and few people attended our events. Trust was developed over a period of time with the increasing success and impact of every event of Umang.” Now Umang has a huge volunteer base, with support from the corporate sector. Umang believes that only education can help reduce poverty and uplift people’s lives. However, education should be of the best quality; many children who go to school don’t have enough basic educational material like notebooks, pencils, etc. Umang decided to fill this gap by providing the necessary stationery to children whose parents couldn’t afford to buy it for them. And the campaign ‘Promote Education— ek kadam ujwal bhavishya ki aur’ (one step towards a bright future) was born. Education kits purchased from donation amounts ranging from Rs300 onwards have been distributed to students on the outskirts of Mumbai. Umang works with other NGOs, volunteers, orphanages and government agencies that help in identifying deprived students in schools, orphanages and slums. This collaboration helps Umang to monitor the requirements and performance of the beneficiaries. In 2010, Umang distributed educational material at a few schools in

Ulhasnagar and Kalyan (in Thane district, Maharashtra). Till date, Umang has supported around 8,000 children with educational material. It has collected 7,300 bottles of blood during blood donation camps. This year (16th January), Umang made its debut at the Mumbai Marathon—donations raised were used to support education of 4,000 students from Ulhasnagar by providing them educational material. “These children manage their entire year’s study by writing down notes on all subjects in just one or two notebooks, and they stop attending school when they don’t have notebooks to write on. But now they will have a separate notebook for each subject,” says Mr Goyal. Despite the Right to Education Act becoming a reality, Mr Goyal thinks that things will take some time to change. The media and society at large will play an important role in this change. Anyone can become a part of the efforts of organisations like Umang. Mr Goyal says, “All the people working for Umang are volunteers, not employees. If you want to help society, Umang is ready to support you. Become a member; Umang will train you. If you are interested in warli (a traditional Maharashtra art form) painting or paper-bag making, Umang will allow you to pursue your activity to help society and eventually allow you to handle events of your own choice too.” He continues, “We make volunteers as comfortable as possible. We help them to explore and experience. Each idea is good—it just needs some brainstorming and action.” Umang volunteers had arranged a bus ride for 26 children who are selling books & newspapers at the traffic signal at Haji Ali, Mumbai—with their help, 10 children have been admitted to school in this academic session. Umang also provides a platform to corporates and helps them arrange activities as a part of their CSR (corporate social responsibility) initiatives. Contributions can be made via cheque or demand draft in favour of “Umang Foundation”. All donations are exempt under Section 80(G) of the Income-Tax Act.

MONEYLIFE | 28 July 2011 | 66

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