Personal Finance Magazine Moneylife 8 September 2011

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SUCHETA DALAL ON: GOVERNMENT’S ROT AT THE TOP Personal Finance Magazine

MICROFINANCE: THE CRACKS WIDEN

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CCI CRACKS THE WHIP

September 2011 8 Septe

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Rs 25

Even in a bear market, some stocks do well. Here is a selection of six such scrips

stocks for a

Bear Market STREET BEAT 35 CURRENT ACCOUNT 16 – Massive Job Creation Needed – Corporate Social Responsibility: Falling Behind – CCI on DLF: A Good Precedent – Damodaran Committee: Overlooking Problems

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– Wabco India – Tide Water Oil

COLLECTING 53 Baar baar dekho... Revisit the Yahoo Icon Shammi Kapoor

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Volume 6, Issue 14 26 August – 8 September 2011

Debashis Basu

Editor & Publisher editor@moneylife.in

Sucheta Dalal

Managing Editor suchetadalal@yahoo.com

Editorial Consultant Dr Nita Mukherjee

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

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Hyderabad

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

RNI No: MAHENG/2006/16653

Letters to the Editor

to impress the importance of the device.

After some days, I received the 200 shares which I had paid for and a fortnight thereafter another 200 shares as bonus of New World Medical (India).

Years later when thumbing through finance magazine, I read that some DOCTORED OFFERINGS aauthority who had investigated the matter, had found that the president I read with a smile, “Dubious did not have anything scheduled on Companies—Again & Again” the date quoted by the company, in Crosshairs (Moneylife, 14 that there was no meeting scheduled July 2011), your commentary for New World, either before or on companies and individuals after the date and that the company who escaped punishment in older had ‘disappeared’. schemes (scams) and ha I wonder how many continue to be involved in scams were thought dirty deals. of and started by this I had a first-hand gentleman. I feel sorry experience with one of that the name of the head them, when I started of state of our country buying shares for the could be misused in this first time without any fashion. In my opinion knowledge of the markets. the investigating authority In December 1999, I was ought to have Write to the Editor!

The only investment that Win jewellery made an extra enhances your face value. effort to trace the man who had the guts to misuse so many offices which have to protect the President of India.

Mario Dos Congratulations Mario Dos R Costa from Goa! R Costa, Goa, Your letter to the Editor wins a Surat Diamond gift. by email Keep writing! Keep winning! approached in my office by a gentleman who introduced himself as one of the directors of a manufacturing company that would launch a tool for high intra-ocular pressure; and given the scope of sales, the company wanted to let the doctors participate in the profits and were offered shares at the cost of Rs50. I purchased 200 shares.

He told me that the then president Dr Shankar Dayal Sharma would preside over a function in Delhi

PYRAMID SCHEMES I frequently read your views on Speak Asia. I must say that you are doing great work on spreading financial literacy. There is no doubt that there are thousands of companies that are engaged in pyramid schemes and there is a lot more that the government needs to do. But this has raised a more serious concern.

I think, in India, there is no

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LETTERS

` distinction between direct selling,

considered thrift to be a cherished virtue and Indians look with unease at runaway prices. What is the use of thrift when Indians are shelling out 10% more for food than they did in the corresponding period last year? Often, we rebuke ourselves for hiring an auto instead of taking a bus! Why should we bother now?

Making ends meet has become impossible even for someone with few needs. The tragic case of the Thane senior citizen is not a one-off incident. Farmers commit suicides in Vidarbha; a number of cases just go unreported. And it is not lack of confidence that forces the common man to take such an extreme step. The so-called India ‘growth story’ has managed to benefit only a privileged few. If Indians stop spending, the growth story will peter out. But the poor have been left high and dry by the current regime.

The poor are depressed by the mere thought of penury staring at them. lays down the difference and legality Even imagined financial stress can cause depression. Perceived poverty regarding direct selling and MLM may even be the cause behind versus pyramid schemes? I think suicidal thoughts. direct selling can be an excellent If you turn to economics, you’ll source of supplementing income. find that inflation fuels inflationary Aditya Trivedi, by email expectations. And that, in turn, leads to a feeling of helplessness INFLATION & and despair. Will we ever come to DEPRESSION a solution? Or keep pining for the times that have passed?

If the finance minister wants to The UPA (United Progressive know the biggest challenge facing Alliance) can ill afford to ignore the country, he should take note of these tragic events. the tragic case of a senior citizen Subrahmanian SH, by email in Thane (Maharashtra) who had retired from Voltas. He took his life in August. The note that he HAPPY TO HELP left behind blamed high prices This is with reference to Anantha and inability of the government to Ramdas’s letter, “Freedom after control inflation. With galloping inflation, he could not support his Twilight”, which we had published family. A day after this incident, a in our “Letters to the Editor” government statement said, “Food section (28 July 2011). Mr Ramdas inflation had hit a four-month high had mentioned the details of a notat 9.9% in the last week of July.” for-profit welfare trust for meeting As a nation, we have always the critical need of old people in multi-level marketing (legitimate) and pyramid schemes. As you may know, direct selling and MLM are legal in many developed and in some developing countries. Isn’t it possible to impress upon the government of India the urgent need for new legislation which clearly

Bengaluru—the SB Dharmik Samaj Senior Citizens’ Welfare Trust.

After we published Mr Ramdas’s letter, several people have evinced keen interest in the retirement home at Bengaluru. Mr Ramdas is happy to provide information and share details of the Trust.

The SB Dharmik Samaj Senior Citizens’ Welfare Trust, 1128 35-C Cross (28th Main), Jayanagar 4-T Block, Bengaluru 560 041.

Email: panchavati09@gmail.com Trustees: PV Ramakrishnan (080-22448111/26543962); SV Raman (080-26546323 & 09449819501).

Mr Ramdas can be contacted at: 09972302538; anantha_ramdas@ yahoo.com The trustees have assured prompt response to our readers’ queries and indicated that they would be happy to provide the required assistance.

One of our readers, a doctor

from Belgaum, got in touch with Mr Ramdas, and obtained all the additional information he needed.

Mr Ramdas has sent an email appreciating the efforts of Moneylife in the interest of the public. He admires the work that Moneylife and Sucheta Dalal are doing for the community. — Editor ``

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Here’s what is coming up!

HOW TO USE THE RIGHT TO INFORMATION ACT EFFECTIVELY September

3

Shailesh Gandhi, Central Information Commissioner,r, will address a seminar on the Right to Information Act ct at the Ravindra Natya Mandir, ndir, Prabhadevi, Mumbai

INVESTOR EMPOWER YOURSELF! September

10

Sucheta Dalal and Debashis Basu, Trustees of Moneylife Foundation, will address audiences in Chennai for the first time on ‘How to be Safe & Smart with Your Money’ and ‘Wills & Nominations’

These were the events Moneylife Foundation held over the past fortnight HOW TO BE SAFE & SMART WITH YOUR MONEY August

6

This financial literacy seminar was organised exclusively for the medical community in association with the Indian Medical Association

TRUTHS ABOUT MUTUAL FUNDS August

9

Debashis Basu explained to the participants the methods of analysing mutual funds to pick the scheme that best fits one’s financial needs

ILLEGAL MINING—BLOOD AND IRON August

12

A documentary, Bloodd and Iron, by Paranjoy Guhaa Thakurta, an independent dent journalist and educator, or, was screened along with Awaaz Foundation, followed by a discussion

UNDERSTANDING THE IMPORTANCE OF YOUR CREDIT HISTORY August

23

Mohan Jayaraman, COO,, Experian Credit Information on Company of India, explained ned the importance of credit reports, histories and thee credit reporting system

Contact Us:

Call 022-24441058-60, or email us at mail@mlfoundation.in or log on to www.mlfoundation.in

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LETTERS

` EXCELLENT

READ

and added that the Win jewellery government Your Cover Story “Glamour ‘did not Stocks, Ugly Returns” (Moneylife, have a magic 11 August 2011) makes excellent wand’ to reading on how good packaging weed out of stocks stories can lure investors, corruption. If not only individuals but even the our country so-called blue-blooded private equity Write to the editor. If your letter is the best, You’ll has not ones.

Win Surat Diamond jewellery. been able About NDTV, I must add that the to eliminate television business can never make graft 65 years after Independence, profits on the model that it is run sample a few statements that the how many years—and in the country. I have been a part of Party’s senior officials have been governments—will it require for this business and the advertisement making. Ambika Soni asks: “Can eliminating this malaise completely? revenues-based model is flawed. The Anna guarantee the weeding out of world over, the distribution revenue corruption completely if the desired The Delhi police have said that the crackdown on Anna’s movement Lokpal Bill is passed?” Why does was because it wanted to preserve she need a guarantee from Anna? peace. Does ‘peace’ mean that Spokesperson Manish Tiwari the public at large should remain alleges: “Anna Hazare is steeped undisturbed—and ignore the in corruption from head to toe.” rampant corruption that has Assuming Mr Tiwari’s allegation is engulfed the country? It is, indeed, true, can’t he use the government’s heartening that Anna Hazare has all-powerful machinery to crack almost single-handedly managed to down on Anna instead of merely issuing such slanderous statements? shake up the establishment. Now it is up to the public to carry on the In his Independence Day speech, crusade. prime minister Manmohan Singh — KG Gupta, by email said that the government was fighting graft ‘on many fronts’

models run and make reasonable monies, backed by advertisement revenues. I wonder how private equity investors pay such fancy prices. This business has no benchmark for valuations, and noise and perceptions determine prices.

Good article. Keep it up.

Anand Desai, by email

VOX POPULI The Congress Party seems to have gone into a tizzy over the huge support that Anna Hazare has been getting across the country. Just

Bulls and bears are unpredictable. Invest in diamonds.

Write to the editor!

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

HOW TO REACH US

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

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

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

MONEYLIFE | 8 September 2011 | 8

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TION MONEYLIFE FOUNDA

DONATE

*

to

help spread financial literacy & promote advocacy In just over a year since our inauguration, we have enrolled more than 4,500 members and conducted 54 workshops

Hundreds have benefited from our grievance-redressal efforts.

We have addressed: — Financial Issues Faced by Senior Citizens — Issues Faced by Retail Investors If you have benefited from our work, and if you would like to support our effort to educate savers, please donate to the Moneylife Foundation to help expand our nationwide financial literacy initiatives. *Donations to Moneylife Foundation are eligible for tax benefits under Sec. 80G of the Income-Tax Act 1961 (50% tax exemption).

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

We will also need your Name, Address, Contact No., Email and PAN card details in order to send you the tax-exemption certificate.

Donations may please be accompanied by a letter to Moneylife Foundation with the following declaration: “I have made a donation of Rs ________to Moneylife Foundation. This donation shall form a part of the corpus of Moneylife Foundation.

My PAN is ________________.”

(Please also enclose details of your contribution through cheque/demand draft/cash.)

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Moneylife Foundation is a not-for-profit initiative of Moneylife Magazine & Moneylife Digital, which provide fair, fearless and unbiased information on business, industry and personal finance. The Trustees are Mr Debashis Basu, Ms Sucheta Dalal, Dr Nita Mukherjee & Ms Tina Trikha.

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LETTER

ISSUE CONTENTS

8 September 2011

FROM THE

EDITOR Bear with Them

A

ll financial publications in India give social activism a wide berth. Only Moneylife has been constantly highlighting—right since inception—the work of some selfless individuals and groups in our Beyond Money section. This issue’s Beyond Money describes the efforts of one more individual to give a better life to deprived slum children. On the same note, Moneylife Foundation screened an excellent documentary, made by senior journalist Paranjoy Guha Thakurta, exposing India’s iron ore mining mafia that controls large parts of Karnataka and Andhra Pradesh.

India has finally woken up to the power of its citizenry to shake the very foundations of the Establishment. And citizens’ empowerment is one of Moneylife Foundation’s cherished goals.

We have lined up a number of events for you, including a comprehensive workshop on how to use the Right to Information Act effectively. Do make sure that you block your dates—all the details are inside.

The Cover Story will help you weather the storm that is buffeting the stock markets. We have identified six companies based on three parameters that characterise good stocks— earnings growth, high return on net worth and strong price action. These stocks will, hopefully, do as well as some others that we have recommended earlier.

Our Fund Pointer section carries another analysis, in our long list, that brings to light something that others won’t. Often, mid-cap funds are touted as an option to earn higher return. Don’t go by what you hear. Unless you buy them at the right time, your returns would not be great. Many mid-cap funds have done badly over the past five years, as the article explains.

Had your fill of the monsoon? Join us on a trip to Garhwal and meander along the banks of the Ganges—you will soak in much more than fresh mountain air.

You would have noticed that we have added lots of new sections over the past few months. Do write to us and tell us what you think about these and what else you would like us to add.

Debashis Basu

28 Cover Story

6 Stocks for a Bear Market

Even in a bear market, some stocks do well. Here is a selection of six such scrips by Moneylife Research Desk

13 Your Interest Will simpler IPO forms bring back investors? Maharashtra’s Lokayukta: A toothless body; NGOs & forest departments misuse eco funds; ID proof for only Rs5; Dangerously high caffeine

14 Your Money Government allows foreign investment in MFs; Rs1,000 coins soon; More transparency on fixed maturity plans; IDBI Bank’s Magic Card; Internet connectivity to all post offices; Sharp decline in MF folios; Increased credit card transactions

16 Current Account – Massive job creation is needed to maintain current employment level – CSR: Most firms don’t have a strategy in place – Competition Commission of India on DLF: A good precedent – Damodaran committee: Two issues overlooked

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

MONEYLIFE | 8 September 2011 | 10

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CONTENTS

20

COLLECTING COLLE

Competition Commission of India shows the way; SEBI members have been issuing consent orders arbitrarily; Pressure mounts on SKS Microfinance boss DIFFERENT STROKES

22 Paralysed Regulators With wrong people at the helm, distrust and lack of integrity are the norm SMART MONEY

24 Hard Truth Some companies in real estate and mining are mired in corruption. It is best not to invest in them—in the long run, truth has a way of coming out

STOCKGRADER 39 Momentum

M&M soared 9% and Power Grid Corporation ended flat, while Hindalco tumbled 15%

Medium Term

baar dekho…

53 Baar Revisit the Yahoo Icon Fan aand memorabilia collector, Rajan Jayakar, will hold a musical and an Jayaka exhibition on Shammi Kapoor’s life and films EVENTS

3M India soared 7% and Dabur added 4%, whereas Linc Pens plunged 6%

Long Term

Asian Paints jumped 5% and ITC gained 4%, while Ranbaxy tumbled 9%

FUNDS

25

Tough Choices

If you want to buy mid-cap funds, keep these points in mind STOCKS

AUTO

46 Small Is Big Smaller commercial vehicles are selling better than bigger ones, says Veeresh Malik

35 Street Beat

INSURANCE

44 Insurance Trends Worried about health cover?

IndiaFirst Health ULIP’s innovative approach; IDBI Federal Dreambuilder carries high mortality charges; “Indians are ready for ‘Do-It-Yourself’ insurance” — Policybazaar.com Fine Print: Insurers cannot walk away; Pension annuity from the same insurer? Insurance for car drivers?

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How national wealth is plundered?

Wealth creation from mutual funds How doctors can invest safely

TRAVEL

Spend a fortnight enjoying some grand mountain scenery along the curves of a river that defines India.

You’ll capture the very soul of our country, says Jaideep Mukerji

WHICH WAY

But do look ahead and beyond

– – –

Land 60 Garhwal: of the Ganges

Wabco India: A near-monopoly in air brakes; Tide Water Oil: A low-priced stock that earns 24% return on equity

Gloom 38 The Spreads

56 Moneylife Foundation Events

BEYOND MONEY LEGALLY SPEAKING

48

Investors’ Gain

The market watchdog’s pro-investor measures

Lives 66 Changing through Education

Shukti Sarma discovers an entity which helps poor children by informal training and creates awareness about their rights

SAVING AND INVESTING

49 Earning Curve – What do you expect from your investment?

– Apple or BankAm stock? No, it’s not that easy

DEPARTMENTS Letters ............................ 4 Book Review ....................50 Living .............................52 Money Facts ....................63

8/20/2011 3:10:50 PM

www.moneylife.in If you haven’t clicked on the Moneylife website yet, here’s e’s whyy you sshould.

TOP of the LIST News you had better not miss Stink from SEBI A confidential le er from SEBI chairman UK Sinha exposes the seamy underbelly of the regulator under CB Bhave

Switching Off Ronnie Screwvala’s sellout to Disney was called a blazing exit. He may have made less money as a lot of his shares were pledged

14

news reasons

why you must visit the Moneylife website

Price Shock

5,600

on twitter

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

No Can’t Say

Make your opinion count

MONEY WISE >> Alstom’s employee costs shot up by 28% (Rs94 crore), but sales declined by 20% to Rs280 crore in Q1, surprising shareholders

5,280

>> Is it the right time for Pramerica MF to launch a banking & financial services fund when banks are facing tough times?

5,120

4,800 28 Jul-11

08 Aug-11

19 Aug-11

Investor, Empower Yourself >> Moneylife Foundation together with Awaaz Foundation hosted the screening of “Blood and Iron”, a film by Paranjoy Guha Thakurta on illegal mining in Bellary. Log on to www.mlfoundation.in and register as a member to participate in regular programmes and benefit from services of the Foundation. Membership is free

40%

What’s Right, What’s Not

S&P CNX NIFTY

4,960

ML FOUNDATION

8%

52%

5,440

The Inventure stock made an audacious debut, as the price was rigged up to Rs225 from Rs91, making a mockery of the system

Will Anna Hazare succeed a second time in the revived protest on the Jan Lokpal Bill?

MARKET WATCH As stock prices continue to fall due to worries over an economic slowdown, we analyse the movement for you, day after day

The Supreme Court has said that every student has the right to get a copy of the answer-sheet for any and every exam

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

Yes

On a Downtrend

Test Case

HAVE YOUR SAY

>> IDBI Federal Wealthsurance Dreambuilder ULIP has many good features, but high mortality charges are a drawback

WEB EXCLUSIVES On issues that matter to you

Ramesh Arunachalam Vinita Deshmukh

R Vijayaraghavan

William Gamble

Achieving inclusive growth is a task, as it involves integrating people, in the countryside and in urban slums, into the mainstream economy

If only the spirit of cricket marked the actions of the leaders in politics, business and law enforcement, what a wonderful world we would live in!

Governments across the world have taken actions that have allowed markets to ignore many of their basic problems.

More money is not the solution

Mohammed Afzal used the RTI Act to get information on the inspection of lifts. He has also managed to get legal intervention to upgrade inspections

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

8/20/2011 1:17:45 PM

Your Interest Will Simpler IPO Forms Bring Back Investors?

T

he SEBI has suggested that the untilnow-cumbersome IPO forms should be simplified. SEBI says that only two or three of the 15-20-page forms deal with investors’ details, the balance pages contain instructions for investors, repetitive information about the company and the public issue, including bankers, registrars, etc, which is not relevant for making investment decisions. SEBI wants the simplified format to contain information relating to the company’s price-to-earnings (PE) ratio as well as that of its peers and the track-record of the lead managers. It’s a positive thought by the market regulator.

But it’s unlikely that at such decorative measures es will bring back investors. SEBI must st stop so -pedalling on the more critical al issues and crack down on corporate e offenders seriously. y.

Consumer Interest

Public Interest

Investor Interest

NGOs, Forest Depts Misuse Eco Funds s

T

he Comptroller and Auditor General of India a (CAG) has slammed the union ministry stry for environment & forests for allowing somee NGOs and state forest departments to misuse about Rs47 crore given to them by the National Afforestation and EcoDevelopment Board for nearly 650 projects to develop forest resources and afforestation. The CAG said only 3.57% and 23% of the projects could be completed. It has also expressed sed serious concerns about the functioning of the National Biodiversity Authority and the Botanical Survey of India and pointed out that the National Museum of Natural History (set et up to promote environmental education), had d not updated its exhibits and galleries in thee past two decades.

Dangerously High Caffeine

Maharashtra’s Lokayukta a Toothless Body ID Proof for only Rs5

A

Mumbai-based tabloid has found that some mobile phone dealers are issuing multiple SIM cards on individual subscriber’s name, misusing the customer’s registration details in their possession. According to the report, this has been going on for quite some time. For new subscribers who cannot produce any identification proof, these dealers can get an ID proof with an original photograph for as little as Rs5 and an ID with an original photograph and two supporting documents for Rs50.

Edited & Compiled by: Mario Rodrigues & Alekh Angre

Your Interest.indd 1

13 | 8 September 2011 | MONEYLIFE

8/19/2011 8:42:01 PM

Your Money FOREIGN INVESTMENT

Mutual Benefit?

T

he government has allowed foreigners to invest up to $13 billion in equity and debt schemes of Indian mutual funds (MFs). The aggregate investments by qualified foreign investors (QFIs) in equity schemes of MFs—under direct and indirect routes—will be subject to a ceiling of $10 billion.

Similarly, QFIs can invest up to an additional amount of $3 billion in MF schemes that invest in corporate bonds of infrastructure companies. This will widen the class of investors participating in the Indian capital market, helping to increase the depth and reduce volatility in the market. RBI and SEBI have issued enabling notifications in this regard.

CURRENCY

Rs1,000 coins soon O

n 11th August, Rajya Sabha passed the Coinage Bill 2009 which allows for minting of coins of up to a denomination of Rs1,000.

However, no timeframe has been set for this so this remains only an enabling provision for the time being. In March 2011, the Lok Sabha had passed the Bill. Finance minister Pranab Mukherjee told the Rajya Sabha that payment and receipt of coins was being limited to a denomination of Rs1,000—as suggested by the RBI, for the sake of convenience. Mr Mukherjee also said that the finance ministry will issue a commemorative coin this year to mark 150 years since the office of the Comptroller and Auditor General of India was set up.

MONEYLIFE | 8 September 2011 | 14

Your Money_144.indd 2

RBI notification says: 1. Dividend payments on units held by QFIs would have to be remitted directlyy to the overseas accounts of the QFIs Q by domestic MFs. 2. Dividend payments nts to QFIs would not be allowed wed as an eligible credit to the he single rupee pool bank account.

SEBI notification says: 1. QFIs can buy units of equity/ debt funds in the primary market, but cannott dary trade in the secondary market.

2. When the cumulati lative QFI investment reaches

REGULATION

More Transparency on FMPs

A

ccording to SEBI, fund houses should make more disclosures on fixed maturity plans (FMPs) and other close-ended products, to enable investors to take informed

decisions. More information on the type of instruments used in the portfolio, credit evaluation notes—which will state the kind of credit exposure (and interest rate risk)—and sector mandates would increase transparency of close-ended schemes. The move comes against the backdrop of the FMP debacle of 2008, when fund managers used papers of

NEW LAUNCHES

Magic Card

Edited & Compiled by: Mario Rodrigues & Dolly Mirchandani

8/20/2011 3:05:41 PM

Fixed Income

Regulation

Stocks

Tax

Banking

IPO

MUTUAL FUNDS $8 billion in equity schemes, SEBI would aucƟon the remainder to foreign investors who can then buy the units from funds of their choice. A similar process will wi be followed when the investment investmen in debt schemes hits $2.5 billion.

3. The QFI limit for debt schemes will be within the exisƟng ceiling of $25 billion set by the RBI in corporate se debt issued by infrastructure deb companies. compa Will the th new proposal work? We not sure. Maybe foriegners are no rush into India. But one thing is would rus The Indian government is more certain. Th concerned about foreign savers than about us.

Sharp Decline in MF Folios

M

utual fund investors have been redeeming their units fearing that their capital may get eroded in a falling stock market. In July, 3.34 lakh equity folios were closed, a 1% decline in folios from 3.89 crore in June 2011 to 3.86 crore in July 2011. In that month, equity schemes saw a net outflow of Rs869 crore resulting in net inflows in the April-July period turning negative. In the four months of FY11-12, about 7.35 lakh equity folios have been closed—an average 1.84 lakh per month—higher than the average of 1.5 lakh folios closed every month in the p previous year. The industry lost about 18 lakh lak retail folios in equity schemes last year.

This decline in equity folios y has shocked fund houses and SEBI, since all efforts to attract investors have failed to produce the desired results.

PLASTIC CARDS

any tenure to increase portfolio yields creating an asset-liability mismatch. This was disruptive

Growing Volumes

for money markets and risky for fund houses and investors when liquidity dried up. In early 2009, the regulator introduced laws that

T

he volume of credit card transactions in India increased by 29.8% to Rs7,191.11 crore in June 2011 compared to Rs5,538.75 crore in June last year, according to RBI data. However, the number of credit cards in circulation has declined in this period by over 6.7% to 17.60 million from 18.90 million.

Credit card transactions in the AprilJune quarter aggregated Rs22,127.50

prevented fund managers from using papers of varying tenures in a single portfolio. SEBI also barred fund managers from effecting intrascheme security transfers at random rates.

They were asked to value transferred debt securities at the (current) day’s fair value.

TECH UPGRADE

In the Loop he government plans to provide Internet connectivity to all post offices in India by 2012-13 under the India Post Technology Project 2012, minister for communications & information technology Kapil Sibal said.

Today, 22,360 departmental post offices (DPOs) have been provided computers; 1,308 DPOs have WAN connections and 10,530 DPOs have broadband facilities.

Rising Figures

Figures in Rs cr.

T

crore, against Rs16,947.87 crore in the first three months of 2010-11, a jump of 30.5%. Meanwhile, debit card transactions were up by 45.6% in June to Rs3,783.88 crore from Rs2,597.49 crore in the corresponding month last year.

There were more than 2,395 million debit cards in use in the country as of 30 June 2011, up by 24.8% from 1,919 million in the year-ago period.

In 2010-11, transactions through credit cards in the country went up by 22.15% to Rs75,515.68 crore in value terms, and debit card transactions went up by 46.46% to Rs38,691.88 crore.

7,200

3,800

5,760

3,040

4,320

2,280

2,880

1,520

1,440

760

0

0 30 Jun-10

30 Jun-11

Credit Card Transactions

30 Jun-10

30 Jun-11

Debit Card Transactions

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E MP L OY ME NT

Jobs Issue Massive job creation is needed to maintain current employment level

S

ome 20 years ago, getting a good job was a great deal.

Now, jobs are going abegging while employers struggle to cope with low skills, absenteeism, lack of application, high staff turnover and poor accountability. Therefore, you would be baffled by the findings of this study.

CRISIL has released a research paper which says that India will need at least 55 million additional jobs by 2015—twice the number of jobs added between 2005 and 2010—to maintain the current ratio of employed people to total population at 39%. The projection, based on National Sample Survey data, assumes that the number of self-employed persons will decline, as had happened during 2005-10.

In India, the ‘emerging superpower’, employment intensity—the number of employed

persons per lakh of real GDP (gross domestic product)—declined to 1.05 in 2010 from 1.71 in 2005.

Between 2005 and 2010, while 27.70 million jobs were added, the number of self-employed people decreased by 25.50 million. This restricted the increase in the number of employed people to 2.20 million.

Also, between 2005 and 2010, employment in the manufacturing sector decreased by 7%, despite increased output. During the same period, employment growth slowed in financial intermediation and business services. “Job creation has not kept pace with GDP growth.

The GDP growth increased to 8.6% during 2005-10 from 6% during 2000-05, but the net addition to jobs remained almost flat, says Dharmakirti Joshi, chief economist, CRISIL. However, the data itself could be suspect. The anecdotal evidence shows that employers are struggling to hire and retain staff.

The report concluded that policymakers should understand that high economic growth alone is not sufficient for creating jobs; labour reforms are a must. The gridlock in decision-making isn’t helping.

CSR

Falling Behind Most firms don’t have a strategy in place

A

ccording to a survey by KPMG, only 16% of India’s 100 highest revenue-earning firms have a well-defined corporate social responsibility (CSR) strategy in place. In contrast, more than 60% of the global top 250 companies (by revenue) define their CSR objectives and indicators and review them periodically. In India, only 31% of the firms surveyed report their CSR performance publicly; of these, only 25% have systems to measure, monitor and report.

In the case of the surveyed Indian firms, CSR activities are motivated by brand building and ‘ethical considerations’. Globally, ‘economic considerations’ and ‘innovations and employee motivation’ emerged as top drivers—both of which ranked low with Indian companies.

CSR reporting—also called ‘triple bottomline reporting’—has acquired importance at a time when scams are rampant and there are serious concerns about protecting stakeholders’ interest. A critical aspect of CSR reporting is revealing a company’s carbon footprint; only 23% of the Indian firms did so.

The survey also showed that while most firms emphasise corporate governance, only 42% see a link between corporate governance and CSR. For many, CSR reporting is becoming more than a ‘me-too’ activity, and is emerging as a way to debate issues related to a sustainable, ethical and environment-friendly growth model.

And, hopefully, more business for KPMG.

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only 200 of the 900 bungalows it had promised to deliver by 2009, that too without providing water pipes. Often, projects get delayed for reasons beyond the developer’s A good precedent, but it control. “In that case, a developer must be provided with guidelines as raises many questions to how to proceed with his project,” he Rs630-crore penalty that the says Pankaj Kapoor, MD of realty research firm Liases Foras.

Competition Commission of The other issue is that the India (CCI) slapped on realty giant penalty levied on DLF will not DLF has been hailed by all. DLF benefit customers but the national was found abusing its dominant treasury. The CCI only identifies market position, disregarding the provisions in a contract/ consumer interests and engaging in document that violate consumer unfair practices, according to the rights or other laws and says that CCI order. While the case serves the company should change those as a good precedent, it also raises clauses. It is then up to the customer several questions. and the company with whom the One issue is: How many times contract has been signed to sort out can CCI act? Instances of mischief the financial issues. are rampant in real estate. Several In the CCI-DLF case, a developers, including small ones, buyer may make changes in dwelling designs m approach without consulting ng the buyer. the Competition Co Appellate Tribunal Delay in delivery y is widespread.

Appe for compensation.

Developers themselves mselves admit c However, consumer that their projects ts get delayed How courts due to several reasons asons which cour witness many such fights between push up prices. A good example developers and their is Kolkata West International deve customers on several City, a Left-Front nt backed custo issues. But these drag project which has as on for progressed little f years. CCI’s former chief, Vinod since the last for Dhall, summed five years. It Dh up the matter has managed in a television to hand over Pankaj Kapoor, MD, Liases Foras

interview: “The absence of a regulator is a vacuum and you can say that the Competition Commission sort of has stepped in to fill an existing vacuum. There is a chance that the real-estate sector will feel the heat of this particular CCI order. It is possible that more such applications may be filed with CCI but it also has to be wary and should not allow itself to be converted or treated as a consumer court.”

Experts opine that the CCI ruling is undoubtedly a good example as it warns builders that customer interest should be kept in mind; alterations should not be made unilaterally. According to news reports, more such cases are lined up before the CCI, and the hearings will commence shortly.

The impact of these judgements and how they add to the debate remains to be seen. However, the best way to avoid trouble is to read the fine print before signing a contract, said a property lawyer. “Once the alteration is done, a customer can go to court or approach other authorities, but it is a long and troublesome process. Instead, if he reads the documents and the contract carefully, he will be able to avoid many future complications and may even be able to negotiate with the developer,” he said.

— Shukti Sarma

DA MO DA R A N C OM M IT T E E

Rs1 lakh per depositor are insured.

The job of insuring and paying out is entrusted to the Deposit Insurance and Credit Guarantee Corporation (DICGC), an entity fully-owned and regulated by the Reserve Bank of India (RBI). We dug into the data available to check the payouts DICGC has made of late on account of bank failures.

It appears that DIGCC paid out `` a whopping Rs1,025 crore in the

REAL ESTATE

DLF Penalised

T

Overlooking Problems Two bank-related issues the committee has overlooked

S

everal cooperative banks are saddled with bad debt. These banks usually have a lot of political influence. Poor supervision and low accountability has led to a series of failures among cooperative banks

and has caused huge losses to depositors.

Given the current state of some of these banks, more bank failures can be expected. As per the current law, bank deposits up to

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BOTTOMLINE BY MORPARIA

CURRENT ACCOUNT

` past three years, from April 2008 to

March 2011, to bank depositors in 83 banks. And all of these 83 banks were cooperative banks.

Now, unmindful of this, the Damodaran committee set up by RBI to improve customer services, has recommended that the limit for deposits eligible for insurance should be raised to Rs5 lakh from Rs1 lakh.

What purpose would it serve, since nationalised banks never fail and even private banks are subjected ected to a shotgun wedding g to a nationalised bank (Oriental Oriental Bank of Commerce rce was forced to take over er Global Trust Bank)? It would only reward ward the depositors ors of terribly run banks (read, read, cooperative tive banks),

unabated bank failures and higher cost of bank insurance.

The DICGC collects a premium from 2,249 banks, of which a whopping 2,080 are cooperative banks. The premium charged is up to a maximum of Rs0.15 per Rs100 of insured deposits. Surprisingly, cooperative banks do not contribute the maximum to the premium corpus. In fact, they account for just 7.5%; less than 100 commercial banks account for 88% of the insurance premium collected. prem TDS Problem The Damodaran Damodar committee overlooked another issue has overlooke well. The interest as we on bank deposits iis subject to income-tax which is deducted at source (TDS) by banks.

One of Moneylife’s columnists says, “depositors who honestly pay taxes on the interest received from banks on their deposits, have been suffering in silence for the past several years, because, day by day, they find it difficult to get TDS certificates from these banks, who simply do not bother to give the certificates on time. In the month of July that has just gone by, people have been running from pillar to post to get TDS certificates from their banks, to enable them to file their returns on time.”

If you happen to withdraw the deposit before maturity to meet any emergency, the bank will recover from you some part of the interest already paid to you as penalty for premature withdrawal, but will not refund any part of the tax already deducted from your account. This is putting unnecessary additional burden on savers. Will these lacunae be corrected in the future?

Former chairman of SEBI M Damodaran

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LOOSE CHANGE

Surprise Gift for Quiz winners from:

Moneylife Quiz - 109 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 4 September 2011.

Sound Bites “The downgrade

by S&P to AA+ looks generous to me. The other ratings agencies have been cowering not to do the same thing”

1. Where is the Charleville Hotel located? a. Mussoorie b. Darjeeling c. Manali d. Shimla 2. Who is the inventor of fundamental index? a. James Montier b. Robert Arnott c. Wilson Murdoch d. Michael Carlos 3. When did Morgan Stanley launch its first Indian mutual fund scheme? a. 1980 b. 1986 c. 1994 d. 2000 4. Who is the chief executive officer of Policybazaar.com? a. Shiv Narayan b. Madhav Ghorpade c. Ram Narayan d. Yashish Dahiya 5. In which year was the documentary Blood and Iron made by Paranjoy Guha Thakurta? a. 2010 b. 2005 c. 2001 d. 1990 6. Who founded Parivartan Shikshan Sanstha? a. Vinita Deshmukh b. Shakil Ahmed c. Nandan Joshi d. Aruna Roy 7. Who pioneered the manufacture of air-assisted and air-brake systems for commercial vehicles in India? a. Pratap Industries b. Navin Steel c. Wabco TVS (India) d. Bajaj Auto

– KEN ROGOFF, PROFESSOR, HARVARD UNIVERSITY, on www.msnbc.com

“India is better positioned than many other developing countries to continue its rapid growth” – DANI RODRIK, PROFESSOR, HARVARD UNIVERSITY, in Mint

“My bank accounts only show the salary I draw as a judge...

I have not amassed undeclared wealth nor have sons or sons-in-law with disproportionate

8. With which electronics company has PI Industries signed an agreement for research? a. Philips Electronics b. Sony Corporation c. Siemens Ltd d. Ajanta Electricals

assets” – SOUMITRA SEN, CALCUTTA HIGH COURT JUDGE, in The Economic Times

The answers to Moneylife Quiz-108 are: • 1-a. Nileema Mishra • 2-c. 1852 • 3-c. Vivek Rege • 4-d. Subburaj Papers Ltd • 5-a. Integra Engineering India • 6-b. Max New York Life Insurance • 7-c. Peter Lynch • 8-b. Nicholas Negroponte

“Clearly, the government underestimated the sense of anger among the people of India. There is no trust between people and the government” – TV MOHANDAS

In all, 16 readers got all the answers right last time. The winner of Quiz-108 is Dayanand Rane from Mumbai. Congrats Sir! You will get a surprise gift from Surat Diamond Jewellery.

PAI, CHAIRMAN, MANIPAL UNIVERSAL LEARNING, in Business Standard 19 | 8 September 2011 | MONEYLIFE

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

REGULATION

3 Cheers for 2 Decisions CCI shows the way

T

hree cheers to the Competition Commission of India (CCI) on two major decisions. One was the stunning Rs630-crore fine on DLF for just one Gurgaon project, causing its stock price to tank; the second was on the National Stock Exchange (NSE) which was fined Rs55 crore; it quickly fell in line and started to charge a fee on forex derivatives transactions.

The CCI has sent several strong signals with these orders. It is the first Indian regulator to understand the logic behind steep monetary penalties and ‘speaking orders’. The fear of high monetary liabilities (through fines or settlement fees) is the single strongest deterrent to financial crime. Our banking and capital market regulators, and our consumer disputes commissions, refuse to recognise this fact. They continue to hand out niggardly penalties that only discourage consumers from fighting for their rights. Secondly, the CCI has signalled that it will step in to ensure fairplay in sectors where a tight nexus between business and politics delays the appointment of independent regulators. The DLF order sends that message, even as it has specifically recommended the creation of a realty regulator.

The NSE order fetched quick results too. Before it filed a predictable appeal to the CCI Appellate Tribunal against the order, the NSE ended its predatory and unfair trade practice of bleeding its competitors by charging no fees. Interestingly, unlike the realty matter, CCI ended up hearing the NSE case because the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI), the joint regulators, failed in their regulatory duty and permitted three exchanges to operate an unsustainable trading segment with no revenue model.

DLF headquarters, New Delhi

While DLF and NSE would both appeal against the orders, the CCI has definitely shown that it has powerful teeth and won’t hesitate to use them. While NSE has already fallen in line, the DLF case may have even more positive fallout. The fear of a series of crippling orders from the CCI may have builders pleading for an independent realty regulator instead of opposing it.

Meanwhile, other regulators should imbibe the CCI’s idea of exemplary punishment which alone can be a strong deterrent.

CONSENT ORDERS

Arbitrary Rulings SEBI members have been issuing orders arbitrarily

C

hairman UK Sinha may have started out fighting an internal battle at SEBI, but his initiative of an objective analysis of the consent orders passed by the regulator was long overdue. These are quasijudicial proceedings and we have repeatedly argued that there must be some uniformity and precedent set by the orders in terms of linking payments to the gravity of wrongdoing. Now, the SEBI chief’s 8th July letter to the Union finance secretary says, “While I have publicly defended the decisions of consent proceedings, which are legal and as per law… I do feel that there is a need to bring in uniformity and consistency.”

As reported by Moneylife on its website, UK Sinha, “for the first time in the history of SEBI” ordered a study to analyse the orders of whole-time members (WTMs) and adjudicating officers and came up with stunning differences in their treatment of issues. Consider this.

In an analysis of similar types of cases, one WTM ordered suspension of the intermediaries in 25% of the cases, another in 8% and a third in 0.5%. The letter does not name the members or specify the timeframe of the study.

Similarly, wide disparities ``

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` are evident in orders debarring

individuals and market intermediaries from trading in the market or doing business.

One WTM has passed debarment orders in 75% of the cases he heard, another in 50% of the cases and one in just 0.4% of cases.

Doesn’t this suggest that at least one WTM was letting off plenty of wrongdoers, while another was being unduly harsh?

SEBI’s internal study also looked at orders passed when the quantum of debarment was harsh and extended from two to five years. Here, it found that one WTM ordered debarment in 50% of the cases, another in around 33% and a third in just over 16% of the cases. This could open the doors to litigation by someone who has been debarred for two to five years and suffered severe losses only because a certain WTM handled his case.

It also raises another question: What is the basis on which SEBI allocates cases to WTMs? In cases of corporates making misleading announcements, the debarment has varied from as little as six months to as much as two to five years. The variance is just as large in orders by adjudication officers. Even for an offence as simple as a failure to respond to summons, the fine varies from Rs1 lakh to Rs20 lakh.

The point made by the SEBI chairman in his letter, as well as others, is that the orders do not bother to provide sufficient detail to explain the reasons for the variation and give the impression of

‘arbitrariness and subjectivity’. It is not as though SEBI chairmen have not been aware of this. Moneylife had taken up the need for ‘speaking orders’ with two previous SEBI chairmen. But, clearly, the opacity suited them well since nobody has held financial regulators accountable for their actions because our parliamentarians have little interest in capital markets.

M ICROFINANCE

Baseless Report.

Really?

Pressure mounts on SKS boss

O

n 14th July, we asked JS Sai, spokesperson of SKS Microfinance, to comment on our information that investors wanted to remove Vikram Akula from the top job. He said, “In case you are

Chairman of SKS Microfinance Vikram Akula

going ahead with your baseless report,” here is the response: “Your statement that ‘some PE (private equity) investors have talked to SKS Microfinance about removing Mr Vikram Akula as head of SKS’ is absolutely baseless.

SKS Microfinance stoutly denies this.” Meanwhile, different sources reconfirmed that corporate and PE investors were unhappy with Mr Akula’s style of functioning; one source said they didn’t have the numbers to pull off the board coup required to remove a founderdirector. Then, on 12th August, there was another indicator of turmoil when Pramod Bhasin suddenly stepped off the board. Finally, on 16th August, The Economic Times reported that “Vikram Akula, the one-time poster boy of microfinance and founder-chairman of SKS” could lose control over the company and that board members had suggested that he step down.

The unhappiness was attributed to his frequent travel abroad to resolve personal issues. This made it difficult for him to devote enough time to his job when the business was in a crisis situation. We hear that that several investors find him high-handed in dealing with employees. Interestingly, this time around, SKS’s spokesperson is not issuing aggressive denials anymore.

Meanwhile, banks are also turning to the press, since their loans may soon be classified as ‘nonperforming’. Sources say that the announcement by BASIX, India’s oldest micro-financier, that it may close down and the merger plans of Spandana Sphoorty Financial, Share Microfin and Asmitha Microfin are the result of some hard nudging by lenders. Therefore, the travails of this once-glamorous do-gooding business continue.

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DIFFERENT STROKES SUCHETA DALAL

R EGU L ATio n

Paralysed Regulators With wrong people at the helm, distrust and lack of integrity are the norm

C

onsider some recent headlines. Chairmen of raises questions that ought to be answered. Moneylife two large government insurers—Life Insurance is more concerned with the systemic implications of Corporation of India (LIC) and New India appointing the wrong persons in positions of authority Assurance—are under a cloud. The Central Vigilance who are then hobbled by a series of allegations. It Commission has issued an order against the Corporation happened with CB Bhave and is happening again with Bank chairman. Gajendra Haldea, a senior Planning UK Sinha. Mr Abraham’s allegations have ensured that Commission official and IAS officer, has been accused the government finds no time to replace WTMs and of ‘unethical conduct’ by Vinod Dhall, chairman of the executive directors who left SEBI soon after Mr Bhave expert panel on public procurement for appending the demitted office.

Dr Abraham’s charges against Mr Sinha coincide signatures of eight members to an ‘unauthorised report’.

And, worse, the new chairman of the Securities with allegations about the finance minister’s top aide and Exchange Board of India (SEBI), instead of being Omita Paul wanting to foist her brother (currently with a powerful market regulator and watchdog, is forced the ministry of corporate affairs) as chief executive to write a 13-page letter to the government, explaining at UTI Mutual Fund (UTIMF) to replace Mr Sinha. his every move, action and decision, just three months T Rowe Price, a leading US fund house which is a strategic investor in UTIMF, has serious after taking over as head of the to the appointment, regulatory body. Why? Because Moneylife is more concerned objections while the three nationalised an outgoing whole-time member with the systemic implications banks, which are also significant (WTM) of the SEBI board, of appointing the wrong investors, are completely silent.

Dr KM Abraham, whose term persons in positions of So much for the debates and was nearing an end, has chosen to hurl a series of allegations authority who are then hobbled discussions on good governance and accountability! against the incoming chairman. by a series of allegations. It The environment of distrust Incidentally, Dr Abraham made happened with CB Bhave and is these allegations of ‘interference’ happening again with UK Sinha and lack of integrity is worrying because the world is facing an with his work while pushing unprecedented economic crisis hard for a two-year extension at SEBI, or at the least, a two-year Mumbai-based sinecure that is bound to affect us. It is a time when India needs at the National Institute of Securities Markets (NISM) strong political leadership and clear-headed, independent with full perks and accommodation. CB Bhave, to whom regulators and institutional heads, who can take bold Dr Abraham owned almost blind allegiance, is also and quick decisions in India’s best interest. Instead, working actively to find ways to keep him in Mumbai, we have a government that is bumbling and clueless after failing to clear his appointment to NISM a week on most issues: whether it is the Anna Hazare-led agitation, tackling the corruption monster, the demand before demitting office as chairman of SEBI. This article is not about the merits or demerits of to bring back black money stashed overseas or to Dr Abraham’s allegations. Suffice it to say that had a push economic reform and infrastructure development journalist made such sweeping general allegations about without permitting the neta-babu-businessmen nexus to a public official without facts, within three months of plunder national resources such as land, iron ore or coal.

As Moneylife has often argued, the crisis begins at his taking office, it would have been considered hasty and vindictive. Hence, the emotional outburst from an the top. The prime minister (PM) already stands accused outgoing WTM lobbying to remain in Mumbai certainly of disregarding warnings and doing nothing to prevent ``

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DIFFERENT STROKES SUCHETA DALAL

` the loot in the name of the Commonwealth Games

and having to keep paying for unlisted, demat stocks, (CWG) or telecom licences. He did nothing about are issues that remain unresolved even today. No SEBI the orgy of excesses at Air India by Praful Patel who chairman has bothered with these issues because neither removed an efficient chairman like Sunil Arora so that the SEBI board, nor the finance ministry or the standing he could launch a series of destructive actions including committee of Parliament has held them accountable for the ill-conceived merger of Air India and Indian Airlines the exodus of retail investors from the capital market.

In the absence of significant retail investment, domestic and the reckless purchase of new aircraft even while prized international routes were being given away to mutual funds have not registered a strong presence with stable, long-term investors. They depend on corporate foreign carriers.

Let’s turn our attention to the capital market. debt investment which is largely inclined toward liquid Structurally, 20 years of liberalisation has driven away funds. After the collapse and split of Unit Trust of retail investors and reduced their strength from 20 million India (UTI) in the year 2000, public sector insurance behemoths—LIC and, to to 8 million (including mutual a lesser extent, the General fund investors). At no time has Insurance Corporation—and the finance ministry or SEBI private insurers are the only engaged with stakeholders long-term domestic investors and investors to understand in the market. how they were affected by the So consider the situation. frequent regulatory changes We have to face a global crisis; and the mindless push for but the SEBI chairman is on the automation, without checking backfoot less than six months whether domestic investors into the job; he has only one were able to keep pace with WTM and is still to replace the change. Our regulators three key executive directors. and intermediaries, such as New India Assurance, LIC the National Stock Exchange and UTIMF are headless. The of India (NSE) and National finance ministry, which is also Securities Depository Ltd under a cloud, has decided (NSDL), worked at giving that making no appointments foreign institutional investors If the global economic scenario is the safest path. The only the ability to trade smoothly worsens and India needs to take exception to this bleak picture and seamlessly. It ensured a some quick decisions, we can be is the decision to grant a twogush of foreign investment, year extension to the Reserve sharp rise in trading volumes, sure that the government will Bank of India governor soaring stock indices and make a hash of its handling, Dr D Subbarao in order bigger paycheques for those exactly the way it has done with to ensure continuity and involved. the Anna Hazare-led protest stability. But it is safe to bet Retail investors, however, against corruption. And that is a that the decision was mainly struggled to cope with the frightening thought due to the PM’s advisor, changed environment and illDr C Rangarajan, who is also conceived regulatory changes.

Starting with biometric identification MAPIN (market Dr Subbarao’s mentor.

Given the situation, if the global economic scenario participant identification number), which was dropped after a huge controversy, to repeated KYC (know your worsens and India needs to take some quick decisions, customer) formalities for mutual funds, or the anger we can be sure that the government will make a hash of about high demat costs, pressure to open multiple demat its handling, exactly the way it has done with the Anna accounts, one-sided power of attorney signed with Hazare-led protest against corruption. And that is a brokers and losses due to poor portfolio management, frightening thought. were factors that put off investors. Others exited after being lured by the false promises by brokerage houses of Sucheta Dalal is the managing editor of Moneylife. Subscribers ‘safe and guaranteed’ returns through speculative trades. get free help in resolving their problems with select providers of Poor grievance redressal, difficult transmission of shares financial services. She can be reached at suchetadalal@yahoo.com

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SMART MONEY R BALAKRISHNAN

C ORP ORAT E C ORRUP T ION

Hard Truth Some companies in real estate and mining are mired in corruption. It is best not to invest in them—in the long run, truth has a way of coming out

T

he recent Bellary mining scandal exposé by the Rs10 crore to an educational trust run by the family of Karnataka Lokayukta should be a wake-up the former Karnataka chief minister BS Yeddyurappa. In call for investors. The real estate and mining all these cases, the shareholder gets the short end of the industries are prime examples of the unholy nexus stick.

The real estate sector has always been mired in between politicians and business. They line their pockets at the cost of the exchequer. Does it make sense to remain corruption—black money for upfront payments, bribes invested in these sectors? Companies from these sectors for registration & title clearances and what have you. As do not carry much credibility. Institutional investors, investors, we always have a choice—stay clear of sectors perhaps, bet on the ability of the promoter to pull strings, like real estate or mining. As a shareholder, it would be grease his way through the system and deliver on the foolish on our part to assume that the promoter will not bottom-line. As long as the relationship is cosy, all is fine. cheat us. When he has to pay a bribe, the money will But the favourable period, generally, tends to be very come from the listed entity. And, if a promoter can dip short. If I were an institutional investor, I would perhaps into the capital of a listed entity to pay a politician, what stops him from enriching himself? dump these stocks and keep away At times, companies have been from these sectors for a long, long It makes sense to judge using political authority to build time. Unless there is active price a company by the ‘degree’ personal empires, using the listed manipulation, there is no way of corruption it indulges company route. These companies these sectors can attract investor borrow from government-owned interest. For a while, the promoter in, rather than the financial institutions, default and his cabal may be able to prop absolute lack of it subsequently and then carry on up the stock prices. Promoters with life as if all is hunky-dory. As are also known to bribe some government-owned institutional investors to buy stocks. creditors, government entities suffer huge losses—even if these ‘sick’ companies manage to start generating profits, In fact, I see that as the next focus of investigation.

Questions are going to be raised about whether none of these public-sector institutions even tries to get domestic institutional investors have held, and bought back the monies that it ought to demand.

Unfortunately, corruption is what is generating into, stocks of companies that figure in the Lokayukta report. Government entities, like the LIC (Life Insurance fortunes—not just in India, but also in a number Corporation of India), are already under the public glare of developed countries. Of course, not every Indian for having invested in some of these tainted companies. corporate house is corrupt. But, as an investor, if you Staying invested—or adding to positions—in the tainted smell a rat, vote with your feet.

Thanks to the RTI (Right to Information) Act, media companies, will also raise eyebrows.

The companies named in the Lokayukta report seem & judicial activism and a few good men, there is more to have greased palms to get mining concessions and than a fair chance that wrongdoing will be exposed. So, indulged in all kinds of unethical practices. Corruption be practical. Avoid investing in these robber barons. All is so deep-rooted that one wonders how an auditor said and done, I must admit that it makes sense to judge could have ever approved the books of accounts of these a company by the ‘degree’ of corruption it indulges in, companies. The auditors have to be either incompetent rather than the absolute lack of it. If we expect lily-white or in cahoots with the head honchos of these companies. corporate ethics, we may have no stocks to invest in.

One of these tainted firms has been accused of donating The author can be reached at balakrishnanr@gmail.com

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MUTUAL FUNDS POINTERS

MID-CAP FUNDS

Tough Choices If you want to buy mid-cap funds, keep these points in mind

I

nvestors are exposed to a lot of discussion about small- and mid-cap mutual fund (MF) schemes. They are advised to invest in mid-cap schemes as they think small- and mid-sized companies tend to be under-researched. Midcap schemes present an opportunity to invest in companies that are yet to be identified by the market and such companies offer higher growth potential. If the mid-cap schemes do their job properly, you would benefit from higher returns.

Valuation of such small- and midsized companies also tends to be lower which compounds the future returns. Mid-cap companies have the potential to join the league of large-cap companies and, as the market ‘discovers’ that, they fetch higher valuation. Such companies are supposed to be nimble, flexible and can adapt faster to changes.

Mid-cap stocks and small-cap

stocks rise the fastest when the economy is in a growth mode. They are the blue-chips of tomorrow. That has made mid-cap stocks the darlings of the Indian bull market. However, they are volatile. They fall as quickly as they rise and, therefore, wrong timing can decimate your returns.

Wrong timing can happen because you have chosen to buy mid-cap schemes before a crash or the funds have chosen to buy mid-cap stocks as they are about to face a difficult period. Morgan Stanley launched its first Indian MF scheme in 1994 which carried a lot of small- and mid-cap stocks. The scheme suffered severe value erosion of 35% over the next seven years.

Mid-cap schemes are also supposed to be a good option for investors who want to add some diversity to their portfolio. We disagree. There are several reasons why Moneylife prefers equity

Herd Instinct 9

The bulk of mid-cap schemes came when the market was hot 6

3 23 of 33 schemes between 2005 to 2008

0 2002

2004

Source: Mutual Funds of India

2005

2006

2007

2008

2010

2011

diversified schemes to small- and mid-cap schemes.

No Long-term Record: Firstly, midand small-cap schemes have no longterm track record. Mid-cap schemes have a past of less than 10 years.

The first such scheme was Sundaram Select Mid-cap, launched in mid2002. Apart from Sundaram, one more scheme was launched in 2002— Birla Sun Life Mid-cap Fund—which gave returns of 31% since inception.

And, of the five funds that came in 2004, the best performer was UTI Mid-cap that has given a return of 18% since launch. It outperformed its benchmark, BSE Small Cap, for the same period by 24%.

Timing: If you were not one of the early buyers of mid-cap schemes, you have missed the mid-cap rally.

The bulk of them came in the 200508 period, following a once-in-alifetime rally. Of the total 33 schemes that exist now, 23 came in this period (see chart Herd Instinct). The average return from these 23 funds is 10%; only 13 schemes gave aboveaverage returns. Of these, the best performers were Principal Emerging Bluechip, launched in November 2008 (timed wonderfully with a market bottom), which has given a return of 46% since inception and Religare Mid N Small Cap, launched in March 2008 (timed badly), which has still given a superb return of 13% since inception.

Unclear Strategy: Many mid-cap schemes don’t buy just mid-cap stocks and stray from their objective.

There are many examples of mid-cap schemes that have ended up investing in large-cap stocks. For example, Axis Mid-cap Fund has invested in ``

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MUTUAL FUNDS POINTERS

` Infosys and Petronet LNG; Birla 40%

Timing It 30%

The best returns came from earliest funds when the market was much lower

The average return of these schemes from 2002-2011 is 32%. So why go for mid-cap schemes?

When you are getting the same returns with a diversified portfolio, why should you take the risk of investing in a mid-cap scheme which brings added risk? In other words, an equity diversified scheme allows

Average returns since inception of 23 schemes launched between 2005-08 was 10%; 13 funds were higher

20% 10% 0% -10%

Tata Midcap

SBI Magnum Multi Cap

BNP Paribas Mid Cap

Franklin India Smaller Co

Sundaram Select Small Cap

Birla Sun Life Small & Midcap

Kotak Emerging Equity Scheme

L&T Small Cap

JPMorgan India Smaller Co

HSBC Small Cap

Kotak Midcap

Sundaram SMILE

SBI Magnum Midcap

Canara Robeco Emg Equities

HSBC Midcap Equity

ING CUB

ING Midcap

Religare Mid Cap

DSP BlackRock Small and Midcap

HDFC Mid-Cap Opp

-20% Religare Mid N Small Cap

Sundaram Select Midcap

3 Oct-02

30 Jul-02

Launch Date

30%

IDFC Small & Midcap Equity

Birla Sun Life Mid cap

31 Dec-04 31 Dec-04 28 Oct-04 9 Aug-04

Random Returns

Principal Emerging Bluechip

9 Apr-04

0%

50% 40%

UTI MidCap

L&T Midcap

Sahara Midcap- Auto

10%

ICICI Prudential Emerging

20%

Sahara Midcap

Sun Life Mid-cap Fund has invested in stocks like GlaxoSmithKline Consumer, Cadila Healthcare and Cummins India; and BNP Paribas Mid-cap Fund has NTPC, Lupin and UltraTech Cement in its portfolio.

Clearly, MFs are quick to stray from the investment objective when it suits them.

No Better: Have the best mid-cap schemes done significantly better than equity diversified schemes?

We compared the performance of the mid-cap schemes with equity diversified schemes since 2002 when the first mid-cap scheme was launched. The top five equity diversified schemes have given the same returns as Sundaram and Birla Sun Life Mid-cap schemes, that is, between 30% and 36%. The top five equity diversified schemes giving a return in this range include Reliance Growth, HDFC Equity, Reliance Vision, DSP BlackRock Opportunities and HDFC Growth.

an investor to diversify into several stocks and sectors for a nominal investment. This diversification allows investors to reduce the risk of one particular stock or sector, as well as has more potential for higher reward by offering a broader exposure to various stocks and sectors.

The key rationale for diversification is: “…so that a failure in or an economic slump affecting one of them will not be disastrous.”

In other words, don’t put all your eggs in one basket. Secondly, equity diversified schemes are the oldest ones; so they have a reasonable track record to compare the performance before investing.

If you are hell-bent on buying a small- or mid-cap scheme, go for the ones which have a reasonable past record and have seen some major market swings at least. Both Sundaram and Birla Sun Life Midcap schemes have proven themselves well over different market cycles.

Also remember, although not comparable with 1994, the economy faces a lot of headwinds now.

So, any investment, even in these excellent schemes, must be through a systematic plan and not a lump-sum investment.

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8/16/2011 10:43:15 AM

COVER STORY

B

stocks for a Bear Market Even in a bear market, some stocks do well. Here is a selection of six such scrips by Moneylife Research Desk

usiness TV channels and newspapers endlessly relay the idea that the market is undervalued, given India’s growth prospects. Fund managers are sending out messages to investors (backed by data) about how the valuation of Indian stocks is d at a a PE (price-to-earnings ratio) of 13 (for 2013) at which level they have delivered great returns. w However, though we have been hearing this for a while, the market has gone nowhere for almost two w years.

In January 2010, the Sensex was at around y 18,000.

In August 2010, it was a shade higher. A 1 year later, in August 2011, this 30 blue-chip stock y index of the Bombay Stock Exchange is well below in 17,000.

Disappointment over earnings or interest 1 rate hikes or global financial problems—no matter r what the issues—the bulls have their back to the w ropes. r It is always darkest before the dawn, as the saying goes. But, even assuming that now is the best s time to invest, it merely raises the question: Invest t in what? In stocks that are fundamentally strong, those which are bucking the downtrend and remain t in a bullish mode, despite the fact that the Sensex is in the grip of bears. We have identified six such stocks on the basis of three parameters—earnings s growth, high return on net worth and strong price g action.

Here is our analysis of these stocks. As usual, a if you follow the recommendations, please apply stop-loss.

We suggest a 25% stop on your purchase s price (this will limit your loss). Also, apply a 25% p trailing-stop, if the stocks are up 50% or more. t This T will protect your profits from disappearing.

We have written about Balkrishna Industries (BIL) earlier. A part of the Siyaram-Poddar ( group, BIL, a diversified company, is one of the g top manufacturers of pneumatic tyres for special t applications.

The company runs three businesses— a tyres, paper and textile processing. But tyres t deliver approximately 88% of the company's total revenues. BIL is not into tyres for commercial or passenger vehicles. It’s into a niche area of offthe-highway (OTH) tyres which includes tyres for equipment used in agriculture, material handling, construction, earthmoving, etc. Usually, OTH tyres are custom-made; so they attract a premium over conventional tyres. Unlike conventional tyres, OTH tyres are not driven by volumes and mechanisation as the products are specialised and tailor-made for customers. The OTH tyres segment is generally

``

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COVER STORY

` characterised by continuous product development, higher

labour component, lower volumes and large variety. As a result, low-cost manufacturing is imperative.

India has a competitive advantage as its labour cost is lower compared with Western countries. Being closer to major rubber-producing countries helps lower costs too.

Here is where BIL scores. The company focuses on the production of a wide range of OTH tyres. Agricultural tyres form approximately 70% of the total sales. These include tyres for tractors, trailers, farm and forestry equipment.

Another part of BIL’s product offering is tyres used for construction and earthmoving needs such as dump trucks, loaders, mining and port equipment, etc. The company has a worldwide distribution network of 200 outlets ensuring extensive reach to over 120 countries.

BIL has three manufacturing plants in India and the fourth plant in Bhuj (Gujarat) is expected to be commissioned by 2012-13.

Ninety per cent of BIL’s revenue is generated from exports. Most of it goes to Europe; the rest is exported to the US, Australia, the Middle East and Asia. The global OTH market is highly concentrated. Three companies— Bridgestone, Goodyear and Michelin—enjoy almost 50%-55% share of the market. However, BIL has a competitive advantage over these global leaders as its production cost is lower because of the availability of cheap labour in India. This has allowed it to offer its products at prices that are 30% lower than its peers’ and gradually gain market share.

Another reason for its edge over global competitors is its engineering talent and continuous investment in R&D—designing and manufacturing better tyres more quickly after precise and complex planning. BIL develops over 150-160 new sizes of tyres every year with a turnaround time of 8 to 10 weeks for new product development—claimed to be the world’s fastest.

As regards financials, over the past four quarters, sales growth averaged 42%. Operating profit (OP) growth was 22% for the June 2011 quarter. Operating profit margin (OPM) remained around 18% over this period. Marketcap to sales (MC/sales) ratio is a low 0.75, whereas MC to OP is 4.11. The return on net worth (RoNW) was 22% for FY10-11. Buy the stock at around Rs145.

Carborundum Universal (CUMI), a Murugappa group company, is into coated and bonded abrasives, super refractories, electro-minerals, industrial ceramics and ceramic fibres. Abrasives are the company’s largest business segment and contributed 56% of the revenues for FY10-11; the ceramic business contributes 27%.

With a market share of nearly 35%, CUMI is among the strongest players in the Indian abrasives industry.

The operations are carried out from 11 manufacturing facilities for abrasives located in India, Russia and China. The subsidiaries/related entities located in North America, Middle East and Thailand support the businesses in getting an extensive customer reach.

On a consolidated basis, the company continues to maintain a leadership position in the Indian market. In the Russian market, the company is the market leader in bonded abrasives. Customers located in over 50 countries are also serviced through the network of subsidiaries and related entities. Abrasives are used in a wide spectrum of industries. Some of the sectors where CUMI’s abrasives are used include bearings, automobile and auto ancillaries, alloy steel, foundry & forgings, fabrication and general engineering industries.

The Indian abrasives industry is highly concentrated, although many global players have entered the Indian market due to a slowdown in Europe and the US. CUMI has managed to maintain and enhance its leadership position competing against global leader Saint Gobain’s Indian subsidiary Grindwell Norton (GNL). The Indian abrasives market has been growing at about 10%

CUMI has substantial operations outside India and derives almost 45% of its total revenues from international operations annually; CUMI and GNL together account for 70% of the market. The sales of CUMI’s abrasives in the Indian market increased by 21%, whereas the growth in the Russian market was much stronger touching 79% for FY10-11.

The ceramics business of CUMI operates in three niche product groups, viz, industrial ceramics, super refractories and anti-corrosives. The key user industries ``

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COVER STORY

Bear Beaters Sales

Growth*

OP#

Growth*

MC/Sales

MC/OP

RoNW**

Balkrishna Industries

584.44

28%

106.06

22%

0.75

4.11

22%

Carborundum Universal

263.25

34%

57.26

74%

2.63

12.08

24%

1,105.78

10%

113.69

-44%

4.54

44.15

26%

PI Industries

206.79

59%

43.15

122%

1.46

6.99

32%

Sadbhav Engineering

612.87

44%

67.78

34%

0.83

7.51

19%

189.09

36%

21.01

14%

1.65

14.81

22%

Q1 FY11-12

Lupin

Solar Industries India #

*Year-on-Year (June quarter), OperaĆ&#x;ng Profit, **Return on Net Worth, Sales and OP (Rs crore)

On the Rise

Above the Ground

80%

70%

Annual Sales Growth

Annual OP Growth

60%

50%

40%

30%

20%

10%

0%

-10% Balkrishna Inds

Carborundum Universal

Sadbhav Engineering

Lupin

PI Industries

Solar Industries

` for these products are power generation & transmission,

coal washeries, grain handling, sanitary tiles & sanitary ware, ballistic protection, cement, non-ferrous metals, iron & steel industries, carbon black, cement, non-ferrous metals, insulators, furnace building, glass, petrochemicals and construction.

The operations are carried out from eight manufacturing facilities for ceramics located in India and Russia. The subsidiaries in Australia, Canada, Middle East, China and South Africa support the customers.

Balkrishna Inds

Carborundum Universal

Sadbhav Engineering

Lupin

PI Industries

Solar Industries

CUMI Australia also provides installation-cum-service facilities. The company is mainly a regional player with leadership positions in India and Australia and also commands a key position in Russia. CUMI has substantial operations outside India and derives almost 45% of its total revenues from international operations.

Its products are exported to 43 countries. 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 ``

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COVER STORY

` CUMI access to key and scarce raw materials—silicon

carbide and zirconia—which are used in high-end abrasives and ceramics.

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 through three joint ventures (JVs). The JVs would be set up in a 25-acre Central government-approved renewable energy SEZ (special economic zone) in Kochi (Kerala). On a consolidated basis, CUMI has planned capex (capital expenditure) of Rs150 crore for FY11-12.

This does not include investment in the JVs. Thanks to strategic acquisitions, better positioning and diversified markets, CUMI has maintained a strong growth in sales and OP, bucking the downturn in the domestic market. Sales growth averaged 26% over the past five quarters whereas OP averaged 45%. The OPM was consistently around 20% over the past four quarters.

Its MC/sales is 2.63 whereas MC to OP is 12.08 which is not high, given its profit growth. Its RoNW was 24% for FY10-11. Buy the stock at Rs260.

Lupin has been very strong in the anti-TB segment and, over the years, it has built up expertise in fermentation-based products and segments. Lupin is now a fully integrated company, with manufacturing capabilities in active pharmaceutical ingredients (APIs) and formulations. It is actively targeting the regulated generics markets. Lupin is well-placed to take advantage of the domestic opportunity as well. India is not only one of the largest manufacturers of drugs globally but also one of the fastest-growing pharmaceutical markets in the world.

Lupin’s sales in India constituted 27% of gross sales at Rs15.70 billion during FY10-11 as against Rs13.50 billion during FY09-10, registering a growth of 16.5% over those in the previous fiscal. This growth was driven by strong performance and increasing market share in the cardiovascular, diabetes, neurological, asthma and gastro-therapy segments.

Lupin continues to lead in the anti-TB segment with over 45% market share. This segment of the business grew by 9.7% during FY10-11. Lupin is also the No 1 in the quinolone (chemotherapeutic anti-bactericidal drugs) category in the newer-generation quinolone market.

The formulations business, today, contributes 85% of the company’s overall revenues; the rest comes from APIs. Lupin is currently the seventh largest Indian domestic formulations-maker in the Indian pharmaceutical market having registered a growth of 13.8% during FY10-11 and has an overall market share of 2.7% of the pharma industry.

The company’s overall rank within the cardiology market rose to No 5, after a 21% growth, as against the market segment growth rate of 16%. Lupin’s largest brand, Tonact, became the highest-prescribed brand in its category with prescription share of over 11%.

Within five years, Lupin’s diabetes-care division has become a strong growth-driver, recording 31% growth during FY10-11. Lupin is currently the fourth largest company in this market segment. The division boasts big brands, like Gluconorm, Telista, Lupisulin and Matilda, which are ranked among the top five of their respective segments.

Lupin’s foreign business currently covers the markets of Japan, Australia, South Africa, South East Asia, Middle East and some markets within Latin America.

During FY10-11, Lupin’s business from these markets accounted for 16% of the total consolidated revenues.

Ex-India operations, along with its subsidiaries Kyowa (Japan), Pharma Dynamics (South Africa) and Multicare (the Philippines), reported revenues of Rs9.20 billion, a growth of 19% from those in the previous fiscal. The international business increased by 20.4% in FY10-11 to Rs38.90 billion from Rs32.30 billion in FY09-10.

Within five years, Lupin’s diabetes-care division has become a strong growthdriver, recording 31% growth during FY10-11 Strong performances were recorded in the US, Europe and Japan. During FY10-11, these markets contributed 51% of the company’s total revenues at Rs28.90 billion, up from Rs23.90 billion in FY09-10. Consolidated sales in the US, Europe and Japan increased by 22% to Rs28.22 billion for FY10-11, up from Rs23.20 billion in the previous year. Lupin continues to be the fifth ``

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COVER STORY

` largest and the fastest growing top 10 generics players by

prescriptions in the US and is the only Indian company to have achieved such a status. In FY10-11, the US branded business contributed 30% of the overall US revenues with a turnover of $133 million.

Financials of Lupin have been robust. Sales growth and OP growth for the company have averaged 19% and 13%, respectively, over the previous five quarters, with an OPM of 19%. Lupin earned a RoNW of 26% for FY10-11. Its MC/sales is 4.54 whereas MC to OP is 44.15 which is expensive. Buy the stock at around Rs400.

Founded in 1995, Solar Industries India Ltd (SIIL), formerly known as Solar Explosives Ltd, is one of India’s largest manufacturers and exporters of explosives.

We had written about SIIL earlier when the stock was Rs398.10 on the Bombay Stock Exchange. It is now trading at around Rs737. The company manufactures bulk explosives, cartridge explosives, detonators and detonating fuses, etc, catering to mining, infrastructure and construction companies. Coal mining alone uses nearly 70% of the explosives manufactured in the country. The balance is shared by the steel, cement and construction sectors. The company has also set up

Solar Industries has a 50% market share of exports of explosives and accessories from India. Exports increased by 86.14% for FY10-11 manufacturing units in Africa and is in the process of setting up another manufacturing facility in Europe.

India’s growth rate in the use of explosives has surpassed the GDP (gross domestic product) growth rate and the country has become the eighth largest market for explosives globally. The demand is expected to increase further, in tandem with the economic growth.

To cater to the rising demand, SIIL has a consolidated installed capacity of 331,700MT (million tonnes) of explosives (95,700MT of cartridge explosives and 236,000MT of bulk explosives), 175 million detonators and 93 million metres of detonating fuse. In the domestic market, SIIL is a market leader with a market share of 23%-24%. Bulk explosives and cartridge explosives bring in 75% of revenues; explosive accessories, such as detonating fuses, detonators and cast boosters, contribute the remaining 25%.

Growth of the explosives industry depends mainly on the growth of the mining, infrastructure and construction industries. India is the third-largest producer of coal globally. Coal India Ltd (CIL) is the world’s largest coal producing company contributing 82% of India’s total production. It has an annual consumption of around 65%-70% of the total quantity of explosives produced in India.

India became the fourth-largest producer of crude steel in the world in 2010—up from the eighth position in 2003. The production capacity is expected to increase, making India the second largest in the world by 2015.

This would lead to a significant rise in iron-ore mining by at least 9%pa. Similarly, growth in the production of zinc, lead, bauxite and other minerals is also expected to be quite healthy. With the strong growth of power, cement, steel and infrastructure sectors, demand growth for explosives in the country would increase substantially.

SIIL would also benefit from its enhanced presence in the international markets.

SIIL supplies to major public and private sector companies like CIL and its subsidiaries, Hindustan Zinc, Tata Steel, Jindal, SAIL (Steel Authority of India), ACC, HCC (Hindustan Construction Company), Gammon and L&T (Larsen & Toubro)—among others. It exports to more than 15 countries; key export markets include Africa, South East Asia, the Middle East and east European countries. SIIL has a 50% market share of exports of explosives and accessories from India.

Exports increased by 86.14% for FY10-11 over those in the previous year. SIIL’s bulk explosives plant in Africa, with a production capacity of 10,000 tonnes, will cater to the needs of mining customers in Zambia and Congo.

Approximately 13.14% of the total revenue contribution was from overseas operations in FY10-11.

The fundamentals of the company have been strong.

Average sales growth and OP growth over the past five quarters were 17% and 41%, respectively. OPM averaged 13% for this period. The MC/sales ratio was 1.65 and MC/OP was 14.81 which makes the stock expensive. SIIL had a RoNW of 22% for FY10-11. Buy the stock at Rs680. ``

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COVER STORY

`

We had written about PI Industries in our Cover Story on “Stocks To Scoop Up”. The stock was trading at Rs488 at that time. It hit an all-time closing high of Rs1,118.15 on 27 July 2011. It is now trading a tad below that and is a good buy.

India continues to be a favourite outsourcing destination for companies globally as it offers competitive advantage including knowledge base and competitive labour costs. PI Industries is capitalising on these factors and is one of the preferred outsourcing destinations for requirements in the agrochemicals and fine chemicals business.

Earlier known as Pesticides India, its name was changed to the present one in 1993 to reflect its new diversified businesses. PI is ranked amongst the top five Indian agrochemicals manufacturers, marketers and exporters and has many firsts to its credit. The company exports its products to over 35 countries across the Americas, Asia Pacific, Europe, Africa and Japan.

PI Industries manufactures agro-inputs and fine chemicals in India and internationally. Its agro-inputs include insecticides, fungicides, herbicides, plant nutrients, seed treatment chemicals, active ingredients and seeds. In addition, the company offers contract research and manufacturing services (CRAMS) in the areas of fine chemicals, agrochemicals, and pharma intermediates.

With over 1,100 employees, PI Industries currently operates three formulations and two manufacturing facilities as well as four multi-product plants under its three business units across Jammu & Kashmir and Gujarat.

These facilities have integrated process development teams with in-house engineering capabilities.

The company has also signed an agreement with the world’s largest electronics company, Sony Corporation, and has set up a research centre in Udaipur (Rajasthan)— PI-Sony Research Centre—for carrying out research in the area of synthetic organic chemicals for applications in the electronics industry for use in flexi-TVs, solar cells, etc.

During FY10-11, the company’s business grew by 38% y-o-y (year-on-year) spearheaded by the robust performance of some newly launched products. PI has also filed for the registration of three new molecules; these are expected to be commercially launched by 2012-13. The company has exclusive rights with several global corporations for distribution in India. Given the inevitable surge in demand for food grain production, the opportunities for agrochemicals companies are innumerable. PI Industries has a long-standing association with business partners and an intensive network of distributors across India.

The company’s custom synthesis and contract manufacturing of fine chemicals finds applications in agriculture, pharmaceuticals, electronics, imaging, printing, etc. PI has a very strong customer base comprising leading chemicals companies in Europe and Japan. The business reported an increase of 23% over the previous year. The fine chemicals business focuses on CRAMS. This business provides global customers in the agrochemicals, pharmaceuticals and specialty chemicals segments with process research and manufacturing solutions across various stages of a project.

The company has an impressive product portfolio as a result of exclusive tie-ups with leading agrochemicals, pharmaceuticals and fine chemicals companies around the world. PI has made substantial investments in building state-of-the-art process research and manufacturing facilities of chemical intermediates and active ingredients with special focus on strong process R&D capabilities.

This fine chemicals unit is expected to be the primary growth-driver with strong revenue visibility as India continues to be a preferred destination for outsourcing custom synthesis and contract manufacturing related projects.

PI Industries has an impressive product portfolio as a result of exclusive tie-ups with leading agrochemicals and pharma companies Revenue growth for the June 2011 quarter recorded a huge jump of 59% over the previous year’s and OP grew by 122% for the same period while net profit soared 390.79%. This was the highest growth recorded in the past five quarters which had an average sales growth of 37% and an average OP growth of 56%. The OPM averaged 18% over the past five quarters. RoNW for ``

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COVER STORY

` FY10-11 was 32%. The stock is still cheap. Its MC/sales

and MC/OP are 1.46 and 6.99, respectively. Buy the stock at the current price.

With a focus on the roads, mining and irrigation sectors, Sadbhav Engineering Ltd (SEL) is one of the few infrastructure/construction companies that have bucked the downtrend. Construction of roads and highways made up more than 70% of its revenue in FY10-11.

Contracts for construction of roads are expected to increase this year. The National Highways Authority of India (NHAI) has begun the year by awarding projects of approximately 1,000km in April and May 2011 and has set a target of 11,000km for the current fiscal. SEL would be looking to capitalise on this opportunity.

SEL is into BOT (build-operate-transfer) under which it builds roads and, subsequently, operates and maintains them for the stipulated period—which normally ranges from 10 to 30 years. During this period, the company collects tolls to cover costs and make profits. While the company is currently well-funded, it needs to win a large amount of BOT projects to maintain its current growth momentum.

Many BOT projects of Sadbhav Engineering are running ahead of schedule—a testimony to the company’s execution capability Many of SEL’s BOT projects are currently running ahead of schedule—a testimony to the company’s execution capability. The 97-km Bijapur-Hungund (Karnataka) toll road is expected to be commissioned by December 2011 against the original completion date of March 2013. The 89-km Dhule-Palasner (Maharashtra) road is expected to be up and running 12 months ahead

of schedule. The Hyderabad-Yadgir (running from Andhra Pradesh to Karnataka) road is also expected to be completed ahead of time.

Apart from the roads segment, SEL has undertaken numerous irrigation and mining contracts which together contribute to more than 20% of its order books.

In the irrigation segment, it has executed a significant portion of the world’s largest concrete-lined canal along the Narmada which can handle water flow of 40,000cusecs (cubic feet per second). Project awards in the irrigation segment are picking up with the Narmada Valley Development Authority (Madhya Pradesh) and the Sardar Sarovar Narmada Nigam (Gujarat) taking the lead. The company has recently bid for orders worth Rs1,100 crore with the latter.

In the mining segment, SEL undertakes projects involving removal of overburden (before mining), rock, lignite and copper, etc, for state-based companies like Gujarat Industries Power Corporation, Gujarat Heavy Chemicals and Gujarat Mineral Development Corporation. Its current capacity in the mining segment is 50 million cubic metres per annum which it is planning to increase to 200 million cubic metres. The company expects the mining segment to be a key driver of order inflows. These contracts are long term in nature. SEL has recently bid for a Rs10,000-crore mining job for SAIL in association with Godavari Steel & Power, apart from participating in some large tenders for CIL and its subsidiaries.

Sales and OP of the March 2011 quarter were Rs1046.72 crore and Rs90.83 crore, respectively, and for the June quarter they were Rs612.87 crore and Rs67.78 crore, respectively. OPM is around 11% and the RoNW for FY10-11 was 19%. MC/sales is 0.83, whereas MC/OP is 7.51. Buy the stock at around Rs125.

None of the stocks we have mentioned above is a sure bet. Stocks, by their very nature, never are. Despite the deep gloom surrounding the stock market and the economy, these stocks have held up very well because they have an excellent growth record. The past does not always repeat itself but these companies exude strong growth possibilities; most of them have a significant portion of their revenues coming from global markets due to the competitive advantage they have of low-cost operations. Some of the companies are also into unique businesses.

If you plan to buy these stocks, invest wisely; keep in mind the need to diversify. Remember to think long term. While no one can predict the severity of the current bear market and how long it would last, historically, it is in a market such as this, that one can accumulate strong stocks.

MONEYLIFE | 8 September 2011 | 34

Cover Story.indd 8

8/19/2011 6:54:36 PM

STOCKS STREET BEAT

Unbiased & Methodical Stock Picking that Works!

WA B C O I NDIA

Driving Force

tio n St or ies of Pr ice Ma nip ula

A near-monopoly in air brakes

W

abco TVS (India), which started off as a joint venture between the TVS group and Wabco Holdings Inc, pioneered the manufacture of air-assisted and airbrake systems for commercial vehicles in India. The company supplies original equipment (OE) fitments for manufacturers of commercial vehicles and trailers. It has three manufacturing facilities—two in Chennai and one in Jamshedpur. The company’s product profile includes air compressors, actuation systems, control valves, anti-lock brake systems and electronic brake systems.

Wabco TVS has achieved over 85% share of business in the OE segment and more than 75% share of the after-sales market.

It also exports to Australia, Malaysia, UK, Singapore, South Asia, North America, Venezuela and the Middle East. Wabco Holdings Inc acquired majority ownership in Wabco TVS (India) in 2009, thereby strengthening Wabco’s presence in India. Until June 2012, Wabco was allowed to use the TVS trademark in sales, marketing and distribution of products. The company is now called Wabco India (effective 2 August 2011).

The commercial vehicle industry registered a significant revival in 2010-11 with a growth of 33% in medium and heavy commercial vehicles (MHCV) sales volumes. This growth increased the company’s turnover as well as sales in the aftersales market and exports. Wabco TVS achieved a turnover of Rs899 crore compared to a turnover of Rs609 crore in the previous year.

For 2011-12, the government has projected 8.5% GDP (gross domestic product) growth. The industrial sector is projected to grow by 7.9% mainly due to growth in manufacturing.

The agriculture sector is expected to grow at 2.1% and services sector at 9.9%. All this will result in improved freight availability; hence, the MHCV industry is likely to register a ``

Beryl Drugs (Rs33) 33) Indore-based Beryl Drugs apparently sells branded, generic pharmaceutical formulations in India and in the global market. Beryl also claims to offer R&D, and contract manufacturing for pharma companies. Balderdash. Revenues in the past nine quarters ranged from Rs1.83 crore in the March 2009 quarter to Rs4.48 crore in the September 2010 quarter and (Rs)

Beryl Drugs

40

30

20

318%

10

0 Mar-10

Nov-10

Aug-11

dipped again to Rs1.68 crore in the March 2011 quarter. Its operating profit in the same period swung between Rs8 lakh in the March 2009 quarter and Rs89 lakh in the September 2010 quarter, then fell to a low of Rs2 lakh in the December 2010 quarter and rose to Rs21 lakh in the March 2011 quarter.

The stock shot up 318% from Rs8.05 on 23 March 2010 to Rs33.65 on 17 August 2011.

Easy manipulation on the BSE?

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

35 | 8 September 2011 | MONEYLIFE

Stock-Streetbeat.indd 2

8/19/2011 8:27:00 PM

STOCKS STREET BEAT

Unbiased & Methodical Stock Picking that Works!

` positive growth of 10%-12%. Regulatory changes are helping

too. To ensure road safety, the government has introduced mandatory fitment of anti-lock braking systems for commercial vehicles carrying hazardous goods since October 2006 and for tractor-trailers and buses with national permits since October 2007.

Local market growth opportunities through increase in content per vehicle of new systems like automated manual transmission, electronically controlled air suspension and clutch actuation systems, etc, will result in increased Rs Cr. Dec-10 Mar-11 Jun-11 business opportunities Net Sales 218.62 248.06 244.99 for Wabco. The company 52.02 has planned capital OP 49.50 55.82 21% expenditure of Rs60 crore Y-o-Y Sales Growth 30% 26% 20% for FY11-12, taking into Y-o-Y OP Growth 24% 20% account the industry’s 21% OPM 23% 23% growth in the previous OP: Operating Profit, Y-o-Y: Year-on-Year, OPM: Operating Profit Margin fiscal.

Wabco TVS reported Good Break revenue of Rs244.99 (Rs) crore in the quarter ended 1,350 30 June 2011 compared Wabco India to Rs202.38 crore in the 1,250 corresponding previous quarter, a growth of 1,150 21%. Net profit was 950 up 22.01% to Rs34.15 crore from Rs27.99 850 crore during the yearFeb-11 May-11 Aug-11 ago period. Operating profit for the June quarter was Rs52.02 crore, up 20% over Rs43.22 crore in the first quarter of FY10-11. Operating profit margin (OPM) for the ``

tio n St or ies of Pr ice Ma nip ula Global Capital Market & Infra (Rs17) Set up in 1989 as Baid & Company Pvt Ltd, Global Capital Market & Infrastructures got its present name in 1994. It is engaged in leasing, stock broking, etc. Of the past nine quarters, its revenues were negative in the March 2009 and March 2010 quarters.

Revenues in the other quarters ranged from Rs63 lakh in the June 2009 quarter to Rs1.51 crore in the December 2010 quarter and (Rs)

Global Capital Market & Infrastructures

30

20

10

305%

0 Mar-10

Nov-10

Aug -11

to Rs9.74 crore in the March 2011 quarter.

The company reported operating losses of Rs57 lakh in the March 2009 quarter and Rs54 lakh in the March 2010 quarter. It reported marginal operating profits in the other quarters and an operating loss of Rs75 lakh in the March 2011 quarter. Despite such absurd financials, the company’s stock soared 305% from Rs4.67 on 9 March 2010 to Rs18.90 on 17 August 2011.

Recommended Price Rs145

MONEYLIFE STOCK IDEAS

THAT WORK

Moneylife Issue 25 February 2010

109%*

Exit Price Rs263

(Stop Profit triggered on 25 November 2010)

(EXCEL CROP CARE)

* Annualised returns

MONEYLIFE | 8 September 2011 | 36

Stock-Streetbeat.indd 3

8/19/2011 8:27:20 PM

STOCKS STREET BEAT

` June quarter was 21%. Over the

past five quarters, the company’s average revenues and operating profit growth were 48% and 60%, respectively. Average OPM for the past five quarters was 22%. Based on the annualised results for the June 2011 quarter, the company’s market-cap to revenue was 2.41 times and market-cap to operating profit was 11.36. The company’s board has recommended a dividend of Rs5 per share for the year ended 31 March 2011, a payout of Rs9.48 crore.

As part of its future plans, Wabco TVS plans to develop and launch a lift-axle control system for the Indian market. It also proposes to design and develop hydraulic brake boosters and park brake modules and series production of valve devices for North American original equipment manufacturers and value engineered footbrake valves with integrated switches for Indian customers. The stock has totally bucked the recent market crash, hitting an all-time high in mid-August. Buy for the long term.

Unbiased & Methodical Stock Picking that Works!

digital communication systems and lubricants. Kolkata-based Tide Water has been a pioneer of automotive and industrial lubricants in India since 1928. It produces engine oils for vehicles, gear oils, transmission oils, coolants and grease oils. Its products are

Rs Cr.

Dec-10

Mar-11

Jun-11

Net Sales

169.10

198.88

195.93

22.32

32.72

28.15

Y-o-Y Sales Growth

0%

36%

18%

Y-o-Y OP Growth

-1%

46%

4%

OPM

13%

16%

14%

OP

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

Greased Lightning (Rs)

7,550

T I DE WA T E R OIL

Castrol’s Cousin A low-priced stock that earns 24% return on equity

L

ubricants-maker Tide Water Oil Co (India) Ltd (Tide Water) is a part of the multi-divisional Andrew Yule group that has diverse interests in engineering, electricals, tea cultivation, power generation,

7,240 6,930 6,620

Tide Water Oil 6,310 6000 Feb-11

May-11

Aug-11

primarily marketed under the brand name ‘Veedol’.

The company’s other sub-brands are: ‘Prima’, ‘Turbo’ and ‘Take Off’.

It also makes metal-working fluids, quenching oils and heat-transfer

oils. Tide Water has a technical collaboration agreement with JX Nippon Oil & Energy Corporation (Japan) for making hi-tech lubricants. The firm also supplies Japanese original equipment manufacturers. For the fiscal ended 31 March 2011, net profit increased to Rs64.16 crore from Rs57.79 crore last year; net revenues rose to Rs691.55 crore from Rs564.72 crore last year. It recommended dividend of 600% (Rs60 per share) for FY10-11 against 500% for the previous year.

Tide Water’s net profit for the March 2011 quarter jumped to Rs23.64 crore from Rs14.39 crore in the corresponding period last year. Net sales stood at Rs197.06 crore compared to Rs147.97 crore; EPS (earnings per share) leapt to Rs271.35 from Rs165.17 for the year-ago period. In the June quarter, net profit rose to Rs17.78 crore from Rs16.89 crore in the corresponding period last year while net revenues rose to Rs194.70 crore compared to Rs165.92 crore, clearly underlining the cost pressures.

Tide Water is planning to enter multi-brand automobile service centres. Over the past five quarters, Tide Water has reported an average growth in revenues and operating profit of 13% and 10%, respectively. Its average operating margin is 14% and return on net worth is 25%. Although Veedol competes with Castrol, Tide Water’s market valuation is extremely cheap. Its market-cap to revenues is 0.77, while its market-cap to operating profit is just 5.35 times.

The stock is an attractive buy at the current market price.

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

37 | 8 September 2011 | MONEYLIFE

Stock-Streetbeat.indd 4

8/19/2011 8:27:42 PM

STREET BEAT WHICH WAY

Debashis Basu

The Gloom Spreads

We got such an event last fortnight when Standard & Poor’s downgraded the US debt from AAA rating. The Sensex crashed to 16,432. At that level, the Sensex PE was just above 14. Low, but not compelling. Markets But do look ahead and beyond have gone to as low as P/E of 10. I am not suggesting we will see a PE of 10 but it would not be unusual for ast fortnight, I had pointed out that two investors to get fixed into a gloom & doom scenario extraneous events—an extremely hawkish and keep selling stocks, irrespective of whether the Reserve Bank of India and a severe slowdown market is undervalued. Assuming that PE of 13 is in the US—have created new fundamental hurdles for possible, a Sensex level of 14,950 is on the cards, even the market’s advancement and that my earlier sense as the market looks undervalued all the way down. We of mild optimism must remain on hold for now. Things will keep a sharp eye, as events and data unfold. have worsened since then. The Sensex dipped sharply Last fortnight, I suggested that long-term investors towards 16,400 and has been very slow to recover. In should start nibbling. This fact, what we are witnessing is remains unchanged. Long-term a pervasive, collective gloom investors must look beyond about the Indian economy and today’s troubles and into the governance. future.

More important, suddenly, The Internet is abuzz with analysts are saying that the call of one of our best fund earnings growth will not be managers, Prashant Jain of HDFC that good. Regular readers Mutual Fund. He has cited previous situations when would remember that I had always insisted that the the market was similarly valued and the subsequent Sensex was overvalued above 18,000, contrary to the excellent returns. We agree with the broad thrust of his cacophony of the overwhelming majority of people argument. The market is getting undervalued, who argued that the market was undervalued. My logic ignore the noise and invest slowly and was simple. The earnings per share systematically.

(EPS) projected by analysts I had also said that while was too optimistic. Sensex EPS the long-term trend is would not be Rs1,220-Rs1,250 not yet up, we may get as most analysts estimated. My a medium-term rise. estimate has been Rs1,150, for This turned out to be months together now. Based on that, wrong, thanks to the utter chaos the Sensex starts getting undervalued following the US downgrade. We, once again, below 17,250, assuming a reasonable turn neutral directionally. Given the damage prices ‘historical average’ PE (price-tohave suffered, we are unlikely to see a long-term earnings ratio) of 15. uptrend soon. As for the bottom, no point in Also, when the mood is gloomy, the looking for one now. The downtrend is firmly ‘historical average’ PE of 15 makes little Medium-term: — in place. sense. The PE can go lower, especially Long-term: — (Feedback at editor@moneylife.in) when there is an intense negative event.

L

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 | 8 September 2011 | 38

Which way.indd 1

8/19/2011 8:33:54 PM

STOCKGRADER MOMENTUM

Gaining Traction

36%

Compounded Annual Return

M&M soared 9% and Power Grid Corporation ended flat, while Hindalco tumbled 15% Gainers: Mahindra & Mahindra (M&M) reported a standalone net profit of Rs605 crore for the quarter ended 30th June, a growth of 7.55% over Rs562 crore during the same quarter last year. The stock soared 9% in the fortnight. Orchid Chemicals & Pharmaceuticals has resumed production at its Alathur unit in Chennai.

The cephalosporin producing facility at Alathur was issued a closure notice by the Tamil Nadu Pollution Control Board citing noncompliance with regard to the disposal of solid waste in July this year. The stock climbed 3%. Although the government allowed additional five lakh tonnes of sugar exports, it does not expect the decision to affect retail prices of the sweetener. EID Parry (India) ended flat.

Sadbhav Engineering surged 4% and Power Grid Corporation of India ended flat.

Losers: Hindalco Industries announced a 21% yearon-year jump in its net profit for the quarter ended 30 June 2011 at Rs644 crore against Rs534 crore in the corresponding period of 2010. The company’s net

sales, at Rs6,031 crore in April-June 2011 quarter, were up 16% from Rs5,178 crore in the same period last year. The stock tumbled 15%. Rising interest rates on domestic funds is forcing steelmakers to re-plan their borrowings with greater recourse to overseas loans. With the Reserve Bank of India’s tight monetary policy stance, the cost difference between domestic and overseas funds is now 5%-6%. Bhushan Steel is planning to raise R2,500 crore-Rs3,000 crore over the next one year taking its total outstanding loans to around Rs18,000 crore. The stock tanked 12%. Sesa Goa declined 9% and HDFC Bank fell 2%.

Changes: We are removing Bhushan Steel, Hindalco Industries and Sesa Goa and adding PI Industries, Carborundum Universal, Chambal Fertilisers and Chemicals, Indraprastha Gas and Solar Industries.

Note: Please read our changed methodology for grading stocks (given below). We have also added a column showing returns since the stock’s appearance in the table. Returns from new stocks added are counted after one issue.

RS Grade

Funda Grade

Final Grade

Entry Date

Company

RS Grade

Funda Grade

Final Grade

Entry Date

Indraprastha Gas

A

A

A

19 Aug-11

—

Magma Fincorp

B

B

B

07 Jul-11

-11%

PI Industries

A

A

A

19 Aug-11

—

Sintex Industries

B

B

B

01 Apr-11

-13%

Solar Industries India

A

B

A

19 Aug-11

—

Divi’s Laboratories

B

B

B

07 Jul-11

-13%

M&M

A

C

A

28 Apr-11

-7%

GSK Consumer

B

C

B

29 Apr-09

179%

Chambal Fertilisers

A

D

A

19 Aug-11

—

HDFC

B

C

B

15 May-09

65%

Dish TV India

B

A

B

06 Aug-10

64%

Balkrishna Industries

B

C

B

07 Jul-11

-2%

Sadbhav Engineering

B

A

B

28 Apr-11

0%

Power Grid Corp

B

C

B

07 Jul-11

-8%

Return*

Company

Return*

Yes Bank

B

A

B

22 Jun-11

-20%

Punjab National Bank

B

C

B

22 Jun-11

-15%

Orchid Chemicals

B

A

B

28 Apr-11

-43%

Prime Focus

B

C

B

07 Jul-11

-18%

Shriram Transport

B

C

B

18 Feb-11

-19%

Shree Renuka Sugars

B

C

B

06 Aug-10

-22%

Bank of India

B

C

B

21 Jan-11

-32%

Bank of Baroda

B

B

B

29 Apr-09

128%

Titan Industries

B

B

B

16 Apr-10

92%

HDFC Bank

B

B

B

04 Mar-11

4%

Carborundum Univ

B

B

B

19 Aug-11

—

Cadila Healthcare

B

D

B

12 Nov-10

5%

Siemens

B

B

B

22 Jun-11

-7%

EID-Parry

B

D

B

12 Nov-10

-8%

Fed-Mogul Goetze

B

B

B

28 Apr-11

-9%

Federal Bank

B

D

B

13 May-11

-19%

*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.

39 | 8 September 2011 | MONEYLIFE

Momentum.indd 2

8/19/2011 8:56:23 PM

STOCKGRADER MEDIUM TERM

Gearing Up

43%

Compounded Annual Return

3M India soared 7% and Dabur added 4%, whereas Linc Pens plunged 6% Gainers: FMCG company Dabur is gearing up to enter the Indian aroma products market by expanding the portfolio of its existing air-freshener brand Odonil, targeting sales of Rs300 crore from the segment by 2015. Dabur will launch a range of aroma products such as traditional oil-burners, pillar candles and aromatic floating candles under the Odonil brand. The stock rose by 4% in the fortnight. Munjal Auto Industries, 3M India and Supreme Industries were up by 10%, 7% and 3%, respectively. Mumbai-based Supreme Petrochem has chalked out an investment plan of Rs175 crore, spread over two years, for expanding its business through capacity expansion and entering new markets. The company has used part of the funds for increasing special polystyrene capacity to 30,000 tonnes per annum. The stock ended flat.

Losers: Orient Paper & Industries, a CK Birla group company, registered a phenomenal rise in operating profit for the June 2011 quarter. Its profit rose by 47% to Rs116.47 crore from Rs79.40 crore in the corresponding period last year. Net sales increased by 22% to Rs546.97 crore. The stock fell 2% in the fortnight. Linc Pen & Plastics, a key player in writing instruments, has

forayed into the entertainment segment through a separate unit. Linc Entertainment will engage in movie production, distribution and music rights. The firm has already produced its first movie, Shakal Pe Mat Ja with a budget of around Rs8 crore that is expected to hit theatres by September. The stock plunged 6%. In the next four years, Shoppers Stop will invest up to Rs400 crore to expand its operations in India.

Half the amount will go into opening 25 new Shoppers Stop department stores and the balance will be used to set up 16 new Hypercity formats. Right now, there are 43 Shoppers Stop departmental stores, 10 Hypercity hypermarkets and several other specialty format stores such as Home Stop, Crossword, Mothercare, Estée Lauder and MAC in 19 cities. The stock tumbled 6%.

Changes: We are removing Vivimed Labs, Ipca Laboratories, Apollo Tyres, Ranbaxy Laboratories, Tata Consultancy Services, Linc Pen & Plastics.

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

Petronet LNG

A

A

A

29 Apr-09

217%

Munjal Auto Inds.

A

A

A

26 May-11

21%

3M India

A

C

Kajaria Ceramics

A

A

A

26 May-11

17%

Asian Paints

A

C

Titan Industries

A

B

A

01 Apr-10

117%

Akzo Nobel India

A

C

A

23 Jun-11

2%

Supreme Petrochem

A

B

A

27 May-10

72%

Lupin

A

D

A

29 Apr-09

206%

Siemens

A

B

A

27 May-10

23%

Sun Pharma

A

D

A

29 Apr-09

93%

Time Technoplast

A

B

A

26 May-11

10%

Praj Industries

B

A

B

21 Jun-11

-14%

Orient Paper & Inds

A

B

A

26 May-11

-3%

HDFC Bank

B

B

B

29 Apr-09

110%

CRISIL

A

C

A

29 Apr-09

162%

Motherson Sumi Sys

B

B

B

23 Jun-11

1%

Nestlé India

A

C

A

29 Apr-09

146%

Shoppers Stop

B

C

B

23 Jun-11

-9%

Dabur India

A

C

A

01 Apr-10

33%

Cadila Healthcare

B

D

B

20 Jan-11

-2%

Supreme Industries

A

C

A

26 May-11

26%

—

—

—

—

—

Return*

Company

RS Grade

Funda Grade

Final Grade

Entry Date

Amara Raja Batteries

A

C

A

28 Apr-11

21%

A

23 Jun-11

16%

A

23 Jun-11

9%

Return*

—

*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 | 8 September 2011 | 40

Medium Term.indd 2

8/19/2011 8:59:27 PM

STOCKGRADER LONG TERM

Bright Coat

44%

Compounded Annual Return

Asian Paints jumped 5% and ITC gained 4%, while Ranbaxy tumbled 9% Gainers: Berger Paints India is planning to ramp up capacity at its existing and new units. It has already doubled the capacity of its water-based paints unit in Hindupur (Andhra Pradesh). The company is also looking at new business lines like construction chemicals. The annual capacity of the Hindupur plant will be 3.2 kilolitres. The stock rose by 1% in the fortnight. Asian Paints jumped 5%. Tobacco-to-foods giant ITC is planning to enter the chewinggum market and take on multinational players like Perfetti Van Melle and Wrigley’s.

Perfetti has varied products in the Rs4,000crore confectionary business including sugar confectionery (mints, candies, éclairs, etc) and gum.

But ITC operates only in the sugar confectionery arena which limits the size of its business. ITC could have imported the gum base—the main raw material— and launched products quickly, but that would have impacted its margins. It is said to be developing the gum base indigenously to cut costs. The stock gained 4%.

Losers: Ranbaxy Laboratories’ over-the-counter (OTC) division has launched a two-in-one painkiller, Volini Duo,

across the country. The product has been developed at the company’s Gurgaon R&D centre. Ranbaxy claims that the tablet is specifically effective for chronic back and joint pains.The stock tumbled 9%. Adani Gas, a unit of Adani Enterprises, will pick up 20% equity in Green Gas, a joint venture between GAIL India and Indian Oil Corporation. Green Gas supplies city gas and compressed natural gas in Agra and Lucknow (Uttar Pradesh). GAIL and IOC hold 22.5% each in the company while Uttar Pradesh State Industrial Development Corporation holds 5% equity. Adani Enterprises declined 10%.

Sun Pharmaceutical Industries and Castrol India slipped 4% and 7%, respectively.

Changes: We are removing Apollo Tyres, Adani Enterprises, GlaxoSmithKline Pharma, Ranbaxy Laboratories, Tata Consultancy Services and adding Gujarat Fluorochemicals.

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

A

A

A

29 Apr-09

530%

Berger Paints India

A

B

A

26 May-11

Petronet LNG

A

A

A

26 May-11

23%

Lupin

A

C

A

29 Apr-09

206%

Titan Industries

A

A

A

03 Feb-11

13%

CRISIL

A

C

A

29 Apr-09

162%

Wyeth

A

A

A

23 Jun-11

12%

Asian Paints

A

C

A

27 May-10

53%

ITC

A

C

A

27 May-10

48%

Marico

A

C

A

26 May-11

13%

C

A

23 Jun-11

9%

Return*

Company

RS Grade

Funda Grade

Final Grade

Entry Date

Return* -3%

Motherson Sumi Sys

A

A

A

23 Jun-11

1%

Guj Fluorochemicals

A

A

A

18 Aug-11

—

Nestlé India

A

B

A

29 Apr-09

146%

Amara Raja Batteries

A

HDFC Bank

A

B

A

29 Apr-09

110%

Hindustan Unilever

A

C

A

25 Nov-10

7%

Supreme Industries

A

B

A

23 Jun-11

22%

Castrol India

A

C

A

28 Apr-11

6%

Emami

A

B

A

26 May-11

10%

Sun Pharma

A

D

A

29 Apr-09

93%

Godrej Consumer

A

B

A

26 May-11

8%

Akzo Nobel India

A

D

A

23 Jun-11

2%

Shoppers Stop

A

B

A

26 May-11

-1%

Power Grid Corp

B

C

B

03 Feb-11

4%

Ipca Laboratories

A

B

A

20 Jan-11

-3%

Cadila Healthcare

B

D

B

20 Jan-11

-2%

*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.

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8/19/2011 8:58:23 PM

“You Can’t Time the Market.” Maybe.

21,100

18-31 Jan ‘08

12-25 Oct ‘07

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

17-31 Jul ‘08

15 Feb-1 Mar ‘07

17,325

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

23 Apr-7 May ‘06

“A new downleg may start soon”

28 Mar-10 Apr ‘08

31 Aug-13 Sept ‘07 13,550

“Is the market due for a fall?”

2-15 Jan ‘09

“A short-term bottom may be very near”

16-29 Mar ‘07

“A Rally Now?”

“Weakness has resu 4-17 August ‘06

“The panic looks done for now”

9,775

Sensex

30

“Might the markets be ready to surprise us on the upside?”

“Expect another leg of stock market rally” “A 6,000 Apr-06

Aug-07

Dec-08

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

Sensex.indd 2

8/19/2011 7:41:31 PM

13-26 Aug'10 18-31 Dec‘09

23 Apr-6 May'10

The Coming Decline

Short-term Top?

4-17 Dec‘09

Time To Sell?

19 Jun-2 July ‘09

15-28 July ‘11

Headed Down?

“Is the market about to crack?”

Signal Yellow?

6 Nov-19 Nov ‘09

11-25 March '10

31 July-13 Aug ‘09

“We have no Forecast”

A Buyers’ Market

5 Jan ‘09

“Buy the dip”

27 Feb-12 Mar ‘09

s has resurfaced” “A Breakdown?”

30 Jan-12 Feb ‘09

“A weak rally now”

Dec-08

13-26 Mar ‘09

“Another weak rally”

Apr-10

Aug-11

Moneylife Stock Analysis

KNOW WHAT’S COMING

Sensex.indd 3

8/19/2011 7:42:54 PM

Insurance Trends New products, regulations, features and options, interpreted from your perspective C U S T O ME R BEHAV IOUR

Worried about Health Cover?

A new survey offers important insights

I

n a survey of the Asia Pacific Region by insurance major Swiss Re, an overwhelming majority of Indian respondents (89%) preferred buying life and health insurance through insurance agents, followed by banks (36%) and independent financial advisers (30%).

Indians are interested in buying insurance products, but perceive it to be expensive. Given the significant protection need, 78% of respondents are planning to buy life/health insurance products in the next 12 months. When asked what deters them from buying insurance, 42% of respondents say price is an issue. But 80% are willing to pay at or above the market price range for a specified term life insurance cover.

The study shows that a majority (71%) of respondents is concerned about the amount they have to pay out of their pockets for medical expenses relating to major illness; 70% are concerned that their medical/health insurance premium will increase beyond what they can afford in the future. The most important criterion for choosing

an insurance company is VFM (value for money) (55%), followed by good reputation (52%) and financial soundness (42%).

HE ALTH INSURANCE

Tech-savvy Cashless IndiaFirst Health ULIP’s innovative approach

I

ndiaFirst Health ULIP-Money Back health insurance plan is a long-term savings-cum-indemnity health insurance plan for 5 or 10 years offering cashless facilities at 4,956 network hospitals. The customer need not call a TPA (third

party administrator) or send a fax for cashless approval. Once the card is swiped, authorisation happens immediately, bypassing the entire documentation that is otherwise required.

A part of the premium goes

towards morbidity charges to provide the health benefit. The annual morbidity charge for persons between 26 and 30 years of age for Rs5 lakh sum assured will be Rs5,941. There are no mortality charges, as there is no life cover.

The remaining part of the premium is invested in one or more of five fund options with varying percent of equity, debt and money-market exposure. The performance of the fund option will be reflected in the fund value of the policy.

LIFE INSURANCE

Can It Build Your Dream?

IDBI Federal Dreambuilder carries high mortality charges

I

DBI Federal Wealthsurance Dreambuilder ULIP offers the flexibility of choosing premium from Rs25,000 to Rs1 lakh, 13 fund investment options, sum assured with no limit (subject to underwriting), riders which cover 17 major diseases, hospital cash benefit, disability, accidental injuries and policy term that can range from 10 years to the period when the insured person reaches age 75. The flexibility, optional riders and the option of a long-term policy are the USP (unique selling proposition) of the product.

The mortality charges on Wealthsurance Dreambuilder are high. While LIC’s standard mortality rate has a mortality factor of 1.42 at the age of 25, IDBI has decided on a factor of 1.87 for Dreambuilder.

Insurers are permitted to charge according to their experience in the life insurance business, and Aegon Religare has a mortality factor of just 1.083 for age 25.

MONEYLIFE | 8 September 2011 | 44

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INSURANCE TRENDS

INTERVIEW

“Indians are ready for ‘Do-ItYourself’ insurance” Yashish Dahiya, chief executive officer, Policybazaar.com, speaks to Raj Pradhan of Moneylife ML: What is the market for Policybazaar.com?

YD: An average agent sells only 2.2 policies per month. To survive, he has to make a lot by way of commissions—at the expense of the customer. Since commissions are unlikely to come down, the time is ripe for customers to apply the ‘Do-It-Yourself’ concept and buy insurance online at a lower price. This is where we come in. We bring transparency and aggregation for customers to compare the policy features and premium, as well as purchase many products online. This also helps insurance companies with reduced distribution costs. Our target is to bring the distribution cost of insurance policies to less than Rs1,000 over the next 18 months.

ML: Are Indians ready for ‘Do-It-Yourself’?

YD: The heavy traffic coming to our website is encouraging and shows that customers are proactive in searching for insurance and getting educated about it. If they want lower policy charges, there is no option but to choose the cheapest distribution channel. For example, in Western countries, it is very expensive to call a plumber or a house-cleaner; so people have to manage these activities themselves. In the past, customers did not worry too much about ULIP (unit-linked insurance plan) charges as the markets were doing fine and their money was growing in ULIPs. When the markets crashed in 2008-09, customers started to find out how the charges impacted their returns and the downturn left them worse off. This realisation is an impetus for the ‘Do-It-Yourself’ concept.

ML: Bancassurance may be opened for two insurers per bank. What about agents?

YD: IRDA (the Insurance Regulatory and Development Authority) should allow agents to sell policies of more than one insurer. It will help them sell the best product for customers rather than restricting them to products from only one insurer. After all, the ‘one-insurer-per-agent’ concept is totally compromised in practice. To get around the rule, rule family members become agents of different insurers. This Thi helps family members offerings from different insurance target customers with offerin companies. In Italy, agents aare required to sell for three in India too. insurers at least. It can be adopted a websites have the best rates for auto ML: Do aggregator website insurance?

YD: There is reluctance on the part of insurers to share we bring may not be auto premium. The transparency transpar cases. There are also differential appreciated, in some cases discounts offered by different distribution channels. We have hav been working with companies and, very soon, will be insurance comp able to give proper comparison rates for pr eight or more insurers.

Fine Print Insurers Cannot Walk Away

I

RDA has said that insurance companies cannot cancel health insurance policies mid-term. IRDA is responding to complaints from group health insurance policyholders whose contracts were cancelled within a year because of high claims. Insurance companies may have offered low-priced group mediclaim, due to cross-subsidy or competition, but high claims ratio may have made it unaffordable. The cancellation clause was used by insurers to walk away at will.

Pension Annuity from the Same Insurer?

C

urrently, a policyholder can buy an annuity product at the time of vesting (on completion of the accumulation phase) from another insurer of the policy. A new IRDA proposal (on IRDA website asking for customer comments) has suggested that the annuity should be purchased from the same insurer.

The proposal stems from the need to expand the annuity business, 95% of which is controlled by LIC (Life Insurance Corporation of India), to private insurers.

IRDA believes that domination of the pension market by LIC could be risky and that it is important for other insurance companies to participate in the pension market. The restriction may achieve the reverse effect and force customers to buy pension products from LIC— just to be able to buy annuity from LIC. Comments may be forwarded to meena@irda.gov.in.

Insurance for Car Drivers?

I

RDA is planning to make it mandatory for drivers to insure themselves. “In other countries, the driver is insured as accidents are caused by drivers and not the vehicles and I think we will get there (insuring the driver),” says IRDA chairman J Hari Narayan. The cost of vehicle ownership may go up further, if IRDA makes this move.

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PERSONAL BUSINESS AUTO

CO MM ER CIA L VE HIC LE SA LES

Smallis Big hicles are Smaller commercial ve S er ones, sselling better than bigg al says Veeresh M ik

T

he downturn in the private car market, now affecting larger commercial vehicles also, has not come as much of a surprise. You can’t judge the severity of the issue from the numbers being reported because most data is based on despatches from the factories and not dealer sales. In some cases, inventories have reached 90 days and more. Some great deals for fleet operators and others are still available, especially for vehicles which are ‘stale’. Earlier, it was easy to make out how ‘stale’ a vehicle was by looking at the date stamped on the tyres, but that rule has been withdrawn. Now, you have to ask for the date on the excise gate-pass and cross-check it.

By contrast, small commercial vehicles (three- and four-wheelers), and certain two-wheelers, appear to be doing very well. So, expect their monthly sales numbers to be good. There is also a vast market for ‘home-made’ small commercial vehicles in India. All of this does not get reflected in the structured data. Some home-grown runabouts, especially those with home-made ‘automatic’ transmissions, are reaching levels of ruggedness, sophistication and low costs that cannot be matched by manufacturers who claim economies of scale.

Manufacturers, notably Maruti Suzuki, have been quite vocal about their predictions. Every possible external factor is blamed—downturn, lack of government orders, higher interest rates, higher input costs and more. The real issue is conveniently skirted.

Most motorcars in India are priced more on a ‘what the market can bear’ basis than on the basis of real costs and add-ons—almost the way a cartel operates.

In addition, total installed capacity now far exceeds domestic demand projections and, unless the export market comes to the rescue, something will have to give.

At a modest estimate, there is a price correction possible for motorcars in a 10% to 40% range. This is based on discussions with people who manufacture autos as well as their suppliers. Some of the steps that they will have to take to bite the bullet will include: Direct sale to eventual customers using the Internet with the dealer as a delivery agent. This has been long overdue and will save the end customer 6%-10% easily, especially in urban metro locations—and get dealers to provide better service to customers. However, the fact is that Indian manufacturers may not do this because the dealers are a very strong force and have, in the past, made or unmade manufacturers. But, remember, that’s what airlines said about travel agents too—and see where the business is today.

Manufacturers have to share manufacturing facilities, instead of setting up new plants all over the place, every now and then. Some brands for export are already being manufactured in factories belonging to other manufacturers. It is time this measure was extended to domestic markets. A manufacturer has a responsibility to his customer. A new plant means nothing if it only means costlier vehicles.

Manufacturer-controlled group discount schemes, based on vehicle, location and delivery dates, are a must and better deals on post-sales service and warranties. If Mercedes and other ‘luxury’ brands can do this for places like Aurangabad, it’s about time other manufacturers did so too.

Finally, manufacturers have to take a closer look at the real vehicle that people are getting. There is no long-term sustainable benefit in trying to talk about the great German or Japanese technology, when a cursory examination of the innards reveals that most of them ``

1

2 3 4

MONEYLIFE | 8 September 2011 | 46

Auto.indd 2

8/18/2011 8:31:19 PM

PERSONAL BUSINESS AUTO

` come from China, Thailand or Malaysia. Spending

money on fooling the Indian customer on this count is just counter-productive.

If you are in the market to buy a car, it might make more sense to hold off buying that new vehicle until prices have corrected.

CUS TOMER SER VIC E

Redressal? Target the Top

A U T O L A U N CH E S

Indians Rule, Okay?

Will global players learn the tricks?

I

t is that automobile launch season again. Hero (previously Hero Honda) carted planeloads of people to London, just in time for the riots, to also see Pawan Munjal, Akon, Shah Rukh Khan and Boris Becker dance

Forget toll-free lines. Address the head honchos

O

ne great way to get good customer service is to escalate issues to the corporate executives in charge of investor relations—or even to the board of directors. But, with an increasing number of newer car manufacturers coming into India through the whollyowned subsidiary route, there may be no ‘investor relations’ options in India. One such is the VW group with Volkswagen, Skoda, Audi and a few other luxury brands under its belt. We have been getting a lot of feedback from people who have bought their products and, once things go wrong, find that they cannot go past the dealer interface—because the manufacturers refuse to place their details in the public domain. There are no names, phone numbers or email addresses available.

One solution is to write an old-fashioned hard-copy letter, sign it and post it to the registered office address of the company. Shoot it off to the board of directors, with copies to the Society of Indian Automobile Manufacturers and the company’s international headquarters. And place this correspondence on social media and watch the reaction!

Another option is to figure this out before buying.

If you can’t get the address or numbers of the sales/ marketing director of an automobile company, you should think twice before buying.

VW’s Skoda Fabia: Good vehicle, but what about after-sales service?

Pawan Munjal, MD & CEO of Hero MotoCorp is racing ahead of foreign players

in the new Hero MotoCorp brand. It must have done something right, since their share value has been going up. It is always good to hear about Indian companies making it big in the international arena.

Hero MotoCorp will be one strong international brand. Hats off to Brijmohan Lall Munjal who truly deserves praise for being ahead of his times. And to the rest of the family, for carrying it through. This is the stuff Indian industry is also made of—successful family enterprises which create value for all the stakeholders.

For a change, the Germans have been caught napping. Mercedes Benz is trying to introduce Indians natives to something called ‘Magic Sky Control’, as the latest in technology. The new skylight roof will darken in bright sunlight and light up in the dark, and cost a lot more. This technology is old—we saw it on ships in the 1980s, and in Ray-ban’s aviators.

Maybe, the Merc executives should have swooped upon London for the Hero jamboree. They would have learnt a few lessons.

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.

47 | 8 September 2011 | MONEYLIFE

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LEGALLY SPEAKING SD ISRANI

S

annual reports will be sent to all mall shareholders are a harried MARKET REGULATIONS shareholders; a hard copy of the full lot—what with market volatility annual report will be sent only to and complicated procedures those shareholders who specifically making things difficult. However, ask for it. Since few investors go some decisions taken by SEBI (the through bulky detailed reports, Securities and Exchange Board of shareholders will, it is hoped, take India) in late July may benefit them. advantage of abridged annual Non-compete Fees: In the takeover reports at least. regulations, the threshold shold limit for Quarterly Results: To provide a making a public offer er has been raised p better comparative picture of the from 15% to 25%.. SEBI has pic The market watchdog’s quarterly financial quart also removed the pro-investor measures results, listed resu non-compete fees companies will being collected by the he com have promoters exclusively ly hav to disclose figures for themselves. With h this, figure in respect of the immediately small investors will benefit imm preceding quarter as and get the same price ce as q will be in the promoters. Similarly, arly, the well; this wi the existing minimum public offer er will be addition to th Besides, SEBI for 26% of outstanding ding equity requirements. B that companies, instead of the current nt 20%. has mandated tha submit audited Application Form & Abridged which opt to submi Prospectus: SEBI hass revised the annual results within 60 days of structure, design, format, rmat, contents the end of a financial yyear in lieu results, will also and order of information ation of the bidof the last quarter resu cum-application form m and abridged have to submit the last quarter prospectus to make them more results along with the aaudited readable and investor-friendly. or-friendly. annual results.

Account Opening: The SEBI board The new form will highlight has approved simplification and company/project-specific material rationalisation of the cumbersome disclosures such as peer comparison of process of opening a trading account with important financial ratios and risk factors stockbrokers. Under this: as well as information pertaining to the offer a) Client-broker agreements will be replaced with a price. This will be presented in a structured, logical and ‘Rights and Obligations’ document that is binding. user-friendly manner. Information not specific to the issuer will be brought out now in the form of a ‘General b) Number of client signatures needed will be reduced. c) Cost of compliance for clients and brokers will Information Document’ in English, Hindi and various reduce. regional languages. It will be circulated along with the d) Investors will get additional information from a application form. stockbroker as part of the account-opening process Disclosure of Voting Results: All listed companies will such as a tariff sheet of charges, including brokerage; a have to disclose voting results/patterns in a prescribed list of ‘dos & don’ts’; contact details of senior officials; format. These will have to be posted on the company’s website and also filed with stock exchanges within 48 and information related to arbitration procedures. hours of the shareholders’ meeting. Initially, this will These changes are expected to make life easier for small be applicable to top 500 listed companies and may be investors and bring some cheer to them. extended to all listed companies after a year.

Annual Reports: As part of a green initiative, shareholders wanting a complete set of accounts will SD Israni is a corporate lawyer. have to make a specific request for them. Meanwhile, Email: sdisrani@vsnl.com a soft copy of the detailed annual report will be sent to shareholders who register for it; hard copies of abridged

Investors’

Gain

MONEYLIFE | 8 September 2011 | 48

Legally Speaking.indd 2

8/18/2011 8:33:11 PM

Learn the basics of saving and investing

year, you may eventually ‘take an opportunity’ that will leave your account penniless. Sir John Templeton, the legendary investorturned-philanthropist, enjoyed enormous success as an investor.

However, he always stressed the importance of humility against market volatility, warning repeatedly that even your best-researched stock-pick may decline by 30%, 50%—even 70% or more.

The same is the case with mutual loss of 52%. How can you use this funds (MFs). It can be frustrating information?

You may have invested in a stock when the MF scheme you have that has doubled over one year. You invested in is lagging behind its peer group. That frustration can may remember such an experience, lead to the most common and because that single great success costly mistake investors make— makes you feel smart and happy. chasing returns. There are never The problem is that you may begin clear signals that it’s time to buy to expect such high returns every one fund type or switch to another. time. Investors tend to ‘anchor’ Jumping around, therefore, often themselves to a particular return spells missed opportunities. Studies which may make a good return indicate that investors who buy and seem average and a realistic return hold for the long haul gain several seem poor. If your expectations are percentage points more per year, off base, you may start hunting on an average, than do fast traders. for higher returns in bad financial Clearly, the path to investment instruments, like in overly risky success requires a discipline to investments. The higher the returns deal with volatility that’s easier to desired, the higher the risk. If you understand than to master. try to double your money every

Earning Curve

E X P E C T E D R E T URNS

Rational Hope What do you expect from your investment?

I

f you invest in stocks or mutual funds, you are probably aware that returns are highly volatile.

But just how volatile? From 1990 to 2010, the Bombay Stock Exchange sensitive index (Sensex) has risen by 17% annually. But on more than half the 21 yearly periods, the Sensex went up by less than 17% annually. And on six yearly periods, the Sensex provided negative returns. The Index’s yearly returns ranged from a gain of 91% to a

va l u a t i on p uz z l e

Apple & Orange Apple or BankAm stock?

No, it’s not that easy

B

ank of America (BankAm) is almost bankrupt and mirrors all the ills of the US economy. Apple represents the best of the US— innovation, smart managing and delivering customer delight. The BankAm stock is down in the dumps.

Apple is, well, the apple of investors’ eyes. In the coming months, which stock would do well? It is obvious, you would say. Or is it?

Robert Arnott, an American entrepreneur and d contrarian investor, the inventor of the he fundamental index, says something that’s hat’s beyond anyone’s wildest imagination: on: buy BankAm and not Apple.

Why on earth?? Apple’s market-cap is bigger ger than Exxon Mobil Corp’s p’s and is way ahead of Microsoft’s crosoft’s and Google’s. Bank nk of America’s market-cap -cap is onefifth of Apple’s. That’s hat’s the key, according to Arnott. ott.

Arnott ranks companies according accor ordi or ding di ng to fundamentals, such as sales, earnings, book value and so forth, as opposed to market-cap which is

used by most indices. According to Arnott’s research, when a company’s c market-cap rank is too far aahead of its fundamentals (as in the case of market-cap would Apple), the market-c come down.

Conversely, Conversely if the market-cap is too low relative tto the fundamentals, fundamentals the market-cap (price) market cap (p would rise. A Arnott’s research on market ma sectors between 1952 and se se 1 2009, over 2009 20 09, says 09 says that, that, on an average, aver the 12 months after a company rose to become the ‘top dog’, it lagged its sector by 3.5%.

49 | 8 September 201 2011 | MONEYLIFE

Earning curve.indd 2

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BOOKS

T H E L I T T L E BOOK OF VAL UAT ION

Valuation Rules A handy guide from the master of the complex business of valuing companies

V

aluing businesses is tricky. For example, how do you value a hot initial public offering (IPO), boasting a great business opportunity and an IPO of a staid manufacturer of industrial products? You need a method that puts these businesses on a common footing. Valuation is a science but its practice is an art too. How do you value a business that is loss-making but has a great growth potential? The valuation formula changes too, depending on where the business is in its lifecycle. It is hard to value an early stage company and much easier to value one that has been making money for, say, a decade.

What complicates matters further is whether we are talking of listed or unlisted companies.

Unlisted companies are easier to value, based on projected cash flows. Listed companies are valued by the market every minute, based on their longterm future prospects and shortTHE LITTLE BOOK term speculative interest. If we OF VALUATION consider loss-making companies ASWATH with great prospects, things get DAMODARAN even more confusing. During Wiley the dotcom boom, many people Pages 230; $19.95 were convinced that Amazon, the online bookseller, was insanely valued given that it could not say when it would make money. The company was dubbed as the ‘River of No Returns’. However, Amazon not only survived but has managed to grow and its founder Jeff Bezos is now the 18th richest man in the US, according to Forbes. The Internet is full of debate on whether Apple is overvalued; whether emerging markets are cheap now; and whether the US market is undervalued. No two people can agree on any of this.

Aswath Damodaran is the undisputed guru of this difficult art of valuing companies, listed and unlisted.

Every year, hundreds of students benefit from his erudite lecture at the New York University and thousands more log in to hear him. Named as one of the top business school teachers in 1994 by Businessweek, he has

written the book on valuation titled, well, Damodaran on Valuation—and numerous others. Now, his key concepts on valuing companies come in the Little Book Series. Compressing his vast scholarship on valuation in a small book, Damodaran helps you navigate all the tough valuation issues at different points in companies’ lifecycles, supported by lots of examples.

One of the unique features of the book is its final section which guides you in dealing with some special situations. For instance, how to value a company that relies on a volatile commodity; or how does one value a company that pours money into research & development—but has little to show for it? Here is Damodaran’s unique guide.

Kind of Companies

Value Drivers

Young growth

Revenue growth, target margin, survival probability

Growth

Scaling growth, margin sustainability

Mature

Operating slack, financial slack, probability of management change

Declining

Going concern value, default probability

Financial services

Equity risk, quality of growth (return on equity), regulatory capital buffers

Commodity & cyclical

Normalised profits, excess returns, long-term growth

Intangible assets

Nature of assets, efficiency of investments

Of course, gurus can go wrong as well. Damodaran believed that the US market was undervalued in August 2008, before the huge plunge in September and October of that year made them still more undervalued.

Damodaran rounds up this handy volume with ‘10 Rules for the Road’ which run as follows: • Feel free to abandon models, but do not budge on first principles.

• Pay heed to markets, but do not let them determine what you do.

• Risk affects value.

• Growth is not free and is not always good for value.

• All good things, including growth, come to an end.

Nothing is forever.

• Watch out for truncation risk; many firms do not make it.

• Look at the past, but think about the future.

• Remember the law of large numbers. An average is better than a single number.

• Accept uncertainty, face up to it and deal with it.

• Convert stories to numbers.

These rules combine theory and practice and will guide you in your moments of doubt. For students and practitioners alike, a great book to read and refer to.

— Debashis Basu

MONEYLIFE | 8 September 2011 | 50

Book Review.indd 2

8/19/2011 7:03:44 PM

BOOKS

i ndi a n mu jahidee n

The Terror Inside Hard facts on home-grown terrorists

W

riting about home-grown jihad is a tough job.

If one criticises militant Islam, one is termed a Hindu fundamentalist. If one doesn’t, it is deemed to be fishing for minority compliments. Adding to a confused secular ideal is the political class that hypes up, or glosses over, this serious threat—depending on their plans about reaching for or retaining power. Hence, popular discourse on jihad stops with clichéd films and theories about empowerment and communal tension.

The only way to tackle this is to go by facts. And here lies Shishir Gupta’s skill in writing and handling Indian Mujahideen (IM). Being a veteran journalist, he assembles an exhaustive directory of information about the rise, fall and resurfacing of the IM, a local terrorist outfit that didn’t even figure on the public and intelligence radar, until recently.

Gupta doesn’t preach and doesn’t sound like a rabid Hindu. He doesn’t adopt the INDIAN typical rhetoric of victimhood, MUJAHIDEEN which a refreshing change. He SHISHIR GUPTA is clear about what he says. He Hachette India traces the formation and rise of Pages 314; Rs550 IM from the time of the Babri Masjid demolition, quoting extensively from intelligence and police reports to describe the lives of the who’s who of the movement. Right from the origin and break-up of SIMI (Students Islamic Movement of India) to the German Bakery (Koregaon Park, Pune) strike and blasts on the Varanasi ghats in December 2010, Gupta covers all the prominent incidents of terrorist strikes that have rocked India.

Based on actual statements and interviews, he presents the lives of these dangerous leaders and their helpers— from the Bhatkal brothers to Aftab Ansari, Shahnawaz Alam and Mohsin Choudhary. Gupta rightly says that though the faces and names change, the mould and the puppeteers remain the same; so all the stories appear similar. But the meticulous description of the conception, planning and execution of criminal and terror acts is so

gripping that the book is unputdownable.

Stories flow into each other; the result is a factual thriller that would compete with the best of spy thrillers.

The terror network comes alive in the book, as Gupta describes in detail the channels through which funds, resources, knowledge and personnel are routed to India.

The web spans across the Middle East to Bangladesh, Nepal and, of course, Pakistan, home to the ‘jihad factory’. But Gupta doesn’t stop at that. Taking note of the latest developments, he shows how the menace has now spread even to the Maldives and Sri Lanka.

One shudders at the reach of the terrorist network on the Indian subcontinent. No state remains untouched by it even as the polarisation of communities continues.

People drift further apart with each act of terrorism which keeps the vicious circle intact. Gupta spares neither Hindu fundamentalists, nor the intelligence machinery, not even the political rulers. He doesn’t generalise or theorise; he backs each word with hard facts. He rightly points out that, over the years, the entire security apparatus has failed and more harm has been done by putting party loyalists in charge rather than experienced specialists; successive strikes prove that.

Branding the IM as a purely home-bred jihadi group with a criminal past or as the demon child of ISI or the cat’s paw of the pan-Islamic LeT is rather simplistic and naïve In the concluding chapter, Gupta also gives the solution, which has already been recommended by the Sachar Committee Report and the Justice Jagannath Mishra Committee Report. Jihad, today, has little to do with rabid clerics. The Muslim youth, who have been systematically sidelined by their own leaders’ follies, politicians and administration, must be brought into the mainstream and allowed to participate in the country’s growth. There is no cure other than inclusive democracy.

IM doesn’t believe in appearing politically correct and rises above the dime-a-dozen books churned out every year on ‘good’ and ‘bad’ Muslims.

It is a must-read for those who deny the existence of home-grown terror and look towards the Pakistanbased Lashkar-e-Toiba after every blast. It is especially recommended for those who boast that India manages to avoid 99% of planned blasts. — Shukti Sarma

51 | 8 September 2011 | MONEYLIFE

Book Review.indd 3

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Living

Lifestyle

Leisur Leisure ue

Peo People

Hobbies

Wellness

Health

Memory Problems Due to Heart Disease

Hobby

Taj: First Impressions

A

1793 book, titled India and Beyond: Travel and Photography which contains the first ever photograph of the Taj Mahal, an aquatint, will go under the hammer at a Bonhams auction, to be held at Knightsbridge (London), on 4th October. The book is estimated to fetch between Rs21.95 lakh and Rs25.60 lakh. The picture of the Taj is part of a collection by English landscape painter William Hodges. The aquatint shows the monument in the background with the Yamuna and Agra Fort occupying the foreground. Other memorabilia from the Raj will also be auctioned.

People

India-born Teenagers Win at Google Science Fair

A

ccording to Archives of Neurology, elderly patients who had suffered cardiac episodes are more likely to develop memoryrelated problems. Author Joanne Festa from St Luke’s-Roosevelt Hospital (New York) says that with age, brain atrophy increases, and the rate accelerates with heart disease. Memory is linked to the amount of blood pumped into the brain. A younger body may manage with low blood flow to the brain, while an already-aging brain cannot cope with that stress as easily.

“This wine was produced in the year of the Great Comet, believed to enhance its quality” — Christian Vanneque Bu of the 1811 Château d’Yquem, Buyer the most expensive white wine bottle ever sold for $121,000

Trend

Mad Take the Mantle: Psychologist

T

hink leaders are crazy? You may be right. In his new book Ɵtled A First Rate Madness, Nassir Ghaemi, professor of psychiatry at TuŌs University School of Medicine,

claims that some of history’s most noteworthy and respected leaders demonstrated signs of being mentally disturbed in one way or another. The ‘crazy’ trait is also the one

disƟnguishes these famous that d leaders.

Relying on historical lea records and modern analyƟcal re ttools, Ghaemi talks about Hitler’s ‘bipolar disorder’ and Churchill’s ‘ ‘genius’. His thesis implies that manic depression seems to increase a person’s capacity for leadership in a crisis. Can’t say l about Dr Manmohan Singh. ab Edited & Compiled by: Devarajan Mahadevan & Shukti Sarma

MONEYLIFE | 8 September 2011 | 52

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8/19/2011 2:05:28 PM

ML FOUNDATION EVENTS

SCREENING OF “BLOOD AND IRON”

How National Wealth Is Plundered?

Moneylife FoundaƟon joined hands with Awaaz FoundaƟon for a special screening of “Blood and Iron” which exposes the large-scale illegal iron-ore mining in Karnataka

O

n 12th August, independent journalist Paranjoy Guha Thakurta urged mainstream media to highlight the destructive illegal mining in the Bellary region of Karnataka. “Unlike in the 2G spectrum allocation scam where the loss is notional, losses from illegal mining are real and much bigger,” he said. Mr Thakurta, a writer, educator, and commentator,

in the Bellary region that has destroyed the ecology and played havoc with people’s lives and livelihoods. The programme was organised at the KR Cama Hall by Moneylife Foundation together with Awaaz Foundation.

Made in 2010, the documentary has been updated with the Supreme Court’s latest order banning mining in Bellary and the resignation of BS Yeddyurappa as Karnataka’s chief minister on 31st July.

The 96-minute film documents a story of greed that has ravaged in Karnataka and Andhra g adjoining j g regions g Pradesh, through interviews with a cross-section of society. It talks about how exports of iron ore (much of it illegally mined) from Bellary has enriched a privileged few, while locals have been impoverished. “Blood and Iron” describes how the infamous Reddy brothers—ministers in the Yeddyurappa ``

Special screening of “Blood and Iron”

pointed out how about two-thirds of the iron ore mined had gone out of the country and was not recoverable.

He was speaking in Mumbai at a special screening of his documentary “Blood and Iron” on the illegal mining

`` ` ` Independent journalist Paranjoy Guha Thakurta

MONEYLIFE | 8 September 2011 | 56

Event.indd 2

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ML FOUNDATION EVENTS

` government—have so far been

untouched, despite high-ranking authorities indicting them for their brazen illegal activities.

After the screening, a member of the audience referred to the ecological damage caused due to mining across India, saying that people should fight these activities. Mr Thakurta agreed, “I have documented all the facts and presented it in my personal capacity.”

He said his team had to be extremely cautious during the entire shoot. “We used the ‘shoot and scoot’ method.

We never stayed at a hotel for more than a night. The film was only possible due to the huge support from the local people, who gave in-depth inputs and analysis.”

Answering a question on the loss caused due to the illegal mining, Mr Thakurta said, “the Lokayukta Justice Santosh Hegde’s report

HOW TO CHOOSE THE RIGHT MF

Wealth Creation from MFs Moneylife Founda on explained the different types of mutual funds; how to choose the right fund, and when

A section of audience in full attention

T

“ “ estimated that Rs16,000 crore has been lost. This figure is based on available evidence. But the loss could be much more as evidence for many other things may not be available.”

On the matter of illegal mining and land laws, Mr Thakurta said that “even without amending the (Mining) Act, if the actual law is applied and followed, such large-scale ravaging of natural resources in Bellary and elsewhere would not have happened.”

Illegal mining is rampant in Goa as well, but little is reported. “If I am able to raise the resources, I’d like to make a documentary showing the two sides of Goa. One is the ‘tourist destination Goa’ while the other is of the countryside which has been devastated due to illegal mining,” Mr Thakurta said.

he high volatility in the market and the huge drop in the indices recently have left investors confused. Many of them may be wondering if they should exit the market, or whether they should look at the situation as a buying opportunity. Newbie investors are wondering if this is the right time to start investing in the market—or should they wait?

All these questions were answered at the 75th seminar conducted

by Moneylife Foundation. The Foundation’s trustee, Debashis Basu, enlightened investors on how to be safe and smart while selecting the right mutual fund (MF) scheme. He gave the participants a detailed perspective on MFs and how investors should choose the right MF schemes. He explained the various types of MF schemes available, like equity diversified funds, bond funds, liquid funds, etc. The benefits and the risks associated with these plans and investment strategies were also explained. Investors in a MF have a professional fund manager who would make investment decisions on their behalf. But, some fund managers are no better than amateurs; this is seen through their fund’s performance. MFs come with a cost which drags down the returns of even debt funds. Right now, there is no entry-load—but soon, investors may have to spend as much as Rs150 if they invest more than Rs10,000 in MFs. Also, there are fund management charges that are deducted in the form of units. If investors plan to exit, they would have to pay an exit-load.

MFs, however, offer a safer alternative for those who do not possess the wherewithal to select the stocks themselves or understand their valuation and timing. Also, one can start with an investment of as low as Rs500. Open-ended schemes are highly liquid and can be converted into cash easily. Investors can avail of tax benefits as well by investing in ELSS (equity linked saving ``

57 | 8 September 2011 | MONEYLIFE

Event.indd 3

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ML FOUNDATION EVENTS

` schemes). SIPs (systematic investment plans) are a good

option, but may be a flawed strategy, if they are not adjusted for growth. If investors don’t consider inflation and invest the same amount year after year, they will end up saving much less than they should. Mr Basu introduced the idea of value averaging, a better option compared to SIP. It is a strategy through which investors buy much more when the market falls and buy less when the market is shooting up, thus increasing returns.

To choose the best equity scheme, ideally, returns over a five-year rolling period should be considered

for analysing the performance of a scheme. Moneylife regularly publishes such analyses. There are usually just four-five fund houses that consistently perform well. A portfolio which is diversified across all sectors should be chosen; therefore, sector funds should be avoided.

Investors should avoid new fund offerings and funds with fancy names, pointed out Mr Basu with research and data. Is there a way you can increase your wealth without knowing anything about the markets? Mr Basu answered this question too; yes, through systematic investment in index funds.

HOW TO BE SAFE WITH YOUR MONEY

How Doctors Can Invest Safely Moneylife FoundaƟon held a special seminar to help the medical community— oŌen the target for various financial frauds—to invest safely and smartly

O

n 6th August, Sucheta Dalal, trustee, Moneylife Foundation, addressed an audience consisting of doctors on “How to be Safe with your Money” at the Indian Medical Association, Juhu (west Mumbai). Ms Dalal explained various aspects of investing—fixed deposits (FDs), post office schemes and mutual funds (MFs) and said that one should only invest in schemes regulated by statutory authorities.

Ms Dalal said that people should opt for government-owned banks which are safer compared to cooperative and small private banks. While bank FDs fetch good returns these days and your capital is safe, exposure to equity is also essential for growing your wealth, especially since inflation is constantly eroding the purchasing power of your savings. “On an average inflation is at 10%-12%, more than the interest rate of a bank FD. Your money is eroded due to price rise. A minimum exposuree of a low 10%-15% in equities through MFs will balance nce an investment portfolio,” she said.

For busy people, equity diversified rsified MFs and index funds are better options. ons. She explained the power of compounding nding and said that making small investments ents regularly over a long period is the best way ay of building a nest egg. On term deposits and d corporate FDs, Ms Dalal said that hat higher rating is a better parameter ter to evaluate an investment option rather ather than higher returns—even large

MONEYLIFE | 8 September 2011 | 58

Event.indd 4

A view of the audience

corporate houses have sometimes not repaid depositors.

She quoted numerous examples of banks’ misselling, where relationship managers make false commitments and give incorrect financial advice to meet their stiff targets. Ms Dalal Da explained that insurance should not be considered an investment. She said conside that one has to read rea the fine print carefully before buying an insurance policy. She also dealt with insura the drawbacks of o using credit cards and the impact of one’s financial behaviour on one’s credit history. She S told the audience to stay clear of the various get-rich-quick schemes and vari online frauds fraud that have multiplied manifold.

Ms Dalal said, “Doctors are easy targets for all Ponzi and multi-level-marketing P schemes—they target professionals to schem gain legitimacy.” l

Sucheta Dalal, trustee, Moneylife Foundation

8/19/2011 8:21:39 PM

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8/19/2011 4:37:29 PM

SPENDING TRAVEL

GARHWAL

Land of the Ganges T

Ganges as it snakes its way he Garhwal region Spend a fortnight enjoying the lower Himalayas of the north Indian some grand mountain scenery through before emerging with a flourish state of Uttarakhand along the curves of a river that onto the vast north Indian has mythological and spiritual connections defines India. You’ll capture the plains at Rishikesh. This part with Indian civilisation dating very soul of our country, says of the river is known for its white water rafting and seasonal back to ancient times. Home Jaideep Mukerji rafting camps; groups of rafters to Nanda Devi, the highest are easily seen out on the river. mountain peak at 25,643ft Even if you have not made previous arrangements, stop entirely within India (Kanchenjunga is on the border at one of these camps, listen to the safety briefing, don of India and Nepal) and the birthplace of the River your lifejackets and experience the Ganges first-hand; Ganges, Garhwal hosts the four temples of the ‘Char Dham’ at Gangotri, Jamnotri, Kedarnath and Badrinath. you will not regret the experience.

A short drive further brings you to Devprayag, one The rugged and spectacularly beautiful countryside of the five sacred river confluences in Garhwal and consists almost entirely of rocky mountain ranges an important place of pilgrimage for devout Hindus. running in all directions separated by narrow valleys Devprayag is the place where two heavenly rivers, which, in some cases, become deep gorges and ravines.

Tiny villages and terraced fields dot the lower- and mid- the Alaknanda (coming from the mountains in the Nanda Devi area) and the Bhagirathi (coming from altitude hillsides while snow-capped peaks and glaciers the Gangotri region) join to form the Ganges. On a crown the high summits. terrace in the upper part of Devprayag is the temple of On a journey through this land, perhaps it is best Raghunath built of huge stones, pyramidal in form and to let the photographs speak. This is a land that you capped by a white cupola. can best experience over a two-week journey, ideally On this journey, take the left fork in the road and taken during spring, when throngs of pilgrims are yet follow the Bhagirathi to its source. Driving past the to arrive, or in autumn, when the crowds have left and towns of Tehri and Uttarakhand, you arrive in scenic the hills have returned to their quiet, peaceful beauty.

Harsil—a tiny Himalayan village with a colourful Driving up from the temple towns of Hardwar and history. Situated at a height of 7,860ft (2,620m) above Rishikesh, the road follows the graceful curves of the ``

MONEYLIFE | 8 September 2011 | 60

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8/19/2011 8:14:47 PM

THE BHAGIRATHI FROM THE LEFT JOINS WITH THE ALAKNANDA RIVER COMING FROM THE RIGHT TO FORM THE GANGES AT THE HOLY CONFLUENCE OF DEVPRAYAG

NANDA DEVI: AT OVER 25,600FT, ITS MAGNIFICENT PYRAMID DOMINATES THE SNOW-COVERED TERRACED FIELDS NEAR THE AULI SKI SLOPES

` sea level, Harsil is located 73km from Uttarkashi and

is popular for the legend of ‘Pahari’ Wilson or Raja Wilson. Frederick Wilson, an adventurer, deserted the British Army just after the Sepoy Mutiny of 1857. He escaped to Garhwal and met the raja of Tehri-Garhwal, seeking refuge. But, being faithful to the British, the raja of Tehri-Garhwal refused safe passage to Wilson who slipped away deeper into the mountains to escape detection. Fate landed him in Harsil, a beautiful village on the banks of the Bhagirathi River, with dense deodar-forested slopes on either side. Wilson married a beautiful hill girl called Gulabi. Soon after, he entered into a contract with a London-based company and built a fortune with the export of skins, fur and musk. This was the time the British were building the railways in India and there was huge demand for quality wooden sleepers. Wilson cashed in on this opportunity and sent huge deodar logs floating down the river to the plains, making a fortune for himself.

Since Wilson had not taken permission from the raja of Tehri-Garhwal, his logging business soon ran into trouble until he made peace with the raja by offering him a share of the profits. It is said that the revenue of the raja went up tenfold over a short span of time.

Little wonder that Wilson soon became a welcome guest and, in course of time, came to be called Raja Wilson—who minted his own currency. As late as the 1930s, these coins were found with the local people.

HARSIL: IN THE UPPER BHAGIRATHI VALLEY. A SCENIC VILLAGE MADE FAMOUS

BY THE LEGEND OF WILSON RAJA

According to some historians, the timber trade made Wilson so wealthy and powerful that the local raja of Tehri-Garhwal was unable to protect the village timber workers whom Wilson often exploited.

Raja Wilson built, what is known today as the Wilson’s Cottage, a huge wooden mansion now in disrepair. He also built the Charleville Hotel in Mussoorie which now houses the government of India training institute for the Indian Administrative Service recruits (called the Lal Bahadur Shastri National Academy of Administration). According to the locals, on moonlit nights, one can still see the ghost of Raja

``

61 | 8 September 2011 | MONEYLIFE

Travel.indd 3

8/16/2011 8:01:29 PM

SPENDING TRAVEL

` Wilson galloping down the hills to a

long-vanished wooden bridge.

The next stop on our journey is the temple town of Gangotri at a height of about 10,200ft. The temple of the goddess Ganga, built by a Nepalese General, Amar Singh Thapa in the early 18th century, is the axis of this small town. The temple is closed for winter on Diwali day every year; it reopens in May. During this time, the idol of the goddess is kept at Mukhba village near Harsil. The aarti ceremony at the Gangotri is especially impressive, as is the temple, a stately building that sits on the banks of the rushing Bhagirathi whose spray forms wonderful rainbows. To experience the birthplace of the Ganges, follow the well-trodden trail deeper into the mountains on the 18-km trek to Gaumukh where you will see the river emerging from the terminal snout of the Gangotri glacier.

The Gangotri glacier, the source of the Ganges, is one of the largest in the Himalayas with an estimated volume of over 27 cubic kilometres.

The glacier is about 30km long and 2km-4km wide. Around the glacier are the peaks of the Gangotri group; several of them, such as Shivling, Thalay Sagar, Meru and the Bhagirathi, are notable for their extremely challenging climbing routes. At 21,467ft, Shivling was called ‘Matterhorn Peak’ by early European visitors because it is similar in appearance to that Alpine peak. While it is not very high

by Himalayan standards, it is a dramatic rock-peak and the most visually striking one seen from Gaumukh. Because of the beauty and the difficulty of the

climb, it has become a prized challenge for mountaineers.

Walk back to the Gangotri village and drive back to Devprayag for the next part of the journey following the other branch of the Ganges, the Alaknanda, to its scenic home. Driving past the towns of Srinagar, Chamoli, Rudraprayag and Karnaprayag, one finally arrives in Joshimath, the base for trips to the famed Valley of Flowers and to the temple town of GANGOTRI TEMPLE DEDICATED Badrinath. Take one TO THE GANGA. 18KM FURTHER UPSTREAM, THE GANGES of the highest cable EMERGES FROM THE GANGOTRI cars in the world up GLACIER AT GAUMUKH to the ski resort of Auli that has ski slopes comparable with the best in the world. Outside of the January-March ski season, Auli provides a breathtaking 180-degree view of Himalayan peaks which include Nanda Devi, Kamet, Mana Parvat and Dunagiri.

Walk along the gentle trails that start from Auli and meander Why Go There: Garhwal, the birthplace of through the high alpine meadows the Ganges River, has something to offer (bugyals) and through forests of throughout the year. From summer hiking Himalayan silver oak and you in the Valley of Flowers to winter skiing will witness perhaps some of the on the Auli slopes, from springtime drives grandest mountain scenery found through scenic freshly planted terraced anywhere in the world. The majestic hillsides to autumn visits to the temple beauty of the Garhwal Himalayas towns of Gangotri and Badrinath, Garhwal is can be seen in the snow-capped a land for all seasons. Whatever the season, peaks in every direction, the deep magnificent scenery will greet you at every river gorges spanned by scenic turn. suspension bridges and terraced Getting There: There are several trains to hillsides. Give Garhwal a fortnight Hardwar, from where you can arrange to of your time and discover a part of hire a car with a driver. The alternative is India that not only has the to drive from Delhi along the busy, and yet highest mountain peaks to be improved, main road to Hardwar; the in the country but also drive can take almost six hours. Maps are gives rise to the river that available at Uttarakhand government tourist defines India’s culture offices in Rishikesh or from the official and identity. — With website: www.gmvnl.com.

Veeresh Malik Where To Stay: Hotel accommodation and local travel arrangements are best arranged through the Uttarakhand government’s official tourist website (cited above) that allows booking of the government-run tourist lodges.

ESSENTIAL NTIAL FACTS

SHIVLING, 6,543M (21,467FT) IN HEIGHT, ITS DRAMATIC FORM DOMINATES THE TAPOVAN VALLEY ABOVE GAUMUKH. BHRIGUPANTH LIES TO THE LEFT

MONEYLIFE | 8 September 2011 | 62

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8/18/2011 8:31:42 PM

MONEY FACTS STOCKS

INDIAN MARKET TRENDS

FUND FLOWS

Both the Sensex and the Nifty declined 5% in the fortnight.

The ML Small-cap Index and the ML Micro-cap Index plunged 8% each. The ML Mid-cap index fell 7%, the ML Mega-cap Index lost 4% and the ML Large-cap Index shed 2%.

Foreigners: Foreign institutional investors were net sellers of stocks (Rs5,359.30 crore). They offloaded funds totalling Rs24,692.30 crore in the fortnight.

Share Prices, February 2011=100

250 -200

130

-650 120

FII Net Investments (Rs Crore)

-1,100 -1,550

110

-2,000 8 Aug-11

100

18 Aug-11

Indians: Domestic institutional investors were net buyers of stocks (Rs4,140.07 crore) in the fortnight.

They pumped in funds worth Rs12,771.84 crore.

90

80 Feb-11

May-11 ML Large-cap ML Mid-cap

ML Small-cap ML Mega-cap

Aug-11

1,170

ML Micro-cap

Nifty Sensex

1,450

DII Net Investments (Rs Crore)

890

Index

5 Aug

18 Aug

+/(-)

ML Large-cap Index

115.46

113.32

-2%

ML Mega-cap Index

99.42

95.66

-4%

17,305.87

16,469.79

-5%

5,211.25

4,944.15

-5%

104.91

97.55

-7%

GLOBAL MARKET TRENDS

ML Small-cap Index

98.83

91.38

-8%

2,875

ML Micro-cap Index

93.65

86.25

-8%

Sensex Nifty ML Mid-cap Index

Mega-cap Gainers/Losers Mahindra & Mahindra

5 Aug

18 Aug

Change

655

717.20

9%

103.40

83.90

-19%

610 330 50

8 Aug-11

18 Aug-11

2,775 2,675 2,575

Reliance Power

Nasdaq Composite 2,475

Large-cap Gainers/Losers

5 Aug

18 Aug

Change

1,965.80

2,717.15

38%

Jet Airways

437.35

297.25

-32%

Mid-cap Gainers/Losers

5 Aug

18 Aug

Change

Gruh Finance

439.85

483.45

10%

Den Networks

70.55

38.55

-45%

Page Industries

Small-cap Gainers/Losers IFB Agro Inds KS Oils Micro-cap Gainers/Losers

5 Aug

18 Aug

Change

128

163.45

28%

14.70

8.45

-43%

5 Aug

18 Aug

Change

2,375 Feb-11

108.10

122.50

13%

Index

5 Aug

18 Aug

Bovespa

52,949

53,134

0%

2,626

2,559

-3%

Shanghai Composite

5.30

3.50

-34%

(All Prices in Rs)

+/(-)

FTSE

5,247

5,092

-3%

Taiwan Weighted

7,853

7,615

-3%

9,300

8,944

-4%

11,445

10,991

-4%

Nikkei

Korean Composite Cinevistaas

Aug-11

Barring the Bovespa, all global indices settled lower.

Nasdaq Composite tanked 6%, Dow Jones Ind Avg declined 4%, while the Bovespa settled flat.

Dow Jones Ind Avg Simplex Realty

May-11

Hang Seng Nasdaq Composite

1,944

1,861

-4%

20,946

20,016

-4%

2,532

2,380

-6%

63 | 8 September 2011 | MONEYLIFE

Money Fact.indd 2

8/20/2011 3:19:20 PM

MONEY FACTS STOCKS

5

What’s H

T

ML SECTORAL TRENDS

Brisk buying was seen in cement stocks in the fortnight. Sanghi Industries jumped 9%, Ambuja Cements climbed 7%, ACC gained 4%, NCL Industries rose 3%, Birla Corporation added 1%, while OCL India shed 1%.

5 Aug

18 Aug

+/-

ML Cement Index

Companies Sanghi Industries

13.75

15.05

9%

720

Ambuja Cements

124.35

132.95

7%

ACC

700 680

964.15

1,004.90

4%

India Cements

65.15

67.45

4%

NCL Industries

34.15

35.30

3%

Kakatiya Cement Sug

660 640 620 Feb-11

May-11

Aug-11

67.00

68.95

Deccan Cements

143.35

145.40

1%

Birla Corporation

312.50

316.95

1%

Mangalam Cement

99.40

100.65

1%

OCL India

94.85

93.70

-1%

5

Textile stocks were thrashed in the fortnight. Arvee Denims & Exports nosedived 29%, Alok Industries plunged 26%, DCM tumbled 25%, Rajvir Industries tanked 24% and Abhishek Corporation fell by 22%.

5 Aug

18 Aug

+/-

Aarvee Denims

44.85

31.95

-29%

ML Textiles Index

Welspun India

37.50

27.10

-28%

690

Alok Industries

22.15

16.40

-26%

DCM

64.05

48.10

-25%

Ester Industries

37.20

28.15

-24%

Rajvir Industries

135.05

102.50

-24%

2.22

1.71

-23%

JCT Precot Meridian

136.30

105.20

-23%

Bannari Amman Spin

77.45

59.95

-23%

Abhishek Corporation

12.79

9.93

-22%

660 630 600 570 540 Feb-11

Garments

7% Airlines

-30%

Paints

3% Telecom Equip

-14%

Cement

1% Packaging

-14%

Diversified

0% Textiles

-13%

Consumer Durables

0% Trading

-12%

INSIDER TRADES

N T

Companies

ML Sectoral Trends

3%

All Prices in Rs

What’s

Shares of garment companies jumped 7%, paint companies gained 3% and cement stocks rose 1%—while diversified and consumer durables stocks remained unchanged. On the other hand, airline stocks sank 30%, packaging declined 14%, textiles fell 13% and trading stocks lost 12%.

May-11

Aug-11

(All Prices in Rs)

BULK DEALS Date

Company

Buyer

Seller

16 Aug-11

Asahi Songwon

IndiaNivesh Sec

Shree Jaisal Electronics and Inds

Rs Cr 0.65

16 Aug-11

Cable Corp

Clareville Cap India Master Fund

UBS AG

3.06

17 Aug-11

IFB Inds

Danke Dealers

Winstar India*

9.93

12 Aug-11

Monotype India

Touchstone Finvest Services

Gaurav Agarwal

0.09

17 Aug-11

Nirlon

Danke Dealers

Winstar India*

2.90

16 Aug-11

Orissa Sponge

Maharashtra Seamless

Stable Trading Co

6.20

8 Aug-11

Perfectpac

Faridabad Papers Mills

Pooja Rajgarhia

0.13

17 Aug-11

Tera Software

Nipra Financial Services

Rajesh D Fowkar

0.34

Saroj Kumar Poddar, chairman of Texmaco, bought 16,950 shares in the company (stake up to 1.95%). Japee Ventures Pvt Ltd purchased 7,73,000 shares in Jaiprakash Associates (stake up to 33.75%). Sunny Gaur, managing director (cement) of Jaiprakash Associates, bought 32,500 shares in the company (stake up to 0.01%). Devender Kumar Prashar, promoter-director of Cords Cable Industries, bought 14,725 shares in the company (stake up to 22.52%). Prakash A Mody, chairman & managing director of Unichem Laboratories, bought 1,90,203 shares in the company (stock up to 11.90%).

Parimal Chaudhari, non-executive director of Praj Industries, bought 1,80,000 shares in the company (stake up to 6.33%).

Pramod Chaudhari, chairman of Praj Industries, bought 4,78,601 shares in the company (stake up to 17.31%). Geetika Bajaj, daughter of Shekhar Bajaj, CMD of Bajaj Electricals, bought 1,21,154 shares in the company (stake up to 0.66%). Ashish Kapadia, managing director of Delta Corp, sold his entire stake of 1,54,500 shares in the company (stake down to nil).

*Inv Co Ltd Pcc Winstar Value Cell

MONEYLIFE | 8 September 2011 | 64

Money Fact.indd 3

8/20/2011 3:19:34 PM

MONEY FACTS COMMODITIES

INDEX TRENDS

COMMODITY TRENDS

MCX Commodity Indices

Soybean

Particulars

5 Aug

19 Aug

Change

52-Week High

52-Week Low

Metal

4,629.56

4,974.82

7%

5,006.74

3,360.26

Comdex

3,397.02

3,464.23

2%

3,739.05

2,682.24

Agri

2,847.59

2,822.53

-1%

2,989.16

2,170.21

Energy

2,778.88

2,706.99

-3%

3,585.96

2,434.89

COMMODITY FOCUS MCX Gold Futures (Rs/10gm) 27,200 25,920

S

oybean production in India may be higher by 5%-10% next year as acreage of its cultivation has increased along with improved productivity, according to the Soybean Processors Association of India. Farmers have planted 10.2 million hectares of soybean this year (ending 30th September), up 12% from the previous season. A higher output will boost India’s shipments of the crop to buyers in Southeast Asia and Japan and help reduce the country’s dependence on imports of soybean oil.

24,640

Onion

23,360

D

22,080 20,800 Feb-11

May-11

Aug-11

Gold climbed to an all-time high of Rs28,150/10 grams in New Delhi on 19th August, posting its biggest-ever single-day gain of Rs1,310 amid frantic buying triggered by robust demand in global markets.

The trading sentiment was bolstered by gold’s ascent to a record level in overseas markets as mounting concerns over sovereign debt and slower growth spurred investors to seek the perceived safety of bullion as an investment haven. Also, retail buying for the upcoming marriage season further boosted market sentiment.

MCX PRICE TRENDS Particulars

Active Contract

2 Aug2011

16 Aug2011

Change %

High

Low

Global Commodities

elayed sowing of onion due to late onset of monsoon in Maharashtra, Karnataka and Gujarat has affected the output. Onion production is expected to decline by 20%-30% this year, says the National Horticultural Research and Development Foundation. Kharif onions, which generally reach the market by midSeptember, are expected to arrive only

by October-end. The supply crunch is due to the exhaustion of last year’s stock of onions and delay in arrival of fresh crop which has raised prices.

Silver Rs/kg

Sept-11

59,326

59,718

0.66

75,543

41,513

Potato

Gold Rs/10gm

Aug-11

23,806

26,225

10.16

26,457

20,681

Crude Oil Rs/barrel

Aug-11

4,164

3,930

-5.62

5,346

3,543

Copper Rs/kg

Aug-11

430.75

399.25

-7.31

461.10

387.10

P

Nickel Rs/kg

Aug-11

1,098.90

982.10

-10.63

1,113.60

951.70

Zinc Rs/kg

Aug-11

108.05

97.85

-9.44

111.25

91.70

Lead Rs/kg

Aug-11

114

107.40

-5.79

124.05

99.10

Natural Gas Rs/mmBtu

Aug-11

184.60

178

-3.58

227.70

171.10

Mentha Oil Rs/kg

Aug-11

1,115.30

1,130

1.32

1,174.50

817.50

CPO Rs/10kg

Aug-11

488

485.70

-0.47

538.80

466.10

Sugar M Kol Rs/100kg

Aug-11

2,681

2,576

-3.92

2,855

2,530

Cardamom Rs/kg

Sep-11

867.90

811.40

-6.51

975.20

781.10

Potato Agra Rs/100 kg

Sep-11

422.20

432.60

2.46

449.90

400

Others

otato-growers in Punjab are facing a tough time as they are getting 30%-40% lower crop prices than last year, due to bumper output in the state and other key potato-growing states—West Bengal and Uttar Pradesh, according to Confederation of Potato Seed Farmers. Farmers are getting rates varying between Rs2.5/ kg to Rs3.5/kg. Punjab produced over 2 million tonnes of potato on 82,000 hectares of land. Farmers have managed to sell just 20% of the total produce, while the rest is in cold storage.

65 | 8 September 2011 | MONEYLIFE

Money Fact.indd 4

8/20/2011 3:20:00 PM

BEYOND MONEY

changing lives THROUGH EDUCATION Shukti Sarma discovers an entity which helps poor children by informal training and creates awareness about their rights

PARIVARTAN SHIKSHAN SANSTHA Room No-14, Babasaheb Ambedkar Telugu Sangh Bldg, Salt Pan Rd, Sangam Nagar, Wadala (East), Mumbai 400 037 Tel: 022 2294 7309 www.parivartansanstha.org parivartansanstha@gmail. com

T

he Bharni Naka community, like countless slums in India, represents the flipside of ‘Incredible India’. Home to thousands of migrant labourers, the area has seen little economic or social progress.

It was here that advocate Shakil Ahmed founded Parivartan Shikshan Sanstha in 1997, to educate children from his locality and create awareness about the importance of formal learning.

“I was born and brought up here,” says Mr Ahmed. “While I could complete my education and pursue a career, most children living here were not lucky enough to have any form of schooling. I decided to change the situation.” After he graduated, Mr Ahmed started giving free tuitions to a few children. As the number of students increased, he rented a room along with some friends. Gradually, more teachers were hired and resources garnered. Parivartan was formed in 1997 and registered as a trust in 2001.

The initial days were hard; there were no funds. The slum-dwellers themselves could not contribute; corporates and other organisations were not interested in funding Parivartan. But Mr Ahmed and his friends persisted in their efforts. In 2002, Mr Ahmed received the prestigious Ashoka Fellowship for his efforts in empowering the local people and educating them about their rights. “With recognition, things brightened up, and some other trusts and donors came forward to help us,” he says.

Today, Parivartan has three centres—a playschool, a balwadi centre and a computer centre where adolescents can get basic training for minimal fees. Parivartan now helps some 150 children between the ages of 6 and 14 with informal training and pre-school learning in Hindi, the mother tongue of most inhabitants. “Children enrolled in other schools also come here; we assist them in framing questions, grasping concepts and expressing themselves so that

they can perform better,” says Mr Ahmed.

Apart from teaching, volunteers also help raise awareness about the need for education. “Not only poverty, but gender, caste and religious factors also prevent many parents from sending their children to school. We have to convince them about the merits of formal schooling,” says Mr Ahmed.

As an advocate, Mr Ahmed has fought many battles. He believes that the Right to Education must be enforced. Parivartan’s big victory came in 2006, when it won a seven-year-old court battle for establishing a school in the locality. The Bombay High Court directed the Brihanmumbai Municipal Corporation (BMC) to set up a school in Sangam Nagar in Wadala (central Mumbai)—the first school that the BMC built after 1978. Last year, he forced the BMC to accept 110 students from the locality, who were denied admission because they were dubbed ‘unfit’ for going to public schools. Mr Ahmed is also fighting for security of children in public schools and making schools accountable for preventing accidents and violence—a petition that’s going on for two years.

Parivartan’s students have done it proud. For two consecutive years, two girls from that locality were toppers in their night-schools in the Class X exams.

There are others, like the son of a migrant helper at a carpenter shop. “His father had wanted his son to be educated and worked very hard to achieve that dream. Today, his son has graduated as a scientist and will join the Bhabha Atomic Research Centre this month,” Mr Ahmed said.

Parivartan is planning to expand its activities and strengthen its present capacity. Mr Ahmed believes that while things are changing fast and society is realising the need for education, several children, generally below 6 years of age, need to be reached. One can volunteer as a teacher, help children with learning, develop their creativity and even act as a sports coach. You can also help Parivartan financially. All donations are eligible for tax exemption under Section 80(G) of the Income-Tax Act.

MONEYLIFE | 8 September 2011 | 66

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