The finapolis Dec 15 by The Finapolis

MODIfication of the economy

Financial planning for single parent

Impact of Gold Monetization Scheme

Increase in LTV ratio means affordable housing

Finapolis The

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1st December 2015 `45

Your Personal Finance Advisor

Parliament Holds The Key For Economic Takeoff

Everything you want to know about FATCA Page 66

The Finapolis l DECEMBER 2015

EDITOR’S DIARY

The

Your Personal Finance Advisor

Volume 9 Issue 09

December 2015

Editor Mubashir Ansari editor@thefinapolis.com Special Correspondent Hiral Thanawala Editorial Board Phani Sekhar Amit Saxena KP Jeewan Jagannadham T Design & Production Guru Prasath R Vijayendra Kumar Ch Advertising & Circulation Shabna R Iyer Anamika Mitra Vijayendra Kumar Ch For Ad Sales Queries subscriptions@thefinapolis.com Printed & Published by Mubashir Ansari on behalf of Karvy Consultants Limited. Karvy House, 46 Avenue 4, Street 1, Banjara Hills Hyderabad - 500 034. AP.

God, give politicians the sense to think India First!

o we have come to the end of another momentous year. Unlike most year ends, this one seems to be clouded with some fuzziness at the end of the tunnel. So much uncertainty all around whether it is business, economy, climate change, terror-

ism, healthcare concerns, intolerance, warfare... The world is presently at the threshold of some important actions the likes of which could potentially determine how 2016 could turn out. While the rate hike by the US Fed in mid- December seems to be a foregone conclusion it will impact the sentiments as some of the investments in India would be affected. On the other hand a rate hike would signal that all is well with the US economy thereby giving the right cues to stock markets around the world. The actions in India as a consequence of some important bills pending in Parliament specially the GST Bill, could have larger ramifications on its economy. It is widely believed by economists that the smooth passage of the GST and its rapid implementation will increase the Indian GDP by 1%. Jagannadham’s (Jagan as he is popularly known) cover story very lucidly outlines the various International and domestic issues that are delicately intertwined and how their resolution will determine

Printed at

the course of the New Year from the economy

Kala Jyothi Process Pvt. Ltd Regd.Office: 1-1-60/5 RTC Cross Roads, Musheerabad, Hyderabad - 500 020. AP.

perspective.

SVPCL Limited Regd.Office: 206/A, Concorse 7-1-58, Greenlands, Ameerpet Hyderabad - 500 016. AP. Published for the month of December 2015 Printed on December 1, 2015 Total No. of pages 68

All charts and tables are sourced from Bloomberg, unless otherwise indicated.

K P Jeewan’s article has an interesting viewpoint: The BJP losing the Bihar elections was perhaps the most significant reason why the Government which was criticised for slow pace of reforms, has embarked on some immediate hi-octane reforms in the right direction. This is just the contrary view to that of the Indian stock markets which nosedived in the aftermath. Kaushal Dalal’s timely piece on the importance of making a Will gives practical advice on the process and how to go about this in order not to leave behind a disgruntled progeny. If you have taken home loans and need some advice on how to make intelligent choic-

For Editorial Queries please contact The Finapolis Karvy Centre, 8-2-609/K, Avenue 4, Street No.1, Banjara Hills, Hyderabad-500 034 Tel: +91 40 23312454 Copyright The Finapolis. All rights reserved throughout the world. Reproduction in any manner is prohibited. The Finapolis does not accept responsibility for returning unsolicited manuscripts and photographs. All unsolicited material should be accompanied by self addressed envelopes and sufficient postage.

es in case you are cash strapped and cannot pay the EMIs read the piece by Balwant Jain. Taking the bank into confidence and restructuring the loan would augur a better solution and avoid other complications including a bad credit score. Last but not the least; we give you a lowdown on FATCA as it will very soon be mandatory for all investors. Enjoy and wish you a very happy new year in advance!

Mubashir Ansari

The Finapolis l DECEMBER 2015

CONTENTS Cover Story

Opposition parties

Goods and Service Tax (GST) bill

Land bill

Political Science

How the passage of GST and Land Bill will impact the Indian economy

36 24 Macro view

COLUMNS

The Trans Pacific Partnership and how India can prepare for it

Naveen Kukreja Six Financial Security Steps For Single Working Moms

Deepak Yohannan Cancer Insurance Plan â&#x20AC;&#x201C; Do You Need One?

Face To Face

Som Somasundaram MD, World Gold Council. His take on the Gold Monetization Scheme

Adhil Shetty Higher LTV Ratio Means Affordable Homes?

DECEMBER 2015 l The Finapolis

WE ARE DIGITAL 27

Investment

Learn investments from the game of football

40 Financial behaviour The virtues of being an investor as opposed to a speculator

With the proliferation of smartphones and tablet devices, reading habits are slowly but surely changing. We understand the importance of giving readers a cross-platform choice to access the magazine. The Finapolis is now available in a digital avatar as well via a global publishing platform such as Magzter and Indiamags. Besides allowing you to read on the go, the digital version offers an enhanced reading experience. It also eliminates delivery delays. You can download the digital magazine on the first day of every month. Go to www.magzter.com, Indiamags.com or Rockstand mobile app, search for ‘The Finapolis’, sample some pages of the digital magazine, and buy a subscription through your netbanking or credit card account. A one-year subscription for The Finapolis digital costs only Rs 540. You need to have a device that runs on Apple’s iOs, Android or Windows 8 operating system. Do let us know what you think of the digital experience by writing in to feedback@thefinapolis.com

44 Legacy

Where there is a Will, there is happiness

Home Loans

What to do when you can’t pay the EMIs?

Start-Up Nation

How the new breed of entrepreneurs are transforming India

ETCETERA Follow us on

AN Shanbhag and Sandeep Shanbhag Should Market Volatility Dictate Sale of Your Investment?

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The Finapolis l DECEMBER 2015

inbox Tax benefits on car and personal loans too The article “How to claim tax ben-

and personal loans too. I have been

efits on your loans?” gave prudent

using the new vehicle I purchased

advice on loans. I was aware of

on auto loan for my business from

tax benefits only on education

the last six months. I am looking

and home loans. But after read-

forward to claiming tax benefits on

ing the article, I understood that

this loan.

I could claim tax benefits on car

Learnt about financial crackers

— Jeegar Gupta, Lucknow

The FDI boost

Art as an investment

interesting insight into some ‘financial

It’s great to know that at $31bn, India

I am an art lover and keen to

crackers’ that look desirable on the face of

has topped global FDI charts in the

add creative works in my col-

it, but have inherent dangers. The financial

first half of 2015. The article provides

lection. However, due to lack

assets discussed are absolutely non-per-

many interesting insights on the do-

of knowledge in art investment

forming and one can’t rely on them to build

mestic front. The FDI boost policy is

I am holding myself back.

wealth in long term. Also, few assets like

still evolving. I feel that major support

“Art investment for beginners

chit funds and thematic mutual funds as

is received from the PM’s foreign

and experts too!” discussed

discussed have high risk.

visits to practically all strategically

various important factors to

important countries. Going forward,

consider while investing in art.

the challenge will be getting over US

It motivates me to start invest-

$1 trillion during the 12th Five Year

ing in art with small capital.

Plan (2012-17) to fund infrastructure

The author has explained the

sectors which include highways, ports

difference between art and

and airways.

financial assets in a lucid way.

The cover story of November edition gave

— Suruchi Iyengar, Chennai Disclaimer: The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

— Amrish Kawali, Pune

- Shabbir Kapadia, Mumbai

Ban ‘panic button’ news channels It’s shocking to see speculators are rising in stock market trading. They create a bubble vision among investors and book profit to exit from particular stocks. I agree with the author that daily market swings, should not be given any space. But every day, this has become a key discussion on every business news channel and they make us press the panic button unnecessarily. It’s time to boycott such news channels. Believe in your own research and analysis. Stay invested in quality stocks for long term. — Ramchandra Iyer, Kochi

Send your feedback and views on The Finapolis to feedback@thefinapolis.com

The Finapolis l DECEMBER 2015

 NOTICE

PAY CUTS

Ramdev’s Noodles in Instant Trouble

SEBI wants AMCs to lower salary of senior executives

Baba Ramdev’s FMCG venture Patanjali recently launched its own brand of instant noodles and ran into trouble immediately after its launch. The Food Safety Standards Authority of India (FSSAI) states new noodles promoted by Patanjali have not obtained mandatory approval and licence from food regulator. The FSSAI licence n u m b e r 10014012000266 displayed on the pack is not issued by the authority. According to reports, Patanjali had not applied for approvals or testing of noodles before its launch. The company’s objective to launch noodles was to capture the vacuum in market on the likes of Nestle’s Maggi, which was banned in June 2015 and resumed sales in few states of India from mid November 2015 after getting clearance from court and testing centres.

The Securities and Exchange Board of India (SEBI) has asked asset management companies (AMCs) to disclose the compensation paid to senior executives in the past few years. The senior executives include CEOs, CIOs, sales heads, compliance officers and chief operating officers at AMCs. SEBI has raised a concern over high salary paid to top executives at AMCs. Last year there has been an instance wherein, a CEO of AMC drew a salary of Rs 5 crore. On an average CEO at other fund houses drew salary of Rs 1 to 1.5 crore. The salary of top executives and commissions paid to the distributor account for maximum cost incurred by AMC. Due to such differences in compensation at higher levels, the regulator now wants to adopt a cost-effective structure and keep an eye on expenses.

CORPORATE Volkswagen Crisis Hits India Too

Earlier Volkswagen was hit by the emission scandal in Europe and US markets. Now, the crisis has extended to India. In emission test conducted by Automotive Research Association of India (ARAI), three diesel models had failed the test. The models include the Volkswagen Jetta, Audi A4 and Volkswagen Vento. These cars were found to be emitting five to nine times more nitrogen oxide on road compared to laboratory results. Due to such variations in emission levels central government of India is likely to issue a notice to Volkswagen Group of companies. The company is likely to recall one lakh cars in India as per reports and fix the fault in diesel engines. Due to this crisis, the sales and revenue of Volkswagen in the country will be impacted significantly.

“Currencies elsewhere were already depreciating in a large way even before the Chinese move because of the unconventional monetary policies adopted by some countries.” - RBI Governor Raghuram Rajan

Quote of the month

DECEMBER 2015 l The Finapolis

 GREEN ENERGY

DISINVESTMENT Cabinet go-ahead to Coal India stake sale

Solar Tariffs Record All-time Low

SELL OFF

US-based SunEdison has offered a tariff of Rs 4.63 per kWh (kilowatt-hour) for a 500 mw solar power project. Being set up by NTPC Ltd in Andhra Pradesh, this is an all-time low tariff recorded for solar power. Previous all-time low was Rs 5.05 per kWh by SkyPower for a 150 mw project in Madhya Pradesh. In all, 30 companies had bid for this project out of which nine companies quoted their bids under Rs 5 per kWh. These included known companies such as Italy’s Enel Green Power SpA, Reliance Power Ltd, ReNew Solar Pvt. Ltd, Solar Arise, Acme Solar and Orange Renewable Power. Among them, the lowest bid was from SunEdision so this project is won by them. In 2012, solar power tariffs stood at Rs 18 per kWh. It has cooled off due to advancing of technology in last four years. Industry experts are now expecting further aggressive bids from domestic and international companies in July, 2016 for a capacity of 420 MW solar projects in Rajasthan.

The union cabinet has approved a 10% disinvestment in Coal India from holding of 79.65%. The stake sale is valued at around Rs 20,000 crore at the current Coal India stock price. This stake sale is part of the government’s aim to raise nearly 70,000 crore in current financial year by selling stakes from government public sector units. This year so far, the government has raised Rs 12,700 crore i.e. less than 20% of its target. The timing of the stake sale will be decided by the finance ministry. The government is seeking bids from merchant banks and brokers to take the process of disinvestment forward. Five merchant banks or brokers will be selected from the bids received to manage the disinvestment process.

ICICI Bank sells 6% stake in I-Pru Life

ICICI Bank sold 6% stake in ICICI Prudential Life Insurance, a joint venture with Prudential PLC of UK. The stake is sold to Investment Company of Azim Premji and an investment arm of Singapore government owned Temasek Holdings for Rs 1,950 crore. Premji Invest and its affiliates will buy a 4% stake in I-Pru Life while Compassvale Investments, which is a fully-owned subsidiary of Temasek,

The company seems to be monetizing

In the last few months, other private in-

will buy the balance 2% in the life insur-

its holdings in insurance joint ventures.

surance companies like HDFC Life and

er, a press release from the bank said.

Recently, ICICI Bank had sold 9% stake

Reliance Life selling stakes. Analysts ex-

These deal values the private life insur-

in ICICI Lombard General Insurance to

pect these private insurance companies

ance company at Rs 32,500 crore. Post

its Canadian partner Fairfax Financial

may be listing on stock exchange. Re-

these deals, ICICI Bank will hold 68% in

Holdings, the promoter of Lombard, for

ducing these stakes could be strategic

the company while Prudential Plc, UK

Rs 1,550 crore. This deal had valued gen-

decisions by those private insurance

partner will maintain its 26% stake.

eral insurer at Rs 17,225 crore.

companies.

The Finapolis l DECEMBER 2015

 news scan PINK SLIP

FACILITATE

Tech Start-ups on Staff Firing Spree

e-Sahyog Launched to Resolve Income Tax Discrepancy

The layoff is at peak in tech start-up companies mainly to reduce costs and shut down operations in non-profit cities. The tech companies in news are real estate website housing. com and Mumbai-based food ordering app TinyOwl. Housing.com is expected to lay off 200 employees during the month of November/ December 2015. This will be from various departments which include marketing, operations and products. This new lay off is followed by 600 employees who were fired four months ago. Currently, the company has about 1,960 employees. In November, TinyOwl fired 52 employees without giving any notice and explanation to staff in Gurgaon office. As per reports, the company is planning to reduce number of employees from 650 to 500 in phases till December across cities. Looking at such layoffs question that arises, is whether it is safe to depend on tech startups to make a successful career even if they offer lucrative package to top management level or freshers during campus placements?

Finance minister Arun Jaitley initiated the ‘e-Sahyog’ project of the income tax department. The project provides an online mechanism to resolve mismatches in income tax returns of those assesses whose returns have been selected for scrutiny, without visiting the income tax office. The pilot project aims to reduce compliance cost, especially for small taxpayers. The department will inform the tax assesses of the discrepancy in tax paid by SMS and e-mails. The taxpayer can log in to e-filing portal and revert with information asked on the issue raised. “The responses submitted online by the taxpayers will be processed and if the response and other information are found satisfactory as per automated closure rules, the issue will be treated as closed. The taxpayers can check the updated status by logging in to the e-filing portal,” the circular added.

weet up Don’t let climate change deniers derail progress in the global effort to #ActOnClimate @BarackObama

#Manipur Women Survivors turned #Entrepreneurs magic crafts.Last 2 days #DilliHaat @SmritiIrani

How ridiculous does Hilary look trying to disavow her friends and supporters on Wall St? Somehow they will keep giving her big $$$$. @RupertMurdoch

As we observed World #ToiletDay yesterday, we mustn’t forget the bigger issue of Waste Mgmt. @KiranShaw

The Finapolis l DECEMBER 2015

results update

We take a look at some companies’ quarterly results and figure out what impact it will have on their share prices Mahindra and Mahindra Mahindra and Mahindra (M&M’s) Q2FY16 volume declined 10.5% YoY and 7% QoQ due to sharp fall in tractor volumes, while revenues declined 2.8% YoY and 6.8% QoQ. Its EBIDTA was up 5.6% YoY (down 14% QoQ) in Q2FY16. EBIDTA margins expanded 105 bps YoY (down 112 bps QoQ) to 13.2%. The company‘s operating margins were decent,

Current Market Price Rs 1250 Target Price Rs 1460 Potential Upside 17%

despite challenging business

to Rs 613bn/Rs 69bn/Rs 5.5bn,

environment for both the

as against our estimate of Rs

segments. Its EBIT

583bn/Rs 71bn/Rs 15bn in the

margin was up by 170

quarter. Consolidated EBIDTA

bps YoY to 9.8% in

margin contracted by 456 bps

auto segment and

YoY and 364 bps QoQ to 11.2%,

rose 80 bps YoY to

impacted by margin contraction

16.4% in FES segment

at JLR amid adverse geograph-

in Q2FY16. Its PAT was flat YoY and up 18% QoQ to Rs 9.8 bn. Analysts expect near

ical mix. JLR’s EBIDTA margin contracted 355 bps YoY/317bps QoQ to 13%. Its standalone business reported positive EBIDTA

term slowdown to continue

for the third consecutive time

till Q4FY16, bounce back is

in last 10 quarters with EBIDTA

expected in sales of tractor vol-

of Rs 6.1bn (loss of Rs 2.6bn in

umes in FY17 amid pent up de-

Q2FY15). It reported standalone

mand of two years and cyclical

net loss of Rs 1.6 bn.

Current Market Price Rs 396 Target Price Rs 435 Potential Upside 10% to two years. Moreover, higher capital expenditure, new launch expenses, competitive intensity and lower margin profile would impact its cash flow. In view of JLR healthy volumes analysts increase TTMTs consolidated revenue esti-

recovery. On sum-of-the-parts

JLR’s all new launches are

valuation basis, the stock has

well received in all major mar-

potential upside of 17% to Rs

kets. The company launched

1460 from current market price

XE in May’15 and response for

of Rs 1250.

XE is very strong. However,

This translates into increase in

analysts believe that lower

EPS estimate by 14%/19% for

volume from Chinese market

FY16/FY17. On sum-of-the-parts

Tata Motors (TTMT) consoli-

and price rationalization would

valuation basis, the stock has

dated revenues/EBIDTA/PAT

continue impacting JLR’s

potential upside of 10% to Rs

grew 6%/-28%/-83% YoY and

margins and it would remain in

435 from current market price

declined 0%/24.5%/81% QoQ

13-14% territory over next one

of Rs 396.

Tata Motors

mate by 8%/9%, while reduce EBIDTA margin estimates by 25 bps/13 bps for FY16/FY17.

State Bank of India

(NNPA) declined to 4.15% and

QoQ decline in agri advances.

is also a long term positive.

2.14% versus 4.29% and 2.24%

However, the management

Analysts expect the earnings

respectively. Slippages were

expects advances growth

to grow at a CAGR of 21%

by 25.1% YoY (5.1% QoQ) to Rs

lower at Rs 58.8 bn vs Rs 73.2

to improve in H2FY16. Asset

over FY15-17 led by 13% CAGR

quality improved as GNPA

growth in advances. Analysts

and NNPA declined to 4.15%

value the stand alone business

SBI’s Q2FY16 earnings grew 38.8 bn led by strong growth in non- in-

bn in Q1FY16. Analysts expect earnings to grow

terest income and

at a CAGR growth

and 2.14% vs 4.29% and 2.24%

at 1.5x FY17 ABV and consol-

lower provision

of 21% over FY15-17

in Q1FY16.

idated business at 1.9x FY17

expenses. However

led by 13% growth

the top line growth

in advances over the

disappointed as net interest income (NII)

period. Domestic and global

Analysts expect the bank’s focus on prudent growth and improving asset quality to drive an improvement in the

growth slowed down to 7.4%

NIMs remained stable QoQ at

core earnings. As the macro

YoY (3.8% QoQ) led by slower

3.32% and 3.01% respectively

environment improves in

loan growth and stable net

whereas advances growth

H2FY16 and FY17, analysts ex-

interest margin (NIM). Asset

continues to be slower at

pect bank to report improved

quality improved as gross

10.5% YoY (4.5% QoQ) led

credit growth and asset quali-

non-performing asset (GNPA)

by 5.2% sequential decline

ty. Capital infusion announce-

and net non-performing asset

in mid corporate and 2.2%

ment by government of India

ABV with potential upside of 33% from CMP of Rs 240.

Current Market Price Rs 240 Target Price Rs 319 Potential Upside 33%

DECEMBER 2015 l The Finapolis

results update NCC

NCC Q2FY16 revenue of Rs 20.96 bn came higher than analyst estimates on account of better execution in its key segments and sale of land of worth Rs 280 mn. However, it declined 6.6% YoY led by decline in revenue from power projects. EBITDA margin stood at 8.8%. Net profit sharply jumped to Rs 550 mn primarily supported by expansion in EBITDA margin coupled with higher other income and lower interest cost. For H1FY16, revenue grew 2.2%

Motherson Sumi

Motherson Sumi Systems Ltd. (MSSL) reported strong performance in Q2FY16 despite overall challenging environment. It’s consolidated Revenues/EBIDTA/adj PAT grew by 15%/31%/73% YoY and -2%/14%/27.3% QoQ to Rs 92bn/9.6bn/3.4bn. It’s EBIDTA margins expanded by 131 bps YoY and 147 bps QoQ to 10.4%, benefitted by lower commodity prices. Revenues at SMR grew by 14% YoY and at SMP by 31% YoY in Euro terms, is commendable. Its standalone revenue grew by 10% YoY and 13% QoQ, despite passing on commodity benefit to customers, which indicates higher volume growth during the quarter. Better operating margins at SMR and SMP benefitted overall EBIDTA margins in Q2FY16. At present total new order stands at over € 12 bn. Analysts believe that uncertainty at Volkswagen group due to regulatory issues would

to Rs 38.2 bn; EBITDA margin jumped by 120 bps to 9% leading to a bottom line of Rs 962 mn (vs Rs 191 mn in H1FY15). NCC’s standalone order book declined 18% YoY to Rs 148 bn and order inflow stood at Rs 10.2 bn (down 65.6% YoY) dur-

impact MSSL’s volumes over near term, while its 17 new plants becoming operational by FY17 end would help negate the impact and record healthy growth going forward. Considering lower commodity price and improving company’s efficiency, analysts increase margin estimate by 37bps/21bps and increase EPS estimate by 20.6%/0.1% for FY16/FY17. In view of strong business profile, strong order book, improving margin profile and strong performance in very challenging business environment the stock is valued at 24xFY17 EPS with potential upside of 17% from CMP of Rs 266.

Current Market Price Rs 266 Target Price Rs 310 Potential Upside 17%

ing Q2FY16. The current order book provides revenue visibility for 2x of FY15 revenue. Buildings, roads and water segments accounts for the major chunk of 84% of order book. Analysts have revised revenue estimates for FY16/FY17 by 4.6%/5.6% led by better execution in its key segments. Also, upgraded EBITDA margin estimates by 81bps/50bps to 8.8%/9% for FY16/FY17 resulting in upward revision in EPS estimates by 53.3%/24.2% for FY16/FY17.

Considering current valuation of stock, better execution, improvement in margin and savings in interest cost, it is likely stock price could move up by 23% from current price of Rs 77.

Simplex Infrastructures

Analysts expect EBITDA CAGR of 15% during FY15-17 on account of revenue growth of 10% CAGR during the period with improvement in margins. Moreover, decline in interest cost to further drive bottom-line during the same period. Analysts estimate PAT CAGR of 60% over FY15-17 to Rs 1.6 bn in FY17. At the CMP of Rs 319, the stock is trading at 20.7x/9.8x P/E on FY16/17 earnings. The valuation looks attractive considering the better clarity on earnings (led by strong order book of 2.5x of FY15 revenues and expectations of continuous healthy flows), pick up in execution and ease in working capital cycle. The stock is valued at 12x FY17 P/E with potential upside of 25% from CMP of Rs 319.

Simplex Q2FY16 net sales grew by 11% YoY to Rs 13.9 bn. EBITDA margin remained flattish YoY to 10.6%. EBITDA stood at Rs 1.47bn (+7% YoY) and net profit of Rs 136 mn (+6% YoY). For H1FY16, total revenue grew by 12% YoY to Rs 29.1bn on account of pick-up in execution led by improvement in working capital cycle. EBITDA margin improved marginally YoY to 10.3% and PAT increased 24% YoY to Rs 315 mn. The current order book of Simplex stands at Rs 148 bn which includes Rs 19 bn of order inflows in H1FY16 (Rs 7.4 bn in Q1 and Rs 12 bn in Q2). Apart from this, the L1 position is Rs 34 bn (mainly projects in power sector). The strong order book (2.5x of FY15 revenues) with expectations of healthy inflows (Rs 71 bn in FY16 and Rs 78 bn in FY17) provides better clarity on the future revenue growth.

Current Market Price Rs 77 Target Price Rs 95 Potential Upside 23%

Current Market Price Rs 319 Target Price Rs 400 Potential Upside 25%

The Finapolis l DECEMBER 2015

the chartist FMCG Market On The Fast And Furious Mode The Indian retail market is estimated to touch $ 869 billion this year. That makes our Fast Moving Consumer Goods (FMCG) sector the fourth largest in the country’s economy. According to information from the India Brand equity foundation, the FMCG market in the rural areas is slowly on the rise. India’s online retail is expected to be more than seven times in next five years. A look at the trends on who spends where and how much gives a snapshot of the scenario. Expected growth in FMCG market

Favourable demographics and rise in income level to boost FMCG market

CAGR: 17%

100

18.92 2015

(USD Billion)

2025E

Overall FMCG market expected to increase at a CAGR of 17 per cent to USD103.7 billion during 2015–20E

India’s online retail market

CAGR: 42.7%

India’s online retail to be more than seven times in next five years

14.5

3.5

2014

2018E

The online retail market is expected to grow from USD3.5 bn to USD14.5 bn (from 10% to more than 15% of the organised retail market) during FY14-FY18E

DECEMBER 2015 l The Finapolis

Break up of main segments in FMCG market

FMCG Health Care Food & Beverages

33%

19%

Health beverages, staples/cereals, bakery products, snacks, chocolates, ice cream, tea/ coffee/soft drinks, processed fruits and vegetables, dairy products, and branded flour

Oral care, hair care, skin care, cosmetics/ deodorants, perfumes, feminine hygiene and paper products, Fabric wash, household cleaners

OTC products and ethicals

Market break-up by revenue (FY15)

Household and Personal Care

48%

Trends in FMCG revenues over the years (USD bn)

103.7

19%

14% 6%

Foods Health supplements Digestives OTC & Ethicals Hair Care Home Care Oral Care Skin Care

18% 23%

6% 9%

CAGR: 13%

17.8

21.3

24.2

2007

2008

2009

Urban/rural industry break-up (2015)

30.2

34.8

36.8

2011

2012

2010

44.9

47.3

2013

2015

2020E

Rural FMCG market (USD bn)

40%

USD47.3 billion

60%

Urban Rural

CAGR: 13.2%

10.4

2009

2010

12.4

12.1

2011

2012

20 14.8

2013

18.9

2015

2018E

2025E

Source: India Brand Equity Foundation (IBEF) & TechSci

100

The Finapolis l DECEMBER 2015

COVER STORY POLITICAL SCIENCE

December Sets The Tone For New Economy December seems to be an action-packed month with the winter session of parliament lined up on GST and Land bill while the Fed meeting is lined up on the international front. Whichever way these events unfold, it will have a direct impact on the markets in the fast approaching new year By Jagannadham Thunuguntla

Goods and Service Tax (GST) bill

tep back to mid-2013 when the Indian economy was fragile and the Fed threatened to taper Quantitative Easing (QE), India went through a pretty rough time—currency went down 20%, equities went down in high double digits. Cut to 2015 and India is now at a position where its macro-stability has been the best it

Opposition parties

has seen in history. Current Account Deficit (CAD) has gone down from 5% to 0% of GDP, inflation has gone from 11% to sub-5%, fiscal deficit has gone from 6.4% to 3.8% and GDP growth has gone from 4% to 7%. Policymakers in India have delivered— the government and central bank have both played a role in this. RBI helped the

Land bill

cause by keeping real rates positive. The ease of doing business, which is the focus area now, did see a rise in the recent rankings—the best performance in the last six years. It has been a good performance and India enjoys better external stability which is why the rupee has been one of the best performing currencies in the world, and the Indian stock markets have

DECEMBER 2015 l The Finapolis

COVER STORY also been one of the best performing ones in the world. While there is unmistakable sign of improvement in business confidence, global investor optimism about India, there are still signs of slowdown in corporate earnings growth. Yes, earnings growth has not come back even after six quarters of new government, despite enormous anticipation of market participants. The earnings recovery is taking much longer than everyoneâ&#x20AC;&#x2122;s comfort. When one looks back to see the factors

India now ranks No. 1 in the world in attracting FDI surpassing China and US

for such a miss in corporate earnings, broadly it may be due to two issues: in the first 3 quarters period of the new government, there was very heavy fiscal tightening and it caused growth to slow. But that was a calculated gamble took by the present government as they have realised that without having control on fiscal deficit, it is near-impossible to create conducive environment for sustainable double-digit GDP growth. The other factor that drives earnings is global growth as several Indian companiesâ&#x20AC;&#x2122; earnings profile has become quite global. As global growth is still fragile, it has got reflected in Indian earnings slowdown. If global demand and revenues are falling, it is natural that earnings have remained subdued, even though the margins have expanded. At the current stage of India, it needs enormous amounts of Foreign Direct Investment (FDI) to come in. The Modi government has done well on these terms. If you look at recent FDI numbers, it is at a record high, and India now ranks No. 1 in the world in attracting FDI surpassing China and US. For such global inflows into India to remain and multiply, healthy business environment has to be created and sustained. Prior to Bihar elections, the fear was

After a long time, India has got a majority government at the centre but it has got majority in lower house, i.e, Lok Sabha only; and not in the upper house which is the Rajya Sabha. Constitutional

and Services Tax (GST); but it is still short of 39 members to get the bill passed. The Congress party has 68 members while left has got 10 members. Together they have enough members to make approving a

that if the NDA loses Bihar, it would slip into a populist mode. However, on contrary, NDA is not the one that slips into populist mode, and so an election defeat will only push it to do more reforms. For reforms to be pushed aggressively forward, getting the parliament mathematics and floor management right are quite critical.

amendment bills are required to be passed in both the houses of Parliament. The present NDA government has 63 members in the Rajya Sabha, whereas it needs support of at least 163 members to get the constitutional amendment bill passed. NDA has so far, mustered support of 124 members on critical issues such as Goods

constitutional bill difficult. On the back of this political template, NDA government is quite aware that it has to cede some space for opposition parties and some compromises may be inevitable to muster support for critical economic reforms such as GST. The upcoming winter session of parliament is set to

The present NDA government has 63 members in the Rajya Sabha, whereas it needs support of at least 163 members to get the constitutional amendment bill passed. NDA has so far, mustered support of 124 members on critical issues such as GST; but it is still short of 39 members to get the bill passed

20 The Finapolis l DECEMBER 2015

COVER STORY Indiaâ&#x20AC;&#x2122;s GDP could grow by about 1% with implementation of the GST Bill GST

GDP

Mortality Charges

cratic form of government wherein the political party with majority rules the nation. But many a time, a single party fails to acquire majority on its own. Thus, it has to depend on the support of other parties or most of times from opportunist allies to form the government and a situation of policy paralysis arises. The Congress is opposed to states being given power to impose 1% tax over and above the GST rate. Also, it wants alcohol and petroleum products to be included in the new tax regime.

Implementation of GST is going to be a milestone in the direction of indirect tax reforms. In India, there is merely 16% of the population who are tax payers compared to on an average 25% globally. This

than dozen state and central levies to create a single market. It would be a comprehensive value added tax on the goods and services which would be collected on value added at each stage of sale or purchase in the supply chain. Thus, GST is expected to be more efficient system of taxation and is expected to boost revenue of the center and states. Presently, goods are liable to VAT, excise and custom duty while taxable services attract service tax. Efforts to bring single indirect tax in the form of GST, was already passed in Lok Sabha and is pending in the Rajya Sabha to be passed. For industry, the GST adds to ease of doing business, making tax compliance

Given the urgency of the situation, it becomes the duty of the government to win over the support of opposition parties to see that GST bill sails through the Rajya Sabha. Opposition parties should also do away with their approach for economic growth and together they should ensure that not only is the bill passed, but also it is made enforceable from 1st April 2016. This time around, the government has been making claims of getting the bill passed in the Rajya Sabha with the support of opposition parties. It has been giving signals to accommodate the views of opposition parties and amend the bill suitably. Government already has approached opposition parties. But, it does not appear to be an easy task, given the time constraints on one hand and uplifted sentiment of opposition parties after the victory in Bihar election. Even if GST is passed in the Rajya Sabha, more than half of 29 states will have to ratify the same before the Parliament passes another enabling bill to implement the new tax regime. We should hope that good sense will prevail on both ruling and opposition parties and consensus is arrived with regard to passing the bill and making it enforceable soon, even if the given time line of 1st April 2016 is

indicates why big revenue deficit exists in India. Several economists believe that with implementation of the GST Bill, Indiaâ&#x20AC;&#x2122;s GDP could grow by about 1%. This reflects the significance of this bill and how urgent it is for the Indian economy to implement it at the earliest. GST is aimed at doing away with more

simpler and boost manufacturing by compelling states to be more competitive. For consumers, it is intended to reduce prices with more efficient delivery of goods and services. The reason why it is being delayed in the Rajya Sabha, has more to do with politics than economics. We have a demo-

not adhered to. It is of paramount significance that GST bill is passed to create a fertile business environment. Global investors understand and have got confidence with regard to huge business opportunities Indian economy offers wherein they can multiply their invested money.

For industry, the GST adds to ease of doing business, making tax compliance simpler and boost manufacturing by compelling states to be more competitive. For consumers, it is intended to reduce prices with more efficient delivery of goods and services offer the market observers great opportunity to sense the likely political strategy of the government for the remaining three-and-half years of their tenure. One may witness that the business of Parliament will show a marked improvement in the winter session. In a democracy, different parties with different agendas have to work together, and that is how it is set up.

Goods and Services Tax

The Finapolis l DECEMBER 2015

COVER STORY Land Bill The land bill was another important reform, but the subject is quite sensitive considering the enormous interests involved in the matter. Eventually, the states will decide on this subject—this is exactly what happened with labour reforms. Wherever there is concurrent law-making power, the reforms will happen at the state level. One of the key aspects in the last 18 months is a sense of competition amongst state government to attract investments into their respective states. The state governments realise that the only way to keep public happy is through growth. If that has to be achieved, they have to sustain reforms at state levels – that too better and faster than the competing state governments – to attract global money into states. This is a healthy trend of doing reforms, which is bottom-up, rather than top-down. Top-down reforms work only in certain areas. It does not work in contentious areas like land and labour, where there are diverse opinions and several local factors. The government will continue to push forward with reforms and the next big thing will be the bankruptcy code, and that will be the significant contributor towards the ease of doing business. So, upcoming winter session of parliament in December is likely to become centre-stage for all these events to unfold.

US Central Bank Likely to Move on Interest Rate: Global Game in the Hands of Fed One other crucial event to watch out for is the Fed meeting on 15-16th of December. Janet Yellen, Chairperson of Federal Reserve, while deliberating on October Fed policy had given a strong signal with regard to effecting interest rate hike during forthcoming December Federal Open Market Committee (FOMC) meet depending on the assessment of incoming economic data. Since then, there have been data releases which have been largely favorable to mixed nature. However, data pertaining to the job market and inflation have shown substantial improvement in the US economic situa-

tion. Improvement in US job market has had cascading effect in the sense that manufacturing, housing, consumer spending, trade - all experienced smart recovery thereby providing strength to the US economy. However, there are some sectors like Retail Sales, PPI and Industrial Production have remained laggards in the process. Nonetheless, it seems that objectives with which different variants of QE policies were introduced at different levels and years have strengthened the economy.

poor showing if the geo-political situation is aggravated substantially.

The manner in which the US economy has recovered from the 2008 crisis and has started experiencing all-round growth, it appears that it is going to be a sustaining growth and hence, QE has been big success there. The confidence gets reflected in the voices of majority of Fed members who support the move of raising interest rate during December meet and see diminished risk from contracting Euro Zone, Chinese and Japanese economies on the one hand and geo-political tension on the other, which is obvious from the release of FOMC Minutes. However, there are still some members of FOMC which consider the situation being not that ripe enough to affect rate hike at this stage and feel the need of closely monitoring the incoming data releases. As things stand today, Fed remains on course for rate hike and any chances of differing on rate hike depends on the incoming economic data of the

world looks extremely attractive on headline valuations, compared with India. On the medium-term basis, we feel India can retain its valuations premium as it has a better growth story. In the next 12 months, on a relative basis, India should continue to do well, and on an absolute basis, may be the returns will be better than what they have been in the last 12 months. Economic growth is expected to steadily improve. Hopefully in 2016, GST will also be done and implemented, and that will bring about change. December seems to be an action-packed month with the winter session of parliament lined up on national basis and Fed meeting lined up on international basis. Whichever way these events unfold, it will have a direct impact on the markets in the fast approaching new-year of 2016. We are in a modest return world and let’s hope India will stand-out with high returns in this modest return world. F

Conclusion The relative story of India remains strong. India is enjoying overweight position in the portfolios of several global investors vis-à-vis other emerging markets. The slowdown in other emerging markets such as Brazil, Russia and China is partly helping India to get overweight from global investors. However, the rest of the emerging

DECEMBER 2015 l The Finapolis

INDIRECT TAX CHARGES

Decoding Taxes on Your Restaurant Bill Double check restaurant bills always. If your favourite fine dining place charges you VAT on packaged mineral water, slam it. Understand where else do we end up getting overcharged? By Rahul Kumar Dubey

eekends are time to unwind but if the service has been particularly Food and Charged by the What should have and we seem to be in the same bad, you may object to it. The bill paid Beverages Restaurant (Rs) been Charged (Rs) mode when we are out with recently by Sujay Gupta is shown in the Miami Cuband 575 575 family and friends at a fine dintable as what was paid and what should Chicken Steak ing restaurant. However, this have been paid. Vegetable 399 399 is exactly where you could be short If you carefully see, service tax has been Quesadilla changed. Sometimes, ripped off too! taken on the complete bill amount as also November Sea 260 260 When Delhi-based Sujay Gupta recentthe service charge. VAT calculations are breeze (drink) ly went out for dinner with his wife, his wrong. Had Sujay known, he could have Pineapple 260 260 bill had several charges and taxes, in adpulled up the restaurant management. Sunshine (drink) dition to the cost of the food and drinks. Additionally, it is not even known as to how Total 1,494 1,494 There was a value-added tax (VAT) on food much of the tax will actually be paid by Service Charge 179 179 at 12.5% and on beverages at 20%, a serthe restaurant to the government. 12% vice charge of 12% and a service tax of Where do Restaurants Overcharge: The Service Tax 5.6% 93 84 5.6%. Thus the actual bill amount of Rs above simple example would make it very VAT Beverages 1,494 had gone up to Rs 2,020 after these clear to you what all additional can be 116 104 20% charges and deductions. He did not like sneaked out by a restaurant from your VAT Food 12.5% 136 122 the bill, but nevertheless paid as he was pocket without you knowing it. In generGrand Total 2,020 1,983 not sure of how these bills are computed. al, restaurants overcharge by: A restaurant bill has two tax com Counting service tax on service Restaurants overcharge by taking charge. ponents: VAT and service tax, which are as per regulations. These corre Taking 14% service tax on the en14% service tax on the entire bill spond to the goods given by the tire bill amount while also taking the amount while also taking restaurant to you (food and beveragVAT separately. es) and the services provided (ambi Taking same (higher) rate on VAT the VAT separately ence, waiter service, music, comfortfor food as also beverages even though able seating, etc) respectively. The regulations may have different rates ratio of goods to service is presumed to items like bottled water and you need not laid down for the two. be 60% Vs 40%. The service tax of 14% is pay for it since the MRP already has VAT  Lastly, but very importantly, doing wrong to be divided accordingly between VAT component built in. calculations of the rates and maybe even and service tax. There may also be a comService Tax: Service tax is charged at the total may be wrong. ponent called service charge which is 14%. As already explained, services are Swachh Bharat Tax: Since 15 November roughly a tip that you would give to the supposed to account for 40% of the bill. 2015, an additional Swachh Bharat Tax of waiter and is not a governed by any regHence, service tax will be 14% X 40% = 0.5% can be levied on all services where a ulations. 5.6% on the bill amount. Mind it, this tax service tax is to be levied. Thus effectively, Value Added Tax: VAT is charged for the can only be charged if the restaurant is you may take the service tax as 14.5%. This food prepared and sold by the restaurant. air conditioned, even though partially. means that in a restaurant, the total SerIt varies from state to state and can be Service Charge: Generally service charge vice + Swachh Bharat tax will be 14.5% X between 4% and 12%, depending on the is mentioned on the menu card itself. 40% = 5.8% of the total bill amount less state. VAT does not apply for packaged Mostly, you do not have much say in this packaged goods. F

The author is an investment planner with Hum Fauji Initiatives

24 The Finapolis l DECEMBER 2015

ECONOMY MACRO VIEW

Is India ready for the TPP? The Trans Pacific Partnership, a.k.a free trade agreement on steroids, is one of the worldâ&#x20AC;&#x2122;s most ambitious trade agreements aimed at setting rules for investments flows from one nation to another. India is currently not a signatory of the agreement but its implications for the Indian economy and industry can be significant. But what does India need to do to be there? By Kiran Nanda

ndia is currently not a signatory to the Trans Pacific Partnership (TPP), a regional trade pact encompassing 12 Pacific Rim countries, including the USA. But its implications for the Indian economy and industry can be significant. The Indian economy enjoys the potential to attain

The Indian economy enjoys the potential to attain high, sustainable and inclusive growth but has not been able to show the coveted results

high, sustainable and inclusive growth but has not been able to show the coveted results so far for various reasons. The most important reason is poor execution of even important policy announcements. This has resulted in wide gap between what is intended and what is seen on the ground.

so far for various reasons Prime Minister Narendra Modi has been highlighting opportunities in lowcost manufacturing in a number of sectors. For example in case of the textile industry, India once considered the king of cotton exporters has now fallen to eighth in world rankings. Such occurrence will now become widespread with

the impending TPP Agreement. India can fall further behind and lose market share to members of the TPP. India is not a member of the TPP. In the present age of fierce competitiveness the rules of the TPP are expected to get embedded in all such Free Trade Agreements over a period of time.

India can ignore such stipulations only at its own peril. India has to fast set its economic cum political house in order by replacing preoccupation with scoring political points with consensus over sorely needed pragmatic economic reforms and implementing the same to the last point of delivery.

DECEMBER 2015 l The Finapolis

ECONOMY The TPP Agreement which can be basically called a free trade agreement on steroids is one of the world’s most ambitious trade agreements, aimed at setting rules for investments flows from one nation to another. It mainly benefits the USA and includes protection for intellectual property rights (IPR) mainly patents and computer software. It covers more issues than is the case with some free trade agreements. More significantly, the TPP is a well-crafted geo-economic exercise primarily benefitting Washington as much as it is a trade and investment pact. It excludes China, thereby potentially can stunt its rapid rise.

Backdrop On October 5, the nature of international trade has embarked on a radically transformed path. This is going to be a landmark development. Twelve countries around the Pacific Rim have signed the TPP – a free trade agreement- that covers around 870 million people, 40% of global GDP and accounts for about $2 trillion in merchandise trade. The TPP, when ratified by all 12 countries would, for the first time, take multilateral regulatory oversight over measures by sovereign governments beyond their borders. The TPP is not merely another tariff reducing mega regional trade pact but about evolving a ‘new normal’ for conducting international trade – encompassing lower benchmarks for non-tariff barriers, more stringent labour and environment regulations, stronger IPR protection and greater transparency in government procurement thereby limiting advantages to state owned enterprises. Another mega deal is currently in the making- the Transatlantic Trade and Investment Partnership (TTIP) between the US and European Union. This could become operational in the next couple of years. The TTIP, too, has a similarly ambitious agenda as the TPP, going much beyond the WTO. The Regional Comprehensive Economic Partnership (RCEP) negotiations cover 16 countries including the 10 ASEAN economies -- Brunei, Myanmar, Cambo-

dia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam -- and six partner countries- Australia, China, India, Korea, Japan and New Zealand. These 16 members together cover more than three billion people, a GDP of about $17 trillion and more than 50% of world trade. However, unlike the TPP and the TTIP, the RCEP doesn’t aim to cover ‘beyond the border’ measures because both India and China, Asia’s two giants, don’t support that. However, the conclusion of the RCEP, which has become even more critical in the wake of the finalization of the TPP to complete the architecture of trade liberalisation in the Asia-Pacific, has been put off for another year due to conflict of interest among the 16 participating countries.

The Indian Context The RCEP, when concluded, would give India more leg room for negotiating its entry into mega regional pacts. It is worth recalling that of the 16 RCEP countries, seven are also members of the far more ambitious TPP. In addition to concluding the RCEP negotiations, India could also accelerate its on-going negotiations (FTA) with the EU, which if concluded would give it some comfort when the TTIP comes into force.

Unfortunately, some dampeners have emerged. For example, the India-EU negotiations have effectively been put on hold. India is planning a three-tier offer under the RCEP, which will complicate its complex import regime, thereby encouraging rent-seeking by customs officials. Moreover, the Department of Commerce reportedly commissioned a study, which has concluded that free trade agreements signed by India have an overall negative impact on India and should therefore be carefully reviewed. All these amount to a defensive stance. Moreover, a large segment of Indian industry continues to remain globally uncompetitive, as reflected in persistent decline in our exports for the last 11 months not withstanding global sluggishness. A protectionist policy stance cannot be an optimal solution, especially when India aims at maximizing employment generation for its 12 million new entrants to the workforce every year. India has to expand its exports of both goods and services to generate employment opportunities as export sector is mostly employment intensive. Authorities need to focus more on such measures that make Indian industry globally competitive. These require focused attention on improving physical infrastructure, especially for

26 The Finapolis l DECEMBER 2015

ECONOMY medium and small industries that contribute nearly 60% to India’s exports. Also, further simplification of processes and procedures and revamping of the export promotion regime have become essential. There seems no clear consensus in the Indian government on whether enhanced market access through the TPP covering 12 countries will be worthwhile. However, the TPP would involve huge costs for the protected Indian industries. India would need to prepare itself for higher standards than ever attempted. However, the long term gains for India if it joins the TPP cannot be overlooked which may outweigh the costs.

ter integration into the global economy will have to be achieved. Ultimately, major structural changes from infrastructural development-- legislative to institutional reforms and human resource development, will determine India’s success in becoming part and parcel of the complex supply chain-led international trade and investment.  India should seriously push for finalising new bilateral FTAs with some TPP members to dilute the impact of trade and investment diversion due to the TPP.  It will be difficult for India to easily agree to several measures under the TPP. Like adhering to the environmental standards due to its lower stage of economic development and conceding to the kind of IPRs protection regime that the United  According to the Center on Global States wants, especially for its huge geTrade and Investment study, India’s nomneric drug manufacturing industry. India inal GDP is likely to trim by more will not be able to bear the expectthan 1% because of trade and ined sweeping tariff cuts and the Indian exports are most likely to vestment diversion due to the sweeping labour standards of the TPP. This will entail some revedeveloped West. take a hit as the TPP provides nue and job losses as well.  One of the best options can be  Global supply chains make up through the finalisation of the special concessions to some of its 80% of international trade today. RCEP. The snag is that the RCEP key partners to purchase from The TPP will further intensify also includes seven countries, this trend. By not joining the TPP, both developed and developing, other TPP member countries India could lose out on integratwhich are also members of the ing its small and medium-sized TPP agreement. China is in the enterprises into these production this context, the TPP that excludes India RCEP but not in the TPP. Hence networks. may not be good news for the country. tensions are bound to crop up.  Indian exports are most likely to take  Furthermore, since almost 60% of In Apart from finalising the RCEP, India a hit as the TPP provides special concesdia’s GDP is tied to the services industry, can use its current trade negotiations sions to some of its key partners to pura large portion being in IT and IT-enabled with the EU, Australia, Canada, and New chase from other TPP member countries. services, the regulatory harmonisation Zealand, as a stepping stone to start rais The FDI inflows into India which startexpected to be enacted in the TPP could ing its standards as well as proposing ed to pick up from the mid-2000s may get greatly harm India’s competitive edge in mitigating measures to assuage concerns affected. Today, India is one of the largest these sectors. of the Indian Industry. India can open its recipients of FDI in the developing world market further while formulating prodand the largest in South Asia. The TPP uct-specific rules on a case-by-case basis will surely incentivize foreign investment that will facilitate India’s policies like among member states, thereby decreas It needs to be debated whether India can ‘Make in India’. It can also begin to re-

India’s nominal GDP is likely to trim by more than 1% by not joining TPP

What India will miss by not joining TPP?

What will be the best course for India to follow?

ing the relative attractiveness of India as a destination among TPP members.  The TPP also involves regulatory harmonization. The MNCs under the aegis of the TPP do not have to face regulatory hostilities in host countries or struggle with Indian laws. India’s legislations do not align well with global standards. In

take steps to mitigate the likely negative impact on its exports, investment inflows and technology imports due to the new generation of mega regional agreements.  India’s share forms only 2.1% in global trade, five times less than China’s (also outside the TPP). For firming up India’s economic and geo-political heights, a bet-

form its intellectual property policy in certain areas, like IPRs on music and films, while also safeguarding its generic medicine industry. In short, India must decide fast on an interim strategy as a part of a well-studied long term course to cope with the postTPP era. F

DECEMBER 2015 l The Finapolis

INVESTMENT TUTORIAL

Investment Lessons from the Game of Football Like in this game of double and dribble, staying on the defensive, going for an all-out attack and staying realistically optimistic holds good when you are playing with your money as well By Karan Dwivedi and Krimica Sojitra

he game of investing is a lot like foot-

marquee players in the opposition team.

ball. You have to tackle your problems, There are certain players who need to be block your fears and score your points kept under check in order to minimize the when you get the opportunity. Tactical threat from them. This could involve sacanalysis and planning have become essenrificing a player to nullify that threat. Simtial in football as well as investments. ilarly one can use a small fraction of their Managers and investors in both these funds (a player) to cancel out uncertainties fields need to be on top of their game to in the market, this can be done with the ensure that all their efforts yield substanhelp of hedging and reducing risk. tial results. You must be wondering how  It is very important to be pragmatic tactics in football can be related to investabout ones investments and not expect ment planning. Well it’s not too far-fetched super-fast results. Football is a game of an idea if you think about it. 90 minutes and until the final whistle  Do not put all your eggs in one basket. blows, the manager has full faith in his A clichéd quote overused in the field players to deliver the desired results. of investments. It has become a There could be stressful situations thumb rule, really. Football, just like arising for an investor where he/ All-out attack or ultra-defensive? investments, is a game where the she would not be certain about holdTaking calculated risks is an objective is to score goals (create ing or selling their stocks. In such essential trait of any wealth). But at what cost? After all situations, an investment advisor you have only 11 players (limited can guide you through rough waters successful investor funds) on the pitch! The correct alloand ensure your investments are well cation of these players in defensive and to hold on to their stocks and hope for a taken care of. offensive positions is essential to obtain higher return or redeem their stocks and  Post match analysis help bring out any the desired results. A right mix of equity book profits immediately. Investors, like shortfalls that occurred during a game. and debt will ensure that you ‘attack’ and football managers, possess the option to These must be rectified to ensure optimum score (make capital gains) with your high “counter-attack” (buy aggressively when results for the games to come. Likewise, risk equity stocks and ‘defend’ (don’t conthe markets are down) or play “possession while investing it is important to have a cede/ lose money) with your low risk debt football” (make conventional decisions and guide or a trusted professional who will holdings. flow with the market). point out if there are any errors or wheth All-out attack or ultra-defensive? Tak Football managers have their own er certain areas in your portfolio can be ing calculated risks is an essential trait of trademark styles and the way they put improved upon. This can ensure prime any successful investor. It is firstly importtheir teams out says a lot about their risk utilisation of your resources. ant to establish what level of risk one is taking abilities. Some might be conservaA football manager and a successful willing to endure. Is scoring lots of goals tive and might play with five defenders at investor share some common traits like: (high capital gains) important? Or will a the back (debt oriented portfolios) while planning, analysis, discipline and focus. draw suffice, which will ensure you don’t some might be more flamboyant and only A variety of these traits separates the lose the game? (procure losses with your play with 3 defenders (aggressive equity best from the rest and will almost guarinvestments). Investors also face short oriented portfolios). antee smooth sailing during your journey term dilemmas when they have a chance  Managers always keep an eye out for the of investing. F

The authors are Research Analysts at TBNG Capital Advisors

28 The Finapolis l DECEMBER 2015

NDA GOVERNMENT REFORMS PATH

Alert: Economy on a MODIfication Mode

Whatever be the criticism of the current government, it has not so far deviated from its agenda on long term development. No doubt it has stumbled in its inability to take along the opposition and hasn’t cut much ice in areas like APMC and labour reforms. However, Modi’s government has shown urgency in pushing hard on all other fronts By K P Jeewan

evelopments post Bihar election was the best that could have happened for the country. No, this is not about the election results or tolerance; this is about the reform measures taken by the government post result. In a way Bihar election result was a crossroad for the reformist agenda of the government. It could have very easily taken a turn for populism given the drubbing it got. But it chose to take

the reforms path and came up with several important reform measures including on foreign direct investment (FDI), highways and railways etc. This was the most reassuring signal for the investors if they had any doubt on the long term agenda of the government. There have been opinions lamenting slow pace of reforms since the current government took office. It is necessary to rewind a bit and see the problems which

were ailing our economy and measures taken by the current government to counter them.  During May- Sep 2013, when INR depreciated sharply to hit a low of 68.80, it was the nadir of an economy abused for years  Inflation was stubbornly high for several years due to reckless demand stimulation without corresponding growth in investment  High fiscal deficit and highly indebted corporates  Sharply slowing economy  Slowing global economy  Frozen decision making and delays in regulatory and environmental clearances  Banks with progressively worsening balance sheets  Cronyism and corruption scandals  Rigid and archaic labour laws  Clogged courts and lack of contract enforceability Some of the issues were of recent origin and some were old. But with such overwhelming odds, there was no silver bullet to turn the economy around and the expectations of miracle were perhaps due to the election hype. Firmly entrenched inflation and inflation expectation meant quick fix demand stimulation was out of

DECEMBER 2015 l The Finapolis

NDA GOVERNMENT question. Next best thing namely governexample the Golden Quadrilateral initiment spending, even for investment, was ated by Bajpai. constrained by precarious fiscal condiWhatever be the criticism of the curtions. In fact there is nothing that the rent Government, it has not so far deviatgovernment could have done which would ed from its agenda on long term develophave resulted in V shaped and sustainable ment. No doubt it has stumbled in its inrecovery. Land bill and goods and service ability to take along the opposition. It has tax (GST) are enabling condition and efpossibly lacked in areas like APMC and ficiency booster and in themselves would labour reforms etc., but has shown urgennot have kick started recovery. Couple of cy in pushing hard on all other fronts. Its years of slow growth was inevitable to handling of inflation despite two succesbring down firmly entrenched inflation sive monsoon failures and hailstorm damexpectation. The best government could age has been good, barring the lapse on have done is to spend the period in creatpulses this season. ing enabling condition, de-bottlenecking On account of balance sheet issues of and spending on infrastructure. And on Indian banks and corporates, governthis parameter, one cannot find fault with ment has been trying FDI route for boostthe government. ing investment. However, given the globThe government started off on the right al economic situation and excess capacnote by sticking to the 4.1% fiscal deficit ity in almost all segments, its aim to target for 2013-14 and broadly sticking to encourage setting up export focused the direction and targets of fiscal responmanufacturing in India is unlikely to sibility and budget management (FRBM). give desired benefit. Governmentâ&#x20AC;&#x2122;s effort It took a politically very hard at investment, namely 70,000 decision on inflation targeting crores targeted for the year is too If the government succeeds in that too at ambitious levels sugsmall to take the existing slack gested by RBI and thereby forfeitand result in economic/investmanaging opposition/parliament ing the easier path for itself. ment revival. and sticks to the path it has chosen In pursuit of more efficient deIn this backdrop, the governfor itself, there is little doubt India livery of subsidy and financial ment should seriously look at easwill continue to be a standout inclusion it pushed hard for Jan ing off on the fiscal deficit target Dhan accounts. for a few more years and scale up economy for times to come It took measures for reducing its role in investments. If the ingovernment role in banking apty enhancement and projects for rail concrease in fiscal deficit is purely for pointments. nectivity to many ports and mines. investment and if the government continIt brought transparency in auction of It is working on the administrative side ues to work hard on reducing revenue national resources like coal and specpolicies to bring back private sector indeficit, it is unlikely that rating agencies trum. Its efforts at reducing red tape saw vestment, bankruptcy code for easy entry or RBI would take an adverse view. It India has improved its ranking over the and exit, revival of state electricity boards might mean fewer rate cuts for a year or last one year on parameters like ease of (UDAY), foreign direct investment, nationtwo, but as we have seen rate cuts in themdoing business. al company law tribunal and establishselves are not enough to revive demand. Two segments which can readily rement of commercial courts. Next leg of growth for India has to be from ceive and deploy large scale investments Other major long term initiatives investment in domestic infrastructure are railways and highway. Highway coninclude, Delhi Mumbai Industrial and currently there is no alternative to tracts being awarded has risen to 23.4 km Corridor, Dedicated Freight Corridor, the government taking the lead in this. per day from 5.2 km in FY13 and 8.7 km in FY14. Railways has been in the news for substantial progress in lowering its operational costs, restructuring the decision-making process, proposed investment Rs 8.5 lakh crore over the next five years, projects to improve the quality of rolling stock, upgrade signalling, capaci-

Sagar Mala, Smart Cities, Digital India, Solar Power etc. It is normal for an elected government to focus its energy on projects which have tangible benefits in three to four years, in time for next election. It, however, takes a visionary to invest in projects which take longer to have visible benefits for

If the government succeeds in managing opposition/parliament (NDA government in the past have managed to do it with even smaller majority) and sticks to the path it has chosen for itself, there is little doubt India will continue to be a standout economy for times to come. With luck, in time for 2019 elections! F

30 The Finapolis l DECEMBER 2015

EQUITY NUMBER GAME

Technical Analysis Our team of analysts pore through technical charts to offer some smart trading tips for the next couple of months By Team Finapolis

Points of Observation

suggests a positive trend in the counter on daily charts as well as on weekly charts. XXAmong the momentum indicators MACD is trading above the signal line in weekly charts indicating positive momentum in the stock on medium to long term perspective. XXThe stock has witnessed little profit booking after it has given breakout from inverted head and shoulder pattern and retested its neckline and is now available at attractive price.

XXOn the weekly charts, the stock is trading above all of its short term and long term exponential moving averages, where as in daily chart the stock is trading above its 50/100/200 day EMA levels indicating the bullish bias in the counter. XXAmong other leading indicators parabolic SAR is trading below the CMP and

XXOn fundamental side, TORNTPOWER is one of the leading companies in the Indian power sector, engaged in generation, transmission and distribution of power, mainly catering in state of Gujarat. The company is expected to benefit from the governmentâ&#x20AC;&#x2122;s bailout plan for Discoms in coming days.

Current Market Price

ORNTPOWER has formed significant low of 66 in Augâ&#x20AC;&#x2122;13, post which the stock witnessed a smart recovery forming higher highs and higher lows on the weekly chart in the last one year time frame indicating a secular uptrend in the stock. The stock has given breakout from inverted head and shoulder pattern on weekly line charts in the first week of No195 185 175 165 155 145 135 Nov-14

Feb-15

May-15

Aug-15

Nov-15

Rs 184.75

Stop Loss

Rs 160

Target Price 1

Rs 215

Target Price 2

Rs 225

vember 2015 with good volumes indicating huge buying interest to come in coming days. We expect the stock to start a fresh leg of rally from these levels to the said targets.

DECEMBER 2015 l The Finapolis

EQUITY

POLLOHOSP is in a uptrend from many months and every correction has proved to be a great buying opportunity. The stock has made a high of 1515.90 and from that point it has come to 1213 levels giving a correction of almost 20% from its high. The stock is trading above its 200DMA which is at 1326. The stock has major support levels in the range of 1240-1210.The stock made a low of 1213 on 16th November and showed smart recovery from those levels and is currently trading around 1350 levels. The next major 1510 1440 1370 1300 1230 1160 1090 Nov-14

Feb-15

May-15

Aug-15

Nov-15

Current Market Price

Rs 1350

Stop Loss

Rs 1210

Target Price

Rs 1500

monthly support is around 1100 levels which is also its previous breakout levels. The current correction seems to be almost over and the stock is likely to consolidate near its support levels and start its upmove in next few days. Points of Observation XXOn the daily charts, the stock is trading near its upward sloping trend line indicating the inherent strength in the counter and is likely to head northward towards its previous high in medium term. XXThe stock has been witnessing accumulation from the last 8-10 trading sessions near its support levels. The stock has a strong support at around 1200 levels and is likely to head towards 1500 levels, where it is likely to face some resistance. XXAmong oscillators, the 14-day RSI has crossed 50 levels, indicating the stock

Current Market Price

EATLTD is one of the leading tyre manufacturers in India, offering the widest range of tyres to leading OEMâ&#x20AC;&#x2122;s across the world. In the last month company posted quarterly results with rise in net profit primarily due to softening of raw material costs, however net sales remained down quarter on quarter basis. In the month of Octâ&#x20AC;&#x2122;15 stock witnessed profit booking from life time highs and found a support above its major moving average. Currently stock is well poised to surge higher over coming weeks. 1295 1175 1055 935 815 695 575 Nov-14

Feb-15

May-15

Aug-15

Nov-15

Rs 1055.90

Stop Loss

Rs 885

Target Price 1

Rs 1320

Target Price 2

Rs 1380

Points of Observation XXThe stock price is in structural uptrend with intermittent profit booking, however in last two year time frame such intermittent price correction has provided an excellent opportunity to accumulate stock on dips. In last five months time frame stock witnessed smart rally from the lows of 595 levels to a life time high of 1319.90 posted only in month of Octâ&#x20AC;&#x2122;15, wherein from stock price plunged on account of profit booking. On applying Fibonacci Retracement from the low of 595 to life time high, 50% retracement lies near 957 levels-in recent past stock bounced back after placing a swing low of 958.10, validating retracement support.

has strength and price can rise in medium term. XXOn weekly charts the stock has come to its previous support levels of 1200, and it is highly likely that it will take support at its support levels and once again move north wards. XXThe maximum correction in this stock for the last two times was in the range of 20%-25% in the month of April 2015 and August 2015 and post that the stock has touched its previous highs both the times. Even this time the stock has corrected around 20% from its high and is likely to go till its previous high.

XXCurrently stock is holding above its 200DEMA (944) and likely to find support on any price correction, and momentum oscillator on weekly time frame is poised in bullish territory, indicating buying opportunity for medium term investment. XXTherefore, we recommend accumulating stock near 1030 levels, and any dip towards its 200-DEMA 945 levels can be utilized to average the stock price, for initial target of retesting of its life time high of 1320 mark and eventually stock may surge higher in an uncharted territory towards 1360-1380 levels, keeping stop loss below 885 levels.

The Finapolis l DECEMBER 2015

EQUITY

T is Indiaâ&#x20AC;&#x2122;s largest and the most respected engineering, construction, manufacturing and financial services conglomerate, with global operations. The company is well positioned to benefit from economic recovery and it remains best proxy for Indian Infrastructure development story. With its strong business model, strong execution capabilities and healthy balance sheet. L&T addresses critical needs in key sectors - Hydrocarbon, Infrastructure, Power, Process Industries and Defence - for customers in over 30 countries around the world.

Current Market Price

Rs 1369

Stop Loss

Rs 1050

Target Price 1

Rs 1800

Target Price 2

Rs 1830

Thereafter, the stock has seen sharp cut from the same and made a bottom around 1326 levels. However, the price action on the weekly charts has formed bullish engulfing pattern last week with notable volume which suggests trend reversal of the recent down trend stared from the high of 1894 levels is fizzled out and stock may take it up move from the current levels.

Points of Observation XXThe stock has resumed its up move from the low of 677 levels which has placed the stock to the high of 1894 levels.

Current Market Price

ARKSANS is among the few mid-cap Pharma companies which have been growing steadily in the last couple of years. The stock has risen very sharply in its current bull trend which started from around 10 levels in the year 2013 and its strong uptrend is still intact. The stock has given a significant return in last one year when the stock rallied from around 60 levels towards 115 levels, almost doubling in the said time frame. Profit booking was witnessed in the stock at the higher levels which dragged the stock towards 74 levels, where the stock took support and bounced back sharply towards 111 levels. The stock 110 100 90 80 70 60 50 Nov-14

Feb-15

May-15

Aug-15

Nov-15

Stop Loss

Rs 99.85 Rs 65

Target Price 1

Rs 140

Target Price 2

Rs 155

has been trading in a broad range of 90-105 levels since last one month. It seems that the stock has bottomed out and is ready to move higher. Any further decline in the stock towards 80 levels can be used as a buying opportunity to accumulate the stock for the targets of 140-155 levels in the short to medium term. Points of Observation XXOn the daily charts, the stock is trading above most of its major moving averages namely 21/50/100/200 â&#x20AC;&#x201C;DEMA, indicating the inherent strength in the counter and is likely to head northward towards 140-155 levels in the short to medium term. XXThe stock has seen accumulation at the lower levels around 90-95 levels when stock fell from its recent highs of 111.20

1900 1800 1700 1600 1500 1400 1300 Nov-14

Feb-15

May-15

Aug-15

Nov-15

XXThe recent fall in the stock from the high of 1894 levels has placed the stock below all medium to long term moving average. Currently the stock is consolidating in the range of 1330-1365 levels from couple of weeks with considerable volumes which suggests strong hands are accumulating the stock at lower levels. XXParabolic SAR has recently triggered a buy signal on the daily charts and was trading well below the price reflecting strength in the counter. Hence we suggest buying the stock on a minor dip to 1340-1350 levels keeping stop loss of 1050 levels for the target of 1800- 1830 levels in a time frame of 6- 7 months. during the last month on account of profit booking. Since then the stock has been gradually falling and has taken support around its 100-DEMA. The immediate support for the stock is seen to be around 95 levels. XXAmong oscillators, the 14-day RSI line is pointing northwards, indicating upside in the counter. XXThe price of the stock is trading on the Parabolic-SAR indicator indicating that the correction in the stock is over and the counter is likely to resume its upward trend and trade in the uncharted territory. F

DECEMBER 2015 l The Finapolis

NAVEEN KUKREJA

by invite

Six Financial Security Steps For Single Working Moms

eing a single parent, the entire responsibility of taking care of your family and keeping them financially secure rests on your shoulders. This can be challenging if you are a single working mother. The cushion of falling back on your partner’s income does not exist anymore. The shift from double income to single impacts everything from your savings to the standard of living. The situation is worse if your partner was the one who made all the investment-related decisions. If that was the case, you may have to scale up your knowledge regarding financial instruments and savings avenues. The most pressing issue here will be how and from where to start financial planning? Here’s a starter guide that will help you take confident steps: 1. Assess your financial position: The first thing that you need to do is assess where you stand financially. It might be that you have received death benefit from your partner’s life insurance policy or alimony after your divorce. Don’t invest this amount in haste as you may probably end up making serious mistakes. Also avoid locking up the money in illiquid assets, such as real estate. Instead, invest in a liquid fund or bank fixed deposit while you decide where and how to invest. 2. Set financial goals: Once you are done with the assessment of your financial position, you will have to set your financial goals and plan your investments accordingly. The financial goals have to be classified according to the time horizon that you are looking at—whether they are short-term or long-term goals. Your imminent home renovation or down-payment of your loans will qualify as short-term goals. Whereas your child’s higher education or wedding expenses and your retirement planning will qualify as long-term goals. Each of them would require different investment strategies. Short-term financial goals can be best achieved by in-

The shift from double income to single impacts everything from your savings to the standard of living vesting in bank fixed deposits or debt-oriented mutual funds. For long-term goals, invest in equity-oriented mutual funds or unit-linked insurance plan (ULIP). 3. Create an emergency fund: This fund will take care of your short-term routine expenses in case your income stops because of some unforeseen event. So, ensure that you keep at least six months of your family’s expenses in this fund. Instead of storing that money in your savings account, invest it in liquid fund or bank fixed deposits to earn more from them. 4. Take adequate insurance cover: A life insurance policy becomes all the more important for you if you happen to be a single mother. After all, you are the sole-earner of your family now and your absence would seriously jeopardise the financial well-being of your family. Therefore, purchasing adequate insurance cover for your family should be the next step for you. Go for a pure term policy to get a high risk cover at a low cost. Ideally, your life cover should be 15 times of your present annual income. It should also include your current liabilities and the future educational or marriage expenses of your child.

The author is Managing Director, Paisabazaar.com

5. Invest in mutual funds or ULIPs for your long-term goals: Once the risk of loss of life has been covered, start investing for your long-term goals and retirement planning. For long term goals, invest your savings in equity mutual funds as equities usually outperform other asset classes such as debt, gold and bank deposits by a wide margin over the long run. If you are not market savvy, take the systematic investment plan (SIP) route for investing in mutual funds. Through an SIP, you can invest a pre-determined amount in a mutual fund scheme at regular intervals. SIPs would also instill financial discipline in you, as well as enable portfolio diversification and capitalize on the ups and downs of the equity market. You can also consider investing in equity unit-linked insurance plans (ULIPs), which also invest in equity markets and provide the twin benefits of life cover and tax savings. For immediate or short-term goals, invest in debt funds. 6. Invest in a child ULIP for your child’s wedding or education plans: As a single parent, providing for your child’s future education or wedding expenses solely rests on you. But you need to take into account life’s uncertainties: what if you are not present anymore to build corpus? To mitigate such risks, invest in a child ULIP. Herein, the insurer will not only pay a lumpsum amount after your untimely death but will also continue investing in the plan on your behalf. Thus, your child’s future will be financially taken care of. The steps mentioned above require financial discipline and knowledge and it may even look cumbersome to you in the beginning. However, as you start taking these baby steps, you will gain control of your finances and investing will only get easier for you. With proper financial planning in place, you and your dependants can look forward to future with hope instead of fighting it out for everyday survival. F

34 The Finapolis l DECEMBER 2015

HOME LOANS FAILS TO REPAY

What Happens When You Cannot Repay Your Home Loan?

If a job loss or illness has prevented you from paying your EMIs, there are many ways to tackle the issue including asking the bank to restructure your repayment to reduce the monthly EMI by extending the loan tenure By Balwant Jain

wning a house is a dream for an average person. One can generally not own a house without borr ow i n g e i t h e r f r o m friends and relatives or by taking home loan especially in metro cities. While buying the house, especially the first house, a person stretches himself financially and exhausts all his savings. He also avails the maximum possible home loan so as to be able to buy the best house possible with his available resources. Initially the monthly budget of first t i m e home buyers is very tight

after payment of the EMI and the family lives on monthly basis on each salary without any savings. The borrower may default on the home loan due to any sudden reason like loss of job or prolonged illness. What are the consequences of default on home loan and what are the options available to you in such a situation. Let us discuss.

Implications of failure to pay the EMI As per the RBI guidelines in case the home loan EMIs are overdue for more than 90 days, the entire home loan becomes a non-performing asset and the bank may ask you to repay the whole of the home loan amount outstanding. It is only continuous failure to pay your EMI, which constitutes a default. Mere isolated cases of default in payment of your home loan installment are not taken so seriously

DECEMBER 2015 l The Finapolis

HOME LOANS and do not make you a defaulter liable for severe consequences.

to prove that the problem is temporary only and you will be able to come over it soon and service the home loan as usual. You should also produce relevant docuIn order to protect the interest of the lendments to prove that your record of servicers, a legislation called SARFAESI (Seing the ongoing home loan and any other curitisation and Reconstruction of Financredit facility has been good in the past to cial Assets and Enforcement of Security convince the lender about your intention Interests Act) was passed by the parliaSince as per the provisions of Credit Inand ability to service the loan. Based on ment in 2002. This law gives the lender formation Companies (Regulation) Act, the evaluation of the circumstance, the institution to seize and sell the mortgaged 2005 all the financial institutions are rebank may reschedule your home loan. property to recover the outstanding loan quired to report the transactions of credThis may include some time for you to amount due to it. However, in effect the it including default to the Credit Informaresume payment of regular EMIs. banks do not resort to such extreme steps tion Bureau like CIBIL, your default on  Part payment to reduce the EMI: In immediately, on happening of such dethe home loan also gets reported. This case your earnings have gone down or the fault. As banks are not in the business of adversely impacts your credit history and amount of EMI has gone up due to reasons buying and selling properties, so as a credit score. This adverse impact due to like hike in interest rates, which makes it lender they are only interested in timely default on your home loan, will adversely difficult for you to pay the EMI month servicing of their loan, they would try all impact your ability to avail any credit after month, you can approach your lendother feasible alternatives before actualfacility from the financial system, whether to extend the loan tenure so that the ly selling the house. er in the form of credit card or home loan. amount of your EMI comes down within In case the bank has to ultimatethe range which you can service. ly resort to seizing and selling the This facility of extension of loan In case the bank has to ultimately property ultimately, this may not be tenure may not be available in case resort to seizing and selling the an end of the problems for you as your present home loan tenure alborrower. In case the amount realready extends up to your retireproperty ultimately, this may not ised from sale of the property is ment age. You are lucky if you are be an end of the problems for you more than the outstanding amount younger and are able to get the as borrower of the loan, the bank shall hand tenure extended. over the excess amount to you. How Liquidating your investments: ever, in case there is a shortfall, you are In case you are facing the problem of regbound to pay the short fall to the bank. ular cash inflow but have sufficient investMoreover, you may have to pay long term Since the banks have been authorised to ments in bank fixed deposits, mutual capital gain tax also, depending on the take possession of the house legally, it is funds and equity, you can evaluate the period for which the property was held by advisable for you not to confront the lender option of liquidating the investments and you and the cost of the property. In case or its representative. On the contrary you pay off the banks and save your dream the property is disposed of within 36 should be cordial with the representative. house going out of your hand. months from its acquisition, any surplus Your cordial approach will make the rep Disposing of the property yourself: realised over its cost shall be treated as resentative have sympathetic view of your If you feel that no viable alternative is short term capital gain and taxed at the situation and may most probably come to workable for you but to dispose of the slab rate applicable to you. In case the your help as the bank is also interested in property, please discuss the matter with property is sold after three years, you will finding a viable solution to avoid litigation the bank officials and arrange for sale of be able to take the benefit of indexation or hassle of having to go through the prothe property yourself rather than getting of the cost and avail the exemption cess of seizing and selling the property. it sold by the bank so as to ensure that you under Section 54 and 54EC by inget the maximum price possible. In case

What the bank can do and does

the home loan was availed, all the benefits availed by you earlier, under Section 80 C for repayment of the principle component, shall be reversed and taxed as your income of the year in which the property is disposed of by the bank.

Impact on your credit score

How should you deal with it?

vesting the capital gains in another house property or in bonds of NHAI or REC. Please note that in case the house is sold within a period of five years from end of the year in which

What are the options left with you?

 Restructuring of loans: In case you feel that the problem of not being able to service your home loan is just temporary due to reasons like sudden job loss, or an illness due to accident etc, you can approach the bank with relevant documents

after discharging the bank liability, you are still left with a reasonably good amount, you can think of moving into a smaller house or to a house in a sub-urban locality in case your present house is in prime locality so you can buy the property at a relatively cheaper price. F

Balwant Jain is a CA, CS and CFP. Presently working as Company Secretary of Bombay Oxygen Corporation Limited

36 The Finapolis l DECEMBER 2015

FACE TO FACE ‘GMS Increases Consumer Choice, Makes Gold Earn Interest’ Som Somasundaram has over 29 years of experience across industries and sectors which includes Lakshmi Vilas Bank, Standard Chartered Bank, Hindustan Unilever and Tata Consultancy Services. Currently, he is working as Managing Director of World Gold Council. He tells The Finapolis why Gold Monetization Scheme (GMS) in its new avatar will drive orderly recycling and enhance transparency, benefiting millions of households and the macro economy. Under GMS, gold will be melted and converted into bars for supplying to jewellers. Do you think Indians would embrace the scheme? Som Somasundaram: Jewellery is precious and preferred, no doubt but every item is not a heirloom and does not carry the same degree of emotional attachment. We are talking about a retail gold deposit scheme where a customer can open a deposit account with 30 grams of gold that they consider can be parted with from their portfolio for a period of time and renewed in form with interest. Consumer behaviour is not necessarily fixed and can be shaped for emerging times - as long as they can see benefits, even whilst retaining the core passion for gold. Change and innovation is possible only if we inquire into the validity of old assumptions and myths, and bring schemes that enable people to question their own assumptions. It must be noted that jewellery is frequently melted, only in most cases, for different jewellery and it is a sizeable part of retail jewellery trade. So, to say consumers don’t melt jewellery is not factual. The other point is that the scheme should not be seen as an alternative to jewellery - it is not jewellery or deposit - it is supplemental that leverages people’s passion for gold and enables them to acquire more gold through interest - by depositing some surplus jewellery which in any case will get melted at some time for a new fashion, into a bank for a period of time. It increases consumer choice and makes gold earn interest in gold terms.

In order to reduce India’s dependency on gold imports, central government has announced two schemes namely Sovereign Gold Bonds Scheme and Gold Monetization Scheme. As per World Gold Council (WGC) perspective, how would you foresee its uses in terms of reducing import dependency, acceptance level and benefits the government deriving from it? SS: The focus has to be more on making effective use of gold than import reduction which narrows the objectives and make the

schemes look short term. The core of the issue is that savings lie in gold that does not flow into the financial system and that has to change with innovation. It is not just rupee savings that needed to be captured by the institutional system, savings in gold which is as fungible as any other needs to be pooled as well and these schemes are a step in that direction – and if that pooling

DECEMBER 2015 l The Finapolis

FACE TO FACE is done effectively, then import focus lose significance. In fact, a rise in imports will not necessarily be bad. It is not easy but the phenomenal growth in the organised lending against gold market in the last decade has shown that we can make gold work better as good as any other asset class. The schemes themselves hinge on people’s faith in physical gold and therefore, singular focus on arithmetical drop in imports is not sustainable. The effective use of gold savings has far greater potential than reduction in gold imports. In our joint report with FICCI - ‘Why India Needs a Gold Policy’ released in December 2015, we have emphasised the need for the introduction of a structured and consumer friendly gold monetisation scheme which would make gold a fungible asset class. These schemes will also pave the way for a more active and larger role for Indian banks in gold trade. The sovereign bond scheme, initially launched by the Government as part of its borrowing, could develop into an institutional goldbacked borrowing scheme that can tap funds at lower cost and fuel economic investments. Gold has been a huge employment generator in India, it has been a useful credit rating mechanism for the unbanked to get access to finance, it has empowered women and in many cases, increased their financial independence, it has been an inflation hedge for millions, it has nurtured handcrafting skills that can be leveraged as part of our drive to increase exports, these and many social positives that gold has offered makes it necessary to study how a dollar spent

SS: The last quarter of every year traditionally witnesses high uptake of gold owing to the auspicious wedding season. Our expectation for the rest of the year is that demand will be robust and we estimate gold demand for the full year to be in the range of 900-1000 tonnes. We have seen a positive uptick in demand in the past few months as Indian consumers took advantage of the softening in the gold price. It is also important to remember that India has a natural affinity with gold and its role within the household economy cannot be underestimated.

on gold has fared against dollar spent on other items, in terms of meeting India’s social and economic needs, not just stock market aspirants’.

tations were a factor as was the fluctuating stock market. The weak rural economy played a further role.

demonstrated clearly as the unusual global circumstances and unprecedented monetary measures return to normal. Gold has been a wealth preservation tool for centuries as it is an effective hedge against various risks including financial risk, currency weakness, inflation and tail risks for investors the world over. Gold has always carried with it the tendency of invoking a sense of cultural and sentimental attachment, making its consumption (or investment) in India very different from the nature of consumption in other countries. In India, gold has, through generations, remained an obvious and natural choice for saving. In fact, consumers are resilient to the price fluctuations as they deem gold to be an essential diversifier and a long term hedge against inflation. In our report with FICCI, ‘Why India Needs a Gold Policy’ which also comprised of a research to assess consumer sentiment towards gold, the findings suggest that half of the respondents are inclined to buy gold if the economy was growing.

We have seen a positive uptick in gold demand in the past few months as Indian consumers took advantage of the softening in the gold price. It is also important to remember that India has a natural affinity with gold and its role within the household economy cannot be underestimated

How does WGC foresee gold consumption demand in India ahead of the marriage season?

The investment demand in gold especially in India is yet to get the momentum. What are the factors that hinder the investment clause for gold? SS: Gold faced a challenging investment environment particularly in the second quarter (April – June) of 2015. In our ‘Gold Demand Trends report’ for Q2 2015, it was observed that despite reasonable levels of interest around Akshaya Tritiya in April, investment demand for gold in India contracted. Uncertain price expec-

In the international market, gold is considered hedge against inflation. Is this concept applicable to India? SS: Yes, it is universal and this will be

How would you see the gold import trend in second half of FY16 as the GMS scheme was announced by central government? Will this scheme start yielding results immediately? SS: It is important to give the scheme time to stabilise. As banks and customers should become familiar and comfortable with the new processes and these must be allowed to evolve based on initial feedback - in the long term, the scheme will help monetise gold stocks held privately and put them to work for the Indian economy. The GMS in its new avatar will drive orderly recycling and enhance transparency, benefiting millions of households and the macro economy, as it has the potential to translate gold savings into economic investments. It will essentially involve transferring household gold into the financial system. F

38 The Finapolis l DECEMBER 2015

CURRENCY RISK MANAGEMENT

Learn To Manage Your Risk in Forex Trading Seven things to bear in mind to stay afloat and cruise through safely in the choppy waters By Jitendra Parashar

rading is certainly one of the most difficult tasks to yield money from.

Especially when people who are new to financial markets, hear about something like Forex market, they assume that it’s a way to get quick and sure shot returns. But that’s not the complete truth. Certainly, one can make reasonable profits by trading in forex but to achieve the same trader has to keep

proper risk management strategy in place and utmost discipline.

Risk is Everywhere! Just rethink about any business plan or opportunity you have come across. Whether you agree or not, every business opportunity involves risk. The same way trading forex or currencies also involves significant amount of risk. So by applying

appropriate risk management techniques you can’t expect to remove risk completely, but you certainly can minimise it.

How to Minimise Risk in Trading Forex Risk management in forex trading or investment is nothing but managing your investments or open positions in such a manner that keeps you protected against any type of risks factors like high market

DECEMBER 2015 l The Finapolis

CURRENCY volatility, low liquidity, etc. Here’re some important points that will give you an edge over other traders: 1) Always Trade with Your Risk Capital: Risk capital is the amount of money you have that you can risk or afford to lose. Or in other words, it’s the money which if lost, will not deter you from maintaining your usual lifestyle. 2) Never Trade with High Leverage: Derivatives are the instruments that provide an edge to traders and speculators. Leverage is the extra money that your broker lends you to trade with. For example if a trader deposits twenty thousand rupee margin money to broker then your broker may allow you to take trade positions that‘s worth more than twenty thousand. Trading forex with high leverage can yield you high returns however the same can wipe your whole trading account with significant losses very quickly. Therefore it is recommended to not trade with high leverage. 3) Avoid Overnight Positions: Indian exchanges allow you to trade in currencies from 9 am to 5 pm Indian standard time. And because quite often currencies witness high volatility during US session that results in a gap up or gap down opening of a currency pair in Indian session. Therefore it’s better to avoid holding overnight trade positions until and unless you are quite confident about the overnight trend. In case you are holding an overnight position then make sure that you only keep only limited quantity as open position to minimize your risk. 4) Appropriate Position Sizing: Positions sizing has to be done according to your portfolio and risk appetite. It’s always better to keep your position size fixed and constant to yield good results from trading forex. For example, let’s assume you make 20 paisa profit in your first trade of the day with 10 lots. Now you decide to in-

and every trade because you never know which position will go against you. Secondly, your position sizing also compliments your nature of trading. If you are a positional trader and hold positions overnight then you need to be extra cautions. You should try to keep your position size small to minimize your risk. 5) Know Your Risk And Reward: Before entering a trade position, it is crucial for a trader to understand the risks involved in that particular trade. You need to know the loss in case it goes against you and the reward in case it goes in your favour. Always try to maintain minimum 1:2. That means your gains should be at least twice the amount you’re risking in a trade. In addition try not to let your risk exceed more than 2-4% for any single trade of

feel like waiting for the market to turn in your favour by changing or exceeding the predefined stop loss but be aware that this is one of the most common and disastrous mistake majority of novice traders make. 7) Focused Research is The Key: No matter how active you are in following the market related news and analyzing the same, it’s difficult for an individual to track all relevant economic and political events happening around the world, and analyze the impact of this on currencies. Therefore it’s better to take help from research professionals. In India, there are a handful of broking firms that have in-house research teams working to recommend profitable trading strategies to their clients. This way you can stay updated and get professional research advice without paying extra.

crease the positions size to 20 lots in your next trade to gains more but if that trade position goes against you by losing 20 paisa, then your second trade will wipe your profits and additionally at the end of the day you will end up with 20 paisa loss on 10 lots. Therefore to keep your risk minimized trade with a fixed lot size in each

your total account balance or portfolio. 6) Pre Define and Follow Strict Stop Losses: While entering a trade, make sure that you have predefined the exit point where you will exit if the trade goes against you. Always predefine your stop loss and follow the same strictly. Psychologically while holding a position, you may

To become successful in forex trading, traders must strictly follow these risk management techniques. Concisely, trading as a business can make your money grow faster expecting decent returns by making efforts in right direction and managing your risk the right way. To be continued… F

While entering a trade, make sure that you have predefined the exit point where you will exit if the trade goes against you. Always predefine your stop loss

40 The Finapolis l DECEMBER 2015

FINANCIAL BEHAVIOUR SPECULATOR

Liquidity – The Devil in Disguise Ironically this virtue called ‘liquidity’ has done more harm than good for investors. The very opportunity to sell without having to try hard has made people speculators instead of investors By Dharmendra Satapathy

here was once a man ming. Because he was such an In the case of “real estate” and “land”, the ace swimmer, he never bothwho was called “Machhlee”. He lived in a vilered to take any precaution liquidity is very limited and therefore the lage in India which while swimming. Although conditions to take knee jerk action isn’t boasted of an ‘ever-flowthe river was full of water at even provided. This makes people hold on all times, the flow was strong ing’ river. All through the year, there was abundant waand the river would often carto their “land” for a longer duration ter in the river. It is here that ry along debris and stones “Machhlee” learnt swimming. Every day, Hence, the villagers gave him the name with it as it flowed downstream. This was he would cross from one bank to the oth“Machhlee” which means ‘fish’. In no a peculiar characteristic of the river. er. Soon he became an expert swimmer. time he mastered different styles of swimBut ‘Machhlee’ would care little for this

DECEMBER 2015 l The Finapolis

FINANCIAL BEHAVIOUR danger. He had developed a sense for anpatience to stay invested over the longer would have scorned about it and would ticipating the sudden emergence of deduration. However in the case of “real have put our minds to work about ways bris. He would get a sense of unusual flow estate” and “land”, the liquidity (opporand means to deepen and widen the marwell in advance. It was some kind of sixth tunity to buy and sell again and again over kets. Ironically this virtue called ‘liquidity’ sense that he had come to possess. And shorter periods) is very limited and therehas done more harm than good for invesoccasionally if he spotted a tors. The very opportunity to free flowing object, he had sell without having to try hard “Liquidity” which actually is meant to masters the art of ducking has made people speculators cue “safety” (providing the opportunity under it. Hence, across the instead of investors. to convert asset into money and money year, ‘Machhlee’ was relaxed So in the case of real estate and in control of things. we have people forcibly becominto asset at any point in time), turns out Whether night time or day, ing investors and reaping bento be a “devil in disguise” exhorting whether the river was in spate efits whereas in the case of people to take the plunge time and again stocks we have investors turnor running a shallow, Machhlee had it all under control. ing speculators. Too much of He would never bother informing anyone fore the conditions to take knee jerk action a good thing has actually turned bad for before entering the river. He would never isn’t even provided. This makes people investors. bother carrying any weapons with him hold on to their “land” for a longer duraNo wonder Warren Buffet has summed into the water even though some villagers tion. This is why people owning land and this up so beautifully in his quote, “The had spotted river snakes. He just felt he real estate are usually happier than people very fact that you have, in effect, an unwas well poised and ahead of danger. who invest in equity stocks or equity mulimited punch card, because that’s the way However, one day his luck ran out and tual funds. The very nature of an illiquid the system works, you can change your in an instant the river swallowed him. It market makes a speculator into an invesmind every hour or every minute in this was night and the river was in fury with tor whereas healthy liquidity makes many (stock market) business, and it’s kind of monstrous debris flowing along with the an investor into speculators. cheap and easy to do because we have marwild river. Because the river was always Therefore, “liquidity” which actually is kets with a lot of liquidity-you can’t do full of water and usually very inviting, meant to cue “safety” (providing the opthat if you own farms or real estate-and Machhlee had never learnt to be circumportunity to convert asset into money and that very availability, that huge liquidity, spect. He also wasn’t the type to pay any money into asset at any point in time), which people prize so much is, for most heed to good counsel. He was simply too turns out to be a “devil in disguise” exhortpeople, a curse, because it tends to make overconfident. ing people to take the plunge time and them want to do more things than they Had the river been like any other river again. Had the markets been illiquid, we can intelligently do.” F which is “dry” for some months, “still” for some other months, and “full of spate and fury” occasionally, then perhaps Machhlee would have learnt to be a little more careful. But unfortunately, this river was very different. The predictability of this river had made him a bit too over confident over the years. But alas this overconfidence made Machhlee vanish from the surface of this earth once and for all that fateful night. The story of our stock markets is kind of similar. Just because there is too much of liquidity in the markets (here liquidity means no dearth of buyers and sellers), every intention of selling certainly meets an intention of buying (and vice versa) that one tends to be tempted to get in and get out (buy and sell and then buy again) all the time without much needed

ILLIQUID ASSET

Dharmendra Satapathy is the Founder Director, Next Level Education

LIQUID ASSET

42 The Finapolis l DECEMBER 2015

by invite

DEEPAK YOHANNAN

Cancer Insurance Plan – Do You Need One?

study on cancer published in the prestigious Lancet Oncology Journal says that nearly 10 lakh fresh cancer cases are reported every year in India. The figure is expected to touch a whopping 17 lakh cases annually over the next two decades. We are not trying to scare you, but just laying down the grim reality in front of you. With over 200 types of known cancers we do not know what hits us next. In this scenario we have only two paths ahead of us - ignore the threat and think we are immortal; or opt for a cancer cover to protect us and more importantly our families from the financial hardships. Many of us ignore buying a comprehensive cancer plan, but before you do this consider this: Will your current health insurance plan cover potentially high cost that could be associated with its treatment? If not, would you be able to afford the cost of treatment, which your ordinary health insurance does not cover and what would you do then?

Benefits of cancer policy • Cash payouts for diagnosis, treatment and surgery • In case of diagnosis of advanced cancer, the future premium are waived off • A percentage of sum assured is given to the insured once the cancer progresses to a definite severity • Extended hospitalisation coverage • Some cancer protection policies also offers lodging and travelling expense during the treatment duration • Eligible for tax benefits on premium paid up to Rs 15,000 p.a. under section 80D of the Income Tax Act, 196

Premium amount/cost Contrary to the popular perception that specialised cancer covers are expensive, it is not. ICICI Prudential through its Cancer Plus plan is offering a 30 year old male, a cover of Rs. 10lakh for a 10 year

CAN INSURACNER CE

At times, some policies deny coverage for cancer that you had -- but didn’t know you had -- before you made the purchase term by paying Rs 300 per month. Similarly, premium for HDFC Life’s Cancer Care for the same time period for a 30 year old male costs Rs 166 monthly.

How to claim insurance benefits  Claims need to be filled within 90 days of hospitalisation  Claim form duly filled in bearing the signature of the policyholder and at-

tested by the hospital wherever requested  Attaching histopathology report confirming the diagnosis is usually mandatory  Copies of all investigations done with the respective bills and reports  Copies of all bills for medicines supported by relevant prescriptions  A copy of age and identity proof It is possible that without the above mentioned documents, the claim request would not get registered. The company may request for additional information or documents, if it feels the need to do so.

Food for thought Review the policy document carefully, what sort of limitations have been levied on pre-existing conditions before you opt for an insurance. The insurers generally do not cover cancer diagnosed before your policy has taken effect. At times, some policies even deny coverage for cancer that you had -- but didn’t know you had -- before you made the purchase. Most cancer policies also have waiting periods of at least 30 days before you’re eligible for benefits. So these are things to watch out for, if you don’t want to be surprised later. F

Compare cancer insurance plans in the market: Look at a glance Details Entry Age (in years) Maturity Age (in years)

Policy Term (in years)

HDFC Life Cancer Care Minimum: 18 Maximum: 65 Minimum: 28 Maximum: 75 Minimum: 10 Maximum: 20

AEGON Religare iCancer Plan Minimum: 18 Maximum: 65 Minimum: 23 Maximum: 70 Minimum: 05 Maximum: (Maturity age) — (Age at the time of buying the iCancer plan) Minimum: 10 lakh Maximum: 50 lakh

Minimum: 10 lakh Maximum: 40 lakh Annual, Half-yearly, Premium Payment Interval Annual or Monthly Quarterly or Monthly Premium Payment Term As Per Policy Maturity/Death Benefit Yes payable Cover (in Rs.)

The author is the CEO of MyInsuranceClub, an insurance price and features comparison site in India

ICICI Prudential Cancer Care Plus Minimum: 20 Maximum: 60 Minimum: 30 Maximum: 70 Minimum: 10 Maximum: Not exceeding the age of 70. Minimum: 5 lakh Maximum: 25 lakh Annual, Half-yearly, Quarterly

DECEMBER 2015 l The Finapolis

by invite

ADHIL SHETTY

Higher LTV Ratio Means Affordable Homes?

f falling interest rates and bank festive home loan schemes were not good enough reasons for you to take a home loan, the Reserve Bank of India has made an announcement recently that could make borrowers ecstatic. As per the new announcement, the central bank has increased the Loan-To-Value ratio (LTV) for housing loans to 90% for borrowers whose property value is not more than Rs 30 lakh. Earlier, this privilege was enjoyed by loan takers whose property value was less than Rs 20 lakh. However, with real estate prices not dipping, this policy was not aiding borrowers much, as even the properties in the affordable home segment cost more than Rs 20 lakh.

Understanding LTV and its role in home loans LTV is the maximum amount one can borrow for home loan against the actual property value. Banks have their own inhouse team that assesses the actual market price of the property to decide the maximum loan that can be offered against it. Banks will also consider your ability to repay the loan as per your income documents, credit score and other parameters, while deciding the loan amount that can be granted. The RBI announces guidelines for banks from time to time for determining the LTV for various home loans. Currently, if you want to take a home loan for a property up to Rs 30 lakh, you can get a maximum of 90% of the property cost as loan, i.e. Rs 27 lakh. This is subject to your individual eligibility for this amount, based on your income. For properties priced above Rs 30 lakh and above, the maximum LTV is 80%.

Does higher LTV make homes more affordable? LTV does not have anything to do with home loan affordability, though a higher LTV does bring a previously unviable property purchase within your reach.

Adhil Shetty is the CEO of BankBazaar.com

you still will have to pay more from your own pocket as down payment, to get a home loan.

Other charges that you must be aware of when buying a home

The central bank has increased the LTV for housing loans to 90% for borrowers whose property value is not more than Rs 30 lakh Taking a loan of Rs 27 lakh at 90% LTV, instead of Rs 24 lakh at 80% LTV, for a 30 lakh property may well make it easier to mobilise the down payment, but the lesser you borrow from the bank, the lesser you end up paying as interest for your home loan. A higher quantum of loan equates to a higher EMI.

Eligibility norms remain unchanged The RBI may have eased the LTV ratio, but the eligibility norms for the home loans remain unchanged. This means you will still need to have a good financial track record and decent monthly earnings to show before the bank consider you eligible for a home loan.

Higher quantum loans still difficult to get The rising cost of real estate means house prices are on the rise, or are stagnant at best. In metropolitan cities you may hardly find any housing project below Rs 30 lakh. For a higher quantum of loan the LTV remains the same, which means

While LTV is an essential aspect of a home loan, it is not the end of the affordability story. There are many other expenses that you will have to service from your own pocket. These can considerably stretches the budget of average middle-class homebuyers. These expenses include:  Stamp duty and registration charges: Bank home loans do not offer any funding for stamp duty and registration charges. Stamp duty rates vary from 4% to 10%, depending on the location of the property, and therefore, comprise a significant portion of your cost of property ownership.  Society fees: If you are buying an apartment or a house within a gated residential community, usually one-time society charges or advance maintenance charges are applicable. This amount varies with the community and location and can even run into a few lakh.  Insurance and taxes: Any money you spend on your home insurance or towards property tax payment must be taken care of by you individually as these are excluded from home loan. However, home loan insurance is one product which home loan lenders offer along with the core product, in which case it will be added to your loan outstanding and the EMI would be enhanced accordingly.  Interior designing: Home loans are not provided for interior decoration, which includes electrical fixtures, wooden flooring, kitchen cabinetry, furniture etc. Doing up interiors can cost a small fortune depending on the choices you make. An increase in LTV for homes up to Rs 30 lakh is a step in the right direction, offering a real incentive for property purchasers seeking to minimise their initial down payment. F

44 The Finapolis l DECEMBER 2015

MAKING A WILL LEGACY

Where There is a Will, There is Happiness

Seven and more reasons why every adult should make a Will. Contrary to the general belief, a Will does not have to be registered, needs be on a stamp paper or be notarised. You don’t have to be rich or old to make a Will By Kaushal Dalal

here are only two certain things in life – Death and Taxes. A lot of planning goes into taxes. Yet in India, apart from a life insurance policy, not enough thought goes into death. The reason for this could be superstition - talking about death will bring it on faster. It is, however, now an accepted principle that taking life insurance does not mean a speedier death. And so does making a Will. If you have a life insurance policy but not a Will, then you are relying on the insurance company to provide for your loved ones while not providing for painlessly passing on your own property to them. In my talks with people about making a Will, a lot of them laugh it off for any number of reasons – I don’t have anything to give away (ha ha); I’m still young; I have nominations; it’s too complicated to make a Will etc. None of these are good reasons. Everyone has some wealth or property, maybe with emotional value. It’s never too early, unless you are Bhishma and can decide when you are going to die. Nominations are not enough since a nominee is not a legal heir; just someone who takes care of your assets after your death until it is transferred to the real legal heir. If you don’t have a Will, the legal heir (based on succession law) could stake their claim from the nominee. And making a Will really is simple. It is the least legal of legal

documents and if you follow a few simple rules, you can make it yourself and can even be hand written. Contrary to the general belief, a Will does NOT have to be registered, does NOT need to be on a Stamp Paper or green legal paper and does NOT need to be notarised. You don’t have to be rich or old to make a Will. Every adult should make a Will. To put it simply, if you don’t have a Will –  Your investments are incomplete  Distribution of your assets will be done according to your religion’s law and

Indian law  The court will appoint someone to distribute or manage your assets or take care of your minor children  Your loved ones will find it difficult to transfer your assets  You will not be fondly remembered if your asset cannot be easily transferred of if there is a dispute  Your legacy will be in trouble Add life to your legacy – Make a Will. Let’s now look at the legal and practical aspects of making a Will.

DECEMBER 2015 l The Finapolis

MAKING A WILL Legal Aspects

become adults. Generally this is a To begin with don’t worry about complitrusted person and has the ability to cated words. take care of your assets. A Will is your direction that after your  Certain persons are required to impledeath, which of your assets (i.e. Estate) ment your Will after your death (such Keep it simple should be distributed to whom (i.e. Legaas Executors, Witnesses, Guardians Preferably don’t give any one asset to more than one person tee). Since you will not be around to ensure etc). These people should preferably Always provide to give “residual their distribution, you should mention be younger than you, since their work properties” to some person who will do this (i.e. Executor). In order starts after your death. It is good to get Always select alternates for to prove that the Will is indeed made and an informal “ok” from such persons. Legatees signed by you, you need two people to wit Keep the Will confidential. Nobody Keep the Will confidential ness this (i.e. Witnesses). You have to be needs to read your Will, including the an adult and of sound mind to make a Will. Witnesses. They only witness your sigA Legatee (and an Executor, if you are nature. a Christian or a Parsi) should not be made  After preparing your Will if you become a witness; else they will not be entitled to aware that any key Legatee, Executor, the assets. An easy way to remember this Witness or Guardian has expired, you is that if someone is asking you to should change your Will. be a Witness to a Will; you should You should leave your Will with first ask if you are getting anysomeone you trust or keep it with A Will is your direction that after thing under it. If you are, then yourself and tell someone you your death, which of your assets don’t be a Witness! trust where it can be found. If you (i.e. Estate) should be distributed Sign every page of the Will and want, you may register the Will to the last page in the presence of make it little difficult for people to whom (i.e. Legatee) two Witnesses. to claim that the Will is not genuYou can withdraw or change ify their shares, since that can make ine. Apart from making a Will, you your Will at any time. The latest Will is distribution complicated. should organise your documents and invalid. You can add/sell properties that  You can describe more specifically formation so that these can be found easare mentioned in your Will. some assets which don’t change often, ily to make distribution of your assets What properties can you give? such as real estate, or which may be smoother and bringing other things to a i) Everything you bought from your confused with others. closure (life insurance etc). income  Don’t describe specifically some assets www.indianwillmaker.com is designed ii) Assets that you inherited without that change often, such as “XYZ Mututo help you avoid common legal and logical conditions on future use al Fund”. mistakes and follow many good practices. iii) Your share of every asset  Always provide to give “residual propYou can also get free suggestions on how iv) Muslims can give 1/3 of their propererties” to some person. This will ento distribute your assets and a checklist ty under a Will sure that all assets that you have not of important information and documents. specified will go to that person.  Always select alternates for Legatees. Here are a few good practices in making This is because death can come at any While you can get a lawyer to draft your a Will (these are only suggestions; considtime and it’s possible that a Legatee has Will, you can pretty much make your own er your requirement and quality of your died before or along with you. You may Will by following the above suggestions. relationships). therefore not have a chance to change Another option is to use an online service  Keep it simple. your Will. (disclosure: the author runs an online  In general, the order of preference to  If you have minor children, you should service). In this case, you fill up certain

Practical Aspects

distribute property is (1) Spouse (2) Child(ren) (3) Parent(s) (4) Brothers/ Sisters (5) Other Relatives (6) Friends. Many people prefer giving something to charity too.  Preferably don’t give any one asset to more than one person even if you spec-

Getting help in making a Will

specify who will take care of them if your spouse is not surviving. Generally this person is someone who your children are emotionally attached to. You can also specify someone else who will be a guardian for your Estate on behalf of your child(ren) until they

Kaushal Dalal is a chartered accountant and founder of www.indianwillmaker.com

information, make a payment and the Will is sent to you (mostly by email). You can take a print and sign it in the presence of two Witnesses who also sign it and it becomes a legally valid Will. There are several good online options that are quite affordable and do a good job. F

46 The Finapolis l DECEMBER 2015 AN SHANBHAG AND SANDEEP SHANBHAG

expert speak

Should Market Volatility Dictate Sale of Your Investment?

s we write this, the Sensex is down around 13% (25,863 points) from its peak of 29,681 points that was reached on 29th January, 2015. The volatility has been rather pronounced from the beginning of the year and investors are nervous. Over this time, there have been various reasons being ascribed for this volatility – ranging from the tax authorities wanting to impose Minimum Alternate Tax on Foreign Portfolio Investors to geopolitical issues such as the terror strike in Paris to even an IPO boom in China!! As we said, the reasons are varied and manifold. However, the effect is that markets are not stable. And the question is that if this is indeed so, should investors get out of (sell) their equity holdings (shares and mutual funds) in an effort to cash in on any profitable investments and stop loss in others? The simple answer is no - in fact one should try and desist from succumbing to this classic investor behaviour. So when do you sell your investments? Read on:

Under Performance? Investing is all about long-term. However, it has to be the right investment in the first place. Study the performance of your fund against their peer group and also the benchmark returns. Say your fund has gained 10%. While you may be happy, this doesn’t actually tell you much. To put the fund’s performance in perspective, you have to compare and contrast it

its time for you to desert the ship too along with its erstwhile captain.

Realigning Asset Allocation

Mutual fund companies will argue themselves hoarse that fund management is a process driven activity and the individual doesn’t matter. However, successful stock selection is a matter of experience, perspective and instinct. These are human qualities that cannot be completely reduced to a pro-

Every investor has his or her own risk tolerance. Say you are comfortable with 50% of your funds invested in equity. From time to time, you need to check the asset allocation. With a substantial run up in equities, chances are that your total portfolio has become distorted towards equity. To bring it back, you would need to sell. On the other hand, if the market falls precipitously, you would actually need to buy to realign the allocation. Thus automatically you would be buying low and selling high. We have established so far that amongst all the reasons for selling your funds, falling or rising markets should in no way influence your decision. If anything, if markets start falling, please buy additional units --- the cheaper deal will hold you in good stead eventually. However, what if you need the money? This then forms the foremost reason to sell any investment. Apart from must spends like for medical emergencies or say escalating education costs, do once in a while indulge yourself. Take that foreign trip that you so wanted. Buy your kid the iPad that s/he so badly de-

cess. The fund manager’s exit is a red flag. However, it could also be possible that the new guy is better than the earlier one. So keep the fund under your radar. A discernible blip in the performance may mean

sires….. You live only once and what is the point of earning money if you can’t pamper yourself or your loved ones once in a while? Like they say, if you have to do something wrong, at least do it right! F

Most fund managers, in an effort to spike the return, even take a higher exposure in equity. But, you rebalance your portfolio when it turns riskier and market is volatile against its peer group as also to the benchmark returns. Be careful in selecting the correct peer group. One should not compare an equity diversified fund against a sectoral fund or a large cap fund against a mid cap aggressive fund. Also, take care that you gauge performance over a reasonable period of time. Most information sources publish three month figures of fund performance. Three months is too short a time to come to any conclusion. Moving on, another reason that you sell your investment is if it doesn’t remain the same investment.

Change in the fund composition For instance, balanced funds earlier qualified with a 50% exposure to equity. Now, as per the new tax laws, at least

65% ought to be invested to equity. Most fund managers, in an effort to spike the return, even take a higher exposure in equity. But, you rebalance your portfolio when it turns riskier and market is volatile.

Change in the fund manager

The authors are leading financial advisors. Write to them at wonderlandconsultants@yahoo.com

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48 The Finapolis l DECEMBER 2015

STAT DOSSIER All figures as on November 23, 2015

Indian Indices: Performance Close Nov 23, 2015

Close Oct 30, 2015

Return (%)

Return 6 M (%)

Return 12 M (%)

PE Ratio

25819.34

26656.83

-3.14

-7.52

-9.28

20.53

7849.25

8065.80

-2.68

-7.14

-7.91

20.60

BSE 500

10469.75

10671.58

-1.89

-4.90

-3.72

22.81

BSE Auto

18802.82

18166.21

3.50

-2.11

-0.87

24.35

BSE Bankex

19490.73

19773.88

-1.43

-7.96

-6.79

15.68

BSE Capital Goods

14524.02

14946.11

-2.82

-12.91

-11.40

497.79

BSE Consumer Durables

12437.81

11872.63

4.76

19.66

27.80

33.98

BSE Oil & Gas

9202.75

9065.90

1.51

-2.17

-13.94

11.80

BSE Metal

7026.23

7307.74

-3.85

-28.49

-37.66

BSE Realty

1286.13

1371.63

-6.23

-16.89

-21.62

33.03

BSE PSU

6751.88

6777.47

-0.38

-11.22

-17.61

11.63

BSE Power

1876.26

1917.11

-2.13

-8.51

-12.33

64.41

5869.98

6115.01

-4.01

-4.51

-5.19

20.53

Sensex Nifty

BSE Teck

Global Indices: Performance Close Nov 23, 2015

Close Oct 30, 2015

Return (%)

Return 6 M (%)

Return 12 M (%)

PE Ratio

1697.30

1705.80

-0.50

-5.89

-2.46

19.35

418.82

422.47

-0.86

-17.48

-12.44

12.23

22665.90

22640.04

0.11

-19.75

-5.98

9.88

Singapore Straits Times (STI)

2903.49

2998.35

-3.16

-15.61

-12.84

13.50

S. Korea

2003.70

2029.47

-1.27

-6.33

1.60

13.55

Nikkei 225

19879.81

19083.10

4.17

-1.65

14.82

20.74

Dow Jones

17792.68

17663.54

0.73

-2.41

-0.14

15.90

S&P 500

2086.59

2079.36

0.35

-1.86

0.83

18.65

NASDAQ

5102.48

5053.75

0.96

0.26

7.31

31.18

48150.27

45868.82

4.97

-11.45

-13.10

27.89

FTSE-100

6305.49

6058.54

4.08

-10.33

-6.30

28.70

DAX 30

11092.31

10850.14

2.23

-6.12

13.35

23.83

CAC 40

4889.12

4897.66

-0.17

-4.93

11.92

22.41

MSCI World Index MSCI Asia Pacific Ex Japan ASIA Hang Seng

AMERICA

Brazil Bovespa EUROPE

DECEMBER 2015 l The Finapolis

STAT DOSSIER All figures as on November 23, 2015

November International Commodity Futures Price Trends Nov 23, 2015

Oct 30, 2015

% Change

52 Week High

% Change from 52 Week High

52 Week Low

% Change from 52 Week Low

LME Lead 3 Month ($/t)

1575.00

1695.00

-7.1%

2162.50

-27.17%

1551.50

1.51%

LME Zinc 3 Month ($/t)

1546.00

1710.00

-9.6%

2404.50

-35.70%

1487.50

3.93%

8300.00

10060.00

-17.5%

17200.00

-51.74%

8175.00

1.53%

14.03

15.57

-9.9%

18.36

-23.55%

13.85

1.28%

4490.00

5112.00

-12.2%

6730.50

-33.29%

4443.50

1.05%

41.75

46.59

-10.4%

77.02

-45.79%

37.75

10.60%

1435.50

1478.50

-2.9%

2075.00

-30.82%

1432.50

0.21%

15.41

14.52

6.1%

16.20

-4.88%

10.13

52.12%

1066.80

1141.40

-6.5%

1307.80

-18.43%

1062.00

0.45%

27.91

28.20

-1.0%

35.29

-20.91%

25.38

9.97%

ICE Coffee (cents/lb)

119.95

120.95

-0.8%

196.20

-38.86%

111.60

7.48%

ICE Cotton (cents/lb)

60.16

63.32

-5.0%

68.30

-11.92%

57.05

5.45%

413.40

391.40

5.6%

422.20

-2.08%

329.00

25.65%

2.21

2.32

-4.8%

4.53

-51.20%

1.95

13.45%

CBOT Soybean (cents/bushel)

864.25

883.75

-2.2%

1061.75

-18.60%

844.25

2.37%

CBOT Corn (cents/bushel)

367.25

382.25

-3.9%

438.75

-16.30%

346.50

5.99%

CBOT CORN

367.25

382.25

-3.9%

438.75

-16.30%

346.50

5.99%

CBOT Soy Meal ($/t)

285.30

304.40

-6.3%

415.80

-31.39%

278.50

2.44%

CBOT Wheat (cents/bushel)

495.00

522.00

-5.2%

677.00

-26.88%

455.50

8.67%

LME Nickel 3 Month ($/t) Comex Silver (S.oz) LME Copper 3 Month ($/t) Nymex Crude Oil (S/bbl) LME Aluminium 3 Month ($/t) ICE Sugar (cents/lb) Comex Gold (S/oz) CBOT Soy Oil (cents/lb)

LIFFE Sugar (S/t) Nymex Natural Gas ($/mmbtu)

Commodities: November Gainers and Losers (%) MCX

NCDEX

Cotton, 1.7% Mentha Oil, -0.5%

Aluminum 0.7% Natural Gas - 4.3%

Lead, -4.4% Gold, -5.0% Zinc, -6.5% Silver, -7.9% Copper -11.9%

Turmeric, 12.5% Jeera, 1.4% Barley, 0.7% Wheat, 0. 7%

Crude Oil -7.8%

Soybean, 0.1%

Cardamom - 9.2%

Soyoil, -3.7%

Nickel, -16.9%

RM Seed, -5.5%

50 The Finapolis l DECEMBER 2015

STAT DOSSIER All figures as on November 23, 2015

NIFTY TOP

Company

Nov 23, 2015

Gail India

Oct 30, 2015

361.90

308.45

17.33

Mahindra & Mahindra

1323.50

1183.60

11.82

Punjab National Bank

138.80

128.35

8.14

4736.25

4449.00

6.46

169.35

160.20

5.71

Maruti Suzuki Bank Of Baroda

Company

Nov 23, 2015

Dr Reddy'S Labs Sun Pharma Industries Bharat Heavy Electricals

Oct 30, 2015

(%) Change

3409.25

4279.90

-20.34

717.10

889.55

-19.39

175.20

198.85

-11.89

Hindalco Industries

74.25

84.05

-11.66

IDFC

52.55

58.85

-10.71

NIFTY MOVEMENT

CNX-MIDCAP MOVEMENT 14150 13750 13350 12950 12550 12150 11750

8970 8725 8480 8235 7990 7745 7500 Nov-14

Feb-15

May-15

Aug-15

Nov-15

BSE BANKEX

Feb-15

May-15

Aug-15

Nov-15

18650 17850 17050 16250 15450 14650 13850

Feb-15

May-15

Aug-15

Nov-15

DOW JONES

Nov-14

Feb-15

May-15

Aug-15

Nov-15

Feb-15

May-15

Aug-15

Nov-15

28450 27125 25800 24475 23150 21825 20500 Feb-15

12.5% Gain in NCDEX turmeric price.

HANG SENG

18300 17850 17400 16950 16500 16050 15600 Nov-14

Nov-14

NIFTY BOTTOM

BSE CAPITAL GOODS

23700 22700 21700 20700 19700 18700 17700 Nov-14

(%) Change

May-15

Aug-15

Nov-15

Nov-14

Turmeric futures surged on lower crop expectation and strong demand for the produce

DECEMBER 2015 l The Finapolis

STAT DOSSIER CURRENCY

ENERGY

Rupee Movement

Brent Crude (US$/bbl)

66.65 65.75 64.85 63.95 63.05 62.15 61.25

17%

90 82 74 66 58 50 42

Nov-14

Feb-15

May-15

Aug-15

Nov-15

Nov-14

Feb-15

May-15

Aug-15

Nov-15

Loss in MCX Nickel.

METALS Gold (US$/OZ)

Nickel prices plunged on poor demand and ample supplies

Silver (US$/OZ)

1300 1260 1220 1180 1140 1100 1060

18.50 17.75 17.00 16.25 15.50 14.75 14.00

Nov-14

Feb-15

May-15

Aug-15

Nov-15

Nov-14

Feb-15

May-15

Aug-15

Nov-15

ECONOMY Inflation (%)

IIP (%)

Real GDP Growth

Sep-15

Jul-15

Aug-15

Jun-15

Apr-15

May-15

Mar-15

Jan-15

Feb-15

Dec-14

Oct-14

Nov-14

Oct-15

Sep-15

Jul-15

Aug-15

Jun-15

Apr-15

May-15

Mar-15

Jan-15

Feb-15

Dec-14

Oct-14

Nov-14

Sep-14

6 4 2 0 -2 -4

2.5 1.0 -0.5 -2.0 -3.5 -5.0

FII vs. MF (Rs cr) 20000

12000 10000 8000 6000 4000 2000 0

10000 0 -10000 -20000

Prior (%)

FII Latest (%) DII (RHS)

7.25 6.25 4.00 21.50

6.75 5.75 4.00 21.50

Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15

Repo Reverse Repo Cash Reserve Ratio SLR

10-year bond yield (%)

Prior (%)

7.25 6.75

Feb-15

May-15

Aug-15

Gain in MCX cotton. Cotton futures traded firm on lower crop arrival and moderate demand

RBI Monetary Data

8.22 8.10 7.98 7.86 7.74 7.62 7.50 Nov-14

1.7%

Nov-15

Repo

Latest (%)

6.25 5.75

Reverse Repo

21.50 21.50

4.00 4.00

Cash Reserve Ratio

SLR

All figures as on November 23, 2015

The Finapolis l DECEMBER 2015

STAT DOSSIER Performance of Mutual Funds Equity Diversified Mutual Fund Scheme ICICI Pru Exp&Other Services-RP (G)

ELSS NAV 46.85

1 yr 2 yr 3 yr

Mutual Fund Scheme

13.2

Axis Long Term Equity Fund (G)

30.08

6.1 35.3

35.1 37.0

NAV

1 yr 2 yr 3 yr 28.1

27.12

17.1 57.8 36.4

ICICI Pru RIGHT Fund (G)

29.56

2.3

31.9 26.4

Franklin (I) Smaller Cos (G)

39.27

12.0 47.8 35.0

Birla SL Tax Relief 96 (G)

21.09

8.2

31.6 23.9

DSP-BR Micro Cap Fund - RP (G)

42.25 20.2 60.8 34.8

Reliance Small Cap Fund (G)

Reliance Tax Saver (ELSS) (G)

44.08

-4.5 38.2 23.6

Mirae Emerging Bluechip Fund (G)

31.15

16.6 48.6 33.8

Birla Sun Life Tax Plan (G)

26.64

7.2 30.4 23.0

Can Robeco Emerg-Equities (G)

61.91

15.4 55.4 33.6

SBI Tax Advantage Sr-2 (G)

22.54

2.5 37.4 22.9

UTI Mid Cap (G)

79.91

8.4 49.5 33.1

Religare Invesco Tax Plan (G)

34.78

4.7 30.9 22.8

SBI Magnum Midcap Fund (G)

59.80

16.4 45.3 33.0

Franklin India Tax Shield (G)

418.82

5.4 30.7 22.3

Birla SL (I) Opportunities (G)

115.66

10.6 39.5 31.9

Franklin Build India Fund (G)

28.63

6.6 44.5 31.4

JPMorgan (I) Mid and Small Cap (G)

19.23

11.4 46.6 31.2

Birla SL Pure Value Fund (G)

38.36

4.7 47.5 31.0

Sundaram SMILE Fund (G)

72.25

13.8 57.4 30.3

Franklin India Prima Fund (G)

666.67

10.8

41.7 29.7

L&T Midcap Fund (G)

88.91

12.5 46.5 29.2

ICICI Pru MidCap Fund (G)

70.56

4.5 46.0 29.2

BNP Paribas Mid Cap Fund (G)

25.10

15.1 39.9 29.0

Tata Mid Cap Growth Fund (G)

101.60

11.4 45.7 28.9

Franklin High Growth Cos (G)

29.43

6.9 39.3 28.8

ICICI Pru Value Discovery Fund (G)

114.29

7.8

40.1 28.7

SBI Tax Advantage Sr-1 (G)

3.2 35.6

22.1

1.9

28.1

22.1

29.11

6.0 29.2

21.8

DSP-BRTax Saver Fund (G)

31.93

3.4 28.8

21.2

IDFC Tax Advantage (ELSS)-RP (G)

37.80

5.4

26.1

21.0

139.08

-0.2 26.7

20.1

Edelweiss ELSS Fund (G)

35.50

6.1 25.8

19.9

SBI Magnum Tax Gain (G)

109.99

1.4

27.2

19.9

Tata Tax Advantage Fund-1(G)

29.76

9.0

27.7

19.8

L&T Long Term Adv. Fund - I (G)

35.25

6.9

27.2

19.5

L&T Tax Saver Fund (G)

25.80

7.1

27.7

19.4

BOI AXA Tax Advtg -Eco (G)

38.09

ICICI Pru L Term Eq (Tax Svng)-G BNP Paribas Long Term Equity (G)

Principal Tax Savings

22.15 271.88

2.3 23.5 19.0

Equity (Banking)

Principal Emerging Bluechip(G)

67.51

7.6 42.3 28.4

HDFC MidCap Opportunities (G)

37.36

7.3 40.8 28.2

Mutual Fund Scheme

NAV

1 yr 2 yr

3 yr

L&T India Value Fund (G)

24.92

11.5 42.5 27.9

ICICI Pru Bkg & Fin Serv-RP(G)

35.31

-0.6 28.9

19.2

Religare Invesco Mid N SmallCap (G)

35.00

6.6 39.3 27.8

Reliance Banking Fund (G)

168.52

-2.4 28.6

15.6

343.70

12.9 45.2 27.5

Religare Invesco Banking - RP (G) 32.47

-0.9

25.1

14.0

Sundaram Fin-Serv. Opp.-RP (G)

26.76

-5.2 23.7

11.9

UTI Banking Sector (G)

61.78

-6.8

23.1

11.8

Sundaram Select Midcap -RP (G) Reliance Mid & Small Cap Fund (G)

33.87

9.1 45.4

27.1

Religare Invesco Mid Cap (G)

33.97

6.5

SBI Magnum Global Fund (G)

131.73

10.8 37.9 26.7

Baroda Bank & Financial Serv. (G)

14.59

-8.8 20.4

10.7

Escorts Leading Sectors (G)

22.83

14.2

41.5 26.4

Sahara Bkg & Fin. Services (G)

42.42

-8.9 22.0

10.7

Kotak Emerging Equity - Regular (G)

26.23

12.0

47.1 26.3

Taurus Banking&Financial Serv. (G)

41.4 27.0

15.81 -13.0

17.8

Source: moneycontrol.com; Note: All returns are annualized and expressed in percentage; all NAVs as on November 23, 2015

8.6

DECEMBER 2015 l The Finapolis

STAT DOSSIER Performance of Mutual Funds Equity (FMCG) Mutual Fund Scheme ICICI Pru FMCG Fund (G)

Equity (Tech) NAV 160.81

1 yr 2 yr 3 yr

Mutual Fund Scheme

6.7

ICICI Pru Tech. Fund (G)

40.97

0.6

18.9 28.9

Birla SL New Millennium (G)

35.89

4.8

19.5 25.0

DSP-BR Technology.Com -RP (G)

55.02

6.9 20.0 23.4

Franklin Infotech Fund (G)

112.61 -0.3

18.9

14.9

Miscellaneous Mutual Fund Scheme

NAV

1 yr

2 yr

3 yr

UTI Transport & Logistics (G)

88.02

7.8

55.5 42.3

Birla Sun Life Buy India (G)

93.01

15.3

36.8 25.4

JM Basic Fund (G)

20.61

1.3

27.3

15.6

Reliance Media & Entertain (G)

54.67

2.2

23.5

14.2

Religare Invesco PSU Equity (G)

13.46

0.4

26.9

11.5

Reliance Diver. Power - RP (G)

73.57

-5.1

26.5

9.9

UTI Energy Fund (G)

11.70

-6.0

17.5

8.8

Sundaram PSU Opportunities (G)

11.21

-6.9

18.7

5.9

Balanced

NAV

1 yr 2 yr 3 yr

12.3 22.8

Equity (Pharma) Mutual Fund Scheme

NAV

1 yr 2 yr 3 yr

SBI Pharma Fund (G)

146.51

Reliance Pharma Fund (G)

147.36 19.0 38.2 30.5

UTI Pharma & Health (G)

93.55

11.1 29.2 27.5

NAV

1 yr 2 yr 3 yr

25.1

42.1 36.3

MIP

Mutual Fund Scheme

NAV

1 yr 2 yr 3 yr

Mutual Fund Scheme

L&T India Prudence Fund (G)

19.61

10.1 28.0

DWS Eq Income Fund - Direct (G)

25.87

14.9

14.7

SBI Magnum Balanced Fund (G)

95.91

8.2 26.4 20.7

Tata MIP Plus Fund - Direct (G)

25.38

14.7

17.3

HDFC Balanced Fund (G)

107.53

4.2 27.6 20.6

Tata MIP Plus Fund (G)

24.80

13.8

16.2

12.1

Tata Balanced Fund - Regular (G)

166.53

7.2 28.6 20.4

DWS Equity Income Fund (G)

25.13

13.5

13.6 10.6

Franklin India Balanced Fund (G)

90.32

6.9 26.2

19.9

SBI Magnum MIP - Direct (G)

31.86

10.8

14.3

ICICI Pru Balanced Fund (G)

91.60

3.1 24.4

19.7

SBI Magnum MIP Floater -Direct (G)

21.56

10.7

14.2

HDFC Childrens Gift (Inv)

82.34

2.2 23.4

19.5

ICICI Pru Regular Income-Dir (G)

14.83

10.3

12.7

L&T India Eq and Gold Fund (G)

19.82

4.5

19.3

Franklin (I) Low Dura. -Direct (G)

16.47

10.3 10.4

27.1

21.0

Escorts Balanced Fund (G)

99.86

1.8 28.9 19.0

Sundaram MIP-Conservative-Dir-G

14.18

Birla Sun Life 95 Fund (G)

554.15

3.9

25.1

18.7

SBI Magnum MIP - Floater (G)

21.24

9.9

13.5

11.9

Can Robeco Balance (G)

113.83

6.9 26.6

18.3

Sundaram MIP-Aggressive -Dir (G)

15.72

9.9

16.9

ICICI Pru CCP - Gift Plan

101.83

-1.3

27.1

18.2

Franklin (I) Low Duration (G)

16.33

9.9

10.1

9.8

HDFC Prudence Fund (G)

373.51

-1.2 26.5

18.1

Sundaram MIP-Conservative (G)

13.96

9.8

9.7

6.5

Reliance RSF - Balanced (G)

40.33

5.1 26.8

17.9

SBI Magnum MIP (G)

31.17

9.8

13.4

10.5

ICICI Pru Balanced Adv (G)

26.14

16.4

Sundaram MIP-Aggressive (G)

15.57

9.7

16.4

10.2

6.6

18.9

Source: moneycontrol.com; Note: All returns are annualized and expressed in percentage; all NAVs as on November 23, 2015

54 The Finapolis l DECEMBER 2015

FUND REPORT CARD SBI Magnum Balanced Fund-Reg(G)

Scheme Performance as on Nov 23, 2015 Period

Returns

B'mark

Rank

Fund Objective/Mission

3 Months

-6.66

-2.64

142/(193)

To provide investors long term capital appreciation along with the liquidity of an open-ended scheme by investing in a mix of debt and equity. The scheme will invest in a diversified portfolio of equities of high growth companies and balance the risk through investing the rest in a relatively safe portfolio of debt.

6 Months

0.47

-3.11

134/(181)

1 Year

Fund House Details AMC Name: SBI Funds Management Private Limited Website: www.sbimf.com

8.58

-1.42

33/(145)

3 Years

20.89

11.07

2/(46)

5 Years

12.44

7.04

9/(36)

Since Inception

14.07

12.62

SIP Details: Invested Rs 5000 Every Month

Financial Details

Period

AUM As On (October 31, 2015) 2769.63 NAV As On (November 23, 2015) 95.91 Min Investment (in Rs.) Lumpsum 5000 SIP NAV (52WeekHigh){August 05, 2015} 98.82 NAV (52WeekLow){December 17, 2014} 86.77

1 Year

Investment Information Scheme

Open ended scheme

Launch Date

January 06, 1996

Fund Manager

R Srinivasan

Bench Mark

Crisil Balanced Fund

Max.Entry Load (%)

Max.Exit Load (%)

1.00

Total Invest (`)

Scheme (`)

Bench mark

60,000

61,984

60,726

3 Years

1,80,000

2,48,987

2,14,376

5 Years

3,00,000

4,91,988

3,97,104

10 Years

6,00,000

12,85,675

10,06,181

Fund Structure Total Stocks

Total Sectors

P/E Ratio

31.28

P/B Ratio

5.82

Avg. Market Cap Rs. on (Oct-2015)

Top 10 Companies

56370.39

Volatility Measures Fama

-0.05

Beta

1.47

Std Dev

0.69

Sharpe

0.02

Top 10 Sector Wise Holding

Name

(%)

Industry Name

(%)

07.88% GOI - 19-Mar-2030

9.8

08.32% GOI - 02-Aug-2032

4.1



Unspecified

17.2



Bank - Private

8.2



Infosys

3.7



IT - Software

8.0



HDFC Bank

3.6



Finance - NBFC

7.9



SJVN

3.2



Pharmaceuticals & Drugs

6.3



Coal India

2.8



Power Generation/Distribution

5.5



Maruti Suzuki India

2.7



Automobiles-Trucks/Lcv

4.5



Tata Motors - DVR Ordinary

2.7



Auto Ancillary

3.3



Solar Industries (India)

2.6



Electric Equipment

3.3



CBLO

2.5



Chemicals

3.3



5 Years History Financial Year

2014-15

2013-14

2012-13

2011-12

2010-11

136.72

95.19

78.51

67.87

72.72

1616

543

380

374

478

Returns(%)

43.51

20.95

14.49

-7.59

2.60

CNX NIFTY Returns(%)

26.33

17.53

6.86

-9.11

10.27

7(205)

7/(148)

2/(101)

75/(77)

NAV in ` (as on 31st March) Net Assets (` Crores.) (as on 31st March)

Category Rank Latest As on 31 March, 15

41/(55) Source: ACEMF

DECEMBER 2015 l The Finapolis

FUND REPORT CARD ICICI Pru LT Equity Fund (Tax Saving)-Reg(G)

Scheme Performance as on Nov 23, 2015 Period

Returns

B'mark

Rank

Fund Objective/Mission

3 Months

-1.17

-4.96

4/(54)

The Scheme seeks to generate long-term capital appreciation through investments made primarily in equity and equity related securities of companies. Accordingly, the NAV of the Scheme is linked to performance of such companies. However, there can be no assurance that the investment objective of the Scheme will be realized.

6 Months

0.61

-5.01

8/(54)

Fund House Details

1 Year

2.38

-3.39

23/(50)

3 Years

22.32

13.92

11/(48)

5 Years

13.14

6.28

7/(46)

22.50

12.58

Since Inception

AMC Name: ICICI Prudential Website: www.icicipruamc.com

SIP Details: Invested Rs 5000 Every Month

Financial Details

Period

AUM As On (October 31, 2015) NAV As On (November 23, 2015) Min Investment (in Rs.) Lumpsum SIP NAV (52WeekHigh){March 03, 2015} NAV (52WeekLow){December 17, 2014}

2781.97 271.88 500 500 284.92 252.29

1 Year

Investment Information Scheme

Open ended scheme

Launch Date

August 19, 1999

Fund Manager

George Heber Joseph

Bench Mark

NIFTY 500

Max.Entry Load (%)

Max.Exit Load (%)

Total Invest (`)

Scheme (`)

60,000

61,051

60,093

3 Years

1,80,000

2,51,266

2,25,956

5 Years

3,00,000

4,93,755

4,21,061

10 Years

6,00,000

14,21,074

10,49,792

Fund Structure Total Stocks Total Sectors

38 27

P/E Ratio

32.46

P/B Ratio

4.95

Avg. Market Cap Rs. on (Oct-2015)

Top 10 Companies

Bench mark

67752.05

Volatility Measures Fama

0.03

Beta

0.85

Std Dev

0.94

Sharpe

-0.01

Top 10 Sector Wise Holding

Name

(%)

Industry Name

(%)

HCL Technologies

8.9

HDFC Bank

7.8



Pharmaceuticals & Drugs

14.9





Bank - Private

13.4



Cipla

5.7



IT - Software

10.7



Thomas Cook (India)

4.9



Automobiles-Trucks/Lcv

5.6



Bajaj Finserv

4.7



Travel Services

4.9



Kotak Mahindra Bank

4.6



Finance - Investment

4.8



Power Grid Corporation Of India

4.5



Finance - NBFC

4.7



Mahindra & Mahindra

4.4



Power Generation/Distribution

4.5



Tata Motors

3.8



Automobiles - Passenger Cars

4.4



Lupin

3.4



Mining & Minerals

3.5



5 Years History Financial Year

2014-15

2013-14

2012-13

2011-12

2010-11

270.86

186.98

144.94

135.84

140.93

2618

1705

1394

1278

1252

Returns(%)

44.68

27.86

6.32

-3.82

10.07

CNX NIFTY Returns(%)

26.33

17.53

6.86

-9.11

10.27

26(53)

5/(52)

25/(49)

17/(48)

NAV in ` (as on 31st March) Net Assets (` Crores.) (as on 31st March)

Category Rank Latest As on 31 March, 15

17/(46) Source: ACEMF

56 The Finapolis l DECEMBER 2015

Money

CHAT

This monthly series in The Finapolis talks to different families to understand their attitude towards financial planning. Certified Financial Planner Pankaaj Maalde prepares a financial plan and gives his recommendation to the family. If you’d like to talk to us and be featured, write to: feedback@thefinapolis.com

Right Insurance Plans Save Tax, Money and Your Future Too We discuss the case of a family of four with immediate and long-term financial goals. Although the family has opted for insurance and savings scheme, tweaking it a bit can help them ensure a constant cash flow whenever they need, be it end of this year or after few years for children wedding By Hiral Thanawala

Financial Goals of the Family The goals for Dalal family include planning for on-going expenses toward children’s education, building corpus for their marriage and Chintak’s own retirement. Financial advisor Pankaaj Maalde thinks that sound financial decisions in the past would have ensured a smooth inflow for Chintak. To begin with, he first analyses his current insurance portfolio and gives recommendation on necessary changes required.

Chintak’s Smart Moves Seeking financial advice Maintaining contingency fund

“I want advice from a financial expert on my existing portfolio and plan for my children’s education expenses”– Chintak Dalal Chintak Dalal is a 46-year-old resident of Mumbai who works for a private company. He lives in his own house with a family comprising his wife Yogita, 43, 17-year-daughter Mitshu and 14-year-old son Udbhav. His monthly income is Rs 1,05,000 and his wife earns an additional income of Rs 5,000 as an insurance advisor. He even earns rental income of Rs 10,000 per month from a second home. Of this overall income, a big chunk goes towards household expenses; Rs 59,667 and Rs 16,667 for children’s education. Rs 10,500 goes towards EMI for personal loan, Rs 27,417 for insurance premiums and Rs 1,000 goes into public provident fund (PPF).

Buying an online term plan Buying separate health insurance for family And Poor Decisions Buying traditional insurance plans High exposure to real estate Opting for high interest rate personal loan No planned investment for future goals

Analysing Life Insurance Portfolio Chintak has six traditional life insurance

DECEMBER 2015 l The Finapolis

Money Chat plans, two offline term plans with life cover of Rs 25 lakh each and one online term plan with life cover of Rs 50 lakh. Currently, Chintak is adequately covered under life insurance. However, a chunk of his savings goes towards paying the premium of insurance policies. At present, he is paying an annual premium of Rs 2.9 lakh. He even holds one ULIP plan but has stopped paying the premium after completing five years of minimum premium paying term in the policy. Analysing his insurance portfolio, Pankaaj recommends continuing the online term plan from Aviva which has a life cover of Rs 50 lakh. He how-

Dalal’s current income and expense analysis

Recommended

5,000

105,000

Rental Income

10,000

INFLOW

Total monthly income

OUTFLOW

Asset Allocation Existing Debt 15% Equity Real Estate 20% 65%

Yogita’s Income

Chintak’s Income

BANK

Total monthly expenses

Household expenses

Children’s education

Loan EMI

Insurance premium

Investment

Surplus

59,667

16,667

10,500

27,417

1,000

4,750

ance portfolio, it’s advised to better exit from both the traditional plans of LIC and invest the proceeds received for other goals. It is also advised to

continue with other traditional plans and Max life’s plan as Chintak has opted for limited premium payment term option in those policies.

Networth of Dalal’s Equity 40%

Debt 60%

Asset

Current Value (Rs)

Residential Property

1.60 Cr Investment Assets

ever, suggests discontinuing both the offline term plans of LIC due to high premium cost after taking new online term plan with life cover of Rs 50 lakh. Further, Pankaaj recommends surrendering traditional plans of LIC (Jeevan Astha and Jeevan Saral on Chintak’s wife’s name) as the internal rate of return (IRR) of both these traditional plans post considering present surrender value, future premiums payable and expected maturity value based on current bonus rates, is unlikely to beat inflation. If these policies are continued then IRR will be around 5% - 6% only. So, as for corrective action on insur-

Cash and Equivalents

50,000

Fixed Deposits

12 lakh

Public Provident Fund

2.5 lakh

Employees’ Provident Fund

34,000

Gold Coins

75,000

Direct Equity

20 lakh

Real Estate (Second Home)

70 lakh

Total Investment Assets (A)

1.06 Cr

Total Assets

2.66 Cr Less (-)

Liabilities

Current Value (Rs)

Loan (B)

3 lakh

Approx Net Worth (A-B)

1.03 Cr

58 The Finapolis l DECEMBER 2015

Money Chat Funds needed to achieve goals

Contingency Fund Children Education Expense Marriage Expense

Retirement

Time to achieve (years)

Future value of cost (Rs)

Resources utilised

Monthly investments required (Rs)

6 lakh

Fixed deposit

Time to achieve Future value (years) of cost (Rs) -

2 lakh p.a.

Resources utilised

Monthly investments required (Rs)

Monthly outflow and Rs 3 lakh fixed deposit

Time to achieve Future value (years) of cost (Rs) Daughter 8 28 lakh Children

Son

Time to achieve Future value (years) of cost (Rs) 14

3.85 crore

23 lakh

Resources Monthly investutilised ments required (Rs) 18,000 LIC Jeevan 3,500 Shree Plan

Resources utilised

Monthly investments required (Rs)

Real estate (2nd home), direct equity, Birla Sunlife ULIP, PPF, EPF

1,000

Total investible surplus needed

Assumptions

22,500

Inflation rate = 8% Returns on equity fund = 13% p.a., Real estate = 10% p.a., Debt fund = 8% p.a. and Ultra short term fund = 6% p.a.

Health and Disability Insurance Planning

EXPERT TAKE

As for health insurance, Chintak has bought health insurance policies from New India with a cover for Rs 5 lakh and from LIC with a sum assurance of Rs 8 lakh. Both the plans are family floaters covering wife and children. Analysing both the plans, Pankaaj explains New India Assurance has room rent sub-limit of 1% on sum assured, which means it reduces limit on all other expenses if a patient admitted in higher costing room while undergoing treatment. Even, LIC health plus is not a pure mediclaim plan. It is a ULIP plan covering only major surgical benefits as mentioned in the policy document. This plan has ongoing allocation charges of 6% on premium paid and

have room rent sublimit clause unlike New India. He suggests discontinuing the LIC health plan and buying a top up health insurance of Rs 15 lakh with deductible amount of Rs 5 lakh for family. This change in health insurance policies will cost around Rs 35,000

also Rs 25 per month as policy admin charges. Such charges reduce overall returns from ULIP. Due to this deceive in both the policies, porting of the New India insurance plan to other insurers such as Apollo Munich or Bajaj Allianz is advised as both these insurers do not

p.a. as against Rs 39,000 p.a. incurred at present thereby substantially increasing the cover. Pankaaj also suggests buying critical illness and accident disability insurance policies with sum assurance of Rs 50 lakh each. This will incur an additional cost of Rs 35,000 p.a. ap-

proximately but will ensure a cover for any uncertainty in future.

Analysing Loan Portfolio

Pankaaj Maalde Certified Financial Planner

Chintak has a personal loan of Rs 3 lakh with an interest rate of 13%. He pays an EMI of Rs 10,500 to the bank. This is one of the major cash outflow from his income. Pankaaj advises that Chintak repays the entire loan from his existing fixed deposit which earns him 7% returns post tax deduction. By repaying personal loan with high interest he will become debt free. This will increase his monthly surplus and the amount saved can be invested in assets with better returns to build the desired corpus for future goals.

The Road Ahead Having taken care of insurance requirements, Chintak can start planning for his financial goals. The first goal is to set aside six months of expenses as a contingency fund. This amount will take care of any unforeseen expenses for his family. For this, Pankaaj recommends

DECEMBER 2015 l The Finapolis

Money Chat

RETIREMENT FUND

allocating the existing sum of Rs 6 Lakh from fixed deposits. He recommends investing 50% in ultra short term fund and 50% in arbitrage fund. The next goal is to fund children’s educational expenses of Rs 2 lakh p.a. and have a corpus of Rs 3 lakh for their higher education as safety of margin. Pankaaj has computed education expenses in the monthly cash outflow which takes care of this expense over a period and aligned fixed deposits of Rs 3 lakh towards this goal. Further, Chintak wants to build a corpus for children’s marriage expenses. For his daughter’s marriage, Chintak requires a corpus of Rs 15 lakh in today’s value (future value will be Rs 28 lakh) if she were to get married at the age of 25. This goal is 8 years away

with the same consideration of marriage at the age of 25, which is 11 years away from now. Pankaaj aligns maturity proceeds of Rs 14 lakh from LIC Jeevan Shree plan towards this goal and recommends starting a fresh monthly investment of Rs 3,500 in diversified equity mutual fund scheme to accumulate the desired corpus. Currently, Chintak’s income is limited, so it is recommended to start this investment when there is growth in his income. Another important goal for Chintak is his retirement. The corpus required here is of Rs 3.85 crore and will be used up to 80 years of age after retiring at 60. The corpus required has been calculated assuming household expenses of Rs 50,000 per month in present value at an 8% inflation. Pankaaj has

of Rs 7.40 lakh at the time of retirement provided Chintak continues to contribute to the EPF account. It is also recommended to shift from direct equity investments to diversified equity mutual fund schemes, then review real estate investment periodically as the retirement corpus is largely dependent on appreciation in price. Additionally, surrendering Birla ULIP plan to reinvest this amount in a diversified equity mutual fund scheme and continue investing Rs 1,000 in PPF account is also suggested by Pankaaj. The balance corpus of Rs 20 lakh will come from Max and LIC traditional plans at maturity. No further monthly investment is required towards retirement goal as the aforementioned investments will help build a corpus of Rs 3.65 crore by the time

from now. So, Pankaaj recommends a monthly investment of Rs 18,000 in a balanced mutual fund scheme to accumulate this corpus. Gold investment of Rs 75,000 is also aligned towards this goal. For his son’s marriage, Chintak requires Rs 10 lakh as corpus in today’s value (future value will be Rs 23 lakh)

aligned second home, direct equity investments, Birla Sun Life ULIP and PPF which promise a corpus of Rs 2.27 crore, Rs 1.11 crore, 8.85 lakh and Rs 10.25 lakh respectively after 14 years i.e. at the retirement age of 60 years. Even EPF contribution is aligned towards retirement goal which will give a corpus

Chintak turns 60.

Concluding Remark Chintak should review the plan, rebalance his portfolio annually, raise his investment amount with increase in income and take corrective actions for insurance policies as discussed. F

60 The Finapolis l DECEMBER 2015

ETCETERA

Start-up Nation This article analyzes the current scenario and emerging trends across the many facets of the Indian entrepreneurial ecosystem, and why Indiaâ&#x20AC;&#x2122;s position as a global start-up hub is gaining unprecedented interest among Government, investors and the young Indians By Mubaashir Ansari

here is a wave that has gripped most of urban India and many young people have been bitten by the entrepreneurial bug. According to a NASSCOM report, the Indian technology start-ups landscape has seen a tremendous growth in the emergence of innovative start-ups and creative entrepreneurs. In terms of providing a conducive ecosystem for the start-ups to thrive, India has moved up to third position and has emerged as the fastest growing base for start-ups worldwide. The Government understandably is euphoric and will provide much needed support in coming months. There are many events across the country that are aimed at promoting entrepreneurship among the young. Although such events are very prevalent in big cities like Mumbai, Bangalore and Delhi, a number of tier 2 cities have also joined the

bandwagon. The Rajasthan Start-up Fest 2015, held at Jaipur in October, aimed to make the State known more for its centuries-old forts

and palaces to also become a hotbed of new ideas. The event brought together more than two dozen start-ups as well as angel investors and a host of venture capital funds. A few other states including Karnataka, Telangana and West Bengal have also either announced measures to support start-ups or plan to do so. In fact Telangana which has stolen the thunder from many other states has just promoted a business incubator called T-Hub on a PPP (Public Private Partnership) mode with the active support of K.T. Rama Rao the IT Minister of Telangana. The T-Hub was inaugurated by the Governor of the State in early November with Ratan Tata as chief guest and a host of leading luminaries. â&#x20AC;&#x153;There are some advantages of not being in a metro city viz. low costs and access to a relatively virgin market, for instance, a start-up would like to reduce its day-to-day expenses and a smaller town like Jaipur provides that as opposed to areas like Delhi-NCR, Mumbai or Bangaloreâ&#x20AC;?, says Harsh Sharma of Jaipur-based Bharat Helpline, which aggregates local service providers. So, the question is whether one of these

DECEMBER 2015 l The Finapolis

ETCETERA smaller metros like Jaipur will produce the fancy incubators and support of well Hyderabad held a forum called FailFest the next billion-dollar unicorn? intentioned mentors there are several earlier this year that celebrates learning While there are some extremely robust challenges for start-ups. from failure. The idea was to simply and seemingly viable businesses that On the other hand some of the start-ups change the conversation around failure have sprung up today, there is also in India are in the news for the wrong and to learn from it. possibility of a bubble waiting to burst. rea s o ns - re s t r u ct u r i n g, l ayof f s, In some cases investors themselves are To every Flipkart there are perhaps 20 shutdowns, squeeze in funding and partly to blame for this. They back other start-ups that are struggling in availability of affordable talent. Only two multiple start-ups in diverse categories some form or the other for a variety of of 10 start-ups that raise seed funding such as food tech, clean energy, logistics, reasons. make it to the next level and get urban services, hotel aggregation, real We all have short memories but isn’t institutional funding, and only 2 of 100 estate and grocery, to name a few. They there a feeling of déjà vu encourage start-ups to of 2001’s .com bubble and p ay fo r a c q u i r i n g the euphoria that had customers rather than fuelled the greed and focusing on the business robbed us of our senses? fundamentals. These What could possibly be entrepreneurs are young, the reasons for this new and they have not seen found entrepreneurial the world. Investors are enthusiasm? Some always in a hurry and possible reasons: Firstly, sometimes greedy too. it is the phenomena of Some of them have success breeding success. invested in multiple As more young people start-ups within the same right after education or sector or category. For their first jobs find that instance, Sequoia Capital on one hand working for has funded both Grofers someone else is passé and and Pe pperTap in on the other they see a hyperlocal grocery, while plethora of new business Tiger Global has funded that have attracted so Limeroad and Roposo in Aside from all the brouhaha about gravity-defying fashion. much investment. The Government is keen on We asked Sarath Naru, valuations the excitement of making pitches to self employment as it mana ging par tner at investors, basking in the glamour of leading edge Venture East, a leading solves their problem of technology, the fancy incubators and support of venture capital firm that jobs and also gives the economy a forward has invested in some very well intentioned mentors there are several thrust. Young people from successful new ventures challenges for start-ups job seekers become job about his experience in providers. Of course investing in Start-ups: today there are so many rich individuals scale up to be a $1-billion+company in “Current appetite for start-ups (seed who have made big money in the terms of valuation. stage) is still higher than backing growth corporate world, now wanting to invest There are a bunch of books that give a phases of companies that have already for better returns and also to satisfy their l o t o f a dv i c e t o yo u n g bu d d i n g gone through the pilot, and proof stage thirst for mentoring. T here is a possibility that too much optimism and money are chasing fewer prospective entrepreneurs. Aside from all the brouhaha about gravity-defying valuations the excitement of making pitches to investors, basking in the glamour of leading edge technology,

entrepreneurs but there is very little on why so many start-ups fail. Success is often celebrated with fanfare and accolades but the time has come when failure too needs to be celebrated, in a sense. Interestingly, recognising the need for imparting guidance to start-ups, Nabeel Adeni, an entrepreneur from

and reached scale. Funding at this seed stage is crowded with angels, investor clubs/groups, and I believe the appetite is more than the supply. The challenge is likely to be funding at Series A, the first institutional large round, that the number of investors are fewer and more selective.

62 The Finapolis l DECEMBER 2015

ETCETERA

T-Hub

India’s Largest Startup Incubator Hub

As they grow to scale other types of investors come into play, but their criteria is becoming tougher with ‘path to profitability’ being the key focus.” Is there an opportunity for investors to consider direct investment in startups and can this be considered as a viable asset class, we asked Sarath: “In my view, yes there is! It is already happening at two levels. One through the angel clubs which have a formal set up, and do a good job of evaluating and risk-mitigation such as Chennai angels, Hyderabad angels, Indian angels network, etc. and the other is through ’crowd sourcing websites’. These have started earlier in the US and one can get comfort from the popularity of the deal that is being presented on the site. However, this may not be a good substitute for good diligence by an experienced investor. My hope is that the risk and reward evaluation systems will improve significantly, and that portfolio construction methodologies, and its importance will percolate to individual investors as they tread into

With inputs from techcircle.in

So, the question is whether one of these smaller metros like Jaipur will produce the next billiondollar unicorn? these spaces meant for sophisticated high risk investors”.

At any rate we are currently living in rather interesting times as far as new businesses is concerned and technology has once again played the role of a black swan. In fact the entire business paradigm has turned on its head. Why else will there be the multi-billion dollar unicorns like UBER and Airbnb operating so profitably without owning a single cab or a hotel property? F

KEY HIGHLIGHTS  India is the youngest start-up nation in the world- 72% of the founders are less than 35 years old  More than 50% of the 1200 start-ups focus on e-com, consumer services and aggregators  9% female founders and co-founders in start-up ecosystem  Number of accelerators grew by 40% from 80 (approx) in 2014 to 110 (approx) in 2015  Total funding in 2015, growth of 125% (approx) over 2014  Number of PE/VCs investment grown by 100% over 2014  80,000 jobs created by start-ups

64 The Finapolis l DECEMBER 2015

PERSONAL FINANCE

advisor Every month an expert on personal finance will answer all your queries related to the world of investments, taxation and financial management. The personal finance advisor will diagnose the health of your portfolio and offer better advice. In current edition, your questions have been answered by Col. Sanjeev Govila (retd), CEO, Hum Fauji Initiatives. He is Certified Financial Planner and SEBI Registered Investment Advisor. Write in to feedback@thefinapolis.com Gold Investment In September 2015, the government announced gold bond scheme. What are the pros and cons of investing into this scheme and what’s a better alternative for investing in gold? – Raman Kumar, Indore The Sovereign Gold Bond (SGB) scheme whose first tranche closed on 20th November 2015 was a very good scheme for all those who wish to invest in gold for the long term. The scheme had many pros – issued by RBI and hence safe; money converted to grams of gold for accounting purposes; available in demat as also physical paper form; tradeable on exchanges though liquidity would only be known much later; gave a long term perspective of eight years to investments with exit option from fifth year onwards; ability to use SGBs as collaterals for loans; and the best of all, an yearly interest of 2.75% payable semi-annually on the bonds which makes it far superior to physical gold. Cons can be given out as –cap of 500 grams equivalent of SGBs; liquidity before 5th year could be an issue if they are not

easily tradeable on the exchanges; interest earned is fully taxable; and the capital gains rules to be levied as for physical gold. However, the two biggest reasons why SGB issued in November did not evoke a good response was the short notice period given to banks and post offices to prepare for and market the scheme, as also the price of the gold which was fixed at Rs 2,684 per gram for the bonds but drifted to much lower in the open market during the bond period itself. SGB is a good scheme if you wish to invest in gold in bulk since you get an additional interest besides getting the gold equivalent. But in case you want to invest in gold and also want easy liquidity, gold ETFs or gold mutual funds could be a better alternative. They have a low initial investment value of only Rs 5,000 and no upper limit. MFs additionally give you the flexibility of SIPs of amounts as low as Rs 500 per month. Remember that these options will not give you any regular returns as in SGB. Travel Insurance I am travelling to US for about nine months and have taken travel insurance. If needed, how do I make a claim if needed while travelling abroad? – Niyaz Khan, Hyderabad The procedure for an overseas travel insurance claim abroad is very similar to the way you would make a claim in India. First of all, you or someone else on your behalf, needs to register the occurrence of the claim at the earliest through phone and/or email. Then, the ‘Overseas Travel Insurance Claim Form’ needs to be sent along with all the necessary documents to the insurance company or its associates or the TPA, who manage the claim formalities in USA. Most of the good insurance agencies have tie-ups with major hospitals directly or through their associates and the claim is likely to proceed on a cashless basis, if hospitalisation is involved. Nevertheless, be prepared for some

DECEMBER 2015 l The Finapolis

PERSONAL FINANCE ADVISOR funds when the goal time-frame is a short 2-3 years, let alone getting into the much riskier sector funds. I would rather recommend you to get into debt funds or at the most, hybrid funds with a predominant debt bias, when your goal is due within next 2-3 years. expenditure from your side too. For other events like death, b a g g a g e l o s s , personal liabilities etc, the procedure and process will be suitably altered. Hence, you need to carry the policy in original along with a couple of its photocopies, and three copies of insurance claim form. Be sure of the contact telephone numbers and the email ID on which contact has to be made when required. Since your stay is long, please be sure of the maximum duration of the policy coverage since there may be a need to extend your insurance cover. Hence, carry a copy of travel extension form too. Life Insurance While taking an online term plan, is it better to opt for a policy with highest claim settlement ratio or the cheapest premiums? Please advice – Rohit Saxena, Delhi Besides the claims settlement ratio, the other important issues to remember are service quality of the company, branch network especially in the area where you and your legal heirs reside, number of years that the company has been in business in India, your own comfort with the company, and of course the premium you pay. Thus cheapest plan or the one with highest claims settlement ratio should not be an automatic choice. A couple of other important points: Opt for a plan which conducts medical checkups (unless you are very young) since the premiums are usually lower and there are not likely to be any issues later if and when a claim is made, and preferably take online term plans as the premium could be up to 35% cheaper than when taken through an agent. Mutual Fund Kindly suggest an investment in sector based equity funds (eg: pharma/ fmcg/ technology) aligned to goal considering time horizon of 2-3 years? Also which sector fund will be suitable for investing now? – Niraj Singh As a rule, I do not advise anybody to get into equity

Credit Card My private bank is offering credit card with zero annual charges. I am looking forward to apply for this credit card. What are the pros and cons of having a credit card? -Shephali Mehta, Ahmedabad The Pros first. Firstly, it’s easy and convenient, and gives us access to cash or ability to purchase immediately instead of having to apply for a loan or carry a lot of money. Most online purchases also prefer this and make life easy. Secondly, there is the limited liability. In case the number is stolen, generally there is a limited liability provided you follow a laid down process of reporting at the earliest. Thirdly, for those who travel frequently, it almost becomes a must for travel bookings and purchases without the hassles of carrying cash. Fourthly, are the reward points. Fifthly and very importantly, a credit card can help out in an emergency and very effectively work as your emergency or contingency fund account without committing your own money to it.

Immediate access to funds lets you deal with the emergency now even though the interest rate is on the higher side. Now the Cons. Credit cards historically charge a much higher interest rate than other types of bank loans which is why they are so hard to pay off. Never charging more than you can pay off in a month or two will keep you out of trouble. Next are the unwelcome fees. You will be charged fees for a late payment, fees for going over your balance, balance transfer fees, and third party fees for using your credit card to pay a bill. Some credit card companies will even charge an annual membership fee. Then is the increased risk of fraud if you are not careful with your password or handling it. Difficulty in tracking how much you’ve spent in a day of shopping. Unlike a wad of cash which grows smaller as you spend it, there’s no visual cue to keep your spending in check. I personally feel that the advantages outweigh the disadvantages. Just a little bit of care and responsible use will help you stay out of financial troubles. However, please make sure that you pick the right card which suits your needs; otherwise you could end up paying more than you need and handling a horde of cards which will only m a k e your life more difficult than without a card. F

66 The Finapolis l DECEMBER 2015

LEARNING CURVE by invite

We all come across issues and ideas related to the world of finance that sound Greek and Latin. Worry not. We are here to guide you through the maze

FATCA will soon become Mandatory

ATCA has been the talk of the country for the past couple of months.

reasons such as education or supporting funds. The flow of funds is both ways.

Most of the Indian investors would have heard this term but not sure about the regulations surrounding it. If you are among them, here’s the lowdown on FATCA.

This will also help the Indian Government gather information on the funds sent out and later coming back to India as black money. Such transactions are popularly known as Hawala transactions or round tripping. Government of India could effectively use such information to minimize these transactions. The onus of collecting financial information

What is it? India and US have signed an inter-governmental agreement in order to implement the concept of Foreign Account Tax Compliance Act or FATCA which is expected to be a great move towards transparent taxation between these two countries. The government of US has been looking to bring about significant changes in the taxation rules with respect to its own citizens as well as foreign citizens. It has also recognized that Non Resident Indian (NRI) are an important part in this regard. FATCA is a crucial step in terms of sharing of key information between the two countries such as domestic income, foreign investments/assets of individuals.

Basic information such as being Resident of US and foreign income and assets are required as part of FATCA. If you are a specified US person with foreign financial assets greater than $50,000, it becomes mandatory to report income through form 8938. Failure to report it can attract penalty of $10,000 - $50,000. Moreover, the qualifying Indian institutions can withhold up to 30% of the payments for those who do not comply with these regulations. Hence, especially, NRIs are advised to disclose any financial or non-financial assets held within and outside US to avoid penalties and prosecution.

Are there any other implications?

What is the motive behind this? The major intention behind the concept and implementation of FATCA is to address the issue of ever rising black money. It is known already that India has been working on the reduction of black money in the system. However, the major reason behind signing this agreement is the concern expressed by US with regards to the huge money repatriated to India by the NRIs or the unprecedented amount received by NRIs from their families back in India on account of various

What if you do not submit the required details?

of investors will be on the financial institutions, which will be passing on this key information to the tax authority. Institutions which deal with investors such as banks, mutual funds, intermediaries will be taking up this responsibility. RBI will be drafting the compliance for Banks and NBFCs. SEBI will regulate this asset management companies for mutual funds and IRDA will do the same for insurance companies.

Though implementation of FATCA is good news for economies of both the countries, it is a bad news for a lot of citizens who were using the current regulations to save tax on properties and huge amount of cash and other assets held by them. There have been millions of Indian citizens who took up US citizenship for ease and convenience or just to save tax. For the latter category, this could be a googly as a result of which many are even looking at giving up their US citizenship and considering Indian citizenship. It’s as simple as this – get ready to pay tax or renounce US citizenship. If implemented diligently, this could be a major step forward towards curbing the menace of black and unaccounted money from the system. F

Published on 1st December 2015 Total No. of pages 68, including cover pages

Karvy The Finapolis

RNI No: APENG/2007/20461 Regd. No.: L II/RNP/H-HD-1087/2014-16