The Finapolis September 16 by The Finapolis

Over 10,000 companies have PF dues pending

Short-term Trades can Inflate Your Tax

Use an SIP to fund future EMIs

Five Fun Ways to Save Money

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1st September 2016 `60

Your Personal Finance Advisor

Urjitâ&#x20AC;&#x2122;s Move Challenges and issues before the new RBI governor

SEPTEMBER 2016 l The Finapolis The

EDITOR’S DIARY

Your Personal Finance Advisor

Volume 10

Issue 06 September 2016

Editor Mandar M Bakre editor@thefinapolis.com Associate Editor S Vijaykrishnan Correspondent Sukanta Kundu Editorial Board Phani Sekhar Amit Saxena KP Jeewan Jagannadham T Design & Production Vijayendra Kumar Ch Kerthi Saikumar Narsingh Thakur Advertising & Circulation Shabna R Iyer Vijayendra Kumar Ch

Monetary Man

he government took its time making the announcement, but we finally have a name. Urjit Patel will succeed Raghuram Rajan as governor of India’s central bank.

Rajan’s term has been lauded by many, and our columnist Kiran Nanda, also an

economist, finds his tenure to have been highly beneficial for the country. For the new man at the helm, there remains work to be done, and Nanda looks at the challenges and issues that Patel will face once he takes over the baton. We note also how Patel is unlikely to be all that different from Rajan — his leanings are similar to his predecessor. We continue the central bank coverage with an article on hawks and doves, the standard for shorthand classification of central bankers worldwide. It is supplemented by a world map detailing the rates of interest in key economies, which reveals just how difficult the job of a central banker has become. There was a time, before the US housing crisis rocked global finance, when interest rates moved in

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blocks of 25 or 50 basis points. Now, there is a scram-

Printed & Published by Mubashir Ansari on behalf of Karvy Consultants Limited. Karvy House, 46 Avenue 4, Street 1, Banjara Hills Hyderabad - 500 034. AP.

ing to the term fractional banking. Two countries in

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ble of awkward numbers that gives a whole new meanour sample have negative interest rates — Switzerland and Sweden — but a host of others are crowding out the space between 0% and 0.5% — there is even a 0.050% in the mix! Despite all these measures, the global economy remains shaky. Which takes us to the next question, what can central bankers do next? At Credit Suisse, they believe financing infrastructure is the answer. All of this is pooh-poohed by Peter Schiff, an economist of the Austrian persuasion, who has always argued that eight years ago, we should have let the banks go bust. Contrarians always

Published for the month of September 2016 Printed on September 1, 2016 Total No. of pages 68

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

make for great reading, because they challenge the very assumptions on which we base our decisions. Schiff, who always a great read, packs a wallop in this column. On the personal finance front, we give you a number of suitable ideas this month: have a home loan? Consider investing 10% of your EMI in a mutual fund every month; then let the returns from this installment support your repayment. What are the best places to park your funds if interest rates start to decrease? We tell you. There are also five fun and whacky ways in which you could save some cash,

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 66072560 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.

from rediscovering your green thumb to drinking more water. The Finapolis believes in more. So there’s a quiz on Indian natural resources, a piece on how to avoid ‘text neck’ due to excessive laptop/ tablet/ mobile usage, and charts that reveal dietary habits in four Asian countries. We note that India is getting ready to recontact the Sentinelese, an isolated tribe in the Andamans, and another Peter makes an appearance in the issue: we review Lynch’s One Up on Wall Street. Happy Reading!

Mandar M Bakre

The Finapolis l SEPTEMBER 2016

CONTENTS

PROFILE

TAKING STOCK

Picking Patel Pormises Policy Continuity

The Situation Room of the Successor

ROLE PLAY Of Hawks, Doves and Central Bankers

WORLD WATCH Interest Rates Around the Globe

l Speciage Covera

VERDICT Raghuram Rajanâ&#x20AC;&#x2122;s Legacy is Transformational

LOOKING AHEAD

AN Shanbhag and Sandeep Shanbhag Too Many Short-term Trades Could Inflate Your Tax Dues

Adhil Shetty Make the Best of Falling Interest Rates

What QE Could Central Banks do Next?

COLUMNS

Israel

Peter Schiff Central Banks Are Choking Productivity

SEPTEMBER 2016 l The Finapolis

WE ARE DIGITAL

38 QUICK SAVINGS Overlooked Saving Tips

TELEMARKETING Missed Calls Make Their Mark

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18 CAREERSCOPE Take Your Networking to the Next Level

ETCETERA

48 62

THE CHARTIST Dietary Pickings from Australia, China, Singapore and South Korea

Seven Ways to Prevent Text Neck

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The Finapolis l SEPTEMBER 2016

inbox Money After Marriage Everyone concentrates on Wedding Bells and not Wedding Bills! Your cover story points out the various needs that a marriage creates and the means to save very succinctly. I liked the part where the author advises a mix of debt and equity MF investments to plan for annual holidays. That’s a tip I am going to personally follow. — Anaaya Sharma, Dehradun The point on having adequate insurance after marriage is valid. Yet, one point is whether couples can purchase other insurance products such as ULIPs and moneyback plans. These may also be options given the recent good performance in the share market. — Sainath Kandregula, Secunderabad 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

RBI and Rates Your article on “Interest Rate Conundrum” was very informative. Now as Dr Raghuram Rajan is going to leave, I am not sure how RBI is going to treat

information and we are not responsible for any loss incurred

interest rates for ordinary savers like me. I hope there is no aggressive cutting

based upon it. The investments discussed or recommended

just to make the government happy. — Balram Sharma, Indore

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

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Cheers! The graphic on hydropower was interesting. Please do more features like this in the magazine covering interesting topics. — Anantharam Reddy, Hyderabad

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SEPTEMBER 2016 l The Finapolis

 FUND FLOW One nation + one tax = $137 billion For GST About 42% of the Rs 22 lakh crore ($328 billion) revenue of the central government and 35 states and union territories will now be subsumed under the goods and services tax (GST), passed by parliament’s upper house on August 3, 2016 and being touted by some as one of independent India’s “boldest reforms”. Around Rs 9.20 lakh crore ($137 billion) of Central and state revenue from 15 taxes — from Central Excise to levies on gambling — in 2014-15 ($1 = Rs 67) will be brought under the GST, scheduled to be levied from April 1, 2017, although the government might be hard-pressed to make this deadline. Industries and commercial enterprises currently pay various taxes at various stages of a product or service, such as manufacture, transport, wholesale, logistics and retail. The administration of these taxes is often tangled in paperwork, results in slow inter-state movement of products and increases costs for consumers. Most of these taxes will be subsumed by the GST, barring a few, such as those on vehicles, roads, property and electricity. The law enabling the GST must now go back to the Lok Sabha, which must clear the new amendments brought in by the government to get political consensus, after which it must be ratified by half of all state legislatures. Simultaneously, the information technology backbone that the GST will require is getting ready, with software testing set for October 2016, according to a news report. It isn’t yet clear what the GST taxation rate will be, but 17% to 18% is likely. Implementing the GST will not be easy because many taxes and their administration must be disentangled and brought online into a single, nationwide system. However, the basic architecture of such a system has been created. As that nationwide system is construct-

ed and brought online, tax administrators will also have to be retrained. “For effective implementation of GST, tax administration staff -- both at the Central and state levels -- would require to be trained properly in terms of concept, legislation and procedure,” Karthik S and Satish Dedhia, tax experts at the PriceWaterhouseCoopers consultancy, wrote in Forbes India in February 2016. “The tax administration staff would also need to change their mindset, approach and attitude towards the tax payers. And for this, they would have to ‘learn, unlearn, and relearn’ the GST not only in letter but in spirit too.” A GST Council will control the new tax regime across the Centre and the states; it will fix tax rates, exemptions and other issues. The Centre’s representatives will control a third of the vote in the council. Two Central representatives (Finance Minister and Minister of State for Finance) account for 33.3% of the vote, while 29 finance ministers account for the remaining 66.7%, according to the 122nd Constitutional Amendment Bill that will give effect to the GST regime. The key challenge for the central gov-

ernment is to ensure both the Centre and the states benefit from the GST -- in other words, get as much as or more money than they currently do. The Centre is likely to compensate states for lost revenue on ‘goods’ by increasing their share of taxes on services, according to an analysis by the Institution of Chartered Accountants of India (ICAI). Indian states cannot afford to lose revenue because they are already in debt, as IndiaSpend reported. Maharashtra, India’s most industrialised state, and Uttar Pradesh (UP), the most populous, expect to get at least Rs 60,000 crore and Rs 65,000 crore per year, as IndiaSpend’s calculations revealed in December 2015. These figures, based on data from the Reserve Bank of India’s Study of State Finances, are almost equal to the revenue Maharashtra and UP currently receive through a host of taxes, which the GST will replace. Maharashtra was chosen for the analysis because it is the state with highest revenue from its own taxes, as a share of total revenue, at 66%; and UP because it has the highest total revenue but no more than 36% from its own taxes. IANS

The Finapolis l SEPTEMBER 2016

 BAD BEHAVIOUR 10,932 companies default on Provident Fund payouts It should have taken 30 days for Sanjaya Kumar (27) from Odisha to withdraw his father’s provident fund of Rs 40,000, the post-employment, rainy day retirement stash that companies must compulsorily deduct from salaries. Instead, more than 1,825 days have passed since Kumar’s father Krushna Chandra (53) died in 2011. “Please help me withdraw PF money, my mother is worried about losing it,” said Sanjaya, in a complaint posted on an online forum. More than 10,000 companies — including 1,195 state-owned — nationwide have defaulted on provident-fund payments: 2,200 companies owe at least Rs 2,200 crore-to the Employees Provident Fund Organisation, the portion of employee salaries they should have deposited. The numbers of defaulting companies and institutions is growing. There were 10,091 defaulters in 2014-15, rising to 10,932 by December 2015. Online consumer forums are flooded with complaints like those of Kumar’s, as hundreds of employees who have quit or retired from a company are deprived of their provident fund. “We get lots of complaints from workers who have been denied their provident fund and also complaints of collusion between EPFO officials and employers,” said All-India Trade Union Congress secretary and EPFO trustee D.L. Sachdev. A detailed questionnaire sent on June 29, 2016, to the Central Provident Fund Commissioner and the Central Vigilance Officer of EPFO and reminders on August 1 went unanswered. In Budget 2015-16, the government decided to tax a part of provident fund. But widespread nationwide protests — some violent, especially in Bangalore — forced the government to rescind the decision. Provident funds are meant to provide financial security to salaried employees, who must contribute 12% of their monthly

salary with the employer contributing 13.6%. Companies or institutions with more than 19 employees deposit the provident fund of each with the EPFO, which in turn deposits the money in an employee account that earns 8.8% interest from the government, which invests the provident fund in government securities and corporate bonds. While employees can withdraw the entire amount after retirement or two months after resigning from a job, the EPFO allows partial withdrawals to pay for a home, education, marriage or an illness. Establishments that deduct contributions from employees’ salaries, but do not deposit it with EPFO are termed defaulters. Tamil Nadu, including Pondicherry, has India’s largest number of defaulting companies (2,644), followed by Maharashtra (1,692) and Kerala, including Lakshadweep (1,118). The Airports Authority of India tops the list of defaulting institutions with a Rs-192-crore default, followed by HBL Global, Mumbai, and Ahluwalia Contracts India Ltd, Delhi, with Rs 64.5 crore and 54.5 crore, respectively. By region, Thiruvananthapuram leads with 247 defaulters, followed by Kolkata with 173 and Bhubaneswar with 115. Companies that form their own provident-fund trusts for employees are exempt from signing up with the EPFO. In such cases, trustees are selected from

company workers. Defaulting companies must pay a penalty with an interest rate of between 17% and 37%, depending on the period of default. The EPFO is set for a Rs 33-crore image makeover, which includes professional social-media management and advertisements in print and broadcast media, according to news reports. But the EPFO’S role as a custodian of employee savings faces deeper problems: it does not tell employees that companies are defaulting until they come to settle; cases waiting for settlement are rising; and corruption with the organisation endures. The number of EPF cases pending settlement in 2015-16 increased 23% over the previous year. Although 228 police cases were registered, 14,000 inquiries started against defaulting establishments and Rs 3,240 crore was recovered in 2014-15 from defaulters, the EPFO was short of 6,000 employees on March 31, 2015. Fewer employees affect the organisation’s ability to enforce provident-fund rules. There has been a four-fold increase in cases filed by EPFO to prosecute defaulting employers over the four years ending 2015, from 317 in 2012-13 to 1,491 in 2014-15. As many as 322 corruption cases were ongoing or concluded against erring EPFO officials between 2012-February 2015. Since then, corruption cases have dropped: 167 in 2012, 75 in 2013, 72 in 2014 and eight till February 2015. One reason could be that an EPFO executive officer was previously given charge of an area to ensure employers within that jurisdiction did not default. “Now notices to defaulters are sent from the Head Office, and there is no officer who can be held responsible if the company defaults in payment,” said Vivek Kumar, a former EPFO director of vigilance. Back in Hyderabad, the reasoning makes no difference to Sanjaya Kumar. IANS

SEPTEMBER 2016 l The Finapolis

 BRIEFLY

DARK SIDE

India Post receives certificate of Budget date may move to January incorporation for payments bank The India Post Payments Bank Ltd (IPPB) has received the certificate of incorporation and will roll out branches by September 2017. “The incorporation... is a significant step forward as this also paves the way for the bank to begin hiring of banking professionals to set up the bank and begin operations,” a statement said.

GeM’s efficiency on par with e-commerce sites, says Lavasa The government e-marketplace (GeM) — that has been developed in just five months, will enable departments to make use of best technologies and procure goods & services with the same ease and efficiency as offered by private e-commerce sites, finance secretary Ashok Lavasa said. GeM is an endto-end integrated e-procurement portal for purchase of goods and services of common use by government buyers.

Develop an index for corporate bond market, say experts An expert group has suggested standardisation of corporate bond issuance, relaxing norms for allowing foreign investments, creation of a bond index and encouraging corporates to tap the market. The report, released by SEBI, added that a centralised database for corporate bonds markets may be established in two phases by the end of October 2016.

TRAI paper on spectrum charges TRAI has issued a consultation paper on spectrum usage chargesThe paper addresses the possibility of introducing minimum presumptive adjusted gross revenue in ISP licences for charging the spectrum fee.

Even as a proposal is being examined to do way with the annual exercise of presenting the railway finances separately before the Lok Sabha, the government is looking at advancing to January the date of tabling the national budget. “This proposal is being examined. But a decision is likely to be taken soon. This idea has come about to overcome a practical hurdle every year,” finance ministry officials were reported as saying. “Thus far, the budget is tabled in February-end. But the release of funds comes only by July

— three-four months of the fiscal year are wasted in completing the formalities.” “So it is suggested... that the date be advanced to January so that by March-end the funds are received by all ministries. This way, all the ministries will also get one full year to spend what is allocated to them.” The move also comes against the backdrop of the government announcing a four-member committee to examine the desirability and feasibility of having a new fiscal year (In India a fiscal year currently spans April 1 to March 31). IANS

NO EXTENSION Black money scheme ends Sept 30 The government is not considering any proposal to extend the September 30 deadline for disclosing domestic black money under the Income Disclosure Scheme (IDS), a minister told Lok Sabha. The IDS-2016 has commenced on June 1 and shall be open for declaration till September 30, 2016. The information regarding the recovery of black money under the four-month single window

facility given, shall be firmed-up after the closure of the scheme,” Minister of State of Finance Santosh Kumar Gangwar said in a written reply in the Lok Sabha. Asked whether the government

has any plans to extend the IDS deadline, he said, “There is no such proposal under consideration”. The scheme allows persons to come forward and declare undisclosed income by paying tax, surcharge and penalty, aggregating to 45% of the income declared. However, the government allowed assessees to pay tax and penalty under IDS in three installments by September 30 next year. IANS

The Finapolis l SEPTEMBER 2016

 GOOD NEWS No transaction fee on card payments for govt services Convenience fees and service charges on card-based transactions for booking train tickets, settling bills of state-run utilities and paying various taxes will soon be a thing of the past. “The Task Force on Promotion of Payments Through Cards and Digital Means has flagged issues with respective government departments,” the Finance Ministry said, listing this as a major achievement. Instructions have been issued by the Controller General of Accounts clarifying that the Merchant Discount Rate (MDR) on digital payments for government transactions would henceforth be borne by respective departments. In a memorandum earlier this year, the finance ministry said the objective of a cash-less society is to make it easier for conducting transactions, reduce the risks of handling cash, reduce costs of managing

cash, and reduce tax avoidance and use of counterfeit money. “One way to curb the flow of black money is to discourage transactions in cash. Now that majority of Indians has or can have, a Rupay debit card, I propose to introduce soon several measures that will incentivise credit or debit card transactions, and disincentivise cash transactions,” finance

minister Arun Jaitley had said in February. The finance ministry shall withdraw convenience fee and service charges in digital payments for a host of services. These will include, payments for essential commodities, utility services, petrol pumps, gas agencies, railway tickets, tax payment, museums, monuments, etc. IANS

TAKING STOCK

LOSING SHEEN

Increase retirement funds’ equity exposure: Study

Gold demand drops 18% in second quarter of 2016

There is a need to increase the asset allocation to equity allowed in retirement funds from the current level of 5% as it will help in realising the country’s huge demographic advantage, a joint study titled ‘For greater good’ by industry body Associated Chambers of Commerce and Industry of India (Assocham) and CRISIL, has said. “At 5%, overall exposure to equity could barely reach 5% in 20 years, and even if allocation was increased to 15%, it may take three more years to cross the 5% overall mark,” it stated. The study highlighted that according to a global analysis of

Demand for gold in India for the second quarter dropped by 18% mainly due to high price, jewellers’ strike and various regulatory moves by the government, Somasundaram PR, Managing Director, India, World Gold Council, said. Demand for the precious yellow metal fell 18% Y/Y to 131 tonnes during AprilJune 2016. “Sales were affected jewellers’ strike extended into April and remained more or less effective until Akshaya Tritiya, when sales saw a brief boost,” Somasundaram said. “However, elevated price levels and a regulatory push for transparency through PAN cards, tax collec-

investments, the OECD countries, despite having an ageing economy, continue to remain strongly invested in long-term asset classes like equity (with a 30% average) and even some non-OECD countries are putting their demographic advantage to better use by investing in equities. IANS

tion at source and excise duty on jewellery, coupled with weaker rural incomes kept demand subdued,” he added. The World Gold Council estimates gold demand at 750-850 tonnes for 2016. IANS

SEPTEMBER 2016 l The Finapolis

 HELD IN TRUST Number of share pledges reaches a seven-year high Pledging of shares by promoters of almost 522 of the 1,517 NSE-listed companies rose to a seven-year high of Rs 2.08 lakh crore, says a report by PRIME Database. “The percentage of promoter holding pledged went up from 15.57% a year back to 16% on June 30, 2016 (further increased to 16.21% as on August 11, 2016),” Pranav Haldea, Managing Director of PRIME Database, said. Tata Consultancy Services, Adani Ports, Cairn India, JSW Steel are among the top companies by value of pledged shares. In value terms, promoters’ share pledging went up to Rs 1.98 lakh crore on June 30, 2016 from Rs 1.77 lakh

crore as on June 30, 2015 (further increased to Rs 2.08 lakh crore as on August 11, 2016). Haldea said this can be attributed mainly to a rise in share prices. The high pledge levels, however, are typically not considered a good sign by investors as a downturn in market prices can lead to invocation and change in management, he said. In as many as 31 companies, the complete holding (100%) of the promoters was under pledge as on June 30, 2016, including Bajaj Hindusthan Sugar, Bharati Defence and Infrastructure, IL&FS Investment Managers, Ind-Swift Laboratories and IVRCL. IANS

BULKING UP Unified SBI’s asset base will swell by $120 bn The country’s largest lender State Bank of India is looking to add $120 billion (Rs 8 lakh crore) assets following the merger of all its associates banks and Bhartiya Mahila Bank with it. SBI will merge all its associate banks and Bhartiya Mahila Bank Ltd with itself. After the merger, the bank will have a network of more than 24,000 branches, 2,70,000 employees and total assets of Rs 30 lakh crore, which will increase by 36%, a statement said. “The mergers will catapult the SBI into the top 50 banks globally and is in furtherance of the bank’s mission statement to be of service in the remotest parts of India,” it said. The lender said the merg-

Quote of the month

ers would allow it to leverage operational synergies, reach out to new clients and improve market share by ensuring a better reach through enlarged presence. According to the bank, increased presence in all terrains and geographies will increase the bank’s deposit raising capac-

ity and bring down the cost of funds further. Thus, the benefit so derived will flow on to the customers in the form of improved services, borrowing costs etc. The reduction in overheads, administrative offices and centralisation of treasury will in itself lead to substantial reduction in operating costs. In other developments, reported a 32% fall in its standalone net profit to Rs 2,520.96 crore in the 2016-17 fiscal’s first quarter ended June 30, compared with Rs 3,692.43 crore in the corresponding quarter last year. Gross non-performing assets (NPAs) as a percentage of total loans rose to 6.94% from 4.29% in the year-ago period. IANS

“There are no losses of jobs or salary. There only might be a few transfers, that’s it. There is no reason for strike. “People have to understand that the change is inevitable. There have been strikes at many occasions but we have to educate them and take them on board” — Arundhati Bhattacharya, SBI Chairperson on the mega merger and unions’ opposition to it

The Finapolis l SEPTEMBER 2016

 CASH FLOW NPCI’s Unified Payments Interface goes live The National Payments Corporation of India (NPCI) said in August that the Unified Payments Interface (UPI) would go live for customers of 21 banks. The relevant details of the service would be available on the website of 21 banks, the NPCI said. According to NPCI, the UPI application of 19 banks will be downloaded from Google Play Store by September. The list of banks providing the app on Google Play Store are: Andhra Bank, Axis Bank, Bank of Maharashtra, Bhartiya Mahila Bank, Canara Bank, Catholic Syrian Bank, DCB Bank, Federal Bank, ICICI Bank, TJSB Sahakari Bank, Oriental Bank of Commerce, Karnataka

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Bank, UCO Bank, Union Bank of India, United Bank of India, Punjab National Bank, South Indian Bank, Vijaya Bank and Yes Bank. According to NPCI, two banks — IDBI Bank and RBL Bank — are on-boarded as issues. The customers of the two banks can download any UPI enabled apps and link their account. “This is a success of enormous significance. Real-time sending and receiving money through a mobile application at such a scale on interoperable basis had not been attempted anywhere else in the world. Now the UPI App will be made available on Google Play Store by banks,” NCPI MD and CEO A.P. Hota said in the statement.IANS

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SEPTEMBER 2016 l The Finapolis

ď&#x192;¨ newsmaker

RAILWAY BUDGET India will no longer have a separate Railway Budget, after the Finance Ministry in August accepted a proposal to merge it with the General Budget. The 92-year-old practice was brought to an end by Rail Minister Suresh Prabhu. A ďŹ ve-member panel of senior officials from both ministries will work out the modalities for the merger.

The Finapolis l SEPTEMBER 2016

company update We take a look at some companies’ performance to figure out what impact they will have on the share prices Axis Bank nk Axis Bank’s Q1FY17 numbers came in healthy, with its loan book expanding 21%,, driven by both retail and corporate advances. Current depositors accounted for over 60% of the retail loan book. Advances are likely to rise 17% by 2017-18 as retail advances gallop. However, the bank’s net profits too fell 21% as funds set aside to tackle bad loans rose 89%. Excluding such provisions, however, the bottomline was up by a moderate 9%. Net interest income (NII) rose 11% Y/Y. As slippages rose to Rs 3,640 crore from Rs 1,470 crore in the previous quarter, gross non-performing assets (NPAs) rose 87 basis points to 2.5%, net NPAs rose 38 bps to 1.1% in Q1FY17. Asset quality is likely to remain an issue for the bank, as it is likely to improve only from the second half of the current fiscal. Yet, NII and net profit

Sun Pharma SUNP’s Q1FY17 revenue and profit after tax (PAT) beat our estimates by 3% and 10% led by strong gGleevec sales, one-off sales of $ 35 million and lower R&D spends (at 6.3% of sales vis-à-vis guidance off 8% for FY17). However, we expect earnings tto moderate in coming quarters as R&D spends rise, competi-

are lik likely to post a CAGR of 16% and 15%, respectively, by 2017-18, as net interest margins m rise 4%. The longterm te focus on indicators su as NIMs, CASA ratio such and capital adequacy will aid the bank’s performance in future quarters and somewhat ease the pressure emanating from asset quality. At a current market price (CMP) of Rs 588.40 , the stock is trading at P/ABV of 2.5x and 2.2x for 2016-17E and 2017-18E, respectively. Therefore, given the expectations of an improvement in key financial indicators, the potential upside on the stock is 10% or more, based on a 12-month target price of Rs 650 a share.

Current Market Price Rs 588.40 Target Price Rs 650 Potential Upside 10%

Jet Airways With a 24% market share in the domestic market, Jet Airways is among India’s largest private sector airlines. Middle Eastern rival Etihad picked up a 24% stake in Jet two years ago, in return investing almost Rs 30 billion. The deal has widened Jet’s combined network to more than 130 routes. However, in Q1FY17, standalone profits fell to Rs 1.03 billion fell to Rs 1.03 billion as passenger yields fell sharply by 4.3% Y/Y and a similar rise in employee costs and selling & distribution expenses. The company’s bottomline can improve only when the costs and debts reduce. The company has already reduced debt by Rs 3.5 billion, however, given the weak rupee, this amounted only to Rs 1.8 billion. On the positives, passenger volumes grew 4.4% Y/Y, yet the overall revenue fell on account of lower fares. The above numbers must not be seen in isolation as the second quarter of a fiscal is usually tepid. However, given the intense competition,

tion in the Gleevec segment

estimates. Domestic sales,

increases and Taro’s (Israeli

which rose 7.6% Y/Y to Rs 18.5

subsidiary) base portfolio

billion matched industry trends

g cantly (down erodes signifi

while sales in emerging mar-

~$30 million sequentially in Q Q1). However, reso-

kets declined by 35% Y/Y to exchange losses and an exit

could be a key nearc

from low-margin businesses.

term trigger. Based te

Other points to focus are

on these, we persist

that Sun’s domestic business

875. Rs 875

Target Price Rs 610 Potential Upside 15% fares will remain subdued, curbing revenue growth. At the same time, the company’s fleet plans look better. Its plans to use leased aircraft on international routes will boost its capacity. Constructing a gateway will benefit both the passenger and cargo businesses. The company’s near-term focus stays on cutting costs and use internal accruals so as to cut its debt burden. Factoring in higherthan expected drop in yields and inch up in cost we revise down FY17 and FY18E earnings per share (EPS) to 25% and 14%, respectively, which reflects a revised target price of Rs 610 per share. This indicates an upside of 15% over 12 months.

Current Market Price Rs 782.70 (Aug 19) Target Price Rs 875

Rs 5.6 billion owing to foreign

lution of Halol issues lu

with a target price of wit

Current Market Price Rs 537.70

run-rate is likely to improve going forward, its capex to remain

Potential Upside 9.3% The resolution of issues at the company’s Halol facility (which

at Rs 10bn for FY17E, while tax

the USFDA re-invited for re-in-

Sun’s margins to 35.4%, 150

rate is likely to gradually rise

spection) would also be a key

basis points (bps) above our

and stabilise at 14-15% for FY17.

near-term trigger.

Lower R&D spends buoyed

September 2016 l The Finapolis

company update Thermax

Thermax Ltd is a leading energy and environment solutions provider, offering integrated innovative solutions for heating, cooling, power, water & waste management, air pollution control and chemicals. In Q1FY17, the company’s sales and profit after tax (PAT) declined 20% and 19% Y/Y, much below our estimates, while the order book to shrunk 19%. Consequently, our revenue & PAT estimates have been reduced by 4.4% and 4.7% respectively, as capital expenditure in core sectors such as steel, cement, oil& gas, etc has been delayed. The fall in revenue was led

by a 13% Y/Y decline in the environment business a 20% reduction in the energy business’ revenue. The environment business’ order intake grew by 16% Y/Y aided by non-policy orders. We expect that a revival is some quarters away. We project sales to grow by 1% CAGR over FY16-18E. Thermax’s gross margin expanded 946 basis points (bps) Y/Y to 52% on lower raw material costs. EBITDA margin rose 10 bps Y/Y to 7.2% despite lower revenue. On a segmental basis, the energy segment’s EBIT margin fell 100 bps to 8%, while that of the environment business plummeted by 310 bps to 3.5% due to onetime provisioning for water projects.

Motherson Sumi

Motherson Sumi Systems (MSS), is a JV between Samvardhana Motherson International (SMIL) and Sumitomo Wiring Systems, Japan (SWS). It has operations in 25 countries and supplies to major global automakers. MSS has often turned around its acquisitions successfully, with two relevant instances being Samvardhana Motherson Refletec (SMR) and Samvardhana Motherson Peguform (SMP). In Q1FY17, the company’s adjusted EBITDA rose 20% to Rs 9.3 billion, yet lagged our estimates by 4%, owing to a fall in revenues of SMR and SMP. Consolidated revenue also trailed our estimates by 2%. Domestic revenue grew 18% Y/Y versus a 13% rise in Q4FY16. India can help MSS maintain momentum as market share losses are now unlikely. Higher content (from MSS) per vehicle in new models is expected to boost revenue from the India business for MSS, while for SMR and SMP, both

Lower commodity prices helped to stem a steep fall in EBITDA. We expect EBITDA margins to be 8.8% and 9.2% in FY17E and FY18E, respectively and order inflow is likely to pick up gradually by FY18 while strong a balance-sheet keeps Thermax in premium valuations. Based on the above numbers, we value Thermax’s core business at 21x EV/ EBITDA and arrive at a target price of Rs784. Other positives include the fact that Thermax holds the L1 bidder (lowest bidder) position for NTPC Ltd’s solar thermal projects worth Rs 80 crore. Thermax is also negotiating for two orders in its joint venture with Babcock & Wilcox Power Generation to

revenues and margins are likely to rise strongly in the second half of FY17. We estimate consolidated earnings per share (EPS) to post a CAGR of ~25% over FY16-18E. As the recent surge in stock price surge captures these positives, our revised target price stands at Rs 309 (from Rs 280 earlier). At CMP, the stock trades at 20x FY18E PER. Complicated ownership structures; weakness in global demand for luxury cars (on which order books of SMR/ SMP are heavily dependent) are some key risks for MSS.

Current Market Price Rs 332 Target Price Rs 309 Potential Downside 5%

United Breweries

materialise in the coming quarters. With the management not hinting at any significant order inflow for next two quarters, we factor revenue and earnings CAGR of 1% & 4% respectively over FY16-18E. We value and value Thermax standalone business at 21x FY18E EV/EBITDA and subsidiaries/ JV businesses on SOTP basis at 1x times P/B.

In its strongest quarter, United Breweries Ltd’s (UBL’s) net revenue grew 7.5% Y/Y to Rs 1,562 crore (yet lower than our estimates of Rs 1,602 crore). The company continues to retain its market share of 50%. While sales volume grew 6%, better than the industry’s 4%, a decline in purchase of traded goods coupled with lower advertisement & promotion expenses resulted in EBITDA margin expansion of 150 basis points (bps) Y/Y to 18.6% (versus our estimate of 18%). The Indian beer market continues to grow in line with expectations, with sales volumes posting an 8% CAGR in the past 5 years. However, for FY16, growth in the segment came in slower at 4%. Overall, however, the industry has been going strong. From a total industry

Current Market Price Rs 841.55 Target Price Rs 784 Potential Downside 10%

consumption of about 100 million cases in 2005, beer consumption in India has nearly tripled to 294 million cases in 2016. Even as regulatory actions and state government bans continue to affect sales, UBL with its market leadership is expected to maintain an edge over the industry growth rate. We continue to maintain our growth estimates of 10%, 13% and 20% CAGR in revenue, EBITDA and PAT in FY16-FY18E and set a target price of Rs 900.

Current Market Price Rs 795.20 Target Price Rs 900 Potential Upside 13%

The Finapolis l SEPTEMBER 2016

VARIETY ANSWER BACK # 7 It’s only a few questions long, but the Finapolis quiz will still test the mettle of the best: we ask anything on everything. This month, we pose questions on India’s natural resources. 1) How many state/s of India have Diamond mines? A) Three (Madhya Pradesh, Andhra Pradesh and Telangana) B) One (Andhra Pradesh)

6) India is the fourth largest resource of which metal? A) Zinc

B) Iron

C) Copper

D) Chromite

C) Four (Madhya Pradesh and Andhra Pradesh, Kerala and

7) Which Indian state has the majority of the Thorium reserve?

Uttar Pradesh) D) None of the above

A) Odisha

B) Tamil Nadu

C) Andhra Pradesh

D) West Benga

2) Which pair of Indian state/s have the gold mines? 8) Which Indian state has the maximum reserves of limestone?

A) Karnataka, Uttar Pradesh B) Karnataka

A) Andhra Pradesh

B) Madha Pradesh

C) Uttar Pradesh and Madhya Pradesh

C) Karnataka

D) Rajasthan

D) Barcelona, 1992

9) Which Indian state produces maximum natural honey?

3) Which is the oldest oil well in India? A) Kalol (Gujarat) C) Digboi (Assam)

B) Dindigul (Tamil Nadu) D) Bombay High (Maharashtra)

4) In which state of India the largest Uranium Mine ‘Tummalapalle Mine’ situated? A) Tamil Nadu C) Karnataka E) Tamil Nadu

B) Andhra Pradesh D) Kerala

5) Which state of India has the largest coal reserve? A) Jharkhand C) West Bengal

QUOTABLE “The good news is that personal finance is not rocket science. Personal finance is about 80% behavior. It is only about 20% head knowledge. ” — Dave Ramsey

B) Uttarakhand D) Tamil Nadu

SEE AND SMILE

A) Delhi

B) Maharashtra

C) Kerala

D) Himachal Pradesh

-------------------------------------------------------------------------------------------------------Send your answers to feedback@thefinapolis.com latest by September 25, 2016. Winners will be acknowledged in the quiz section of the subsequent month’s issue.

Answers to Answer Back #6 1- A; 2 - C; 3 -A&4, B&3, C&1, D&2; 4-D (1928); 5-A (1936); 6-C; 7-A; 8-B; 9-C; 10-A; 11-D; 12-B; 13-A (Home to their respective regional Olympic associations) Winners: B S R Murthy

SEPTEMBER 2016 l The Finapolis

VARIETY KNOW YOUR COUNTRY

Andamans’ Pre-Neolithic Sentinelese tribe back in focus

hey live about 58 km from Port Blair on the North Sentinel island of the Andaman and Nicobar. But the pre-neolithic Sentinelese tribe is far removed from modern civilisation. And they can be extremely violent with outsiders. . Much like the Jarawa tribe, the Sentinelese are a secluded lot and several efforts to establish friendly contact with them had failed, until a 13-member team under anthropologist S.A. Awaradi could connect with them 27 years back. Now, the focus is back on these indigenous people. A similar effort is all set to be initiated again. The tribals will be observed from a safe distance and if all goes well then a friendly contact will be established. Recalling the first successful endeavour, Arawadi said the Sentinelese were observed for weeks from a “safe distance beyond the reach of their sharp arrows”. Then coconuts were thrown in the water as a gesture of goodwill, to build confidence and gain their trust. Awaradi was then the Director of Tribal Welfare of the Andaman and Nicobar administration. Awaradi — who was awarded a commendation certificate for establishing friendly contact with the Sentinelese by the Andaman and Nicobar Lt. Governor — recalled landing on the island with his team and being welcomed by around 26 tribals. “We kept throwing coconuts in the water from a safe distance and they picked up the floating coconuts. After hesitating for some time, one young Sentinelese swam to our life boat and accepted the coconuts from our hands. We then went closer and stepped on the island,” Awaradi reminisced. They communicated through gestures. The team, which included security offi-

cials and boatmen, didn’t go inside the forest or approach the tribal huts. The contact was for about 23 minutes. “We continued observing them from a safe distance till 1993 but then discontinued,” Awaradi said. While anthropologists believe hostility to be the most effective protection of these tribals against outsiders, a friendly contact with the Sentinelese could help in case of an emergency or epidemic. “Outside contact makes them vulnerable to alien diseases, like influenza or STDs. However, fear of natural calamities and other diseases loom large. The island is on the route of several flights. In case of an air crash, the fate of the survivors would be hard to predict as the general impression is that these tribals are hostile,” Awaradi said. “Now we are waiting for the suitable weather conditions. The Sentinelese had been observed but through aerial surveillance. We need to get closer, till the range of their arrows, for better observation,” Awaradi, now director of the Andaman and Nicobar Tribal Research and Training Institute, said. If the administration found it suitable, the expedition would try to establish a friendly contact with them. It is believed that the Sentinelese settled there many thousand years ago. They were never contacted by other Negito or Mongoloid tribes of Andaman and Nicobar. However, the Onge tribe of the Andaman knew about their presence. Prior to the Awaradi’s successful endeavour, several attempts were made in 1967 and 1970 to contact the Sentinelese. In 1974, a film crew along with security officials approached the Sentinelese to shoot a documentary, ‘Man in Search of

Man’. Some of the crew members got injured by the arrows shot at them. In 2006, two fishermen went near the island and were killed by the Sentinelese. The tribals also shot arrows towards the helicopter that went to retrieve the bodies. The government has declared about 5 km of the surrounding waters of the North Sentinel island as a prohibited zone. Estimated to be a tribe of 50 to 200 persons, the Sentinelese escaped the 2004 Tsunami. It is believed that they sensed it and escaped to the higher ground of the forested island, which is about 27 square miles in area and surrounded by coral reefs. “After the Tsunami, the Andaman group of islands, including North Sentinel, elevated by one to two feet and Nicobar went down by the same proportion,” Awaradi said. The Andaman and Nicobar islands are home to six existing tribes, of which Negito tribes include the Great Andamanese, Onge, Jarawa and Sentinelese. The other two are Mongoloid tribes, Nicobarese and Shompen, who lived in the Nicobar island. Another tribe called Jangil or Rutland Jarawa became extinct around 1920. Only the Nicobarese maintain a comparatively good population with 30,000 members. The Great Andamanese were once 5,000-member strong. But over 98% of their population died fighting the British. Many others succumbed to STDs and influenza. “At one point, their population dropped from 5,000 to 16. After independence, they were settled on different islands and kept secluded. Today their population is around 61,” Awaradi said. There are about 300 Jarawas, 100 Onges and 300 Shompens left. IANS

The Finapolis l SEPTEMBER 2016

the chartist Eating at the Neighbours What are the eating habits of other countries in Asia? Do people still eat at home most often or has this been substituted by outside catering? Find out

South Korea

China

Singapore

Australia

How often do you eat a home cooked meal? (%) 100

Never

Between once a month and once a year 2-4 times a month

A few times a week 20

Most Days 0

Australia China

Korea Singapore

SEPTEMBER 2016 l The Finapolis

The Chartist How often do your order food (of any kind) to be delivered to your home? 100

80 Never

One a year or less Several times a year

One to three times a month Once a week

0 Australia

China

Singapore

Korea

Are you more likely to buy a product or visit a restaurant that is endorsed by a celebrity chef or ambassador?

How frequently do you post about your food experiences on social media?

100

China

Australia 80

Indifferent No

Korea

Singapore

Yes 0

Australia

China

Korea

At least everyday Approximately once a week Once a month

Singapore

When Cooking, do you try out new recipes?

Rarely Never

Where do you mostly find new recipies? 100

China

Australia

I like to experiment and make my own 60

Word of mouth 40

Cooking Book

Singapore

Korea

TV/Cooking Channel

Often

Never

Sometimes

I donâ&#x20AC;&#x2122;t cook

Blogs and Online

Australia

China

Korea Singapore

20 The Finapolis l SEPTEMBER 2016

COVER STORY PROFILE

Patel a Pick for Policy Continuity He was particularly picked for his expertise in inflation-control, which has become the main task of the central bank

rjit Patel, 52, a Deputy Governor at the Reserve Bank of India (RBI) since January 2013, will take over as the 24th chief of India’s central bank on September 4, according to an official communique. As per the decision taken by the Appointments Committee of the Cabinet, chaired by Prime Minister Narendra Modi, Patel gets a three-year tenure. Raghuram Rajan, too, had a three-year stint. Ever since Rajan, in an unprecedented letter to his colleagues in June, said he was opting out of a second term at the helm of India’s central bank, speculation has been rife over who his successor would be — particularly given the outspoken nature of the incumbent and the eyebrows he raised. Rajan is going back to academics at the University of Chicago. His successor — who is a Ph.D in economics from Yale and M.Phil from Oxford — was clinched at a meeting between Prime Minister Modi and Finance Minister Arun Jaitley, sources said. He was particularly picked for his expertise in inflation-control, which has become the main task of the central bank, ever since the government, under statute, set it a target of 4%, plus or minus two percentage points, based on consumer price index. Patel, whose experience includes a mix of stints with multilateral institutions, bureaucracy, central bank, global consultancies and even private companies, has previously served the International Monetary Fund (IMF) in the US, India, Bahamas and Myanmar. He was also a consultant in the Union Finance Ministry, in the Department of Economic Affairs, and an advisor at The

Boston Consulting Group. This apart, he has been a non-resident Senior Fellow of the Brookings Institution. According to some senior officials at the Reserve Bank, Patel was particularly chosen by the IMF in 1996-97 to provide advice on the development of the debt and currency markets in India, as also on banking and social security net reforms. Some of his stints with the private sector include: President, Business Development with Reliance Industries, Executive Director of Infrastructure Development Finance Company and Board Member of the Gujarat State Petroleum Corp. Patel worked closely with several central and state government committees —

especially those on direct taxes, market studies, anti-trust laws, the PM’s Task Force on Infrastructure and sectors like telecom, aviation, power and pensions. According to the official communiqué, “The appointment has been made based on the recommendations of the Financial Sector Regulatory Appointments Search Committee headed by Cabinet Secretary. The Committee undertook an extensive exercise to suggest a panel of names to the Appointments Committee of the Cabinet.” “For the first time, a systematic approach and an objective mechanism have been put in place. The committee met twice to discuss the possible names that can be considered for this assignment and had submitted a short panel of names to the Appointments Committee of the Cabinet,” it added. Official sources said several names were tossed up, including State Bank of India chairperson Arundhati Bhattacharya, former bureaucrats Vijay Kelkar and Ashok Chawla, and economists Rakesh Mohan, Ashok Lahiri and Subir Gokarn.

Patel’s experience includes a mix of stints with multilateral institutions, bureaucracy, central bank, global consultancies and even private companies. He has previously served the International Monetary Fund in the US, India, Bahamas and Myanmar

SEPTEMBER 2016 l The Finapolis

COVER STORY On its part, India Inc. welcomed Patel’s appointment. The Federation of Indian Chambers of Commerce and Industry (Ficci) credited Patel with being the architect of the current monetary policy stance. “He is the architect of the current monetary policy stance focussing on inflation and being part of team RBI with current governor will also ensure continuity of ongoing initiatives launched at RBI in recent times,” said Harshavardhan Neotia, President of Ficci. “We are confident that RBI and economy will gain tremendously from Dr Patel’s experience in both private and public sector.” The Confederation of Indian Industry (CII) welcomed the appointment and said that it intends to work closely with the new Governor. “CII is confident that the new Governor will lead the central bank and take its developmental and regulatory agenda to new heights,” said Chandrajit Banerjee, Director General of CII in a statement. “As in the past, CII is committed to work closely with the Government and the RBI to support the creation of a stable, low inflation and high growth economy,” the statement added. Bankers too welcomed Patel’s appointment. “Dr. Patel has been at the helm of institutionalising the inflation targeting regime in the monetary policy framework. His appointment signals continuity of policy intent, both on part of RBI and Government,” said SBI’s Bhattacharya. ICICI Bank MD and CEO, Chanda Kochhar congratulated Patel and said: “Urjit Patel has played a key role in developing the new monetary policy framework that has focused on reigning in inflation and has imparted stability to the currency.” She also said his appointment would ensure a smooth transition and continuity in monetary policy, as India puts in place major structural reforms to transition to a higher growth path. Yes Bank MD and CEO Rana Kapoor said, “Patel is an astute economist with a clear vision, who wil l surely continue to de-risk the Indian economy and strike the fine balance between growth imperatives and inflation management.” IANS F

On Rate Cuts, Patel Might Prove a Mirror Image of Rajan

he appointment of a new RBI governor has naturally raised expectation among those who were critical of Raghuram Rajan for not easing enough the monetary policy by cutting rates. It is relevant in this context to examine the backdrop to Rajan holding the RBI’s repo, or short-term lending rate, at 6.5% in his last monetary policy review in August. Since January 2015, Rajan has cut lending rates by 150 basis points (bps) but banks have only cut their interest rates by about half of that. To nudge banks to transfer the benefit of rate cuts, Rajan even announced a shift to the marginal cost of lending (MCLR) regime. Under the MCLR, banks need to consider their marginal cost of funds, or the cost incurred on incremental deposits across different maturities, to decide on interest rates. However, three months after the MCLR was launched on April 1 this year, banks have hardly cut their lending rates. ICICI Bank and Axis Bank recently cut rates by only 5 bps. So far, Axis Bank has cut its rates cumulatively the most — by 30 bps. State Bank of India, ICICI Bank, HDFC Bank, Bank of Baroda, IDBI Bank, Punjab National Bank and Syndicate Bank have cut their rates only in the range of 5 bps to 20 bps. From the state-run banks’ point of view, their accumulation of massive non-performing assets (NPAs), or bad

loans, that is impacting profitability, is keeping them from cutting rates. When talking about this challenge for Urjit Patel as the RBI Governor, it should also be kept in mind that his moorings are as monetarist as the outgoing governor, and he is considered to attach the same importance to inflation control as Raghuram Rajan. Patel is also known to be opposed to boosting government capital spending at the risk of a higher fiscal deficit. His views on monetary policy were expressed at the time Rajan held rates in the February 2015 review after making an unexpected rate cut the previous month — the first in nearly two years. Patel at the time elaborated on the “important backdrop” to Rajan’s move to hold rates. “We are in the midst of the age of competitive depreciation and of a beggar-my-neighbour philosophy. It brings to mind an old African saying that when elephants fight, the grass suffers,” Patel said at the press conference to announce the policy review, on the trend of accommodative monetary policies being adopted by developed economies. “While the ECB (European Central Bank) and the Bank of Japan are printing money and devaluing their currencies on one hand, the US economy is reviving on the other. Anyone in the middle is getting crushed,” he added. IANS F

The Finapolis l SEPTEMBER 2016

COVER STORY TAKING STOCK

The Situation Room of the Successor Kiran Nanda lists the challenges and issues before the new RBI governor

I Kiran Nanda is a corporate economist

t will be difficult for Dr Urjit Patel to step into Dr Raghuram Rajan’s big shoes, but the central bank’s governor’s accomplishments over his three-year tenure will certainly make the job easier for his successor. Maintaining the RBI’s 80-year reputation and autonomy intact will be Dr Patel’s overarching responsibility. Also, the seeds sown in the Rajan era must be allowed to bloom fully to enable a positive outcome in the long term. Dr Rajan has looked after the monetary aspects of the economy well, fitting perfect with the global economic environment, especially, when global economic growth has slowed considerably in the past few years. Before analysing the challenges facing Dr Patel, a review of the Rajan era is pertinent. The central bank is in the process of remaking the country’s banking system: Dr Rajan proposed sweeping changes in the functioning of public sector unit (PSU) banks. His successor needs to pursue this implementation with the same fervour, and with government support. Inflation has been the one of the prongs of RBI’s monetary policy for some time now. Dr Rajan had set a target to cool inflation to 5% by end of March

2017 to ward off financial instability. He has been laying stress on inflation control, and has largely succeeded in taming the beast. At the same time, he has been worried about rising inflationary fears. Retail inflation is currently at 6.07%, which indicates that Dr Rajan got his rate assessment right. However, Economic Affairs Secretary Shaktikanta Das feels that despite the recent spike in consumer price inflation (CPI) to slightly higher than the official inflation target of 4% (plus or minus 2%), inflation will moderate on the positive impact of a normal monsoon and strong measures taken to contain the prices of pulses. Inflation has dropped by a large magnitude during Rajan’s tenure. However, in the recent period, inflation rate has started to go up. Therefore, any acceleration in inflation in the coming months will leave the RBI with less space to initiate rate cuts. The concept of inflation targeting has steadily gained popularity in the world with an increasing number of countries adopting the framework. In India, this is an altogether new experiment. The road ahead will now be on how the monetary policy framework functions to deliver low and stable inflation on a sustainable basis. Interest rates — and in effect loan rates — are another prong. Though loan rates are not likely to decrease anytime soon, bond yields have fallen to 3-year lows on assurances of more liquidity. Dr Rajan has said that substantial cuts in lending rates would happen only if corporate credit demand picks up and public sector banks, strengthened after a balance sheet clean-up start competing for corporate business. Despite sufficient liquidity, transmission of interest rate reduction has been modest. The third prong of the RBI’s policy efforts has been the NPA issue. In many ways, the RBI under Dr Rajan also initiated a fundamentally challenging banking overhaul. He expressed satisfaction with the improved recognition of non-performing assets (NPAs) by various banks and the way some

SEPTEMBER 2016 l The Finapolis

COVER STORY

banks tried to handle these stressed assets. According to a report ‘Digital and Beyond’, NPAs have been a widely discussed theme in 2015-16. The report highlighted that medium-sized public-sector banks were the hardest hit and reported the highest increase in gross NPAs in FY16. Dr Rajan had stressed that it is time for the banking sector to look beyond stressed assets “for the sake of the economy.” Dr Rajan has recommended a ‘mildly futuristic’ vision for the banking sector. Terming the coming days as interesting, profitable and challenging for the financial sector, Dr Rajan stated, “Level of competition is going to increase manifold, both for customers as well as for talent, transforming even the sleepiest areas in financial services.” He added, “… new technologies, information, and new techniques will open up vastly new business opportunities and customers. It can be challenging because competition and novelty constitute a particularly volatile mix in terms of risk.” He further added “Innovation and competition can lead to volatile financial instability. We (RBI) want to encourage competition and innovation at the same time care about sustaining stability.” Dr Rajan’s last monetary policy review can be viewed as significant as it says a

Inflation has started to trend up. Any acceleration in the coming months will leave the RBI with less space to cut rates lot in words and fosters optimism. It reinforces commitment towards an accommodative monetary policy and comfortable liquidity conditions. Dr Rajan’s policy review is not yet over, as he said in no uncertain terms at the end of his statement that “This is my last policy statement but there are still 28 days in my term which I intend to use fully”. It seems that liquidity management is becoming the new signalling device. This implies that future rate cuts will be few and far between, unless the new governor and the Monetary Policy Committee decide otherwise. Given the above, it is no surprise that the Indian economy today is in a much better shape than it was when Dr Rajan took charge—inflation is lower, the current account deficit is under control and the rupee is showing remarkable resilience. Yet, other challenges remain. Economic growth is not translating into higher employment. It is also generally accepted

that free enterprise encourages the growth of small firms, which play a significant role in both economic growth and employment generation. However, while arguing that the possibilities for free enterprise in India today are better than ever before, Dr Rajan explored a hitherto neglected aspect of free enterprise, namely that the mere existence of small firms in the economy is not sufficient. Growth and employment results only when the business environment in which they operate enables them to grow bigger. There are four essential features which the business environment must contain: First, a level playing field with easy entry and exit, second, the protection of property rights, third, a broad access to the capabilities that allow individuals to function in society and finally, a basic safety net. To this, Dr Rajan has added an important corollary. While it is important that the environment must allow enterprises to grow, it is equally important that it permits the orderly demise of those enterprises which have failed. In the absence of such an environment, the scarce resources of the nation will be wasted and their use denied to enterprises which can use them more productively. In this context, monetary management of one of the world’s largest economies pres-

24 The Finapolis l SEPTEMBER 2016

COVER STORY Perfo Performance of Indian Economy under Dr Rajan’s Tenure Sep 2013

Aug 2016

Repo

6.50%

Lending rate

10.30%

9.30%

GDP

4.60%

7.60%

CPI

10.60%

6.01%

Gross NPAs

Rs 2.52 lakh cr

Rs 5.94 lakh cr

Rupee

60.62

60-84

Sensex

18234

28182

ents an onerous responsibility. Even in this relatively stable environment, Dr Patel will face a number of short- and medium-term challenges. First and foremost will be the redemption of around $25 billion of foreign currency non-repatriable (FCNR-B) deposits starting in September, which will be Dr Patel’s first test, followed by inflation control. There are others too, as enumerated below: The evolution of the Monetary Policy Committee (MPC) could present new uncertainties. The RBI’s/MPC’s responsibilities would involve normative judgments to achieve a set inflation objective. Dr Patel will have to manage the completion of the formal shift to a new monetary policy framework, which is an uncharted territory for India. To achieve an overall CPI of 4%, food CPI needs to be close to 6%. This implies core inflation of 2%, which seems difficult. As the disinflationary phase in the Indian economy has ended, managing inflation onwards will be difficult, especially with the likelihood that crude oil prices would rise with the next meet of the Organization of Petroleum Exporting Countries looming ahead. However, inflation targeting will not be easy, as seen by retail inflation reaching a 23-month high when it crossed 6% because of spiralling food prices and remained above the RBI’s inflation target for the fourth straight month in July. Rural India recorded higher retail inflation at 6.7S% as against 5.4% in urban areas. Wholesale

Urjit Patel’s first test will be the redemption of around $25 bn of FCNR-B deposits starting in September price inflation rose to 3.55%, also the fastest in 23 months. An IMF paper has questioned the RBI’s ability to target inflation through monetary measures, as the small size of India’s formal financial sector could undermine the effectiveness of interest rate changes on aggregate demand. Dr Rajan has cautioned against the inflationary impact of the goods & services tax regime as the new structure would harmonise 11 state and central levies into a national sales tax. Whether India is ready for inflation targeting is difficult to determine, but to achieve its targets, the RBI has to be given operational freedom to decide on its course of action. Further, the narrowing in the gap between the CPI and the WPI will have key policy implications. There is also a perception that although Dr Rajan seems to have been successful in dousing inflationary expectations, the selection process for gauging inflationary expectations has been somewhat opaque. This raises doubts about the survey’s credibility, as the risk of basing important decisions such as monetary policy on a flawed survey can be dangerous. Mismatches are also denting the credi-

bility of the numbers being put out. On the one hand, the Indian economy is growing fast, but factory output is growing at a subdued rate (2.1% in June). There are strong calls by industry for rate cut to lower the cost of capital and boost economic demand, but the spike in inflation in July has lowered the chances of any such move, as the rate of price rise has exceeded RBI’s comfort zone. Dr Patel will also have to take the fight against bad loans to its logical end. There has been resistance to the way RBI has pushed banks to come clean on asset quality. Dr Patel will have to complete this process, work with the government to further empower banks in dealing with bad assets and bring in changes to prevent the recurrence of a similar situation. Public sector banks especially face formidable challenges in raising the amount of capital required under Basel III norms, given the timeline of its implementation by March 31, 2019. Dr Patel will have to oversee the achievement of this target. One unfinished task is the “transmission” of RBI’s policy signals into actual lending rates. While the central bank has lowered the signal repo rate by one-and-ahalf percentage points, banks have reduced lending rates by less than that. Labour problems have also started brewing in the banking sector, which Dr Patel will have to manage.

In Sum The task before Dr Patel is not only to successfully implement monetary policy through the MPC so as to achieve the inflation target, but also to ensure that the banking sector remains healthy. Corporates’ reliance on bank lending has to lessen and the access for funds should be replaced with a market mechanism. Corporate bond markets will also have to be deepened. Dr Rajan has had more than his fair share of critics, but it is certain that his successor will have a tough act to follow, primarily in the case of increasing the resilience of the banking sector and insulating it from risks and shocks. Most important, Dr Patel must do all this while preserving the RBI’s autonomy. F

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COVER STORY

Rajan’s Transformational Legacy

aghuram Rajan’s three years at the helm of the RBI can be seen as an attempt to ease the process of India’s transformational initiatives. Indeed, he has added tremendous value to the functioning of the Indian economy, laying down the foundation of a strong banking system that would be supportive of a healthy growth environment that boosts aggregate demand in the long term. In the past, many governors had to face acute difficulties at the time of major upheavals — S Venkitaramanan (1991 reforms), Bimal Jalan (1997 Asian financial crisis), D Subbarao (2008 financial crisis) and Rajan (2013 rupee uncertainty). Rajan’s term has been undoubtedly impressive. His inflation control record is exemplary. Average inflation in the five years prior to Rajan’s tenure was about 10.4%, which declined to an average of 6.6% during past three years. The exchange rate has stabilised, with the rupee moderately down in the last three years since the panic fall prior to August 2013. Exchange rate volatility too has became subdued. The benchmark interest rate (yield on 10-year government bonds) reduced drastically near 7%. Also, based on a thorough asset quality review of balance sheets of banks, an accurate and transparent scenario of the bad loans has come to light. This led to a large increase in stressed assets at banks, but also resulted in the problem getting tackled the right way. Rajan is leaving amid circumstances vastly different from three years ago when he became governor. Inflation has come down sharply, current account deficit has been comfortably financed, policy credibility has been partially restored, and a new monetary policy framework has been institutionalised. This, of course, could not have been made possible without the support of the centre. Various useful initiatives have been taken, the fruition of which will be seen only over a period of time. One of the major actions has been the constitution of a Monetary Policy Committee and licences on tap and small payment banks, which will show results over time. Rajan has also called for a revamp of India’s bank regulators. For the first time, the bold process

of dealing with the humungous NPA problem has been set in motion. This is closely related to the issue of cleaning up of banks’ balance sheets. Recently, the Parliament gave nod to amendments in Sarfaesi and DRT acts, which would strengthen the Bankruptcy Law. Sarfaesi coverage has been expanded to large NBFCs. These steps would amend debt recovery laws and make them more time-bound and effective to address the problem of rising bad loans and encourage more asset reconstruction companies (ARCs) to set up business in India. Indian banks have been under stress, with many of them reporting losses in the wake of surges in NPAs for the last two quarters after the RBI pushed lenders to classify visibly stressed assets as NPAs after an asset quality review in 2015-16. Stressed assets of state-run banks as of March 31, 2016, amounted to 14.5% of total advances. This is likely to increase. Gross NPA ratio of state-run banks may rise to 10.1% by March 2017 from 9.6% in March 2016. RBI’s financial stability report has warned that under a severe stress scenario, it may rise to 11% by March 2017. Bad loans of PSU banks rose from Rs 2,85,748 crore last year to Rs 5,71,443 crore by June 2016. Rajan also deftly managed the rupee and built record forex reserves ($365.82 billion as of August 12, 2016). Furthermore, the rupee has stayed in a steady trajectory with the support of RBI intervention. Rajan supported the Centre by pushing for financial inclusion in a major way. He has in some ways contributed in to making India an attractive investment destination. He matched his actions with the Centre’s policies like on liberalising foreign investment norms, fiscal consolidation etc. There have been many contributions by Rajan which have not been given enough coverage. For example, Rajan did a lot for the MSME sector, his latest being the RBI decision to include factoring transactions under Priority Sector Lending, in a bid to increase cash flow to MSMEs. Another landmark Rajan achievement is his encouraging movement towards a cashless economy through transforming informal economy into formal economy. F

26 The Finapolis l SEPTEMBER 2016

COVER STORY ROLE PLAY

Central Banking isn’t for the Birds Although categorised as hawks and doves, bankers’ actions aren’t limited to tweaking interest rates, says S Vijaykrishnan

nteracting with media at the monetary policy review in June 2016, Reserve Bank of India (RBI) governor Dr Raghuram Rajan remarked “I hate these bird analogies — hawkish, dovish, etc. I would say that it is a realistic assessment of the data that have come in…” This essentially refutes common (mis)conceptions the world has about the central bank’s monetary policy stance. To go by market definition, a ‘dovish’ stance implies easing of key interest rates (in India, this would be the repo rate), while a ‘hawkish’ stance implies the opposite. Yet it is not so simple, if the role of central banks is understood in a larger context. The goal of any central bank is multipronged. It must to its utmost to maintain stable prices (inflation/ deflation), stable capital flows (liquidity) and a stable currency. The relative importance of each of these functions differs from central bank to central bank, depending on the condition of the economy it looks after. The tools used may also be different: while some central banks will alter their interest rates, others may choose to print more money to pumpprime their economies. Yet others may choose to use a combination of the two. In India, the RBI has at its disposal other tools such as the statutory liquidity ratio and the cash reserve ratio. Stable prices and moderate interest rates are desirables for any central bank, yet the external environment can create trouble. For instance, take price stability (inflation/ deflation). A central bank can undertake monetary policy action at either end of the spectrum. This is at

least the case with the most developed economies, including the US, UK and Japan, which have held on to near zero or negative interest rates in the aftermath of the recession that wracked the globe in 2008 (The US Fed hiked interest rates for the first time in a decade in 2015). Such measures form part of the quantitative easing (QE) programmes launched in these economies. One prime feature of a QE programme —besides low interest rates — is the printing of more money (also termed as pump-priming), in the hope that the abundance of liquidity will spur consumer spending, bolstering growth. However, these tactics do not seem to be working as well as hoped, as Japan and most members of the Eurozone continue to battle a recession and deflation even as the respective central banks undertake QE. One must also note that a prolonged reliance on QE may defeat the very objectives for which it was launched. If a country makes money cheaper

A temporary cut in interest rates is sure to create euphoria, with both growth and demand improving in the short term. But if this is not followed by higher production, the resulting shortages drive up inflation, prompting rate hikes

(by reducing interest rates) during a recession, it must reverse such moves when the economy revives, failing which, a recession will reoccur. Pumppriming can also drive up government debt, which, if not controlled, eventually causes a sovereign debt crisis (as in the case of Greece, Portugal, and other countries). Thus, monetary policy alone cannot cure an economy’s ills, but also requires robust fiscal reforms. In this context, let us examine the India story. The RBI has often walked

SEPTEMBER 2016 l The Finapolis

COVER STORY the middle path between a ‘dovish’ or ‘hawkish’ policy, with brief spells where it has tended to be more of a hawk, by certain benchmarks. This is not to say that one is good and the other is bad. With issues such as low exports and dismal capital formation (i.e. private sector investments), an easy monetary policy can easily wreck havoc. A high inflation rate is another key issue. According to the RBI, inflation averaged 9% over 2006 to 2013 (CPI inflation came in at 5.77% on a yearly basis in June 2016). But the repo rate (India’s benchmark interest rate) has been cut by almost 150 basis points since January 2015 (see chart), after the RBI managed to control inflationary pressures in 2014. Source: RBI Intermittent drops in inflation do lead to calls for an immediate cut in interest rates, or a dovish stance. However, such an approach is narrow-minded, as stated by RBI Governor Raghuram Rajan in a speech at the Tata Institute of

A central bank must do its utmost to maintain stable prices, stable capital flows and a stable currency. The relative importance of each of these functions varies according to the condition of the economy it looks after Fundamental Research in June this year. A temporary rate cut is sure to create euphoria, with both growth and demand improving in the short term. Yet, if lower interest rates are not backed up by a real growth in production (supply), the resulting shortage will drive up inflation, prompting rate hikes, even at the cost of such ‘temporary growth’. This may displease many, but the real solution is in addressing supply-side shocks as a balm to inflation rather than call for lower repo rates. Another reason to blame high interest rates is that they hamper credit growth. Yet, the downside is more frightening, from the common man’s view. If the rate of inflation rises to, say 10%, as it had some eight years ago, it could potentially erode your savings and investments in stocks and bonds. You earn 4% interest on the amount in your savings bank account, while the fixed deposit rate averages 8-8.5%. At 10% inflation, you earn a ‘negative real deposit interest rate’ (i.e. between -2% and -6% roughly), meaning your savings will be wiped out. Hence, the RBI’s balancing act. Rajan has argued that “interest rates are lowered only “when depositors could expect a reasonable positive real return on their financial savings”, while reigning in inflation. If interest rates are lowered while disregarding inflation, then depositors shift their monies to real estate and gold, which will lead “India to borrow from abroad to fund investments, leading to an unsustainable current

account deficit”. This could lead to sideeffects such as a weak currency, which erodes the value of money. Borrowers form the other side of the interest rate paradigm. They are inconvenienced by higher interest rates. Again, the solution lies in inflation management. If interest rates are lowered indiscriminately, inflation rears its head because after a certain time, lenders start charging a ‘credit risk premium’ to protect against frivolous borrowers. This leads to a spike in finance costs, which affects projects with a long-term gestation period, in India usually the crucial infrastructure sector projects. Rajan has pointed out that a more credible solution is to “improve lending institutions and borrower behaviour to bring down the credit risk premium.” Other issues facing central banks while formulating monetary policy are the management of government borrowing, supply-side shocks, and getting the true measure of inflation. In India, the last issue is effectively borne out by the struggle between wholesale price index (WPI) inflation and consumer price index (CPI) inflation or retail inflation. The RBI has for some time now chosen the latter as a more reliable measure of prices, as it directly affects the common man and reflects his expectations. Supply-side issues, which often fuel inflation, may also render monetary policy ineffective. Government borrowing is another spectre, and if uncontrolled, can mop up most of the funds in an economy and also drive up inflation. Countries with a high debt-toGDP ratio are at the risk of descending into an irreversible recession and may even have to confiscate private savers’ wealth to fund government borrowing (India’s ratio is much more reasonable at 67%, compared with Japan (229%) the US (104%) and Italy (132%)). Considering all the above, the question of whether to be a ‘dove’ or a ‘hawk’ is moot. Central bankers can only be what the data (and political pressures) allow them to be. So next time you call the RBI governor a bird, think again. F

28 The Finapolis l SEPTEMBER 2016

COVER STORY

Rates Around the World

Japan Europe

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Switzerland

Sweden

Israel

Hungary

Australia Poland

New Zealand

China

Czech Republic Denmark

Great Britain

USA Canada Norway

South Korea

Saudi Arabia

Chile

India Indonesia

Mexico

SEPTEMBER 2016 l The Finapolis

COVER STORY

Israel

South Africa

Brazil

Russia

Turkey

30 The Finapolis l SEPTEMBER 2016

COVER STORY LOOKING AHEAD

For Central Banks, Infrastructure Projects Could be the Next Frontier The most feasible form of fiscal QE would seem to be a process through which central bankers facilitate infra spending, says Alice Gomstyn

n the years following the global financial crisis, the world’s leading economies have found relief through aggressive monetary policy. But with interest rates slashed to historic lows and central bank balance sheets significantly larger as a percent of GDP than they were before the financial crisis, policymakers will need alternatives to interest rate cuts and conven-

tional quantitative easing when the next recession comes along. US central bankers have cut real interest rates between four and five percentage points during previous recessions, but that would be a difficult feat to pull off in today’s world, with a fed funds rate between 0.25% and 0.5%. One novel idea is what Credit Suisse analysts are calling fiscal QE, a not-en-

tirely-literal catchphrase to describe expansionary fiscal policy in which central banks play an important role. Credit Suisse has identified several potential flavours of such, ranging from the very likely (coordinated monetary and fiscal policy) to the very difficult, including “helicopter money” policies, in which central banks either buy government bonds with very long maturities to fi-

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COVER STORY nance government spending or lend to commercial banks at negative rates with a mandate that the banks then lend to consumers and corporations interest-free. The most feasible form of fiscal QE would seem to be a process through which central bankers team up with policymakers outside their usual monetary policy stomping grounds to facilitate infrastructure spending. Public financial institutions, for example, could issue bonds to fund projects in areas where key infrastructure is sorely lacking. Central banks would buy those bonds and, barring any default, effectively fund stimulus without adding to government debt. But there’s the rub: The strategy will only work if it is used to finance profitable infrastructure projects for which the bonds are not at risk of default. Because if they do, central bankers will find themselves will yet another thing to worry about when it comes to the quality of their own balance sheets. “If defaults are large enough, they might start to undermine the central bank’s capital position,” caution analysts with Credit Suisse’s Global Markets team. After years of underinvesting in infrastructure, policymakers in the US and parts of Europe at least have plenty of projects from which to choose. As well as a pressing need to do so: The US, the United Kingdom, and Germany are currently spending too little to meet “baseline needs” for the next 15 years, according to the McKinsey Global Institute. To close their respective gaps, the UK and Germany would each have to shell out approximately 0.4% of GDP per year through 2030 – about $11.4 billion for the UK and $13.4 billion for Germany – while the US would need to spend an additional 0.7%, or some $125 billion, annually. Credit Suisse analysts believe the economy most likely to pursue infrastructure spending with the help of its central bank is the UK. That’s at least partly due to the fact that the Chancellor of the Exchequer, a role roughly equivalent to the United States Secretary of the Treasury, wields a larger influence on monetary policy than is typical of his or her foreign counterparts. In Janu-

The strategy will only work if it is used to finance profitable infrastructure projects for which the bonds are not at risk of default ary 2009, for instance, it was the Chancellor who directed the Bank of England to establish an asset purchase programme. “It is fairly easy to envisage a situation where the Chancellor authorises the BoE to buy infrastructure bonds issued by, say, a UK infrastructure bank,” say the analysts. For its part, the analysts believe that the US is more likely to employ “implicit” fiscal QE through coordinated fiscal and monetary policy rather than more direct Federal Reserve involvement in actual infrastructure funding. In that scenario, the Federal Reserve implements monetary QE at the same time that Congress approves infrastructure stimulus. The goal is the same, the mechanism only slightly different. The euro area, by contrast, faces more of an uphill battle than either the UK or the US in adopting any form of central bank-supported infrastruc-

From The Financialist – Presented by Credit Suisse (www.thefinancialist.com)

ture spending. And the reason for that is also political: As Credit Suisse’s European economists note, “any political agreement in Europe tends to take time and happen only into a crisis.” One way it could happen is if European officials revamp the Juncker plan, the Eurozone initiative to raise 315 billion for investments, including infrastructure projects financed by bonds issued by the European Investment Bank (EIB). So far, European authorities have approved 12.8 billion euros for projects which are expected to attract another 80 billion euros in capital from private sources. Credit Suisse analysts believe the plan would be more effective if the European Central Bank begins buying the EIB’s bonds. Japan is an outlier among the major central banks in that it is unlikely to pursue central bank-financed infrastructure spending, simply because the country doesn’t have the same pressing infrastructure issues as western nations — prior stimulus projects have already upgraded the country’s infrastructure. But the bank still sees Japan as the most likely to pursue some form of fiscal QE. Instead, Credit Suisse believes Japan will pursue a “helicopter money” policy, with the government cutting taxes and making up for lost tax revenue by issuing long-term debt that the central bank would purchase. F

The Finapolis l SEPTEMBER 2016

foreign eye

PETER SCHIFF

Central Banks Are Choking Productivity

f an economy were a car, productivity would be its engine. Heated seats, on-demand 4-wheel drive and light-sensitive tinted windshields, are all very nice. But they mean little if the engine doesn’t turn and the car just sits in the driveway. The latest productivity data from the US Commerce Department confirms that America’s economic engine is sputtering. If you strip away all the bells and whistles of economic analysis, the simple truth is that the increased living standards that have taken us from the stone age to the digital age happened because we increased our productivity. Better plows, windmills, bulldozers, factories and, more recently, better software, technology and automation, have allowed economies to produce more output with less human effort. This means there are more goods and services for more people to share and workers can work less to acquire those goodies. When productivity stops increasing, no amount of financial gimmickry can compensate. With this in mind the latest batch of productivity data should have significantly changed the conversation. But like other pieces of evidence that point to a weakening economy, the news made scarcely a ripple. The fact that few opinions about our economic health changed as a result, confirms just how big our

When will central bankers conclude that it’s their own medicine that is actually making the economy sick? They will not make that connection until they succeed in killing the patient

There is nothing natural about policies that result in an investor paying a borrower to lend them money. In this, strange new world, productivity is a primary casualty

blinders have become. Most of the economic prognosticators were fairly confident about the US second quarter numbers. After all, productivity had unexpectedly declined for the prior two quarters, and given the optimism that is ingrained on Wall Street and Washington, a big snap back was expected. The consensus was for an increase of 0.5%. Instead we got a 0.5% contraction. That’s a huge miss. The contraction resulted in three consecutive declines, something that hasn’t happened since the late 1970s, an era often referred to as the “Malaise Days” of the Jimmy Carter presidency. That time, which spawned such concepts as “stagflation” and “the misery index,” was widely regarded as one of the low points of US economic history. Well, break out your roller disco skates, everything old is new again.

But it gets worse. Productivity declined by 0.4% from a year earlier, marking the first annual decline in three years. According to data from the US Bureau of Labor Statistics, the total magnitude of the three quarter drop was the largest decline in productivity since 1993. The last three quarters mark a significant decline from the already abysmal productivity growth we have since the Financial Crisis of 2008. According to the Wall Street Journal, during the eight years between 2007 and 2015, productivity growth averaged just 1.3% annually, which was less than half the pace that was seen in the seven-year period between 2000 and 2007. The talking heads on TV can’t seem to offer any real reason why productivity has gone missing. Some feebly suggest that globalisation is the problem, or that automation has moved so fast that the benefits usually offered by technological improvements have lost their power.

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FOREIGN EYE But it would be hard to come up with a reason why trade, which has universally benefitted local, regional, and international economies through comparative advantage and specialisation, has suddenly become a problem. Similarly, when does greater efficiency become a problem rather than a solution? So they are stumped. But these economists ignore the major change that has befallen the world over the last eight years, a change that has coincided neatly with the global collapse in productivity. The Financial Crisis of 2008 ushered in an age of central bank activism the likes of which we have never before seen. All the worlds’ leading central banks, most notably the Federal Reserve in Washington, have unleashed ever bolder experiments in monetary stimulus designed to reflate financial markets, push up asset prices, stimulate demand, and create economic growth. And while there is little evidence that these policies have produced any of the promised benefits, there is every reason to believe that the scale of these experiments will just get larger if the global economy doesn’t improve. But very few brain cells have been expended about the unintended consequences that these policies may be creating. But let’s be clear, there is nothing natural or logical about a set of policies that result in an “investor” paying a borrower for the privilege of lending them money. So in this strange new world, we should expect some collateral damage. Productivity is a primary casualty. Here’s why. Another set of statistics that has accompanied the decline in productivity is the severe multi-year drop in business investment and spending. Traditionally, businesses have set aside good chunks of their profits to invest in new plant and equipment, research and development, worker training, and other investments that could lead to the breakthroughs and better business practices. The investments can lead to greater productivity.

When the cost of money is high, people think carefully about where they want to put their money. They select only the best investments. When money is cheap, that is not the case

But the business investment numbers have been dismal. But it’s not because corporate profits are down. They aren’t. Companies have the cash, they just aren’t using it to invest in the future. Instead they are following the money provided by the central banks. Ultra low interest rates have encouraged businesses to borrow money to spend on share buybacks, debt refinancing, and dividends. They have also encouraged financial speculation in the stock market, the bond market, and in real estate. Investors may believe that central bankers will not allow any of those markets to fall as such declines could tip the already teetering global economies into recession. The Fed, the Bank of England, the Bank of Japan, and the European Central Bank have already telegraphed that they will be the lenders and buyers of last resort. These commitments have turned many investments into “no lose” propositions. Why take a chance on R&D when you can buy a risk free bond?

Higher interest rates are actually healthy for an economy. They encourage real savings, with lenders actually concerned about the safety of their loans. Without the backstop of central banks, speculators could not out bid legitimate borrowers who make capital investments that produce real returns. But with central banks conjuring cheap credit out of thin air, supplanting the normal market-based credit allocation process; the result is speculative asset bubbles, decreasing productivity, anemic growth, and falling real wages. Welcome to the new normal. If the cost of money is high, people think carefully about where they want to put their money. They select only the best investments. This helps everyone. When money is cheap, they throw darts against a wall. This is not the best use of societies’ scarce resources. Is it any wonder productivity is down? Many economists are now saying that the Fed won’t be able to raise rates until productivity improves. But productivity will never improve as long as rates stay this low. This is the paradox of the of the new economy. When will central bankers conclude that it’s their own medicine that is actually making the economy sick? They will not make that connection until they succeed in killing the patient...and even then they may continue to administer the same toxic medicine to a corpse. The political pressure is just too great to ever admit their mistakes, so they repeat them indefinitely. F

Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital. His podcasts are available on The Peter Schiff Channel on Youtube.

34 The Finapolis l SEPTEMBER 2016 AN SHANBHAG AND SANDEEP SHANBHAG

expert speak

Too Many Short-term Trades Could Inflate Your Tax Dues

hen you transact in the capital markets, i.e. buy or sell shares on a stock exchange, you will either make some profit or incur losses. Now, most investors know that profits on shares held for over 12 months are classified as long-term capital gains and are tax-free. Profits on shares held for less than 12 months are classified as short-term gains and are taxed at a concessional rate of 15%. That being said, if you are a trader in securities, then provisions of capital gains are not applicable to your securities transactions. Instead, the profit or loss from your securities transactions would be classified under Business Profits and taxed at the full slab rate applicable to you. Now, when a bull run of sorts begins, generally capital market transactions of investors increase. A fallout of this phenomenon is that tax officials seek to tax such transactions as business income of the assessee rather than capital gains. However, the problem arises in trying to decide whether one is an investor or whether one is a trader. In other words, the Income Tax Act doesn’t specify any kind of rule to determine whether one’s stock market transactions should be classified as capital gains or as business profits. Investors, tax professionals and the judiciary have been struggling over this issue and unless and until the Income Tax department issues specific, unequivocal guidelines in this regard, the underlying circumstances of each case would only be the deciding factors. Let us see what these underlying factors are:

Factors that go into the decision Like mentioned earlier, the tax liability on transactions entered into in the capital markets is decided upon the classification of the securities held. If such securities are to be classified as investments, then any profits will take the form of capital gains and the provisions of the Income Tax Act

for tax leviable on capital gains will apply. However, if such securities are to be classified as stock in trade, then any profits from the same will take the form of Business Income and will be taxed at slab rates applicable to the assessee. Now, the most important test for such classification is ‘the intention of the assessee at the time of purchase’. If the assessee had purchased the securities with the motive of investments and not merely and exclusively to sell or trade in them, then the transaction is one of investment and not of trade or a business venture. Such intention can be determined by the facts and underlying circumstances of the case and some of the underlying parameters that go into such determination could be: • Period of Holding • Volume of Transactions • Frequency of Transactions • Percentage of delivery based transactions as against non-delivery based transactions • Ratio of Sales to Purchase • Source of Funds

The above however, is only an indicative and not an exhaustive list and it is always a combination of all the above factors that have to be considered in making a determination. For instance: • During the course of the Financial Year, what is the percentage of total profit booked vis-a-vis the total portfolio. • The Income Tax Act, by virtue of Sec. 2(29A) read with Sec. 2(42A), defines shares held for over 12 months as long-term assets.

During a bull run, investors’ capital market transactions generally increase. A fallout of this phenomenon is that tax officials seek to tax such transactions as business income rather than capital gains

SEPTEMBER 2016 l The Finapolis

EXPERT SPEAK Additionally, on account of the long-term nature of the investment, Sec. 10(38) of the Act grants exemption on such long-term capital gains earned provided the sale is carried out on a recognised stock exchange and Securities Transaction Tax is paid thereon. Therefore, determination of the proportion of total long-term capital gain earned by the investor during the financial year as compared to the total profit booked would also throw light on the nature of the transactions. The larger the proportion of longterm capital gains, the stronger the case. Additionally, an analysis could also be carried out to determine the proportion of profit from shares held for more than six months but less than one year and the proportion of profit booked from shares held for less than three months to the total profit. • The proportion of delivery based transactions to non-delivery based ones will also be considered as a significant factor. Transactions of short-selling or those in the Futures & Options segment, if undertaken on a fairly large scale, are generally considered to be something that long-term investors don’t indulge in much. Therefore, if all or most transactions have resulted in delivery coupled with lack of any shortsales, it is a significant factor that goes to establish the intention of the assessee of always owning the securities as investments rather than as inventory. The assessee also needs to have been maintaining the financial records by classifying the purchase and sale as investments and not a stock-in-trade. • Volume of purchase and sale also are important as they indicate the time taken to churn the portfolio. • The main business activity of the person is also an important criterion in this regard. If the assessee already has a share broking or a merchant banking business or generally a person associated directly or indirectly with the business of dealing in securities, then ITOs are known to classify them as traders. In other words, the assessee’s capital market transactions shouldn’t be ancillary or supplementary to any other major stock market business.

The most important test for such classification is ‘the intention of the assessee at the time of purchase’. If the securities are purchased with the motive of investments and not sale or trade, the transaction is one of investment and not of trade or business • Borrowings remain another major factor. As a precedent, the tax officials have always been considering that active traders borrow funds for investment in the stock market. An investor normally does not borrow funds for investment, rather, he or she uses their savings to invest in stocks. A trader who borrows funds at commercial rates would try and optimise profits to earn income over and above the borrowing cost by booking high turnover, short holding periods and would generally manage the investment in a business-like manner. However, times are changing fast and so is the profile of the investor. Over the past few years, interest rates in the Indian economy have been on the decline and many investors, taking advantage of such low interest rates, have been leveraging their investments for optimal benefit. This is a phenomenon observed not only in the secondary market but also in the primary market. Therefore, the borrowing per se, may not as much be a business decision as a factor of the low interest rates on offer as com-

pared to the demonstrated return potential in the stock market. Last but not the least, an act of borrowing, in and of itself, considered absolutely, without taking into account the surrounding circumstances, means little. Else, if a home loan buyer, who has used housing finance for the purchase of his house were to sell it at a later date, he or she would also have to be classified as a trader and the sale value be taken as business income. Whether an investment has been made as part of a business or not may be examined having regard to the principle that ‘business connotes some real, substantive and systematic or organised course of activity or conduct with a set purpose’.

To Sum Whenever subjectivity enters the field of law, it doesn’t augur well for those affected. Laws have to be watertight and objective with no room for bias or prejudice. Till such time, it would always be a losing battle for the small investors of our country. F

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

36 The Finapolis l SEPTEMBER 2016

INVESTMENT ADVICE PLAN AHEAD

The Market is Like Everest: It Rewards Perseverence Invest 10% of your EMI in a mutual fund; that investment could fund your home loan repayment says Balaji Rao

I As an investor, conquering equities is the biggest challenge as well as achievement, given the vagaries of this segment — volatility, risk, uncertainty, agony, ecstasy and so on

f you ask a person who has climbed Mount Everest to recall the experience, he or she will tell you an amazing and adventurous story of how the summit was conquered. Indeed, the experience they share would have been one of the riskiest adventures they would have undertaken. Those successful in reaching the top would have seen their fellow climbers getting hurt or even dying, encountered avalanches and blizzards, and known many who had turned their backs on the peak having decided that they could not carry on any further. Yet, a few of them bear such uncertainty, volatile climatic conditions, adverse situations and circumstances and ﬁnally conquer the world’s highest peak. Besides the thrill of achievement, the climbers’ success also inspires those wishing to emulate them. Have you heard of anyone getting thrilled that they made 8% return on their investment after investing for 20 years? Wouldn’t you be thrilled to tell someone that you achieved 20% compounded returns after investing for the same number of years? The feeling of someone

who achieved 20% CAGR would be similar to those who climbed great Mount Everest. Investing in equities is similar to that of conquering the big mountain. As an investor, conquering equities is the biggest challenge as also well as achievement, given the vagaries of this segment — volatility, risk, uncertainty, agony, ecstasy and so on; the experience of a mountain climber. But how do you conquer equities, which, like Mount Everest have these tags of risk attached? The answer is the same way you scale Mount Everest: in a team. Similarly, you conquer equities in a group, i.e., through mutual funds. Here is one possible way to do so. One of the biggest and toughIf you ask a person who has climbed Mount Everest to recall their experience, he or she will tell you an amazing and adventurous story of how the summit was conquered. Indeed, the experience they share would be worth listening to because it would have been one of the riskiest adventures they would have undertaken. Those successful in reaching the top would have seen their fellow climbers getting

SEPTEMBER 2016 l The Finapolis

INVESTMENT ADVICE hurt or even dying, encountered avalanches and blizzards, and known many who had turned their backs on the peak having decided that they could not carry on any further. Yet, a few of them bear such uncertainty, volatile climatic conditions, adverse situations and circumstances and finally conquer the world’s highest peak. Besides the climbers getting the thrill of achievement, their success also inspires those of us who would like to emulate them. Have you heard of anyone getting thrilled that they made 8% return on their investment after investing for 20 years? Wouldn’t you be thrilled to tell someone that you achieved 20% compounded returns after investing for the same number of years? The feeling of someone who achieved 20% CAGR would be similar to those who climbed great Mount Everest. Investing in equities is similar to that of conquering the big mountain. As an investor, conquering equities is the biggest challenge as also well as achievement, given the vagaries of this segment — volatility, risk, uncertainty, agony, ecstasy and so on; the experience of a mountain climber. But how do you conquer equities, which, like Mount Everest have these tags of risk attached? The answer is the same way you scale Mount Everest. You do that in a team. Similarly, you conquer equities in a group, i.e., through mutual funds. Here is one possible way to do so. One of the biggest and toughest decisions that an individual takes is availing a home loan. This is usually one of the biggest loans taken, often with the longest repayment tenure and the biggest EMI. Moreover, the interest component by the time the loan is cleared is likely to be almost three times the loan amount. Let’s consider an example. On a loan of Rs 50 lakh at 9.50% interest for 20 years, the EMI works out to Rs 46,607. By the time the loan is paid in full, the borrower would have paid a total amount of Rs 1.12 crore. This means the interest component on the loan works out to Rs 72 lakh. Other than the house, which would then become freehold for the borrower, there

The same belief that allows people to clear a loan in 20 years is essential to realising that amazing wealth can be created over the same period may be no other significant liquid asset as a fall back. Yes, the value of the house would have increased too, but such values are only notional, because the house we stay in cannot be financially valued. Creating wealth requires a bit of common sense and a bit of risk-taking capability. Here is how wealth-creating prudence can be displayed — when the loan is availed, if 10% of the EMI amount is invested every month (Rs 5,000 approx) in a diversified equity mutual for the same loan tenure (20 years), there is a strong possibility that an amount ranging from Rs 50 lakh to Rs 75 lakh will be created at 12% to 15% rate of return (CAGR), which could recover the interest outflow that would have happened over the years. Skeptics would argue that equities are risky; but that is precisely the point. Equities are risky, and that is why they offer greater reward: the category has generated returns of 15% plus in the long term. Furthermore, it is one of the most liquid asset classes and 100% exempt from taxes if the gains are encashed after one year. Mutual funds offer indirect entry into the stock markets, where a professional and

qualified fund manager manages the investments and takes the responsibility of researching the situation to decide investments, timing entry and exits, sector and stock selection, and managing market volatility, among other tasks. These are things a common investor cannot think of doing on his/ her own. While we cannot avoid taking a home loan, and it is also true that the resultant EMI drains our cash. This is where the faith of the mountaineer pays off. The same belief that allows people to believe they would be able to clear a loan in 20 years is the belief essential to realising that amazing wealth can be created over the same period. Youngsters are advised to do some basic research and look to understand the power of compounding to understand how long-term investing pays off. If selecting a mutual fund scheme is scheme is difficult, consult a qualified financial advisor. After all, the adventure of conquering Mount Everest cannot be compared to that of climbing a neighborhood hill. No pain, no gain is the mantra of investing in financial assets. F

Balaji Rao, with 23 years industry experience and six years in academics, is the author of six books on investing and personal finance.

38 The Finapolis l SEPTEMBER 2016

MONEY TIPS QUICK SAVINGS

Money Saving Tips We Often Overlook There are several simple ways to reduce spending and rack up more cash. Sukanta Kundu lists some interesting ones

t is always a good thing to find ways to save your hard-earned money, isn’t it? Sometimes, we miss a few simple ways of making ‘small sav-

ings’ that accumulate into ‘fat savings’ by the time the earth completes its revolution around the sun! If you told somebody that you do not watch television to save money, the person would think there is something wrong with you. The same would happen if you told your friends that you had decided to quit your bad habits (smoking, excessive drinking, etc.) to save money. They would laugh at you. But don’t think about what other people say – after all, they are not you. Once you decide to save money, all you need is a little courage and patience, and you are on your way! Here are some handy ploys to save your hardearned cash:

• Stop watching TV You might think this is a bad idea, as not watching TV would cut you off from the happenings in the world. But watching television can cost you, either directly or indirectly. Firstly, by not watching TV, you save on your electricity bill; secondly, not seeing advertisements prevents you from impulse purchases; thirdly, you can save on your cable bills; fourthly, you will get spare time to undertake creative

SEPTEMBER 2016 l The Finapolis

MONEY TIPS or knowledge-gaining activities, and im-

food back home. This leads to heavy wast-

these are junk foods or soft drinks, they

prove your earnings.

age of food. The same happens at home,

have harmful consequences. Thanks to

If you are not able to stop watching the

when you prepare a dish and the quantity

the water, these items will not enter your

‘idiot box,’ at least minimise the time you

is slightly on the higher side. Instead of

diet and harm your health, and you will

spend in front of it. One more thing, watch-

storing the food, we sometimes throw the

end up saving the money they cost. You

ing TV for longer time periods affects the

food away!

can even have some water before the ma-

health, making you a ‘couch potato’. You

jor meals. It will help you eat less, and in

then have to spend money on gymnasium

case you happen to be in a restaurant,

memberships or medical bills.

your bill

could reduce. So drink more

water (carrying a bottle ensures you don’t

• Start gardening; grow vegetables

spend money to buy it), not only to stay fit,

All of us know that gardening is one of

but also to save some cash.

the simplest ways of exercising. But think the other way, how about growing

• Quit bad habits

vegetables in your garden to save on gro-

Habits like smoking or excess alcohol

cery bills? Vegetables are a staple for good

intake not only damage your health, but

health and should not be avoided because of rising prices.

affect your savings too. Have you ever calBut, have you ever thought that these

culated how much you have already spent

leftovers can save you some money?

on those bad habits? At Rs 100 for a packet

Bringing food back from restaurants

of cigarettes, a smoker spends Rs 36,500

allows you to eat those dishes later; by

every year.

serving as a side-dish, it helps reduce the

And with the price of cigarettes only

amount of groceries cooked and eaten at

going up every year, this amount will

your next meal. Else, you could also try preparing a new delicious dish out of the excess food available. In both cases, you will be saving money by not utilising the groceries Growing your own insulates you from

in your refrigerator.

the price rise. If that is not possible, you

Remember, restaurants charge you

can grow vegetables in pots in a small

money, and bringing your food home is

balcony or in the corridor of your apart-

no crime!

ment. You can grow vegetables like brinjal, ladyfinger, chilly, tomatoes, beet roots

• Drink more water

increase. Does your cigarette packet set

and carrots in small pots.

Drinking water, at least 2-3 litres a day,

you back by Rs 150 per day? Then your

Growing your own vegetables offers

keeps us healthy and energised. But it

expense rises to Rs 54,750 per year. Even

several benefits. First of all, they are

could save you money too! When you

social drinking or smoking add up to size-

healthier since they have not been ex-

drink water at regular intervals, your

able amounts over the long term. Cutting

posed to deadly pesticides; secondly, some

stomach feels full and this will help you

back or eliminating altogether will save

vegetable can be grown off-season which

curb the need to reach out and grab

you money. It will also spare you from the

saves you from buying them at higher

snacks or liquids . Since most of the time,

‘bonus’ of cancer, asthma, liver diseases

costs from the market; thirdly, reducing your grocery bill a little bit every time will lead to good savings in a year’s time.

and so on. There are other simple ways to save money. All you need to do is change

On the other hand, if you grow flowers,

your habits and lifestyle. For example,

you can save on money spent on buying

create gifts for your loved ones instead

bouquets for decorating the house or of-

of buying something from the market.

fering to God.

For example, vegetables that you have grown in your garden could make a gift

• Utilise leftover food

to someone. The receivers are bound to

Often in a restaurant, some food is left

be touched by your gesture.

over after your have finished eating. At times, we feel shy of taking the excess

So go ahead, follow some or all of the tips above. Save yourself some money. F

40 The Finapolis l SEPTEMBER 2016

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 passage of time has owned several brands some of them are Apollo, Kaizen, Maloya, Regal and Verdestein.

pollo Tyres Ltd., an Indian conglomerate, which specializes in tyre making and is currently the world’s 17th largest tyre manufacturer was founded in the year 1972. The company has currently 4 manufacturing units globally with 1 in South Africa, 2 in Zimbabwe and 1 in Netherlands and 3 national manufacturing units one each in Gujarat, Kerala and Tamil Nadu. The company with the 196 185 174 163 152 141 130 Aug-15

Nov-15

Feb-16

May-16

Aug-16

Current Market Price Stop Loss Target Price 1, 2

Rs 173.80 Rs 152 Rs 190, Rs 210

Points of Observation  Apollo Tyres Ltd. on a quarterly basis has outperformed the Nifty Auto Index and was one of the major gainers in the Auto Index, on one hand the stock rallied around 13.96% but the index witnessed only witnessed a rally of around 6.73%.  The stock is currently consolidating on the quarterly charts with a range of around 27 points where the lower point is 154 levels and the upper point placed around 181 levels. Any breakout above

the said level might help the stock make fresh highs.  The stock after making an all time high of around 249.80 levels witnessed some profit booking from those levels and has lost around 45% from those levels and has not breached 154 levels which suggest that the stock is having some decent support at those levels.  The volumes accompanying the fall from the highs of 249.80 levels are significant when the stock was trying to rise but those volumes were not that much significant when the stock was trying to fall which again strengthens our view for a long term buy.  We recommend medium-to-long term investors to buy the stocks at current levels and accumulate the stock on dips by holding the stock with a stop loss placed around 152 levels.

SEPTEMBER 2016 l The Finapolis

EQUITY

NGC a Fortune 500 company, is an eminent exploration and production (E&P) company in India. It currently accounts for ~68% of India’s domestic oil and gas production. It also deals with exploration, development and production of Crude Oil, Natural Gas, LPG and some other value added petroleum products such as NGL, C2-C3, Aromatic Rich Naphtha and Kerosene. After an elongated price correction in earlier months stock formed an excellent base in last few months and gradually moving higher, gives an opportunity to accumulate stock for medium to long term perspective. Points of Observation  In the mid of Feb’16 stock made a panic 52-week low of 187.75, post which it recovered from the lower levels and grad-

AIL has been one of the outperformer in the metal space and generated more than 40% in the last 2 quarters with increasing number of trading volumes suggesting bullish trend in the counter. The recent breakout in the stock on weekly basis above 48 levels indicates high potentiality in the stock to move upwards in the coming trading sessions. Thus, we expect this momentum in the stock to continue and any minor dip can be utilized to accumulate long position in the counter. Points of Observation  The stock has given a sharp rally of more than 40% in the short time frame of five trading months. Even the volumes in the said up move were increasing indicating formation of strong base at the lower levels.  On the weekly charts, the stock has given a breakout from the “Inverted Head & Shoulder pattern” above 48

Current Market Price

Rs 237.80

Stop Loss

Rs 187

Target Price 1, 2

Rs 300, Rs 330

ually inching higher in last few months, indicates buying interest in the counter at lower levels.  The stock price cloaked an all time high of 471.85 in the mid of June’14 post which it witnessed elongated price correction towards 187 levels without any notable recovery; post which in last few months stock formed a strong base with gradually rising volume near the lower levels indicates accumulation.  In the recent past stock price managed to move and sustain above its 50 & 21DEMA and also moved above its 200DEMA; and also stock is likely to witness Golden Crossover of its 50-DEMA to 200DEMA from below, which suggests bullish technical setup is likely to unfold.

Current Market Price

Rs 48.70

Stop Loss

Rs 37

Target Price 1, 2

Rs 67, 68

57.5 53.5 49.5 45.5 41.5 37.5 33.5 Aug-15

Nov-15

Feb-16

May-16

Aug-16

levels in the July 2016 month with notable trading volumes. Thereafter, the stock has retested the breakout levels and is consolidating with notable trading volumes.  We expect the recent consolidation is a good buying opportunity in the counter and is trading at attractive levels from the medium to long term perspective.  The stock is also trading on the upper band of the Bollinger band indicating possible upside potential in the stock.

262 250 238 226 214 202 190 Aug-15

Nov-15

Feb-16

May-16

Aug-16

 On the technical setup momentum oscillator 14-period weekly RSI has formed a base in oversold territory, while on the daily time frame chart oscillator is attempting to shift base in bullish territory, reaffirms our bullish bias in the counter.  From the above observation, technically stock has formed a good base after a brief consolidation exhibits excellent buying opportunity. Hence, one may buy stock near 235 levels and average the stock price on any dip towards 210 levels keeping a stop loss below 187 levels, for an upside target of 300 and 330 levels over next 6-9 months time frame.

The Parabolic SAR has maintained its buy signal on the weekly charts, indicating the recent uptrend to remain intact in the counter.  Among indicators, the 14-day RSI line is trading above the 9-day EMA signal line pointing northwards and, the MACD line is trading in the positive territory, reflecting the positive sentiment in the counter.  We recommend medium to long term investors to accumulate the stock at current levels for the upside targets of 67-68 with stop loss placed at 37 levels for a time frame of 9-12 months.

42 The Finapolis l SEPTEMBER 2016

EQUITY

he monthly chart structure of this fundamentally strong stock, suggests formation of cycles of higher highs and higher lows, supported by consolidation in the past few week, clearly indicating there is a lot of demand for the stock in corrective phases which is a positive sign in itself. ALLCARGO is in a structural uptrend and looks well set to march steadily towards the Rs.290 mark over the next 9-12 430 380 330 280 230 180 130 Aug-15

Nov-15

Feb-16

May-16

Aug-16

Current Market Price

Rs 193

Stop Loss

Rs 164

Target Price 1

Rs 284

months. The stock has been relentlessly rallying from its Feb, 2016 low of Rs.135.05 to a lifetime high of Rs.221.50, which was clocked in the month of July, 2016. Points of Observation  On the weekly charts, the stock is trading above its short and long term moving averages, indicating the bullishness in the counter.  On monthly charts the stock has given up side volatility expansion on Bollinger band (20, 2, S) as the price closed above it. On weekly charts the stock is trading above its middle Bollinger band and currently flirting with its middle Bollinger band on daily charts.

Current Market Price Stop Loss

ndia Bulls Real Estate Limited is India’s third largest real estate company with a Gross Development Value of Rs. 47,725 Cr., and net worth of Rs. 4,861 Cr. (as of June 30th, 2016). IB Real is currently developing 44.53 million sqft into premium quality, high-end commercial, residential and retail spaces in the Metros- Mumbai, Delhi NCR & Chennai, apart from Tier I cities. With its prime focus on construction and development of residential, commercial & SEZ projects across major Indian Metros & London, Indiabulls Real Estate went on to expand its projects portfolio. On the stock price performance front, it has seen a sharp rally of nearly 150% from the lows of sub 42 in the month of February 104 94 84 74 64 54 44 Aug-15

Nov-15

Feb-16

May-16

Aug-16

Target Price 1, 2

Rs 85.15 Rs 64 Rs 105, Rs 120

2016 to the highs of 105 in the month of May 2016. Post clocking the highs of 105, the stock price has started correcting significantly on price wise but the volumes on the correction are very low when compared with the previous stated rally. Going forward, on completion and resumption of its long term up trend, the stock has significant potential to rally towards its previous major swing highs of 105 and 125-130. Points of Observation  The stock price’s chart structure has turned to higher highs and higher lows indicating possible start of long term secular bull market into the stock. Even the price trading above its all major long term moving averages on weekly charts suggest the fresh start of up trend for long term bull market. Even the trading and deliverable volumes on the down move are on the lesser side compared to the up moves in the current corrective phase,

 Among oscillators, the MACD is in buy mode in daily and weekly time frame indicating bullish bias.  On fundamental front the stock is expected to benefit from the implementation of proposed GST bill.  We therefore recommend long term investors to go long in the stock around Rs.193, and average the long position on dips, if any, around the level of Rs.180 for the above mentioned target levels with a strict stop loss placed below the level of Rs. 164 on a weekly closing basis.

indicating the probability of moving higher from current levels is high.  On the chart patterns front, the stock has given break out from a double bottom pattern and is also sustaining well above it. Moreover the current correction is also placed at the 33%-38% retracement of the previous stated rally, and if the stock manages to hold current levels, it has high probability of rallying significantly towards 52wk highs and much beyond it.  We therefore recommend investors with a time frame of 9 to 12 months to buy the stock in the range of 83-85, and average on dips towards 70-72 for the mentioned target levels with a strict stop loss placed below the level of 64. F

SEPTEMBER 2016 l The Finapolis

by invite

ADHIL SHETTY

Make the Best of Falling Interest Rates

aghuram Rajan’s tenure has come to an end. Rajan’s deputy, Urjit Patel, will become the Reserve Bank of India governor in September. Naturally, investors and borrowers are expecting Patel to continue Rajan’s good work in checking inflation and creating greater value for their investments. One of the immediate expectations from Patel would be a further reduction of rates. Under Rajan, since January 2015, the RBI has cut the repo rates by 150 basis points to 6.5%. Rajan did not announce further rate cuts in his recent monetary policy review but said it may happen following a good monsoon. It remains to be seen if Patel cuts rates or decides to maintain them. Either way, the current lending rates are among the lowest in more than five years. When interest rates fall, it is important to find the right investments to generate higher returns. Let’s take a look at our options:

Where to Invest? With interest rates trending downwards, stocks, mutual funds, bonds, and real estate emerge as attractive investment options. The stock and realty markets get access to cheaper loans and easy funding, and therefore the potential for growth is higher in those spheres. Also, interest rate movements are inversely linked to bond prices. When rates fall, bond prices rise. This makes instruments such as debt mutual funds attractive. Mutual funds offer a great investment avenue in this scenario since they are less risky than direct exposure to equity. But consider the flipside of lower rates. Rate cuts would infuse liquidity and easy fund access in the market. Therefore, inflationary trends would gather momentum, thus eating into the value of your investments. Gold is said to be the best hedge against inflation. Therefore,

Adhil Shetty is the CEO of BankBazaar.com

for long-term investors, rising inflation would present a good opportunity to invest in gold, especially through instruments such as the Sovereign Gold Bond, which also allows interest returns alongside capital gains.

be impacted if rates are cut further. Therefore, it may be wise to create your deposits now and earn the promised rate throughout the tenure of the deposit. In case interest rates increase, you can always liquidate your deposits and reinvest them at the higher rates.

Loan Call It is difficult to time a fall in interest rates. Even if the rate is cut, banks may take some time to implement those cuts in their loan products. Two options emerge in this case. Say you want and expect interest rates to fall. Look for loans with a floating interest rate. This way, the benefits of rate cuts would flow to you once banks adopt lower rates. Interest rates vary from one bank to another. Therefore, check the prepayment and loan transfer costs of your loan, and switch to any bank offering you better rates. Determine that your switching costs are less than the value derived from the switch. Else, say you’re satisfied with where the interest rates are and don’t care if they fall further. Then, you could consider a fixed rate loan. Although you will not get benefits of further rate cuts, you would be shielded from any upward trends in interest rates in the future.

FDs? Do it Now! If you are a conservative investor who likes his fixed deposits, you would

Saving Tax; Paying EMIs If you are looking to invest in tax-saving deposits this year, it might be wise to do it now and make the best of prevailing rates rather than do it later when the rates may fall. Also, tax-saving FDs have a lock-in period, and you’ll not be able to take advantage of any favourable rate movements. After a rate cut, banks normally maintain your EMI amount while reducing your loan tenure. It is important for you to check with your bank to ascertain that the benefits of the rate cut have been passed on to your loan account. Sometimes, banks may reduce the MCLR or base rate while increasing the spread simultaneously, therefore limiting benefits to borrowers. Therefore, keep a tab on your loan account to make sure you are getting the best deal. One thing is for sure: interest rates won’t keep sliding forever, and after a point they will start trending upwards. But till then, make sure you have arranged your investments to extract the best out of low interest rates. F

44 The Finapolis l SEPTEMBER 2016

TELEMARKETING VOICELESS

Missed Calls Make Their Mark Companies from HUL to banks and even the Employee Provident Fund Organisation are using this strategy to communicate with stakeholders. Knowledge@Wharton investigates the trend

ome analysts were surprised when India emerged second globally in the number of mobile subscribers (1 billion plus).

It had overtaken the US in 2015; China is the leader on this metric. In the US, consumers are generally able to afford mobile phone service. In India, however, recent census data shows that 75% of the population earns less than Rs 5,000 a month. So how many people can afford their monthly mobile bill? Surprisingly, the number is very high. There are two reasons for this. Handset prices are plummeting. The Delhi (Noida)-based Ringing Bells has launched a model called Freedom251, which costs Rs 251 (less than $4). Cheap, it seems, is the way to go: Apple has submitted a proposal to sell refurbished iPhones in India at a fraction of the cost of the original. The second reason is that a missed call (miskol in the Philippines; beep in Africa; memancing in Indonesia; and flashcall in Pakistan) costs nothing. Drivers and maids call their employers and disconnect. The employer calls back, thus effectively transferring charges. What on earth is a missed call and why

with limited talk-time, it is important to

“Missed call marketing (MCM) is the

is it making so much noise in certain

save the available talk-time. In the era of

simple concept of engaging via a free

parts of the world? “Making a missed call

Facebook, WhatsApp and other mobile

call,” says Anurag Banerjee, chief growth

– dialing a number and disconnecting it

apps, one can connect freely without us-

officer of Ozonetel Systems, a provider of

before the call is picked up — has been a

ing talk-time but that [requires] smart-

cloud communication services that ena-

way to signal a message in India without

phones, access to mobile internet and

bles businesses to run missed call cam-

actually communicating it by voice,” says

technology skills. With a large number of

paigns on its platform. A consumer calls

Keyoor Purani, professor of marketing

Indians still using feature phones and not

a number and hangs up and receives a

management at the Indian Institute of

smartphones, the missed call is an eco-

call back or an SMS sharing the cricket

Management Kozhikode. “With a large

nomical and wide-reaching mechanism

score or whatever. Most missed call acti-

number of Indians on prepaid plans

of communication.”

vation campaigns are simple one-or-two-

SEPTEMBER 2016 l The Finapolis

TELEMARKETING step processes. Some ask a few questions

if mind-numbing instructions such as

to profile the consumer who has opted in.

“Press star-hash-star” are not included.

Ozonetel has run a very successful campaign for Hindustan Unilever Ltd (HUL)

Advantages Over Toll-free

called Kan Khajura Tesan (which trans-

Most missed-call service providers offer

lates roughly to “earworm radio channel”

toll-free facilities as well, so they are nor-

in English) targeted at rural India.

mally unwilling to say that one is clearly

“While the world is connected and

better than the other. Rajesh Jain, founder

spoilt with an overload of entertainment

and managing director of netCORE Solu-

through regular and digital media, there

tions, a Mumbai-based enterprise com-

are parts totally in the dark and discon-

munication and digital marketing compa-

nected,” says HUL. “This gave birth to

ny, points out a key difference. “It needs

the idea of integrating one of the oldest

a smaller infrastructure set-up to receive

mediums of entertainment — the radio

missed calls and, therefore, it offers huge

— with the most-used device today — the mobile phone.” Kan Khajura is an on-demand entertainment channel that works on any mobile. It has notched up around 50 million total subscribers and 1 billion ad impressions. Because the entertainment content changes, people return to

Missed Call Marketing (MCM) has a dimension beyond a mere call to action. The bigger part of the business is data

be exposed to newer ad messages. “Kan

capacity to receive user requests,” he says. “Then, using outbound dialing lines, a return call can be made as and when capacity for calling back is available. Tollfree numbers also allow users to access information at zero cost. When a user calls toll-free, he gets connected to the brand using inbound dialing lines. If a

Khajura proved that the missed-call be-

Right party, call…. “Recently, a political

large number of callers is expected to ac-

haviour of Indians can be leveraged as

party used our services for their member-

cess the number, the company has to put

an advertising/ communication medium

ship drive,” says Sunil Jain, director of

in more infrastructure for receiving calls.

that provides better accessibility to mar-

Niche Tech Solutions, a leading player in

Also, at peak load, users get a busy signal.

kets, is economical to both the consumers

the segment with a brand styled iMissed-

Emerging markets, particularly India,

and the marketers and is non-intrusive as

Call. “In another instance, we helped a

have made optimum use of the missed call

it is consumer-initiated,” says Purani.

political party in Kerala to gather public

as a medium.”

Today, the missed call has escaped its

views against the chief minister.”

“MCM is primarily an Indian phenome-

rural moorings and gone mainstream.

The Employees Provident Fund Organ-

non even though call rates are the cheapest

Big corporates – including many consum-

isation has started a missed-call service

in India when compared to other emerging

er-facing MNCs – are using it. Smaller,

for its 35 million contributing members

markets,” says Banerjee. “It is more than

localised firms – cancer-detection centres,

which enables them to track their account

cost. It is cultural. Some of it is literacy-de-

tuberculosis prevention campaigns of

balance. India’s largest bank – the State

pendent as it is easier to give a missed call

state governments, gyms, private schools

Bank of India (SBI) – launched SBI Quick

than sending a text in English.”

and colleges, NGOs – have a missed-call

last year. It is a facility which allows you

But India is only the tip of the emerg-

number featuring prominently in their

to find out your bank balance and other ac-

ing iceberg; there is more action here be-

print and TV ads. It has even crossed the

count-related details on your mobile. You

cause the active mobile base is so large.

income divide: A luxury housing project,

have to first register your mobile num-

The reasons for the popularity of MCM

which took double-spread ads in all the

ber. Then, upon giving a missed call from

are, however, much the same across the

city newspapers, had a “Give a missed

that number to the well-publicised SBI

developing economy spectrum. “The wide

call to xxxxxxxxxx for more information”

number, you can get the information you

use of missed calls in developing coun-

tucked away at the bottom of each page.

were looking for. The private sector banks

tries can be attributed to a multitude of

were first off the block; now all banks are

factors, including: there is no cost associ-

Baat

on board. Some foreign banks went for

ated with making a missed call; it’s easy

speech? Give a missed call. One million

toll-free numbers. Anyone who has been

and fast; it’s the simplest call to action;

people did so after a new phone num-

through a “Press 1 for English; Press 2

it’s universally understood and accepted;

ber was released. In the recent elec-

for Hindi” sequence interspersed with

there is no app to install, no account to

tions to five state assemblies, political

“Your call is important to us” wouldn’t

create; and, above all, it is a human-pow-

parties of all hues climbed on the band-

like to repeat that experience. Although

ered ecosystem that’s already in place,”

wagon: Want an earful of the Left manifes-

the banks will deny it, 15-20 minutes on

says Salman Jamali, founder and CTO

to, call…. Want to contribute to a certain

a toll-free line is par for the course, even

of the Karachi-based Flashcall Inc, Paki-

Want to hear Prime Minister Narendra

Modi’s

latest

Mann

46 The Finapolis l SEPTEMBER 2016

TELEMARKETING stan’s first MCM platform. Adds Jawwad Jafri, Flashcall CEO: “The cost is the one big reason. Our target audience is very frugal and constantly struggling to save the last penny.” “The use of missed calls is a function of the economic condition of the caller,” says Rajeshwari K, professor of marketing at XLRI: Xavier School of Management. Explains Sainath Tripathi, marketing executive at the Mumbai-based MCM firm VivaConnect: “It started with the early days of mobile phones in India. Initially, the call charges were exorbitantly high and incoming calls were chargeable.” Adds Rajeshwari: “Incoming calls free has become a hygiene factor now.” Amiya Pathak, COO & founder of ZipDial.com, one of the earliest companies in the business, makes the same point: “This is primarily an emerging markets phenomenon because incoming calls and inbound SMS are free. Users spend less time on the Internet as it’s expensive and penetration of mobile internet has historically been on the low side.”

Secret Code of Missed Calls “People are talking less on the phone,” says Rajeshwari. That’s not entirely because of the shift to data. Tripathi says

The EPFO’s missed-call service allows its 35 mn contributing members to track their account balance. Indian banks allow account holders to give a missed call from their registered number and find out bank balance and other account-related details

the young have devised a system of their own. “Normal notifications like yes, no,

ed system, educating them on the issue,”

for telecom infrastructure only,” says

I have reached and I am missing you are

says Jafri. “The response was way beyond

Vikram Raichura, managing director of

delivered via missed calls,” he says. For

our expectations. Also, we now have a da-

VivaConnect. “We are also at liberty to

instance, one missed call equals Yes and

tabase of these listeners to engage them

generate business via this tie-up. The re-

two missed calls No. It is a secret short-

further with Nestle Bunyad.”

lationship is based on an exclusive part-

hand, ideal for the romantically inclined

In India, VivaConnect talks about one

nership wherein they use our platform to

or mere friends. But the telecom service

of its success stories – the L’il Master TV

scale up their business and reach, and we

providers earn nothing and have no way

programme on Zee TV. In an earlier avatar,

leverage their social network to carry out

of monetising it. This may be why, as

you had to send a ‘short code’ (a one-digit

targeted campaigns.”

Rajeshwari puts it: “There is a dearth of

number) to vote for a particular partici-

VivaConnect is not alone in attracting

literature on the subject. MCM is not a

pant. This was replaced by a missed-call-

the attention of multinational social me-

well-researched phenomenon.”

to-vote platform. A unique number was

dia biggies. Last year, Twitter bought the

Proof that MCM works is largely an-

assigned to each participant for voting

Bangalore-based ZipDial. Pathak says he

ecdotal. Jafri gives an example of a suc-

purposes. The result: 100 million missed

is not in a position to share more details.

cessful campaign. Nestlé’s Bunyad is an

calls were received during three shows.

Business daily Mint reports, however,

iron-rich product specially focussed on

The method saved the voter Rs 3 per SMS.

that the deal was worth between $30 mil-

school-going children to prevent iron de-

And the response was 12 times more.

lion and $40 million. “It dramatically ac-

ficiency. The brand offered free talk-time

Apart from several successful cam-

celerates our ability to drive user growth

top-up to anybody who gave a missed call

paigns, VivaConnect has another feath-

in India and, over time, other emerging

and listened to the Bunyad message. “We

er in its cap: It has an exclusive tieup

economies like Indonesia and Brazil,” the

called the user back through an automat-

with Facebook. “We are tech partners

newspaper quotes Rishi Jaitly, Twitter

SEPTEMBER 2016 l The Finapolis

TELEMARKETING vice-president for Asia Pacific, the Middle

alytics is an add-on that only a few compa-

East and North Africa, as saying.

nies offer. “The data points can range from location (telco circle, area), campaign

“Twitter aimed to make content more the

metadata (media, target-user group), us-

missed call,” says Niranjan Kanade,

er-survey data points (brands ran voice

who heads the mobility business for net-

survey campaigns to capture age, gender,

CORE. “For many in India, for whom the

language preferences), Internet connec-

first online experience is increasingly

tion details (brands ran campaigns with

through a mobile device, the cost of data

linked content on SMS to identify Internet

impinges on the Internet experience. Via

preferences),” says Pathak.

accessible

everyone

through

ZipDial, Twitter gets access to those with

How big is the business in India? There

erratic Internet access or with limited

is no simple answer. Three years ago, The

data plans. Facebook is using VivaCon-

Economic Times put it at Rs 5 billion.

nect more from an engagement perspective. Facebook has integrated the tool into its interface for selected campaigns. When a person sees an ad on Facebook, he or she can place a missed call by clicking on the ad — a missed call button — from a mobile device. In return, he receives content — music, cricket scores or celebrity messages – along with a brand message from the advertiser.” Says Tripathi: “This product is specifically designed for

Just as shortsighted abuse of telemarketing and direct mail has contributed to spamming problems, MCM runs the risk of being shunned by a large number of phone users

But that was in the days before Big Data came into the picture. “Trial prices start at Rs 1,000 a month,” says Sunil Jain. Add a substantial dose of number crunching and the bill could shoot up to 100 times as much. “The size of the market is difficult to estimate,” says Rajesh Jain. The success of MCM has brewed unusual clones. Yo is a startup founded by an Israeli living in San Francisco. All it does is send ‘Yo’s to your friends. It has been described as a “one-bit” communication

emerging economies.” lenge. “A lot of brands do not wish to do

“where the meaning of the message is de-

Social Media on the Prowl

MCM for a simple reason: They cater to

termined by the context in which it was

Twitter is among the early birds. Oth-

an elite audience and feel MCM sounds

received,” says TechinAsia, a platform for

ers are looking to enter. iMissedCall is

cheap. By the same token, some custom-

Asia’s tech communities. “That could be

reported to be one of the candidates for

ers would shun a brand if it promotes it-

the identity of the sender, the time of the

a partnership. That begs a question: is

self though MCM.” Purani sees dangers

message, or the location of the receiver….

MCM likely to make a mark in developed

ahead. “Just as shortsighted abuse of

It’s the sort of minimalist messaging Zip-

markets also? “Right now, though missed-

advertising, direct mail and telemarket-

Dial has been doing for years.” Yo has al-

call services are not very popular in the

ing has contributed to spamming-related

ready raised $1.5 million in funding.

US, they have the potential for growth if

problems, MCM runs the risk of degener-

“The founders of China’s Tencent led

marketed well with focused activity,” says

ating into a marketing tool shunned by a

Yo’s seed investment,” notes Business

Sunil Jain. Purani is not as optimistic. “It

large number of phone users.” Once your

Insider. “Yo is an app that lets users send

is difficult for the West to see much value

number enters a database, you may be

push notifications by pressing a friend’s

in this,” says he.

hounded for life. Do-not-call systems don’t

name. Users can’t customise the push

work well in emerging markets.

notifications; the only message they can

“When we started Flashcall, we decided

send to friends is the word “Yo.”

to launch the service simultaneously in

But MCM has a dimension beyond call

Pakistan and the US,” says Jamali. “There

to action. It offers business data. “The

On the same trail is AiYO (‘alas’ in

was a clear difference in the willingness

role of consumer data and data analytics

South India) of the Bangalore-based Wow

to give it a try.” In Pakistan, people were

is critical,” says Purani. “Data analysis is

Labz. AiYO is billed as “The lamest, most

used to the concept. In the US, with fast

embedded in our processes at Flashcall

annoying communication tool in the

mobile Internet speeds and wide smart-

and that’s what distinguishes us from

world… AiYO is one and only one thing, a

phone use, “it was a different ballgame.

other players,” says Jamali. “We have the

tool to irritate your friends.”

It’s not lucrative enough for us to exhaust

tools in place to slice and dice the gener-

Like Yo, it only says AiYO. If Wow had

our resources in competing against the

ated data in extremely meaningful ways.”

been based in California, it should have

Basic data reporting is an integral part

raised several million dollars by now.

unicorns of the West.” Tripathi

sees

different

chal-

of campaigns. However, advanced data an-

AiYO, AiYO. F

Republished with permission from Knowledge@Wharton (http://knowledge.wharton.upenn.edu), the online research and business analysis journal of the Wharton School of the University of Pennsylvania.

48 The Finapolis l SEPTEMBER 2016

CAREER SCOPE CONNECTIONS

Take Your Networking To Next Level Networking is one of the best ways to use your time says Heather Huhman

hile being on the job

make a world of difference! But how can

energy on mainstream job boards, get off

search is a daunting task

you maintain a positive attitude during

your bottom and meet new people! While I

for most, itâ&#x20AC;&#x2122;s important

a long, frustrating job search? Good net-

donâ&#x20AC;&#x2122;t recommend giving up on job boards

working!

altogether, I definitely feel networking is

enjoy

the

process.

After all, having a positive attitude can

Instead of spending all your time and

the best way to use your time wisely dur-

SEPTEMBER 2016 l The Finapolis

CAREER SCOPE The key to networking is to create mutually beneficial relationships by expanding your professional contacts. These contacts may provide industry advice, other contacts or the key to your future job

your part, and will almost certainly per-

tacts may provide industry advice, other

tacts. I recommend every four to six

fer you to other contacts and thus, the pro-

contacts or the key to your future job. The

weeks you find a reason to e-mail them.

cess continues. Repeat steps two through

following steps will without doubt get you

Stay abreast of industry news (read a lot),

four with this new contact. The goal is

on your way to be a networking expert.

and hopefully you took copious notes on

to build as many contacts as possible to

the back of your contacts’ business cards.

eventually land a job.

ing your job search. For example, one great analogy I love to use is the person who goes to the gym for an hour but doesn’t even break a sweat. This isn’t working out. Sure, you drove to the gym and stayed there for an hour, but did you truly leverage your abilities? Similarly, when on the job hunt, it’s important “sweat” a little – work hard and use your time strategically to obtain your dream job. The key to networking is to create mutually beneficial relationships by expanding your professional contacts. These con-

suade your contact to continue building the relationship.

Step 4: Using Call-To-Action Eventually, once you have built a relationship with this contact and you feel like you have added value, it’s time for you to ask for a call to action. You may ask the person if they know of anyone from your target list of organisations to work for, or even better, if they can refer you to a key decision maker. Ask the person if they are willing to re-

Pre-Networking Check-List:

If you don’t’ already this, make sure you

• Figure out what you want to be “when

start! Taking copious notes on everything

Important Reminders:

you grow up” and make a list of your tar-

from jargon to business will help you cre-

Here are some things all networkers need

get organisations and key people within

ate a more personalised and tailored fol-

to remember:

those organisations.

low-up e-mail.

1. Repetition and dedication are important

• Have a defined unique selling proposi-

A great idea would be to leverage your dig-

Success does not come easily and people

tion (USP) that describes what value you

ital technology skills in these e-mail cor-

who are truly serious about networking

would bring to the organisation.

respondences. For example, if you find an

and finding their dream jobs will, in the

• Perfect your “elevator pitch.” Those first

article, podcast, or video you think might

end, differentiate themselves. It’s impor-

60 seconds with your contact are crucial.

interest your contacts, make sure you

tant to repeat effective strategies and not

Make sure you are prepared and make an

send it their way. This is a great opportu-

lose hope in your job search.

extraordinary impression.

nity to keep yourself fresh in their minds,

2. Stay positive!

and again, you will be adding value to

Please do not get discouraged or lose

the relationship!

confidence in yourself or your abilities.

Step 1: Value-Added Networking

This process will be unbearable if you do

Give value to your contacts. I cannot stress this enough. This means you must

Step 3: Leveraging The Relationship

not enjoy meeting new people, learning

listen, listen, and listen before you ask

You can gain wonderful insight from your

industry insights from them, and more.

about questions regarding your own self

contacts, but make sure you also show

Trust me — your hard work will pay off,

interests. Listening will not only pres-

an interest in them! For example, people

and you will find a job.

ent you as polite and professional (re-

love talking about themselves and one ice-

Of course, this may take some time due

member, be cognizant of your personal

breaker is to ask how the individual got

to the economic climate, but soon the day

brand), but also it will allow you to find

started in their career.

will come when you have three different

out your contacts’ needs. By listening

Also, do some thorough research on

organisations calling you to come in for

and figuring out the missing elements,

your contact’s personal and/or profes-

an interview! Remember, don’t sweat the

you may paint a mosaic in the minds of

sional blog, Twitter feed, and LinkedIn

small stuff.

your contacts of your transferable skills

profile so you can ask tailored questions

Networking is a process and if you are

that will match their needs or the needs

about their career, interests and spe-

willing to put your time, energy and mind

of someone they know.

cialties. Demonstrating research with

into strategies that are effective, you will

pertinent and customised questions will

see a huge return on your investment.

Step 2: Staying In Touch After Your Initial Contact

impress your contact because you went

3. Remember your manners

After initially meeting, make sure your

through such lengths to learn about him

Always say “please” and “thank you.”

regularly stay in touch with your con-

or her. This gesture will reflect well on

Best of luck to you all! F

Heather R. Huhman is a career expert, hiring manager, and founder of Come Recommended, a content marketing consultancy. Published by agreement with CAREEREALISM.com, a leading global jobs and career advice website.

50 The Finapolis l SEPTEMBER 2016

realty check

ARVIND JAIN

A Home That Lets You Work as Well

he work from home culture has been steadily gaining popularity across the globe, and several corporates have already adopted the same as core offerings. According to Forbes, by the end of 2017, 75% of professionals will be working in their pajamas instead of putting on a suit and driving off to office every day. Companies like Ernst & Young and Accenture already have more than two-thirds of their employees working from home. This trend is steadily infiltrating the corporate world, and offers several advantages to both employees and their employer. With technology becoming a big part of modern day work processes, all one needs is a laptop and a good Internet connection to communicate, team up and drive productivity. Employers are allowing remote working not only to make employees more comfortable with how they work — it is also saving them a lot in infrastructure investment. At the same time: • Many professionals are ditching their corporate jobs to start their own businesses • More and more companies are looking for consultants instead of permanent employees • Freelancing has spread across all industries, be it technology or art. Gen X professionals enjoy the benefit of working in their own terms, and getting engaged in projects that they hold expertise in and have a passion for. This change in work culture has also affected the priorities of young professionals looking for homes.

How the trend impacts home buying Obviously, the first thing that work-athome professionals are looking for is projects in areas with dependable power supply and Internet connections. Also, one of the more important reasons that have brought about a growth in workfrom-home, consulting and freelancing is the implied flexibility and convenience.

Work-at-home professionals need homes with dependable power supply and Internet connections. It is also important that these homes be close to lifestyle requirements like healthcare, education, shopping and entertainment Consequently, it becomes important that the homes such people buy are in close proximity to lifestyle requirements like healthcare, education, shopping and entertainment. The other basic features of the properties such professionals seek include 24x7 water supply, emergency power backup and a peaceful environment that facilitates a productive working day, every day. At the same time, such professionals are

looking for homes that aren’t too far off from the city centre, yet spare them from having to suffer traffic, pollution and the many other ill effects of urbanisation. A tall order? Not really.

Where can you find such properties City centres of most economically vibrant Indian cities have already become saturated a long time ago. Other than for the extremely rich, there are no housing options in the main city areas of Mumbai, Delhi, Bangalore or Pune that meet both the budgets and requirements of the new ‘work-from-home’ breed of Indian professionals. Apart from the growing population and pollution in these areas, the existing infrastructure is always breaking down and traffic jams invariably lead to wasted time and resources. This scenario also reduces the potential of productivity. The best options in this situation are integrated townships which, due their size and scope, are developed on the peripheries of large cities while simultaneously offering good connectivity to the city itself. Importantly, these townships also bring

SEPTEMBER 2016 l The Finapolis

REALTY CHECK with them the convenience of their own shopping complexes, schools, hospitals and avenues of entertainment. In fact, many integrated townships have also fostered the ‘walk to work’ culture with their own high-class office complexes which attract the best of employers. All this ensures that young work-fromhome professionals can maintain optimum productivity as well as a well-rounded family life. The day-to-day running of the household is unchallenging and stress-free; and when they come along, children can grow up in healthy, active and safe environments. • Integrated townships are the ideal option for people who want to bring up their kids in a positive environment, and simultaneously enjoy a bracing and wholesome lifestyle themselves • Integrated townships also provide higher amount of security, a supportive neighbourhood and all amenities for a vibrant lifestyle – from green open spaces to gyms to playgrounds Even if one is employed in a regular day job which requires office attendance, integrated townships are the ideal solution because they are situated close to the city centres, with excellent connectivity and easy means of transportation. And when the work-from-home option or choice finally materializes, a home in integrated townships is already everything one will need to make a go of it.

Working from home, or planning to? The work-from-home trend is fast catching up in India, and is likely to become the norm rather than an exception in the next 10 years. Young professionals who are planning to take this route or set up their own businesses from home in the future should start identifying the ideal home options sooner rather than later. Homes in integrated townships that are currently under construction carry attractively lower price tags than ready-to-move apartments. If one chooses a high-quality township by a reputed developer, the perfect choice for a home is made. F

Arvind Jain is Managing Director of the Pride Group, a property developer

The Finapolis l SEPTEMBER 2016

BOOKMARK

FINANCIAL PLANNING

Story of a Stockpicker Books peddling stocks and investment advice are a dime a dozen, but One Up On Wall Street is different because the legendary Peter Lynch explains his own investment philosophy and process, says Sukanta Kundu

hile books peddling investment advice are a dime a dozen, few really make investing easy for the layperson. However, Peter Lynch’s ‘One up on Wall Street’ is different in that it tells stories. The author, famous as the manager of Fidelity Magellan Fund, takes the reader through his own investment philosophy and process while explaining the stock market. Trading in stocks requires us to understand financial jargon (shortselling, dividends, margin call, switch funds, etc), which can put-off the common reader if not explained clearly. However, Lynch pulls it off quite easily, using metaphors and anecdotes to get the message to readers. Sample this: “A great patient’s drug is one that cures an affliction once and for all, but a great investor’s drug is one that the patient has to keep buying.” The author also coins words like “tenbaggers” (where a stock’s price rises 10x from initial levels) which are widely used even now. The first part of the book talks about how an average man can become into an investor and finally into a ‘mature gambler’ who is able to take calculated risks. Lynch’s advice here is a bit uncharacteristic compared with the ‘invest early, invest regularly’ ditties that we often see. “Only invest what you could afford to lose without that loss having any effect on your daily life in the foreseeable future,” he says. The second part tells readers how to pick winning stocks, which include

Background research is another theme explored deeply. For instance, Lynch cites IT firms, which are usually ‘pollyannaish’ in delivering their numbers, i.e. they present everything in a positive light, even while there is a gaping hole in their books. The final part talks about long-term holdings. Lynch begins with ideas on how to design your stock portfolio, deciding on the best time to buy or sell, the silly points of stock prices, etc. He ends up asserting that one’s own research is worth a lot more than anybody else’s. He also suggests that if investors do not water the weeds, and carefully prune and rotate holdings based on fundamentals, they can boost gains. ‘tenbaggers’. Lynch is famous for his While he leaves the decision on how quote “Know what you own, and why you many stocks to hold, or in which sectors, own it.” The essence of this to our own discretion, Lynch quote is that it is better to says that “where fundamentals own stocks in an industry are promising, patience is often you work in, simply because rewarded.” you would have a better Lynch’s stand on stock market understanding of it. In the derivatives (futures and options) book, he cites doctors who is surprising, yet prescient. His invest in oil companies judgement is that these investments and oilmen who buy shares are not sensible. His views on in drug manufacturers shorting stocks are also alarming; One Up on to drive home that point he calls it ‘borrowing from the Wall Street that these people would be neighbour’ with ‘a criminal Author: Peter Lunch better off researching their intent’. Shorting stocks reminds Price: ` 550 own industries for picks. him of “the cartoon characters Lynch also cautions who walk off cliffs into thin air.” against the ‘herd mentality’, drawing All said and done, Lynch is a legend; similarities with crowds in big shops or and in this book he doles out tips from about believing reputed tippers/ stock his experience proving how we can gain market specialists. from what we already know. F

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54 The Finapolis l SEPTEMBER 2016

STAT DOSSIER All figures as on August 22, 2016

Indian Indices: Performance Close Aug 22, 2016

Close July 29, 2016

Return (%)

Return 6 M (%)

Return 12 M (%)

PE Ratio

27985.54

28051.86

-0.24

19.56

2.28

20.64

8629.15

8638.50

-0.11

21.42

4.01

21.63

BSE 500

11633.64

11585.96

0.41

24.06

5.77

24.93

BSE Auto

21226.07

21091.11

0.64

28.70

12.76

23.04

BSE Bankex

22175.92

21678.51

2.29

39.68

7.31

25.88

BSE Capital Goods

15106.48

15477.94

-2.40

27.06

-14.06

33.30

BSE Consumer Durables

12226.79

12404.71

-1.43

7.06

6.97

36.39

BSE Oil & Gas

10804.28

10595.23

1.97

27.32

16.34

11.82

BSE Metal

10080.83

9406.16

7.17

48.03

35.81

1581.89

1607.07

-1.57

49.10

21.27

80.12

BSE PSU

7479.46

7186.13

4.08

31.54

3.64

26.54

BSE Power

2103.99

2076.58

1.32

27.09

7.18

19.32

BSE Teck

5734.14

5951.14

-3.65

2.44

-7.64

19.54

Sensex Nifty

BSE Realty

Global Indices: Performance Close Aug 22, 2016

Close July 29, 2016

Return (%)

Return 6 M (%)

Return 12 M (%)

PE Ratio

MSCI World Index

1732.61

1721.79

0.63

12.46

4.95

22.39

MSCI Asia Pacific Ex Japan

446.71

436.66

2.30

17.51

9.63

15.57

22997.91

21891.37

5.05

18.46

2.63

11.95

2841.19

2868.69

-0.96

6.67

-4.06

12.21

S. Korea

2042.16

2016.19

1.29

7.09

9.27

16.59

Nikkei 225

16598.19

16569.27

0.17

2.77

-15.12

20.49

18529.42

18432.24

0.53

12.77

12.57

17.84

S&P 500

2182.64

2173.60

0.42

13.60

10.74

20.46

NASDAQ

5244.60

5162.13

1.60

16.45

11.44

38.83

Brazil Bovespa

57781.24

57308.21

0.83

35.89

26.38

157.83

6828.54

6724.43

1.55

15.28

11.09

57.06

DAX 30

10494.35

10337.50

1.52

12.32

4.47

24.03

CAC 40

4389.94

4439.81

-1.12

4.35

-4.50

22.61

ASIA Hang Seng Singapore Straits Times (STI)

AMERICA Dow Jones

EUROPE FTSE-100

SEPTEMBER 2016 l The Finapolis

STAT DOSSIER All figures as on August 22, 2016

August International Commodity Futures Price Trends Close August 22, 2016

Close July 29, 2016

% Change

52 Week High

% Change from 52 Week High

52 Week Low

% Change from 52 Week Low

LME Lead 3 Month ($/t)

1852.50

1826.00

1.5%

1916.00

-3.31%

1551.50

19.40%

LME Zinc 3 Month ($/t)

2285.00

2246.50

1.7%

2314.50

-1.27%

1444.50

58.19%

10270.00

10635.00

-3.4%

11030.00

-6.89%

7550.00

36.03%

19.03

20.39

-6.7%

21.23

-10.37%

13.62

39.68%

4758.00

4920.00

-3.3%

5440.50

-12.54%

4318.00

10.19%

46.81

41.38

13.1%

51.67

-9.41%

26.05

79.69%

1667.50

1639.50

1.7%

1709.00

-2.43%

1432.50

16.40%

20.44

18.97

7.7%

21.22

-3.68%

10.46

95.41%

1343.10

1357.90

-1.1%

1377.50

-2.50%

1045.40

28.48%

34.21

30.89

10.7%

35.43

-3.44%

26.18

30.67%

ICE Coffee (cents/lb)

146.05

145.35

0.5%

154.80

-5.65%

111.05

31.52%

ICE Cotton (cents/lb)

68.31

74.06

-7.8%

77.98

-12.40%

54.53

25.27%

538.40

526.00

2.4%

572.70

-5.99%

333.50

61.44%

2.67

2.86

-6.4%

3.00

-10.91%

1.61

65.80%

1015.00

1001.25

1.4%

1186.25

-14.44%

844.25

20.23%

CBOT Corn (cents/bushel)

343.25

342.25

0.3%

444.00

-22.69%

322.50

6.43%

CBOT CORN

343.25

342.25

0.3%

444.00

-22.69%

322.50

6.43%

CBOT Soy Meal ($/t)

330.90

346.90

-4.6%

432.50

-23.49%

258.90

27.81%

CBOT Wheat (cents/bushel)

435.25

409.00

6.4%

531.50

-18.11%

399.25

9.02%

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) CBOT Soybean (cents/bushel)

Commodities: August Gainers and Losers (%) MCX

NCDEX

Cardamom, 21.7%

Soy Oil, 5.3%

Crude Oil, 15.5%

Wheat, 2.3% Barley, - 1.4%

Zinc, 2.2%

RM Seed, -1.8%

Aluminum, 1.7%

Guar Seed, -2.3%

Lead, 1.3%

Guar Gum, -2.6% Gold, -0.5%

Soybean, -2.8% Mentha Oil, -2.6% Nickel, -3.4% Copper, -3.4%

CoƩon Seed Oil Cake, -3.1% Maize, -3.6% Sugar, -4.2%

Silver, -6.2%

Jeera, -7.9%

CoƩon, -6.3%

Turmeric, -8.9%

Natural Gas, -7%

Dhaniya, -9.9%

56 The Finapolis l SEPTEMBER 2016

STAT DOSSIER All figures as on August 22, 2016

NIFTY TOP

Company Hindalco

State Bank Of India

July 29, 2016

156.05

133.55

16.85

254.80

229.40

11.07

1216.95

10.38

Tata Steel

388.15

355.05

9.32

NMDC

109.20

100.00

9.20

Aug 22, 2016

Lupin Idea Cellular Grasim Industries Sun Pharma Infosys

NIFTY MOVEMENT

July 29, 2016

(%) Change

1544.45

1739.85

-11.23

94.50

104.70

-9.74

4502.25

4894.50

-8.01

770.10

829.95

-7.21

1015.45

1073.85

-5.44

NIFTY BOTTOM

CNX-MIDCAP MOVEMENT 15230 14600 13970 13340 12710 12080 11450

8880 8550 8220 7890 7560 7230 6900 Nov-15

(%) Change

1343.30

Yes Bank

Company

Aug-15

Aug 22, 2016

Feb-16

May-16

Aug-16

Aug-15

15% Nov-15

Feb-16

May-16

Aug-16

Gain in MCX Crude Oil.

BSE BANKEX

BSE CAPITAL GOODS 18800 17525 16250 14975 13700 12425 11150

22250 21100 19950 18800 17650 16500 15350 Aug-15

Nov-15

Feb-16

May-16

Aug-16

DOW JONES

Aug-15

Nov-15

Feb-16

May-16

Aug-16

Nov-15

Feb-16

May-16

Aug-16

HANG SENG 24700 23600 22500 21400 20300 19200 18100

18640 18150 17660 17170 16680 16190 15700 Aug-15

Crude oil futures rallied on rumours of production freeze by OPEC members

Nov-15

Feb-16

May-16

Aug-16

Aug-15

SEPTEMBER 2016 l The Finapolis

STAT DOSSIER CURRENCY

ENERGY

Rupee Movement

Brent Crude (US$/bbl)

68.60 67.75 66.90 66.05 65.20 64.35 63.50

62 57 52 47 42 37 32

Aug-15

Nov-15

Feb-16

May-16

Aug-16

21%

Aug-15

Nov-15

Feb-16

May-16

Aug-16

METALS Gold (US$/OZ)

Gain in NCDEX Cardamom.

Silver (US$/OZ)

Cardamom surged on delay in harvesting of the crop

20.5 19.4 18.2 17.1 15.9 14.8 13.6

1365 1310 1255 1200 1145 1090 1035 Aug-15

Nov-15

Feb-16

May-16

Aug-15

Aug-16

Nov-15

Feb-16

May-16

Aug-16

ECONOMY Inﬂation (%)

IIP (%)

Real GDP Growth 7.2

7.9

Mar-15 Jun-15 Sep-15 Dec-15 Mar-16

Prior (%)

6.75 6.50

Feb-16

May-16

Jun-16

Apr-16

May-16

Mar-16

Jan-16

Feb-16

DII (RHS)

10600 7100 3600 100 -3400 -6900 -10400 -13900

Soy Oil prices rose on account of rising demand and lower stock positions

RBI Monetary Data

7.90 7.75 7.60 7.45 7.30 7.15 7.00 Nov-15

Dec-15

Oct-15

FII

10-year bond yield (%)

Aug-15

Nov-15

FII vs. MF (Rs cr) 22500 14500 6500 -1500 -9500 -17500

Gain in NCDEX Soy Oil.

Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16

7.0

6.1

7.4

Sep-15

Jul-15

Aug-15

Jul-16

Jun-16

Apr-16

May-16

Mar-16

Jan-16

Feb-16

Dec-15

Oct-15

Nov-15

Sep-15

Jul-15

Aug-15

Jun-15

10 8 6 4 2 0 -2 -4

3.75 2.50 1.25 0.00 -1.25 -2.50 -3.75 -5.00

Aug-16

Repo

Latest (%)

5.75 6.00

Reverse Repo

21.25 21.00

4.00 4.00

Cash Reserve RaƟŽ

SLR

All figures as on August 22, 2016

58 The Finapolis l SEPTEMBER 2016

STAT DOSSIER Performance of Mutual Funds Equity Diversified

ELSS

Mutual Fund Scheme

NAV

1 yr 3 yr 5 yr

Mutual Fund Scheme

DSPBR Micro-Cap Fund-Reg(G)

50.19

14.8 53.7 28.3

Reliance Tax Saver (ELSS) Fund(G)

49.62

4.9 36.9

21.0

UTI Trans & Logistics Fund(G)

96.99

2.5 49.4 30.8

Escorts Tax(G)

75.75 26.9 34.4

15.2

Reliance Small Cap Fund(G)

28.50

6.9 48.7 26.7

Axis LT Equity Fund(G)

32.96

0.4 33.0 22.6

HSBC Midcap Equity Fund(G)

44.40

6.3 47.7 21.8

Birla SL Tax Relief '96(G)

23.58

4.3

31.0

19.3

Sundaram S.M.I.L.E Fund(G)

77.07

3.1 45.9 23.0

Birla SL Tax Relief'96 Fund- (ELSS U/S 80C of IT ACT)-(G)

23.58

4.3

31.0

19.3

SBI Small & Midcap Fund-Reg(G)

35.34

7.0 45.8 28.0

DSPBR Tax Saver Fund-Reg(G)

37.52

10.1 30.7 20.4

Canara Rob Emerg Eq Fund-Reg(G)

68.04

5.4 45.7 26.2

Birla SL Tax Plan(G)

29.67

3.8 30.0

18.8

Franklin India Smaller Cos Fund(G)

46.61

15.6 45.5 29.2

Invesco India Tax Plan(G)

38.76

4.1 29.8

18.5

Mirae Asset Emerg BlueChip-Reg(G)

36.58

12.7 45.4 28.3

464.93

4.4 28.9

19.2

Kotak Emerging Equity Scheme(G)

30.92

11.9 44.9 24.6

L&T Tax Saver Fund(G)

29.40

7.4 28.7

16.6

Birla SL Pure Value Fund(G)

45.77

12.2 44.7 23.9

6.3 28.7 19.0

89.37

4.2 44.7 25.0

ICICI Pru LT Equity Fund (Tax Saving)(G)

296.61

UTI Mid Cap Fund(G) SBI Magnum MidCap Fund-Reg(G)

69.14

10.4 43.5 26.4

Principal Tax Saving Fund

155.91

7.0 28.3

19.9

10.8

JM Tax Gain Fund(G)

12.65

2.0 28.3

17.0 18.3

DSPBR Small & Mid Cap Fund-Reg(G) 43.25

41.5 21.3

Franklin India Taxshield(G)

NAV

1 yr 3 yr 5 yr

398.72

8.2 40.9 22.5

HSBC Tax Saver Equity Fund(G)

29.52

4.1

80.11

8.7 40.9 26.2

Kotak Tax Saver Scheme(G)

33.54

2.5 27.6 16.0

44.45

10.8 40.7 23.9

IDFC Tax Advt(ELSS) Fund-Reg(G)

41.38

-0.5 26.8

19.2

Kotak Midcap Scheme(G)

61.95

11.0 40.5 21.6

BNP Paribas LT Equity Fund(G)

31.62

1.2 26.6

18.7

ICICI Pru Midcap Fund(G)

75.72

0.4 40.3 21.2

Birla SL Tax Savings Fund(G)

53.87

3.4 26.5

14.9

L&T Midcap Fund-Reg(G)

99.34

6.0

40.1 22.9

SBI Magnum TaxGain'93-Reg(G)

119.69

1.3 26.5

17.2

30.18

16.7

40.1 21.7

82.81

7.1 26.4

16.6

NAV

1 yr 3 yr

5 yr

Sundaram Select Midcap(G) Principal Emerging Bluechip Fund(G) HDFC Mid-Cap Opp Fund(G)

Birla SL Small & Midcap Fund(G) Franklin India Prima Fund(G)

Sundaram Tax Saver(G)

27.7

784.87

13.8 39.8 25.7

JPMorgan India M & S Cap F-Reg(G)

21.25

2.2 39.2 24.0

Reliance Mid & Small Cap Fund(G)

37.67

7.8 39.0 22.2

Mutual Fund Scheme

109.10

0.2 38.2 22.2

ICICI Pru B & Fin Serv Fund(G)

44.68

Birla SL Midcap Fund(G)

249.56

8.5 37.9 20.2

Reliance Banking Fund(G)

196.19

7.5 33.0

17.4

Escorts High Yield Eq(G)

30.26

17.6 37.8 18.9

Invesco India Banking Fund-Ret(G)

38.92

10.6 30.6

17.2

Invesco India Mid Cap Fund(G)

37.69

3.8

UTI Banking Sector Fund(G)

75.12

10.3 30.0

15.6

BNP Paribas Mid Cap Fund(G)

28.38

7.3 37.4 25.1

Baroda Pioneer B & F S Fund(G)

17.13

5.9 26.8

L&T India Value Fund-Reg(G)

27.91

5.8 37.3 23.7

Sahara Banking & F S Fund(G)

48.25

3.0 25.6

Tata Mid Cap Growth Fund(G)

37.7 21.5

Equity (Banking) 14.0 37.0 23.4

Source: karvyvalue.com; Note: All returns are annualized and expressed in percentage; all NAVs as on August 22, 2016

13.2

SEPTEMBER 2016 l The Finapolis

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

Equity (Infrastructure) NAV

1 yr 3 yr 5 yr

Mutual Fund Scheme

NAV

1 yr

3 yr

5 yr

L&T Infrastructure Fund-Reg(G)

12.21

7.9

35.7

15.5

SBI FMCG Fund-Reg(G)

86.19

14.6

19.1

ICICI Pru FMCG Fund(G)

179.86

10.8

18.3

18.8

Equity (Pharma) Mutual Fund Scheme SBI Pharma Fund-Reg(G) Reliance Pharma Fund(G) UTI Pharma & Healthcare Fund(G)

NAV

1 yr 3 yr 5 yr

141.70 -8.0 141.13

30.1 26.3

-8.1 26.7

21.5

93.29 -9.8 23.0 19.6

Equity (Tech) 1 yr 2 yr 3 yr

HSBC Infra Equity Fund(G)

17.65

-9.0

33.1

12.4

HDFC Infrastructure Fund(G)

16.28

-4.0

32.9

10.1

Invesco India Infra Fund(G)

13.79

-2.6

32.5

12.6

Birla SL Infrastructure Fund(G)

27.82

2.0

32.2

14.4

Canara Rob Infra Fund-Reg(G)

40.35

3.7

31.2

14.0

Sundaram Infra Advt Fund(G)

26.59

-0.9

30.2

6.7

Taurus Infra Fund-Reg(G)

19.35

3.6

30.1

11.2

Sahara Infra F-Var Pricing(G)

23.41

8.0

29.5

10.9

Tata Infrastructure Fund(G)

47.50

5.9

29.3

11.2

SBI Infrastructure Fund-Reg(G)

13.05

10.2

28.7

9.4

Sahara Infra F-Fixed Pricing(G)

21.16

5.8

27.7

9.5

45.06

-1.3

26.9

10.4

6.84

-2.1

26.0

3.2

41.94

-3.4

25.8

10.6

Mutual Fund Scheme

NAV

ICICI Pru Technology Fund(G)

39.21 -11.4

19.2 22.3

Escorts Infrastructure Fund(G)

DSPBR Technology.com F-Reg(G)

51.93

15.7 14.4

ICICI Pru Infrastructure Fund(G)

-8.8

Balanced Mutual Fund Scheme

UTI Infrastructure Fund(G)

MIP NAV

1 yr 3 yr 5 yr

Mutual Fund Scheme

NAV

1 yr 3 yr 5 yr

ICICI Pru Child Care Plan-Gift Plan

116.23

12.6 29.7

17.8

SBI Magnum Children Benefit Plan

43.23

16.2 22.3

Escorts Balanced Fund(G)

113.53

12.9 28.2

15.4

HDFC Equity Savings Fund(G)

29.68

12.5

12.4 10.0

HDFC Balanced Fund(G)

120.22

6.9 28.0

17.2

Birla SL MIP II-Wealth 25(G)

33.82

11.9

18.8

13.4

HDFC Prudence Fund(G)

413.74

5.5 27.6

15.3

Kotak MIP(G)

26.52

11.1

15.0

11.0

Tata Balanced Fund(G)

184.46

4.5 26.7

18.6

SBI Magnum MIP(G)

34.45

11.1

14.5

11.1

Birla SL Balanced '95 Fund(G)

636.26

9.9 26.2

16.8

Birla SL MIP II-Savings 5(G)

30.27

11.1

14.1 10.9

Franklin India Balanced Fund(G)

100.68

26.1

17.0

ICICI Pru Child Care -Study Plan

61.24

7.1

10.2 20.4

13.5

15.4

Reliance Reg Sav Fund-Bal Plan(G)

44.12

6.4 25.7

16.9

ICICI Pru MIP 25(G)

34.34

9.9

16.4

11.9

L&T India Prudence Fund-Reg(G)

21.30

4.6 25.5

17.7

Birla SL MIP(G)

42.40

9.7

12.2

9.6

ICICI Pru Balanced Fund(G)

103.68

9.3 25.5

18.1

Invesco India MIP Plus(G)

1575.46

9.6

9.0

7.5

SBI Magnum Bal Fund-Reg(G)

104.56

6.2 25.3

18.2

SBI Magnum MIP-Floater Plan(G)

23.10

9.6

13.5

11.2

DSPBR Balanced Fund-Reg(G)

123.12

7.2 25.2

14.6

Birla SL Monthly Income(G)

60.06

9.6

14.1 10.0

HDFC Children's Gift Fund-Invest

93.41

6.8 24.8

17.2

Tata Retire Sav Fund-Cons Plan(G)

16.52

9.6

14.1

HDFC Children's Gift F-Invest (Lock in)

93.41

6.8 24.8

17.2

BOI AXA Reg Return Fund-Reg(G)

18.28

9.5

12.1

9.8

122.40

4.0 23.7

15.8

HDFC MIP-LTP(G)

39.09

9.5

16.6

11.1

Canara Rob Bal Scheme-Reg(G)

Source: karvyvalue.com; Note: All returns are annualized and expressed in percentage; all NAVs as on August 22, 2016

60 The Finapolis l SEPTEMBER 2016

FUND REPORT CARD Canara Rob Eq Diver Fund-Reg (G)

Scheme Performance as on Aug 22, 2016 Returns

B'mark

Rank

3 Months

12.64

12.84

195/(275)

6 Months

21.24

21.65

214/(272)

1 Year

-0.72

5.49 279/(259)

Fund House Details

3 Years

19.41

19.91

154/(163)

AMC Name: Website:

5 Years

13.45

12.80

129/(153)

19.19

15.83

Fund Objective/Mission To generate capital appreciation by investing in equity and equity related securities.

Canara Robeco Asset Management www.canararobeco.com

Period

Since Inception

SIP Details: Invested Rs 5000 Every Month

Financial Details AUM As On (July 31, 2016) NAV As On (August 22, 2016) Min Investment (in Rs.)

Lumpsum SIP

NAV (52WeekHigh){August 05, 2015} NAV (52WeekLow){February 25, 2016}

Period

774.00 96.97 5000 1000 101.28 76.77

Total Invest (`)

Scheme (`)

Bench mark

60,000

64.398

66,538

3 Years

1,80,000

2,09,832

2,15,416

5 Years

3,00,000

4,13,431

4,18,264

10 Years

6,00,000

11,88,294

10,27,371

1 Year

Investment Information

Fund Structure

Scheme

Open ended scheme

Launch Date

September 16, 2003

Fund Manager

Ravi Gopalakrishnan

Bench Mark

S&P BSE 200

Max.Entry Load(%)

Max.Exit Load(%)

1.00

Total Stocks

Total Sectors

P/E Ratio

30.26

P/B Ratio

5.59

Avg. Market Cap Rs. On (Jul-2016)

Top 10 Companies Name

93,223.78

Volatility Measures Fama

-0.01

Beta

1.00

Std Dev Sharpe

1.11 -0.02

Top 10 Sector Wise Holding (%)

Industry Name

(%) 18.7



8.1



8.0



HDFC Bank

7.4



Bank - Private

Infosys

4.5



Refineries

Sun Pharmaceutical Industries

3.8



Pharmaceuticals & Drugs

Ultratech Cement

3.5



IT - Software

5.7



Yes Bank

3.4



Cement & Construction Materials

4.9



Hindustan Petroleum Corporation

3.2



Engineering - Industrial Equipment

4.5



3.1



Bank - Public

3.9



ICICI Bank

2.9



Chemicals

3.7



IndusInd Bank

2.8



Finance - NBFC

3.6



State Bank Of India

2.6



Automobiles - Passenger Cars

3.0



Reliance Industries

5 Years History Financial Year NAV in ` (as on 31st March)

2015-16

2014-15

2013-14

2012-13

2011-12

86.12

98.04

70.11

59.32

55.39

704

805

629

638

543

Returns(%)

-13.27

39.96

17.81

6.73

0.64

CNX NIFTY Returns(%)

-9.87

26.33

17.53

6.86

-9.11

266/(289)

144/(274)

114/(217)

78/(204)

30/(207)

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

Category Rank Latest As on 31 March, 16

*Absolute Returns

Source: ACEMF

SEPTEMBER 2016 l The Finapolis

FUND REPORT CARD Scheme Performance as on Aug 22, 2016

HDFC MIP-STP (G)

Period

Fund Objective/Mission The primary objective of the Scheme is to generate regular returns through investment primarily in Debt and Money Market Instrument. The secondary objective of the Scheme is to generate long-term capital appreciation by investing a portion of the Scheme’s assets in equity and equity related instruments.

Fund House Details AMC Name: Website:

HDFC www.hdfcfund.com

Returns

B'mark

Rank

3 Months

20.30

5.25

26/(41)

6 Months

19.65

9.62

22/(41)

1 Year

7.47

10.40

34/(40)

3 Years

12.16

12.10

24/(40)

5 Years

9.02

9.94

30/(39)

Since Inception

8.10

8.65

SIP Details: Invested Rs 5000 Every Month Period

Financial Details AUM As On (July 31, 2016) NAV As On (August 22, 2016) Min Investment (in Rs.)

282.48 26.81 5000

Lumpsum

NAV (52WeekHigh){June 08, 2016} NAV (52WeekLow){February 25, 2016}

Total Invest (`)

Scheme (`)

Bench mark

60,000

63,482

63,610

3 Years

1,80,000

2,05,735

2,10,568

5 Years

3,00,000

3,77,441

3,85,445

10 Years

6,00,000

9,27,455

9,42,243

1 Year

25.83 24.12

Investment Information

Fund Structure

Scheme

Open ended scheme

Launch Date

December 26, 2003

Fund Manager

Vinay R Kulkarni

Bench Mark

Crisil MIP Blended Index

Max.Entry Load(%)

Max.Exit Load(%)

1.00

Total Stocks

Total Sectors

P/E Ratio

P/B Ratio

Avg. Market Cap Rs. On (July-2016)

Top 10 Companies

10,897.62

Volatility Measures Fama

-0.01

Beta

0.24

Std Dev

0.28

Sharpe

0.03

Top 10 Sector Wise Holding

Name

(%)

Industry Name

(%)

08.40% GOI - 28-Jul-2024

11.4



Unspecified

21.9



07.35% GOI 2024

10.7



Bank - Public

15.7



State Bank of India 8.96% (12-Sep-21)

8.9



Other

14.4



Infiniti Retail Ltd. (14-Mar-17)

4.8



Finance - Housing

7.1



08.60% GOI - 02-Jun-2028

3.9



Retailing

4.8



08.32% GOI - 02-Aug-2032

3.8



Bank - Private

4.6



Hindalco Industries Ltd. 9.55% (25-Apr.22)

3.6



Finance - Investment

4.1



Magma Fincorp Ltd -258D (24-Nov-16)

2.1



Finance - NBFC

3.9



Tata Steel Ltd. 11.8% (18-Mar-21)

1.9



Aluminium & Aluminium Products

3.6



08.28% GOI - 21-Sep-2027

1.9



Chemicals

3.5



5 Years History Financial Year NAV in ` (as on 31st March) Net Assets (` Crores.) (as on 31st March) Returns(%) CNX NIFTY Returns(%) Category Rank Latest As on 31 March, 16

2015-16

2014-15

2013-14

2012-13

2011-12

25.22

24.55

21.14

19.56

18.22

274

304

179

236

249

2.03

15.64

7.63

7.01

6.28

-9.87

26.33

17.53

6.86

-9.11

33/(51)

32/(55)

25/(58)

39/(60)

*Absolute Returns

17/(60) Source: ACEMF

62 The Finapolis l SEPTEMBER 2016

ETCETERA

Seven Ways to Prevent Text Neck Our head is heavier at an angle than it is at a neutral position. That means our increasing usage of smartphones for reading, texting, etc is putting undue pressure on our spine, says Jens Erik Gould

he number of smartphone users worldwide is expected to surpass 2 billion next year. For doctors, that means 2 billion people susceptible to having pains in the neck—literally. There’s growing concern in the medical community that prolonged periods of looking down at smartphones can increase stress on the cervical spine, a condition colloquially referred to as “text neck.” The physiology goes like this: the human head weighs between 4.5 kg and 5.5 kg when it’s in a neutral position. But that weight increases to some ~12 kg when the head is tilted downwards at a 15-degree angle, ~18 kg at 30 degrees, and ~27 kg at 60 degrees, according to a study by New York-based spine surgeon

Kenneth Hansraj. This is no problem when sending a simple text. But two to four hours a day reading and texting on smartphones, tablets and laptops? The gravitational pull puts undue stress on the spine. When a person’s posture is upright, the head remains well balanced on the neck. But when the head is tilted forward, there’s less support. Remaining in the position for a prolonged period of time can lead to headaches, dizziness, cervical pain, shoulder pain, and numbness in the hands and arms, says Patrick Kerr, a chiropractic doctor in New York. And Hansraj adds: “These stresses may lead to early wear, tear, degeneration, and possibly surgeries.” What can we do to change our ways?

Doctors say these seven tips will help people prevent trouble down the road.

1) Raise up your phone: Doctors encourage users to lift their phones to eye level rather than staring down at a screen. That way there’s no added pressure from bending the neck downwards. Alternatively, users can look down at their phones with their eyes rather than bending their necks. 2) Just put the phone down: If the previous step is too awkward, simply don’t use your smartphone as much. Many of the tasks performed on a smartphone can also be done on desktop-based apps. For example, iPhone users can turn to Apple’s iMessage on the desktop, and the

When our posture is upright, the head remains well-balanced on the neck. But when the head is tilted forward, there’s less support. Remaining in such a position for a prolonged period of time can lead to headaches, dizziness, cervical pain, shoulder pain, and numbness in the hands and arms

SEPTEMBER 2016 l The Finapolis

ETCETERA The human head weighs between 4.5 kg and 5.5 kg when it’s in a neutral position. But that weight increases to some ~12 kg when the head is tilted downwards at a 15-degree angle, ~18 kg at 30 degrees, and ~27 kg at 60 degrees

popular WhatsApp is now available for PCs. And as far as surfing the web, why do that on a smartphone when one can enjoy a much larger screen?

possible to the left, then back to neutral, and then all the way to the right. Next, tilt the head ear-to-shoulder to one side, then return to upright, and then tilt to the other side.

3) Take a load off:

For those who spend long periods of time on their phones, it’s important to take breaks. A good rule of thumb is to take a five-minute pause for every 15 minutes of smartphone use, and this one goes for tablet and laptops users too. If you’re sitting, get up, walk around and if possible engage in step 4.

4) Stretch: There are simple stretching exercises that can make muscles and tendons happy again after a long texting session. One is to turn the head as far as

do, the head often falls off the center of the neck, which can promote imbalance. Also, when in bed, it’s important to avoid sleeping on the stomach.

7) There’s an app for that: 5) Get a yoga membership:

When you have more time and aren’t in the middle of an important text to your boss, more involved stretching is in order. Ideal exercises include the prone neck extension, prone arm abduction and snow angels. Yoga moves such as mountain pose are also ideal for counteracting text neck.

6) Travelling by air? Don’t fall asleep: Often, travellers sleep in contorted positions on airplanes and automobiles. When they

From The Financialist – Presented by Credit Suisse (www.thefinancialist.com)

Those being diligent about their posture can measure it. And ironically, they’ll need to use a smartphone to do so. Dean Fishman, a Florida chiropractor, created an Android app called Text Neck. It displays a green light when users are correctly holding their phones and a red light when they’re not. It vibrates when a user tilts down too much, and even calculates an average score measuring posture. Just don’t spend too much time on the app, or you’ll lower your score. F

64 The Finapolis l SEPTEMBER 2016

PERSONAL FINANCE

advisor Every month, the Finapolis connects you with Col. Sanjiv Govila (retd), a personal finance expert who answers your queries related to the world of investments, taxation and financial management. The advisor will diagnose the health of your portfolio and offer advice to improve your finances or solve your problems. Write in to feedback@thefinapolis.com I am 26 years old, single working woman. I want to buy health insurance to save from problem later on. How to go about looking for right one? I have heard many cases where company takes money but the moment time comes to pay back to person, then company makes fraud excuse and says this is not covered for payment. – Farida, Ranchi

Col. Sanjeev Govila (retd) is a Certified Financial Planner and a SEBI Registered Investment Advisor. He is CEO, Hum Fauji Initiatives.

Before anything, Farida let me tell you that if you buy health insurance from a good company and declare your medical conditions honestly at the time of buying the insurance, there is no reason for genuine health insurance claims to be rejected by the company. Actually most of the anguish happens when the person does not care to read through and thoroughly understand the various terms and conditions of the policy before signing on. And when the claim is made and the company pays as per the contract, disillusionment comes in. Choosing a health policy is very simple: decide your main medical concern based on your current health status including family’s genetics; choose an appropriate health cover amount – Rs 3-5 Lakhs or so is generally sufficient for healthy people; research the health insurance company

which covers the hospitals where you’re likely to go in case of a medical requirement; check the hospital room eligibility capping, the sub-limits and co-pay conditions for hospitalisation; and lastly and very importantly, read online reviews as also personal feedbacks from people who’ve taken policies from that company in your area. I am a 64-year old consultant. My income stream is sporadic, yet has been averaging 5-6 lakhs in the past two fiscals. Given my age, how should I plan my investments (both from the tax-saving and wealth creation perspectives)? What are the investment options open to me? – Harihara Iyer, New Delhi There are quite a few investment options available to you. However, the option to be taken depends a lot on your future requirements and the risk profile. Assuming that you do not need any regular income from your investments for some years and that you have a low risk aptitude and attitude considering your age, you have Public Provident Fund (PPF), Bank FDs and RDs, Company FDs, and Debt Mutual Funds (MFs) as the major options available to you. PPF is a very good tax saving option apart from a wealth creation tool – the limitations being long lock-in before you can withdraw part of the money, and the maximum limit of Rs 1.5 Lakh investment in a year. Company FDs will give better returns than bank FDs but the company where you’ll be investing needs to be well researched before you go ahead to invest there. However, both of them are lump sum investment options and are tax-inefficient. I feel that debt MFs are a very good option for you which give you flexibility of lump sum or regular investing, good liquidity, and better and tax-efficient returns than bank FDs if you invest for more than three years. And if you’re up to it, do diversify into equity MFs also to some extent as per

SEPTEMBER 2016 l The Finapolis

PERSONAL FINANCE ADVISOR your risk profile, to give that extra longterm boost to your investments. I hold a joint savings account, which is primarily in the name of my wife (under her PAN No). However, my entire income (upward of Rs 5 lakh) is also deposited in the same account. My wife’s income stream (via house rent) adds up to one lakh. As I work with a proprietorship and have no Form 16, I compute my tax liability using my bank statements. In my case, will the entire tax liability arise in my name (via clubbing provisions), or do my wife and I have to file taxes separately? Kindly advise…. – Radheshyam Mishra, Mumbai NClubbing income provisions do not work in this manner and the bank accounts do not decide how income tax is computed and paid. You and your wife have your own separate incomes which have to be computed and accounted for separately. If her income is not taxable, she does not have to file her ITR (Income Tax return). Hence, file your ITRs as due for your own incomes as per your eligibilities. I have started earning and making some savings. How should I invest my surplus cash? I am currently saving Rs 20,000 per month. – Arif Khan, Kolkata There are three things that you need to look at broadly – saving for retirement, provident fund and Investments for your future goals. ➤ Retirement Savings – this is a long term call and needs a lot of patient investing over a long time. Choose a good avenue, understand all its facets, invest as per your inflation-adjusted monthly requirements after you retire, regularly review the investments and stick to it. The earlier you start, the smaller is the amount you need to commit on a monthly basis. NPS and retirement plans of mutual funds are good alternatives. Avoid insurance pension plans. ➤ Provident Fund – if your company offers a provident fund facility, good. Else PPF is a very good option which gives you savings and meets your Income Tax Section 80C requirements too.

➤ Investing for future – goal based investing is the best way to go about it. Lay down the financial goals for your life, cost them as per inflation, and work out how much you should save for each of them on a regular basis so as to meet them. Risk profiling is an important aspect of such investment plans. Don’t forget to add equity, preferably through equity diversified mutual funds, into the investment plan that you make. I took floating rate loan but finding it difficult to pay EMIs. I have been behind bank since one year to reduce my interest or give time but not getting any help. Is there any solution to this? – Ramesh Dattani, Gwalior When you take a home loan, you sign a contract with the lending agency to get the money that has been asked for as part of agency’s commitment and to pay back the money in EMIs and/or bulks as part of your commitment. I don’t think the bank will agree to reduce the rate of interest only because you’re saying so, since this is where they’re earning. You have two options – either get the tenure of your loan increased which will result in lowered EMIs or pay off some bulk amounts, if you have any with you, and opt

to reduce your EMIs and not the default option of loan tenure. Please remember that increase of tenure will imply overall more interest payable by you. Similarly, bulk amount payments could be a series of small payments as per your capacity whenever you can muster up the amounts. Also check up whether your loan interest rate is more, typically more than 0.75%, more than what the bank is charging for new loans currently. If so, negotiate with them to lower your rate also – if it involves paying a small fee, most of the times it is worth its while to pay the fees and get the interest lowered. F

66 The Finapolis l SEPTEMBER 2016

LEARNING CURVE 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

Special Purpose Vehicle

special purpose vehicle (SPV) is a subsidiary which is created to meet special purposes such as restructuring financial transactions, asset , joint ventures, or isolating the parent companies from certain assets/ liability or operational complications. There two types of SPVs as per primary financial exposure on the balance sheet of their parent companies. When an SPV is carrying assets and liabilities that are not reflected in the balance sheet of the parent company, the SPV is considered as an off-balance. On the other hand, when parent company directly shows assets and liabilities of an SPV as debt or equity on its balance sheet, the SPV is considered as an on-balance sheet SPV. Basically, off-balance sheet SPVs are in true sense ‘special purpose’ entities as their parent companies like to use these in mitigating their special needs. An SPV may be set up for:  Securitisation/Transferring assets: Firms choose to convert, combine/ transfer critical liabilities or vulnerable assets in their balance sheet or repackage these into a single financial instrument to be sold in small pieces to investors. Once example is that of banks, which securitise loans and receivables through an SPV. Similarly, large corporations may be legally bound to sell/ transfer assets, wherein they use the SPV route. SPVs face fewer legal constraints than parent companies.  Funding ventures or big projects: SPVs can fund new ventures without incurring fresh debt or diluting equity. The parent company may buy some of the equity in the SPV, while the rest is held by

external investors.  Balance sheet manipulation: On the dark side, an SPV helps a company to manipulate its balance sheet. For example, a company can hide liabilities by assigning its debts to an SPV.  Liberty of control: A company can incorporate an SPV in a country or jurisdiction different from its own jurisdiction, giving it regulatory leeway.  Bankruptcy filing: Companies can hive off their debt to an SPV, in a bid to protect themselves from bankruptcy. This helps in bypassing risks of dragging parent companies as responsible for bankruptcy (due to projects failure or similar situations). Such use of an SPV is known as ‘bankruptcy remoteness.’

Use and abuse of SPVs The formation of an SPV offers positives and negatives. The parent company is usually the biggest beneficiary, while shareholders sometimes miss out. In cases where the SPV is formed under the tax jurisdiction of another country, the home country of the parent company can loses out on taxes.  Transfer of wealth: An SPV’s parent company can be used to transfer assets from the parent to the SPV to gain ownership of assets. Such a process, in most in-

stances, affect shareholders wealth.  Tax and regulation: Creating SPVs helps big companies reduce their tax liability. Often, SPVs are created in tax havens and the parent’s home country loses out on taxes.  A financial tool of mischief-makers: Showing an SPV as off-balance-sheet entity allows the parent company to manipulate its balance sheet. According to Generally Accepted Accounting Principles (GAAP), it is not mandatory for SPV assets to be off the parent’s balance sheet; rather GAAP concentrates on who controls the underlying assets in the SPV. Then there are the Basel norms, a global regulatory standard for measuring bank capital adequacy and liquidity. The new Basel III norms direct banks to mind the quality of capital as well. Liquidity ratios have been introduced to complement the risk-based minimum capital requirements, to ensure banks maintain adequate funding. International Financial Reporting Standards (IFRS) now require an SPV’s assets be consolidated with the parent firm to mark the vehicle as ‘controlled’ by the parent company. SPVs need to show assets & associated funding as assets or liabilities to parent companies. F

Published on 1st September 2016 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