You are on page 1of 68

SUCHETA DALAL ON:

IDENTITY MYTHS: AADHAAR E-COMMERCE: NOTHING RETIREMENT HOMES:


VS US SOCIAL SECURITY FREE, PRIVACY IS THE PRICE NOT A SAFE HAVEN
Personal Finance Magazine 12 November 2015 Rs 45

Pages 68 (SUBSCRIBER COPY NOT FOR RESALE) www.moneylife.in

How Banks Are Ever-greening


Bad Loans

STOCK WATCH

Steady Growth The Strong Get Stronger Not All Debt Is Bad Motorcyles in Slow Lane

Cover Page_253.indd 2 23-10-2015 18:37:58


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ISSUE CONTENTS
12 November 2015

Stress Test for Banks

N on-performing assets (NPAs) and


restructured assets are galloping. Over
the years many patchwork solutions have
been tried. Last year, the Reserve Bank of
India introduced a structure for rehabilitating
"specified infrastructure and core industry
projects" for tenures up to 80%-85% of the
projects economic life. Is this a sham? Rajendra
Ganatra, a banker and expert in stressed assets,
rips apart this new structure and the earlier
Corporate Debt Restructuring scheme. He finds
it will only encourage promoters to play with
lenders money. In fact, it is our money since it
is government-controlled banks that are laden
with bad loans. Mr Ganatra gives proof of ever-
greening of bad loans of three infrastructure
28 Cover Story
companies, which raised debt ranging from
Ever-greening Bad Loans
47.6% to 167% of their debt-servicing
Rajendra Ganatra, a banker and expert in stressed assets,
requirement. Dont miss this eye-opening rips apart CDRs and other schemes to fix the huge bad
analysis on page 30. loan problem which are enriching borrowers, bleeding the
Senior citizens, who invest their hard-earned exchequer while destroying shareholders wealth
money in private retirement homes, usually
do not get what is promised by developers of
such properties. Unfortunately, at present, there
are no norms for this sector. Sucheta, in her
Different Strokes, highlights the need of proper 14 How Safe Is Your Identity?
government advocacy for senior citizens, based E-commerce Growth Pangs
on S Krishnamoorthys (an 80-year-old air-force
veteran) plea, asking the Madras High Court to
direct the state government to set up a specific
regulatory authority for retirement homes.
The Aadhaar number is based on the social
security number (SSN) concept used in the
16 Different Strokes
Retirement Homes Offer No Peace for Seniors

US. But did the US SSN simplify government


administration? In Crosshairs, Sucheta writes Moneylife
Quiz no

18
that this may be far from the truth. In 2014, MONEYLIFE
218
QUIZ
improper payments cost the US government a
whopping $124.7 billion. Clearly, a national
identity number has not prevented massive
leakage of government funds. Why will it be any
different in India, where governance standards
are worse?
Moneylife Foundation will be coming to
Chennai on 7 November 2015, with its flagship
21 Your Money
HC Directs United India To Reimburse Treatment Cost
Rs18 Lakh Fine for Developer
seminar on How to Be Safe & Smart with Your EPFO To Launch Online PF Withdrawal Facility
Money. Register online here - goo.gl/z3UoPA.
Hope to see you there!
Disclaimer: Moneylife has a policy of not allowing its editorial staff to
Debashis Basu buy and sell stocks that are written about in the magazine. All personal
transactions in individual stocks are subjected to internal disclosure rules.
MONEYLIFE | 12 November 2015 | 4

Content.indd 2 23-10-2015 18:43:58


Advertisements.indd 3 20-10-2015 20:24:53
CONTENTS
INTERVIEW FUND FACTS YOU BE THE JUDGE

24 We Look for Growth at


a Reasonable Price 27 Best & Worst Mutual
Fund Schemes 55 Will Your Will
Be Willed Away?
Soumendra Nath Normally, the country where the
Lahiri is the Will is executed is the country the
chief investment FIXED INCOME laws of which apply to the method of
officer at L&T execution
Investment
Management,
since September
2012
28 Flipping
Tax-free Bonds? TAX HELPLINE

G-Sec Yields Marginally Up


Yields Unchanged Past Fortnight
56 Queries at Moneylife
Foundations Tax Helpline
STOCKS
INSURANCE ML FOUNDATION EVENTS

22 Smart Money
Prescription for Pharma Stocks
Pharma stocks PE ratios range
46 Insurance
Trends
between 30 and 60! These are
Health Insurance
like FMCG companies, but
BMB Nirbhaya: Covering Infertility
with a far greater degree of
Regulations

58 How
uncertainty
Insurance Discharge Voucher
Should Not Close Claims
Not To Fall
Fine Print Victim to Cyber Fraud
38 Stock Watch There is no escape from
cyberspace and risks
cybers
Ultramarine & Pigments: Steady HEALTH associated with it.
associ
Growth Therefore, we need
There

50 Who
Inorganic pigment firm is also strategies to minimise
strateg
into wind power generation Am I? Where our risks, says
and BPO and has interesting Have I Come from? Dr Anupam Saraph
D
expansion plans
Western science has no
satisfactory answer for either of
these questions
EARNING CURVE
The Strong Get Stronger Pulse Beat: Medical developments
When the market falls, buy the

60 Pyramid
from around the world
strong stocks, especially those
near their 52-week highs Fraud
LEGALLY SPEAKING Islamic Indices

Not All Debt Is Bad


Look out for indebted
companies making rising profits
52 Investors
Consumers
as BEYOND MONEY

Can they get relief under the


Consumer Protection Act? 66 Malnourishment
More Dangerous
Motorcyles in Slow Lane
than Cancer
TECHNOLOGY: MOBILE Four out of 10 children being treated
for cancer in Mumbai lose the fight
Market Manipulation because of malnutrition
Aviva Industries
54 Safe Online
Shopping
Market Trend: The Slog Overs
Online shopping is convenient; but,
unless you take certain precautions
DEPARTMENTS
Dont expect a strong up-move and maintain highest security level, Readers Response ........... 8
soon it may cause you headaches and
financial losses, warns Yogesh Book Review ....................62
Sapkale Money Facts ....................64

Content.indd 4 23-10-2015 18:44:49


Moneylife Foundation AD.indd 1 23-10-2015 18:18:12
Volume 10, Issue 19
30 October 12 November 2015

Debashis Basu
Editor & Publisher
editor@moneylife.in

Sucheta Dalal
Managing Editor
sucheta@moneylife.in

Editorial Consultant
Dr Nita Mukherjee
nitamuk@gmail.com

Editorial, Advertisement, EXPOSING LAPSES IN THE SYSTEM


Circulation & Subscription Office Sucheta Dalals Bhushan Steels Dubious
315, 3rd Floor, Hind Service Industries
Premises, Off Veer Savarkar Marg, Shivaji
Restructuring is a good article that exposes
Park, Dadar (W), Mumbai - 400 028 the lapses in the system. Unless and until
Tel: 022 49205000 the lapses identified can be fixed by way of
Fax: 022 49205022
E-mail: mail@moneylife.in demonstrative punishment and the brains behind
Mutual Fund investments
them totally exposed, these things can go on are subject to market risks,
read all scheme related
forever. There are several such cases in banking documents carefully.
E-mail: which go unnoticed.
sales@moneylife.in
Subscription e-mail Write-off of loans, restructuring of loans, offering
subscribe@moneylife.in of concessions and reliefs, accommodating Write to
defaulters accounts and sanctioning fresh loans are the Editor!

New Delhi
common in our banking system; they seldom get
reported or detected easily.
WIN
a prize
DDA Flats, J-3/66, Kalkaji,
New Delhi - 110 019 Knowingly, or unknowingly, the authorities
including Securities and Exchange Board of India
(SEBI) and ministry of corporate affairs (MCA)
Bengaluru
1st Floor, 13/1, 7th Main Road, are parties in this, encouraging camouflaging
1 Cross, Saibabanagar, Srirampuram,
st
of bad loans and committing irregularities.
Bengaluru - 560 021
More the number of banks, the better they are
at hoodwinking the authorities. Likewise,
Kolkata the more the number of subsidiaries for any
395, Lake Gardens, Kolkata - 700 045 company, the better it is to fool the banks
Tel: 033 2422 1173/4064 4318
and authorities. There are several companies
with an unbelievable number of subsidiaries
Moneylife is printed and published by enabling the companies to raise capital,
Debashis Basu on behalf of bank loans and other funds from market; seldom do o they declare
ey d ecla
ec lare
re
Moneywise Media Pvt Ltd and printed at
Magna Graphics,101C&D, any dividend or even a small profit. They continue to always provide
Government Industrial Estate, encouraging news by fudging their balance sheets. False news is
Kandivli (West), Mumbai - 400 067
and published at 315, 3rd Floor, accepted by the authorities and gullible investors. It is a fact that when
Hind Service Industries Premises,
Off Veer Savarkar Marg, Shivaji Park,
the companies have many subsidiaries and many lenders, exercising
Dadar (W), Mumbai - 400 028 any control on them is difficult and the managements intention is only
Editor: Debashis Basu
to loot. It is impossible to fix them when the authorities are relaxed
and casual in their approach.
Total no of pages - 68, Including Covers Good to note that Moneylife makes all possible attempts to expose
some of the irregularities and lapses and keeps a vigilant eye.
Gopalakrishnan TV, by email
RNI No: MAHENG/2006/16653

MONEYLIFE | 12 November 2015 | 8

Letters.indd 2 17-10-2015 17:36:23


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Donate Ad.indd 1 23-10-2015 18:23:19


LETTERS

the
Leave Small Savings
Best
letter
Rate Alone!
I n the past few days, after the
Reserve Bank of India (RBI)
cut the repo rate, it is surprising
the outcry from the
banks against these
rates.
Mutual Fund investments
are subject to market risks,
read all scheme related
documents carefully.
to find banks blaming others for It is a foolish
their inefficiency; it is shocking
that the government buysat
argument, if one looks
at the facts logically.
Congratulations
least publiclythis argument, and tries to tinker with Bank FDs offer both Tarun Agarwal
other instruments for investors. The entire banking liquidity and security,
YOU WIN A
community seems to operate as a consortium (cartel compared to debt PERSONALISED
is undiplomatic) where they jointly decide the lending schemes and PPF CLOCK
and savings rate of the whole system. It is very easy (public provident
for them to hold the economy to ransom and they fund). One knows how
are successfully doing it with the help of government risky it is to invest
as well. in debt schemes,
Just before the Budget, banks blamed the favourable especially after the
taxation for debt mutual fund schemes as a reason Amtek fiasco, and
for being unable to attract deposits; the government banks slyly got the Tarun Agarwal

obliged, by bringing tax treatment of debt schemes taxation changed


on par with the bank FDs (fixed deposits), even to their advantage.
for investors who were earlier invested in the debt Similarly, an
schemes. instrument like
Now, banks blame the small savings rate for their PPF does not offer
inability to cut deposit rates and the government is full liquidity till 15 years, a te
tenure
nuree ffor
enu orr wwhich
hich
hi most
hmost
os
st
more than willing to listen to banks, despite knowing banks do not even offer FDs! D!
it is irrational to do so. Although RBI has effected If the government has to change the PPF or other
1.25% rate cut in the past one year or so, banks savings rates, they should also look at making those
have been able to pass only 0.6% to 0.7% cut to instruments completely liquid, like bank FDs, with
borrowers, despite the majority of loans now being a penalty rate. Else, it is clear that the government
lent at floating rates. is least interested in protecting the interests of the
Instead of rapping at least the nationalised banks middle class which voted for it to come to power.
to be more efficient, the government seems to be Request Moneylife team to help us by publishing
cunningly poised to lower its own liability of returns their analysis of this issue.
on small savings instruments by using the excuse of Tarun Agarwal, by email

NEED FOR AN APP! read it. A mobile application would help in reaching
It is October and soon many people in corporates out to people who do not subscribe to the traditional
would start looking for investing in tax-saving way of gaining knowledge. These are days where the
instruments to meet the Rs1.5 lakh tax declaration they well needs to go to the thirsty.
had given in April. I would request Moneylife to give With regard to the article by R Balakrishnan on
some space in your upcoming issues educating us on Consumerism (Moneylife, 17 September 2015), the
investing and provide more information on tax-saving way he put it was very easy to understand. He rightly
instruments. identified it as a disease where people spend hours
In the past, I had suggested a mobile application for on e-commerce websites doing nothing but gazing at
your website. The information provided in Moneylife is products and rates.
very valuable for middle-class people like me; but not Now that the earning capacity of Indians has increased,
everyone has the inclination to pick up a magazine and we should urge our young people to join the work

MONEYLIFE | 12 November 2015 | 10

Letters.indd 4 17-10-2015 17:36:56


LETTERS

stream and to spend their money judiciously. It is time About the authors last comment, where will it end, I
to start investing at an early age. guess, that depends on the maturity of the insurance
Thanks and keep up the good work of bringing people marketplace. There is no reason why a doctor should
out of financial illiteracy. charge a patient three or four times as much, as soon as
Shailender Singh, by email he finds out that the patient has insurance. This should
be investigated and the insurance company should beat
HAGGLING WITH THE DOCTOR? down the doctors charges. Or else, the patient should
This is with regard to Our Beef with the Doctors be told to go to another doctor whose charges are more
by Bapoo Malcolm. Two types of malpractice are reasonable. Unless patients revolt, doctors will continue
described in this article. The first kind is where medical to charge higher fees to those who have insurance.
staff talks about the patient, imagining him to be Insurance companies are too lazy to haggle with the
unconscious, and then has to pay a hefty sum for doctor and will pass the charges on to customers as
causing mental anguish. In the United States, damages higher premiums.
are awarded for non-quantifiable losses like pain and The bottom line is that patients must stop treating
suffering; in most other countries, damages are based doctors like gods, read up on their conditions on the
on actual loss to the patient like, say, loss of use of an Internet, ask pertinent questions and get a second
arm or a leg. opinion wherever feasible. I am a physician and I
The second incident quoted is fraud, where a doctor would much rather deal with a well-informed patient
treats deliberately for a non-existent problem. This than one who has faith but unrealistic expectations.
kind would be criminal offence, not just civil one. Meenal Mamdani, online comment

OUR READERS WHO CLICK WITH US


Heres a sample of the kind of feedback that we receive from our readers on
our vibrant website, www.moneylife.in

IS SEBI ASLEEP? stingy because I dont have fancy items like a car, a
This is with regard to Big Fines by SEBI, But No mobile phone, etc. Time will tell!
Funds by Sucheta Dalal. Why has SEBI slept for Mahesh Krishnamurthy
all the years when the funds are being collected? It
takes action too late and hardly recovers the fines GROUP BRIBING?
that are imposed. This is with regard to Breath of Fresh Air by
Anil Agashe Sucheta Dalal. Good initiative. Vested interests will
have to be tackled. I know the case of an income-
AM I STINGY? tax official in Mumbai I-T office who was caught
This is with regard to Buy stocks of consumer red-handed while taking a bribe. More money was
products companies, not their products by recovered from his desk drawers. It was surprising
R Balakrishnan. I have been speaking about this to to find the officer at his desk again after about two
a few people about this excellent article: some of years. Such a thing happens with group bribing.
them agreed; others did not. A friend said that I am Ravindra Shetye

HOW TO REACH US
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Moneylife Magazine, Unit No. 316, be edited. No. 316, 3rd Floor, Hind Service rates, email us at
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Off Veer Savarkar Marg, Dadar(W), For new subscription requests, Marg, Dadar (W), Mumbai 91-022-49205000.

11 | 12 November 2015 | MONEYLIFE

Letters.indd 5 17-10-2015 17:37:18


www.moneylife.in
Exclusive news & views with a big dierence
During FY14-15, the company had
EXCLUSIVE NEWS shown Rs378.78 crore as tangible fixed
News you had better not miss assets under the head of coee-vending
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Why CCDs coffee 1 April 2014, is stated as Rs310.68 crore.
vending machines Therefore, the company added fixed
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cost Rs1.15 lakh each vending machines.
As per the prospectus, during FY14-15, CDELs global vending business has a
Coee Day Enterprises (CDEL) capitalised claims that the cost is Rs1.15 lakh and strong base of 30,916 vending machines
coee-vending machines at Rs1.62 its machines are much superior to those across 12,500 corporates and growing at
lakh per unit. The company, however, available for Rs15,000-Rs40,000. 25%-30%.

SAT order exposes SEBIs continuous bungling with ML FOUNDATION


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>> Moneylife Foundation is conducting a
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Foreign mutual funds exit: Now Goldman Sachs & Chennai on How
Nomura to quit India to Be Safe & Smart
Goldman Sachs has sold its mutual fund business to Reliance Capital. with Your Money!
Nomura, too, is reported to have exited its joint venture with LIC by Sucheta Dalal and
Debashis Basu. You
too can benefit from
Marutis royalty payouts to Suzuki are extortive, says these programmes by
report registering at www.
Over the past 15 years, Marutis royalty to Suzuki grew 6.6 times when the mlfoundation.in
average sales realisation per car increased by just 1.6 times Membership is free

IndiGo IPO: Promoters flying high with dividends to HAVE YOUR SAY
themselves
InterGlobe Aviation, which runs IndiGo airlines, shows negative net worth Vote in the Moneylife poll on
of Rs139 crore due to an exceptional interim dividend the top issues of the week

Do companies/service-providers respond
EXCLUSIVE VIEWS On issues that matter to you faster on social media while resolving
consumer complaints?

Does Aadhaar serve any RBIs Diwali gift to India 18.2%


public interest? Inc! But what is there for
Dr Anupam Saraph the common man?
Gurpur

RTI acvists cry foul over Will mergers &


CICs trick to show lower acquisitions improve
pendency Indian banking? 18.2% 63.6%
Vinita Deshmukh Dr B Yerram Raju
Yes No Cant Say

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IncomeTax Helpline.indd 2 20-10-2015 20:32:26


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

How Safe Is Your Identity? to a specialised national resource on how to fight


the problem (www.idtheft.gov). Advocacy by www.
theVirginiaWatchdog.com has now led to efforts to
Busting the myth that Aadhaar is de-link various personal records from SSN. There is
following US Social Security Number new legislation as well. The Intelligence Reform and
Terrorism Prevention Act of 2004 prohibits display

A
widely-held misconception in India is that of SSN on drivers licences, state ID cards or motor-
the US social security number (SSN) is a vehicle registrations. The Social Security Number
perfect identity that simplified government Protection Act of 2010 prohibits the display of an
administration. And that UIDAIs (Unique individuals SSN on cheques and payments. But it is,
Identification Authority of India) innovation of apparently, not enough.
adding biometrics to the Aadhaar number has made An article by Christopher Burns in the
it foolproof. Nothing could be further from the truth. bangordailynews.com says that, in March 2015, the
Consider a few facts. office of the inspector general of SSN found that
The US started issuing
ssuing SSN in 1936 for social appear to be over 112 years
6.5 million Americans app
security programmess and retirement oold. They have active SSN
benefits; it quickly went numbers but are most likely
on to become a to be dead. This, it says, is
national identifier a big factor in identify theft
and authentication and leakage of government
number. It is now ffunds. Mr Burns says
used for medical iimproper payments by a range
records, health of federal programmes cost the
o
insurance, bank US government a whopping
U
accounts, credit cards,
ds, $124.7 billion in fiscal 2014
$
driving licences, utility
ity according to the government
ac
accounts, marriage accountability office.
ac
and death certificates
es Clearly, a national identity
and even private sectortor number is not enough to prevent
nu
employee filings. massive leakage of government
ma
SSNs problems funds, even in a rich and literate
arose because of the linkage to various national country like the US. All these learnings were clearly
databases, especially when the information went online available even before the Aadhaar was born. Yet, the
along with photos, numbers and other identification United Progressive Alliance (UPA) launched a massive
details. Identity theft exploded. Significantly, the US and expensive Aadhaar programme, without proper
realised the problem and initiated safeguards way legislation passed by parliament after a national debate
back in 2004. A memorandum titled Safeguarding on security measures, restricting its issuance to Indian
against and Responding to the Breach of Personally nationals and linking of national databases. Worse,
Identifiable Information asked various government there is no clarity on costs, renewal of biometrics
departments, including the military, to examine and (which change ever three to four years) or clarity
identify instances where collection or use of SSN is on dealing with identity theft. Instead, successive
unnecessary, in 2007. All government agencies that governments have tried to roll it out by stealth, making
issued identity cards with SSNs displayed were asked it mandatory for admissions, property registration
to remove the number. SSNs embedded in the bar code and government services. This continued unchecked
of military cards were also phased out since 2011. until a handful of public interest litigations (PILs)
The US SSN website (www.socialsecurity.gov) has finally reached the Supreme Court. The apex court
explicit warnings about identity theft and directions ordered that Aadhaar cannot be mandated for availing

MONEYLIFE | 12
27 November 2015
2014 | 14

Crosshair.indd 2 23-10-2015 17:42:36


government benefits and services; but its orders have shocked at this disclaimer.
been repeatedly flouted. The same company, like others in this space, asks
Identity theft is new to India because most you to indemnify it against all liability, loss, claim,
government records were not online or linked to a demand, damage or expense that may occur
single identification. This will change. Unfortunately, during your transactions, or even in T&Cs listed by
most Indians, enamoured by the life-changing benefits them. This also covers error or omission or any
of technology, are still to wake up to its dangerous loss due to wrong information posted by them and
flipside or the trauma of a stolen identity. absolves them from liability even if a virus from the
website affects your computer.
Cant you stop any of it? Geeks will tell you a
E-commerce Growth Pangs complicated process that may allow you to block
cookies and opt out from allowing access to some
Nothing is free; privacy is the price of your personal information. But, often, you have no
choice. The smarter ones take extreme and expensive

W
oman Stalked across 8 websites by precautions like having separate smart phones and
Obsessed Shoe Advertisement, says email IDs for all their app downloads including
a headline in theonion.com. The for ordering cabs, food, or even cooking gas and
article is a hilarious take on what we let ourselves e-shopping. Many are linked through e-wallets, rather
in for, by merely browsing an e-commerce site. Its than to their credit card. Dr Anupam Saraph recently
advertisements, displaying the product you were told Moneylife Foundation members that using a
browsing and its variants, then seem to stalk you across credit card is always preferable to debit cards, since the
the WorldWideWeb for months on end. This may former will at least gives you time to repudiate a false
not be such an irritant if it is books, gizmos or travel claim.
destinations are stalking you, but can be downright
embarrassing when lingerie ads begin to flash on your
browser, especially on office computers.
Then, again, it is the best time to be a consumer in
India since e-commerce firms are burning up piles of
cash to woo you with big discounts and deals. How
concerned should you be about signing up for that
spiffy app which offers Rs100 off on your first order?
Most of us are either too busy to read or
unconcerned about the privacy policy or terms and
conditions (T&Cs) listed by e-commerce sites. Speaking
at a Moneylife Foundation seminar, cyber security
expert, Dr Rakesh Goyal, warned participants about
how free apps effortlessly helped themselves to all
your personal data such as name, age, address, email,
phone number, take full network control, call phone But what about bank accounts, investments and
numbers, send messages, access your location and tax filings? Will those go on to your secure phone or
record audio and video. e-commerce phones? While private banks have huge
In contrast to their cavalier treatment of our rights teams working on e-security, can the same be said
and privacy, e-commerce companies have aggressive about government databases, which now want to
legal departments to protect their rights, liabilities and link all our personal and commercial information and
trademarks from real and imaginary infringement. identity to our biometrics?
Mistakes in their product promotions and discounts are While most developed nations, especially European
also covered by these disclaimers and usually set right countries, have clear right to forget laws, for negative
only if the reputational damage is likely to be higher personal information and financial information posted
than the price of a problem product. Check a few on websites, awareness and concern about privacy
examples. issues is abysmal in India. Does any e-commerce site or
A cash-back site, which is aggressively marketing app allow you to block them or a wipe clean option
itself, says in the fine print: we cannot guarantee that deletes the information you gave them at the time
the absolute security of your information of registration? Until the demand for such an option
as complete security of information during gathers momentum, a smart policy is to pause and
transmission is virtually impossible. Most people think before indiscriminately downloading every new
have touching faith in technology and will be app or service that promises a discount or freebie.

15 | 12 November 2015 | MONEYLIFE

Crosshair.indd 3 23-10-2015 17:42:54


DIFFERENT STROKES SUCHETA DALAL

Retirement Homes Offer No


Peace for Seniors
Regulation required to stop the harassment of those who have invested in retirement homes

O
nce again, it is probably the judiciary that may demographics, higher income in the hands of seniors,
come to the rescue of senior citizens who have security concerns and the paucity of domestic help, well-
invested their nest egg in retirement homes and run and regulated retirement homes and townships will
end up fighting bitter battles with developers instead of be essential for future generations. In many cases, it will
the restful luxury they expected in their golden years. S be the only way to ensure that a secure environment,
Krishnamoorthy, an 80-year old air-force veteran, has filed a companionship, nutritious food and geriatric care or
public interest litigation (PIL) asking the high court to direct medical assistance is available on a daily basis for those
the Tamil Nadu government to set up a specific regulatory who can afford it.
authority to for senior citizens homes in the state. At It is the governments responsibility to remove the
the first hearing in September, a two-member bench, regulatory vacuum in which retirement homes operate
comprising Chief Justice Sanjay Kishan Kaul and Justice TS and put in place a clear framework to decide who can
Sivagnanam, was sympathetic to set up retirement homes, ensure
his plea, despite a sketchy petition fair and transparent contracts with
and directed the state government seniors, proper supervision and
to file a proper response by 24th swift grievance redress. This will
November. Irrespective of what require the ministry of social justice
happens in the case, there is no and empowerment to work with
doubt that the senior citizens, who the finance ministry to put in place
invest their hard-earned money effective regulation. Unfortunately,
for proper accommodation and this is easier said than done in a
facilities (in these private projects), country where the National Policy
are not made to run from pillar to for Older Persons (NPOP), framed
post to get the services they were in 1999, has yet to be properly
promised. implemented and we have no real
Retirement homes are a niche estate regulator so far, because of
new real estate market segment that the industry is controlled by land
has grown steadily over the past sharks and politicians.
two decades by promising well-to- Seniors will also have to face
do Indians all their needs in old age In most retirement homes up to the reality that the concerns
food, house-keeping, laundry, services and maintenance of well-to-do people are not a
healthcare facilities, recreation standards decline, costs priority for any government. Even
and companionship of people of escalate and the terms of the NGOs working in this sector are,
their age group. But the reality is correctly, engaged in mitigating far
agreement are changed
often vastly different. Services and greater hardships and travails faced
maintenance standards decline, by the poor, destitute, infirm and
costs escalate and the terms of the original agreement abandoned seniors. While the Madras High Court has
are changed with no recourse to the senior residents. Mr taken cognisance of Mr Krishnamoorthys plea, real change
Krishnamoorthys petition arises out of his own experience will require a proper framing of issues and advocacy at
and the tribulations of other senior citizens who opted to the national level with the appropriate ministries or even
live in retirement homes that have mushroomed around a class-action suit. Here are some of the issues that need
the picturesque Coimbatore region of Tamil Nadu. thinking and clarity while framing such a policy.
Is it enough for the Tamil Nadu government to create a 1. Who Can Set Up a Retirement Township/Homes: Unlike
regulatory framework for the state alone? With changing old-age homes that are run by charitable organisations,

MONEYLIFE | 12 November 2015 | 16

DIFFERENT STROKES.indd 2 23-10-2015 18:11:29


DIFFERENT STROKES SUCHETA DALAL

retirement townships are for senior citizens who can afford years. While the terms were well thought out on paper and
a certain lifestyle and amenities and are willing to pay for seemed to ensure lifetime security for a senior, it turned
them. It requires deeper pockets and cannot be set up by out that these entities were not registered, making the lease
charitable organisations/NGOs or as a family enterprise. agreement itself legally tenuous. Escalating land prices
Although realty is a state subject, the process of granting worked to the advantage of the promoters who were able
clearances to set up retirement homes and townships to nudge tenants to leave through unreasonable escalation
needs to have a national regulatory framework, under the of monthly charges or poor service. The apartments were
ministry of social welfare. These should only be permitted then leased again at higher rates. Several seniors caught in
when basics, such as access to specialised medical care, such a trap have filed a court case, but the judicial system
are available at a reasonable distance and security, access in India is a slow and expensive grind.
and communication are in place. 4. Costs, Supervision, Accountability, Audit & Redress:
2. Minimum Assurance of Services: Regulations should One retirement home in Tamil Nadu has forced at least
specify the basic minimum services (security, food, 10 seniors to file lawsuits after they were threatened with
housekeeping, laundry, maintenance and basic medical eviction or being denied food and services, when things
facilities, as well as recreation and exercise facilities run by turned seriously acrimonious. Only a proper regulatory
appropriately trained and supervised staff) that need to be framework will ensure that seniors do not become the
in place to set up a retirement project. Decisions regarding victims of such dirty tricks, instead of the peaceful retirement
the selection of service-providers, that they paid and signed up for
supervision, audit of expenses and and that residents representatives
cost escalation must be through have access to accounts to ensure
a management structure that has that cost escalation is fair and
adequate representation from reasonable.
residents, chosen through an 5. Exit Option: The government
election process. must ensure that no senior is
Anyone setting up a retirement trapped into retirement homes by
home must be able to commit ensuring that there is a clear exit
specified minimum capital to be option in each contract. Ideally,
able to ensure maintain and all retirement homes must only have
the promised services for at least a lease and deposit arrangement
five years. There are plenty of because of the high cost and
documented cases where seniors restrictions of selling property in
have had a harrowing time a retirement township.
because of poor catering, laundry Putting in place a regulatory
or housekeeping services and the framework for retirement homes
promised medical facilities and Putting in place a regulatory is not a very difficult task, since
basic check-ups, which used to lure framework for retirement most developed countries have
seniors, are quickly shut down. On homes is not a very difficult already been through this phase
the flip side, seniors will have to of development where seniors in
task, if we borrow from the
be prepared to maintain deposits nuclear families felt the need to
to meet their monthly payouts
experience of the developed move to retirement homes for
and to cover emergencies and
countries the benefits they provide. In fact,
contingencies. this is a $260 billion industry in
3. Structure of Agreements: Ideally, seniors must be the US and growing; if run well, it will be an important
able lease rooms or apartments in such townships with market in India too. Pushing the government to set up an
provisions for deposits (refundable and non-refundable appropriate framework needs advocacy from influential
components) with monthly payments for food, maintenance seniors, to make it happen. No one else is likely to do the
and other costs. India has a few well-run retirement job for them.
homes on outright purchase but they are an exception. In
several retirement homes around Coimbatore, retirement
complexes have been set up by families but are positioned Sucheta Dalal is the managing editor of Moneylife. She was
as not-for-profit societies. The apartments are given out awarded the Padma Shri in 2006 for her outstanding contribution
on 20-year lease agreements, renewable for another 20 to journalism. She can be reached at sucheta@moneylife.in

17 | 12 November 2015 | MONEYLIFE

DIFFERENT STROKES.indd 3 23-10-2015 18:11:49


CURRENT ACCOUNT BOTTOMLINE BY MORPARIA

Moneylife

MONEYLIFE
Quiz no

218
QUIZ Answer
Correctly! Win
Another quiz to tease your brain. The answers are in a personalised
sed
this very issue. The winner will be chosen by a lucky clock with an M.Sudheer

draw from correct entries and answers published in the Mutual Fund investmentnt
investments are quote!
issue dated 10 December 2015. Send in your answers to subject to market risks,
read all scheme related
quiz@moneylife.in with the Quiz no., name, address & documents carefully.
telephone number before 18th November.

1. What was the approximate compounded earnings growth 5. Who is responsible for saying, Organic life, we are told, has
rate of companies listed in the Indian stock market during developed gradually from the protozoon to the philosopher
the period 2008-10? and this development... is indubitably an advance?
a. 10%-15% b. 20%-23% a. Bertrand Russell b. Peter Medawar
c. 25%-28% d. 28%-30% c. Descartes d. Kropotkin

2. What percentage of Indian roads is concretised? 6. What does SSL stand for in communications technology?
a. 100% b. 50% a. Secured Sockets Layer b. Seniors Shop on Lease
c. 25% d. 5% c. Structural Slab Level d. Space Systems Loral

3. Who is the author of the book, The 5 Mistakes Every 7. Approximately, how many children are diagnosed with
Investor Makes and How to Avoid Them? cancer every year in India?
a. Warren Buffett b. Philip Kotler a. 1,000 b. 10,000
c. Peter Mallouk d. Harsha Bhogle c. 25,000 d. 50,000

4. Which is the latest Indian public sector bank to have tied up 8. How much was the dividend distributed by Ultramarine &
with New India Assurance for health insurance policies? Pigments Ltd for FY12-13?
a. Punjab National Bank b. State Bank of Mysore a. 150% b. 125%
c. Canara Bank d. Bharatiya Mahila Bank c. 113% d. 100%

In all, 23 readers got all the answers right last time. The answers to Moneylife Quiz-216 are:
The winner of Quiz-216 is M Sudheer, from Kozhikode. 1- b. 139 schemes 2- a. -4.28% 3- d. S&P BSE 200
Congrats! You win a personalised clock with an 4- d. Road safety 5- a. Hippocrates 6- a. 70%-90%
investment quote! 7- c. Prohibition against an act or condition 8- b. 15%

MONEYLIFE | 12 November 2015 | 18

Current Account.indd 2 21-10-2015 22:28:34


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Your Money
MEDICLAIM
HC had already advised that a
persons claim should be considered
HC Directs United India To on the satisfactory reason that

Reimburse Treatment Cost


they were unable to get treated in
a network hospital, but had been
advised to go to a non-network
hospital.
In this case, Ms Dhanalakshmis
son had vomited and she was
under the impression it was just
food poisoning. But his condition
worsened and she had taken the
child to a nearby hospital, where
doctors diagnosed it as obstructed
hernia and recommended that he
should be operated immediately. On
their advice, her son had undergone
emergency surgery.
The petitioner had obtained the
necessary certification, of being a

T
he Madras High Court her baby admitted to a non-network genuine case, from the state health
directed United India hospital due to an emergency. The authorities. Hence, the insurance
Insurance Company to petitioner had joined the health firm could not reject her claim on
reimburse the treatment expenses of insurance scheme in 2012 and was the ground that treatment was done
Rs44,581.00 with 9% interest to a subscribing to it regularly. in a non-network hospital, the judge
petitioner, S Dhanalakshmi, who got Justice R Subbiah said that the said.

REAL ESTATE reimbursement of the amount of the RETIREMENT


rent they had paid during the delay.
Rs18 Lakh Fine for The Forum rejected the developers
contentions, noting that a clause in
EPFO To Launch
Developer the agreementwhich empowered Online PF Withdrawal
the developer to charge interest on Facility
A family of Chakroborti VK
Kondapalli booked a 1,600sft
(square feet) flat in a project by
late payments but restrained the
buyer from seeking compensation
was contrary to the law. E mployees Provident Fund
Organisation (EPFO) is hopeful of
Mahindra Lifespaces at Mumbai and Agreements contrary to public launching an online PF withdrawal
paid Rs1.06 crore in August 2009. The policy are void, said the Forum, while facility by March-end after the Supreme
purchase agreement was executed in holding the developer guilty of unfair Court extended voluntary use of
September and possession of the flat trade practices. The Forum directed Aadhaar card to government schemes,
was to be given by 31 October 2010. Mahindra Lifespaces to pay interest at including provident fund. We have
The family paid the balance Rs86.11 the rate of 10% a year on the Rs86.11 written to the Labour Ministry for
lakh by then. But the developer gave lakh paid by the buyers, for the period approvals for starting an online PF
the possession only in February 2012. of the delay. The Forum further withdrawal facility, central provident
The family approached the instructed the developer to reimburse fund commissioner KK Jalan told news
Additional District Consumer Forum the Rs4.80 lakh that the Kondapalli agencies. He said, We will ensure
for Mumbai Suburban District, seeking family had spent on rent during the speedy verification of PF withdrawal
interest on the money they had period and Rs35,000 for litigation cases of those applicants who will
paid at the rate of 12% a year and costs. mention their Aadhaar in their claims.

21 | 12 November 2015 | MONEYLIFE

Your Money.indd 2 23-10-2015 16:31:29


SMART MONEY R BALAKRISHNAN

Prescription for Pharma Stocks


Pharma stocks PE ratios range between 30 and 60! These are like FMCG
companies, but with a far greater degree of uncertainty

W
hen picking stocks, I like to use two anchors like a chemicals business and the second is like a low-
for valuation: One, the balance sheet, and, tech services business. There is a third setengaged in
two, the profit & loss (P&L) account. It is a biotechnologywhich is an area of intense specialisation
very simple approach. The handicap is that I miss out on and high level of unpredictability.
companies with no history, or with a small track record On the other hand, we have companies that invest
in terms of age of business. in R&D (research and development), have best-selling
The balance sheet approach is useful when looking products in their portfolio and have a pipeline of discoveries
at companies that are predominantly in commodity that are in queue for further action. This gives a huge
businesses, or in sectors not driven by consumer spending. unpredictability to a part of their cash flows. Similarly, they
A simple assumption is would have products where
that entry-barriers are few they own the patent and some
and businesses are prone where they do not. A new drug
to cycles. Here, I like to patent gets exploited for about
use the replacement cost 10 years. In India, this period
as a fair value. This could be shorter.
replacement cost mayor Out of 10,000 new
may notcoincide with products which get into the
the book value; because a R&D platform, not more
business has other assets than 100 get to the stage of
and liabilities beyond the trials on humans and not more
core assets necessary to than 10 become best-sellers.
produce the commodity. The R&D cycle is long and
Such businesses are there are no guarantees. Each
characterised by moderate pharma company may be
RoCE (return on capital You have to really know the working on some drug which
employed) over a 10-15
year period, with wild
industry to take a call on a player has a potential to be a financial
winner. A handful of global
swings. who has businesses in this companies fully disclose what
The P&L approach is industry across the globe. I have they are working on and a vast
applicable to businesses none; so my choices are limited majority just beat around the
that are asset-light and are bush, trying to be as vague
dependent on consumer as possible. Globally, most
spending. These companies have strong brands, high companies spend around 10% of their sales on R&D! In
RoE (return on equity) and no debt. You will find them India, it is nowhere near this number. International pharma
in consumer products and pharmaceuticals. Of these two, companies derive nearly 70% of their sales from patented
the prospects of consumer products businesses are more products; thus, when a product goes off patent, there is a
predictable. Pharmaceuticals are a complex group. Let severe drop in sales and profits. This forces them to spend
me try to explain why the forecasting of a pharmaceutical heavily on R&D in the hope of keeping the pipeline going.
companys numbers, or arriving at an estimated fair value
for its shares, is difficult. Empty Noise
Firstly, there are two distinct types. One: a pharma In addition to all this, India also has an activist socialist
company that makes dull products like bulk drugs, or regulator who thinks that controlling drug prices is easy
is into contract research manufacture (CRAMs). These and necessary. So far, that regulator has made a lot of
are, typically, low-investment and low-entry-barriers empty noise and nothing more. It has not really ruined
businesses and do not challenge us much. The first is the fortunes of any company, but does create noises, now

MONEYLIFE | 12 November 2015 | 22

column_Balakrishnan.indd 2 17-10-2015 17:06:12


SMART MONEY R BALAKRISHNAN

and then. Yet, analysts try to forecast the future for the The one important factor I look for in pharma companies
pharma companies! Since earnings from new products tend is to make sure that the company is absolutely debt-free,
to be lumpy and unpredictable, a degree of estimation is pays a good dividend and is growing at a rate higher than
needed. The preferred method of company valuation is the countrys GDP. The other factor is that they should
the discounted cash flow or DCF. The future cash flows have a wide range of products. I know this is not easy,
are estimated and brought to a present value, assuming but trusting a company with a few products is a big risk.
a rate of discount. So, in a sense, there is a high level of Government policies and respect for intellectual
estimation, forecasting, etc. Hence, we find that most property (IP) are other issues which can throw a spanner
pharma company stocks always seem expensive. in the works for pharma companies. So far, the lobbying
What I like to do is to be very careful when it comes skills of the industry seem to be good enough to keep the
to Indian pharma companies: There are some companies government away from doing any serious damage in their
where management quality is an issue and I stay far away zealous pursuit of affordable healthcare for all.
from them. Once this screening is done, I like to look at Pharma stocks trade at a premium to those in other
the RoE; then, the spread of domestic vs global business. sectors, most of the time. The risk/reward is not very good
I prefer a company with more domestic business, since the either, at the valuation highs. So, for me, to buy pharma
risks of litigation, pricing, intellectual property issues, etc, company stocks (even those that I shortlist) means that I
are lower in India. You have to really know the industry to have to plunge in without any margin of safety. Or else, I
take a call on a player who has businesses in this industry have to back the aggression of a promoter who is talking
across the globe. I have none; so my choices are limited. up a good story.
The stock that you pick could be an Indian or a I would say that we should buy pharma company stocks
foreign one. Foreign companies, typically, make money by when the valuation comes to a level where it becomes a
selling their globally patented drugs and over-the-counter bargain. The key is to seek established companies that
(OTC) drugs at good margins in India. They do not spend have good RoE/RoCE, no or low debt and derive a large
much on R&D from the Indian balance sheet. I find the part of their turnover from the domestic markets. If I take
multinational pharma companies relatively safer because a snapshot of pharma companies that have a turnover of
they seem easier to understand. more than Rs500 crore, I see that the PE (price to earnings)
I keep away from Indian companies that go on a spree ratios are scattered between 30 and 60! In a sense, these are
of acquisition, partly because I do not understand the like the FMCG (fast moving consumer goods) companies,
industry enough, and partly, because I suspect the motive with a far greater degree of uncertainty.
behind most acquisitions. Pharma companies with the So, happy hunting, for those who like to own this
domestic market as the main driver of earnings are what sector in their portfolio! Maybe it is a good option to buy
I limit my exposure to. Not because they are the best of a sectoral pharma fund (run the risk of manager bias) or a
the lot, but because of my own limitations. Thus, pharma pharma ETF. The sector sure does deliver above-average
does not form a significant part of my portfolio. I find that returns, over a long term.
there are too many approximations in the price estimation. The author can be reached at balakrishnanr@gmail.com

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23 | 12 November 2015 | MONEYLIFE

column_Balakrishnan.indd 3 17-10-2015 17:06:34


INTERVIEW EXCHANGES

We Look for
Growth at a
Reasonable
Price

S
oumendra Nath Lahiri is the
chief investment officer at L&T
Investment Management, since
September 2012. He also serves
as fund manager for eight
equity schemes of the fund house. He spoke
to Moneylifes Jason Monteiro about the
investing process he follows

Moneylife (ML): With over two decades of and stock prices. If you look at the cycles that weve seen,
investment experience, where would you put the by far, 2003-07 was the best phase. And the reason for
current market climate? that was that we were in a sweet spot: domestic growth
Soumendra Nath Lahiri (SNL): This is a tough market. was pretty strong; global growth was supportive; and we
A lot of what happened in the market over the past 18-24 started with low valuation. Earnings growth, during that
months was driven by hope, without substantial earnings phase, was 20%-23% compounded. This time, however,
growth. High expectations were built into the stock prices. I am not so sure.
That was coupled with easy money available globally In the past five years, a lot of foreign flows have come
and the expectation that India will always stand out as in, in the hope of higher earnings growth. But this has
a higher-grade investment destination. But, finally, stock not happened. Now, there are expectations that interest
prices are slaves of earnings growth and if that does not rates would move up in the United States. The tired
show up, you tend to worry. money, which has come in to make supernormal returns
Remember that between 2008 and 2010, we were in a relative to the other markets, may flee and take the market
phase when earnings growth was flattish and the Sensex down a bit. Yes, GDP growth looks better under the new
EPS remained at about 825, or thereabouts, for three series, compared to the rest of the world; but this has not
years. Following that period, we saw a pick up in growth really translated into earnings growth. As long as Indian

MONEYLIFE | 12 November 2015 | 24

Interview.indd 2 21-10-2015 22:24:17


companies do not achieve better rates of profit growth, I for the exposure to a company. If you add our holdings
think, you will find the indices to be more range-bound across all the schemes put together, we normally do not go
while throwing up opportunities of picking specific stocks. over 4%-4.5% of the overall equity capital of the company.
Beyond this, it is a function of the conviction that a fund
ML: What is your basic investment strategy, when manager has in the idea and the kind of opportunity that
it comes to picking stocks? exists in a stock. Often, it happens that when I start buying
SNL: We follow a bottom-up approach to stock selection. an idea and if the stock runs up 20%, Im not going to
Growth at a reasonable price is what we look for. The chase the stock. Then, your ideas are no longer your ideas.
market has 5,000 listed companies; not all qualify to be a If it comes back to my price, good; if not, I will look for
part of the investment universe. We have a team of eight alternatives. It has happened in a lot of cases, especially
including fund managers and analysts. This gives us a in the small- and mid-cap space which has less liquidity.
good amount of breadth to cover close to 300-350 stocks,
on a regular basis. We have a proprietary process called ML: What if some ideas dont work as planned?
GEM. This comprises three stagesIdea Generation (G), SNL: Its not that all the ideas that we buy turn out to be
Evaluation of Companies (E) and Portfolio Manufacturing great ideas. We believe that when we buy into an idea, we
and Monitoring (M). Generation of ideas can come from need to give these companies some time, like six to nine
various sources. It can come from something as basic months. At times, even they give a timeline of what they
as a screener. It can come from brokers or from talking plan to do or how they see things would progress. Day-
to channel partners of various to-day, stock prices can fluctuate,
companies. Based on where this sometimes for reasons beyond
idea falls, the sector analyst takes the control of the management.
it upon him to do an in-depth We have a proprietary Therefore, we have a tolerance to
analysis. This is the evaluation
process.
process called GEM. This these investment ideas; unless, we
get it horribly wrong. It happens
There are three things that the comprises three stages sometimes. Therefore, after six to
analyst needs to study. First, the Idea Generation (G), nine months, if a company falters,
business, the opportunity, and in terms of market share, etc, it
the size of the company. Second, Evaluation of Companies raises a red flag that things are
who are the people running it, (E) and Portfolio not going as per planned. We may
what is their interest, how they give the stock one more quarter
treat minority shareholders,
Manufacturing and to see how things work out.
their capital allocation policy; Monitoring (M)
and other things related to the ML: How important do
promoters, management, etc. The you feel is it to meet the
third part is the valuation metrics management of a company?
based on the analysts estimates of how he sees the future SNL: Every quarter, we attend a conference call that is
of the company. Considering data of 10-15 years throws organised after the results. If a stock is in our portfolio,
light on where the company is headed; then he makes a we definitely make it a point to meet the management
comparison of the companyboth on an absolute basis at least two/three times a year. These days, it becomes
and relative to its peer group. much easier because you have conferences where you get
It is just a model. To that extent, the analyst has models to meet the management of several companies together.
for most companies we would want to own or have a This is necessary if the stock is in your portfolio. Then,
potential of being a part of our portfolio. Once the analyst the next categories of stocks are those which may get into
evaluates the idea, it comes to the fund management team. your portfolio and you want to understand something
If the analyst is able to sell his idea, then it is the prerogative more. And the third category is one where stocks are
of the fund manager to put it in the portfolio, driven by competing peers; so we are just keeping a watch on what
the mandate and the investment objective of the scheme. is happening. So, where we own a stock, our interaction
with the company is much better than with companies
ML: How does the fund manager decide the weights whose stock we dont own.
for each stock? I believe that someone who has worked on the sell-side
SNL: We do not have any strict limits, apart from the broad has higher ability to look for ideas and do more in-depth
regulatory ones. As a fund house, we keep an overall limit work than a buy-side analyst. We started in the markets

25 | 12 November 2015 | MONEYLIFE

Interview.indd 3 21-10-2015 22:25:09


INTERVIEW EXCHANGES

in the early-1990s. Those days, there was no Google. You things will get better. The interests are aligned, in a sense.
had to think of an idea, search the documents at the BSE
to get a history of the stock. Those days, there were no ML: What is the reason for a high weightage of
quarterly results, only half-yearly results (were available) cement and other infrastructure stocks in your
as paper-clippings. That was the way we used to study schemes portfolios?
companies. I think, at that time, the understanding of SNL: The infrastructure pace has slowed down considerably
companies was much more because interactions with the which has led to low capacity utilisation of cement
management were much deeper. companies. Consumption of
But, nowadays, they have specific cement has gone down drastically.
people to deal with analysts and Urban housing has also seen a bit
investors.
In India, even if the of a lull in the past 9-12 months.
promoter holds 7%, We use a lot less cement than any
ML: What would be the main
reasons for exiting a stock?
hell still manage all other neighbouring country. Even
our concretisation of roads is only
SNL: There are three reasons why the cash in the books. 5%. There are lot of levers that
we exit a stock. First, we may What we look for can come into play to energise
have got the idea horribly wrong. cement off-take. As the capacity
The basic hypothesis may have are professionally- utilisation improves, the cash
not worked out. Second, when run companies. In a flows generated will be immense.
we buy a stock, we evaluate the It could happen in 12-18 months.
price it could go up to, if all things
professionally-run Therefore, as the economy grows,
work out. If the stock gets to company, the cash on we will see volume growth. India
that price, we re-evaluate that the book is treated like needs to spend on infrastructure.
position to see if there is more Compared to many developing
potential. If not, we start cutting the companys cash countries, we lag behind. The
our position. The third instance is country is making an effort
that, in a portfolio, you may not to move forward in terms of
get constant inflows and you have another stock outside getting things done and should see itself come through
your portfolio which has a much better potential. Then, in infrastructure spend. The government is doing its bit.
you replace the existing idea with a better idea outside. In Rail, road and defence should benefit from this spending.
terms of specific parameters, it is a mix of valuation and
growth. Therefore, even if a company becomes seemingly ML: Over the past year, the government has not done
over-valued, but still has a significant
ant growth potential, much spending. How much more time would
we will continue to hold that stock. ock. you wait befor
before switching to an alternative
idea?
ML: How much weightage do o you give to SNL: The government
gove has inherited an economy
promoter holding in a stock?? which had sl slowed down because of policy
SNL: We do give weightage to how much the decisions bein
being sluggish, or not implemented,
promoter owns. But its not so important that to keep up the momentum. There are a lot of
we will invest in a stock only iff the promoter unexecuted p projects which are pending for lack
holding is high. But, generally, someone
omeone of clea
clearances. The current government is
who owns a lot of his stock will not trying to unclog this. In infrastructure,
try
want to damage value. In India, a, it takes 18-24 months before you
even if the promoter holds 7%, %, ccan see real progress. The intention
hell still manage all the cash in n of the government is very clear.
the books. What we look for aree They have done a few things to
professionally-run companies. In make the system transparent and
a professionally-run company, are trying to improve the ease
the cash on the book is treated of doing business. I guess, we
like the companys cash. At the need to give another six to nine
end of the day, you hope that if months before we start seeing
the promoter holding is high, tangible improvement.

MONEYLIFE | 12 November 2015 | 26

Interview.indd 4 21-10-2015 22:25:24


MUTUAL FUNDS FUND FACTS

Best & Worst Mutual Fund Schemes


The best# three and the worst three schemes over the past three years ranked by their
quarterly rolling returns. Premium members get access to a more refined list of top
schemes by logging in to Moneylife Smart Savers - savers.moneylife.in

Equity Schemes (Quarterly Rolling Returns)


Large Cap (Category Avg: 3.99%, Launch Corpus Avg. Quarterly 1-Year 3-Years** Exp
Sensex: 3.11%) Date (Rs Crore)* Rolling Returns Ratio
SBI Bluechip 14-Feb-06 2,717 5.09% 16.51% 21.97% 2.12%
Birla Sun Life Top 100 24-Oct-05 1,857 4.91% 12.08% 21.11% 2.34%
HDFC Capital Builder 01-Feb-94 981 4.83% 11.37% 20.75% 2.26%
HDFC Large Cap 18-Feb-94 1,151 2.98% 3.95% 12.46% 2.21%
Reliance Quant Plus 18-Apr-08 1,238 2.83% 1.54% 11.81% 2.41%
Sundaram Growth 24-Apr-97 239 2.03% -3.60% 8.36% 2.39%
Multi-cap (Category Avg: 4.38%, BSE 200: 3.39%)
Birla Sun Life India Opportunities 27-Dec-99 100 6.97% 21.84% 30.91% 2.50%
L&T India Value 08-Jan-10 403 6.88% 25.67% 30.49% 2.47%
SBI Magnum Global 94 30-Sep-94 2,308 6.58% 22.18% 29.06% 2.10%
UTI Dividend Yield 23-May-05 2,857 2.88% 3.51% 12.05% 2.30%
IDFC Equity 09-Jun-06 259 2.86% 1.27% 11.93% 2.30%
IDFC Imperial Equity 16-Mar-06 116 2.70% 2.64% 11.24% 2.31%
Mid-and Small-cap (Category Avg: 6.61%, CNX Midcap: 4.37%)
SBI Small & Midcap 09-Sep-09 613 8.56% 37.46% 38.91% 2.53%
Franklin India Smaller Companies 13-Jan-06 2,512 8.05% 22.66% 36.32% 2.40%
DSP BlackRock Micro Cap 14-Jun-07 2,144 7.87% 32.38% 35.40% 2.42%
HDFC Small and Mid Cap 03-Apr-08 927 4.82% 14.59% 20.72% 2.60%
SBI Emerging Business 17-Sep-04 1,570 4.65% 14.43% 19.93% 2.13%
IDFC Sterling Equity 07-Mar-08 1,533 4.57% 11.47% 19.57% 2.02%

Debt Schemes
Income (Category Avg: 2.20%, Crisil Composite Bond: 2.21%)
ICICI Prudential Long Term Plan 20-Jan-10 787 2.96% 13.46% 12.39% 0.76%
Tata Dynamic Bond 03-Sep-03 980 2.70% 12.51% 11.27% 1.25%
Birla Sun Life Dynamic Bond 24-Sep-04 15,747 2.50% 13.98% 10.39% 1.19%
L&T Triple Ace Bond 31-Mar-97 864 1.91% 10.05% 7.86% 1.48%
Religare Invesco Active Income 02-Aug-07 702 1.90% 9.93% 7.83% 1.70%
DWS Premier Bond 21-Jan-03 945 1.84% 8.53% 7.56% 1.40%
Liquid (Category Avg: 2.16%, Crisil Liquid Index: 2.14%)
Escorts Liquid Plan 03-Oct-05 239 2.28% 9.04% 9.46% 0.50%
Taurus Liquid 01-Sep-06 1,391 2.20% 8.71% 9.11% 0.76%
Franklin India Treasury Management Account 30-Apr-98 3,059 2.20% 8.75% 9.11% 0.20%
Reliance Liquid 07-Dec-01 3,349 2.01% 7.87% 8.29% 0.42%
Tata Money Market 22-Dec-03 4,701 2.01% 7.75% 8.28% 1.05%
L&T Cash 27-Nov-06 787 2.00% 7.62% 8.25% 0.84%
# Please note the table represents a comparative performance of mutual fund schemes over a three-year period and it is not a recommendation; * Latest quarter average assets
under management; We have only considered schemes having a corpus above Rs100 crore. **Annually compounded

27 | 12 November 2015 | MONEYLIFE

Fund Facts.indd 2 20-10-2015 20:28:51


FIXED INCOME

Flipping Tax-free Bonds? interested in flipping seek to rent


demat accounts of those who do
not wish to invest so that they
Be Mindful of Capital Gains Tax can get the retail coupon which
is higher than the rate offered to

T
ax-free bonds have caught allotted bonds worth only Rs1.51 high net-worth individuals (HNIs).
the fancy of investors in lakh (15% of investment). If you NTPCs tax-free bonds were listed
the current market, as applied on the second day, you got at a 5.3% premium. So, if you got
Reserve Bank of India (RBI) has nothing. an allotment of Rs1.51 lakh and
been cutting the repo rate since flipped it on the first day, you may
January 2015 with a cumulative have made capital gains of Rs8,000.
reduction to 125 basis points (bps). If you are in the 30% tax bracket,
While the coupon rates for the remember your net gain will be only
recent tax-free bonds of NTPC Rs5,600.
Limited (National Thermal Power There is misconception, often
Corporation) and PFC (Power fortified by wrong media reports,
Finance Corporation Limited) were about the applicability of long-term
not enticing, investor response has capital gains (LTCG) tax while
been surprisingly overwhelming. On selling these bonds. LTCG tax
the very first day of issue opening, will be applicable if you sell these
NTPC was oversubscribed by 6.31 bonds after one year @10% without
times while PFCs bond issue was At a time when tax-free indexation. There is no indexation
oversubscribed by 12.09 times. The bonds are being offered, RBI has benefit when selling taxable or tax-
retail portion for NTPC issue was reduced interest rates sharply. free bonds. It is unclear how much
oversubscribed by 6.60 times. A The trend seems to be to invest in capital gains (or loss) you may make
retail investor, who invested Rs10 tax-free bonds and flip them on after one year. It depends on the
lakh in NTPC tax-free bond issue, the first day of listing, to make interest rates prevailing at the time
on the first day, would have been capital gains. Apparently, those you sell.

Yields Unchanged Past Fortnight G-Sec Yields


Marginally Up
B ond yields remained unchanged in the past fortnight. You can expect to get
8.35%-8.50% for AAA rated bonds and around 9% for lower than AAA rated
bonds. T he 10-year benchmark G-Sec
yield, has marginally risen to
end at 7.55% on 16th October. The
government may link the interest rate
Issuer Maturity Next Last Yield ISIN Rating
Date Coupon (%) offered on small saving schemes to
bank deposit rates of similar tenure
Reliance JIO Infocomm 16 Jun-24 16 Jun-16 8.71 INE110L08037 CRISIL AAA
9.25% (unsecured)
or to a market-linked benchmark.
Currently, the interest rates on small
LIC HSG FIN 8.67% 26 Aug-20 29 Jul-16 8.34 INE115A07HS2 CRISIL AAA saving schemes are in the range of
HDFC 8.45% 11 Jun-18 13 Apr-16 8.29 INE001A07NR4 CRISIL AAA 8.4% per annum (pa) to 9.3%pa.
Small savings schemes are deposit
NSE data as of last trade date of 16 October 2015
schemes offered by the government
Sterlite Industries 9.24% 06 Dec-22 06 Dec-15 10.27 INE268A07129 CRISIL AA+ to provide a risk-free investment
Family Credit Ltd 10.90% 28 Feb-24 28 Feb-16 9.51 INE027E08012 CARE AA+ option to households. Some schemes,
like Senior Citizen Savings Scheme
Dewan Housing 11% 12 Sep-19 12 Sep-16 9.10 INE202B07654 CARE AAA
(SCSS) offers 9.3%pa, which is
BSE data as of last trade date of 16 October 2015 taxable, while public provident fund
(PPF) gives 8.7%pa tax-free.

MONEYLIFE | 12 November 2015 | 28

Fixed Income.indd 1 23-10-2015 17:40:22


HOW TO BE
SAFE & SMART
WITH YOUR MONEY!
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Presided over by Saturday

7
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Admission Free
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Dakshinamurthy Auditorium,
tem compounding; Risk & Returns of gold, real estate, equities;
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Debashis Basu, editor and publisher of Moneylife Mylapore, Chennai,
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Safe and Smart Chennai Event 7 Nov 2015.indd 1 23-10-2015 18:53:26


COVER STORY

How Banks Are Ever-greening


Bad Loans

Rajendra Ganatra, a banker and expert in stressed assets, rips apart CDRs
and other schemes to x the huge bad loan problem which are enriching
borrowers, bleeding the exchequer while destroying shareholders wealth

N
on-performing assets (NPAs) and outstanding of approximately Rs2.86 lakh crore, has
restructured (stressed) assets in the Indian rendered PSBs financial position fragile. The situation
banking system stood at a worrisome is grim, since CDR advances are concentrated in a few
11.06% of gross advances, as on 31 March PSBs; 10 banks account for 59% of CDR exposure. For
2015, and were increasing rapidly. The one particular bank, the stressed assets equal the its worth.
situation was alarming for public sector banks (PSBs), CDR has been around for 15 years: it is time it should
including the State Bank of India (SBI) and its associates, be re-evaluated and, if the process is found wanting,
due to higher NPAs, relative to those of private sector and remodelled. The fact is that the success rate of cumulative
foreign banks (see pie chart Gross NPAs). CDR debt of over Rs4 lakh crore up to FY14-15 was low
The banking sector, which had clocked a decline in at around 15% (by value); failed projects accounted for
PAT (profit after tax) of 14.1% in FY13-14 according 14% of the debt and the remaining 71% debt was locked
to Reserve Bank of Indias Financial Stability Report in live CDR accounts. By FY14-15, the success rate on the
(Issue No. 11, June 2015), managed to register a growth cumulative CDR debt up to FY08-09 was a mere 36%
of 11.1% in FY14-15, aided mainly by treasury income (for approximately 24% of accounts), despite falling in
and the base effect. Lower growth in advances, amidst a period of economic boom. Going by this benchmark,
high growth in NPAs of PSBs, and a share of about 85% an optimistic estimate of the success rate of the overall
in the deteriorating CDR (corporate debt restructuring) CDR portfolio is about 36%. Correspondingly, many

MONEYLIFE | 12 November 2015 | 30

Cover Story.indd 2 23-10-2015 18:52:09


COVER STORY

CDR accounts may turn into NPAs which will further would be nave to assume that banks do not adopt such
stress PSBs. The CDR mechanism appears to have failed. innovative ever-greening in coordination with other lenders.
The CDR mechanism was designed to provide timely
Proof of Ever-greening
Here is an analysis of the cash flows of three infrastructure
Gross NPAs & Restructured Assets to companies which is highly suggestive of ever-greening (see
Gross Advances Table: Ever-Greening Cases). During FY13-14 and
FY14-15, these companies operating cash flow and
Public Sector Banks fresh equity/quasi-equity fell substantially short of the
Private Sector Banks investments. So, they had no option but to raise debt not
only for investments, but also for almost the entire debt-
Foreign Banks
servicing. As a result, the companies raised debt ranging
13.50% 4.70%
from 47.6% to 167% of debt-servicing requirement. It
3.20% resulted in further deterioration of high debt/operating
profit levels. For steady cash flow, growing at a CAGR
(compound annual growth rate) of around 5%, debt/
operating profit ratio should not exceed five for a repayment
period of 10 years. In these three cases, it ranged between
support to genuine cases through restructuring by 15 and 20.9, which showed high probability of default,
ascertaining the viability and rehabilitation potential of unless the companies could immediately enhance their
the borrowing companies and approval of the restructuring operating cash flows by high multiples. Debt equity ratio
package within a specified timeframe. While the Reserve in isolation is meaningless. It is time NPA classification is
Bank of India (RBI) permitted aggressive restructuring
under CDR, based on liberal debt-servicing norms, it
was expected that banks, which had seen their original Gross NPAs
estimates going awry, would adopt effective evaluation Foreign Banks 4%
Private Sector Banks 10%
to minimise the probability of default. Going by the low
success rate of the CDR accounts, it is clear that banks
adopted CDR only to postpone provisioning, given the
Public Sector
liberal provisioning norms for CDR. Banks 86%
Joint Lenders Forum (JLF): Banks adopt CDR for accounts
on the verge of turning non-performing. To encourage
proactive and timely corrective action, RBI, in February
2014, introduced formation of JLF for implementing
corrective action plan (CAP), well before the account would
become non-performing. Accordingly, JLF is required to
implement CAP on SMA-2 (special mention accounts, Total Gross NPAs: Rs3.09 lakh crore
sub-category 2, i.e., those with default in principal or
interest payment overdue of 61-90 days), and evolve a
CAP independently or under the CDR mechanism. The not merely linked to debt-servicing, but debt-servicing with
JLF mimics the CDR mechanism, going by the general operating cash flow unless, of course, negative operating
adoption of CDR mechanism by banks for JLF accounts. cash flow in the initial years is factored in at the time of
Debt Rescheduling Without Provisioning (25%/50%): To evaluation by lenders.
aid banks further, RBI permits rescheduling of the principal
without treating it as restructuring (i.e., without downgrade The 5-25 Structure & Its Flaws
and provisioning) for increase in the project cost up to at The CDR, JLF and 25%/50% mechanisms were designed
least 25% on account of change in project configuration to help banks substantially mitigate the initial provisioning
(not overrun) before start of commercial operations. Similar pressure. Still, RBI introduced Flexible Structuring of
rescheduling is permitted in case of refinance of at least Long Term Project Loans to Infrastructure and Core
50% of the debt. These policies provide elbow room to Industries (popularly called the 5-25 structure), apparently
banks to reschedule debt without substantive change in to impart ultimate relief to banks from provisioning. The
project configuration, and structure double refinance. It structure permits banks to adopt original amortisation

31 | 12 November 2015 | MONEYLIFE

Cover Story.indd 3 23-10-2015 17:56:26


COVER STORY

Ever-Greening Cases
Rs Crore Infra Company 1 Infra Company 2 Infra Company - 3
Cash Flow FY13-14 FY14-15 FY13-14 FY14-15 FY13-14 FY14-15
Operating Cash Flow 2,590 2,915 1,392 2,733 1,233 1,294
Investing Cash Flow (5,422) (3,164) 686 448 (2,895) (1,105)
Financing Cash Flow (Net) 634 448 (1,923) (2,950) 1,562 (252)
Of this:
- Equity / Quasi-equity (net) (349) 1,831 - - - -
- Short-term Borrowings (net) - - 45 651 212 592
- Long-term Borrowings 10,785 11,482 3,201 2394 3,514 1,641
- Loan Repayment 6,837 9,278 1,484 1,646 356 421
- Interest Paid 3,110 3,445 3,704 4,754 1,875 1,791
TOTAL CASH FLOW (2,198) 199 155 231 (100) (63)
INFLOW
Operating Cash Flow Plus Equity/ 2,241 4,746 1,392 2,733 1,233 1,294
Quasi-equity
OUTFLOW
Investments / (Disinvestments) 5,422 3,164 (686) (448) 2,895 1,105
Debt-servicing 9,947 12,723 5,188 6,400 2,231 2,212
Total 15,369 15,887 4,502 5,952 5,126 3,317
Shortfall 13,128 11,141 3,110 3,219 3,893 2,023
Fresh Debt Raised 10,785 11,482 3,246 3,045 3,726 2,233
Fresh Debt as % of Debt-servicing 108.4% 90.2% 62.6% 47.6% 167.0% 100.9%
Debt Equity Ratio 3.6 4.4 15.2 42.3 3.7 5.1
Debt to EBITDA Ratio 15.0 18.0 20.9 20.6 19.5 19.0

schedule (OAS) for repayment of loans for a period of by lenders through cash trap accounts. Correspondingly,
about 25 years, i.e., up to 80% of the economic life to it can be adopted for infrastructure projects under public
projects in infrastructure and core sectors/industries private partnership (PPP) structure, backed by take-or-
such as transportation, energy, water and sanitation, pay contracts with creditworthy off-takers along with
telecommunications, social and commercial infrastructure, cash trap accounts for the concession/off-take period. In
coal, crude oil, natural gas, petroleum refinery products, such projects, while it can help banks match their assets
fertilisers, steel, and cement production. and liabilities, it can also minimise the major fixed cost
Within OAS, banks can provide initial debt facility component (principal+interest) in PPP projects where user
(IDF) of five to seven years. The outstanding debt at the charges are based on two-part tariff structure. Going by
end of such IDF can be structured as a bullet repayment this benchmark, barring power purchase agreement (PPA)-
to be refinanced by the original lender, or other lenders driven power generation/transmission projects, annuity-
with or without the original lenderor by issue of bonds. based road projects and water-sanitation projects with
Extension of OAS is permitted only in cases where the date optimum tariff structurealong with bankable concession
of commencement of commercial operations is extended agreementno other borrower from the long list of eligible
in line with RBIs guidelines. However, in such cases, the sectors/projects seems appropriate for 5:25 structure.
revised OAS is limited to 85% of the projects economic
life. For existing standard loans of at least Rs500 crore, Encouraging Bad Behaviour
the 5:25 structure is allowed up to 85% of the economic What is the impact of this? It only encourages promoters
life even after the start of commercial operations. to play with lenders money. Jenson & Meckling (1976),
The 5:25 structure is appropriate for projects with in their seminal study Theory of the firm: Managerial
steady and predictable cash flow which can be controlled Behavior, agency costs and ownership structure, show that

MONEYLIFE | 12 November 2015 | 32

Cover Story.indd 4 23-10-2015 17:57:03


COVER STORY

Galloping Bad Loans creditworthy off-takers and conversion


of letter of assurances (LoA) from the
government coal companies to the
Public Sector Banks Private Sector Banks
Rs Crore
power project companies into take-
2,67,065 31,576
Gross NPAs
or-pay coal supply contracts.
2,16,739 In one ultra-mega power project,
22,738
lenders had treated coal price risk
19,986
1,55,890 mitigated, merely based on the
promoters investments in overseas
coal mines. The lenders engineers
played a perfunctory role by
accepting project costs as proposed
by borrowers. In toll road projects,
FY12-13 FY13-14 FY14-15 FY12-13 FY13-14 FY14-15 developers often assigned construction
contracts to their nominees. Banks
were expected to resolve the conflict
even a sole owner of a firm would derive non-pecuniary by evaluating project costs efficiently. However, here
benefits from the firm with risky debt, if he believes that also, banks depended on advice from lenders engineers
such benefits are more valuable than loss in the value of his who justified project costs as proposed by borrowers.
own equity. Internationally, research shows the manager/ This is understandable, since the engineering firms often
promoters propensity to shift the risk to lenders in various have deeper business relations with other companies of
ways. In India, there has been grudging acknowledgement the promoters and get away with perfunctory advice,
by the regulator of the lack of skin in the game by the particularly when they see that the lending bank lacks
promoters, as an indirect reference to adoption of asset technical knowledge and adopts a hands-off approach.
overstatement for generation of promoters equity. If No wonder, in 2011, a study of 66 projects by National
the promoter recovers the entire equity by asset over- Highways Authority of India (NHAI) had shown that
statement, the entire project risk shifts to lenders. While banks had lent an average of 39% more than the project
CDR entailed restructuring of debt, promoters without cost arrived at by NHAI. Similar information asymmetry
skin in the game were not perturbed due to the lenders
step-in rights through pledge of shares in unviable projects,
particularly when they could manage the cash flows to CDR Hasn't Worked
their benefit and leave the assets for recovery through tardy
CDR Status: FY-2015
legal process with impunity, once the assets deteriorated 100%

beyond redemption.
According to Report of the Committee to Review 80%
Governance of Boards of Banks in India (Nayak
Committee report), released in May 2014, the financial 60% % Successful CDRs (Value)
position of PSBs is fragile, partly masked by regulatory % Failed CDRs (Value)
forbearance which delays, but does not extinguish, the 40%
% CDRs Underway (Value)

recognition of this fragility. The 5-25 and other structures


have all the trappings of delaying and enhancing, but not 20%
extinguishing the NPAs. The cause for this has been weak
board governance of PSBs. Look at how large NPAs have
0%
cropped up in the power generation sector. Upto FY-2009 FY-2010 FY-2011 FY-2012 FY-2013 FY-2014 FY-2015
Until FY13-14, of the total share of PSBs advances to
power generation sector, 10.1% was standard, and 17.3%
was stressed, according to RBIs Financial Stability Report.
These large stressed advances have resulted from sanction applies in working capital advances where, among other
of project finance by PSBs (and some private sector banks) issues, stocks are certified by the auditors without any
without proper risk mitigation. For example, the banks domain expertise and no one is held responsible for major
disbursed debt to power generation projects often before impairment in the value of stocks later.
execution of PPAs (power purchase agreements) with What does the weak board governance of PSBs

33| 12 November 2015 | MONEYLIFE

Cover Story.indd 5 23-10-2015 17:57:16


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COVER STORY

Strategic Debt allowed to be upgraded as standardwith a caveat


that the existing provisions would not be reversed.
Restructuring Scheme Banks are allowed to refinance such debt (with a
fresh repayment schedule) without restructuring; this

R eserve Bank of Indias Strategic Debt


Restructuring (SDR) Scheme of June 2015
provides step-in rights to lenders to achieve majority
implies further relief from provisioning.
Steps-in rights, through pledge of entire
shareholding of the promoters, are meant to serve
holding through conversion of debt and unpaid as an effective security for lenders. Once the lenders
interest into equityin case a restructured account exercise the pledge and dislodge errant promoters, they
fails to meet the financial and other critical targets. are free to subject the company to a process which can
SDR can apply to accounts restructured in the past, speed up and maximise debt recovery. Provisioning for
if the borrowers agree. SDR can be implemented if debt, in such cases, is consistent with the classification
lenders determine the project to be viable, despite the of such assets. The pledge of shares has a disciplining
failure of restructuring, if at least 60% of lenders, effect on the promoters. For example, in the 1990s,
with aggregate debt of 75% or more, support it. The Tractebel, one of the promoters of a 260-MW power
conversion price is lower than the market value or the generation company, viz., Jindal Tractebel Power
break-up value. Company, had stopped work for the project, since it
Invocation of SDR happens after the failure of had reached the peak of liquidated damages in terms
restructuring as evidenced by the companys inability of the EPC (engineering, procurement, construction)
to meet the requisite financial and other critical contract, and further delay did not impact it any
covenants. Yet, the Scheme permits banks to invoke more. As it was affecting the lenders, they threatened
SDR without treating the accounts as restructured. to exercise the pledge of shares and the matter was
Hence, the benign provisioning norms continue post- quickly resolved. However, it is strange that the SDR
SDR, and the asset classification, which had prevailed Scheme does not stipulate pledge of shares first. The
at the time of creation of JLF (joint lenders forum), only idea seems to go beyond the ultimate, i.e., 5-25
applies. Further, when the lending banks divest their situations, and allow the account to retain the account
holdings in favour of a new promoter, the account is classification as existed on the reference date.

connote? Remember how an erstwhile railway minister is funded with debt, and where the sponsors with requisite
had placed his loyal chartered accountant on a PSB board credentials take construction and cost overrun risk, and
for getting easy loans? Was that an isolated event? Was upon completion, get a majority stake and lenders keep
the SK Jain episode in Syndicate Bank an isolated event? a minority stake. Asset over-statement to extract equity
If the owners, who are supposed to place watchdogs for seems to have helped some promoters to create speedy
effective management, become nibblers, can employees assets at a time when project equity participants were not
be far behind? The exponential growth in PSBs NPAs available. But its unrestrained spread has turned India into
refl ects serious employee moral hazard apart from lack a high-cost economy and exposed banks to excessive risks,
of organisational and management bandwidth. While which are now leading them to a precipice. It is time PSBs
project financing has failed due to lack of banks expertise are revamped urgently, lest the banking sector plunges into
in evaluation, CDRs have failed due to the same reasons, crisis caused by bad loans. We have spent too much time
aside from the banks anxiety to minimise provisioning. experimenting with how to control it while keeping the
Where do we go from here? It is time the government weak structure intact.
implemented the seven-pronged Indradhanush plan to
revamp PSBs in right earnest, lest the financial stability of
the banking sector is seriously jeopardised. The regulator
may consider implementing a system for accreditation for The author is the managing director &
project financing banks and arrangers/financial advisors. CEO of India SME Asset Reconstruction
Accredited banks with sectoral/project finance expertise Company Ltd., promoted by Small
Industries Development Bank of India
also need to devise innovative structures where, for viable
projects, even 100% project cost without over-statement

MONEYLIFE | 12 November 2015 | 36

Cover Story.indd 6 23-10-2015 17:57:41


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INSURANCE - MSSN.indd 1 23-10-2015 18:15:53


StockWatch
A section on stocks and sectors that catch our eye

U lt r a ma r ine & Pigm e nt s


In the Fast Lane?
Steady Growth Price in Rs
Volume

100 96,000

Inorganic pigment firm is also into wind


power generation and BPO and has 90 72,000

interesting expansion plans


80 48,000

U
ltramarine and Pigments (UAPL) serves its
customers with a range of inorganic pigments, 70 24,000

detergents and cosmetic-grade surfactants. It


is the only film sulphonator in south India and has 60 0
a capacity of 20,000 tonnes per annum. It has two Oct-14 Apr-15 Oct-15
factories in Tamil Naduin Ambattur and Ranipet. It
also has a business process outsourcing (BPO) business Shares Traded Adjusted Closing Price

that contributed 17% of its revenues in March 2015


Key Financials
Stand-alone (Rs Cr) Dec-14 Mar-15 Jun-15
Revenue 44.66 41.70 50.92
OP 8.64 5.45 8.05
OPM 19% 13% 16%
Y-o-Y Revenue growth 2% 4% 21%
Y-o-Y OP growth -3% -8% 11%
March Ending FY13 FY14 FY15
RoNW 14% 16% 19%
OP: Operating Profit, OPM: Operating Profit Margin, RoNW: Return on Net Worth

The strongest line of business of UAPL is


surfactants. This segment recorded higher margins
due to a better supply of imported alpha olefin (a key
raw material) in the first two quarters of the year.
and recorded an overall operating profit margin of However, in the latter part of the year, due to the
21%. Much of this comes as exports. Exports of volatility of crude prices, the company faced erratic and
manufactured products are around 16%. inconsistent supply of the raw material.
For the quarter ended June 2015, UAPLs revenues In the wind power generation segment, the directors
were Rs50.92 crore (Rs42.08 crore), up 21.01%, are optimistic and have said in the annual report
and its net profit was Rs5.22 core (Rs5.04 crore), up (FY14-15), In the coming years, we hope that the
3.57%. For the year ended March 2015, the revenues constraints and bottlenecks faced by windmill operators
were Rs172.22 crore (Rs150.22 crore), up 14.64%, will be reduced, as the Tamil Nadu State Grid capacity
and its net profit was Rs18.74 crore (Rs14.39 crore), is augmented. This will help avoid production loss
up 30.23%. during peak season. There are key concerns in the

MONEYLIFE | 12 November 2015 | 38

StockWatch.indd 2 23-10-2015 17:21:22


STOCK WATCH

pigment business segment. Demand from the laundry Rs7.50. Its return on net worth (RoNW) was 19%
and white-washing applications is shrinking. based on four-quarter trailing net profit and its return
However, the bright spot for UAPL is that it plans on capital employed (RoCE) was 27% on the basis of
to expand its manufacturing facilities in Gujarat and of four-quarter trailing EBIT (earnings before interest
its directors have reported, GIDC (Gujarat Industrial and tax).
Development Corporation) is in the process of UAPL has distributed dividends of 150% for
establishing infrastructural facilities at the industrial FY14-15, 125% for FY13-14 and 113% for FY12-13.
site at Dahej, Gujarat. The company has paid water The face value of the UAPL share is Rs2 and its book
contribution charges for the year, and is waiting for value is Rs34.
further progress. The share price has risen from its 52-week low
Over the past five quarters, the average growth of Rs60 on 27 March 2015 to its 52-week high of
in quarterly sales of UAPL was 17% and its average Rs104.75 on 19 October 2015. The shareholding
growth in quarterly operating profit was 23%. UAPLs pattern of UAPL includes 51.99% with the promoters,
average operating margin is a solid 17%. Its market- 0.14% with domestic institutional investors and
capitalisation is 1.39 times its sales and 8.33 times 47.87% with retail investors. The share is currently
its operating profit. Its cash earnings per share were trading at around Rs97.20.

The Strong Get of 587 companies, one would have made an average
return of 313%. From 5 October 2011 to 1 October

Stronger
2015, not even a single stock from among these stocks
had negative returns, provingonce againthat
holding high-quality stocks for longer periods turns out
to be worthwhile.
When the market falls, buy the strong Could this return have been bettered? One
stocks, especially those near their 52-week approach is to buy stocks that are showing price
highs strength, hoping that the momentum would continue.
The other approach is to buy stocks that are down in

O
n 5 November 2010, Nifty hit a high of 6,312 the dumps, hoping that they would revert to mean.
and then fell to 4,751, Of the two approaches, momentum won. Of the 587
or nearly stocks, 19 stocks traded in the range of less
25%, by 5 October than 5% off their 52-week
2011. However, highs. These gave
even when the an average
market corrected, return of 369%.
there were stocks There were 196
moving higher and companies which
which hit their 52-week were trading in off
closing high. Of 1,285 companies their 52-week lows.
(excluding bank and NBFC), 587 companies Had one bought these
had RoCE (return on capital employed) of 11%+ stocks, one would have had
in September 2011. Had one bought the entire set average return of 274% during the

Exits & Returns from Erstwhile Street Beat Stocks: We continue to monitor stocks featured in the erstwhile Street Beat section. We will suggest an
exit when they are no longer undervalued or not performing as per expectations. Keep an eye on this space. | 50% Return: Our recommendation has
so far fetched 50% average annualised return since January 2012, based on booked profit and open positions of more than one year. | Exits: Astra
Microwave : Loss of 12% since 30 April 2015; GMDC: Loss of 37% since 5 March 2015; Geometric: Profit of 5% since 8 January 2015; MOIL: Loss of 27%
since 25 December 2014; KSE: Profit of 14% since 11 December 2014

Disclaimer: None of the stock information presented constitutes a recommendation or a solicitation of any offer to buy or sell any securities. Information presented is general in nature that does not take into
account your individual circumstances, financial situation or needs Although information has been obtained from and is based on sources we believe to be reliable, we do not guarantee its accuracy and the
information may be incomplete or condensed. All opinions and estimates constitute our judgement as on the date of the report and are subject to change without notice. Past performance is no indication of future
results. Investors must do their own research before acting on them. Data Source: Centre for Monitoring Indian Economys Prowess database.

39 | 12 November 2015 | MONEYLIFE

StockWatch.indd 3 23-10-2015 17:22:04


STOCK WATCH

growth in the range of 16.16% to 25.88%. Over the


Momentum Works five quarters ended June 2015, its average revenue
Price on Price on Change %
growth is 22.44%. After the weak operating profit
05 Oct-11 01 Oct-15 growth of 2011, its performance started improving.
Relaxo Footwears 43.15 533.50 1,236%
The five-quarter average OP growth moved in the
range of 21.01% to 43.74% (March 2012 to June
Eicher Motors 1,623.30 18,286.35 1,126%
2015). The current five-quarter average OP is 38.82%.
Indag Rubber 22.92 181.30 791% Valuation is at stratospheric heights. Current MC/OP
TVS Srichakra 379.50 2,593.50 683% is a humungous 29.07 times. If you buy now, you will
Multibase India 34.55 219.80 636% not get a repeat performance of 2011-15. Your returns
Solar Industries India 765.00 3,442.40 450% are likely to be good but not spectacular. You will have
to find another Relaxo.
Bosch 7,078.75 19,316.45 273%
Eicher Motors, which is up 1,126% over the
Gateway Distriparks 135.15 355.05 263% relevant period, was trading 1.56% below its 52-week
GSK Consumer 2,402.10 6,053.85 252% high on 5 October 2011. Unlike Relaxo, this was
Colgate-Palmolive 498.25 963.95 193% not available cheap in 2011. At the beginning of the
SKF India 665.55 1,279.65 192% period, it was trading at a huge MC/OP of 58.51 times
(on a standalone basis) while its current MC/OP is
Sanofi India 2,307.60 4,082.30 177%
53.81 times.
M&M 784.45 1,250.05 159%
The growth in its market-cap has been more than
Rallis India 174.00 215.40 124% matched by the growth in OP. For the various five-
ACC 1,107.00 1,363.10 123% quarter periods (December 2011- June 2015), the
Indraprastha Gas 431.00 467.40 108% average OP growth has ranged from 73% to 151%
Kennametal India 796.40 794.50 100%
while average revenue growth has gone up from 47%
to 82%. Its current five-quarter (ended June 2015)
Gujarat State Fert 87.98 70.90 81%
average OP growth is at 106% while average revenue
Kwality 175.30 76.80 44% growth is at 66%. RoCE has consistently moved up
from 13% to a huge 70% thanks to its growth in
commercial vehicles as we all as motorcyles.
the relevant period. Nifty has fallen nearly 16% from Kwality was trading at its 52-week high, at the
its life-time high of 8,996 at the close of 3 March 2015 beginning of the period. It has gone up the least in the
to 7,558 on 7 September 2015. So, can we repeat the subsequent period (up 44%). While the five-quarter
process of 2010-11, that is, buy stocks that are close to average revenue growth rose from 46% as at the end
their 52-week highs and hope for substantial gains over of December 2011 to 59% as at the end of December
the next few years? When stocks are bought at their 2012, later the average has consistently fallen from
52-week highs, they need to have strong fundamentals 57% to 14%, its current five-quarter average (as at the
to move higher. Let us look what supported the end of June 2015). The average OP growth has been no
up-move of these 19 stocks. different. Except a small bounce-back for the averages
The top gainer in the list, Relaxo Footwears, surged as the end of March 2014 to September 2014, the five-
1,236% from 5 October 2011 to 1 October 2015. quarter average has moved down from 105% as the
It was trading 3.21% below its 52-week high at the end of December 2011 to the current level of 18%.
beginning of the period. Had one avoided this stock, It is important to note that a stock which may be
or not bought this stock, just because it was trading at overvalued at any point of time, i.e., it may be trading
its highest level of valuation, it would have been a big at its highest level or close to the highest level of
mistake. valuation, has all the possibility of moving higher if it is
We had recommended this stock in our Street Beat supported by continued growth. The least rise in price
section in issue dated 4 October 2012, when it was was seen in Gujarat State Fertilizers and Chemicals
trading at MC/OP (market-cap to operating profit) of (GSFC) (up 81%), Kennametal India (100%)
8.61 times and are still holding it. For the five quarters and Indraprastha Gas Limited (IGL) (up 108%).
ended September 2011, it recorded an average revenue While GSFC and IGL had declining fundamentals,
growth of 25.22% while the average OP growth Kennametal India did not have consistent fundamentals
was weak. It has, since, recorded an average revenue to support a strong up-move.

MONEYLIFE | 12 November 2015 | 40

StockWatch.indd 4 23-10-2015 17:23:40


STOCK WATCH

Not All Debt Is Bad But the stock surged 1,524% over the relevant period.
Apollo Hospitals Enterprise recorded the lowest
positive price appreciation during the relevant period
(up 126%). However, over the relevant 13 quarters;
Look out for indebted companies making except March 2015 when its y-o-y NP growth fell
rising profits marginally by 5%, for the remaining 12 quarters (June
2012-June2015), it recorded an average NP growth of

W
hile picking stocks, one usually avoids those 17%. Mayur Uniquoters was the second-highest gainer,
with high debt. Nobody knows how things rose 576% for the relevant period; its y-o-y NP growth
would turn out for indebted companies fell marginally by 2% for the March 2015 quarter;
when it comes to servicing debt. Large debts are usually for the remaining period, its NP growth moved in the
raised for expansion of capital-intensive projects. range of 11% to 52%. Hindustan Tin Works fell 12%
Companies must have the ability to execute the project, over the relevant period. It recorded y-o-y NP growth
contain the rising interest cost and still make profit. If in 10 out of the 13 quarters.
a company displays this ability, should we still avoid Among the zero-debt companies, Wim Plast surged
it? What have been the record returns from such 905% for the relevant period. It was among the three
companies in the past? companies which made y-o-y NP growth in all the 13
quarters, averaging at 20% over the past 13 quarters.
The other two companies which recorded NP growth
were ITC and GSK Consumer. ITC had recorded its
lowest NP growth of 4% in March 2015 and June
2015 quarters. Atul Auto was among the top two
gainers in the list, with NP growth in all but one
quarter. Its y-o-y NP growth fell by 27% in the June
2015 quarter. The list of no-debt companies includes
many software companies, namely, RS Software,
Persistent Systems, Cyient and Infosys.
Rupee depreciation, over the past few years, has
contributed to the bottom-line of software companies.
Persistent Systems recorded double-digit y-o-y NP
From the 1,285 companies (excluding banks and growth in 10 quarters in the range of 12% to 73%.
NBFCs) in our database, we have considered stocks June 2014 and December 2014 quarters recorded
which have had rising debt-equity ratio over the past marginal positive growth while September 2014
three years, have managed to record net profit (NP) quarter fell by 8%. Infosys recorded a growth in 11 out
in the past 13 quarters and have also recorded a year- of 13 quarters but has recorded a falling NP growth
on-year (y-o-y) NP growth in at least 10 quarters. in the four quarters ended June 2015. Cyient has
From the same dataset, we have applied the same three witnessed inconsistent NP growth over 13 quarters.
criteria on companies which have no debt over past RS Software achieved y-o-y NP growth of 89% in
three years.
In the first set, there were six companies which
had rising debt:equity ratio from FY11-12 to FY14-15
Debt Tonic
and were making profits. Had one invested in these
shares on 1 June 2012, the stocks would have given an Price (Rs)
Change %
average return of 493% up to 8 October 2015. There 01 Jun-12 08 Oct-15
were 21 companies in the no-debt set of profit-making Granules India 9.55 155.10 1524%
companies. Had one invested in these shares on 1 June Mayur Uniquoters 61.48 415.30 576%
2012, the stocks would have given an average return of Lloyd Electric 39.40 204.80 420%
285% up to 8 October 2015.
Indian Hume Pipe 100.00 428.10 328%
Granules India was among the top two high-debt
companies. Its debt:equity ratio moved up from 0.67 Apollo Hospitals 641.90 1,449.10 126%
times as at the end of FY11-12 to 0.97 times as at the Hindustan Tin 62.45 54.75 -12%
end of FY14-15. It had high inconsistent NP growth.

41 | 12 November 2015 | MONEYLIFE

StockWatch.indd 5 23-10-2015 17:23:59


STOCK WATCH

Zero-debt Winners
Price (Rs)
Change %
01 Jun-12 08 Oct-15
Wim Plast 210.10 2,110.50 905%
Some Market Terminologies Explained
Atul Auto 47.40 437.60 823%
Panasonic Energy 48.85 342.10 600%
Stovec Industries 251.05 1,726.75 588%
Panasonic Carbon 129.75 652.00 403% Cash flow statement: It forms an important and
RS Software 35.35 168.40 376%
mandatory part of the financial statements of a
company. It provides the reader an understanding
Indag Rubber 39.53 180.30 356%
of the firms ability to generate cash and cash
Abbott India 1,422.45 5,789.35 307% equivalents and the manner in which the funds are
Persistent Systems 172.07 644.95 275% applied by it. The cash flow statement comprises
Cyient 168.00 570.65 240% three parts: cash flow during the period from
ENIL 210.15 706.95 236% operating, investing and financing activities. Cash
flow arising from operating activities shows the ability
Procter & Gamble 2,278.10 6,175.15 171%
of an enterprise to generate sucient cash flow to
Nesco 597.25 1,473.70 147% maintain the operating capability. Cash flow from
Zydus Wellness 359.55 839.90 134% investing shows funds generated from various sources
GSK Consumer 2,748.75 6,022.10 119% and their use such as for acquiring fixed assets. Cash
Hindustan Unilever 419.00 821.35 96% flow from financing activities shows infusion of cash
from equity capital or borrowing and items that
Infosys 596.95 1,132.45 90%
reduce cash such as repayment of borrowing.
ITC 233.80 339.15 45%
Bata India 430.15 552.15 28%
Hindustan Zinc 116.65 145.20 24% In short, while is it is prudent to avoid heavily-
PTC India 55.00 64.50 17% indebted companies, it may be profitable to screen
companies based on rising and consistent profits. If
you can combine this with low valuation, returns can
RS Software achieved y-o-y NP growth of 89% in be far better than indebted companies that are highly
March 2014 quarter but, over the following five valued. Note that returns from outstanding debt-free
quarters, it witnessed a falling trend. Its NP growth has companies like Hindustan Lever, Glaxo, ITC and
fallen from 55% in June 2014 to negative growth in Infosys are pretty modest. This is because of their high
the four quarters ended June 2015. valuation.

Motorcyles in Slow Lane the company has suggested that a margin of 15% is
achievable in FY15-16.
Bajaj Auto reported stagnant sales for the

B oth Bajaj Auto and Hero MotoCorp, are struggling


to increase sales. Hero MotoCorp reported a
sales growth of just 1.1% in the September quarter
September quarter. Sales volume was 1,056,596 units
compared to 1,055,582 units in the September quarter
last year. Bajaj Auto showed an even higher margin
while Bajaj Autos sales inched up 2.3%. Total two- gain compared to Hero MotoCorp. For the September
wheeler sales actually dropped 0.6% year-on-year with quarter, operating margin improved to 22.1% from
motorcycle sales declining by around 2% in urban 20.8% in the same period last year.
areas and by around 8% in rural areas. Motorcycle sales in India should be rising
The saving grace for two-wheeler companies is steadily, given Indias demographics and the fact that
lower input costs which is boosting margins. Hero motorcycle use can be essential as well as discretionary.
MotoCorp reported a higher margin of 15.8% over Is the continued weak demand indicative of market
an estimated 15.2%, thanks to lower costs of raw saturation or the impact of lower disposable incomes
materials (6.3%) and higher realisations. Apparently, due to drought and sluggish economic growth?

MONEYLIFE | 12 November 2015 | 42

StockWatch.indd 6 23-10-2015 17:27:48


STOCK WATCH

UN UOTED
STORIES OF PRICE MANIPULATION

Aviva Industries (Rs26) another steep rally, of 144%, before


(Rs) dipping by 30%. The price is up by

A viva Industries (earlier known as


Ankush Synthetic) was trading in
chemicals. Over the past few years,
40
194%
194%, at Rs25.50, on 7 October 2015
from Rs8.68 on 17 February 2014.
In 2010, the Security and
30
Aviva has not done any business; Exchange Board of India (SEBI) had
hence, there is no income. With no imposed a penalty of only Rs2 lakh
20
income, Aviva reported a net loss of on Aviva Industries for trading while
Rs4 lakh for the year ended June 2015. in possession of unpublished price
Over the past 15 months, trading in 10 sensitive information in the scrip of
Aviva has been highly suspicious. From Nova Petrochemicals in 2006. Will
its low of Rs8.68 in February 2014, in 0 SEBI investigate this suspicious trading
Feb-14 Dec-14 Oct-15
just about seven months, the stock activity in a company which has only
price shot up 343% to Rs38.45 on 19 626 shareholders and which has
September 2014. In the seven months by 67.85% to Rs12.36 on 23 April 2015. been involved in insider trading in the
that followed, the stock price crashed This was not the end. The stock staged past?

MARKET TREND

The Slog Overs stocks look weak. They have no way


of increasing their revenues since
Indian industry remains hobbled
Dont expect a strong up-move soon
by many problems. The only way for

I n the previous issue, I had mentioned that we are


likely to be stuck in a rut for a while. Two weeks
ago, the Sensex was at 27,080. At the time of writing,
them to increase profits is to control
input costs. However, while manufacturers in the rest
of the world can take advantage of lower costs, such
it is at 27,288. The bulls are really being made to slog as decline in oil prices, in India, businesses have to
to take the index higher. Companies have started suffer many frictional costs which have little to do
reporting earnings for the September quarter but, with overall deflation, as rereflected in the wholesale
as expected, the results are e nothing great. Among price index. Costs of utilitie
utilities, wages and logistics are
the index heavyweights, Tata ata Consultancy not going down. IIndian businesses are stuck
fter declaring
Services (TCS) has fallen after between a rock and a
so-so results and Infosys has fallen hard place. In such a
after declaring better-than-- situation, only the best
expected results. While of companies are worth
Reliance Industries has in
investing and they happen
reported better results, to be expensiveeven the
nobody really knows sma
smaller ones.
whether better performance ce iss C
Coming to back to the
sustainable and whether its ts 4G adventure overa market direction, we
overall
will succeed. e
dont expect a strong up-move
yweights, only pharma
Among the index heavyweights, soon. AtA best, we will have a rather
stocks, viz., Lupin and Dr Reddys, two HDFC laboured Mo likely, the rally from
rise. More
companies, and an odd one, like Maruti, look strong. under 25,000 (of 9th September) is maturing. We would
From Vedanta to Coal India, to Hindalco to M&M, to not be surprised with a 5% correction from the recent
NTPC, ONGC, Idea, Bharti Airtel, Tata Steel most high of 27,432. Debashis Basu

43 | 12 November 2015 | MONEYLIFE

StockWatch.indd 7 23-10-2015 17:28:22


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MONEYLIFE | 12 November 2015 | 46

Insurance.indd 2 20-10-2015 20:19:48


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47 | 12 November 2015 | MONEYLIFE

Insurance.indd 3 20-10-2015 20:20:11


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HEALTH BM HEGDE

Who Am I?
wrote in his book while living in exile in England, Mutual
Aid: A Factor of Evolution: I conceived since then serious
doubts which subsequent study has only confirmedas

Where Have I to the reality of that fearful competition for food and life
within each species, which was an article of faith with

Come from? most Darwinists, and, consequently, as to the dominant


part which this sort of competition was supposed to play
in the evolution of new species.
Western science has no satisfactory answer for Kropotkin wrote another beautiful book in 1903
either of these questions titled Modern Science and Anarchism. Science is usually
politicised and, naturally, Kropotkin was demonised in the
West as a dangerous man. If one understands the etymology

W
estern science has no satisfactory answer for of science, one would know that the real root of science is
either of the two questions asked in the title of philosophia (Greek for philosophy). All scientists, in the
this article. Do we need a change in paradigm true sense, must love wisdom. The latter is never
to get the answersor go on believing what available in books and science journals
Western commercial scientists keep telling but in our own heads! Now re-read
us so far? The journal Science, in the edition Descartes: Because you think, you
to mark its 125th year of publication, put are. If you dont think you are not!
out a list of 125 vital questions that As we do not think, we have been
science has not been able to answer trying to destroy the natural
so far. The list includes all important resources in this universe for
aspects of mans life on this planet. competition.
Nobel Laureate and father of transplant In evolutionary biology,
surgery, Peter Medawar, also dealt with this problem the human body is considered
in his classic, Limits of Science. Was it the big bang or a closed system where outside
just a small whimper that started Western sciences interventions are not the rule
world view? We have no evidence for the big bang in but only the exception. Most
evidence-based science! illnesses must be healed by
I have been uncomfortable with the science that the bodys built-in healerthe
was taught to me in school, college and, later, in immune system!
medical school. However, it took me this long, to The Indian system of Ayurveda
come out in the open boldly about the irrationality (Ayush=life; vid=wisdom) also
of Western science of reductionism.. treats the human body as a closed
treat
The human being is being looked d at in isolation system and believes that it has the
in Western medicine. We now know w that even the capacity to heal itself. The thrust in Ayurveda
genealogy of brain cellsany cellshows
shows how the is swasthasya swasth
s rakshitham (keep the
neighbouring brain cells might be having different well healthy) by b boosting the bodys own
genealogy, while the heart cell or thee liver cell could immune system.
be closer to the neuron because they y evolved from on onee
single cell, the zygote. They had to mutate
utate as they evolved
evvolve
veed O
Organic
Organic life, w we are told, has developed
and so they are mixed up everywhere. re. We go on stud
studying
udyi
ying
ng ggradually
gradua
ad
dualll
lly fr
lly fro
from
om the protozoo
protozoon to the philosopher, and this
body parts to irrationally project ourr data on to the whole development, we are assure
assured, is indubitably an advance.
organism. Rene Descartes was later joined j i d byb Charles
Ch l Unfortunately
U f t t l it iis th
the phil
philosopher, not the protozoon,
Darwin who brought in the concept of competition among who gives us this assurance. Bertrand Russell
the species for survival. Both these concepts probably were
more suited for the business in the monetary economy.
Professor Dr BM Hegde, a Padma
Cooperative Model Bhushan awardee in 2010, is an MD,
Peter Kropotkin, on the other hand, proposed a cooperative PhD, FRCP (London, Edinburgh,
Glasgow & Dublin), FACC and FAMS.
model of this universe where the universe is self-evolving He can be reached at hegdebm@gmail.com
and it keeps evolving intelligently. A Russian, Kropotkin

MONEYLIFE | 12 November 2015 | 50

BM Hegde.indd 2 23-10-2015 17:49:21


HEALTH BM HEGDE

CANCEROUS McConnell. By analysing


CONFUSION DNA taken from blood

A senior cancer
biologist seems to
be in a dilemma. Half a
MEDICAL DEVELOPMENTS FROM
AROUND THE WORLD
samples, were missing
a lot of the important
mutations that are hidden
million U.S. women were in neurons themselves
diagnosed with non-invasive DCIS coming from the West, this book or in specific pockets of neurons.
by January 2005 and the number would give our Indian readers a Maybe the missing heritability lies
continues to climb, propelling fresh point of view as opposed in these brain genomes.
people to accept medical to the biased Western mind-set.
intervention even when I wish to stress that the authors SHOCKING REVELATIONS
none is needed.
Ductal carcinoma in
situ (DCIS), according
show how almost half of the
cancer diagnosis was only a scare
in the first place. But the gravity
T he journal, Atherosclerosis,
published these findings in its
June 2015 issue: Men who had
to majority of cancer of the situation is not assessed by measles and mumps as children
biologists, is not a these numbers. Cancer scare kills suffered 29% less heart attacks
cancer and should, as effectively as the most invasive and 17% less strokes! Women with
thus, be removed cancer. Enjoy reading the book a history of both infections had a
from the carcinoma folks! 17% lower risk of cardiovascular
tab! But who disease and 21% lower risk of
bothers, as long GENOME MYSTERY stroke. This could mean that natural
as it is one of the
leading causes
breast removal and other
for M ost of us think that our
genome is one single large
entity. Dr Christopher Walsh, from
infection with measles and mumps
prevents millions of heart attacks
and strokes. Why is this information
therapies! the Boston Childrens Hospital, not all over TV and the Internet?
All cancers need not be fatal thinks otherwise. He has now What is the mainstream media
without treatment; However, shown that most of the cells from hiding?
cancers are heterogeneous and the pre-frontal cortex have their
can follow multiple paths, not all neighbours having the genealogy
of which progress to metastases of a heart cell or liver cell, rather
and death, and include indolent than another neuron! This is not
disease that causes no harm during surprising, if we understand that
the patients lifetime, according we are born as a single nucleated
to the abstract of a study titled cell (the zygote) which divides and
Overdiagnosis and Overtreatment divides to make us what we are
in Cancer: An Opportunity for today: 100 trillion-odd cells. This
Improvement, published in cell division, on the way, must have
Journal of the American Medical collected enough and more bits and
Association (JAMA). pieces from its environment thus In countries which use BCG
giving this genomic mosaic. vaccinations against tuberculosis,
WHAT IF MEDICINE Genetic basis of diseases and the incidence of type-I diabetes in
DISAPPEARED? predicting genetic predilection for children under 14 is nearly double,

T his is the title of an interesting


book written by Frances
B McCrea and Gerald E Markle.
hapless patients is so inadequate
today that, for example, many
neurological disorders like
writes Mike Adams, the editor-
in-chief of Natural News (USA).
I think we must ponder over this,
I feel every lay reader of this book schizophrenia run strongly in if we are interested in our future
would benefit because the main families; but large studies have generations.
reason why patients get caught in identified genes that explain just a To me, somehow, the very
this health scare system is fear small fraction of this heritability. foundation of vaccination looks like
of disability and death. Although Maybe thats because weve pseudoscience. But, since I am not
many of my writings, books and been looking at blood genomes to a vaccine scientist, I cannot refute
speeches have been saying this, understand brain genomes, says their claims adequately.

51 | 12 November 2015 | MONEYLIFE

BM Hegde.indd 3 23-10-2015 17:49:36


LEGALLY SPEAKING SD ISRANI

Investors as Deficiency in Service


Was a debenture-holder a consumer within the meaning

Consumers
of COPRA? NCDRC held that if there is any fault,
imperfection in the nature and manner of performance of
duty which is required to be maintained by or under any
law for the time being in force, it would be deficiency in
Can they get relief under the Consumer service. Therefore, the aforesaid Section leaves no doubt
Protection Act? that for deficiency in service by a paid trustee, complaint
is maintainable.

C
an an investor seek relief for his grievance under In IDBI Bank Ltd vs TK Nagarathna case, the Bank
the Consumer Protection Act, 1986, also known had issued discount bonds and the complainant sought
as COPRA, or just the Act? Section 2(1)(d) of redemption from the Bank, but the redeemed amount was
the Act defines consumer as one who buys goods for a not paid. The complainant alleged deficiency in service by
consideration or hires/avails services for a consideration. the Bank. The complaint was allowed by the District Forum
The definition also provides that, if the goods are bought for and it awarded Rs25,000 with interest, holding that the
resale or for any commercial purpose, such a buyer is not a Bank could not escape liability by publishing the intention
consumer under the Act. There are numerous cases in which to exercise call-back option in newspapers.
consumer forums have dismissed complaints from investors In another case, original share certificates were lost
on the ground that they are not consumers since but duplicate certificates were not issued. The
they were engaged in commercial activity, tivity, shares were transferred in favour of one A,
while other cases have been redressed ed who had sent the original certificates, and
wh
under the Act. without verifying the signatures on the
w
An interesting case under COPRA original certificates. Refund of value of
is that of debenture-holders shares with interest was directed and
versus Central Bank of India, as compensation was awarded. It was
the debenture trustees for M/s held that the company was deficient
Synergy Financial Exchange Ltd in its service (Sun Pharmaceutical
(the Company), which had issued Industries Ltd vs B Subba Rao).
non-convertible debentures (NCDs). However, in a case where
Under the agreement, Synergy the complainant was into share
and the appointed debenture trustee, trading, no relief was granted by the
i.e., Central Bank of India (paid byy sstate commission, which held that the
Synergy), had to work for the benefit and nd transaction between the parties did not
tran
protection of the interests of the debenture- come under the purview of COPRA. In fact,
holders. Synergy failed to redeem the debentures as the Commission remarked, Investors investing
per the issue terms, forcing investors to ask the trustees to money in share trading with expectancy of earning profits,
get them the redemption amount. Failing to get justice, they also undertake huge risk of loss, for which no one could
approached the Andhra Pradesh State Commission which be held responsible. (Ramendra Nath Basu vs Sanjeev
ruled in their favour; but the Bank went in appeal before Kapoor).
the National Consumer Disputes Redressal Commission Investors should remember that their complaints against
(NCDRC). registered stockbrokers will be dealt with as per the bye-
The first question was: Whether any complaint under laws of the concerned stock exchange. As far as seeking
COPRA could be maintainable against a paid debenture- redress of their grievances in other cases is concerned, they
trustee for the failure of the company to pay periodical will have to ensure that their case falls within the ambit
interest/the redemption amount. NCDRC held that, prima of COPRA, otherwise they cannot expect any relief from
facie, if there was any deficiency in rendering service by the the consumer forums.
trustee in the discharge of its duties, the trustee would be
liable and can be proceeded against under COPRA. NCDRC
also observed that a professional corporate trustee is liable SD Israni is a corporate lawyer & Fellow
for breach of trust if loss is caused to debenture-holders of ICSI. Email: sdisrani@gmail.com
because of its negligence in exercising special care and skill
which it professes to have.

MONEYLIFE | 12 November 2015 | 52

Legally Speaking.indd 2 23-10-2015 17:14:09


TAX-PROOF INVESTMENT
THROUGH RELATIVES
If you are paying too much by way of tax, especially on investment income, you may
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haunt you with tax liability.

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investor research and information group. We run Indias best personal finance magazine, Moneylife. We
are not afraid to call a spade a spade. We are Indias only media company to have set up a non-profit
trust, Moneylife Foundation, which is now the largest savers and investors association with more than
36,000 members. MSSN was set up to help investors and savers make the right financial decisions and
handhold them through their personal finance issues.

Relatives - MSSN.indd 1 23-10-2015 18:16:09


TECHNOLOGY

Safe Online
in avoiding certain issues and get them resolved, if
required. Do not get lured to sites that offer the lowest

Shopping
price for any product. If someone is offering a price
way below whats available elsewhere, something is
fishy. Stay away from such sites.
5. Avoid Impulse Shopping: Shopping, whether
Online shopping is convenient; but, unless you online or offline, should be done only based on needs
take certain precautions and maintain highest and not on impulse. Many shopping sites and apps
security level, it may cause you headaches and offer you a feature called wish-list (it may differ from
site to site). Use this to bookmark a product that you
financial losses, warns Yogesh Sapkale needor would needin future. If there is any special
offer on this product, you may get an alert as well.

T
he festival season is now at its peak. Shopping 6. Never Share Data over Email: Despite several
online is convenient and saves timebut, at warnings from regulators and the police, many people
the same time, if you are not cautious, it may still share their personal and financial information.
turn into a nightmare. While using the Internet for Never do it. The same applies
any purpose, always remember that there are risks. for clicking on links in emails.
This is because the same Internet gives attackers/ Unless you have received the
fraudsters ways to access your personal and financial mail from a known entity
information. Not every attacker would rob you: he will and from a known email
simply sell your personal information to someone else ID, never click on any link.
who will do the job. It may open the door to
Attackers are always on the prowl to search attackers.
for vulnerable computers or PCs, besides creating 7. Check Encryption
authentic-looking, but fake, sites and emails and of the Site: Most
intercepting insecure communication, including that sites, especially online
of financial transactions. Here are some basic tips to shopping and email
protect you while shopping online: service-providers, provide
1. Use Good Anti-virus and Anti-spyware a security layer (SSL or
Software: Avast Free secured sockets layer)
AntiVirus 2015 and to encrypt information.
AVG AntiVirus Free Check for the additional s
are two popular in the address bar: It should
free softwares. Anti- be https: and not just http:.
Malware from Malwarebytes, also free, helps you There should also be a lock icon
keep malware away from your PC. But do not forget there, which, after clicking, will show details about the
to keep the virus/malware definitions up-to-date. website, its certificate and confirm if the connection to
2. Keep Your Browser Updated: Although most the server used by the site is encrypted or not.
browsers alert you about updates, keeping auto 8. Use Cash on Delivery: If you are not comfortable
updates on and regularly updating your browser helps with the site or the product, use the cash on delivery
avoid attacks made using loopholes in the browser. (CoD) option. In that case, open the product in the
For Firefox, you can use two add-ons, viz., No Script presence of the delivery person and try to do a video
and Ad-Block Plus. Depending on the site, you can recording. Although it is rare now, several buyers
give temporary or permanent permission for scripts have received stones/bricks instead of the product they
and advertisements which otherwise get downloaded ordered. So it is better to be cautious than sorry.
automatically. 9. Keep Records: While buying online, we do get SMS
3. Browser Security: Not all browsers offer the alerts and email intimation from the shopping site.
highest level of security as default and you need to set Do not delete these messages. They may come handy,
it for individual browser/s. in case you need to track shipment of your product
4. Shopping Only with Reputed Vendors/Sites: or if there is any other issue and you need to file a
Although high reputation does not always give you complaint about.
peace of mind and the product you ordered, it helps Happy online shopping!

MONEYLIFE | 12 November 2015 | 54

Technology.indd 1 23-10-2015 17:43:43


Will Your Will Be neither can it be simply be laughed at nor given away.
You be the judge.

Willed Away?
The Will was made in England. It was perfectly
executed. The English court had no difficulty in granting
the probate. Reference was also made to the large
estate in Poland, received lawfully by the testator from
Normally, the country where the Will is his father. The son of the testator, whom the testator
executed is the country the laws of which obviously did not like, was left out. Would you give
anything to the son?
apply to the method of execution This is where the conflict of laws steps in, a conflict
invariably connected with land. If the land were in

W
e have had multiple sessions on India, the son would have got none of it. He would
Understanding Wills at Moneylife have been left high and dry. Indian courts would have
Foundation; all rather entertaining and rejected his claims. But Poland is another country,
instructive for everyone, including the conductors. The another jurisdiction, another set of intricate laws. How
question & answers dealt with immediate personal does it work there?
problems. That is normal. Only a few had questions Polish law takes into account the validity of the
about multinational assets; but, with the growing overseas probate but puts other conditions on the
diaspora, laws relating to other countries become transfer of land. It insists that all the beneficiaries under
important. the Will be made parties to the proceedings. To
Ruled, as we are, by the system left behind by our add to the goulash, it calls for
colonial past, the clash of different laws with relation to potential beneficiaries to
the UK and the USA is minimal. Drawing be added.
up of Wills is not that intricate, Potential beneficiaries
if these two countries are is a scary term. Where does
involved. But Indians are the definition of potential
moving far a field and end? Brothers, sisters, parents,
different countries present cousins, second cousins, spouses, children,
different kettles of fish. This et al? What if the potential ones are known to exist,
is more so in the case of rather isolated but cannot be traced? Will public notices be sufficient?
states, smaller kingdoms, fiefdoms, theocratic states Must one employ town criers in remote areas? Is there
and those removed from the Roman traditions. a waiting period? And will the wait not run afoul of
Normally, the country where the Will is executed is natural justice that calls for immediate resolution, so
the country the laws of which apply to the method of that no land lies fallow?
execution. For example, in India, a holographic Will, This is an interesting contrast to the very country
one written by hand in the testators own writing, needs where the Will was executed. England has always been
two witnesses. The same is true in the UK. But, in the against division of ancestral property. It believes that
USA, which follows a system very similar to that of the fragmented holdings are uneconomical. Poland, on
other two nations, a holographic Will, not witnessed by the other hand, believes in the adage, the-more-the
even a single witness, is accepted as a valid document. merrier.
Seems pretty reasonable, if the handwriting can be We will leave it at that and hope for another time to
matched with another valid document. Consider a man, dissect the conundrum. Should one be confronted with
alone and dying, wishing his assets away. Where does he such a situation, there is a simple recourse. Make two
get his witnesses? To each his own. Wills, one for each country. Or more, one for each other
Poland was recently in the news for such a conflict country. By the way, the disinherited son was entitled
of laws. A man made his Will in England. Perfect in all to a third of the property!
respects; as per English laws. What was not foreseen
was that inheritance laws are different in different
countries, especially when it comes to landimmovable Bapoo Malcolm is a practising lawyer in
property, something that one cannot put in ones pocket Mumbai. Please email your comments to
mail@moneylife.in
and walk away with. The issue at hand was a thousand
acres. Not chickenfeed by any stretch of imagination;

55 | 12 November 2015 | MONEYLIFE

You Be the Judge.indd 2 23-10-2015 17:52:24


Supported By

government employee and he


also has agricultural income (part

Queries
At Moneylife Foundations
ancestral, part purchased). I am
planning to purchase a house,
costing about Rs1.1 crore. My
father-in-law will finance 80% cost
of the house and the rest will be paid
by me. My query: a) Can my wife be
Tax Helpline the owner of the house? b) Income-
tax implications for both me and my
Ask tax-related questions at moneylife.in/taxhelp. Its free father-in-law. c) Will rental income
be added to my income or owners
(wife) income?
Maintaining Books of about the volumes, I am unable Nikhil Vadias Reply: a) Yes, she
to comment on whether or not can. Usually, ownership is counted
Account you were expected to get an audit as a percentage of total contribution
done. You need to consult a CA made in the purchase of the asset.

I have got an income-tax notice for


AY2014-15 stating that I need to
maintain a balance sheet and get it
immediately on this. There is also a
controversy about what constitutes
turnover in case of F&O. So, please
One can be a 1% owner. Spouses
name can be
added without any
audited by a chartered accountant do not take such matters casually. contribution. b) At
(CA). I filled ITR Form 4 to show Whether you make a loss or profit the time of purchase,
my derivative losses. Should I have has no connection with whether an there is no income-
filled in ITR Form 4S? Is audit audit is required or not. tax implication. You
required? All the transactions are need to deduct TDS @1% at the time
done from renowned brokerage of paying to the seller.
firms and they do have the details. I Tax Rebate on Home c) Any income from the house, like
have made a loss and gain. Do I need Loan for Govt Employee rent, would be taxable in proportion
to pay a CA to show the loss? This is of the contribution made towards
really ridiculous. Please guide.
Ameet Patels Reply: There is
nothing ridiculous in the notice
I am a government employee living
in government accommodation. I
pay 30% house allowance from my
purchase.

received by you, although it may salary. Can I take tax rebate on my No TDS on LIC Jeevan
appear to be so to you. You ought home loan? Suraksha Bought in
to have known that if you are
engaged in any business, you need
Ameya Kuntes Reply: In case of
government employees, the standard
1998
to maintain books of account if your rent licence charge is reduced from
turnover exceeds
Rs10 lakh. Further,
if your turnover
the salary. This is towards the
value of accommodation perquisite
provided by the employer, i.e., the
I bought LICs (Life Insurance
Corporation) Jeevan Suraksha
Policy in 1998. After paying full
exceeds Rs1 crore, government. This deduction (as per premium for 18 years, I surrendered
you also need to govt service rules) cannot be reduced it in June 2015 and received full
get a tax audit as tax rebate in the home loan. surrender value without any TDS
done under Section 44AB of the deductions. My question is whether
Income-tax Act. While a layman Buying Property in the amount I received is tax free
is not expected to know these under Section 10(10D) or will I have
things, it is always expected that Wifes Name to pay tax in the current year?
a person takes professional advice Vaibhav Sanklas Reply: The
on such matters. In your case, you
have done transactions in F&O
(futures and options). Since there
I am a salaried Central government
employee and I fall in 30% tax
bracket. My wife is a homemaker.
surrender value received under the
Jeevan Suraksha Policy purchased
in 1998 is entirely exempt from
is no information provided by you My father-in-law is a retired state income-tax under Section 10(10D).

MONEYLIFE | 12 November 2015 | 56

Tax Queries.indd 2 20-10-2015 14:16:24


MONEYLIFE
FOUNDATION
THE RIGHT THING TO DO

Supported By

Moneylife Foundations

TAX HELPLINE
This helpline is for tax-related queries for individuals and small businesses who file
their own tax returns or want to double-check the advice they have received from
others. It will not attempt to substitute a tax advisor or tax expert whose help is
required for complex issues. Nor is it a grievance redress forum.

OUR EXPERTS

AMEET PATEL GIRISH BORKAR AMEYA KUNTE NIKHIL VADIA VAIBHAV SANKLA

1 Every new query posted will be sent to our


panel of tax experts

HOW IT 2 When we get the opinion/advice from our


expert, we will post the reply
WORKS
3 You can access similar issues
faced by other taxpayers

www.moneylife.in/taxhelp
elp
To use our tax helpline, please confirm that you have read our terms and conditions.
Also, this is only for individual taxpayers and small businesses.

IncomeTax Helpline.indd 1 20-10-2015 20:31:39


MONEYLIFE FOUNDATION SEMIANR ON CYBER FRAUD

How Not To Fall Victim to Cyber Fraud


There is no escape from cyberspace and risks associated with it. Therefore,
we need strategies to minimise our risks, says Dr Anupam Saraph

W
ho is the custodian of your digital assets? digital assets, he said. He urged people to think for
Do you have a strategy to de-risk and themselves, rather than offering them ready solutions.
protect yourself from the modern messiahs Today every transaction is technology-to-technology
promising the wonders of the digital age? without any interaction with humans; so it lacks the trust
Is it really worth the risk to have your smartphone run factor. Even in the digital era, it is important to develop
your life? These were some of the questions raised, and trust with the people behind the technology. Remember,
answered, by Dr Anupam Saraph at a seminar organised you are there to interact with people and not machines,
by Moneylife Foundation on in Mumbai on Dont
Don t Become a said Dr Saraph. He also a explained terms such as net-
Victim of Cyber Fraud:: Protect Yourself Now. privacy policies, laws relating to terms
neutrality, privac
Dr Saraph, former IT advisor to the chief of use and the need
n for audit-ability of data and
minister of Goa, Manohar nohar Parrikar, and systems. For m many in the audience this was their
former CIO of Pune city, said one needs first exposure to these concepts.
to understand the risks sks associated with Talking ababout net-neutrality, he said, when
transactions in cyberspace,
pace, implications of the net-neutrality
net-neutra was threatened in the United
data leaks and privacy y breaches through president Barack Obama himself took
States, preside
social media or email transactions and the a stand and di did all he could to ensure that net-
remedies. neutrality was not n compromised. Net-neutrality
There is no escapee from the cyberspace allows fair, just, unrestricted and non-
and risks associated with
h it. Therefore, monopolised access to the Internet;
mon
we need to have a strategy
ategy to access is agnostic to the media and
acc
minimise our risks. This content consumed by its customers
co
includes, protection from across the network. Explaining why
ac
obsolescence, protection tion net-neutrality is worth fighting for,
n
from unfair practices, ces, he said that it will force all other
h
protecting identity and eentities, services and publications,

MONEYLIFE | 12 November 2015 | 58

Event.indd 2 23-10-2015 16:29:59


ML FOUNDATION EVENTS

which were not part of the select free access sites, to pay ECCO (Evolution, Complexity and Cognition) modelling
to be on the free Internet platform. paradigm for assessing the economic and energy potential
Making representations of free or zero Internet plans, of nations and regions, said, To protect yourself from
when providing a obsolescence, you need to use open source formats to store
bouquet of websites, digital assets, upgrade back-ups to current media and avoid
are unfair trade using digital platforms that evolve fast.
practice. Providing Protection from unfair practices can be achieved by
a few websites while choosing to opt out of sharing data whenever possible, and
creating misleading avoiding digital platforms that lack privacy protection and
representations of have unfair terms of use, he added. One safety mechanism
providing Internet was to have multiple IDs and not link multiple important
access, or about databases to a single
the utility of the ID. He also told
free plans, is also people that it was
an unfair trade best to avoid digital
practice. Ultimately, platforms that lack
this will limit the privacy and have no
unlimited access to the worldwide web that we enjoy human help and,
today or increase costs dramatically. most importantly,
Talking about privacy policy and other legal terms of use a two-step
use, he said, there needs to be a right to opt out and the authentication,
user should be able to prevent sharing her data with third whenever possible.
parties. Dr Saraph said, Users need to be provided with C y b e r- c r i m e
the right to be forgotten besides policies to safeguard them and privacy
from unauthorised access. breach in India
The systems or websites should have audit-ability, has been growing
which will have ability to track back a transaction to a exponentially. Dr Saraph concluded with the advice: In
person. This will also ensure transacting parties does not this scenario, remember your identity, assets and existence
deny transaction, he added. are at stake and you only are responsible for your security.
Dr Saraph, who had worked with Malcolm Slesser, So, the next time you are online, be vigilant and try to
et al, in Edinburgh in the late-1990s to develop the minimise your risks.

ECCO: Evolution, Complexity Asked what could be done in such cases, Dr Saraphs
suggestion was that people should lodge grievance on
and Cognition the government complaints portal at this link http://
www.pgportal.gov.in/GrievanceNew.aspx

T he Supreme Court of India, in response to a clutch


of public interest petitions, has made it clear, for
the sixth time, that the Aadhaar number cannot be
With the Aadhaar numbers being widely copied
and distributed across the country, there is no way to
tell where your Aadhaar number was used by whom
made mandatory by the government for any benefits through what API (application programme interface),
or services; it is voluntary. exposing your digital assets to the possibility of
Answering queries on the issue, Dr Saraph being completely siphoned off. Like most of us, the
clarified that Aadhaar is just a number which has not government neither knows nor has an inventory of its
been verified and authenticated by any government digital assets. Certifying or appostiling digital assets
authority. He said, the Unique Identification Authority are unheard of.
of India (UIDAI) had disclosed this in response to Whether it is survey of maps of India, passports,
Right to Information (RTI) queries. Unfortunately, birth certificatesor even Aadhaar numbersthe
several government departments are violating the government knows no way to certify, verify and audit
Supreme Courts orders and making it mandatory. its digital assets, he said.

59 | 12 November 2015 | MONEYLIFE

Event.indd 3 23-10-2015 16:30:44


Earning
Curve schemes in operation, targeting mostly the poorer
sections.
Chain-money schemes are pure fraud. Their business
Learn the basics is unsustainable. They promise returns from the money
raised from a new set of gullible investors, lured on a
of saving and long-chain, or pyramid. Some of them have a fig leaf of
investing offering goods or services, often of dubious value. The
hallmark of these schemes is the promise of sky-high
returns in a short period, for doing nothing other than
simply handing over your money to them, and getting
others to do the same.
William Keep, dean and professor of marketing
at The College of New Jersey, has written several
articles on the fraud spread by pyramid schemes. He
also served as an expert witness in the prosecution
of pyramid schemes, including Gold Unlimited and

Pyramid Fraud International Heritage Inc, at the time the largest


pyramid scheme prosecuted by the United States
Securities and Exchange Commission (SEC).
Pyramid and MLM schemes continue to In a recent article, Prof Keep analysed the US
defraud thousands, even in the US Federal Trade Commissions (FTCs) fraud survey and
stated with 95% confidence that there are hundreds of

T
he late Indira Gandhi, former prime minister, thousands (and possibly millions) of pyramid scheme
unable toor uninterested incontrolling victims in the United States each year. As legislators
corruption, had famously said corruption is and regulators ponder what to do with an MLM
a global phenomenon. Indian politicians and industry within which pyramid schemes lurkin the
regulators, unable to control chain-money or words of DSA (Direct Sales Association) President (Joe)
pyramid schemes, could say the same thing: Mariano, disguise(ing) themselves as legitimate direct-
its a global phenomenon. Almost every selling companiesthey may want to first consider
day, get-rich-quick, pyramid or multi-level who among their friends and family may be the next
marketing (MLM) schemes try to entice victim, he wrote.
the gullible and loot their hard-earned
money. While this is widespread in Flawed Models
India, globally too regulators have Trying to judge the most frequent and
a tough time in identifying and damaging forms of consumer fraud in a
prosecuting companies and country with a population in excess of 300
individuals operating such million people is not easy. Many countries
schemes. Unfortunately, do not even try, Prof Keep mentioned.
there is no reliable data It is difficult to identify and prosecute
to estimate whether this such Ponzi schemes which operate
decades-old problem and as a legal MLM company. The
the amount of harm it has annual percentage of MLM-scheme
caused has gotten worse or members who become victims can
better. range from 100% for a flawed
Moneylife has written extensively about MLM business model to a very
pyramid schemes in India and the harm caused. low percentage. Even a low percent
Individual lawsuits are registered and action initiated would produce hundreds of thousands, and potentially
against such schemes; yet there are thousands of them over a million, pyramid scheme victims annually in the
being run with impunity. States like Kerala, Andhra United States, causing hundreds of millions of dollars
Pradesh and Tamil Nadu have been active against of harm, Prof Keep stated. The results established
fraudulent pyramid and MLM schemes, but it is a rough baseline but provided no real guidance on
estimated that each state has more than a thousand whether the problem has gotten better or worse.

MONEYLIFE | 12 November 2015 | 60

Earning Curve.indd 2 23-10-2015 18:07:32


EARNING CURVE

Prof Keep wrote further on the lack of reliable


information coming from the three previous FTC
Islamic Indices
fraud surveys. A 2004 survey established that pyramid
scheme victims are seventh among the 10 most common Is investing in Islamic stocks profitable?
forms of consumer fraud, with an estimated 1.55
million pyramid scheme victims in the previous year.
The survey also found pyramid scheme victims to be
second in terms of individual loss and firstby a large
I slamic finance refers to financial activities undertaken
that are consistent with Shariah Law. This is an
alternative investment option that has gained much
marginas the least likely to complain. Statistically, traction in recent years. In India, too, many investors
the true number of pyramid scheme victims in the track Shariah-compliant stocks. The National Stock
previous year identified in the survey falls within the Exchange (NSE) had launched the CNX 500 Shariah
range of 800,000 and 2.33 million. Index in 2008 and the Bombay Stock Exchange
In 2005, FTC repeated the survey (results reported (BSE) launched S&P BSE 500 Shariah Index in 2013.
in 2007) with some adjustments: the sample size was Currently, there are two mutual fund schemesTata
increased and the definition of a victim changed. In Ethical Fund and Taurus Ethical Fundwhich invest
that survey, the number of estimated victims fell from in Shariah-compliant stocks. But do Shariah-compliant
1.55 million in 2003 to 800,000 in 2005. However, stocks offer a better investment opportunity?
Prof Keep noted that the change to a more conservative In a report published in May 2015, three researchers
definition lowered the number of victim respondents in in the US studied whether Islamic indices perform
2005 by 21%, relative to the number that would have better than the market benchmark, after adjusting for
been obtained using the old definition. Statistically, we volatility. The researchersHooi Hooi Lean, Vinod
have no confidence that the difference in the number Mishra and Russell Smyth, of Monash Business School,
of victims reported is a true difference. The actual department of economics, find that although the results
difference may be negligible, said Prof Keep. are mixed when Islamic indices are compared with
Six years later, in late-2011 and early-2012, FTC other benchmark indices after adjusting for risk, in a
repeated the survey. The survey shows another decline, large downswing, some Shariah-compliant stocks do
albeit much smaller: an estimated 700,000 victims. outperform the market as a whole.
And, as before, there is no confidence on these results. Shariah Law prohibits investment in certain sectors
The design of the survey is important too. Since that are considered immoral or unethical. Islamic
the first survey, FTC came to recognise that modern finance is less diversified which implies higher risk
pyramid schemes generally do not blatantly base for investors and existence of higher volatility than
commissions on the outright payment of fees, but conventional markets. However, in the past, several
instead try to disguise these payments to appear as other studies have found that Islamic finance markets
are at least as efficient and, in some cases, more
efficient than conventional finance markets. This varies,
Even a low percent would based on the specific index considered. As such, the
produce hundreds
hu of thousands, findings are mixed.
potentially over a million,
and potent The three researchers compared the performance
of different Dow Jones Islamic market indices to the
scheme victims
pyramid sc Dow Jones Industrial Average, over a period from
January 1996 to December 2014. They do not find
if they are based on the sale of goods or any particular group of Islamic indices consistently
services.
servi Plus, a smart pyramid scheme performing better than the other indices.
operator
op would not likely promise As there is a higher risk associated with Shariah
that
th participants will earn a certain indices, the researchers found that, for most of the
aamount of money or profit. Hence, period under consideration, returns of Islamic indices
there
t will be some differences in were not better than the market rate of returns, after
numbers.
n While there may be a adjusting for risk. However, in periods of significant
debate
d over whether the number of downturns, when the market, in general, was declining,
victims
v have decreased or increased, some Islamic indices performed better than the market.
the fact is that hundreds of This outperformance was noted in 2009, 2010 and
William Keep, Dean, thousands fall victim each year. 2012.
The College of New Jersey

61 | 12 November 2015 | MONEYLIFE

Earning Curve.indd 3 23-10-2015 16:33:21


BOOKS

THE 5 MISTAKES EVERY INVESTOR MAKES because of several reasons. One, financial products
companies have a high-cost structure, leading to steep sales

Fewer Mistakes, targets which lead to mis-selling. Two, many products are
irrelevant or harmful. Insurance products are complicated

Higher Returns to understand and do not deliver. Many mutual fund


products have fancy names but average performance.
Three, regulators are of no help. If there is mis-selling,
A good guide for beginners and intermediates redress of grievances is not easy. Four, intermediaries are
incentivised to sell more and more, which favours turnover/

W
hen it comes to investing, there are probably churn, harming customers interest. Five, the big media is
as many books on what not to do as there are driven by what is popular and that may not be in the best
on what to do. This is because the complexity interest of investors. Six, India woefully lacks unbiased and
induced by financial productsand the advice that comes well-researched advice. In such an inimical environment,
while they are being pushedleave financial consumers the first job of investors is to avoid mistakes. Author Peter
dissatisfied, and even angry. Consider stock investing. Mallouk, an investment advisor, has a list of mistakes you
Over the past 23 years, the Indian stock market has should avoid at all costs: These are:
made tremendous strides. We have electronic trading, 1 Market-timing. Market-timing is the graveyard of many
clearing, settlement system and depository system which experts; dont try it. We half-agree with this view. If
has attracted a deluge of money from foreign institutional you buy market-linked products, your returns will be
investors (FIIs). In spite of poor, or negative, if you buy high. Conversely, your
these favourable factors, returns will be very high, if you buy them low. Some
most retail investor rough sense of timing is important.
continue to shun stocks, 2 Active trading. This is only meant for full-time
though mutual funds have professional traders. Most others lose money.
started attracting more 3 Misunderstanding performance and financial
money now. information. Mallouk points out nine different ways
The reason is simple: we misunderstand, including believing that financial
consumers have a poor media exist to help you make smart decisions or that
experience with financial all-time high indices means that the market is due for
products. Many have a pullback or that financial news is actionable, etc.
been lured into the stock 4 Letting yourself get in the way. This section covers
market through unit-linked well-known behavioural biases investors suffer
insurance plans, which have from including fear, greed, herding, overconfidence,
performed poorly. Health confirmation, anchoring, loss aversion, recency, etc.
insurance is too complex 5 Working with the wrong advisor. In India, independent
THE 5 MISTAKES EVERY and policyholders are often advisor hardly exist.
INVESTOR MAKES AND in dispute with insurance Mallouk ends the book with a set of rules that will
HOW TO AVOID THEM companies. The wealthy help you get it right:
PETER MALLOUK do not have it any better. Rule 1: Have a clearly defined plan.
Wiley They are goaded to invest Rule 2: Avoid asset classes that diminish returns.
Pages 208; Rs1,173 in portfolio management, Rule 3: Use stocks and bonds as the core building blocks
private equity or structured of your intelligently constructed portfolio.
products or debt mutual fundsoften, at the wrong time. Rule 4: Take a global approach.
Why is the experience of financial consumers so poor when Rule 5: Use index-based positions primarily.
brokers, planners/advisors, financial distributors, insurance Rule 6: Dont blow out your existing holdings.
agents, banks (and their relationship managers), supported Rule 7: Asset location matters.
by dozens of print publications and many TV channels, Rule 8: Be sure you can live with your allocation.
are there to help investors with over 3,000 actively traded Rule 9: Re-balance.
stocks, hundreds of mutual fund schemes or insurance Rule 10: Revisit the plan.
products, apart from savings schemes, provident fund and We agree with almost all these. Rules 4, 5 and 7 do
the new pension system? not apply to Indian conditions. Overall, a good book for
Unfortunately, the dice is loaded against investors beginners and intermediate investors. Debashis Basu

MONEYLIFE | 12 November 2015 | 62

Book Review.indd 2 20-10-2015 20:29:59


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MONEY FACTS STOCKS

INDIAN MARKET TRENDS FUND FLOWS


The Sensex and the Nifty rose 1% each, along with the ML Foreigners: Foreign institutional investors were net
Mega-cap Index during the fortnight ended 20th October. buyers of stocks (Rs2,862.36 crore). They bought
ML Large-cap Index and ML Mid-cap Index gained 2% each. shares worth Rs25,102.02 crore.
ML Small-cap Index advanced 4%. 900

Share prices, April 2015=100 740

130
580 FII Net Investments
(Rs Crore)
420

115 260

100
12 Oct-15 20 Oct-15
100
Indians: Domestic institutional investors were net
sellers of stocks (Rs1,052.73 crore). They sold shares
worth Rs10,772.15 crore.
85 115
Apr-15 Jul-15 Oct-15

ML Large-cap ML Small-cap Nifty ML Micro-cap 20


ML Mid-cap ML Mega-cap Sensex
-75

-170
Index 09-Oct 20-Oct +/-
ML Micro-cap Index 96.14 101.87 6% -265 DII Net Investments
(Rs Crore)
ML Small-cap Index 111.99 116.05 4%
-360
ML Large-cap Index 108.82 111.40 2% 12 Oct-15 20 Oct-15

ML Mid-cap Index 106.39 108.88 2%


Nifty 8,189.70 8,261.65 1%
GLOBAL MARKET TRENDS
ML Mega-cap Index 109.41 110.35 1% 5,175
Shanghai Composite
Sensex 27,079.51 27,306.83 1% 4,750

Mega-cap Gainers/Losers 09-Oct 20-Oct Change 4,325

Adani Enterprises 83.95 96.00 14% 3,900

Cairn India 168.55 153.95 -9%


3,475

Large-cap Gainers/Losers 09-Oct 20-Oct Change


3,050
Apr-15 Jul-15 Oct-15
Spicejet 29.30 44.10 51%

D C B Bank 138.15 91.90 -33% NASDAQ Composite, Korean Composite and S&P
500 rose 1% each, while the FTSE and Nikkei fell 1%
Mid-cap Gainers/Losers 09-Oct 20-Oct Change
each. Bovespa declined 5%.
Castex Technologies 19.85 27.65 39%
Index 09-Oct 20-Oct +/-
Sical Logistics 170.50 150.25 -12%
Shanghai Composite 3,183 3,425 8%
Small-cap Gainers/Losers 09-Oct 20-Oct Change Taiwan Weighted 8,446 8,654 2%
Emmbi Industries 39.25 61.05 56% Hang Seng 22,459 22,989 2%
NASDAQ Composite 4,830 4,881 1%
R S Software (India) 163.40 135.50 -17%
Korean Composite 2,020 2,039 1%
Micro-cap Gainers/Losers 09-Oct 20-Oct Change
S & P 500 2,015 2,031 1%
International Combustion (India) 222.50 336.90 51% FTSE 6,416 6,345 -1%
Spentex Industries 2.20 1.77 -20% Nikkei 18,439 18,207 -1%

(All Prices in Rs) Bovespa 49,338 47,077 -5%

MONEYLIFE | 12 November 2015 | 64

Money Fact.indd 2 23-10-2015 17:33:19


MONEY FACTS STOCKS

Whats H T

Sugar companies were in demand during the fortnight. Triveni Engineering
& Industries, Kesar Enterprises, Uttam Sugar Mills and Upper Ganges Sugar
ML SECTORAL TRENDS
Stocks of printing & publishing
companies and airlines companies
& Industries surged 32%, 31%, 28% and 26%, respectively.
soared 31% each and stocks of sugar
companies surged 12%. Shares of
Companies 09-Oct 20-Oct +/- oil & gas companies, software & IT
ML Sugar Index Triveni Engineering 28.00 36.85 32% services companies and consumer
products companies declined
130 Kesar Enterprises 17.10 22.40 31%
3% each. Shares of healthcare
120
Uttam Sugar Mills 15.20 19.41 28% companies fell 2%.
Upper Ganges 46.25 58.50 26%
ML Sectoral Trends
110 Oudh Sugar Mills 22.90 28.60 25%
Printing & Publishing 31% Oil & Gas -3%
Sakthi Sugars 20.65 25.65 24%
100 Airlines 31% Software & IT Serv -3%
Simbhaoli Sugars 12.46 15.32 23%
Sugar 12% Consumer Products -3%
90 Dhampur Sugar 48.00 58.95 23% Petrochemicals 10% Retail -2%
Dwarikesh Sugar 48.05 56.35 17% Trading 10% Healthcare -2%
80
EID-Parry (India) 154.25 179.85 17%
Apr-15 Jul-15 Oct-15
All Prices in Rs

URBAN INFLATION

Whats N T Combined inflation for urban and


rural areas increased to 4.41% in
Oil & gas companies were a mixed bag. Cairn India declined 9%, while Oil September 2015, from 3.74% in
& Natural Gas Corp and Oil India fell 4% each. Tide Water Oil Co fell 1%. August. Inflation in urban areas
GAIL (India) gained 5%.
increased to 3.61% in September,
from 2.75% in August, due to a
Companies 09-Oct 20-Oct +/-
high base effect. Food inflation in
ML Oil & Gas Index
Cairn India 168.55 153.95 -9% urban areas increased to 3.79%
ONGC 263.65 253.15 -4%
110 in September from 1.71% in
August. In urban areas, prices of
Oil India 456.60 438.85 -4% 100

Tide Water Oil Co 17,745.60 17,610.00 -1% 90 Trending Up?


Selan Exploration 234.55 238.90 2%
7%
80
Indraprastha Gas 467.00 479.50 3% 6%
Annual Change
70
GAIL (India) 311.60 326.10 5% 5%

Hindustan Oil 35.00 37.15 6% 60 4%


Apr-15 Jul-15 Oct-15
3%
All Prices in Rs
2%
Sep-14 Mar-15 Sep-15
BULK DEALS

Date Company Buyer Seller Rs Cr


vegetables remained steady year-
on-year, due to the base effect.
16 Oct-15 Hinduja Global Solutions ML Capital Markets Espana Credit Suisse (Singapore) 16.92
Inflation related to fuel remained
16 Oct-15 Empire Industries Arjun Transport Company Pvt Satishchandra Panalal Malhotra 8.56 steady in August, at around 3%.
15 Oct-15 Rubfila International Minal Bharat Patel Bharati Bharat Dattani 7.50 Inflation for housing increased
marginally to 4.74%. Inflation for
12 Oct-15 Goldcrest Corporation Namrata Tushar Tanna Viresh Prabhakar Kothari 0.87
clothing hovered around 4%; for
19 Oct-15 Urja Global Malvi and Co Ajay Multi Projects Limited 0.77
miscellaneous items, it increased
13 Oct-15 Sangam Advisors Hitesh Chimanlal Doshi Navratanmal Ashok Kumar 0.54 to 2.29% in September from
16 Oct-15 Vedavaag Systems Gadiyaram Sreedhar Paramasivam Traders 0.19
2.02% in August.

65 | 12 November 2015 | MONEYLIFE

Money Fact.indd 3 23-10-2015 17:33:34


BEYOND MONEY

Malnourishment a metropolitan city like Mumbai. The traveland the


extra care neededputs immense stress on the child and,

More Dangerous
often, malnourishment can be a more potent killer than
cancer itself. Dislocation of the family routine should not

than Cancer
lead to poor food habits, especially for a cancer-afflicted
child. These were the findings of Cuddles Foundation and
its founder, Purnota Dutta Bahl, who brings formidable
marketing skills to the organisation.
Four out of 10 children being treated for Healthy and nutritious meals and supplements are a
cancer in Mumbai lose the fight because of luxury for these children. So, what started as a small drive
malnutrition among Ms Bahls friends and family three years ago, has
grown into a well-established NGO (non-governmental
organisation). Today, Cuddles supports over 1,500
children every month in seven partner hospitals across
four states in India, including leading institutions like
Tata Memorial Hospital and All India Institute of Medical
Sciences (AIIMS), New Delhi. Treatment abandonment
rates have gone down from 21% to 3%. This can be
directly attributed to nutritional intervention at Tata
Memorial Hospital by Cuddles Foundation.
Cuddles is the only NGO in India that provides holistic
nutritional support to malnourished children undergoing
treatment for cancer. For instance, Chakys Food for All
programme, named after an 18-year-old who is no more,
provides ration to families for preparing nutritious meals
for children at Wadia Hospital in central Mumbai.
Take a look at the website of Cuddles for some heart-
warming success stories, or those whose struggle continues.

P
urnota Dutta Bahls visits to Tata Memorial Hospital, Nooresa Sutarwala, of Cuddles, tells us about Geeta, who
Mumbai, made her realise that families that go to was four months old when she was diagnosed with acute
large cities like Mumbai and Delhi to seek treatment, leukaemia, a type of blood cancer. Severely malnourished
face a sea of challenges. These include loss of livelihood, at the time of diagnosis, she needed aggressive nutrition
problem of finding accommodation, having no funds/access intervention (Ryles tube feeding) to even reach the stage
to nutritious meals, apart from high costs of treatment of moderately malnourished, in two months time. She
and the emotional turmoil that come as a part and parcel is still on Ryles tube feeding along with weaning diet, as
of dealing with cancer. she has been on chemotherapy. Her fight continues.
This is how the idea of Cuddles Foundation formed Readers are invited to lend a helping hand by donating,
in her mind. or becoming a volunteer, or simply pledging an occasion
The statistics are harsh: 50,000 children are diagnosed (your birthday, anniversary or festival, gifting proceeds
with cancer every year in India. Only 22% of them make to help put a smile on a cancer childs face). You can
it to hospitals for treatment. Only two out of 10 children also provide logistics support to Cuddles Foundation.
survive, compared to worldwide survival rates of eight Volunteers can help facilitate special art & craft classes,
out of 10. Four out of 10 children being treated lose play sessions or to conduct drives to obtain essentials like
the fight because of malnutrition. This is the need being diapers, clean linen, raincoats, toys and books.
addressed by Cuddles Foundation: Cuddles welcomes corporate
To reduce the mortality rates and support as a CSR initiative in the
treatment abandonment rates due to form of nutritional and medicine
malnutrition and infection. CUDDLES FOUNDATION supplements; hygiene-related products
Children do not smoke or chew c/o Nangia and Co, are needed to ensure the success of
tobacco; yet, they are not immune to 1101, 11th floor, Tower-B, the cause. Donations are tax-exempt
cancer. When cancer strikes the young, Peninsula Business Park, under Section 80-G of the Income Tax
they have to be taken to a doctor in Ganpatrao Kadam Marg, Act.
Lower Parel, Mumbai - 400 013.
Telephone: +91 22 6173 7061
Email: team@cuddlesfoundation.com
MONEYLIFE | 12 November 2015 | 66 Web: http://www.cuddlesfoundation.com/

Beyond_money.indd 1 17-10-2015 17:27:21


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