The Navhind Times I Monday June 20, 2016

Magazine for
Business &
Consumers

navhindtimes.com

vox populi

By Adv. Jatin Ramaiya

isk in personal finance is

usually perceived as a risk
that arises from individual
investment assets like equity shares or bonds. Will
the company do well, will the markets sustain, will the debt default,
will the interest rates rise? Such
discussion centres on the market
risk, default risk, interest rate risk,
volatility, beta value, etc.
What I want to talk about today is a different risk altogether.
The risk of our investment not
delivering us the financial security we desire. How do we create
an investment plan that is robust
enough to secure our financial
future in spite of disruptions?
You may say, do not both amount
to the same. I want to create a
corpus of Rs 10 lakhs. I invest in
a mix of some equity shares and
some bonds. I have worked out
the expected rates of return but
the actual rates of return fall below the expected rates of return
and my actual corpus falls short
of the target. Or I lose a part of
my investment resulting in a severe distress. No that is not the
risk that I want to talk about.
What I wish to discuss is what
is my chance that this investment
plan will not deliver me the financial security that I am planning for
and what can I do about it? Returns falling short of the expected
and loss of capital are only a part

hChilly 43.00
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hCluster
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Beans

32.00

hOnion
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hFrench
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Beans

52.00

hPotato 26.90
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hCarrot
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39.00

hTomato 55.80
h

of the whole risk.

Perhaps I have not yet been
able to get the idea across to you.
The difference shall become clear
once we place the two risks side
by side. The text books speak of
pure risk and speculative risk.
But that does not mean much to
those of us who are not
professional risk managers. So let us get behind
these technical terms to
understand what exactly
we are dealing with. In
pure risk there are just
two possible happenings- bad happening and
bad not happening. Take
for instance a simple thing like
your life. You are healthy and fit.
Then you fall sick. This falling sick
you call bad happening.
Bad happening could be anything such as death, accident,
theft, vehicle breakdown, house
on fire, anything. No such thing
happening would then be bad

ndias diesel demand is expected to fall after

monsoons set in properly over every state.
India a net exporter of diesel faced jump in
imports by state refiners since April 2016.
State refiners ramped up diesel imports in
the second quarter after supplies from private
oil processors Reliance Industries and Essar
Oil became too expensive in the absence of
discounts on taxes and shipping. Now, as the
rains come and domestic demand drops, diesel
imports could halt and exports rebound.
During the monsoon demand for diesel
sees a blip (down) because industrial activity
slows, transport movement gets affected and
demand from agriculture also reduces, said
Tushar Bansal, a energy consultant. The weather office has forecast above-average rains. The
rains are crucial for farmers who otherwise
use diesel-powered pump-sets for irrigation.
More rain also boosts hydropower generation
alleviating electricity shortages and reducing
demand for diesel to power small diesel generators to keep lights burning.
We have seen very high diesel demand in
April-May. In June also it is rising. But I expect
diesel demand (in the third quarter) to be 50
percent of the April-June quarter, said a oil
company official. A sustained rise in diesel
prices as oil markets recover this year is also

Vegetables Retail rates at Goa State

Horticulture Corporation Ltd. outlets (Rs per kg)
35.90

not happening. Note that there

is no third possibility of good
happening. Sounds too simple;
almost stupid but we need to
understand that well. For that is
pure risk.
Speculative risk is different. It
allows for three possible happenings- bad, neutral and good. In fact
it allows for a continuous range
of happenings from maximum
loss to maximum gain. That is the
model used in finance. When you
invest, you may gain a lot (your
return may be very high), you may
gain little, you may gain nothing
and lose nothing, you may lose a
little, or you may lose a lot, even
lose your whole investment. As
said before, the possibilities are
unlimited.
Do you get the difference now?
Today let us discuss
how to manage financial
risk using the first model
of risk. This model of
risk has somehow eluded
financial risk managers.
Note that this model is
not for managing the risk
in our investments; it is
for managing risks in our
life. Those risks that are connected
with the investments that we
make in life.
The basic model for management of pure risk in personal
finance is the same as is used
for management of risk in say
a factory or a building. The first
concept that we need to under-

stand here is risk exposure. A

risk exposure is simply a point
at which there exists a possibility of something happening that
can cause a loss or financial
distress; we have called this bad
happening. Technically it is called
an adverse event.
Let us suppose you have made
an investment plan for your childs
education. You are investing Rs.
5,000 every month and plan to
do it over the next 15 years. Then
suddenly in the eighth year you
have a problem with your job
and there is a disruption in your
investment plan. This is a risk
exposure. You can think of many
such risk exposures.
The first task in the risk management model is looking for
such risk exposures. Technically
this step is called risk exposure
identification. More thorough your
identification the more effective
will be the risk management. Once
you are through that, you can
begin the next step- risk exposure
treatment.
Risk exposure treatment may
take different forms. But mainly
your options are two. Avoiding the
exposure and if you cannot avoid
it control it to prevent causing a
major financial distress.

*The author is an investment

consultant. Readers can send their
comments and queries to investment.ideas.shop@gmail.com

Monsoons to drive down diesel demand

farm produce prices

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Speculative risk is different. It allows for three

possible happenings- bad, neutral and good

By Tensing Rodrigues

recent
judgement
passed by
National
Consumer
Disputes Redressal
Commission, may
prove to be landmark in the real
estate market in
India. The President
of the Commission
whilst quoting Chales
Dickens stated in his
judgement Home is
a name, a word, it is
strong one, stronger
than magician, ever
spoke or spirit, ever
answered to, in the strongest conjuration (The act of calling or invoking a
sacred name or Emanating from God). TheCommission came down heavily on the builder who delayed the delivery and completion of the housing
project called Kalypso Court at Jaypee Greens, Sector 128, Noida.
Consumers were not only aggrieved by the delay but also by the manner in which the builder had increased the super area. The Commission
whilst allowing the complaint held
that the builder was liable to pay
a penalty of 12 per cent per annum which was a departure from
the terms of the agreement as
the said agreement contemplated
only two-three per cent penalty.
The builder was also asked to
pay of Rs 5,000 per day per flat
if he cannot offer possession by
July 21 this year. The Commission
whilst trying holding the scale
of equity observed that that a
builder has no right to claim excess amount on the pretext of increase in super area without the consent
of the buyer .
The case was by 10 home buyers of Kalypso Court who through their
registered association Developers Township Property Owners Welfare
Society filed a complaint. They alleged delay in of over four years in handing over possession. The date of possession was revised many times and
remains lingering. Buyers had paid nearly 90 per cent of the amount.
The builder cited force majeure conditions for the delay. He claimed
that buyers did not make timely payment and the area shown in the plan
was only tentative. But the Commission struck down his arguments and
said that the builder is not entitled to any additional amount for any increase in super area. The builder also failed to produce solid and unflappable evidence to show shortage of labour, scarcity of water, restrictions
in excavations, etc. The story
Latest
advanced by the developer just
does not stack up. He does not
BSE Sensex
26,625.91
have a bone to pluck with the
Nifty
8,170.20
complainants and has raised
copious objections merely for the
Re/ US $
65.20
sake of cavil, was the observaRs/ UK Pound
99.20
tion.

hCauliflower
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(piece)

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Managing risk in
personal finance

Builder slapped with

heavy penalty

hLadyfinger 36.70
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@navhindtimes

31.00
17.60

*Rate as on June 18, 2016

putting further pressure on diesel demand.

Diesel-fuelled vehicles - which were supposed to one of the driving forces behind rising
consumption in India - are as well faced with
court bans over pollution concerns, prompting
some automakers to redraw engine production
strategies.
Lower diesel consumption means state

refiners will take less from private and standalone refiners. To that extent diesel exports
will go up. Last year diesel demand grew eight
percent during the July-September quarter.
This year annual diesel demand for the third
quarter could grow just around 1 percent from
a year ago to about 1.4 million barrels per day.
Reuters

investors guide

Indices heading lower

he British referendum this week is likely to keep the stock market choppy. While outlook for the longer term is positive the
Nifty is expected to inchlower during the week.
The advance-to-declines ratio in theNifty is
skewedmore towards declines which indicate more
shorts are getting built up.
All in all the Nifty will trade
in the 8050-8250 range until
Brexit is out of the way and
there islittle more clarity on the progress ofmonsoon. Investors
have wound up their long positions and the next four days will see
narrow trade.
Apart from Brexit
valuations are also
stretched, that is
also going to weigh
down share prices.
The passage of
Goods and Services
Tax (GST) and earnings improvement
are going to be the next big triggers for upmove.
Companies in the agri space, viz. fertiliser look attractive for
investment because the has been very constrained over last two
to three years.
So normal monsoons willnot just mean some uptake in demand
but also clears up the capital flow, the working capital issues for
some of the ferlizer stocks. It is a sector that is expected to do
well.

weekly
market
outlook

sector watch

On revival mode

he situation in cement is improved

due to pre-monsoon pick-up in
construction activities and favourable government spending. Dealers are
of the view that demand increase in
cement is occurring after a long time
and a favourable monsoon strengthen
future consumption and pricing as
well. All-India average price of cement
has recovered by two per cent to Rs
300-305/bag with strong recovery in
southern, northern and eastern region.
However prices are soft in the western
and central regions.
Several projects
especially in the
western and central regions are stuck
due to water paucity. Hence arrival
of monsoon could create immediate
pickup in demand in west and central
states. Other reasons for improved
demand are visible pickup in construction activities from new infrastructure
projects, improvement in rural demand
and housing activities especially under
Housing for All scheme. Smart Cities
projects are likely to aid in improving
utilizations of the industry and hence
profitability in the long-term.
Reliance Securities

scrip tip

Runs out of fuel

SW Energy (JSWEL) has high exposure to merchant power business. The

biggest risk with the companys projects is the lack of fuel on long-term
basis which is causing significant exposure to imported coal. Further it
is also susceptible to merchant rates since 45 per cent of the total capacity
of 4,531MW is under merchant route. High exposure to merchant market
and excessive dependence on imported coal, are two main concerns in the
future. However JSWEL is likely to benefit from decline in coal prices. In
fourth quarter 2015-16 the margins improved 1.73 per cent on account of
lower fuel costs. Revenue increased to Rs 26.8 billion backed by increased
generation capacity. The average deemed PLF (ex-hydro) was 91 per cent
as compared to 81 per cent in the corresponding quarter of the previous
year.
Reliance Securities

HOLD
Target Price

` 84

Current Price

` 84.90

JSW Energy

cement

Stiff competition from peers

tul Autos latest performance is weak due to higher other expense,

raw material cost and employee expense. According to the company,
the tax issue has been sorted out in Gujarat and volumes are likely to
normalise going forward. However the damage has largely done for first
quarter on 2016-17, and in the middle of sluggish demand in both the
domestic and export market. Profit margins in future are likely to be flat.
Atul Autos specialised focus has clearly paid rich dividends as evidenced
by market share gains in the past. However, currently, we believe AAL
being a small player will face key challenges in both domestic and
export market amid stiff competition. Capacity addition in a subdued
environment may result in higher overheads cost along with raw material
prices.
ICICI Direct

HOLD
Target Price

` 505

Current Price

` 486.25

Atul Auto