SUCHETA DALAL ON:

SACHET AND THE PM'S GRIEVANCE SEBIS NEW HFT RULES:

REDRESS AGENDA NO CLOSURE TO NSE ISSUE
Personal Finance Magazine 19 August-1 September 2016 Rs 45

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

beware
Investors in
Indian Mutual
Funds from
US & Canada
No Indian fund is registered with
US and Canadian regulators. As
a US/Canada person, if you are
investing with Indian funds, you
may be taking a big risk

VALUE STOCKS:
All Stock Buying Is Speculation and
What It Means for Investing Page40

STOCKS

Quess & Teamlease: JK Cement & JK Lakshmi Cement: Manipulation:

Do Fundamentals Justify Their Valuation? Hopes from Rising Cement Demand Smith & Founders (India)

Cover Page_274.indd 1 12-08-2016 17:58:28

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Advertisements.indd 2 09-08-2016 20:18:34

Advertisements.indd 6 10-08-2016 20:08:18
 ISSUE CONTENTS
19 Aug-1 Sep 2016

Complying with FATCA

I f complying with new know-your-customer

(KYC) norms every now and then was not
onerous enough for mutual funds investors,
investors based in US or Canada need to
comply with the Foreign Account Tax
Compliance Act (FATCA). This is part of a
comprehensive USA anti-tax-evasion global
reporting regime designed to locate income and
assets held by persons from USA in offshore
accounts. While all investors need to submit
the declaration, honest US/Canadian investors
dont have anything to fear. However, they, too,
can be a casualty if Indian AMCs, brokerages

32 Cover Story
or banks decide to stop taking their business
and, worse, if they decide to force them to
sell or withdraw their existing investments.
S
In our Cover Story, we take a deeper look
at compliance issues that FATCA has raised Beware, Investors in Indian Mutual Funds
and how US- and Canada-based mutual fund from US & Canada
investors will be affected. The onerous FATCA (Foreign Account Tax Compliance Act)
Investing in stocks may be backed by makes compliance all the more difficult and imposes stiff
penalties. Raj Pradhan finds that a few asset management
complex models which discount future cash
companies have opened the doors for investors from the US &
flows and which render a stock undervalued or Canada now. But are they really compliant with the US law?
overvalued. However, one needs to estimate, Read about the best-kept secret
or rather speculate, the future earnings
growth. This implies that all investing is
mere speculation. In Value Stocks, I discuss
how analysts and experts can go completely
12 Your Money
High Penalties for Violation of Traffic Norms Proposed
RBI Cautions Public against Email Frauds
off-target by forgetting that all investment FAQs To Come Soon from CBDT for Settling Tax
processes are inexact. We must avoid too much Litigation
of precision and have systems in place to reduce Brokers Told To Provide Documents in 15 Languages
mistakes to the bare minimum. R Balakrishnan, DLF Asked To Pay Rs2 Lakh Each to Customers
too, admits that when it comes to picking Unclaimed Amount of Rs11,668 Crore Lying with
Insurers
stocks, apart from above-average analytical
skills, luck and serendipity also have their part
to play. Patience is the key and one should keep
an investment horizon of over 20 years, he says.
The Reserve Bank of India (RBI) recently
14 MONEYLIFE

QUIZ
launched Sachet an online grievance redress
forum which provides access to all the financial
regulators. Sucheta highlights major issues with
the site, in her Crosshairs section. RBI has not
18 Sachet and the Prime Ministers Grievance Redress
Agenda: How Far Will It Work for the Financial
proactively engaged with stakeholders and Consumer?
seems to have hurriedly put up the forum.
As always, we look forward to your
feedback. If there is anything you want us to
focus on, please do not hesitate to write to us.
20 Different Strokes
SEBI Tries To Fix the HFT Issue without Closing
the NSE Probe

Debashis Basu Disclaimer: Moneylife has a policy of not allowing its editorial staff to
buy and sell stocks that are written about in the magazine. All personal
transactions in individual stocks are subjected to internal disclosure rules.
MONEYLIFE | 19 Aug-1 Sep 2016 | 4

Content.indd 2 12-08-2016 17:23:33

Advertisements.indd 5 10-08-2016 20:13:13
 CONTENTS
FUND POINTERS VALUE STOCKS YOU BE THE JUDGE

22 Think Twice before

Falling for Equity 40 AllIs Speculation
Stock Buying 58 Whatsoever a Man
Soweth, that Shall He
Savings or Equity and What It Reap
Income Schemes Means for
Investing
TECHNOLOGY

TAX / FIXED INCOME

59 Music to
rs
the Ears
47 IstheYourNewMoney Safe with
Banks?
ML FOUNDATION EVENTS
INSURANCE G-Sec and Bond Yields

28 Insurance
Trends
LEGALLY SPEAKING

Health Insurance
Max Life Cancer Insurance Plan
Group Insurance Continues To
50 How the Rich
& Powerful
Abuse the
60 How
Inflict Losses
Regulations
Legal Process To File an FIR
Health Insurance Premium Can Be
Revised Yearly
and What Are Your
Life Insurers Cannot Sell Indemnity Rights
Health Cover
Fine Print
TAX HELPLINE
Civil Defence Organisation
Needs More Volunteers
STOCKS 52 Queries at Moneylife
Foundations Tax Helpline
24 Smart Money USEFUL APPS

BEYOND MONEY

54 LibreOffi
A Throw of the
Dice in the Markets ce: An
42 Stock Watch
Alternative to Microsoft
Office 66 Upcycling Plastic Waste
Transparent Screen: See the Road
below Your Screen!
Quess & Teamlease: Do CloudConvert: Convert Any File
Fundamentals Justify Their into Any Format
Valuation? CleanMaster: Clean up Your
Smartphone

JK Cement & JK Lakshmi

Cement: Hopes from Rising HEALTH

Cement Demand

Market Manipulation:
56 Vitamin
Epidemic
D and an
Smith & Founders

DEPARTMENTS
Market Trend: Investment- Readers Response ........... 8
led Boom? Pulse Beat: Medical developments Book Review ....................62
from around the world Money Facts ....................64

Content.indd 4 12-08-2016 17:23:58

Advertisements.indd 4 09-08-2016 20:19:17
 Volume 11, Issue 14
19 August1 September 2016
Debashis Basu
Editor & Publisher
editor@moneylife.in
Sucheta Dalal
Managing Editor
sucheta@moneylife.in
Editorial Consultant
Dr Nita Mukherjee
nitamuk@gmail.com
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Moneylife is printed and published by
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Editor: Debashis Basu
Total no of pages - 68, Including Covers
RNI No: MAHENG/2006/16653
MONEYLIFE | 19 Aug-1 Sep 2016 | 8
Letters.indd 2
GUILTY, ONLY IF ASSETS ARE
ILLEGALLY ACQUIRED!
This is with regard to the snippet in Your
Money - Tax under the heading 1.4 million
high value non-PAN transactions being
scrutinised: I-T department (Moneylife, 18
Mutual Fund investments
August 2016). Kudos to the Supreme Court for are subject to market risks,
read all scheme related
its decision saying that mere possession of assets documents carefully.
disproportionate to known sources of income is
not an offence. A person can be held guilty only if
it is proved that the assets were acquired through Write to
illegal means. the Editor!
Though the case is of a political person and it is
correct, in principle, to assess the income of any
WIN
a prize
person, it should not match expenditure. It is an
Income Tax Act and not an Expenditure Tax Act.
Remember, once there was an Expenditure Tax
Act too. It was rightly shelved, as people opposed
it. It was too much interference in the personal
lives of citizens. The I-T department must prove
that income is concealed. It is wrong to ask any
assessee to prove that his expenditure matches
with his declared income. There are many
private and personal emotional matters of a
person in his expenditure and sources of his
expenditure. Even the government or the I-T
department should not ask for such details.
If expenditure is much more than the declared income, the onus of
proof lies on the I-T department. It has to prove that the income was
concealed and not declared in the persons income-tax return. If the
department is not following this principle, it is uncalled for behaviour
intruding into the persons private matters.
M Kumar, by email
APT REMINDER OF WHAT IS WRONG
This is with regard to the column Regulating the Regulators by
Sucheta Dalal. It is an apt reminder of what is wrong with our myriad
09-08-2016 20:19:59
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Scam Ad.indd 1
During discussions that night, Subba Rao called
R Sinha, chief general manager (vigilance). They
discussed the course of action and then planned
to go to the Chairman, Maneck N Goiporias
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 LETTERS

Lenience to Officials?
the
Best
letter
T his is with regard to Power
without Accountability:
man, one cannot go
to New Delhi
Repeated Raps from Higher repeatedly due to
Mutual Fund investments
Judiciary are Dangerous Portents the cost involved. He are subject to market risks,
read all scheme related
for SEBI by Sucheta Dalal. The totally agreed with the documents carefully.
leniency is shown repeatedly facts but he admitted
to officials who gain arrogance
at public cost. I would like to
his inability to help, as
there were procedures. Congratulations
mention my correspondence with Mr Habibullah As procedures are Vaibhav Dhoka
the then CIC (Chief Information Commissioner). prepared by babus, they
It was the second appeal against RTI (Right to take undue advantage
YOU WIN A
PERSONALISED
Information) from SEBI. The case was posted at and the authorities CLOCK
New Delhi. A day before the hearing, SEBI asked show leniency.
for an adjournment. I wrote to the CIC that while Vaibhav Dhoka, online
officials attend at State cost and do not get affected comment
by an eleventh hour adjournment, as a common

regulators. However, the column did not mention two as advisers with no Vaibhav Dhoka

of the worst in the lot: the UGC (University Grants
Commission) and the AICTE (All India Council of
Technical Education). Compared to the performance
of these regulators in the field of higher education,
the performance of others might look like the gold
standard! They should be done away with (a la
Planning Commission) and a new beginning may be
made. Many companies in Germany and France have
representatives of employees and consumers on their
boards. A similar principle can be adopted while
nominating members to the boards of the regulators.
Sudip Kumar Ghose, by email
MAKE EVERYONE AWARE OF CONSUMERS
RIGHTS
This is with regard to Regulate the Regulator, Say
Consumer Bodies by Sucheta Dalal. This is a very
good proposal. Regulations have failed everywhere.
The government has to ensure that regulatory
standards improve in all institutions and they are made
accountable. Even in the private sector, services have
deteriorated due to the lack of governance standards
and accountability. The only way to improve the
regulation is to make everyone aware of the consumers
rights. People should demand protection of their
rights. This is possible only if there are regulators to
regulate the regulatory bodies and these regulators are
represented by consumer bodies. The appointment of
retired bureaucrats and politicians in regulatory bodies
should come to an end. They can best be appointed
executive powers.
Gopalakrishnan TV,
online comment
INVESTIGATIVE
JOURNALISM NEEDED
This is with regard to Stock Manipulation: Kingfa
Science & Technology India. Please provide some
evidence why you think price is manipulated. When
stocks like Flipkart can command valuation of US$200
per share, why should Kingfa, with innovation and
state-of-the-art technology offering, not command
a price of US$20? Why cannot your investigative
journalists find out if anything wrong with the
company before relying on SEBI (Securities and
Exchange of Board of India)?
Satinder Goel, online comment
INSUFFICIENT INFORMATION
This is with regard to A Missed Call To Know Your
Bank Balance, Last Transactions by Abhay Datar and
Yogesh Sapkale. The information I get is only with
regard to the last transactions. This is when I actually
need to know the balance!
Bapoo Malcolm, online comment
SELLING MULTI-BAGGERS?
This is with regard to Multi-baggers: Dont
Underestimate Timing by Debashis Basu. When asked
for advice by many, I have given buy signals for

MONEYLIFE | 19 Aug-1 Sep 2016 | 10

Letters.indd 4 09-08-2016 20:20:46

 LETTERS

several scrips which have appreciated many times and
for which they profusely thank me. But, when I give a
sell advice for any of those scrips, hardly 5% people
follow and, later on, they lament that they did not
respond properly. I feel selling is difficult as people
tend to get attached to the scrip and do not want to
part with it because of greed or sentiment.
I have been fortunate in having a few scrips that
have multiplied several times but I, too, have the
problem about timing when I should unload, even if
partially. The interesting part is that when we sell, the
share price may go higher. In such a case, we rue our
decision.
Also, at times, we do not think of
selling good scrips as there are no
other avenues or alternatives for
investment. We may fritter away the
proceeds in sundry and unwarranted
expenses. But for the gains we made, we
would not be incurring such expenses.
Some articles on this aspect of selling
multi-baggers/good scrips and how to go
about it would be welcome.
Anupam Naik, online comment
MORE EARTHY WISDOM NEEDED
This is with regard to Fewer Pills for
Better Health by Prof BM Hegde. This is
a very well written article with lots of wisdom. Not
many doctors in India believe in the principles of
Dr Hegde. In India, tests and drugs are normal things
these days. No one thinks a moment before gobbling a
pill. We need more of such earthy wisdom which serves
humans.
Brajesh Kumar, online comment
BULLYING ATTITUDE!
This is with regard to When HDFC Bank and Its
Debit Card Failed by SD Israni. This is a superb
judgement by NCDRC (National Consumer Disputes
Redressal Commission). I would have preferred the
compensation to be fixed higher. Rs5 lakh is nothing
and is no compensation for all the mental torture,
agony and shame when you are left stranded without
your own money. HDFC Bank silently sits on the
couples money and earns interest while they pay
peanuts to the savings bank account-holders. The
bullying attitude of banks has to be demolished.
Balasubramaniam K, online comment
COMMERCIAL PURSUIT OF ALL ASPECTS
This is with regard to Soul-less Science by Prof BM
Hegde. The mad commercial pursuit of all aspects
of life is taking away spirituality and
higher values. This does not portend well.
There have to be some decent limits to
commercial exploitation.
Deepak Narain, online comment
GOOD ARTICLE
This is with regard to Stocks: 10 Times
in 5 YearsWhat Fuels the Multi-
baggers? by Jason Monteiro. One
stock recommended by Moneylife has
gone up from Rs90/- (less than a year
before) to around Rs400/, at present.
This is a good article for people who
have time and patience to study
the stock market. For all others, there are always
Moneylife Stockletters. Returns in less than a year are
higher than 20%.
Dinesh Acharya, online comment
CRASH BY END-2016?
This is with regard to Multi-baggers: Dont
Underestimate Timing by Debashis Basu. Yes! I am
sure a medium-level crash will happen by end-2016 in
the stock markets. All the indicators are pointing to
that and many respected stock-watchers are saying so.
I too, will be ready, when there is blood on the street.
But, then, there will be a large group of vultures also.
Atif Rahman, online comment

Letters:
Letters to the Editor can be
emailed to editor@moneylife.
in or can be posted to: The Editor,
Moneylife Magazine, Unit No. 316,
3rd Floor, Hind Service Industries,
Off Veer Savarkar Marg, Dadar(W),
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and telephone number and may
be edited.
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sales@moneylife.in or call
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11 | 19 Aug-1 Sep 2016 | MONEYLIFE

Letters.indd 5 09-08-2016 20:21:18

 Your Money
CAR INSURANCE TAX

High Penalties for Violation of Traffic FAQs To Come Soon from

CBDT for Settling Tax
Norms Proposed Litigation

T
he Union Cabinet approved
the Motor Vehicle
(Amendment) Bill 2016
that proposes hefty penalties for
violation of traffic norms. It is
proposed to levy a fine of up to
Rs10,000 for drunken driving and
compensation of Rs2 lakh for hit-
and-run cases.
Road transport and highways
minister, Nitin Gadkari, told news
agencies that the proposals are
based on the recommendations
of transport ministers from 18
states. The Bill includes penalties
in the range of Rs1,000-Rs4,000
BANKING
RBI Cautions Public against Email Frauds
for over-speeding. Driving without
insurance will be punishable with
a fine of Rs2,000 and/or three-
month imprisonment, while driving
without helmets will attract a fine
of Rs2,000 fine and three-month
suspension of licence.
As per the new provisions,
Guardian/owner shall be deemed
to be guilty and there will be
a penalty of Rs25,000 with
three years imprisonment and
cancellation of registration of the
Motor Vehicle.
Penalty for unauthorised
use of vehicles without licence
has been proposed at Rs5,000;
those driving without licence will
have to pay the same amount
and those found driving, despite
disqualification, would be fined a
minimum Rs10,000. The proposal
also includes penalties of Rs1,000 in
case of LMV (light motor vehicles)
and Rs2,000 for medium passenger
vehicles.
C BDT (Central Board of Direct
Taxes) will soon come out with
a set of 30 FAQs (frequently asked
questions) based on the queries it has
received from various stakeholders,
including chartered accountants and
industry chambers. The department
has compiled the FAQs which have
been sent to the finance minister for
his approval. The FAQs would be put
up on the CBDT website this week or
by next week, a senior official said.
FAQs will be with regard to the dispute
resolution scheme as it seeks to settle
over 259,000 appeals pending with
income-tax commissioners. CBDT will
also launch a massive publicity drive to
make the scheme a success.
STOCKS
Brokers Told To Provide
Documents in 15
Languages
S EBI (Securities and Exchange
Board of India) has directed
all intermediaries in the securities
market to start communicating
with the investors in vernacular
languages, in addition to Hindi and
English. All documents should be

T he Reserve Bank of India (RBI) governor, Dr Raghuram Rajan,

cautioned the general public against emails that claim to provide
monetary rewards from the central bank on the pretext of phony schemes.
available on the websites of the
intermediaries in Assamese, Bengali,
Gujarati, Hindi, Kannada, Kashmiri,
If you get an email from me or any future governor promising to transfer Konkani, Malayalam, Marathi, Oriya,
a large sum of say Rs50 lakh to you if only you send a small transaction fee Punjabi, Sindhi, Tamil, Telugu and
of Rs20,000 to a specific bank account, delete the email, Dr Rajan said Urdu. SEBI has asked intermediaries
at a press conference. The reality is such emails are not from me and the that documents stating the rights
RBI does not give out money directly to ordinary citizens, even though we and obligations of brokers, disclosure
print plenty of it, he said. Dr Rajan asked the public to not fall prey to about risks, as well as the dos and
such emails. While the emails usually contain very convincing reasons why donts of stock trading should
you have been chosen to receive money, ask yourself why I cannot simply be available in these 15 Indian
deduct Rs20,000 and send you Rs49.8 lakh, he explained. languages.

MONEYLIFE | 19 Aug-1 Sep 2016 | 12

Your Money.indd 2 11-08-2016 21:46:18

 MONEYLIFE
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THE RIGHT THING TO DO

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 Your Money
REAL ESTATE LIFE INSURANCE

DLF Asked To Pay Rs2 Lakh Each to Customers Unclaimed Amount of

T he case is of a DLF Homes
Panchkula residential housing
project. The complainants had booked
a flat in the project in 2010, by paying
Rs4,00,000. However, possession
was delayed and, later, in 2014, the
complainants were informed that the
saleable area was revised and they
needed to pay extra Rs5,89,000 with
Rs18,200 service tax. The clause
was revoked after the complainants
protested. Finally, the company offeredd
possession, but asked the consumers
to deposit Rs17,51,924.48 within
one month. The complainants took it
up with Chandigarh Union Territory
State Consumer Commission. The
Commission asked DLF to give
possession of completed residential
flats to eight consumers within 30
days and pay each complainant Rs2
U nclaimed amount of policyholders
lakh as compensation with 12%
per annum interest on the deposited
amount until possession is given to
each of them.
Rs11,668 Crore Lying
with Insurers
with insurers has reached around
Rs11,668 crore on 31 March 2016, the
Indian Parliament was informed. The
unclaimed amount with Life Insurance
Corporation of India, on 31 March
2016, was Rs5,934 crore. Unclaimed
amount includes any amount payable to
a policyholder as death claim, maturity
claim, survival benefit and premium
due for refund remained unclaimed
beyond six months from the due date.

Moneylife

MONEYLIFE
Quiz no

239
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 Moiz Choolawala

draw from correct entries and answers published in the Mutual Fund investmentnt
investments are quote!
issue dated 26th September. 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 7 September 2016.

1. How much of the portfolio of equity savings funds (ESFs) is 5. When was Sony EFM-117J radio released?
invariably invested in stocks by the fund manager? a. 1962 b. 1963
a. 1%-5% b. 6%-10% c. 1964 d. 1965
c. 11%-15% d. 20%-50%
6. When was the Foreign Account Tax Compliance Act (FACTA)
2. What is the computed rate of return on the CRISIL Balanced introduced for mutual fund investors?
FundAggressive Index, over the past six months? a. December 2013 b. December 2015
a. 10.75% b. 11.75% c. March 2013 d. March 2015
c. 12.50% d. 12.75%
7. When was FATCA passed in the USA?
3. As on 31 July 2016, how many balanced advantage mutual a. 2005 b. 2008
fund schemes were in existence? c. 2010 d. 2012
a. one b. three
c. four d. five 8. In which university does the scientist Bella DePaulo work?
a. Harvard University
4. How many file types and formats are supported by b. Stanford University
Transparent Screen? c. University of California-Santa Barbara
a. 214 b. 216 d. New York State University
c. 224 d. 226

In all, 17 readers got all the answers right last time.

The winner of Quiz-237 is Moiz Choolawala from The answers to Moneylife Quiz-237 are: 1- c. 53% 2- a. Rs11
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an investment quote! 6- b. Vikas Patil 7- a. Luke Wiley 8- d. a. Winston S Churchill

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 www.moneylife.in
Exclusive news & views with a big dierence

Aadhaar mystery:
How many residents
actually have the UID
number?
Aadhaar came into existence under
the garb of providing identification to
those poor people who do not have
any kind of ID. Since Ujjivan operates
in the microfinance segment, most of
its customers are supposed to have the
Aadhaar number, if we consider the
claims of UIDAI. But that is not the case.
We would presume that 100% of
Ujjivans customers should have Aadhaar.
They are borrowers who need to clear
know your customer (KYC) norms. And all
finance companies and banks have been
waxing eloquent how Aadhaar has made
life so easy for them. So, how come as
high as 23% Ujjivans customers do not
have Aadhaar? Or is it possible that the
claims by UIDAI are overhyped?
Quite possible. Especially, if one were
to look at the history of UIDAI and how
it goofs up with numbers and figures.
For example, UIDAI conducted a proof of
the concept trial of the Aadhaar project
between March and June 2010 neglecting
the basic principle of pilot testing and
size of sample. For over 1.2 billion UID
numbers, they have used data from just
20,000 people, in pairs, as the sample,
and have, on the basis of these results,
gone ahead with the UID number

What are the pitfalls of GST? An
open letter by MD of Tally
In an open letter, Bharat Goenka, managing
director of Tally Solutions Pvt Ltd, has pointed
out one major lacuna. He says, The most
critical cause of failure of GST will be in the
transference of responsibility and liability of
tax remittance to the customers of a supplier
(Section 16(11)(c)).
Why NBFCs may not be interested
in on-tap banking licence
Religare Capital Markets Ltd says, We do not
see many non-banking finance companies
(NBFCs) converting into banks given the
stringent guidelines and statutory norms.

Civil Defence Organisation needs

PM Modi takes the lead in more volunteers to empower
disclosing salaries of PMO sta citizens
Government salaries match those in the Civil Defence Organisations job is to
corporate world. This has been aptly proven empower citizens and keep emergency
with prime minister Narendra Modis pro- services going on. However, we are not getting
active disclosures, under Section 4 of the Right more volunteers, says Sanjay Pandey, deputy
to Information (RTI) Act on the website of the commandant of Home Guards and deputy
Prime Ministers Oce director of Civil Defence.

EXCLUSIVE VIEWS On issues that matter to you

Banks must disclose daily Perils of increasingly How the credit linked Money muling: A tool to
business mix to citizens challenging college- subsidy scheme works launder illicit funds
under RTI, rules CIC entrance exams in India Abhirup Ghosh SSA Zaidi
Vinita Deshmukh Dr Abhijit Gosavi

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Web Content.indd 1 12-08-2016 12:34:17

 CROSSHAIRs
Sachet and the Prime Ministers Grievance
Redress Agenda: How Far Will It Work for the
Financial Consumer?
A
t prime minister Narendra Modis first Town
Hall meeting on 6th August, he said, the most
powerful thing in democracy is a grievance
redress system. I raise one issue but the whole system
is addressed. We are taking a few initiatives for
good governance. Grievance redressal is an essential
component of democracy; every citizen should have
their problems addressed and responded to. We want
to develop good governance where processes are less
and things get done easy for citizens.
Although the Town Hall was held to celebrate
two years of MyGov, which is a government-citizen
engagement platform, it would be too much of a
coincidence to think that the Reserve Bank of Indias
(RBIs) sudden move to set up Sachet (a Hindi word
that means aware), a grievance redress forum with all
the financial regulators and the state level coordination
committee (SLCC) on board, was not part of the
PMs broad vision outlined above. As the first step
in this much-needed area, Sachet is a very positive
development; but it is just the beginning and a lot more
remains to be done.
The site, sachet.rbi.org.in provides links to entities
that are regulated by RBI, SEBI (Securities and
Exchange Board of India), the insurance and pension
regulators and the National Housing Bank (NHB). At
the launch of the website, RBI governor, Raghuram
Rajan, said, Initiating quick follow-up and taking
cases to logical conclusion by punishing the guilty is
paramount to deter entities in future from carrying out
unlawful activity. I hope Sachet would help regulators
in doing this, as much as it would help members of
MONEYLIFE | 19
27 Aug-1
November
Sep 2014
2016 || 14
18
Crosshair.indd 2
Exclusive news, the stories behind the
headlines and the truth between the
lines by Sucheta Dalal
public in depositing their hard earned money with
genuine entities by giving them timely information
about these entities. As always, governor Rajans
words gladden the hearts of all concerned citizens. But
here is what we found on attempting to explore the
website.
1. Complaint Registration: This has links to the
investor complaint pages of various regulators and
even a link for those who are confused about the
appropriate regulator. Ironically, RBI has yet to
set up a complaint mechanism for non-banking
finance companies (NBFCs), since that link opens
a blank page. Curiously, there is no link to the
banking ombudsman who handles a large swath of
complaints against banks, including those on credit
cards and bank charges.
2. Complaint Tracking: This is an interesting feature
that allows a search, based on a mobile number,
email or complaint number. Over time, we will
know whether complaints filed through Sachet are,
indeed, fast-tracked or go into the same spin as
those filed directly from the regulators websites.
RBI needs to ensure that people are able to view
all complaints filed on Sachet. This is a standard
feature of all crowd-sourced review sites, allows
consumers to stay away from entities that have too
many complaints and encourages swift grievance
redress too. In fact, grievance resolution and the
time taken for it should also be accessible publicly.
Only then will Sachet catch on in a big way with
people and serve the purpose.
3. Forum: Sachet has a discussion forum which
12-08-2016 14:54:18
 has remained empty five days after the launch. It
indicates the absence of any attempt at outreach,
barring a hurried launch and media release.
Contrast this with the outreach by all forums set up
by the PMs office!
4. Registered Entities: The segment on registered
entities also has links to multiple regulators. RBI
itself lists 10 types of entities, of which only two
are updated to 1 August 2016 (companies holding
a certificate of registration from RBI to accept
deposits and those not accepting deposits); the rest
date back to November 2015. These are mere Excel
sheets with no guidance or explanation to people
on whether or not to stay away for them. At the
launch, the governor spoke about phishing, lottery
and scam emails about escrow accounts maintained
by RBI that go out in the name of the RBI governor.
Sachet has no information on these. Wouldnt it
have been nice if RBI itself had started a Sachet
discussion on these scams? That would have been a
real indicator of intention to engage with people.
5. SEBI: The link to SEBI, under registered entities,
carelessly connects to one specific entity (Gift
Collective Investment Company).
6. NHB: The NHB page has important lists of
entities whose registration has been withdrawn or
cancelled, or have prohibitory orders against them.
This is very useful for Indians who invest a big
chunk of their savings in their homes and must be
widely publicised through better engagement with
civil society and NGOs. So far, NHB does neither.
7. Pension: Clicking on registered entities under the
pension regulator only takes you to its home page
and the insurance regulator takes you to a list
of registered entities with no link to those where
action has been taken against dubious insurers
or agents. Given the rampant mis-selling in this
segment, this must become a key focus of Sachets
effort.
8. Whats New: The whats new segment has two gone a step further and said, Mere good governance
pointless entries after five days. Does it indicate a
lack of seriousness in running the website?
9. Help Your Regulator: This
is another interesting
feature which allows people
to post information on
illegal and unauthorised
fund-collection or deposit-
taking. This can be a useful
tool if the regulators ensure
swift and visible action.
However, as someone
pointed out, the Sahara India
group continues to collect
money, despite Subrata Roy
spending over a year in jail.
Crosshair.indd 3
Will some regulator clarify whether it is safe or
illegal?
10. Language Version: The Orissa government has
already suggested that Sachet must be available in
Indian languages. This is an important suggestion
that needs to be taken on board.
11. States Involvement: There is also nothing to
indicate what various states, enforcement agencies
and government departments, who are credited
for being part of the SLCC which set up Sachet,
will contribute to it. In fact, multi-level marketing
schemes (MLMs) and money circulation schemes
(under the Prize Chits And Money Circulation
Schemes Act), which are not under SEBIs purview,
are regulated by states. Many states have separate
statutes for illegal deposit collection with draconian
powers. None of these is reflected on Sachet
and there are no links for filing complaints with
state agencies. Thousands of dubious schemes
proliferating in each state would have come to the
attention of regulators if this had been addressed.
There is a closed user group for SLCCs on the
website which, we are told, will share market
intelligence as well as information on their own
meetings. We would think that sharing state-level
intelligence on dubious schemes with the public in
an open forum is far more important.
12. Where Is FIU?: It is not clear why the finance
intelligence unit (FIU), under the finance ministry,
is included in Sachet. After all, it claims to be a
central repository of cash transactions and an
agency that collects, analyses, coordinates and
shares information on financial crime with all
regulators and investigation agencies.
At first glance, Sachet seems to be a hurriedly
cobbled together platform with good intentions and
great potential. It will work, if the regulators are true
to the PMs objective of ensuring investor protection
and efficient grievance redress. In fact, the PM has
is not enough; it has to be pro-people and pro-active.
Good governance is
putting people at the
centre of development
process. There is
a lot that Sachet
and the SLCCs
can do in making
processes simpler
for consumers and
depositors (as the
PM wants); but,
in order to do it
effectively, it has to
start engaging with
stakeholders.
19 | 19 Aug-1 Sep 2016 | MONEYLIFE
12-08-2016 17:27:01
 DIFFERENT STROKES SUCHETA DALAL

SEBI Tries To Fix the HFT Issue

without Closing the NSE Probe

S
ix years after it allowed the National Stock Exchange allay the fear and concern of unfair and inequitable access
(NSE) to introduce high frequency trading (HFT) and seeks market feedback on the efficacy of each of these.
and algorithmic (algo) trading without any debate, It is almost an attempt to crowd source the best possible
rules or regulations, the Securities and Exchange Board of mechanism for Indian markets. It is anybodys guess which
India (SEBI), on 5th August, put out a discussion paper on of these will finally be prescribed as new rules for HFT.
Strengthening of the regulatory framework for algorithmic Some of the issues put out for discussion include:
trading & co-location. The paper is interesting, for several Review of the tick-by-tick (TBT) data feed and replacing
reasons. It comes in the aftermath of a detailed investigation it with structured data that will provide a level playing
into three letters from a whistle-blower which pointed to field between high-frequency traders (who use TBT
serious irregularities in the HFT and algo trading at the data for a fee) and other traders.
NSE. Yet, there is no mention in the discussion paper about Introducing a minimum resting time for orders to
the series of events and investigations that were triggered eliminate fleeting orders that vanish in nano seconds
by the publication of these in response to price data. If
allegations and have led to this is introduced, orders
the attempt to fix HFT and received by the stock
algo problems. exchange would not be
Instead, SEBIs paper allowed to be amended or
suggests that it is merely cancelled before a specified
reacting to global concerns amount of time, viz., 500
among regulators to the milliseconds is elapsed. If
following: that HFT and accepted, SEBI will be the
algo trading give unfair first regulator to adopt this
access to powerful traders check.
at the cost of long-term Introducing random
investors; rogue algorithms speed bumps, through
seem to trigger flash- a randomised order
crashes that can destabilise processing delay of
markets; and regulators
SEBI's discussion paper on HFT comes in milliseconds to discourage
own ability to supervise the latency-sensitive
sophistication of complex
the aftermath of a detailed investigation strategies. The paper lists
algos. into three letters from a whistle-blower global developments in
Indeed, global which pointed to serious irregularities introducing such random
regulators have gone in the HFT and algo trading at the NSE. speed bumps.
beyond debating the issue Yet, there is no mention in the discussion Plans for randomisation of
of unfair access. In June paper about the series of events orders and the introduction
2016, Securities Exchange of frequent batch auctions
Commission (SEC) where sell and buy orders
approved Brad Katsuyamas Investors Exchange which on the order book are bunched for a specific length
specifically aims to neutralise the unfair advantage gained of time (say, 100 milliseconds) and matched at the
by high-frequency traders. There is also serious research end of the time interval. This is expected to eliminate
in the US which challenges the claim by HFT proponents the latency advantage enjoyed by co-located servers.
that their trades add volume and liquidity to markets. The paper cautions that would need serious changes
Clearly, SEBI, as a regulator, needs to stay in step with in market infrastructure.
international developments. A maximum order-to-trade ratio requiring market
SEBIs discussion paper puts out various options to participant to execute at least one trade for a set number

MONEYLIFE | 19 Aug-1 Sep 2016 | 20

DIFFERENT STROKES.indd 2 12-08-2016 17:18:15

 DIFFERENT STROKES SUCHETA DALAL

of order messages sent to a trading venue. This is aimed dark fibre in its premises for various members.
at ensuring that a viewed quote is available for trade SEBI referred these letters to the technical advisory
and reducing hyper-active order book participation. committee. The committees findings, widely published by
There is also a discussion on a two separate queues and the media and accessed by us, reveal that an investigation
order validation mechanism for orders emanating from by its sub-committee comprising experts from the Indian
co-located servers and non-co-located systems. Orders Institute of Technology, Mumbai, have confirmed most of
from each queue will be taken up in the order-book in the allegations of the whistleblower. The committee says
a round-robin fashion. Although the discussion paper it is clear that NSE violated norms of fair access and
says that co-located participants would still be among allowed some brokers to benefit. The committee wanted
the first to receive the market data feeds due to their SEBI to initiate immediate action for lapses on the part
proximity to the exchange and use of sophisticated of NSE and constitute a team of people with appropriate
algorithms, this proposal is likely to see the strongest background to investigate the collusion aspect between
opposition by proxy from bourses. NSE officials and OPG Securities.
While SEBI has set a deadline of 31st August for Predictably, SEBI has not moved an inch in that
submitting comments to its third discussion paper on direction. The NSE strongly refuted the charges of the
HFT and algo trading, SEBI committee too and the
there is no timeframe set issue appears to be in limbo
for implementing the new since then. Angry protests
rules. But, even if SEBI does by some top institutional
implement them quickly, investors who felt short-
there is a problem. Can changed also did not lead
SEBI simply brush under the to a resolution. Instead, the
carpet the saga that began on regulator and the government
19 June 2015 when Moneylife seemed to believe that listing
published a whistleblowers the Exchange (which has been
letter (addressed to SEBIs under the control of the same
surveillance department and two or three individuals for 25
copied to me) alleging serious long years), and tinkering with
wrongdoing in the HFT or the composition of its board
algo trading at the NSE? of directors, is the answer to
The NSE slapped a Rs100- increasing transparency.
crore defamation suit against Media reports suggest
us for publishing the letter How fair is it for SEBI to allow the that the NSE, despite its deep
and tried to gag us through a largest stock exchange to seek reluctance, may be heading
notice of motion, even while it public investment even as serious towards listing around the
refused to answer our queries allegations against it remain same time as the Bombay
about the letter, despite several unresolved? After all, the NSE Stock Exchange (BSE).
reminders. The Bombay High is a first-line regulator and SEBI We dont know if that will
Court, in an excoriating cannot take the attitude that mere happen. But how fair is it for
order, described the NSEs disclosures are enough a regulator to allow the largest
attitude towards Moneylife stock exchange to seek public
as egregious arrogance and investment even as serious
imposed a penalty of Rs50 lakh. The NSE has appealed allegations against it remain unresolved? After all, the
the order and obtained a stay against the payment. The NSE is a first-line regulator and SEBI cannot take the
case has been in limbo for a while and the Exchange is in attitude that mere disclosures about on-going investigation
no hurry to pursue its alleged defamation. and pending litigation are enough, when it has adopted a
Meanwhile, Moneylife received two more letters from far stricter attitude to clearing IPO documents of private
the whistleblower which we brought to the attention of companies.
SEBI and the finance ministry. The last one (addressed only
to me), made some serious charges about NSEs violation Sucheta Dalal is the managing editor of Moneylife. She was
of its own policy, in allowing a non-registered ISP (internet awarded the Padma Shri in 2006 for her outstanding contribution
service provider) called Sampark Infotainment to lay a to journalism. She can be reached at sucheta@moneylife.in

21 | 19 Aug-1 Sep 2016 | MONEYLIFE

DIFFERENT STROKES.indd 3 12-08-2016 17:18:56

 MUTUAL FUNDS POINTERS
Think Twice
before Falling
for Equity
Savings
or Equity
Income
Schemes
A
rbitrage schemes of mutual funds (MFs) take
advantage of mispricing in the spot and derivative
market of equities. Pure arbitrage schemes do not
take unhedged equity exposure and their returns are in
line with those of liquid schemes. Over the past couple of
years, several versions of arbitrage schemes were launched
as the category turned attractive after the Union Budget
2014 modified the capital gains taxation norms for non-
equity schemeswhich includes debt schemes and liquid
schemesstripping away their tax advantage. In the past,
we have highlighted the risk associated with these schemes.
We, now, take a closer look at their performance.
Arbitrage schemes are treated as equity schemes since
they take hedged positions in the futures & options (F&O)
segment of the stock exchange. Hence, capital gains, on
the units held for one year, are tax-free. For liquid schemes
and other debt-oriented schemes, the gains on redemption
(within a holding period of three years) are added to the
income and taxed accordingly. This gives arbitrage schemes
an edge over liquid schemes, especially for investors in
the higher tax brackets. But fund houses didnt just stick
to pure arbitrage schemes. Over the past few years, most
fund houses launched hybrid schemes, such as arbitrage
advantage or equity savings or balanced advantage funds.
These schemes, apart from investing a part of the portfolio
for arbitrage gains, invest a part of the portfolio in unhedged
equity positions as well, thereby increasing the risk.
While these schemes offer investors a tax advantage,
investors need to be wary and check the schemes objective
carefully before investing. The rationale of schemes for
taking a risky equity exposure is to enhance returns.
Investing in such arbitrage schemes can be risky as they
MONEYLIFE | 19 Aug-1 Sep 2016 | 22
Fund Pointer.indd 2
are no different from their hybrid counterparts such as
monthly income plans (MIPs) or balanced funds which
were once promoted assiduously by fund houses. Lets
take a look at the different versions of arbitrage schemes.
Equity Savings Funds or Equity Income Funds
Equity savings funds (ESFs), also called equity income
funds, were launched as an alternative to MIPs. MIPs,
which invest around 25% of the portfolio in equity and
the remainder in debt, are in the non-equity schemes
category. Therefore, capital gains on withdrawal from
these schemes within three years will be taxed as per the
investors income-tax bracket.
ESFs take a hedged exposure (for arbitrage opportunities)
up to a maximum of 60%-75% of their portfolio; they invest
20%-50% in stocks and the balance in debt instruments.
Being equity-oriented, capital gains are tax-free over the
year. Hence, there are a better alternative to the widely
promoted MIPs. In MIPs, the post-tax returns will be lower
depending on the tax bracket of the investor. The returns
from ESFs will be tax-free. Yet, there is no significant
advantage of ESFs over MIPs.
MIPs as well as ESFs are riskier than pure debt funds
because their equity component could range from 20%-
50%, depending on the investment objective of the scheme.
MIPs were targeted at people who are no longer working
and depend on the monthly income from their investments
for their daily needs. However, neither MIPs nor ESFs can
guarantee a fixed stream of income, simply because both
debt and equity components are market-linked and cannot
promise a fixed return, especially over one to three years.
The following table shows the performance of the
12-08-2016 12:38:25
 MUTUAL FUNDS POINTERS

exposure is less than 65%, the scheme does not lose its
Equity Savings Funds equity status because of the arbitrage component.
Scheme Name 6 Months 1 Year In practical terms, if the fund manager finds the equity
Axis Equity Saver 6.77% NA
market to be overvalued, he can reduce his equity exposure
to 55% in the balanced advantage scheme compared to
Birla Sun Life Equity Savings 11.94% 9.78%
65%, if it were a pure balanced scheme, without affecting
HDFC Equity Savings 12.08% 10.42%
the status of the scheme. But have fund managers used
Kotak Equity Savings 6.44% 6.73% this flexibility to the schemes advantage? There are three
L&T Equity Savings 6.13% 4.73% schemes that come under this category. Here, again, if
Principal Equity Savings 5.99% 6.06% we compare the schemes to the CRISIL Balanced Fund
Reliance Equity Savings 7.27% 4.79% Aggressive Index, just one scheme from ICICI Mutual Fund
SBI Equity Savings 9.34% 9.55% outperformed the benchmark over six months and one year.
As several of Moneylifes past analyses show, a small
DHFL Pramerica Equity Income 6.19% 6.99%
equity exposure in MIPs and other hybrid schemes does not
ICICI Prudential Equity Income 10.41% 10.17%
provide an added advantage. Similarly, balanced schemes,
JPMorgan India Equity Income 6.08% 5.44% which have a lower equity exposure than equity diversified
Index schemes, do not reduce risk significantly. These schemes
CRISIL MIP Blended Index 8.06% 10.34% have performed poorly in the past. Will arbitrage schemes,
with unhedged equity positions, give savers better returns
than pure arbitrage schemes? This is unlikely, if the market
schemes compared to their composite benchmarks. The is flat.These schemes can be expensive too. As they are
composite benchmarks give weightage to multiple indices considered equity schemes, their expense ratio can go as
such as the CRISIL Liquid Fund Index, the Nifty 50, high as 3%. For Birla Sun Life Equity Savings, the expense
etc. The returns marked in red refer to period when the ratio is 3%. L&T Equity Savings charges 2.65%.
scheme underperformed the composite benchmark. We Many of these schemes lure investors with the promise
have given the returns of the CRISIL MIP Blended Index of regular dividends which will provide monthly income.
as a reference. As can be seen, the performance has been Dividends, in the case of equity schemes, are tax-free
mixed. While some schemes have performed well, others compared to dividends on debt or liquid schemes, where
have underperformed. a dividend distribution tax is
charged. However, most investors
Balanced Advantage Funds As several of Moneylifes past are unaware that dividend is paid
A balanced advantage fund, as analyses show, a small equity from the corpus of the scheme
the name suggests, are balanced exposure in MIPs and other itself and is not an additional
schemes. However, the fund hybrid schemes does not income. An investor would earn
manager can take a lower more if he lets his income grow and
provide an added advantage
unhedged equity position, since withdraws only when he requires
a portion of the assets is invested the money.
in arbitrage as well. For example, JP Morgan India Balanced Such schemes are targeted at retirees. If you have retired
Advantage has defined its allocation as 30%-60% to and have more-than-sufficient retirement corpus, you may
be looking for some equity exposure for wealth generation.
In such a case, too, MIPs or ESFs or similar hybrid schemes
Balanced Advantage Funds are not apt choices. Because when you withdraw from the
Scheme Name 6 Months 1 Year scheme, you are indirectly withdrawing from the fixed-
DHFL Pramerica Balanced Advantage 9.60% -0.73% income and equity portfolio which is an incorrect strategy.
ICICI Prudential Balanced Advantage 12.12% 8.70% Ideally, you should keep a part of the retirement corpus
JP Morgan India Balanced Advantage 10.10% 5.50% in fixed-income products that will generate income to
Index
support your growing expenses and other needs for the next
10-15 years. The balance of the retirement corpus should
CRISIL Balanced Fund - Aggressive Index 11.75% 6.29%
be invested in good quality stocks and/or equity mutual
funds. This equity portfolio should remain untouched and
unhedged equity, 5%-10% to arbitrage and 30%-60% allowed to grow over a decade or so, to generate substantial
to fixed-income. Therefore, even though the long equity wealth. Jason Monteiro

23 | 19 Aug-1 Sep 2016 | MONEYLIFE

Fund Pointer.indd 3 12-08-2016 12:38:46

 SMART MONEY R BALAKRISHNAN

A Throw of the Dice in the

Markets

O
ne enduring debate in the investment world, different needs, as time progresses. There are also those
that has no perfect response, is the topic of who like to put everything into an Excel sheet and try and
concentration vs diversification. Many have figure out what is the money that they should be having
asked me about how many stocks should there be in ones at their retirement age.
portfolio. To me, diversification moderates the returns I have not come across a situation where someone
and, to get big returns, you need a combination of one planned an Excel sheet and lived his life according to
or two big winners and the luck to have invested in those that. You may invest as per your Excel sheet plan, but
early enough in a long journey. Apart from above-average
analytical skills, sometimes, luck and serendipity have their
part to play. Let us look at an interesting table. Compounding Hurdles
The first column shows the year in which the original Number of Times Original
Started Investment Grows at: Years
investment was made; the last column shows how many in Invested
years we have stayed invested and the four intermediate 15%* 20%* 25%* 30%*
1981 133 591 2,465 9,728 35
1991 33 95 265 706 25
1994 22 55 136 321 22
2001 8 15 28 51 16
2005 5 7 12 18 11
2006 4 6 9 14 10
* Compounded annualised growth rate

outcomes never respect our assumptions. Our assumptions

columns show how many times the original investment has
multiplied itself at various rates of return. I have ignored
dividends. This table brings forth a dramatic impact
of compounding. So, if your investment has multiplied
itself four times in 10 years, you have got an annualised
15% return. However, if you had stayed invested for 25
years and got the same annualised return, your original
investment would be 33 times what you put in. So if you
get a 10-bagger in 10 years, it is an annualised return of
over 25%. And you can see the dramatic impact of a 5%
difference as you compare outcomes at different rates. It
also shows us the cost of delaying investments.
The debate gets interesting. For each type of investor,
there would be a different formula that works. Each
investor starts off differently. With different resources,
different income levels, different circumstances and
on precise rates of return, liquidity and market conditions
at the planned date of exit, and many others, are just
assumptions.
We always love to talk about examples of people who
figure in the Forbes list. Many of the names there own
single companies or have made piles of money by placing
concentrated bets; some have made money by managing
other peoples money. These examples are less relevant.
More relevant are many ordinary folks who have made
their fortunes from the stock markets. If you trace their
path, it is most likely that their first big pile was made
from some big strikes early on and then they diversified
their investments. Once you have enough, it is likely that
you place more bets with long odds. Thus, if one has
sufficient wealth, then the payoffs from the equity markets
are big. However, if one is starting off, or can only spare
small amounts on a monthly basis, it will not be possible
to make big returns from equities.
We all love to own that ONE stock which will multiply
a 100-fold or more in two to three decades. However, this
cannot happen through a SIP or a mutual fund route. Or
through buying and selling. And for every hundred people

MONEYLIFE | 19 Aug-1 Sep 2016 | 24

column_Balakrishnan.indd 2 12-08-2016 12:40:23

 SMART MONEY R BALAKRISHNAN
who venture out to do this, maybe one or two may be
fortunate enough to make it big. But how many stocks
multiplied 100-fold in the past two to three decades?
Maybe not more than 30 stocks.
Until the early-1990s, the stock market was a paradise
for some people. We had laws that controlled the issue
price of shares. That gave a lot of opportunities to get
shares cheap and enjoy phenomenal returns if you had the
contacts/luck, the appetite and the money. There were a
few people who got their lotteries when they were allotted
shares in new issues of Colgate or HUL, etc. If they were
still holding on, they would be sitting on a small fortune.
But remember, for every stock that became a multi-bagger,
there are at least 10 that became duds.
However, today, when a company comes in for listing,
they are priced very expensively, thanks to easy availability
of private equity money; prospects for very high returns
from them in future are rather limited. So todays investors
in the secondary market have a bigger battle on their
hands to find multi-baggers. The other route for getting
multi-baggers is to pray for catastrophe which will crash
the prices of stocks. This seems remote now. So, we have
to keep our eye on specific stocks that have suffered a
temporary setback.
All this implies that there is a huge element of luck or
chance that has to come your way to pick up bargains
that can be true multi-baggers. If market returns are, say,
12%pa (per annum), then superior stock-picking skills
could give one around 15%-18% returns. But if you are
dreaming of 25%-30% annualised returns, it is quite
tough. One approach I can advocate is:
Pick up 10-15 small companies that seem to have the
potential to grow big. Check on the quality of business
and whether there would be growth in the segment.
A Rs25-crore company can become a Rs1,000-crore
Whats Your Bahana for Not Subscribing?
I am not interested in honest & insightful advice on money matters
I never have any problems with banks, credit-cards or insurance companies
I always invest on the basis of tips from friends and brokers
Finance bores me to tears
I would rather spend two years of knowledge on one evening of eating out
I always buy from the newsstands
column_Balakrishnan.indd 3
company. A Rs1,000-crore company becoming a
Rs40,000-crore company is tough.
Invest in them over three to twelve months or whatever
timeframe you are comfortable with, with money you
will never need.
Wait patiently. Do not get into the temptation of selling
a winner or exiting too soon from what could be a
possible temporary setback in one of the investments.
Unless you smell total failure, do not exit this basket
for 20 years or so.
In the end, it is very likely that one or two stocks
would make it very big. A couple of them may give you
market returns. And a few may simply collapse or vanish.
We do exit as long as we believe in our original premise.
The problem with active management of investments
like these is that we exit in a hurry, influenced by short-
term considerations. For example, if we had believed in
the quality of Eicher management or the Enfield product,
we would have stuck with our shares through thick and
thin. If we had done active management, we would have
been shaken off and not be able to get back aboard. In the
1980s and 1990s, I should have included at least one or
two of the following companies in my portfolio: HDFC
Bank, Hero Motors, Maruti, CRISIL, Eicher Motors,
McDowells/UB, Blue Dart, Sundaram Finance, TVS Motor
Company, Aurobindo Pharma, Lupin, Amara Raja, etc.
Of course, this is with the full benefit of hindsight. My
suggestion of buying a bunch of stocks early in life and
holding them for a very long could be debatable and risky.
It is important to be mentally prepared to lose this pool of
money. Hard work in stock selection needs to be backed
with some luck also. But, if it works, an average saver can
become seriously well-off.
The author can be reached at balakrishnanr@gmail.com
For subscription offers
that are a steal, look for
a form elsewhere in this
issue or our website at
www.moneylife.in
25 | 19 Aug-1 Sep 2016 | MONEYLIFE
12-08-2016 12:40:41
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MSSN GB (Insurance 1-3 ).indd 3 29-07-2016 16:42:29


INSURANCE TRENDS
New products, regulations, features and options,
interpreted from your perspective
H e a lt h I n s uranc e
Max Life Cancer
Insurance Plan
H ere is a new product that
claims to offer complete
protection at all stages of cancer
by increasing sum insured for
every claim-free year through
indexation (sum insured increases
by 10% for every claim free year);
policy continuance benefit and
also income benefit option of up
to 50% of the sum assured. The
policy provides benefit of waiver of
all future premiums up to the end
of policy term in case the insured
is diagnosed with carcinoma
in-situ (CiS) or early stage cancer.
The policyholder is also provided
income support on diagnosis of
major stage cancer whereby 10% of
Fine Print
Shriram General Fined
Rs15 Lakh
I RDAI has fined Shriram
General Insurance Company
Ltd Rs15 lakh for violating
various norms including using
services of unlicensed entities,
and giving unauthorised
discounts in premium. The order
MONEYLIFE | 19 Aug-1 Sep 2016 | 28
Insurance.indd 2
basic sum insured becomes payable
as income for a period of five years
from the next policy anniversary.
The minimum age for the policy is
25 years and the maximum is 65
years; the tenure ranges from 10-40
years. The minimum and maximum
cover are Rs10 lakh and Rs50 lakh,
respectively.
He alth Insurance
Group Insurance
Continues To
Inflict Losses
O riental Insurance Corporation
(Oriental) was supposed
to insure Punjabs government
employees and pensioners with
cashless treatment in 350 hospitals.
It has now told the state health
department that it will not be
noted that The examination of 26
sample policies revealed that the
premium was booked under direct
code but the intermediary code on
the cover note check form proves
the involvement of unlicensed
persons/entities in soliciting and
procuring business.
A similar penalty was imposed
for violating provisions under
file and use guidelines, offering
discounts in premium other than
able to continue offering services
on account of huge losses. The
government had agreed to give an
annual premium of Rs56 crore
to Oriental in four quarterly
instalments. So far, only two
quarterly instalments of Rs28 crore
have been paid. The empanelled
hospitals generated bills of Rs89.59
crore from the insurance company
in just six months since the scheme
came into force. Of this, Oriental
has already paid Rs44 crore to the
hospitals. The initial corpus of Rs25
crore created by the government
is exhausted. The insurance
company has refused to enrol new
beneficiaries after 30th April though
the state Cabinet had extended the
date of enrolment of leftover cases
from 30th April to 30th June. There
are 3,500 employees and pensioners
who have been refused enrolment.
Apparently, the insurance company
has now even started refusing
payment to the hospitals.
Clearly, Oriental had completely
miscalculated the terms of the deal,
offering too much for too little
premium. Husan Lal, additional
principal secretary, health, Punjab
Government has been quoted in
the media as saying Whatever
premium they quoted based on
their own calculations, we agreed.
At some places you earn profit,
filed with and approved by the
Authority. Another Rs5 lakh fine
was levied as the company deviated
from the provisions of claim
settlement and for not adopting to
standard procedure.The insurers
settlement of claims for reduced
Insureds Declared Value (IDV)
in theft claims is contrary to the
provisions of Insured Declared
Value of India Motor Tariff (IMT),
2002. The insurer, therefore,
12-08-2016 13:43:03
 INSURANCE TRENDS
at some you suffer losses, that is
what insurance business is. We
have an agreement till the end of
the year and we are hopeful the
company will continue its services.
A usual, the insurance regulator is
unconcerned about these repeated
failures of group insurance which
indirectly imposes a heavier burden
on retail mediclaim.
R e g u l a t i ons
Health Insurance
Premium Can Be
Revised Yearly
T he Insurance Regulatory and
Development Authority of
India (IRDAI), in its final norms
on health regulations, has said
insurers can change the pricing of
absolved itself of the responsibility
of paying due attention to the IDV
in the policies and settled claims
for less than IDV, IRDAI said. It
also warned Shriram for marketing
group insurance policies that
deviated from the filed product.
Bharti AXA General Fined
Rs5 Lakh
I RDAI has fined Bharti Axa
General Insurance for violating
Insurance.indd 3
a health insurance product every
year, three years after its launch.
Until now, product pricing could
not be changed for three years. The
regulator has said that, after three
years, the premium can be revised
by the insurer, depending on the
experience.
However, such revised rates
cannot be changed for at least one
year from the date of the revision.
The premium for health insurance
policies would be based on age
and other relevant risk factors.
The regulator also said that, for
cover under family floater, the
impact of the multiple incidences
of the rates of all family members
proposed to be covered would be
considered. IRDAI said insurers can
also offer discounts on renewals
based on the fitness and wellness
criteria stipulated and disclosed.
But they cannot offer discounts
to policyholders on products of
third parties either as part of policy
contract or otherwise.
For products that are a
combination of life cover and health
cover, the premium components of
both the risks must be separately
identified and disclosed to
policyholders. IRDAI also said no
life insurer can offer indemnity-
based products either individual
or group. All existing indemnity-
health insurance guidelines. The
company had added a condition
of proportionate deduction in
proportion to room under the head
incremental charges condition
in cases of group health policies,
which was in violation of health
insurance guidelines. The insurer
kept the provision to reduce the
amount payable for various charges
in case the insured opts for higher
room rent category. However, it
based products offered by life
insurers have to be withdrawn. To
spur innovation, IRDAI said pilot
products could be designed and
filed for approval. These can be
offered only by general insurers for
a policy tenure of one year. Every
pilot product can be offered up to
a period not exceeding five years.
After five years of launch, the
product needs to be converted into
a regular product or withdrawn.
Regulations
Life Insurers
Cannot Sell
Indemnity Health
Cover
T he insurance regulator has
banned life insurers from
offering indemnity-based health
products which constitute 90%
of the health insurance market.
Indemnity-based plans are those
where one can claim reimbursement
after visiting a doctor. IRDAI has
asked insurance companies offering
these products to withdraw them
by giving three months notice to
policyholders and to continue the
existing contracts till the end of
their policy term.
was noted that the said condition
is not part of policy wordings
filed with the Authority of
Group Health Insurance Policy,
IRDAI said in its order. It further
asked the company to ensure
no claim is settled based on
product features and conditions
that is not filed and approved
under file-and-use procedure
complying with health insurance
regulations.
29 | 19 Aug-1 Sep 2016 | MONEYLIFE
12-08-2016 13:42:05
 COVER STORY

beware
Investors in
Indian Mutual
Funds from
US & Canada
Funds houses had closed the doors for Indian
Indian
investors from the US & Canada in 2013-14. 3-144.
The onerous FATCA (Foreign Accountt T axx
Tax
Compliance Act) makes compliance all the he more
difficult and imposes stiff penalties. Raj Pradhan
finds that a few asset management companiespanies
have opened the doors for investors from m the US
& Canada now. But are they really compliant ant with
the US law? Read about the best-kept secret

T
he year was 2008. Sudhir Bhatt, a US
resident, was keen to invest in Indian
mutual funds (MFs). The distributor told
him that if he applied to an Indian MF
whose parent company was based in the US,
his application would be rejected. But if he were to apply
to a purely Indian-owned MF, there will be no problem.
The Dodd-Frank Act of the US requires fund managers
handling the money of more than 15 US-based investors
to be registered with the US regulators and follow their
rules. But it was not strictly followed then.
Five-six years (2013-14) down the line, purely
Indian-owned MFs too started avoiding residents of the
US and Canada. The websites of many AMCs greet you
with a pop-up Are you US/Canada person or resident?
If you click Yes, then you are denied further action. No
investment is accepted from residents or persons from the
US/Canada. The reason: asset management companies
(AMCs) were not registered with the US Securities &
Exchange Commission (SEC).
In December 2015, enters the Foreign Account Tax
Compliance Act (FATCA) in a MF investors life. Every
investor who has opened a folio on or after 1 July 2014,
or has an account as on 30 June 2014 worth US$50,000
(Rs33.45 lakh), has to give a FATCA declaration
irrespective of whether he/she has anything to do with
US/Canada. Yes, everyone who is covered by the above-
mentioned criteria has to make a declaration just so
that AMCs steer clear of trouble with US/Canadian
regulators. Those who question why everyone, and not
just those who have anything to do with US/Canada,
has to make such declarations, are told: Sorry. Make
the declaration, or you cannot make further investment,
including SIPs.

MONEYLIFE | 19 Aug-1 Sep 2016 | 30

Cover Story.indd 2 12-08-2016 17:14:19

 COVER STORY
For Indian citizens residing in India, this is not a big
problem. FATCA declaration can be additional work;
but it can also be done online, email, office visit, etc, with
CAMS and Karvy. Luckily, the declaration is a simple
form and fi ling it with Karvy and CAMS is applicable
to almost all the AMCs, unless you have investment in
AMCs, like Franklin Templeton, Deutsche, Sundaram
and BNP Paribas Mutual Funds. It is preferable to file a
FATCA declaration with the AMC in which you have an
investment even if you have filed it with Karvy/CAMS.
We found an example of an AMC being unaware (or
faking to be unaware) of a US persons declaration,
even though it was already filed with RTA (Registrar &
Transfer agent).
NRIs (non-resident Indians) based in countries other
than US and Canada can invest in any fund house they
want to, subject to the necessary documentation. There
is no change for them just like there is no change for
Indian citizens residing in India. Brokerages and banks,
too, may already be in the process of asking for the
FATCA declaration. It means that the next time you try
to open a savings bank account or make a fixed deposit
(FD), you may have to fill up
the FATCA form.
The issue simply
is that US residents
putting money in
India or people
residing in India
having a US
green card or US
citizenship may
not have declared
the income arising
from Indian assets in
their US tax returns. So,
FATCA was introduced to nab
them. Honest US/Canadian residents/persons dont have
anything to fear except that they, too, can be a casualty if
Indian AMCs, brokerages or banks decide to stop taking
their business and, worse, if they decide to force them
to sell/withdraw their existing investments. FATCA and
Common Reporting Standard (CRS) are designed to
catch the tax-evader in which the innocent will also be
affected when financial institutions in India declare them
persona non-grata. In some Indian languages FATCA
means whacking which, indeed, it is designed to inflict
on US/Canadian residents/persons.
Today, if you want to login to your HDFC Mutual
Fund account, you have answer an innocent looking
question about US/Canada resident/person. If you
say yes, you will not be able to login. Just to login for
Cover Story.indd 3
redemption also needs answer to this question. Sudhir
yelled, But, hey, I am just trying to redeem what I
already have. You cant stop me from doing that. So,
should Sudhir fake it, to be able to redeem his investment
in HDFC Mutual Fund? It is difficult and confusing for
US/Canadian residents/persons. The thought process
behind this decision of an AMC could be that they
dont want US/Canadian residents/persons to access the
website which can be construed as active solicitation by
the SEC. Sudhir can redeem offline.
What Is FATCA, CRS?
If you have a financial interest in India and happen to be
a resident of US/Canada or you are a person from US/
Canada not residing in US/Canada, you need to be aware
of the implications of FATCA. India and USA have
entered into an inter-governmental agreement (IGA)
in July 2015 which provides that the Indian financial
institutions (FIs), including mutual funds, will provide
the necessary information to the Indian tax authorities
which will then be transmitted to US Internal Revenue
Service (IRS) periodically.
Quantum AMC does not
accept applications from US/
Canadian person since inception
because funds are required to
be registered with Securities &
Exchange Commission (SEC)
Harshad Chetanwala, head-customer delight,
Quantum AMC
FATCA is part of a comprehensive USA anti-tax-
evasion global reporting regime designed to locate
income and assets held by persons from USA in offshore
accounts (either directly or indirectly through ownership
of foreign entities) and ensure that they are reported to
the revenue authorities. It is a step towards transparent
taxation between these two countries which came into
effect from 30 September 2015.
To combat the problem of offshore tax evasion and
avoidance and stashing of unaccounted money abroad,
the G-20 and OECD countries have decided that their
tax authorities should cooperate with each other. To
this end, they have developed a CRS on automatic
exchange of information (AEOI). The CRS on AEOI
require financial institutions of the source jurisdiction
31 | 19 Aug-1 Sep 2016 | MONEYLIFE
12-08-2016 17:14:52
 COVER STORY
Who Is a US Resident/
Person?
F ATCA will be applicable
plicable to US residents/persons.
US green card-holders,
lders, or US citizens, are required
to file US tax returns every year
irrespective of whether
her or not
they live in the US. For those
on various visas (H1,, L1, etc),
the following conditions
tions will
apply. You will be considered
a US resident for taxx purposes
if you meet the substantial
ubstantial
presence test for the calendar
year (January 1-December
mber 31).
To meet this test, you must
be physically presentnt in the
US on at least 31 days
ays during
the current year, andd 183 days during the three-year
period. The three-yearear period includes the current
year and the two years immediately before that. The
to collect and report information to their tax authorities
about account-holders resident in other countries.
The information has to be transmitted automatically
annually. It is informally referred to as GATCA (the
global version of FATCA).
FATCA was passed in the US in 2010. US taxpayers
under FATCA include US citizens, US green card-holders
as well as those who qualify as US residents/persons. FIs
in many countries are required to disclose the details
of their clients income for those who are considered
residents of the US or US persons (not residing in US)
who file US tax returns. The rule was enacted to prevent
tax evasion through offshore investments that some
residents may have. The IGA is a reciprocal arrangement,
wherein it is expected that the US would agree to share
information with Indian authorities pertaining to citizens
of India having any account or assets in the US. (Read
Moneylife article to know more about FATCA http://
www.moneylife.in/article/fatca-compliance/37273.html)
As mentioned earlier, FATCA declaration is to be
collected only from those investors who have opened
folios on or after 1 July 2014 or if they have an account on
30 June 2014 wherein the value of investments is above
US$50,000 (Rs33.45 lakh). Harshad Chetanwala, head-
customer delight, Quantum AMC, says, The agreement
with respect to FATCA is in between Government of
India and Government of USA. Until such agreement is
MONEYLIFE | 19 Aug-1 Sep 2016 | 32
Cover Story.indd 4
calculation of 183 days is made as follows: all the
days you were present in the current year, and 1/3rd of
the days you were present in the first year before the
current year, and 1/6th of the days you were present in
the second year before the current year.
A US resident aliens income is generally subject to
tax in the same manner as that of
a US citizen a and US green card-
holder. If you are a US resident
alien, you must
mus report all interest,
dividends, wages,
w or other
compensation for services, income
from rental property
p or royalties
and other types
typ of income in your
US tax return.
retur You must report
these amounts
amo whether they
are earned within or outside
the US. IIndia has a double
taxation avoavoidance agreement
(DTAA) with USA which wh helps to ensure
you are not taxed by both the countries. But
DTAA clauses need to be understood.
modified or clarification issued by the ministry, an entity
has to obtain FATCA declaration with their account
opening form.All FIs with exposure to the US were
also required to register with the US IRS under FATCA.
Under FATCA, foreign financial institutions (FFIs) that
enter into an agreement with the IRS to report on their
account-holders may be required to withhold 30% on
US sourced income (e.g., interest, dividends, royalties,
premiums) paid on or after 1 July 2014 to foreign payees
if such payees do not comply with FATCA. Wrong or
incorrect reporting may also have similar consequences
and, hence, is a major concern. So, the non-compliance
cost of FATCA is high. The burden will increase from
1 January 2017 when the tax will also be applied to
the gross proceeds on the sale of dividends or interest-
generating US securities. Firms will also be required
to withhold income payments from FFIs to foreign
individuals or entities that are not compliant with
FATCA from this date.
FATCA compliance issues and penalties will surely
worry AMCs. Compliance at all times cannot be assured,
even with best of intentions. If AMCs do get hit by
penalty in future, what will be the impact on investors
money? Will it impact the NAV of the scheme as the
amount available for investment by the scheme will
be less, to that extent? Since this withholding will be a
penalty, the amount is not recoverable. Future will tell if
12-08-2016 17:15:19
 COVER STORY
Reason for Giving You a
FATCA
U S residents keen on investments in India-focused
funds can invest in US mutual funds instead of
investing in Indian AMCs. But it is well-known that
NRIs living in the US send back their savings to India
for investment purposes. It
could be due to the plethora
of investment opportunities
offered by India. Of course,
the rupee has been on
a downhill since 2008
going from Rs40/US$ to
nearly Rs67/US$ today.
So, if you converted your
dollars to rupees in 2008
for investment, eight years
down the line, you may
not be a happy customer.
Some of these investments in India are hidden from
US tax filing perhaps to evade taxes or the hassle of
compliance documentation.
If you are a US resident/person, you need to report
your entire worldwide income, irrespective of whether
or not you live in the US. India has a double taxation
avoidance agreement (DTAA) with USA, which helps
to ensure you are not taxed by both the countries.
But DTAA clauses need to be understood. While a
US resident/person can sell his long-term Indian stock
holding / equity funds with no capital gains tax, he will
have to pay to the US government long-term capital
gains tax of 15%. Do such investors really do proper
AMCs get a FATCA that is too hard to handle.
US/Canadian Investors Not Welcome
AMCs had stopped taking fresh investments from US/
Canadian residents/persons since 2013-14. Here is what
the HDFC Mutual Funds website says.... In particular,
the information herein is not for distribution and does
not constitute an offer to buy or sell or solicitation of an
offer to buy or sell any Schemes/Units of HDFC Mutual
Fund to any person in the United States of America
(USA)/Canada. Here is Reliance Mutual reasoning
given in 2013-14 which is same given by other AMCs at
that time - As per the requirements of the U.S. Securities
and Exchange Commission (SEC), persons falling within
the defi nition of the term U.S. Person under the US
Cover Story.indd 5
reporting and pay taxes as per DTAA agreement? If
they do not, FATCA will expose such investors. India
also has DTAA with Canada and, hence, Canadian
residents/persons should know about the DTAA
clauses for the income arising from Indian investments
for these persons.
Take an example of NRE (non-resident rupee)
bank account which gives tax-free interest in India. But
the NRE account interest
is taxable in the US. Such
interest was never disclosed
in the US tax returns by
many investors since it was
easy to hide because there
was no reporting mechanism
from Indian FIs to the US
government. So, Indians
who were US residents/
persons started flying under
the radar thinking that the
US government will not
know about their assets and income arising from India.
US tax returns need you to give details (account
number, type of account, investment amount, financial
institution address, etc) of assets over US$10,000
outside of US and pay tax if applicable.
Hence, FATCA was passed in US in 2010 to make
sure that the FIs across the world share the basic
information of their US-based clients. A US person/
resident has the option of investing in US-registered
MF schemes which invest in Indian markets. US IRS
would prefer if such a route is taken by US residents/
persons as holdings, gains are reported and adequate
transparency achieved.
Securities Act of 1933 and corporations or other entities
organized under the laws of U.S. are not permitted to
make investments in securities not registered under the
Securities Act of 1933.
According to CAMS, The reason for not accepting
applications from US & Canada residents is not because
of FATCA. For selling any investment products/schemes
in US & Canada or to US & Canada residents, the
scheme needs to be registered (with) US SEC. Registering
the scheme with US SEC will require more reporting and
compliance requirements. As AMCs are not registering
the schemes at SEC, they are prohibited from getting
investments from US & Canada residents. There is no
specific guideline in this regard in SEBI Regulations.
Srikanth Meenakshi, co-founder FundsIndia, says,
33 | 19 Aug-1 Sep 2016 | MONEYLIFE
12-08-2016 17:15:59
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 COVER STORY
Faking FATCA?
W hat if customers from US & Canada give a
wrong declaration of tax residence, citizenship,
etc? Most of customers from US & Canada have
Indian names, Indian address (maybe of parents) to
show, PAN, KYC done, etc;
hence, it is easy to fake it.
What will be the impact of
faking it on customers? What
will be the impact of customer
faking it on AMCs? Are any
cross-checks done by Karvy/
CAMS/AMC, or is the FATCA
declaration accepted without
any questions asked?
According to CAMS,
AMCs are relying on self-
declaration. All forms contain suitable disclaimers in
this regard and it is the responsibility of the customer to
provide valid and correct information. No cross-checks
are possible.According to industry sources, While
there may not be cross-checks, wrong declaration may
SEC does not allow financial institutions not registered
with them to be able to market or sell their products to
people in US. The (then) impending FATCA regulations
made this more perilous for the AMCs in terms of
compliance with US law. This was the main reason that
Indian AMCs shut their doors to US-based investors.
But does FATCA make the AMCs more careful than they
were till now for investors who are US/Canadian persons/
residents? Here are the main data inputs in FATCA-CRS
declaration form which will give your information about
US/Canadian resident/person:
1. Place of birth
2. Country of birth
3. Nationality
4. Tax resident of any country other than India? If yes,
specify country, tax identification number in that
country and identification type (TIN/SSN, etc)
According to Harshad Chetanwala, Quantum AMC
does not accept applications from US/Canada person
since inception because funds are required to be registered
with Securities & Exchange Commission (SEC) to accept
application from US & Canada residents.
DSP BlackRock AMCs spokesperson says,
Currently, we do not accept subscriptions from US/
Canada residents/persons since our funds are, currently,
not registered with the US SEC. Our funds stopped
MONEYLIFE | 19 Aug-1 Sep 2016 | 36
Cover Story.indd 6
get noticed based on different kinds of data which are
available. The implications of wrong declaration can
be disastrous. Why would you be so desperate for
mutual fund investment with incorrect declaration
about your profile? Why put your investment at risk?
Here are HDFC Mutual Funds website contents
on this which are similar to
what many other AMCs have,
to safeguard themselves: ...
I/We hereby confirm that I/
We am/are not giving a false
confirmation and/or disguising
my/our country of residence.
I/We agree and acknowledge
that HDFC Mutual Fund/
HDFC Asset Management
Company Limited (HDFC
AMC) is relying upon my/
our confirmation and in no event shall the directors,
officers, employees, trustees, agents of HDFC AMC
associate/group companies be liable for any direct,
indirect, incidental or consequential damages arising
out of false confirmation provided herein.
accepting subscriptions from US/Canada persons in the
last quarter of 2013. Tata Mutual AMC says, We do
not accept applications from US & Canada residents
since we are not registered with SEC.
US/Canadian Investors Forced To Redeem?
Some AMCs are reportedly forcing existing investors
who are US/Canadian residents/persons to redeem their
portfolio, but we have not found proof of this and
AMCs, when asked, have denied it. Many AMCs have
stopped taking new business from US/Canadian resident/
person. So what happens to the existing investment of
such persons? If the AMCs are allowing US/Canadian
persons to remain invested, will the customers really
feel comfortable considering the new investment is not
allowed for them? They may just want to redeem their
investment. You dont want to be forced to redeem at the
wrong time of equity markets. But it is possible that the
AMC may open up for US/Canadian persons/residents in
future and, hence, it may become a non-issue.
According to CAMS, If the investor is identified
to be US & Canada residents post allotment of units,
units shall remain investors, subject to respective AMCs
discretion. Mr Chetanwala says, Quantum AMC does
not force redemptions; instead we freeze the folio in
case of investor qualifies as a US person. SIP & lump-
12-08-2016 17:16:17
 COVER STORY
sum investments are not allowed, only redemption is
allowed. Tata AMCs spokesperson says, We are not
forcefully redeeming the US, Canada residents. We are
not accepting any purchases or SIP from US and Canada
residents. DSP BlackRock AMCs spokesperson says,
Existing US/Canada persons invested in our funds are
not being forced to redeem.
US/Canadian Investors Are Welcome Here
According to CAMS, Almost all AMCs have stopped
accepting the applications from US & Canadian residents
including SIP/lump-sum. However, some of the AMCs
have started accepting with specific investor declaration
stating that AMC has not marketed the schemes and that
the investor is investing voluntarily on his/her own, in
compliance with the applicable Rules & Regulations.
Mr Meenakshi of FundsIndia, says, UTI, Birla,
Reliance, Sundaram, PPFAS, DHFL Pramerica, Canara
Robeco, SBI Mutual and L&T are opening their doors
now. Goldman Sachs Mutual Fund, which is purchased
by Reliance Mutual, is another one.
In the past few months, there have been several media
reports quoting well-known financial planners that
these AMCs have approval to accept investments from
people in the US and Canada. Just because the AMC
is accepting investments from US/Canadian residents/
persons does not mean they have done everything to
comply. Trust but verify what AMCs are saying and even
what financial planners are propagating. After all, the
same AMCs were accepting money from these customers
up to 2013-14 without registering with SEC. Are they
really registered with SEC now that they have reopened
acceptance from US customers?
Best Kept SecretShow Me US SEC
Approval
Moneylife contacted 20 AMCs, but only four responded.
It tells it all. Based on the feedback from different
sources, it can be concluded that there is actually a lot of
confusion among AMCs regarding acceptance or denial
of US/Canadian residents/persons. They are taking legal
opinions on SEC rules, according to one AMC official.
Is buying online from an AMC considered as active
solicitation by a US investor? Would AMCs be charged
of marketing to potential customers? It is possible that
SEC may object. If investment is done when customer
is in India walking into an AMCs office, then AMC is
better off. AMCs can say that the customer saw their
office in India and walked in.
The jury is out on whether AMCs are required to
register with US SEC or not. Some AMCs do not think
they can offer products to these customers unless they are
Cover Story.indd 7
Brokerages & Banks
FATCA Knocking?
F ATCA has been fully implemented for MF
investments. Karvy/CAMS and the AMCs
reached out to all investors to urging them to
make the FATCA declaration in December 2015.
Brokerages and banks seem to be doing it on a
need basis for existing customers and possibly for
all new customers. Media articles state that HDFC
Bank, ICICI Bank and State Bank of India have
already started the process. Indian banks have
started communicating with customers who are US
residents/persons. PIOs/OCIs are permitted to have
NRE/NRO accounts with Indian banks. Hopefully,
FATCA declaration taken by banks is not to weed
out existing PIO/OCI customers, but just to comply
with FATCA regulations to report this information
per the FATCA agreement. It will be interesting to see
if banks are eager to open new NRE/NRO accounts
from US residents/persons in view of increase in
their reporting obligations.
registered with SEC and Canadian securities regulator.
One AMC official argued that SECs approval is a non-
issue. Clearly, there are grey areas and, hence, AMCs have
taken different approaches based on their risk tolerance.
DSP BlackRock AMCs spokesperson says, The Fund
is examining the legal provisions relating to registration
and reporting requirements under US SEC regulations,
should the acceptance of subscriptions from US persons
be deemed as active solicitation to US persons.
The Hard Truth: The truth is that none of the AMCs is
registered with US SEC or Canadian securities regulator.
They probably dont want to go through the hassle of
another regulator looking over them. So, there was
a need to find a way to accomplish it without SEC
registration. AMCs that are open to getting money
from US/Canadian persons/residents have updated
their statement of additional information document
or addendum to give clarifications to investors. Most
of them also mandate signed declaration form from
these investors which means the investors cannot feign
ignorance later. The declaration puts in bold underlined
text that says that the investors are aware that the AMC
is not registered with US SEC and only with regulators in
India. The second part of declaration is that US/ Canada
investor is doing so on a non-solicitation basis (meaning
AMCs do not solicit business from such customers nor
do they advertise/ market in those jurisdictions).
37 | 19 Aug-1 Sep 2016 | MONEYLIFE
12-08-2016 17:16:35
 COVER STORY
Impact on Real Estate
Investment
N RIs are big investors in Indian real estate; but
have to worry now on whether FATCA applies to
them. The issue, again, is declaration of income from
real estate may not have been
reported in US tax returns
and, hence, they may not
want to reveal that they did
not report rental income in US
tax returns. They want to stay
clear of the new regulation
by either selling the property
or transferring it in the name
of close relatives. Buying
multiple properties in India is
Is a Declaration Enough? If the solution were so simple
(i.e., take a declaration), why did AMCs not implement
it in 2013-14? Is this solution (a declaration) acceptable
to US SEC or will a US/Canadian person/resident get into
trouble if US SEC finds about it? Will the AMCs get into
trouble? As per US law, if there are more than 15 US
residents/persons who are investors in the AMC, it needs
to be registered with US SEC. There is one AMC who is
monitoring the number of US customers it has, to ensure
that is it is below, or equal to 15, so that registration
with SEC is not an issue. It may mean keeping only the
15 largest customers.
Another approach taken by AMCs, which have
opened for US customers, is that they may not have
US-sourced income (e.g., interest, dividends, royalties,
premiums) and, hence, if there is any violation, what is
it that the US can withhold? In short, AMCs are taking a
chance; maybe they are not worried about violation and
penalty. It could also be that smaller AMCs want more
business and so are open to these customers.
Look at What You Are Signing:- The documentation
and declaration giving reasons for accepting investment
from US/Canadian residents/persons is similar for all the
AMCs we looked at. UTI AMC opened up in October
2015 while Reliance AMC opened up in June 2016. This
may encourage AMCs sitting on the fence to use the
same approach. After all, AMCs dont want to lose on
US/Canadian customers.
Here are some of the important wordings from
Reliance Nippon Life AMCs declaration form for US/
Canadian residents:
MONEYLIFE | 19 Aug-1 Sep 2016 | 38
Cover Story.indd 8
not efficient from the taxation perspective. Only one
property can be shown as self-occupied. The other has
to be rented out and rental income is taxable; if not
rented out, it is considered deemed let-out and deemed
rent is taxable. Not showing rental income from
multiple properties by investors is an issue from Indian
tax filing compliance also. Tracking of properties held
by Indian residents and NRIs
is difficult and, hence, real
estate investors have always
been flying under the radar.
With US FATCA, NRIs are
trying to come clean before
they get caught. It is possible
that properties in India held
by US/Canadian persons/
residents will also come under
FATCA.
I/We understand and agree that Reliance Mutual
Fund, Reliance Nippon Life Asset Management Limited
have neither filed any of their scheme related documents/
constitution documents nor have registered the units of
the schemes of Reliance Mutual Fund in any jurisdiction
other than the Republic of India. The same has also
been clearly mentioned in scheme related documents/
constitution documents.
I/We have not been communicated/ solicited/
marketed/advertised about making any investment(s) in
the scheme(s) of Reliance Mutual Fund either by way of
(a) any physical means (including but not limited to any
advertisement, article, notice or other communication
published in any newspaper, magazine or similar media,
seminar, meeting, press conference, mailings, billboards
or (b) any electronic means(including but not limited
to a television/radio broadcast, internet, social media,
electronic mails) in a jurisdiction of which I am a
resident by any person(s) including Reliance Mutual
Fund, Reliance Nippon Life Asset Management Limited
or their respective directors, trustees, employees, agents.
Will Investors Get into Trouble? Mr Chetanwala says,
We, at Quantum AMC will never get into such practice
of accepting application from US & Canadian investors
without registering with SEC. We would not like to
comment on the practices followed by other AMCs.
As per my knowledge, only the declaration may not be
sufficient and it is responsibility of the AMCnot the
investor. The investor may not get into trouble with US
SEC in such cases.
The spokesperson of DSP BlackRock AMC says,
12-08-2016 17:17:02
 COVER STORY
The issue is mainly for the AMC (not for the investor)
to examine whether acceptance of subscriptions from
US-based persons triggers any registration or reporting
requirements under SEC regulations, even though the
subscription is by way of a reverse-solicitation, i.e.,
the investor approaches the AMC for subscription and
is not based on any solicitation by way of marketing
mails, calls, or in-person meetings. We understand
that a few AMCs have started accepting subscriptions
from US persons based on advice from US counsel. DSP
BlackRock is currently examining the current legal and
regulatory provisions for acceptance of subscriptions
from US persons on a reverse-solicitation basis.
According to Tata AMCs spokesperson, We have
been advised that we need to be registered with SEC if we
accept application from US residents.According to a big
distribution house, We have received communication
from ICICI Pru Mutual that they are going to start
accepting from NRIs when they
are in India (visiting), not
when they are in US, and
after a declaration.
ICICI Pru AMC
refused to comment
on it.
Mr Meenakshi,
of FundsIndia,
says, AMCs are
still not registered
with SEC, but they are
placing requirements
of declarations from
investors (for example, that
they are doing it on their own and
that they have not been solicited) before they do so.
With some caveats, such as a self-declaration some
AMCs are offering online purchase too. When asked if
AMCs need to register with SEC before offering for US/
Canadian residents/ persons, he said, These questions
should go to the AMCs. The same was the response
from Karvy and CAMS. Clearly, it is a million-dollar
question whether AMCs need to register with US SEC or
not. It is a divided house, as of now.
FATCA is mandatory; but acceptance of business from
US/Canadian residents/persons is optional. Acceptance
of business from US/ Canadian residents/persons does
increase cost, complexity and risk of reporting.
Some AMCs have explored ways to do business
without registration with US SEC. Time will tell whether
everything will be hunky-dory. It is a difficult time for
US/ Canadian residents/persons. To invest or not in
Indian AMCs is the question.
Cover Story.indd 9
Summary: What You Need To Know
Reason for stopping acceptance applications from US
& Canadian residents is not because of FATCA.
For selling any investment products/ schemes in US
& Canada or to US & Canadian residents, a scheme
needs to be registered US SEC. Registering the
scheme with US SEC will require more reporting and
compliance.
UTI, Birla, Reliance, Sundaram, PPFAS, DHFL
Pramerica, Canara Robeco, SBI Mutual and L&T are
accepting investments from US/Canadian residents/
persons.
These AMCs have updated their statement of
additional information document or addendum
to give clarifications to investors. Most of them also
mandate signed declaration form from these investors
which means investors cannot feign ignorance later. If
the solution were so simple (i.e., take a declaration),
AMCs are still not registered
with SEC, but they are placing
requirements of declarations
from investors (for example, that
they are doing it on their own and
that they have not been solicited)
before they do so
Srikanth Meenakshi, co-founder FundsIndia
then why did AMCs stop accepting investment from
them in 2013-14?
The issue is mainly for the AMCs (not for investors)
to examine whether acceptance of subscriptions from
US-based persons triggers any registration or reporting
requirements under SEC regulations, even though the
subscription is by way of a reverse-solicitation, i.e.,
investor approaches the AMC for subscription and
is not based on any solicitation through marketing
mails, calls, or in-person meetings.
Reports quoting financial planners saying that these
AMCs have approval to accept investments from
those in US and Canada may not be correct.
The truth is that none of the AMCs is registered with
US SEC or Canadian securities regulator.
Many AMCs think they should not accept funds
from US/ Canadian residents/ persons unless they
are registered with SEC and Canadian securities
regulator.
39 | 19 Aug-1 Sep 2016 | MONEYLIFE
12-08-2016 17:17:30
 VALUE STOCKS DEBASHIS BASU

All Stock Buying Is Speculation

and What It Means for Investing

L
ong-term investors usually turn up their noses when buy only the undervalued securities for the long term. I
they hear the word speculation. Somehow, the have always wondered how one can keep a straight face
word investing rings of an intellectual discipline, a while arguing that discounting 10 years of future earnings
thoughtful process. Speculation is supposed to be random, is a reliable process. Estimating future earnings is nothing
hit and miss, emotional and short-term in nature. but guesswork. The discount rate selected to create net
From the income taxs point of view, though, speculation present value is completely arbitrary. How can the progeny
only refers to dealing in futures & options (F&O). The of the two be called anything other than pure speculation?
taxman says if you buy a stock, it is investing, even if Imagine the impact of wrong earnings projection magnified
you hold it for a day. Surely, buying a stock for a day by wrong discount rate! You would end up writing books
is not investing in the sense that the word is generally like Dow 36,000: The New Strategy for Profiting From
understood. But, even if the taxman did not enter the the Coming Rise in the Stock Market written in1999 by
discussion with his confusing taxonomy, this distinction James K Glassman and Kevin A Hassett.
between investing and speculation is totally artificial. What went wrong there? It was that innocuous
We are all speculators, no matter discount rate. The heart of Glassman
whether we day-trade or invest longer. and Hassetts egregious projection was
When you buy a stock, you are never sure putting the highly risky equities at the same
that the price you pay when you sell it would level as the absolutely safe US Treasurys
be higher than your purchase price. You fixed-income securities! If you do that, you
only hope it would be, based on reasonable discount future earnings at a very low rate
estimates. But you are never sure. A day and arrive at a very high value. This highly
trader, or a positiontrader, who holds a speculative approach predicted that the
stock for a few weeks and months, has the Dow Jones Industrial Average (DJIA) would
same hope. Both are speculating. The word rise to 36,000 within a few years when it
speculation is derived from an innocuous was under 12,000. Some 16 years later, it
Latin word speculari which means to It is better to be vaguely is just above 18,500. In the introduction to
spy, watch, observe, examine, etc. That right than exactly wrong. the book, Glassman and Hassett wrote that
got metamorphosed into looking ahead Carveth Read, British the book will convince you of the single
and trying to figure out the future, with philosopher and logician most important fact about stocks at the
inadequate information. dawn of the twenty-first century: They are
Here is the truth and the faster we face cheap If you are worried about missing
it, the better. While all speculation is not investing, all the market's big move upward, you will discover that it
investing is speculation. There can be short-term speculation is not too late. Stocks are now in the midst of a one-time-
(for days or weeks or months) or long-term (stocks held only rise to much higher groundto the neighbourhood of
for years); but, essentially, there is no distinction between 36,000 on the Dow Jones Industrial Average.
the two. This has very serious implications. It will help Investment gurus are, often, spectacularly wrong, but
to see two most crucial aspects of investing in the right arrogant, until they get humbled. In the January 2000 issue
perspective, namely, what is a better process of buying of The Atlantic Monthly, where parts of the book were
stocks and the need to do deep research on when to sell. published, Glassman and Hassett asserted to a reader that
if the Dow is closer to 10,000 than to 36,000 ten years
Ah! But There Is Discounted Cash Flow! from now, we will each give $1,000 to the charity of your
The investor may argue is that she is better informed than choice. Well, 10 years later, it was just above 10,000. In
a speculative trader. After all, investors are supposed to early 2010, Glassman and Hassett each donated $1,000
employ a method to arrive at a fair valuation of a business, to the Salvation Army. The investment experts, of course,
by discounting earnings over 10-15 years. Then, they match stood discredited immediately after their book came out.
the discounted value to the prevailing market price and DJIA hit a record high of 11,908 in January 2000; but, after

MONEYLIFE | 19 Aug-1 Sep 2016 |40

Value Stocks.indd 2 12-08-2016 13:50:07

 VALUE STOCKS DEBASHIS BASU

the dot-com bubble burst in mid-2000 and the attacks in distorted exercise which only gives you only an illusion
September 2001, Dow reached a low of 7,181 in October of certainty or of control.
2002. It went to scale 14,198 in October 2007, but crashed Finally, here is the most shocking part. I have, often,
to 6,469 in March 2009. Glassman wrote an article in found that even company managements do not know
2011 to explain why he had gone wrong what is going to happen a few years from now. This is
My idea is not to deride corroborated by many anecdotes
Glassman and Hasset but only that I have heard from accomplished
to point out that when academics I have always wondered how large private investors. Indeed,
go so utterly wrong, it means that
one can keep a straight face over the years, the pace of change
the orthodox approach to stock has continuously increased. Many
investing has a lot of room for
while arguing that discounting sectors, like pharmaceuticals and
improvement. Just imagine that you 10 years of future earnings is technology, are in the throes of
are creating the discounted cash a reliable process. Estimating very rapid changes. Some other
flow and net present value (NPV) future earnings is nothing but sectors, like power, sugar and
of Tata Motors, a multinational, pure speculation infrastructure, could be totally
multiproduct company buffeted dependent on the mercy of policy-
by many factors at a time. What makers, interest rates and so on.
insight can you bring to the table to get a fair idea of not Even a staid business, like banking, is supposed to be on
only future sales but also expenses, including many items, the verge of disruption. What kind of earnings model can
like raw materials, over which the company itself has we create, based on our knowledge of the past and with
absolutely no control? If you ask five analysts to discount all our personal biases?
the future cash flows of a company, they will do only one If the future is unknowable and all investing is
thing: extrapolate from the past. They will make a hash speculation, what ought to be our approach to investing?
of the future earnings estimates. One, assume we know almost nothing about the future and,
If they are, at all, speculating about the future, they therefore, try to eliminate as many mistakes as possible,
may arrive at five different figures, each totally different filter our stocks as well as possible through a system. Two,
from the other. Now, there cannot be five versions of have a sense of when to sell. This could be based on price
the truth; only five guesses. But imagine what happens if patterns, valuation, earnings or a combination. These are
analysts put out five independent, but widely different, only two areas of stock research at Moneylife.
NPV figures. They would be ridiculed to death. To ensure
that the system of stock analysis does not become even
more ridiculous than it already is, two practices have
come into fashion.
One is management guidance. Companies informally
guide analysts about future earnings. But this, too, can be
about the coming quarters and not 10 years into the future.
So what do analysts do? They follow a second practice:
share/copy each others work so that all of them arrive at
a number that is different but not widely different. What
does it do to the discounted cash flow, the cornerstone
of orthodox investing process? It becomes a completely

41 | 19 Aug-1 Sep 2016 | MONEYLIFE

Value Stocks.indd 3 12-08-2016 13:50:34

 StockWatch
A section on stocks and sectors that catch our eye

Q u e s s & T eam l e as e now quoting at a price-to-earnings (P/E) of 76 times.

Thomas Cook acquired a stake in the company at a
Do Fundamentals valuation of around Rs350 crore in February 2013.
It now trades at a market valuation of more than
Justify Their Rs6,700 crore, a jump of more than 19 times. What
has caused this jump in valuation? Quess has been on
Valuation? a scorching growth path via the inorganic route and
has acquired companies like Avon, Magna Infotech,
Brainhunter and MFX. While this boosted its profits by

T
he staffing industry in India is highly seven times, revenues went up by four times during the
fragmented, being in a nascent stage, and period.
comprises a number of small players. The Unfortunately, there are two major problems
sector is highly competitive with low entry-barriers. with Quess, apart from its extraordinary valuation.
Among the major players are: Randstad, Adecco, One is Quesss operating cash flows have been
Manpower, Kelly Services and Global Innovsource, negative. In 2015-16, Quess reported a Rs31-crore
from abroad, and Teamlease and Quess, from India. cash outflow from operating activities and Rs23.20
Both these players have made IPOs (initial public crore as investment in fixed assets. This gap had
offerings) recently. Quess came out with an IPO in to be funded by Rs166 crore of borrowing. It also
June and Teamlease in February. It is quite amazing to raises the question: Where are the accounting profits
see the extraordinary valuation both these stocks are going? Into working capital. The business is extremely
commanding, given how poor the fundamentals of the working capital-intensive. Over the years, the working
businesses are. capital needs of the company have grown by leaps
Bengaluru-based Quess Corp, formerly known as and bounds. Quess does not have a naturally growing
Ikya Human Capital Solutions Ltd, is an integrated business. Its growth is coming through artificial
business services provider in India; it is a staffing boosters. Second, the return on assets (RoA) stands at a
company. Its business includes four divisions: poor 8%, following just a 2% net profit margin.
Information technology (IT) staffing, general staffing, There is another problem as well. The proceeds of
integrated facility
ty management and industrial asset the IPO will be partly used to fund cap
capital expenditure
management. The he general staffing division accounts of a subsidiary MFX US. The parent shareholder of
for more than halfalf of its revenues. It is Thomas Cook India Ltd (T (TCIL), Fairfax
the largest IT staff
aff provider in India and Financial Holdings (FFHL)
(FF had
the third largest general staffing earlier acquired MFX
MF US along
company in India, ia, based on with various subsidiaries
s and
the number of employees
mployees related entities.
entiti MFX has a
it provides. A majority negative net
ne worth and is
of its revenues comes loss-making.
loss-mak What if it
from the domestic tic turns around?
aro Wouldnt
sector and accounts
unts Quess Corp
Co benefit?
for around 85% % of its Unfortunately,
Unfortunat Quess Corp
turnover. will have to pay 40% of
Quess Corp came out MFXs net profit
p to Fairfax
with an IPO recently.
ently. Financial in accordance
The stock became me an with the terms
te of the
instant hit and iss agreement.
agreemen

MONEYLIFE | 19 Aug-1 Sep 2016 | 42

StockWatch.indd 2 12-08-2016 16:55:16

Advertisements.indd 3 09-08-2016 20:18:55
 STOCK WATCH

Teamlease: Erratic Free Cash Flows Teamlease: Falling Net Profit

(Rs crore) (Rs crore)
600 12

0 8

-600 4

-1,200 12-13 13-14 14-15 15-16 0

Sep 15 Dec 15 Mar 16 Jun 16
Free Cash Flows

with its peer Quess Corp, is characterised by low

A Quick snapshot of Quess
Particulars
P/E
Cash Flows
Net Margin
RoA
Working Capital Requirement
Team Lease Services
Team Lease Services, one of Indias leading organised
staffing players, had recently come out with an
IPO (initial public offering) in a price band of
Rs785-Rs850. The IPO was a huge success and was
subscribed over 66 times, generating demand of a
whopping Rs16,000 crore, with only Rs435 crore
shares on offer. The stock has risen 21% over its IPO
price of Rs850/share on the day of the listing. It hit a
low of Rs790 in late-April and, subsequently, bounced
back. It was trading at Rs1,124 on 8 August 2016. But,
like Quess, Teamlease also suffers from major flaws as
an investment choice.
The company has reported revenue growth of
margins. Teamlease has earnings before interest, tax,
Comments depreciation and allowances (EBITDA) margin of
76 merely 1%.
Negative
Teamlease has three segmentsstaffing operations,
recruitment operations and training operations.
2%
Currently, Teamlease has around 5% market share in
8%
terms of associate employees. It intends to increase the
High quantum of its revenues from high-margin sectors like
information technology (IT), healthcare and hospitality.
It is looking at acquisition opportunities having
earmarked Rs25 crore of the IPO proceeds to be
utilised for acquisitions and other strategic initiatives.
An overwhelming majority of these IPO funds were
earmarked for funding existing and incremental
working capital requirements, given the fact that the
business is working capital-intensive.
JK Cement & JK Lakshmi Cement
Hopes from Rising
Cement Demand

T
25%, to Rs2,505 crore from Rs2,007 crore for he cement sector has been in focus with a
FY15-16. However, there is not much to cheer for wave of consolidation and expectations of
investors as Teamlease did not do well on the bottom- growing cement demand. While almost all
line front as its net profits declined by 25% y-o-y, to cement companies are doing well, stocks of smaller
Rs24.80 crore from Rs30.78 crore. Teamlease, along cement companies have a greater chance of moving up,

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.

Those who have subscribed to the stockletters should only follow the stocks recommended there.

MONEYLIFE | 19 Aug-1 Sep 2016 | 44

StockWatch.indd 3 12-08-2016 17:33:51

 STOCK WATCH
A Quick Comparison
JK Cement JK Lakshmi
Cement
Debt: Equity Ratio 2.05 1.68
Free Cash Flows Positive (2015-16) Negative (2014-15)
according to analysts. We look at some quick numbers
of two such companies, namely, JK Lakshmi Cement
and JK Cement. JK Lakshmi Cement is expected to
benefit from a number of factors. Firstly, its capacity
expansion may lead to a volume growth. It has 8.4
million tonnes (mt) of capacity now. It is planning to
commission grinding units in Gujarat and Odisha in
the next two years. Secondly, prices in the northern
region of the country are expected to rise. Thirdly,
there are hopes for an improvement in overall demand
due to a thrust on infrastructure projects, such as low-
cost housing projects, Ahmedabad Metro and Delhi
Freight Corridor (DFC). Fourth, it uses petcoke, which
is a cheaper alternative to coal, to produce cement,
resulting in lower costs. Religare estimates that the
power/fuel consumption of JK Lakshmi Cement has
declined to Rs753/tonne in FY15-16 from Rs910/tonne
in FY10-11. A combination of these factors is expected
to result in a rise in revenues, margins and profitability.
However, there are a few problems. Firstly, it has
barely made any profits in the past financial year due
to which it has a low return on equity (RoE). Secondly,
its free cash flows in the past have been negative as
well as erratic. This has resulted in the debt:equity ratio
rising to 1.46 on 31 March 2015 from 0.78 on
31 March 2011. The debt:equity ratio rose to 1.68 on
JK Lakshmi: Negative Free Cash Flows
(Rs crore) Debt:Equity Ratio
0 1.50
1.40
-100
1.30
-200
1.20
-300 1.00
12-13 13-14 14-15
Free Cash Flows Debt:Equity Ratio
StockWatch.indd 4
31 March 2016.
JK Cements June quarter results show revenues
rising by 9% on a year-on-year (y-o-y) basis, to Rs887
crore. Its profits for the quarter rose to Rs60.85 crore
compared to almost nil profit in the year-ago period.
JK Cement, the second largest producer of wall
putty in the country, has a putty capacity of 0.7mt,
currently. It has raised its capacity during the quarter
by 0.2mt with a new plant at Katni (Madhya Pradesh).
It has guided that it will incur a capex of Rs250 crore
in FY16-17, for stand-alone operations in India. Out
of this, a capex of Rs25 crore will have to be incurred
to build a new CF silo at its Muddapur (Karnataka)
plant. Currently, the CF silo plant at Muddapur is
being operated at a lesser capacity of 5,000 tonnes/day
compared to its capacity of 6,500 tonnes/day. It will be
completely demolished by October 2016. According to
the company, it will take another nine months to build
the new CF silo.
If the June quarter profits levels hold, the stock is
trading at a P/E multiple of 33 times on a stand-alone
basis. It has a return on equity (RoE) of around 9% its
trailing 12 months earnings. Given the fact that these
numbers are not too promising, higher cement prices
in the future and capacity addition in the north would
benefit JK Cement.
Take a look at its free cash flows position. In
2013-14, its free cash flows were a negative Rs1,140
crore. In the next two years, they have been rising. In
2015-16, they have risen to Rs302 crore. As the result,
the debt:equity ratio has remained stable in the past
year. Both these cement companies are banking on a
rise in revenues and profits. If you buy the stocks, you
would be expecting that their RoEs will greatly expand
due to operating and financial leverage.
JK Cement: Rising Debt
(Rs crore) Debt:Equity Ratio
600 2.50
2.00
0
1.50
-600
1.00
-1,200 0.50
11-12 12-13 13-14 14-15 15-16
Free Cash Flows Debt:Equity Ratio
45 | 19 Aug-1 Sep 2016 | MONEYLIFE
12-08-2016 17:34:06
 STOCK WATCH
UN UOTED
STORIES OF PRICE MANIPULATION
Smith & Founders (Rs15)
(Rs)
I n March 2014, Shimoga Technologies 18.35
merged with Smith & Founders
15.35
(India) and the name of the company
was changed to the latter. Smith & 12.35
251%
Founders manufactures closed die
steel forgings, cast iron castings and 9.35
cast iron cylinder liners. In FY14-15, the
revenue from operations of the micro- 6.35
cap company worked out to Rs6.63
3.35
crore. Of this, as much as Rs2.41 crore
Feb-16
was paid towards employee benefit
expense, of which Rs1.19 crore was
paid towards salaries and wages (to lakh (nearly 35% of the total employee
approximately 91 employees) and Rs84 expense) was paid to four directors
MARKET TREND
Investment-led Boom?
Tbut it could be deceptive. On Friday, 29 July, the
he market seems to have stalled for the short term;
th
Sensex closed at 28,051. Two weeks later, at the time
of writing, it was around 28,100. The quarterly results
season is almost over. Theree have been newspaper
headlines cheerleading investors
estors that earnings have
improved. All that has happened
pened is that, from
a situation of earnings decline
ine in June
quarter (which the market could
not be bothered about), thee
earnings of the Sensex
companies have moved
up by about 5% or so. If
such anaemic growth is
something to cheer about, we
have nothing to say. Meanwhile,
while, in August,
buying by foreign institutional
nal investors has been
matched by sales from domestic
mestic institutional investors,
although that is not much of a reliable indicator.
indicator The
overall trend is up.
Looking at the longer term, I notice that the
government, under prime minister Modi, is keen to roll
out several mega projects which could boost growth
across the board. For instance, I just noticed that the PM
MONEYLIFE | 19 Aug-1 Sep 2016 | 46
StockWatch.indd 5
as remuneration. Smith & Founders
reported an operating loss in each
of the past nine quarters, after the
merger. The stock price shot up by 50
times, or 4993%, from Rs0.28 on 25
March 2014 to Rs14.26 on
14 January 2015, after the
announcement of the merger. Despite
being a loss-making company, the
stock price shot up 435% in the past
six months from Rs3.42 on 25 February
2016 to Rs18.30 on 8 August 2016.
May-16 Aug-16
However, by 10 August 2016, the stock
price dropped to Rs12, down 33%. Will
the regulator investigate the suspicious
price movement?
has a scheme called 'Neel Kranti' or
Blue Revolution for fishing which needs
Rs17,199 crore. The aim is to triple the
country's earnings from fish exports as
per an Integrated National Fisheries Action
Plan, 2020, prepared by the Central government. For this,
the government now wan wants to rope in global consulting
firm Accenture for production
produc management support.
Separately, as part oof Digital India programme, the
national optical fibre network
(NOFN) aims to provide high-
speed broadband connectivity
to 250,000 gram panchayats by
December
De 2016 at an estimated
cost of around Rs30,000 crore.
I have just chosen to highlight
two sc
schemes. PM Modi has at least
half a dozen
d such projects. It could
well be that these projects are able
to kick-start
kick-st a virtuous cycle of growth
which then percolates downdow to the private companies,
including the listed ones. We have not seen signs of this;
but is such an investment boom, led by the State, that
the market is anticipating in advance? Time will tell.
Meanwhile, an overvalued market heads even higher.
Debashis Basu
12-08-2016 17:34:31
 TAX/ FIXED INCOME

Is Your Money Safe with the New Banks?

S
ome investors may be has happened in the case of Global
concerned about the safety Trust Bank which was taken over
of their money with the new in a shotgun marriage over the
entrants in the private banking weekend by the Oriental Bank of
space such as Bandhan Bank and Commerce. There have been other
RBL Bank (formerly Ratnakar instances in the past where some
Bank). Competitive intensity, and solutions have been found to ensure
their urge to capture market share that the interest of the depositors in
from the well-established banks, a shaky scheduled commercial bank
is motivating them to offer higher is taken care of.
interest rates. Bandhan is offering scheduled banks to fail. It is the Secondly, deposits are also
interest rate of 8% while RBL Bank depositors of smaller cooperative insured up to Rs100,000 for both
is offering 8.24% for one-year banks that in danger. In the unlikely principal and interest under Deposit
deposits. RBL is also coming out event that problems arise, solutions Insurance and Credit Guarantee
with an initial public offering (IPO) such as a merger may be mooted Corporation (DICGC). This covers
to create a pan-India presence. Is by the regulatory authorities. This all commercial banks, including
it worth keeping your branches of foreign
money with them to earn banks functioning in
some extra basis points of Top Fixed Deposit Rates (12th August) India, local area banks
interest? Is this something Institution Name Fixed Deposit Tenure Effective and regional rural banks.
Amount Rs Interest Rate
that is too good to be Deposits in cooperative
true? RBL B ank 1,00,000 1 Year 8.24% banks are also covered
Your money is quite Bandhan B ank 1,00,000 1 Year 8.00% by DICGC. DICGC is
safe in these banks as, IndusInd B ank 1,00,000 1 Year 7.97% a subsidiary of the RBI.
in India, the government Standard Chartered 1,00,000 1 Year 7.81% Hence, your money is
and the Reserve Bank of Bank safe up to Rs1,00,000 in
India (RBI) never allow any bank.

G-Sec and Bond Yields Issuer Maturity Next Last Yield ISIN Rating

T
Date Coupon (%)
he 10-year benchmark G-Sec
yield, which sets the tone of the Hindalco 9.55% 25 Apr-22 25 Apr-17 8.6 INE038A07258 CRISIL AA-
fixed-income market, has reduced Aditya Birla Finance 8.85% 22 Feb-19 23 Feb-17 8.35 INE860H07CJ8 (ICRA)AA+
by couple of basis points (bps) in the Sundaram Fin 9.50% 29 Jan-18 28 Jan-17 8.2 INE660A07JF0 CRISIL AA+
past fortnight to end at 7.08% on
NSE data as of last trade date of 11 August 2016
11th August. The G-Sec yields stood
HPSEB 10.39% 29 03-2026 29 09-2016 10.22 INE220H08016 BWR A
Tata Power 10.75% 21 08-2072 30 Oct-16 9.33 INE245A08042 (ICRA)AA-

G-Sec Maturity Yield to HDFC 9.40% 26 08-2019 26 Aug-16 8 INE001A07MZ9 CRISIL AAA
Date Maturity
BSE data as of last trade date of 11 August 2016
23 December 2043 7.28
02 July 2040 7.26
at 7.25% on 27th July. The benchmark On 11th August, State-run banks
01 December 2044 7.26
10-year bond yields have been on a sold a record amount of sovereign
30 September 2030 7.25
declining trend since the past months. bonds. In a separate development,
14 November 2024 7.23 These benchmark yields have been at retail investors can now also invest
G-Sec yields on 11 August 2016 their lowest levels in the past seven their money in G-Secs through demat
years. accounts.

47 | 19 Aug-1 Sep 2016 | MONEYLIFE

Fixed Income.indd 1 12-08-2016 17:37:10

 3 Long-term Stockletters
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 LEGALLY SPEAKING SD ISRANI
How the Rich &
Powerful Abuse
the Legal Process
I
t is an open secret that while the Constitution of India
guarantees equality before the law and equal rights to
all the citizens, in reality, approaching the courts is a
luxury which only the well-heeled can indulge in. Many
litigants are well-versed with the judicial system and
take advantage of it to the hilt for serving their own
dubious purpose. One such case is that of Messer
Holdings Ltd vs Shyam Madanmohan Ruia and
Others [2016] 196 Comp Cas 258 (SC).
The case involved multiple suits and
applications filed by the parties in respect
of purchase / acquisition of shares
of an Indian company. When
the matter reached the apex
court, both the parties tried
to convince the apex court
that it should examine all
the questions of rights,
title and interest in
the concerned shares
between the various
parties as if the Supreme
Court were the court of
first instance trying those suits. The apex court
remarked that this was wholly uncalled for; it was
not expected to perform that role.
The Court listed the history of litigation
(going on for the past 18 years) which had taken up
considerable judicial time. The Court remarked that the
conduct of none of the parties was wholesome. Arguments
were advanced on either side for a period of 18 working
days as if the apex court were a court of original jurisdiction;
this was certainly not appreciated by the apex court. In
fact, the apex court was pained to note that even the issues
had not been framed in any of the suits so far.
The learned counsels appearing for the parties very
vehemently urged that there should be a finality to the
litigation and, therefore, the apex court should examine
every question of fact and law thrown up by the enormous
litigation; to this, the apex court remarked that it was only
the parties who were to be blamed for the state of affairs.
The apex court further remarked that This case, in
our view, is a classic example of the abuse of the judicial
process by unscrupulous litigants with money power, all
MONEYLIFE | 19 Aug-1 Sep 2016 | 50
Legally Speaking.indd 2
in the name of legal rights by resorting to half-truths,
misleading representations and suppression of facts. Each
and every party is guilty of one or the other of the above-
mentioned misconducts. It can be demonstrated by a more
elaborate explanation but we believe the facts narrated so
far would be sufficient to indicate but we do not wish to
waste any more time in these matters.
The Court also observed that the Ruias case should serve
as proof of the abuse of the discretionary jurisdiction of the
apex court under Article 136 by the rich and powerful in the
name of a fight for justice at each and every interlocutory
step of a suit. The apex court added, Enormous
amount of judicial time of this Court and two High
Courts was spent on this litigation. Most of it is
avoidable and could have been well spent on more
deserving cases.
The apex court made a reference to its own
decision in the case of Ramrameshwari Devi vs
Nirmala Devi [2011] 8 SCC 249 wherein
it had, inter-alia, held that, while
imposing costs, it had to take
into consideration pragmatic
realities and be realistic
about what the defendants,
or the respondents, had to
actually incur in contesting
the litigation before
the different courts.
The apex court also
had to broadly take into
consideration the prevalent fee
structure of the lawyers and other miscellaneous
expenses, etc.
Hence, keeping in view all the above factors,
the apex court imposed costs of Rs25,00,000 to be
paid by each of the three parties to the National Legal
Services Authority, as compensation for the loss of judicial
time of the country. The money would be utilised by the
National Legal Services Authority to fund poor litigants.
No doubt, credit is due to the apex court for castigating
the parties and imposing damages. But the moot question
is: Was it enough to impose costs of only Rs25 lakh each?
Does not such a conduct, entailing abuse of judicial process
itself, amount to contempt of court and deserve more severe
punishment, including imprisonment?
SD Israni is a corporate lawyer & Fellow
of ICSI. Email: sdisrani@gmail.com
12-08-2016 12:48:15
 UNBIASED INFORMATION:
MAS Benefit #8-10
Moneylife Magazine Handbook Product Reviews

8. Moneylife Magazine: 9. Handbook:

Since March 2006, Moneylife magazine A complete online guide on every aspect of
empowers individuals to invest and spend personal finance
wisely by oering hard facts, insightful from annuities and
opinions, unbiased bank accounts to
options and Wills and zero-coupon
useful tips on bondsall in the form
fixed-income of common questions
products, and answers. This
mutual funds, handbook helps
insurance, you make correct
stocks, taxes. decisions about all
This bold aspects of money.
and practical Whenever you are in
fortnightly doubt, all you need to do is to refer to it. You
guide is included will get factual and unbiased information. No
in your MAS premium need to wonder; no need to ask. Part of your
membership. MAS premium membership.

10. Unbiased Reviews:

Moneylifes habit of calling a spade a spade comes in handy when our analysts review a financial
product available in the public domain. Our reviews will leave you with no doubt about the good, the
bad and the irrelevant. Part of your MAS premium membership.

About MAS
MAS is a SEBI-registered investment adviser and part of Moneylife, Indias most unbiased and
pro-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 35,000 members. MAS was set up to help investors and savers make
the right financial decisions and handhold them through the entire process.

MONEYLIFE
ADVISORY
FIX YOUR FINANCES, FOREVER

www.savers.moneylife.in

MSSN - Unbiased.indd 1 29-07-2016 16:09:26


Queries
At Moneylife Foundations
Ask tax-related questions at moneylife.in/taxhelp. Its free
Wrong TDS for Salary
Not Paid
I was working in a company which
I left in September 2015 and
joined another company later. The
old employer has shown salary paid
for October 2015 in Form 26AS
and deducted 10% as TDS. But
he did not pay the tax. Since my
annual salary falls in the 20% slab,
I need to pay additional 10% tax
for FY15-16. I raised my concern
with my old employer several
times but it fell on deaf ears. I
have given a written request to the
income-tax (I-T) department and
have an acknowledgement of my
request. Can I ignore the October
2015 salary and file the returns for
the rest of the amount? How do I
proceed further? Please help.
Subodh Shahs Reply: From the
facts stated by you, it is clear that
you left in September 2015 and I
assume that you
were not entitled
to any salary for
October 2015.
In spite of this,
the employer has
accounted for salary payable to you
for October 2015 when he filed the
TDS returns.
a. The income never accrued to you
nor did you receive it.
b. You have documentary evidence
that you left the employment in
MONEYLIFE | 19 Aug-1 Sep 2016 | 52
Tax Queries.indd 2
Tax Helpline
September 2015.
c. You have already intimated the
I-T department about this issue.
In my opinion, you may ignore
the salary of October 2015 which
was wrongly shown in the Form 16
and also ignore the corresponding
TDS for October 2015 and file your
ITR. The electronic processing may
throw up some errors and you may
have to visit the I-T office to sort
out the matter at a later stage.
Tax Certificate for NGO
Donation
I contributed one days salary,
which was shown in Form16 u/s
80G, through my employer. But
when I asked for the tax certificate,
my employer gave me a copy of the
consolidated donation paid to NGO
and it only had employers PAN.
The employer says it is not possible
to record 100+ PAN numbers
of individuals when making the
payment to an NGO. Is this correct
or is the employer taking Section
80G benefit but collecting money
from employees?
Ameet Patels Reply: One would
get a deduction under Section 80G
only if the receipt issued by the
charitable organisation is in the
name of the donor. In the example
that you have given, it is the
collective total amount of all the
employees that would get donated
Supported By
in one lump-sum to the charitable
organisation. If the organisation
does not give
separate receipts,
there is nothing
that an individual
donor can do in
terms of claiming
the deduction. What your company
should have done is to get the
charitable organisation to agree
to issue a separate receipt to each
employee. Since this has not been
done, unfortunately, you will not
be able to claim the deduction in
your tax return. It is not possible to
comment on whether the company
is claiming the tax benefit, as we do
not have that information.
Tax Exemptions on
Buying an Old House
I was planning to buy my first
home as an investment and stay
in a rented house in the same city.
I want to know if tax exemption
is allowed for purchase of an old
house. Somewhere I have read that
exemptions are allowed only for a
new home. Please clarify.
Nikhil Vadias Reply: I am
assuming that by saying exemption
you actually mean deduction
under Section 24
for interest and
under Section 80C
for the principal
repayment. That
will be allowed
to you for the first house that
you are going to purchase. The
extent of deduction is Rs2 lakh
for interest and Rs1.50 lakh for
principal repayment. If you are
buying an under-construction
house, the treatment is different;
deduction is allowed only after you
get possession of house and if the
construction is completed within
five years.
12-08-2016 17:46:36
 Supported By

Moneylife Foundations

TAX HELPLINE
This helpline is for tax-related queries for individuals and small businesses who file
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others. It will not attempt to substitute a tax advisor or tax expert whose help is
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OUR EXPERTS

AMEET PATEL SUBODH SHAH 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.

Tax Helpline.indd 1 29-07-2016 17:49:42

 USEFUL APPS YAZDI TANTRA
LibreOffice: An Alternative to
Microsoft Office
L ibreOffice is a replacement for Microsoft Office.
Microsoft Office costs a bomb and, hence, most users
go for a pirated version which may not be complete and
may have gaping security holes which can be exploited.
LibreOffice is the
most powerful free and
open source office suite
in the market. They have
all the popular tools like
Word, Excel and PowerPoint in LibreOffice. Besides, you
also have drawing tools, math formulas and databases
which make the office suite complete. It is totally free to
use and you get a public licence to operate it. Plus, you
also get online updates, from time to time, which enhance
its security. Most Microsoft Office documents can be
opened and saved by LibreOffice, so compatibility is no
longer an issue. The software is extremely light and easy
to use with the most popular menus incorporated in the
user interface. Now is the time to switch to LibreOffice
and work efficiently, virus-free and legal! Just visit
www.libreoffice.org and download it for immediate use.
Transparent Screen: See the
Road below Your Screen!
T hese days, the Smartphone has become a part of our
lives. And many a time, we would like to start an
app or send a text message while
walking on the road. Transparent
screen gives you the opportunity to
see the road behind or underneath
your phone, while you text or start
an app. You can adjust the level of
transparency to your convenience
so that you are comfortable while
using it. While on the one hand,
it can avoid accidents and excessive use, in high-traffic
conditions, it can actually cause accidents. So handle this
app with care and use it sparingly, based on your best
judgement. https://goo.gl/0Yh1LW
CloudConvert: Convert Any
File into Any Format
T his converts anything to anything! You can select
any fileaudio, video, text, spreadsheet, vectors,
MONEYLIFE | 19 Aug-1 Sep 2016 | 54
Tantra - column.indd 1
imagesand convert them into your desired format. Over
214 different file types and formats are supported, so you
could never miss what you need!
The best part of this online
conversion is that there is no need
to download or install anything.
You just need to upload your
files to CloudConvert and it will
do the job for you. And, dont
worry, your files are safe and
only you can access them. They will be deleted again as
soon as your conversion is finished and downloaded by
you. Most conversion types support advanced options;
for example, setting the codecs of audio/video files. The
basic options are free, whereas there is a small price to
pay for the advanced options.
The system is linked to Dropbox and Google Drive, so
you can upload the raw files and download the converted
files directly from / to those accounts. A very useful tool
for those who need to convert from one format to another.
CleanMaster: Clean up Your
Smartphone
O ver a period of time, a lot of junk accumulates
inside our Smartphone. This may cause our phone
to lag in performance or even make it impossible to
install new apps. CleanMaster comes to our rescue at
such times. CleanMaster clears the junk files, cleans up
remnants of uninstalled apps and helps boost memory.
In addition, CleanMaster improves performance by
optimising device memory and offering security
against viruses, Trojans and malware. It may
even show you your least-used apps, just in
case you would like to uninstall them, to
free up memory. Developed by Cheetah
Mobile, and over 100 million downloads,
CleanMaster is one of the worlds most
reliable companion for Android devices! If you are
looking for a thorough, fast and intuitive clean-up app
for your Android Smartphone, CleanMaster is for you.
https://goo.gl/5R77Sw
Yazdi Tantra is a chartered accountant
by training, computer consultant by
profession, entrepreneur-developer by
hobby and trainer in his leisure time.
He is currently the vice-chairman of
Zoroastrian Co-operative Bank Ltd
and has been running a medium-sized computer
company ON-LYNE for the past 24 years.
12-08-2016 17:43:05
 HANDHOLDING:
MAS Benefit #11
One-on-one-Help Portfolio X-Ray

We are not agents, distributors, brokers or lead

generators; so, you get ethically correct advice

There are thousands of mutual fund schemes,

hundreds of insurance products, bank FDs,
corporate FDs, corporate bonds, over 3,000
actively traded stocks How is an average saver
supposed to choose? You have 5 options

Option1: Do nothing.

Option2: Rely on friends, relatives, neighbours, oce accountant, derived wisdom from social media
or the press/TV. (But do they know more than you? And how do you know that?)

Option3: Rely on relationship managers, insurance agents, distributors, wealth managers. (But you
are only a sales target for them)

Option4: Research insurance, mutual funds, markets, stocks, financial theories Become a financial
expert yourself. (Is this practical?)

Option 5: Choose Moneylife Advisory

A no-bias, no-conflict platform. Ask any confidential question about investments, insurance and taxes
and you get the right answer.

Subscription to Moneylife magazine is included in MAS Premium Membership

About MAS
MAS is a SEBI-registered investment adviser and part of Moneylife, Indias most unbiased and
pro-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 35,000 members. MAS was set up to help investors and savers make
the right financial decisions and handhold them through the entire process.

MONEYLIFE
ADVISORY
FIX YOUR FINANCES, FOREVER

www.savers.moneylife.in

MSSN Handholding.indd 1 29-07-2016 16:08:23

 HEALTH BM HEGDE
Vitamin D and an
Epidemic
D
o Epidemiologists Cause Epidemics was a
nice editorial in The Lancet, some years ago.
The essence of that article was that when
society is frightened by any medical scare systemthat
there is a new epidemic coming to eat you upeven the
doctors seem to label every conceivable disease as that
epidemic disease. They quoted an epidemic of pneumonia
some years ago. When the scare got over, a second review
of all pneumonia diagnoses showed that even malaria
and Flu-like illnesses were labelled as pneumonia without
any evidence. Almost all febrile illnesses were labelled as
pneumonia, to be on the safer side! That was the basis of
that epidemic and not true pneumonia.
I have been watching a new epidemic lately all over
India. Most of the people, who are obsessed about their
health, undergo preventive regular screening to avoid any
illness and end up with Vitamin D deficiency. Let us think
about this Vitamin D epidemic before it gets out of hand
and makes people really anxious. You must be in touch
with people to know how dangerous that intense fear of
any lack of vitamin in the body could cause. Some of them
need the help of a clinical psychologist to ease the tension!
How can Indians, especially the poor in India, have
vitamin D deficiency when the best source of vitamin D
is the sun that is very generous to Indians? The medical
business people were keen to see that Indians also get
Vitamin D deficiency by telling them that exposure to
direct sun can cause cancer. If that were so, all our poor
farmers, who work the whole day in hot sun with hardly
any clothes on their bodies except the
loincloth, should have dropped dead
from skin cancer long ago.
All our four-legged animals, whose
wide back is exposed to the sun
whole day, should have
MONEYLIFE | 19 Aug-1 Sep 2016 | 56
BM Hegde.indd 2
vanished of skin cancer. There is plenty of data to show
that skin cancer is more related to the chemicals in the
sun-screen lotion rather than the sun! I get confused when
people blame the sun for cancer while sun is what keeps
us alive on this planet with its electromagnetic energy.
Reductionist chemicals-based Vitamin D is not as good
as sunlight and is not very safe either, if one exceeds the
dosage. We shall come back to that later. Some of us are
afraid that our beautiful complexion will worsen if we go
out in the sun. True, you do become darker when you go
in the sun but that is only temporary. Human body cells
change so fast that almost in three months we are new
again. So if a girl gets darker, she only has to avoid the
sun for three months before she gets back her original
skin colour. Sun makes the skin healthier and prevents
wrinkling also. As long as we hold on to our slavish
thought that white is beautiful, we will do everything
to keep ourselves whiteuse whitening creams and what
have you. But when we realise that black is beautiful, this
craze, and the associated dangerous whitening chemicals,
will no longer be needed.
A New York-based ethnic Indian pharmaceutical PhD
has been able to extract from rice bran and even bagasse a
new compound called metadichol in its nano form which
has been patented. This has been shown to help stimulate
all the Vitamin D receptors in the body thereby boosting
the human immune system. Immune boosting has now
been shown even to avoid infectious diseases and even
heart attacks in people who are prone to it. Details of
metadichol are published in the recent issue of The Journal
of the Science of Healing Outcomes.
Vitamin D is a fat-soluble vitamin and its overdoses
might be very dangerous. One of the leading symptoms of
hypervitaminosis D is intense headache due to increased
intra-cranial tension. This is very difficult to treat and
might even result in death. Do not easily fall a prey to this
new man-made epidemic scare and overdose yourselves
with chemical vitamin D. Let me recapitulate for easy
remembrance.
Future prediction of diseases and death by regular
screening is one of the biggest myths in medicine. So
you need not go for Vitamin D screening without any
indications. Even when you ARE vitamin D-deficient,
avoid chemical vitamin D but go for sunlight instead.
Metadichol can be used as a food supplement.
Professor Dr BM Hegde, a Padma
Bhushan awardee in 2010, is an MD,
PhD, FRCP (London, Edinburgh,
Glasgow & Dublin), FACC and FAMS.
He can be reached at hegdebm@gmail.com
12-08-2016 17:44:22
 HEALTH BM HEGDE
WHERE IS THE ZIKA
VIRUS EPIDEMIC?
T he New England
Journal of Medicine
published the preliminary
MEDICAL DEVELOPMENTS FROM
results of a large study
of pregnant Colombian women
infected with Zika. Of the
nearly 12,000 pregnant
women with
clinical
symptoms
of Zika
infections
until 28 March 2016, no cases of
microcephaly were reported as of 2
May 2016. At the same time, four
cases of Zika and microcephaly
were reported for women who were
symptomless for Zika infections
and, therefore, not included in the
study itself.
Brazils microcephaly epidemic
continues to pose a mysteryif
Zika is the culprit, why are there no
similar epidemics in other countries
also hit hard by the virus? Perhaps
there is another reason for the
epidemic in Brazil.
According to a new report by
the New England Complex Systems
Institute (NECSI), the number of
missing cases in Colombia and
elsewhere raises serious questions
about the assumed connection
between Zika and microcephaly.
Months ago, I had debunked the
Zika virus-microcephaly mystery;
but no one takes notice. The wrong
assumption is good for business but
bad for the common man.
SINGLE PEOPLE ARE
HAPPIER!
S ingle people are usually
classified as sad and lonely.
On the contrary, a new study
shows how they actually have
better psychological growth and
are more satisfied. The research,
titled What no one ever told
you about being single, and
BM Hegde.indd 3
AROUND THE WORLD
The preoccupation with
the perils of loneliness
can obscure the profound
benefits of solitude
presented at the American
Psychological Associations 124th
Annual Convention, challenges the
depiction of single life to offer a
more accurate portrayal of single
people. The preoccupation with
the perils of loneliness can obscure
the profound benefits of solitude,
says Bella DePaulo, PhD, a scientist
at the University of California-Santa
Barbara.
EPIGENETIC PROCESS OF
EVOLUTION
I t is known that the epigenetic
alterations of tagging
are regulated by environmental
effects. The authors suggest that
environmental factors and the
mothers lifestyle will thus affect
tagging of the offspring DNA,
which will dictate how the offspring and malaria parasites opens a path
genes will be utilized. Interestingly, to new therapeutic perspectives
epigenetic changes also take place
throughout life depending on the
life style of the person. This is a
remarkable study in the
right direction which
clearly shows that the
environment and not the
gene is the boss as was
thought earlier.
Cancer cells possibly hijack a
mechanism operative in normal cells
which provides way how the methyl
tagged DNA will be untagged by
cutting the DNA at the site of tag
and repairing it. It is an interesting
idea which needs to be tested,
writes Sibajit Sircar, the first author
of this study titled The Evolution
of Epigenetics: From Prokaryotes
to Humans and Its Biological
Consequences.
SECRETS OF MALARIA AND
TOXOPLASMOSIS PARASITE
REVEALED
T o survive, the parasites
responsible for malaria and
toxoplasmosis depend on
mechanisms inherited
from the plant
world. This is
what a team
of researchers
from CNRS1 (Institute
for Advanced Biosciences,
CNRS/INSERM/Universit
Grenoble Alpes) and the University
of Melbourne2 has shown.
This discovery is a major
advance for the development of
new therapeutic targets for these
parasites. It might take some years
before a successful vaccine could
be manufactured using this idea.
Even the Nobel Prize-winning
artimesanin has been found to be
useless in many patients, thanks to
resistance!
This discovery of a plant-based
Achilles heel in the toxoplasmosis
that only target the parasite,
without affecting humans, say the
researchers in their paper.
57 | 19 Aug-1 Sep 2016 | MONEYLIFE
12-08-2016 17:44:45
 YOU BE THE JUDGE BAPOO MALCOLM
Whatsoever a
Man Soweth, that
Shall He Reap
O
nce a reader queried whether this column
carried imagined instances. We replied that
the law is far stranger than fiction and we had
no need to invent stories. Now comes a judgement that
puts many of our columns into one, single, perspective.
Its a merging of case studies and fortifies the maxim, If
there is a malady, there must be a remedy.
A landlord is responsible for his property; the
polluter pays; the wild beast theory and many others
have been discussed before. This column revisits them.
Folks think that Switzerland is a whistle-clean
country; the reason is that the Swiss collect all their
junk in designated places. The authorities pay for
the permission. If you allow me to sweep my dirt
under your carpet, Ill
compensate you. Cash for
trash. This went on for 10
years on a particular site,
and the owner collected his
dues. One day, he died.
His heirs inherited the
pile of whatever it was.
The three of them then
sold it to someone else.
The new proprietor now
owned the stuff. And with
it, a mountain of troubles.
After 30 years of dumping,
a routine site assessment found sub-soil leaching, and a
pollution threat loomed. The latest owner asked for a
competent authority ruling, claiming that it was not his
fault and he must not be asked to pay.
Now, you be the judge.
How would you decide this?
The Polluter pays. This is a now globally accepted
axiom. In the current case, whom would you consider
the polluter? The dumper or the one who permitted it?
The principle says that all those responsible need to pay.
One contracted, the other received. Which cat should
be belled? One or both? The authorities gave a political
solution: 75% by the dumper and the rest to be shared
by the three heirs. The trio balked.
We are not the current owners, they said. Our
benefactor was unaware of the pollution, and even if
MONEYLIFE | 19 Aug-1 Sep 2016 | 58
You Be the Judge.indd 2
he were, liability is non-transferable. Why not charge
the current owner who should not buy property with
his eyes wide shut, they questioned. On the other hand,
the authorities claimed that since covenants run with
the land, so do liabilities; the heirs had not forsaken the
bequest. They were not charged as polluters themselves;
only clean-up costs were levied.
The matter went to the Supreme Court. There,
various permutations and combinations were discussed.
The underlying theme was about knowledge of the
fact. Also, when and where this knowledge became
known and to whom was this known. Who were the
active participants in the act? Did they know of the
polluting effects of the landfill? Was the trio aware of
the pollution, when accepting the bequest?
Here, we need to discuss some points in law. One is
that the owner of the property is responsible for such
acts that damage others. The landlord is responsible,
knowledgeable or otherwise. Next is the doctrine
of election, which had serious repercussions on the
judgement. Election is the choice of opting out. One
is not bound to accept an inheritance and can, if one
so chooses, not partake
of the bequest. After all,
the inheritance could be
a kiss of death. It could
be loaded with liabilities
and should, therefore, be
refused.
In the instant case,
the trio was unaware of
pollution at the time of
claiming the property.
If they had known of
the strings attached, the
bequest could have been
refused. Again, the new buyer, the present owner, was
also innocent, thanks to lack of knowledge. In fact, he
had purchased the plot after it showed no signs of being
a landfill.
With both, the buyer and the seller displaying clean
hands, on whom did the Supreme Court lay the 25%
burden? While retaining the 75% costs on the dumper,
it transferred the remaining costs on the community of
citizens. Smart move.
Spread it thin so no one will complain.
Bapoo Malcolm is a practising lawyer in
Mumbai. Please email your comments to
mail@moneylife.in
12-08-2016 17:47:19
 TECHNOLOGY MOBILE
Music to the Ears
What you need to check before buying an
earphone for your mobile handset or audio
devices; Yogesh Sapkale explains
I
love music and, with mobile devices becoming
more suitable for streaming audio, it has become
much easier to enjoy pure sound. However, over
the years, I have found that not all mobiles come with
earphones. Also, earphones, bundled with mobiles,
are more suitable for voice calls. Only the costly
mobiles come with earphones that offer a good audio
experience as well.
Now let us see what exactly an earphone is
and how the technical aspects can affect its sound
output and performance. According to Wikipedia,
John C Koss, an audiophile and jazz musician from
Milwaukee, produced the first stereo headphones in
1943. The 3.5mm radio and phone connector, which is
the most commonly used in portable application today,
has been used at least since the Sony EFM-117J radio
released in 1964. Sony and its Walkman series made
headphones more popular.
How effectively an earpiece converts an incoming
electrical signal into an audible sound is measured
in decibels of sound pressure level per mill watt (dB
(SPL)/mW). The sensitivity of headphones is usually
between about 80 and 125 dB/mW and usually
measured at 1kHz. High-quality (and
costly) headphones can have an extremely
flat low-frequency response down to
20Hz within 3dB. Claims such as
frequency response 4Hz to 20kHz
are usually overstatements because
earphones response at frequencies
lower than 20Hz is, typically, very
limited.
Basically, mobile earphone needs
to have a volume control button, a
microphone and 3.5mm
plug or pin.
Nowadays, most
of the earphones
offer stereo sound;
so I am leaving
this out from the
checklist. To provide
uninterrupted audio
experience, earphones
Technology.indd 1
use two techniques to cancel or reduce external
disturbances. Several in-ear headphones use passive
voice isolation to block external sound. This is
done by using silicon caps or earplugs. Active noise
cancelling earphones use a microphone, amplifier
and speaker to catch, amplify and play ambient noise
in phase-reversed form to cancel external noises
without affecting the desired sound source. Both these
techniques, although helpful in providing a good
experience, can endanger the user as they isolate you
from the surrounding noises.
Also note that just having a good-quality earphone
is not enough. Your mobile device also needs to
provide suitable signals to the earphone to produce
high-quality audio. Sometimes, you can use another
mobile app as a music or video player that offers
better sound than the in-built apps. Over the years,
and several editions later, I found JetAudio Plus for
music and MX Player for videos performing as per my
expectations. Of course, you need to experiment with
these apps to get most out of them, in terms of good
sound quality and visuals. However, it is simple and
can be done easily by anyone.
Le 2 mobile from LeEco comes with an interesting
earphone based on what they call continual digital
lossless audio (CDLA). The type-C headphones, with
built-in decoders, deliver Hi-Fi audio without the
prerequisite of an amp or pre-amp making high-fidelity
audio affordable and accessible. Listening to audio on
this earphone is a wonderful experience. The only issue
with LeEcos CDLA earphones is that it comes with a
type-C port and not 3.5mm jack. This means that you
cannot use this earphone with other audio devices.
The company provides a converter (from type-C to
3.5mm jack), but that does not give the same sound
quality.
Except Le2s earphones, I have not mentioned any
names or model numbers. This is because you need
to physically chcheck
heck the audio output and the quality
sound
of soun nd from the earphone by connconnecting it
to the mobile, and buy it only if you are
satisfied.
saatisfied. Also check how the ea earphone
fits
ts into your ears and whether yyou are
fit
comfortable using it. In addition,
you are
this applies only if yo
buying additional eaearphones
and not those that cocome
bundled with your m mobiles.
Nevertheless, do check the total
audio output, balance o of sound
(bass and treble levels), stereo
effects and, only then, bbuy it.
59 | 19 Aug-1 Sep 2016 | MONEYLIFE
12-08-2016 17:48:32
 POLICE & YOU, THE 12-WEEK SERIES
How To File an FIR and
What Are Your Rights
A
nyone can file a first information
report (FIR). When you file an FIR,
it is your right to get a copy. If they
refuse to register your FIR, you can
go the superiors or a magistrate. The court can direct
the police to register your FIR and investigate, says
Vilas Tupe, former assistant commissioner of police,
Mumbai. He was speaking at the packed fourth session
under the Police & You series organised by Moneylife
Foundation. The Foundation, along with Police Reforms
Watch & Commonwealth Human Rights Initiative (CHRI),
with support from Saraswat Bank, has launched the 12-
week programme (every Wednesday) that aims to spread
knowledge about protecting yourself, your rights, the
Indian Penal Code (IPC), cyb cybercrime
and economic offences.
Mr Tupe, a highly re regarded
police officer, and recip
recipient of
Presidents police meda
medal twice,
with long years of experience
exp
in the crime branch branc and
bureau, says,
anti-corruption burea
Registration of FIR is mandatory
ma
for police. But, rememb
remember, once
an FIR is registered, only the
court has the au authority
to quash it a and not
the police.
police Also
Vilas Tupe, understand, the
understan
former assistant police cannot
commissioner of
police force you
MONEYLIFE | 19 Aug-1 Sep 2016 | 60
Event.indd 2
to give a statement and you have the right to remain
silent. Police also cannot handcuff the accused unless they
have obtained necessary permission from a magistrate.
The event was held in the well-appointed auditorium of
Saraswat Bank headquarters, Eknath Thakur Bhavan.
Mr Tupe also explained the process of filing an FIR and
rights of common public. He explained, with examples,
several steps involved in a police case and investigation.
Mr Tupe said, If the police comes to the conclusion that
a complaint given to them about a cognizable offence is
false, they have a right to stop proceedings and to register
a under Section 211 of the IPC against the complainant.
Earlier, Dolphy Dsouza of Police Reforms Watch
explained the concept of virtual police station tool as
developed by CHRI. He said, It is not just a training
tool for the police but also an empowerment tool for the
public. They can learn about the responsibilities of the
police and various rights the public can claim in a police
station, be is as a witness, accused, female victim, male
victim, or juvenile.
The training video in different languages provides
a 360 degree view of a police station, Mr Dsouza said,
adding, Once something is clicked, detailed information
is provided using videos, pictures and text boxes, with
accurate legal and criminal sections provided for training.
Critically, a learn more button which serves as a resource
archive, providing case laws, legislation, guidelines and
other seminal materials for the particular process they
are exploring is also provided so that trainers and public
have every option to learn as much as possible on vital
service-related topics.
12-08-2016 17:52:04
 ML FOUNDATION EVENTS
Civil Defence
Organisation Needs
More Volunteers
C ivil Defence Organisations job is to empower
citizens and keep emergency services going on.
However, we are not getting more volunteers, said Sanjay
Pandey, deputy commandant of home guards and deputy
director of civil defence in Maharashtra. He was speaking
at the third session of the Police & You series which
focused on Disaster Management: First Aid and CPR.
Mr Pandey, an IPS (Indian Police Service) officer of
Maharashtra cadre from the 1986 batch, said, We also
train and issue licence to security agencies. So, in case you
are in doubt, you can send your housing societys watchman
or security guard. We will check their training level. If they
are good, you can be assured of proper service. If they are
not properly trained, we will take necessary action against
the agency that employed them.
The session on disaster management was conducted
Event.indd 3
by Vilas Bidwe, Shivaji Desai and Milind Shinde from the
directorate of civil defence of Maharashtra Government
Mr Bidwe, the deputy controller at CDO for area-IV of
Greater Mumbai, conducted the session on first-aid.
Through his presentation, Mr Bidwe explained various
first-aid treatments for wounds, haemorrhage, fractures,
burns, asphyxia and foreign body in eye, ear and nose.
He explained in detail on how to treat different types of
wounds, haemorrhage and fractures. Every injury comes
with its own signs and symptoms. The patient needs to be
treated based on these symptoms, he said.
Mr Bidwe also described difference between a
dislocation and a fracture. When a limb is dislocated,
many try to fix it by bringing the limb back in position.
Mr Bidwe cautioned that this should never be done.
Also if there is a swelling, one should never apply a cold
compress. In the case of fracture, sprains and dislocation,
only external support should be provided to the limb to
avoid further stress to the injured, while medical help is
arranged.
Similarly, different kinds of burns need to be treated
differently, based on their severity and the cause of the
burn. One should not burst the blister formed and avoid
applying any type of lotion or cream. However, superficial
burns can be washed under running water. Further, he
explained the treatment for asphyxia which is caused by
lack of oxygen in the body. In such cases, the patient should
be assured of free supply of air by avoiding congestion
around the patient. When a foreign object enters the
eye, ear or nose, it should be treated with utmost care.
Mr Bidwe also showed different types of bandages to be
used during an accident or disaster. Later, Mr Desai and
Mr Shinde, both assistant deputy controllers at CDO, with
the help of a mannequin, demonstrated various techniques
and methods of administrating Cardiopulmonary
resuscitation.
61 | 19 Aug-1 Sep 2016 | MONEYLIFE
12-08-2016 17:52:42
 BOOKS

The Great Derangement capture the imagination. Non-human agencies, such as

wild animals and extreme weather events, provide the

A Sensitive Writers unexpected and unpredictable twists and turns that fuel
these melodramatic events.

Concern with the Non-human agents in novels are, often, based on

ancient knowledge of real events. From Ghoshs ancestral
Environment experience of life on the river banks, he tells the story of a
forced migration due to changes in established patterns of
a mighty river. His knowledge of the Sunderbans, a dense

T
o Amitav Ghosh, climate change is intensely
personal and his own sudden experience of it has
been so inexplicable that he hesitates to use it in his
fictional writings, for fear of melodrama. Even now, while
writing this work, he says, we are in enough self-denial and
that The Great Derangement
could only be written as non-
fiction and may not have
found acceptance as fiction.
His first personal
experience was of an extreme
weather event: a short,
intensely devastating storm
in which he could have been
killed had he been in a slightly
different place. It left him
with a feeling of unreality.
Although such an experience
should have served him well
as inspiration in his novels,
the truth was too sensational
THE GREAT for use in a modern novel with
DERANGEMENT its need for realism.
AMITAV GHOSH There is an increasing
Penguin Books
number of such, apparently
Pages 284; Rs399
stand-alone, events all over
the world. There is a great
reluctance to acknowledge that they are a direct result
of our own activities and our extreme, sometimes
misplaced, efforts to control our own environment. These
efforts, he says, while providing a sense of control to
humans for the first time in history, are, paradoxically,
irreversibly changing the established processes on which
we unconsciously depend for stability. Our environment
is more uncontrollable than ever.
This book is an explanation of the collective sense of
nonchalance with which people view climate change. It
reflects how changes in fictional writing parallel peoples
attitudes to real-life events and their need to control their
own reality.
Ancient stories used uncertainty and melodrama to
bring excitement. Classics, such as the Arabian Nights,
used highly improbable events to tell stories which would
mangrove forest in Bengal, points to the intertwined fact and
mythology of man-eating tigers: tragic and unpredictable
events impacting nearly every family, which live on, in
the tales of the region and in 19th century literature. The
reference to the eyes of the tiger meeting the eyes of the
human as it was about to attack, and the close bonding of
the souls of attacker and attacked, tells of the inextricable
nature of human life with its natural surroundings.
In ancient times, he argues, man accepted that there
were events and agencies beyond his control. He struggled
to make sense of uncontrollable circumstances through
story-telling of wildly improbable events, often founded
on uncontrollable facts. The word uncanny represents
the meeting of unpredictable event and uncontrollable
consequences.
In the 19th and 20th centuries, however, humans began
to assume greater control of their environment through
rapidly escalating access to technology. Popular literature
reflected changed attitudes by changing the acceptable form
of the modern novel to reflect a highly controlled reality.
For the first time, writings containing uncontrollable or
less understood events were classified into genres such as
fantasy, science fiction and Gothic novels. They were kept
away from mainstream serious literature.
This change in literature reflected an important change
in human consciousness and attitudes to our surroundings.
Our own destructive behaviour contributes to more
unpredictable events than ever before; this is illustrated
in several different ways. Traditional settlements, away
from the reach of powerful water bodies with unpredictable

MONEYLIFE | 19 Aug-1 Sep 2016 | 62

Book Review.indd 2 12-08-2016 13:53:01

 BOOKS
temperaments, have given way to settlements
closer to the waters edge in most major cities,
assuming greater control of the forces of nature.
Ghosh narrates examples of early miscalculations
in building infrastructure in unsuitable locations
such as a now-abandoned port in Bengal and recent
extreme weather events in cities like New York
and Mumbai. He also links the human aspiration
to control Nature to the disastrous siting of the
Fukushima nuclear plant in a vulnerable location.
Such a location would have been barred by
traditional knowledge of weather events such as
tsunamis.
These well-known examples indicate the tenacity
of our need to assume control and inclination to see
each such event as one-off. Ghosh reflects on the
reluctance of human beings to acknowledge their
own complicity in bringing about climate change
events by escalating their attempts to control, while
moving further on the path of danger.
This leads directly to a change in our
acknowledgement of the power of extra-human
agencies to impact daily life. Melodrama in novels
is complemented by the avoidance of melodrama
in daily life and extreme weather events are seen
as something to be controlled or denied.
It is ironical, argues Ghosh, that the very control
which humans are exerting over their environment,
is leading us towards more uncontrollable extreme
weather events and loss of communication with
wild animals and forests. A greater need to exert
control and denial of the out-of-control behaviour
leads to a collective denial of climate change to the
extent where even fictional writing blacks it out, in
spite of increasing evidence of its reality and impact.
This is a very important book, bringing climate
change into the writings of one of our most
popular fiction authors. While acknowledging the
impediments to integrating these concepts into his
past fictional works, the author has indicated his
wish to use it in his future fiction as a backdrop
to the recent human experience of denied calamity
and the continuing impact of non-human agencies.
The settings of calamity in several locations of the
world, especially India, provide ample backdrop for
the stories of people impacted by these calamities.
The Great Derangement indicates a change in
Ghoshs writings to include the reality of seemingly
unreal events brought about by climate change.
The present work is of immense value to bring
the reality of climate change into the mainstream
of human consciousness. Sumaira Abdulali
Book Review.indd 3
The Unusual Billionaires
Quantitative Quest for
Great Companies
B ooks that are able to describe successful businesses through
a common theme or analytical framework are rare in India.
This one (The Unusual Billionaires; Saurabh Mukherjea; Penguin
Random House India, Rs499; 445 Pages) is an addition to that
small collection. It uses the John Kays famous IBAS framework
(Innovation, Brands/Reputation, Architecture, Strategic Assets)
to explain the success stories of seven companies: Asian Paints,
Astral Poly, Berger Paints, Marico, Page Industries, Axis Bank
and HDFC Bank. Why these seven? Mukherjea, who is the CEO
of institutional equities for broking firm Ambit Capital, and
has studied under Kay, a professor of
economics at the London School of
Economics, has applied a quantitative
process to select great companies.
The process involved three steps. In
step 1, Mukherjea and his team at Ambit
created the basic set of companies to
study. He limited himself to companies
with at least Rs100 crore of market-
cap. This surprisingly low barrier
yielded a list of 1,500 companies. Step
2 was defining the time period. Great
companies should be around for years.
Here, Mukherjea chose a period of 10
years which is surprisingly short. Step
3 was defining superior financial performance as revenue growth
of 10% and 15% return on capital employed (RoCE) for every
year for the past 10 years. RoCE cant be applied on financial
firms and so, for them, Mukherjea used return on equity (RoE) of
15% and loan growth of 15% every year. Only eight companies
have managed to fulfil both the growth and return criteria in
each of the past 10 years, the eighth one being ITC (apart from
the seven I mentioned earlier).
Having identified these eight, Mukherjea has then told their
stories. (Inexplicably, Mukherjea did not discuss ITC at all. Maybe,
he did not get access to them.) What is behind the seven decades
of continuous excellence of Asian Paints? How has Berger Paints
done so well ever since the unassuming Dhingra brothers (now
among the 50 richest Indians) bought the controlling shares in
1991? How has Marico, which still gets most of revenues from
a commodity product (coconut oil), been such an outstanding
performer? Mukherjea tells their stories. That apart, the book has
sections on the IBAS framework, more detailed explanations of
long-term portfolio called Coffee Can portfolio (a buy and forget
approach) and a chapter on checklist for long-term investors.
DB
63 | 19 Aug-1 Sep 2016 | MONEYLIFE
12-08-2016 13:53:22
 MONEY FACTS STOCKS

INDIAN MARKET TRENDS FUND FLOWS

The Sensex and the Nifty fell 1% each during the fortnight Foreigners: Foreign institutional investors were net
ended 10th August. ML Mid-cap Index and ML Large-cap buyers of stocks (Rs4,548.68 crore). They bought
Index also fell 1% each, while ML Mega-cap Index ended shares worth Rs38,185.77 crore.
flat. ML Small-cap Index declined 2%.
1,175

FII Net Investments

Share Prices Index, February 2016=100 940
(Rs Crore)
140
705

130 470

235
120

0
110 1 Aug-16 10 Aug-16

Indians: Domestic institutional investors were net

100 sellers of stocks (Rs3,742.30 crore). They sold shares
worth Rs19,259.47 crore.
90 620
Feb-16 May-16 Jul-16

320 DII Net Investments

ML Large-cap ML Small-cap Nifty ML Micro-cap (Rs Crore)
ML Mid-cap ML Mega-cap Sensex
20

-280
Index 29 Jul 10 Aug +/-
ML Mega-cap Index 127.56 127.35 0% -580

Nifty 8,638.50 8,575.30 -1%

-880
ML Mid-cap Index 129.44 128.28 -1% 1 Aug-16 10 Aug-16

ML Large-cap Index 125.30 124.14 -1%

Sensex 28,051.86 27,774.88 -1%
GLOBAL MARKET TRENDS
57,675
ML Small-cap Index 127.35 124.55 -2%
Bovespa
ML Micro-cap Index 126.96 121.50 -4% 54,100

Mega-cap Gainers/Losers 29 Jul 10 Aug Change 50,525

Muthoot Finance 331.75 391.45 18% 46,950

Interglobe Aviation 989.40 800.60 -19% 43,375

Large-cap Gainers/Losers 29 Jul 10 Aug Change

39,800
Feb-16 May-16 Aug-16
Indian Bank 158.45 199.00 26%

VRL Logistics 361.40 287.75 -20% Shanghai Composite, Nikkei and NASDAQ
Mid-cap Gainers/Losers 29 Jul 10 Aug Change Composite rose 1% each, while S&P 500 ended flat.
Bovespa fell 1%, while Hang Seng advanced 3%.
JMT Auto 42.85 56.00 31%
Index 29 Jul 10 Aug +/-
Ugar Sugar Works 69.75 46.50 -33%
Hang Seng 21,891 22,492 3%
Small-cap Gainers/Losers 29 Jul 10 Aug Change
Taiwan Weighted 8,984 9,200 2%
Electrotherm (India) 75.85 106.55 40% FTSE 6,724 6,866 2%

Anil 272.50 189.15 -31% Korean Composite 2,016 2,045 1%

Shanghai Composite 2,979 3,019 1%
Micro-cap Gainers/Losers 29 Jul 10 Aug Change
Nikkei 16,569 16,735 1%
SB&T International 2.15 2.97 38%
NASDAQ Composite 5,162 5,205 1%
Greenearth Resources & Projects 0.55 0.35 -36% S&P 500 2,174 2,175 0%

(All Prices in Rs) Bovespa 57,308 56,920 -1%

MONEYLIFE | 19 Aug-1 Sep 2016 | 64

Money Fact.indd 2 12-08-2016 17:54:43

 MONEY FACTS STOCKS

Whats H T

Non-ferrous metals companies were a mixed bag during the fortnight.
Gravita India, Hindalco Industries, Hindustan Zinc and Ram Ratna Wires
ML SECTORAL TRENDS
Shares of non-ferrous metals
companies, farm & farm inputs
advanced 24%, 9%, 8% and 3%, respectively. Alicon Castalloy ended flat.
companies and glass companies
advanced 7%, 5% and 4%,
Companies 29 Jul 10 Aug +/- respectively. Stocks of airlines
ML Non-ferrous Metal Index Gravita India 25.40 31.45 24%
companies, sugar companies,
printing & publishing companies
160 Hindalco Industries 133.55 145.80 9%
and hotels companies declined 17%,
Hindustan Zinc 203.95 220.00 8% 11%, 10% and 6%, respectively.
145
Ram Ratna Wires 47.45 49.00 3%
ML Sectoral Trends
130 Arcotech 384.45 394.55 3%
Non-ferrous Metals 7% Airlines -17%
National Aluminium 46.60 47.60 2%
Farm & Farm Inputs 5% Sugar -11%
115 Alicon Castalloy 295.20 295.55 0%
Glass 4% Printing & Publishing -10%
Man Industries 58.45 56.75 -3% Oil & Gas Services 3% Hotels -6%
100
Hindustan Copper 64.15 59.35 -7% Oil & Gas 2% Transport & Logistics -5%
Feb-16 May-16 Aug-16
All Prices in Rs

N T
RURAL INFLATION
Whats Combined inflation for urban
Sugar companies were punished. Ugar Sugar Works, Dharani Sugars and rural areas rose marginally to
& Chemicals, Upper Ganges Sugar, Parrys Sugar and Rajshree Sugars 5.77% in June 2016, from 5.76%
declined 33%, 28%, 25%, 24% and 23%, respectively. in May. Inflation in rural areas
declined to 6.20% in June from
Companies 29 Jul 10 Aug +/-
6.45% in May. Food inflation in
Ugar Sugar Works 69.75 46.50 -33% ML Sugar Index
Dharani Sugars 62.80 45.45 -28% 200

Upper Ganges Sugar 508.35 380.60 -25% Marginal Decline

Parrys Sugar Inds 61.10 46.20 -24% 175 7.00%

Rajshree Sugars 74.70 57.75 -23% Annual Change

Dalmia Bharat Sugar 156.30 120.95 -23% 150

Oudh Sugar Mills 138.65 113.00 -18% 5.50%

125
KCP Sugar & Inds 42.55 34.75 -18%

Thiru Arooran Sugars 91.50 74.85 -18%

100
Uttam Sugar Mills 72.70 59.60 -18% 4.00%
Feb-16 May-16 Aug-16
All Prices in Rs Jun-15 Dec-15 Jun-16

BULK DEALS rural areas declined to 7.35%

Date Company
01 Aug-16 Aditya Birla Nuvo
08 Aug-16 Indian Bank
08 Aug-16 Adhunik Industries
05 Aug-16 Adhunik Industries
03 Aug-16 Adhunik Industries
08 Aug-16 Globus Constructors JRG Fincorp
10 Aug-16 Captain Polyplast
Buyer
HSBC Gl Inv Funds Indian Equity
HSBC Gl Inv Funds Indian Equity
Avantika Advisory Services LLP
Avantika Advisory Services LLP
Tista Tradelinks Pvt
Hem Finlese Pvt Ltd Investment
Seller
HSBC Gl Inv Funds Mauritius
HSBC Gl Inv Funds Mauritius
Gyaneshwar Consultants LLP
Gyaneshwar Consultants LLP
Brij Gopal Consultants LLP
AT Invofin India Pvt
Hem Chand Jain
from 7.40% over the same period.
Rs Cr In rural areas, prices of vegetables
116.09 increased by 12.64% in June.
Inflation related to fuel & power
85.26
was lower at 4.23% compared
10.21 with 4.51% in May. Inflation for
7.48 pulses declined to 28.28% in June
7.21
from 33.55% in May. Inflation
for clothing declined, marginally,
2.00
to 5.94% in June from 6.31% in
0.74 May.

65 | 19 Aug-1 Sep 2016 | MONEYLIFE

Money Fact.indd 3 12-08-2016 17:55:00

 BEYOND MONEY

Uttarakhand to work with the people affected by the

Upcycling Plastic natural disaster. This experience helped Amita partner
with Nandan Bhat, also from Pune(Maharashtra), to start
Waste Aarohana EcoSocial Developments.
The project for upcycling plastic is part of its EcoSocial
Product development. Disturbed by the large quantities of

C
oncerned citizens work at sustainability in a variety plastic waste in garbage dumps of cities; choking aquatic
of ways. But it is the intrepid social entrepreneur life in streams and rivers and releasing carcinogenic gases
who manages to create a win-win situation for at our landfills, Aarohanas founders were determined to
allartisans, themselves and mother earth. Aarohana work at reducing plastic waste.
EcoSocial Developments, founded three years ago, stands While researching and experimenting several solutions
for the ascending scale of music in Indian classical music. which could work towards reducing the impact of plastic
In this context, it connotes rise in sustainable development. waste on the environment as well as enabling rural
Aarohana believes that sustainable development can be livelihoods, we finally found an answer to this through
achieved only if it is EcoSocial, i.e., taking care of the an innovative process of using plastic waste to produce
environment and engaging the society to its fullest! handicraft, says Amita. Aarohana started handcrafting
Aarohanas core areas of work, namely, enabling rural bags, pouches, office products and home dcor items
livelihoods and conserving our environment and heritage through a unique process of weaving plastic carry bags
are geared to achieve this goal. Over the past few years, using a traditional charkha and handlooms. Aarohana
Aarohana has been delivering works with craftsmen in
services to companies and some villages across Gujarat
non-profit organisations in and Maharashtra to clean,
designing, implementing, cut, roll and weave plastic
monitoring and measuring waste into fabric and, finally,
impact of such projects manufactures products in Pune.
through its projectsAarohana Thus, Aarohanas eco-social
EcoSocial Services and products were born out of what
Aarohanas EcoSocialProducts. the founders hated the most,
This includes needs and plastic garbage.
impact assessment, training, Local artisans are supplied
workshops and participation as discarded plastic bags gathered
well as project implementation by waste-pickers from
in association with technology dumpsters and other locations.
and community partners across various states. They are washed, cut into strips and rolled using the
Founded by Amita Deshpande and Nandan Bhat, traditional charkha. These are then skilfully woven into
Aarohana sees itself as a catalyst for sustainable a fabric using a handloom to make beautiful, sturdy,
development. They started their journey in the social upmarket bags. These bright bags and pouches with
sector after working with multinational companies in snazzy designs have a ready market among eco-conscious
India and the United States of America for over a decade. individuals, corporates, NGOs and even government
Being long-time friends and nature-lovers, Amita and organisations. It puts information on these bags and
Nandan enjoyed hiking in the Himalayas and hills of products on its website along with exact details of how
Sahyadris. While walking across these beautiful locales much plastic waste has gone into each of them, fostering
they invariably encountered heaps of garbage, especially a sense of participation in the conservation effort.
non-biodegradable plastic. Amita claims proudly, Aarohana
A turning point was the Uttarakhand measures its impact and, till today, has
and Himachal Pradesh disaster in June removed over 50,000 plastic carry-
2103 when Amita was rescued after five AAROHANA ECOSOCIAL bags from going into the landfill and
days from Kinnuar while she was on DEVELOPMENTS has provided thousands of hours of
one of her hiking expeditions. Deeply Amita Deshpandes Mobile: work to our rural artisans. We want to
91-8275175567,
affected by the disaster, she, with an drastically increase both these numbers
Email: amita.aarohana@gmail.com
enthusiastic volunteer from France, Nandan Bhats Mobile: to create an eco-social impact!
Simon Valdenaire, headed back to 91-9702422111,
Email: nandan.aarohana@gmail.com
Web: http://www.aarohana.org/
MONEYLIFE | 19 Aug-1 Sep 2016 | 66

Beyond_money.indd 1 12-08-2016 17:56:12

Advertisements.indd 2 15-06-2015 18:29:19
 REGISTERED WITH THE RNI UNDER NO. MAHENG/2006/16653. Postal Registration No:
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Date of Publishing 12 August 2016. Date of Posting Alternate Tuesday & Wednesday.

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