Moneylife 28 April 2016

SUCHETA DALAL ON:
AYURVED & SWADESHI DEFAULTER DATA PANAMA PAPERS

PATANJALI PROPOSITION DIFFERING VIEWS IMPACT IN INDIA
Personal Finance Magazine 28 April 2016 Rs 45
Pages 68 (SUBSCRIBER COPY NOT FOR RESALE) www.moneylife.in
Do Equity Funds Take

a Short-term View?
Only 8% of the stocks were held for five years or more

Only16% of the stocks were held for a period of 3-5 years
As many as 38% of the stocks were sold within a year
VALUE STOCKS:
Are You Riding the Profit
Momentum? Page 46
STOCKS
Jay Bharat Maruti: Geometric Gets Taken How To Handle Will Asian Paints Manipulation:
Squeezed by Slowdown Over, As We Had Hoped Overvaluation Unsettle Pidilite Gini Silk Mills
Cover Page_265.indd 1 07-04-2016 18:22:41

Advertisements.indd 2 02-04-2016 14:40:06
ISSUE CONTENTS
28 April 2016
Short-term-itis
M ost investment professionals and fund

managers preach that investors should
not invest in equity mutual funds with a short-
term outlook. However, when we analysed the
monthly portfolios of equity schemes having
a corpus of over Rs1,000 crore, we found
that while most fund managers talk the talk,
they fail to walk the walk. In our analysis of
59 equity schemes, out of the total number of
stocks bought, on an average, only 8% of the
stocks were held for five years or more. Just
about 16% of the stocks remained in their
portfolios for a period of 3-5 years and as many
32 Cover Story
as 38% of the stocks were sold within a year.
The high proportion of stocks sold-off within
a year shows that fund managers have a totally
confused investing strategy and are swayed by
short-term price movements rather than staying Do Equity Funds Take a Short-term View?
focused on the long term. Can this short- Only about 8% of the stocks bought by 59 large equity schemes
termism affect the performance of a scheme? Or were purchased more than five years ago, finds Jason Monteiro
do fund investors benefit from this buying and
selling? Turn to our Cover Story to find out.
As a corollary to our Cover Story, in our
Fund Pointer section, we analyse which stocks
fund managers held continuously for a period
12 Your Money
Equity MFs Pull Out More than Rs8,000 Crore in
March
of five years or more. We find that schemes Bank Bazaar Also Ventures into Online Distribution
maintaining a long-term focus did well. But few of Mutual Funds
have the conviction. Most of the stocks were Inoperative PF Accounts To Earn Interest from
held for the short term. 1st April
Pension Regulator Comes Out with Partial
Fast-moving consumer goods (FMCG)
Withdrawal Rules for NPS
companies have done very well for the past 20
years or so making enormous wealth for those
who have stayed invested. However, it is time
to examine whether they will deliver equally
great results in the future. R Balakrishnan lists
14 Current
Account
Moneylife
Quiz no
230
the challenges they face to sustain their high
returns in future.
When it comes to India, the Panama Papers
18
have been a damp squib. Maybe, Indians
have their money in some other tax havens.
The government has set up a committee to Emulating MNCs or Propagating Ayruveda?
examine the issues; but will the revelations also RBI Digs In Its Heels on Disclosure about Defaulters
lead us think about sensible tax policies, asks
Sucheta in her Different Strokes column. In her
Crosshairs section, Sucheta questions whether
Patanjalis breakneck expansion into biscuits
and noodles is to spread Ayurveda or simply
20 Different Strokes
Panama Papers and What They Mean to India
empire-building.
Disclaimer: Moneylife has a policy of not allowing its editorial staff to
Debashis Basu buy and sell stocks that are written about in the magazine. All personal
transactions in individual stocks are subjected to internal disclosure rules.
MONEYLIFE | 28 April 2016 | 4
Content.indd 2 07-04-2016 18:29:50

CONTENTS
FUND POINTERS INSURANCE HEALTH
22 Stocks Equity Schemes

Have Held for 5 Years 30 Insurance
Trends 56 Money Runs
Science and Medicine
Most of the stocks are from Regulations
benchmark indices irrespective of the Research and regulatory actions are
IRDAI Effects Hike of Motor TP rife with conflict of interest
prospects, analyses Jason Monteiro Premium
TP Cover Cannot Be Refused Pulse Beat: Medical developments
FUND FACTS
from around the world
Fine Print
24 Best & Worst

Mutual Fund Schemes
LEGALLY SPEAKING
FIXED INCOME
VALUE STOCKS
58 Can Property Buyers

Now Breathe Easy?
25 G-Sec Purchase from 42 Are You Riding the Profit
Momentum? The new real estate law should make
IDBI ATM A strong focus on stocks
a difference
whose profits are rising
Bond Yields Are Down sharply may be very YOU BE THE JUDGE
G-Sec Yields Down rewarding, if you know
STOCKS
why you are buying and
have a method to exit
60 The Lawyer
as Juggler
26 Smart Money USEFUL APPS
Dont mess with his decisions
Slow-moving Consumer Share
Prices
Fundamental changes are afoot
in the FMCG sector which may
affect future returns of past top
48 Maildrop:
No Spam
Mail but ML FOUNDATION EVENTS
performers Mighty Optical Illusions: Marvel at

these Illusions
40 Stock Watch Yahoo Aviate Launcher: Intelligent
Homescreen
Jay Bharat Maruti: Squeezed by
Slowdown
JBM is an inexpensive stock TECHNOLOGY: MOBILE
61 Using
which could do well if car
Netbanking
companies get back their growth
Geometric Gets Taken Over, As

50 Is Your Phone
Secure? & ECS Smartly
Netbanking is safe and easy for
We Had Hoped While Apple vehemently opposed everyone, especially women and
In our January 2015 issue, we access to its iPhone data, FBI found a senior citizens, explained Abhay
had suggested that the best thing third-party who cracked the security Datar at a Moneylife Foundation
shareholders can expect is a function on the phone. Is your mobile
phone and data secure anymore, event
takeover of the slow-growing
wonders Yogesh Sapkale
Geometric
BEYOND MONEY
How To Handle Overvaluation
66 Giving
EARNING CURVE
Pay up for quality, only if you
are sure that earnings growth will
Them a
continue
Will Asian Paints Unsettle

52 IsReally
Smart Money
Smart?
Better Start
Tanuja Deshrajan helps street
children learn basic skills so that
Pidilite but Weaken Itself? A study decodes the effects of smart they get admission into the best
money and dumb money on stock government schools
Competition heats up in branded valuations
adhesives market
Market Manipulation: Gini Silk

Mills
TAX HELPLINE DEPARTMENTS
Readers Response ........... 8
Market Trend: Under Pressure
54 Queries at Moneylife
Foundations Tax Helpline
Book Review ....................62
Money Facts ....................64
Content.indd 4 07-04-2016 18:30:27

MONEYLIFE
& SMARTSAVERS
FIX YOUR FINANCES, FOREVER
present
Dr Vijay Malik on
HOW TO ASSESS THE MANAGEMENT

QUALITY BEFORE BUYING STOCKS
The first-ever opportunity to hear Dr Malik whom Prof Sanjay Bakshi calls
Dr Stock. Followed by conversation with Debashis Basu, moderated by Sucheta Dalal
Hurry! Grab the Early

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premier business school) where he won a gold medal for his academic achievement.
Vijay Malik event_ 16 April 2016.indd 1 23-03-2016 17:10:31

Volume 11, Issue 5
15 April 28 April 2016
Debashis Basu
Editor & Publisher
editor@moneylife.in
Sucheta Dalal
Managing Editor
sucheta@moneylife.in
Editorial Consultant
Dr Nita Mukherjee
nitamuk@gmail.com
Editorial, Advertisement,
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Fax: 022 49205022
E-mail: mail@moneylife.in Dalal. This is yet another occasion when one
feels proud of being part of the efforts that
Mutual Fund investments
Moneylife makes to spread awareness about are subject to market risks,
E-mail: the implications of legal decisions affecting the read all scheme related
documents carefully.
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subscribe@moneylife.in books passed on to us by the British have not,
even after several decades of legislative action, Write to
undergone the kind of Indianisation needed to the Editor!
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If the common man has to benefit from the several
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there has to be more transparency and speed in
Bengaluru
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1 Cross, Saibabanagar, Srirampuram,
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Kolkata Governments and corporates can fight endlessly
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with corporates also come under the broad
classification public funds). These result in
Moneylife is printed and published by prolonged litigation and, sometimes, even
Debashis Basu on behalf of small issues reach the Supreme Court.
Moneywise Media Pvt Ltd and
published at 315, 3rd Floor, The differentiation between the public sector and private sector
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ctor
or b banks
anks
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Editor: Debashis Basu
mobilise resource from the same source (public deposits) and do
business in similar areas/sectors.
MG Warrier, online comment
Total no of pages - 68, Including Covers MONEY THAT YOU CAN AFFORD TO LOSE?
This is with regard to Why Savers Have Stayed Away from Stocks
for Two Decades by Sucheta Dalal. The question now is how will
RNI No: MAHENG/2006/16653
Letters.indd 2 06-04-2016 13:27:34

Moneylife Foundation AD.indd 1 07-04-2016 18:24:53
LETTERS
Will the Banking System

the Collapse?
Best
letter
T his is a topic which nobody
discusses, or cares about,
except a few; even there things
which is the only
support we have and
which is just enough
Mutual Fund investments
are subject to market risks,
read all scheme related
documents carefully.
dont move beyond discussions. for our daily food and
This concern is about our millions
of middle-class elderly senior
medicines, will also
be snatched from us? Congratulations
citizens in India, whose children do not, or cannot, Dont you think this is OmarSK
support them. They cannot invest their lifetime cruel on the part of the
savings in businesses or stock market and are not government, politicians,
YOU WIN A
PERSONALISED
in a position to start, or run, a small business corporates, policy- CLOCK
themselves. They dont want to take any risk at an makers, intellectuals
older age. and the media to
In such a scenario, the only option left for this allow these greedy
category is to invest their money as bank fixed bankers to silently,
deposits (FDs). Now, this helpless category has so or ignorantly, mass
much of worrying to do. If not consciously (but murder millions
subconsciously), they worry about their deteriorating of middle-class Omar SK
health, fear of death, fear of losing their partner, senior citizens and
loneliness, daily routine work, etc; above all, they not give them a
worry about the cost of living which is going up day chance to even
by day and their bank FD rates going down day by die in peace?
day! Moneylife and its
I will be grateful to Moneylife if it can research team will receive huge blessings
ssin
ngs
g aand
nd g
nd good
ood
oo wishes
d wi ish
shes
hes
es
and let us know if a collapse happens in the US or from millions of helpless senior citizens ffor or ta
taking g upp
Europe, will our Indian banks also fall along with this cause and bringing some solace to our elderly.
them like a pack of cards? Is our hard-earned money, Omar SK, by email
somebody convince investors that the stock market is a unprocessed salt from the sea. It is a nutritious food.
good place to grow ones wealth? Most people invest Among the many minerals that make sea-salt nutritious
in insurance products because there are agents to lure are: magnesium, manganese, boron, copper,
them. An equity-investment culture silicon, iron and nickel. It has all the trace
can be created only if youngsters are mineral elements that are naturally found in
financially educated. If that happens, our blood.
the next generation will change things. Just take a cue; five decades ago did anyone
It may now be difficult to convince have an issue of salt intake? The answer is
older market-sceptics, especially those No, because we used to ingest natural salt
who may have lost money to scams and and sweetener like jaggery. The only issue
IPOs (initial public offers) that never did is now to find good organic material at
well. reasonable price.
Mohan Sivanand, online comment Jayendra Pandya, online comment
NATURAL SEA-SALT IS WHICH ONE IS BETTER FOR A

NUTRITIOUS LAYMAN?
This is with regard to Salt Restriction This is with regard to Which Critical Illness Policy?
Myth Busted by Prof BM Hegde. Refined salt may by Raj Pradhan. This is one of the better written
be harmful but the best salt is natural, unrefined and articles on critical illness (CI) cover. Can you also
Letters.indd 4 06-04-2016 13:28:05

LETTERS
suggest a flowchart to aid decision-making on which Tortoise by Debashis Basu. As we are being reminded
product type would be better for a layman? about this by the right-wing RSS, BJP and Shiv
Anurag, online comment Sena, the lack of development can be blamed on the
minorities. Once pure Hindutva is implemented, all
BLAME THE MINORITIES? these problems will be automatically solved.
This is with regard to review of The Turn of the J Pinto, online comment
OUR READERS WHO CLICK WITH US

Heres a sample of the kind of feedback that we receive from our readers on
our vibrant website, www.moneylife.in
ESSENCE OF GROWTH-INVESTING UGLY ROLE OF OPPOSITION POLITICIANS

This is with regard to Buying Quality Vs Paying This is with regard to Im Back! by Debashis
Less by Debashis Basu. This is very well written. I Basu and Jason Monteiro. I wish the authors had
have been investing in high-quality companies and mentioned the ugly role played by the Opposition
nothing captures the essence of growth-investing as politicians, i.e., the dynasty slaves, plus the new
this article did. Growth-investing is a very tough crook on the block and his coterie of Leftists, ably
field and has humbled quite a few people. But, on aided by their Left allies and Pak-leaning media. A
the flip side, you get to think like a businessman. I large part of the blame should fall on these crooks
almost put myself in the promoters shoes when I who have just a one-point agenda: to pull down
think of the potential of the businesses. Narendra Modi and nothing else. They have failed
Prashant Rishi to play the role of an intelligent, honest Opposition.
And now it looks like the Opposition is willing to
MARK IT DOWN TO THEIR WHIM? go anti-India desh ki barbaadi tak way to destroy
This is with regard to Investing to Retire Mr Modi. This reminds me of the joke: Every
Comfortably by Jason Monteiro. This is a well- woman needs a husband because you cant blame
written article. I think the problem is something everything on God or Modi. The article does not
else. Each government can come and change the have even a reference to any of these Opposition
taxation rules for this corpus whenever it wants. anti-nationals.
It is our money until we get our hands on it. In Anand Vaidya
the US (and even in Europe), when Detroits local
government goes bankrupt, the retirement/ pensions TOMORROWS WINNERS?
funds are marked down. My fear is that when This is with regard to Wealth Creators 2005
India goes through a bad phase in future, the 2015 by Jason Monteiro and Pratibha Kamath.
government would use these pension funds the way Great analysis, the past two decades were the
it uses LIC (Life Insurance Corporation of India) to turning point for our economy and it was because
save the stock market or worse mark-it-down-to- of the reforms in 1993. I doubt if there are any
their-whim. winners (for tomorrow) that are available cheap?
Aditya Kumar Pandey Sudharshan Katipally
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11 | 28 April 2016 | MONEYLIFE
Letters.indd 5 06-04-2016 13:28:45

Your Money
MUTUAL FUNDS RETIREMENT
Equity MFs Pull Out More than Inoperative PF Accounts To

Earn Interest from 1st April
Rs8,000 Crore in March
I n a move that will enthuse
account-holders of inoperative
E
quity mutual funds saw huge to profit-booking and the fact that employees provident fund
outflowsof more than many banks and corporates would (EPF) accounts, the Employees
Rs8,000 crorein March have pulled out their investments in Provident Fund Organisation
2016. Mutual funds have been net view of the financial year-end. (EPFO) has decided to provide
buyers in the The interest on inoperative accounts
past; they behaviour from 1 April 2016. This will benefit
reported a of foreign over 90 million such account-
net outflow institutional holders having total deposits of
for the first investors over Rs32,000 crore. EPFO had
time in 23 (FIIs) stopped payment of interest to
months. was quite such accounts from 1 April 2011 to
Despite this different. discourage parking of funds with
significant FIIs were net EPFO in these dormant accounts.
outflow buyers in Inoperative accounts are those
in the last March; they in which the contribution has not
month of the invested more been received for 36 months.
fiscal, in FY15-16, equity mutual than Rs21,000 crore in the month.
funds reported net inflows of more They had been net sellers since the Pension Regulator Comes
than Rs68,000 crore. In FY14-15, past nine months. March has been Out with Partial Withdrawal
they registered a net inflow of a
little more than Rs40,000 crore.
a superb month for Indian equity
investors; the benchmark index
Rules for NPS
Experts reckon that the fund
outflows in March could be due
delivered more than 10% returns
during the month. P ension Fund Regulatory and
Development Authoritys
(PFRDAs) circular on partial
withdrawal states that a
Bank Bazaar Also Ventures into Online subscriber, whose NPS account is
at least 10 years old, can withdraw
Distribution of Mutual Funds 25% of his/her contribution.
B ankbazaar.com has announced its plans to expand its portfolio into

investment category, starting with mutual funds in the first quarter of
FY16-17. Well-funded Bankbazaar.com
However, this 25% of own
contribution limit does not include
the accrued income earned
will provide retail investors customised thereon. A limitation is that the
suggestions on mutual fund schemes amount can be withdrawn for
through its online platform. It also plans only specific purposes like higher
to oer mutual fund schemes from education and marriage of children
select asset management companies and purchase/construction of
(AMCs). residential house/flat. It also
However, the online distribution includes treatment of specified
platform is already crowded. Websites illnesses of the subscriber or
like fundsindia.com, scripbox.com and others are selling mutual funds online, his/her relatives, and accidents of
apart from brokers. Bankbazaars entry would make this space overcrowded. a serious/life-threatening nature. A
Bankbazaar claims to be taking on the role of Robo-advisors, and will use a maximum of three withdrawals are
proprietary research methodology to provide research-based suggestions. allowed during the entire tenure of
However, it is not clear if Bankbazaar is an adviser or a distributor. subscription.
Your Money.indd 2 07-04-2016 18:32:40

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CURRENT ACCOUNT
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MONEYLIFE
Quiz no
230
QUIZ Answer
Correctly! Win
Another quiz to tease your brain. The answers are in this a personalised
sed
very issue. The winner will be chosen by a lucky draw clock with an Anchal Gupta
from correct entries and answers published in the issue Mutual Fund investmentnt
investments are quote!
dated 26th May. Send in your answers to quiz@moneylife. subject to market risks,
read all scheme related
in with the Quiz no., name, address & telephone number documents carefully.
before 4 May 2016.
1. Which one of the following stocks was present in the 5. What percentage of stocks was sold within 12 months of
portfolios of equity mutual fund schemes for five years or purchase by equity schemes over the past five years?
more? a. 28% b. 38%
a. HDFC Bank b. Coal India c. 68% d. 58%
c. Hindustan Unilever d. Hero MotoCorp
6. Which one of the following terms relates to the phrase
2. In how many equity mutual fund schemes portfolios was dumb money?
Britannia Industries present continuously for five years? a. Retail investors b. Fund managers
a. One b. Two c. Hedge funds d. Institutional investors
c. Three d. Four
7. What was the fine imposed on OJ Simpson by the US civil
3. What is the portfolio-turnover ratio of a scheme if it reports court?
purchases of Rs500 crore and has a corpus of Rs1,000 crore? a. $4 million b. $5 million
a. 5% b. 15% c. $1 million d. $2 million
c. 50% d. 150%
8. Which of the following actions cannot be performed by the
4. Where is the manufacturing facility of Gini Silk Mills located? Android Device Manager?
a. Nagpur b. Tarapur a. Ring phone b. Lock phone
c. Solapur d. Kolhapur c. Erase data d. Turn on Wi-Fi or mobile data
In all, 12 readers got all the answers right last time.

The answers to Moneylife Quiz-228 are: 1- c. 8 March 2016
The winner of Quiz-228 is Anchal Gupta from Bhopal.
Congrats! You win a personalised clock with an 2- b. Section 80C 3- b. four 4- c. 58 years 5- a. University of
investment quote! Minnesota 6- b. 1.2 million 7- c. Mahim 8- d. 10 million
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Exclusive news & views with a big dierence
EXCLUSIVE NEWS RTI. Incredible though it may sound, a

new criminal activity is emerging in the
News you had better not miss
property market, in which lands belonging
to housing societies are allegedly being
Beware. Your housing usurped through fake power of attorney
society land might just leading to change of ownership of land.
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CROSSHAIRs
Exclusive news, the stories behind the
headlines and the truth between the
lines by Sucheta Dalal
Emulating MNCs or has discovered the virtues of neem and charcoal.
Propagating Ayruveda?
But where exactly is Patanjali headed? If you try
matching the statements of Baba Ramdev and his
partner Acharya Balakrishna with actions, things get
Patanjali is a true challenger, but its rather confusing. Both have piously said that their
goal and objective is unclear as yet goal is to propagate Ayurveda, packaged attractively.
In an interview to The Economic Times, Acharya
I
t is no longer a question of whether yoga guru Baba Balakrishna says, We are here to propagate ayurveda,
Ramdevs Patanjali Ayurved will challenge large not compete. But arent facts on the ground rather
listed companies; but it is not clear which ones will contrary? Patanjalis recent fruit juice advertisement
be affected and how seriously. Large brokerage firms appeals to stockists to give prominence to Patanjali
have begun to analyse this unlisted competitor that is products in your shops as well as your hearts and
recording scorching growth, to keep track of the baba- has some babble liketogether we can turn the
threat to a range of listed companies. Many of us, SWADESHI dream of Mahatma Gandhi, Bhagat Singh
and Ram Prasad Bismil into a reality.
If Patanjalis focus is on pure, healthy food that
incorporates the benefits of ayurvedic herbs and
medicines, it is excellent. But selling fruit juices with
preservatives (just a claim of more fruit pulp), with
packaging that emulates big home-grown brands such
as Dabur and then setting up a swadeshi-videshi
situation, is rather disingenuous. In fact, the whole
swadeshi-based value proposition sounds like a sham,
69 years after independence; that, too, when the nation
takes pride in the fact that people of Indian origin are
heading those very multinationals that the baba wants
to take on.
Similarly, what is ayurvedic about noodles,
cornflakes and biscuits, coming off the assembly lines
of a factory which imitate large MNC brands with
who have tried Patanjali soaps, toothpastes, shampoos, just whole wheat as the health proposition? Or
ghee, honey and a host of daily-use products, have about detergents and floor-cleaners set up in direct
not gone back to regular MNC brands. So the value competition with MNC brands? And do the claims
proposition in terms of product quality and pricing is of anti-bacterial neem and lemon go beyond added
high even without the additional ingredient of blind fragrance? It is these mixed signals and confusion that
trust that millions of his followers have in the man. is worrying.
The baba-impact is also evident in the not-so- As a convert to Patanjali products, I would rather
subtle change in the product propositions of large see Baba Ramdev making products that discard all
multinational companies: a malted beverage has the high sugar and sodium content as well as chemical
suddenly discovered the virtues of almonds and honey stabilisers, emulsifiers, colour, PH-balancers and
and a multinational corporations (MNCs) toothpaste tastemakers that give the slick look and tempting feel
MONEYLIFE | 28
27 April
November
20162014
| 18 | 14
Crosshair.indd 2 07-04-2016 18:41:27

to mass-produced food. If Baba Ramdevs swadeshi issued to the top four banks in India, received the
proposition involved production and propagation of standard rejection from the banking regulator saying
nutritious and hygienically produced Indian foods, that disclosure of the information would not be in the
rather than imitating MNC biscuit brands like Marie, economic interest of the State and, hence, exempted
and Monaco, it would ring more true. That would under Section 8 (1)a and d of the RTI Act. It will be
really be about taking Indians back to their roots, as interesting to see how the Supreme Court reacts to
Baba Ramdev claimed to an international publication. Dr Rajans stand, if the petitioners take the issue to the
Undoubtedly, Patanjali has successfully disrupted court again.
various distinct multinational fiefdoms. He is a threat However, the powerful All India Bank Employees
to a wide swathe of companies from P&G, Colgate Association (AIBEA) has come out strongly against the
and Unilever to Nestl Rickett Benkiser, Dabur, Emami, governors statement. On 6th April, CH Venkatachalam,
Marico, Godrej and others with his arsenal of 500+ AIBEAs general secretary, wrote to Dr Rajan: Mr
products. It was already a Rs2,000-crore brand before Governor, we are of the strong view that in most of
large companies and analysts took note of him and, the cases involving the big-ticket defaulters, there is
in less than two years since then, Patanjali Ayurveda lethargy, leniency and accommodation but when it
is set to be a Rs5,000-crore conglomerate. But does comes to the common man, our experience is different.
he really have the wherewithal to take on so many At least what is sauce for the goose must be for the
multinationals simultaneously with Ayurveda and gander too.
swadeshi as his marketing theme? Or will he, at some His letter said that AIBEA is aware that there
time, scale back and stick to a bunch of products that could be some genuine reasons for loan defaults.
stand for his core value proposition of trust, healthy However, when gross non-performing assets have
and close to nature? At the moment, Patanjali is riding risen alarmingly in the post-reform era from Rs39,250
the crest of a wave; only time will tell if he can stay on crore in 1992-93 to Rs3,61,000 crore at the end of
top of it. December 2015, there seems to be some clear method
in this madness of bulging bad loans. Pointing out
RBI Digs In Its Heels on
Disclosure about Defaulters
Governor says not okay to disclose all
willful default data
T he Reserve Bank of India (RBI) governor,

Dr Raghuram Rajan, seems to have taken a stand
on not disclosing information on wilful defaulters,
despite a Supreme Court ruling on the issue. So far
as we know, RBI has not filed a review petition or
obtained a stay on the December 2015 judgement
delivered by a bench of Justices MY Eqbal and C
Nagappan in a matter pertaining to 11 cases pertaining
to denial of information by RBI and others under the
Right to Information (RTI) Act. how industrialists remain rich and healthy even when
However, on 5th April, during the interaction their companies default, AIBEA asks Dr Rajan to make
following the credit policy, Dr Rajan came out strongly a beginning by publishing the names of 5,600 identified
against indiscriminate naming of defaulters. He is wilful defaulters who owe over Rs60,000 crore to
quoted as saying, The act of default is sometimes not banks. He also wants RBI to ask the government to
your faultdemand is weak, prices are low, dumping ensure that such defaulters cannot hold public office.
is going on, etc. So, there are a variety of reasons as to AIBEA has also thrown its weight behind individual
why a project gets stalled. Putting the promoters name borrowers who are harassed by recovery agents for
up to say he defaulted, without giving the reason why, credit card defaults; he writes about a person in Tamil
might not be right. We have no problem in publishing Nadu being beaten up by the police, at the behest
the wilful defaulter listthat is, where the promoter of a private bank, for failing to pay a tractor loan.
has, in the eyes of the bank, taken the bank for It is pertinent to note that RBIs consumer charter
granted. announced over a year ago has not been implemented
A little before the credit policy, an activist who yet by prescribing penalties for failure to treat
had filed an RTI application, seeking information on consumers fairly. The wilful defaulter issue seems set to
the inspection reports as well as show-cause notices go back to the Supreme Court again.
Crosshair.indd 3 07-04-2016 18:41:48

DIFFERENT STROKES SUCHETA DALAL
Panama Papers and What

They Mean to India
The biggest ever leak is a bit of a damp squib about India; but that is precisely why it may be an
opportunity for putting ground rules in place to stop tax evasion
E
dward Snowdon said it well when he tweeted, the A handful of industrialists, a couple of movie stars, a
Biggest leak in the history of data journalism deceased mafia-type and someone who says he has $100
just went live, and its about corruption. The in his son-in-laws company are among the Indian names
whopping 11.5 million files of the Panama-based law that made headlines on the day of the big-bang global
firm, Mossack Fonseca & Co, investigated for almost release. It will be hard to find any Indian who believes that
a year by the International Consortium of Investigative our politicians do not have a fat stash of funds abroad;
Journalists (ICIJ)a global alliance of newspapers and they were probably fortunate to patronise a different tax
investigative journalistsreleased haven and law firm.
simultaneously around the world Apart from the President of
on 4th April is, indeed, an explosive Iceland, the Panama Papers reveal
new development in the history of offshore accounts and companies
media and journalism. Revealing of British Prime Minister David
the names of so many global Camerons late father, several
political leaders, celebrities, sports Tory MPs, Russian Vladimir Putin
stars and businessmen, has the (transactions worth $2 billon,
potential to force countries around albeit through a childhood friend
the world to rewrite tax polices and Sergei Roldugin), links to Chinas
stop the super-rich from evading powerful Politburo members,
taxes and also to rationalise taxes President Xi Jinping and former
for disincentivising evasion. Premier Li Peng through their
Think about it. In a highly kin, the Presidents of Pakistan,
competitive media world, every Argentina and Ukraine, the
single media organisation has President and Prime Minister
been forced to report and It will be hard to find any of Azerbaijan and the King of
reproduce the findings of news Indian who believes that our Saudi Arabia. Yet, not a single
and television companies that politicians do not have a fat heavyweight Indian politician, or
were part of the alliance, with even a small-time one, figures in
stash of funds abroad; they
due acknowledgement. This is the revelations.
were probably fortunate to
an immense credibility boost for As hard as this is to
the media and for investigative
patronise a different tax haven comprehend, it is probably the
journalism at a time when and law firm best thing to have happened. It
advertising had been dictating allowed the government to react
breaking news on TV and all that is fit to print. quickly and decisively. Finance minister Arun Jaitleys move
At the time of writing, the Panama Papers had already to set up a multidisciplinary committee (comprising the RBI,
snagged one major political scalpthat of the President central board of direct taxes and financial intelligence unit
of Iceland. Other global leaders will face serious political of the finance ministry but not the enforcement directorate
repercussions in the days to come. Ironically enough, or the directorate of revenue intelligence) to investigate
the leak has also nailed the Chilean branch head of the Panama Papers was among the fastest reactions to the
Transparency International (TI), forcing him to resign. leak by any country. Even the US Department of Justice
TI, a Germany-based NGO publishes a global corruption had only said that it is studying the papers.
index, in which India figures somewhere near the bottom Also, contrast the governments swift reaction this time
of the heap. And, yet, when it comes to India, the Panama with how the Congress-led United Progressive Alliance
Papers have been a damp squib. responded to Germanys offer to share information on
DIFFERENT STROKES.indd 2 07-04-2016 17:49:22

DIFFERENT STROKES SUCHETA DALAL
tax-evaders. In February 2008, the German authorities Reserve Bank of India (RBI) governor injected the necessary
had bought information about illegal money stashed away sobriety into the investigation process by saying, there
by citizens of various countries in LGT, a Liechtenstein could be genuine reasons for having offshore accounts
bank. The list contained the names of 1,400 clients of and the multidisciplinary committee (of which RBI is a
whom 600 were Germans. A spokesman for the German part) will probe the legitimacy of the offshore accounts.
finance ministry, Thorstein Albig, had said in March It is important to do this without a needless witchhunt,
2008 that information on the other accounts would be because several of those named by The Indian Express
shared with other countries for free. Finland, Sweden, reports have emphatically claimed that they have legitimate
and Norway quickly obtained the data, but the UPA accounts whose transactions have been disclosed in their
government did not wish to have anything to do with it. tax filings. RBIs Liberalised Remittance Scheme (LRS) has
Only after much prodding by the Opposition did it ask permitted resident Indians, including minors, to freely remit
for the list in late-2008. funds overseas for permissible current or capital account
A multi-disciplinary committee comprising officers who transactions or both. The sum that is allowed to be invested
are senior enough is the only way to ensure an investigation overseas has increased from $25,000 in 2004 to as much
that is not marred by investigative agencies working at as $250,000 since then; the remittances could easily have
cross-purposes or indulging in been routed through tax havens
mindless one-upmanship and which permit extraordinary ease
undermining one anothers efforts. of transactions.
It also reduces the chances of The multi-disciplinary
information being compromised committee will, at some point,
by corrupt officers. In 1992, in come up with its report; but, all
the aftermath of the Harshad said and done, Indias political
Mehta scam, such an inter- class has nothing to fear from this
disciplinary committee headed particular leak. What will worry
by R Janakiraman produced them, though, is that the Panama
excellent and detailed fact- Papers may just be the beginning
finding reports. In fact, the Joint of a new trendof hacking and
Parliamentary Committee (JPC) leaking information available
set up after the Ketan Parekh scam with top tax lawyers. The big
of 2000-01 pointedly recorded message from Wikileaks, Edward
the view that it did not have the Snowdens disclosures and the
benefit of a report on the lines RBIs Liberalised Remittance Panama Papers, to politicians and
of the Janakiraman Committee Scheme (LRS) has permitted the super-rich is that nothing is
Report which was made available secret anymore; every database
resident Indians, including
to the previous JPC on the can be hacked sometime and
scam in securities and banking
minors, to freely remit funds the disclosures can ruin political
transactions. Reliable evidence overseas for permissible careers.
was difficult to find and took current or capital account If world leaders, including
much time to cull. (para 2.18). transactions or both those in India, react to the Panama
A multi-disciplinary committee Papers by implementing sensible
lends credibility to the governments action. This time, the tax policies that make it unattractive to evade taxes by
fact that the Supreme Court-appointed special investigation routing them through expensive offshore structures, that
team (SIT) on black money headed by Justice (retired) would be the most positive outcome of this path-breaking
MB Shah has already announced its intention of journalistic exercise. But that is a utopian expectation
investigating the list thoroughly. This will further keep so long as tax havens are useful in routing illicit funds
the government-appointed committee on its toes. to terrorist groups and to finance insurgencies or the
However, I must mention that the Janakiraman machinations of spy agencies of powerful nations.
committees hard work did not lead to faster filing of
charge-sheets by the Central Bureau of Investigation (CBI)
and the cases continue to drag through the courts for nearly Sucheta Dalal is the managing editor of Moneylife. She was
25 years. Hopefully, there will be pressure to address this awarded the Padma Shri in 2006 for her outstanding contribution
issue with the SC-appointed SIT watching the action. The to journalism. She can be reached at sucheta@moneylife.in
DIFFERENT STROKES.indd 3 07-04-2016 18:43:52

MUTUAL FUNDS POINTERS
just because they were index heavyweights or because they

Stocks Equity were good-quality stocks?
Among the better long-term stock-picks of fund houses
Schemes Have were: Eicher Motors, Amara Raja Batteries, Page industries,
Britannia Industries and Solar Industries. Of course, we
Held for 5 Years know this only in hindsight. Eicher Motors, present in
the schemes of Franklin India Prima Plus, UTI Equity and
UTI Mid Cap, delivered an annualised return of 69% over
Most of the stocks are from benchmark indices the five-year period. Amara Raja Batteries was present
in the portfolio of nine schemes. The stock delivered an
irrespective of the prospects, analyses Jason annualised return of 55% and schemes, such as ICICI
Monteiro Prudential Value Discovery, Franklin India Flexi Cap,
Mirae Asset Emerging Bluechip, Franklin India Prima and
SBI Magnum Global 94, would have benefited the most
as they had the highest allocation.
Page Industries delivered an annualised return of 54%.
IDFC Premier Equity has an allocation of nearly 5% to
this stock which has been in its portfolio since 2008. Other
schemes which have been holding this stock over the past
five years were: SBI Emerging Business, SBI Magnum
Global 94 and SBI Magnum Midcap.
Britannia Industries, too, has created significant wealth
for its shareholders over the past five years. The stock
delivered an annualised return of 49% and was present
continuously in the portfolio of two schemes. Similarly,
I
t is surprising that only a handful of stocks remain in Solar Industries returned 44% annually over the past five
an equity schemes portfolio for five years or more. Our years. HDFC Mid-Cap Opportunities and Birla Sun Life
analysis of the monthly portfolio of 59 equity mutual Mid Cap have been holding the stock for the past five years.
fund schemes (with a corpus of above Rs1,000 crore), Long-term bets which did not work in the favour of the
over the five years (31 December 2010 to 31 December schemes include: Tata Steel, Crompton Greaves, ONGC,
2015), has shown that just about 8% of the stocks were State Bank of India and Bank of Baroda. Tata Steel fell
held for five years or more. In our sample, this works out
to just about 10 stocks in each portfolio, on an average.
However, this does not mean that the schemes held a Most Picked Long-term Stocks
total of over 500 unique stocks for five years or more. Company Name No. of Schemes Return
There were many common stocks. Which of these stocks ICICI Bank 29 2.69%
are common to equity schemes portfolios and have they
Infosys 28 5.10%
added value to the portfolios?
HDFC Bank 23 18.20%
Most of the common stocks, often, turn out to be
index stocks. Stocks, such as ICICI Bank, Infosys, HDFC L& T 17 -0.67%
Bank, L&T, Reliance Industries, TCS, ITC, Bharti Airtel Reliance Industries 16 -0.88%
and State Bank of India, were present in the portfolio of ITC 15 13.43%
10 schemes or more. Were these good choices? Not really. TCS 15 15.93%
Except HDFC Bank, TCS and ITC, which returned over Bharti Airtel 14 -1.05%
12% annually, no other stock delivered a return of over SBI 13 -4.41%
10%. In fact, State Bank of India, Bharti Airtel, Reliance
Amara Raja Batteries 9 55.23%
Industries and L&T delivered negative returns. At the same
Grasim Industries 8 9.87%
time, this may not represent the actual returns derived by
the schemes as they may have bought or sold some shares BPCL 8 22.12%
of the companies over the five-year period, to average HDFC 8 11.64%
costs, and this may affect returns. But the question one IndusInd Bank 8 29.55%
should ask is: Did fund managers hold on to these stocks
Fund Pointer.indd 2 07-04-2016 15:17:03

MUTUAL FUNDS POINTERS
by over 15% over the actual returns of

the past five years Picking the Right Stocks Is Crucial to Performance the scheme.
and is present in the Equity Scheme Number Average Weighted Scheme If we work out a
portfolio of HDFC of Stocks* Return* Return* Return correlation between
Equity, HDFC Top UTI Equity 37 12.85% 9.06% 11.31% the average return
200 and Mirae Asset Sundaram Select Midcap 9 22.94% 7.42% 16.54% of the long-term
India Opportunities. UTI Mastershare 20 13.13% 7.23% 8.75% portfolio of the
S u r p r i s i n g l y, UTI Mid Cap 19 32.01% 7.04% 19.23%
schemes and the
Crompton Greaves, actual returns of the
SBI Magnum Global 94 8 35.54% 6.47% 18.14%
too, which fell by scheme, it works
Franklin India Prima Plus 16 17.53% 5.93% 13.69%
9%, and State Bank out to as much as
of India, which fell IDFC Premier Equity 7 22.99% 5.74% 16.04% 58%. This shows
by 4%, were present UTI Opportunities 11 14.50% 5.37% 9.56% that the better the
in the portfolios Birla Sun Life Frontline Equity 23 8.07% 5.18% 10.97% performance of the
of the same set of Franklin India Prima 10 23.35% 5.18% 18.30% long-term stocks the
schemesHDFC Reliance Equity Opport. 14 10.86% 5.10% 14.27% better is the schemes
Equity, HDFC Top performance. In
Reliance Mid & Small Cap 12 11.64% 4.30% 15.55%
200 and Mirae Asset other words, the
HDFC Mid-Cap Opport. 20 14.36% 4.28% 18.64%
India Opportunities. performance of
Axis Equity 9 11.21% 4.21% 10.07%
Do the managements short-term holdings
*
For stocks held for 5 years or more
of these fund houses may have a little
see something in these impact on the overall
stocks which others have not? performance of the scheme.
ONGC, which was hit by falling oil prices, continues Fund managers adjust the weightage of stocks in such a
to be present in the portfolio of seven schemes. Franklin way that better quality stocks, according to their analysis,
India Bluechip and UTI Dividend Yield are among the have a higher weightage in the portfolio. Therefore, we
schemes with the highest holding. Bank of Baroda, which work out the long-term holding of the stock portfolio
fell 5%, has an allocation of above 2% in the portfolios as per the weights in the December 2015 portfolio. For
of UTI Dividend Yield, HDFC Top 200 and HDFC Equity. some schemes, such as UTI Mastershare, UTI Equity, UTI
Dividend Yield and UTI Opportunities, the returns of the
Conviction in Long-term Holdings weighted long-term holdings contributed more than 50%
After discussing the performance of individual stocks, we to the actual scheme returns.
take a look at how the returns of these long-term holdings On an average, the returns of weighted long-term
contributed to the performance of the schemes. Though holdings contributed nearly 27% of the schemes returns.
the actual return of a stock investment through buying and The 10 schemes, where the weighted returns were the
selling of shares will be different from the point-to-point highest, delivered an average return of 14.25%, while the
returns that we have considered, we assume a constant 10 schemes, where the weighted returns were the lowest,
holding which will give us a representative picture of delivered an average return of 11.91%. A correlation
whether or not a stock added value to the portfolio. between the portfolio weighted returns and the scheme
returns works out to 15%.
Schemes with a long-term focus have In other words, fund managers should have greater
confidence in their own long-term bets.
done better. But funds dont seem to The top 15 schemes, where the portfolio weighted returns
have the conviction were the highest, included names such as Sundaram Select
Midcap (7.72%), UTI Mid Cap (7.04%), SBI Magnum
Over the past five years, the S&P BSE Sensex delivered Global 94 (6.47%), Franklin India Prima Plus (5.93%),
an annualised return of 5% while the Nifty Midcap 100 IDFC Premier Equity (5.74%), UTI Opportunities (5.37%),
returned 8.62% over the same period. Had the fund Birla Sun Life Frontline Equity (5.18%), Reliance Equity
managers invested equally across their five-year holdings, as Opportunities (5.10%) and HDFC Mid-Cap Opportunities
many as 34 schemes would have delivered a return in excess (4.28%). All these schemes have performed consistently
of 10%. In fact, for as many as 25 schemes, the average over the past five years. Therefore, the stocks picked for the
returns of the portfolio of 5-year+ stocks were better than long term are crucial for the performance of the scheme.
Fund Pointer.indd 3 07-04-2016 15:17:25

MUTUAL FUNDS FUND FACTS
Best & Worst Mutual Fund Schemes

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

Large Cap (Category Avg: 3.50%, Launch Corpus Avg. Quarterly 1-Year 3-Years** Exp
Sensex: 2.49%) Date (Rs Crore)* Rolling Returns Ratio
SBI Bluechip 14-Feb-06 4,050 4.61% -3.18% 19.77% 2.03%
HDFC Capital Builder 01-Feb-94 958 4.56% -4.18% 19.54% 2.70%
Birla Sun Life Top 100 24-Oct-05 1,638 4.38% -6.32% 18.70% 2.44%
Reliance Quant Plus 18-Apr-08 781 2.28% -13.79% 9.45% 2.32%
HDFC Large Cap 18-Feb-94 1,024 2.13% -10.13% 8.80% 2.53%
Sundaram Growth 24-Apr-97 189 1.65% -19.21% 6.77% 2.84%
Multi-cap (Avg: 4.02%, BSE 200: 2.93%)
Birla Sun Life India Opportunities 27-Dec-99 110 6.66% 1.57% 29.41% 3.23%
L&T India Value 08-Jan-10 876 6.19% -0.89% 27.14% 2.32%
SBI Magnum Global 94 30-Sep-94 2,289 5.70% -7.65% 24.84% 2.08%
LIC Nomura Equity 11-Jan-93 272 2.75% -12.29% 11.48% 2.84%
IDFC Equity 09-Jun-06 226 2.53% -11.41% 10.49% 2.30%
Union KBC Equity 10-Jun-11 127 2.46% -15.31% 10.21% 3.11%
Mid-and Small-cap (Avg: 6.30%, CNX Midcap: 4.47%)
DSP BlackRock Micro Cap 14-Jun-07 2,004 8.66% 0.92% 39.38% 2.60%
SBI Small & Midcap 09-Sep-09 653 8.26% 6.84% 37.34% 2.38%
Reliance Small Cap 16-Sep-10 1,652 8.18% -0.49% 36.95% 2.12%
Tata Equity Opportunities 25-Feb-93 1,008 4.45% -6.86% 19.01% 2.57%
SBI Emerging Business 17-Sep-04 1,451 4.30% -3.21% 18.35% 2.15%
IDFC Sterling Equity 07-Mar-08 1,120 4.09% -13.72% 17.37% 2.02%
Debt Schemes
Income (Avg: 2%, Crisil Composite Bond: 2.16%)
ICICI Prudential Long Term Plan 20-Jan-10 808 2.86% 6.33% 11.92% 1.18%
Tata Dynamic Bond 03-Sep-03 1,009 2.37% 5.89% 9.80% 1.66%
Birla Sun Life Dynamic Bond 24-Sep-04 14,833 2.36% 7.47% 9.78% 1.62%
L&T Triple Ace Bond 31-Mar-97 836 1.71% 4.67% 7.03% 1.49%
Religare Invesco Active Income 02-Aug-07 436 1.68% 4.20% 6.89% 1.80%
JM Income 01-Apr-95 670 1.62% 1.97% 6.65% 2.25%
Liquid (Avg: 2.12%, Crisil Liquid Index: 2.13%)
Escorts Liquid Plan 03-Oct-05 222 2.24% 8.65% 9.25% 0.50%
Taurus Liquid 14-Apr-09 2,779 2.17% 8.30% 8.98% 0.30%
Franklin India Treasury Management Account 04-Sep-05 3,891 2.17% 8.24% 8.96% 0.20%
Reliance Liquid - Cash Plan 07-Dec-01 4,079 1.97% 7.33% 8.10% 1.04%
L&T Cash 27-Nov-06 664 1.93% 7.16% 7.96% 0.82%
HDFC Cash Management - Call Plan 06-Feb-02 115 1.89% 7.07% 7.78% 0.20%
# Please note the table represents a comparative performance of mutual fund schemes over a three-year period and it is not a recommendation; * Latest quarter average assets
under management; We have only considered schemes having a corpus above Rs100 crore. **Annually compounded
Fund Facts.indd 2 02-04-2016 14:45:45

FIXED INCOME
G-Sec Purchase from IDBI ATM portal from 9am to 2pm on the
Banks working days. The minimum
investment is Rs10,000. There is
IDBI already offers G-Secs through its Samriddhi portal a small commission built into the
price of the bond. A fee of 0.05%
I
DBI Banks customers can invest and a normal demat account in is charged per transaction involving
in government securities (G-Secs) your name that you use for buying a sale. For making a purchase, you
through the Banks ATMs. equities/bonds. In the case of joint can select the security from the list
It is an initiative to popularise accounts for demat and/or bank of G-Secs with varying maturity
investment in G-Secs for the retail accounts, the investor should be the dates. Once you select the G-Sec
segment. G-Secs have sovereign you want to invest in, you will be
rating; hence, they are safer than given an offer price. This is the price
even bank fixed deposits (FDs). at which IDBI Bank will sell that
Retail customers of the Bank can G-Sec. The payment can be made to
register, one time, for this facility
and invest in G-Secs through any
ATM of IDBI Bank which is an G-Secs Maturity Date Last Yield
extension of IDBI Banks Samriddhi 22 June 2045 7.90%
G-Sec Portal (samriddhigsec. 2 June2028 7.83%
idbibank.co.in). Investment in 19 December 2034 7.83%
G-Secs will pay you a fixed coupon 21 September 2027 7.80%
annually. But the value of G-Secs Indicative G-Sec options on 4 April 2016
can be lower or higher than the first-holder. You will need to register
principal amount, based on market with the website to buy and sell
interest rates. Remember, it is a G-Secs. After successful registration, IDBI Bank through NEFT or RTGS
bond and not a fixed deposit. you will get a login ID, a password transaction. Cash/demand draft/
To use the G-Sec portal, you and a unique identification number cheques are not allowed. Once the
dont need to be an IDBI Bank through which you can access the transaction is completed, the G-Secs
customer. You will need Internet portal. will be credited to your demat
access, a bank account in your name An investor can transact on this account.
Bond Yields Are Down G-Sec Yields Down

B ond yields have headed down in the past fortnight. You can expect to get around
8.5%-8.6% for AAA rated bonds and around 9% for lower than AAA rated bonds.
T he 10-year benchmark G-Sec
yield, which sets the tone of
the fixed-income market, fell by
Issuer Maturity Next Last Yield ISIN Rating
Date Coupon (%) six basis points (bps) in the past
fortnight to end at 7.46% on
Reliance JIO Infocomm 16 Jun-24 16 Jun-16 8.73 INE110L08037 CRISIL AAA
9.25% (unsecured)
1st April. On 5th April, at the first
bi-monthly monetary policy for
LIC Hsg Fin 8.89% 25 Apr-23 25 Apr-16 8.57 INE115A07DT9 CRISIL AAA
fiscal 2016-17, the Reserve Bank of
HDFC Ltd 8.43% 12 Dec-18 12 Dec-17 8.55 INE001A07OJ9 CRISIL AAA India (RBI) lowered the repo rate
NSE data as of last trade date of 31 March 2016 to 6.5%. Core sector growth has
Shriram Transport Finance
recorded a 13-month high. The
10.25%
18 Sep-24 18 Sep-16 9.30 INE721A07HY5 CARE AA+ eight core sectors, viz., of coal,
HDFC Ltd 9.65% 19 Jan-19 19 Jan-17 8.53 INE001A07MH7 CRISIL AAA
steel, electricity, cement, fertiliser,
refinery products, natural gas and
LIC Hsg Fin 8.75% 14 Jan-20 14 Jan-17 8.53 INE115A07GM7 CRISIL AAA
crude oil, grew at an annual 5.7%
BSE data as of last trade date of 31 March 2016 in February compared to the 2.9%
increase in January 2016.
Fixed Income.indd 1 07-04-2016 15:41:17

SMART MONEY R BALAKRISHNAN
Slow-moving Consumer
Share Prices
Fundamental changes are afoot in the FMCG sector which may affect future returns of past top
performers
T
he fast-moving consumer goods (FMCG) sector many MNCs to shame.
has been a much-debated sector these days. With The launch and penetration of Patanjali in double quick
the humungous population base, the demand for time must, surely, be a marketing case-study keeping the
every consumer product can only keep going up. The MNCs awake at night. Newer entrants, like ITC, have
annual addition to Indias population is as much as some discovered that its cost structure has, so far, been keeping
countries total population. Given this demand, one would it away from breaking even as it just became a me-too
have thought that the listed space would be dominated brand, whether in soaps or noodles. The older companies
by FMCGs. However, if you look closely, the few listed peddling natural products, like Dabur, Himalaya, etc,
FMCG companies earlier used to be foreign companies are going back in time to dig out old brands or attaching
like Hindustan Unilever, Nestl, Britannia, Colgate, etc. health tags to new products. Following Patanjali, we also
And all of them enjoy RoEs (return on equity) close to have several other gurus like Sri Sri Ravi Shankar who are
a mind-boggling 100%. In other words, every rupee trying to break into this game. I recall that Sahara had
of their present capital is earned back within a year! also forayed into consumer products long ago, but it did
Their operating profits are a heady 20%+ of salesafter not take wing. The new entrants are not only fighting the
spending 8%-10% on advertising. existing national players but even the regional ones. While
In the past couple of decades, strong Indian contenders all this action is taking place, consumers, as they climb the
to multinational companies (MNC) have emerged, like ladder of economic prosperity, are pulled in by advertising
Marico, Godrej, Emami, etc. The universe of listed campaigns and their own aspirations. They want to move
companies struggles to report volume growth of around on to bigger brands. Perception is everything. Then
10% each year. And, at the same time, the market witnesses there is a rapidly expanding segment that seeks natural,
the birth of newer and newer brands every year. traditional, organic, etc.
Now, the FMCG space is being disrupted in a big way This is surely a big change. Every brand or company
by the entry of Patanjali products. This is also accompanied is not going to be a winner. Clearly, we are headed for
by a lot of Indian herbal or ayurvedic products that no-holds-barred fights. While everyone is scrambling
claim natural attributes and are imploring the Indian for market share, there is a simultaneous expansion of
consumer to switch from chemical-based products. Listed marketing and distribution channels. Online presence and
companies that have been dominating the markets thus push is very visible. We are witnessing new tricks, new
far, with overpriced products (pricing at what the market promotions and new channelseveryone is searching
can bear), are shaken up. They are also trying to become for something unique that will open the consumer doors
Indian and there is a lot of defensive reaction as they for them.
start buying up old and nearly forgotten Indian brands However, the issue is: Where is the growth? The FMCG
at fancy prices. Who can ignore Parl products or Amul sector should normally grow at more than the nominal
that are national giants in the FMCG rate of GDP growth. In other words, if GDP is 5% and
space today? And I suspect Parl inflation is 5%, then nominal growth rate is 10%.
products would The revenue growth of FMCG firms should be at least
have profitability higher than this.
that would put
column_Balakrishnan.indd 2 02-04-2016 14:58:48

SMART MONEY R BALAKRISHNAN
However, we rarely see such growth from the big boys. FMCG pack would be three times the Nifty average. So,
There two parts to FMCGdurables and non-durables. the issue to address is whether the FMCG companies can
Durables are now with global giantsKorean, Japanese sustain their RoEs, going forward? The existing players
and Chinese. There are not too many listed options, unless will be doing, or undergoing, the following over the next
you count the likes of Videocon, Symphony, Voltas, etc. The few years:
unlisted space is several times larger than that of the listed Price wars
companies. The durables space has been shaken up with Competing for shelf space with higher distributor
the advent of online sellers like Amazon, Flipkart, etc. And margins
many have also initiated their own online selling. Online Higher ad spend
sellers, funded by VCs, have been offering a wonderful Overpriced acquisitions
experience for buyers in the form of huge discounts on Higher discounts to intermediaries
virtually everything. This party will end soon, but the Legal and other troubles which would be motivated
process is certainly a beneficial one for consumers as they Higher compliance costs
focus on price. Poaching of key managers
Thus far, FMCG stocks have been perceived to be a Erosion of bargaining power which would include
safe haven and command premium valuation. While RoEs higher investment in working capital
are holding up, growth is not supporting this. Let us look Companies unable to grow volumes use acquisition as
at the returns some of the stocks have fetched over the a way to show growth.
past five years: There could be some possible upside, should the
promised income-tax rates come down to 25%. My call is
5 Years Ago Now Change that valuations will come off. We may not see sharp declines
HUL Rs271 Rs848 213% in prices but it is more likely that prices would stagnate for
Nestl Rs3,689 Rs5,186 41% long periods. In effect, there will be a de-rating of these
Britannia Rs354 Rs2,685 658%
stocks as there is downward pressure on their RoEs. Old
FMCG companies are unlikely to penetrate the markets
Marico Rs64 Rs247 286%
where there is price sensitivity. Their cost structures are
Dabur Rs97 Rs250 158%
simply too high. So, they are battling for market share of
Godrej Rs355 Rs1,326 274% the more affluent population. Growth can come from the
Nifty 5,654 7,604 34% base of the pyramid which is extremely price sensitive.
To repeat, I am not saying that stock prices of FMCG
Clearly, investors would have done extremely well companies will come off today or tomorrow. However,
with FMCG stocks. The question bothering me is: Will their future performance may not be as attractive as in
these returns continue at the same pace or magnitude? the past, since there are fundamental changes under way.
The differential in returns between the Nifty and FMCG Caution: Markets need not believe in what I think.
stocks can be explained by the fact that the RoE of the The author can be reached at balakrishnanr@gmail.com
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column_Balakrishnan.indd 3 02-04-2016 14:44:07

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MSSN GB (Insurance 1-3 ).indd 3 18-11-2015 20:42:13

TP premium hike in six years and
takes into consideration the loss
ratio of insurers, inflation, awards
decided for TP claims and so on.
IRDAI has allowed a hike
INSURANCE TRENDS of 30% in the case of public

commercial vehicles with GVW
(gross vehicle weight) of 40 tonnes,
New products, regulations, features and options, 25% for GVW of 20-40 tonnes
interpreted from your perspective and 15% for GVW of 12-20
tonnes. Increase in TP premium of
commercial vehicles always invites
R e g u l a t i o ns The hike for two-wheelers protest from truckers associations
would range from 10% to 25% which demand transparency of data
IRDAI Effects depending on the engine capacity.
Two-wheelers not exceeding
for justifying the increase. They
feel that the number of policies
Hike of Motor TP 75cc will face a 10% hike; those have increased significantly which
Premium exceeding 75cc but below 150cc
will face a 15% hike and those
translates into higher collection of
premium and lowering of claim
Private and commercial above 150cc but below 350cc will payout as a percentage. The hike in
vehicles will feel the pinch have 25% hike in premium. Two- premium in line with the exposure
wheelers above 350cc will enjoy a draft of IRDAI should bring cheer
for general insurers as IRDAI used
T he Insurance Regulatory and
Development Authority of
India (IRDAI) has hiked third-
decrease by 10%. This is the sixth
party (TP) motor premium rate Vehicles for Hire or Reward

from 1 April 2016. Small cars, Four wheeled vehicles Basic TP Premium (per Hike
like Maruti Alto (not exceeding used for hire or Premium (A) licensed passenger) Compared
reward Rs (B) Rs with 2015-16
1000cc), will suffer a steep 40%
Premium
hike of premiumfrom Rs1,468
Not Exceeding 1,000cc 6,396 1,230 30%
to Rs2,055. Cars, like Maruti
Swift (1000cc to 1500cc), will also Exceeding 1,000cc but 8,408 1,035 25%
Not Exceeding 1500cc
have 40% hike of premiumfrom
Exceeding 1,500cc 11,144 1,183 25%
Rs1,598 to 2,237. If you are driving
Premium for four-wheelers with capacity not exceeding six passengers. TP premium is the total of a
a car like Mercedes (above 1500cc), basic amount (A) plus an amount derived by multiplying the licensed carrying capacity by the amount
the premium hike is 25%from in (B)
Rs4,931 to Rs6,164.
Fine Print the rest of the 31 states and Union

Territories contributed only 29% of
eastern states was only Rs158 crore
(0.79%).
the premium collection.
Health Insurance Penetration For ICICI Lombard Health Advisor
in Only Five States
I RDAI data shows that

health insurance in India has
2014-15,
Maharashtra
contributed
I CICI Lombard has launched
Health Advisor (www.
healthadvisor.icicilombard.com), a
good penetration only in five Rs6,575 web-enabled platform that allows
statesMaharashtra, Tamil crore (33%) consumers to get answers to critical
Nadu, Karnataka, Delhi and of the total questions pertaining to healthcare
Gujaratwhich contributed to premium while the combined providers and treatment. The
71% of the total premium while premium from the eight north- insurer has created a hospital and
Insurance.indd 2 07-04-2016 15:46:06

INSURANCE TRENDS
to lower the hike in the final order and mandatory in India. There is third-party property. The optional
after protests from associations in no limit for the compensation for component of car insurance is
the past. Taxi unions will not be victims which can be decided by Own Damage (OD) covers the
happy to shell out 25% to 30% MACT (Motor Accident Claims damage to your car and includes
hike in TP premium. Will it increase Tribunal). It is based on numerous loss due to theft. The OD premium
customer fares? For vehicles with factors including the human value varies by insurance company for
four or more wheels, used for factor. A family of young, highly the same car model. Consumers
carrying passengers (more than six educated person with dependents need to check the offers for OD
passengers), the base premium will and having huge earnings can premium from different insurers
be Rs10,294 (A) and per passenger expect to get a compensation in before making the purchase.There
premium of Rs629 (B). The increase crores of rupees, for disabilities or is a need to ensure that vehicles do
is by 25%. TP premium is the death due to accident. not skip the mandated TP cover.
total of a basic amount (A) plus an Insurers are keen on an Half the vehicles running on Indian
amount derived by multiplying the amendment to Motor Vehicles roads are uninsured. It is
licensed carrying capacity by the Act (MVA) to put a cap on the
amount in (B). compensation value. From the
consumers point of view,
Regulations increase in accidents which
lead to death or disability
TP Cover Cannot should have adequate

compensation decided
Be Refused by MACT to give justice
to victims or victims
More steps needed to family. The existing law
ensure that uninsured benefits accident victims
vehicles do not ply many of whom are from
the lower strata of society.
I RDAI is making it difficult for

insurers to refuse to cover TP
motor risk. To help consumers
Any change to MVA to benefit the
insurers by putting a limit on the
award decided by MACT can lead
a significant risk for citizens, and
even for cars, on the road. Many
do not even know what TP covers
get TP cover easily, IRDAI wants to injustice for accident victims. and, hence, do not bother to buy
insurers to sell motor TP products The TP liability cover, which is it. If higher numbers of vehicles are
online. Insurers used to avoid mandatory in India, does not covered for TP, the premium will
underwriting of stand-alone TP provide any benefit to the insured; be lower for everyone. IRDAI, with
cover, especially for commercial however, it covers the insureds help of RTO and the police, should
vehicles, due to higher loss ratio. legal liability for death/disability ensure that penalties are levied on
TP cover premium is under tariff of third-party loss or damage to uninsured vehicles.
consumer feedback-based rating appendix, hernia, piles, bypass life insurer should monitor all
mechanism wherein consumers surgery, cataract operation, knee the activities of the corporate
can get treatment-related details replacement surgery, etc. agents. Exide Life had not
and gain from actual experience ensured compliance of the
from patients for over 1,000 Exide Life Penalised Rs11 Lakh provisions of the regulations
hospitals across primary, secondary
and tertiary segments. ICICI
Lombard Health Advisor provides
I RDAI has levied a penalty of
Rs11 lakh on Exide Life for
violating various provisions of
and circulars.
Penalty of Rs5 lakh was
imposed for denial of claims
information on more than 30 insurance norms. There were on grounds of non-disclosures
treatment procedures selected on violations of provisions with regard in declaration of health (DoH)
the basis of incidence rate. The to business sourced by corporate form at the time of revival of
procedures include removal of agents. The order states that the the policy.
Insurance.indd 3 07-04-2016 15:46:35

COVER STORY
Do Equity Funds Take

a Short-term View?
Only about 8% of the stocks bought by 59 large equity schemes were

purchased more than five years ago, finds Jason Monteiro
E
quity mutual funds are expected to buy period, the scheme reported total purchases of Rs500
good-quality stocks that will outperform the crore, its PTR will work out to 50%.
broad market over the long term. While fund Can this ratio be gainfully used by investors to short-
houses preach that investors should remain list equity schemes? In fact, there is no single correct
invested for the long term, while managing ratio or an acceptable ratio. Just because a Rs1,000-
their portfolios, do they stick to the same principle? In crore scheme reports sales of Rs1,000 crore, it does not
this Cover Story, we analyse whether equity schemes mean that the entire portfolio was changed. Buying and
invest for the long term or whether they constantly churn selling of a certain set of stocks (probably for short-term
their portfolios for short-term gains or, maybe, losses. gains) can increase the turnover of the portfolio without
To check how much a fund manager churns a portfolio, affecting the long-term positions.
many refer to the portfolio-turnover ratio (PTR). PTR But, more than portfolio churn, one needs to
divides either the total sales or purchase transactions understand the underlying philosophy. Fund managers
over a period by the average net assets of the scheme. are often under pressure to deliver alpha or returns in
Therefore, if the average assets under management excess of benchmark returns. This leads them into the trap
(AUM) of the scheme is Rs1,000 crore, and over the of thinking in terms of months and quarters, not years
Cover Story.indd 2 07-04-2016 17:34:59

COVER STORY
and decades. If one is under pressure to deliver consistent

growth, quarter after quarter, to beat the market, the Over 70% of schemes hold less than 10% of
fund manager doesnt have the luxury of buying an the stocks bought for more than five years
undervalued stock and waiting for it to take off. That
might take years and short-term underperformance may
Number of Schemes
not be acceptable to investors.
When Kenneth Andrade quit IDFC Mutual Fund as 17 More than 10%
22
chief investment officer, in an interview to Forbes India 5% to 10%
magazine, he candidly said that the mutual fund model
Less than 5%
is participatory. There is always pressure on the fund
manager to beat the index. I wish that it was more about 20
buying businesses than buying stocks. That way, long-
term investors will gain the most. When we are buying
the business, you will beat the index. Most investors Percentage of total stocks held for 5 years or more
stay with a mutual fund only for 18 months. That is
something which also needs to change. It is important for a period of five years or more. On an average, 16%
that the fund manager and the investor both stay in sync. of the stocks are held for a period of three to five years
But this does not happen in most equity schemes. The and 38% of the stocks are sold within one year to three
interview also mentions that investors are promised years. An equally high percentage (38%) of stocks is sold
long-term returns but fund managers are forced to off within a year. For as many as 44 schemes, 30% of
perform for the short run. The mutual fund model is the stocks were sold within a year. Only in 17 schemes
completely sales-driven and it becomes more of a vehicle were 10% of the stocks held for a period of five years or
that collects money (rather) than manages money. That more. In 26 schemes, only 5% of the stocks were held for
creates a conflict which, many times, has an adverse five years or more. This analysis shows that mutual fund
effect on investment decisions. managers have an increasingly short-term focus.
Is there enough hard evidence that fund managers buy But the number of stocks bought or sold may not
and hold for the long term, or do they aim to generate be representative of the weightage of the stocks in
alpha by frequent buying and selling over the short term? the portfolio. Therefore, we even looked at how long
We analyse the monthly portfolios, over five years, of 59 individual stocks were present in the portfolios based
equity diversified schemes with a corpus of over Rs1,000 on the December 2015 portfolios of the sample. On an
crore as on 31 December 2015. average, 24% of the portfolios have stocks which have
been held for over five years. In 20 schemes, the weightage
Do What I Say, Not What I Do is over 30%, while in 31 schemes, the weightage of
While most fund managers claim that one should invest stocks held for five years or more is less than 20%. This
for the long term, surprisingly, on an average, only 8% means that, in most schemes, only 20% of the portfolios
of the total stocks bought (by the 59 schemes) were held consists of stocks bought five years ago.
Only 8% of stocks are held for more than The latest portfolios have only 18% stocks
than 5 years while 38% for less than a year which are held for over 5 years
8% Number of Stocks Number of Stocks
More than 5 Years 18% More than 5 Years

16% 27%
38% 3-5 Years 3-5 Years
16%
1-3 Years 1-3 Years
38% Less than 1 Year 39% Less than 1 Year
Number of stocks as a percentage of total stocks bought Number of stocks as a percentage of total stocks in Dec-2015 portfolios

COVER STORY
Only 8% of the schemes have large Just one-fourth of the portfolios are
weightage for stocks held for over 5 years weighted to stocks bought five years ago
5
Number of Schemes
20% 25%
More than 5 Years
More than 50%
3-5 Years
20 25% to 50%
34
17% 1-3 Years
Less than 25%
38% Less than 1 Year
Weightage of total stocks held for over 5 years in the Dec-2015 portfolios Weightage of stocks in the Dec-2015 portfolios
The top five schemes with the highest allocation to to rebalance the portfolio with following objective: 1.
stocks held for more than five years are: UTI Equity Risk management; 2. Addition / reduction of weights in
(61%), UTI Dividend Yield (59%), UTI Mastershare line with investment framework and portfolio strategy;
(56%), HDFC Top 200 (52%) and Franklin India 3. Meet the redemption requirement / deployment of
Bluechip (47%). Schemes which have the least allocation cash inflows. The actions related to specific positions
to stocks held for more than five years in their portfolios are to do with company-specific events. On being
include: Birla Sun Life Mid Cap (5%), SBI Magnum asked about the ideal holding period for stocks, he says,
Midcap (2%), ICICI Prudential MidCap (1%). IDFC There is no ideal period per se. The view is based on the
Sterling Equity and DSP BlackRock Focus 25 did not fundamentals. However, we try to base our investment
have any stock in their portfolios that was present for decision on three years outlook.
more than five years.
The 59 schemes had an average allocation of 38% in Short-termism Vs Fund Performance
stocks held for one to three years. In 20 schemes, 40% of We analyse the category-wise performance of the
the assets were in such stocks. Of this, a high weightage schemes and their weightage to stocks based on their
was in stocks that have been in the portfolios for less holding period in their portfolios. This will help us to
than a year. On an average, 20% of the assets were understand whether schemes with a short-term focus
allocated to stocks which have been in the portfolios for have done better, or worse, than other schemes.
less than a year. Among large-cap schemes, the top five performers
Schemes with the highest weightage to stocks held for
less than a year include: UTI Bluechip Flexicap (58%), Large-cap Schemes
IDFC Sterling Equity (57%), DSP BlackRock Small and
Top Five Schemes Return* Weight#
Midcap (43%), Birla Sun Life Equity (39%) and Reliance
SBI Bluechip 12.53% 49%
Top 200 (33%). Schemes with the lowest allocation to
stocks added over a one-year period include: Franklin Birla Sun Life Top 100 11.75% 47%
India Flexi Cap (5%), Reliance Equity Opportunities Reliance Top 200 11.14% 51%
(5%), UTI Mastershare (4%), Franklin India Bluechip Birla Sun Life Frontline Equity 10.97% 30%
(4%) and UTI Dividend Yield (2%). Therefore, even if ICICI Pru Focused Bluechip Equity 10.54% 44%
we go by the weightage of stocks in the portfolios, on Bottom Five Schemes
an average, over 55% of the portfolios consists of stocks DSP BlackRock Focus 25 8.88% 97%
which have been invested in over the past three years
Franklin India Bluechip 8.65% 35%
and one-fourth of the portfolios was allocated to stocks
DSP BlackRock Top 100 Equity 7.61% 91%
invested in over the past one year. Long-term anyone?
What can lead to frequent buying and selling of UTI Bluechip Flexicap 7.42% 64%
stocks? According to Saravana Kumar, chief investment HDFC Large Cap 4.09% 59%
offi cer of LIC Nomura MF, Portfolio reviews are done * Five-year return as on 31 Dec-15; # Stocks held for less than three years
with regular frequency. The purpose of the review is
Cover Story.indd 4 07-04-2016 15:02:22

COVER STORY
were: SBI Bluechip (12.53%), Birla Sun Life Top 100 and -36% compared to percentage of stocks exited in less
(11.75%), Reliance Top 200 (11.14%), Birla Sun Life than three years. Here the negative correlation indicates
Frontline Equity (10.97%) and ICICI Prudential Focused that the performance of the scheme deteriorated when
Bluechip Equity (10.54%). At the bottom of the list were the percentage of stocks exited within one year or three
schemes like DSP BlackRock Focus 25 (8.88%), Franklin years was greater.
India Bluechip (8.65%), DSP BlackRock Top 100 Equity In the multi-cap scheme category, there was no clear
(7.61%), UTI Bluechip Flexicap (7.42%) and HDFC relation to the five-year performance and the holding
Large Cap (4.09%). period of stocks by the schemes. The top five schemes in
In the top five schemes, 44% of the stocks were of this category were: SBI Magnum Global 94 (18.14%),
less than three years vintage. Birla Sun Life Frontline Reliance Equity Opportunities (14.27%), Franklin India
Equity had the lowest weightage to such stocks, with an Prima Plus (13.69%), Mirae Asset India Opportunities
allocation of 30%. ICICI Prudential Focused Bluechip (13.28%) and BNP Paribas Equity (12.77%). At the
Equity, Birla Sun Life Top 100 and SBI Bluechip had bottom of the list were schemes like UTI Mastershare
an allocation of 44%, 47% and 49%, respectively. (8.75%), HDFC Equity (8.45%), Reliance Vision
Signifi cantly, in the bottom five schemes, 69% of the (7.78%), HDFC Top 200 (7.63%) and UTI Dividend
stocks were added in the past three years. For DSP Yield (6.33%).
BlackRock Focus 25 and DSP BlackRock Top 100 The top five schemes had bought 47% of the stocks
Equity, the allocation to these stocks was as high as 97% in the past three years, while the bottom five schemes
and 91%, respectively. UTI Bluechip Flexicap, HDFC had bought 34% the stocks in the past three years. In
Large Cap and Franklin India Bluechip had an allocation this sample, the correlation to performance was higher to
of 64%, 59% and 35%, respectively. schemes which portrayed short-termism. Schemes which
Among the 14 large-cap schemes in the sample, the bought and sold stocks within a one-year or three-year
correlation between the scheme returns and weightage period did better.
to stocks held for less than three years in the portfolio Multi-cap schemes have the flexibility to invest across
works out to -43%. This indicates that a higher stocks of all capitalisation. Hence, they can vary their
allocation of stocks bought over the three-year period allocation based on their outlook of which category of
has led to a lower return. Even if we take a look at the stocks will do better. For example, in Reliance Equity
average holding period for the top five schemes, 33% Opportunities, the allocation to Mega-cap stocks
of the stocks were held for less than a year, while for increased from around 44% in December 2011 to 63%
the bottom five schemes, 41% of the stocks were exited in December 2015. Similarly, the allocation to stocks of
within a year. Here, again, the correlation of returns other market-cap sizes was not constant. This was the
for the 14 schemes works out to -14% compared to case for most other schemes in the category. SBI Magnum
percentage of stocks exited in less than one-year period Global 94 had an allocation of 51% to large-cap stocks
Multi-cap: Stocks held for less than 3 years Mid-cap: Stocks held for less than 3 years
Top Five Schemes Return* Weight# Top Five Schemes Return* Weight#
SBI Magnum Global 94 18.14% 57% Mirae Asset Emerging Bluechip 23.18% 63%
Reliance Equity Opportunities 14.27% 36% Reliance Small Cap 22.24% 66%
Franklin India Prima Plus 13.69% 41% Franklin India Smaller Companies 21.61% 60%
Mirae Asset India Opportunities 13.28% 41% DSP BlackRock Micro Cap 21.04% 72%
BNP Paribas Equity 12.77% 60% SBI Magnum Midcap 19.81% 76%
Bottom Five Schemes Bottom Five Schemes
UTI Mastershare 8.75% 29% ICICI Prudential MidCap 14.99% 81%
HDFC Equity 8.45% 43% DSP BlackRock Small and Midcap 14.68% 79%
Reliance Vision 7.78% 51% Birla Sun Life Mid Cap - Plan A 13.46% 76%
HDFC Top 200 7.63% 23% IDFC Sterling Equity 13.27% 82%
UTI Div idend Yield 6.33% 23% Tata Equity Opportunities 12.27% 69%
# #
* Five-year return as on 31 Dec-15; Stocks held for less than three years * Five-year return as on 31 Dec-15; Stocks held for less than three years
Cover Story.indd 6 07-04-2016 15:02:43

COVER STORY
systems and behavioural biases such as herding and

Short-termism in the US recency bias. Volatile markets throw up apparent
buying and selling opportunities. Therefore, portfolio
A misalignment of interests between fund churning tends to be higher when markets are volatile.
managers and their clients? Some felt that the volatility produced new opportunities
for them to exploit, while others were forced to close
A 2010 study, titled Investment HorizonsDo

Managers Do What They Say?, found that there
is a strong tendency for active (long-only) equity fund
positions and cut their losses.
Some of the fund managers interviewed by Mercer
believed that the incentive systems are often devised
managers to have higher portfolio turnover rates than to pay fund managers to be aggressive over shorter
they claim. The study conducted by Mercer, a consulting time periods. This was considered to be especially
firm, and funded by the not-for-profit Investors pronounced for mutual funds, where managers are
Responsibility Research often incentivised
Centre Institute, found against quarterly
a disconnect between performance versus a
fund managers market benchmark or
understanding of the quartile rankings. Some
wider negative impacts fund managers stated
of short-termism for that their bonuses were
end investors, such linked to performance
as higher trading over annual periods.
costs, higher market A couple of fund
volatility/risk and their managers with a longer
perception of what horizon believed that
this means for them as higher-than-expected
active fund managers. portfolio turnover
More importantly, their could reflect a lack
case-studies revealed of discipline in the
that some managers investment process and,
who greatly exceed the as such, be symptomatic
expected turnover do of a potential problem
not see this as an issue to be explained or addressed. with the process itself.
Mercer analysed the average holding period of over The interviewees even cited herding or panic
900 institutional actively managed equity portfolios, as reasons for turnover increase at certain points in
calculated for the period June 2006 to June 2009, time. Some believe that momentum-based strategies
across all major regions and styles for which they are more at risk of falling prey to such biases. The risk
had available data, including value, growth, small- , of recency bias also emerged as a possible driver of
large-cap and socially responsible investment the short-term cycle, whereby end investors allocate
strategies. Short-termism is defined as an average funds to schemes that have performed well recently
holding period of 12 months or less. They found that and shift out of underperforming schemes. This leads
20% of schemes turn over their portfolio completely fund managers to buy or sell stocks even if they felt it
every year. The average annual turnover of the sample was not the right time to buy or sell stocks.
was 72%. Many active managers claim that they can Based on their analysis and interviews with
utilise short-horizon investing as a means to generate various stakeholders, the authors concluded that
alpha. They also found that large-cap schemes have a short-termism is part of how the market functions; it
lower turnover rate than small-cap schemes. places short-term pressure on companies; it increases
What was the reason for short-termism? According market volatility; it potentially demonstrates a lack
to the feedback from fund managers, the main reasons of discipline in fund managers investment processes;
could be linked to volatile markets and changing and it potentially creates a misalignment of interests
macroeconomic conditions, short-term incentive between fund managers and their clients.
Cover Story.indd 7 07-04-2016 15:03:04

COVER STORY
in December 2011. This increased to 60% in December Select Midcap had an allocation of 44% to stocks held
2012. The allocation was gradually reduced to 34% in for three years and more. Reliance Mid & Small Cap,
December 2014. Its allocation to mega-cap stocks has IDFC Premier Equity and Franklin India Prima were the
increased from around 18% in December 2011 to 50% other schemes with a high allocation to such stocks.
in December 2015. Small- and mid-cap stocks throw up great
The 24 schemes in this category had an average opportunities. However, patience is essential for investing
allocation of 47% to stocks in their portfolios for less in such stocks. This analysis is a clear indicator that
than three yearsmarginally lower than the average of schemes which have churned their stocks within three
all scheme categories and that of the large-cap category. years have not done too well compared to schemes which
In the small- and mid-cap category, short-termism have held on to stocks for three years or more.
was much more prevalent. On an average, these schemes Our analysis has thrown up some interesting insights.
had 66% of stocks invested in over the past three years. Schemes which are focused on a specific category of
As much as 23% of the portfolio allocation was to stocks stocks, like large-cap schemes or small- and mid-cap
added over the past one year. Small- and mid-cap stocks schemes, have done well if they have held on to stocks
are less researched, can be highly volatile and require for three years or more. In the multi-cap scheme category,
rigorous monitoring by fund managers. But does a short- most schemes have churned their portfolio. Some have
term outlook on small- and mid-cap stocks affect the succeeded while others have not. Keeping a short-term
scheme performance? focus, the schemes may have succeeded over the short
The top five schemes in the category were: Mirae term, but long-term returns would have suffered.
Asset Emerging Bluechip (23.18%), Reliance Small Cap There are many ways one can pick good equity
(22.24%), Franklin India Smaller Companies (21.61%), mutual fund schemes. Most investors pick schemes based
DSP BlackRock Micro Cap (21.04%) and SBI Magnum
Midcap (19.81%). The bottom five schemes were:
ICICI Prudential MidCap (14.99%), DSP BlackRock
Small and Midcap (14.68%), Birla Sun Life Mid Cap
(13.46%), IDFC Sterling Equity (13.27%) and Tata
Equity Opportunities (12.27%).
The top five schemes had an average weightage of
67% to stocks which were in their portfolios for less
than three years. For the bottom five schemes, this was
as high as 78%. Even if we take a look at the allocation
to stocks in the portfolios for five years or more, the top
fi ve schemes had an average allocation of 10%, while
the bottom five schemes had an average allocation of
6%. For stocks held for three to five years, the average
allocation for the top five schemes was 17%, while that
for the bottom five schemes was 10%. on their past performance. Most rating websites rank
There is a negative correlation of -30% between the schemes on past performance over specific one-year or
performance of the schemes and the weightage to stocks three-year periods. We have often highlighted in the past
which were in the portfolios for less than three years. that past performance should not be the only criterion
Funds with a short-term outlook delivered lower returns. for picking schemes. There are many other factors one
Similarly, the correlation is high as -51% for schemes should consider. The short-term focus of schemes should
which invested in stocks for a period of less than a year. be analysed as well.
Among the schemes with the highest allocation to Not all stocks can be winners. Some stocks may
stocks held for five years or more in their portfolios deliver extraordinary returns over the short term. Others
were: HDFC Mid-Cap Opportunities and Sundaram may go down or remain directionless before rallying.
Select Midcap. Each had an allocation of 26% to such Some others may not perform at all. It is impossible to
stocks and delivered a return of 18.64% and 16.54%, have only winners in a portfolio. Fund managers need
respectively. In fact, over 60% of the portfolio of HDFC to chop and change their portfolios periodically. But
Mid-Cap Opportunities is invested in stocks that have they seem to be churning too much too often, enriching
been in the portfolio for over three years. This is the brokers and delivering poor performance for investors,
highest among all schemes in the category. Sundaram all this while singing paeans for long-term investing.
Cover Story.indd 8 07-04-2016 15:03:20

StockWatch
A section on stocks and sectors that catch our eye
J ay B h a r a t M arut i
Waiting for Better Times
Squeezed by Price in Rs
Volume
Slowdown 175 51,000
160 40,800
JBM is an inexpensive stock which could do
well if car companies get back their growth 145 30,600
130 20,400
J
ay Bharat Maruti (JBM) is one of the earliest auto-
ancillary companies that was set up when Suzuki 115 10,200
came into India and changed the passenger car
segment, creating a robust automobiles sector. The 100 0
business is somewhat cyclical, especially if the supplier Feb-15 Sep-15 Mar-16
depends on a few major buyers. JBMs first customer
was Maruti Suzuki which also took a stake in it. JBM Shares Traded Adjusted Closing Price
has been growing since then, continually expanding its

Key Financials
Stand-alone (Rs Cr) Jun-15 Sep-15 Dec-15
Revenue 321.37 329.47 311.85
OP 26.08 29.88 28.29
OPM 8% 9% 9%
Y-o-Y Revenue Growth 4% -5% 3%
Y-o-Y OP Growth 2% -6% 14%
March Ending FY13 FY14 FY15
RoNW 14% 10% 19%
OP: operating profit, OPM: operating profit margin, RoNW: return on net worth
companies are not doing well, ancillaries get squeezed.

This is why the operating margin of the company is an
manufacturing capacity and recording steady growth unexciting 8%. For the quarter ended December 2015,
in revenues and operating profits. Its manufacturing JBM had sales of Rs311.85 crore (Rs303.50 crore),
capabilities include imported and indigenous press- up 2.75%, and quarterly operating profit of Rs28.29
lines, robotic welding lines as well as plating and crore (Rs24.85 crore), up 13.84%. For the year ended
painting facilities. It has added exhaust systems, axles March 2015, JBM had annual sales of Rs1,294.14
and fuel neck-fillers to the existing capabilities of crore (Rs1,211.58 crore), up 6.81%, and net profit
sheet-metal components and welded modules. JBM of Rs39.98 crore (Rs16.52 crore), up 142.01%.
has embraced international systems and processes, The shareholding pattern of JBM includes 58.56%
implementing them at all levels. This has resulted in shareholding with promoters and 41.44% shareholding
certification from global institutions. with the general public.
Unfortunately, vendors of parts, like JBM, Over the past five quarters, the average quarterly
are usually at the mercy of the car-makers. If car growth in sales was 1% and the average quarterly
StockWatch.indd 3 07-04-2016 16:31:09

STOCK WATCH
growth in operating profit was 14%. The market- book value is Rs93.75.The stock has no takers now
capitalisation of JBM is just 0.22 times its sales and which is why it is very reasonably valued. The price-
2.61 times its operating profit. However, the return earnings-ratio is just 7.42. A slight growth momentum
on net worth (RoNW), computed on a four-quarter in the passenger car business can attract interest in
trailing basis (quarter ended December 2015), is stocks like JBMs. JBM distributed dividends of 40%
a high 18% while the return on capital employed for FY14-15.
(RoCE) was 19% computed on a four-quarter trailing The share price of the company fell from its
EBIT (earnings before interest and tax). Debt is at a 52-week high of Rs184.40 on 4 January 2016 to its
reasonable level. The debt-equity ratio is around 0.77. 52-week low of Rs114 on 12 February 2016. The share
The face value of the companys share is Rs5 and its was trading at around Rs131 on 5 April 2016.
Geometric Gets Taken unimpressive operating profit margins. The situation

hasnt changed much since then with Geometrics
Over, As We Had revenue growth in the last five quarters at just around
6.5%. We had suggested that a takeover will unlock its
Hoped value.
In our January 2015 issue, we had HCL To The Rescue

suggested that the best thing shareholders Share Price
Volume
(No. of Shares)
can expect is a takeover of the slow- 240 20,33,000
growing Geometric
16,26,400
220
M
oneylife had carried an article in January
2015 that stating that the real value of 12,19,800
Geometric may be unlocked either with a 180
change in management that can add more profitable 8,13,200
business lines, or through a takeover by a much 160

4,06,600
larger company. HCL Tech has now announced the
acquisition of software company Geometric Ltd,
140 0
promoted by the Godrej group, for US $ 192 million
Feb-16 Mar-16 Apr-16
(around Rs1,270 crore). It is an all-stock deal where
Adjusted Closing Price Share traded
shareholders will get 10 shares for 43 shares in
Geometric. It is a 100% acquisition by HCL Tech,
58% stake in Geometrics joint venture3DPLM It is a relatively small acquisition for the IT major
Software Solutions. We had stated in the January HCL Tech. The part of Geometrics business that
2015 article that Geometric had disappointed is acquired is estimated to have revenues of around
shareholders, due to its poor return on capital. This Rs900 crore. Geometrics services cover product
was despite the fact that it operates in one of the most lifecycle management, software product development,
profitable business segments of India, namely, software embedded systems and global engineering services.
development. Its growth was slow and uneven with Geometric has as many as 60 clients in the automotive
Exits & Returns from Erstwhile Street Beat Stocks: We continue to monitor stocks featured in the erstwhile Street Beat section. We will suggest an exit
when they are no longer undervalued or not performing as per expectations. Keep an eye on this space. | 42% Return: Our recommendation has so far
fetched 42% average annualised return since January 2012, based on booked profit and open positions of more than one year.
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.

STOCK WATCH
and engineering segments. Its focus is on engineering of banks and NBFCs) on the basis of our parameter of
services and software services that account for around low valuation ( market-capitalisation/sales) and high
88% of its revenues (excluding revenues of 3DPLM return on capital employed (RoCE) (11% and above
Software solutions). This acquisition is expected to give their five-year average). We found 138 companies
cross-selling opportunities to HCL Tech. trading at a valuation (MC/sales) above their average
HCL Tech rose on news of the acquisition by valuation of the past 21 quarters. The top-10
2.35% to Rs840. The markets considered the merger to overvalued stocks gave an annualised return of 30%
be extremely positive for Geometric; it skyrocketed by from December 2010 to 17 February 2016.
around 19% on the day of the acquisition, closing at What differentiated the big winners? In almost all
Rs234. cases, it was continued earnings momentum that defied
their gross overvaluation. What if you had bought
the so-called undervalued stocks (even from among a
sample of stocks with 11% RoCE)? Your return would
be 4%.
How To Handle A similar study for 2011 has a list of 168
companies. Of these, 42 companies were trading at a
valuation (market-capitalisation/sales) above their past
Overvaluation 21-quarter average. These fetched an annualised return
of 32% from the end of December 2011 to
Pay up for quality, only if you are sure that 17 February 2016. The top-10 overvalued stocks gave
earnings growth will continue an annualised return of 44% over the period. What if
you had bought the so-called undervalued stocks (even
O
ne of the most vexing issues for investors is from among a sample of stocks with 11% RoCE)?
handling overvaluation of quality companies. Your return would be 26%.
Often, the best of companies go up sharply, The lesson: Overvaluation cannot be the sole
in a bull run, and become highly overvalued. After reason for selling. If one foresees a future growth,
this happens, it could well be that such high-quality which will support the high valuation, continue to
stock gets sold off sharply which can lop off 30%-40% hold, even though the stocks go down temporarily. To
of the value rather quickly. On the other hand, some take an example, Mayur Uniquoters had hit Rs42.50
stocks may simply not go down, even after getting in November 2010. Three months later, it had hit
overvalued. How does one differentiate between the Rs28.38, a fall of 33%. The stock is now at Rs409,
two kinds of overvaluation? five years later. The same was the story about Orbit
We looked back to 2010-end when the market was Exports, down 46% over one year (between October
very expensive. We screened stocks (other than those 2010 and July 2012) and a 400% jump thereafter.
Overvalued Stocks of 2011 Overvalued Stocks of 2012

Company Annualised Gain/Loss Overvaluation Company Annualised Gain/Loss Overvaluation
VIP Industries -6% 278% PI Industries 51% 179%
TTK Prestige 21% 257% TTK Prestige 13% 121%
Hawkins Cookers 13% 254% Agro Tech F oods 4% 103%
Zydus Wellness 2% 211% Kitex Garments 69% 77%
Poly Medicure 27% 197% Orbit Exports 49% 72%
Ganesha Ecosphere 11% 177% Mayur Uniquoters 74% 63%
Safari Industries 56% 152% VST Industries 11% 52%
Relaxo Footwears 58% 147% Bata India 15% 49%
PI Industries 61% 145% GSK Consumer 21% 48%
Kitex Garments 57% 140% Ajanta Pharma 130% 44%
Annualised price performance between 31 December 2010 to Annualised price performance between 31 December 2011 to
17 February 2016 17 February 2016
StockWatch.indd 5 07-04-2016 16:32:13

STOCK WATCH
western India. Henkel has been an old player globally

Will Asian Paints with more than 100 years of experience worldwide in
adhesives. Strengthening its distribution network across
Unsettle Pidilite but smaller stores/kirana stores would be a key challenge
Weaken Itself? for Asian Paints to match Pidilite. Its products are
priced on par with Pidilites. Asian Paints retail focus
is apparent as its brands Rapid and Tough will be
Competition heats up in branded adhesives available in syringe packs.
market Astral Poly Technik Ltd has also entered into
adhesives segment by buying out Kanpur-based
I n what appears to be a natural expansion, Asian

Paints has entered into the branded adhesives
space by launching three offerings, namely, Loctite
specialty chemicals manufacturer Resinova Chemie Ltd.
It had acquired 80% stake in UK-based adhesive and
sealants maker Seal It Services Ltd, in 2014. However,
Quick, Loctite Rapid and Loctite Tough. This marks according to analyst estimates, it is too small a player
diversification by Asian Paints, to seriously challenge Pidilite. At present, the branded
the paints major, into the adhesives market has numerous small
adhesives segment. Asian Paints players who have not
came out with extensive print been able to challenge
advertisements announcing the Pidilites dominance in
launch of these adhesives. this segment.
This entry may dent Branded adhesives
Pidilites command in this and sealants contributed
space. Pidilite is the market to 50% of the sales for
leader in this segment, with Pidilite, while industrial
more than 70% market adhesives accounted for
share. It sells adhesives 6%, in FY14-15. Pidilites
through its extremely net sales of branded
strong brands Fevicol adhesives and sealants grew
and Fevikwik. One of by 14.1% in FY14-15.
the greatest strengths for Pidilites stock was under
Pidilite is its distribution pressure on 28th March,
network which has presumably due to this new
prevented entry of any competition, declining nearly
challenger so far. Asian 4% from its previous close
Paints, too, has a wide of Rs599.65. However, it
distribution network recovered the next day. On
but of a different kind. 31st March, the stock closed at
According to Edelweiss, Rs592. The stock trades at a
Asian Paints has a price-to-earnings (P/E) multiple
distribution network of 44 while the P/E of Asian
of around 36,000 Paints is 50. Pidilite has grown
hardware shops that its revenues at 20% per annum
can be tapped to for the past 10 years while
distribute its adhesives. It Asian Paints has notched up
has no access to small stores which have a ready revenue growth of 18.8%. Both
supply of Pidilite products. the companies have excellent managements that
Asian Paints has entered into a distribution have created enormous value for shareholders. Both
arrangement with Germanys Henkel Adhesive were started by chemical engineers from the University
Technologies for its adhesive category. Henkels Department of Chemical Technology (UDCT) of the
adhesive brand Loctite will be sold at the retail Mumbai University, now called Institute of Chemical
level through a co-branding initiative. Currently, Technology (ICT). But this could be a debilitating fight
the company is selling Loctite in certain markets in for the shareholders of both companies.
StockWatch.indd 6 07-04-2016 18:14:19

STOCK WATCH
UN UOTED
STORIES OF PRICE MANIPULATION
Gini Silk Mills (Rs282) slightly lower, at Rs2.24 crore. With no

(Rs) significant growth in sales or profits,
G ini Silk Mills manufactures

woven and printed fabrics. With
its manufacturing facility located at
315
255
the stock price of Gini Silk Mills shot
up an astonishing 951%, or nearly 11
times, over the past one year. From
Tarapur (Maharashtra), Gini Silk Mills a low of Rs29 on 23 March 2015, the
states on its website that it supplies 195
951% stock shot up to Rs305 on 31 March
fabric to Wills Lifestyle, Westside, 135
2016, with an average of just 40 trades
Peter England, Indigo Nation and a day.
Shoppers Stop. However, there is no 75 As on 31 December 2015, Gini Silk
mention of its clients in the companys Mills had 614 shareholders holding
annual report for 2014-15. The textiles 15 25% stake in the company. The number
Mar-15 Sep-15 Mar-16
manufacturer reported revenue of of shareholders has reduced from
Rs41.02 crore and a profit of Rs2.86 around 800 in December 2013. Is this
crore for the year ended December revenue reported was almost the another pump & dump operation? Will
2015. For the previous year, the same, at Rs41.38 crore, and profit was the regulator investigate?
MARKET TREND
Under Pressure Nifty50 are still too high, i.e., 20%

growth for FY16-17 and 19% for
Is the Post-Budget Rally Over? FY17-18, respectively. UBSs forecasts
for Nifty50 earnings growth are just
T he market has done what it is expected to do at

a time when news flows are benign but valuation
is not low: move sideways. Over the past one month
10% for FY16-17 and 16% for FY17-18,
respectively. UBS says that its Nifty target for
December 2016 is 7,500; that is no upside from the
or so, foreigners have invested heavily in India while current level.
mutual funds and domestic institutional investors Last fortnight, the Reserve Bank of India cut the
have been selling. The flow of news is mostly positive. repo rate by .25%. This was a much-awaited event
There is action on bad loans;; there are more schemes for which punter
punters had built up a position. But after
and announcements from the he government the rate cut, the market fell sharply and the decline
which institutional investors are con
continued for the next few days. The
eager to latch on to; and globalbal rate cut will not mean much, says
markets have been rallying. UBS. The challenge for the market
But market valuation is rremains reality vs expectations, as
already high and it will ref
reflected in the still optimistic earnings
take a lot of effort for bulls esti
estimates. It said: The rate cut is not
to make stocks fly. nece
necessarily bullish for Indian equity
thout a strong
I had mentioned that, without marke as it typically coincides with a slow
market,
omewhere, the market
unexpected stimulus from somewhere, growth phase.
will not head anywhere overr this year and, possibly, We continue to see bouts of decline and
the next. The only ray of hope is a great monsoon. rallies. Right now, the market seems to be under
But, as of now, earnings are not expected to grow pressure. By the next fortnight, though, if the market
much in 2017. According to UBS, a global investment has declined enough, it would be time to rally.
bank, consensus earnings growth projections for the Debashis Basu
StockWatch.indd 7 07-04-2016 18:14:52

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Indias most unbiased and pro-investor research and information group.
MSSN GB Ad_invest.indd 2 18-11-2015 20:37:14

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MSSN GB Ad_invest.indd 3 18-11-2015 20:38:17

VALUE STOCKS DEBASHIS BASU
Are You Riding the Profit

Momentum?
A strong focus on stocks whose profits are rising sharply may be very rewarding, if you know
why you are buying and have a method to exit
O
ne of the reasons why a majority of equity schemes keep an eye on the exit and have a short-term, possibly a
of mutual funds dont perform so well is their price-based or technical indicator, to tell you when you
self-imposed constraint of remaining tied to need to sell and run.
benchmark stocks. But the bigger problem is their strange I am not advocating this process and it is unlikely we
stock selection that often leaves us flummoxed. Why will will ever follow it. The risks of buying anything other than
mutual fund scheme portfolios sport a Larsen & Toubro quality stocks and ignoring the price is far too much. But,
here and a Reliance Industries there? having noticed that this is the Achilles heel of poorly-
We are surprised that anybody would be interested performing funds, I have cursorily tested whether, by
in putting retail investors money in anything other than following rising profit momentum of companies, we could
quality stocks with a clear growth potential and that convert the poor performance of equity schemes into
they opt to bet on hunches, theories, thesis, stories, etc. superior investment results. Alongside are some examples
We dont do that. Maybe that is why, over the past four of profit growth and stock prices.
calendar years, our stockletters have performed quite well. In each case, as profit growth took off, the share
The returns from the Lion stockletter, which has an prices rose dramatically. At one level, this is logical.
accent on large-caps, have beaten the best equity schemes Profitable growth is the dream
P
in 2013, 2014 and 2015. Over 2012-15, too, our returns of all businesses. Sustaining
have beaten the best equity schemes. Remember, the best double-digit growth, quarter
schemes are known only byy hindsight. Our principle after quarter, is a rare feat which
of focusing on Returns at Reasonable will immediately turn heads. If the
Price (RARP) is working, at least for ccompany is medium to large and
now. Even if we dont beatt all the has a clean management, investors
ha
schemes every year, we hope ope to would see it as an extremely rare
wo
be among the top 10 (a list that opportunity, in a world of slow growth
oppo
keeps changing). and ma
margin pressure caused by product
N o w, m u t u a l f u n d s saturation.
dont have to follow RARP. RP. And when they do that investors would look
Indeed, we ourselves have ve at the recent past
pa and extrapolate. In an uncertain
modified our process to make ake world of stocks
stocks, there is nothing more comforting
it GARARP that is, Growth wth than a line risin
rising from the left to right, on sales
and Return at Reasonable le and profit charts.
chart Fund managers, analysts and
Price. But if there is one ne retail investors wowould, without an iota of doubt,
thing you can learn from extend that line into the future and calculate future stock
the average performance prices that follow rising sales and profits.
of the majority of mutual ffunds,
d iti is
i this:
hi focus
f on This will
Thi ill d
draw in
i more and more investors. If the
profit growth. Funds dont do that and you should not company has high debt, spreadsheets will tell the analysts
make a similar mistake. how future profits, quarter after quarter, would melt the
Let me explain how staying focused on profit growth debt away, thanks to rising profits. As interest cost goes
alone could be a profitable strategy. But, before that, down, profit will get a further boost. Profit momentum
here is a caveat. Profit growth a) can be a short-term is growth elixir for stock prices.
phenomenon, b) can also happen to a mediocre company
due to luck, not skill, and c) can happen through excessive Windfall Gains
borrowing by the company. In all these cases, you need to One of the rewarding aspects of finding yourself riding
Value Stocks.indd 2 07-04-2016 18:45:48

VALUE STOCKS DEBASHIS BASU
DIC India Force Motors

Net Profit (Rs Cr) Stock Price (Rs) Net Profit (Rs Cr) Stock Price (Rs)
8.70 735 50 3,520
7.20 655 40 2,904
5.70 575 30 2,288
4.20 495 20 1,672
2.70 415 10 1,056
1.20 335 0 440

Sep-14 Jun-15 Apr-16 Jun-14 Mar-15 Apr-16
Net Profit Adjusted Closing Price Net Profit Adjusted Closing Price
SRF TVS Motor

Net Profit (Rs Cr) Stock Price (Rs) Net Profit (Rs Cr) Stock Price (Rs)
110 1,425 125 325
95 1,165 110 265
80 905 95 205
65 645 80 145
50 385 65 85
35 125 50 25
Jun-13 Sep-14 Apr-16 Jun-13 Dec-14 Apr-16
Net Profit Adjusted Closing Price Net Profit Adjusted Closing Price
a stock with a strong profit momentum behind it, is But if the valuation is high and return on capital is not
windfall gains, as the stock gets hugely overvalued. Prices so good, then you have to be extremely alert and may wish
of such stocks attract buyers at higher and higher prices, to exit at a preset target price (although I have never been
turning them into cant-miss stocks. The buyers, of course, able to fix target prices) or a significant breakdown in
include mutual fund managers who suffer from the same prices. If the profit growth is accompanied by large debt
behavioural biases as you and I. and the debt is not reducing, or no free cash is generated,
As a result, a laggard in the two-wheeler business, TVS then consider yourself lucky to have a got a good rise
Motor, will start sporting a P/E of 32 while its bigger and and it is time to exit anyway if your returns are upwards
more competitive rivals Hero MotoCorp (which remains of 30%-40%.
valued at 17.7) and Bajaj Auto (at 19.46). Well, you see, If the companys profit is rising because the business was
Bajaj Auto, even though its return on capital employed lucky, like the shutdown in the operations of a competitor
(RoCE) is 39%, it is hardly able to grow its sales and (many chemicals companies are enjoying this luck right
profits. The same used to be the case with Hero MotoCorp, now), you may need to monitor that fact.
which has got its act together in the past three quarters In short, there are multiple factors that can generate
and has been rewarded with a higher stock price. short-term earnings momentum. Identify what these factors
If you make a buying decision based on earnings are and track them. If you wish to combine this with
momentum, when do you sell? Frankly, I dont have clear some form of trend-following indicator, you may like to
answers and I am still researching this. But remember the keep an eye on the break of three-month moving average
original premise. You have invested in the stock because below 10-month moving average. Once again, we do not
its profits are rising, for some reason. If the valuation and pick stocks on this basis but there are a hundred different
return on capital is also good, then you have a big winner ways to make money in stocks. This could be one of
on your hands. It is a stock worth holding for the long term. them.
Value Stocks.indd 3 07-04-2016 18:49:18

3 Long-term Stockletters
for Excellent Returns
Panther Antelope Lion
63.69%* 43.61%* 40.84%*
*Annualised. Since 25 April 2014 *Annualised. Since January 2012 * Annualised. Since January 2012
For small-cap/ low-price stocks with Long-term value stocks. More of mid- Long-term value stocks. Usually large
big growth potential cap stocks to be held for 1 year or more companies are selected
A shortlist of stocks to invest in Weekly market view Weekly market view
Fundamental data we rely on A shortlist of stocks to invest in A shortlist of stocks to invest in
Brief description of the companies Fundamental data we rely on Fundamental data we rely on
Weekly updates on all stocks Weekly updates on all stocks Weekly updates on all stocks
Facts about the Stockletters

What is the difference among these stockletters? them still?
The stockletters are for stocks for long term but with specific emphases. These are all excellent stocks we have selected in long -term stockletters.
We hope to have a maximum of 30-32 stocks at any time. We separately identify stocks that are still worth buying at current prices
even if they have run up sharply. You must remember though that stocks
What is the investment horizon for these stockletters? may go down after your purchase. That is the nature of stocks. So it is
The best results from good stocks come when they are held for five years important to follow these two principles about stock investing 1. Investing
or more. only that money you will not need for 5 years 2. Not looking at the share
price in the short term.
What is the investment strategy?
Our investment strategy for the long-term stockletters is to select quality How do we know when to exit from the stocks selected?
stocks at a reasonable price. We identify companies that are reporting Exit suggestions are spelt out clearly every week.
high return on capital but are available cheaper than similar high-quality
stocks. We then apply our knowledge of managements, including How many stocks are changed every week?
corporate governance. Our list of long term stocks do not change much. Deletions are usually
made after one year, if the performance is not too good. This also helps
How much should one invest in each stock? one avoid short-term capital gains. We may add a new company after
You should invest equal amount in every single stock suggested. several weeks. If the market crashes we may suddenly add many more
names.
What if I cannot invest in all the stocks?
If you cannot invest in all the stocks, invest equal amounts in as many How much do the stockletters cost?
stocks as possible, starting from the lowest in rupee terms to the most Antelope, Lion, Panther each costs Rs2,500 per year. If you buy two
expensive in ascending order. It is also very important that you invest in together, you pay Rs4,000. If you buy all three, you pay Rs6,000.
stocks ONLY the money you will NOT NEED to touch for the next 5 years.
Good quality stocks are likely to grow at 20%-22% annum but not in a How risky are the stocks mentioned in the stockletters?
smooth fashion. Stocks by nature are risky and volatile over the short-term and can lead to
losses. But loss of capital in good quality stocks is not a function of stock
If some stocks have already run up sharply, will it be wise to invest in selection but also how long a stock is held and at what valuation they are
Stockletter (MSSN) Ad Oct 15.indd 2 06-04-2016 13:29:43

bought. We suggest investors hold stocks for at least five years. On our
part, we will try to suggest stocks that are not expensive.
How do subscribers get the stockletter? NOW SIP IN

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Caution: The returns shown here are much higher than average.
Average annual rise in the Nifty/Sensex is likely to be 12%-14%
per annum over 10 years and more. Well-chosen stocks may
rise by 20%-22% per annum over ve year and more.
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Stockletter (MSSN) Ad Oct 15.indd 3 06-04-2016 13:30:07

TECHNOLOGY MOBILE
a pattern or numeric PIN or password), you will need

Is Your Phone to unlock the screen to decrypt the phone every time
you power it on. The only other way to decrypt is to
Secure? perform a factory data reset, erasing all your data. This
means that only with the unlock key, you, or someone
with that knowledge, can gain access. Encryption takes
While Apple vehemently opposed access to an hour. If you interrupt the process, you will lose
its iPhone data, FBI found a third-party, who some or all of your data. Another feature you may
want to check is the auto-wipe which automatically
cracked the security function on the phone. Is erases all data and reset it to factory settings on the
your mobile phone and data secure anymore, phone after certain unsuccessful attempts to unlock
wonders Yogesh Sapkale the device. But, before using this feature, make sure to
back up all your data regularly.
A
fter successfully hacking into the encrypted
Apple iPhone of one of the terrorists in San Is Your Data Secure?
Bernardino shooting, the US Department of What happens with stolen mobile phones? Thieves will
Justice has withdrawn legal action against the tech either switch off your phone or throw away the SIM
giant. A third-party helped the Federal Bureau of card. If there is no phone lock, its a cakewalk for them
Investigation (FBI) to crack the security function to sell it. If the handset is locked, it is sold at a cheaper
without erasing contents of the iPhone used by Syed price or taken to another regular techie. This techie
Farook who, along with his wife, killed 14 people in will unlock the device and reset it to factory setting
December 2015. after which it gets sold. In short,
Apple has strongly defended people who get access to your
its positionof not revealing device will be in a hurry to sell it
or sharing software that would off and will not be interested in
bypass its security features. iPhone the data. They may use some data
has a feature that erases data on micro SD card, though. The
after 10 unsuccessful unlocking techie may access the data and, if
attempts. A similar feature is he finds something of interest, he
available for other mobile phones, may use it or sell it to others for a
albeit it is not as secure as that fee. What you can do is either use
of an iPhone. This makes you in-built encryption facility or wipe
wonder whether your mobile out the data remotely.
phone, or all your data on the handset, is really secure. On Android, there is one such facility; but you
Can a third-party gain access to your important data will have to download it from Play Store. It is called
easily? Android Device Manager. This helps you to find the
Well, this is a grey area. There is nothing like 100% approximate location of your phone on a map and
security or lack of security. Higher security level just when it was last used. However, it requires the devices
takes more time to crack. Thats it. There are some location access feature to be enabled and the mobile
basic security features available on a handset; but not data or Wi-Fi connection active. If these features are
everybody is aware of, or knows about, it. In addition, turned off, Android Device Manager cannot provide
most handsets provide software-based encryption and any information. Once you locate your device, you can
not hardware-backed one. All Apple products carry the remotely ring, lock, or erase all the data using Android
encryption feature. Also, almost every Android-based Device Manager. However, I wonder how many
handset has an encryption feature, but not many know Android users in India keep the location feature on; if
or use it. not, this facility is unusable.
So what is your best bet to keep your mobile phone
So What Is this Encrypt Phone Facility? data secure? For Android devices, the encrypt phone
Using the encrypt phone facility, you can encrypt feature is the best bet, at present. While it will give
your accounts, settings, downloaded apps and their you peace of mind as long as the handset is in your
data, media and other files. After you encrypt your possession, it will make it difficult for thieves to access
phone, assuming you have set up a screen lock (that is the data.
Technology.indd 1 02-04-2016 14:50:53

USEFUL APPS YAZDI TANTRA
Maildrop: Mail but No Tests section too, to sharpen your perception and to find
Spam
out how much you can be challenged by your own senses.
They have some gadgets which you could download on
to your desktop, a Google Chrome extension and iPhone
Get free, disposable email address / iPad apps too! Great for getting a smile on your face in
W hen you visit a website and it insists that you enter

your email address first, before proceeding, what
is your reaction? For a large number of people, there is a
between those heavy tasks and rushed appointments. www.
moillusions.com
Yahoo Aviate Launcher:

feeling of unease and distrust
and they may just move
away. Email, a very effective Intelligent Homescreen
way of communication, is
today plagued by spams and Shows the app that you are most likely to
unwanted mails which waste run, depending on the time and place
a lot of your time. Hence, we
are scared to give our email ID to an unknown site.
At such times, just head to maildrop.cc. It helps you
with a free, disposable email address. There are no sign-ins,
A ndroid is a great place for customisation. And a
Desktop Launcher is an App which replaces your
Android Desktop and allows you to customise it in a
no passwords to remember, no security and no privacy. It variety of ways.
just gives you a valid email address which you can enter Aviate is a Desktop
without fear of spam. Use that address on any site and Launcher which almost
visit maildrop.cc to receive replies. If you get too much knows and shows what
spam there, create another maildrop address and move on! your desktop should look
The next time a web form or app asks you to please like, depending on where
enter your e-mail address, youll be ready. No problem, its you are and the time of the
whatever@maildrop.cc When that site sells your e-mail day! As a result, your desktop
address, you can shrug, move on to another disposable may change automatically
MailDrop address, and your real e-mail wont get filled in the morning, when it will
with junk mail. Just try it! www.maildrop.cc display the weather, your
appointments app and your favourite news app; as you
Mighty Optical Illusions: proceed to work, it has maps and music apps that are
Marvel at these Illusions ready to go; and when you reach work, it may have your
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Exotic stimulation for your brain workout apps may stare you in your face! In the evening,
maybe some restaurant apps would be more appropriate
M ighty Optical Illusionsthats what this site is all

about. During lunch time, take time off work and
marvel at the various types of illusions presenteda treat
and when you are ready to go to bed, your alarm settings
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The idea is to show you the appropriate app that you
for your eyes and ears and some exotic stimulation for are most likely to run, depending on the time and place
your brain. you are in, without your having to search for them. Briefly
The site carries stated, it is an intelligent homescreen that simplifies your
various types of illusions phone. Try it, it is free! https://goo.gl/58HYaX
in terms of pictures and
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that jump off the page, Yazdi Tantra is a chartered accountant
arty animations and even by training, computer consultant by
interesting video illusions. profession, entrepreneur-developer by
One interesting illusion is hobby and trainer in his leisure time.
He is currently the vice-chairman of
about the McGurk Effecta perceptual phenomenon Zoroastrian Co-operative Bank Ltd
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vision in speech perceptionhow the brain reacts to visuals company ON-LYNE for the past 24 years.
when combined with audio. Be sure to go through the
Tantra - column.indd 1 07-04-2016 14:32:29

EARNING CURVE
Is Smart Money Really stocks and sell overvalued, popular stocks.

The validity of this notion was examined by
Smart? Ferhat Akbas, Will J Armstrong, Sorin Sorescu and
Avanidhar Subrahmanyam in their research paper titled
A study decodes the effects of smart money Smart Money, Dumb Money, and Capital Market
Anomalies. The research found that aggregate flows
and dumb money on stock valuations to mutual funds (dumb money) appear to exacerbate
cross-sectional mis-pricing. In contrast, hedge fund
T
he commonly held belief is that dumb flows (smart money) appear to attenuate aggregate
moneyinvestments by retail investors mis-pricing. The researchers concluded that aggregate
either directly or through mutual funds mutual fund flows fit the dumb money description,
exacerbates mis-pricing of stocks; while while aggregate flows to hedge funds are better suited
smart moneyinvestments by the more knowledgeable for the smart money description.
hedge fundshas the effect of reducing this mis-pricing. The paper considered stocks in the US markets as
In other words, dumb money flows make overvalued the sample used included common stocks listed on the
stocks more expensive and undervalued stocks cheaper. NYSE, AMEX, and NASDAQ over the period January
The reverse is true for smart money flows. Smart money 1994 to December 2012. A hypothetical long-short
makes overvalued as well as undervalued stocks move portfolio was constructed that took long positions in
closer to their fair valuation. Thus, smart money flows the most undervalued stocks and short positions in the
exert the right kind of pressure on valuation. Is this most overvalued stocks. The paper found that when
true? mutual fund flows are high, stocks in the undervalued
Why are mutual fund flows considered dumb when long portfolio become even more undervalued while
managers of hedge funds and mutual funds have expert stocks in the overvalued short portfolio become more
knowledge? Suppose a particular scheme is delivering overvalued. However, for hedge funds, the opposite
good performance. It is likely that the stocks in its finding was obtained. When hedge fund flows are
portfolio are overvalued due to good returns in the high, stocks in the undervalued portfolio become less
past. Investors, in general, are likely to direct their undervalued while stocks in the overvalued portfolio
money to these schemes due to performance chasing. become less overvalued.
This money is to be deployed by the scheme. This The paper found that, in general, monthly mutual
money will, most likely, be deployed in top performing fund flows are associated with a simultaneous increase
stocks in its portfolio which are already in the price of stocks that are already overvalued
overvalued. The effect of at the beginning of the month, causing these
this is that they become stocks to become even more overvalued
more overvalued than by the end of the month. There was a
they currently are, due reversal in the price
to huge inflows into of these exact stocks
that stock. Thus, during the subsequent
mutual fund flows are three months.
likely to exacerbate Monthly flows to
the effect of hedge funds are
overvaluation. associated with
Even in case of a a simultaneous
scheme delivering decrease in the
poor performance, price of stocks
something similar may occur. Due that are
to redemption pressure, the existing overvalued at
stocks which are undervalued are sold the beginning
off, making them more undervalued of the month.
than they currently are. Hedge funds The paper found that there was no
are supposed to do exactly the opposite: reversal in the price of these stocks
go against the market trend and buy during the subsequent three-month
undervalued, beaten down and unpopular period.
Earning Curve.indd 2 07-04-2016 15:34:58

UNBIASED INFORMATION:
MSSN Benefit #8-10
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MSSN - Unbiased.indd 1 20-11-2015 17:05:43

Supported By
my name. But I needed to sell

these stocks to meet some family
Queries
At Moneylife Foundations
exigency and got a short-term
profit of Rs85,000. I am employed
and already paying tax at 20%.
What is my tax liability and
that of my mother on the short-
term gain made from stocks bought
Tax Helpline with my mothers money in my
name?
Ask tax-related questions at moneylife.in/taxhelp. Its free Subodh Shahs Reply: In my
opinion, the deposit of money
into your savings
Forgot To Deduct TDS income-tax department makes you account will have to
pay the TDS with interest. be treated as a gift
in Property Sale from your mother
Retirement and Senior
I bought a property in excess of
Rs50 lakh and did not deduct
tax at source (TDS) while making
Citizen Taxability
to you. Hence, the
investment in shares
made by you in your own name will
the payment. What should I do if
seller is not ready to cooperate?
This TDS payment would be a huge
I retired on 31 January 2016. My
office deducted tax from my
last salary. After my retirement, I
be treated as a personal investment
and the gain, if any, will accrue to
you.
financial burden on me and the got arrears of Rs22,120 in March Thus, the short-term capital
refund will go to the seller anyway. 2016, due to promotion, from gainSTCG will be liable to be
Ameet Patels Reply: Section which Rs5,422 was deducted as taxed in your hands. Assuming the
194IA requires the purchaser tax. My question is: When I have transaction is of listed shares, and
of immovable crossed the age of 60 years, I moved subject to securities transaction tax,
property in excess into the tax threshold for senior the rate of tax will be 15%
of Rs50 lakh to citizens. So what should have been u/s 111A.
deduct tax @1% the actual deduction of tax and
before making
payment to the
whether I can claim refund?
Nikhil Vadias Reply: If you have
HRA Claims
seller. This is a compulsory Section.
In your case, you have forgotten to
deduct the tax.
crossed the age limit for senior
citizen during the
financial year, the
I am a salaried employee but
I forgot to submit the rent
agreement and rent slip to my
If and when the income-tax new slab will be employer. As a result, the HRA
department gets information applicable to you. amount in my salary was taxed.
about the transaction (and they In your case, since Now, while filing my return, can
will definitely get it because the you have crossed I put rent under Section 80GG? I
value exceeds Rs50 lakh), they will 60 years of age in 2015-16, the understand that the maximum can
proceed against you for recovery higher slab of Rs3 lakh would be be Rs24,000 only.
of the TDS. At that time, they will applicable for FY15-16. Ameya Kuntes Reply: You
also levy interest on you. The better should claim HRA
thing for you to do is to pay the STCG on Stocks Bought exemption u/s
TDS now along with interest. 10(13A) while filing
If the seller is not cooperating,
with Mothers Money your tax return.
you will have to bear the TDS.
That would be an additional cost
for you. But, in my opinion, and
M y mother got her share of
money of her deceased father.
She deposited the money into my
You can do so even
though it does not
reflect in your Form 16. Since your
based on my experience, that cost savings account. I have invested employer has provided HRA, you
would be less than the cost that this entire sum of money in certain are not covered for deduction under
you will incur if, at a later date, the stocks with a long-term view, in Section 80GG.
Tax Queries.indd 2 07-04-2016 16:38:28

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Tax Helpline.indd 1 06-04-2016 13:33:11

HEALTH BM HEGDE
Money Runs not the case. The chemical, agricultural, and medical
drug industries spend millions of dollars to lobby for
regulations that are favourable to them and there is a
Science and constantly revolving door between government watchdog
agencies and private corporations all over the world. The
Medicine New York Times recently published an in-depth expos

on the legal battle fought against DuPont for the past 15
years over chemical contamination and its toxic effects
Research and regulatory actions are rife with on human health.
conflict of interest We were taught, in school and college, that science can
help us make rational decisions that serve the people and
M
any, if not all, of our regulatory agencies have a promote public health. But now we are facing a world so
long history of protecting industry interests over rife with corruption and conflict of interest facilitated by
public and environmental health. In the first the very sciences that were supposed to keep us healthy,
week of November 2015, Jonathan Lundgren, who spent safe, and productive, its quite clear that were heading
the past 11 years working as an entomologist at the USFDA toward more than one proverbial brick wall, writes
(US Food and Drug Administration), filed a whistleblower Dr Joseph Mercola on his website www.mercola.com. He
complaint against the agency, claiming hed suffered goes on: In a sense, the fundamental role of science itself
retaliation after speaking out about research showing that has been hijacked for selfish gain. Looking back, you
neonicotinoids had adverse effects on bees. In the US, can now see that the preferred business model
nearly all corn, about 90% of canola and, approximately, of an industry was created first, followed
half of all soybeans are treated with neonicotinoids. As by scientific evidence that supports the
the use of these pesticides has gone up, bee and Monarch established business model. When the
butterfly populations have plummeted. USFDA managers science doesnt support the companys
blocked publication of his research, barred him from economic gains, its swept under the rug,
talking to the media and disrupted operations at the even if people are dying and the planet is
laboratory he oversaw. That is what Lundgren complains, becoming irreparably poisoned as a
according to the Washington Post article. result. Today, we live in a world
USFDA is all for genetically engineered seeds, etc, while where chemical
true science says that genetically engineered seeds could companies and
be deadly, in the long run. The story is the same in India.
When we stopped using PL480 funds for agricultural
imports, we decided, rightly so, to be self-reliant, that biotech
led to the Green Revolution. However, while the late giants can easily
C Subramanian, a great son of India, was passionate buy and pay for their
about it, his scientific advisers must have been working own research studies, as well as the lobbying to support
under instructions from their masters in the West. They whatever legislation they need passed in their favour.
succeeded in going headlong on to use of chemical fertilisers I have been trying my best to bring out the secrets
and pesticides which, today, has brought us to almost about this dangerous marriage between industry and the
total land and water degradation due to chemicals and powers that be, without much impact. Unless we have total
fertilisers. Our soil is losing all its fertility. Thanks to that, transparency in research, this dangerous corruption can
we have vitiated our environment so much that newer never be detected and corrected. Money runs this world
diseases are invading us. science and medicine included. Putting an end to the
The industry, on its part, is trying its best to keep its revolving door between private industry and government
hold on the powers that be through devious means. The would be one step in the right direction.
same holds good for medical research in the country which
is under the control of vested groups in the industry. Real
science is going to be destroyed. A recent study showed Professor Dr BM Hegde, a Padma
more than 200 dangerous chemicals in a newborn babys Bhushan awardee in 2010, is an MD,
umbilical cord blood! PhD, FRCP (London, Edinburgh,
Glasgow & Dublin), FACC and FAMS.
While you would think that the governments exist
He can be reached at hegdebm@gmail.com
to protect you against the vagaries of industry, this is
BM Hegde.indd 2 02-04-2016 14:41:35

HEALTH BM HEGDE
INTEGRATED well. That should not

MEDICINE FOR THE be an excuse for doing
FUTURE MEDICAL DEVELOPMENTS FROM mammograms as the
A recent day-long
workshop, on the
future of healing, came
AROUND THE WORLD latter could be counter-
productive.
up with the need for bringing all in fact, it is good for health. There DAYS NAPS, SITTING &
systems of medicine, without any is nothing like good and bad EXERTION
caste system, under one cholesterol. LDL, HDL and other
classes are all myths. We have
killed millions over the years by
D aytime sleeping is not a good
health practice, although
short naps might help to build
calling cholesterol a ghost. Now, your health. Any nap longer than
even the US doctors are joining the 40 minutes is really bad during
bandwagon to decry the cholesterol the daytime, when the sun is up.
mania; they were on the same In a large study, people found that
bandwagon until the other day. But sitting in one place for more than
the Indian faithful doctors are yet to three hours at a time, on a long-
join in. They still harp on statins for term basis, has killed more than
lowering cholesterol. Probably they 43,000 people per year. Do not sit
roof; picking the best in every arent interested in saving human for a long time and sitting is bad
system would be the best for the lives. for health. These days, the younger
future of medicine. This needs lots generation going to the gym has
of hard work to bring disparate NEW LIGHT ON ALZHEIMERS cultivated a new way of intensifying
elements like the egoistic Western DISEASE their exercise levels to lose more
medical doctors and naturopaths
under one roof. The meeting
concluded that it can only be done
P eople living in a new Pacific
island of Guam (a US territory)
have shown the relationship
calories and get better body shape.
Studies have shown that such short
bouts of intense exertion without
if each of these doctors left their between some environmental toxins long warm up and equally long
elephantine egos behind and began and Alzheimers and also some cooling could even bring on a
working for the good of mankind. other neurodegenerative diseases. heart attack. Moderation in every
Every system is fallible but has good This toxin is found in some lakes walk of life is good for health.
effects under many circumstances. and soil of that island. This might Daily low-grade exercise, the best
The time has come to give up the give us a clue to search for some being normal walking, is the best
wrong notion that diagnosis is such environmental toxins in other insurance against premature deaths
the most important part medical- patients also. and all kinds of illnesses including
care, before we do anything else. The relation between amyloid cancer and stroke.
This myth, though blown over plaques and Alzheimers is well
scientifically decades ago, does not known. The bad news is that bad
go away as diagnostic tests are big gums, with bad halitosis, could be a
money-spinners. This meeting gave very important risk for Alzheimers.
me a ray of hope for mankind. Let Gum disease can also speed up the
us hope that wisdom will dawn on progress of this disease.
doctors to work collectively to do
most good to most people most of DIGITAL MAMMOGRAMS
the time. HAVE COLLATERAL BENEFITS
CHOLESTEROL IS A FRIEND! D igital mammograms, when

they show calcification of the
W hat I had been shouting

from housetops for decades
has now come to the attention
breast arteries, could be a pointer
for calcification of coronary
arteries thereby warning
of the powers that be in the US. women to take care
Cholesterol is not bad for health; of their hearts as
BM Hegde.indd 3 06-04-2016 21:41:15

LEGALLY SPEAKING SD ISRANI
Can Property have to submit prescribed documents, including sanctioned

plans, necessary approvals, commencement certificate,
proforma of the allotment letter, agreement for sale and
Buyers Now the conveyance deed.
Declaration and Affidavit: Every promoter of a real estate
Breathe Easy? project will have to give a declaration which will have to
be supported by an affidavit that would contain specified
information including legal title to the land and details of
The new real estate law should make a encumbrances, if any. He has also to mention the timeframe
difference within which the project will be completed.
Separate Account: A promoter will have to give an
T
he plight of property buyers in India is terrible. As undertaking that 70% of the amount received from the
it is, only a small percentage of the population can allottees will be deposited in a separate bank account.
afford to buy their own dwelling units. Flat-buyers Moreover, the funds in the separate account have to be used
not only put all their savings into booking an apartment only for the purpose of the project for which the money has
but also take huge loans to meet the exorbitant cost. been received and that, too, after due certification by an
In such a scenario, imagine the plight of a buyer if the engineer, architect and a chartered accountant in practice.
project is delayed indefinitely or Project Schedule: Promoters will
if the builder seeks additional have to file their project schedule
contribution. with the Regulatory Authority
Apart from the courts, buyers and will have to seek extension
can now approach a consumer for additional time for which
Photo Courtesy: The Hindu

forum, under the Consumer they may be made to pay a fee.
Protection Act. However, the Failure to complete the project
scope of such forums is limited within the specified time can
to redressing issues arising out entail penalties.
of any deficiency in service. In Functions and Duties: The
the process, builders often go new law also specifies in detail
scot-free. The enactment of the the functions, duties and
Real Estate (Regulation and obligations of a promoter and
Development) Act, 2016 (real estate law), may change the consequences of any breach committed by him. The
things. Some highlights of the new law are discussed below. law also specifies the rights and duties of the allottees.
Regulator: Establishment of a Regulatory Authority and Defaults by a Promoter: A promoter has to adhere to the
adjudicating mechanism for speedy dispute redressal. The sanctioned plans and any change effected, without due
new law also proposes to establish an appellate tribunal approval, will invite adverse consequences. Similarly, breach
to hear appeals against orders passed by the authorities. of any condition or obligation by a promoter could result
Compulsory Registration: Today, every Tom, Dick and in penal consequences and, in certain circumstances, can
Harry can call himself a developer because no registration lead to imprisonment as well.
or declaration is required. However, under the new law, Regulatory Authority: Each state government will have
no promoter can advertise, market, book, sell or offer for to constitute a Regulatory Authority within one year. In
sale, or even invite persons to purchase a plot, apartment or addition, the government will also have to constitute an
building, without registering the project with the Real Estate appellate tribunal for hearing appeals against orders passed
Regulatory Authority. Even existing real estate projects, by the Regulatory Authority.
which are under implementation, have to be registered Hopefully, the advent of new real estate law will have
with the Authority within a period of three months from a salutary effect on the builders and the woes of property
the date of implementation of the new law. Only projects buyers will come to an end.
of less than 500 square metres (sq mtr) and less than eight
flats are exempt.
Disclosures: Every promoter will have to disclose details SD Israni is a corporate lawyer & Fellow
of the current project, projects launched by him in the of ICSI. Email: sdisrani@gmail.com
past five years, status of those projects, any delay in their
completion, details of cases pending, etc. The builder will
Legally Speaking.indd 2 02-04-2016 14:51:49

HANDHOLDING:
MSSN 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,

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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 Smart Savers

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and you get the right answer.
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MSSN Handholding.indd 1 20-11-2015 17:04:55

YOU BE THE JUDGE BAPOO MALCOLM
The Lawyer as You be the judge.

Would you allow one trial to stop? Which one
would you allow first? And why? The OJ way? Or the
Juggler Indian way?
This is where the lawyers brain is most tested. He
has to play with many balls up in the air and not drop
Dont mess with his decisions a single one. In India, the common application is for
a stay on the criminal proceedings; till the civil court
M
ost readers will know that there are two types decides. Is it a solution? And is it the right one? Will it
of court cases, commonly called civil and allow the responding party more relief than compulsory
criminal matters. In one, the respondent is attendance in court? Will time lost make any difference?
called a defendant, and in the other, the accused. Since Remember, in the civil trial, the defendant has to
cases of the latter type involve penal provisions, they reply to certain claims. Even silence will be construed
are more feared. But, often, both types are invoked adversely. AND THE SAME EVIDENCE WILL BE
simultaneously. What then are the options available to USED AGAINST HIM IN THE CRIMINAL MATTER.
the defendant, who is also the accused? The law allows it and we do use this strategy.
The authors favourite example is the OJ Simpson The rules allow for the judges discretion. Usually,
case. It involved the gruesome killing of OJs wife, and backed by past judgements, the courts refuse a stay,
Nicole Browne, and her boyfriend. The end thereby not stalling the criminal trial. Would
result was that OJ was acquitted of the the judge then be right in allowing the civil
murder charge in a criminal trial; thanks matter to be halted, because the man
to some fancy footwork by his defence might be forced to self-incriminate
team. However, later, the civil court himself in the civil case? This is
fined OJ four million US dollars. The where the smart lawyer shows his
civil matter had followed the completion true understanding of the issues
of the criminal trial. and takes the tough, but right,
Different trials have different rules. decisions.
In civil matters, the usual decision is And this is what OJs lawyer
a matter of establishing rights, the did. Four million dollars as
claim or the hukk as we would put opposed to the wired chair. Sit
it in Hindi. It calls for one party, tight in the criminal matter, sow
the plaintiff, to ask for his rights doubts about the evidence (in this
as against the other party, the case, the testing of blood samples
defendant. These demands can on the glove), obtain an acquittal.
be true, frivolous, exorbitant or Then, who cares what happens in
downright crooked. The court the civil proceedings?
decides in whose favour But some lawyers think
the balance should tilt, but differently. Maybe they
not before giving the other side the opportunity to air wish to prolong the civil trial as much as possible.
its views. Both sides give evidence and can be cross- Maybe it is no more than a knee-jerk decision, showing
examined. This is crucial to us. the persistent client that he is on the ball. Closer
It is a bit different in criminal cases. The accused is examination, and deeper reflection, may show that this
allowed to keep his peace. It is for the accuser to prove tactic is counterproductive.
everything, every little bit. No help is given by the Yet, it is best to let your lawyer do his job,
man in the dock. A small gap, an error, a miss, and the unimpeded. Remember, you can run, but you cannot
accused is let off. It has to be a clean yes or no. No hide.
maybes. It is either a conviction beyond any reasonable
doubt, or being let-off.
If a man has both, a criminal and civil case against Bapoo Malcolm is a practising lawyer in
him and he comes to court asking for one trial to be Mumbai. Please email your comments to
mail@moneylife.in
stalled, or stayed, till the other is over, what would you
do?
You Be the Judge.indd 2 02-04-2016 14:42:17

MONEYLIFE FOUNDATION SEMINAR ON INTERNET BANKING
Using Netbanking & ECS Smartly

Netbanking is safe and easy for everyone, especially women and senior citizens,
explained Abhay Datar at a Moneylife Foundation event
W
ith technological advances in financial first login, and then, after regular intervals, Mr Datar
transactions, like using Internet banking advised.
facility or electronic clearing system (ECS), According to Mr Datar, using the virtual keyboard
life has become much easier, provided you for login into netbanking is a better way to keep your
follow some basic rules and take precautions, said Abhay credentials secure. He then informed the audience about
Datar, a retired banker and consumer activist. He was various safety features like one-time password (OTP),
speaking at Moneylife Foundation
Found workshop transaction limits and timeout for completing transactions.
on Understanding ECS, ECS Direct Debits, Mr Datar, who is also a managing committee member
Online Banking and ATMs.
ATM He explained of Mumbai Grahak Panchayat (MGP), then spoke about
what consumers should do if they have using the ECS facility of banks. He said, The ECS credit
been defrauded. is for receiving various credits to our account, such as
Mr Datar, who retired
retire from Bank of dividend and interest; whereas ECS debit is used for paying
Baroda as its IT manager,
manage explained the telephone, mobile, electricity bills, insurance premium, and
process for obtaining logilogin ID, password SIP of mutual funds. In both the cases, we have to fill up a
and transaction passwo
password by filling the form and register these with our bank, which may charge
appropriate forms from the bank branch, Rs100 as one-time fee, he said. Mr Datar explained the
where the customer h has her account. logic behind the MICR code, allotted by the Reserve Bank
After receiving the llogin credentials, of India and bank account numbers.
at the first login, Explaining the benefits of using ECS facility, Mr Datar
the system said, In ECS debit form, we can define maximum debit
would prompt limit thereby restricting funds outflow. As far as SIP and
you to change insurance premium are concerned, the amount is fixed and
the password. does not change every time. For utility payments, we can
Since it is for
S define the maximum debit limit. The best way to define
your own safety,
yo this limit while availing ECS is to check our previous bills,
do change the find out the bill with the maximum amount, keep some
password at buffer and set the limit.
Event.indd 2 07-04-2016 15:22:00

BOOKS
Buffett and Beyond nonsense of any comparison with another company that
has no exceptional items. Hence, taking the reported net
Data Scrubbing, the profit as the basis for RoE is not correct. Clean accounting
surplus, which Dr Belmonte advocates, takes the net
Buffett Way profit before exceptional items, making comparison and

predictability of profits a bit easier. Shareholders funds
also should be shielded from the impact of exceptional
Companies with high clean surplus returns items. This will give us a clean RoE.
beat the market averages Dr Belmonte suggests that we should buy stocks of
clean RoE companies. Its a process that Warren Buffett
D
r Joseph Belmonte was a marine engineer. One uses. But do portfolios with above-average clean surplus
of his voyages was on a ship carrying grain from RoEs outperform market averages and does the clean
the US to the former Soviet Union. The ship surplus RoE have any correlation with the future returns of
had entered the Mediterranean Sea through the Strait of portfolios? Dr Belmontes doctoral dissertation attempted
Gibraltar, when a Liberian freight carrier rammed into to statistically answer these questions. The results were
the first ship, shattering her hull like paper and smashed encouraging. In a back-tested study, companies with high
into the engine room above our heads. Five men died. clean RoEs did far better than the market average Dow
Dr Belmonte was lucky to live, thanks to the brave and and S&P 500. Dr Belmontes work shows that every
quick-thinking chief engineer, portfolio selected from the S&P 500 index with above-
to whom he dedicates this book. average clean surplus RoEs outperformed the S&P 500
Dr Belmonte decided to quit average during the test periods from1987 to the present. His
his career on the high seas and study of two test periods, comparing returns from Clean
started taking interest in finance RoEs with S&P 500 formed his doctoral dissertation.
and investing. During the next The superiority of clean RoE is the core of the book.
10 years, he made a living The book also has guidance on rules for structuring a
from real estate and stocks. He great growth portfolio, how to select stocks for growth
learned about technical analysis and dividend, how to avoid stocks with declining RoEs
and covered option writing. and how to earn money writing covered calls (an option
After becoming successful in strategy). It is the latter part of the book which describes
investing, he wanted to teach these strategies that are more useful. The first part of the
and share his knowledge. He book, that explains clean RoE, should have been restricted
wrote an investment course and to just two chapters. Instead, it is spread across 14 chapters,
submitted it to a university that repeating the same thing over and over again. Also, I am
was close to where he lived. not aware of any analyst, fund manager or any serious
BUFFETT AND BEYOND
They politely told him that individual investor being blindsided, exceptional items.
DR JOSEPH BELMONTE
he was only a bachelor of Dr Belmonte claims that there is just one academic reference
Wiley
engineering (BE) and what did to clean accounting. But cleaning up reported data is a
Pages 272; Rs499
a BE know about investing? common practice. In India, a corporate database provider
He was asked to get a PhD in like Centre for Monitoring Indian Economy cleans up data
finance, if he wanted to teach investing. on various parameters; it does not compile and present
Dr Belmonte did his masters programme in finance and them as reported.
then a PhD during which he came across a simple process Dr Belmonte also charges that 98% of fund managers
of stock selection which relied on Clean Accounting in the US cannot beat the market because they dont seem
Surplusthe subject of this book. The main parameter to rely on clean surplus accounting. I find this claim
that separates an exceptional company from an ordinary unbelievable. Not only do analysts make numerous
one is a high return on equity (RoE). RoE is calculated by adjustments to reported data, but they make a very detailed
dividing net profit by shareholders funds (which includes refined analysis of not just financial performance but
capital and reserves). Now, net profit can, often, be marred product sales by market segments and geographies as
by extraordinary or exceptional items. This can distort well as raw materials and other cost analysis. In fact, their
comparisons between companies. If a company has written underperformance could be due to a paralysis of analysis
off an exceptional item in one year, its net profit will be and behavioural mistakes, rather than lack of knowledge
depressed and so will be shareholders funds, making of clean surplus accounting. Debashis Basu
Book Review.indd 2 07-04-2016 18:02:42

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Book Ad.indd 1 31-10-2015 12:24:40

MONEY FACTS STOCKS
INDIAN MARKET TRENDS FUND FLOWS

All the ML indices were trading in the green for the Foreigners: Foreign institutional investors (FIIs)
fortnight ended 5 April 2016. ML Micro-cap Index and were net buyers except on the last day. FIIs brought
ML Small-cap Index rose 2% each. The Nifty fell 1% while in Rs7,705.52 crore during the fortnight.
the Sensex fell 2%. 4,060
Share Prices Index, October 2015=100 3,085 FII Net Investments

(Rs Crore)
140
2,110
1,135
120
160
-815
28 Mar-16 05 Apr-16
100
Indians: Domestic institutional investors (DIIs) were
net sellers to the tune of Rs7,136.40 crore. They sold
stock worth Rs19,968.76 crore.
80 75
Oct-15 Jan-16 Apr-16
ML Large-cap ML Small-cap Nifty ML Micro-cap -520

ML Mid-cap ML Mega-cap Sensex
-1,115
DII Net Investments
-1,710 (Rs Crore)
Index 23-Mar 05-Apr +/-
ML Micro-cap Index 99.32 101.40 2% -2,305
ML Small-cap Index 95.50 97.45 2%

-2,900
ML Mid-cap Index 95.35 96.16 1% 28 Mar-16 05 Apr-16
ML Large-cap Index 95.31 95.83 1%

ML Mega-cap Index 92.41 92.46 0%
GLOBAL MARKET TRENDS
Nifty 7,716.50 7,603.20 -1% 5,150
Sensex 25,337.56 24,883.59 -2% 4,985

NASDAQ Composite
Mega-cap Gainers/Losers 23-Mar 05-Apr Change 4,820
Biocon 463.95 527.40 14% 4,655
Vedanta 96.85 85.85 -11% 4,490
Large-cap Gainers/Losers 23-Mar 05-Apr Change

4,325
Relaxo Footwears 373.05 503.00 35%
Welspun India 108.20 93.45 -14% NASDAQ Composite, Shanghai Composite and S&P
500, the only gainers on the list, rose 2%, 1% and
Mid-cap Gainers/Losers 23-Mar 05-Apr Change 0.42% respectively.
Shreyas Shipping & Logistics 237.90 318.40 34%
Index 23-Mar 05-Apr +/-
Ricoh India 516.25 372.80 -28% NASDAQ Composite 4,769 4,844 2%
Small-cap Gainers/Losers 23-Mar 05-Apr Change Shanghai Composite 3,010 3,053 1%

S&P 500 2,037 2,045 0%
Ugar Sugar Works 14.40 22.70 58%
Taiwan Weighted 8,766 8,658* -1%
Nutraplus India 293.80 193.40 -34%
Bovespa 49,690 49,054 -1%
Micro-cap Gainers/Losers 23-Mar 05-Apr Change Korean Composite 1,995 1,963 -2%
FTSE 6,199 6,091 -2%
Cineline India 19.45 26.45 36%
Hang Seng 20,615 20,177 -2%
Shri Aster Silicates 4.25 2.67 -37%
Nikkei 17,001 15,733 -7%
(All Prices in Rs) * - 1 Apr-16
Money Fact.indd 2 07-04-2016 18:47:50

MONEY FACTS STOCKS
Whats H T

Sugar stocks were in demand this fortnight. DCM Shriram Industries was
the top gainer (up 34%) followed by Dharani Sugars & Chemicals (up 18%)
ML SECTORAL TRENDS
Airlines and sugar companies stocks
rose 7% and 6%, respectively, while
and Bannari Amman Sugars (up 11%).
stocks of consumer durables and
paper & paper products companies
Companies 23-Mar 05-Apr +/- rose 4% each. Office equipment
ML Sugar Index DCM Shriram Inds 105.85 141.60 34% companies stocks were the top
losers, falling 8%. Telecom services,
175 Dharani Sugars 26.12 30.90 18%
oil & gas and steel fell 4%.
Bannari Amman 1,321.25 1,462.10 11%
160
Dhampur Sugar 85.40 92.35 8% ML Sectoral Trends
145 Bajaj Hind Sugar 18.95 20.20 7% Airlines 7% Office Equipment -8%
Balrampur Chini 100.80 106.45 6% Sugar 6% Telecom Services -4%

130
KCP Sugar & Inds 27.55 28.70 4% Non-ferrous Metals 5% Oil & Gas -4%
115 Dalmia Bharat Sugar 103.00 106.05 3% Consumer Durables 4% Steel -4%
Dwarikesh Sugar 193.45 199.15 3% Paper & Paper Prod 4% Con_EPC_Infra -3%
100
EID-Parry (India) 207.45 211.20 2%
All Prices in Rs

FOOD INFLATION
Whats N T Combined food inflation declined

to 5.52% in February 2016,
Four of the eight telecom services companies stocks fell this fortnight. compared to 6.66% recorded
Bharti Airtel was the top loser (down 8%) while Idea Cellular was a gainer for January 2016. For rural and
(up 4%).
urban areas, food inflation in
February was 6.11% and 4.37%,
Companies 23-Mar 05-Apr +/-
respectively. Vegetable prices
ML Telecom Service Index
Bharti Airtel 358.55 330.50 -8% increased by 0.70% in February
105 compared to those prevailing in
Tata Teleservices 6.96 6.57 -6%
January 2016. Inflation in fruit
100
Reliance Comm 52.00 49.40 -5%
Bharti Infratel 384.95 374.50 -3%

95 Marginally Lower
90 7.50%
MTNL 17.40 17.40 0%
Tata Comm 374.95 385.45 3% 85 Annual Change
Idea Cellular 105.20 109.40 4% 80 5.00%

All Prices in Rs
2.50%
BULK DEALS Feb-15 Aug-15 Feb-16
Date Company Buyer Seller Rs Cr

prices was -0.72% in February,
31 Mar-16 Saint-Gobain Sekurit India Saint Gobain India Pvt Saint Gobain Sekurit France 43.82
while pulses were dearer by
05 Apr-16 Centrum Capital Nirmal Arora Crawford Baxley & Co 39.98 38.30% y-o-y. Inflation for cereals
30 Mar-16 Future Consumer Enterprise Anamudi Real Estates LLP Godrej Agrovet 35.10 stood at 2.18% and inflation for
milk products was 4%. Price rise
29 Mar-16 Asahi Songwon Colors Mrugesh JK Family Trust-1 Paru Mrugesh Jaykrishna 19.43
of non-vegetarian items, such
29 Mar-16 Graphite India GKW Kiwi Investments 14.28
as meat and fish, was 7.19% in
04 Apr-16 Aksharchem Mrugesh JK Family Trust-2 Paru Mrugesh Jaykrishna 10.94 February compared to 8.23% in
31 Mar-16 Ashapura Minechem Shah Chetan Dina Chetan Navnitlal Shah 7.38
January 2016.
Money Fact.indd 3 07-04-2016 18:48:28

BEYOND MONEY
Giving Them a from her strong belief that children must be able to learn,
free of cost, and that her own educational qualifications
would be of value only if they serve a useful social
Better Start purpose. Each of us, who is proud of our teachers and
our educational qualifications, should pass on the benefit
Tanuja Deshrajan helps children learn basic of education on to children, she says.
With justifiable pride, she says, Most people have
skills so that get admission into the best
stories to tell of the education they received in their first
government schools 22 years. My story isn't about that luxury; it is one of
providing it. My story is about how I gave the latter 22
A
s a young mother, Tanuja Deshrajan was moved by years of my life to create and continuously improve the
the plight of a group of young children, who were education system in a village called Mainath, and how
the age of her own toddler son and whose life was that still continues to be a privilege.
about playing on the streets and begging for a living. She Children at her school are taught with the objective
began to reflect on the futility of their existence and their that they should get admission into the best government
grim future and decided that she must make the effort to schools for higher education. This means a focus on quality
give their lives the same chance as that of her own son. as well as bringing more children into the fold. The latter is
The way forward was possible by involving
education. their mothers as well.
I started a school Tanuja explains it best
under the shade of when she says, We,
a tree with a small as a community of
number of children. people, tend to
It has now turned discriminate on the
into a movement and basis of caste and
we have 200 children gender; domestic
in our school that violence and lack of
has classes up to 5th education for women
standard. We also run are a part of life. Our
women empowerment children must also
programmes like a grow out of such
sewing centre, a centre mindsets and our
to make dry nashtas women, especially
and adult education mothers, should move
programmes. away from this. Our boys, as adults, should be trained
Tanuja, with an MSc degree in organic chemistry and to give up such discriminatory attitudes and behaviour.
an MBA (Master of Business Administration) from IGNOU Tanujas effort to expand her work received support
(Indira Gandhi National Open University), is also involved from Vaibhav Lall, chief editor of Rise for India, who
in a struggle to change mindsets even at home. The first has created an online crowd funding platform to raise
difficulty I faced was to convince those closest to memy Rs1.5 lakh for her school to get furniture, stationery,
family. They couldn't understand why their daughter-in-law books, computers, sports equipment and library facilities
wanted to help children of lesser families go to school, and to pay salaries for the teachers. He says, Tanujas
or why women, in general, should do story is not only an inspiration for
work of their choice. I believed that if her village, but for the entire nation.
the women and children who needed You can also become a part of her
education understood, everyone else BALIRAJA SUNRISE SCHOOL story by contributing in the fund
would follow. Tanuja Deshrajan, raising campaign going on to help
Here perseverance worked and c/o Rakesh Deshrajan her in sustaining the noble initiative.
she now provides free education to Village Mainath, Post Mukundpur, You can contribute by clicking on
children at Baliraja Sunrise School, Agra Road, District Aligarh, http://www.giveripple.in/campaign/
Uttar Pradesh 202001
Mainath village (Aligarh district, helptanuja and help change the lives
Mobile: 9639337566, 9639576766
Uttar Pradesh). Her passion emanates Email: tanuja.deshrajan@gmail.com of some children.
http://facebook.com/tanuja.deshrajan
Beyond_money.indd 1 06-04-2016 21:40:22

REGISTERED WITH THE RNI UNDER NO. MAHENG/2006/16653. Postal
Registration No: MCW/184/2015-2017. POSTED AT PATRIKA CHANNEL
SORTING OFFICE, MUMBAI 400001. Date of Publishing Alternate Friday.
Date of Posting Alternate Tuesday & Wednesday.

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