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Volume 6, Issue 4 8 April – 21 April 2011 Debashis Basu Editor & Publisher editor@moneylife.in Sucheta Dalal Managing Editor suchetadalal@yahoo.com Editorial Consultant Dr Nita Mukherjee
Editorial, Advertisement, Circulation & Subscription Office 315, 3rd Floor, Hind Service Industries Premises, Off Veer Savarkar Marg, Shivaji Park, Dadar (W), Mumbai - 400 028 Tel: 022 2444 1059/60 Fax: 022 2444 2771 E-mail: mail@moneylife.in E-mail: sales@moneylife.in Subscription e-mail subscribe@moneylife.in Pune Jitendra Garsund “SANSHREY”, Nanai Baug Society, BT Kawade Road, Ghorpadi, Pune - 411 036 Mobile: 9881309801 E-mail: jrg.pune@gmail.com New Delhi DDA Flats, J-3/66, Kalkaji, New Delhi - 110 019 Chennai 14, Mian Sahib, IInd Street, Near Madras Youth Hostel, Chepauk, Chennai - 600 005 Tel: 044 4215 5442 Bengaluru 1st Floor, 13/1, 7th Main Road, 1 Cross, Saibabanagar, Srirampuram, Bengaluru - 560 021 st
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Letters to the Editor DAY CARE: SENIOR CITIZENS Senior citizens face problems when they fall prey to an illness and are recuperating. Middle class Indians, as a whole, do not have access to affordable and quality healthcare. Also, there is an acute shortage of quality old age homes. Besides, for a number of reasons, senior citizens are reluctant to go to old age homes. They need nursing care, e.g., Write to the Editor! sponge baths and hair care, The only investment that Win jewellery along with related help for enhances your face value. worth Rs1,000! maintaining their bodies. On top of all this, senior citizens often feel the need for some company. There is a need for day care centres that will cater to the needs of senior citizens. Congratulations Dr Kusum Doshi from Mumbai! Alternatively, they may be Your letter to the Editor wins a Surat Diamond gift accommodated in hospitals worth Rs1,000. Keep writing! Keep winning! where a few cots can be reserved for elders. There is an urgent need for such facilities in Mumbai (and other Indian metros). This is a relatively new concept for Indians; but it is the need of the hour. A provision must be made to provide long-term nursing care and associated healthrelated services on a continuous basis for treatment, along with inpatient care of two or more individuals who are not relatives, on a room-sharing basis. In short, what we need is a facility designed for someone who needs less care than that from a hospital, but one who requires continuous health-care assistance. There is an acute shortage of labour, good home-care providers and domestic help. As all of us know, almost every day, we come across reports of senior citizens being murdered by domestic help. Taking all these factors into consideration, I request nursing homes/hospitals to set aside a few beds or rooms for such people as a part of their corporate social responsibility (CSR) drives. Dr Kusum Doshi, Nehru Road, Vile Parle (E), Mumbai – 400 057, by email
OUR BEST INTEREST The rate of interest for the Employees E l Provident Fund (EPF) has been beeen recently raised by 1% to 9.5%, for a period of one year. This is a good gesture. Most banks have increased their deposit ratess for deposits of two- to threee eyear tenures to double digits— tss— the reason for such increasee was because of rising inflation. But I don’t understand whyy the government has neglected Post Po ost Office ``
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LETTERS
` MIS (monthly income schemes) and Senior Citizens
Savings Scheme (SCSS) which pay interests of 8% (payable monthly) and 9% (payable quarterly), subject to TDS (tax deduction at source) for a five-year deposit. Aren’t these rates too low compared to bank interest rates, especially when inflation is rising—and is in double digits? Retired people (from the fixed-income group) and senior citizens are adversely affected. For these categories, monthly/quarterly incomes do not change with rises in the Consumer Price Index (CPI). The government should increase the rates for the Post Office MIS and SCSS to 9% and 10%, respectively, with immediate effect. This change must hold even for existing deposits under these schemes. The government should consider the issue sympathetically and grant appropriate relief. VS Venkataraman, by email
TENDER TO AN ELDER I fully endorse your recommendations for senior citizens as published in your ‘Cover Story’ (Moneylife, 10 March 2011). The railways give some concession to senior citizens when they travel in mail/express trains but no concession is available to the same class of persons in local trains; why is there this kind of discrimination? However, a few seats are earmarked for senior citizens in the suburban network of Central Railways in Mumbai, if they travel between 11am and 3pm. The same is also applicable in Western Railway local trains, but the timings are 10am to 5pm. Why is there no uniformity in all these rules? Why aren’t they implemented across the board? Also, I feel that these time limits should be abolished as senior citizens require this reservation during peak hours too when no one wishes to offer a seat to an elderly person. It should be available round the clock. Further, the age criterion should come down to 60 years from 65 years, across the board. KG Gupta, by email
SICK TAXATION This is with reference to “Healthcare Costs: Planning Regulation” published in ‘Crosshairs’ (Moneylife,
24 March 2011). I was really pained to read that the Union Budget 2011 has slapped service tax on a few hospitals for air-conditioned services. Air-conditioning is essential for a few patients—it is often mandatory for a few surgical procedures. Air-conditioning cannot be considered a luxury today— especially not for a patient. Instead of imposing an AC service tax on medical facilities, a birth tax should be imposed on almost every child born in India. Such a provision will enrich the national exchequer— and also solve the population problem. Remember, we even pay taxes on medicines. Healthcare is a big problem in India. But do we get any health or hospitalisation benefits from the government? If a few private hospitals (or doctors) offer some additional benefits to patients, what is wrong with that? The least the government can do is to not levy any taxes at all on medicines and any kind of healthcare service. Also, your article, “Private Sector’s Bribe-giving” in ‘Different Strokes’ (7 April 2011 issue), I would like to say that corruption can be eliminated in a simple way by not offering any kind of bribe to any government official. Citizens should be bold. To root out corruption, joint effort is required on the part of the people, society, authorities and politicians. Since corruption has almost become a way of life in India, it is high time graft is made a criminal offence. No bail should be granted to the charge-sheeted corrupt. Mahesh Kumar, B-49, Gulmohar Park, New Delhi 110 049, by email
UNCLEAR NUCLEAR POWER? “Let’s not be afraid of defeat... We are never so near to victory... As when defeated in a good cause,” said the Rev Henry Ward Beecher. A person who is afraid of defeat will never achieve anything in life. This applies to nations too. In case of nuclear power generation, there is not much to experiment. In fact, in case of an accident in a nuclear power plant, there could be a catastrophic aftermath. We are putting the entire creation at stake. ``
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LETTERS
` When even the
qualifications of our pilots (with so many lives in question when they ‘handle’ flights) are now under the scanner, it looks like anything goes in this country. One could rattle off a number of august government bodies which are now under the scanner for corrupt deals. Be it in taking the initial decisions or in floating bids or finally awarding contracts, the people behind these deals are, by and large, not men of integrity. How can the prime minister blame (or keep mum on) this inability to curb corruption on ‘coalition dharma’? I think it is time we joined issue with the experts who want to re-examine all our nuclear plants. Maybe, the International Atomic Energy Agency (IAEA) should take up this effort in all countries which possess nuclear power. Just imagine what is going on in Japan—it was almost a technically ‘impregnable’ country, as far as nuclear power is concerned. Such a horrible nuclear disaster can happen anywhere, in any country. Such a possibility could happen all the more in India. Subrahmanian SH, by email
HARASS YOUR CUSTOMER NORMS Various banks are asking customers to fill up KYC (Know Your Customer) forms, even for existing accounts. I had been maintaining an account with UCO Bank for a number of years now, as the then bank manager of the branch was known to me. I had also opened an account for my wife and daughter at the same branch. However, the current manager of the Bank kept asking me to complete KYC formalities, whenever I was operating my account. I have accounts with Bank of India and Axis Bank as well—I have completed my KYC formalities with them. Is it mandatory to submit
the same details to all banks over and over again, wherever you have accounts? If this is a requirement from the Reserve Bank of India, then it should be possible for all banks to get the information from the banking regulator. I have subsequently closed my account with UCO Bank. However, this matter does not end here. UCO Bank is not permitting my wife and daughter to operate their accounts now. Is the Bank authorised to do so? Where do I complain about this? I request you to guide me. RD Ratnaparkhi, Tilak Road, Pune - 411 002, by email The Bank is following the Reserve Bank of India (RBI) rule. RBI has asked for a one-time KYC norm completion for all existing account holders. SEBI (the Securities and Exchange Board of India) has also asked this from investors in mutual funds. Earlier, telecom companies had done the same thing. — Editor
HELP US TO HELP YOU Moneylife offers its readers a unique service—helping redress grievances on a best-effort basis. However, we have limited resources to devote to this effort and can only pursue complaints that come to us by email. We request readers to please send us crisp complaints, with all the facts on email (not as an attachment) and send us the supporting documents, only if we ask for them. We cannot handle physical letters. — Editor
HOW TO REACH US
Letters to the Editor can be emailed to editor@moneylife.in or can be posted to: The Editor, Moneylife Magazine, Unit No. 315, 3rd Floor, Hind Service Industries, Off Veer Savarkar Marg, Dadar (W), Mumbai 400 028 or faxed to 022-24442771. Letters must include the writer’s full name, address and telephone number and may be edited for clarity or space. New Subscriptions & Customer Service For new subscription requests, complaints about current subscription and books, write to subscribe@moneylife.in or to Subscription Manager, Unit No. 315, 3rd Floor, Hind Service Industries, Off Veer Savarkar Marg, Dadar (W), Mumbai 400 028 or call 022-24441059-60 or fax to 022-24442771. Advertising For information and rates, email us at sales@moneylife.in or call 91-022-24441059-60.
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LETTER
ISSUE CONTENTS
21 April 2011
FROM THE
EDITOR Priceless Obsession
M
aking money by investing in markets may sound pedestrian to many, but the idea of turning one’s passion for collecting into investment is definitely appealing. And who better to talk about it than Rajan Jayakar, the most famous collector from Mumbai? In his talk at Moneylife Foundation and a subsequent interview, Mr Jayakar gave us a crash course in turning one’s hobby into an investment. While a collector’s passion does not take monetary gains into account, an investor’s strategy is aimed at getting returns on his investment. A collector-investor must be more systematic, develop a focus and decide on his range on the scope of the collection. He must educate himself about the items he is collecting, know the ways to source them, know the right persons in the trade, build up the necessary network and be informed about the market and new developments in the field. Through our ‘Cover Story’, Mr Jayakar tells you how to select collectibles and build up the collection, the importance of authentication, the proper ways of preserving antiques, the utility of auctions and assigning prices. However, there are many pitfalls a collectorinvestor needs to avoid. He should not fall prey to forgers or land up on the wrong side of law. Instead of accumulating a vast and unorganised collection, he should focus on building up a quality collection which has some semblance of completion. And it is important that he knows his subject inside out, an important part of his study being the Antiquities and Art Treasures Act, 1972, which places restrictions on export of many collectibles. Investing in collectibles or antiques is no different from investing in financial products. It requires the same amount of diligence and discipline: studying the market, estimating the returns, sharpening one’s focus and knowing the right item to invest in. While the passionate collector may keep his quirks, the serious investor needs a more pragmatic approach. However, be it the pure joy derived from the hobby itself or monetary gains, returns from both are assured. Debashis Basu
28 Cover Story
Collecting: Madness, Method & Money
Successful investing in collectibles demands not just passion but also a canny method
12 Current Account - “Single-premium ULIPs, Highest NAV ULIPs & traditional plans offer less value,” says P Nandagopal, CEO & MD, IndiaFirst Life - Lok Adalats are a hassle-free way to settle consumer complaints - NSDL wants you to demat your mutual fund units. But these are not paper certificates! - Google’s influence is greater than that of Microsoft, Coke or Walmart—it is the most valuable global brand - On its 5th birthday, what do we make of Twitter?
17 LOOSE CHANGE Moneylife Quiz; Soundbites
18
SEBI is policing others, what about itself?; IRDA needs to study the tricks connected with Mr Buffett’s visit; Relation between business & politics lacks transparency
20 Different Strokes Insider trading was just one of Rajat Gupta’s numerous shady deals, many in India, which have remained under the radar Disclaimer: Moneylife has a policy of not allowing its editorial staff to buy and sell stocks that are written about in the magazine. All personal transactions in individual stocks are subjected to internal disclosure rules.
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CONTENTS Here’s why you should click on www.moneylife.in Exclusive News
Get the latest on business & corporate news and other developments in the financial world
SAVING AND INVESTING
52 Earning Curve The government has allowed foreign nationals to invest in Indian mutual funds. The idea will hit a natural wall
Get Insights
Our leading analysts and columnists dissect the issues that are impacting you. Read the Moneylife magazine articles and join in for discussions
ML FOUNDATION EVENTS
a Banker 58 From to Bhayanker
Daily Market Forecast
Keep track of short-term market movements and long-term trends to know what’s coming
SMART MONEY
A banker and author of three bestselling books, Ravi Subramanian explained how bank relationship managers often hustle and crosssell to meet stiff sales targets— compromising service at the customer’s expense
Yields 22 Indicative Are Not a Bad Idea SEBI has banned fixed maturity plans from giving indicative yields. It should re-examine the fiat FUNDS
24 Flexibility vs Returns Giving fund managers greater flexibility does not necessarily yield better results, according to Moneylife research STOCKS
38
Street Beat
Ipca Laboratories has reported strong growth and good cash flows; FDC Ltd is low priced and has high return on capital; Sabero Organics Gujarat is well-poised to reap a rich harvest
STOCKGRADER 43 Momentum
Sesa Goa jumped 15%, HDFC Bank gained 8% while Oracle Financial remained unchanged
Medium Term
Dr Reddy’s jumped 10%, while Ranbaxy declined 5% and Suprajit Engineering fell 2%
Long Term
Adani Enterprises jumped 11%, while Asian Paints ended 1% down
48 Insurance Trends AUTO
42
Regime Change?
Investors have concluded that all is well. This will be tested in April-May
Content.indd 3
Monasteries 60 The of Ladakh Jaideep Mukerji explores Ladakh, one of the most distinct parts of northern India, which still practises Tibetan Buddhist traditions, that flourish in Leh and the villages of this land of high snow peaks and brown earth
INSURANCE
CEO of Max Bupa Health Insurance, Dr Damien Marmion, spoke with Moneylife’s Raj Pradhan
WHICH WAY
TRAVEL
BEYOND MONEY
Drugs 66 Eradicating from Society Muktangan employs awareness programmes, de-addiction treatment facilities and rehabilitation programmes to help addicts live healthy lives
the Ground, 50 OnUp Above
DEPARTMENTS
Head for the mountains in north India, tap into the latest information— and gear up to face some harsh realities, warns Veeresh Malik
Letters ............................ 4 Book Review .................... 56 Money Facts .................... 63
4/1/2011 9:49:20 PM
CURRENT ACCOUNT
‘‘
Singlepremium ULIPs, Highest NAV ULIPs and traditional plans offer less value to customers
‘‘
Dr P Nandagopal, CEO & MD of IndiaFirst Life tells Raj Pradhan
W
hat are the positive and negative trends in the insurance industry?
single-premium (policy) is easy to sell. Instead, you can have the option of bank savings, bonds or mutual funds. Unless we educate the masses, people After the financial crisis, there have will go for short-term commitment. been positive trends like improved At a macro level, regular long-term market growth, cost cutting and plans offer tremendous benefit of operational efficiency of insurance rupee cost averaging and behavioural companies, new classes of business aspect of period savings. Every month, like health and digital channels for distribution. There have been disturbing when a part of the salary goes towards insurance, it offers advantage to trends too. A regular long-term plan salaried customers. ULIP offers help is the right way to buy insurance, but with financial planning to customers. people are buying single-premium and Customers have the choice of shorter-term policies. People are not investment and doing asset allocation properly informed and incentivised. with free switches available. The Savings are not properly channelled. It is bad for the economy and the country. optimisation is not in timing the market, but dynamic asset allocation of It is bad for insurance companies portfolio (to rebalance equity and debt). too. It is not the right space to be in. There are good and bad insurance The other disturbing trend is product companies as well as good and bad arbitrage between ULIPs (unit-linked insurance products. Our basic value is insurance plans) and traditional plans. transparency. Why be shy of good or ULIPs have become transparent and customer friendly. Insurers have started bad things? Every product cannot be the best for every age group. In some pushing traditional plans. Please products we are and, in some, we understand which product is suitable are not. for your needs. If the customer custome is choosing based on merits, it is fine. If it is sold based on agent commission comm People do not understand not fine. It of 40%-50%, then it is no traditional plans. There are different the power should not be due to th bonuses, some non-guaranteed... months of of—up to three month Traditional plans are complex products commission—kickback given by that are not transparent. ULIPs score has been high with choice of investment, lower an agent. The result ha share—private charges and transparency from the reverse market share— more focused customer’s point of view. Traditional insurers, who were mo market share plans are inferior to ULIPs and have on ULIPs, have lost ma 30%. completely disappeared in many from 50%, down to 30% markets. They do well in certain markets where there are powerful Do you o offer interests. It is like moving back to the single singleStone Age. prem premium
ULIP and ULIPs, how is the busi business t for these prod products?
You had said that highest NAV (net asset value) ULIPs give suboptimal returns. Do you offer them? The regulator has approved products We do d offer it, with lowest and highest NAV but it is more combination.
than what we would like woul be. A it to b
If a specific product is understood by sophisticated customers, it is fine. Customer requirements are different.
``
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` For example, the iPhone will not
L OK ADALATS
be understood by the rural market. The sales channel has to clearly tell them about the product. It is utopian and may not happen. There is also the danger of mis-selling. We Lok Adalats are a hassle-free way to settle consumer complaints, but they need to be popularised, believe in simplicity. Demystifying finds Shukti Sarma insurance is the need of the hour. Bells and whistles are not part of go through tiresome and lengthy core products. A bare-bones product he Lok Adalat has emerged as litigation battles,” she says. “But is better. Dynamic asset allocation is a successful alternate dispute to actually make people agree to superior to the static model. I do not redressal system at a time when try for reconciliation is a difficult personally and professionally believe litigations are piling up in our task. Many of the times, we are in highest NAV products. courts and the huge backlog has successful. But most people just nearly choked the judicial system. What are your thoughts on term Maharashtra is one of the few states don’t wish to call a truce,” says Ms Malkani. The Lok Adalat sits every that have set up Lok Adalats at insurance? different levels, which have disposed Friday and, usually, a case is solved The risk cover is important, not after four sittings. On an average, of a substantial number of cases just in the unfortunate incident of more than five cases are disposed of since 2005. Matters of consumer a death, but also for living years. in a day. “Once, we had actually grievance redressals usually Long-term savings and protection 17 suits lined up for the day,” says involve money as compensation or are important aspects of insurance products.
Power to the People
T
Mortality charges vary among insurance companies. It seems to be a way of getting charges from customers who are not aware of it. We are laying it open on the digital platform. Customers can compare it and see for themselves. The Lok Adalat sits every Friday and, usually, a case is solved after four sittings
Term plans have so much variation in premium charges for the same coverage. For example, Aegon Religare offers products at half the price of LIC’s (Life Insurance Corporation of India) term plans. Is it because LIC’s claims settlement ratio is the best in the industry?
replacement of goods which can be easily settled at the Lok Adalat rather than through long-drawn legal battles. Consumer complaints redressal involves a variety of cases—dissatisfaction with customer service, complaints about quality of goods delivered, demand for reimbursements from manufacturers or other service providers and home A younger company will have higher rejection (due to investigation owners quarrelling with builders over the state of property at the time of death claims within three years of taking possession. of policy purchase). It is not an However, it is not an easy job, apples to apples comparison. If says social activist Indrani Malkani, any company is unduly harsh, it a member of the Lok Adalat for is unfair. Otherwise, it should be the Maharashtra State Consumer the same, if insurance is correctly Redressal Forum. “Lok Adalat done. The customer can choose the is for those who do not want to cheaper option.
Ms Malkani. “However, none of them (the litigants) turned up,” she adds. In order to shift a case to the Lok Adalat, both parties must agree to compromise. While most people decide in favour of a speedy solution, the courts have had their fair share of pugnacious litigants and lawyers who love lengthy suits. “Most of the time, we understand which case is likely to be settled at the beginning,” says Ms Malkani. “But often, even though the parties appear before the Lok Adalat, their lawyers egg them on to take the case back to court.” However, adamant customers are also quite easy to find. Sometimes, people decide to go back to court ``
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CURRENT ACCOUNT
` for no apparent reason. Ms Malkani
spoke about a person who had a battle going on with a builder for about one-and-a half-years before approaching the Lok Adalat recently. “This man had bought a flat, but suddenly decided against shifting there. Instead of taking possession of the property, he wanted a financial settlement with the builder. We convinced him that it was to his benefit to take that property, because the builder otherwise wanted him to pay a huge amount to come to another agreement. He agreed to shift but, on the last day, he suddenly decided to take his suit back to court. We don’t know what went wrong,” she mused. The Lok Adalat often presents fascinating proof of legal awareness of the masses. “People come from all over the state, and are well aware of their rights. We had a woman from a village who had a case going on with the Maharashtra State Electricity Board in the High Court! The suit came to Lok Adalat, but she was very adamant. And finally, they went back to the court,” says Ms Malkani. As she points out, there are several advantages to Lok Adalats.
Consumers may represent themselves at the hearings. No fees are required; the process is fast, hassle-free and there are no adjournments. The decision of the Lok Adalat is equivalent to the decree of a civil court, and is considered final. In order to arrive at the solution, both the parties have to sign a settlement form. However, if any of the parties involved wishes to challenge the decision, an appeal can be made to the National Commission in New Delhi. The National Commission’s verdict can be challenged only in the Supreme Court. “However, it has never happened that after reconciliation at the State Forum, an appeal has been made to the higher authorities,” says Ms Malkani. The concept of the Lok Adalat needs to be popularised, she says. Fortunately, many senior lawyers and judicial activists are promoting Lok Adalats. The lawyers of the Consumer Courts’ Advocates Association are also doing a fairly good job. The concept is gaining popularity—and, hopefully, that will cut through the judicial clutter leaving the judiciary free to take up serious issues more efficiently.
MUTUAL FUNDS
Strange Ploy NSDL wants you to demat your MF units. But these are not paper certificates!
T
he National Securities Depository Ltd (NSDL) has launched a campaign asking you to be smart and hold mutual fund units in demat form. To ask investors to do so may be technically correct, but is misleading—mutual funds units are not paper certificates any more! “Why say that you can demat something which is any way in demat form?” asks D Muthukrishnan, a personal finance advisor. NSDL argues es that the demat route te allows for a view off investments. But even ven now, you can get a consolidated account statement from CAMS and Karvy—the two main registrar and transfer agents. Mr Muthukrishnan points out, the consolidated statement of the registrars comes for free—whereas demat costs money. NSDL is highlighting the fact that you can view the valuation online. This too can be done on several online portals; the most popular one is www.valueresearchonline.com. Why is NSDL pushing the demat idea? Exhorting investors on to the exchange-broker-depository platform enhances the revenues of these three entities. Today, the exchanges have offered this facility free but it won’t remain free if it becomes popular. Fortunately, there is a huge awareness today about the pros and cons of NSDL’s offering and investors won’t bite. The only beneficiaries of NSDL’s ad will be the media.
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CURRENT ACCOUNT Google
Plug & Pay Google’s influence is greater than that of Microsoft, Coke or Walmart—it is the most valuable global brand. Anand Datla provides a sense of Google’s dominance
E
ven as one was tweeting away joyously about India’s measured victory in the quarter-finals of the World Cup against Australia, an equally chirpy seven-year-old lad interrupted—“Uncle, would you please google to check India’s record in the semi-final stages of earlier Cup tournaments?” It wasn’t that the question itself begged attention, but the nonchalance with which the kid used the word ‘google’ in lieu of ‘search’ drew it away from the match and into the algorithmriddled servers of the world’s mightiest search engine. The invincible march of Google into the conscience of the constantly connected citizenry of the world has enabled it to corner over 85% of the search engine market share (according to NetMarketShare, which analyses data on market share for browsers, operating systems and search engines). The dominance has implanted Google into the very fabric of our lives, aiding our growing thirst for information. It is no surprise then that a recent Brand Finance (a brand valuation consultancy) survey crowned Google as the most valuable brand on earth. As the Internet giant usurps power from its much-vaunted brick & mortar rivals and technology behemoths, it is necessary to acknowledge the growing influence of information technology on not just business but the evolution of life itself. Warren Buffet might not approve—Google’s brand value is built on intangibles—but he will surely notice the eroding brand
value of his favourite cola. The realities of the modern economy mean that Google’s ability to draw random netizens to its many different services and hook them up with ads placed by its enamoured band of customers is winning the approval of even its most hardened critics. In an interesting twist to the conundrum of valuation, Google gained in value even from services which made no money. While many of Google’s ventures do not bring in revenues, they do add significantly to the growing aura of the brand. For the moderate to immense success enjoyed by Google, Gmail, YouTube and Android Mobile OS, there are
Branded By ValuaƟon Rank Company
Brand Value ($ billion)
1
2
Microsoft
42.80
3
Walmart
36.22
4
IBM
36.15
5
Vodafone
30.67
6
Bank of America
30.61
7
GE
30.50
8
Apple
29.54
9
Wells Fargo
28.94
10
AT&T
28.88
Source: Brand Finance
44.29
multiple services from the giant that make no money but help endear it to communities around the globe. Google’s dedicated disaster recovery team won critical acclaim for aiding millions in the aftermath of natural calamities in Chile, Haiti, New Zealand and in Japan. Google isn’t just riding a wave of tech companies to the top of the valuation stakes. Nokia is a sad example of how a dominant company can be blindsided when it is caught up in warped strategies and unimaginative products. Once among the top 10 in the prestigious list, Nokia slipped in valuation from $19.56 billion (21st rank in 2010) to just $9.66 billion... which drops it to 94th on the charts. The firm that set off the collapse of the Finnish firm Nokia, namely, Apple continued its Phoenix-like rise to the top—leaping from 20th last year to 8th on the current list with a valuation of $29.54 billion. Ominously for Google, Apple’s leap into the top 10 mirrors its own journey in 2008, when Google made it to the top 10 for the first time. Coca-Cola failed to make the top 10, while Walmart dropped two places to slip into third position. Microsoft made a smart climb to the second spot, while IBM retained its fourth position since 2010. Vodafone lay fifth, thanks to a growth in valuation to $30.67 billion. Incidentally, just three of the top 10—Google, Microsoft and Vodafone—got the highest ‘AAA+’, rating. Rapidly growing Facebook has made its debut into the global list of 500 brands with a valuation of approximately $3.5 billion. David Haigh, CEO of Brand Finance, says: “The rise of the technology brands has been expected for some time, although Nokia’s fall shows that it is tough to stay at the forefront of such a dynamic industry.”
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CURRENT ACCOUNT
S O C I A L NE T WORKING
Not for Twits On its 5th birthday, what do we make of Twitter?
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witter marked its fifth birthday in the last week of March. The social networking site, of course, can be put to a number of useful strategic corporate uses— like promoting your brand, following business trends and as Twitter’s official website proudly proclaims (among many other claims): “Building mass awareness, community integration... (and) brand building by association.” Currently, Twitter has around 200 million users globally. It is also helping to bring down wellentrenched Arabian regimes, say some reports. Back home, ‘political’ tweets have destroyed some careers. But here’s the problem—Charlie Sheen has been tweeting only for the past few weeks. But Sheen’s sheen outshone even the New York Times following. Fine, you are in august company when you tweet—you are rubbing shoulders
BOTTOMLINE BY MORPARIA
with Lady Gaga, Kim Kardashian and Britney Spears (after her rehab, Ms Spears can apparently tweet). But do you really want to? Twitter is a great tool to network with people socially—often for good causes. But sometimes it is being credited for more than its due. When thousands of protesters took to the streets in Moldova in the spring of 2009 to protest against their country’s government, the action was dubbed the Twitter Revolution, because apparently Twitter helped the protestors communicate with each other. But Malcolm Gladwell, author of Outliers and Blink, writing in The New Yorker last year, commented: “Evgeny Morozov, a scholar at Stanford who has been the most persistent of digital evangelism’s critics, points out that Twitter had scant internal significance in Moldova, a country where very few Twitter accounts exist.” Then there is the issue of whether to call the messages tweets (obvious) or twits (as semi-literate journalists like to write). Finally, why would a free tool which earns virtually nothing be valued at $7.70 billion? No matter how you look at Twitter, it is a complex phenomenon, belying the simplicity of the 140 characters. — Devarajan Mahadevan
MONEYLIFE | 21 April 2011 | 16
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LOOSE CHANGE Surprise Gift for Quiz winners from:
Moneylife Quiz - 99 Another quiz to tickle your brain. The answers to this quiz are in this very issue. The winner will be chosen by a lucky draw from correct entries. The answers will be published in the next issue. Send in your answers to quiz@moneylife.in with the Quiz no., your name, address and telephone number before 17 April 2011.
Sound Bites “In China, the typical PE deal is done at one-third of an IPO price. In India, people look for PE to match the IPO prices or even at a
1. In which year did John Bogle pioneer passive fund management or index funds? a. 1976 b. 1988 c. 2000 d. 1995 2. When was the Leh Palace built? a. 16th century b. 18th century c. 17th century d. 14th century 3. Who encouraged Dr Anil Awachat and Dr Anita Awachat to work on drug rehabilitation? a. Mangesh Padgoankar b. Pu La Deshpande c. Smita Deshpande d. Srikant Athawale 4. How many years old is the Thiksey Gompa monastery? a. 200 years b. 400 years c. 300 years d. 500 years 5. How many hospitals does Max Bupa Health Insurance have for cashless facilities? a. 850 b. 1,000 c. 500 d. 760
premium”– RAHUL BHASIN, MANAGING PARTNER, BARING PRIVATE EQUITY PARTNERS INDIA, in The Financial Express
“I guess you have got to regard me as a bit retarded because I should have come here (to India) sooner” – WARREN BUFFETT, BILLIONAIRE, to news agencies
“I don’t mean to be insulting, but the knowledge of France, other than sexy girls, is a bit limited in India”
6. Rajan Jayakar figures in the Limca Book of Records as the owner of India’s largest collection of which of these items? a. Matchbox labels b. Bottles c. Books d. Magazines 7. Which item/collectible is not covered by the Antiquities and Art Treasures Act, 1972? a. Coins of the British era b. Postal stamps c. Locks d. Clocks 8. Who is the CEO of Brand Finance? a. Damien Marmion b. David Haigh c. Steve Jobs d. Ronald Wayne The answers to Moneylife Quiz-98 are: • 1-c. 1978 • 2- a. Hindusthan Development Corporation Ltd • 3-b. 35% • 4-a. Seven • 5-d. 963.10 tonnes • 6-a. Rs5 lakh • 7-b. 31% • 8-d. Chandita Mukherjee In all, 38 readers got all the answers right last time. The winner of Quiz-98 is Manju Ghosh from Mumbai. Congrats Madam! You will get a surprise gift from Surat Diamond Jewellery.
– STEPHEN NORMAN, SENIOR VICEPRESIDENT, GLOBAL MARKETING AND COMMUNICATIONS, RENAULT SA, in Mint
“Corruption is rife everywhere in the world. It’s only when it really impacts the process of a business in a big way, you’ve got a big problem. But that’s not the case here (in India)”– MARK MOBIUS, EMERGING MARKETS GURU, in The Times of India 17 | 21 April 2011 | MONEYLIFE
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Exclusive news, the stories behind the headlines and the truth between the lines by Sucheta Dalal
SEBI
Time for Introspection SEBI is policing others, what about itself?
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he Securities and Exchange Board of India’s (SEBI’s) move to prevent market intermediaries and their employees from using the Internet/blogs/chat forums and email (official and personal) to circulate rumours or promote shady scrips is laudable. Unfortunately, not everything that is good is necessarily easy to implement. And a little chat with its own officials would have informed SEBI about the difficulties involved. SEBI says that “poor training and lack of internal controls often leads to the circulation of unauthenticated news.” That is why it wants intermediaries to put in place systems and controls to ensure that employees behave and don’t circulate unverified information; it also wants access to blogs and chat forums to be restricted or logs of usage to be maintained; otherwise, the compliance officer will be hauled up by SEBI. This means that all market intermediaries will probably ask employees not to use smart phones at work; but this, too, will not stop a determined miscreant from getting fake news
posted through outsiders or speculator-clients. We have another issue. It is all very well for the regulator to haul up regulated entities and intermediaries, but what about its own officials? Remember the Pyramid Saimira case, where the forged letter asking the company to make an open offer was the handiwork of one J D’Souza, a manager in SEBI’s investigation department? SEBI has yet to act against this officer. There was also the Kolkata case where a SEBI official was arrested for corruption. Even when it comes to the Internet, what happens when SEBI officials post comments on websites under fake names? At Moneylife, we have traced the IP (Internet Protocol) address of several comments right to the SEBI Bhavan. We had to do this only because of a barrage of postings defending SEBI’s actions. Moneylife is happy that SEBI officials pay attention to our writing, but it raises two issues. First, the deviousness of posting under an alias while refusing to respond to official queries; secondly, the ignorance that the IP address of an email sent from office can be traced back to SEBI Bhavan. Clearly, rule-making should begin at home and expanded to market intermediaries only when SEBI has understood the implementation issues. Mere good intentions do
not justify rules that are difficult to implement, especially when the person who is held accountable (the compliance officer) is not capable of guaranteeing 100% compliance.
WARREN BUFFEtT
Gimmicky Pitch Insurance regulator needs to study the tricks connected with Mr Buffett’s visit
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nvestment guru Warren Buffett, by all accounts, made a successful trip to India, but now that he has left, it’s time for the regulator to stop being overawed and analyse the gimmicks connected with his visit. The insurance regulator spends a lot of public money asking people to understand products before buying insurance. So how come it has nothing to say when an insurance company hawks insurance as an invite to Warren Buffett’s public meeting? Our grouse is not about restricting the meeting to policyholders—every company has a right to gratify customers to build loyalty. But, in this case, it was selling new insurance policies of Berkshire’s Indian insurance partner. What is worse, those who had an existing policy from another insurer, were encouraged to buy the next policy ``
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` in advance, in order to hear Buffett
live. This sales pitch is irresponsible because it creates the impression that insurance is an off-the-shelf product and there is little to choose between rival offers. Celebrity endorsements to sell insurance have always been a grey area. While SEBI has barred celebrity endorsements for initial public offerings (IPOs) for the past two decades, the insurance and banking regulators have refused to intervene. In fact, these are among the most coveted endorsement contracts for top cricketers and movie stars. A bigger problem is that banks and insurers use the most credible brand ambassadors to send out breezy assurances about complex insurance products which are misleading, if not downright incorrect. Relatively, the gimmick of selling car insurance to attend Warren Buffett’s meeting was fairly harmless—after all, he is an investment guru. But will IRDA (the Insurance Regulatory and Development Authority) remain silent if another insurer hawks unitlinked insurance plans (ULIPs) or education loans as a condition to attending an invitee-only meeting with Sachin Tendulkar? Frankly, unless regulators wake up and frame policies regarding celebrity endorsements, I don’t see how they can stop such gimmicks. In fact, it is astonishing that our regulators do not have a policy in place after the fiasco of HomeTrade, a dubious finance portal which burnt up an enormous advertising budget using
the three most expensive celebrity endorsers of the time—Sachin Tendulkar, Hrithik Roshan and Shah Rukh Khan—before being caught in a bond scam and going bust. If no lessons were learnt from that unsavoury episode, it is because there is very little oversight of regulators’ actions by Parliament or the finance ministry and public memory is notoriously short.
POL ITICS
Corruption Conundrum Relationship between business and politics lacks transparency
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ajeev Chandrasekhar, businessman and member of Parliament said recently that the relationship between business and politics (or government) in India, suffers from “haziness, lack of transparency and general shadiness.” He said that this all boils down to election funding, which starts with quid pro quo favours and morphs from a symbiotic relationship into a form of exploitative partnership where favours, contracts and assets are doled out and where favourites are created through a liberal use of political discretion and business fortunes. The winners and losers are determined by such a relationship! And so, while in most other mature democracies, business is restricted to influencing public
policy, in India it seems increasingly able to capture it. Mr Chandrasekhar should know. He has been a businessman who hobnobbed with politicians before entering Parliament. So he makes two important points. First, that while economic reforms were easy, it is reforming government that requires ‘detailed hard work’. Failure to do so allows concentration of power and discretion in the political executive manifests as scams and swindles. Second, with economic liberalisation, “the incentives for business to manipulate and capture public policy have increased significantly.” This is very significant; since ordinary people tend to believe the fallacy that liberalisation means less government, fair competition and open bidding for projects and contracts. Various elements of the telecom scam—corrupt politicians, influential lobbyists, a pliable media and shady businessmen—created a giant scam. This is now out in the open and under investigation. What is far less visible is the influence of consultants and management gurus such as Rajat Gupta, who were invited by none other than the prime minister to frame our health and education policies. For those interested, there is an excellent research by blogger Kapil Bajaj (http://kbforyou.blogspot.com) into how Mr Gupta and his industrialist buddies with their private-equity investments already have their tentacles deep into the system.
19 | 21 April 2011 | MONEYLIFE
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DIFFERENT STROKES SUCHETA DALAL
GO VER N AN C E
Rajat Gupta’s Many Shenanigans Insider trading was just one of his numerous shady deals, many in India, which have remained under the radar
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earing the tape where Rajat Gupta tells the Galleon Fund boss, Raj Rajaratnam, that Goldman Sachs was likely to acquire a commercial bank like Wachovia or an insurance company like AIG, was the turning point. Until the tape was played on a business TV channel, the honchos of India Inc, mainly the power elite connected with the Indian School of Business (ISB), remained steadfast in their support for the former McKinsey & Co chief. They had hurriedly declared that he needn’t step down. Until then, those of us, who have wondered about many of Rajat Gupta’s strange affiliations and investments, didn’t dare to question someone with such phenomenal achievements and a seemingly impeccable reputation. All that has changed. Maybe, Mr Gupta’s legal team will beat the insider trading charge; there may even be a settlement with the regulators. But one thing is certain— Mr Gupta has lost his demigod status. All his actions and deals will now be scrutinised and the government, which is being slammed by different scams everyday, will have to think twice about outsourcing, without scrutiny, the formulation of its health and education policies to opportunistic operators driven by the profit motive. When it comes to Rajat Gupta, I have two questions. One is: Why? And two: Was his equation with Mr Rajaratnam really such a surprise? The answer to why would someone, who has reached the pinnacle of achievement, use his position to trade inside information, has been best analysed by the article, “When Rich People Do Stupid Things” (www.fool.com). It says: “When people like Gupta and Madoff (Bernie Madoff is serving a prison sentence for running a Ponzi scheme that went spectacularly bust in December 2008), who were already rich beyond belief, steal from others (indirectly or literally), you have to ask: What is the motive? Is it power? Maybe, but both already had layers of power before they misbehaved. Maybe they feel above the law?” The answer is probably that “For some reason, these people don’t feel like they have enough… How much is enough money? How much is enough success?
There’s no right answer; everyone’s different.” The answer to whether we should have been really surprised is more complex. Many of Rajat Gupta’s investments have been downright dubious, but his reputation acted like a Teflon shield. The fact that India’s prime minister (PM) and the Planning Commission (WikiLeaks has now told us how the US loves its chairman Dr Montek Singh Ahluwalia) invited Mr Gupta, a foreign national (US citizen since 1984) to frame our health and education policy ensured that his various investments and businesses partnerships in India were above question. This remained so, despite reports that the SEC (Securities and Exchange Commission, the US market watchdog) was investigating Mr Gupta for insider trading, surfaced in early 2010. Yet, right until the SEC played the tape of his conversation in court, Mr Gupta did not resign his Indian directorships (except GVK EMRI (Emergency Management and Research Institute), a not-for-profit organisation based in Hyderabad). He resigned from his US directorships as soon as the SEC filed charges on 1 March 2011. Let us look at some of Mr Gupta’s investments, actions and connections that ought to have raised red flags. • Mr Gupta and Mr Rajaratnam have had a long personal and business relationship. In 2006, they had set up Taj Capital Partners. Mr Rajaratnam was also a trustee of Mr Gupta’s American India Foundation. His other pal and McKinsey colleague, Anil Kumar, has already pleaded guilty to securities fraud and profiting from supplying inside information to Mr Rajaratnam. Anil Kumar was a director of the ISB, Hyderabad, which was founded by Mr Gupta with support from the who’s who of Indian industry. Mr Kumar had to resign ignominiously after the insider trading charge. Earlier ISB’s dean, M Rammohan Rao, resigned for failing to perform his fiduciary role as an independent director of the Satyam Computer Services. • Rajat Gupta along with Ramesh Vangal (former chief ``
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DIFFERENT STROKES SUCHETA DALAL
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of PepsiCo and Seagram in India) was the promoter of Scandent Technologies. While Mr Vangal took the lead in that deal, Scandent entered a series of shady overseas deals with Dinesh Dalmia of the now defunct DSQ Software to acquire its most lucrative global software contracts. Once the contracts had moved to Scandent, DSQ Software was reduced to a shell. Dinesh Dalmia himself fled to the US but came scurrying back after duping a set of US companies for $150 million. He has been languishing without a trial in a Chennai jail for almost four years. Meanwhile, Scandent got listed through a reverse merger with a tiny Indian company and, within a few years, Mr Vangal had quit and moved on. So powerful were Scandent’s promoters that no Indian regulator or investigation agency asked any question, let alone act, although I reported extensively on the scam for several years in the Indian Express. • The Ramesh Vangal-Rajat Gupta duo surfaced again in Tamilnad Mercantile Bank (TMB). They, with others, acquired a 25% stake in TMB from Rajat Gupta C Sivasankaran of the Sterling group. Mr Sivasankaran is not someone who is likely to be a nominee for corporate governance awards. In October 2009, a Reserve Bank of India (RBI) report said that VangalGupta and others had ‘acted in concert’ to acquire a stake without getting RBI approval. This, too, did not dent Rajat Gupta’s aura nor diminish his ‘open door’ access to the Prime Minister’s Office. • Later, the Rajat Gupta-promoted private equity fund, New Silk Route, acquired shares in KS Oils, a company in which C Sivasankaran had an interest. An Intelligence Bureau report of December 2010 (available with us) reported massive price rigging and insider trading in KS Oils. The company has
also been accused of tax evasion. So what did the philanthropic Mr Gupta find attractive about this investment? Far from raising any red flags, the Indian government was so completely enamoured of Mr Gupta that it never once worried about potential conflict of interest in allowing him a key role in framing India’s health and education policy, or that his lucrative private sector investments may be the ultimate beneficiaries of these policies. Mr Gupta had the PM’s blessings and support as head of the prestigious Public Health Foundation of India (PHFI) which received over Rs100 crore (Rs65 crore+Rs36.15 crore in two years) in budgetary support. The PHFI, with a powerful group of supporters (including the Bill & Melinda Gates Foundation), wasn’t so much a public-private partnership as one between the government and a bunch of private and foreign institutions/entities. Little is known about the functioning of this Foundation launched in 2006 by the PM, despite worries that PHFI’s many investors and business partners (Fortis, Pfizer and Microsoft) will benefit from its policy decisions. Incidentally, Mr Gupta resigned from ISB Hyderabad, PHFI and New Silk Route only after 10th March. The question now is: Are we, even today, attempting to put in place systems to ensure that there is no conflict between investments made through private equity funds by those who help the government draft policy? Unfortunately, no; we are not even bolting the stable doors even after the horse has fled. For more details on the PM’s largesse to Rajat Gupta please see: http://kbforyou.blogspot.com/2011/03/manmohan-singhs-publicprivate.html Sucheta Dalal is the managing editor of Moneylife. Subscribers get free help in resolving their problems with select providers of financial services. She can be reached at suchetadalal @yahoo.com
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SMART MONEY
R BALAKRISHNAN
F IXED M AT URIT Y P L ANS
Indicative Yields Are Not a Bad Idea SEBI has banned FMPs from giving indicative yields. It should re-examine the fiat
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arket regulator Securities and Exchange Board of India (SEBI) has said that neither a fund house nor a distributor can give ‘indicative’ returns on fixed maturity plans (FMPs). This is a strange order and merits deeper examination. In the old days, there used to be something called ‘inter-corporate’ loans—one company would lend to another. The lender would take on the risk of various borrowers directly. FMP has become a vehicle that replaces the inter-corporate loan with added features. In essence, the fund manager matches the needs of companies that borrow money from the fund house by floating short-term papers. Unlike inter-corporate loans, which had no ratings and were based purely on name recognition, the fund manager of FMPs invests in papers that are rated. Those with surplus money can become investors in the FMP. FMPs also provide investment opportunities to individuals. Until the SEBI order came, it was common for a fund house to announce ‘indicative’ returns. The structure of the FMP is such that the money is collected in one go, typically, in one or two days. The fund manager has indicative demand and interest rates handy with him. Based on this, he is able to talk to the distributor or client about the likely yield. The fund manager knows the approximate range of his returns. From this, he deducts the administrative and selling costs and is able to talk about the approximate return to the investor. Of course, this is NOT a ‘guaranteed’ return. The actual returns would be quite close to it. Since the fund manager ties up the entire money for the near exact duration of the FMP, the variance is likely to be marginal. In most cases, the fund manager ensures that the maturity of the paper does not exceed the tenure of the particular FMP. If he invests a part of it in some assets whose maturity date goes beyond the duration of the FMP, there can be trouble. He then has to find a buyer at the right price. If he does not, it is likely that he may dump it in some other scheme of the fund house, which is unethical. This is the only risky part in an FMP. As long as the fund house can ensure that there is
no maturity mismatch, the only risk to the investor is credit risk. Credit risk is lowest when the investment is in highest-rated papers and the maturity is short. The longer the maturity, the higher is the probability of credit risk change. Even that is somewhat mitigated by the fact that, in a year or so, a triple-A company is unlikely to go into default, unless there is some fraud somewhere. The bulk of FMP money comes from companies, ultra high net-worth individuals (UHNIs) and HNIs. Some FMPs have kept the minimum investment as low as Rs10,000. However, the opening and closing of the scheme is virtually simultaneous, so there is no widespread marketing. There is focused pre-marketing. The investor needs to know what he is putting his money into and what he can reasonably expect by way of returns. Since each FMP has a different duration and interest rates are dynamic, the investor surely needs an approximate range of return from the product. Since he locks in his money for a fixed period, it is akin to a fixed deposit (FD). If some bank asks you to put money into an FD and is barred by the Reserve Bank of India from announcing the interest rate, will you do so? The bank is doing what the FMP is doing: raising money for onlending. In fact, the regulator should make it mandatory for FMPs to announce a range of ‘indicative’ return. This will help the investor to make an informed decision. When there is a verbal and not legal pronouncement of yield, there is a higher probability of mis-selling. The ground reality is that the investor does not hand over a cheque without an indication of the likely return. In any case, with the ‘indicative’ return, let there be a caveat in bold letters that there is NO guarantee of the return. Let it be announced as an ‘approximate’ range. Let the regulator specify that the FMP will not invest in unrated papers or in papers that have maturity beyond the scheme’s maturity. This will mitigate some amount of credit and liquidity risk. If it is made as transparent as possible, mis-selling will be negligible. The author can be reached at balakrishnanr@gmail.com
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MUTUAL FUNDS POINTERS F L E X I - C A P A ND DY NAM IC F UNDS
Flexibility vs Returns Giving fund managers greater flexibility does not necessarily yield better results, according to Moneylife research
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und companies have been known to launch equity schemes that try to raise assets with new fund ideas. The idea of multi-cap/ flexi-cap funds and dynamic funds were two such flavours that appeared a few years ago. These are designed to give the fund manager two kinds of flexibility. First, not to get boxed into a single strategy, namely, buying and holding only blue-chip or only large-cap stocks. In fact, fund houses believed that they should have schemes where fund managers have greater flexibility to deal with market climate. When the market is very bullish, they should be able to buy a micro-cap stock, which would go up manifold and when the market is mildly trending up, they should be buying large-cap and blue-chip stocks. The second kind of flexibility is to go fully into cash and sit on the sidelines when the market is tanking. For this, dynamic schemes came into existence. They will dynamically move from a fully-invested situation to being completely in cash and various stages in between, depending on the fund manager’s reading of the market situation. In some ways, both flexi-cap schemes and dynamic schemes are attempts at market-timing— something that fund companies usually claim should not be done. Not surprisingly, the ideas have largely
proved good only on paper. The performance of multi-cap/flexi-cap and dynamic schemes has been mixed. Out of the group of eight schemes that fall in these two categories, only four have outperformed. The best-performing one is ICICI Prudential Dynamic Plan with a return of 13% since 31 March 2007, compared to its benchmark, S&P Nifty, which has given a return of 9% for the same period. Canara Robeco Multi Cap has yielded a return of 10% compared with its benchmark, BSE 200, which has given a return of just 6%. HDFC Premier MultiCap Fund has earned a return of 19% and its benchmark S&P CNX 500 has earned a return of 17%. Franklin India Flexi Cap Fund has outperformed its benchmark by 2%, giving a return of 12% since May 2006. The underperformers include JM Multi Strategy Fund (12%), HSBC Dynamic Fund (-2%), SBI Magnum Multicap Fund (10%) and L&T Multi Cap Fund (9%). Interestingly, all these fund houses have flagship equity diversified funds; some of them have done better than multi-cap/flexi-cap funds and dynamic funds. For instance, Franklin India Flexi Cap Fund has given a return of 12% since May 2006 whereas its equity income fund has given a return of 16% for the same period. Similarly, HDFC
Premier Multi-Cap Fund has given a return of 19%, whereas its equity fund has given a return of 27% for the same period. Among the underperformers, SBI Magnum Multicap Fund and L&T Multi Cap Fund earned returns of just 10% and 9%, respectively. Their equity funds have given a return of 12% and 14%, respectively, over the same period. Clearly, market-timing is not working as well as the fund managers expected. Is there something fundamentally wrong with these schemes? Let us consider in some more detail the reason why these schemes have been launched. There are periods when markets move sideways—and they can move sideways for months and years together. Look back at 2009 and 2010. In 2009-10, the Sensex moved up 77%. But the bulk of this move happened between March and October. Indeed, in June 2009, the Sensex hit 15,600 and, by May 2010, it was hitting 15,900. It was a whole 12 months of no returns. Over the past three years, the market has hardly moved up on a point-to-point basis, though there have been lots of gyrations in between. Between 1994 and 1998, the market was down by 35%. Even within a strongly rising market, say, in 2006, the Sensex crashed from around 12,600 in midMay 2006 to 8,800 in late June. ``
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MUTUAL FUNDS POINTERS
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Indeed, markets are mostly ontrending; gains come in fits and starts. When markets don’t trend upwards, funds don’t perform very well. Their NAVs (net asset values) become volatile. Fund companies face a lot of criticism from investors as well as distributors during this period. This is because, often, fund investors are not very mature; distributors cannot explain this volatility; and fund companies have no direct dealings with investors. In most cases, fund investors don’t have rational
in a live situation, when the dynamic and volatile period begins, is another matter. Usually fund companies, with their emphasis on fundamentals, are ill-equipped to deal with them. Take the case of multi-cap and flexi-cap type of schemes, where the objective is to give the fund manager the flexibility of moving from one kind of stock to another kind of stock because small-caps and mid-caps do very well in a bull market, but they do very badly in a sideways market or a bear market. For instance, when
Flexibility Yes, but Returns? Schemes
Date
Return*
Equity Schemes
Return*
Benchmark
Return*
ICICI Pru Dynamic Plan
31 Mar-07
13%
ICICI Pru Equity Opportunities-Ret
4%
S&P Nifty
9%
Canara Robeco Multi Cap
7 Feb-07
10%
Canara Robeco Equity Diversified
12%
BSE 200
6%
Franklin India Flexi Cap
19 May-06
12%
Templeton India Equity Income
16%
CNX 500
10%
HDFC Premier Multi-Cap
20 Apr-05
19%
HDFC Equity
27%
CNX 500
17%
JM Multi Strategy
25 Sept-08
12%
JM Equity
2%
BSE 500
12%
HSBC Dynamic
28 Sept-07
-2%
HSBC Equity
3%
BSE 200
1%
SBI Magnum Multicap
14 Oct-05
10%
SBI Magnum Equity
12%
BSE 100
15%
L&T Multi Cap
9 Feb-05
9%
L&T Growth
14%
CNX 500
15%
Source: Mutual Funds of India; *All returns calculated till 18 March 2011
expectations and cannot invest for the long term. If the NAV goes down by 30%, they start panicking and if it goes up by 25% they think that is the norm. In short, they are not wired to understand risk products that well. Distributors usually advise ‘sell now, we will see later what to do next’. As result, fund sales start declining amid a lot of churning. To handle such volatile periods, fund companies say they need flexibility to buy what they want to and move in and out of the market when they want to. From this came the idea that there must be funds to deal with different market conditions—for which multi-cap/ flexi-cap funds and dynamic funds were conceived. However, identifying periods of sideways markets by looking back is one thing. To formulate strategies
the market is in a ‘sideways to down’ situation, some stocks can go down by 30%-40% for no reason—this is the nature of these stocks. When would a fund manager know when it is time for the small stocks to grossly underperform? Switching from small-cap to mid-cap requires a specialised market-timing skill because you are assuming that, in a certain kind of market, only certain kinds of stocks will perform and others won’t. While one can take a call based on over- or undervaluation of specific stocks or the overall market, to be able to move between large-cap, mid-cap and small-cap stocks based on market climate would be rather arbitrary. And going completely into cash is also another market-timing skill which fund managers are usually
short on. It is not in their DNA to do this. Fund managers are skilled in studying a company and buying the stock for the long term. Only a rare few, anywhere in the world, are market-timers and they apply very sophisticated and proprietary quantitative techniques. This is the reason that, with all the flexibility available, some of these schemes are grossly underperforming and those that are performing well are doing so either because their fund managers are very skilled (ICICI Pru Dynamic Plan is an example) or because the scheme was launched at an opportune time after which markets have gone up manifold—so whatever mistakes they may have made in between, do not have a significant impact on the returns. ICICI Pru Dynamic Plan has, indeed, shown some skills of markettiming, compared to HSBC Dynamic Fund. When the market was at its lowest (around March 2009) HSBC Dynamic had around 70% of its funds in equity, whereas ICICI Pru Dynamic Plan had around 95% in equity. And when the market peaked around November 2010, HSBC Dynamic had around 86% in equity, while ICICI Pru Dynamic Plan had only 70% in equity. But this is an exception to the general rule that funds cannot, and do not, time the market. So, multi-cap/flexi-cap funds and dynamic funds have turned out to be another category that can be ignored, barring ICICI Pru Dynamic Plan which seems to be doing something right and is worth a closer examination. Mutual funds are a business whose success depends on the amount of money that can be raised from investors. And what does raising money depend on? New schemes with different flavours. Giving fund managers the flexibility was probably just an excuse.
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COVER STORY
Collecting &
Successful investing in collectibles demands not just passion but also a canny method, finds Shukti Sarma, after spending hours with a top collector Rajan Jayakar
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t is a fairly ordinary thing—an old, yellowish envelope with three rectangular stamps stuck on top with postal cancellation of 26.1.1950. There are plenty of cancellations of that date. Holding it out to the sunlight filtering through his office window that overlooks the Bombay High Court, well-known solicitor Rajan Jayakar remarks, “The stamps are fairly common, issued to commemorate the Indian Republic Day. But do you know why this envelope is invaluable?” He points out to a little image of a book printed beside the address. “This image of the Constitution of India, together with the three commemorative stamps makes this envelope one of its kind in the world,” he says. “I acquired it at an international exhibition in New Delhi this January. The price was double of what I had expected, but then,” he smiles, “the satisfaction I get when I look at this item is priceless, particularly
from a lawyer-collector’s perspective.” That ‘intangible value’ is return enough for any passionate collector, says Mr Jayakar, one of Mumbai’s best-known collectors. Investing smartly in collectibles can also be a prudent (and cultured) way to save and earn returns. However, this hobby requires research, passion, a method, and funds to start and nurture a collection. The most valuable and famous collections are usually those of paintings, stamps, sculptures and coins, but passionate collectors are known for quirky collections as well. From the largest collection of locks spanning several centuries (by Prof V Raghunathan, of the GMR Varalakshmi Foundation) to bottle caps, flight boarding-passes, bangles or, as in the case of Mr Jayakar’s latest hobby—memorabilia of Shammi Kapoor’s films—the hobby itself becomes a source of pleasure. The manner in which collectors price—and
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` value—collectibles is no less fascinating. A unique item
when added to the collection increases the collection’s value multiple times—for instance, from the monetary perspective, Mr Jayakar’s envelope is much more valuable than one with merely the stamps on the envelope.
Oldest telephone in Bombay
So, can one make smart investments in collectibles? From Mr Jayakar’s perspective, a passionate collector will never make a good investor, because he would rather die than consider selling something he holds so dear. Having said that, “An investment in collectibles is no different from investing in markets or financial products. You study the object thoroughly, know its scope, the past record of price escalation and decide how much you want to invest, which is the best auction house to deal with and make an estimate of expected returns over the years,” he says. In short, an investor has to be smart, pragmatic and completely dispassionate—and there are plenty of such investors in various antiquities. In a fascinating presentation (on 18th March) at the Moneylife Foundation—a not-for-profit organisation that promotes financial literacy, Mr Jayakar said that most children collect stamps, coins, cigarette/ matchbox labels, marbles etc. This childhood hobby can become a passion or an investment only if it is recognised, encouraged and nurtured correctly by parents and teachers that will make a general schoolboy collector into a specialised collector. This is crucial, because, fascinating as they sound, great collections are not merely about money but careful research, good networking, negotiating skills, quick decision-making and the tenacity to spend long hours scouring markets, bidding at auctions and meeting people to get the right `` objects to add to your collection.
CARD TO FIND Die Card for hundi and Stamped Paper. The Thomas De La Rue Record Book mentions “Blackish burnt marks due to air raid on Thomas De La Rue Office in Burnhill Road, London.”
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he wood-and-metal phone, as the label on it says, was manufactured by Bombay Telephone Company Ltd in 1889. Surprisingly, the first telephone in the city arrived in 1905. The phone doesn’t have a dial, as the earlier phones used operator assistance. After asking for the number, the caller had to wait for a particular beep which signalled that the line was connected. It has a separate mouthpiece and earpiece, and if the latter is dropped, the line is automatically disconnected. Mr Jayakar got it from chor bazaar, and the details of its ownership are not known. The phone is still functional; but, since it does not have a dial, it can be used only as a parallel line. While the phone is extremely rare, the telephone directory that he got from a Parsi gentleman, Mr Jayakar claims, is one of a kind in the world. It is a common directory for Bombay, Karachi and Ahmedabad and came out in July 1942. At that time, one could get a new directory only in exchange of an old one so, probably, all the other editions had been exchanged for new ones.
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MA S T E R C OL L E C T ION
The King of Collectors Rajan Jayakar has not only nurtured his passion, but also lived it
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ajan Jayakar figures in the Limca Book of Records as the owner of India’s largest collection of matchbox labels. He has curated several exhibitions, is a frequent lecturer at many collector and historical societies, represents India at international philatelic exhibitions meets and is a fascinating repository of stories about people and things. Mr Jayakar is an out and out Mumbai fan. He collects everything from the pre-Independence era on history of Bombay including photos, picture
BYGONE ERA One of the many from the Shammi Kapoor memorabilia of posters and songbooks in Mr Jayakar’s collection
Each item in his collection has fascinating stories attached to it. He can rattle off the history of that item, but what is more interesting is the story of how he came to acquire it. While Mr Jayakar’s collection also consists of various decorative items such as blue & white china, wedgewood, porcelain and glass Victorian furniture etc, he has some quirky interests too. He is also proud of Shammi Kapoor memorabilia. such as his film posters, old records, prints, songbooks, lobby cards, articles, ng inati fasc STRIKE FORCE and stills and other items ue uniq be to hbox labels can turn out Even a humble collection of matc made in Austria depicting two first The s. related to the actor’s show ction colle sample from the Jayakar cts Lord as this ay depi Krishna. The second made in Norw Shiva the Yacht Club in Mumbai and Lord Lord cts picts depi , Sons & in Japan for Tata Ganapati. The fourth label, made
postcards, lithographs, engravings, books, letterheads, monograms and glass and porcelain on n which ‘Bombay’ is embossed. His knowledge of old ld Bombay is astonishing and he is also an avid collector ctor of things related to his own community; the Pathare are Prabhus who, he claims, were the earliest settlers on the island of Bombay since the 13th century. Mr Jayakar has an optimistic plan of writing a few books such as “Legal Bombay” (history of law courts in Bombay from 13th century till 1947), “Greeting from Bombay” (history of Bombay through picture postcards) “People of Bombay” (communities, businesses and avocation n of people in the 19th century), “Pathare Prabhus off Bombay” (history of his own community) and has A JOLLY GOOD RIDE already started work on these. Mr Jayakar with his 1938 Austin
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` How can you start a collecƟon?
films. The Shammi Kapoor memorabilia may not be something which will fall in line with other antique w ccollectibles. But, it is of immense value to Mr JJayakar because he is an ardent fan of Shammi Kapoor. Mr Jayakar claims tthat he has successfully stocked up all the available Shammi Kapoor’s film memorabilia, and wants to hold an exhibition around tthe 80th birthday of Shammi Kapoor which falls on 21st K October. Mr Jayakar has not only nurtured his passion, but has also lived it. It manifests iitself in his house. All the clocks at his home are of IOU An old hundi the winding variety. The Victorian furniture, switch board with brass & porcelain switches, kerosene fan, an HMV Radio, box gramophone and earliest model of a wall mounted telephone—all are in working condition. The ceiling fans are all 100 years old with wooden blades, and he is not bothered if they y consume more electricity y or are slow in circulation. culation. Having adhered to his childhood passion, Mr Jayakar, r, today, possesses an enviablee collection of almost every conceivable eivable collectible item from the colonial olonial era, many of which hich are one of a kind. So his advice, to all those aspiring spiring collectors out there, is to enjoy their hobby—be it as an investor estor or a passionate collector.
The first step is to identify what you want to collect and what you can afford. It is better to start randomly and then focus on something specific. The second step is to acquire as much knowledge as you can on the subject so that you can graduate from being a general collector to specialised collector. Mr Jayakar says that it may be better to focus on a small sub-category or period and aim to own everything on it, rather than build up an unorganised huge collection. For instance, if the general collection is of stamps on flowers, that can lead to a specialised collection of roses. There are collectors whose passion is to garner full sets of certain types of collection—just completing a precious period tea-set or dinnerware or a group of paintings of an artist instantly adds tremendous value to the collection—as a whole, it is more valuable than the total value of individual pieces in that set. Take Peggy Guggenheim, for example. Born and married to ‘old money’, Peggy went on to become one of the greatest patrons and collectors of modern abstract art. Before World War II, she collected paintings by the then emerging surrealists for her museum. However, Peggy’s haphazard collecting spree did not go well with her museum’s finances. So, after 1939, she trimmed her plans, consulted experts, and toured the Continent searching for new masters. The result was one of the most valuable collections of early 20th century abstract art from USA and Europe which includes 10 Picassos, three Dalis, 40 Ernsts and eight Miros. It is housed at the Solomon R Guggenheim Museum (named after her uncle) in New York. Since most of us don’t have Peggy’s resources, Starting without appropriate we start even smaller. Sta homework, including the right source, is a recipe for getting fleeced. Like aall collectors, Mr Jayakar too swears by Mumbai’s quaint chor bazaar, whose dealers are a tremendous source extremely savvy deale for serious collectors; they are knowledgeable collect and build a rapport with them. Thereafter, ra the dealers dealer will hunt all over to procure objects objec desired by the collector. The basic information for a collection is easily available from auction catalogues, fro manuals, books and specialised ma journals that are available on almost journa everything—and, these days, there is the everything— Internet. `` CALL COLLECT One of the earliest phone directories
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Picture postcards of Bombay
M
r Jayakar is yet to come across another copy of this beauƟfully printed postcard (right) of Bombay that was printed in Italy and brought out by D Macropolo, a cigareƩe manufacturer in CalcuƩa. Mr Jayakar believes that it was printed around 1899 and was used in 1909. The colourful postcard
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depicts an elephant with a mahout in all its regalia regalia, a view of the monkey temple in Kalbadevi (Ɵtled ‘Hindoo’ temple on the postcard) and a statue from the Ellora Caves. Mr Jayakar believes that it belongs to a set of at least six postcards, three of which he has. The series is Ɵtled ‘GreeƟngs from Bombay’. He acquired these at an exhibiƟon in London in 2010. The other three are yet to surface. Mr Jayakar has a large and an almost complete collecƟon of picture postcards of Bombay. into the market for sale—or is far beyond your means. Importantly, l ffor every collection ll there h is a club l b Then you know that it would be very difficult to piece or society of collectors that also bring out specialised together a substantial collection. However, it is never magazines. For instance, the British Matchbox Label too late and the collection can be started at any time. and Booklet Society, the Philatelic Congress of India, “Sometime back, I came to know about a society Numismatic Society of India, Museum Society of which completely floored me,” says Mr Jayakar. He Bombay or the Bombay Local History Society. Joining was leafing through a collector’s magazine when he was groups/clubs specific to your collection allows you to in London attending a Fair of Picture Postcards, where meet knowledgeable collectors and dealers, without he saw a photograph of the annual meeting of a Button whom collectors cannot survive, and vice versa. It Society. “Imagine”, he helps you know where you chuckles, “there is not only stand, compare notes and get a club for people who collect encouragement and validation. buttons, but they meet This is an important step regularly and were having a because it helps you complete yearly meeting of members your targeted collection, have where they would appoint a fair idea of the material a president, secretary, available on it, what other treasurer and other office collectors have and whether bearers.” you have a chance of putting Being in touch with together a reasonable the collecting community collection on the subject. You is the best way to also begin to learn how and keep yourself updated why certain items are valued about new discoveries, and which ones are more exhibitions, auctions and sought after than others. For other events. Networking instance, it is possible that plays an important part PRICELESS most of the material on your Joint hundi paper of the Bengal Presidency with date plug in collections—it allows chosen subject is already in holes on the rim indicating that it dates back to 1870. The you to trade your ‘extras’, museums or with other genuine printing error is due to the fold in paper. This may be the `` sometimes even to buy collectors and very little comes only one known to exist
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The old Times of India building near Churchgate
A
very rare picture, it is a part of a fascinating collection of Mr Jayakar. A Parsi gentleman sold some voluminous scrapbooks to him about 15 years ago. These scrapbooks contain every conceivable bit of information on old Bombay. The gentleman pasted newspaper articles, ads, pictures, postcards, labels, etc, and wrote down all the information he could find on Bombay in the margin alongside. All the information is accurate, and there are obscure but interesting facts which are not found anywhere else—like the length of the Victoria Terminus station and its cost of construction. Mr Jayakar refers to these scrapbooks often. The only glitch is the gum used by the collector; he had pasted rare documents, maps, pictures, bank certificates, etc, directly on the paper; they are very difficult to remove now. As a result, many priceless documents have been ruined. Yet, Mr Jayakar thinks that it’s an extraordinary collection.
` out a smaller collection. Sometimes a collector,, who
price. Knowing p g the value of what is available is also while buying from dealers. This decides to focus on a narrow subject ubject for a more important w complete collection, will disposee of brings us to auctions which are often other minor collections and, if it fits viewed as an arena of prodigals for waving into your collection, it can enhance ance wavin their money and the perfect place to your collection. With time, such h t upstage rivals. For collectors, auctions are often the place to find collectors either donate the surplus plus specific items crucial to completing to museums and societies, or give ve their collection. Rare treasures them away for a small price to other have surfaced at obscure auctions collectors. It is better to collect throughout history and, contrary directly from them rather than thr through the dealers. Normally, to normal belief, sometimes, a senior collector is more than yyou can get rare items at unbelievably cheap prices at happy to dispose of his ‘extras’ to GOING GONG `` a junior collector at a reasonable An old brass and copper gong showing two elfin spirits such auctions.
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P H I L A T E LY
came together. The Penny Magentas from British Guiana, originally worth one and ERROR VALUE four cents, Stamp collecting is a common hobby but Inverted head four annas stamp: One of the first multicoloured stamps, are described can be taken to great heights red frames that bear the price were as among mistakenly inverted in at least three the ugliest in tamps are probably the most popular collectibles. sheets. However, the Queen’s head appears inverted. One of the rarest the world. Some rare stamps are deemed to be worth a stamps, it has also been forged The Penny fortune. However, every old stamp is not necessarily many times. The stamp alongside it Magentas were expensive. Even recent stamps can be extremely is error-free. provisional expensive, because stamps issued a stamp’s value by the British depends on rarity. Guiana Stamps are government in graded as follows: 1856, when mint, multiple the regular mint stamps, WORLD’S MOST EXPENSIVE shipments single used STAMP The ‘penny magentas’ worth one PRINTERS’ DEVIL failed to arrive stamps, stamps and four cents. The one cent Mauritius ‘post office’ stamps: Instead from England, used on covers, version no longer exists. The only of ‘post paid’, it was printed ‘post office’ and were later misprinted stamps on these 1847 stamps. Extremely rare, surviving four cent copy is the most expensive stamp in the world. and a philatelic legend. withdrawn. and misprinted However, stamps on cover. one of them While it is better remained with to get stamps in mint or excellent condition, those a schoolboy. It which are rejected by postal authorities or are printed changed hands on cover are exceptions. and, finally, Defective stamps are usually more valuable appeared in than regular ones because the entire print order is FIRST FROM HAWAII Hawaiian missionary stamps: One an auction in destroyed once the defect is detected. If a few manage of the great rarities, these are the 1922 where to get into circulation before they are withdrawn, first postage stamps from Hawaii. it was sold their value soars. The ‘inverted jenny’ series from Although they were in circulation since 1851, only a handful survive. to American the USA, issued in 1918, which contain the inverted businessman images of the Curtiss JN-4 airplane, is one of the Arthur Hind for $35,000, who outbid Prince Rainier most spectacular examples in philatelic history. III of Monaco. Mr Hind publicly burned the only However, errata alone do not make stamps valuable. India Post comes up with so many defective stamps so other copy of the stamp in his pipe at that point, so his purchase would be the only Penny Magenta in often, that they are rejected in international markets. the world. After his death, the stamp was bought What makes stamps invaluable is the history by Frederick Small, an Australian businessman. attached to them. An otherwise unremarkable stamp collection consisting of 550 used stamps fetched some After two more auctions, the stamp was, finally, bought by John E du Pont for a whopping $935,000 $53,000 in an auction in 2005 by the Smithsonian in 1980. Du Pont died on 9 December 2010. The National Postal Museum. The Museum committee Penny Magenta remains in his bank vault. Philatelists feels it is a ‘cheap bargain’, because the stamps continue to speculate about the appearance of a belonged to John Lennon. cousin of the most valuable stamp in the world, but it The most expensive stamp in the world is a hasn’t surfaced yet. unique case in which fascinating history and rarity
King of Hobbies & Hobby of Kings
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A N T I Q U E L OC KS
Key Options Prof V Raghunathan collects indigenous locks which are at least 50 years old
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rof V Raghunathan, a former banker who taught at IIM Ahmedabad, is probably the best-known collector of antique locks in India. He started his collection by trading a new lock for an antique one hanging from the door of a house in Kashmir. He has more than 600 antique locks in his collection. The collection has been widely reported on television and in newspapers. Prof Raghunathan collects indigenous locks which are at least 50 years old. These locks come in various shapes: human, animal or mythical, and show amazing mechanical creativity. There are locks that require multiple keys to open; locks whose key slots are hidden; some which require a different key to open; one that gives out an alarm when it is being opened; some OPEN SESAME with complicated Prof Raghunathan and his old locks
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The big four collectibles such as coins, stamps, paintings and sculptures have ready markets. Clocks, furniture, vintage cars and other antiques also have markets. On the other hand, though there are collectors of esoteric stuff like Victorian gowns or bonnets, they are not easily saleable commodities and such items appear in auctions only once in a while.
combinations and a lock whose key has to be unlocked first! There is a lock shaped like a girl with her hands joined, a massive 3.5-ft long lock that weighs 30kg and one that is about half a centimetre in length. Prof Raghunathan estimates that he has invested about Rs10 lakh on his collection so far. Antique locks are deemed difficult collectibles; being heavy, they cannot be moved around or taken for exhibitions. Nor can they be insured. Moreover, non-availability of literature on the item makes the collector’s job doubly difficult. “Antique locks are a specialised item, and I know only a few people in India who collect locks. Abroad, though, there is a good market. Indian locks are viewed as excellent mechanical puzzles,” says Prof Raghunathan. Many such locks are exported and are bought by collectors who are willing to pay enormous amounts, as locks are not covered by the Antiquities and Art Treasures Act, 1972. As a result, the Indian collector is at a disadvantage. In his own way, Prof Raghunathan has made the object of his passion memorable. He has erected seven four feet-bronze locks outside the ING Vysya Bank building during his tenure as president of the Bank.
Preserving your collecƟon Even the most rare and fascinating collection will rapidly lose value if it is not preserved well. Broken or damaged items neither attract admirers nor investors and should be avoided. Collectibles are classified according to the condition they are in. For instance, stamps are classified as mint and used categories. It is
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` better to acquire a mint condition stamp than a used
one, unless a mint stamp is not available. A used stamp, whose sides are nicked or the perforations damaged and uneven, is deemed useless and should be avoided. According to Mr Jayakar, it is a misconception that all antiques should be kept in the same way as they were obtained, because the ‘old and wasting’ look adds to their value. He meticulously cleans, restores and maintains the furniture, statues and other non-paper items he obtains from the chor bazaar or other dealers. “Restoration without changing the character is vital, because a restored item enhances the life and appearance of the piece and increases its resale value. While it is good to have knowledge of the art of restoration, it is more important to know people who are adept at restoring objects. For WHAT DETERMINES VALUE instance, coins The Penny Black (left) is the often lose their oldest postage stamp in the world, value if they but is not an expensive one, are rubbed or since it is easily available. The 1948 stamp, which has ‘service’ cleaned with overprinted on an image of chemicals as Mahatma Gandhi, however, is one the inscriptions of India’s costliest stamps. It is the deteriorate,” least printed stamp in the world, he says. The since only 100 copies were printed for the personal use of Governor two his-andGeneral C Rajagopalachari. Most hers cupboards are in museums. he has in his bedroom and the wooden elephant and camel he keeps in his living room have been scraped and hand-polished. Specifically, it is advisable to keep wood, paper or iron away from humidity. Paper is one of those items whose value decreases with age. Paper—and for that matter, letters, documents, scrolls or books—lose their value rapidly in India because of the tropical weather. Mr Jayakar religiously stores the paper collectibles away from sunlight and moisture, sprinkling them with necessary chemicals to avoid insects and uses dehumidifiers for keeping moisture away.
The gli er and the gold A serious collector will ensure that the rare and
Tickets to ride hese two tickets, of BB&CI (Bombay, Baroda and Central India) and GIP (Great Indian Peninsular) Railways were found in a scrapbook. The BB&CI ticket is a first-class one, from Marine Lines to Bandra, and costs one rupee, five annas. The date punched on it is 27 Jan 1860. The GIP ticket is very rare. It is from Victoria Terminus to Vile Parle via Mahim. What makes it interesting is the punched date, which reads 16 June (19)10. The word ‘June’ is inverted.
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expensive items, such as stamps, coins, statutes and paintings have a certificate of authentication. Uncatalogued treasures do appear in the market, but only once in a while. One should be able to identify such treasures and be there at the right time and place to acquire it. Of course, history bears witness to the fact that sometimes pieces ‘faked’ by (in)famous art fakers become treasures by themselves. The ‘Rembrandts’ or ‘Cézannes’ done by British art forger Tom Keating fetch astonishing amounts at auctions and have become collectibles. Keating, a phenomenal artist in forgery, had fooled even the experts and circulated 2,000 fakes by over 100 artists, and his trial was sensational. But the average fake coin or rusted clock will not turn into collectors’ gold. Organising a collection is part of the passion for collecting. Every item must be preserved, arranged and catalogued so that the collector can avoid `` making a purchase of the same or similar item.
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Postal weight & stamp-boxes
INVESTING TIPS
A Few Dos and Don’ts A few points you should keep in mind before completing your collection • Collectibles must have a market for purchase and sale. When it comes to investment and returns, items which are popular and have an easily accessible market will prove more profitable. • They should be of manageable size for easy transferability and preservation. Obviously, it will be difficult to transfer a giant mural or a life-size statue. The larger the object, the more difficult it is to preserve.
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he scale depicts the rates of postage, with weight limits being specified in ounces and tolas. It is a miniature brass gem, and it comes with small brass weights. Mr Jayakar got it from chor bazaar. The stamp boxes were acquired from various individuals. One of the three shows fine jaafri work on brass with enamel. The brighter stamp box contained some stamps when Mr Jayakar obtained it.
` Things money can’t buy
The joy of building up a collection brick-by-brick is immeasurable. Mr Jayakar is still waiting for a teapot for completing a rare green American pyrex tableware set. “The satisfaction you get after acquiring something you really want, even if you have to pay through your nose, cannot be explained; it has to be experienced,” he says. At the end of the day, the joy obtained from combing through junk at shady antique shops, the subsequent late hours spent in studying, restoring, cataloguing and cleaning and the pride that comes from seeing the admiration (and envy too) in the eyes of the people while exhibiting an item, turns it into priceless pleasure. And so, the passion for collection must be nurtured. Be it as a schoolboy or an adult, the passion for collection is a reward in itself. In the end, though, no matter what kind of a collector you are, you will be happy. “Because,” Mr Jayakar says, “for the investor, the happiness is in the returns; and for the passionate collector, happiness is the biggest return.”
• The collection must have a semblance of completion. It is better to have a narrow focus and have a specialised and near-complete collection, rather than a haphazard one. • Your collectibles must be authenticated by a recognised authority, if possible. Otherwise, it may be deemed a fake. Worse, the collector himself can be declared a forger and face legal action. • The collector must have the infrastructure to preserve the collectibles in the best possible condition. Any item, which is in bad shape, is rejected in the market. • A collector must have a thorough knowledge about the collectible and the market. Otherwise, he can be cheated by dealers or buyers. Up-to-date knowledge about your collection is a must. • A collector must know the provisions of the Antiquities and Art Treasures Act, 1972. The collector must know the items that are covered by this Act and the definition of ‘art treasures’ and ‘antiquities’. He should know all about the restrictions placed on exporting, importing, trading or exhibiting collectibles.
37 | 21 April 2011 | MONEYLIFE
Cover Story.indd 11
4/2/2011 3:59:08 PM
STOCKS STREET BEAT
Unbiased & Methodical Stock Picking that Works!
IPCA
Healthy Growth
tio n St or ies of Pr ice Ma nip ula
Strong growth and cash flows
I
pca Laboratories was originally promoted by a group of medical professionals and businessmen and was incorporated as ‘The Indian Pharmaceutical Combine Association’ in October 1949. The current management took over in November 1975 when the total turnover of the company was Rs54 lakh only. Ipca manufactures over 150 formulations representing various therapeutic segments. The company also manufactures formulations for many leading companies in the European Union under supply agreements. Ipca was a pre-eminent player in the anti-malaria segment for a long time. Over the years, it has grown to be one of the largest manufacturers and is among the top 10 exporters of active pharmaceutical ingredients (APIs) since they are approved by leading drug regulatory authorities of the US, the UK, South Africa, Brazil and Australia. With operations in over 100 countries, formulation exports account for more than 57% of the company’s turnover. The global pharmaceutical market is estimated at $773 billion and is growing at a rate of about 4.8%pa. The US, Japan and Europe constitute about 86% of the market and are growing at a slower annual rate of about 4% mainly due to loss of exclusivity, fewer product approvals and price erosion due to competition from (off-patent) generic drugs. In contrast, the pharmaceutical markets of emerging economies like India, Brazil, Mexico, etc, are growing at a much faster rate of 12%-16%pa driven by improved per capita income, increased access and rising awareness about modern medicine and strengthening of healthcare infrastructure. Though India has a share of less than 3% (by value) in the world pharmaceutical market, the country is today recognised as one of the leading global players with a large number of drug master files and dossier registrations for APIs and formulations with manufacturing facilities approved by regulatory ``
Baid Global Ventures ures (Rs187) (R Baid Global Ventures was formerly known as Chisel & Hammer (Mobel); it got its current name in November 2010. Its financials jumped in the past three quarters. It reported operating profit of Rs38 lakh on revenues of Rs6 crore for the June 2010 quarter. Revenues surged to Rs50.23 crore for the September 2010 quarter and operating profit for the quarter was Rs1.20 (Rs)
285
Baid Global Ventures 230 175
1,062%
120 65 10 Jan-10
Aug-10
Mar-11
crore. Revenues for the December 2010 quarter rose to Rs90.62 crore and operating profit to Rs1.89 crore. The company opened a new 3,000-sq ft jewellery store at Kolkata; in September, it opened an electronic shop in Kolhapur. It now wants to enter wellness centres. The stock soared to Rs171.35 on 21 March 2011 from Rs14.75 apiece on 12 January 2010, a surge of 1,062%. Are regulators watching?
Recommended Price Rs145
MONEYLIFE STOCK IDEAS
THAT WORK
Moneylife Issue 25 February 2010
109%*
Exit Price Rs263
(Stop Profit triggered on 25 November 2010)
(EXCEL CROP CARE)
* Annualised returns
MONEYLIFE | 21 April 2011 | 38
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STOCKS STREET BEAT
Unbiased & Methodical Stock Picking that Works!
` authorities of various developed countries. Indian companies
are focusing on global generic and API business, R&D activities and contract research and manufacturing alliances with multinational companies. India is also fast emerging as a preferred pharmaceuticals manufacturing location. Several multi-billion dollar drugs going off patent over the next few years and increasing use of pharmaceutical generics in developed markets will provide attractive growth Jun-10 Sept-10 Dec-10 opportunities to generics manufacturers. Thus, the Sales* 417.98 518.29 466.36 Indian pharmaceutical OP* 68.30 118.00 90.99 industry is poised for Y-o-Y Sales Growth 16% 20% 18% strong growth in the Y-o-Y OP Growth -5% 16% 3% coming years. Ipca OPM 16% 23% 20% Laboratories ended FY09-10 with a net total OP: Operating Profit, Y-o-Y: Year-on-Year, OPM: Operating Profit Margin *Figures in Rs crore income of Rs1,558.95 crore as against In the Pink Rs1,275.57 crore in the (Rs) previous fiscal, a growth 350 of 22%. The company’s focus on the formulations 330 business resulted in an 310 increase in formulation sales to Rs1,086.99 crore, 290 a growth of 19% over 270 Rs913.76 crore in the Ipca Laboratories 250 corresponding previous Nov-10 Jan-11 Mar-11 period. The API business also increased by 30% to Rs458.56 crore. Net profit was Rs209.19 crore for the financial year ended 31 March 2010 compared to Rs91.22 crore in the previous fiscal, a leap of 129%. Revenue growth for the December 2010 quarter was 18% ``
tio n St or ies of Pr ice Ma nip ula Cressanda Solutions ions (R (Rs8) Noida-based Cressanda Solutions claims to offer IT solutions, software development, digital media and IT-enabled services in India, the UK, the US and Canada. The company’s services supposedly include IT consulting services, e-learning courseware and BPO (business process outsourcing) services, among others. However, the company’s financials portray a dismal (Rs)
30
Cressanda Solutions
25 20 15 10
70%
5 0 May-10
Mar-11
Oct-10
picture. Revenues in the past three quarters were nil and operating losses were Rs27 lakh in the June 2010 quarter, Rs1 lakh in the September 2010 quarter and Rs2.47 crore in the December quarter. Yet, this stock surged 295% between 30 March 2010 (Rs6.66) and 19 May 2010 (Rs26.33) after which it plunged 70% till 21 March 2011. Regulators seem unconcerned about what is an obvious case of blatant price rigging.
Recommended Price Rs125
MONEYLIFE STOCK IDEAS
Moneylife Issue 23 September 2010
THAT WORK
109%*
Exit Price Rs150
(Stop Profit triggered on 29 November 2010)
(AHMEDNAGAR FORGINGS)
* Annualised returns
39 | 21 April 2011 | MONEYLIFE
Stock-Streetbeat.indd 3
4/1/2011 9:07:05 PM
STOCKS STREET BEAT
` at Rs466.36 crore compared
to Rs395.70 crore in the corresponding previous period. Operating profit for the third quarter of the current fiscal was Rs90.99 crore, up 3% from Rs88.66 crore in the year-ago period. Operating profit margin in the third quarter was a decent 20%, but down from 22% in the corresponding previous period, displaying the impact of rising costs. The company’s average revenue and operating profit growth for the past five quarters stood at 19% and 46%, respectively. Based on annualised results for the December quarter, its market-cap to revenue is 2.03 and market-cap to operating profit is 10.39 times. Return on net worth for the year ended March 2010 was 24%. Ipca declared a total dividend of 140% for the last fiscal, which includes two interim dividends and final dividend of 50%. The stock is worth buying at the current price of Rs300.
Unbiased & Methodical Stock Picking that Works!
drugs. The therapeutic segment consists of products such as anti-infectives, dermatologicals, respiratory aids, anti-diabetic
Jun-10 Sept-10
Dec-10
174.83
205.36
164.75
40.20
58.93
38.25
5%
18%
11%
Y-o-Y OP Growth
-17%
12%
-1%
OPM
23%
29%
23%
Sales* OP* Y-o-Y Sales Growth
OP: Operating Profit, Y-o-Y: Year-on-Year, OPM: Operating Profit Margin *Figures in Rs crore
Sweet Pill (Rs)
115
FDC 110 105
FDC
Strong Dose Low price relative to high returns on capital
F
ormerly known as FairDeal Corporation, FDC is into pharmaceuticals, foods and bulk
100 95 90 Nov-10
Jan-11
Mar-11
formulations, antioxidants and haematinics. But FDC is bestknown for oral rehydration salts (ORS) sold under the brand name
‘Electral’. FDC’s plants are located in Roha, Waluj and Sinnar in Maharashtra; Verna (Goa) and Baddi (Himachal Pradesh). The Baddi facility manufactures solid and liquid dosage forms of cephalosporin. The company has three plants in Verna which manufacture tablets & capsules. The Roha facility can produce about 121 API tonnes per annum (tpa) and around 375tpa of foods. The Sinnar facility manufactures ORS and food products, while the Waluj plant manufactures ophthalmic, liquid oral, oral powder and external powder products. FDC exports to over 50 countries, including advanced markets such as those of the US, the UK, South Africa and Japan. For the financial year ended 31 March 2010, FDC’s net profit leapt to Rs148.81 crore compared to Rs83.42 crore in the previous year; total revenues from operating activities rose to Rs657.04 crore from Rs581.80 crore in the corresponding period of the previous year. In the third quarter ended December 2010, FDC’s net profit increased to Rs32.08 crore from Rs30.73 crore during the corresponding quarter last year. During the same period, its total revenues from operating activities increased to Rs164.75 crore compared to Rs148.77 crore ``
Recommended Price Rs28
MONEYLIFE STOCK IDEAS
THAT WORK
Moneylife Issue 21 May 2009
135%*
Exit Price Rs86
(Stop Profit triggered on 10 December 2010)
(Jay bharat maruti)
* Annualised returns
MONEYLIFE | 21 April 2011 | 40
Stock-Streetbeat.indd 4
4/1/2011 9:07:25 PM
STOCKS STREET BEAT
` in the corresponding quarter of the
previous year. Based on the annualised results for the December quarter, its market-cap to revenue is 2.82 and market-cap to operating profit is 12.13 times. Return on net worth for the year ended March 2010 was 28%. Buy the stock at the current market price.
Unbiased & Methodical Stock Picking that Works!
growing global population and demand for food, pressure on the limited agricultural land is increasing. Agro-chemicals, which include fertilisers and pesticides, boost agricultural yield by providing nutrients and protecting crops against pests and weeds.
S A B ERO OR GAN IC S GU JAR AT
Top of the Crop Agro-chemicals are vital for boosting crop yields. And Sabero is well-poised to reap a rich harvest
S
abero Organics Gujarat has a presence in all the three sectors of crop chemicals—herbicides, fungicides and insecticides. The company is the largest manufacturer of two of its key products—Glyphosate (a herbicide) and Mancozeb (a fungicide)— in India and the second-largest producer in the world of these products. Production of these two chemicals is through a process of backward integration, as Sabero produces yellow phosphorus for Glyphosate and the entire range of formulations for Mancozeb— granules, oil suspension, wettable powder, suspension concrete and blue-green Mancozeb. As one of the world’s largest agrarian economies, the agriculture sector (including allied activities) in India accounts for more than 15% of the gross domestic product (GDP) and contributes to more than 10% of total exports. With
Jun-10 Sept-10 Sales* OP*
Dec-10
100.10
129.97
92.87
17.94
16.99
6.64
Y-o-Y Sales Growth
-17%
26%
-15%
Y-o-Y OP Growth
-18%
-23%
-71%
OPM
18%
13%
7%
OP: Operating Profit, Y-o-Y: Year-on-Year, OPM: Operating Profit Margin *Figures in Rs crore
High Yield (Rs)
70
Sabero Organics Gujarat 60 50 40 30 Nov-10
Jan-11
Mar-11
The Indian agro-chemicals industry (which is estimated at $1 billion) ranks second in Asia and 12th globally. It is estimated that India loses nearly 18% of its crops each year, valued at Rs90,000
crore, due to pest attacks. In our country, insecticides contribute the largest share of agro-chemicals (at 62%), compared to the global consumption of 28%. Globally, herbicides are the largest-consumed agro-chemicals, with a share of 48%. Agro-chemical products are protected by patents to encourage innovation. As per estimates, the patents of major products will expire by 2014; thus, opening up the markets for generic manufacturers. Sabero, being one of the major manufacturers of generic products, is likely to reap the benefits. For the fiscal ended 31 March 2010, the company reported revenues of Rs430.32 crore, a growth of 17.36% over Rs366.66 crore in the previous fiscal. Net profit for the fiscal stood at Rs38.72 crore compared to Rs21.79 crore, an increase of 77.70%. Operating profit margin was 19.96% and return on net worth was 34%. Sabero declared a dividend of 12% for the previous fiscal. Revenues for the December 2010 quarter stood at Rs92.87 crore over Rs109.41 crore, a dip of 15%, while operating profit for the third quarter plunged by 71% to Rs6.64 crore from Rs22.91 crore in the December 2009 quarter. Operating profit margin in the third quarter was 7% compared to 21% in the comparable previous period. Based on the annualised results for the December 2010 quarter, its market-cap to sales was 0.35 times and market-cap to operating profit was 4.83 times. Buy the stock at the current price of Rs49.
Disclaimer: Street Beat stocks are selected from over 1300 stocks in the Moneylife database. This report is for informational purpose only. None of the stock information, data and company information presented herein constitutes a recommendation or a solicitation of any offer to buy or sell any securities. Information presented is general information that does not take into account your individual circumstances, financial situation or needs; nor does it present a personalised recommendation to you. Individual stocks presented may not be suitable for you. Although information has been obtained from and is based upon 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. Exit Strategy: Please exit if the stock closes 9% below the purchase price. This is called stop loss. However, if the market price is running above the purchase price, exit if the stock falls by 20% from the highest daily closing price. This is called stop profit. Source: Centre for Monitoring Indian Economy’s Prowess database.
41 | 21 April 2011 | MONEYLIFE
Stock-Streetbeat.indd 5
4/1/2011 9:08:05 PM
STREET BEAT WHICH WAY
Debashis Basu
Regime Change?
buying by institutional players, only to come down in disappointment, if the fundamentals don’t improve. Are the fundamentals improving? We don’t know, as yet. More importantly, it has not been about Investors have concluded that all is well. fundamentals for some time now. It has been easy This will be tested in April-May to forget that the rally in every market from early September 2010 was a momentum play, based on the ndia diverged from the global rally that started in Fed’s (US Federal Reserve Board) policy of continuing early September 2010, when the Sensex topped out with quantitative easing. Interestingly, all sane voices at 21,108 in November 2010 and fell all the way to now point to a significant change imminent in the US. 17,295 (in February 2011) before struggling sideways. In late March, several Fed officials came out with the The S&P 500, meanwhile, went through a customary message that the Fed’s policy of quantitative easing is decline that happens in a bull market, periodically, likely to end with QE2 (quantitative easing2). before it resumed its uptrend and is now almost near How will this affect the world markets? its February peak. The fact is that QE2 has not lowered interest rates or All emerging markets diverged from this trend expanded credit. It has merely put hundreds of billions and wilted under the twin impact of rising inflation of dollars of non-interest-bearing cash in the hands and overvaluation. In late March, however, something of institutions through which money has flowed into spectacular happened. The Sensex made a massive commodities; the dollar has turned weak (as happens lunge from 17,792 all the way to 19,570 in eight when real short-term interest rates turn negative); and continuous days of rally—a rare feat for the index. Such gold prices remain strong. rallies usually signal a fundamental shift, especially Now, QE2 is likely to end soon. As Richard Fisher, since the rally was accompanied by expanding chief of the Dallas Fed, said recently, “In my opinion, volumes everyday. A sudden jump, of more than no further accommodation is needed after June.” 10%, has caught almost every analyst, fund manager The possibility of ending QE2 early may come and commentator (yours truly included) off-guard. up in an April meeting of the Fed. What happens Certainly, with Brent crude stubbornly refusing to then? Will we see a reversal of the past six months come off $115/barrel, markets not being undervalued, of speculative rally? So, while the market will and earnings not expected to climb spectacularly in remain strong for several weeks, be careful the coming quarters, it’s not clear with extrapolating the recent past, to anyone (trust me, I have been especially if embedded in that past watching business TV with the sound is the benefit of a speculative rally on), whose buying has turbo-charged caused by the artificial stimulus. the market and why. The other possibility is that, for some While price is the supreme arbiter unknown reason, the Indian economy is doing and overvalued markets can get even exceptionally well and market prices are signalling more overvalued, it is important to that in advance. We will consider the realise that, based on current evidence, second possibility when we see evidence the climate is right for only a short-term Medium-term: Up of it over the next few months. play. Indeed, even over the medium Long-term: — (Feedback at editor@moneylife.in) term, markets often shoot up on hopeful
I
investment that is
not subject to market risks
Attractive gifts, invitation for events and free online help. For a subscription offer that is unique, look for a form elsewhere in this issue or on our website at www.moneylife.in
MONEYLIFE | 21 April 2011 | 42
Which way.indd 1
4/1/2011 9:26:54 PM
STOCKGRADER MOMENTUM
Steel Good Factor
51%
Compounded Annual Return
Sesa Goa jumped 15%, HDFC Bank gained 8% while Oracle Financial remained unchanged Gainers: Vedanta group firm Sesa Goa has acquired the assets of the upcoming steel plant of Bellary Steel & Alloys (BSAL), put on the block by a consortium of lenders led by IFCI, for Rs220 crore. The assets of BSAL have been transferred on ‘as is where is’ basis to Sesa Goa. Sesa Goa jumped 15% in the fortnight. Bank of India raised interest rates on domestic term deposits for senior citizens by 0.50% for a maturity of six months and above but less than five years and 0.75% on deposits for five years and above but up to 10 years. The stock gained 10%. HDFC Bank opened 275 branches in the fiscal ended 31 March 2011, taking its total branch network to 2,000. HDFC Bank gained 8%. Indian pharmaceuticals companies that have a presence in Japan stand to benefit from the increasing health-related problems there in the wake of the earthquake and tsunami. Currently, Lupin, Zydus Cadila, Cadila Healthcare and Dishman Chemicals and Pharmaceuticals have a presence in Japan, the second-largest economy after the US. Cadila Healthcare gained 8%. AV Birla group’s flagship company Hindalco Industries is planning to raise Rs8,000 crore for the Aditya Aluminium project. The fund-raising is expected to close in the first quarter of FY11-12. The project includes a 4.2mtpa bauxite mine, 1.5mtpa alumina refinery at Kansariguda in Orissa. Hindalco gained 9% in the fortnight. The direct-to-home industry in India, which currently has about 30 million subscribers and six players, is poised to grow to 60 million subscribers by the end of 2013, despite the fact
Company
RS Grade
Funda Grade
Final Grade
Entry Date
Titan Industries
A
A
A
16 Apr-10
Dish TV India
A
A
A
Sesa Goa
A
A
A
Bank of Baroda
A
B
A
that the industry faces several issues such as low ARPU (average revenue per user), high cost of acquisition of content and subscribers, and various taxes. Dish TV rose 9%. Tanishq, the jewellery retail chain arm of Titan Industries, belonging to the Tata group, is planning to invest around Rs150 crore-Rs200 crore for setting up around 15 showrooms in various parts of the country in FY11-12. Titan Industries rose 11%. An empowered group of ministers (EGoM), headed by finance minister Pranab Mukherjee, has decided to allow sugar exports of up to 0.5 million tonnes as production this year is set to exceed the domestic demand. Earlier, the food ministry had allowed and notified 0.5 million tonnes of export under open general licence (OGL). India’s sugar production is estimated at 24.5 million tonnes in 201112 sugar season while the annual demand is pegged at 22 million tonnes. Shree Renuka Sugars rose 6%. Oracle Financial Services Software ended flat. The board of directors of EID Parry India, at its meeting held on 19 March 2011, has declared an interim dividend of Rs2 per equity share (200%) on the equity capital for the financial year ending 31 March 2011. EID Parry (India) rose 5%. Changes: We are adding PTC India and Sintex Industries. Note: Please read our changed methodology for grading stocks (given below). We have also added a column showing returns since the stock’s appearance in the table. Returns from new stocks added are counted after one issue.
Company
RS Grade
Funda Grade
Final Grade
Entry Date
88%
HDFC
A
C
A
15 May-09
83%
06 Aug-10
35%
Hindalco Industries
A
C
A
23 Jul-10
36%
21 Jan-11
-11%
HDFC Bank
A
C
A
04 Mar-11
5%
29 Apr-09
189%
Bank of India
A
C
A
21 Jan-11
4%
Return*
Return*
Shriram Transport
A
B
A
18 Feb-11
5%
Oracle Financial Serv
A
D
A
23 Dec-10
-15%
Cadila Healthcare
A
B
A
12 Nov-10
3%
PTC India
B
B
B
01 Apr-11
—
Sintex Industries
A
B
A
01 Apr-11
—
GSK Consumer
A
C
A
29 Apr-09
168%
Shree Renuka Sugars
B
C
B
06 Aug-10
8%
EID-Parry (India)
B
D
B
12 Nov-10
-17%
*Non-annualised
Methodology: Momentum Stockgrader is a fortnightly ranking of stocks, based on two key factors that drive stocks—one, market-related or quantitative and, two, fundamental. The quantitative factor is the relative strength (RS), which is a stock’s relative outperformance during the past 10 weeks over select companies. For arriving at fundamental grades, we have used only operating profit growth and sales growth over three quarters. For momentum stocks, RS carries a higher weightage. Focus only on stocks with final grade A. When we include a stock in the grader, it is based on the fortnightly closing price of the scrip that coincides with our issue and that would be the entry price. Similarly, when we drop a stock from the grader, it is based on the closing price on Friday, as we go to print.
43 | 21 April 2011 | MONEYLIFE
Momenterm.indd 2
4/1/2011 9:34:55 PM
STOCKGRADER MEDIUM TERM
Healthy Boost
46%
Compounded Annual Return
Dr Reddy’s jumped 10%, Nestlé was up 4% while Ranbaxy declined 5% and Suprajit Engineering fell 2% Gainers: Dr Reddy’s Laboratories has launched levocetirizine tablets in the US market. The drug is used to treat allergies. The US Food and Drug Administration (USFDA) had approved its abbreviated new drug application for levocetirizine tablets in February. The company has launched the drug in 5mg strength in the US. The stock rose 10% in the fortnight. Tata Consultancy Services (TCS) will expand its operations in Europe in sectors like healthcare. TCS derives about 27% of its revenues from Europe. TCS increased 9%. For Nestlé India, the incentives to the food processing industry announced in the Union Budget in February seem to have been beneficial. Development of cold storage and food chain facilities proposed by the ministry of agriculture and the ministry of food processing will link agriculture from the farm to fork. Nestlé India rose 4%. Liquefied natural gas importer, Petronet LNG contracted LNG from Australia at a price that is four times the rate at which most of the natural gas produced from domestic fields is sold. Petronet rose by 3%. Company
RS Grade
Funda Grade
Final Grade
Entry Date
Return*
Losers: US pharmaceutical company Mylan Inc has launched a drug for treating cholesterol levels. The Indian company Ranbaxy has also introduced a similar drug which, in fact, is a generic version of Pfizer’s Lipitor. Mylan Inc has sued the USFDA for allowing Ranbaxy to do so. Ranbaxy fell 5% in the last fortnight. Suprajit Engineering is planning to expand its capacity from the current level of 110 million to about 150 million automotive cables. Suprajit declined by 2%. Dabur India fell by 1%. Jain Irrigation approved the issue of 61,00,000 equity warrants to its two promoters, Anil B Jain and Atul B Jain, and their entities, for Rs139.17 crore. The warrants can be converted into ordinary equity shares of Rs2 each. The warrants would have to be converted within 18 months from the date of allotment. The stock fell by 1%. Note: Please read our changed methodology for grading stocks (given below). We have also added a column showing returns since the stock’s appearance in the table. Returns from new stocks added are counted after one issue.
Company
RS Grade
Funda Grade
Final Grade
Entry Date
Return*
Bank of Baroda
A
A
A
29 Apr-09
195%
Infosys Technologies
A
C
A
29 Apr-09
115%
Titan Industries
A
A
A
01 Apr-10
104%
HDFC Bank
A
C
A
29 Apr-09
113%
Bajaj Auto
A
A
A
03 Feb-11
21%
CRISIL
A
C
A
29 Apr-09
110%
Orchid Chemicals
A
A
A
20 Jan-11
-6%
HDFC
A
C
A
29 Apr-09
102%
Whirlpool of India
A
A
A
11 Nov-10
-17%
Seshasayee Paper
A
C
A
01 Apr-10
34%
Punjab National Bank
A
B
A
29 Apr-09
155%
Ipca Laboratories
A
C
A
20 Jan-11
-7%
Axis Bank
A
B
A
29 Apr-09
152%
CMC
A
C
A
23 Dec-10
-20%
Petronet LNG
A
B
A
29 Apr-09
137%
Dr Reddy’s Lab
A
D
A
27 May-10
23%
Nestlé India
A
B
A
29 Apr-09
117%
Suprajit Engineering
B
A
B
11 Nov-10
-19%
Sun Pharmaceutical
A
B
A
29 Apr-09
79%
Supreme Petrochem
B
B
B
27 May-10
27%
TCS
A
B
A
10 Jun-10
58%
Shree Renuka Sugars
B
B
B
03 Feb-11
-24%
Siemens
A
B
A
27 May-10
25%
Jain Irrigation Sys
B
C
B
29 Apr-09
79%
Cadila Healthcare
A
B
A
20 Jan-11
-5%
Dabur India
B
C
B
01 Apr-10
21%
Hindalco Industries
A
B
A
03 Feb-11
-15%
Unichem Lab
B
D
B
29 Apr-09
17%
HCL Technologies
A
C
A
29 Apr-09
268%
Oracle Financial Serv
B
D
B
23 Dec-10
-14% -21%
Shriram Transport
A
C
A
29 Apr-09
259%
Ranbaxy Laboratories
B
D
B
20 Jan-11
Lupin
A
C
A
29 Apr-09
190%
—
—
—
—
—
—
*Non-annualised
Methodology: Medium Term Stockgrader is a fortnightly ranking of stocks, based on two key factors that drive stocks – one, market-related or quantitative and, two, fundamental. The quantitative factor is the relative strength (RS), which is a stock’s relative outperformance during the past 26 weeks over select companies. Our grading methodology of fundamental factors includes two key scores, growth score (GS) and value score (VS), carrying equal weightage. We then combine the RS grade and fundamental grades. Focus only on stocks with final grade A. When we include a stock in the grader, it is based on the fortnightly closing price of the scrip that coincides with our issue and that would be the entry price. Similarly, when we drop a stock from the grader, it is based on the closing price on Friday, as we go to print.
MONEYLIFE | 21 April 2011 | 44
Medium Term.indd 2
4/1/2011 9:33:13 PM
STOCKGRADER LONG TERM
High Energy
47%
Compounded Annual Return
Adani Enterprises jumped 11%, while Asian Paints ended 1% down Gainers: Adani Enterprises’ subsidiary Mundra Port and Special Economic Zone (MPSEZ) won a project to develop a coal import terminal at Visakhapatnam from the Visakhapatnam Port Trust. The project is worth Rs300 crore and is expected to be commissioned by 2014 with a capacity of handling 6.5 million metric tonnes of coal. Adani Enterprises increased 11% in the fortnight. Infosys Technologies is planning to expand its services in Africa which has a huge demand for IT services. Infosys increased 10%. Manufacturer of welding electrodes Ador Fontech declared its stock split on 29th March. The Rs10-share is being split into five shares of Rs2 each. The scrip zoomed 9%. Orchid Pharmaceuticals & Chemicals’ subsidiary, Orchid Europe, has got approval from the UK Medicines and Healthcare Products Regulatory Agency to market Naratriptan 2.5mg tablets. The drug is used for treatment of migraine. Orchid Chemicals rose 7%. Hindustan Unilever’s (HUL) share buyback offer closed on 28th March. The company acquired 2.29 Company
RS Grade
Funda Grade
Final Grade
Entry Date
Ador Fontech
A
A
A
29 Apr-09
Return* 409%
crore shares under the buyback arrangement for Rs625 crore. The shares were acquired at an average price of Rs273.26 per share. HUL rose 7%. Headquartered in Karur (Tamil Nadu), Karur Vysya Bank’s shareholders have approved raising the limit for foreign institutional investors to 35% from 24%. Karur Vysya Bank rose 2%. Power Grid Corporation of India has awarded KEC International orders worth Rs224 crore. Three of these were turnkey orders for transmission lines and include supply of 765kV single-circuit transmission lines and 400kV double-circuit transmission lines. Power Grid rose 4%. Canara Bank gained 3%. Technical textiles manufacturer SRF Ltd too rose 3%.Cairn India ended 2% up. Losers: Asian Paints declined 1% in the fortnight. Note: Please read our changed methodology for grading stocks (given below). We have also added a column showing returns since the stock’s appearance in the table. Returns from new stocks added are counted after one issue.
Company
RS Grade
Funda Grade
Final Grade
Entry Date
Sun Pharmaceutical
A
C
A
29 Apr-09
79%
Return*
SRF
A
A
A
27 May-10
44%
HDFC
A
C
A
01 Apr-10
26%
Bajaj Auto
A
A
A
03 Feb-11
21%
Power Grid Corp
A
C
A
03 Feb-11
3%
Asian Paints
A
A
A
27 May-10
20%
Orchid Chemicals
A
C
A
25 Nov-10
-1%
Titan Industries
A
A
A
03 Feb-11
6%
Dr Reddy’s Lab
A
C
A
20 Jan-11
-2%
TCS
A
B
A
29 Apr-09
280%
Hindustan Unilever
A
C
A
25 Nov-10
-3%
Canara Bank
A
B
A
29 Apr-09
216%
CMC
A
C
A
23 Dec-10
-20%
Bank of Baroda
A
B
A
29 Apr-09
195%
Karur Vysya Bank
A
C
A
10 Jun-10
-23%
Lupin
A
B
A
29 Apr-09
190%
Adani Enterprises
A
D
A
29 Apr-09
216%
Axis Bank
A
B
A
29 Apr-09
152%
HDFC Bank
A
D
A
29 Apr-09
113% 18%
Nestlé India
A
B
A
29 Apr-09
117%
Ambuja Cements
A
D
A
19 Aug-10
CRISIL
A
B
A
29 Apr-09
110%
Shree Renuka Sugars
B
A
B
05 Aug-10
3%
ITC
A
B
A
27 May-10
32%
Jain Irrigation Sys
B
B
B
29 Apr-09
79%
Cadila Healthcare
A
B
A
20 Jan-11
-5%
GSK Pharma
B
C
B
29 Apr-09
78%
Ipca Laboratories
A
B
A
20 Jan-11
-7%
Ranbaxy Lab
B
C
B
20 Jan-11
-21%
Infosys Technologies
A
C
A
29 Apr-09
115%
Oracle Financial Serv
B
D
B
23 Dec-10
-14%
Cairn India
A
C
A
29 Apr-09
89%
—
—
—
—
—
—
*Non-annualised
Methodology: Long Term Stockgrader is a fortnightly ranking of stocks, based on two key factors that drive stocks: one, market-related or quantitative and, two, fundamental. The quantitative factor is the relative strength (RS), which is a stock’s relative outperformance during the past 26 weeks over select companies. The fundamental factor includes growth score (GS) and value score (VS). GS is based on operating profit growth and sales growth. VS is calculated considering market-cap as a multiple of five quarters of average sales and operating profit, as well as latest Return on Net Worth (RoNW). The long-term list carries more large-cap stocks. Focus only on stocks with final grade A. When we include a stock in the grader, it is based on the fortnightly closing price of the scrip that coincides with our issue and that would be the entry price. Similarly, when we drop a stock from the grader, it is based on the closing price on Friday, as we go to print.
45 | 21 April 2011 | MONEYLIFE
Long Term.indd 2
4/1/2011 9:32:36 PM
“You Can’t Time the Market.” Maybe.
21,100
18-31 Jan ‘08
12-25 Oct ‘07
It is easy to describe market moves. It is hard to predict them which is why fund managers tell you that you cannot time the market. You will get vivid descriptions of the past everyday from business channels and the next day from newspapers. You will get sensible and occasional predictions from only one source. You know what’s more valuable
“The huge over-speculation... should now lead to some painful correction...” 6 -19 Jun ‘08
“Time for a Break?” 2-16 Aug ‘07
9-22 Nov ‘07
17-31 Jul ‘08
15 Feb-1 Mar ‘07
17,325
“Time to Go Neutral” “The market may correct “We don’t have a forecast” 10%-15% before the next move up” “If the government moves to slay the monster of inflation, stocks will suffer collateral damage”
23 Apr-7 May ‘06
“A new downleg ma start soon”
28 Mar-10 Apr ‘08
31 Aug-13 Sept ‘07 13,550
“Is the market due for a fall?”
“A short-term bottom may be very near”
16-29 Mar ‘07
“A Rally Now?”
“Wea 4-17 August ‘06
“The panic looks done for now”
9,775
Sensex “Might the markets be ready to surprise us on the upside?” “Expect another leg of stock market rally”
6,000 Apr-06
Jul-07
Oct-08
We have no compulsion to issue breathless market calls like TV channels or brokers, who make money by getting you to trade frequently. We are a fortnightly magazine. But we don’t issue market calls every fortnight. Moneylife market calls are infrequent. But they have been reasonably accurate so far. But, of course, the past is no guide to the future.
Sensex.indd 2
4/1/2011 8:45:25 PM
13-26 Aug'10 18-31 Dec‘09
23 Apr-6 May'10
The Coming Decline
Short-term Top?
4-17 Dec‘09
Time To Sell? 19 Jun-2 July ‘09 Jul ‘08
Headed Down?
“Is the market about to crack?”
ownleg may soon”
6 Nov-19 Nov ‘09
11-25 March '10
31 July-13 Aug ‘09
“We have no Forecast”
A Buyers' Market
2-15 Jan ‘09
“Buy the dip”
27 Feb-12 Mar ‘09
“Weakness has resurfaced” “A Breakdown?”
30 Jan-12 Feb ‘09
“A weak rally now”
Oct-08
13-26 Mar ‘09
“Another weak rally”
Jan-10
Apr-11
Moneylife Stock Analysis
KNOW WHAT’S COMING
Sensex.indd 3
4/1/2011 8:51:43 PM
Insurance Trends New products, regulations, features and options, interpreted from your perspective INTERVIEW
“IRDA needs to be flexible” The chief executive officer of Max Bupa Health Insurance, Dr Damien Marmion, spoke with Moneylife’s Raj Pradhan
G
ive us your views on premiums and medical inflation.
Inflation is rising, hospital salaries and other costs are up. Hospitals cannot keep operating at these costs. Process efficiency and shorter stays for patients will reduce costs. Customers from every segment are also using medical facilities more frequently today. These reasons will increase medical premiums. Many insurers hold premiums for a few years and then increase them steeply; it is better to have a smooth annual increase in premium. The Indian market needs to get used to annual premium increase—even though we would like to hold it (down) as much as possible. Insurers should work on improving operational efficiency.
Reliance General had gone in for a hefty increase in mediclaim premiums after three years. It is not just about companies, the Insurance Regulatory and Development Authority (IRDA) needs to be flexible in approving premium increases.
What exactly do you mean by ‘IRDA needs to be flexible’?
Apollo Munich is increasing premiums from 1 April 2011. I think they filed for premium revision one year back. It takes a long time to get approval for price revisions. It is about the mindset, not intentional delay, of IRDA. They need to look at the loss ratio and operating costs. IRDA should look at the financials of the company; the product needs to be signed off by the company appointed actuary. We believe that premium pricing is the consumer’s domain, not IRDA’s. Let the consumer decide what is the right and wrong premium. If some insurer wants a policy with outrageous premium like Rs10 crore, the consumer will automatically reject it.
Did you face any issues in your product approvals? We are a new company and, hence, there is some dispensation as products need to come through.
How much is your business in group insurance? PSU insurers have suffered big losses. We have just started the group insurance business. After
de-tariffication (and subsequent premium wars), PSU insurers had improper due diligence (for group insurance) and pricing issues. IRDA has taken a strong view. I know one example where a company had paid Rs1.50 crore in premium. Medical bills for the year reimbursed by the insurer was Rs3 crore. The insurer came back next year and offered the same premium of Rs1.50 crore. It is like taking the money out of the PSU insurer and putting it into the company taking insurance. The problem with the business of insurance is not bad risk, but bad pricing. Things are changing now. Group premium rates are going up, but the benefits are also coming down. Co-payments are increasing and parents may not be covered. We offer cover for parents as an option in group insurance.
Did IRDA consult insurers on health insurance portability? They did not consult us; I don’t know about others. There are a lot of discussions happening right now in the General Insurance Council’s working group. Portability is not the solution to consumer complaints.
What is the main complaint from consumers? The main complaint in health insurance is claim payment. We do underwriting at point-of-sale and not at point-of-claim. The due diligence—medical history check— is done at the time of underwriting. It may involve a medical test to ascertain pre-existing diseases (PED) as well as a detailed form to be filled up by the customer. Many insurers do PED investigation only when the claim comes and then reject the claim. This is a point of pain for customers. The insurer is trying to manage its risk. IRDA is there to manage consumer interests. The regulations that IRDA can ``
MONEYLIFE | 21 April 2011 | 48
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INSURANCE TRENDS
` lay down to handle consumer
complaints are important.
Some medical conditions may not be discovered by a medical test. The customer may lie; the agent may fill the form. Your comments? You cannot set up a business with the assumption that everyone is fraudulent. We have had only a couple of hundred claims until now, but they don’t have any specific pattern. We have not come across a fraudulent policyholder (regarding PED), but have found fraudulent bills. We give a welcome call to customers to go through all policy details and medical conditions to get confirmation. We offer a 15-day free-look period after issuing a policy (it is not mandatory).
profits? RSBY is not very profitable. Star Health has shown that if done in a large enough way, it can be profitable. I believe more than 40% of ICICI Lombard’s business is from the rural market. They are not doing it for charity.
Many life insurers also have health products. Is that added competition? It is a small part, yet important. About 15% to 20% of health insurance comes from a life insurance company. The benefit plan to indemnity (reimbursement) is an unknown factor for health insurance portability. The critical illness plan is not a substitute for mediclaim. It is an add-on.
Star Health has come out with a product with an 11-month PED waiting period. It has a senior citizen plan covering all PED from the second year.
You will complete one year of operations in the next few days. How do you see the policy renewal ratio? How do you see growth in the health insurance sector?
It’s a good innovation in the market. We will have to see if they have got the pricing right and the risks that can come through. It is easier for large insurers, as they have a bigger pool to work on.
General insurance will show strongest growth (35%) in India. As a start-up, just 11 months old, we will bee growing fast, but we have a long g way to go. Up to December 2010, we had covered 40,000 00 lives and we collected premium mium of Rs15 crore. We have ve offices in nine cities; a couplee more will be added. We have ve sold policies in 400 cities. Our ur survey shows that 74% of our customers ustomers have rated us ‘good’. We expect 70% of customers mers to renew which ch is more than the industry average age of 60%. We are offering health h benefits instead ad of no-claimbonus to our customers— up to 10% of the policy
But Star Health is not a big insurer. They have big business in the Rashtriya Swasthya Bima Yojna (RSBY) and other government schemes.
What about RSBY? You do have a product for the rural market. We do want to bid for RSBY, but there are restrictions like being in business for a couple of years and company having revenues. It’s a shame, are we less able to deal with this than other insurers? We have low premium micro-insurance products for the rural market targeting the below-poverty-line segment. We are working with six NGOs and a couple of state governments.
Are RSBY and government schemes more for social obligation or
value. There will be discounts for pharmacy, health check-up, gymnasiums and so on.
Will online policies carry discounts? They will be at the same price. It will be another channel, apart from brokers, direct sales force, thirdparty distributors and in-house tele-sales.
How does your cashless facility work? We have 760 hospitals for cashless facility. In half of these, we have done quality checks. We don’t have any third-party administrators. We don’t need 24-hour notifications, but the sooner, the better. We have 24x7 customer care to help the process. Our ‘Gold’ and ‘Platinum’ policyholders have a doctor as a relationship manager.
Tell us about your international medical emergency product. It is for those travelling for business outside of India up to 180 days in a year. It is not travel insurance; it is a mediclaim for India and abroad. Bupa has built up a global network of 5,000 hospitals and medical consultants across 190 countries where direct payment of all hospital bills is done. For other hospitals, it will be on a reimbursement basis.
49 | 21 April 2011 | MONEYLIFE
Insurance.indd 3
3/31/2011 9:18:13 PM
PERSONAL BUSINESS AUTO
A MOT ORI NG HIG H
On the ground,
up above
T
Offload
however, the Chinese have arrived— he realities of motoring become WikiLeaks. Head courtesy a vast variety of solar, miniso much clearer when you head for the mountains in into the mountains. Preferably north India, tap into the hydel and wind products. Often traded off-season, so that hotel rates are latest information—and by people generically called ‘Tibetans’, but could be from anywhere, the Hindu extremely cheap, and the hospitality gear up to face some Kush range (which stretches from industry is at its brilliant and friendliest harsh realities, warns Afghanistan to Pakistan) to Ladakh (in best. Most of all, especially in and around Veeresh Malik Jammu and Kashmir) to Nepal, and in or the higher and colder hill stations of the around our north east and going all the way north, there is lesser tourist traffic on the to Myanmar and possibly even beyond. We had roads. And that eternal source of information, the Vietnamese food in Mussoorie, for the first time, during long-distance taxi & bus driver, has more time to part this trip. And solar products were being sold at filling with gems of information while sharing cups of hot tea stations—on the side. with inquisitive and talkative people like your humble One additional side-effect of this is that the business correspondent here. in trucks carrying fuel up the mountains is likely While the Indian media resounds to the stronger to come down, as predicted by one of the leading echoes of the Internet, courtesy WikiLeaks, the man on transporters we know in the area, looking to get out of the highway looks on at his allegedly more educated brother in amazement and wonders about the chattering the business soon. He is busy converting fuel-storage trucks into water tankers, though. masses getting all worked up about something On the other hand, we still see lines of trucks lining everybody already knows. Here in the mountains, up to load ‘mineral water’ from some lesser-known thanks to the close-knit interdependent communities, lakes and underground waterbodies in the Himalayas, everybody knows everything already. However, to them, on the ground, the two big issues and then belting down the same mountain roads. That seems to be in danger too, with local protection of water facing India, in addition to the huge population now resources becoming a major electoral issue, and water coming to live practically on the roads everywhere, are increasingly being ‘manufactured’ in drinking water energy prices and water shortages. Both issues impact plants all over the country. However, currently, might surface transport—especially by road as we see it. On the cost of energy, the battle-lines are clear—our seem to prevail over local electoral strengths—so the water business continues. oil companies, which should ideally be at the forefront But there are, what appear to be, more buses as of all new and renewable energy initiatives, continue well as small trucks and quasi-public transport options to think like there is no end at the other end of the racing around. Ask around and that’s the perception pipeline. It seems all they can think of is how to ensure our driver friends have. Not counting the increased that consumers like you and me simply use more and movement of construction vehicles, though. It seems like more fuel—preferably liquid fuel. there is a race on to build more and more dams. In the remote districts of the northern mountains, ``
MONEYLIFE | 21 April 2011 | 50
Auto.indd 2
3/29/2011 9:00:16 PM
PERSONAL BUSINESS AUTO
`
For a Rugged Terrain Global warming and climate change seem to be having an effect on the type of motor vehicles seen in the mountains too. With shorter winters and better roads, one sees fewer 4-wheel drive (4WD) vehicles, and many more basic 2WD types, in and around the hill-stations. The trusted diesel Ambassador still reigns supreme, followed closely by the Maruti Omni and GM Chevrolet Tavera. Even the all-pervasive Mahindra pick-ups are more often than not in 2WD configurations. It is safe to assume that you really do not need a 4WD drive vehicle unless you are heading into some serious off-roading for the last mile. And, to do that, increasingly, it makes more sense to drive till around 9,000-11,000 feet above MSL (mean sea level) in your own reliable ‘normal’ car, and then hire a 4WD locally.
Wide Open Market The Japanese earthquake seems to be a serious topic of discussion in the mountains, as people look at climate change and altered water flows causing changes in topography and contours, and taller buildings coming up on precarious mountain sides reminding people of
in with what appears to be yet another war-driven recession may have separate dynamics altogether.
Crude Truths And then, of course, there is the question of depleting petroleum resources. Marine intelligence, in which one has sources too, talk about Russia running towards empty as early as next year, and Saudi Arabia going towards dry by 2014-2015. The dynamics in the oil-rich South Mediterranean are wide open—60% of Switzerland’s oil, for example, comes from Libya (which is being ravaged now)—and may have to soon be sourced from elsewhere. Within India, however, even subsidised kerosene does not make for good economics in the below poverty line households that this fuel dole is supposed to feed. As a result, for some strange reason, there is lesser and lesser adulterated fuel available in the mountains. This is the most amazing discovery of this trip into the far beyond—fuel quality has improved in the Himalayan areas of India, probably because alternate energy options means people are heading towards using lesser liquid fuel, and so there is lesser diversion back into the adulterated fuel market. Go figure.
AUTO FINE PRINT
Don’t Get Fined The economic outcome from the destruction by the tsunami is uncertain
what can happen if an earthquake does hit these areas. But more than that is the regular question—how will it impact the availability of new vehicles, especially those linked to the Japanese brands? Actually, that’s also a global query now, and with as many different answers as opinions. The reality is that apart from the ports as well as industries in and around Tokyo and north of Tokyo, the rest of Japan is functioning as it used to, especially in the more industrialised south. And the global nature of the business means that non-Japanese brands are as likely to suffer supply-chain disturbances as the Japanese. However, the additional fact is that there may soon be commercial dynamics of the competitive sort, which cannot be predicted. Which manufacturer may go in for the kill, which one may choose to fight back, and how they may realign is unknown. In addition, excess global production capacity, tied
W
e were supposed to be test-driving a new car which got delivered late at night under conditions of great secrecy and after signing all sorts of indemnities. On a closer look at the documents, however, I discovered that the engine and chassis number did not match the insurance cover, and the registration number did not match the number-plates. It is, therefore, once again, all about the fine print for anything to do with motor vehicles—even the largest automobile manufacturers can and do make these mistakes, even for what is usually a highimportance routine like delivering test cars to the media which go through multiple checks and counterchecks before being handed over.
Veeresh Malik started and sold a couple of companies, is now back to his first love—writing. He is also involved actively in helping small and midsize family-run businesses re-invent themselves.
51 | 21 April 2011 | MONEYLIFE
Auto.indd 3
3/31/2011 9:19:32 PM
Learn the basics of saving and investing
Earning Curve
B E H AV I O U RAL F INANC E
Home-country Bias The government has allowed foreign nationals to invest in Indian mutual funds. The idea will hit a natural wall
I
n the Union Budget of 2011, finance minister Pranab Mukherjee announced that mutual funds would now be able to accept subscriptions from foreign investors in equity-oriented schemes. This, hope a lot of people, will open up investment opportunities for foreigners who until recently could not invest in India directly. Unfortunately, there are various studies which underline the fact that investors in every country are biased towards investing in the stocks of their own country. While the financial theory recommends slicing up of a portfolio according to the relative capitalisation of various markets and segments, which would include putting some money in overseas equities, investors channel the major part of their stock holdings in domestic stocks. In all major developed markets, individual investors keep more than 90% of their equity investments in domestic stocks, no matter how large or small the share of their domestic market of worldwide market capitalisation. In fact, despite the significant globalisation
that started worldwide after the fall of the Berlin Wall in 1989, national bias continues to survive. The first reason is familiarity with national stocks. This distorts the expectations of risk and return and presents the illusion that a ‘patriotic’ allocation of capital is cautious and effective. Several academic studies show that stocks of own countries are perceived as
The bull and the bear in front of the Frankfurt Stock Exchange; German investors don’t invest outside their own country
less risky and more lucrative than foreign stocks. After all, a Chinese investor will hardly know anything about, say, Gujarat State Petronet (GSPL) and an Indian investor
will hardly know about Tsingtao Brewery Company. The Indian will consider Tsingtao a risky bet and the Chinese may be very uncomfortable with GSPL. Kilka and Weber (2000) studied the predictions of German and American investors (at the student level) on future changes in the prices of German and American stocks. Each had to provide the following for three pairs of stocks (one American and one German) of companies comparable in size and industrial sector, depending on: • Their level of competence for forecasting the price over three months, hence, on a scale from 1 to 7; • The probabilities that the prices post changes in the defined ranges supplied (less than –10%, between –10% and –5%..., greater than 10%); and • That the price would be above a certain level, with a probability of 10%, 50%, and 90%. According to the German investors, German securities offer both a higher return and smaller risk than American securities, while for the Americans, it was precisely the opposite. The subjects thought themselves more competent to predict the changes in domestic stocks than those in foreign stocks and this view translated into both more optimistic and less dispersed estimations of the distribution of returns for domestic securities. In fact, the two groups made predictions diametrically opposed to the teaching of finance theory— that risk and return are linked. The more volatile the securities, the average return they generate ought to be high. But while investors believe that foreign markets are riskier than the national market, they do not think foreign stocks are more rewarding.
MONEYLIFE | 21 April 2011 | 52
Earning curve.indd 2
4/1/2011 9:21:20 PM
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BOOKS
Benefits of Indexing Another book on the virtues of passive investing
W
hile stock picking is exciting, especially thanks to 24-hour television channels, it is not that rewarding for the average investor, unless s/he is wired correctly. Indeed, in the US, even experts have a hard time doing well with stock picking, also called active management. They are usually beaten by a popular index such as S&P 500. In 1976, John Bogle pioneered passive fund management or index funds, at a low cost. It proved to be a big winner. But active management still gained from strength to strength— adding to investors’ costs but not returns. While mutual funds are an economical solution to gain broad portfolio diversification at a lower cost rather than buying individual securities, active funds do well when the market is very bullish. In a sideways or bear market, they perform badly. After five decades of active management, it is clear that passive management or index funds wins hands down. Two recently published books extol the virtues of passive management; both
Witty Writ Complicated economic thinking—made lucid and understandable
W
e have to deal with prices every moment of our lives—right from hospital bills at the time of our birth to our funeral expenses. Our perception of prices dictates our choices and, even if we are unaware of it, we are always assigning prices to everything around us. How we value things determines why people choose Starbucks over Mocha—and why they choose to donate blood for free rather than for a fee. “A comprehensive model of humankind must understand that people pursue not what they want but what they think they want.” And that, says Eduardo Porter, would be the key to determining prices and devising a new economy. This book is an extended analysis of why prices are the way they are and why we value things the way we do. Porter analyses the price of faith, culture, life, ‘freedom’ and work—most of them regarded as intangible and beyond monetary value. However, Porter’s brilliant and cold accounting establishes that everything comes with a
make a compelling case for index funds. Richard Ferri’s work takes you through the history of indexing, the futile quest for ‘alpha’ which is excess returns over the index returns and how passive investing can work well for individual investors, charities and trusts, pension funds and advisors. Until the mid-1990s, high fixed commission rates on Wall Street and a lack of computing power made indexing prohibitively expensive. Deregulation of commissions in 1975 and increased computing power helped the Vanguard group launch the first index fund, tracking the S&P 500. Lacklustre performance by active funds led to a massive growth of index funds in the early 1980s. THE POWER OF The first part of the book PASSIVE INVESTING tracks the active vs passive RICHARD FERRI debate over the years, referring Wiley to many academic studies. The Pages 264; $29.95 depressing conclusion: active ``
tag attached and we often pay for it unknowingly. Be it the government or society or companies—all engage in cost-benefit analysis. And, beneath the surface, all of us remain ruthless bargain-hunters. Porter’s is a fascinating analysis. He explains why monogamy gave way to polygamy; why entrepreneurs pay their employees and not enslave them; why the Church of Mormon has more attendance than other liberal establishments. For the conservative, his analyses of sexual relations, religious compliance and pollution in third-world countries will appear outrageous. But his logic is difficult to refute because the statistics are sound. And THE PRICE accounting, by definition, must OF EVERYTHING be cold, to be accurate. EDUARDO PORTER Porter’s credit lies in being William Heinemann: witty and crisp without being London offensive. His wry humour Pages 296; £11.99 does not appear cynical. His ``
MONEYLIFE | 21 April 2011 | 56
Book Review.indd 2
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BOOKS
` managers as a group didn’t earn superior returns. “There were some
funds that did beat the markets, but not many, not by much, and not for long, and the winner could not (have) been identified in advance.” Active funds outperform passive funds only about one-third of the time in any five-year period. The list of winners changes from year to year and the higher risk doesn’t justify the returns. Ferri notes that articulate supporters of passive investing come from two unlikely groups: famous active investors and the Federal government. Investment greats such as Warren Buffett, Peter Lynch, and David Swensen are all advocates of passive investing. The US government’s Thrift Savings Plan (TSP) for Federal employees has only passive investment options for participants. Even in India, the New Pension System is based on passive investment strategy. The second part of the book details the futile attempt of active managers to beat the benchmarks. While there are always active funds that beat the market, knowing how to pick winning funds is “almost an impossible feat to accomplish with consistency and skill.” With all the evidence in favour of passive investing, why don’t more people use it? They simply can’t bring themselves to do it. As I’ve said, right at the beginning of this review, it’s hard not to try stock picking or selecting fund winners—just as it’s hard to do something as unexciting and simple as getting up early, exercising and avoiding junk food. This book makes a strong case against buying actively managed funds but the book I will review in the next issue approaches the topic in a more novel way. — Debashis Basu
` writing is like a hard diamond with sharp edges and is perfectly suited
to his subject. Ironically, Eduardo Porter’s analysis cannot assign a price for ‘everything’, because, like the last chapter of his book says, prices fail inexplicably more often than we expect them to. And this is exactly why Porter finally fails to give us an alternate model for pricing. The new economy, he argues, must base itself on a new system of pricing which should be as much humanistic and inclusive as it is accurate and intelligent, and vice versa. But how would this change come about and, more importantly, what exactly should it look like? The other glaring glitch is an historical oversight. While discussing the ‘price’ of women during the Second World War era, he simply looks at the womb. However, at that time, when many men were away fighting, women joined the workforce and became the major contributors to GDP (gross domestic product). The perception of women’s labour (in both the definitions of the word), and the changing social dynamics, must be viewed in this context. Women’s economic contribution during the War era and the subsequent babyboom period marks an important point in the development of the economic structure in the West, and Porter’s oversight is at odds with his otherwise immaculate calculations. However, this book should be read by economists and the layperson. Porter’s credit lies in making complicated economic structures lucid and understandable. Astute, wry, dry and immensely enjoyable, this book is worth its price. — Shukti Sarma
Low Note We all know the euro was a bad idea. Why read this book?
F
lip to the back flap of this hardback (as many normally do), and you will be told that “as Matt Lynn, he (Matthew) is also the author of the Death Force series of military thrillers published by Hodder Headline.” Lynn should have stuck to this genre. In case you had been in deep slumber over much of the year gone by, you’ll find this book gripping. Lynn’s opus makes for a light and breezy read. But it is a volume that you might have been tempted to read, say, a decade ago. With the benefit of hindsight (and of course, the Internet), works like Bust are very easy to churn out, bulked up with obvious facts such as the hammer & sickle is “the Marxist symbol of the unity of workers and peasants” or that “[The] Acropolis is the most potent symbol of Greek culture.” BUST Please go ahead and MATTHEW LYNN devour this book if you Bloomberg Press savour gems like: “In Pages 282; $27.95 the end, in 1995, it was decided to go for the simple word euro. It was the first four letters of the continent’s name.” Or even, “Print too much money, and you will create hyperinflation and your currency will collapse in value.” Here, the author is taking us back to the Weimar Republic in Germany. Profound facts, these. But Lynn should have sent his manuscript to Central Casting. As I write these words, Japan is still picking up the pieces, the dust has not settled down around the Middle East, and the EU idea is in tatters. The PIIGS (Portugal, Ireland, Italy, Greece and Spain, for the uninitiated) are in no shape—or any particular hurry—to fly. Matthew Lynn is supposed to be “an experienced financial writer and commentator.” He really should have put his ‘experience’ to better use. — Devarajan Mahadevan
57 | 21 April 2011 | MONEYLIFE
Book Review.indd 3
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ML FOUNDATION EVENTS
From a Banker to Bhayanker A banker and author of three best-selling books, Ravi Subramanian explained how bank relationship managers often hustle and cross-sell to meet stiff sales targets— compromising service at the customer’s expense
H
e is an insider who isn’t afraid of talking openly about how and why you should be wary about relationship managers of banks. Speaking on ‘How to see through the hardsell of banks’, at a Moneylife Foundation event, Ravi Subramanian, author and former banker, grabbed everybody’s attention with his very first slide which said how a banker becomes bhayanker (scary) when he is driven by the need to meet stiff sales targets and forgets to deliver what he promised while selling a financial scheme or product. The extremely popular and interactive talk was organised by Moneylife Foundation on 22nd March. Mr Subramanian, whose three best-selling books are all thinly fictionalised accounts of the goings-on in multinational banks, then proceeded to take his listeners through a detailed account of how the only relationship of so-called ‘relationship managers’ is with the commission on products, the push with a focus on their internal sales targets. Mr Subramanian’s books: If God Was a Banker, I Bought the Monk’s Ferrari and Devil in Pinstripes are all an insider’s perspective based on nearly two decades of working with top foreign banks including Citibank and Hong Kong and Shanghai Banking Corporation (HSBC). Mr Subramanian explained how relationship managers (RMs) at banks are a harried lot and can keep their jobs only if they meet extremely stiff sales targets month after month. He also pointed out how
all banking processes are geared to maximise sales and profits. For instance, he asks: have you wondered why there are such long queues at bank counters when their systems are super efficient? It is because they use the opportunity presented by a customer withdrawing cash to pitch for credit cards, loans, unit-linked insurance plans (ULIPs), etc. This is at the cost of the other customers standing in the queue. Similarly, a phone banking customer is also forced to listen to a sales pitch for various products. Mr Subramanian confirmed the complaint of thousands of bank customers that they had been sold ULIPs which fetch high commissions for banks, as akin to fixed deposits with high guaranteed returns. Earlier, new fund offers (NFOs) of mutual funds, which fetched margins of 5% to 6%, were dumped on gullible customers by their relationship managers. That ended when the Securities and Exchange Board of India (SEBI) scrapped entry-loads on mutual funds. But many banks have quickly encouraged customers to consolidate their holdings and have found ways to charge for services; even today, AMCs (asset management companies) continue to gratify sales agents with foreign junkets. Here are some interesting tips and insights offered by Mr Subramanian for dealing with banks: • Don’t buy gold from banks—the only advantage is the purity certificate; if you are price conscious, you will get it cheaper elsewhere. Gold coins are 4.5% cheaper if purchased from a branded jeweller or ``
MONEYLIFE | 21 April 2011 | 58
Event.indd 2
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ML FOUNDATION EVENTS
`
14% cheaper from the neighbourhood goldsmith. That is why (unlike jewellers) banks never buy back their pure gold coins from customers. It is not a twoway deal. • Be careful about documentation—he pointed out that direct selling agents (DSAs) often ‘promise’ a certain interest rate, say 8%, but the loan document says 9%. False commitments on rates, re-pricing, disbursal patterns, documentation requirements, prepayment penalty—these are things which happen all the time in almost all banks. • Do you know why banks offer to upgrade credit cards from ‘silver’ to ‘gold’ or ‘gold’ to ‘platinum’ and ‘platinum’ to ‘titanium’? The answer is part psychological—customers like to ‘show off’ gold and platinum cards and may end up spending, but the real story is that the upgrade fetches higher commissions for banks from the big two card companies, Visa and MasterCard. For instance, if the bank earns a commission of Re1 per transaction of Rs100 on a gold card, it gets Rs1.60 on the use of a platinum card. It is pure business. Mr Subramanian also offered interesting tips on how customers can get the better of their bankers. • “Try calling banks from the 1st of the month to the 22nd for a loan or service and banks won’t bother. But if you call during month ends, you will get what you want. The closer you are to the month end, the more intense the hard-sell. The best time for you to negotiate is on the 28th, 29th and 30th of the month, when there are month-end targets to meet and you would get the best interest rate possible.” • Do you know why product recommendations change when your relationship manager (RM) changes? Because the commissions out of the sales by the previous RM go with him and the new RM has a new set of targets to meet which he can achieve only if you u buy new products and churn existing g holdings. • Mr Subramanian explained the psyche of RMs—they they are all young and fresh graduates es who make a decent amount of money but are under intense nse pressure to meet sales ales targets which are monitored on a daily and weekly basis. They don’t have sufficient knowledge of the Banker and author of three besttselling books, Ravi Subramanian n
Event.indd 3
•
•
•
•
•
products and learn quickly on the job that the only thing that matters is the sales target. So they just learn to make money from gullible investors. Mr Subramanian’s advice: Don’t trust your RM blindly. If you don’t understand a product, ask questions. Do your research about the product, check for cheaper options and then make a decision. Above all, be firm with the RM. Another important tip from Mr Subramanian was that you need to know your RM well; but it is not enough, since they tend to switch jobs too easily. Ask the RM to provide references of at least two other senior persons in the bank and get their contact numbers and email IDs. Otherwise, when in trouble, you won’t get past the bank’s IVR (interactive voice response) system or call centre. Don’t ever fall blindly for bundled propositions—for instance, a recommendation to get credit protection on loss of credit card or bundling mortgage with insurance or a savings account with an accident cover—it is only aimed at earning commissions for the bank and not really to protect the customer. Investors should maintain some written records of their meetings with RMs. He explains, “It is better to note down all the transactions between you and the RM, and send an email to him on his official email ID to confirm the same. This works as a strong evidence in case of fraud.” He also pointed out that banks rarely contest claims when there is evidence and documentation such as exchange of emails. Mr Subramanian strongly advised that investors should not sign blank forms. One should not give banks more authority than is required. Only ‘completed’ forms should shou be signed. On portfolio management, Mr Subramanian said managem that investors need to keep track of statements k provided by the fund managers and also ensure that m no investment is made without a specific consent by the customer. He suggested that investors who su don’t have the time to keep track of investments nor have a high risk appetite would do better to invest in mutual funds. mu And finally, remember—greed fin is the mother of all scams, says mo Mr Subramanian. So if you want Subr to avoid avoi falling into the hands of mercenary bankers or not become merc victim of mis-selling, then a vic empower yourself by reading em about the products you plan to ab iinvest in.
59 | 21 April 2011 | MONEYLIFE
3/30/2011 8:27:38 PM
SPENDING TRAVEL
THIKSEY MONASTERY THIS 500-YEAR-OLD MONASTERY IS PERCHED ON A PRECARIOUS HILL
The
MONASTERIES of LADAKH
Jaideep Mukerji explores Ladakh, one of the most culturally distinct parts of northern India, which still practises ancient Tibetan Buddhist traditions, that flourish in Leh and the villages of this land of high snow peaks and brown earth
I
n the very far north of the country and only an hour’s flight from Delhi is located the remote and culturally distinct region of India with breathtaking ancient towns, monasteries and some of the most dramatic mountain scenery in the world. Ladakh, often thought of as a smaller version of Tibet, is a beautiful desert region high in the western Himalayan plateau. Culturally and geographically very close to Tibet, the Ladakhi kings had for centuries been subservient to the more powerful Tibetan rulers to the east. Though it is a place of few
resources and an extreme climate, the Buddhist Ladakhis, with their traditions of frugality and their intimate knowledge of the local environment, not only survived but actually prospered in this land. The Ladakhi people have endured centuries of invasions from the Mongols of central Asia, the Baltis from Baltistan that lies to the west, the Dogras from the south and occasionally, even the Tibetans from the east. Today, their mixed ethnic origins are reflected in their faces and in their resilience as they confront rapid modernity that threatens to overwhelm their ancient culture.
A visit to some of Ladakh’s principal monasteries, particularly when they hold their colourful festivals, is something that I had wanted to do for long. With anticipation, I took the remarkable flight that takes you from Delhi to the almost surreal landscape of Ladakh in an hour. This surely is one of the most sensational scheduled flights in the world, taking you right over the top of the Greater Himalayas and a spectacular landscape of glaciers, snow-covered peaks and fertile valleys before descending to land at the Leh airport.
``
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LEH PALACE BUILT IN THE 17TH CENTURY, LEH PALACE WAS OCCUPIED BY THE LADAKHI ROYAL FAMILY UNTIL THE 1830s
`
Due to the effects of high altitude, it is a good idea to spend the first day or two at leisure with some easy walks to the local bazaar. The old part of Leh is a maze of narrow streets, temples and bazaars and is a great place to explore. Leh was the ancient capital of Ladakh and its kings once commanded a huge territory stretching from Baltistan in the west to almost as far as Lhasa in Tibet to the east. Leh was for centuries at the centre of the trade in fine pashmina wool, once worth its weight in gold. Heavily laden yak and pony caravans brought in pashmina from Tibet, turquoise, coral and silver from Yarkand and Kashgar in central Asia, spices and fabrics from India and silk from Kashmir. The Yarkandi and Kashmiri merchants of Leh were renowned for their immense wealth. William Moorcroft and John Trebeck, two English explorers visiting Leh in 1836, were stunned to see a town of such wealth located in the midst of what was obviously arid desert land. The Royal Palace, which dominates the town, is reminiscent of the Potala in Lhasa; and the Tibetan Buddhist style monasteries, large white painted stupas (chortens), prayer flags and mud brick houses with flat roofs are a dramatic change in style from other Indian cities. Given the large number of Indian and overseas tourists that visit Leh during the summer months, there are a wide range of hotels to choose from. One of the oldest and best known is the Lharimo Hotel, run by the Kalon family. After a comfortable night’s rest, I started my monastery exploration the following morning with a visit to the Sankar Gompa (monastery). This gompa belongs to the ‘Gelugpa’ or Yellow Hat order of Tibetan Buddhism and houses a beautiful impression of the
SANKAR GOMPA THE MONASTERY BELONGS TO THE ‘GELUGPA’ OR THE ‘YELLOW HAT’ ORDER OF TIBETAN BUDDHISM
ZANSKAR RANGE AND THE INDUS VALLEY FOR MOST VISITORS, THIS PASS MAY BE THE HIGHEST POINT THAT THEY WOULD HAVE EVER VENTURED THROUGH
Buddhist deity, Avolokiteshwara Padmahari with a thousand arms and heads. The hill on which the nearby Shanti (Peace) Stupa is located offers excellent views of Leh town, parts of the Indus River Valley and the imposing 6,100 metres (20,100 feet) high peak of Stok Kangri that dominates Leh. Standing behind Leh town and the bazaar like a sentinel is the Leh Palace. This imposing building rises from the edge of a hill overlooking the town. Built in the 17th century, Leh Palace was occupied by the Ladakhi royal family until the 1830s. Today, the palace is deserted
and is being restored section by section by UNESCO (the United Nations Educational, Scientific and Cultural Organization). Leh is located beside the Indus river that enters India from the Tibet Special Autonomous Region (or Chinese Tibet) and then flows through Ladakh before crossing over into Pakistan-occupied areas. Both up and downstream of Leh are located a string of important Ladakhi monasteries. A short walk up the road from the Lharimo Hotel is Leh’s central taxi stand from where I hired a Tata Sumo vehicle for the drive to Shey, further east ``
49 |61 10|February 21 April2011 2011 | MONEYLIFE
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SPENDING TRAVEL ` along the Indus valley. Shey, the
old ‘summer palace’ of the kings of Ladakh, was built about 550 years ago by the first king of Ladakh. From Shey Palace, you can see the fertile Indus plain northeast to Thiksey Gompa and the Indus valley to the Zanskar mountain range to the south. From Shey, I continued eastwards to Thiksey Gompa. This 500-yearold monastery is perched on a hill high above the Indus and has the largest number of monks in Ladakh. On the right of the entrance to the main courtyard is a chapel with an enormous 15-metre (50 foot) highseated Buddha figure. About 100 yellow-hat monks belong to Thiksey. The next day, a drive west on the arid and high plateau following the Indus river downstream brought me to Alchi, one of the largest ancient monastic complexes and important Buddhist centres in all of Ladakh. Founded in the 11th century by Rinchen Zhangpo, one of the early Tibetan preachers who brought Tibetan Buddhism to this part of the world, Alchi has recently undergone major restoration work under UN sponsorship. The 1,000-year-old paintings inside the main temple are some of the oldest of their kind and quite distinct from the murals in the gompas built later. On my return trip to Leh, the guide made sure that we stopped to see the location where the grey waters of the Indus meet the blue waters of the Zanskar River flowing from the remote Zanskar region of the Greater Himalayas. A detour from the main road brought uss tto Likir Monastery (gompa) set et on an isolated ridge. This ma magnifi cent a gompa, overlooking the he village he of Likir, was founded ed in the 14th ed century and the h head lama here is the younger brother th h of the (erstwhile) Dalai Lama. ma Hemis mi is perhaps the most
THE STATUE OF THE BUDDHA AT THIKSEY MONASTERY
important of the monasteries of the Indus valley and was founded about 350 years ago by Stagtshang Rinchen who was invited to Ladakh by the ruler King Singe Namgyal. Hemis gompa is dramatically hidden in a cleft in the mountains, and while driving to Hemis, you actually do not see the monastery until you are almost directly in front of it. Hemis also has a gigantic thangka or painted scroll, one of the largest in the world and the most important in Ladakh. The 10th day (Tsechu) of the Tibetan lunar month is celebrated here as the birthday of Padmasambhava (Guru Rimpoche), considered to be the founder of Tibetan Buddhism. The Hemis gompa celebrates the event in the form of a two-day festival during which the resident Lamas (monks) perform sacred masked dances. The festival in Hemis showcases the best of cultural heritage of thee region. Splendid masked dancess are performed to the accompaniment of m cymbals, drums and long horns. A o colourful fair, displaying beautiful b handicrafts, is also onee of the highlights of the Hemis m festival. Taking a day off offf ff from visiting monasteries, I took oo a half-day jeep tour up the hairpins of the Ladakh ai Range thatt stands behind Leh driving s along thee road to the Nubra Valley to visit itt the Khardung La Pass located at a height of 5,470 metres (18,400 h feet). feee Khardung La is the highest vehicle accessible pass in the world. The views of the Zanskar Range and the Indus Valley on the way up are amazing as are occasional sightings of yaks on the high pastures below the pass itself. For most visitors, this is perhaps the highest point that they will have travelled to in their lifetime. My week-long journey to ‘Little Tibet’ ended the following day and I flew south with a promise to return. — With Veeresh Malik
ESSENTIAL EN FACTS C Why G Go o There: One of the most ult culturally distinct p a, parts of northern India, a trip to Ladakh and the Indus valley will give you an insight into the peace loving Tibetan Buddhist tradition that flourishes in Leh and the villages of this high altitude arid landscape of high snow peaks and brown earth. Festival dates are available on: http://www. reachladakh.com/festival_dates. htm Getting There: The easiest route is to fly to Leh airport from Delhi or take the adventurous overland (two to three days) road trip along the famous Manali-Leh ‘highway’ from Manali in Himachal Pradesh. Where To Stay: Hotel accommodation and local travel arrangements are best arranged online with Ladakhi tour operators. A list of hotels is available at the official Ladakh Tourism website- http://leh.nic. in/Tourism.htm. Local transport can easily be booked either through your hotel or the local central taxi stand.
MONEYLIFE | 21 April 2011 | 62
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MONEY FACTS STOCKS INDIAN MARKET TRENDS
FUND FLOWS
All major indices closed in the positive terrain; the Sensex and the Nifty logged gains of 9% each. ML Mega-cap Index rose 7%; ML Mid-cap and ML Large-cap Indices gained 6% each, while ML Small-cap Index rose 2%.
Foreigners: Foreign institutional investors were net buyers of stocks (Rs5,073 crore). They bought on seven trading days and sold on two trading days.
Share Prices, October 2010 =100
1,600
FII Net Investments (Rs Crore)
1,180
110 760 340
100
-80 -500
90
21 Mar-11
31 Mar-11
Indians: Domestic institutional investors were net sellers of stocks (Rs1,773 crore). They bought stocks on four trading days and sold on five days.
80
1,200 70 Oct-10
Jan-11
ML Mid-cap ML Large-cap
ML Small-cap ML Mega-cap
Index Sensex Nifty
Apr-11
Nifty Sensex
600
ML Micro-cap 0 -600
18 Mar
31 Mar
+/(-)
17,878.81
19,445.22
9%
-1,200 -1,800
DII Net Investments (Rs Crore)
5,373.70
5,833.75
9%
ML Mega-cap Index
88.01
93.87
7%
ML Mid-cap Index
78.00
82.99
6%
ML Large-cap Index
86.02
90.86
6%
GLOBAL MARKET TRENDS
ML Small-cap Index
74.90
76.74
2%
3,200
ML Micro-cap Index
72.15
73.01
1%
Mega-cap Gainers/Losers
18 Mar
31 Mar
Change
DLF
219.95
268.55
22%
National Aluminium Co
108.45
95.65
-12%
18 Mar
31 Mar
Change
46.95
58.55
25%
465.25
416.90
-10%
18 Mar
31 Mar
Change
154.20
284.35
84%
98.90
85.10
-14%
21 Mar-11
31 Mar-11
Shanghai Composite
3,060 2,920 2,780
Large-cap Gainers/Losers Sterlite Technologies Piramal Healthcare Mid-cap Gainers/Losers Andhra Pradesh Paper Mills Den Networks Small-cap Gainers/Losers
2,640 2,500 Sept-10
Dec-10
Mar-11
The Korean Composite and Nikkei gained 6% each; the Dow Jones Industrial Average rose 4% and the Shanghai Composite added 1%. Index
18 Mar
31 Mar
+/(-)
Korean Composite
1,981
2,107
6%
Nikkei
9,207
9,755
6%
18 Mar
31 Mar
Change
PBA Infrastructure
54.85
89.90
64%
22,300
23,528
6%
Igarashi Motors India
63.75
55.25
-13%
Nasdaq Composite
2,644
2,781
5%
Change
Dow Jones Ind Avg
11,859
12,320
4%
8,395
8,683
3%
Micro-cap Gainers/Losers
18 Mar
31 Mar
Indian Acrylics
3.39
5.64
66%
Alps Industries
3.85
3.08
-20%
Hang Seng
Taiwan Weighted FTSE
(All Prices in Rs)
Bovespa Shanghai Composite
5,718
5,909
3%
66,880
68,587
3%
2,907
2,928
1%
63 | 21 April 2011 | MONEYLIFE
Money Fact.indd 2
4/2/2011 4:37:22 PM
MONEY FACTS STOCKS
5
What’s H
T
ML SECTORAL TRENDS
Stocks of real estate companies were in demand. Eldeco Housing & Industries soared 27%, DLF jumped 22%, Indiabulls Real Estate gained 16%, Godrej Properties rose 10% and Unitech was up 9%. Companies
ML Real Estate Index 4,500 4,000
18 Mar
31 Mar
+/-
Eldeco Housing
173.00
220.20
27%
DLF
219.95
268.55
22%
Parsvnath Developers
37.70
45.60
21%
BL Kashyap & Sons
19.35
23.15
20%
107.55
124.45
16%
Indiabulls Real Estate
3,500
Sobha Developers
3,000
258.35
HDIL
155.50
Orbit Corp
2,500
Godrej Properties
2,000 Oct-10
Dec-10
176.80
14%
47.95
54.30
13%
667.30
10%
37.05
40.45
9%
5
N T
Stocks of sugar companies were ignored by investors. Simbhaoli Sugars and Bannari Amman Sugars declined 4% each, KM Sugar Mills went down 3%, Rana Sugars fell 1% while Balrampur Chini Mills remained unchanged. Companies
18 Mar
31 Mar
+/-
43.10
41.25
-4%
ML Sugar Index
606.45
581.30
-4%
3,100
17.65
17.05
-3%
3.81
3.70
-3%
DCM Shriram Inds
67.90
66.35
-2%
Upper Ganges Sugar
53.00
52.45
-1%
5.74
5.70
-1%
Simbhaoli Sugars Bannari Sugars KCP Sugar & Inds
2,880 KM Sugar Mills
Rana Sugars Rajshree Sugars
53.95
53.65
-1%
Balrampur Chini Mills
70.55
70.20
0%
Triveni Engineering
96.55
96.35
0%
2,660 2,440 2,220 2,000 Oct-10
Pap & Pap Products
21% Healthcare
Real Estate
15% Printing & Publ
-1%
Airlines
13% Odds
1%
Telecom Services
11% Sugar
1%
Auto
10% Glass
2%
0%
INSIDER TRADES
All Prices in Rs
What’s
ML Sectoral Trend
14%
607.50
Unitech
Mar-11
294.50
Stocks of paper & paper products jumped 21%, while real estate stocks gained 15% in the fortnight. Airlines stocks also advanced 13%, telecom services gained 11% and auto rose 10%. Printing and publishing stocks ended flat. Stocks of the healthcare sector declined 1%.
Dec-10
Mar-11
All Prices in Rs
BULK DEALS Date
Company
Buyer
Seller
Rs Cr
21 Mar-11
SRS Real Infra
SRS Housing Finance
SRS Portfolio
11.28
30 Mar-11
Lloyds Steel
Baijnath Maniram Hld & Fin Co Pvt
PNV Enterprises Pvt
10.63
28 Mar-11
Sandur Mang
Euro Industrial Ent Pvt
Sandur Sales And Serv Pvt
5.00
24 Mar-11
Sandur Mang
Euro Industrial Ent Pvt
Sandur Udyog Pvt
5.00
29 Mar-11
Sandur Mang
Euro Industrial Ent Pvt
Lohagiri Industrial Pvt
5.00
31 Mar-11
Mudra Lifestyle
Ecap Equities
Edelcap Securities
1.82
23 Mar-11
LKP FIN
India Max Investment Fund
Fortune Capital Hld Pvt
1.32
Ashok Sarin, chairman, Anant Raj Industries, bought 56,911 shares in the company (stake up to 9.66%). Kalpesh Patel, MD, Kemrock Industries and Exports, bought 14,140 shares in the company (stake up to 27.14%). Wadhawan Holdings Pvt Ltd bought 68,000 shares in Dewan Housing Finance (stake up to 8.37%). Ashok Doshi, MD, Madhav Marbles and Granites, bought 90,000 shares in the company (stake up 7.03%). L Rao, executive chairman, Lanco Infratech, bought 66,60,116 shares in the company (stake up to 4.55%). Baronet Properties and Investments Pvt Ltd bought 1,06,000 shares of Zicom Electronic Security Systems (stake up to 4.51%). Coronet Properties and Investment Pvt Ltd bought 60,000 shares in Zicom Electronic Security Systems (stake up to 3.92%). Mehul Choksi, CMD, Gitanjali Gems, bought 3,25,000 shares in the company (stake up to 45.93%). Basudev Agarwal sold 1,48,183 shares of Suryajyoti Spinning Mills (stake down to 3.16%). N Santhanam, ED & CEO, Piramal Healthcare, sold 40,087 shares of the company (stake down to 0.07%).
MONEYLIFE | 21 April 2011 | 64
Money Fact.indd 3
4/2/2011 4:37:35 PM
MONEY FACTS COMMODITIES
INDEX TRENDS
COMMODITY TRENDS
MCX Commodity Indices
Pulses & Edible Oil
Particulars
18 Mar
1 Apr
Change
52-Week High
52-Week Low
Energy
3,209.53
3,345.92
4%
3,393.52
2,377.39
Metal
4,426.67
4,498.22
2%
4,555.74
3,119.82
Comdex
3,478.26
3,504.10
1%
3,602.64
2,566.68
Agri
2,814.53
2,533.03
-10%
2,989.16
2,110.09
COMMODITY FOCUS Natural Gas (Rs/mmBtu) 220 205 190 175
Feb-11
Mar-11
On the Multi Commodity Exchange of India, natural gas futures contract for April declined by Rs3.3 to Rs191.1/mmBtu (million British thermal units) on 1st April, after Energy Information Administration (EIA) reported an increase in inventory levels as stockpiles climbed by 12bcf (billion cubic feet) against an expected decline of 1bcf. Analysts said natural gas futures prices are likely to decline further due to higher supply. The April contract of natural gas may come down to Rs183-Rs177 levels within the next few trading days, they said.
MCX PRICE TRENDS 15 Mar2011
29 Mar2011
Change %
High
Low
Active Contract
May-11
52,084
55,165
5.92
56,555
28,484
Crude Oil Rs/barrel
Apr-11
4,532
4,697
3.64
4,919
3,815
Gold Rs/10gm
Apr-11
20,605
20,641
0.17
21,274
19,611
Copper Rs/kg
Apr-11
417
432.65
3.75
469.90
374.65
Nickel Rs/kg
Mar-11
1,126.60
1,191.30
5.74
1,332.20
1,106.20
Zinc Rs/kg
Mar-11
103.45
105.55
2.03
116.70
100.40
Lead Rs/kg
Mar-11
114.20
122.10
6.92
124
108.75
Natural Gas Rs/mmBtu
Apr-11
183.60
194.80
6.10
212.90
174.10
Mentha Oil Rs/kg
Mar-11
1,230.20
1,259.40
2.37
1,328
1038.20
CPO Rs/10kg
Mar-11
517.30
506.80
-2.03
595.80
503.70
Potato Rs/100kg
Apr-11
617.60
585.90
-5.13
755
556.50
Cardamom Rs/kg
Apr-11
1,113.60
1,075.90
-3.39
1,708.30
1,065
Kapas Rs/20kg
Apr-11
1,157.40
1,221.70
5.56
1,260
571.80
Global Commodities Silver Rs/kg
he ministry of food and consumer affairs extended the subsidy on pulses and edible oil for one more year, up to 31 March 2012. As India is a net importer of essential commodities—pulses and edible oil—the ministry has also imposed a stock limit for both commodities for another year. The food ministry subsidises pulses and edible oil distribution under the public distribution system (PDS) by up to Rs10/kg and Rs15/litre, respectively, and, under these subsidy schemes, the state governments are compensated for the difference between the PDS and market price.
Ginger
160 Jan-11
Particulars
T
E
xport of ginger has picked up due to higher production that has led to a price decline in the local market. During April 2010-January 2011, export volumes surged a whopping 126%, while they rose 76% in value terms compared with the previous year’s. India’s ginger production is expected to increase by 30%-40% this fiscal. Indian ginger has good demand in West Asia and Europe. Prices of ginger have dropped to Rs170/kg in the Kochi market from a high of Rs230-Rs240/kg recorded during October-December 2010.
Wheat
Others
T
he government is considering export of wheat as a bumper crop is expected this year (July-June). Production of wheat is expected to reach a record level of 81.4 million tonnes (MT) this year, as against 80.80MT in 2009-10. The decision would be taken by Aprilend or May after ensuring the domestic demand is fully met, said Union minister of state for agriculture and food processing industries Arun S Yadav. The government had imposed a ban on export of wheat since 2007. 65 | 21 April 2011 | MONEYLIFE
Money Fact.indd 4
4/2/2011 4:37:50 PM
BEYOND MONEY
eradicating DRUGS FROM SOCIETY Muktangan employs awareness programmes, de-addiction treatment facilities and rehabilitation programmes to help addicts live healthy lives, reports Dolly Mirchandani
MUKTANGAN REHABILITATION CENTER Mohanwadi, off Pune-Alandi Road, Yerawada, Pune - 411 006, Maharashtra Tel: +91 20 64014598 muktangancorporate@ gmail.com www.muktangan.org
F
ounded on 29 August 1986 by late Dr Anita Awachat and Dr Anil Awachat, Muktangan Rehabilitation Center works in the field of reducing drug demand, treatment of substance abuse, and spreading awareness about the evils of addiction. It treats addicts through a recovery programme that involves change in attitude and lifestyle. The success of its programme is evident from the fact that nearly 75% of Muktangan’s staff comprises addicts who have recovered; they bring in empathy to the rehabilitation effort. The rest are psychologists, psychiatrists and social workers. Muktangan was founded in 1986 when Anil published his book Gard (‘brown sugar’ in Marathi). After reading Gard, legendary Marathi writer late ‘Pu La’ Deshpande encouraged the Awachat couple to work on rehabilitation. The Pu La Deshpande Foundation donated Rs1 lakh to start Muktangan and Dr Anand Nadkarni, a psychiatrist and family friend who worked at King Edward Memorial (KEM) Hospital, guided them. Anil became the backbone of Muktangan, while Anita did the research. Their consistent efforts brought Muktangan to life—it has now entered its silver jubilee. From August 1986 to September 2000, Muktangan worked at the Yerawada Mental Hospital, Pune. Later, it shifted to Mohanwadi, where it operates on land leased by the Pune Municipal Corporation. Muktangan has a five-week residential treatment programme based on Gandhian principles, rational emotive behaviour therapy and Alcoholic Anonymous techniques. The programme starts every Friday. On completion of five weeks, the patient is discharged on Wednesday after 10am. Patients can also avail of the outpatient facility thrice a week. Sanjay Bhagat, coordinator of Muktangan’s corporate services told Moneylife, “The five-week treatment is
a structured programme that has been developed on the basis of our 25 years of learning from our patients. A patient deals with the recovery effort ‘one day at a time’, but there are also those who require treatment beyond the five weeks. It has to be with the consent of the user, family members and recommendation of the counsellor and medical department. For such cases, there is an extensive treatment programme of another three weeks.” If a substance user cannot afford to pay the fees for the five-week programme, Muktangan bears the cost. The only documentation required is an orange or yellow ration card. Muktangan can treat over 120 residential patients at a time and has treated close to 20,000 so far. Nishigandh is an integrated rehabilitation centre for women substance users which follows the same five-week treatment programme; it is managed by women. Sahachari is a support group that was started by and for the wives of the recovering patients. Muktangan promotes income-generation activities to rehabilitate the family as well. Jidnyasa, an awareness programme for adolescents, also imparts information about the ill-effects of drug use, sex education, HIV/AIDS and stress management. Muktangan has follow-up centres at 18 locations in Maharashtra and one in Karnataka, visited every month by its counsellors on a fixed day. Muktangan also trains police, jail officers, industrial welfare officers and community leaders. It also manages the Regional Resource and Training Center (west zone), funded by the Union ministry of social justice and empowerment. This is for capacity building of rehabilitation centres for drug users in Maharashtra, Madhya Pradesh, Chhattisgarh, Gujarat and Goa. Muktangan has also helped to prevent substance abuse in the workplace. Muktangan is partially supported by the ministry of social justice and empowerment. Its corporate training programmes generate some revenue and it also gets donations from people. Donations to Muktangan are exempt under Section 80G of the IncomeTax Act.
MONEYLIFE | 21 April 2011 | 66
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