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2 | APRIL 2010


FROM THE CHAIRMAN’S DESK Vol: 8 No: 4 CHAIRMAN - EDITORIAL BOARD K.K. Bajaj EDITOR Raman Bawa FOUNDER EDITOR Dr. Vinod Kumar ASSOCIATE EDITOR Alok Agarwala EDITORIAL ADVISOR K.N. Sharma LEGAL ADVISOR P. Janardhan RESEARCH TEAM Alok Agarwala, Abhishek Gupta, Shibesh Jha, Preeti Gupta, Dhritiman Chakraborty EDITORIAL BOARD Rajiv Bajaj, Sanjiv Bajaj, Anil Chopra, Surajit Mishra, Uttam Agarwal, Vinay Taluja DESIGN BY: Anuj Kumar Singh CIRCULATION EXECUTIVE Raghbendra Singh EDITORIAL OFFICE Bajaj House-97 Nehru Place, New Delhi-110019 Tel: 011-41692900 Fax: 011-26476638. PUBLISHED & PRINTED BY Raman Bawa for Bajaj Capital Ltd. Bajaj House-97, Nehru Place, New Delhi -110019 Tel: 26418903 -06 All suggestions and complaints may be sent to PRINTED AT Arun & Rajive Pvt. Ltd. 10, DSIDC Scheme II, Okhla Indl. Area, Phase II, New Delhi Note: All the information contained in this publication is true to the best of our knowledge and we do not own any responsibility legally or otherwise for correctness of the same. Any mistake or discrepancy noticed may kindly be brought to our notice so that it may be rectified in future issues. It is notified that neither the publisher, nor the editor, nor the printer will be responsible for any damage or loss to anybody arising out of any error or omission in this issue. Readers are advised to satisfy themselves about the merits and details of each investment scheme before taking any investment decision. Readers are also advised to check the interest rates before investing. Reproduction in whole or in part without the prior written permission of the Publisher is prohibited. Opinions expressed in the articles are of the authors and do not necessarily reflect those of editors or publishers. While the editors do their utmost to verify information published, they do not accept responsibility for its absolute accuracy.


ince the time the sub prime crisis ruffled global financial markets in 2008, investors throughout the world seem to have become abhorrent to anything with high debt on its books be it a company, a bank or an economy. High debt levels are no longer taken kindly and investors and rating agencies alike have been swift to react as seen in the case of Greece, Portugal and Dubai World. What gives rise to this abhorrence? How can one fall into a debt trap? What does a debt trap lead to? What should an individual do in order not to fall in a debt trap? These are some questions that have been answered by Mr. Anil Chopra in the lead story. We had started a unique investor education initiative in partnership with Tata Mutual Fund in our February 2010 issue in which we strive to explain important financial terms in the most de-jargonized way possible. The initiative has received an overwhelming response from our readers. In the wake of the recent rate hike by RBI, we have simplified topics such as repo rate, reverse repo rate, SLR and CRR in this edition. We hope readers will find it very pertinent and informative. The beginning of a fiscal year is a time for investors to reassess their investment strategies and portfolios. At Bajaj Capital we believe that wealth preservation is equally important, if not more, to wealth creation. Investing is a very simple process and the likes of Warren Buffet have made their fortune by exercising common sense and discipline which stopped them from repeating mistakes. Investors mostly lose money by making the most obvious mistakes while investing in stock markets. Dr. Vinod Kumar, in his column titled ‘Perspective’ has sought to highlight the most common mistakes committed by stock market investors. An article on “Why stocks with lower equity share capital tend to run up more than their larger counterparts” by Mr. Dhall, a new member on our panel, and on the ‘Apathy of the insurance sector in India in reaching out to senior citizens’ by Mr. Sinha, complete an interesting roundup. Noida has become the destination of choice for home buyers in the Delhi-NCR region mainly due to easy accessibility, better infrastructure and affordable prices. Our resident expert on realty, Ms. Mamta Gakhar, in her column Realty Bytes, shares some strategic locations in Noida which can be attractive bargains for prospective home buyers. In this issue, we have introduced a new column on ‘Travel and Leisure’ with an eye on our readers who might be planning a vacation during the summer holidays. Our resident trekker, Mr. Saurabh Singh has given a first hand account of a trekking expedition to Jageshwar and Vridh Jageshwar (near Almora) in his column. A nation’s destiny is in the hands of its people. The column on ‘Lifestyle Planning’ in this edition highlights the role of mothers in shaping the futures of the young would-be flag bearers of India. The article contains effective anecdotes for parents on how to rear and bring up a child, how to provide it with proper nutrition, how to provide the basic education which no school can ever provide but which forms the underlying foundation on which the future is built and finally how to make him/her a better human being in life. Hope you find is as interesting as you have found my other such endeavors to be. Wishing you all the best for a successful new financial year Prudent Investing! K. K. Bajaj


APRIL 2010 | 3



April | 2010



How not to fall in a “Debt Trap”



What are the Common Sins committed by Equity Investors



Why Aban Offshore shoots up & NTPC fails to ignite?



Who cares for the ageing population?



The Best and the Worst of Mutual Funds in 2009-10



Technical Analysis made simple


Edit Note


These Thoughts


News Update


Mr. Advisor


Technical View


Investor Education


Travel and Leisure


Stocks to Buy


Select Fund to Invest


Select MF Scheme Synopsis


FD Ready Reckoner


Ulip Multimeter


MF Monitor


Economy Dashboard


All India Network


Subscription form


Real Estate Ownership and Coapplicant in a Loan




What matters most in Financial Planning? 4 | APRIL 2010



Confused - What to Buy in NOIDA???




APRIL 2010 | 5

These Thougths will Change your Life

• A nail is driven out by another nail; habit is overcome by habit – Erasmus • You never will be the person you can be if pressure, tension and discipline are taken out of your life – Dr. James G. Bilkey • Every generation, no matter how paltry its character, thinks itself much wiser than the one immediately preceding it, let alone those that are more remote – Schopenhauer • There is no substitute for accurate knowledge. Know yourself, know your business, know your men – Randall Jacobs • Do not be inaccessible. None is so perfect that he does not need at times the advice of others. Even the most surpassing intellect should find a place for friendly counsel. Sovereignty itself must learn to lean. Those who are inaccessible fall to ruin because none dares to extricate them. A friend must be free to advise and even to upbraid, without feeing embarrassed – Gracian • No road is too long to the man who advances deliberately and without undue haste; and no honours are too distant for the man who prepared himself for them with patience – Bruyere • Honesty isn’t any policy at all; it’s a state of mind or it isn’t honesty – Eugene L’Hote • A greater poverty than that caused by lack of money is the poverty of unawareness. Men and women go about the world unaware of the beauty, the goodness, the glories in it. Their souls are poor. It is better to have a poor pocketbook than to suffer from a poor soul – Thomas Dreier • Do not wait for extraordinary circumstances to do good; try to use ordinary situations – Richter • Only those are fit to live who are not afraid to die – Gen. Douglas MacArthur • A fellow doesn’t last long on what he has done. He’s got to keep on delivering as he goes along – Carl Hubbell • The man who wastes today lamenting yesterday will waste tomorrow lamenting today – Philip M. Raskin

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R O F T I N I WHAT INVESTORS? Shifting Loyalties


utual fund houses are rejigging debt portfolios and shifting from longer-term Government securities to shorter-tenor government securities (G-Secs), certificates of deposit (CDs) and commercial papers (CPs), which are providing better returns. Falling prices have made longer duration papers unattractive, as selling them in the secondary market would be a loss-making proposition, said fund managers. “We are investing in short-term money market instruments, like one year CDs where we are getting good returns. At present, our debt portfolio is around Rs 10,000 crore, of which the G-sec holding is near zero,” said Mr Maneesh Dangi, Head-Fixed Income Investments, Birla Sun Life Mutual Fund. Yields on the 10-year paper crossed 8 per cent in the first week of March on the back of inflation, supply fears and the upward pressure on interest rates.“We have reduced our holding in G-secs for almost a month now. We have also reduced the maturity of our holdings and positioned ourselves in the short-end,” said Ms Lakshmi Iyer, Head-Fixed Income and Products, Kotak AMC. Kotak has

around Rs 35,000 crore in debt funds, of which Rs 100 crore is invested in gilt funds.For UTI AMC, debt funds account for about Rs 51,000 crore, of which gilt funds make up only about Rs 400 crore, said Mr Amandeep Chopra, Head of Fixed Income. “We are sitting on pretty low duration in our gilt funds, where weighted average is under three years. This has been our position since endJanuary,’’ he said High dividends from MF schemes might be a thing of the past


any mutual funds may find it difficult to dole out magnanimous dividends to unit holders as seen in the past, with capital market regulator SEBI tweaking an accounting norm that will result in fund houses having lesser amounts for such payouts. Recently, SEBI barred fund houses from tapping the unit premium reserve to distribute dividends. Instead, it directed mutual funds to pay dividends only from realised gains, a move that has drawn hushed protests from the industry. This is how it worked: For instance, if the face value of an equity diversified fund is Rs 10 apiece and its net asset

value (NAV) rises to Rs 100, then Rs 90 will be part of the unit premium account (similar to accumulated reserves of companies). So, if an investor bought units at Rs 100 apiece, the dividends paid by the mutual fund would be drawn from the unit premium account, a practice which amounted to paying unitholders their own money. As per the new rules, SEBI is asking mutual funds to pay dividends from profits booked in the event of a surge in the market. This means, if the NAV rises from Rs 100 to Rs 110, mutual funds can only use Rs 10 to distribute dividends, provided profits were booked. “This step will certainly affect the quantum of dividend payouts by mutual funds, and more importantly, it will plug mis-selling,” said Rajan Mehta, executive director, Benchmark Asset Management. The revised norm will hurt most mutual funds and distributors, as they have churned fees in the past by luring investors, mainly affluent, into equity schemes for dividends. Mutual funds, through distributors, unofficially inform these investors their intention to pay dividend way before the dividend declaration date. These investors exit the scheme on or after this date, pocketing the tax-free dividend and setting off losses from mutual fund investments with other gains. Retail investors are known to buy schemes for dividends, without knowing that such payouts result in


a corresponding decline in the NAV of the scheme, as dividend distribution reduces the size of the fund. “Dividend payouts in India was like taking money from the left hand of an investor and putting it in the right... retail investors did not benefit from this,” said a head of wealth management of a Mumbai-based broking firm. Mutual funds feel the rules to pay dividends from realized gains are against the market regulator’s vision to encourage them to be long-term investors. “SEBI is simply asking us to churn portfolios more, if we want to pay dividends. This new rule will turn fund managers into traders, as we are also under a lot of pressure to deliver dividends to retail investors, who are used to this practice for a long time now,” said a top official with a private mutual fund. “For example, investors, who had put Rs 10,000 into Infosys in mid-1990s, would have earned at least over a crore by now. In the pursuit of booking profits, we will miss out on such opportunities,” he added. INSURANCE NEWS Public sector insurers well capitalized under new reporting norms


apital requirements of public sector general and life insurance companies are expected to shrink substantially after the adoption of the International Financial Reporting Standards (IFRS).

APRIL 2010 | 7

IFRS is expected to be adopted by all the public sector insurers from the next financial year. Although the deadline for becoming IFRS-compliant is only 2012, PSU insurers such as Oriental Insurance Company Ltd are already prepared for the migration. Assets marked-to-market


ighly placed sources said that implementation of IFRS would reduce insurers’ capital requirements. Under IFRS, all assets are expected to be marked-to-the market (MTM). PSU insurers, including LIC, value the assets on the basis of book value. As a result, most investments are actually undervalued, the officials said. Migration to IFRS would result in raising the solvency margins to levels higher than the prescribed ratio of 150 per cent. Improved penetration


he officials said that the migration to IFRS would help increase the insurance penetration in the country, currently at about 6 per cent of the gross domestic product. Non-life penetration is about 0.6 per cent. IFRS compliance would imply that the insurers can accelerate business growth without the need for any immediate additional capital infusion from the Government or from the financial

8 | APRIL 2010

markets, the officials said. This also implied that the insurers would no longer be dependent on statute changes for enhancing paidup capital for increasing their liabilities. The migration to an MTM regime was already prescribed by the Solvency Two regime of the International Association of Insurance Supervisors (IAIS), though the Insurance Regulatory Authority of India is yet to accept the recommendations. IAIS is the insurance equivalent of the Bank for International Settlements. Regulatory issues


he officials said that some regulatory issues would, however, need to be resolved. A cut-off date for MTM asset valuations needs to be fixed. Some private insurers have sought a formula for fixing a valuation, as in the case of the banking sector. Banks are currently permitted to value up to 25 per cent of their net demand and time liabilities as Held-toMaturity (HTM). STOCK MARKET NEWS Madhucon Projects Ltd


T Madhucon Indonesia, a subsidiary of Madhucon Projects Ltd has been granted a new coal mining business permit for coal exploration of 30970 Hectors in Mauraduwa in

South Sumatra. Madhucon is already operating a coal mine at Dawas in South Sumatra of 10000 Hectors. The logistics including necessary infrastructure facilities are being setup. Coal production has just commenced and this coal mine is estimated to have a reserve of 900 million Tons. Madhucon, through its subsidiary Simhapuri Energy Pvt Ltd is setting up 1920 MW Thermal Power Plant at Tamminapatnam and Mommidi villages at Chilakur Mandal, SPSR Nellore Dist., Andhra Pradesh in 4 phases. The second phase of 300 MW is in the final stage of financial closure. Coal for the Thermal Power project shall be sourced from PM Madhucon Indonesia. Madhucon is also setting up 75 MW expandable to 100 MW Hydel Power Plant under BOT in Uttarakhand. Madhucon shall be a major player in generation of power through Hydel, Thermal and Gas resources, and has planned to set up 5000 MW power generating facility within next 5 years period. The company recently commissioned two toll road projects namely Madhucon Agra - Jaipur Express ways Ltd and TN (DK) Expressways Ltd and two more toll road projects viz. Taichy - Thanjavur Expressways Ltd and Madurai - Tutirocin Expressways Ltd shall be operational by April 2010. Madhucon has also applied for pre-qualification of 40 National Highway BOT / Annuity projects.


Mahindra & Mahindra Ltd


ahindra & Mahindra Ltd., a part of the diversified US $ 6.3 billion Mahindra Group, today inaugurated its new worldclass auto manufacturing plant in the industrial hub of Chakan in Maharashtra. With a phased investment of approx. Rs. 5000 crore for the Chakan plant, the project which is spread across 700 acres will set new standards for Mahindra and the automotive industry. The plant will have an installed capacity of 3 lac vehicles and would eventually be scaled up to meet global demand and standards. Mahindra Chakan will manufacture Mahindra’s range of products from the 0.75 tonne Maxximo to the 49 tonne Mahindra Navistar truck. The company’s new SUV and Pick-Up range and product line for the US market will also be manufactured at this facility. The plant has been envisioned as the hub of innovation and technology for the Mahindra Group, with several new products, including the new SUV and Pick-Up line rolling out from here. The plant has been completed in a record time span of 22 months. Bharat Forge


F-NTPC Energy Systems Ltd (BFNESL), a joint venture between Bharat Forge Ltd, a global leader

in manufacturing and metal forming and NTPC Ltd, India’s largest power generation company today made a landmark beginning with the laying of the foundation stone of their joint venture manufacturing facility at Solapur in South-Eastern Maharashtra. The JV set up by the two organizations aims at primarily serving power sector (thermal, hydro and nuclear, etc.) with its technology-intensive product range having wider application across other sectors like oil and gas, petrochemicals, steel and mining. Currently, India faces considerable supply constraints and has significant dependence on overseas sources for such advanced technology products. These will include products like advanced class pumps, high pressure piping, castings and forgings and other critical equipment involving highend engineering and stateof-the-art manufacturing processes. This will reduce India’s dependence on imports and ensure timely and cost competitive availability of these products indigenously.” Mr. R. S. Sharma, Chairman and Managing Director, NTPC Ltd stated, “While Bharat Forge’s strengths in metal forming, manufacturing, engineering and marketing shall be extensively utilized, NTPC’s worldclass experience in project management and operations shall be made available to the JV to quickly meet market challenges”.

Envisaged over a land mass of 100 acres, this state-ofthe-art facility will include world-class manufacturing, fabrication, assembly and testing facilities for the product lines and also field services. Supported by a strong design & engineering centre, the plant proposes to manufacture products to support thermal, hydro and nuclear power sectors besides oil and gas, petrochemicals, steel and mining industries in the proposed manufacturing facility. Its main focus would be to offer a complete package solution for power and other industries in India and beyond.” Larsen & Toubro (L&T)


NGC has awarded a Rs. 1013 crore Turnkey Project to Larsen & Toubro (L&T) for 4 well platforms for Phase II of Mumbai High North (MHN) Re-development Project. The Mumbai High field is in production since 1974 and ONGC is in the process of augmenting production through latest hydrocarbon lift techniques and improved reservoir recovery. Each of these platforms will have 12 slots with remote well testing and monitoring facilities from NQ/MHN process complex. L&T will have single point responsibility for the complete engineering, procurement, fabrication & installation of these platforms with total in-house capabilities. This will involve 23000 tonnes of Jackets & Topsides

equipped with wind turbine system and hybrid power system in addition to many state of the art facilities. L&T bagged this prestigious order through an International Competitive Bidding Process. L&T will carry out engineering at their wholly owned subsidiary L&T Valdel at Bangalore, Chennai and Faridabad and fabrication will be carried out at L&T’s world class fabrication facilities at Hazira near Surat and at Sohar in Oman. Hindustan Construction Company Ltd


leading infrastructure construction and development Company in joint venture with Coastal Projects Pvt. Ltd. has been awarded a project by North Frontier Railway to develop a railway tunnel between Dholakal and Kaimai on the new railway line being developed between Jiribam and Tupur in Imphal. The total cost of the project is Rs. 197.06 crore (HCC share is Rs. 118.24 crore) and will be completed in 24 months. The project scope involves construction of single line BG Tunnel of approximate length of 3.250 km including earthwork, slope protection & stabilization. RCC portal walls, permanent tunnel support, construction of side drains, rock supporting system and ancillary work. In the transportation segment HCC has a strong track record in construction of Roads, Highways,


Bridges, Railways and MRTS (Mass Rapid Transport System). HCC has already constructed 2227 km of roads across the country. In the MRTS space, the company has executed the Kolkata and Delhi Metro Rail project. HCC has also executed the most challenging 16 km Ghat section of Mumbai-Pune expressway, the first ever 6 lane concrete pavement express way in India. It has built nearly 173 road bridges, the combined length of which would be approximately 46,458 meters. McNally Bharat Engineering Company Ltd


as informed that the Company has received an order for Design, Engineering, Supply of Equipment, Civil Work, Structural work, Erection & Commissioning etc for the Interplant Transportation Facilities (Package- 092) for Rourkela Steel Plant of Steel Authority of India (SAIL) for a value of Rs. 245.42 crores and a contractual period of completion at 22 months.

APRIL 2010 | 9


How not to fall in a ‘Debt Trap’ D

Anil Chopra

Debt Trap’ is a ‘Death Trap’. IT HAS BEEN THE CAUSE OF MAJOR FINANCIAL CATASTROPHES IN THE WORLD OVER DECADES. THE FACT couldn’t have been highlighted more forcefully than by the 2008 sub prime crisis from which the world economy is still grappling to

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ebt by itself has very negative connotations. Debt is a liability which brings a plethora of tensions and problems and has a tendency to spoil budgets be it an individual, company or a country for that purpose. To put things into perspective, the roots of the sub prime crisis lie in the propensity of the US consumer to get highly indebted thereby encouraging banks to leverage themselves in order to continue providing the US consumer with easy money. The consequent leveraging of the US government in order to bail out the overleveraged banks has now completed the circle and has led to many sleepless nights for economists and policy makers across the world. Going by rough estimates, every US citizen today carries a net debt burden of $3000 (Rs. 1,40,000/-) on his head amid falling income levels and rising unemployment. Enough to cause sleepless nights and increase stress levels! The collapse of Lehman Brothers and bail outs of financial power houses such as Bear Sterns and Merrill Lynch in the US, the defaults from the Dubai government owned Dubai World and the crisis over the high sovereign debt levels of Japan, Greece, Portugal, Spain, Turkey and Italy simply underscores the fact that Debt Trap is indeed a Death Trap. Debt can be cancerous if allowed to remain for too long Debt is just like cancer as it spreads like wild fire throughout the body if not diagnosed and treated in time finally leading to death. See how quickly it has moved from the US consumer to


“You should not spread your legs beyond the sheet that you have”. What it effectively means is that spend within your limits. Do not spend more than you earn.

the US financial system and now the US government threatening a collapse of the US and hence global financial system. There is an age old saying: “You should not spread your legs beyond the sheet that you have”. What it effectively means is that spend within your limits. Do not spend more than you earn. As per financial planning principles, debt is totally avoidable because the burden you carry by having debt is always much higher than the returns you earn on your investments. Hence, if on one hand you keep your money in bank deposits or Public Provident Fund or any other savings schemes that give you normal rates of return and on the other hand you carry a debt, for whatever reasons, the interest burden on your debt will be much higher than the returns from your investments. Naturally, if the returns from your investments are not enough to meet the debt service obligations, you will have to take some money out from your household budget to service the debt. So from that point of view it also spoils your budget. Money Saved is Money Earned! A savvy financial planner, whenever


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asked for the best investment option will always say – you can get over 24% return and the only thing you can have to do is to repay/reduce your credit card or other high cost debts. Paying off a debt which charges you interest itself means that you start saving that much more. Credit Card Debt is the Worst The worst kind of debt is credit card debt because first of all credit card holders are not aware of the hidden “Save First and then Spend” rather than “spend today and pay later”.

interest rates. Interest rates on credit card debt can be as high as 36% p.a. and people are totally unaware of that. While on one hand they invest their hard earned money into debt or equity (through Mutual Fund SIPs, PPF, bank deposits, etc.) which are earning somewhere between 8-15% p.a. they simultaneously carry credit card debts on which they have to pay interest at 24-36% p.a. This is totally against the principles of financial planning and can lead to serious cash flow mismatch as well as asset liability mismatch in the future. Credit Cards encourage you to spend beyond your means: The problem is further compounded by the fact that the tendency to use credit cards leads to impulsive buying or to put it plainly over-spending. There will be instances when you go to the shopping mall with your wife or girlfriend and you like a nice piece of jewelry for her and immediately flash your credit card to buy it without thinking whether your budget allows you to pay for it or not. Normally one thinks he will repay the amount over the next 12 months in installments if not immediately, in such cases. But there is a problem. First, this kind of purchase was totally avoidable and second, one should see what it

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costs. You are paying 36% p.a. as the rate of interest! Moreover, it has the potential to ruin your entire budget for the next 12 months if you opt to pay it over that period. Credit card debt should be incurred only in emergency. For instance, if you are traveling outside the city you live in and you have to pay the hotel bill or buy a train or air ticket and you are not carrying enough cash, then you can pay your bills through the credit card. Credit card must be used for such important things only and one must repay the entire amount on the first due date itself rather than staggering the payments by opting for EMIs or revolving credit. Zero Percent Financing Options are a ‘fallacy’ While buying consumer goods, a number of zero percent financing options are available to the consumer. But these zero percent finance schemes are a fallacy. There is no free lunch anywhere in this world. You have to pay for the facilities you enjoy. People fail to notice that the interest cost of the financing scheme has inadvertently been built into the cost of the product in such cases. Hence, whenever one thinks of going for a zero percent finance scheme to buy consumer goods he should check that if he pays the full amount immediately then whether he is getting it for a lower cost or not. If yes, as it will be in almost every case, then it is always better to buy it by paying the full amount rather than opting for the zero finance schemes. Save First and then Spend Also, your decision to purchase an asset should be “need based” and not subject to the availability of any interest free financing scheme. For instance, when a refrigerator is available at zero percent finance and payments can be made over the next 6 months or so, the first thing you have to check is whether you need the refrigerator at all or not. One should not be buying the refrigerator just


because he/she doesn’t have to pay for it today. Every asset acquisition should be need based and not just because an interest free financing option is available for it. The golden rule is “Save First and then Spend” rather than “spend today and pay later”. If you actually need a refrigerator, you should have the money to buy it. Debt should be raised only for productive purposes such as creating a long term asset Before taking a loan, one should check whether the loan is being taken to create a long term asset such as for buying a home in which you want to live, etc. Then and only then is the loan justified and for no other reason. For instance debt is totally avoidable for buying consumer goods, for buying life style enhancement things such as buying jewelry items, for making a foreign trip, for buying a second car when you already have one, etc. Only when you are creating an asset like a house in which you want to live in future, is taking a loan justified. Home loans are more affordable than other loans - Naturally a young couple will not have enough resources to buy a house for themselves outright. Hence, one can resort to home loans for buying their house in which they want to live in. Also home loan rates are much lower than other kinds of debt and are affordable lying in the range of 8-11% depending upon the borrower’s credit standing and the current interest rate scenario. Be very careful while deciding the amount of home loan you should take - One must be very careful while deciding the amount of home loan he/she should take. The thumb rule is that one should not go for a home loan for which the EMI (equated monthly installment) amount is higher than 30% of his/her monthly income (take home after deducting taxes and PF contributions, etc. in case of salaried

employees) because that would again spoil the budget. So if your monthly income (take home) is say Rs. 50000. The monthly installments against your home loan should not exceed Rs. 15000 in such case. Quite often, in a bid to show off, people tend to go for a bigger house and commit EMIs that are higher than 30% of their monthly take home. This spoils their overall budget and then they have to pay it at the cost of some other important goals in life such as investing in long term MF SIPs or ULIPs for their children’s education and marriage, retirement planning, etc. They thus compromise on their own and their children’s long term future just to go for a three bedroom house when a two bedroom one would have sufficed. To conclude, the EMI on your home loan should be such that you can pay it comfortably. Under no circumstances should it force you to compromise on your other important investment plans such as planning for education and marriage of your children, your own retirement planning, etc. Debt is easy money and it leads to a lot of vices. It leads you into leading a lifestyle that is false and artificial. There have been many instances where a person incurs a debt and to repay that debt he has to resort to an even higher cost debt. To repay this higher cost debt, he has to resort to an even higher cost debt to meet the obligations. This leads to a spiral, a vicious cycle which finally leads to bankruptcy or insolvency. There are many people who get into chit funds or ‘committees’ (more prevalent in places like Delhi) which are nothing but ways and means of accessing high cost debt without doing any effort. This leads to profligacy today at the cost of tomorrow and ultimately leads to spoiled budgets. One should never get into this kind of schemes. A person under debt burden does not lead a very

comfortable and mentally peaceful lifestyle. He is always under some kind of pressure. It leads to physical and mental worries and tensions. There have been many instances when a person hopelessly entangled in a debt trap and unable to bear the heavy debt burden has committed suicide. One should strive to lead a very confident and worry free life. Debt does not allow you to do so. Never invest or speculate with borrowed money All financial planners say that debt is totally avoidable except for creating long term assets. Investing borrowed money in stock markets is a Cardinal Sin. One should never borrow money to invest or speculate. It is a very bad idea to borrow and invest in stock markets because stock markets are volatile and one might not get the desired results in the expected time frame. But the debt service obligations such as interest payments, principal repayment etc. will start pressing in on their due date and you will have to repay them by any means. This can lead to a serious cash flow mismatch and force you to sell your investments at a loss to meet the obligations, thereby resulting in huge losses in some cases. There are temptations galore Banks and NBFCs are always luring investors to borrow because it is their business. Every now and then, they will come out with the so-called special offers such as pre-approved loans, loans with no documentation, etc. People normally tend to use such easily available loans for non-productive purposes such as playing speculative games in the stock markets, etc. They expect to double the money in three months and repay the loan. Their expectations are seldom met leading to a huge repayment burden on the person in the future. One must be very careful not to fall in the trap. Beware of companies having huge debt on their balance sheets


The biggest financial catastrophes in the world have happened because of high levels of debt. The recent sub prime crisis that led to the fall of Lehman Brothers and some other financial giants had its root cause in over-leveraging which means disproportionately higher amount of debt on the balance sheet. Investors should be wary of investing in companies that have high amount of debt on their balance sheet as such companies are often not able to justify returns to their shareholders due to the rising interest cost which becomes a huge drag on their profits and ultimately affects the returns to shareholders. Over leveraging ultimately leads to bankruptcy or insolvency Whenever big banks have failed, the main cause has been imprudent lending leading to a high incidence of bad debts and their inability to recover the amounts so lent. Similarly individuals, whenever they are declared insolvent, it is primarily because they have run into huge debts which they are not able to repay. So whether you take a macro or a micro view, the debt trap is a trap from which it is very difficult to get out. Post the sub prime crisis, the whole world is looking at India and China to boost growth and pull the global economy out of recession. These two economies are the first to come out of the financial crisis relatively unscathed and have already started on the high growth path. What makes these two economies emerge unscathed from the financial crisis and hence a darling of foreign investors, is the fact that apart from favorable demographics and strong domestic consumption they had relatively low leverage levels and healthy savings and investment rates. Now where did a 36% savings rate come from? Isn’t it a result of financial and fiscal prudence exercised by our predecessors? In India, we have a culture of spending within our means. Why shun this culture now to get into trouble (read Death Trap) later.

APRIL 2010 | 13


What are the Common Sins committed by Equity Investors


Dr. Vinod Kumar

From the time the stock markets have come into existence investors as a community have been making mistakes which are deeply ingrained in the basic way of investors’ thinking. They have been committing these basic mistakes and shall continue to make these forever. However, it is always advisable to understand these follies of investors

14| APRIL 2010

t’s unfortunate that time and again investors over the years all over the globe including India have been committing the same kinds of mistakes while investing in the equity markets. From the time the stock markets have come into existence investors as a community have been making these mistakes which are deeply ingrained in the basic way of investors’ thinking. They have been committing these basic mistakes and shall continue to make these forever. However, it is always advisable to understand these follies of investors so as to avoid them whenever you get the urge to commit them. The harsh reality is that the stock market does not forgive these mistakes and some mistakes can be almost fatal. You can avoid all these pitfalls by simply adhering to certain golden rules. Following are the most common sins (mistakes) investors commit.

be doing otherwise. More often than not, it has been found that a company which starts performing exceedingly well and whose stock price also starts doing well, is the one investors are most willing to sell. This is because the stock has started giving profits and investors expect to buy it again when the price goes down. Similarly, when a stock starts nose-diving and the investor starts losing money on it, he keeps these stocks in anticipation that the price will go up one day and he will be able to sell it at a profit. One needs to know that if the business of the company is beyond recovery one must quit that stock and get into a better performing stock. Sin no 2 - Booking profits on formula basis

Sin no 1 - Holding onto loss making stocks

It has been seen that an investor always has a tendency to hold onto loss making stocks in the hope of a miraculous recovery and sell off all profit making stocks. Logically, the investor should INVESTORS INDIA

It has been observed that generally an investor books profits based on some formula, say quitting the stock when it

has given a profit of say 30 to 40% or even when the money has doubled. In this process, investors happen to sell many stocks which turn out to be multibaggers or super performers in the future. This results into missing a great opportunity of earning extraordinary gains which may be available from the stock. The stock should be sold only if the reason to buy the stock has ceased to exist i.e. you bought it to give you returns and it stops giving returns and there does not exist any probability of generating returns in the future too. Sin no 3 - Buying more and more shares to do averaging on its downward slide

An investor usually buys more and more of the stock as its price falls in order to average out his cost price, a move which ultimately increases losses only in most of the cases. One should be doing just the opposite, i.e. an investor should sell the stock which is not moving up after its purchase. However, the investor is generally so possessive of what he has bought that he is not able to sell it until it is giving profits.

Most of the investors invest in stock markets with loans to finance their investment. Indian investors had taken huge loans from financial institutions ably aided by broking houses for the much hyped and overtly priced IPO (Initial Public Offer) of Reliance Power. And they lost huge money on that issue. The golden principle of investing in the equity markets is to invest with surplus funds and never leverage to get into these markets. The pressure to generate returns for the lender too, creates a breeding ground for making mistakes in the markets.

for investing. Warren Buffet maintains that to be successful “you only have to do a very few things right in life so long as you don’t do too many things wrong�. But there is a catch here. You are bound to take many wrong decisions in stock markets over the long haul. Warren Buffet was well equipped to avoid too many wrong decisions, besides being properly groomed in trading right from early childhood. Therefore there is no reason to wait for a better price. If you have taken a wrong decision you must accept it and cut the losses by selling it if the stock does not perform

Sin no 5 - Getting attached to a stock

Sin no.7 - Selling a stock because it has kept quiet

Many investors get themselves emotionally attached to a particular scrip which results in either loss or reduction in profits over a period of time. Stocks are for returns and if they stop generating returns one should shed all emotions and get rid of them

We usually sell a stock which is keeping quiet as we get frustrated and we feel that it will not go up any further. Sin no. 8 - Holding on a bit more so that I pay less tax

Sin no 6 - Waiting for a better price

Sin no 4 - Borrowing to buy in stock markets.

Investors in general wait for a better price or opportune time to buy a stock but in reality every time is the right time


A number of times one holds a scrip a bit longer just to save taxes (long term capital gains) but while saving tax we forget that the result of this might be reduced profits or even losses. Since long term capital gains tax is lower than short term capital gains many investors

APRIL 2010 | 15

hold on even if there is an opportunity of quitting the stock at reasonable profits. Sin no .9 - Chasing great Fund Managers Investors in mutual funds get enamoured by the erstwhile performance of celebrity fund managers of mutual funds or some other stock market celebrities. Don’t be overconfident about your managers’ performance. There are very few managers in the market who can time the market consistently over a long term. Everyday is not a Sunday. If a fund manager has done well so far, it does not mean that the performance can be repeated every time. It is on record that the seasoned traders/ investors always talk of their profits and not the losses sustained by them. This gives newcomers the feeling that there is only money to be made in this market and hardly any chance of losses. But the damning truth is that if you do not enter the arena having donned adequate protective gear then the chances of losses are far too many. Sin no 10 – It’s such a low price; what

can I lose? No price can be said to be very low; a stock can always fall further. Quite often the price of a stock goes down dramatically to a very low level. Many investors say that they have become long term investors in those stocks — this leads to the “investors by default” syndrome. No price is too low to quit. Sin no 11 - Believing the business channels Business news channels are good for education purpose but they need to be switched off when deciding where and how much to invest. If they really had some great tips the anchors or the expert would have earned crores of rupees for himself. He would simply go quiet and make that much money. The fact that they are making a living through a news channel suggests you should make your own decisions by burning the midnight oil and doing the home work before you invest your hard earned money in the markets. Sin no 12 - Acting based on price movement.

Investors usually buy a stock by just looking at its price movement but there are many other matters which should be taken care of while making investments. At times, the sudden jump in volumes creates an impression that a stock has suddenly attracted the attention of some big investors or FII’s and therefore one can buy the stock to make some supernormal profits. This may not be the reality because the volumes can be easily created by some malicious synchronized trading in useless stocks so that some big operator or broker can get rid of them. There are examples of stocks like DSQ software, Silverline , Pentafour , HFCL during the dot com boom where heavy volumes attracted investors to lose. A recent example is that of Thinksoft last month where the synchronized trades by some brokers created huge volumes supported by price rise which attracted many gullible investors who lost heavily when SEBI inquiry brought the stock down dramatically. Sin no 13 - Trying to Time the Market Outsmarting the market is highly exciting, but is more risky as well. Most of the investors are usually focused on the short term gains and attempt to time the market even on a daily basis making them believe in day trading. It has been found that those who do day trading and attempt to time the market everyday by adopting a strategy of say - buying in the morning and selling in the evening, or vice versa, are largely

16| APRIL 2010


the losers in the markets. Sin no 14 - Putting all the eggs in one basket Quite often investors get so gravitated to a particular stock that they put almost all their money in one single stock. But just imagine if you were to commit 100% of your capital in a single trade and it fails. You will be wiped out of the market for good. Never commit more than 10% of your capital in any single trade. In case it fails then you will not have sleepless nights over it. And you will

be in a fighting fit condition to recoup that loss in other trades. Therefore, one must make sincere attempts to diversify his/her investment among a number of stocks from various sectors. Sin no 15 - Not admitting a mistake Ego, for one, should have no place while making investments. For instance, if you have made a lousy investment, recognize and rectify it. Sell it completely, if it is indeed a dud investment. But quitting the market entirely is not a great solution. Every market has good,

average, bad and trader-driven stocks. And like everything else, good stocks survive the market mania. The list is not exhaustive. However if an investor really wants to play safe in these markets and takes care of his mistakes, in all probability he might not run into losses. Dr Vinod kumar is an Associate professor at Sri Guru Nanak Dev Khalsa College, Delhi University.

Few common mistakes to learn to avoid and the reasons you might behave in this way: You become wedded to either a bull or bear market

There’s psychological comfort moving with the market

You break discipline and sell then get angry when the market continues on its original track

You alter your position in the market in the light of new ‘expert’ information

You buy more stock as it falls along with the market - averaging down

You believe this is how to get rich and forget an investment is only worth what people are willing to pay for it

The market moves against your expectations and you shy away from future trades

You forget that winning in the market is about getting it right most of the time

You’re constantly trading on reported market swings. Losses and commission charges swallow the few small gains you make

Your strategy lacks discipline and consistency. You need to develop greater analytical objectivity.

You won’t accept the market has moved into a bull phase and keep selling stock you don’t own - selling short (or buying risky put options, which give you the right to sell stock at a predetermined price within a specified period)

You’re taking your revenge on the market for previous losses and believe, for no sound reason, you’ll profit when the market falls



APRIL 2010 | 17




o you often wonder why your stock underperforms all the time? This is despite you doing all the basics of the stock market right – from choosing a fundamentally strong company to persisting with your holding over a decent period of time. If that’s the case, then you are actually overlooking a key aspect that makes the stock move swiftly on the bourses – equity capital. Better known as paid-up capital, this is the total amount worth which shares of a company get traded on a stock exchange. Since stock prices like any other commodity are a function of demand and supply, the ones with small equity tend to react fast to any major buying and selling witnessed. For instance, Aban Offshore has equity of Rs. 7.56 crore. If there is net buying of Aban’s shares worth Rs. 15 crore in a day, the stock prices will move up sharply owing to the huge demand, which can be the opposite case too, in case of a sell-out. But a stock like NTPC, which has equity of over Rs. 8,200 crore, is hard to budge on a normal day. It requires huge trading volumes to be in motion on the either side. That’s why the stock has only gained a mere 41% in the last three years. Here, one should not confuse equity capital with market capitalisation. Both Aban Offshore and NTPC are large cap scrips, with market capitalisation well above Rs. 2,000 crore. SMALL IS BEAUTIFUL Over the last one-year, the stocks with small equity – the ones with less than Rs. 100 crore capital – have outsmarted their peers in the BSE200 index comfortably

18| APRIL 2010

in terms of generating returns for their shareholders. While these low floating stocks have risen on an average by 175%, their peers have grown by 30% less. Stocks with more than Rs. 1,000 crore of equity, in fact, have failed to even match the performance of the 30share benchmark index, BSE Sensex. Companies such as NTPC, NHPC,

Power Grid Corporation, Idea Cellular, Bharti Airtel and Tata Teleservices have offered less than 20% returns to their investors during the last one-year. The average return offered by these stocks is only 75%. This is when the BSE Sensex has almost doubled during the said period.

Particulars Average returns* (%) Stocks with less than Rs 25 cr paid up capital 185 Stocks with less than Rs 100 cr paid up capital 175 Stocks with more than Rs 100 cr paid up capital 145 Stocks with more than Rs 1,000 cr paid up capital 75 BSE Sensex 95 * As on March 20, 2010 LOW FLOATING STOCKS Paid up capital Company Name In Rs. Crore) Patel Engineering Ltd. 5.96 Aban Offshore Ltd. 7.56 Lakshmi Machine Works Ltd. 12.37 Jubilant Organosys Ltd. 14.75 Jindal Steel & Power Ltd. 15.47 Bajaj Hindusthan Ltd. 17.69 Jai Corp Ltd. 17.85 Thermax Ltd. 23.83 Adani Enterprises Ltd. 24.66 Hindustan Construction Co. Ltd. 25.63 Patni Computer Systems Ltd. 25.83 I V R C L Infrastructures & Projects Ltd. 26.70 Sintex Industries Ltd. 27.10 Voltas Ltd. 33.07 Bombay Dyeing & Mfg. Co. Ltd. 38.61 * As on March 20, 2010 INVESTORS INDIA

365 days Returns over a Period* (%) 269.3 280.1 307.4 297.9 261.5 239.9 255.5 284.4 293.9 296.9 338.9 200.2 200.6 357.6 328.1

HIGH FLOATING STOCKS Paid up capital Company Name In Rs. Crore) N H P C Ltd. N T P C Ltd. Power Grid Corpn. Of India Ltd. Idea Cellular Ltd. Reliance Power Ltd. Oil & Natural Gas Corpn. Ltd. Bharti Airtel Ltd. Tata Teleservices (Maharashtra) Ltd. Cairn India Ltd. Reliance Communications Ltd. Mahanagar Telephone Nigam Ltd. Bank Of India Bharat Heavy Electricals Ltd. I T C Ltd. G M R Infrastructure Ltd. * As on March 20, 2010 HIGH MOMENTUM For the uninitiated, low floating stocks are high-octane trades. While they can make you rich in quick time, you shouldn’t forget the caveat — what goes up fast, comes down fast too. These stocks usually have low analyst coverage and small or negligible institutional holding. They are most of the times

11182.49 8245.46 4208.84 3100.10 2396.80 2138.87 1898.24 1897.19 1896.67 1032.01 630.00 525.91 489.52 377.44 364.13

365 days Returns over a Period* (%) -13.9 16.2 14.0 50.6 41.7 48.6 9.4 9.1 61.5 7.4 17.1 63.2 69.4 56.0 35.7

overpriced or vice-versa, largely due to the company fundamentals getting disconnected with the market price. Since the equity is small, manipulators and speculators tend to call the shots in these stocks. Therefore, it’s always better to take exposure in these scrips when there are huge volume spurts. You must have your return estimation


Low floating stocks go out of the business from timeto-time. High float stocks may not power play all the time on Dalal Street but they do play according to the situation.

done at the time of making entry into these high momentum stocks; otherwise they will dare you to try extremes. Large price movement in any direction should be your alert for reviewing your holding in these stocks. Since there is less market research available on these scrips, you should do your own duediligence and must check the promoters’ background. VALUE FOR MONEY You must be thinking by now why market pundits, analysts and economists all the time then give high ratings to high floating stocks. The explanation is simple — the likes of Yusuf Pathan can provide the fireworks on their day but you still need players of the calibre of Rahul Dravid and Sachin Tendulkar in your team to guide the innings in the middle in times of crises. Low floating stocks go out of the business from time-to-time. High float stocks may not power play all the time on Dalal Street but they do play according to the situation. In their prime, they hold the finesse to even outperform them. That’s why a winning team has always players with different set of skills just like in the stock market where a smart investor has a diversified portfolio that not only counters risk but also grows money handsomely. Happy investing!

APRIL 2010 | 19


Who cares for the ageing population?


Ritwik Sinha

Insurance giants operating in Asia are also looking at the ageing population segment as a major contributor. The income levels of most Asian countries are rising. Asians are also ageing and living longer. These two trends indicate the need for more insurance for health and retirement.

his move is fraught with imports which go beyond the obvious, especially when we try to draw a parallel with trends in the Indian market. Britain’s largest insurer Prudential Plc has agreed to take over the Asian life insurance business of American International Group Inc. (AIA) for a reported sum of $35.5 billion. This is indeed one of the most expensive deals struck in the financial services domain globally and in the bargain Prudential is going to bring in a staggering 20 million customers in its fold in one stroke. The developments, no doubt, have been a much discussed issue in the recent times. Ever since the news broke and as the deal appeared out to be inching close to consummation between the two parties, analysts have been debating the micro and macro signals emanating out of this costly takeover. In a minor way, the deal is being referred as a concrete signal of buoyancy returning back to the global economy. The larger conclusion, however, veers around the theory that with global economic balance tilting towards Asia, financial giants have no other option but to look for ways and means to consolidate their position on the Asian turf. Some analysts have also pointed out the changing perception of Asian consumers related with insurance products, thanks to the rising awareness. Till not long ago, insurance was a taboo subject in many Asian societies because in some way or the other it implied death or bad health. But these inhibitions are fast ebbing as the new educated middleclass comes into prominence in many Asian markets. These analytical assumptions, however, more or less lie in the domain of

20| APRIL 2010


Till not long ago, insurance was a taboo subject in many Asian societies because in some way or the other it implied death or bad health. But these inhibitions are fast ebbing as the new educated middle-class comes into prominence in many Asian markets.

conventional wisdom. That 21st century would be Asian and major demand in all spheres including financial services would be coming from the consumers in the continent (with China and India being the fulcrums of this churning) has already found expressions in a myriad of ways in recent times. In terms of insurance companies’ preparedness to serve Asian consumers, this deal underlines a significant point which some analysts have pointed out. And the assumption is - Insurance giants operating in Asia are also looking at the ageing population segment as a major contributor. “The income levels of most Asian countries are rising. Asians are also ageing and living longer. These two trends indicate the need for more insurance for health and retirement,” Francis Koh, a finance professor at the Singapore Management University was quoted by a news agency. Countries like China and Japan are slated to witness a rising proportion of ageing population which insurance companies would like to tap in the coming years. This thrust is critical especially when we look at the trends in the Indian market. On the surface level, the practices and offerings of insurance firms vis-à-vis the ageing population or senior citizens

is sound. There could be umpteen number of solutions for the consumers who are past their prime and inching closer to their sunset spells. But you scratch the surface and you would know how insurance companies neglect this particular segment of consumers. Talk to anybody in the insurance sector (off the record, of course) and he would tell you that the consumers who have crossed their golden jubilee mark become the least preferred segment for the financial services providers. If you have reached to the right side of 50, getting a new health insurance policy could be one of the most cumbersome experiences of your life. And if you are fortunate enough to get one, the premium charged could be exorbitant. The rationale of insurance firms is simple. The expense ratio on health insurance policies given to the population above 50 is too high (quite naturally the claims would be higher at this age point) and it makes the entire business unviable. So with India having the advantage of being dominated by the youth brigade in the demographic sense, insurance companies are more

comfortable churning out new offers and policies for consumers in this segment. It is not that the issue has gone unnoticed. The regulator IRDA has been making efforts to do away with this disparity. For instance, last year it issued a directive making it mandatory for insurance companies to provide explanation if it denies any kind of cover to senior citizens. The authority has also been contemplating a special kind of fund assistance for insurance companies to bring down their expense ratio while serving the ageing population. But the proposal has been hanging fire for past three-four years and it is yet to see the light of the day. The long and short of this argument is that the entire insurance coverage mechanism for ageing population is far from being seamless. In fact, it is just the opposite – cumbersome or to use a stronger term, it is insensitive especially when the country and the system do not offer a flawless social security net. But is there any hope that the scenario would change? And that if Prudential is bidding big to acquire AIA in


Asia by also factoring in the kind of opportunities the ageing population would offer, will the Indian insurance firms also draw a leaf sooner rather than later? The answer probably is not that depressing as pointed out by an official of an insurance firm on the condition of anonymity. The next census exercise is slated to induce that critical differentiator in the attitude of insurance companies towards ageing consumers if it underlines a significant jump in the average age of Indians. Chances are indeed high on this front with growing prosperity of consumers and improved health facilities in the country. Probably a pointer in this direction would make the ageing population consumer class an inclusive component in their planning and offerings – something which is grossly missing right now. If you have reached to the right side of 50, getting a new health insurance policy could be one of the most cumbersome experiences of your life.

APRIL 2010 | 21


The Best and the Worst of Mutual Funds in 2009-10 Dhritiman Chakraborty


he numbers are in and time is ripe for serious introspections pertaining to the performance of mutual funds where we have invested our hard earned money. Some funds have performed exceedingly well while some have exhibited mixed performance. The bottom of the lot, the laggards have lost a big chunk of their AUM. An interesting revelation from the study is that funds that have under-performed in 2008 emerged as strong contenders for the top slots in 2009. Attractive valuations as well as the rise in risk appetite among foreign institutional investors for emerging market equities led to a rise in stock markets from March, 2009 onwards resulting in a rebound in performance of equity oriented mutual funds. Funds that bet on small and mid cap stocks outperformed funds that exclusively invest in large cap stocks. This phenomenon is normally observed in the initial stages of a stock market rally which is fuelled by easy liquidity and low interest rates. The volatility in inflationary pressures is clearly visible since 2008. WPI inflation moved from a high of 12.82% in Aug, 08 (led by a record surge in commodity prices including oil) to a low of -1.01% in June 2009. It has bounced back since then to a high of 9.89% in Feb, 2010. The inflationary pressures have been generated by an exponential rise in the prices of primary articles and fuel products. The monetary interventions by RBI in the form of a 75bps CRR hike in January 2010 and a 25 bps hike in repo and reverse repo rates in March 2010 are steps in the direction of monetary

22| APRIL 2010

tightening. Apart from inflationary pressures, the mammoth supply coming from huge government borrowings in order to finance the fiscal deficit proved detrimental to the returns of debt funds, primarily long term debt funds as 10 year GSec yields rose from a low of 5% in January 2009 to a high of 8% in March 2010. A depreciating dollar and the search for a safe investment avenue led to a rise in demand for gold. The purchase of gold by the central banks of India, China and Srilanka reflects the burgeoning demand for gold as an alternative investment avenue. Apart from the international factors, depreciation of rupee against the dollar in the Q4FY08-09 also triggered a spurt in domestic gold prices. Gold funds as well as Gold ETFs benefited from this shift in preference towards gold. AUM Growth As far as the average Mutual Fund AUM (all funds) is concerned, it declined to the tune of -1.53% in the month of March, 09, but rebounded in Apr, 09 with a growth of 11.74%. From Mar, 09 till Feb, 10, negative growth in AUM was witnessed in the months of March, September and December of the year 2009 and in January, 2010. The average AUM grew by 2.65% MOM in Feb, 10 and stood at Rs 7, 82, 889 crores. From Mar, 09 till Feb, 10, the AUM grew at a CAGR of 3.91%. Considering the bigger fund houses (AUM greater than Rs 20,000 crore as on Feb, 10), the top fund house in terms of



APRIL 2010 | 23

compounded annualized growth (CAGR) in AUM for the period Mar, 09 till Feb, 10 is LIC AMC, followed by IDFC AMC and Franklin Templeton AMC. Equity funds focused on the Pharmaceutical sector witnessed the maximum rise in AUM to the tune of 108.57% in the period from Mar, 09 to Feb, 10. On the contrary, funds that were focused on FMCG and IT witnessed the maximum drop in AUMs to the tune of -87.59% and -40.67% respectively in the same period. As far as debt funds are concerned, the highest growth in AUM is observed in Floating rate funds (139.18%) and Short term funds (129.51%). Long term funds witnessed a fall in AUM to the tune of -74.54%. The AUM in monthly income plans (MIPs) however, increased substantially by 233.32%. (Source: Crisil Database) Investor preference remained high for Ultra Short term bond funds as evidenced by a 190.74% growth in their AUM. Liquid funds were preferred less as there were restrictions pertaining to the average maturity of the portfolio. As per SEBI regulations, liquid funds can now invest in instruments that carry a maximum average maturity of 91 days only. This has greatly impinged their returns. As a result, their AUM plummeted by -34.61%. However, SEBI regulations pertaining to the valuations of debt papers with maturity even less than 182 days on a mark to market basis (with effect from July 01, 2010) may increase the volatility in returns from Ultra Short term bond funds as their maturity is high as compared to Equity Funds Fund Category Weighted Mean Top Fund rolling return Pure Large Cap 74.49 HDFC Equity Fund Pure Mid Cap 93.86 Principal Emerging Blue Chip Fund Diversified/Flexicap 81.21 Reliance Equity Opportunities Fund Value Style Funds 74.15 ICICI Prudential Discovery Fund Global Funds 55.81 Templeton India Equity Income Fund Thematic Funds 61.96 JM Basic Fund Infrastructure Funds 59.23 Birla Sun Life Infrastructure Fund ELSS 74.9 ICICI Prudential Tax Plan


90.43 110.60 93.14 105.54 87.45 109.88 83.55 93.49

liquid funds. This may reverse investors’ preference towards the less volatile liquid funds. Gilt funds witnessed severe redemption pressure owing to poor performance amidst a rising interest rate scenario. With rising inflationary and borrowing pressures, the long Debt Funds Fund Category Weighted Mean Top Fund rolling return Liquid Funds 4.52 Fortis Overnight Fund Ultra Short term Funds 4.91 Fortis Money Plus Short term debt funds 6.31 Templeton India Short term Income Fund Long term debt funds 4.63 ICICI Prudential Income Plan Short term gilt funds 1.5 HSBC Gilt Fund Long term gilt funds -0.71 Birla Sun Life Govt Securities L T P Dynamic/Flexi 4.56 ICICI Prudential Debt funds Income Opportunities Fund


5.32 5.39 10.18 6.97 3.49 14.35 10.99

Rolling period: 1 month, Frequency: Daily Weight: Assets under management

24| APRIL 2010

term yields are moving in an upward trajectory. This has adversely impacted the returns of gilt funds due to mark to market losses. Consequently, investors are wary of investing in gilt funds thereby leading to a dramatic fall in their AUM. Investors have changed their preference in favour of equity funds while Gilt and Money market funds have lost favour during the period from Jan, 09 till Dec, 09. Rise in equity markets since March, 09 have again led to a rebalancing of portfolio in favour of equity funds. How the funds performed? Mid cap funds performed better than the pure large cap funds in the study period. Small cap stocks rise faster than large cap stocks in the event of a market upturn from a prolonged bearish phase. Funds that have a combination of large cap stocks and mid cap stocks in their portfolio, called blended or flexicap funds performed better than the large caps but missed the rally in mid caps to a great extent. Growth stocks performed better than value stocks as evidenced by a lower return in value style funds in the same period. Surplus liquidity in the economy affected the returns of money market funds and they were able to generate a weighted average rolling return of 4.5-5% in the study period. Of late, they have been giving returns in the range of 3.5% to 4% per annum. Higher inflationary pressures coupled with high borrowing pressures leading to rising yields adversely impacted the returns of long term debt funds. However, debt funds with a lower average maturity, being less susceptible to interest rate fluctuations were less affected by the rising interest rate scenario. As a result, they performed better than long term debt funds. Gilt funds underperformed owing to rising long term yields caused by rising inflationary pressures, huge government borrowing and a revival in the economy. Flexi debt or dynamic bond funds with exposure to instruments of varying maturity and with active management of portfolio duration weathered the unfavorable debt market situation in a more efficient manner. Hybrid Funds Fund Category Weighted Mean Top Fund rolling return 68.57 HDFC Prudence Fund Balanced (Equity oriented) 22.96 Tata Young Citizens Fund Balanced (Debt oriented) MIP (Conservative) Equity <15% 21.68 Reliance MIP MIP (Aggressive) Equity >15% 29.10 HDFC MIP- LTP


76.95 40.51 24.09 29.35

Weight: Assets under management Equity oriented balanced funds generated a weighted average rolling return of 68.57% in the study period. MIPs were the flavour of the season as asset allocation or investment strategy products and they didnâ&#x20AC;&#x2122;t upset the investors having generated a return of 25%-30% during the last one year.



APRIL 2010 | 25


Real Estate Ownership and Co-applicant in a Loan R Subhash Lakhotia

Subhash Lakhotia It is high time now that whenever we make any investment in any real estate we should always plan out in advance our action plan with respect to the incometax and wealthtax strategy. If the bank insists on coapplicants then it is better to stand as a â&#x20AC;&#x153;guarantorâ&#x20AC;? instead of becoming a coapplicant in the loan application. Please do remember the golden rule that take loan in the name of that

26| APRIL 2010

ohit Agarwal is a businessman having his retail shop in Karol Bagh, New Delhi. His wife is the owner of a residential plot in Gurgaon. The couple desires to build a two storied house on this plot. Reena does not have sufficient money to build the house. She is running a small boutique in Delhi itself. The couple approached a home financing company who was ready to lend money and now the loan was availed from the Home Financing Company in the name of Reena Agarwal. While granting the loan the Home Financing Company said that Reena could avail a higher loan in case her husband Rohit Agarwal could be made as a Co-applicant in the loan application. Reena agreed to this suggestion and so Rohit was made a co-applicant in the loan application. Loan was sanctioned immediately and roughly eight months of hard work has now made their dream home a reality come true. Last month they shifted to their new house. Now is the time for filing their income-tax returns. Rohit and Reena are both meticulous in financial matters. Both were making repayment of the loan to the home financing company. While filling up of his own income-tax return, Rohit Agarwal wanted to deduct all the interest payment paid by him as coapplicant in the house property while computing his taxable income. It may be noted here that under the provisions of the Income-tax Act, 1961 any individual who takes loan for residential house property after 1st April, 1999 is entitled to deduct interest on loan for self occupied house property to the maximum extent of Rs. 1,50,000 per INVESTORS INDIA

individual tax payer. This provision was very well known to Rohit and Reena so both of them decided to claim the deduction in respect of interest on loan as well as a tax deduction in respect of repayment of the loan under section 80C of the Income-tax Act, 1961. For most young couples, like Rohit and Reena the story of home building would start with taking a joint loan and making payment of interest and principal jointly and also taking advantage jointly in individual income-tax returns about the tax benefit arising and accruing as a result of the housing loan. But it is very shocking and unfortunate to know that in the above real life story of Rohit and Reena, the poor husband Rohit will not be able to enjoy any tax benefit in respect of interest on loan paid by him to the Home Financing Company. Similarly, Rohit would also not enjoy the tax deduction available on repayment of housing loan as per section 80C. Surprised! You may not be knowing as to why these deductions which are very well known to all tax payers will not be allowed to Rohit. The answer is very simple.

The land on which the house has been constructed is owned exclusively by Reena Agarwal. Her husband, Rohit Agarwal is not the owner of the plot. As he is not the owner of the plot he does not have a legal right in the immovable property for which he has taken the loan. In the absence of a legal title, the benefit in respect of interest deduction as well as the tax benefit by way of a tax deduction on repayment of housing loan cannot be extended to Rohit under

any circumstances. However, one may not like to hear this reality. But the fact remains that within the provisions of the income-tax law no tax deduction could be available to Rohit Agarwal especially because the land on which the house has been constructed is not owned by him. The matter does not end here. Reena in any case would also not enjoy full tax deduction in respect of interest on loan which has been paid by her husband. She would only enjoy half of the interest which she has paid. From the real life case study of Rohit and Reena, we come to the conclusion that it is never good to make ownership in a plot in the name of one family member and to make more than one family member as a co-applicant or borrower in the loan from the financial institution or from a friend. The best result could have been achieved if the land would have been purchased by both the family members. It may be noted here that it is legally possible to buy a single piece

of land in the name of more than one family member and thereafter both of them can take loan, repay the loan, pay the interest and both of them can enjoy tax benefits individually. In view of the problem that is being faced by Rohit, it is not possible to repair it. What is recommended is that whenever you are taking a loan and in spite of the repeated insistence of the Finance Company to make you as a co-borrower or to make your wife as a co-borrower in case you are the owner of the land, please remember to politely say no to the request of the Finance Company. Do remember that one single wrong action of this type namely to become a co-borrower without being the co-owner in the land may result into a tax loss of lakhs of rupees in the years to come in the hands of the tax payer. The only way to rectify the mistake now for Rohit is to buy out half the portion of the land belonging to Reena. Now if Rohit were to execute a conveyance


deed buying out half the portion of the land belonging to Reena only then he becomes a legal owner of the plot of land and then obviously once he becomes the co-owner of the plot he would start enjoying tax benefits on the interest payments made by him as coborrower as well as the repayment of the loan would also enjoy tax deduction. It is high time now that whenever we make any investment in any real estate we should always plan out in advance our action plan with respect to the income-tax and wealth-tax strategy. If the bank insists on co-applicants then it is better to stand as a â&#x20AC;&#x153;guarantorâ&#x20AC;? instead of becoming a co-applicant in the loan application. Please do remember the golden rule that take loan in the name of that person who is legally the owner of the property. If the person does not have legal right to the property then it is no use taking the loan in the name of such a person because he would not enjoy any tax benefit at all.

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Vinay Taluja

Q. I have a LIC policy (Endowment). The sum insured is Rs. 100000. The Term of the policy is 37 years i.e the maturity will be at my age of 67 years. For past 10 years I am paying a premium of Rs. 2776 p.a. Kindly advise as follows -

1) Can I reduce the term by 15 years? If yes, then what will be approx. premium I will have to pay, or, 2) Can I surrender the policy and take a new policy. Right now my age is 40 years. Please advise which policy I should opt for -L.M. D’Costa, Mumbai Ans: (a) You may reduce the term of your policy by informing LIC about the same. It will be at discretion of the company to accept it. The premium will reduce proportionately. The new premium will be applicable from the next policy anniversary. (b) You can surrender but surrendering a traditional policy will put you at a loss.

Therefore we suggest you to continue the policy and in case you want to invest further, you can take a separate ULIP Q. I need your advise on four LIC policies that I hold. I bought these policies almost 10 yrs back. My age is 48 yrs. I was just going through my investment portfolio & saw these policies. I don’t know what to do with these policies.

The details are as follows: 1. Jeevan Anand (with profits & with accident benefits) - Sum assured is Rs. 4 lacs. Annual premium of Rs. 49,109 from 9/8/05 to 9/8/15 2. Jeevan Suraksha policy with terminal bonus & without life cover - Sum assured is monthly annuity

28| APRIL 2010

of Rs. 1949 starting from 21/1/14. Annual premium of Rs. 10001 from 21/12/01 to 21/12/12 3.Jeevan Shree policy - Sum assured is Rs. 5 lacs. Annual premium is Rs. 39555 from 11/1/02 to 11/7/13 4.New Jeevan Shree with guaranteed addition and loyalty addition Sum assured is Rs. 5 lacs. Annual premium of Rs. 45758 from 18/2/03 to 18/2/14 I am clueless if I should continue with these. What are the benefits that I will get? Is it worth paying such high premiums on such small assured sums? Will I be penalised if I withdraw? I did this long back without thinking. Please help - Madhumati Lele, Mumbai Ans. (1) Jeevan Anand: You should continue the plan as it provides financial protection against death throughout the lifetime with the provision of payment of a lump sum at the end of the selected term in case of survival. (2) Jeevan Suraksha: It is an annuity plan that provides guaranteed annuity as desired at maturity. Though the amount of annuity is small, you should continue the policy. 3 & 4) Jeevan Shree policy: The policy provides for Guaranteed Additions at the rate of Rs. 50/- per thousand Sum Assured for each completed year for first five years of the policy.

Therefore you should continue all the above plans as surrendering traditional policies will put you at a loss. All these are investment plans and in case you require extra risk cover, you should go for a term plan. Q. I am a govt. employee earning Rs. 20000/- p.m. I am looking for some good child education insurance policies


for my daughter who is 4 years old. I can pay premium of Rs. 2000/- per month and I am interested in ULIPs. Should I go for two policies of Rs. 1000/- each or opt for only one? But I am very much confused regarding which policies or which insurer I should choose. Please advise me on some good ULIP Education Insurance Policies – S. K. Singh, Gorakhpur Ans. You should go for a single plan as the administrative cost and other policy related costs will be less. Else the cost will be deducted from both the plans. While buying a child plan following points should be taken care: 1. Investments should be for the longterm. 2. Try not to touch it in the short-term so that you can enjoy the power of compounding 3. The earlier you start, the bigger would be the corpus created. 4. Invest in the right mix of Debt and Equity. You can afford a higher equity allocation, since the tenure of children plans tends to be long. 5. Try to build an insurance component wherever possible. 6. All the insurance plans for children must have a premium waiver benefit.

Sample illustration assuming returns @10% p.a. Age: 30 years, Child age: 4 yrs, Policy term: 15 years 1. Aviva Young Scholar: Rs. 6,72,017 with a yield of 8.84% p.a. 2. Bright Stars Plus: Rs. 6,34,443 with yield of 8.14% p.a.


CASTROL INDIA - BUY WITH TARGET OF Rs. 758 Q. What is your view on Castrol India? Ans: The lubricant sector in India is mainly divided into 3 major markets sectors: Automotive, Industrial and Marine & Energy applications. The industry is led by four major players, (IOC, BPCL, HPCL and Castrol India Ltd) who control 70 % of the market, the rest 30% is shared by several players including global majors, leading to an extremely competitive market scenario.

Castrol India manufactures and markets a range of automotive and industrial lubricants. It markets its automotive lubricants under two brands - Castrol and BP. The company has leadership positions in most of the segments in which it operates including passenger car engine oils, premium 2-stroke and 4-stroke oils and multigrade diesel engine oils. Castrol India has the largest manufacturing and marketing network amongst all the lubricant companies in India. The company has 5 manufacturing Plants across the country, including a state-of-the-art plant in Silvassa. The company reaches its consumers through a distribution network of 270 distributors, servicing over 70,000 retail outlets. The automotive segment constitutes 85 % of total revenues while the remaining is contributed by non–automotive division under which the company sells industrial lubricants. The company is a market leader in the retail automotive lubricant segment. It is also the third largest company in Indian lube oils and lubricants industry. The company has leadership positions in most of the segments in which it operates including passenger car engine oils, premium 2stroke and 4-stroke oils and multi grade diesel engine oils.

Castrol India Ltd. (CIL) recently reported a strong set of operational numbers driven by 5.9% volume growth on a sequential basis. CIL revenue grew by 8.1% (QoQ) to Rs 6.12 bn, supported by improvement in realizations and volumes. Going forward, we feel that traction in freight movements, good auto sales numbers and improved product mix would keep CIL on a growth trajectory. CIL has been focusing on brand awareness with thrust on personal mobility segment. CIL had already taken a price hike of ~6% across the product portfolio in January 2010. This would reflect in realizations in coming quarters. CIL’s focus on brand building, product quality and new product innovation would enable it to retain market share. At CMP of Rs 684, the stock has already seen a run up and might take a correction to the levels of Rs. 656 - 661 but with a two months view we expect the stock might breach the levels of Rs. 758. Q. Is the stock of Hexaware Tech good to buy at the current price of Rs. 70? Ans: Hexaware Technologies Ltd. (Hexaware) is a leading global IT & BPO services provider with extensive experience in managing large IT applications as well as in providing high value services around packaged enterprise applications such as PeopleSoft, Oracle, SAP and Microsoft. Founded in 1990, Hexaware today maintains seven state-of-theart development centers, four in India and one each in Germany, the USA and Mexico, with global operations in North America, Europe and Asia Pacific. The Company has around 5,137


Rohit Mongia employees across 11 countries serving 157 clients globally comprising several Fortune 500 companies. Hexaware focuses on niche service offerings & emerging technologies and is a leading player in enterprise application services (like PeopleSoft, Oracle, SAP, Microsoft Dynamics and CRM). Hexaware has developed strong client base which includes more than 60 Fortune 500 / Global 500 companies’, with 47 clients bringing in more than USD1mn in Revenues per year. Its marquee client profile & strong domain expertise across the niche service offerings have helped Hexaware to not only sustain but also even grow its business during the tough global environment. Hexaware reported deal wins worth USD 80 mn executable over threefive years; the wins are commendable as they were won against some of the largest players. These are spread across verticals (BFSI, TTHL, life sciences & healthcare), though concentrated in the American geography. Highlight of the deal wins is that three deals are worth more than USD 15 mn and two more than USD 5 mn and three came from new clients. It is noteworthy that out of the five deals won, two are from two clients within top-10 clients for Hexaware – the clients are starting new initiatives with Hexaware, indicating improving client mining. Other two deals come from new clients, including one being a Fortune-100 client. The last deal is a five-year support and maintenance contract with an existing client, post the completion of the project, thus again indicating improving client stickiness for Hexaware.

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MELLITUS TYPE II DIABETICS CAN NOW BUY Narender Anand ‘STAR HEALTH’S DIABETIC SAFE’ Q. I would like to get Group health insurance policy for my company’s employees, what will define the premium of group health insurance policy? Ans: Most Group health insurance plans are underwritten based on certain aspects related to the group. This includes the demographic properties of the group along with the risk profile of the group. Once the Group is offered health insurance coverage, individuals who are members of the group automatically qualify for the insurance if they opt for the same. In addition, in a Group health insurance plan the group as a whole is considered in an overall sense based upon the statistical composition of the individual group members.

Typical underwriting criteria include: 1. Age - older people have a higher incidence of claims than younger people and require higher premiums for coverage 2. Number of people covered whether coverage is offered solely to

the individual or if coverage will also be extended to family members and dependents 3. Health history - primarily used in underwriting individual insurance plans, a history of disease or illness will impact whether a particular insurance company will offer insurance, and if so whether pre-existing conditions or other restrictions will be placed on such insurance 4. Occupation - some occupations involve more risk of injury or illness due to the nature of the work and thus require a higher premium 5. Lifestyle - whether a person smokes or engages in a hazardous hobby which exposes the individual to a greater degree of risk or disease, illness, or potential for accident. 6. Premium also depends upon coverages required like Maternity, pre- existing cover etc. and the Sum insured for each cover. 7. Claim Ratio in previous policy, if any.

Hence, it is usually observed that premium per individual for a larger group (with similar risk profile) is lower than a smaller group and premium per individual for a group exposed to higher risk is more than the group exposed to lower risk. Q. I am a diabetic, buts it’s in control. Can I buy Apollo DKV health insurance? Ans: Depending upon your age and status of your diabetes, the insurance company can either accept or reject your proposal (along with pre-insurance medical test reports) for insurance cover. Please note that the insurance company has a right to decline or put some conditions/exclusions to the policy.

In case you are diagnosed with Diabetes Mellitus Type II, you can opt for Star Health’s Diabetic safe exclusively designed for Diabetes Mellitus Type II patients.


START INVESTING EARLY TO REALISE YOUR LONG TERM GOALS Q. I am investing in Sundaram Paribas Tax Saver fund and Reliance Diversified Power Sector Fund for 1 year by way of a Rs. 1000/- per month SIP in growth options since the last one year. This year from September 2009, I have

30| APRIL 2010

started a SIP of Rs. 1000/- per month each in Reliance Infrastructure Fund & Reliance Regular Savings Fund & Sundaram Paribas SMILE Fund (all in growth options). Could you guide me, if my decision is good? I am also


Arti Sehgal (CFP)

planning to start an SIP in (SIP + insurance) scheme in Birla Sunlife Century SIP (BSL tax relief 96Growth). What should I do? My father’s age is 55 & mother’s age

Mr. is 47. Both are employed. I want to start an investment for them in mutual funds. As, my father’s age does not fit in for any type of insurance cover, so I want to invest an amount monthly as SIP for him, so that he can have a reasonable amount every month after his retirement. We have a horizon of more than 5-6yrs. for them. For my mother, I am planning to invest in Birla Sunlife Century SIP (BSL tax relief 96-growth), as it also provides insurance cover. We have been doing FD’s & recurring deposits on a regular monthly basis since more than 10yrs now. What would you suggest? My salary per annum is Rs. 2,50,000 & same for my father. Mother is earning Rs. 1,80,000/- per annum. I am planning to get married in a couple of years. We have our own house where we live in. - Abhijit Alhat, Pune Ans. Systematic investing is one of the best modes of wealth creation and well in reach of the common investor. By following the SIP mode, you can actually create a larger wealth corpus with small investment denominations.

As per your current investments, you are investing in 5 funds with 20% of the value getting invested in each of the funds spread across mid cap, infrastructure, sectoral, tax saving & flexi cap funds of Reliance & Sundaram Fund Houses. While the funds that you have invested in have fared well, we can consider some rebalancing & consolidation towards optimizing your portfolio return and lowering the risk contained in your MF Portfolio based on your risk tolerance & term left for financial goals. Some of the well performing funds that you can consider investing in on behalf of your father are HDFC Top 200 Fund, DSP BlackRock Top 100 Equity Fund, Reliance Growth Fund & ICICI

Prudential Dynamic Plan. If you have a tax saving perspective, then, you can also consider investing in HDFC Tax Saver Fund, ICICI Prudential Tax Plan, etc. As per the idea of Birla Century SIP for your mother, you can certainly go ahead with it. You can opt for Century Sip benefit with any of the equity schemes of Birla Mutual Fund. We see you are looking to invest in Birla tax saver so that you get tax benefit, wealth creation & risk cover all in one plan, which is recommended. Q. I have heard that starting an early investment is good. Can you please tell me as to how much truth this statement holds? I am 25 and want to start making investments. Isn’t it a good idea to build some corpus before actually start making an investment. Sushant, Jabalpur Ans. Starting early with your investments is certainly good and this statement is true to the core. The corpus that you are talking about can be built only as you save and invest and not just save. If you do not invest, the return on the money accumulated will not even beat inflation and this effectively would mean that you are dis-saving.

We suggest that you should consult a financial planner who can suggest you the right mix of asset classes and financial products that can enable you to build up the corpus as required by you. Q. I want to start planning for my retirement? What are the key points I should keep in mind while selecting my pension product. Are these products risky, do they provide capital protection? -Rajeev, Mumbai Ans. For your retirement planning, we suggest that you must keep the following important factors in mind:


Inflation: If you are spending Rs.25000 in today’s value, then by the time you retire, you may require the double of this value as you factor in inflation. Corpus required to fund retirement period: As you plan for your retirement, please understand that post retirement, your investment allocation should be skewed towards debt & fixed income avenues so that your monthly expenses are well met. Selection of suitable financial products: The financial products that you choose for your retirement planning must be well spread across different asset classes including debt, equity, real estate, gold, etc. If you specify us the number of years to your retirement, we can help you with model portfolios most suitable for your specific situation & risk profile. Life Expectancy: It is important that you plan for maximum number of years possible after retirement so that you accumulate a reasonable corpus by the time you retire as you may not be able to provide for any shortage post retirement. As far as pension plans are concerned, depending on whether you choose traditional pension plans or market linked plans, extent of capital protection can be commented upon. Towards planning for your retirement, please note that pension drawn from such plans is taxable as salary, so if there are 8-10 years left to your retirement, you can also opt for a life cover, proceeds of which will be tax free in your hands. On retirement, you can use these proceeds to purchase an annuity plan and get lifelong pension from the same. For a more comprehensive solution, you will need to meet your financial planner and get a suitable retirement plan made for yourself so that you can live off your post retirement years well.

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Q. My name is Saurabh Verma. I am 28 years old. With my pocket money I have invested in the following mutual funds through SIP of Rs. 1000 in growth options 1. Reliance Regular Savings Equity 2 Reliance Growth 3. Magnum Tax Gain 4. Magnum Contra 5. HDFC Top 200 6. DSP BR Top 100 Please have a look at my portfolio. Should I change any of the funds in my portfolio? Moreover, I am a long term investor. Tell some more good ELSS funds and some more good diversified equity funds - Saurabh Verma, Dehradun, Uttarakhand Ans: Dear Mr. Verma, an analysis of your portfolio revealed that you are investing 32% of your portfolio in large cap funds and an equal 17% in value style funds, mid cap funds, blended or flexible style funds and ELSS funds. As far as the funds are concerned, DSP BR Top 100 has underperformed the weighted category average in the last one year. The other large cap fund in your portfolio, HDFC Top 200 has been a top performer in the last 3 years and 2 years period. The sole midcap fund in your portfolio, Reliance Growth has generated a return of 125.40% in the last one year while the category average is 140.09%. Your value style fund, Magnum Contra generated a return of 100.87% in the last one year which is low as compared to the category average of 108.64%. Reliance Regular Savings Fund is a flexi cap fund and it has outweighed the category average across all time horizons in the last one year. The only ELSS in your portfolio

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SBI Magnum Tax Gain Scheme, 1993 underperformed the category average across all time horizons in the last one year. As far as the large cap funds are concerned, we would recommend a hold in HDFC Top 200, while exiting from DSP BR Top 100. ICICI Prudential Focused Equity Fund is a good fund to enter given its consistent out performance in the category. Although Reliance Growth is an underperformer in the category based on one year returns, considering the risk return trade-off, we would recommend a hold for the fund. Among the value style funds, we would recommend an exit from Magnum Contra fund and invest in ICICI Prudential Discovery Fund or Templeton India Growth Fund. For flexicap funds, we recommend that you stay invested in Reliance Regular Savings Equity Fund. ELSS funds have a lock-in period of 3 years. Since you havenâ&#x20AC;&#x2122;t mentioned about your date of investment, it will be difficult for me to advice you about the timing of exit. However, assuming that the lock in period is over, we would recommend an exit from SBI Magnum Tax Gain Scheme, 1993. We find ICICI Prudential Tax Plan, Fidelity Tax Advantage Fund or HDFC Tax Saver as better alternatives in the ELSS category for future investments. Q. I have invested Rs. 50,000 in Reliance Natural Resources fund (NFO). How is my choice and how much return is it likely to give after 15 yrs? Further I would like to again invest Rs. 25,000 in another mutual fund scheme for


10-15 yrs time horizon. Which scheme will be better for me? Kindly advice. I would also like to know whether ULIP (Single Premium Plan) will be better or lump sum investment in MF? - Sandeep Kajarekar, Baroda, Gujarat Ans. Reliance Natural Resources Fund is a thematic fund incepted in February, 2008. The objective of the fund is to generate capital appreciation & provide long-term growth opportunities by investing in companies principally engaged in the discovery, development, production, or distribution of natural resources. The fund has given a return of 76.58% in the last one year which is low as compared to the thematic category average of 95.12%. The fund has under performed the category across time horizons in the last one year. Thematic funds do not show consistent returns across time periods. When the theme does not play in the broader scheme of things, the fundâ&#x20AC;&#x2122;s objective is digressed. We recommend an exit from the fund. For your investment in another mutual fund scheme for a horizon of 10-15 years, we would recommend investing in HDFC Top 200 or Birla Sun Life Frontline Equity Fund. Both the funds have given stellar performance in the last one year generating a return of 115.02% and 106.89% respectively.

The choice between ULIP (Single Premium Plan) and Lumpsum investment in MF depends on your investment goal. If your goal is to embed insurance in investment, go for ULIP plan. Otherwise, if your goal is pure investment without any insurance element, go for mutual fund investment.


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Learning Curve

Technical Analysis made simple Atul Kanwar

‘Castles in the Air’ Technical Analysis was not taken seriously by the financial community in the not too distant past. In fact it was termed as the ‘Castles in the Air’ theory. But analysts were grappling with the fact that fundamental analysis could not answer a lot of things, just based on the study of the economic indicators of a country or the Income, balance sheet & cash flow statements of a company. There was a piece of the jigsaw puzzle missing. Technical analysis tries to fill this vacuum. Technical Analysis riddle Technical Analysis is the study of the past price and volume data of a security in order to predict its future price. It works the way a bow is used to shoot an arrow. The more one stretches the bow the further the arrow goes. The duration of the future prediction would determine how deep a technical analyst would have to dig into the past data. Two broad technical analysis beliefs are: • Everything is built into the price of the security. This not only includes the fundamental aspects, the economic & Industry environment and news flow but even the psychological factors like greed and fear of the investors. • In the financial markets history repeats itself again and again. Even the mistakes are repeated.’ What we learn from history is that we never learn from history’ hold true for these markets. Technical analysts take advantage of this to make the future predictions.

where it is used extensively include the stock markets, foreign exchange, commodities and bullion markets. Advantages and Limitations Technical analysis scores over fundamental analysis in future prediction as prices tend to reflect the fundamental information much before the actual event takes place. The technical analyst believes in ‘Buy on rumor, sell on news’. Technical indicators also tend to give advance information of trend reversals in the market. Technical analysis is very dynamic. The views of a technical analyst change with the change in the price and volume charts. But there are certain limitations too. Without adequate price and volume data of the past it is difficult to ascertain the future targets for a security. Technical analysis would not work if the volumes in a security are negligible or it is not traded regularly. Technical analysis is not a science. It only provides an analyst with tools that can substantially increase his power of prediction. What are Price Charts? The technical analyst takes the help of price charts to make predictions. The price and volume are depicted on charts. Based on the price information given, the charts can be classified as: Line chart

Candlestick chart

• Line chart: This depicts only the market closing price. • Bar chart: This chart shows the market opening, high, low and closing prices in the form of a ‘Bar’. • Candlestick chart: It has the maximum price information. Not only the market opening and closing price is shown but the day’s high and low prices are also presented in the form of Japanese candlesticks. If the candle is of white or green colour, it shows that its closing price is more than its opening price, but if the colour is black or red, the reverse case is true. Why Trend is important? Trend is the direction in which the prices are moving. There are three types of trends:

Technical analysis can be used in all those financial markets wherever price and volume data is available. The markets 34| APRIL 2010

Bar chart



• Up-trend: As the name suggests, in an up-trend the prices move northwards notwithstanding small moves in the opposite direction. The prices make higher highs and higher lows. • Down-trend: In a down-trend, the prices move southwards. They make lower lows and lower highs. • Sideways-trend: When the prices are moving horizontally, it can be termed as a sideways-trend. There is a famous axiom in the trading circles ‘The Trend is your Friend’. The traders should always trade in the direction of the trend and not against it. During an up-trend the traders should wait for the prices to correct before they buy. In a down-trend they should wait for the prices to rise before they sell their stocks.


Corrections and Trend Reversal A correction has to be understood in terms of a trend. In an uptrend when the prices fall before the uptrend resumes again, it is known as a correction. In a downtrend when the prices rise before the downtrend resumes again, it is also termed as a correction. Trend reversal takes place when the stock or the market starts going in the opposite direction that it was broadly following. If the market was making higher highs and higher lows, it starts making lower highs and lower lows and if the market was making lower lows

‘The Trend is your Friend’. The traders should always trade in the direction of the trend and not against it. During an up-trend the traders should wait for the prices to correct before they buy. In a down-trend they should wait for the prices to rise before they sell their stocks.

and lower highs, it starts making higher highs and higher lows. The traders after identifying the trend reversal should reverse their trading decisions. Volume is the number of units of a security that are traded. The price trend of a security has to be studied along with its volumes. • If the price of a security is rising along with rising volumes, it is a bullish signal. • If the price of a security is falling along with rising volumes, it is a bearish signal. • If the price of a security is rising along with falling volumes, it is a bearish signal. • If the price of a security is falling along with falling volumes, it is a bullish signal. (To be continued…) The significance of Volumes


Trend Reversal



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Nifty Outlook Havells India Ltd. Buy: CMP (22-Mar-10) – Rs. 564.8 Target Rs. 620.0, Stop Loss Rs. 525.0 Havells India started dipping in mid-January this year and took support at the 50-day exponential moving average. Since

Nifty appears to be on a strong wicket right now. It has been moving north wards with good volumes. There is a strong likelihood of it touching the 5400-5450 levels in the medium term. But in the short term the market is in an overbought zone and with the dollar index threatening to break the 81point mark, a correction seems likely. Pullback till 5140 -5160 should be used to create fresh long positions. Bullish view would get negated in the event of a close below 5000. 20, 50 & 100 day SMAs are in the band of 5020 to 5040. Fibonacci retracement levels also suggest a support at 5040 making this a strong support zone for the near-term. Gujarat Industrials Power Company Ltd. BUY: CMP (22-Mar-10) - Rs. 108.20 Target Rs. 120.0, Stop Loss Rs. 101.0

then the price line has cut the 20-day exponential moving average from below and is resting there. An uptick in the on balance volume chart is also visible. It is also making a bullish flag pattern. The MACD shows a positive divergence over its 9-day moving average, again a bullish signal for the stock. The Bollinger bands seem to resemble a long narrow pipe and a breakout is imminent. The technical indicators indicate an up move from current levels. JSL Limited Buy: CMP (22-Mar-10) – Rs. 105.80 Target Rs. Rs. – 120.0, Stop Loss Rs. 100.0 JSL has followed the same trend as GIPCL by dipping in the beginning of January 2010 and forming a base around its 20-

GIPCL after taking a dip at the beginning of the year stabilized just below the 100 mark. Since then it has started its journey upwards forming a base on the 20-day exponential moving average, presently at 107. The stock seems to be consolidating around the current levels. It needs to break above the 50-day & the 100-day exponential moving averages, both presently at 108.9 and stay above them for a few trading sessions for the up-move to continue. The RSI is hovering at 51.9, a good region to take a buy call. The stock also seems to be forming a reverse head and shoulders pattern that bodes well for its future direction.

36| APRIL 2010

day exponential moving average. Since then it has shown an upside and is resting on its 20-day moving average. The on balance volume chart has shown an upward movement along with price. The RSI and the MACD indicators are suggesting a buy. The stock is presently above the 50-point RSI mark and is showing a positive divergence on MACD over its moving average. These indicators are sending a bullish signal to the traders.



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Simplifying Important Monetary Terms • As the RBI has dealt with financial and economic turmoil, acronyms unique to monetary policy and banking such as cash reserve ratio (CRR), market stabilization scheme (MSS), statutory liquidity ratio (SLR) and repo rate have repeatedly made the headlines. • But what do all these measures signify for the larger economy, the banking industry and Consumers? And what do they mean? • In this lesson, we will target Repo Rate & Statutory Liquidity Ratio (SLR). • Unlike other central banks, RBI has two policy rates— the repo rate, at which it injects money into the financial system or lends money to banks, and the reverse repo rate, at which it sucks out excess money or borrows money from banks. • If liquidity is abundant in the system, then reverse repo becomes the key policy rate, but when money is scarce—as is the case now—and banks borrow from RBI, the repo rate is the policy rate. • Also, these two rates create the corridor or band within which the overnight call money rate—the rate at which banks borrow from each other —should move. • By cutting the repo rate, this corridor has shrunk to 150 basis points (the reverse repo rate is 6% now, unchanged since October 2006). • Following the cut, the overnight call money rate should be less volatile because it has less room to move about in. • Ideally, it should vary between 6% and 7.5%. • A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases, borrowing from RBI becomes more expensive. • The repo rate —RBI’s main short-term lending rate—has now been cut by 150 basis points to

38| APRIL 2010

7.5% from the earlier level of 9% last month. • 100 basis points is equal to 1%. • The SLR is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. • SLR rate is determined and maintained by the RBI in order to control the expansion of bank credit. • Higher reserve requirements such as SLR make banks relatively safe (as a certain portion of their deposits are always redeemable) but at the same time restrict their capacity to lend. • To that extent, lowering of reserve requirement increases the resources available with a bank to lend & helps control inflation and propel growth • By changing the SLR rates, RBI can increase or decrease bank credit expansion. • Also through SLR, RBI compels the commercial banks to invest in government securities like Government bonds. • If any Indian Bank fails to maintain the required level of Statutory Liquidity Ratio, then it becomes liable to pay a penalty to the RBI. • The SLR had been cut by 100 basis points to 24%, the first such reduction since 1997. • Following the cut, banks were required to invest 24% of their deposits in government bonds, instead of 25%. • This meant they would have more cash in hand to lend to industry. •The Repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks to



APRIL 2010 | 39

get money at a cheaper rate. When the repo rate increases, borrowing from RBI becomes more expensive.

gold or govt. approved securities (Bonds) before providing credit to its customers.

• The Statutory Liquidity Ratio (SLR) is the amount a commercial bank needs to maintain in the form of cash, or

• The SLR rate is determined and maintained by the RBI in order to control the expansion of bank credit

Simplifying Important Monetary Terms •

As the RBI has dealt with financial and economic turmoil, acronyms unique to monetary policy and banking such as cash reserve ratio (CRR), market stabilization scheme (MSS), statutory liquidity ratio (SLR) and repo rate have repeatedly made the headlines. But what do all these measures signify for the larger economy, the banking industry and Consumers? And what do they mean?

In this lesson, we will target Repo Rate & Statutory Liquidity Ratio (SLR).

Unlike other central banks, RBI has two policy rates— the repo rate, at which it injects money into the financial system or lends money to banks, and the reverse repo rate, at which it sucks out excess money or borrows money from banks.

If liquidity is abundant in the system, then reverse repo becomes the key policy rate, but when money is scarce— as is the case now—and banks borrow from RBI, the repo rate is the policy rate.

Also, these two rates create the corridor or band within which the overnight call money rate—the rate at which banks borrow from each other —should move.

By cutting the repo rate, this corridor has shrunk to 150 basis points (the reverse repo rate is 6% now, unchanged since October 2006). Following the cut, the overnight call money rate should be less volatile because it has less room to move about in. Ideally, it should vary between 6% and 7.5%.

40| APRIL 2010

A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases, borrowing from RBI becomes more expensive.

The repo rate —RBI’s main short-term lending rate— has now been cut by 150 basis points to 7.5% from the earlier level of 9% last month.

100 basis points is equal to 1%.

The SLR is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers.

SLR rate is determined and maintained by the RBI in order to control the expansion of bank credit.

Higher reserve requirements such as SLR make banks relatively safe (as a certain portion of their deposits are always redeemable) but at the same time restrict their capacity to lend.

To that extent, lowering of reserve requirement increases the resources available with a bank to lend & helps control inflation and propel growth

By changing the SLR rates, RBI can increase or decrease bank credit expansion.

Also through SLR, RBI compels the commercial banks to invest in government securities like Government bonds.

If any Indian Bank fails to maintain the required level of Statutory Liquidity Ratio, then it becomes liable to pay a penalty to the RBI.


The SLR had been cut by 100 basis points to 24%, the first such reduction since 1997.

Following the cut, banks were required to invest 24% of their deposits in government bonds, instead of 25%.

This meant they would have more cash in hand to lend to industry.

The Repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases, borrowing from RBI becomes more expensive. The Statutory Liquidity Ratio (SLR) is the amount a

The views expressed above are for information purpose only and do not construe to be any investment, legal or taxation advice. Any action taken by you on the basis of the information contained herein is your responsibility alone and Tata Mutual Fund will not be liable in any manner for the consequences of such action taken by you. Please consult your Financial/Investment Adviser before investing.

commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. The SLR rate is determined and maintained by the RBI in order to control the expansion of bank credit

Mutual Fund investments are subject to market risks, read the offer document carefully before investing

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APRIL 2010 | 41


What matters most in Financial Planning?


s it the quality of the plan, its workability, the choice of financial products or an ideal mix of insurance and investment that matters most in Financial Planning? All of these are desirable but none of these matters the most.

K.N. Sharma

Need for a financial plan for todayâ&#x20AC;&#x2122;s busy executives and professionals hardly requires any emphasis. What however must be emphasized is the need to make a right choice of the financial planner or advisor. So why wait start your search for a more ethical, qualified and easy to approach people who are in the business of providing financial advisory services even if you have to pay a nominal

42| APRIL 2010

What matter the most in financial planning is the Financial Planner. Is he going to be available or associated with the plan for a reasonable length of time after the plan has been initiated? He, she or it (company) should be in a position to continually monitor the progress and health of the plan and suggest changes as and when they become necessary? Will your chosen financial planner or investment\insurance adviser review the plan from time to time or at regular intervals? A financial plan, if it is not nurtured or cared or looked after by its creator or someone on his behalf, is like an abandoned child who can grow into a vagary, a terrible liability or a source of nuisance instead of serving a means of achieving financial bliss when it attains maturity. Financial planning is a continuous process and not a one time exercise. After you have thought over the problem of spotting, locating or finding an entity that meets your requirements you will come to realize that individuals working entirely on their own do not fit the bill. It can only be an organization (a limited company). Companies have a longer life than those who work for it. By virtue of the fact that companies have access to far larger amount of resources than INVESTORS INDIA

an individual, they are better equipped and informed about financial markets, products and policies and regulations relating to financial matters. Accessibility, ease and comfort of approach apart from reputation and standing among peers are the considerations which should weigh with you as you go about looking for an organization to help you draw, implement and watch the progress of your financial plan. It does not take much effort or time to find out a reputed organization. Ask your friends, colleagues or go online to search on the web. Now, if this reputed organization has some kind of presence through a branch or a sub broker in your area, go for it. The most important consideration is how comfortable the people in your chosen company make you feel when you visit them. If you feel you really enjoy visiting them and discussing matters relating to personal finance with the executive concerned you have made a right choice. Go ahead, deal with them (they are not likely to leave you in the lurch or let you down or betray your trust). They have a culture of respecting their clients and are fully aware that looking after your interests is their paramount duty like any other true professional. They are not doing you any special favour. You are the source of their livelihood. They know it and as such put their experience and knowledge at your disposal to help you achieve your objective. If you have not been lucky in the matter

of finding a financial planner who meets the criteria described above, then things are not going to work out the way these had been planned. And as has been seen in many a cases the initial zeal and effort and investment come to naught. Anyone who studies the annual budget and keeps himself abreast of various investment schemes and insurance plans and matters relating to personal income tax can draw a plan for himself. Since you have other things to attend to you may not be able to keep pace with the fast changing financial scenario around you and as such may find it rather

difficult to watch your plan’s progress and make timely adjustments as and when they become necessary. Need for a financial plan for today’s busy executives and professionals hardly requires any emphasis. What however must be emphasized is the need to make a right choice of the financial planner or advisor. So why wait start your search for a more ethical, qualified and easy to approach people who are in the business of providing financial advisory services even if you have to pay a nominal amount as advisory fees to them. Go

to Google search and type the words “financial planning+India”, apply the criteria described above and pick up your personal Financial Planner. So why waste time getting in touch with some reputed financial advisory service provider located close to your residence or place of work. An organization with pan India presence should be a preferred choice. You do not know where you will be working in the next five or ten years from now. A company with an all India network would be in a much better position to look after your financial plan than any other set up.


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APRIL 2010 | 43


Confused – What To Buy In NOIDA ??? Mamta N Gakhar


hose who are waiting to own a house are suddenly blighted for choice. The residential real estate market is witnessing a spate of new launches across the country. The offerings range from premium housing to affordable ones and are getting a good response from buyers. Delhi-NCR has a mix of project offerings. Most of the recent launches are in the peripheral areas of Gurgaon and Noida. The new developments in Noida are broadly spread over four locations. Expressway - Here prices range between Rs. 3000 per square feet to Rs. 5000 per square feet. This difference is for the distance from Kalindi Kunj. You can take the benefit of reduced rates if you can compromise the distance. Major builders present on Expressway are Jaypee, Unitech, Amrapali and Omaxe. There are other properties too in this area which are occupied by people or at least ready for possession like ATS, Parsvanath, Eldeco, etc. As always ready to move in properties always carry a better rate and higher demand which is also the case here. Sector 137 – The second area, which is developing in Noida is Sector - 137. This is again on the expressway but is more ahead. In this sector also, plots are allotted to private builders by Noida Authoriy. Sec-137 right now doesn’t have good connectivity as the service lane which can take you to this sector is still under development and will soon give a good connection to the sector from the Expressway. Here the rates are 44| APRIL 2010

slightly lower than those on the express way. As always, the distance from Delhi matters. There are 5-6 private builders present in this location with plot sizes of approximately 20-40 acres and developing affordable housing projects. Sectors 70, 117, 119, 120 - The third major development is happening towards Sector 70, 117, 119, 120 etc. These sectors are almost opposite to Sec-50, Noida, which is one of the most demanded sectors of Noida. This area attracts connectivity with the Delhi Metro and the proposed metro station is at a walking distance from here. Here the prices are equivalent to those on the Expressway. This area enjoys the benefit of being inside Noida and already developed in terms of people living near by, daily needs and amenities and markets and is well connected to all necessary requirements like schools, hospitals, etc. Fortis Hospital is very near to this place. Private builders are present in this area equally well including the likes of Amrapali, Gardenia, Unitech, etc. Another important development which is attracting everyone these days is named Noida Extension by the developers. This location is actually a part of Greater Noida. Noida and Greater Noida are divided by the Hindon River at this location. Government is starting an initiative to connect them through three or four bridges. After this connection, Greater Noida will be just 5-6 Km from Fortis Hospital. INVESTORS INDIA

The property prices in Noida Extension are lower than that in NOIDA. Right now, builders are selling apartments in this location at the prices prevailing in Greater Noida only. And people are smart enough to understand that the proposed connectivity will definitely give a jump to this area and prices will be at par with other locations of Noida by the time they are being offered possession. The price of the apartments in this location starts with approximately Rs.10 lacs for a one bedroom flat. Investors as well as end users both have an understanding of benefits of this location. Amrapali, Gaursons and Supertech are playing a major role in developing this location. Noida Extension would become the next preferable destination soon in terms of connectivity because of the proposed Metro line and rapidly growing infrastructure development” Noida thus gives a wide range of choices to the property buyer in terms of location, budget, specifications and layouts. Its only that you have to prioritize your requirements and plan a budget to reach to a conclusion.


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Travails of a Trekker - Jageshwar and Vridh Jageshwar Saurabh Singh “Jag - Eshwar” that’s how I describe the place, as the cursed Lord Shiva was reincarnated here by the Guru Shankracharya. It is eighth among the 12 Jyotirlingas in India and is among the best places to set one alive. Situated besides the Dwarkaban along the holy Jata Ganga, it holds its existence way back to the 8th century. The MahaMritunjaya is the oldest among the group of temples and is the only Ling in the world which has the Third Eye of the Lord Shiva embossed on it. Mythology: Jageshwar - Yuga’s ago King Daksha the father of Sati (first wife of Lord Shiva) conducted a ‘Hawan’. He invited all the Gods and Goddesses except Lord Shiva. Anguished at the insult meted out to her husband, Sati reached the place where the ‘Hawan’ was being conducted, even after being stopped by Lord Shiva (as HE already knew the result) and asked her father the reason for insulting the Mightiest God (Lord Shiva) among all. In reply, the king stated that a Person (Lord Shiva) who lives in the jungle is not worthy enough to be invited for such a big occasion. Even after being repeatedly warned by Sati, the king didn’t stop insulting Lord Shiva. Unable to bear it, Sati jumped into the fire of the HawanKund, saying that SHE had no right to live after bringing so much disgrace to HER husband. Lord Shiva, intensely disturbed from this incident, wandered from place to place and left all HIS responsibilities. During this phase, HE reached Jageshwar, where the women of Rishi Sapt-Rakeshwar, who were looking for fruits and vegetables, saw HIM as a nude sage. Being terrified,

46| APRIL 2010

Jageshwar Group of Temples

they ran away without collecting fruits and vegetables and told the Rishi what they saw, listening to which, the Rishi transformed Lord Shiva into a Linga as punishment. Guru Shankracharya in the 8th century did away this curse. Jageshwar is the result of that only ( as per the locals) Vridh Jageshwar: The Mystery of Vridh Jageshwar, located at a distance 10 kms from the Jageshwar Temple, is even more interesting. The locals told us that no one knows about the actual power and mystery of the Temple completely. Only this much is known that King Chand was passing by for a battle. He saw a cow being milked over a stone on its own, he was dumbfounded. When he checked the place he saw a ‘Shiv Linga’ carved-in over there. Seeing this, he prayed that if he wins the battle he will make a Temple here. The king won the battle and keeping his word he built the INVESTORS INDIA

temple which is now known as Vridh Jageshwar. The place from a Trekker’s eye Day - 1 The journey began in New Delhi on one sunny afternoon in November 2009 as we boarded a bus to Almora. As soon as we crossed Moradabad in U.P. (a 34 hour journey from Delhi) on the way to Almora, we found ourselves out of the concrete jungle and surrounded by lovely woods. As the sun set, we kept traveling towards our next destination i.e. Nainital. With the first rays of the sun, we opened our eyes in the silent and cozy hills of Haldwani. A brief halt at the place gave us a chance to absorb its natural beauty. As the sun went up, the sounds of locals greeting each other got louder and encroached upon the pristine silence. We reached Almora by 8:30 a.m. The


APRIL 2010 | 47

noise of engines and honks and the race to board jeeps and buses to various destinations set the peace aside. We joined the race soon to reach Artola (3 kms from Jageshwar) and decided to walk thereafter. The relaxed walk after an eventful 13 hours brought us the relief we were dying for and our pleasure turned manifold once we touched the woods. Artola, the entrance to Jageshwar, gives the feel of the architecture the place is known for. As we set for the 3 km journey from Artola to Jageshwar on foot, walking through the thick woods of deodar (even sunlight struggles to seep through it) sights such as villagers collecting wood for cooking, cows grazing on the hill slopes and kids enjoying the holy water of ‘Jata Ganga’ got common. Reaching such a stress

free life from the nerve-racking life of metropolitan cities itself generated a mixed set of thoughts. One normally says how backward these villagers are but suddenly one feels how happy they are. In an hour we reached “Jageshwar”. Without wasting further time we had a bath in the chilled waters beside a small farm, in the bright sun. The very touch of the cold water made us jump on our toes and we continued to jump around till we bathed. With frozen limbs we left for the Temple. Within 10 minutes we reached there and were amazed by the architecture of the 8th century. But exploring it wasn’t so easy, as after the bone chilling bath, walking on the cold stone paved floor, that too wet, was something we found very hard to bear. The experience reminded us of the statement, “No pain, No gain”!

surprised us by handing over a book (about the place) rather than giving us a verbal account. Somewhat anguished, we returned back to our rooms. With still some energy left we decided to enjoy the sunset. So, carrying tea and biscuits with us, we climbed the slopes through the sprawling farms to reach at a higher place. But things do not always fall in line with your plans and so happened with us. A Bhotiya dog (among good breeds of hill dogs) soon approached us sniffing something and we knew what that thing was (biscuits). Though we sat still and didn’t panic but the way it sniffed us in order to have the biscuits, was nerve racking. We threw a biscuit far off for it to collect and go away. But it soon came back for another. So finally, we had to give up our plan to see the sunset and had to walk down to our rooms to rest in peace. Day - 2 The next morning was blissful. We started walking to “Vridh Jageshwar” which is 3 kms on foot through the terrain from “Jageshwar” group of Temples (one can also use the road if he wishes to go by a vehicle). After walking between the lovely wooden houses for a while, we were out in a new territory - a territory of fresh air, open skies, lovely trees and a ridge to walk by.

The Pujari Ji (priest) at the temple

48| APRIL 2010


The steepness of the ridge tested our fitness levels and soon we started losing our breath. In order to regain it, we dropped our pace immensely. But still, the rusted body from Delhi’s polluted environment took time to adjust. But the twinge didn’t last long, as the natural beauty of the place completely over shadowed it. The dense deodar forest surrounding the place on one side with beautiful mountains on the other overwhelmed us besides offering enough to halt at every step and gaze at it admiring its pristine beauty. After walking for almost one and a half hours we had the first sight of the Vridh Jageshwar temple. The Pujari and Old Chaukidar welcomed us in the temple. After offering our prayers we sat there to have some tea. One could feel the immense peace and calm under the soothing rays of the sun falling on the top of the great Himalayan range all around, penetrating through the umbrella of the clouds. During the tea-time chat, the Pujari told us about ‘Bhog’ to the deity at 12 p.m. but we didn’t have the time to wait for it. On our way back we took the road rather then the terrain. One comes across a hospital made by the British on the way and can stop at the Himdarshan Lodge (the only lodge on the way) to enjoy the

Jhuli-Chawal (Kadhi rice), as we did. As we sat outside the lodge waiting for our Jhuli-Chawal as it was being prepared, we enjoyed the beautiful surroundings of the place with a small puppy. Soon, our lunch was ready and after having helped ourselves to a sumptuous meal, we decided to move on. After walking for 10 kms or so we got a jeep for Almora. Having reached Almora, we looked for a bus to Bhowali at around 5:15p.m. But we failed to find one, as bookings were over by 12 p.m. (please get your booking done in advance if not traveling by your vehicle). With no choice left, we took an overcrowded jeep to Haldwani. After an eventful day and with more than 10 kg of load on your lap it’s hard to enjoy the trip sitting on just a corner of the seat all the way back, as the 10-seater jeep carried 15 people. Somehow coping with the situation, we discussed that the trip had been a leisure trip rather than a trekking. The next minute we were regretting having said that. Leisure on a trekking trip is something that does not happen with us. As we were crossing Bhimtaal the front tyre valve of the jeep broke down when we were just on the verge of a sharp turn. Our hearts jumped to our mouths as the jeep gave a violent

jerk and stopped all of a sudden, inches away from the edge beyond which there was a sharp fall of hundreds of feet. All of us thanked our luck saying “kismat aachi thi jo bach gaye; jeep thodi aur aage hoti to aaj toh ho gaya tha kaam”. Hence, we reframed our earlier statement about this being a leisure trip. But reframing the line didn’t do anything. Standing on the road facing a strong chilly wind we waited for help at 8 p.m. at night. And believe me, this is something no one enjoys particularly in the hills towards the end of November. Chances of getting help seemed were slim as vehicles are not allowed to move from the base points after 6 p.m. as per the rules. Walking 50-70 odd kms to reach a shed did not seem feasible.

Fortunately, we got some help from the locals. Two of us adjusted on bikes, two in a car, four on a trolly and remaining on a truck. Relieved, we threw our bags at the back and climbed the truck. The dusty carrier welcomed us with strong jerks as we traveled on the bumpy road ahead complemented well by sharp twists and turns as we found it hard to balance our weary bodies. Finally, we stuck ourselves to the corners of the vehicle and munched on chanas (gram). Reaching the bus stand at Haldwani, we boarded the first bus for Delhi - Home Sweet Home and thanked Lord Jageshwar for the spiritual experience.

Important information on Jageshwar and Vridh Jageshwar District Almora Difficulty level Easy Distance 400 kms from Delhi, 35kms from Almora Journey Time 11 1/2 hrs from Delhi Route Delhi - Almora – Jageshwar Places to look around Haldia Top, Sub-castle inter college, Cave of Eirawat elephant, Muni Ashram Note: Rooms are costly even in the off season • Bus service is not so good. Last bus leaves Almora at 6p.m. for Delhi • Market closes by 7 p.m. in evening.


APRIL 2010 | 49


K.K. Bajaj (Chairman, Bajaj Capital Ltd.)

Since God could not be present everywhere, so He created Mother


others are role models for their children. This can’t be stressed enough. If you want your child to eat fruits and vegetables, then you should eat them too. Be aware of your own eating patterns. Your diet can subconsciously or subtly influence how your child eats. Most of you, who eat wrong food or struggle with dieting, should modify your behavior realizing the impact it will have on your children. In today’s fast-paced world, where role models are few and acts of violence by children are on the rise, moral values need to be taught to them. But such morality doesn’t appear overnight, it emerges slowly, over time. Mothers are becoming increasingly aware that even very young children can grasp moral behaviors. When a young mother asked Aristotle as to when she should start training her five-year old child, Aristotle said – “Hurry back home, you are already five years late” Child experts agree that to be held responsible, children must have both an emotional and cognitive awareness of right and wrong in order to know that what they did was wrong. Child experts suggest the following guidelines for mothers:

50| APRIL 2010



APRIL 2010 | 51

Decide your values: What qualities, such as honesty and hard work are most important to you? Then act the way you want your children to act. Praise good behaviors: Rather than criticizing a toddler for his messy room, compliment him on the neat corner. Take advantage of teachable moments: “When my children were three and four they found a ten rupee note in the front of a store. I explained to them the value of money, and they agreed to return the money to the shopkeeper” writes a child expert. Watch what your child watches: Children who watch a lot of violence on television have a heightened risk of aggressive behavior during adulthood. Discuss consequences: In case of indiscipline, parents can ask their children to help them pick fair punishments - for example they might not be allowed to watch television. Help them see other’s viewpoint: If your child hits another child, tell him how it pains if somebody hurts another. How do we spoil our children Unknowingly, we ourselves are at times responsible for ruining our children’s future. Wondering how? These examples might give you an idea: • Right from infancy we give the child everything he wants. In this way he will grow up to believe that the world owes him a living • When he picks up bad words, we laugh at him. This will make him think he’s cute. It will also encourage him to pick up more and even “cuter” phrases • Never give him any spiritual training, wait until he is 21 and then let him “decide for himself ” • We pick up everything he leaves lying around for instance books, 52| APRIL 2010

shoes, clothes, etc. We thus do everything for him so that he will be experienced in throwing all responsibility on others. • Quarrel frequently in the presence of your children. In this way they will not be too shocked when the home is broken up later. It is important to understand that no matter now hard you try, you can’t force your child to be moral. But you can definitely change his/her behavior by religious and moral teachings. Junk food makes a junk mind: Even pediatricians worry about their children’s eating habits. But through their training and practices, they pick up a great deal of information to solve these problems. Here are some strategies pediatricians have developed for getting children maximum nutrition and brain food with minimum struggle. Foods which increase brain power and memory of children: Children need to eat a lot less than what parents usually think. If they’re drinking the recommended 470 to 700 ml of milk per day, they’re already getting many of the calories and more than half of the protein they need. A bowl of rice or a slice of brown bread is one carbohydrate serving; ideally, a toddler should have five such servings a day. School-age children also need about five servings of vegetables and five of carbohydrates a day. Almonds (soaked overnight) are the best brain and memory tonic for children. Walnut is another nutritious nut, which, according to the doctors is shaped like the brain and is excellent for its development. Children should avoid junk food: Scientists at the Stockholm University made a shocking discovery that cooking staple foods such as cereals, rice and potatoes, releases a certain substance called acrylamide, which can cause serious diseases. According to World Health Organization experts, fried


and baked foods including potato chips, biscuits and ‘junk food’, which are favored by young and old people alike, contain carcinogen, which causes serious diseases. Soft drinks have been classified as junk food: You cannot live ‘without’ your soft drinks, but how long can you live ‘with them’? UK Food Standards Agency has asked the European Union to review the potential health hazards of aspartame, an artificial sweetener used in countless diet colas, soft drinks and low calorie foods. The potent sweetener is roughly 200 times sweeter than sucrose or sugar. Children should avoid all types of soft drinks. Instead they can take milk shakes, lassi, fruit juices, fresh lime, coconut water, etc. Offer a variety of tasty and healthy foods to children: The best way to ensure that your children get sufficient nutrients is to offer them a variety of tasty foods prepared from the basic food groups; vegetable and fruit, dairy products, pulses, cereals and whole grains. Always have plenty of fruits, fruit juices, dry fruits, vegetables and dairy products like curd, cheese, butter etc in stock. Stuff your refrigerator with healthy food rather than with sweets, chocolates and soft drinks. Psychologists say that if children live with ridicule, they become shy. Just like the body muscles, the mind will stiffen if it is not exercised frequently. Mental gymnastics, the mental equivalent to physical muscle building includes an ability to look at life from a new angle. Talking to the same people and eating the same lunch everyday means that the same cell connections are exercised. New activities and brain exercises force nerve cells to seek out alternative paths. Brain cells branch out, and their ends may lengthen, which boost the brain’s power. Parents should make their children do the following ‘brain development’ exercises, though people of all ages can benefit from the

following brain workouts: • Communicate only with your eyes and hands • Ask your child to close his eyes and try to open them exactly after one minute • Ask your child to assign numerical values 1 to 10 to each letter of the alphabet (A=1, B=2, and so on) • Ask your child to close his eyes and walk across a congested room without breaking or hitting against any furniture • Ask your child to count from 1 to 100 backwards • Ask your child to hold a glass full of water and cross the room with open eyes without spilling a drop of it • Tell your child seven names and then ask him to recollect those names in the same order • Ask your child to tell you five words that have a total number of five letters or seven letters • Ask your child to eat with his left hand at times

• Draw a line of 10 feet in your room and tell your child to walk on it forward and backward without overstepping the line • Solve puzzles with your child or give him games and puzzles to play with Psychological theory of Expectation Tell your children that they are above average. Fire the imagination of your children. Give them difficult (but achievable) goals and then help them lovingly and encouragingly to achieve those goals. There is a story of a school inspector in Germany who experimented with the “Theory of Expectation”. He went to a school and took an instant examination and allotted marks, which ranged from 30% to 80%. But the marks were kept secret. Out of all the students, two boys got only 30% marks. But the inspector of the school called them to the stage, gave them awards and told them they had obtained 60% marks. The inspector also told these boys that he will take a test again after 3 months and this time,


he expects them to obtain 90% marks. Contrary to the thinking of the class teacher, these boys were able to obtain 90% marks in their next examinations. This story proves the fact when we expect some miraculous achievement and give somebody a goal, he will come up to that expectation. Mothers can also help their children get more creative by giving occasional workouts to their imagination. Imagination is a workshop of creative ideas. It is said that Nobel Prize winner Albert Einstein hit upon the Theory of Relativity while imagining himself flying at the speed of light. So if you keep your child’s brain active by making him think in an innovative and creative manner coupled with healthy food and brain exercises, he/she will definitely become a talented person, a genius. Mothers need to have complete involvement with their kids if they want them to achieve spectacular success. This should be done whole-heartedly and at the earliest, as children are our future.

APRIL 2010 | 53


Heidelberg Cement CMP (19.03.10) â&#x20AC;&#x201C; Rs.51.9


eidelbergCement India Limited is a subsidiary of Cementrum I.B.V. (a Company incorporated under the laws of The Netherlands, which is 100% controlled by HeidelbergCement AG). HeidelbergCement Group, with its core products being cement, ready mixed concrete, aggregates and related activities, is one of the leading producers of building materials worldwide, and it employs around 46,000 people in more than 50 Countries.

comfortable position. Increasing focus on infrastructure development: Governmentâ&#x20AC;&#x2122;s emphasis in infrastructure development in the budget for 2009-10 will boost cement

Heidelberg has aggressive growth and acquisition plans which include acquisitions of grinding capacities in the Western states, raising existing capacity to 6 mn tpa by 2012 March, and ultimately raising Cement capacity to 15 mn tpa by 2015.

Heidelberg ACC Ambuja JK Prism Ultratech Mangalam Lakshmi cement P/sales 1.3 2.2 2.6 0.6 1.6 2.0 0.8 P/BV 1.7 3.1 2.8 1.2 2.4 3.9 1.6 Sales 936.4 8479.5 7078.8 1413.7 979.4 7005.5 632.5 Mcap 1175.0 1556.9 13973.4 476.1 As on 19 March 2010 18372.2 18086.3 906.7 BV 31.03 312.7 42.5 64.1 22.2 289.2 103.1 Key Investment Arguments Price 51.85 978.6 118.7 74.1 52.2 1122.5 169.9 Turnaround story: The Company PE 8.4 12.3 15.7 3.3 7.7 11.9 3.5 has been into profits ever since it was 0.1 0.0 1.0 0.0 0.6 0.2 acquired by Heidelberg in 2006. For Debt equity 0.01

CY2008 profitability margins and return on net-worth remained robust Financials (Rs. in cr) at 16.51% and 21.26% respectively. 200912 200812 200712 200603 200503 4 yr CY2009 saw expansion in the operating CAGR % margins to the tune of 440 basis points. Heidelberg recently saw amalgamation 226.6 158.0 158.0 158.0 90.3 of Indo rama cements with itself. It Share Capital 504.9 324.4 226.8 -112.0 raised its equity share capital to facilitate Networth 936.4 761.2 593.6 412.3 413.5 22.7 the issuance of equity shares to the Revenues EBITDA 205.0 132.2 115.8 55.6 -29.6 shareholders of Indo rama cement. Better valuations: Price to book value of the company stands at 1.7 which is amongst the lowest in the cement industry. Price to sales too stand at mere 1.3 which shows company is less valued compared to other cement majors. Better valuation compared to other cement stocks keeps the stock in

APAT 138.6 129.1 111.8 -78.9 -24.8 Dividend % 0.0 0.0 0.0 0.0 0.0 EPS (Rs.) 6.1 7.9 6.2 0.0 0.0 Debt-Equity Ratio 0.0 0.0 2.2 0.0 Interest Coverage Ratio 40.7 27.0 37.9 2.6 -0.9 RoNW % 21.3 27.2 0.0 0.0 EBITDA Margin % 21.9 17.4 19.5 13.5 -7.2 APAT Margin % 14.8 17.0 18.8 -19.1 -6.0 Price/Sales 1.3 PE Multiple 8.5 P/BV Ratio 1.7

* EPS for 9M FY2010 is absolute and not annualized.

demand. Infrastructure and housing together contributes more than 70% of the total cement demand in India. An upward trend in cement demand from infrastructure and housing industries in medium time horizon is likely to be seen.

54| APRIL 2010


Expansion plan in early stage: Heidelberg has aggressive growth and acquisition plans which include acquisitions of grinding capacities in the Western states, raising existing capacity to 6 mn tpa by 2012 March, and ultimately raising Cement capacity


APRIL 2010 | 55

to 15 mn tpa by 2015. Investment Rationale Three years ago, Heidelberg of Germany, bought out the stake of SK Birla group in the erstwhile Mysore Cement. Through a capital infusion

of roughly Rs 500 cr., Heidelberg was made debt free. Three years later, that is 2010, Heidelberg has returned to payment of full tax after recovering all accumulated losses and unabsorbed depreciation, and yet has Rs 490 crore of cash in hand.

crore in the quarter ended December 2009 as against Rs 86.44 crore during the previous quarter ended December 2008.

Himadri Chemicals

CMP (19.03.2010) – Rs 406.30


he Company is engaged in the distillation of coal tar to produce coal tar pitch and several other value-added coal tar by-products. The Company is having its manufacturing units in Andhra Pradesh and West Bengal. Coal tar pitch is used as binding material for manufacturing of anode required for smelting of alumina into aluminium and for the manufacture of graphite electrodes. India is one of the leading producers of aluminium in the world with large bauxite reserves. Himadri Chemicals & Industries Ltd. is the largest supplier of coal tar pitch in the country. The domestic market has shown positive growth in terms of the overall consumption of coal tar pitch. The Company is in a position to cater not only to the growth of aluminium industries in the country but also there is a scope for export to Europe and Middle East. Expansion Plan Company reiterated expansion plan for near 2.5X increase in distillation capacity (169,000 MTPA to 400,000 MTPA), 0.8X increase in Carbon Black capacity Particulars Dec 2009 Sales 145.34 OPM % 36.49 PBDT 45.75 PBT 38.83 NP 29.12 Source: Capitaline

56| APRIL 2010

Quarter Ended Dec 2008 % Var. 86.44 68 42.27 -14 34.05 34 30.15 29 23.03 26

With Rs 490 crore in cash and zero debt any further proposed expansion will be easy for the company. The company expects to raise operating capacity to 6 mn tpa by CY2010. We maintain a buy on this stock for long term.

(50,000 MTPA to 90,000 MTPA) and 6X increase in SNF capacity (8000 MTPA to 64000 MTPA) in next 3 years. The successful equity fund raising from Bain Capital – is step ahead to become serious ‘Carbon’ company. Himadri Chemicals & Industries net profit rises 26.44% in the December 2009 quarter Net profits of Himadri Chemicals & Industries rose 26.44% to Rs 29.12 crore in the quarter ended December 2009 as against Rs 23.03 crore during the previous quarter ended December 2008. Sales rose 68.14% to Rs 145.34

Himadri chemical forward integration will further enhance its position. The distillation of coal tar into coal tar pitch generates number of by-products such as creosote oil, naphthalene and other oils. The company earlier used to sell these oils directly to the end users but now with the setting up of 50000 MT/ annum carbon black facility; HCI intends to use these oils internally, thus giving it constant supply of raw material and improved sales realizations. Leader in Coal Tar Production (CTP) manufacturing in India Himadri Chemical has leadership

Financials (Rs. in cr) 9M 3 yr 200912 200903 200803 200703 200603 CAGR % Share Capital 32.3 31.9 31.5 31.5 25.5 Networth - 383.9 341.0 239.6 58.1 Revenues 355.2 378.4 361.3 323.3 170.5 30.4 PBITD 144.7 97.9 130.3 103.6 40.9 33.8 APAT 80.1 46.8 82.2 61.6 24.0 24.9 Dividend % 0 10.0 20.0 50.0 10.0 EPS (Rs.)* 24.8 14.5 26.0 18.7 9.3 16.1 Debt-Equity Ratio - 0.8 0.7 1.1 2.1 Interest Coverage Ratio 6.1 4.3 10.5 8.1 6.8 RoNW % - 12.9 28.6 41.4 50.5 EBITDA Margin % 40.7 25.9 36.1 32.1 24.0 APAT Margin % 22.6 12.4 22.7 19.0 14.1 Price/Sales 3.6 PE Multiple 17.3 P/BV Ratio 2.5 *EPS for 9M FY2010 is absolute and not annualized


position in the manufacture of CTP in the organized segment in India. The company currently has CTP distillation capacity of 169000 MT/ annum. Also with its ability to meet 22 product specifications of CTP it is able to cater to the customer requirements as per their needs. The company through its strong technology focus is only one of three companies globally to manufacture Zero Q1 CTP. Its fleet of 80 tankers,

with specially designed heating system to transport liquid pitch at 220 degree Celsius is largest fleet of its kind India. With largest and integrated manufacturer of coal tar pitch and it’s by products in India, the company is looking to expand its capacities by 2 times over next two years. With its intent to gain higher scale and to have a global footprint we maintain our buy on this stock for long term.

Coromandel International CMP (19.03.2010) – Rs. 328.3

Coromandel International Limited (CIL) belonging to the Rs. 15,646 cr. Murugappa Group, is a leading company in the fertilizer sector. CIL markets around 2.9 million tonnes of phosphatic fertilizers. The Company also markets phosphogypsum and sulphur pastilles. It produces and sells phosphatic fertilizers of various grades including Di-Ammonium Phosphate (DAP) and Single Super Phosphate (SSP). The company has multi-location production facilities. It also exports pesticides to various countries. In 2008-09 India has become the second largest consumer of fertilizers in the world, after China. The total fertilizer production in the country for 2008-09 was ~32.8 million MT of Urea / Phosphatic / SSP combined, while the demand exceeded ~47.6 million MT. The domestic demand for fertilizers grew by 11% in FY09, as against a 2.2% decline globally. In spite of the strong demand, the domestic fertilizer production continued to stagnate for reasons such as limited availability of natural gas and plant shutdowns. KEY INVESTMENT REASONS Non subsidy business to drive future growth CIL is also a focussed player in the non-subsidy based business, which includes crop protection products like pesticides, speciality fertilizers, water soluble fertilizers etc. Unlike fertilizers,

this business is not dependent on government subsidies and margins are 25-30% that is 2.5-3xs higher than fertilizers. Production dependent on raw material availability: At present, CIL has complex fertilizer production capacity of 3.3 million MT. But, production for FY09 was approximately 2.9 million MT. The company is constrained by availability of raw material and not by production capacity. CIL is continuously focusing on smooth and assured availability of raw material through JVs and tie-ups. In light of this the company plans to increase its capacity to 4.0 million MT. Future tie ups will boost business CIL with 15% JV with Groupe Chimique Tunisian (GCT) is putting up a 360,000 MT phosphoric acid capacity, which will also be shared with GSFC (other JV partner) and CIL 50-50. The Tunisian Joint Venture TIFERT (Tunisian Indian Fertilizer Company) production is scheduled from Dec 2010 / Early 2011. A sharp ramp up in production is expected. The company has signed a JV with Soquimich European Holdings BV for setting up a 15,000 tonne water soluble fertilizer (NPK grades) plant at Kakinada in Andhra Pradesh. The joint venture signed on May 26, 2009, envisages a total investment of Rs 1000 crores.


Efficient Inventory management: Fertilizer prices are usually volatile in nature and require active inventory management. CIL has managed to report positive results even during the volatile scenarios of Q3FY09’ and Q4FY09’. The company reduced its inventory level and negotiated raw material prices (mainly rock phosphate and phosphoric acid) on a monthly basis as against previous quarterly / annual basis. CIL enjoys strong bargaining power with its key raw material supplier of phosphoric acid–FOSKOR It also reviews its contracts with other raw material suppliers (rock phosphate, ammonia and sulphur) frequently. Strong brands & extensive distribution: CIL is adequately placed to leverage its strong brands and extensive distribution network in the southern market to tap the opportunities in this fast growing business. CIL’s key brands like ‘Gromor’, ‘Godavari’ ‘Parry Gold’, ‘Parry Super’, ‘Paramfos’ etc enjoys strong brand equity in the southern market. Rural Retail Plans: CIL has entered into rural retail through its store – ‘Mana Gromor Centre’ (MGC). The company has already opened more than 400 such centers till date and has plans to take the total number of stores to 500 by the end of FY2010 and 1000 in two years. Average investment made in such stores is approx. Rs 8-10 lakhs with area per store ranging from 1000 – 2500 sq ft. The company will sell all kinds of farm inputs at these stores while some of them will also keep life style products

APRIL 2010 | 57


(Rs. in cr) 9M 3 yr 200912 200903 200803 200703 200603 CAGR %

Share Capital 28.1 28 28 25.4 25.4 Networth 1212 795.5 551 460.7 Revenues 5030 9419.1 3794.8 2096.3 1882.2 PBIDT 686.5 1017.31 456 234.27 188.54 APAT 383.2 576.9 210.9 117.7 98.1 Dividend % 0 500 175 100 85 EPS (Rs.)* 31.1 38.3 14.4 8.8 7.3 Debt-Equity Ratio - 1.4 1.2 1.0 0.8 Interest Coverage Ratio 10.1 11.0 5.8 6.1 6.3 RoNW % 55.7 31.2 23.1 22.4 PBIDT Margin % 13.6 10.8 12.0 11.2 10.0 APAT Margin % 7.6 6.1 5.6 5.6 5.2 Price/Sales 0.8 PE Multiple 19.3 P/BV Ratio 3.8

71.0 75.4 80.5

CIL being a leading fertilizer company is set to benefit from huge demand in the country. India being the second consumer of fertilizer in the world is still deficient in the fertilizer production. CIL, with its strong brand and extensive distribution network has marked its presence in the country. We recommend a hold on this stock for long term.


*EPS for 9MFY2010 is absolute and not annualized

The Tinplate Company of India Limited CMP (19.03.2010) â&#x20AC;&#x201C; Rs.79.35


he Tinplate Company of India is based in Jamshedpur in the state of Jharkhand. The Company is essentially a producer of a single product i.e. tinplate. The tinplate consumption in India is presently ~ 400,000 tonnes per annum and imports account for more than 50% of the market share in India. Tinplate is a coating of tin on either side of a steel sheet that is mainly used as a packaging material in the form of cans. The coating of tin is done as it is malleable, non-corrosive, non-toxic and it gives the can their slick texture. These cans can be used for storing processed food, beverages, beer, paint, lubricants etc. Although main consumers have been the developed nations of Europe, USA & Japan consuming more than 70% of world tinplate, of late increasing production / consumption is noticeable

58| APRIL 2010

in developing economies. With Asia becoming the driver for growth, new capacities are coming up in emerging economies like China, India and Thailand. Major producers of Europe, USA & Australia have initiated shift of manufacturing facilities to cost advantageous regions. KEY INVESTMENT ARGUMENTS Indiaâ&#x20AC;&#x2122;s fast growing economy to boost tinplate sales It is an established phenomenon world -wide that packaging industry growth is dependent on the rate of economic growth of a region / country. The growth at relatively higher rates in emerging economies of BRIC and Asia as compared to developed economies like USA, Europe & Japan will ensure that these markets including India will be the prime driver of growth. Consumption of tinplate in India at


The world is today grappling with environment concerns and packaging waste is a cause of concern. Tinplate is the most eco friendly packaging medium. This would give it an edge over other substitutes.

approx 0.30-0.40 kg /capita is much lower compared to 8 to 12kg/capita in many developed nations. Even a similar developing economy like China, consumes 1kg / capita. With expectation of economic growth, it is estimated that the packaging industry in India is also poised for growth and hence the tinplate demand will also grow. The company is the market leader in Industry The company is the largest tinplate producer in South East and South West Asia. Without saying, it is the largest player in India with a 35% to 40% share of the total domestic consumption.50% of the demand in the country is met through imports while the balance 1015% is in the unorganized sector. The company is aiming for full backward

integration with the second cold rolling mill (CRM) under implementation to ensure self sufficiency of raw material for the tinning line. Growth of organized retail in India The growth of the organized retail sector in India would be a big boost for the growth of the tinplate Industry as this sector encourages consumers to buy more canned products. Most Eco Friendly packaging medium The world is today grappling with environment concerns and packaging waste is a cause of concern. Tinplate is the most eco friendly packaging medium. This would give it an edge over other substitutes. Excellent pedigree and related advantages In 1982, Tata Steel bought the shareholding of Burmah Oil, the then major shareholder and took over the management of The Tinplate Company of India. The company has recently started collaborating with Corus, one of the world leaders in tinplate business and a subsidiary of Tata Steel. The company will be in a position to leverage the excellent R&D and engineering capabilities at Corus. Changing preference for cans over bottles The younger generation has shown a preference for the cans over bottles as cans seem to be more stylish. The largest beer manufacturer in India – United Breweries’ canned beer accounted for 2% of the total beer volumes 3 years back. At present the number has jumped up to 10%. The company expects the canned beer sales to go up to 20% of the total beer sales in the not too distant future. This shows the popularity of cans & supports the view that demand for cans will keep on rising. High growth in the food processing Industry


Share Capital Networth Revenues PBIDT APAT Dividend % EPS (Rs.)* Debt-Equity Ratio Interest Coverage Ratio RoNW % EBITDA Margin % APAT Margin % Price/Sales PE Multiple P/BV Ratio

(Rs. in cr) 9M 3 yr 200912 200903 200803 200703 200603 CAGR %

72 28.9 28.9 28.9 28.9 - 75 59.7 55.7 44.1 543.0 649.8 391.3 449 400.1 125.0 116.06 43.56 68.85 73.94 59.8 34.8 3.9 18.9 48.7 0 12.5 0 0 12.5 11.3 6.5 1.4 6.5 16.1 - 1.35 1 0.81 0.99 5.3 3.47 1.63 2.97 3.68 - 32.2 6.8 37.9 125.1 23.0 17.9 11.1 15.3 18.5 11.0 5.4 1.0 4.2 12.2 0.8 20.0 2.1

17.5 16.2 -10.6 -26.1

*EPS for 9MFY2010 is absolute and not annualized

India’s food processing Industry is expected to grow 30% to 40% per annum in the next 10 years. Only 6% of total agro output of India is currently processed as against 80 per cent in some developed countries. There is an opportunity for large investments in food and food processing technologies especially in areas of canning This is very positive for the tinplate Industry. The company being the market leader is likely to benefit from the rising demand for packaged foods mainly from urban population. Recent improvement in the global economy The company gets 25% to 30% per cent of its revenue from exports and the recent signs of a recovery in global economies have improved investors’ confidence about the company’s future earnings. Excellent financials The net sales increased to Rs. 543 cr. in 9MFY10 from Rs. 450.4 cr. in 9MFY09 showing an increase of 20.6%. PBIDT increased to Rs. 125 cr. from Rs. 69 cr., an increase of 81% for the same period. APAT jumped to Rs. 59.8 cr. in 9MFY10 from Rs. 12.9 cr., an increase INVESTORS INDIA

of 362.5% over the corresponding nine months of the previous year. Tinplate is a largest market player in India with a market share of 35-40% in the domestic market. Almost 50% of the demand is met through import. The company has recently ramped up the production capacity, is a set to benefit from the increase in capacity. Tinplate will also benefit from excellent R&D and engineering capabilities at Corus in which is a world leader in tinplate business. We recommend this stock for long term. Disclaimer: This document has been prepared by Bajaj Capital Centre for Investment Research (BCCIR), a unit of Bajaj Capital Limited (BCL). It does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable. We do not represent that information contained herein is accurate or complete and it should not be relied upon as such. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. The investment discussed or views expressed may not be suitable for all investors.

APRIL 2010 | 59


Canara Robeco Equity Diversified Fund Shibesh Jha

When the term “fund” is used, it typically means it is a form of mutual fund. The other two terms explain the way that the mutual fund is investing. The term “Equity” tells you that the mutual fund is investing in the stock of companies, which is called equity. This differentiates it from those funds that may invest in bonds or another strategy. “Diversified” should reflect that the fund is investing in companies from a broad range of sectors and across market capitalizations i.e. both in large cap and mid or small cap stocks. For example, financial, energy, health care and others sectors all in one fund. Equity Diversified Funds or flexi-cap funds as we call them are funds that invest in a wide range of sectors with a predominantly large cap oriented portfolio but with decent exposure to mid cap and small cap stocks. These funds are thus poised to benefit from good stock investment opportunities across the market capitalization spectrum.

Product Positioning: Canara Robeco Equity Diversified Fund follows a predominantly bottom-up investment approach with a focus on fundamentally sound companies which are likely to deliver superior capital appreciation over the mediumterm. The fund has a predominant focus on large caps with select high conviction mid cap ideas. The fund provides a blend of Growth and Value style of investing. Portfolio Analysis: (based on portfolio as on Feb 26, 2010) The fund has diversified its portfolio in 46 stocks as per its portfolio as on Feb 26, 2010. Top 5 stocks constitute 22.41% of the portfolio composition. The fund has invested 93.50% of its portfolio in Equity, 2.59% in short term debt instruments and the balance is in cash. It has 67.78% exposure to large cap stocks, 16.06% exposure to mid cap stocks and 2.12% exposure to small cap stocks. 6 Months Capitalization Graph:

Advantage and Disadvantage of Equity Diversified Fund: Advantages in equity diversified fund come in the form of diversification by way of sectoral investment, diversification by way of investment in growth as well as value stocks and diversification by way of market capitalization. Disadvantages is the very exposure to market risk. Mood Swings in the market could jerk your equities to a large extent affecting profitability and some times, even the capital invested. CANARA ROBECO EQUITY DIVERSIFIED FUND This Fund was launched in September 2003. It has been a good performer in the large cap space and has outperformed its benchmark over a long period. It offers above average returns with low volatility. Mr. Nimesh Chandan has been managing this fund since July 2008. Investment Objective: The scheme aims to generate capital appreciation by investing in equity and equity related securities. The scheme would follow bottom-up investment style by identifying companies with strong competitive position in good business and having quality management.

60| APRIL 2010

Top 5 Industries: (as on Jan 29-2010)


% To NAV

Banks Computers - Software Pharmaceuticals Refineries/marketing Oil Exploration0

21.83 10.35 9.26 7.19 4.37



APRIL 2010 | 61

Performance Analysis: (as on 25-Feb-2010)

Top 10 holdings: (as on Feb 26-2010)

Company HDFC Bank Ltd. Tata Consultancy Services Ltd. Reliance Industries Ltd. Bharti Airtel Ltd. State Bank Of India GAIL (India) Ltd. Bharat Heavy Electricals Ltd. Bank Of Baroda Oil India Ltd. Mahindra Holidays & Resorts India Ltd.

% To NAV 5.41 4.63 4.29 4.21 3.88 3.64 3.56 3.25 3.21 2.91

The Fund has beaten its benchmark consistently over a long period of time and has performed well in its category of diversified equity funds.

Growth of 1 lac in 6 Years:

Sector Allocation (as on Feb 26-2010)

The fund has maintained consistency in its portfolio with top 5 sectors remaining almost the same in the last 6 months. The maximum average exposure over the last six months has been to ICE (~23.86%), BANK (~23.03%), INFRA (~16.02%), O&G (~13.94%) and PH&CH (~9.92%). It has maintained an average cash level of ~6.47% in the period from Sep 09 to Feb 2010. (Legend: INFR-Infrastructure; CG-Consumer Goods; PH&CH-Pharma & Chemical; ICE-Information Technology, Communication and Entertainment; O&G-Oil and Gas; AUTO-Automobiles; BANK-Bank; CASH-Call/Net Receivable/GOI; OTHR-Others.)

62| APRIL 2010

Had somebody invested Rs. 1 Lac in this fund 6 years back in 20-Mar-2004, it would have grown to Rs. 3.94 Lacs as on Mar 19, 2010. At the same time investment in BSE 200 would have grown to Rs. 3.08 Lacs during the same period. Portfolio Manager: Mr. Nimesh Chandan has been managing this fund since July 2008. Mr. Chandan is an MBA in Finance. Prior to joining Canara Robeco AMC, he had been with ICICI Prudential, SBI and Birla Sun Life AMC as fund manager and has also worked with Stratcap Securities and Darashaw and Company.


Performance of other Diversified Equity Funds:

Scheme Name

NAV/Indes 6 9 1 Value as on Mths Mths Years 19-Feb-10

3 Years (CAGR)

5 Years (CAGR)

Reliance Regular Savings Fund - Equity - Gr







UTI Opportunities Fund - Growth







Canara Robeco Equity Diversified - Growth







DWS Investment Opportunity Fund - Growth







HDFC Growth Fund - Growth







Kotak Opportunities - Growth







Reliance Equity Opportunities Fund - Growth







ICICI Prudential Dynamic Plan - Growth







Fidelity Equity Fund - Growth







Franklin India Flexi Cap Fund - Growth







SBI Magnum Multiplier Plus Scheme 1993 - Gr







HDFC Premier MultiCap Fund - Growth







DSP BlackRock Opportunities Fund - Growth







Birla Sun Life Equity Fund - Growth







Tata Equity Opportunities Fund - Appr







Canara Robeco Multicap - Growth







IDFC Classic Equity Fund - Plan A - Growth







SBI Magnum MultiCap Fund - Growth







HSBC India Opportunities Fund - Growth







HSBC Progressive Themes Fund - Growth







L&T Multi-Cap Fund - Cumulative







Fortis Opportunities Fund - Growth







Morgan Stanley A.C.E. Fund - Growth







Franklin India High Growth Companies - Gr.







Mirae Asset India Opportunities - Reg - Gr







Bharti AXA Equity Fund - Eco Plan - Gr







Religare Equity Fund - Growth







Religare Growth Fund - Growth







HSBC Dynamic Fund - Growth







JPMorgan India Alpha Fund - Growth







Note : Return >=1 year are annualized and <1 year are absolute Risk Factor: Mutual Fund and securities investment are subject to market risks and there is no assurance or guarantee that the objectives of the scheme will be achieved. As with any investment in securities, the NAV of the units issued under the scheme can go up or down depending on the forces and factors affecting the capital market. Past performance of the Sponsor. Mutual Fund, AMC or any associate of the Sponsor/AMC does not indicate the future performance of the scheme. Please read the Offer Document/Scheme Information Document (SID) and statement of additional information carefully before investing.


APRIL 2010 | 63


CAPITALISATION M CAP* S. CAP* 14.91 01.42 - - 04.76 - 06.35 01.40 10.74 00.80

CORPUS# JAN 10 527 1041 1024 3881 456

CORPUS# FEB 10 482 1099 955 3634 446

SECTOR ALLOCATION % INFR. CG PH&CH ICE 25.01 08.25 07.04 18.99 27.42 05.69 05.69 19.27 11.89 06.24 03.03 18.73 20.27 06.28 15.62 12.47 29.62 10.67 07.65 17.45



CAPITALISATION M CAP* S. CAP* 51.28 01.96 49.11 06.07 22.70 - 58.36 03.39 46.44 23.51

CORPUS# JAN 10 1304 436 6945 1955 320

CORPUS# FEB 10 1406 421 6819 1900 309

SECTOR ALLOCATION % INFR. CG PH&CH ICE 33.33 08.55 10.09 10.57 44.09 09.53 14.07 05.45 21.34 05.67 12.52 09.89 28.54 13.26 17.93 08.74 41.16 10.65 19.04 10.97



CAPITALISATION M CAP* S. CAP* 17.00 - 44.63 04.51 22.77 01.43 10.51 -

CORPUS# JAN 10 1890 1931 1114 1172

CORPUS# FEB 10 1928 1872 1066 1253

SECTOR ALLOCATION % INFR. CG PH&CH ICE 21.20 02.93 12.70 13.48 17.72 11.48 23.41 22.35 39.53 15.85 11.48 04.65 27.98 12.64 02.34 09.62



CAPITALISATION M CAP* S. CAP* 17.55 01.49 21.36 00.07 24.03 05.03 24.60 -

CORPUS# JAN 10 1137 2159 1050 1331

CORPUS# FEB 10 1102 2155 1043 1211

SECTOR ALLOCATION % INFR. CG PH&CH ICE 23.66 07.08 11.10 17.12 14.93 07.14 19.98 17.18 20.78 02.16 17.65 15.93 30.20 05.00 05.60 12.10



CAPITALISATION M CAP* S. CAP* 37.37 11.30 46.11 04.13 30.13 02.73 35.86 - 12.15 00.44

CORPUS# JAN 10 352 668 324 478 1764

CORPUS# FEB 10 348 779 384 471 1749

SECTOR ALLOCATION % INFR. CG PH&CH ICE 24.57 12.97 21.24 06.58 25.55 04.12 18.64 11.33 21.48 07.05 15.31 18.59 28.54 02.45 14.38 08.67 28.57 07.05 07.76 14.29


CAPITALISATION M CAP* S. CAP* 22.89 03.10 28.86 03.22 08.98 - 11.48 04.08 11.29 01.76

CORPUS# JAN 10 167 3488 202 507 263

CORPUS# FEB 10 158 3570 252 491 261

SECTOR ALLOCATION % INFR. CG PH&CH ICE 16.15 05.52 05.62 21.70 17.94 11.79 09.95 09.91 13.78 05.41 06.92 12.94 26.61 05.50 04.96 13.14 15.40 13.32 07.90 21.41






RATING S PROFILE (%) AAA/AA P1/P1+ 06.26 26.92 05.87 56.16 44.97 23.99 36.24 20.78 47.36 19.92

CORPUS# JAN 10 340 137 3954 2783 246

CORPUS# FEB 10 381 163 4435 3239 265

ASSET ALLOCATION % BCCIR INDUSTRIES CLASSIFICATION) EQUITY NCD CD FD GOI CASH 09.80 06.26 26.92 - 01.24 55.51 21.30 16.93 45.55 - 03.22 12.99 21.63 44.97 22.10 - 05.32 04.09 17.18 36.24 20.78 - 13.38 10.85 20.25 47.36 19.92 00.59 01.76 10.12

Legend : INFR-Infrastructure, CG-Consumer Goods, PH&CH - Pharma & Chemical, ICE - Information Technology, Communication and Entertainment, O&G - Oil and Gas, AUTO - Automobiles,BANK - Banks, CASH- Call/Net Receiviable/GOI, OTHR- Others,G-Sec-Government Securties, CD - Corporate Debt, CASH - Cash, CBLO - Collateralized Borrowing and Lending Obligation, RR - Reverse Repo, NCD Bond & ST - Non Convertible Debentures, CP- Commercial Paper, @ - Absolute Returns and ^ - CAGR *- Average Maturity and Modified Duration in Yrs : For queries please contact research cell at

64| APRIL 2010



AUTO 03.10 02.83 09.48 06.84 07.47

(BCCIR INDUSTRIES CLASSIFICATION) O&G BANK OTHR CASH 6 MTH 09.26 23.98 04.23 00.14 10.63 11.90 27.46 04.45 -04.70 10.20 15.00 20.34 08.90 06.38 04.79 11.27 14.60 06.70 05.91 06.15 08.66 11.80 05.16 01.52 10.18

RETURNS@ (%) AS ON 22-MAR-10 1 YR. 3 YR.^ 5 YR.^ 103.25 - - 100.67 - - 79.28 12.65 23.63 97.27 13.32 23.50 94.75 14.94 24.18

LAST DIVIDEND 15% 31 -JUL 09 - - 30% 22-JAN 10 50% 27-NOV 09 -

BETA RATIOS 0.82 - 0.78 0.86 0.81

SHARPE RATIO 0.16 2.03 - 0.04 0.13


AUTO 08.29 08.06 03.08 06.23 04.10

(BCCIR INDUSTRIES CLASSIFICATION) O&G BANK OTHR CASH 6 MTH 02.70 10.92 05.85 09.69 12.22 - 08.10 01.97 08.73 21.54 05.96 11.95 19.54 10.05 11.17 04.57 11.68 02.71 06.34 11.70 - 08.67 - 05.42 14.63

RETURNS@ (%) AS ON 22-MAR-10 1 YR. 3 YR.^ 5 YR.^ 157.96 20.39 26.13 146.43 05.78 21.42 120.86 18.81 29.42 155.30 15.47 28.74 136.81 12.62 -

LAST DIVIDEND 25% 29-JAN 10 15% 22-JAN 10 50% 30-OCT 09 15% 05-FEB 10 20% 15-JUN 09

BETA RATIOS 1.04 1.04 0.91 1.09 0.95

SHARPE RATIO 0.22 - 0.20 0.26 0.21


AUTO 01.40 05.22 06.89 06.99

(BCCIR INDUSTRIES CLASSIFICATION) O&G BANK OTHR CASH 6 MTH 12.29 19.45 -02.79 19.34 15.80 03.40 08.91 04.93 02.57 21.18 02.93 10.76 - 07.91 09.64 09.01 19.54 02.67 09.21 04.36

RETURNS@ (%) AS ON 22-MAR-10 1 YR. 3 YR.^ 5 YR.^ 99.73 13.91 28.40 144.65 14.81 - 94.46 13.92 - 97.59 21.24 -

LAST DIVIDEND 12% 19-FEB 10 20% 24-JUL 09 70% 22-OCT 09 15% 22-JAN 10

BETA RATIOS 0.78 0.92 0.84 0.80

SHARPE RATIO 0.25 0.24 0.08 0.22


AUTO 04.50 05.39 03.04 05.30

(BCCIR INDUSTRIES CLASSIFICATION) O&G BANK OTHR CASH 6 MTH 08.81 21.78 04.92 01.03 11.64 06.40 19.65 03.03 06.30 14.43 11.39 16.00 03.81 09.24 18.80 17.70 15.40 04.00 04.70 -00.15

RETURNS@ (%) AS ON 22-MAR-10 1 YR. 3 YR.^ 5 YR.^ 102.22 15.22 - 124.41 14.72 24.77 140.30 14.66 21.39 89.69 15.78 25.04

LAST DIVIDEND - 0.80 60% 04-MAR 10 40% 04-DEC 09 10% 19-MAR 10

BETA RATIOS 0.37 0.85 0.93 0.85

SHARPE RATIO 2.06 0.34 0.34 0.40


AUTO 04.84 05.76 05.99 05.55 08.43

(BCCIR INDUSTRIES CLASSIFICATION) O&G BANK OTHR CASH 6 MTH 06.66 17.49 02.11 03.55 10.76 04.15 19.68 - 10.77 16.06 06.99 10.40 04.06 10.14 11.97 09.07 17.02 06.56 07.76 14.02 07.59 17.36 - 08.96 11.91

RETURNS@ (%) AS ON 22-MAR-10 1 YR. 3 YR.^ 5 YR.^ 107.25 20.77 20.05 166.29 19.74 25.54 119.64 21.36 25.77 123.66 20.84 25.22 93.57 21.40 -

LAST DIVIDEND 6.50%26-FEB 10 15% 18-DEC 09 30% 15-JAN 10 30% 16-DEC 09 5% 17-MAR 10

BETA RATIOS 0.73 0.97 0.90 0.89 0.68

SHARPE RATIO 0.46 0.49 0.25 0.27 0.34


AUTO - 03.50 05.85 03.30 02.09

(BCCIR INDUSTRIES CLASSIFICATION) O&G BANK OTHR CASH 6 MTH 07.95 22.90 14.84 05.33 08.63 06.12 24.90 10.84 05.05 13.42 05.54 15.15 00.74 33.65 14.08 06.02 16.77 20.73 02.97 05.29 02.98 27.32 02.07 07.52 11.78

RETURNS@ (%) AS ON 22-MAR-10 1 YR. 3 YR.^ 5 YR.^ 82.73 14.79 23.15 108.00 17.61 24.74 103.99 22.23 - 75.73 11.92 20.69 85.25 15.80 20.93

LAST DIVIDEND - 35% 18-MAR 10 30% 24-JUL 09 50% 27-NOV 09 30% 19-MAR 10

BETA RATIOS 1.01 1.09 1.03 1.03 1.00

SHARPE RATIO 0.24 0.34 0.41 0.07 0.17


AVG * MATURITY 0.39 0.63 2.21 1.94 2.12

MOD. * DURATION 3 MTH^ - 06.45 - 10.32 - 07.79 - 06.35 - 06.36

ANN. RETURNS (%) AS ON 22-MAR-2010 6 MTH^ 1 YR.^ 3 YR.^ 5 YR.^ 07.06 20.00 10.62 10.23 07.79 21.64 13.02 14.21 10.44 34.32 12.36 13.25 10.83 28.14 14.30 13.71 07.74 23.08 11.06 11.80

YTM (%) - - - - -

SHARPE RATIOS 0.56 0.55 0.64 1.14 0.47

2.24 2.09 1.83 2.50

2.20 2.30 1.81 1.96 2.36

1.91 1.95 2.06 2.22

1.94 2.04 2.06

2.35 2.17 2.50 2.27 1.98

2.43 1.87 2.25 2.28 2.50

EXP. RATIO 2.18 2.50 1.77 2.02 1.68

Risk Factor: Mutual Fund and securities investment are subject to market risks and there is no assurance or guarantee that the objectives of the scheme will be achieved. As with any investment in securities, the NAV of the units issued under the scheme can go up or down depending on the forces and factors affecting the capital market. Past performance of the Sponsor. Mutual Fund, AMC or any associate of the Sponsor/AMC does not indicate the future performance of the scheme. Please read the Offer Document/Scheme Information Document (SID) and statement of additional information carefully before investing.


APRIL 2010 | 65

FD COMPANIES Non-Cumulative Interest Rates

S r N o.



Effective Date

6 Months

1 Years

2 Years

3 Years

4 Years

5 Years

6 Years

7 Years

Interest Payable

Interest Accrued Months

1 UNITECH LIMITED N/A May 26,09 11.00 11.50 12.00 Q 31/3, 30/6, 30/9, 31/12 2 DEEWAN HOUSING FIN.LTD CARE- AA+ Nov 1, 09 8.80(M) 8.90(M) 9.00(M) 8.80(M) 8.80(M) 8.80(M) 8.80(M) M/Q/H/Y (Aashray Deposits) , IND-AA 8.90(Q) 9.00(Q) 9.10(Q) 9.00(Q) 9.00(Q) 9.00(Q) 9.00(Q) 9.00(H) 9.10(H) 9.25(H) 9.00(H) 9.00(H) 9.00(H) 9.00(H) 9.30(Y) 9.40(Y) 9.50(Y) 9.25(Y) 9.25(Y) 9.25(Y) 9.25(Y) 3 UNITED SPIRITS LIIMTED N/A March 1, 10 11.00 11.50 Q 31/3, 30/6, 30/9, 31/12 4 D S KULKARNI DEVELOPERS LTD N/A Jan 22, 10 12.00 12.00 12.00 Q 31/3, 30/6, 30/9, 31/12 5 EXIM BANK OF INDIA CRISIL-FAAA, Nov 12, 09 6.75 (upto 6.75 (upto 7.50 (upto 7.50 (upto 7.50 (upto H 1/4 and 1/10 ICRA-MAAA, 1cr.) 5.25 1cr.) 5.25 1cr.) 6.00 1cr.) 6.00 1cr.) 6.00 FITCH- TAAA (Above 1cr) ( Above 1cr) ( Above 1cr) (Above 1cr) ( Above 1cr) 6 FIRST LEASING COMPANY CARE-AA+, Jan 22, 10 8.00 8.25(18 mths) 8.75 M/Q/A 31/3, 30/6, 30/9, OF INDIA LIMITED FITCH 8.50(24 mths) 31/12 RATING: tAA+ 7 GATI LIMITED Dec 1, 09 10.00 10.25 10.50 Q 31/3, 30/6, 30/9, 31/12 8 HDFC LIMITED CRISIL-FAAA March 8, 10 6.70(M) 6.95(M) 7.30(M) 7.30(M) 7.95(M) 7.95(M) 7.95(M) M/Q/H/Y M-last day of each ICRA-MAAA 6.675(Q) 7.00(Q) 7.35(Q) 7.35(Q) 8.00(Q) 8.00(Q) 8.00(Q) month, Q- 31/3, 6.85(H) 7.10(H) 7.45(H) 7.45(H) 8.10(H) 8.10(H) 8.10(H) 30/6, 30/09, 31/12, 7.25(A) 7.60(A) 7.60(A) 8.25(A) 8.25(A) 8.25(A) H- 31/3, 30/09, A- 31/3 9 HUDCO FITCH-TAAA, Feb 22, 09 6.65 7.00 7.35 7.35 8.00 8.00 8.00 Q 31/3, 30/6, 30/9, CARE-AA+ 31/12 10 ICICI HOME FINANCE ICRA-MAAA, Mar 15, 10 6.80(M) 7.10(M) 7.45(M) 7.45(M) 7.95(M) 7.95(M) 7.95(M) M/Q/Y M-last day of CARE-AAA 6.85(Q) 7.15(Q) 7.50(Q) 7.50(Q) 8.00(Q) 8.00(Q) 8.00(Q) each month, 7.00(A) 7.35(A) 7.70(A) 7.70(A) 8.25(A) 8.25(A) 8.25(A) Q- 31/3, 30/6, 30/09, 31/12, H- 31/3, 30/ 09, A- 31/3 11 IND SWIFT LIMITED N/A July 1, 09 10.50(Q) 11.50(M/Q) 12.00(M/Q) 12.50(M/Q) M/Q M-last day of each month, Q- 31/3, 30 /6, 30/09, 31/12 12 J.K. TYRE & INDUSTRIES Ltd N/A Nov 16, 09 8.50 8.75 8.75 Q 31/3, 30/6, 30/9, 31/12 13 JAIPRAKASH ASSOCIATES N/A Nov 1, 08 11.00 11.50 12.00 Q LTD (only for shareholders) (Max Limit-Rs. 10 lacs) 14 LIC HOUSING FINANCE LTD CRISIL- Oct 1, 09 6.75 7.25 7.50 - 8.00 H 30/09 and 31/3 FAAA 15 MAHINDRA & MAHINDRA CRISIL- FAA Oct 27, 09 7.75 8.25 8.75 H 30/09 and 31/3 FINANCE SERV LTD 16 NATIONAL HOUSING CRISIL-FAAA, Jan 1, 2010 6.50 6.50 7.25 - 8.00 H 1/04 and 1/10 BANK (SUNIDHI SCHEME) FITCH-TAAA 17 NATIONAL HOUSING CRISIL-FAAA, April 27, 09 8.00 H 1/04 and 1/10 BANK(SUVRIDHI TAX FITCH-TAAA SAVING SCHEME) 18 RPG LIFE SCIENCES LIMITED Mar 17, 10 - 9.00 9.50 Q 31/3, 30/6, 30/9, 31/12 19 SHRIRAM TRAN. FINANCE FITCH-TAA Nov 11, 09 8.00 8.50 9.00 9.00 9.00 Q 31/3, 30/6, 30/9, CO.LTD 31/12 20 SOLARIS CHEM TECH LTD N/A Jan 1, 2010 10.00 10.50 11.00 M End of each month 21 TATA MOTORS LIMITED N/A Aug 26, 09 - 8.00 8.75 - - M/Q End of each month.. 31/3,30/6,30/9,31/12 22 ALEMBIC LIMITED N/A Feb 5, 10 6.00 7.50 8.50 H 31/3,30/9 23 NTPC LIMITED CRISIL-FAAA Sep 18,09 6.25(Q) 6.50(Q) 6.75 Q,M 31/3, 30/6, 30/9, 31/12 AND LAST DAY OF EACH MONTH

Disclaimer: The Rates of Interest stated are applicable as on the date mentioned hereinabove. The rates may be revised at the sole discretion of the respective companies inviting the Fixed Deposits without further notice. 66| APRIL 2010


READY RECKONER Cumulative Interest Rates

Min Deposit

6 Months

1 Years

2 Years

3 Years

4 Years

7 Years

6 Years

5 Years

Interest compo unding

Min. Deposit

In multipes of

Additional for Sr. Citizen %

25,000 11.00 11.00 11.50 12.00 Q 25,000(6 mths) 10000 (Rest All) 1000 20000 for 9.00 9.10 9.25 9.00 9.00 9.00 9.00 H 10,000 1000 0.25 M and 10000 for others 25,000 11.00 11.50 Q 25,000 1,000 15000 12.00 12.00 12.00 M 15000 1000 0.50

10000 6.75 (upto 1cr.) 5.25 (Above 1cr) 50000(M), 8.00 5000(Q)




6.75 (upto 7.50 (upto 7.50 (upto 7.50 (upto 1cr.) 5.25 1cr.) 6.00 1cr.) 6.00 1cr.) 6.00 (Above 1cr) (Above 1cr) (Above 1cr) (Above 1cr) 8.25(18 mth) 8.75 8.50(24mth)






















7.25(A) 7.35
















0.50 0.25% for 25 lacs & Above



50000.00 6.65 7.00 5000.00


Additional for Big Tickets %


10000(Q) 10.50 11.50 12.00 12.50 Q 10000 1000 0.50(only for 100000(M) 6 months, 1&2 years) 10000 8.50 8.75 8.75 Q 10000 1000 20000(Q) 11.00






10000 6.75 7.25 7.50 - 8.00 H 10000 1000 25000 8.00 8.50 9.00 A 10000 1000


0.10% upto Rs. 50,000 and 0.25% for Rs. 51,000 & Above 0.25

50000 6.50 6.50 7.25 - 8.00 Q 50000 10000 0.50 0.10% for 15 lacs & above 10000 8.00 Q 10000 0.50






















1,00,000 10.00 10.50 11.00 Q 20000 5000 1,00,000(M) - 8.00 8.75 - - - - Q 20000 10000 0.25% & 20,000(Q) 50,000 6.00 7.50 8.50 H 50,000 10,000 100000(M) 6.75 Q 5,000 1000 5000(Q)


>=25lacs to <50 lacs=0.10%; >=50lacs to <1crore =0.15% & >=1 crore =0.20% 0.25% for 5 lacs & Above

APRIL 2010 | 67



Compiled by: Preeti Gupta, Analyst, BCCIR ( 78| APRIL 2010


ECONOMY INDICATORS Repo and reverse repo rate The RBI raised its short-term borrowing and lending rates by 25 basis points each on 19 March, 2010. It has raised the reverse repo rate to 3.5% and the repo rate to 5% with immediate effect. With headline inflation at 9.9% in Feb’10, exceeding its baseline projection of 8.5% for end Mar’10, anchoring inflation expectations and containing inflation had become imperative. Banks are likely to take a call on raising the deposit and lending rates after the financial closure on March 31, 2010. Industrial Production Index of Industrial Production (IIP) grew at a robust 16.7% Y-o-Y in Jan’10 against a mere ~1% growth a year back. After a difficult start in FY10, industrial growth picked up post June and has posted a markedly strong growth of ~9.6% Y-o-Y in the Apr-Jan’10 period. For Dec’09, the IIP growth number was revised upwards from ~16.8% to ~17.6%, Y-o-Y. The spectacular IIP growth numbers gave confidence to the Government to partially roll back stimulus measures in the recent Union Budget. The robust Industrial growth is likely to back gross domestic output to achieve a 7.2% growth in FY10 as projected by the CSO. The low base and improved demand outlook in both domestic and international markets are likely to keep IIP growth close to double digits until May’10. With an improved economic scenario and the base effect likely to be pronounced in the coming months as well, the current fiscal is likely to post industrial growth of 9%-10%. Core Infrastructure growth

Core infrastructure sectors grew by a robust 9.4% in Jan’10 against 2.2% a year ago. This is the highest growth in 29 months reflecting the sound state of recovery in industrial production. All the six sectors performed better individually except coal. A record rise in steel output and crude oil boosted the numbers. In the ten months of Apr-Jan 2010, the core infrastructure sector grew 5.4% as against 3.0% in the corresponding period last year. External Trade Trade deficit for Jan’10, at US$10.4 bn, stood a tad higher than US$10.1 bn deficit recorded for the previous month. It was also higher than the average of ~US$7.8 bn for Apr-Jan’10. Faster pick-up in imports during the month pushed the merchandise trade deficit number higher. Exports and imports stood at US$14.3 bn and US $24.8 bn respectively in Jan’10. During AprJan’10, imports on a cummulative basis fell ~20% Y-o-Y, while exports dipped ~14%. Much of the stabilization seen over the last one year is the result of a low base. Inflation WPI inflation for Feb 2010 rose sharply to 9.89% Y-o-Y due to costlier primary articles and higher fuel prices. The index of primary articles and fuel group rose 15.5% and 10.2% respectively in Feb’10. Amidst continuous government initiatives to rein in prices of farm goods and a good winter crop, food price inflation is likely to moderate in 2010-11. The impact of a low base is also expected to wane off April 2010 onwards which might provide some amount of relief. CPI inflation for INVESTORS INDIA

Industrial workers stood at 16.22% in Jan’10, higher than WPI inflation due to higher weight of food inflation. Overseas Inflows FDI at US$ 1542mn witnessed growth of ~13.2% (YoY) in the month of Dec’09. The sectors that attracted the highest FDI equity inflows were - ‘services sector’ (22%), ‘computer software & hardware’ (9%) and ‘telecommunications’ (8%). Mauritius, Singapore and USA were among the top investing countries contributing 44%, 9% and 8% of the total FDI inflows respectively. FIIs remained net buyers in Indian equities in this fiscal with total inflows of Rs. 106247cr during the period April 01, 2009 to March 18, 2010). FIIs remained net buyers in each of the months in this fiscal except Jan’10. Going ahead, FII inflows will be guided by global cues as rising risk aversion on any global events might affect FII flows to India. Credit Deposit growth Credit growth of banks saw an improvement at 15.8% on Feb 26, 2010 against a growth of 15.1% on Feb 12, 2010. Credit growth has picked up after falling below 10% in October 2009. It is now almost in line with RBI’s revised projection of 16% for 2009-10. Deposit growth also remained below RBI projections (18%), growing by 16.8% as on Feb 26, 2010. Going ahead, credit growth is likely to pick up as private sector demand recovers due to improved demand outlook and robust industrial growth.

APRIL 2010 | 79


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