The finapolis Feb 16 by The Finapolis

The Finapolis Tax Worksheet

Rent Jewellery, Donâ&#x20AC;&#x2122;t Buy It

Top Stock Picks for 2016

Insurance Against Terror Attacks

Finapolis The

1st February 2016 `60

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Your Personal Finance Advisor

Closing Time

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The Finapolis l FEBRUARY 2016

EDITOR’S DIARY

The

Your Personal Finance Advisor

Volume 9

Issue 11

February 2016

Editor Mubashir Ansari editor@thefinapolis.com Associate Editor Mandar M Bakre Special Correspondent Hiral Thanawala Editorial Board Phani Sekhar Amit Saxena KP Jeewan Jagannadhan T Design & Production Guru Prasath R Vijayendra Kumar Ch

2016: So far, so bad

our weeks into the New Year and there is disillusionment all around. The stock markets have been a minefield sending investors scurrying for cover into safer havens. Some of the euphoria of new beginnings has evaporated,

leaving behind a maze of uncertainty. This fiscal year however, will soon close and it is time to prepare your tax returns. Companies too, require you to submit your bills and investment proofs around this time. So this is traditionally the time we plan our returns. And by extension, our savings and investments. How are you placed for 2016? We’ve got you covered with our tax worksheet, which lists all possible deductions you can avail of. Fill in the blanks and you’ll know instantly what benefits you’ve

Advertising & Circulation Shabna R Iyer Anamika Mitra Vijayendra Kumar Ch

missed. And if you realise that you have space to claim tax benefit, but not the mon-

For Ad Sales Queries subscriptions@thefinapolis.com

reached maturity. If that’s missing, find yourself a friend. One who can lend at this

Printed & Published by Mubashir Ansari on behalf of Karvy Consultants Limited. Karvy House, 46 Avenue 4, Street 1, Banjara Hills Hyderabad - 500 034. AP.

ings Certificates, and follow the process outlined

Printed at

learn how the latest trend in smart financial man-

Kala Jyothi Process Pvt. Ltd Regd.Office: 1-1-60/5 RTC Cross Roads, Musheerabad, Hyderabad - 500 020. AP.

agement is to get jewellery on rent and not buy it.

SVPCL Limited Regd.Office: 206/A, Concorse 7-1-58, Greenlands, Ameerpet Hyderabad - 500 016. AP. Published for the month of February 2016 Printed on February 1, 2016 Total No. of pages 68

All charts and tables are sourced from Bloomberg, unless otherwise indicated.

ey to do so, don’t worry. Our cover story, written by Balwant Jain, tells you how to claim deductions when short of cash. All you need is an ELSS investment that has last hour. And use the money to buy National Savin the story. Besides advice on tax, this month’s issue is packed with financial tips and means. We look at ways for you to improve your credit score, and

On a macro level, K P Jeewan dissects the global economic scenario and finds out how everyone is undercutting in a battle of who-blinks-first-loses. We look at the proposed bankruptcy code and find that it is a step in the right direction. A glimpse of the future of finance in a digital world tells us that CFOs are uniquely poised to make a difference, but they need to learn new skills. The digital world makes its appearance in another of our pieces: why is business travel booming despite the ease of communication and the new technologies that make it easier to communicate across the oceans? Meanwhile, our columnists weigh in with advice and ideas. What rules govern the carry forward of losses? And given the number of terror attacks, what’s the best

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way to insure yourself against them? All this and more is packed in the Finapolis this February. Enjoy the issue.

The Finapolis Karvy Centre, 8-2-609/K, Avenue 4, Street No.1, Banjara Hills, Hyderabad-500 034 Tel: +91 40 66072560 Copyright The Finapolis. All rights reserved throughout the world. Reproduction in any manner is prohibited. The Finapolis does not accept responsibility for returning unsolicited manuscripts and photographs. All unsolicited material should be accompanied by self addressed envelopes and sufficient postage.

Mubashir Ansari

The Finapolis l FEBRUARY 2016

CONTENTS r Covey Stor

N ELSS C

16 Closing Time

Saving money when short of cash

Face To Face

Sohini Andani Fund Manager, SBI Fund Management

COLUMNS

Business Travel

Why is it booming?

Anuj Puri What Realty Would Like from the Union Budget

AN Shanbhag and Sandeep Shanbhag Set-Off and Carry Forward of Losses

Deepak Yohannan Does Your Insurance Cover Terrorist Attacks?

FEBRUARY 2016 l The Finapolis

WE ARE DIGITAL

24 Global Economics Playing football on a minefield!

DANGER MINES

With the proliferation of smartphones and tablet devices, reading habits are slowly but surely changing. We understand the importance of giving readers a cross-platform choice to access the magazine. The Finapolis is now available in a digital avatar as well via a global publishing platform such as Magzter and Indiamags. Besides allowing you to read on the go, the digital version offers an enhanced reading experience. It also eliminates delivery delays. You can download the digital magazine on the first day of every month. Go to www.magzter.com, Indiamags.com or Rockstand mobile app, search for ‘The Finapolis’, sample some pages of the digital magazine, and buy a subscription through your netbanking or credit card account. A one-year subscription for The Finapolis digital costs only Rs 540. You need to have a device that runs on Apple’s iOs, Android or Windows 8 operating system. Do let us know what you think of the digital experience by writing in to feedback@thefinapolis.com

Corporate Reform

The proposed bankruptcy code is a good thing

Buy on

IPO Advice

Opportunities coming in 2016

62 Finance in a Digital World

ETCETERA Follow us on

Adhil Shetty Five Things to Check Before Buying a Mutual Fund

twitter.com/KarvyFinapolis facebook.com/TheFinapolis linkedin.com/company/karvy

The Finapolis l FEBRUARY 2016

inbox The lessons to learn from Chennai Floods The cover story on lessons to learn

hard earned assets adequately. It’s

from the Chennai floods has elucidat-

well pointed out to digitise all insur-

ed the importance of having life and

ance documents through repository,

general insurance. I agree with the

since it’s easy to misplace physical

author, post such calamity insurance

copy of insurance during occurrence

acts as a safety ring. So, one must

of natural calamity like earthquake,

buy term plan to cover our uncertain

cyclone or floods in future — Prasad Mehta, Delhi

life and home insurance to cover all

Will the lion roar? The author of “Make in India” article has very well spoken about the objective and concept behind this campaign. Now, PM Modi and his team need to work hard to make this campaign huge success for better growth and development of India. As

India wealth report The article has given a bird’s-eye view on the investment pattern of HNIs in India. Seems day-by-day investors in India are getting educated and more savings is getting parked in financial assets which include equities, FDs, mutual funds, insurance, provident funds, etc. I hope the growth trend continues for investments in such financial assets for at least next five years. — Gururaj Damani, Pune

author says, let’s wait for one more year to find out whether the lion will roar or not. — Nitin Agarwal, Indore Disclaimer: The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Real picture of real estate The chartist is useful to understand property prices and rental values of real estate sector in metro cities of India. It helps in decision making whether to buy or sell the property in these cities taking into account income per annum. - Proneeta Roy, Kolkata

Stay away from easy debt Seems, these days it’s easy to get a loan just by answering a phone call. Regularly I receive a sales call or a mail stating I am eligible for Rs 5 to 10 lakh amounts as pre-approved loan. I have ignored such calls and mail without going much in detail. However, an article on “Good boys can get pre-approved loans” has clarified the process of such pre-approved loans with its advantages and disadvantages. I agree with the author, most people tempt to take the loan based on impulse and easy availability of credit. So, one must learn to avoid such easy debt trap when loan is not required. — Kashmira Irani, Mumbai

Send your feedback and views on The Finapolis to feedback@thefinapolis.com

The Finapolis l FEBRUARY 2016

 START-UP POLICY Government launches ‘StartUp India’ to kickstart entrepreneurism The government in January announced ‘StartUp India’, an initiative which aims to build a strong eco-system for innovation and start-ups in the country. The action plan was announced by Prime Minister Narendra Modi and involves: ➤➤ S e l f - c e r t i f i c a t i o n r e g i m e f o r compliance The objective is to reduce the regulatory burden. Start-ups can self-certify compliance with labour and environmental laws and will face no labour inspections for the first three years. ➤➤ Simplification of the registration process through mobile app ➤➤ Setting up of a ‘StartUp India’ hub This would be a single place for entrepreneurs to connect with mentors, banks, angel investors, Indian and foreign venture capitalists etc. ➤➤ Patent protection The government will promote awareness and adoption of intellectual property rights by startups. ➤➤ The government will fund the programme with a total corpus of Rs 10,000 crore through funds of funds ➤➤ Creation of a credit guarantee fund for start-ups Credit guarantee would be provided through the National Credit Guarantee Trust Company/ SIDBI with a budgetary corpus of Rs 500 crore per year for the next four years.

➤➤ Provision allowing for 80% rebate on patent applications ➤➤ Profits for such companies to be tax-free for the first three years ➤➤ Exemption from capital gains tax ➤➤ Faster exit procedures for start-ups with the help of the bankruptcy code under discussion A start-up can wind up within a period of 90 days after making an application. ➤➤ Creation of incubation centres to support start-ups across the country ➤➤ Setting up of seven new research parks to support start-ups

Six research parks will be set up at IITs and one will come up in the IISc campus. These research parks will enable start-ups to leverage the expertise of academic and research institutions. ➤➤ Promote entrepreneurship in biotechnology by establishing new bio-clusters, bio-incubators, technology transfer offices and bioconnect offices ➤➤ Start-up festivals in school This will help to initiate innovationfocussed programmes for students in 5,00,000 schools.

“While mid-caps have corrected over the past two weeks, we believe they are still overvalued; hence, opportunity lies in the large-cap space,” - S Naren, Chief Investment Officer, ICICI Prudential Mutual Fund

Quote of the month

FEBRUARY 2016 l The Finapolis

 BAD MONEY

INCUBATION SUPPORT SBI rolls out start-up focussed branches Now, even banks have started helping entrepreneurs by setting up dedicated branch and advisory services. The State Bank of India inaugurated India’s first start-up focussed bank branch in Bengaluru city known as SBI InCube. The branch’s objective is to understand and address banking needs of start-ups. SBI’s InCube branches will offer entrepreneurs the advisory services: ➤➤ Registrations and approvals required while starting a business ➤➤ Tax considerations to be kept in mind ➤➤ Opening a bank account for the company ➤➤ Obtaining Director Identification Number (DIN) and Tax Account Number (TAN) ➤➤ Managing receipts from customers and payments to vendors ➤➤ Forex remittances, etc.

Rs 30,000 crore burnt in a day due to security flaws

E-INSURANCE

The India Security Press (ISP) recently had to burn Rs 30,000 crore of rupee notes in one day because the notes were faulty. The press had printed Rs 50,000 crore in Rs 1,000 denomination at Nasik, but Rs 30,000 crore of those notes had no security thread or had the image of

IRDA approves e-Motor insurance policy The Insurance Regulatory and Development Authority of India (IRDA) has approved ‘e-Vahan Bima’, a motor insurance policy in electronic format. Vehicle owners can save the policy in their mobile and show it to traffic police when required. The policy is issued in digital form with a Quick Response code to scan for verification of policy details. Telangana is the first state to adapt the e-Vahan Bima format, accepting it from January 2016. IRDA expects other states to implement the format by end of 2017. Benefits of e-Motor insurance ➤➤ Insurance companies will find it quicker to issue the policy. They will also save on cost of printing the policies and courier charges ➤➤ Vehicle owners can access the policy any time and

➤➤

Mahatma Gandhi printed upside down. The RBI, which had begun circulation of the notes, received complaints and immediately asked ISP to stop the supply of notes. The faulty notes were recalled and burnt and three employees at ISP were suspended following the lapse.

chances of the policy being misplaced are less as there is no need to carry the physical policy The use of QR codes for verification can allow police to better monitor fraud

The Finapolis l FEBRUARY 2016

ď&#x192;¨ PENSION SCHEME NPS trust to review the performance of pension funds The National Pension Scheme (NPS) trust is planning to appoint a consultant to review the pension funds. It is the role of the NPS trust to review the portfolio on a regular basis. The

appointment of a consultant will be for two years initially. The consultant will review the existing portfolios of NPS and its performance

at quarterly intervals. The consultant will also review NPS schemes and submit a report within two months of appointment.

NPS Performance for Tier I â&#x20AC;&#x201C; Equity Plans NPS Scheme

6-month

1-Year

3-Year

5-Year

HDFC Pension Fund

12.73

-11.50

ICICI Prudential Pension Fund

-12.79

-11.58

8.91

7.37

Kotak Pension Fund

-11.65

-10.26

9.01

6.87

LIC Pension Fund

-12.92

-11.91

Reliance Capital Pension Fund

-11.76

-10.56

9.09

6.37

SBI Pension Fund

-12.28

-11.13

9.14

6.89

UTI Retirement Solutions

-11.57

-9.84

9.75

6.53

Source: Value Research Online; Returns as on Jan 15, 2016

REGULATORY

DISCONTINUATION Govt withdraws 10-year NSCs, five-year certificates to continue

IRDA proposes caps on agent commission

The government has decided to discontinue the IX th scheme of National Savings Certificates (NSCs). The issue, which had a term of 10 years and offered 8.8% p.a., was discontinued from December 20, 2015, according to a finance ministry notification to postal departments.

However, the VIII th issue of NSCs, which offers 8.5% p.a. over tenure of five years, remains active. NSCs are a long-term tax-saving investment option for investors. The invested amount qualifies for tax benefit u/s 80C of the Income-Tax Act. Mainly, government employees, businessmen and other salaried classes prefer to invest in NSCs. Although the ministry did not specify

The Insurance Regulatory and Development Authority of India (IRDA) has released draft guidelines to cap commissions paid to insurance agents/ intermediaries. The new regulations will be effective from April 1, 2016. On implementation, insurance companies will have to develop a policy for payment of commission or reward to insurance agents and intermediaries. In the guidelines, IRDA

the reason for discontinuation of the IX th scheme, one of the reasons could be its unwillingness to make long-term high-return commitments in a falling interest rate regime.

restricts rewards to insurance agents at not more than 20% of first year commission or remuneration, and caps rewards for insurance intermediaries at 40% of first year commission or remuneration. The guidelines are expected to impact remuneration of insurance agents/intermediaries, since they currently earn commission of around 35-40% of the first year premium.

FEBRUARY 2016 l The Finapolis

 news scan MUTUAL FUNDS

ECONOMY 2015: China grows slowest in 25 years

December 2015 proves weak for equity schemes

The Chinese economy grew 6.9% in 2015, its worst pace in 25 years. This was mainly due to the outflow of capital, devaluation of the yuan and a plunge in country’s equity market. Analysts expect the economy to deteriorate further before it bottoms out. Data showed that China’s industrial output grew by 5.9%, whereas output from the power and steel sectors dropped for the first time in decades. Even coal production dropped for a second year in a row and retail sales were weaker than expected at 11.1% in December 2015.

Mutual fund houses reported an inflow of Rs 3,644 crore in equity schemes in December 2015, the lowest monthly inflow since June 2014. The possible reasons branded about for the weak inflows are the floods in Chennai, a continuous flow of negative news from around the world and fewer working days on account of Christmas break for FIIs. Fund managers believe this drop in inflow is temporary, and fund houses expect to register inflows of as much as $15-20 billion in 2016 on the back of positive news flow in both domestic and global markets. Meanwhile, investors redeemed units worth Rs 9,765 crore during the month.

weet up No political party able to do reforms as the moment they do, they start losing elections. Then we blame same party for not bringing reforms - @chetan_bhagat

The word ‘innovators’ after manufacturing is what makes me feel confident about our future - @anandmahindra

Govt’s plan to install 2,500 wi-fi hotspots by next FY welcome! Will give a big boost to #DigitalIndia initiative! - @kiranshaw

The power of a phone in every pocket is transforming the lives of the poor - @BillGates

The Finapolis l FEBRUARY 2016

results update

We take a look at some companiesâ&#x20AC;&#x2122; quarterly results to figure out what impact they will have on the share prices Infosys

18xFY18 earnings. The stock has

Infosys reported revenue of

potential

$2,407 mn, up 0.6% QoQ

upside of

(+1.1% in cc terms), in-line

19% from

with analyst estimates.

the current

Volumes grew 3.1% QoQ

market price

(onsite +4.4% QoQ, offshore

of Rs 1,135.

+2.5% QoQ) while blended realisation declined 2.5% QoQ (onsite: 3.0% QoQ, offshore: 2.8% QoQ) during the quarter. EBIT margin declined 60 bps QoQ to 24.9%. With the stellar performance reported in Q3FY16, Infosys increased its FY16 constant currency revenue growth guidance to 12.8%-13.2% while also increasing USD revenue growth guidance to 8.9%-9.3%. Analysts believe Infosys will surpass its higher-end guidance of 9.3% growth in USD terms given the consistent deal inflow and initiatives taken by the new management team. The performance of Infosys was positive due to structural changes it has undergone under the new management team, such as focussing on current

TCS

Tata Consultancy Services (TCS) posted USD revenue de-growth of 0.3% QoQ at $4,145mn, +0.5% QoQ in cc. This is the weakest-ever QoQ USD revenue growth in Q3 of any year. The subdued performance was on account of the impact of the Chennai flood, higher-than-usual layoffs and lower number of working days. Latin America, where TCS was facing problems in the last few quarters, has continued strong growth momentum, though on lower base, while Diligenta is expected to bottom-out in Q4. In INR terms, revenue grew 0.7% QoQ to Rs 273,640 mn. Digital services posted strong growth of 4.0% QoQ in cc and revenue con-

client demand of Artificial Intel-

tribution increased to 13.7% in

ligence, Design Thinking, Auto-

Q3FY16 from 13.3% in Q2FY16.

mation, Digital etc and also on

Management remained

Current Market Price Rs 2,327 Target Price Rs 5,752 Potential Upside 17% peer Infosys in the last two to three quarters. Currently, TCS is trading at 17.3xFY17 and 15.3xFY18 earnings. The stock has potential upside of 17% from the current market price

employee pyramid and new inductions. Margins are expected to improve going ahead with benefits from increase in utilisation, offshore leverage, higher fixed price contracts, expanding employee pyramid, efficiency in selling, general and administrative (SG&A) expenses and better margins at SBUs. PAT declined 2.1% QoQ to Rs 735 mn due to decline in other income and higher tax rate. Management indicated growth would be passive in

of Rs 2,327.

next few quarters and the

KPIT Technologies

flowing in from H2FY17 onwards.

KPITâ&#x20AC;&#x2122;s Q3FY16 performance was disappointing on the revenue front. Revenue at $123.3mn was down 1.0% QoQ and 2.5% YoY. The revenue dropped due to higher furlough in automotive

investments made would start Analysts lowered FY17/ FY18 revenue forecast by 2.0%/ 2.3%, respectively. Currently, KPIT is trading at 10xFY18 earnings. The stock has potential upside of 45% from its current market

and loss of a few customers in

price of Rs 139.

the energy vertical. During the

HCL Technologies

quarter, IT services registered muted growth of 0.1% QoQ due to decline in all the strategic business units (SBUs) except SAP. Revenue from the products & platform SBU declined 22.6%

HCL Tech reported revenue of $1,566 mn, up 1.4% QoQ.

In constant currency terms, it reported growth of 2.1% QoQ. Management indicated H2

QoQ due to reduced delivery

would be stronger than H1,

schedule in ITS.

while confident of beating its

organisation realignment (lower

positive on the growth aspects

However, EBITDA margin

attrition, improving margins,

of the company, driven by the

improved 57 bps QoQ to 14.5%

performance. EBIT margin

and stable management team).

increasing adoption of digital

from 13.9% in the last quarter,

for the quarter improved 65

Currently, the stock is trading at

services, increasing key deal

driven by rationalisation of the

bps QoQ to 20.0%, mainly

wins (nine in this quarter), pick-

Current Market Price Rs 1,135 Target Price Rs 1,352 Potential Upside 19%

up in traditional IT business and robust order book. However, despite a stable management team and industry-leading capabilities in key verticals like banking, financial services and insurance (BFSI), retail and manufacturing, TCS has underperformed its large-cap

top three peers on FY16 growth

due to reduction in employee

Current Market Price Rs 139 Target Price Rs 201 Potential Upside 45%

base. For FY16, management maintained its EBIT margin guidance of 21-22%. HCL Tech delivered strong performance for the quarter. The company should benefit from growth opportunities aided by strong TCV signings ($ 1bn+ from last many quarters)

FEBRUARY 2016 l The Finapolis

results update and ample scope in IMS segment. Currently, HCL Tech is trading Target Price at 14.0xFY17 Rs 930 and 12.6xFY18 Potential (June-ending) Upside earnings. The 10% stock has potential upside of 10% from the current market price of Rs 842.

Alembic Pharma

MindTree

opportunity), which rose by

Current Market Price Rs 842

MindTree reported revenue of $184.4 mn, up 2.3% QoQ (+3.0% in cc terms). This was the third consecutive quarter when MindTree delivered industry leading growth. The acquisitions of Bluefin Solutions (BSL) and Relational Solutions (RSI) provided an additional $11.3mn to revenue. Volumes declined 1.8% QoQ, while price realisation improved 3.7% QoQ (including acquisitions). MindTree gave salary increment to remaining 28% of its employees in Q3. It also had higher cost due to employee relocation to Bangalore due to Chennai flood impact. So, EBITDA margin declined 83 bps QoQ to 17.7% (organic: 18.7%). Management indicated Q4 would be slightly better than Q3 (ex-acquisition), while remaining confident of beating NASSCOM revenue guidance of 12-14% growth for FY16 (excluding BSL and RSI revenues). Deal signing remained strong during the quarter wherein the company won three multi-year, multi-million dollar wins with leading global clients. This resulted in TCV signing of US$204mn. After the muted performance in H2 of FY15, MindTree’s revenue growth has picked-up pace despite the challenges faced by mid-cap IT companies. The results were ahead of large-cap peers Wipro, Infosys and TCS for this quarter. This was the third consecutive quarter when MindTree delivered industry-leading growth. The acquisitions of BSL and RSI have also integrated well and will provide significant cross-selling opportunities. Current Market Price Currently, Rs 1,470 MindTree is trading Target Price at 17.4xFY17 and Rs 1,608 14.6xFY18 earnings. The stock has Potential potential upside of Upside 9% from the current 9% market price.

Alembic Pharma’s revenues from the domestic formulations (DF) business grew 15.3% YoY to Rs 2,883 mn. Its revenue growth can be attributed to the international generic business (Abilify 281.5% YoY to Rs 5,087 mn,

Current Market Price Rs 625 Target Price Rs 737 Potential Upside 18%

Exide Industries

compared with Rs 1,333 mn in Q3FY15. Revenue from the international branded business de-grew by 7.5% YoY to Rs 124 mn. The company’s API business grew by 24.5% YoY to Rs 1,012 mn in Q3FY16. EBITDA margin increased by 2,170 bps YoY to 41.8% in Q3FY16. The higher margin was on account of better gross margins and lower staff and overhead cost. Net profit rose by 281.4% YoY to Rs 2,695 mn in Q3FY16. Analysts downgraded revenues by 2.4%/ 1.4%/ 1.4% for FY16/ FY17/ FY18 due to expected decline in revenue from Abilify in Q4FY16 and re-adjustment of revenues. However, analysts upgrade EBDITA margin for FY16/ FY17/ FY18 by 320 bps/ 160 bps/ 130 bps to 32.2%/ 25.3%/ 25.9%, respectively, due to better gross margins and lower overhead cost. The stock has potential upside of 18% from the current market price of Rs 625 based on 21x FY18.

Exide Industries’ revenue/ EBIDTA/ PAT grew 2.1%/ 30%/ 38% YoY, but declined 12.3%/ 9%/ 14% QoQ to Rs 15.2bn/ Rs 2.3bn/ Rs 1.34bn, respectively. EBIDTA margin rose 379 bps YoY and 56 bps QoQ to 15.4%, due to lower raw material cost and low lead prices. OEM margins are still under pressure and have negative impact on overall profitability. Majority of the segments, such as OEM, industrial, inverter etc witnessed de-growth during the quarter, while only the replacement segment and traction batteries witnessed growth. The company maintained its market share in the automotive replacement segment, while improving share by 600 bps to 10% in the telecom segment. Exide plans to undertake capital expenditure towards upgrading it technology and manufacturing new products. Analysts expect steady volumes from the auto industry in FY17 and FY18 as the sales of commercial vehicles grow and the economy recovers. Also, the

technology upgrade and productivity improvement efforts, coupled with higher replacement sales, would result in EBIDTA margin improvement of 170 bps over FY15-FY18. The recent price correction provides enough valuation comfort, while lower commodity price would continue to benefit on the margins front amid the ongoing China slowdown. The stock has potential upside of 46% from the current market price of Rs 120, valuing Exide’s core battery business at Rs 148 or 15.5xFY18 EPS and its insurance business at Rs 27 per share (1.5xP/B).

Current Market Price Rs 120 Target Price Rs 175 Potential Upside 46%

The Finapolis l FEBRUARY 2016

COVER STORY TAX PLANNING

Saving Tax When Youâ&#x20AC;&#x2122;re Short of Cash

Got headroom under Section 80C but no money to avail it? We list two ways for you to pull through before the financial year ends By Balwant Jain

N ELSS C

he Income Tax Act currently allows an individual and an HUF deduction up to Rs 1.50 lakh for investments made in various items including equity-oriented schemes, (popularly known as ELSS or equity-linked savings schemes) and National Savings Certificates (NSC).

These are two of several deductions available under Section 80C. ELSS has become quite popular due to its twin benefits of tax deduction and higher returns on the investments, whereas NSC has popular with people who want to avail tax benefits but do not want to take bear risks associated with equities. But sometimes, due to

various investment requirements, individual tax payers are faced with cash crunch and find it difficult to invest the required money to be able to claim the tax benefits. In such a scenario, you can recycle your existing ELSS holdings to claim tax benefits, or invest in NSC and claim tax benefit without fully investing your money.

FEBRUARY 2016 l The Finapolis

COVER STORY Recycle your ELSS The Income Tax Act requires you to hold investments in ELSS for a minimum period of three years. You are not allowed to transfer these investments before completion of the lock-in period. However, if you redeem your ELSS units after the threeyear lock in, then you are not charged income tax or exit load on the proceeds. If you have already completed the mandatory holding period of three years, this is a good opportunity to avail the tax benefits without actually increasing your exposure to the market. This benefit of tax rebate can be availed without any investment at very nominal costs. All you need to do is redeem those ELSS units which have matured, and re-invest the proceeds in the market. The fund house will charge securities transaction tax on the amount of redemption, but that is only 0.01% of the redemption value. Moreover there are neither any entry nor exit loads, so you can buy and redeem units at the same price if it is done on the same day. However, once you reinvest the proceeds from redemption in a fresh ELSS, you will be entitled to relief under the Income Tax Act. This small procedure will help you save tax at between 10% and 30% depending on your tax bracket. The above method works if you have made lump-sum investments in ELSS. However, what if you have invested periodically through a systematic investment plan (SIP)? If you have invested by way of an SIP want to save tax without increasing exposure to the market, you should redeem only those units which have completed the mandatory lock-in period of three years. Simultaneously, you can purchase fresh units of the same scheme from the redemption proceeds at the same net asset

another SIP as to match the redemption and purchase of units which have already completed the period of 36 months. However, in case your investments were made in lump sum and have already completed the holding period, you will need to do the redemption and purchase at one go to ensure the continuity at the original cost of your investments. In addition to the costs incurred on account of Security Transaction Tax on redemption of your old units, this methodology does not have any other tax implications.

ample, since you recycle only those ELSS units which have completed three years, you will face nil tax on capital gains.

value (NAV). This will ensure that you are able to avail tax benefits without mistakenly redeeming any investment before its lock-in period. In case your investments in ELSS were made through SIP and only a few installments have completed the mandatory three years lock-in period, you can start

Note: At present, all profits booked on ELSS units which have been held for a minimum period of one year or more are exempt from tax on capital gains. However, the income tax deduction claimed u/s 80C on these investments becomes voided and you will have to re-file tax returns for that particular year. However, in our ex-

certificates, so it is not subject to any fluctuation. The present rate of interest on an NSC is 8.5% for five years and the interest is compounded half yearly. Unlike a PPF account, the interest on an NSC is fixed for the whole tenure at the time of issue of the certificate and does not change every year (in PPF, the rate

All you need to do is redeem those ELSS units which have matured and re-invest the proceeds. The fund house will charge STT on the amount of redemption, but that is only 0.01% of the redemption value

Invest in NSCs through a quick loan NSCs also offer benefit under Section 80C, but they shield you from the risk associated with equities. If you do not have enough funds to invest immediately but still have headroom for tax benefit, then NSCs could prove ideal for you. At present, NSCs have tenure of five years. The rate of interest is fixed for the entire tenure at the time of issue of such

The Finapolis l FEBRUARY 2016

COVER STORY

changes on money invested in the past as well). The most attractive part about NSCs is that you can obtain loans from banks using the certificates as collateral, which is not available in case of another similar product i.e. the tax-saving bank fixed deposits with scheduled banks, though both have the same tenure of five years. In case you are temporarily facing financial crunch to take benefit of the deduction available under Section 80C, you can buy NSC to meet your limits. Here is how:

NSCs offer flexibility with regard to mode of payment, so if you are paying in cash, the certificates will be issued immediately. But if you pay for these by demand draft or cheque, the certificates will be issued on realisation of the instrument. Therefore, it is advisable in such case to tender cash and collect the certificates immediately. Once you have received the certificates from the post office, you can approach any scheduled bank, co-operative bank or co-operative credit society to grant you a

rised to mark a pledge in favour of scheduled bank, co-operative banks and co-operatives societies including cooperative credit societies, in addition to certain other entities. You will have to make an application for marking pledge on your NSC in favour of the lender, which has to be signed by both you and the lender. Once you tender your NSCs together with the application, the post office will mark the pledge on the certificates and return the certificates to the bank. On receipt of the NSCs duly marked as pledged, the bank will disburse the loan. With this, you can repay the money borrowed from your friend or relative for buying these NSCs. There are two options with regard to taking loan against security of NSCs. Either you can take a lump sum loan and pay in monthly installments, or you can obtain an overdraft facility against the security of the NSCs. In case you think your cash flow would be volatile, taking an overdraft account gives you flexibility to use the funds as and when they are needed. However, if you feel that you can repay a certain sum every month, it is advisable to take a lump sum loan. The process for obtaining the loan or overdraft is quite simple and inexpensive, in comparison to other unsecured loans like personal loans or revolving credit facility on your credit card outstanding. Banks normally grant a loan for up to 80% to 85% of the face value of NSCs. Although the rate of interest charged on the loan varies from bank to bank, the rate is quite competitive, compared to other loans. In addition to the above interest, you will have to pay one time processing charges of around 1% of the amount sanctioned. Generally, there are

If you do not have funds now, you can temporarily borrow from friends or relatives and buy NSCs to the extent of unutilised portion of the deduction available under Section 80C and avail tax benefits on the same.

loan against the security of these certificates. It is advisable that you first approach a bank with which you have banking relations to ensure faster processing of your loan application. As per rules governing NSCs, post offices are autho-

no prepayment charges on loans taken against NSCs. This way, you can use your existing ELSS and investments in NSCs to tide over your temporary cash crunch and avail tax benefits as well. F

The most attractive part about NSCs is that you can obtain loans using the certificates as collateral, which is not the case with another, similar product: the five-year fixed deposit with scheduled banks

The author is a CA, CS and CFP. Presently working as Company Secretary of Bombay Oxygen Corporation Limited. Write to him at jainbalwant@gmail.com

20 The Finapolis l FEBRUARY 2016

TAX PLANNING DO IT YOURSELF

Find Out How Much More You Need to Save for Tax Planning Unclear about your tax deductions? Weâ&#x20AC;&#x2122;ve got you covered. Follow this Finapolis worksheet to know if you have missed something. Expenses that are eligible for deduction under Section 80C Maximum Deduction

Particulars

Your Expenses

Repayment of principal amount in your home loan

Registration and stamp duty charges of new house

Rs 1.5 lakh limit u/s 80C Tuition fees of two children Total (A)

Investments that are eligible for deduction under Section 80C

FDs

ELSS Life insurance premiums

Contribution towards EPF and PPF

Equity linked savings scheme

NSC Sukanya samriddhi yojana

National saving certificate

RD & MIS

Senior citizen 5 year tax saving savings scheme FDs

Post Office RD and monthly income scheme

Rs 1.5 lakh limit u/s 80C

Total (B)

National pension scheme

FEBRUARY 2016 l The Finapolis

TAX PLANNING Overall limit Rs 1.5 lakh - (A+B) Additional amount you need for saving tax

Thinking beyond Section 80C for deduction of other expenses Particulars

RGESS

Maximum Deduction

Repayment of interest paid on education loan

No limit u/s 80E

Interest paid on home loan

Upto Rs 2 lakh (self occupied) u/s 24. Not eligible if given on rent

Medical insurance premium

Upto Rs 25,000 premium paid for your family which includes self, spouse and children. Additional Rs 25,000 for insuring parents (Rs 30,000 if they are senior citizens). This deduction is u/s 80D

Medical check-up

Upto Rs 5,000 paid for medical check ups of your family which includes self, spouse, children and even your dependent parents. Overall deduction u/s 80D can’t exceed Rs 25,000 (Rs 30,000 for senior citizens)

Disability of self or dependent

If taxpayer or dependent is disable claim a deduction of Rs 75,000 u/s 80DD. If disability is severe deduction is Rs 1.25 lakh

Specified disabilities

If taxpayer or dependent suffers from any of the specified illnesses claim Rs 40,000 deduction u/s 80DDB for individuals below 60 years, Rs 60,000 for above 60 years and Rs 80,000 for those above 80 years

Donations

Donations given to charitable institutions are deductible u/s 80G. Total deduction cannot 10% of the gross total income

Rajiv Gandhi Equity Savings Scheme

“Maximum deduction allowed is 50% of investment i.e. upto Rs 50,000, only for first time equity investors having total income of less than or equal to Rs 12 lakh. This deduction is u/s 80CCG”

Your Expenses

Total

The Finapolis l FEBRUARY 2016

FOREIGN EYE BUSINESS TRAVEL

Despite Modern Telecom Technologies, Business Travel is Booming. Here’s Why Companies fork out more than $1.2 trillion a year for international business travel. The expense is not only huge; it is also growing – at 6.5% per year, almost twice the rate of global economic growth By Ricardo Hausmann

hink about it: You can call, email, and even watch your counterparty on FaceTime, Skype, or GoToMeeting. So why do companies fork out more than $1.2 trillion a year – a full 1.5% of the world’s GDP – for international business travel? The expense is not only huge; it is also growing – at 6.5% per year, almost twice the rate of global economic growth and almost as fast as information and telecommunication services. Computing power has moved from our laptops and cellphones to the cloud, and we are all better off for it. So why do we need to move brains instead of letting those brains stay put and just sending them bytes? Why waste precious work time in the air, at security checks, and waiting for our luggage? Before anyone starts slashing travel budgets, let’s try to understand why we need to move people rather than information. Thanks to a research collaboration on inclusive growth with MasterCard and an anonymised donation of data to the Center for International Development at Harvard University, we are starting to shed some light on this mystery. In ongoing work with Dany Bahar, Michele Coscia, and Frank Neffke, we have been able to establish some interesting stylised facts. More populous countries have more business travel in both directions, but the volume is less than proportional to their population: a country with 100%

The data show that there is almost twice the amount of travel from headquarters to subsidiaries as there is in the opposite direction. Exporters also travel twice as much as importers more population than another has only about 70% more business travel. This suggests that there are economies of scale in running businesses that favour large countries. By contrast, a country with a per capita income that is 100% higher than an-

other receives 130% more business travelers and sends 170% more people abroad. This means that business travel tends to grow more than proportionally with the level of development. While businesspeople travel in order to trade or invest, more than half of in-

FEBRUARY 2016 l The Finapolis

FOREIGN EYE ternational business travel seems to be related to the management of foreign subsidiaries. The global economy is increasingly characterised by global firms, which need to deploy their know-how to their different locations around the world. The data show that there is almost twice the amount of travel from headquarters to subsidiaries as there is in the opposite direction. Exporters also travel twice as much as importers. But why do we need to move the brain, not just the bytes? I can think of at least two reasons. First, the brain has a capacity to absorb information, identify patterns, and solve problems without us being aware of how it does it. That is why we can, for example, infer other people’s goals and intentions from facial expressions, body language, intonation, and other subtle indicators that we gather unconsciously. When we attend a meeting in person, we can listen to the body language, not just the spoken word, and we can choose where to look, not just the particular angle that the video screen shows. As a consequence, we are better able to evaluate, empathise, and bond in person than we can with today’s telecom technologies. Second, the brain is designed to work in parallel with other brains. Many problem-solving tasks require parallel computing with brains that possess different software and information but that can coordinate their thoughts. That is why we have design teams, advisory boards, inter-agency taskforces, and other forms of group interaction. Conference calls try to match this interaction, but it is hard to speak in turn or to see one another’s expressions when someone is talking. Conference calls have trouble replicating the intricacy of human conscious and unconscious group inter-

fer in the amount of know-how they possess, and industries differ in the amount of know-how they require. Controlling for population and per capita income, travel is significantly more intense to and from countries and industries that possess or use more know-how. The countries that account for the most travel abroad, controlling for population, are all in Western Europe: Germany, Denmark, Belgium, Norway, and the Netherlands. Outside of Europe, the most travel-intensive countries are Canada, Israel, Singapore, and the United States, a reflection of the fact that they need to deploy many brains to make use of their diverse know-how.

and Mauritius receive much more knowhow than countries at similar levels of development such as Peru, Colombia, Chile, Indonesia, or Sri Lanka. The fact that firms incur the cost of business travel suggests that, for some key tasks, it is easier to move brains than it is to move the relevant information to the brains. Moreover, the fact that business travel is growing faster than the global economy suggests that output is becoming more intensive in know-how and that know-how is diffusing through brain mobility. And, finally, the huge diversity of business travel intensity suggests that some countries are deploying or demanding much more know-how than others.

actions that are critical to solve problems and accomplish tasks. The amount of travel should then be related to the amount of know-how that needs to be moved around. Countries dif-

Interestingly, countries in the developing world differ substantially in the amount of know-how they receive through business travel. For example, countries such as South Africa, Bulgaria, Morocco,

Rather than celebrate their thrift, countries that are out of the business travel loop should be worried. They may be missing out on more than frequent flyer miles. F

The brain has a capacity to absorb information, identify patterns, and solve problems without us being aware. That is why we can unconsciously infer other people’s goals and intentions from their facial expressions and body language. When we attend meetings in person, we can listen to this body language, and not just the spoken word. As a consequence, we are better able to evaluate, empathise, and bond than we can with today’s telecom technologies

Ricardo Hausmann, a former minister of planning of Venezuela and former Chief Economist of the Inter-American Development Bank, is Professor of the Practice of Economic Development at Harvard University, where he is also Director of the Center for International Development. He is Chair of the World Economic Forum’s Global Agenda Meta-Council on Inclusive Growth. Courtesy: Project Syndicate

24 The Finapolis l FEBRUARY 2016

INVESTING GLOBAL ECONOMICS

Playing Football on a Minefield! Though central bankers across the world are focussed on reigniting demand, the core problem always has been that of excess supply By KP Jeewan

he year 2016 has begun as a nightmare for investors. If one were not convinced about the integrity of the market, it would have looked as if the indices were at the receiving end of the pre-planned and co-ordinated attack. As was the case with the August crash, the contagion started with the crash in crude and Chinaâ&#x20AC;&#x2122;s market. Chinese regulators chose the first trading day to start an experiment with market circuit limits. This turned out to be a disaster and the stock markets crashed close to 8% each on the first two trading days before trading was halted. Almost all stock indices crashed to their August 2015 lows as commodity prices dipped to fresh lows. The whole narrative among market analysts and experts changed from optimism to apocalypse literally overnight. Was the crash a surprise? Not really, the surprise was that the stock markets held up for so long! The sad truth is that, it is increasingly looking like we a re-entering a global recession which probably is Part II of 20089 recession which was arrested mid-stride by co-ordinated and unconventional action by major central bankers. The ability of central banks to reignite growth has been much discussed and most now agree that their effectiveness in reig-

the contagion of 2008 and many (mainly of the non-mainstream, rebel variety) who had always questioned the wisdom of the Fed and other central bank actions and the impossibility of curing ailments brought about by excess debt with still more debt. But even in irrational markets, money was always made by the optimists

in disasters like in case of Chuck Prince, who as head of Citibank in 2008, famously said that one has to keep dancing while the music is on. The theory of India being an island in a sea of turmoil has no takers any more. In an interlinked world, global risk aversion has a major impact on Indian mar-

niting growth has been rather limited. Of course there is little doubt that they succeeded in preventing a complete meltdown. Given such gloomy outlook, does it make sense to exit markets completely and sit on cash? Looking back, there have been many analysts/ economists who had foreseen

who trusted central bankâ&#x20AC;&#x2122;s ability to perform miracles. While the former are being proven right, it is the later who went laughing to their banks. Does this mean that being part of the optimist crowd is the best thing to do? Being blindly optimistic and not being able to sense market extremes can result

kets. In any case, India, with its problems of troubled banks, corporates straining under debt burden and a helpless government doesnâ&#x20AC;&#x2122;t exactly look attractive at this moment. Indian markets have been shunned by foreign institutional investors (FIIs) for better part of 2015. While there has not

DANGER MINES

FEBRUARY 2016 l The Finapolis

INVESTING been any exodus, fresh inflows have been close to zero. The markets have been sustained mainly by flows from domestic sources such as retail and high net worth investors. Over the last two decades, every rally in the Indian markets was always fuelled by FII flows. Local money can at best stem the fall of the market, but it does not trigger a bull run. Hence, the next bull markets will most likely be preceded by a resumption of FII flows. It is also been seen in the past that FII flows slow down whenever there is likelihood of currency weakness and only restart when a currency appears to have bottomed out and stabilised. The current risk aversion prevailing in the market has its origin in the weakness in emerging-market currencies, including that of China. Hence, it is logical to expect fresh inflows only once the global panic settles down. Though central bankers across the world are focussed on reigniting demand, the core problem always has been that of excess supply. It is time people realised that the global growth figures of 2004-2007 were unsustainable and are un-replicable. It was a mistake to extrapolate those growth levels while building excess capacities across the world, and it is impossible to stimulate demand to absorb the excess capacity. The only way out is to close down these excess capacities, be they in steel, mining, automobiles or oil. In a normally-functioning economy, the purging would have been done by market forces, but post the Lehman Brothers bankruptcy, central banks and governments across the world (including India, through its debt restructuring) stepped in prevented this from happening. Now the trillion dollar question is which country is going to blink first and allow this to happen? Just think back to 2014, when it was assumed that oil below $80 a barrel would

side of the globe, Chinaâ&#x20AC;&#x2122;s factories seem to have the ability to take limitless losses and keep on functioning. But even there, I think we will soon see it is not possible to keep loss-making units alive forever. I think during the course of the current year, someone will blink and the end game would become visible. Global growth revival without the above looks impossible. Of course miracles do happen, but by nature they are impossible to predict and trade. Given this background, the most likely path for the global stock markets is down. Many of them have entered bear-market territory and many are on the verge of doing so. Looking at the issue from the central bankersâ&#x20AC;&#x2122; point of view, admitting failure and correcting the course after pumping trillions of dollars into the system is not an option. Most likely, they would come up with renewed monetary stimulus measures, like the one hinted at by the European Central Bank hinted in January.

growth. It is a chicken and egg situation: NPAs will not come down unless there is growth, and growth cannot happen if lending does not increase. There are only two ways to revive growth in India in the prevailing scenario: either the Reserve Bank of India cuts rates and boosts liquidity to the market (seems unlikely) or the government increases investments by bearing a fiscal deficit. Most analysts expect a revival by the second half of 2016, but it could likely take a few quarters before we truly see a revival. The stock market, however, might start factoring in a recovery by the second half of this year if the government achieves legislative success in the passage of certain bills. A good monsoon would further aid market sentiments. Investing in a world of such uncertainties is akin to playing football on a minefield. Investing for the long term at a time when established corporates are routinely landing in financial difficulties does not seem like a good idea. It actually ends up

force shale producers to shut shop. Now, even at $28 a barrel, shale production is close to its peak! The problem is, most of the shale producers have huge outstanding loans and closing down would mean default. They would rather continue pumping even at a loss for as long as possible and hope for the best. On the other

Such measures would probably give one more boost to stock prices. Indian markets would probably go through more pain, as a revival looks farther than before and we are yet to see the end of bad news from banking sector. Increasing bad loans (NPAs) cannot be reversed in an environment of low credit

being a bet on the management not stepping on a mine for a long period. In such a time, a cautious management is more likely to succeed than one in a hurry to grow. Hence, the best strategy in this new normal might be to bet for medium-term growth and aim for modest returns rather than look for multi-baggers. F

In normal times, market forces would have purged this excess capacity, but post Lehman Brothersâ&#x20AC;&#x2122; bankruptcy, central banks and governments across the world have stepped to prevent this from happening. Now the trillion dollar question is, which country is going to blink first?

26 The Finapolis l FEBRUARY 2016

CORPORATE LAWS REFORM

Bankruptcy Code may be the Best Thing to Happen to Corporate India The code would be a game changer, bigger even than GST! A robust insolvency mechanism would help banks and ensure a consistent supply of credit to businesses, attract new capital into the business revival sector, and strengthen the corporate bond market By Kiran Nanda

he government is at last targeting our century-old bankruptcy law to revive its momentum and usefulness. Although the insolvency and bankruptcy code bill is at present with a select panel for examina-

tion, the finance ministry has put the bill up on its website for public comments till November 19, after which it will place the bill before parliament for approval. At present, liquidation of companies is handled by high courts; individual cases are

dealt with under the Presidency Towns Insolvency Act, 1909, and Provincial Insolvency Act, 1920. In other words, India does not have a clear law on corporate bankruptcy even though individual bankruptcy laws have been in existence since 1874.

FEBRUARY 2016 l The Finapolis

CORPORATE LAWS When in full operation, the bill (which would have become an act) could bring about transformational change in our financial infrastructure. Unifying more than four overlapping sets of rules, the code aims to slash the time it takes to wind up a dying company or recover dues from a defaulter. It also aims to set up a regulator to oversee a proposed new class of insolvency professionals/ agencies, which should help promote entrepreneurship as youngsters would be able to take risks. Further, the bill provides for quick identification of financial distress and a 180-day plan, extendable by 90 days, to revive a company, following which the company would be considered insolvent. The bill, if passed, will lead to changes in laws like The Companies Act, Direct Taxes Code (still in the process), labour laws and land reforms, as well as laws governing asset reconstruction companies set up to resolve NPAs in the Indian financial system. It appears the significance of this bill has not been fully understood. It would be a game changer in Indian economic history, even bigger than the goods and services tax (GST), especially at a time of mounting global financial uncertainties and the increase in restructuring and consolidation within the Indian economy as a result of new economy activities driven by the information technology revolution. Instituting a strong framework to deal with corporate insolvency and ensuring protection for debtors and creditors is vital to unlock new avenues for funding and foster growth in credit markets. Having a robust insolvency resolution mechanism can help creditors recover a larger part of their unviable investment faster, allowing them to re-invest in other businesses, thereby facilitating the effi-

India enjoys ready-made insolvency cases

vironment for corporate rescues and debt

cient flow of capital across the economy. Most significantly, India’s ranking in the Doing Business Index will see a major improvement. Bankruptcy reforms so far—essential for securing a steady supply of quality credit—have been inadequate. With no shortage of defaulted corporate loans,

for authorities to work through. The country needs to institute a ‘Unified Bankruptcy Regime’ comprising laws, tribunals and processes etc. Policymakers need to deploy a practitioner’s lens and address the needs and fears of credit investors on priority. Such an approach would help develop an honest en-

recovery. The near-term result would be the inflow of expertise and capital into several large Indian insolvencies, while the medium term impact would be the attainment of successful restructurings aimed at inspiring confidence in India’s creditor regime. Four important considerations must

Shortchanging the System  The banking system’s bad loans and

stressed assets have crossed the Rs 7,00,000 crore mark. Public-sector banks (PSBs) were saddled with gross non-performing assets (NPAs) of Rs 2,67,000 crore at end-March 2015, or 5.2% of total loans

 India’s state-run banks are estimated

to require Rs 2,40,000 crore over the next five years to meet Basel-III norms  A study by rating agency ICRA Ltd

said PSBs may need to set aside Rs 3,30,000 crore between now and FY19 for their bad assets and meet the economy’s credit needs  As at March 31, 2015, PSBs had as many as 7,035 wilful default-

ers on their books, who owed the banks about Rs 59,000 crore. State Bank of India and its five associate banks top the list with 1,628 wilful defaulters, followed by Central Bank of India with 722, Union Bank of India with 643 and Canara Bank with 612  In absolute terms, the State Bank group is owed Rs 16,834 crore,

followed by Punjab National Bank with 410 wilful defaulters which owe it Rs 7,282.25 crore, Central Bank of India with outstanding loans of Rs 4,428.62 crore, and Oriental Bank of Commerce with NPAs of Rs 3,877.44 crore and UCO Bank with Rs 3,677.08 crore of outstanding amount  According to RBI, a wilful default happens where a defaulting

borrower does not honour an obligation, despite having the capacity to pay, or siphons off funds and disposes off assets without the knowledge of the bank

The country needs to institute a ‘Unified Bankruptcy Regime’ comprising laws, tribunals and processes etc. Policymakers need to deploy a practitioner’s lens and address the needs and fears of credit investors on priority

28 The Finapolis l FEBRUARY 2016

CORPORATE LAWS guide the design of the new insolvency out first clearing up the ecosystem. HowVijay Mallya Chairman, regime. First, given the relative lack of ever, this apprehension is misplaced. If Kingfisher Airlines insolvency expertise in the system, a there had been a perfect ecosystem, then strong reliance should be placed on marearlier attempts to tackle bad loans, such ket-driven processes, especially for valuas the debt recovery tribunals (DRTs) ation. Second, the power of the courts would have been successful. By a proper should be clearly defined and their deciecosystem is meant that there should be sions made time-bound. Vague laws that the willingness of a borrower to repay provide wide latitude to courts could dedebt. People should not be able to take ter investment. Third, all legal proceedshelter under the law and prevent action ings related to a particular insolvency under the Sarfesi Act when it comes time must get subsumed into an insolvency to make repayments. court, thereby eliminating interference The supply of quality credit has become from competing legal forums. Lastly, the critical for sustaining high growth in InBLRC must carefully evaluate the practidia. A disproportionate amount of banks’ cal consequences of its choices and also attention is focussed on the recovery and refer to the leading bankruptcy counsel resolution of stressed assets. As a result, from common law jurisdictions—espethey are not able to focus on credit growth cially those of the UK, the US and Ausdespite the India long being a credtralia—that are known for their rich and it-starved economy. easily applicable experience. An alternate solution being recomAmong other imperatives, policymakmended is the ‘good bank-bad bank’ moders will need to enel, wherein banks sure substantive imThe bill provides for quick identification of financial would transfer their provements in the bad loans to a bad distress and a 180-day plan, extendable by 90 days, transfer of distressed bank after taking a loans and assets. Dishair-cut on the price to revive a company, following which the company tressed loans or assets of the assets. But such would be considered insolvent must be sold in transa model could possiparent auctions. bly work only with the The Reserve Bank Jaitley said in June last year that, “the support of some kind of India has already taken intelligent next two-three years are going to be very of government funding. Evidence from steps to incentivise banks to sell early critical” for reforms in land, labour and other countries has shown this model to such loans/ assets. For large corporate tax laws. The period will be equally cruhave worked well, but changes of such an loans, RBI should also mandate and moncial for credit reforms. institution emerging in India appear dim. itor a high standard of disclosure, ideally Successful insolvency restructurings The perception of public-sector banks on a standard global platform such as can provide a major support to solving the not doing their job when it comes to tackintra-links. problems faced by corporates and banks. ling NPAs needs to change. The Sarfesi The RBI governor has asked his staff These can also inspire confidence in the Act and DRTs helped resolve NPA issues not to let well-connected wrongdoers go system, channeling much-needed credit to some extent, but at present, more than free. Transfers must be for real considerto Indian companies. Rs 2 lakh crore is reported to be stuck with ation, like 75% of the purchase price, not Ultimately, a domestic bond market can DRTs. Even if lenders are able to recover 15%. The RBI had increased the monetary evolve, which would provide not only half this amount, it would free up a lot of component from 5% to 15% last year. A cheaper credit to business but also offer capital in the banking system and infurther liberal step may be necessary to an attractive investment avenue for Increase valuations in the sector. properly cure the malaise of mispricing of loan sales. Relevant regulations and mechanisms will have to be put in place earnestly to ensure that such transfers can take place unencumbered. The adverse impact of a poor insolvency regime can be substantial even if not quite obvious. Finance minister Arun

dia’s savers. In sum, now is the time for insolvency reforms. However, a number of apprehensions have arisen over the transformational change likely to be ushered by the implementation of the proposed code. The biggest charge is that we would be placing too much faith in the code with-

Thus, bankruptcy reform could transform the Indian financial landscape—ensuring a consistent supply of credit; attracting new capital and expertise into business revival; improving creditor recoveries, lowering the cost of credit, and last but not the least, also enabling a real corporate bond market to evolve. F

FEBRUARY 2016 l The Finapolis

realty check

ANUJ PURI

What Realty Would Like from the Union Budget

he Union Budget is an eagerly-awaited annual event, as the decisions and allocations announced by the finance ministry have great pertinence to both individuals and industries. The sector is sensitive to many of the policies that are announced both for various industries and individuals. Further, the realty sector is just emerging from a prolonged and painful slowdown, and is looking for all and any signs of light at the end of the tunnel. This fact makes Union Budget 2016 all the more critical, and the real estate industry has many expectations from it.  Offer financial protection from project delays to home buyers: The Union Budget should pay specific heed to this pressing need. On purchase into an under-construction property, buyers can only claim tax benefits of Rs 2 lakh after possession if construction is completed within three years. The benefits reduce to Rs 30,000 if the builder delays construction beyond three years – and buyers must then pay higher interest. First-time home buyers purchasing properties for self-use additionally pay rent. Instead of allowing home buyers tax benefits post-possession, the Budget should make a provision that allows these from the time they start paying interest on housing loans. This will ease their monetary burden considerably and increase the velocity of home loan disbursements. Similarly, if an under-construction property is purchased from capital gains, its construction must be completed within three years of its sale to avail exemption. There can be delays by developers in such cases too. These deductions should be brought at par and the construction timeline should be extended to five years.  Provide more tax saving on housing loan and house insurance premiums: The government should increase the tax deduction limit for housing loans, espe-

The sector is emerging from a slowdown and looking for signs of a light at the end of the tunnel cially for buyers in metropolitan cities. The current limit of Rs 2 lakh is insignificant given the ticket sizes in cities like Mumbai, where most houses are priced at Rs 1 crore and above. Also, tax concessions on house insurance premiums could be introduced to encourage end-users to insure their homes. Similarly, the tax exemption limit should be increased by about Rs 1 lakh and be auto-set to match inflationary trends in a financial year.  Raise house rent deduction limit: Salaried persons get house rent allowance (HRA) as a component of their total salary, and can therefore claim a deduction. This deduction can be substantial in cases where the salary and its HRA component are higher. However, self-employed persons and those who draw lump sum pays without an HRA component can only claim a maximum deduction of Rs 2,000 a month under Section 80GG. The Budget can and should address this anomaly.  Provide incentives for ‘green’ real estate: The Budget should provide clear and convincing benefits to buyers of green real estate in the country. Stakeholders of the residential real estate sector definitely require more encouragement to press the ‘green’ button. Most

The author is the Chairman & Country Head, JLL India.

home buyers in India are averse to paying a premium for such projects, and the low demand means that developers are not sufficiently active in this segment. The Budget should provide a combination of incentives to boost the development and buyer interest in green real estate in the country.  Allocate funds for infrastructure development in peripheral areas: Although the previous Budget prioritised affordable housing, the 2016 Budget should allocate an amount specifically for building infrastructure in the peripheral areas of cities. Without this, it will be difficult to provide affordable housing in the cities.  Remove the DDT bottleneck in REITs: Despite the announcement last year, there has not been a single REIT listing in India to date. The primary reason is the presence of dividend distribution tax (DDT). While the government has worked towards removing other bottlenecks, DDT has remained a key pending issue. Developers and other asset holders need the government to do away with it in Budget 2016. REITs can almost single-handedly revive the Indian real estate sector.  Provide clarity on GST and eCommerce: The finance minister should announce a specific date for the implementation of GST. This will give the industry a clear taxation structure and induce a sea change in the industry’s logistics architecture, since logistics will be driven by cost and not by a regulatory regime. eCommerce is booming in India, but different states currently have varying definitions and laws on eCommerce. A common definition as well as law is needed to govern this sector and help companies operate more efficiently.  Provide sops for the retail industry to induce vibrancy to realty: Sops should be given to the retail industry to induce the kind of vibrancy in real estate evident in countries like Dubai and Singapore. F

30 The Finapolis l FEBRUARY 2016

PERSONAL SPENDING RENTAL JEWELLERY

Rent it, Flaunt it, Return it and Forget it Renting jewellery is the new lifestyle option, and it seems to be in line with the personal finance mantra that it is better to rent things that you use use rarely, rather than buy them and lock up your money By Team Finapolis

ecessity is the mother of invention. And sheer desperation, the big daddy of innovation. In these days of selfies and groupies, high fashion and being seen at the right places, it is mandatory that women, and men too, wear the trendiest jewellery for social gatherings. But with the yellow metal touching Rs 25,050 for 10 grams, even a simple one-piece jewellery can touch a good Rs 1 lakh. Add to it the danger of burglary and chain snatching, and the very idea of splurging on gold is no more attractive. But then, keeping this in mind, a few innovative firms have connected the dots to make sure women can wear attractive jewellery for weddings, social gath-

erings etc and at the same time, not have to shell out lakh to flaunt that one piece of jewellery. They have introduced ‘rental jewellery’ concept to Indian women. Jewellery designer and stylist Taruna Biyani’s online business rentjewels.com allows one to rent replica jewellery in contemporary designs. Biyani feels that this concept allows users to flaunt jewellery without having to purchase the piece. One needs to register (free), check out the designs on the brides and models, read up the details and supply an address where the jewellery needs to be delivered. One can pay through credit or debit card, or opt for cash on delivery. Rentjewels.com offer free home delivery and return ser-

vices across 84 cities in India. After the registration, one is taken to tarunabiyani. com where the order is processed. The FAQs answer most of the doubts raised by the customers. However, in this case, the jewellery that you receive is a replica, and not real jewellery. Eves24 is another portal which enables users to rent jewellery, but on a slightly different mode. Here, one must take membership (currently four levels: Rs 1 lakh, Rs 2 lakh, Rs 5 lakh and Rs 10 lakh) which covers the safety deposit of the jewellery piece. Depending on the level of membership, one can order a piece of jewellery, use it and return it. The portal works on the concept that

FEBRUARY 2016 l The Finapolis

PERSONAL SPENDING expensive jewellery is worn occasionally, is not a smart one.” sometimes just once every two years. It is Is it a good time to start accumulating often parked in lockers most of the time, gold at current price? Rakesh Shinde, earning negligible returns but limiting AVP, Institutional Research, Bonanza one’s choices to wear new designs. Portfolio, a stock broking firm, says “I Eves24 Jewel Library services enables don’t expect gold to start performing in a smarter investment. One can save on the coming year. Worldwide developed money and earn a better return on the economies are now stabilized and some said amount, while getting an opportunieconomies like the US have started growty to wear a different jewellery design at ing at a decent pace. So, according to me, each occasion. equities will remain in flavour in the Eves24’s helpline revealed that memberyears to come. Overall, commodities are ship levels represents the transaction limdown and trapped in over supply with it. “It is the maximum amount of jewellery limited demand, I think it will take time that you would take from our jewel library [for gold] to come back on track.” or the total amount of outstanding EMIs Madhavi Siddamshetty, a Hyderthat you would avail, at a particular point abad-based financial consultant, gold lovin time, during the annual membership er and a socialite, seems to have some good period. This is similar to a credit card limadvice covering all the doubts about this it,” said the Eves24 executive concept. “As a financial conexplaining how the library sultant, I would suggest that Jewellery rental services work on the works. Eves24 offers authentic every person should own gold concept that expensive jewellery is worn worth Rs 3 to 5 lakh for all jewellery to customers, and hence the need for a security practical purposes. One can occasionally, while most of the time deposit from them. raise money instantly by lying parked in lockers, earning Ranjeeta Kulkarni, an expledging it in a gold shop or in negligible returns and limiting its port-import executive with a bank. It is prudent to have Jewels for You, a firm in Mumsome amount of gold. owners’ design choices bai, says that her work inHowever, investing all your volves attending parties and money in gold, especially showcasing new jewels to peoXYZ star has worn the same jewellery and wearable kind (jewellery), is a ple. “I attend at least three parties related outfit for so many occasions, it makes bad idea. On the contrary, buying solid to work every week. It would be tough for sense to rent it for a few hours, return and gold like biscuits is a better idea. Regardme to sport 12 or 14 pieces a month. That’s be done with it. I wish we also had an outing rental jewellery, it is not a good idea when I found these portals. They are easy fit rental service too,” she quips. if there is a big day in your life and you to use and hassle free. I think this service However, there are purists who scoff at neither want to miss out on wearing someserves well for socialites, models and upthe idea of rental jewellery. Says Niranjan thing unique at the same time not make coming stars who need to look fabulous, Rao, a personal financial consultant with a hole in your pocket.” but still cannot afford to spend so much Let Money Grow, a firm in Bengaluru, She thinks that rental jewellery will on jewellery.” “Gold jewellery is a sound investment. certainly catch up. Technology – online Prajwala Rao, who undertakes public Regardless of how the economy is faring, payments, sharing of photographs and relations for the Telugu film industry, said gold always is a fetching investment. designs through emails and What’sApp that her works involves introducing newDuring weddings, we give gold as even etc ensures quick and fast service. comers to producers and she asks her after 25 years, it will give them [the couclients to use jewellery rental services for ple] instant cash when sold. To encourage

Conclusion

parties, award functions, audio launches, etc. “When a new movie releases, there are a host of programmes planned and the press is invited. So I ask the stars to use these services to dress up well as they will be seen in photographs and videos in the media as part of the promotions. Also, with the fashion police pointing out how

buying of gold, our elders also started the concept of encouraging women to social gatherings as that was a good way of creating one’s economic identity. So the attempt should be to save and invest in gold and as an extension, wear it for parties. Doing away with the idea of gold and only flaunting jewellery for the sake of fashion

The verdict is that renting your jewellery is a good idea provided you use these services (after duly checking their credentials, especially if you are pledging over Rs 1 lakh for membership) sparingly, while continuing to invest in gold. That way, you can save up and attend the parties looking fabulous too. F

The Finapolis l FEBRUARY 2016

INVESTING IPO ADVICE

Understanding IPOs and What They Offer IPOs are back and many of last year’s issues rewarded investors handsomely. However, 2016 is a different year, writes A V Suresh However, it is important to note that most of these were listed on the exchanges when the markets were doing well. This year is a different ball game, though. Markets are roiled. The Sensex has fallen by about 20% in six months. They say, “When emotions take over, logic dies.” Stocks are bleeding irrespective of valuations. Investors are running helter-skelter and unsure of when this bloodbath in the markets would end. Experts though, seem to be looking at this phase as a golden opportunity to take long positions at an attractive price.

Why do companies go for IPOs?

nitial public offerings (IPO) can also be termed as ‘Instant Power Offers’, as they pack an instant punch in the stock markets. Investors love the IPO space. But sometimes however, investors treat this as easy money. There was a time when the market was inundated with an array of IPOs, and investors believed that any and all IPOs were an opportunity to make money in the short term. Money was flowing like liquor at a New Year party. But that was during the Great Indian Bull Run. Then came the subprime crisis in the US, and markets crashed. Indian markets generally show higher concern for other economies than their own. Be it for good or bad, the attraction of IPOs gradually faded. The markets kept falling and so did the confidence of investors. It made way to the equation – Amount invested ∝ (directly proportional) to Rise in Mar-

kets. This is exactly the opposite of what it should be. Seven years later, markets seem to have settled down and IPOs are back with a bang. There has been a flurry of offerings in the last year and some of them have turned out to be highly rewarding for those who invested.

There could be many reasons for this, and could vary from business to business. Let’s look at some of the important reasons why companies would like to go public: i) To raise capital: The primary reason for companies to go public is to raise capital for the business. Typically, companies would be looking to expand their businesses and would require additional capital in this regard. They believe this would be a good way to raise funds. However, not ev-

Top IPO performers of 2015 Issue name Narayana Hrudayalaya Alkem Laboratories Dr. Lalpath labs S.H.Kelkar Interglobe Aviation Syngene International VRL Logistics Inox Wind Sharda Cropchem Snowman Logistics

Issue price 250 1050 550 180 765 250 205 310 156 47

Listing Price 291 1380 717 222 856 350 288 400 254 75

Listing gains 16.40% 31.43% 30.36% 23.33% 11.90% 40.00% 40.49% 29.03% 62.82% 59.57%

CMP 300 1325 725 242 1208 359 392 320 220 63

Source: BSE India, CMP: 20th Jan, 2016

FEBRUARY 2016 l The Finapolis

INVESTING eryone follows the textbook. A lot of companies go public to clear off their existing debts. This is not a great sign. ii) Brand identity: An IPO is one way to let everyone know that you mean business. Most of the companies which appeared to be non-existent suddenly gained traction through a public issue. Investors always reward companies which show consistent financial results. Not just this, even financial institutions such as banks, mutual funds, etc get to know about this. iii) Exit for Promoters: Many a times, the IPO is an exit route for the promoters of the company. They hold stake in the company and keep waiting for this golden opportunity to get out of it. Beware of such cases where the business isn’t doing great but going for an IPO.

Advantages of IPO  Chance to grab it cheap: An IPO is a golden opportunity for investors to invest in a company at cheaper levels. Companies such as Maruti Suzuki, TCS and Infosys, which had solid fundamentals, have offered IPOs at reasonable prices. Since listing, they have multiplied by many times.  Listing gains: Many IPOs get listed at premium. As we saw for the past few IPOs in 2015, gains ranged from 10-60% upon listing. However, it is not a good strategy to invest in an IPO just for the sake of listing gains. Listing gains depend on the market situation as well. If markets are in a bad shape, as they are now, a company could even list at a discount.

Disadvantages of IPO  Valuations could be higher: The business could well be rolling out an offer at higher price than its current valuations suggest. You could be in trouble in such a scenario. It would be better to wait for the stock to trade at a suitably lower price than to buy in now. You can compare the P/E of the stock to that of its peers to know better.  Don’t fall for the hype: Most of the IPOs are usually a marketing gimmick. Investment bankers, lead managers, and underwriters are all looking to gain the attention of investors for the issue. The more atten-

If you have enough time to research on a company and believe in its future, an IPO could be a good route to take exposure in it tion the IPO receives, the better the valuation promoters can expect to receive.

How should you judge an IPO? If at all you are interested in an IPO, read the offer document carefully before investing. However, a typical offer document is about 950 pages and this makes it very difficult to know which sections to focus on. Let us check some of the parameters to check before jumping in for an IPO: 1) Promoters reputation: If a reputed promoter is holding a big stake in a company, it suggests confidence of the promoter in the business. Half of your job of performing research on the company is done here. 2) Industry: The industry in which a company operates plays a vital role in the success of an IPO. When the industry does well, most of the good stocks in it do well. You would have to judge whether the business you are investing is part of a booming industry or whether you expect it to

boom going forward. 3) Financials of the company: Of course, there are minimum requirements that companies need to meet in order to get listed on the exchanges. However, the company could be going south in terms of annual results. It is not a great sign for any investor. 4) Utilisation of the funds: An important thing to know for an investor is where his money is going to be invested. A major portion of the funds raised through an IPO should go into avenues which lead to growth and expansion.

Final word There is no hard and fast rule that requires you to invest in IPOs. You could also pick up quality scrips that are already listed on the exchange. However, if you have enough time to research on a company and believe in its future, an IPO could be a good route to take exposure in it. F

Upcoming issues Precision Camshafts, Parag Milk Foods, L&T Infotech, GVR Infra, Quick Heal, Teamlease, Healthcare Global, Thyrocare, Ujjivan Financial Services Source: SEBI

34 The Finapolis l FEBRUARY 2016

LOANS CREDIT SCORECARD

Six Ways to Improve Your Credit Score Before Submitting Your Loan Application Your CIBIL score dictates your eligibility and to get a good score, you need to display repayment discipline By Gaurav Giri

850 719 700 699 674 620

our CIBIL score plays a crucial role in determining whether your loan will be approved or not. CIBIL score is based on the past history of the loans taken and the repayment pattern in relation to them. Most borrowers become aware of the low

450 399 315 285 200 175 credit score only when their loan applications are rejected. A high score makes your creditworthiness strong and low score indicates low credit worthiness. Low score might portray you as a risky borrower and hence result in rejection of your loan applications by the lenders. Many

people get stuck with a bad credit score/ report due to irregular repayments or credit card companyâ&#x20AC;&#x2122;s mistakes. In order to improve your CIBIL score, a balance is required to be maintained in your expenses and loan repayments, and it is a continuous process which should be included in

FEBRUARY 2016 l The Finapolis

LOANS your habit. Here are some important tips to maintain this balance so as to improve your CIBIL score.

Repay your loan EMIs on time Punctuality in paying off your EMIs is crucial. Please ensure sufficient funds in your bank account prior to your due date to avoid EMI bouncing. Any bounce in your EMI due to insufficient funds in account could result in adversely affecting your score. In the event of any default, you must immediately approach the lender to pay off the due amount along with the due late payment or penalty charges that may get levied. This will keep your slate clean.

Stop applying for fresh credit Whenever your loan application gets rejected due to poor credit score, try not to apply again for the loan from any other institution. Every verification initiated by an agency for your CIBIL score will affect your score adversely, by decreasing your score every time you apply. Hold on for a while and get your credit score checked yourself. This will be considered a soft inquiry and can be used for new applications without affecting your credit score.

Balance out your debt portfolio High number of unsecured loans is bad for your financial health. Unsecured loans here refer to credit card and personal loans in which no securities have been kept with the lender. Loans on securities with the lenders make loans secured, even if the borrower defaults. Secured loans are considered more stable from lenders’ point of view and hence probability of approval of your new loan application will increase.

A high score makes your creditworthiness strong and low score indicates low credit worthiness. Low score might portray you as a risky borrower and result in rejection of your loan applications by the lenders it facility. Lenders might get a negative picture of you although you might be doing it deliberately to manage your credit effectively. 30-40% credit utilization is acceptable and considered positive for all of your credit cards. Not using credit at all can also have a negative impact. Without any credit history, there will be nothing to build a positive score on.

being the guarantor of your friend or paying off his balance loan – the choice is yours. Don’t do it, unless you are sure you want to do it.

Ensure ‘final settlement’

If you are using more than two credit

Be a selective guarantor

There are many people who are good at taking new debts without paying off the old one. One of my friend’s loan applications got rejected because of his unsettled balance of Rs 150 on his credit card. This

cards for your payments, always remember to use them all in a balanced way e.g., if your credit card limit is Rs 1 Lakh and every month you use Rs 90,000 - 95,000, it will affect your credit score adversely even if you are paying your dues in time. This shows your dependency on the cred-

If I request you for helping me in being a guarantor for my home loan just because I’m your close friend, what would you say? Don’t think more on this as this help of yours could affect your credit score adversely in case your friend defaults. You can save yourself from this either by not

is the worst mistake by many people while finally settling the loans. Always remember to take final settlement letter of loan from the lender after fully paying off a long-pending loan, so that you don’t have to face rejection in future while applying for a fresh loan. F

Keep a tab on your credit usage

The author is an Investment Planner at Hum Fauji Initiatives, New Delhi

36 The Finapolis l FEBRUARY 2016 AN SHANBHAG AND SANDEEP SHANBHAG

expert speak

Set-Off and Carry Forward of Losses

s we enter the last quarter of the current fiscal year, this monthâ&#x20AC;&#x2122;s article is about the optimal tax treatment of losses. Adjustment of losses (whether on house property, capital gains or business income) is an important yet often overlooked aspect of the tax return filing process. By way of a background, the Income Tax Act allows a taxpayer under certain conditions to set off loss against income, thereby reducing net tax liability. If such loss cannot be fully set off, the balance remaining can even be carried forward for set-off in future years. It is necessary for every taxpayer to properly understand and take advantage of the facilities in this regard, as this will enable optimisation of the tax return for minimum tax payment.

Inter-Source Adjustment There are five heads of income under which any taxpayer can earn income. These are Salary, House Property, Income from Business or Profession, Capital Gains and the residuary Income from Other Sources. Now, by definition, there cannot be a loss from Salary and Income

from Other Sources. However, a person could suffer losses from other heads of income. Now the first and foremost rule is that loss under one head of income has to be first adjusted against any income from the same head. This is known as Inter-Source Adjustment. For example, say someone who has two different businesses, one that is loss making and the other one profit making, then the loss from the first one can be set off against

It is necessary for every taxpayer to properly understand and take advantage of the facilities allowed by the Income Tax Act. This will enable optimisation of the tax return for minimum tax payment the profit from the second one. Or say if you have two properties, one for self occupation and the other one given out on rent, then the loss from the first property

(on account of the mortgage interest) can be set off against the rental income from the second property. The only exception in this regard is to do with long-term capital gains, which we shall examine later on in the article.

Inter-Head Adjustment Now say after setting off the loss as above, there still remains some balance. This balance loss can then be set off against income from other heads. This is known as Inter-Head Adjustment. For example, a taxpayer who has a single self occupied house property bought on mortgage will necessarily show a loss. This is because the annual value of a single self occupied property is taken to be nil and the adjustment of any interest will result in a negative value. Now, such a loss may be adjusted against salary income or say income from business, if any. There are two exceptions to the rule of Inter-Head Adjustment: i) Losses under capital gains cannot be set off against income from any other head ii) Loss from business or profession cannot be set off against salary income

FEBRUARY 2016 l The Finapolis

EXPERT SPEAK Losses that cannot be set off And last but not the least, any loss that cannot be set off either against the same head or under other heads because of inadequacy of income, may be carried forward to be set off against income of the subsequent year. Such a carry forward exercise may be done for eight years. After eight years, if the loss hasn’t yet been fully set off, it has to be written off and cannot be used for tax saving. The important point to note is that for carry forward losses, only Inter-Source Adjustment is available in the subsequent years and not Inter-Head Adjustment. The table encapsulates the above discussion.

Adjustment of loss under the head ‘Capital Gains’ The first and foremost point to note about losses under the head Capital Gains is that they have a boundary i.e. they have to be adjusted against other capital gains income only and cannot be set off against other incomes. In other words, the Inter-Head Adjustment referred to earlier is not available in the case of capital losses. The second condition in this regard is that long-term capital loss can only be adjusted against long-term capital gain. Or, putting it differently, short-term capital gain may not be used to set off any longterm capital loss. However, short-term capital loss can be set off against any taxable long-term capital gain or short-term capital gain.

Carry forward of losses Type of loss to be carried forward to subsequent year(s)

Income against which carried forward loss can be set off in next year(s)

For how many years loss can be carried forward

1. House property loss

Income under the head “Income from House Property”

8 years

2. Business loss

Any business profit

8 years

a) Short-term capital loss

Any taxable income under the head “Capital Gains”

8 years

b) Long-term capital loss

Long-term capital gains only

8 years

3. Capital loss

In a nutshell, long-term capital loss adjustment can be only done against longterm capital gains whereas short-term capital loss adjustment can be against any capital gains, long-term or short-term. Lastly, if the income from a particular source is exempted from tax, loss from such a source cannot be set off. Which means, any long-term loss on sale of shares or eq-

In a nutshell, long-term capital loss adjustment can be only done against longterm capital gains, whereas short-term capital loss adjustment can be against any capital gains, long-term or short-term

uity oriented mutual funds cannot be set off at all as the long-term gain from the sale of these instruments is exempted. In other words, loss of profits must be a loss of taxable profits. The following example explains the above provisions.

LTCL from shares

Rs 20,000

LTCG from equity MFs

Rs 60,000

STCL from shares

Rs 40,000

LTCL from non-equity MFs

Rs 25,000

STCG from sale of shares

Rs 50,000

LTCG from sale of gold

Rs 15,000

Now, LTCL from shares cannot be set off since the LTCG from this source (in this case Rs 60,000) is exempted. The LTCL from non-equity MFs of Rs 25,000 can only be adjusted against the LTCG from sale of gold. Therefore, only Rs 15,000 can be adjusted and the balance Rs 10,000 will be non-adjustable. Lastly, the Rs 40,000 STCL from sale of shares can be adjusted against the Rs 50,000 STCG and only the balance Rs 10,000 STCG would be taxable. Lastly, note that for being eligible to carry forward and set-off any loss, it is important to file the tax return by the specified due date. If the loss return is submitted after the due date, the authorities may condone the delay only if satisfied that it was due to genuine hardship on the part of the taxpayer (Circular No.8/2001 dtd. 16/5/2001). F

The authors are leading financial advisors. Write to them at wonderlandconsultants@yahoo.com

38 The Finapolis l FEBRUARY 2016

MARKETS EQUITY

Top Stock Picks for 2016 We select 20 stocks (large-cap and mid-cap) that will keep your portfolio healthy this year By Team Finapolis

India 3.0: On course to double market capitalisation by 2020 Indian equities generated marginally negative returns in 2015, with the Sensex and Nifty down by around 4% for the year. But the longer-term prospects for Indian equities are looking brighter, and Dalal

Street seems on course to double market-cap to $3 trillion by 2020, amid renewed confidence over the faster economic growth, lower commodity prices and improved domestic macroeconomic factors. Globally, equities outperformed other asset classes marginally in 2015. This mar-

ginal outperformance, with the S&P 500 remaining flat, is significant in the backdrop of highly volatile markets in which gold lost around 10% and crude oil prices crashed over 45%. Global markets are stepping into 2016 with confidence about the sustainability of economic growth, which is expected to

FEBRUARY 2016 l The Finapolis

MARKETS Asset Performance (%) in 2015 5 0 -5 -10 -15 -20 -25 -30 -35 -40 -45 -50 -55

0.2 S&P 500

Nifty -4.5

Gold -10.3

Silver -11.6

Brent Crude -45.1

see a steady pace of 3.3-3.5% over the next two years, with a major thrust coming from the US, which constitutes a quarter of the world economy and is expected to grow around 2.5%. More important, the US Federal Reserveâ&#x20AC;&#x2122;s action of increasing interest rates by 25 bps has boosted investor confidence in the US economy. The Eurozone is expected to record a growth of 1.51.7%, while China is expected to witness a downward trajectory in growth towards 6.3% from the current 6.9%. At the same time, among economies having GDP in excess of $1 trillion, India has emerged as the fastest growing, with an expected growth of 7.7%. Growth momentum in the largest economy i.e. the US, and the slowdown in the second largest economy, i.e. China, will be the major themes which could induce volatility in the global financial markets, going forward. Domestically, the improved macroeconomic scenario, includ-

ing higher GDP growth, lower-than-expected inflation, downward revision in interest rates, lower deficit due to lower crude oil import bill and improved fiscal discipline have made India an

GDP Growth (%) 10 8 6 4 2 0

World

Eurozone

2015

2016E

China

India

2017E Source: Karvy Research, Bloomberg

Large-Cap Stock Picks Market Cap (Rs Cr.)

CMP* (Rs)

Target Price (Rs)

Upside (%)

196173

1234

1500

Banking

272458

1074

1275

ITC

Consumer Goods

260871

327

400

Larsen & Toubro

Infrastructure

120415

1284

1900

Maruti Suzuki India

Automobiles

139748

4587

5200

NTPC

Power

120054

145

170

Reliance Industries

Oil & Gas

327225

1005

1240

State Bank of India

Banking

177379

226

319

Tata Consultancy Services

Software

483218

2418

2815

UltraTech Cement

Cement

77225

2785

3520

Company Name

Sector

Housing Development Fin Corp

BFSI

HDFC Bank

*As on Dec 30, 2015; Time frame 9-12 Months

40 The Finapolis l FEBRUARY 2016

MARKETS Mid-Cap Stock Picks Market Cap (Rs Cr.)

CMP* (Rs)

Target Price (Rs)

Upside (%)

Industrials

5394

1281

1905

Century Plyboards India

Materials

3868

172

226

Container Corp Of India

Industrials

25313

1282

1560

Hester Biosciences

Pharmaceuticals

470

552

865

HSIL

Consumer Discretionary

2138

300

427

Inox Wind

Renewable Energy Equipment

8008

361

439

Kitex Garments

Consumer Discretionary

3409

708

954

NIIT Technologies

IT Services

3538

576

708

SKS Microfinance

BFSI

6390

494

600

Tube Investments of India

Industrials

8081

428

586

Company Name

Sector

BEML

*As on Dec 30, 2015; Time frame 9-12 Months

DIIs turn net buyers Another important development has been the emergence of domestic institutional investors (DIIs) as the dominant players in providing support to the market. DIIs turned net buyers to the tune of Rs 70,000 crore in 2015 after being net sellers in the previous three years. Retail investors too seem to have become interested in equities, with rising mutual fund assets, a steady increase in folio count and the overwhelming subscription to recent IPOs indicating domestic investors’ appetite for equities over more conservative investment avenues such as gold and fixed deposits.

Key Risks • attractive investment destination. Indian markets could have realised fully the benefits of the macroeconomic improvements had there been a little more political consensus on key policy issues like the passing of the goods and services tax (GST) bill.

Slower global GDP growth caused by turbulence in commodity-driven economies • Spike in crude oil prices • Geopolitical tensions in the Middle East and the South China Sea • Lack of political consensus in India on key policy matters like the GST bill

THE FINAPOLIS TAKE We believe equities will continue to outperform other asset classes like fixed income and commodities (gold) in the long term and therefore, advise systematic investment in this asset class with a long term perspective. We expect Nifty to trade in the band of 7560-9720 in the coming 12-15 months, implying a P/E range of 14-18x CY16E consensus EPS. Considering India’s prospects over the long term, we recommend investments in the consumer, financials, infrastructure, automobile, cement, energy and power sectors. F

FEBRUARY 2016 l The Finapolis

by invite

DEEPAK YOHANNAN

Does your Insurance Cover Terrorist Attacks?

error attacks around the Before you purchase a policy, globe in 2015 and back it is important to understand the home in 2016 were a grim risk that you would be exposing reminder of the threats faced by yourself to. ordinary people. From Paris to If you are travelling to a forPathankot, fear has gripped the eign place, for example, read the hearts and minds of many; while travel advisories issued by variParis was a Mumbai 2008-like ous governments and buy travel attack directed at the populace of insurance that covers hospitala city, the attack in Pathankot isation charges incurred due to was a surgical strike to infiltrate terrorist attack. Your claim a military installation. Whatever could be rejected if you travel to be the form or modus operandi a country or place that has a of such attacks, it is the common high probability of a terrorist man on the street who is most attack and do not have specific vulnerable. But is there anything coverage for the same. we can do if faced with such a Some countries make it manhorrific situation? datory to have travel insurance The good news is yes, you can. before travelling there. For exThere are certain measures that ample it is necessary to purchase you can take to prevent financial travel insurance before travellosses in case of any injury or ling to any of the 26 countries When buying insurance, check for death due to such an attack. The that form the European Union. first step would be to find life inA plan would typically cover: clauses that offer protection against surance or healthcare insurance ➤➤ Passport loss terror attacks plans that cover the risk of ter➤➤ Loss of baggage (delayed or rorist attacks. checked in) Most insurance plans cover insurance policy. ➤➤ Medical charges that involve for financial losses arising out of terrorHowever, a term life insurance policy hospitalisation ist attacks, while some also offer cover covers only death; injuries arising out of ➤➤ Extended accommodation in case of against hijackings. In the wake of so terror attacks are not covered by such terrorist many terrorist attacks, some insurers policies. For that, you would need a per➤➤ Cancellation of trip have also begun offering pure protection sonal accident cover which can be pur➤➤ Interruption of trip plans against terrorist attacks. A terrorchased as a rider with your life insurance ➤➤ Medical expenses that might involve ism pool was set up by Indian insurers policy, or separately. Then too, major hospitalisation in the aftermath of the 9/11 attacks in surgeries arising out of terror attacks are ➤➤ Repatriation of remains the US to cover similar attacks arising not covered under most personal accident ➤➤ Replacing important items on Indian soil. However, a lot of ambigucovers. Some insurers such as Bajaj Alli➤➤ Emergency evacuation from host ity still exists in general insurance plans anz General and ICICI Lombard, however, country that cover terrorist attacks, as most travdo cover injuries under terror attack. ➤➤ Accidental injury el, mediclaim or personal accident plans Mediclaim policies will cover charges But such travel insurance plans restrict have restrictions. for hospitalisation and medical treatthe protection for destinations insured. It For example, life insurance companies ment as a result of a terror attack, is beyond the common man or even an will compensate the nominee of a disbut these do not offer any death benefit. intelligence agency expert to predict aceased person for all reasons of death exThe protection offered by certain comcurately when and where an attack can cept suicide. This includes death due to prehensive health insurance plans intake place. So, your only defense is to be terrorism, so there is no reason to buy clude ambulance, pre- and post-hospitalprepared to bear financial consequences additional cover if you have a term life isation charges. of being caught in such a situation. F

The author is the CEO of MyInsuranceClub, an insurance price and features comparison site in India

42 The Finapolis l FEBRUARY 2016

EQUITY NUMBER GAME

Technical Analysis Our team of analysts pore through technical charts to offer some smart trading tips for the next couple of months By Team Finapolis Current Market Price

INDZINC, a Vedanta Group company, is the market leader in zinc, lead and sulphuric acid business. The company is Indiaâ&#x20AC;&#x2122;s only and the worldâ&#x20AC;&#x2122;s largest integrated producer of Zinc-Lead. It is also one of the leading Silver producers in the world. It is one of the lowest cost producers in the world and are well placed to serve the growing demand of Asian countries. 180 170 160 150 140 130 120 Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

Rs 144.95

Stop Loss

Rs 120

Target Price 1

Rs 188

Target Price 2

Rs 190

Points of Observation XXHINDZINC had been an outperformer in the past few weeks. The stock had been consolidation in the range of 135-145 levels in the weak market conditions. The benchmark index Nifty ended with steep losses of more than 6% till date in the current month, on the other hand, HINDZINC ended with marginal loss of 1%. XX The stock gave a consolidation breakout in the month of May 2014 and made a 52 week high of 190.50 levels in February 2015. Later, the stock entered in to pricewise correction which dragged the counter again to the breakout levels of 135-140.

XX At current levels, the stock is expected to re-gain its bullish momentum and move towards the 52 week high levels of 188-190 levels in medium term perspective. In the recent scenario, the stock witnessed good trading volumes from the support levels of 135 and entered in to the cluster of short to medium term moving averages. XX We recommend medium- to long-term investors to buy the stocks at current levels and accumulate more on any dips towards 135 levels with stop loss placed below 120 levels.

FEBRUARY 2016 l The Finapolis

EQUITY

L O Y DELENG is in uptrend from many months and every correction has proved to be a great buying opportunity. The stock has made a high of 329 and from that point it has come to 226 levels giving a correction of almost 30% from its high. On daily charts the stock is trading above its 200DEMA which is at 232. The stock has major support levels in the range of 220-227.The stock made a low of 226 on January 18 and since then it is consolidating in a range of 226-250. The next 320 285 250 215 180 145 110 Jan-15

Apr-15

Jul-15

Current Market Price

Oct-15

Jan-16

Rs 1891.80

Stop Loss

Rs 1350

Target Price 1

Rs 2500

Target Price 2

Rs 2700

he monthly chart structure of this fundamentally strong stock, suggests formation of cycles of higher highs and higher lows, supported by stellar volumes at higher levels, clearly indicating there is a lot of demand for the stock even at higher levels which is a positive sign in itself. Bajaj Finserv is in a structural uptrend and looks well set to march steadily towards the 2,500-2,700 mark over the next 9-12 months. The stock has been relentlessly rallying from its December, 2008 low of 86.83 to a recent lifetime high of 2,160, which was clocked on August 3, 2015. The stock also broke out above its previous

Current Market Price

Rs 244.70

Stop Loss

Rs 200

Target Price

Rs 330

major weekly support is around 220 levels which are also around its previous breakout levels. The current correction seems to be almost over and the stock is likely to consolidate near its support levels and start its up-move in next few days. Points of Observation XXOn the daily charts, the stock is trading above its 200 day exponential moving average, and has taken support at its major daily and weekly support levels which are placed in the range of 220-227. The stock has been witnessing accumulation from the last 4-6 trading sessions near its support levels with decent volumes. XXAmong oscillators, the 14-period RSI on daily charts has recovered from its oversold zone and is currently sustaining

resistance at 1,000 in August, 2014. In the chart above, it is clearly seen that the stock also witnessed superb accumulation within a broad range of 1,600-1,800 during second half of 2016. Considering the fact that the stock has zoomed more than threefold within a period of just more than two years, we feel that the stock can actually put up a similar performance over the next year as well. Points of Observation XXOn the daily charts, the stock is trading above all its major moving averages, indicating the bullishness in the counter and any dip towards the moving averages can be used as buying opportunity. XX The stock has seen fresh accumulation

above 30 levels, indicating the correction in almost over and the stock can once again move northward in coming days. XXOn weekly charts the stock is making higher high and higher lows and has taken support of its previous breakout levels of 220 and the same levels also coincides with its 50 period EMA and it is highly likely that it will continue in its uptrend. XXThe stock is trading near its long term upward sloping trend-line which is likely to act as a very strong support zone and unless the trend-line is broken the longterm trend for stock is likely to continue.

2075 1925 1775 1625 1475 1325 1175 Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

in last couple session indicated with steep rise in price along with the increase in the volumes. The stock has immediate strong support paced at 1550 levels and the uptrend is expected to continue in the stock till its stays above the 1350 levels. XX Among oscillators, the 14-month RSI line is trading in the overbought territory from a very long time and any dip can be used for fresh accumulation. XXWe therefore recommend long term investors to go long in the stock on dips to 1,850, and average the long position on dips, if any, around the level of 1,550 for the mentioned target levels with a strict stop loss placed below the level of 1,350 on a weekly closing basis.

44 The Finapolis l FEBRUARY 2016

EQUITY Current Market Price

Rs 1010

Stop Loss

Rs 870

Target Price 1

Rs 1070

Target Price 2

Rs 1160

mami Limited is one of the leading personal and healthcare businesses in India, with a product portfolio of household brand names such as BoroPlus, Navratna Oil, Fair and Handsome, Zandu Balm, Kesh King, She Comfort, Mentho plus Balm and Fast Relief. The company has operations in more than 60 countries. Over 112 Emami products are sold around the world. The stock price has seen a stellar rally from the levels of sub-70 to the levels of sub-1365 in a span of seven years giving a whopping move of more than 1900%, which depicts its long term structural uptrend. After clocking the highs of 1350 in

GL is in uptrend from m a n y months and every correction has proved to be a great buying opportunity. The stock has made a high of 608 and from that point it has come to 539 levels giving a correction of almost 10% from its high. The stock is trading above its 200DEMA and 50 DEMA which are at 439 and 467 respectively. The stock has major support levels in the range of 535-540.The stock made a low of 539 on 19th January and showed smart recovery from those levels and is currently trading around 570 levels. The next major monthly support is around 518 levels which are also around its previous breakout levels. The current correction seems to be almost over and the stock is likely to consolidate near its support levels and start its up-move in next few days.

1355 1250 1145 1040 935 830 725 Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

August, the stock has corrected its rally to the lows of 900 in November, where these lows also coincides with the 50% retracement of the previous major rally of 430 in May 2014 to 1365 in August 2015, indicating its medium to long term up trend is still intact. After hitting the lows of 900, over last few weeks, the stock is consolidating in a

Current Market Price

Rs 572

Stop Loss

Rs 518

Target Price

Rs 680

587 550 513 476 439 402 365 Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

Points of Observation XX On the daily charts, the stock is making higher high and a higher low even in turbulent market conditions indicating the inherent strength in the counter and is likely to head northward towards its previous high in short term. XX The stock has been witnessing accumulation from the last 4-6 trading sessions near its support levels with decent volumes. The stock has a strong support at around 535-540 levels and is likely to

broad range of 940-1040, indicating a possible pause for next up move. Going forward, until the stock holds above 880-900 levels, it has the potential to rally towards its major previous swing highs zone of 1070-1080 and above it towards another swing highs zone of 1160-1200 in the coming months. Points of Observation XX The stock on weekly chart has been respecting its medium term moving averages and bouncing back with decent volume activity, indicating strong hands are playing in the counter. XX Among oscillators on weekly charts, the 14-period RSI line is trading at a reading of 45, indicating the stock has more upside and any dip can be used for fresh accumulation. XX We therefore recommend medium to long term investors with a time frame of four to six months to buy the stock in the range of 985-995, and average on dips towards 930 for the mentioned target levels with a strict stop loss placed below the level of 870.

head towards 680 levels, if a breakout above 610 is sustained. XX Among oscillators, the 14-period RSI on daily charts is sustaining above 50 levels, indicating the stock has strength and price can rise in medium term. XX On weekly charts the stock has taken support of its previous breakout levels of 539, and it is highly likely that it will continue in its uptrend. XX The 14-period RSI on weekly charts is still sustaining above 70 levels, which very clearly indicates that the momentum is still intact and the stock still has strength for next round of up-moves in coming days. F

FEBRUARY 2016 l The Finapolis

by invite

ADHIL SHETTY

Five Things to Check Before Buying a Mutual Fund

he basic tenet underlying any investment is to make money. And if the investment decision is wrong, things can go haywire for the investor. So, a call to invest should be taken with due assiduity by taking into consideration all factors that can directly or indirectly influence the investment in hand. The same pertains to investments in mutual funds too. Let’s take a close look at the parameters that should be borne in mind when investing in mutual funds. Basically, mutual funds source money from investors through various investment schemes and put the money in different avenues such as stocks, debt securities, or other money market securities, with the sole aim of multiplying investors’ hard-earned money. These funds are professionally managed and the fund managers will embolden investors with their expert advice on investment. The main attraction of mutual funds is that they are less risky as diversification mostly comes into play. Keeping this in mind, one should consider the following points before investing in a mutual fund scheme:

1) Where does the fund house stand? It is imperative to determine the credibility of the fund house under consideration before taking the mutual fund plunge. Analyse the work ethic of the fund house and how they are managing investors’ finances. Also, try to bank on a fund house that has proved its mettle. Finally, try to determine how transparent has the fund house been in its dealings.

2) Where does the scheme stand? Where a particular scheme stands is another important point to be considered. Track the past record of the scheme and find out whether unit-holders have benefitted from it. Also, check the scheme’s performance for specific time periods

Adhil Shetty is the CEO of BankBazaar.com

are suited for long-term goals, while fixed-income fund schemes are better suited to short-term goals. An investor should find out whether the fund corpus is invested in mid- or small-cap equity or short-term debt papers.

5) What is the risk associated with the scheme?

The main attraction of mutual funds is that they are less risky as diversification comes into play such as one, three, five, or 10 years. These details should be the benchmark based on which investors should take their call. The assets under management, or how much money has been invested in the fund scheme, is another telling indicator of popularity and consistent performance.

3) Where does the market stand? Always gauge the mood of the market before joining a mutual fund scheme. One should know the risk at hand and the quantum of market volatility. If the market is risky, go in for a scheme that has a prudent equity-debt ratio, as the risk will be mostly evenly distributed. It could also be better to opt for balanced funds, which are helpful while tiding over perceivable market inconsistencies.

4) What financial goals will investment in this scheme satisfy? There should be congruence between one’s financial goals and the basic objectives of a mutual fund scheme. For this, one should have a clear idea of whether the goals are short-term or long-term and choose a fund that goes hand-in-hand with one’s needs. Small or mid-cap funds

It is important to know the risk on an intended MF investment, so check the mandatory riskometer in every mutual fund brochure to get a clear idea of the risk involved in each fund. Recently, market regulator SEBI made it compulsory for fund houses to display easy-to-understand infographics on the risk of each fund. The riskometer has five levels of risks (low, moderately low, moderate, moderately high and high). An investor should read the brochure properly to gauge the viability of a particular mutual fund. Ratings of the scheme by reputed ratings agencies also help garner valuable insights into the risk levels associated with the scheme. Meanwhile, one should also keep in mind any proposed legislation. For example, the recent Amtek Auto multi-crore default on bonds made the regulator sit up and tighten the leash on fund houses’ risk practices. SEBI intends to put curbs on mutual fund investment in rated debt instruments. When the new norms are in place, the fund houses will be forced to reduce concentration in holdings (if any). This will help in more diversification and reduce their risk.

Conclusion The mutual fund industry has witnessed lots of changes in the recent past with more international players coming to the country. With this comes a plethora of fund schemes to choose from. The central point is to select a fund scheme that helps one realise financial goals, is transparent and consistent in performance, and has a sound investment philosophy. F

46 The Finapolis l FEBRUARY 2016

FACE TO FACE â&#x20AC;&#x2DC;Valuations are comfortable even with a slower recovery and lower earningsâ&#x20AC;&#x2122; Sohini Andani joined SBI Fund Management as head of research in 2007 and was promoted as a portfolio manager in 2010. The commerce graduate and chartered accountant tells The Finapolis she is bullish on industrial, construction and cement. How do you think equity as an asset class will perform in 2016? Sohini Andani: Equity as an asset class would do well in 2016 as the markets are factoring in many negatives like lower domestic growth, problems in China, lower commodity prices and weaker currency and valuations are looking more reasonable now.

Institutional Investors pressurising valuations in our markets. Obviously, the global slowdown would also delay the recovery in India as exports would take a long time to pick up. Given that our currency has also depreciated and that we are a major importer of crude, our export competitiveness may not get very much impacted by the devaluation of the Chinese yuan.

Which sectors would you focus on in the coming 2-3 years? SA: We like industrial, construction, cement and consumer discretionary sectors, which would benefit from the upswing in the economy.

Do you think the government is rolling out enough reforms to accelerate growth in the economy? SA: The government is trying to put in order many sectors and I would say progress is being made in power, defence, railways and roads. However, it has not been able to get political consensus around key bills, which is a dampner.

SBI Blue Chip Fund has been an exceptional performer in the past few years in the large cap segment. What do you attribute the success of the fund to? SA: The portfolio has benefited a lot from the bottom-up stock selection within each sector. Our internal research team has contributed meaningfully towards this. In general, we benefitted from being overweight on consumer discretionary and pharmaceutical sectors and underweight on financials, energy and utilities. The market has been extremely bearish for the past six months or so. Were you prepared for this kind of a scenario? SA: We expected the domestic recovery to be gradual and anticipated that the problems in the financial sector would take time to be sorted out. So we positioned the portfolio accordingly. However, the crash in commodity prices and growth concerns over China have been more than anticipated and taking longer time to be sorted out. What is your stock selection strategy

Sohini Andani Fund Manager, SBI Fund Management

Market participants would look for a fiscal roadmap and overall government borrowing (in the Union Budget) and how is it different compared to peers? SA: We look for long-term visibility of growth and efficient capital allocation while looking for stock ideas. Also, valuations relative to the sector and to the companyâ&#x20AC;&#x2122;s own history are important factors to consider while constructing a portfolio. Our preferred choices are companies which invest in long-term growth, execute well and which are less dependent on external environment for growth. How do you see the downfall of the markets around the globe, especially China, weighing on the Indian markets? SA: We are witnessing outflows by Foreign

What is your expectation from the upcoming Union Budget? SA: Over the years, the Union Budgets are becoming less of an event, as much more work on reforms and policy happens outside of it. However, market participants would look for a fiscal roadmap and overall government borrowing levels for the next year and the means by which the government targets to fund this. What is your advice to investors in the current scenario with respect to investing in equity related instruments? SA: The markets have corrected meaningfully since the beginning of the calendar year, and valuations are comfortable even after factoring slower economic recovery and lower earnings growth. Investors should start investing in equities, which as an asset class can give better returns over other asset classes like fixed income, real estate or gold. F

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48 The Finapolis l FEBRUARY 2016

STAT DOSSIER All figures as on January 22, 2016

Indian Indices: Performance Close Jan 22, 2016

Close Dec 31, 2015

Return (%)

Return 6 M (%)

Return 12 M (%)

PE Ratio

24435.66

26117.54

-6.44

-13.08

-16.54

18.30

Nifty

7422.45

7946.35

-6.59

-12.90

-15.99

19.27

BSE 500

9826.13

10634.22

-7.60

-12.13

-13.37

21.10

BSE Auto

16891.43

18519.08

-8.79

-10.88

-15.99

21.46

BSE Bankex

17625.07

19328.74

-8.81

-17.54

-23.32

13.91

BSE Capital Goods

12544.81

14128.32

-11.21

-30.82

-26.28

1135.76

BSE Consumer Durables

11761.48

11997.51

-1.97

3.99

14.52

32.86

BSE Oil & Gas

9072.65

9555.61

-5.05

-10.66

-8.37

11.50

BSE Metal

6661.68

7397.96

-9.95

-24.06

-36.62

BSE Realty

1183.61

1344.33

-11.96

-12.47

-29.25

29.09

6095.64

6813.67

-10.54

-21.25

-27.04

10.43

BSE Power

1779.59

1957.68

-9.10

-14.74

-18.65

67.47

BSE Teck

5810.17

6052.92

-4.01

-6.30

-6.34

20.07

Sensex

BSE PSU

Global Indices: Performance Close Jan 22, 2016

Close Dec 31, 2015

Return (%)

Return 6 M (%)

Return 12 M (%)

PE Ratio

MSCI World Index

1536.79

1662.79

-7.58

-11.96

-10.01

17.49

MSCI Asia Pacific Ex Japan

368.24

411.31

-10.47

-18.90

-23.39

11.05

19080.51

21914.40

-12.93

-24.07

-23.22

8.28

Singapore Straits Times (STI)

2577.09

2882.73

-10.60

-23.13

-24.46

12.06

S. Korea

1879.43

1961.31

-4.17

-8.14

-2.93

13.89

18789.69

19033.71

-1.28

-17.45

-3.16

17.85

Dow Jones

16093.51

17425.03

-7.64

-8.40

-8.94

14.36

S&P 500

1906.90

2043.94

-6.70

-8.31

-7.06

17.03

NASDAQ

4591.18

5007.41

-8.31

-9.78

-3.50

28.06

38031.22

43349.96

-12.27

-22.77

-22.03

20.19

FTSE-100

5900.01

6058.54

-2.62

-10.33

-13.65

26.42

DAX 30

9764.88

10743.01

-9.10

-13.95

-8.31

20.70

CAC 40

4336.69

4637.06

-6.48

-14.25

-6.55

19.56

ASIA Hang Seng

Nikkei 225 AMERICA

Brazil Bovespa EUROPE

FEBRUARY 2016 l The Finapolis

STAT DOSSIER All figures as on January 22, 2016

January International Commodity Futures Price Trends Close Jan 22, 2016

Close Dec 31, 2015

% Change

52 Week High

% Change from 52 Week High

52 Week Low

% Change from 52 Week Low

LME Lead 3 Month ($/t)

1638.50

1793.00

-8.62

2162.50

-24.23

1551.50

5.61

LME Zinc 3 Month ($/t)

1510.00

1609.00

-6.15

2404.50

-37.20

1444.50

4.53

8700.00

8820.00

-1.36

15505.00

-43.89

8100.00

7.41

14.06

13.80

1.84

18.49

-23.98

13.64

3.09

4443.00

4705.00

-5.57

6481.00

-31.45

4318.00

2.89

32.19

37.04

-13.09

62.58

-48.56

26.19

22.91

1481.50

1507.00

-1.69

1978.25

-25.11

1432.50

3.42

14.42

15.24

-5.38

15.95

-9.59

10.13

42.35

1096.30

1060.20

3.41

1307.80

-16.17

1046.20

4.79

CBOT Soy Oil (cents/lb)

30.50

30.55

-0.16

35.29

-13.57

25.38

20.17

ICE Coffee (cents/lb)

116.00

126.70

-8.45

169.90

-31.72

111.05

4.46

ICE Cotton (cents/lb)

62.45

63.28

-1.31

68.30

-8.57

57.05

9.47

428.50

422.20

1.49

433.50

-1.15

329.00

30.24

2.14

2.34

-8.47

3.11

-31.11

1.68

27.02

CBOT Soybean (cents/bushel)

876.50

871.25

0.60

1060.25

-17.33

844.25

3.82

CBOT Corn (cents/bushel)

370.25

358.75

3.21

438.75

-15.61

346.50

6.85

CBOT CORN

370.25

358.75

3.21

438.75

-15.61

346.50

6.85

CBOT Soy Meal ($/t)

268.50

264.30

1.59

382.50

-29.80

262.80

2.17

CBOT Wheat (cents/bushel)

475.50

470.00

1.17

615.75

-22.78

451.25

5.37

LME Nickel 3 Month ($/t) Comex Silver (S.oz) LME Copper 3 Month ($/t) Nymex Crude Oil (S/bbl) LME Aluminium 3 Month ($/t) ICE Sugar (cents/lb) Comex Gold (S/oz)

LIFFE Sugar (S/t) Nymex Natural Gas ($/mmbtu)

Commodities: January Gainers and Losers (%) MCX

NCDEX

Gold 4.93%

Barley, 1.96% Silver, 2.94%

Soybean 1.69%

Nickel, 1.23% Aluminum, .85%

Wheat 1.07%

Cotton, 0.85% Cardamom, .14%

Soy Oil - 0.67%

Mentha Oil, -2.08% Zinc, -4.09% Copper,- 4.52% Lead - 7.36%

Natural Gas, - 6.74% Crude Oil, -13.44%

RM Seed - 6.41% Turmeric - 13.11%

50 The Finapolis l FEBRUARY 2016

STAT DOSSIER All figures as on January 22, 2016

NIFTY TOP

Company

Jan 22, 2016

Infosys

Dec 31, 2015

1136.25

1105.40

883.25

892.30

-1.01

Reliance Industries

1004.15

1014.60

-1.03

514.25

521.65

-1.42

869.95

883.55

-1.54

Tech Mahindra Asian Paints

Jan 22, 2016

Vedanta Idea Cellular

Dec 31, 2015

(%) Change

64.70

90.40

-28.43

106.85

143.65

-25.62

Punjab National Bank

92.50

115.70

-20.05

Cairn India

112.85

138.10

-18.28

184.60

224.45

-17.75

State Bank of India

NIFTY MOVEMENT

14150 13775 13400 13025 12650 12275 11900

Jul-15

Oct-15

Jan-16

BSE BANKEX

Jul-15

Oct-15

Jan-16

DOW JONES

Apr-15

Jul-15

Oct-15

Jan-16

Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

Apr-15

Jul-15

Oct-15

Jan-16

28400 26750 25100 23450 21800 20150 18500 Apr-15

13% Loss in NYMEX Crude Oil price.

HANG SENG

18295 17855 17415 16975 16535 16095 15655 Jan-15

Jan-15

18660 17550 16440 15330 14220 13110 12000 Apr-15

BSE CAPITAL GOODS

23500 22250 21000 19750 18500 17250 16000 Jan-15

NIFTY BOTTOM

CNX-MIDCAP MOVEMENT

8990 8675 8360 8045 7730 7415 7100 Apr-15

2.79

BPCL

Company

Jan-15

(%) Change

Jul-15

Oct-15

Jan-16

Jan-15

Crude Oil prices slumped heavily last month following finalisation of the Iran nuke deal

FEBRUARY 2016 l The Finapolis

STAT DOSSIER CURRENCY

ENERGY

Rupee Movement

5.6%

Brent Crude (US$/bbl) 73 65 57 49 41 33 25

67.9 66.8 65.7 64.6 63.5 62.4 61.3 Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

Loss in LME Copper.

METALS Gold (US$/OZ)

Copper prices dropped after release of China GDP data, which was lowest in last 25 years

Silver (US$/OZ)

1300 1250 1200 1150 1100 1050 1000

18.6 17.8 16.9 16.1 15.2 14.4 13.5

Jan-15

Apr-15

Jul-15

Oct-15

Jan-15

Jan-16

Apr-15

Jul-15

Oct-15

Jan-16

ECONOMY

Real GDP Growth

Oct-15

Nov-15

Sep-15

Jul-15

Aug-15

Jun-15

Apr-15

May-15

-5.0

Mar-15

-3.5

Jan-15

Nov-14

-2.0

Feb-15

-0.5

10 8 6 4 2 0 -2 -4 Dec-14

Nov-15

Dec-15

Sep-15

Oct-15

IIP (%) Aug-15

Jun-15

Jul-15

Apr-15

May-15

Feb-15

Mar-15

Jan-15

Dec-14

Inflation (%)

FII vs. MF (Rs cr) 20000

12000 10000 8000 6000 4000 2000 0

10000 0 -10000 Prior (%)

-20000

FII Latest (%) DII (RHS)

7.25 6.25 4.00 21.50

6.75 5.75 4.00 21.50

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16

Repo Reverse Repo Cash Reserve Ratio SLR

10-year bond yield (%)

Prior (%)

7.25 6.75

Apr-15

Jul-15

Oct-15

Loss in LME Lead. Lead prices fell owing to diminishing demand from major industrial countries

RBI Monetary Data

7.98 7.90 7.82 7.74 7.66 7.58 7.50 Jan-15

8.6%

Jan-16

Repo

Latest (%)

6.25 5.75

Reverse Repo

21.50 21.50

4.00 4.00

Cash Reserve Ratio

SLR

All figures as on January 22, 2016

The Finapolis l FEBRUARY 2016

STAT DOSSIER Performance of Mutual Funds Equity Diversified Mutual Fund Scheme

ELSS NAV

1 yr 2 yr 3 yr

Mutual Fund Scheme

Reliance Small Cap - Direct (G)

25.48

-1.2 44.0 34.5

Axis Long Term Equity - Direct (G)

29.75 -4.9 30.5 26.5

Reliance Small Cap Fund (G)

24.89

-2.0 42.8 33.4

Axis Long Term Equity Fund (G)

28.68

-5.9 28.8 25.0

DSP-BR Micro Cap Fund - Direct (G)

40.46

5.1 49.2 32.6

Birla SL Tax Relief 96-Direct (G)

20.74

-4.8 26.5 20.4

ICICI Pru Exp&Other Services-DP (G)

45.81

6.9 26.4 32.4

ICICI Pru RIGHT Fund (G)

ICICI Pru Exp&Other Services-RP (G)

44.95

6.3 25.7 31.7

Reliance Tax Saver(ELSS)-Dir (G)

42.22 -14.4 30.6 20.2

DSP-BR Micro Cap Fund - RP (G)

39.63

4.3 48.2 31.7

Birla Sun Life Tax Plan-Direct (G)

26.33

-5.1 25.7

19.7

Franklin (I) Smaller Co -Direct (G)

38.04

-1.7 40.7 30.5

Religare Invesco Tax Plan - DP (G)

34.28

-3.8 25.8

19.6

Mirae Emerging Bluechip -Direct (G)

30.25

1.9 40.2 29.6

Birla SL Tax Relief 96 (G)

20.26

-5.4 25.7

19.5

Franklin (I) Smaller Cos (G)

36.87

-3.2 38.8 29.1

Reliance Tax Saver (ELSS) (G)

41.36 -15.0 29.7

19.4

57.71

-2.6 42.7 28.9

SBI Tax Advantage Sr-1 (G)

21.01

-4.8 26.5

18.8

SBI Midcap Fund - Direct (G)

57.99

4.3 35.5 28.8

Birla Sun Life Tax Plan (G)

25.61

-5.9 24.6

18.7

UTI Mid Cap - Direct (G)

74.94

-4.8 37.4 28.6

SBI Tax Advantage Sr-2 (G)

20.94

-8.8 26.4

18.2

Mirae Emerging Bluechip Fund (G)

29.32

1.0 38.8 28.2

Religare Invesco Tax Plan (G)

32.93

-5.5 23.9

18.0

Birla SL Opportunities -Direct (G)

111.13

3.5 28.7 28.1

ICICI Pru L T Eq-Tax Svng-DP-G

261.35

-6.6 22.0

17.6

Franklin (I) Tax Shield -Direct (G)

401.58

-7.2 24.7

17.6

IDFC Tax Adv. (ELSS) -Direct (G)

36.56 -6.0 20.6

17.4

BNP Paribas Long Term Eq-DP (G)

27.52

-7.6 23.4

17.3

392.49 -8.0 23.7

16.7

Can Robeco Emer-Equities-Direct (G)

Can Robeco Emerg-Equities (G)

56.27

-3.4

41.5 27.7

UTI Mid Cap (G)

73.37

-5.6 36.4 27.7

SBI Magnum Midcap Fund (G)

56.67

3.2 34.3 27.6

Birla SL (I) Opportunities (G)

109.10

2.7 27.8 27.4

L&T Midcap Fund -Direct (G)

85.68

-1.6 38.3

JPMorgan (I) Mid & Small Cap-DP (G)

18.38

-4.3 38.4 27.0

Birla SL Pure Value - Direct (G)

37.46

-5.5 38.2 26.5

Sundaram SMILE Fund -Direct (G)

65.68

-6.8 44.8 26.5

Mutual Fund Scheme

L&T Midcap Fund (G)

83.68

-2.4

Tata Mid Cap Growth - Direct (G)

95.53

JPMorgan (I) Mid and Small Cap (G) Birla SL Pure Value Fund (G)

Franklin India Tax Shield (G)

1 yr 2 yr 3 yr

27.16 -11.0 24.0 20.3

-7.2 22.5

16.6

-7.5

21.0

16.6

1 yr 2 yr

3 yr

ICICI Pru Bkg&Fin Serv -Direct (G)

32.54 -18.7 23.4

12.1

-5.0 36.5 25.6

ICICI Pru Bkg & Fin Serv-RP(G)

31.70 -19.5 22.3

11.3

17.77

-5.4 36.8 25.6

Religare Invesco Bank - Dir (G)

31.62 -14.7 21.6

9.3

36.61

-6.3 37.0 25.6

Religare Invesco Banking - RP (G)

30.35 -16.4

19.5

8.3

647.83

-3.9 35.4 25.5

Reliance Banking Fund - Dir (G)

154.00 -20.6 20.6

8.1

64.69

-7.2 43.9 25.0

Reliance Banking Fund (G)

151.69

-21.1

19.8

7.7

Sundaram Select Midcap -Direct (G)

323.74

-2.5 36.0 24.8

UTI Banking Sector - Direct (G)

57.20 -22.2

17.1

5.1

Religare Invesco Mid N Small-DP (G)

34.32

-3.7 33.7 24.8

Sundaram Fin-Serv Opp. -Dir (G)

24.49 -21.8

16.6

4.7

Franklin (I) Prima - Direct (G) Sundaram SMILE Fund (G)

27.1

37.2 25.6

DSP-BRTax Saver Fund -Direct (G)

NAV

ICICI Pru LT Eq (Tax Svng)-G

30.41 254.98

Equity (Banking) NAV

Source: moneycontrol.com; Note: All returns are annualized and expressed in percentage; all NAVs as on January 22, 2016

FEBRUARY 2016 l The Finapolis

STAT DOSSIER Performance of Mutual Funds Equity (FMCG) Mutual Fund Scheme

Equity (Tech) NAV

1 yr 2 yr 3 yr

Mutual Fund Scheme

NAV

1 yr 2 yr 3 yr

ICICI Pru FMCG Fund - Direct (G)

153.59

-4.8

13.9

13.6

ICICI Pru Technology - Direct (G)

41.05 -4.9

SBI FMCG Fund - Direct (G)

72.88

-3.0

14.1

13.5

ICICI Pru Tech. Fund (G)

40.12

-5.8

11.1 23.7

150.64

-5.5

13.2

13.3

Birla SL New Millennium-Dir (G)

35.63

0.2

11.9 21.6

70.66

-4.1

13.1 13.0

SBI IT Fund - Direct (G)

45.94 -6.2 10.6

SBI IT Fund (G)

44.47

-7.3

9.6 21.0

Birla SL New Millennium (G)

34.85 -0.5

11.0 20.7

DSP-BR Technology.Com -Dir (G)

55.08

ICICI Pru FMCG Fund (G) SBI FMCG Fund (G)

Equity (Pharma) Mutual Fund Scheme

NAV

1 yr 2 yr 3 yr

142.51

13.1 34.2 34.0

SBI Pharma Fund (G)

138.30

11.6 32.7 32.9

Reliance Pharma Fund - Direct (G)

140.14

6.8 27.8 27.7

Reliance Pharma Fund (G)

136.94

6.0 26.8 26.8

91.14

1.2 22.4 25.3

SBI Pharma Fund - Direct (G)

UTI Pharma & Health - Direct (G) UTI Pharma & Health (G)

88.85

0.3

21.3 24.3

Balanced Mutual Fund Scheme

DSP-BR Technology.Com -RP (G)

1 yr 2 yr 3 yr

2.8 12.6 2.3

21.5

19.7

12.0 19.0

Miscellaneous Mutual Fund Scheme

NAV

1 yr

2 yr

3 yr

UTI Transport&Logistics -Dir (G)

81.95

-6.6

42.5

36.5

UTI Transport & Logistics (G)

79.79

-7.6

41.1

35.3

Birla SL Buy India -Direct (G)

92.21

-1.5

33.2 24.0

90.60

-2.2

32.4 23.3

JM Basic Fund -Direct (G)

19.69

-9.5

24.7

11.8

Reliance Media & Enter. -Dir (G)

54.34

-2.6

18.8

11.4

Reliance Media & Entertain (G)

53.12

-3.4

18.0

10.7

JM Basic Fund (G)

19.14 -10.9

23.3

10.7

24.1

8.0

Birla Sun Life Buy India (G) NAV

54.18

11.9 24.6

L&T India Prudence Fund -Dir (G)

19.44

-0.1 24.0

18.8

SBI Balanced Fund - Direct (G)

94.52

-1.6 22.0

18.0

Tata Balanced Fund - Direct (G)

161.88

-3.3 23.0

17.9

L&T India Prudence Fund (G)

18.89

-1.1 22.8

17.5

L&T India Eq & Gold Fund -Dir (G)

19.48

-6.1 22.7

17.4

Tata Balanced Fund - Regular (G)

159.16

-3.6 22.4

17.3

HDFC Balanced Fund - Direct (G)

104.57

-5.5

22.1

17.3

Mutual Fund Scheme

Religare Invesco PSU Eq-DP (G)

13.25

-7.0

MIP NAV

1 yr 2 yr 3 yr

Escorts Balanced Fund - Direct (G)

98.73

-6.1 23.9

17.3

Tata MIP Plus Fund - Direct (G)

25.38

14.7

17.3

SBI Magnum Balanced Fund (G)

92.37

-2.7

21.0

17.1

Tata MIP Plus Fund (G)

24.80

13.8

16.2

12.1

HDFC Childrens Gift - Direct (Inv)

80.75 -6.0

18.2

16.8

ICICI Prudential Reg Income-Dir (G)

15.02

9.9

12.2

9.4

Escorts Balanced Fund (G)

98.32

-6.1 23.7

16.8

Franklin (I) Low Dura. -Direct (G)

16.68

9.8

10.2

10.1

Franklin India Bal Fund-DP (G)

89.00

-2.7 22.6

16.7

Franklin (I) Low Duration (G)

16.54

9.5

9.9

9.8

HDFC Balanced Fund (G)

102.30 -6.4

21.1

16.5

ICICI Prudential Regular Income (G)

14.70

8.7

11.4

8.7

Birla SL 95 Fund -Direct (G)

550.91 -4.5

22.1

16.1

SBI Magnum MIP Floater -Direct (G)

21.69

8.5

13.7

Sundaram MIP-Conservative-Dir-G

14.29

8.4

9.7

6.7

HDFC Childrens Gift (Inv)

79.15 -6.6

17.4 16.0

Source: moneycontrol.com; Note: All returns are annualized and expressed in percentage; all NAVs as on January 22, 2016

54 The Finapolis l FEBRUARY 2016

FUND REPORT CARD HDFC Mid-Cap Opportunities Fund (G) Fund Objective/Mission The aim of the fund is to generate long-term capital appreciation from a portfolio that is substantially constituted of equity and equity related securities of small and mid-cap companies.

Fund House Details AMC Name: Website:

HDFC Asset Management Company www.hdfcfund.com

Scheme Performance as on Jan 22, 2016 Period

Returns

B'mark

Rank

3 Months

-8.44

-9.23

135/(277)

6 Months

-8.53

-10.56

78/(271)

1 Year

-5.90

-5.91

91/(242)

3 Years

23.10

12.85

28/(167)

5 Years

17.97

8.26

18/(155)

Since Inception

15.73

9.01

SIP Details: Invested Rs 5000 Every Month

Financial Details

Period

AUM As On (December 31, 2015) 10915.09 NAV As On (January 22, 2016) 35.04 Min Investment (in Rs.) Lumpsum 5000 SIP 500 NAV (52WeekHigh){August 19, 2015} 40.12 NAV (52WeekLow){January 20, 2016} 31.17

Total Invest (`)

1 Year

60,000

60,736

60,992

1,80,000

2,73,189

2,47,051

5 Years

3,00,000

5,62,400

4,61,426

Fund Structure

Scheme

Open ended scheme

Launch Date

June 25, 2007

Fund Manager

Chirag Setalvad

Bench Mark

NIFTY MIDCAP 100

Max.Entry Load(%)

Max.Exit Load(%)

1.00

Total Stocks Total Sectors

73 45

P/E Ratio

26.98

P/B Ratio

4.54

Avg. Market Cap Rs. on (Nov-2015)

Top 10 Companies

Bench mark

3 Years

10 Years

Investment Information

Scheme (`)

17398.25

Volatility Measures Fama

0.02

Beta

0.82

Std Dev

0.98

Sharpe

-0.05

Top 10 Sector Wise Holding

Name

(%)

Industry Name

(%)

CBLO

4.8

Bajaj Finance

3.2



Pharmaceuticals & Drugs

10.3





Bank - Private

7.3



Voltas

2.7



IT - Software

7.1



Aurobindo Pharma

2.5



Bank - Public

5.7



Hindustan Petroleum Corporation

2.3



Finance - NBFC

4.9



Divis Laboratories

2.3



Other

4.5



Torrent Pharmaceuticals

2.2



Air Conditioners

4.4



NIIT Technologies

2.1



Pesticides & Agrochemicals

4.3



Bharat Electronics

1.9



Printing And Publishing

4.0



Ipca Laboratories

1.9



Tyres & Allied

3.2



5 Years History Financial Year

2015-16

2014-15

2013-14

2012-13

2011-12

NAV in ` (as on 31st March)

35.04

36.75

22.50

17.24

16.38

Net Assets (` Crores.) (as on 31st March)

109.15

9646

3525

2648

2006

Returns(%) CNX NIFTY Returns(%) Category Rank Latest As on 31 March, 15

-5.87

63.24

29.51

4.80

8.06

-13.55

26.33

17.53

6.86

-9.11

51/(286)

48/(274)

17/(218)

102/(204)

*Absolute Returns

4/(208) Source: ACEMF

FEBRUARY 2016 l The Finapolis

FUND REPORT CARD ICICI Pru Regular Income Fund (G)

Scheme Performance as on Jan 22, 2016 Period

Fund Objective/Mission To generate regular income through investments in fixed income securities and to generate long-term capital appreciation by investing a portion of the scheme’s assets in equity and equity related instruments.

Fund House Details AMC Name: Website:

ICICI Prudential www.icicipruamc.com

Returns

B'mark

Rank

3 Months

-6.62

-0.62

3/(44)

6 Months

8.28

1.67

2/(44)

1 Year

8.78

3.88

3/(44)

3 Years

8.71

8.53

25/(44)

5 Years

8.50

8.35

Since Inception

SIP Details: Invested Rs 5000 Every Month

Financial Details

Period

AUM As On (December 31, 2015) NAV As On (January 22, 2016) Min Investment (in Rs.) Lumpsum SIP NAV (52WeekHigh){January 22, 2016} NAV (52WeekLow){January 22, 2015}

1080.88 14.70 5000 1000 14.70 13.52

Total Invest (`)

1 Year

Investment Information

Scheme (`)

60,000

62,350

61,324

3 Years

1,80,000

2,08,317

2,06,447

5 Years

10 Years

Fund Structure

Scheme

Open ended scheme

Launch Date

May 03, 2011

Fund Manager

Rajat Chandak

Bench Mark

Crisil MIP Blended Index

Max.Entry Load(%)

Max.Exit Load(%)

1.00

Bench mark

Total Stocks

Total Sectors

P/E Ratio

P/B Ratio

Avg. Market Cap Rs. on (Dec-2015)

Top 10 Companies

2927.95

Volatility Measures Fama

0.01

Beta

0.15

Std Dev

0.04

Sharpe

0.39

Top 10 Sector Wise Holding

Name

(%)

Industry Name

(%) 13.9



13.1



Prism Cement Ltd. SR- A RR (21-Jan-20)

9.7



Finance - Investment

Promont Hillside Pvt Ltd. (28-Jun-17)

8.3



Cement & Construction Materials

Bahadur Chand Inv SR-1 (17-Jun-20)

7.9



Engineering - Construction

12.0



Pune Solapur Expressways SR-A (31-Mar-29)

7.4



Construction - Real Estate

11.9



Avenue Supermarts 09.25% (18-Dec-18)

6.0



Telecommunication - Service Provider

7.9



Equitas Finance SR-9 12.50% (26-May-17)

6.0



Other

6.9



Aspire Home Fin Corp. SR-A 9.75% (10-Nov-20)

5.5



Retailing

6.0



SKS Microfinance SR-3 11.95% (15-May-18)

5.4



Finance - Housing

5.5



Asian Satellite Broadcast SR-IC2 (26-Dec-16)

5.2



Finance - NBFC

5.4



Sadbhav Infra Project Ltd.SR B RR (13-Apr-20)

4.6



Plastic Products

3.7



5 Years History Financial Year NAV in ` (as on 31st March) Net Assets (` Crores.) (as on 31st March) Returns(%) CNX NIFTY Returns(%) Category Rank Latest As on 31 March, 15

2015-16

2014-15

2013-14

2012-13

2011-12

14.70

13.74

11.97

11.50

10.60

1081

6.76

15.34

3.90

8.32

6.03

-13.55

26.33

17.53

6.86

-9.11

1/(51)

35/(55)

53/(58)

22/(60)

*Absolute Returns

24/(62) Source: ACEMF

56 The Finapolis l FEBRUARY 2016

FUND REPORT CARD IDBI India Top 100 Equity Fund (G)

Scheme Performance as on Jan 22, 2016 Period

Fund Objective/Mission To provide investors with opportunities for long-term growth in capital through active management of a diversified basket of equity stocks, debt and money market instruments.

Fund House Details AMC Name: Website:

IDBI Asset Management Ltd. www.idbimutual.co.in

Returns

B'mark

Rank

3 Months

-9.60

-9.99

195/(277)

6 Months

-14.18

-13.85

243/(271)

1 Year

-9.83

-13.90

173/(242)

3 Years

13.44

8.01

98/(167)

5 Years

16.25

12.64

Since Inception

SIP Details: Invested Rs 5000 Every Month

Financial Details

Period

AUM As On (December 31, 2015) NAV As On (January 22, 2016) Min Investment (in Rs.) Lumpsum SIP NAV (52WeekHigh){August 06, 2015} NAV (52WeekLow){January 21, 2016}

293.40 17.43 5000 1000 20.67 17.12

Total Invest (`)

1 Year

Investment Information

Scheme (`)

60,000

60,736

57,493

3 Years

1,80,000

2,25,166

2,06,291

5 Years

10 Years

Fund Structure

Scheme

Open ended scheme

Launch Date

May 15, 2012

Fund Manager

V Balasubramanian

Bench Mark

NIFTY 100

Max.Entry Load(%)

Max.Exit Load(%)

1.00

Bench mark

Total Stocks

Total Sectors

P/E Ratio

30.04

P/B Ratio

8.55

Avg. Market Cap Rs. on (Dec-2015)

Top 10 Companies

73432.06

Volatility Measures Fama

Beta

0.91

Std Dev

0.99

Sharpe

-0.06

Top 10 Sector Wise Holding

Name

(%)

Industry Name

(%)

CBLO

5.3



Bank - Private

11.8



Maruti Suzuki India

3.9



Automobiles - Passenger Cars

6.8



08.13% GOI - 22-Jun-2045

3.4



Pharmaceuticals & Drugs

6.5



HDFC Bank

3.3



Automobile Two & Three Wheelers

5.7



IndusInd Bank

3.3



Other

5.3



Bosch

3.2



IT - Software

5.3



Housing Development Finance Corporation

3.0



Household & Personal Products

5.0



Kotak Mahindra Bank

2.9



Finance - Housing

4.9



Bajaj Auto

2.9



Finance - NBFC

4.9



Siemens

2.9



Refineries

4.2



5 Years History Financial Year

2015-16

2014-15

2013-14

2012-13

2011-12

17.43

19.75

13.58

11.15

293

146

Returns(%)

-12.76

45.43

21.03

11.50

CNX NIFTY Returns(%)

-13.55

26.33

17.53

6.86

-9.11

291/(286)

110/(274)

78/(218)

22/(204)

NAV in ` (as on 31st March) Net Assets (` Crores.) (as on 31st March)

Category Rank *Latest As on 22 January, 16

*Absolute Returns

Source: ACEMF

FEBRUARY 2016 l The Finapolis

MUTUAL FUND INVESTMENT DISCIPLINE

Continue with your SIPs, as your holdings will shine again Our approach to SIPs should be based on the principle of the Sun By Dharmendra Satapathy

he sun rises daily with the same intensity. Day in and day out, this is a routine affair. Never for a moment does the Sun seem tired of delivering its light with the same intensity. You may forget your morning jog, but the Sun never forgets to rise on time. But on some days, it encounters dark clouds that prevent its entire light from reaching Earth. But that never deters the spirit of the Sun. It continues to rise, day in and day out, and eventually the clouds (whether they are due to a cyclonic storm or due to a bad spell of rain like what we saw recently in Chennai) clear out for the Sun to emerge as bright as ever. Imagine now if the Sun had lost hope and allowed the clouds to conquer it. Our planet and all life on it would have been shrouded in permanent darkness. But that was not the spirit of the Sun. It kept hope despite the fiery cyclonic storm. When it appeared that all was dark, the Sun knew that it was not permanent. The Sun knew that all it needed to do was what it had been doing all along. Rise and shine. That was its job, that was its duty, and that was what it most enjoyed doing. It was a kind of a passion. Just like the Sun went about its job come hell or high water, in the same way an investor needs to sustain his or her SIP with the same discipline that the Sun displays. SIP investing should hence, be sus-

On some days, the Sun encounters dark clouds that prevent its entire light from reaching Earth. But that never deters the spirit of the Sun tained through good and bad weather that prevails in the stock market. When dark clouds hover over the markets and when stocks look hopelessly down and tired, our SIP investing should continue like the Sunâ&#x20AC;&#x2122;s rising and setting because eventually, the clouds over the stock markets would clear out and our SIP investments would once again shine brightly. On the other hand if fear grips the market and if that makes us switch off

Dharmendra Satapathy is the Founder Director, Next Level Education

our SIP, our personal world would be deprived of the wealth that a sustained SIP would have delivered. It would be nothing short of doomsday for our future. Imagine what would it be like, if one day the clouds were to clear and there was no Sun to shine through? Our approach to SIPs, therefore, should be based on the principle of the Sun. Keep investing all the time, come cloud or rain. Go on and on and on. F

58 The Finapolis l FEBRUARY 2016

Money

CHAT

This monthly series in The Finapolis talks to different families to understand their attitude towards financial planning. Certified Financial Planner Pankaaj Maalde prepares a financial plan and gives his recommendation to the family. If you’d like to talk to us and be featured, write to: feedback@thefinapolis.com

Time-Bound Investments will Ensure You have the Money When You Need it We discuss the case of an independent woman with defined short-term and long-term financial goals By Hiral Thanawala premiums and Rs 8,333 goes into Priya’s investments and left with surplus of Rs 30,750.

Financial Goals Priya’s goals include building a corpus for her marriage, building a corpus for a down payment on a home that she plans to purchase within the next three years and creating a retirement fund. Financial advisor Pankaaj Maalde analyses her monthly cash flow, existing investments and future goals.

Analysing Life Insurance Portfolio

“I want advice from a financial

Priya has two traditional insurance plans i.e. LIC’s Jeevan Amrit and LIC’s New Bima Gold, and pays combined annual premium of Rs 6,000. However, her life insurance cover is inadequate. Based on need based theory, she requires total life cover of Rs 70 lakh. Analysing her insurance portfolio, Pankaaj recommends

Priya Jaiswal is a 35-year-old

continuing both traditional insurance policies and advises her to buy an online term plan of Rs 70 lakh for a term of 25 years. The premium for this term plan would be around Rs 10,000 p.a.

expert on tax savings and building a corpus for my goals” – Priya Jaiswal

private employee living in a rented house in Hyderabad. Her monthly income is Rs 65,000. Of this, Rs 27,000 goes towards household expense which includes house rent, utility bills, conveyance and other expenses, while Rs 1,417 goes towards insurance

Health and Disability Insurance Planning As for health insurance, Priya is solely

Priya’s Smart Moves Seeking financial advice Controlled expenses and good savings ratio Maintaining a contingency fund And Poor Decisions Ignoring life and disability insurance Relying solely on employer provided health insurance No planned investment for future goals dependent on employer-provided insurance with a cover for Rs 5 lakh. Pankaaj advises her to buy a separate individual health plan of Rs 5 lakh sum assured, since employer-provided health policy will not continue after retirement or when she leaves her job. He also suggests buying critical illness and accident disability insurance policies with sum assurance of Rs 25 lakh each. This will incur an additional cost of approx Rs 12,000 p.a., but ensure a cover for her in case of future misfortunes.

The Road Ahead  Contingency Funding: The first goal for Priya is to set aside six months of ex-

FEBRUARY 2016 l The Finapolis

Money Chat penses as a contingency fund. This amount will take care of any monthly expenses due to job loss, disability or unforeseen expenses. For this, Pankaaj appropriates Rs 85,000 from Priya’s existing savings bank account and advises her to invest the amount in ultra-shortterm funds.

Priya’s current income and expense analysis (Rs) Priya’s Income

65,000 INFLOW

Total monthly income

Pankaaj advises  Marriage Funding: Priya’s immediate goal is to build a corpus of Rs 2 lakh within 12 months for her marriage. To

OUTFLOW

Asset Allocation

Total monthly expenses

Existing ity Equ

22% Household expenses

Debt 82%

Recommended

Equity 50% Debt 50%

achieve this goal, Pankaaj uses the balance Rs 65,000 in Priya’s savings bank account and asks her to invest it in liquid or ultra-short-term fund until her marriage. He also recommends she add Rs 15,000 from her salary every month to this corpus till marriage.  Buying Home: Buying a house is Priya’s next goal. She plans to buy a house having total cost of Rs 25 lakh in present value after three years. Out of this value, 75% will come from the bank in the form of a home loan, while the remaining 25% will have to be funded by self. Pankaaj worked out how Priya could buy a house as explained in the table. Build a corpus for funding her 25% down payment. In-

Current:

24,500 Recommended: 24,500

Insurance premium

Investment

Surplus

1,417 4,000

8,333 35,000

30,750 1,500

vest Rs 20,000 per month in an equity income fund and balance in debt for two years. Then, in the third year, consider investing the same amount in an arbitrage fund for one year. She should buy ready to move in property and not under construction property. For the balance amount, opt for a home loan. Assuming rate of interest at 9.50%, Priya’s EMI would be Rs 23,300 (see table

Working for...). To pay this monthly EMI, Priya can use the Rs 20,000 she is currently saving to build her down payment, and the money she will save from not paying rent.  Retirement funding: Existing investment in direct equity, PPF and EPF, are allocated toward retirement which promise a corpus of Rs 21.20 lakh, Rs 9.55 lakh and Rs 41.75 lakh, respectively, after

Net worth of Priya Jaiswal Asset

Current Value (Rs) Investment Assets

Cash and Equivalents

150,000

Employees' Provident Fund

60,000

Public Provident Fund

140,000

Direct Equity

100,000

Total Assets (rounded off)

4.5 lakh Less (-)

Liabilities

Current Value (Rs)

Nil

Net Worth (rounded off)

4.5 lakh

60 The Finapolis l FEBRUARY 2016

Money Chat Contingency Fund

Funds needed to achieve goals

Time to Future value of achieve (yrs) cost (Rs) -

85,000

Time to Future value of achieve (yrs) cost (Rs)

Marriage (self)

Within 1 year

2 lakh

Time to Future value of achieve (yrs) cost (Rs)

Home Purchase

Retirement

33.25 lakh

Time to Future value of achieve (yrs) cost (Rs) 25

4 crore

Resources utilised

Monthly investments required (Rs)

Bank savings account

Resources utilised

Monthly investments required (Rs)

Rs 65,000 from bank savings a/c

15,000

Resources utilised

Monthly investments required (Rs)

20,000

Resources utilised

Monthly investments required (Rs)

15,000 (invest after Direct equity, achieving desired corPPF and EPF pus for marriage goal)

Total investment needed Rs 35,000 Inflation rate = 8%

Assumptions Returns on equity income fund = 9% p.a., Equity fund = 13% p.a., PPF/EPF = 8% p.a. and Ultra short term fund = 6% p.a. 25 years to attain her retirement corpus at age 60 years. Additionally, after marriage, start monthly investment of Rs 15,000 after through SIP in diversified equity mutual fund scheme or in equity-linked savings scheme (ELSS) to build the desired corpus for her retirement. Investing in an ELSS scheme will help her save on taxes. This will aid her in building her desired corpus for retirement, which is Rs 4 crore, and will be used up to 80 years of age after retiring at 60. The corpus required has been calculated assuming household expenses of Rs 25,000 per month in present value at 8% inflation. Shift existing investments in direct equity

EXPERT TAKE

Pankaaj Maalde Certified Financial Planner

to diversified equity mutual fund schemes. Since it is not possible at an individual level to track the performance of stocks and invest in them.

Concluding Remark Priya should review the plan after her

marriage since goals and time frame to achieve them might change. She should start monthly investments in ELSS mutual funds for tax-saving purpose post marriage, which is aligned with her retirement goal, and take corrective actions on her insurance cover as discussed. F

Working for house purchase goal Particulars Current value of house to purchase (Rs) Growth rate Current age (years) Goal required at age (years) Future value of house (Rs) Self funding (down-payment) Savings Investment rate of return Monthly investment required for down-payment (Rs) Loan Funding Interest rate (approx assumed) Tenure (Years) EMI (Rs)

Working 2,500,000 10% 35 38 3,325,000 25% 825,000 9.00% 20,000 75% 2,500,000 9.50% 20 23,300

62 The Finapolis l FEBRUARY 2016

ETCETERA

Finance Faces a Revamped Role in the Digital World CFOs and their teams are being asked to help define and implement new, digitally-enabled business models, and must expand their existing competencies with in-depth knowledge of technology and analytics, as well as broader leadership and business partnering skills.

igitisation and globalisation cause commoditisation and threaten established business models. Intangible assets – such as brands, customer relationships, intellectual property and human capital – have become the main value drivers in business. Consequently, business leaders may need to adapt their business models or develop new ones. Quality decision-making and value-creating data insights are essential to achieve this, and are rapidly becoming determinants of organisational success. Equally, organisations need new measures to manage performance, develop intangible assets and achieve

their strategic goals. In recent decades, the financial function has embraced technology-led innovation, automating back-office processes to boost productivity, decision-making and performance management. Today, however, finance may lag behind marketing, sales and other customer-facing functions that are investing widely in digital technologies to capture valuable data about intangible assets such as brands, customer relationships, intellectual property and human capital.

Finance must Modernise The digital age has redefined business

roles. CFOs and their finance teams are being asked to help define and implement new, digitally-enabled business models, and must expand their existing competencies with in-depth knowledge of technology and analytics, as well as broader leadership and business partnering skills. Traditional performance metrics no longer capture the value being created by intangibles. CFOs need new metrics to measure and monitor these value drivers using the latest cloud- based tools and technologies. What is finance’s role in measuring and monitoring the new value drivers in today’s digital economy? To find out, Oracle sponsored comprehensive research by CIMA and AICPA into the value drivers in the digital age; the new and required performance measures; who provides these measures; and the implications for CFOs and management accountants. Nearly 750 global finance executives contributed to this report through a global online survey and interviews.

Importance of Good Decision-Making Intangible assets are difficult to measure in financial terms, which increases the risk of bias in decision-making. Finance can influence and advance strategic outcomes by partnering with the business to strengthen data-driven decision-making. Globalisation and technological advances give competitors access to similar resourc-

FEBRUARY 2016 l The Finapolis

ETCETERA es, while competition causes processes to converge on similar standards. This leads to commoditisation and erodes margins. The quality of a business’s decision-making has become one of the most important factors in enabling it to differentiate itself through intangibles, and succeed. Unfortunately, decision-making can be misinformed or be subject to bias. Business units that generate data about intangible assets also tend to own it. As such, they are the most likely providers of analysis and performance management based on this data. In today’s digital world, there can be an excess of data but a shortage of information and insight. Therefore, businesses need professional rigour in their decision-making. This ensures decisions are informed by diligent analysis of available evidence and incorporate the long-term interests of the business and its stakeholders. This means CFOs and management accountants are well placed to play important roles. With a wide view across the enterprise, they can equip leaders with the measures and analysis required to make the right decisions. As facilitators, they can also contribute their overview and professional objectivity in collaborative conversations, to safeguard the quality of decision-making. Business models must adapt to a competitive environment where the quality of decision-making – especially with regard to managing intangibles – will be the determinant of business success. Businesses now need more than management information based on financial data: they also need measures relating to intangible value drivers.

The Need for New Measures Creating long-term value while simultaneously meeting current operational objectives requires more advanced performance management than can be achieved using financial measures alone. Business leaders need new measures and analysis to manage performance in the

The Range of Data Competencies that a Business Must Develop To take advantage of the vast volume and range of data available to inform decision-making, businesses need to some develop new competencies:  Capturing and managing data needed to inform decisions or measure performance, for example, data about intangible assets, so that decision-makers can feel confident in the data’s quality. Compliance with data standards and regulations is important to maintain customers’ trust. Cyber security is also a concern. Data managers usually require an IT background. The accounting discipline that ensures the integrity of financial reporting is also valuable.  A business must be able to analyse pertinent data. Those with the skills needed to analyse vast amounts of big data are known as “data scientists”. Their skills include writing code, identifying complex correlations and deriving algorithms. These skills are in short supply – but so are the skills needed to translate analytical insights into commercial advantage.  A business that expects to base its decisions on evidence needs the objectivity accountants can provide. This ensures the integrity of numbers and that leaders manage the business with due care for the interests of stakeholders.  To yield commercial benefits, a business must be able to make evidence-based decision-making apply to management and analytical insights. This is probably the area of greatest opportunity for management accountants, who have the broader skills needed to cascade the CFO’s influence throughout the business. digital age. To manage their intangible assets, it is important that businesses measure them, or at least describe them in non-financial terms. We asked respondents to rank first to fifth what they consider the most important determinants of value in their business today. The top five value drivers, ranked by more than half of the 744 respondents, are: 1. Customer satisfaction (76%) 2. Quality of business processes (64%) 3. Customer relationships (63%) 4. Quality of people (61%) 5. Brand reputation (58%) This is consistent with the findings of recent research by Brand Finance and CIMA, which shows the increasing importance of intangibles in business valuations quoted on the major stock markets. To counter the threat of commoditisation, organisations need to show the market how they are different. The cus-

nesses understand the potential of digitisation and the need for better management information about value drivers, many more are not prepared. Business leaders need to consider the potential impact on their business model and the probable need to develop it for the digital age.

tomer should be at the centre of what the business does digitally.

However, it has the enterprise-wide overview, professional objectivity and skills required to work with diverse internal stakeholders, ensuring the business assembles, analyses and applies data to improve performance. F

Next Step: Transform for the Digital Age Digitisation threatens and transforms business models. While progressive busi-

Finance Taking Centre Stage There is a risk that businesses might sideline finance as specialists in producing accounting information for statutory reporting, while other disciplines provide information for management. This would be a mistake because, as digitisation makes it more difficult for businesses to differentiate and earn a premium, the quality of decision-making has become even more important. Finance can bring its professional disciplines to decision-making. Finance may not have a credible claim to provide all the information needed in the digital age.

Reprinted with prior permission from CIMA and AICPA from the report titled: The Digital Finance Imperative: Measure and Manage What Matters Next, December 2015.

64 The Finapolis l FEBRUARY 2016

PERSONAL FINANCE

advisor Every month an expert on personal finance will answer all your queries related to the world of investments, taxation and financial management. The personal finance advisor will diagnose the health of your portfolio and offer better advice. In current edition, your questions have been answered by Col. Sanjeev Govila (retd), CEO, Hum Fauji Initiatives. He is Certified Financial Planner and SEBI Registered Investment Advisor. Write in to feedback@thefinapolis.com NRI Investment I am a non-resident Indian working in USA from last nine months. My regular investments continue in ELSS mutual funds and provident funds. Being a NRI do I enjoy basic exemption limit while filing tax returns for the financial year 2015-16? – Harish Gupta Yes. For all income that is taxable in India, you get the same exemption limits as are applicable to a resident Indian. Income Tax In last month, I received intimation from the Income Tax Department under Section 245 of the Income Tax Act. Please explain the meaning of this intimation and what action do I need to take? – Radhika Shah, Ahmedabad Section 245 of Income Tax Act empowers the Income Tax Assessing Officer to adjust refund (or a part of refund) against any tax demand which is outstanding from the tax payer. In simple words, the IT department wants to adjust your refund due

to you against a demand which is due from you. This demand may pertain to an earlier assessment year. But Assessing Officer can adjust the refund amount against the liability only after giving intimation in writing to such person under this section. The details of your outstanding demand can be viewed on the website www.incometaxindiaefiling.gov.in by logging in with your login and password for this site. Go to the tab named ‘e-File’ and click on ‘Response to Outstanding Tax Demand’. Here you can view the details of your demand and also submit a response if you believe ‘demand is correct’, ‘demand is partially incorrect’ or if you ‘disagree with the demand’. In case no submit response option is shown, the demand has already been finalized by your Assessing Officer. However, this process is applicable only if the tax returns were filed by you through online mode. Else, you will have to use the physical letter mode for corresponding with your Assessing Officer. Mutual Funds What is the difference between balanced fund and dynamic asset allocation fund category? Looking at the current bearish trend which fund category do you recommend investing? –Abhijeet Gaikwad, Pune Asset allocation and balanced funds contain a mix of equities, bonds, cash and cash equivalents. Managers of asset allocation funds adjust the asset mix based on market conditions, while managers of balanced funds generally target a fixed allocation. Asset allocation funds dynamically manage the equity allocation in the fund, depending upon the respective valuation of equity and debt markets at any given point of time. The parameter used to base a decision on when and how much to re-balance the portfolio is very important for these

FEBRUARY 2016 l The Finapolis

PERSONAL FINANCE ADVISOR funds. However what is to be remembered is that the allocation changes as per market conditions and not as per the requirements of the individual investor. Balanced funds generally have a predictable asset allocation. Hence, when an investor subscribes to it, he knows what he is getting into and how much is it likely to change with market conditions. I feel balanced funds always work better than dynamic asset allocation funds in almost all market conditions when seen from an investor’s point of view. This is because investors get better control over asset allocation, depending on their requirements and risk-taking attitude and aptitude. The net exposure to the fund can be changed as per an investor’s requirements and risk-taking ability. Also, asset allocation for the rest of the wealth portfolio can be decided based on the exposure taken by such funds. Reverse Mortgage My age is 67 years. During my tenure of working I couldn’t build desired corpus to take care of regular expenses in retirement period. I have my own resident house at Gurgaon. So, wanted to know is a reverse mortgage a good option for us and which are the major banks dealing in reverse mortgage loans? – Giridhar Tripathi, Gurgaon Reverse mortgage scheme is exact ‘reverse’ of a home loan scheme. In case of a home loan, one takes a lump sum loan and repays it in installments in future. Under the reverse mortgage scheme, you get installments and the loan is repayable in lump sum in future. Here, the payment stream comes to the borrower for a fixed period of time in the form of monthly, quarterly or yearly payments, as contracted for. You can even get lump sum payments under reverse mortgage loan, however, the total amount which you can get as lump sum cannot be more than half of the total eligibility amount, subject to a maximum of Rs 15 lakh. The maximum loan is up to 60% of the value of the residential property, subject to maximum of Rs 50 lakh. The maximum period of property mortgage is generally 15 years, and can be issued by either a bank

or an HFC (housing finance company.) The minimum tenure is 10 years. The bank or HFC must undertake revaluation of the property every five years. The amount received through reverse mortgage is considered as a loan and not income; hence the same does not attract any tax liability. During the tenure of the scheme, the owner continues to receive periodic payments, but after the tenure of the loan, the payment stream stops and owner can still continue to stay in the house. On death of the owner, the spouse can also continue to stay in the same house without having to

worry about repayment of the loan. After the demise of the owner and the spouse, the legal heirs receive an option to either to pay off the lender’s dues, or the lender receives possession of the house, which it then sells to recover its dues. If the amount recovered from the sale is greater than the loan outstanding, the lender must pass on the gains to the legal heirs. However, if the amount from the sale is less than the loan amount, the lender must bear the loss. Reverse mortgage is a good option for people like you. In fact, when you take a reverse mortgage, you effectively unlock the value of the costliest asset of your lifetime to some extent. The only reason it is not popular in India is that people are very emotional of their houses and want to pass

it on to their children rather than mortgage it with a lender, even if this severely curtails their lifestyle. A typical case of ‘asset rich, cash poor’. Almost every major bank offers a reverse mortgage, with PSU banks like PNB, SBI, Union Bank, IDBI, Bank of Baroda, Canara Bank etc taking a lead in this area. National Pension Scheme Please explain the withdrawal process from National Pension Scheme after my 60 years of age? – Firoz Lucknowalla, Mumbai At least 40% of the accumulated pension wealth of the subscriber has to be utilized for purchase of annuity providing for monthly pension of the subscriber. The balance is paid as lump sum to the subscriber. In case the total corpus in the account is less than Rs 2 lakh as on the date of retirement (government sector)/ attaining the age of 60 (non-government sector), the subscriber can avail option of complete withdrawal. The annuity allocation is not taxed, but the pension derived from the annuity will be taxed as income. Of the withdrawal amount, returns are taxed as per capital gains rules. Withdrawal of the lump sum can be deferred by a maximum of 10 years. Withdrawal forms are available on the NSDL-CRA corporate website: www.npscra.nsdl.co.in. A subscriber to the NPS account can request for an extension of a maximum of three years from the date of turning 60 years of age for purchase of an annuity. This flexibility will be very useful for subscribers who have opted to place some portion of their investment in equity in case the equity market is not in good shape at the time of retirement. Subscribers can opt to continue subscription beyond 60 years of age and up to 70 years of age. This provision is beneficial for self-employed people who work beyond the 60 years of age as well as corporate employees who take up other employment or consultancy assignment after their retirement. A likelihood of withdrawals from NPS not being taxable is also being discussed right now which, if accepted, is likely to come through in the next Budget. F

66 The Finapolis l FEBRUARY 2016

LEARNING CURVE by invite

We all come across issues and ideas related to the world of finance that sound Greek and Latin. Worry not. We are here to guide you through the maze

Demystifying Alpha

lpha (α) is the most misunderstood investment measure among investors, advisors and some of the most popular investor websites as well. It is not uncommon to witness high networth investors and their wealth managers refer to Alpha as a measure of outperformance over a benchmark. Alpha has become a jargon in seemingly intelligent discussions over portfolio performance reviews. Alpha is commonly misunderstood as the difference between the performance of the portfolio and its benchmark. Therefore, if a portfolio delivered 18% returns relative to its benchmark return of 15%, wealth managers quickly pronounce a 3% Alpha while pitching it to their prospective investors. Nothing can be farther from the truth. In simple terms, Alpha is the difference between the risk-adjusted returns of a portfolio and its benchmark. To their own peril, investors often overlook the “risk adjusted” part of the portfolio return. The Capital Asset Pricing Model (CAPM), which is the bedrock of the Modern Portfolio Theory (MPT), formulates the expected return on any security to be: RE= RF + ß (RM - RF) The above formula is quite intuitive to figure out that the expected return on any security is the sum of the risk free return (RF) and the product of the Beta of the

CAPM. The residual return over and above the expected return is defined as Alpha. Therefore, Alpha is the excess return of the portfolio, not relative to its benchmark, but relative to its expected return. The actual return of a portfolio can therefore be viewed as: R A= R E + α Therefore, α = RA - RE The excess return of the actual portfolio relative to its benchmark is defined as Active Return, which is commonly misunderstood as Alpha. Active Return = RA - RM To illustrate the impact of swapping Active Return for Alpha, let us consider a scenario in which the benchmark return RM = 15%, risk free return RF = 7% and the Beta of the security relative to the benchmark to be 1.5. The expected return as per CAPM with the above data is 19%. However, if the actual return on the portfolio is 18%, the investor has derived an Alpha of -1% compared to an Active Return of +3%. The sharp difference between Alpha and Active Return is due to Beta, which represents the element of risk in the portfolio relative to the benchmark. In this case, a Beta of 1.5 broadly indicates that the portfolio manager took on 50% higher risk relative to the benchmark. While the portfolio optically outperforms its benchmark, it underperforms on a risk-adjusted basis, which is ought to be

benchmark. The skill of the portfolio manager lies in beating the benchmark by assuming the same or lower risk relative to the benchmark. Portfolio managers often game the system by taking advantage of the ignorance of both investors and advisors alike. Therefore, it is quite common to witness portfolios that outperform their benchmarks by impressive margins in terms of excess returns (Active Returns) destroy wealth over long periods of time as the outperformance is often generated by taking on higher risk rather than superior stock selection.

security relative to its benchmark with the market risk premium. In an ideal world, with no arbitrage and mispricing, this relative relationship holds good. However, in the real world, the actual return is almost always different from the expected return derived as per

measured by Alpha. Rational investing demands that for a given level of risk, return should be maximised. Hence, it is irrational to compare the returns of a portfolio with its benchmark when the portfolio has assumed 50% higher risk relative to its

Therefore, the next time your advisor pitches you a portfolio with a higher Alpha, take a moment to think about the amount of risk that was taken to generate such high return. A rational investor always thinks in terms of riskadjusted returns. F

The author Phani Sekhar is AGM at Karvy Capital.

Alpha is the difference between the risk adjusted returns of a portfolio and its benchmark

Published on 1st February 2016 Total No. of pages 68, including cover pages

Karvy The Finapolis

RNI No: APENG/2007/20461 Regd. No.: L II/RNP/H-HD-1087/2014-16