The Finapolis Jan 16 by The Finapolis

Masala Bonds: New Investment Opportunity

Make In India: Will The Lion Roar?

Investment Prospects For 2016

Where Do Indian HNIs Invest?

Finapolis The

1st January 2016 `60

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Your Personal Finance Advisor

A FLOOD OF

TEARS And the lessons we can learn

The Finapolis l JANUARY 2016

EDITORâ&#x20AC;&#x2122;S DIARY

The

Your Personal Finance Advisor

Volume 9

Issue 10

January 2016

Editor Mubashir Ansari editor@thefinapolis.com Special Correspondent Hiral Thanawala Editorial Board Phani Sekhar Amit Saxena KP Jeewan Jagannadham T

Uncertainty seems to be the new normal for the New Year Whoa, what a year this has been. The gyrations of the Indian stock markets much like the belly of Turkish dancers, the many environmental concerns on climate change mainly due to carbon emissions, the impact of an aging population in advanced countries, the rise of terrorism in its current deadly avatar, the decline of crude prices to historic lows, the devaluation of the Yuan, 2015 was a roller coaster and this seems to be the trend into the new year.

Design & Production Guru Prasath R Vijayendra Kumar Ch Advertising & Circulation Shabna R Iyer Anamika Mitra Vijayendra Kumar Ch

Our cover story on the disastrous floods in Chennai and its aftermath holds many lessons for individuals, businesses, civic authorities, city planners and the government. The need for insurance is an important one and cannot be overstated. The article gives useful advice on general insurance including the various home insurance policies, the ideal amount for house insurance and the risks they cover. Moreover, this tragedy has brought the importance of digitizing the policy documents through insurance reposi-

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tory into sharp focus. Once one has an e-insurance the policy holders can access the

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policy details, renewal payments and initiate service requests. Even if the physical

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electronic documents any time from their computer, mobile and tablet and track the policy is damaged or lost it is safely stored in a cloud. KP Jeewanâ&#x20AC;&#x2122;s article on the outlook for the Indian economy in the New Year is interesting and points out all that one must watch out for while planning investments during 2016. He has flagged off some risks that are worth bearing in mind. It appears that the major risk to the world economy is the slowing down of the Chinese economy and this could potentially pose the greatest downside risk to growth and stability. Closer home, the article on Make in India by Dr. Shailashree Haridas proposes some measures that the Govt. of India needs to take in order to make this initiative a

Published for the month of January 2016 Printed on January 1, 2016 Total No. of pages 68

game changer for the Indian economy. She states that unless this initiative leads to employment across India including rural areas and the support services and infrastructure, it will not have the

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

desired impact. In the article on Nirvana and the art of financial planning, Dharmendra Satapathy gives timely advice on how to create wealth by compounding, making small investments regularly over long periods as the operative strategy.

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Masala Bonds, is a relatively new investment opportunity available for global investors who live outside India. It is an off-shore rupee denominated bond. Masala bonds

Please contact

are used to raise rupee loans for domestic companies from foreign investors. Foreign

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investors who have an eye on India in terms of investment can park their funds in these

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bonds without any direct exposure. Read all about it in the article by Adhil Shetty. Wish you a very Happy New Year and may all your investments bear fruit.

Mubashir Ansari

The Finapolis l JANUARY 2016

CONTENTS Cov Sto er ry

Chennai Floods Lessons to learn

Economy

Face To Face

Will the lion roar?

COLUMNS

Adhil Shetty Spice Up Your Portfolio With Masala Bonds

AN Shanbhag and Sandeep Shanbhag Attack, Donâ&#x20AC;&#x2122;t Withdraw

Rakesh Shinde, AVP Bonanza Portfolio Ltd. His take on investment prospects for 2016

Balwant Jain Be Aware About The Strings Attached With Tax Benefits u/s 80C

JANUARY 2016 l The Finapolis

WE ARE DIGITAL

39 Saving Money

Planning for childrens’ future

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

Easy Debt

Everything you want to know about PRE-APPROVED LOANS

Buy on

44 Currency War

Yuan’s devaluation and its impact on the Indian economy

62 Philosophy of Financial Planning

ETCETERA MR. TIMER

twitter.com/KarvyFinapolis

MR. LAZY

MR. PLANNER

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The Finapolis l JANUARY 2016

inbox Action-packed December We hope that the New Year starts

bill. The land bill will also bring in

with the positive development by

much-needed transparency and

clearance of GST and Land bill in

accountability in the real estate

the winter parliament session. I

sector. Much has been talked about

agree with the author that these

in the last few months on these

developments will have a direct

bills. Let’s hope that the present

impact on the markets. Even

NDA government manages to get

India’s GDP could grow by about

this bill passed. — Rakesh Tiwari, Udaipur

1% with implementation of the GST

Good finance guide for single parents Taking care of family and keeping them financially secure is a challenging task

No such affordable homes

FATCA demystified

Recently, RBI announced increase in

The article on FATCA has

the Loan-To-Value ratio for housing

answered my queries on this

loans to 90% for borrowers whose

regulation while helping me

property value is not more than

understand the major inten-

Rs 30 lakh from Rs 20 lakh earlier.

tion behind the concept and

However, as per my research prices

implementation of FATCA.

of decent home in Tier I and Tier II

Soon after reading the article,

are not dipping. So, not many peo-

I submitted my details to As-

ple can avail these benefits. Homes

set Management Companies. It

are really not affordable by middle

was timely article to educate

income group due to higher pricing.

investors.

for every single working mother like me. A starter guide suggested in this article will definitely help me to take confident decisions. I have even started reading more on personal finance area to scale up my knowledge and to take right decisions. — Sapna Tripathi, Nashik 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.

— Ravi Jaju, Pune

- Rajendra Apte, Mumbai

Home loan scenarios decoded The article on what happens when I default on my home loan has given me a better understanding on home loan repayment scenario. At present, I pay my home loan EMI of Rs 50,000. However, owing to hefty education fee of my child, I feel that I may not be able to repay for a few months from January onwards. As per the suggestion given in the article, I will discuss with my bank on restructuring of my outstanding home loan amount. Thanks for discussing various options available in such cases. — Sunny Joshi, Ahmedabad

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

The Finapolis l JANUARY 2016

 GUIDELINES

ECONOMY US Federal Reserve Raises Interest Rates For First Time Since 2006

RBI Discloses Guidelines for New Base Rate In the year 2015, banks have just passed on rate cut of 60 to 70 basis points (bps) to end consumer, whereas RBI has slashed its key lending rate by 125 basis points. So, now Reserve Bank of India wants banks to reduce the key interest rates by introducing new method to replace the present base rate system with effect from April 1. The new calculation is adapting marginal cost of funds based lending rates (MCLR) from the previous benchmark prime lending rate (BPLR). This MCLR will be a tenure linked benchmark. RBI explains in its circular, for banks to arrive at the MCLR of a particular maturity by adding

the corresponding tenure premium to the sum of marginal cost of funds, cost of maintaining cash reserve ratio and operating costs. Further, RBI asked banks to publish their MCLR of different maturities every month on a pre-announced date. So, banks have to calculate MCLR for different maturities like one day, one month, three months, six months and one year. The new step will bring in transparency in the methodology and new customers will reap the benefits of lower interest rates. Existing customers of banks will also have an option to alter to the new regime at mutually acceptable terms.

The US Fed increased the policy rates by 25 bps in line with expectations. The Fed’s move indicates its relative comfort with the prospects of the economy while it also underlines a sense of urgency to wriggle out of an accommodative monetary policy that adopted unconventional means for a very long time. Core inflation is still not threatening to overshoot the Fed’s internal targets while the unemployment rate has been hovering around the 5% mark that provides the comfort of almost full employment. The timing of the 25 bps increase is important as it comes amidst fears of a global recession. The USD would most likely strengthen relative to other currencies and commodities. Emerging markets have been undergoing a slow grind of FII outflows which might continue in the foreseeable future. In the context of decade low commodity prices, the impact on the real economy is manageable for India.

“We are working very hard to bring all our products to India. We also see an opportunity to do things first in India, which will work for global markets too.” - Sundar Pichai, CEO, Google

Quote of the month

JANUARY 2016 l The Finapolis

 COMMODITY

AUTOMOBILES Apex court bans diesel vehicles in Delhi and NCR

Crude Oil Prices Are On Downward Spiral

ACQUISITION

Crude prices have slumped almost by 60% since July, 2014 after Saudi Arabia refused being a swing producer. Major concerns in crude prices have been global supply glut. Production levels worldwide have jolted down the market sentiments. Recently after Organization of the Petroleum Exporting Countries (OPECs) 168th meeting crude prices tumbled down seeing no production cuts from the cartel instead mentioned continuing with their current levels of production i.e. 31.50 million barrels per day. In the month of November OPEC pumped around 31.70 million barrels per day which was their three year high levels. Russians on the other hand this year averaged around 10.70 million barrels per day crude production

levels till November, 2015. From the US side, rising inventory levels and less demand for distillates due to lower HDD count has bearish the scenario. Apart from the crude oil intrinsic fundamentals, FOMC’s meet regarding interest rate hike has further engulfed the market into strong bearishness. While investing in crude oil following factors should be kept in mind: a. Dollar index b. Demand supply equilibrium c. Geopolitical tensions d. Economic health of the majors like US, China, etc e. Any major change in strategy from the OPEC, US and Non- OPEC majors like the Russians

The Supreme Court announced the ban of diesel vehicles with engine capacity of 2000 cc and above until March 31 in Delhi. The ban is also on the entry of trucks registered before 2005 into the Delhi city and hiked up by 100% the green cess levied on commercial vehicles entering city. This decision is taken to control higher levels of pollution into city. Delhi city has 8.5 million vehicles up 97% from 2000 and adds 1,400 new cars every day on roads, contributing to harmful smog on roads during the winter. The apex court decision is going to affect the company’s manufacturing luxury cars and sport utility vehicles (SUVs). Since, the company has higher contribution in overall sales from such diesel cars. Apex court has extended the axe in towns of National Capital Region (NCR) too. This includes Gurgaon, Faridabad, Sonepat, Bahardurgarh and Jhajjar districts in Haryana, and Ghaziabad, Meerut and Gautam Budh Nagar in Uttar Pradesh. The court has ordered district authorities to stop registrations and issuing of fitness certificates to autos and taxis running on diesel from January 1 and to buses from June 1.

Mahindra acquires automotive design firm Pininfarina Tech Mahindra, in joint venture with Mahindra & Mahindra (M&M), announced acquisition of Pininfarina, an automotive design and engineering services company. As part of the

Italy. The company provides design services to automobile

agreement, Tech Mahindra and M&M will purchase 76.06% of

original equipment manufacturers (OEMs) like Ferrari, Rolls

Pininfarina shares from the current shareholder Pincar for a

Royce, Peugeot, BMW, GM, Maserati etc. It has 650 employees

consideration of €25.3mn (at €1.1/share). This will be followed

(spread across Italy, Germany, UK, China, US) with 65% of

by an open offer for the minority shareholders at the same

revenues coming from Europe while 35% from rest of world.

price (total consideration €8mn). Further, it will infuse addi-

The acquisition of Pininfarina will broaden Tech Mahindra’s

tional €20mn through rights issue. The total cash outflow

engineering service offerings in high end designing and engi-

would be €53mn.

neering capabilities. The engineering services constitute 5.5%

Pininfarina was founded in 1930 by Battista Pinin Farina in

of Tech Mahindra’s total revenue.

The Finapolis l JANUARY 2016

E-COMMERCE

MUTUAL FUND

Snapdeal Mobile App Goes Multilingual

Anoop Bhaskar Quits UTI MF

Snapdeal’s mobile app has recently started user interface in Hindi and Telugu languages. From January 26, 2016, app interface will allow customers to select 12 language options for shopping. These languages include Gujarati, Tamil, Marathi, Bengali, Kannada, Malayalam, Oriya, Assamese and Punjabi. The company has developed a grammar engine for error free translation. This is the first e-commerce company to launch interface in regional languages. “India’s linguistic diversity is a huge opportunity to expand the market to include those users who would prefer to engage online in their native languages. Our decision to go multilingual is driven by the feedback that we have received from our users. The multilingual interface has expanded its reach to an additional 130 million smartphone users in the country, who use internet in regional languages.” Snapdeal cofounder Rohit Bansal said in a press release.

Anoop Bhaskar the head of equities of UTI Mutual Fund House, has recently put in his papers. He had joined UTI MF in April 2007 and is considered one of India’s best fund managers. His ability to identify investments for long term at attractive valuations is much admired. As head of equities at UTI MF, he handled flagship schemes like UTI Equity Fund and UTI Mid Cap Fund. Both the schemes have consistently outperformed its benchmark over three, five and seven year period. Bhaskar was managing nearly Rs 14,500 crore of the total assets under management of UTI MF’s equity assets.

weet up When the world economy is experiencing slowdown, India’s economy is becoming stronger. A brighter future awaits us. - @narendramodi

One percent tax is anyway dead. Scrap the provision. No state is opposed to independent dispute resolution mechanism. Set it up - @PChidambaram_IN

The #ParisAgreement gives us the chance to secure a healthier, more prosperous future for the next generation. - @BarackObama

This Congi spokesperson Priyanka is as stupid as her boss Buddhu. Says AJL is a Section 25 Company!! Hilarious! Scatter brained. - @Swamy39

Anoop Bhaskar

 news scan

The Finapolis l JANUARY 2016

company update

We take a look at some companies’ performance and figure out what impact it will have on their share prices Exide Industries Exide Industries (Exide)

has maintained its market share in automotive replacement segment since past two quarters. The company plans to invest major capital expenditure in technology upgrade and launch new products with better quality and efficiency. Analysts expect steady

Current Market Price Rs 139 Target Price Rs 175 Potential Upside 26%

volumes in automobile sales in FY17/FY18 with continuation of commercial vehicle up-cycle. Analysts believe that Exide’s technology upgrade and productivity improvement efforts coupled with higher replacement sales would improve its margins going forward. In view of the ongoing slowdown, analysts lowered volume and revenue estimates by 1%/ 2.8% for FY16 / FY17. While factoring lower raw material costs and better margins, analysts broadly maintain EBIDTA margins, but reduce PAT estimates by 2%/4% for FY16/ FY17. Analysts are expecting a target price of Rs 175 per share. The core battery business of the company is valued at Rs 145 at 15.5x FY18 EPS and its insurance business at Rs 27 per share (1.5x Price to Book). There is potential upside of 26% from current market price.

Tata Motors

majority of the markets on the back

Rover (JLR) recorded strong volume

interval. Analysts believe that slow-

Tata Motors-owned Jaguar Land performance in November 2015. The company’s monthly retail volume grew by 27% YoY to 46,547 units in November 2015.

of success of new launches at regular ing Chinese market would maintain margin pressure going forward. On SOTP basis, Tata Motors stock is valued at Rs 435 (8% upside from

Jaguar’s volume rose 33%

current market price), valuing

YoY to 7,992 units, main-

its standalone business at Rs

ly due to incremental

91, JLR at Rs 406 and other

volumes of new XE, while

subsidiaries at Rs. 47 based

Land Rover grew by 26% YoY to 38,555 units, sup-

on FY17 EBITDA, excluding net debt of Rs 109 per share.

ported by new Discovery Sport. In

The stock has potential upside of 8%

addition to incremental volume from

from current market price of Rs 402.

new launches, growth driver in the month were New RR Sport (up 13.4% YoY) and New RR (up 15% YoY). UK, Europe and North America recorded spectacular growth of 70.4% YoY, 68.4% YoY and 52.1% YoY to 9,375 units, 11,980 units and 8,448 units respectively in November 2015. Analysts expect JLR to continue its positive momentum across the

Current Market Price Rs 402 Target Price Rs 435 Potential Upside 8%

Tech Mahindra

Tech Mahindra in joint venture with Mahindra & Mahindra (M&M) announced acquisition of Pininfarina, an automotive design and engineering services company. As part of the agreement, Tech Mahindra and M&M will purchase 76.06% of Pininfarina shares from the current shareholder Pincar for a consideration of €25.3mn (at €1.1/share). This will be followed by an open offer for the minority shareholders at the same price (total consideration €8mn). Further, it will infuse additional €20mn through rights issue. The total cash outflow would be €53mn. Pininfarina was founded in 1930 by Battista Pinin Farina in Italy. The company provides design services to automobile original equipment manufacturers (OEMs) like Ferrari, Rolls Royce, Peugeot, BMW, GM, Maserati etc. For CY14, it reported net revenue of €87mn with EBITDA of €7mn. The company has grown at a CAGR of 16% over CY11-CY14 while it had reported net loss in 10 out of last 11 years. Net debt stands at €43mn as on September 2015. It has 650 employees (spread across Italy, Germany, UK, China, US) with 65% of revenues coming from Europe while 35% from rest of world. The acquisition of Pininfarina will broaden Tech Mahindra’s engineering service offerings in high end designing and engineering capabilities. The engineering services constitute 5.5% of Tech Mahindra’s total revenue. Pininfarina acquisition is very small compared to Tech Mahindra (2% of its revenue). Also, the company has made loss in last 10 out of 11 years. The acquisition would be EPS dilutive for Tech Mahindra due to the lower margin profile of Pininfarina. Analysts believe the acquisition is more to do with building capabilities in non-communication verticals. Currently, the stock is trading at 16.5xFY16 and 14.8xFY17 earnings.

Current Market Price Rs 520 Target Price Rs 525 Potential Upside 1%

JANUARY 2016 l The Finapolis

company update Bharat Forge

Bharat Forge Limited (BFL) has been facing slowdown from US energy sector since past three quarter; moreover recently it started facing slowdown

coupled with flexible manufac-

In view of near term challeng-

turing to produce any auto/non

ing environment in domestic

auto components with limited

as well as exports business

investment. The company’s

coupled with lower revenue

increasing value addition, its

visibility, analysts reduce valu-

research and development, in-

ation multiple from 22x to 20x.

troducing new products, enter-

in heavy commercial vehicle

ing new verticals, geographical

(HCV) segment in North Amer-

under pressure over the near

ica. Growth in the domestic,

expansion and its reasonable

term. However, analysts expect

medium and heavy commercial

pricing power would be the key

strong bounce back in the

vehicles (M&HCVs) would also

triggers over FY17-18.

company’s business by FY18

taper down and ramp up from

with expected ramp up in non

non-auto industrial segment

and gas segment and slow

auto verticals and increasing

ramp up in other non auto

which is at very low pace.

traction from passenger vehicle

business, analysts decrease

Analysts believe that ongoing

(PV) segment. Analysts contin-

revenue estimate by 3.3%/6.2%

tough business environment

ue to believe that structurally

for FY16/FY17. Even reduce

would put pressure on compa-

company’s business remains

operating margin estimates by

ny’s profitability for next one

very strong with high tech

41bps/99bps and cut EPS esti-

year and stock would remain

large size forging capacity

mate by 7%/15% for FY16/FY17.

Orient Cement Orient cement sells 60% of its cement output in Maharashtra and 40% in Telangana (despite the capacity share of 75%/25% in Telangana/Maharashtra). It primarily caters to trade segment (80% of total sales and mostly into rural housing). The company’s volumes have been impacted on account of rural slowdown (down by 2.8% YoY in FY15 and 4.5% YoY in H1FY16). Analysts believe that the company would be a key beneficiary of demand revival in rural areas led by large investment planned in AP/ Telangana region. Moreover, the increase in government capex led by roads/highways, railways and urban development to augur well for the company in the next two to three years. The current capacity of 5 metric tons (mt) (includes 3 mt at Devapur, Karnataka and 2 mt at Jalgaon, Maharashtra) is running at 82% with sales volume stood at 4.1 mt in FY15 and 2 mt in H1FY16. Orient Cement is one of the most cost efficient cement player in cement industry with the total cost/tonne at Rs 3000/t (15% lower than the industry average). The company has benefited from easy availability of

The stock is valued at 20x FY18 EPS. There is potential upside of 22% from current market price of Rs 793.

Current Market Price Rs 793

In view of slowdown in oil

raw materials (limestone and coal), increase in pet-coke usage and lower lead distance. The new plant is even more cost efficient in terms of power and fuel consumption (10% lower than existing plants). The road/rail mix of the new plant would remain at 75%/25% (same as for current markets). Analysts expect EBITDA/tonne to improve to Rs 980/t in FY18

Target Price Rs 970 Potential Upside 22%

Alembic Pharma

from Rs 720/t in FY15 (led by improvement in realisation, cost saving measures and operating leverage benefits) implying EBITDA growth of 30% CAGR over FY15-18. The stock has potential upside of 26% from current market price of Rs 159.

Alembic Pharma was in the first wave, when it launched gAbilify through its partners. Analysts believe US and domestic formulations would continue to be company’s key revenue and margin drivers. Abilify will be a major revenue and margin growth driver for the company for Q3FY16 as well while other launches such as Celebrex and Namenda will aid revenue momentum. The company’s revenues are expected to grow at a CAGR of 13% in FY16-18 on back of double digit growth in domestic formulations and a 90% growth in regulated markets. Currently, the stock is trading at 21x FY18 and has potential upside of 12% from current market price of Rs 669.

Current Market Price Rs 159

Current Market Price Rs 669

Target Price Rs 200

Target Price Rs 752

Potential Upside 26%

Potential Upside 12%

The Finapolis l JANUARY 2016

the chartist Real Picture Of Real Estate The best way to gauge the progress of a city is to see its housing scenario. Can the lower strata think of a safe and secure house with access to all the amenities? If yes, what about the parity between being able to own a house and rent one. The housing dynamics affects the other issues such as migration into the city, population density, crime levels, inclusion, diversity etc. Here’s a bird’s eye view of the real estate scenario of the country, broken down to metro cities for better clarity.

Buy vs Rent Research Covers Top 8 Cities Across India

AHMEDABAD continues to be an affordable city for both buying and renting a residential property

Delh

BANGALORE continues to be favorable for renting rather than buying

CHENNAI continues to be an expensive city to buy a property

DELHI NCR is the second most expensive city for both renting and buying a property

HYDERABAD remains the most affordable city for both buying and renting a residential property

MUMBAI is the most expensive city for both buying and renting a residential property

PUNE has seen an increase in both rental and property prices

Ahme

daba

Kolka t

bai Pune

Mum

abad Hyder

lore

Banga

Chen

nai

KOLKATA is uniquely placed in our findings as a city having very similar growth across rentals and property prices

Methodology and Assumptions ASSUMPTIONS METHODOLOGY The methodology used for arriving at the results considers various key parameters derived from the initial data collected which include price of the residential property, rental values, years of saving for accumulating down payment, initial security deposit amount while renting a property and lastly the purchasable area (number of square feet) per INR 1.0 lakh.

• The sale price and rental values are calculated for a ready to occupy 1,000 sq. ft. residential property • Baseline gross annual income for analysis is considered to be INR 8.0 lakh • Initial down payment amount = 20% of the house price • Tenure for the home loan is considered to be 15 years • Home loan lending rate is considered to be 9.75% per annum • Average savings rate towards residential purchase is 25% of one’s annual income • Monthly EMI to be paid = 50% of monthly take home salary • Property tax = 1.5% of the property value • Property appreciation is not considered for EMI and down payment calculations • Rental security deposit varies depending on the city

JANUARY 2016 l The Finapolis

Trend analysis of Property Prices v/s Rental values 33,000

Buy Rent

22,000 16,000

16,000

11,000

60 Lakh Bangalore

76 Lakh Chennai

1.9 Crore Delhi

34 Lakh Hyderabad

12,000

1.9 Crore Mumbai

Urgency-to-Buy (UTB)* Ranking Urgency to Buy Ranking

Urgency to Buy Ranking

HYDERABAD • Avg. out of pocket cost (Rent) Rs 12,091 • Avg. out of pocket cost (Buy) Rs 29,565 • Rent-to-Buy Ratio 0.39

BANGALORE • Avg. out of pocket cost (Rent) Rs 19,568 • Avg. out of pocket cost (Buy) Rs 51,582 • Rent-to-Buy Ratio 0.37

Urgency to Buy Ranking

18,000

KOLKATA • Avg. out of pocket cost (Rent) Rs 19,181 • Avg. out of pocket cost (Buy) Rs 48,009 • Rent-to-Buy Ratio 0.39

AHMEDABAD • Avg. out of pocket cost (Rent) Rs 12,592 • Avg. out of pocket cost (Buy) Rs 34,301 • Rent-to-Buy Ratio 0.35

64 Lakh Pune

55 Lakh Kolkata

39 Lakh Ahmedabad

Buy vs Rent Score* Income AHBD BLR (INR p.a.) 8 lakh 77.5 65 12 lakh 90 65 20 lakh 90 90

CHN

DEL

HYB KKTA MUM PUN

55 55 80

55 55 55

77.5 90 90

100

Score

BUY

Score

BUY

Score

87.5

NEUTRAL

Can afford to buy

Urgency to Buy Ranking

PUNE • Avg. out of pocket cost (Rent) Rs 16,843 • Avg. out of pocket cost (Buy) Rs 55,347 • Rent-to-Buy Ratio 0.29

NEW DELHI • Avg. out of pocket cost (Rent) Rs 22,763 • Avg. out of pocket cost (Buy) Rs 1,01,647 • Rent-to-Buy Ratio 0.22

Urgency to Buy Ranking

CHENNAI • Avg. out of pocket cost (Rent) Rs 17,288 • Avg. out of pocket cost (Buy) Rs 65,066 • Rent-to-Buy Ratio 0.25

MUMBAI • Avg. out of pocket cost (Rent) Rs 33,556 • Avg. out of pocket cost (Buy) Rs 1,62,127 • Rent-to-Buy Ratio 0.20

*This ratio helps in understanding whether the rental yields are in line with the property prices in a city. The average monthly cost of renting is derived from the sum of rents and maintenance cost whereas monthly cost of buying is calculated by adding maintenance cost with the EMI. UTB is a ranking that enables people to take an objective decision to either buy or rent.

65 77.5 90

Score

55 55 55

NEUTRAL

Recommended to buy

Score

NEUTRAL

77.5

Both buying and renting are affordable

Score

RENT

NEUTRAL

Can afford to Buy; As paying EMI is more expensive than renting, Renting is recommended Score

<55

55 55 80

Score

67.5 CANNOT AFFORD TO BUY OR RENT

*Buy Vs Rent Score is a tool to logically compare rentals and/or property prices across cities. AHBD= Ahmedabad; BLR=Bangalore; CHN=Chennai; DEL=Delhi; HYB=Hyderabad; KKTA=Kolkata; MUM=Mumbai; PUN=Pune

Source: ArthaYantra Buy Vs. Rent Report 2016

19,000

The Finapolis l JANUARY 2016

COVER STORY CHENNAI FLOODS

The Lessons We can Learn

A look at the lessons the Chennai floods have taught us and what you can do to have your own safety ring in future By Deepak Yohannan and Team Finapolis

af e t y Ri n

In s

r & G e ne al

uran

ce Are Yo

S r u

t’s not every day that a random post by Ramesh Karthik, a software engi-

cludes upgrading my current four-wheeler to a luxury sedan and that much-awaited

light the candle. If the apartment gate gives in to the flow of water from the floods to-

neer in Chennai, gets shared on social media 226 times. Not surprisingly, it struck a chord with everyone who read it: “Till two days ago, I was getting worked up about my appraisal at office. I have completed seven years in my company and I am long overdue for a six-month offsite to San Francisco. My 2016 wish list in-

Istanbul holiday. I have been pulling the strings, taking the bosses out for cocktail nights, putting in extra hours… but this morning, I have other priorities. I am trying to hold on to my dear life. I have just half a bottle of clean drinking water left on my table. My kitchen is flooded, my stove is dank, and there is no power. My clothes are soaking wet. The wet matchstick can’t

night, the water can enter my ground floor apartment in any minute and that can mean the end of everything as none in my family know how to swim. I don’t care about appraisal, offsite, sedan or iPhone6. God, give me a safe place to stand, a warm bed to sleep and a hot meal to eat”. The Chennai floods in December 2015 taught the world the lesson that when hu-

JANUARY 2016 l The Finapolis

COVER STORY man beings throw common sense to the wind and get selfish, Mother Nature can give it back to us in a million-fold with her fury, nothing counts. Not the notes in your wallet, the Solitaries on your fingers or the number of followers on Twitter. It’s all about survival. About holding on to your breath, latching on that life support, waiting for that water packet from the rescue helicopter to land in your hands from the air, going after the food packet like the goal keeper in a game. Oh yes, life can take you from selfie to selfish in no time. The calamity gave the message loud and clear. The only way to get back is to stay responsible and if you still manage to survive, a solid insurance plan is what can put you back on track. Insurance cover should not be the last resort to save your tax, but your first instinct to protect yourself against life’s uncertainties. Estimates suggest a loss of a whopping Rs 50,000 crore (as on first week of December) in the flood ravaged city. However, insured losses could be a fraction - less than 10 per cent of the total losses. This means that if you have not been insured, you have to start your life from the scratch. If you have been foresighted and got yourself insured, you could have claimed the full reimbursement.

Turn around, don’t drown: How to survive a calamity Typhoons, hurricanes, droughts and earthquakes in different geographies of the world have made headlines throughout 2015. It has long been established that rise in the temperature of our planet is causing deep disturbances in atmospheric pressure which causes the El Nino effect, largely held responsible for the freak weather in Tamil Nadu that drowned Chennai recently. The beach city and its neighbours were caught off guard. Over 280 lives perished in the floods in Tamil Nadu. An estimated 130,000 people were affected and reports peg the total damage of property and equipment at Rs. 50,000 crore. Rapid unplanned construction and heavy rains were blamed for multiple loss of lives. A natural disaster has the potential to

Table 1:Online term plans Plan

Category

Reliance Online Term

Non-linked, non-participating term Claim to be settled in 12 days else insurance plan nominee gets 6.5% p.a. for delay

Aegon Life iTerm Term Plan (rider option available) Insurance Plan Max Life Online Term Plan - Basic Life Term Plan Cover HDFC LifeClick 2 Protect Plus

Non-participating term insurance plan

Key Feature

Annual Premium (Rs.) 15,995

25% advance payment on diagnosis of Terminal Illness

16,259

Optional Accident Benefit Rider available

17,290

Option to increase life cover on key milestones with multiple options

22,609 Source: MyInsuranceClub

destroy lives. While emotional loss cannot be made up for with any kind of planning, but financial distress can be mitigated by prudent planning. The larger environmental challenges faced by the planet may be the subject of the recently concluded summit in Paris but you’d rather be safe than be sorry is the lesson that is blowing in the wind.

Here’s how we can prepare: Basics first Whether it’s likely or not, the ultimate question of life and death comes to haunt us in wake of an impending calamity in a nearby region. Grim as it might be, let’s talk about death! It comes to everybody sooner or later but if it’s to be soon and untimely, it’s best to safeguard your loved ones against the loss of your income. By

It is imperative for people to buy insurance to cover all hard earned assets adequately, in terms of value and comprehensively in terms of coverage

Narayanan, Chief Operating Officer

Future Generali India Insurance Company Ltd.

getting an insurance cover, you essentially transfer the risk of death or disease from you or your family to an insurance provider. The insurance provider charges a premium to you to bear this risk. Insurance for individuals can be very broadly categorised as life insurance and general Insurance. Term plans are most sought after life insurance plans that guarantee certain sum assured to the beneficiary in case of the death of the policy holder. But benefits and conditions vary from policy to policy with respect to circumstances leading to death and other factors. So, it is important to compare plans and read the fine print before buying. This risk can be mitigated by paying an annual premium. The premium for a term policy of duration 30 years for a male of 28 years against a coverage amount of Rs 1 crore varies between Rs 6,887 – 23,244. The premium goes up with the age of the person insured on account of increased risk borne by the insurance provider. For example, the premium for a same policy for a male of age 40 years will vary between Rs 15,995-56,792 p.a. Table I gives you an idea of various online term plans for life insurance.

Head for cover After talking death, let’s talk about life before and after a natural disaster and what can be done to quarantine yourself financially from these unforeseen risks. You can seek protection from natural disasters by getting an insurance cover for

20 The Finapolis l JANUARY 2016

COVER STORY Table 2: Home insurance plans Age of Property

Type pf Property Plan

Insurance Type (Crore)

Sum Insured

Premium Duration (Including Particulars of cover Taxes)

5,000,000

1 Year

< 30 years Flat/Apartment

Bajaj Allianz - My Only Structure Home Insurance Plan

31-50 years

L&T My Asset Primary Comprehensive 50,00,000 + 3,50,000 + 3,50,000 1 year Home Insurance Plan (Structure + Content) + 1,00,000 + 50,000 + 2,50,000

6,601

HDFC ERGO Home Insurance

4,166

Flat/Apartment

<30 years Individual House

Comprehensive 50,00,000 + 2,00,000 + 1,50,000 1 year (Structure + Content) + 3,50,000

2,576

Structure Cover - Fire & Allied Perils Structure Cover - Fire & Allied Perils + Content Cover - Fire & Allied Perils + Burglary Cover + Electronic Equipment + Electrical Appliances + Jewellery Structure Cover - Fire & Allied Perils, Furniture Cover, Electrical Appliances, Total Content Cover - Fire & Allied Perils [Sum of Furniture & Appliances]

Reference note: The premium amount is based on location and age of the property and tenure of the insurance. The home insurance duration can stretch from 3 to 30 years and differs from policy to policy. The duration of the cover varies from plan to plan. While some offer cover on an yearly basis with the option for renewal, others offer a blanket cover for a fixed tenure of 3, 10 or 30 years. The premium of the policy is more for a comprehensive cover that covers the contents such as electronic appliances, jewellery etc. Source: MyInsuranceClub your house, vehicles and for your business. Much of policies in the aforementioned categories provide protection against natural calamities such as fire, explosion, earthquake, lighting, flood, storm and in some cases even missile testing. Your house is your most valuable asset and therefore the primary source of your financial strength. Be sure to insure it.

What should be the ideal amount for insuring the house? The cost of home insurance usually depends on the cost one would incur to replace the house or its contents as covered under the policy and additional insured riders. A yearly valuation plays a vital role in home insurance to ensure that claim becomes an easier process! Insuring an apartment of 1,000 sq. ft for Rs 50 lakh for 10 years will cost Rs 20,038, whereas including an additional cover of Rs 5 lakh for contents of the house will cost Rs 32,635. Table 2 gives you an idea of various home insurance plans.

What is covered in a home insurance policy? The home insurance policy covers the building structure and contents, loss due to burglary/ theft, loss of jewellery or valuables, baggage loss, damage or loss of domestic and electrical appliances, damage to electronic equipment and other belongings like pedal cycles, etc. The policy generally covers the struc-

ture of your home and contents against  Fire, lightning, explosion/ implosion  Riot strike, malicious and terrorist damages  Earthquake, volcanic eruption and other convulsions of nature  Storm, cyclone, typhoon, tempest, hurricane, tornado, flood and inundation  Aircraft damage and missile testing operations  Impact damage by rail/ road vehicle and animal  Subsidence, landslide and rock slide

What is NOT covered in a home insurance? The usual exclusions are willful destruc-

The total liability in the region is estimated at Rs 4,000 crore, of which Rs 400 to Rs 500 crore would be on the account of motor claims. The rest of it would be mostly claims related to property

Narayanan, Chief Operating Officer

Future Generali India Insurance Company Ltd.

tion of property, any loss or damage to any property that is illegally acquired, kept, stored which is subject to forfeiture, any loss or damage by the insured and/ or insured’s domestic staff direct or indirect involvement in an attempted burglary, any loss caused by war, wear and tear, and/ or if the property was vacant for more than 30 days without prior notice to the company. Any loss or damage suffered due to the following is treated as an exception and cannot be claimed:  Any loss or damage on account of loss of livestock, motor vehicles, pedal cycles, money, securities for money, stamp, bullion, deeds, bonds, bills of exchange, promissory notes, stock or share certificates, business books, manuscripts, documents of any kinds, unless specifically mentioned and valued  Consumable articles  Loose precious stones, jewellery or valuables, unless specifically mentioned and valued

Motor Insurance Vehicles are expensive and highly depreciable assets and therefore it takes time to re-build them. One needs financial security before indulging in expensive assets such as cars and to rebuild such assets after a natural disaster can be great task. Motor insurance comes to your rescue here. A comprehensive motor insurance plan usually covers natural and manmade

The Finapolis l JANUARY 2016

COVER STORY calamities. The former include hurricane, storm, tempest, hailstorm, inundation, cyclone, frost, rockslide, landslide, fire, shock damage due to earthquake, fire, explosion, lightning and flood. Man-made calamities include theft, housebreaking, burglary, strike, riot, accident, terrorist activity and damage during travel by road, rail, inland-waterway, or air.

Safety first Greek philosopher Aristotle was of the view that, “The ultimate value of life

The objective of creating an insurance repository is to provide policyholders a

depends upon awareness and the power of contemplation rather than upon mere survival”. Although, Mumbai hasn’t seen recap of 2005 floods, Chennai has come as a grim reminder to Mumbaikars to be prepared. Reports say that scientists have predicted that the chances of Mumbai facing a floodlike situation has more than doubled till 2080 and losses could triple. When a disaster strikes, physical safety, more than money matters, is of utmost concern.

facility to keep insurance policies in electronic form and to undertake changes, modifications and revisions in the insurance policy with speed and accuracy in order to bring about efficiency, transparency and cost reduction in the issuance and maintenance of insurance policies. Policy holders can access the electronic policies any time from their computer, mobile and tablet and track the policy details, renewal payments and initiate service requests. All this can be done by opening an electronic insurance account (eIA). Opening e-Insurance account is very simple. Policy holders can walk in to any of the front offices of insurers or repositories and submit an application for eIA.

What to do before a flood?  Avoid building in low-lying and flood prone areas unless these are elevated or reinforced safely  In the event of a flood warning, put electrical appliances on higher ground or upper floors  Install check valves in sewers to prevent floodwater to back up in your residence’s drainage system  Get in touch with local officials to find out if there are plans to construct barriers (floodwalls, levees and beams) in your area  Reinforce basement walls and waterproof it to avoid flood water from seeping in  Stay alert: Regularly scan radio, internet and television for information

Digitlise important documents through insurance repository Insurance Repository offers a facility to digitize all your insurance policies and store them in a secure and online location.

If flood is imminent  It’s crucial to stock up on drinking wa-

e-Insurance will help to preserve the policy records and would help to track the history of the insured property

Narayanan, Chief Operating Officer

Future Generali India Insurance Company Ltd.

ter, food, medicines and other basic supplies to last at least 15-20 days. Supplies are hit hard in areas under prolonged flooding. People in Chennai suffered greatly due to lack of clean water and food and had to rely on help from good Samaritans and military even after the water receded.  Relocate to higher ground. Do not wait for instructions to move.  Beware of drains, canyons, and other areas that get flooded suddenly. Such areas are most susceptible to flash floods  If you must, do not hesitate to evacuate  Move essential items to an higher floors Make an emergency kit for all members of the family, which should include:  Battery operated radio, flashlight and extra batteries  Extra cellphone and fully charged spare batteries if possible  Candles and matches in a waterproof container  Knife, Shoes, Thick ropes and cords  Chlorine tablets (for purifying water)  Cash and important documents (Ration card, Voter ID card, Aadhar Card etc.) If you think insurance costs a lot, try paying the price for not having one. With increasing dependence on technology, transport and communication devices, our need for bigger homes, cars, laptops, tablets etc has increased. And with life’s uncertainties looming large on us all the time, it is just plain good sense to do what it takes to mitigate the loss. India has woken up to health and life insurance. In 2012, Indian insurance was a $72 billion industry. Only 0.2% of the total populations of 1 billion are covered under Mediclaim, whereas in developed nations like the USA, about 75% of the total populations are covered under insurance schemes. While we try to play catch up on health and life cover, we must remember that with our lives tethered to the material things, general insurance is the need of the hour. With predictions that almost every Indian city is prone to become another Chennai when a flood occurs, the New Year is a good time to take that important step. F

Deepak Yohannan is the CEO of MyInsuranceClub, an insurance price and features comparison site in India

JANUARY 2016 l The Finapolis

by invite

ADHIL SHETTY

Spice Up Your Portfolio With Masala Bonds

asala bonds, or offshore rupee bonds or rupee denominated bonds, add a unique flavour to the bouquet of investment choices available to global investors. These bonds are rupee-linked and issued in markets outside India. Usually issued for 10 years in overseas markets and settled in US dollars, masala bonds are used to raise rupee loans for domestic companies from foreign investors. Foreign investors who have an eye on India in terms of investment can park their funds in these bonds without any direct exposure.

plays a paramount role as the bonds will be offered and settled in US dollars to raise Indian rupees from the international investors.

Features of masala bonds For long, many Indian companies depended on foreign currency denominated debt, but the flip side was the exchange rate risk. In offshore rupee bonds, this risk is borne by the foreign investor rather than the bond seller. These bonds are issued through the International Finance Corporation (IFC), a member of World Bank Group. The IFC converts the proceeds of the bond issue from dollars to rupees for investment in India. The offshore rupee bonds are listed and traded on the London Stock Exchange. These bonds carry an interest rate of close to 7%, which could be later revised. They are typically given a rating of AAA, indicating high creditworthiness and solid financial backing.

Implication on Rupee Masala bonds are a great platform to flex the muscles of the Indian rupee in the international financial markets. These bonds can help in internalization of the Indian currency and prop up the value of rupee in the overseas financial market. The diminishing value of the Indian rupee as compared to the US dollar is always an area of concern for the business world. In these bonds, the rupee

Adhil Shetty is the CEO of BankBazaar.com

Masala bonds are a great platform to flex the muscles of the Indian rupee in the international financial markets Players in masala bonds All domestic companies that have the nod to raise External Commercial Borrowings (ECB) can issue rupee denominated bonds in the overseas market. Any international investor can then purchase these bonds, which are listed and traded on the London Stock Exchange. As the past has shown, most of the foreign investors buying offshore rupee bonds are European insurance companies.

Advantages of masala bonds  The option of masala bonds has thrown open a new vista of opportunities for the local companies to raise funding.

 Domestic firms will be able to blend their debt portfolio judiciously and keep their cost of financing at the minimum. If other bonds have to be issued at an interest rate of 7.5-8.5%, masala bonds could be placed in the foreign market at close to 7%.  The pool of investors is quite vast and varied compared to foreign institutional investors.  These bonds have more visibility in the overseas financial market as they are listed and traded on the London Stock Exchange. This will also boost the confidence of the foreign investors in the rupee denominated bonds.  As the masala bonds are fully denominated in rupees, there is a natural hedging in place and there is no exchange fluctuation risk for the domestic companies. The offshore rupee bonds will help domestic companies to address both pricing and currency risks while drawing in funds from foreign markets.  The extensive trading of these bonds will also help to deepen the global debt market to the advantage of the local companies.  Masala bonds can also boost the growth of the economy, as they will facilitate to fund raising, which could be used for the development of infrastructure.  These bonds can attract funds from the Indian diaspora spread across the world given that NRIs would love to invest in their homeland if conditions are ideal.

Conclusion Masala bonds are bound to bring more investment into the country,especially to the advantage of domestic companies. The demand for these financial instruments in the international market will increase as the liquidity of these bonds goes northwards. Moreover, the funds raised through offshore rupee bonds could be diverted for the development of infrastructure, long neglected due to lack of funds. F

24 The Finapolis l JANUARY 2016

ECONOMY OPINION

Make in India - A Myth or Reality Make in India will be a success only if factories can provide employment and if the government can provide facilities such as education and other support services for rural folks. Sustaining the beauty of the campaign depends on how fast we create all other services which might take several years. It is also time for the Govt. to sell this idea to India Inc. By Dr Shailashree Haridas

he first seeds of ‘Make in India’, a popular concept launched by prime minister in September 2014, seems to have been planted way back in 1944 by Mahatma Gandhi. He was not a professional economist, but advocated certain principles and policies with regard to the development of Indian Economy which he expected the local Indian government to follow after independence in 1947. The objective of the Gandhi Model was to “raise the material as well as cultural level” of the Indian masses, especially those living in six lakh villages dependent mainly on agriculture and the vagaries of nature. He emphasised on reform of agriculture, improving productivity and regional self-sufficiency in villages through cotton and village industries. Gandhi never opposed machineries, however, he always proposed for labour intensive industries to cut down the unemployment problem which was the requirement of that era. In 70’s, the first Prime Minister of India, Jawaharlal Nehru, and the architect of the first Indian Economic Planning Process, Prof. PC Mahalanobis, a statistician, evolved a model of economic development of India, guided by the directive

investment, five year planning, import substitution and increasing production. The basic objective was “Growth with Social Justice”. The socialistic slant can be clearly seen in almost all the democratic thinking and policies in the early planning stages. This model worked from 1950 to 1990, for almost 40 years, with the exception of a few years in between under the Janta government. In 1991, Finance Minister Manmohan Singh, under the Prime Ministership of Narasimha Rao, developed Liberalising,

essentially recognised the need for a change in the role of the government in a modern developing economy. The government, however, had a reasonably good success in the area of Liberalisation, which meant reducing / removing the shackles (License Raj Controls) and allowing the private sector, both domestic and foreign, to open up businesses with much lesser restrictions and reservations in India. Thus the economy was opened up for the world players to come and bring with them the new technology and expe-

principles of the constitution of India, which is known as the “Nehru – Mahalanobis Model”.The strategic thrust of this model was on the long term growth in a Mixed Economy, where the state (i.e. the government) has a positive role to play along with the private sector. More emphasis was laid down on the public sector

Privatising and Globalising (LPG). The economic situation in India, under the Control Raj, had gone so bad by that time that, there was no other alternative available except to throw the shackles of the control Raj away and adopt a modern open economy for the country by liberalising, privatising and globalising. This model

rience. This external investment released the domestic savings to be transformed into desired / planned capital formation to a much greater extent. This is what accelerated the growth rate, after the gestation period of about four to five years. However, the model has few bottlenecks like focus on corporate sector, bypassing

JANUARY 2016 l The Finapolis

ECONOMY agriculture, fear of unemployment in grant from the government. These will lead small and medium scale industries, into the concentration of power in few states crease in trade deficit and volatility in by further leading to the inequality beforeign exchange market, inflation etc. tween the states and people of India. Dr APJ Abdul Kalam, ex-president of The skilled people of India are not flexIndia, has evolved this concept of Proviible for moving from one state to another. sion of Urban Amenities in Rural Areas A south Indian does not wish to settle in (PURA) Model, in advocating his vision Delhi where as a person from Delhi can’t for 2020 and 2030. The PURA Model insettle at Chennai. The people are becomvolves around connecting physical infraing too possessive regarding their homestructure, Electronic communication, town because of the increased income Knowledge base economy and Economic from last 10 years. For companies moving Connectivity to enhance prosperity in to north east is feasible as they receive clusters of villages. The basic enough facilities from governidea is to provide urban amement, however getting skilled One should wait for one more year to nities to rural poor. and committed manpower beAll the above mentioned decomes an area of concern. find out whether the lion will roar or not velopment modules created Make in India will not be a which will depend on political the boost in manufacturing success by establishing only developments rather than economic sector. The percentage share the factories and providing the of manufacturing remained at employment but Government developments around 15% and the share of agshould provide all other faciliriculture started decreasing and on several variables rather than only inties including the education, and share of services increased over last 65 viting western countries to participate in other support services for families. Susyears. These development modules creatinvestment and nation building. We have taining the beauty of the campaign deed a hole in between which is the famous several examples like POSCO in the past pends on how fast we create all other story of “hole in middle” problem. The where the foreign investors were not hapservices which might take several years. manufacturing sector has faced a creeppy after making the investment decision. Based on the condition of talent pool in ing rut over the past decade in India. The The campaign requires hand holding of India, imagine the kind of effort governfocus of past Congress government being foreign investors by giving them required ment needs to put in to train the unskilled on service sector, has led to step-motherly infrastructural facilities, digital conneclabour and migrating farmers. No foreign treatment to manufacturing arm. tivity, improved communication mechacountry will set its foot on our soil without Modi has combined all development nism and creating a sense of ease of doimproving labour skill set. It takes a highmodules and given as his development ing business. ly concentrated effort to do this and there module which focuses on agriculture, The other important political variable should be multiple initiatives as such to self-sufficiency, FDI, reducing trade defiis centre and state relationship. The way identify candidates, train them and track cit and the importantly is boosting the BJP is losing the state elections and PM their progress. Every district in each state manufacturing. All theories of developModi being singled out in party is a major should have a village development centre ment modules of economics which proconcern for the investors. The upcoming to implement the training. If needed the poses the sustainable growth focuses on west Bengal and UP elections are the degovernment should involve NGOs who are growth in manufacturing. The make in ciding factors for further investment. BJP willing to take this up to conduct training India campaign focuses on boosting the won the last election because of failure of and track the progress. manufacturing sector which will be suscongress in 2014, whereas 2019 elections Make in India logo signifies lion with tainable growth for the nation. The camneed to be faced based on performance of industrial wheels is a sign of India roarpaign is most talked in media as the camBJP. Only advertising and lofty claims by ing. The definition of FDI in past, ‘First paign which increases in employment which is quite obvious, and increases the share in GDP. Instead of naming it Made in India, it is make in India. As the focus of made is in past, whereas make in India pushes to manufacture here in present. The success of the campaign depends

central government will not work. However each state government should provide a conducive environment for manufactures. At present the fiscal deficit in north east states are higher than other states, however the states like Jammu and Kashmir, Uttar Pradesh etc. receives highest

Dr Shailashree Haridas is the Associate Director, MIT School of Government, Pune

Develop India’ will change to foreign direct investment if all variables put together works equally. One should wait for one more year to find out whether the lion will roar or not which will depend on political developments rather than economic developments. F

26 The Finapolis l JANUARY 2016 AN SHANBHAG AND SANDEEP SHANBHAG

expert speak

Attack, Don’t Withdraw

Sell

Buy

s we write this, the Sensex is at 25,320 points. After having reached an all-time high this year of 29,681 points in January, by the end of the year, looks like the market is going to end up almost 15% down. Needless to say, investors aren’t happy with this ‘correction’. Many are feeling despondent. Others are wondering whether it would be at all possible to make money in the stock market. Of course, the media plays its part (of adding fuel to the fire) by warning that the golden period of the mega bull run is over and investors may need to pull up their socks and tighten

to get in the party. What rises has to fall and when the market follows this rule, we tend to panic and sell in a hurry, often taking losses.

They say, if you can’t take the heat, don’t enter the kitchen. Very true, especially when it comes to stock markets. If you are an investor who only wants to see his in-

it is but obvious that the same will be translated into numbers sooner than later. Actually it’s we investors who are shooting ourselves in the foot. What happens when you submit your mutual fund for redemption? The fund manager has to pay you back the current value of your investment. The funds required for this come through the sale of shares. This leads to a further fall in the valuations. When scores of investors act in this similar fashion, imagine the domino effect it would cause. No use blaming the FIIs or China or Europe for that matter. If not causing it, we

their belt to face the ongoing correction. We, however, do not subscribe to this point of view. In our opinion, making money in the stock markets comes down to one simple rule – and that is –“Buy Low - Sell High”. However, time and again, we investors find ourselves flouting this norm. When the market is rising, we tend to buy

vestments rising day by day and cannot bear to see the value fall, even temporarily, then trust us, you are destined to be disappointed with the results. Stock markets, by definition, will rise and fall and rise again only to fall and so on. However, if the economy is strong and corporate earnings show healthy growth,

ourselves are exacerbating the fall. If anything, this is the time to buy. Once you have invested in a mutual fund, its like entrusting your money to a professional portfolio manager. Let him decide what to sell, what to buy and when to do it. It’s not productive to take the decision on your own.

Stock markets, by definition, will rise and fall and rise again only to fall and so on

JANUARY 2016 l The Finapolis

EXPERT SPEAK Fighting the correction What you do need to do, however, as an investor, is to rebalance your portfolio. Rebalancing means making the modifications required to maintain your asset allocation. Lets say, as per your risk profile, you have decided to invest 70% of your funds into equity and 30% into debt. Lets assume the total invested amount is Rs 5 lakh. This means Rs 3.5 lakh would be invested in equity and the rest in debt. Lets say over a year, the market moves up by 30% and you earn 5% on your debt investments. Rs 3.5 lakh invested in equity would jump to Rs 4.55 lakh and the debt portion would rise to Rs 1,57,500. Now the asset allocation has skewed and the amount invested in equity constitutes 74%. However, you just want 70% into equity…..time to sell 4% of your capital invested in equity funds and move the same into debt. And remember the vice versa is also true, but more difficult psychologically. When the equity component falls on account of a falling market, one should actually add equity by buying stocks or equity MFs. There is yet another risk that an investor takes during an oncoming correction --- that of investing at the peak. For example, take a look at the following table.

The only way to beat the correction is to fight it. And the way to fight it is not by withdrawing, but by attacking Date

Units

NAV

Amount (Rs)

May 18, 2014

1000.00

50.00

50,000

does the NAV. After 18 months, it reaches Rs 60.23 just like in the previous example. The total invested amount over the 18 month period is the same --- Rs 300,000. However, the rate of return has jumped to 39%!! The above example showcases the fact that the only way to beat the correction is to fight it. And the way to fight it is not by withdrawing, but by attacking. An analogy may be drawn by thinking of your investment journey as a ship sailing in high waters. There is a storm brewing. You have two options. Carry on and weather the storm to the best of your abilities. Or pull back to the shore. Coming back to the shore will only mean that you will have to embark upon the journey all over again. And there is no guarantee that you may not encounter another storm. So the best option is to embrace the storm and fight it. Note that the above numbers are just an example that numerically illustrates the point. And the point is that in real life too, market / NAV valuations follow a similar pattern. The time period may be different – what is 18 months in the above example may be 12 or may be 36 or even more – however, if your invested instrument is appropriate and you have the gumption and the patience to weather out the ‘storm’, your chances of losing are virtually nil.

Date

Units

NAV

Amount (Rs)

18-May-14

6000

50.00

300,000

August 17, 2014

1111 .11

45.00

50,000

17-Nov-15

6000

60.23

361,360

November 17, 2014

1388.89

36.00

50,000

13.20%

To Sum

February 17, 2015

1207.73

41.40

50,000

May 17, 2015

1050.20

47.61

50,000

August 17, 2015

954.73

52.37

50,000

November 17, 2015

6712.66

60.23

4,04,281

The stock market will be as the stock market is --- it will move up and it will move down. We have two tools to help us in either direction. When it moves up: Periodically rebalance your portfolio. This will prevent you from being over invested in equity.

Rate of Return

The example assumes that lump sum investment is made on May 18, 2014 when the market is almost at its peak. After which it falls and it takes all of 18 months to recover. The Net Asset Value (NAV) at the beginning is Rs 50 and the NAV after 18 months is Rs 60.23 (an absolute rise of around 20%). The rate of return works out to 13.20% p.a. Now, if the same investor, instead of investing at one time, had spread his investments over the same period, the following table explains the result.

Rate of Return

39%

Notice that the NAV steadily falls for the first six months of starting the investment. This will happen in a falling market. However, the investor has kept his investment amount constant. After a fall of almost 28% (from Rs 50 to Rs 36), the trend reverses and the market starts rising again and so

When it moves down: Make systematic investments. This will prevent you from being caught in a situation of having invested at what was the peak of that bull run. In other words, the only way to beat the correction is to look it in the eye and fight it. F

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

28 The Finapolis l JANUARY 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

he stock is r i s i n g from 455.05 levels with minor pullbacks indicating its bullishness on all major time frames. The stock witnessed breakout from 495 levels on closing basis on weekly chart. Historically, the stock has moved from 375.35 level and made high of 523 levels after that the stock was consolidated in a broad range between 450 to 500 levels and recently the stock has given fresh breakout and made its all time high of 524.10 levels. 525 500 475 450 425 400 375 Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Current Market Price

Rs 519

Stop Loss

Rs 419

Target Price 1

Rs 658

Target Price 2

Rs 659

If we talk about bigger trend, the stock has also taken support from 38.2% Fibonacci retracement (387.70 levels) drawn from low of 247.70 levels to high of 489 level on weekly chart. In the recent past, the government of Delhi banned new registration of selected diesel vehicle and we are expecting this would be positive for the stock. Points of Observation XXThe stock is making higher highs and higher lows on all major time frames. Last week, the stock witnessed more than three times volumes in the counter with rise in price which is suggesting participants are bullish in the counter

and expecting more upside in coming months XXAmong the oscillators, the RSI is trading in a bullish zone between 50-70 level and also the RSI line is trading above its signal line and currently there is no sign of any reversal or divergence in the counter XX We therefore recommend long term investors to go long in the stock on dips to Rs 505-510, and average the long position on dips, if any, around the level of Rs 462467 for the mentioned target levels with a strict stop loss placed below the level of Rs 419 on a weekly closing basis.

JANUARY 2016 l The Finapolis

EQUITY

he monthly chart structure of this fundamentally strong stock, suggests formation of cycles of higher highs and higher lows, supported by stellar volumes on every rise, clearly indicating there is a lot of demand for the stock even at higher levels which is a positive sign in itself. Bayer crop is in a structural uptrend and looks well set to march steadily towards the Rs 4,200-4,500 mark over the next 9-12 months. The stock has been relentlessly rallying from its March, 2012 low of Rs 717.70 to a recent lifetime high of Rs 4,235, which was clocked on 16th April, 2015. The 4100 3850 3600 3350 3100 2850 2600 Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

ABAG is one of the worldâ&#x20AC;&#x2122;s leading companies in the water treatment field. The companyâ&#x20AC;&#x2122;s key competences, which are based on over 90 years of plant building experience, lie in the design, completion and operation of drinking water and wastewater plants for both the municipal and industrial sectors. Points of Observation XXWABAG has given a descending triangle breakout combined with a moving averages breach at 695-700 levels and closed much higher supported with robust volumes in the month of November 2015. 950 895 840 785 730 675 620 Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Current Market Price

Rs 3338

Stop Loss

Rs 2450

Target Price 1

Rs 4200

Target Price 2

Rs 4500

stock also broke out above its previous resistance at Rs 1,800 in June, 2014. In the chart above, it is clearly seen that the stock also witnessed superb accumulation within a broad range of Rs 3,200-3,600 in January,2015. Considering the fact that the stock has zoomed more than twofold within a period of just 6 quarters, we feel that the stock can actually put up a similar performance over the next year as well.

tinue in the stock till its stays above the 2450 levels. XXAmong oscillators, the 14-month RSI line is trading in the comfortable territory after a long time spent in the overbought territory with a reading of 60.08, indicating the strength in the counter and any dip can be used for fresh accumulation. XXWe therefore recommend long term investors to go long in the stock on dips to Rs 3,300, and average the long position on dips, if any, around the level of Rs 2,900 for the mentioned target levels with a strict stop loss placed below the level of Rs 2,450 on a weekly closing basis.

Points of Observation XXThe stock has seen fresh accumulation during the first half of the calendar year with steep rise in price along with the increase in the volumes. The stock has immediate strong support paced at 2900 levels and the uptrend is expected to con-

Current Market Price

Rs 699

Stop Loss

Rs 610

Target Price 1

Rs 900

Target Price 2

Rs 950

The stock has then moved lower with sideways range on the back of profit booking, but has maintained its position above the said breakout levels on the daily chart. The stock is thereafter hovering in the narrow range of 670-720 levels with positive bias. XXThe counter is trading with bullish bias and is hovering in between its short & medium term moving averages. Among indicators, the 14-day RSI line is trading above the 9-day EMA signal line pointing northwards and the MACD line is trading in the positive territory, reflecting the positive sentiment in the counter. XXThe above pattern breakout suggests a price target of 1040-1050 levels for the time frame of 9-12 months. Keeping a conservative approach one may look for

the targets of 900-950 levels in medium to long term perspective which is almost coinciding with its all time high levels. Therefore, we recommend buying the stock at current levels for the targets of 900-950 with stop loss placed below 610 levels. XXOn the fundamental point of view, the company will also be benefited with Namani Gange project which is to clean Ganga River and the famous Swatch Bharat Abhiyan for clean India. The government is having special focus for implementing these two projects.

30 The Finapolis l JANUARY 2016

EQUITY

ELSPUN INDIA Limited is one of the global leaders in Home Textiles with global reach, delivering to more than 50 countries. Increasing sales of innovative products, brands and good product mix clubbed with capacity expansion, high utilization levels to aid both the top line and bottom line in the coming quarters. The stock is one of the outperformer in CNX 500 with a gain of nearly 5% for the quarter as on date, while the index has gained only 0.08% during the same period. 940 835 730 625 520 415 310 Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

he monthly chart structure of this fundamentally strong stock, suggests formation of cycles of higher highs and higher lows, supported by good volumes in the past few months, clearly indicating there is a lot of demand for the stock even at higher levels which is a positive sign in itself. Insecticid is in a structural uptrend and looks well set to march steadily towards the Rs 550-560 mark over the next 9-12 months. The stock has been relentlessly rallying from its March, 2014 615 570 525 480 435 390 345 Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Current Market Price

Rs 891

Stop Loss

Rs 740

Target Price 1

Rs 1075

Target Price 2

Rs 1125

Points of Observation XXWELSPUN INDIA is a multi bagger with gains of more than 1600% over last two years. The stock has witnessed a stellar rally from the levels of sub 55 to the highs of 963 indicating itâ&#x20AC;&#x2122;s strong up trend. However over last few months the stock has been consolidating in the range of 665-950. As a continuation of trend, we expect the break out of the consolidation range on the higher side and the stock to move towards unchartered territory. XXThe throw backs in the stock are on low volumes and have respected its long term moving averages during the corrections, indicating its structural up trend and the stock is also in strong hands. XXAfter a strong up move in the counter,

Current Market Price

Rs 430

Stop Loss

Rs 378

Target Price 1

Rs 540

Target Price 2

Rs 560

low of Rs 139.40 to a lifetime high of Rs 632.15, which was clocked in the month of April, 2015. Points of Observation XXOn the daily charts, the stock is trading above all its short term and long term moving averages, indicating the bullishness in the counter and any dip towards the moving averages can be used as buying opportunity. XXThe stock has seen fresh accumulation in the recent past as it is witnessing an bullish inverted head and shoulders pattern and currently in right shoulder of the same within the range of 395-435 , with neckline placed at 435 XXOn Elliott wave front, the stock has

the Bollinger band set up on daily chart has started to contract with drop in volatility and price is also consolidating sideways indicating a squeeze in bands. Hence a break out of the range gives a fresh up move into the stock with increase in volatility. XXOn the indicator front, the 14-period RSI on daily charts is trading near 65 and the RSI line is also above the 9-day EMA signal line pointing northwards reflecting the positive sentiment in the counter. XXHence with a medium term perspective we expect the stock to move beyond the range and plot prices into unchartered territory. However any dip towards the previous major swing lows of 775-900 can be utilized to average the price.

completed an ABC corrective pattern from the highs of 632.15 to the lows of 347.65 and now completed new up cycle has started as witnessed by five wave advance. XXAmong oscillators, the 14-month RSI line is trading just a wee above the signal line pointing northwards. XXWe therefore recommend long term investors to go long in the stock around Rs 430, and average the long position on dips, if any, around the level of Rs 410 for the mentioned target levels with a strict stop loss placed below the level of Rs 379 on a weekly closing basis. F

The Finapolis l JANUARY 2016

MACRO VIEW INVESTMENT OUTLOOK

Cautious Optimism Should be the Mantra for 2016

The only way out of the vicious cycle of economy is by kick-starting growth and following Niti Ayogâ&#x20AC;&#x2122;s suggestion - to push FRBM targets forward by a few years By KP Jeewan

round the same time last year, when market experts were competing with each other to call for higher and higher targets for

in crude prices, which was partly addressed by series of indirect tax increases though divestment targets have fallen short.

er ride. First quarter saw major destabilisation in Europe caused by the Greek Tragedy. For rest of the year, markets were on tenterhooks on account of im-

Indices, we had flagged some risks: 1. Global overcapacity and its potential to derail our growth. It played out as expected and commodity producers across the world suffered from this malaise, with no end game in sight. 2. Falling government revenue due to fall

3. Slowdown in exports is also playing out as expected. 4. Inability of banking sector to meaningfully contribute to growth due to balance sheet issues. 5. China exporting deflation to rest of the world. The year as a whole was a roller coast-

pending rate normalisation of Federal Reserve, which was to first happen in April and then September and finally in December. Around Mid August there was a major shock to financial markets from tumbling stock markets in China and sharp weakening of Yuan. Crude and other commodities continued to fall to

JANUARY 2016 l The Finapolis

MACRO VIEW decadal lows. Despite turmoil round the year, clear cut verdict on the above is still elusive. Most of the commodity dependent economies are either in recession or on the borderline of one. While the US continues to chug along albeit at a sluggish pace, it had set for itself post 2009. There is evidence that the economy is feeling the heat from falling commodity prices and a strong dollar. But the drag is not serious enough yet to slow down growth yet. On balance the probability of the US slowing down and perhaps slipping into recession seems larger given that even Fed has also started its rate normalisation programme. While 25-50 basis points further hike in itself should not really cause derailment, its impact together with global slowdown can be significant. The chances of accident in an overleveraged system (like in High Yield Bond recently) go up with each baby step. The root cause of last financial crisis was excess leverage in financial markets (banks) mainly in developed markets. Much of it got shifted to respective government balance sheets. The subsequent years saw leverage among developing nations led by China go up geometrically. “Fuelled by real estate and shadow banking, China’s total debt has nearly quadrupled, rising to $28 trillion by mid2014, from $7 trillion in 2007. At 282 percent of GDP, China’s debt as a share of GDP, while manageable, is larger than that of the United States or Germany. Three developments are potentially worrisome: half of all loans are linked, directly or indirectly, to China’s overheated real-estate market; unregulated shadow banking accounts for nearly half of new lending; and the debt of many local governments is probably unsustainable.” (Source McKinsey Global Institute reports) In India, the leverage ramp up has been

countries yet to de-lever and renew growth cycle. So we have a situation where both the key drivers of growth during last decade (developed economies and China) with literally busted credit card limits. As with any individuals with excess borrowings, the only way out from such a hole is to cut expenditure, save more and repay debt or declare bankruptcy. (The later option of course is quite unthinkable for large economies). Instead the favoured option among developed nations has actually been to ignore the problem and hope that it would go away. Recent Chinese action in engineering weakness in currency gives clues to the direction it intends to take to counter the slow down. As does 256% hike in steel import duty in US, to the likely response of

commodity collapse, namely defaults by emerging market borrowers and stretched commodity producers are likely. This can make the banking sector in developed markets vulnerable and would most certainly cause risk premium for borrowers from emerging markets including India to widen. Any further rate hikes by Fed would only hasten this process. The Mid-year Economic Review flags the risks facing Indian economy and expects lower than expected growth for the year. While stressed corporate and bank balance sheets prevent private investments, adherence to Fiscal Responsibility and Budget Management (FRBM) road map prevents government led investments in a big way. The longer we spend in this low growth environment, the worse the problems in bank balance sheets will be. Only way out of this vicious cycle is by kick-starting growth and that is what Niti Ayog suggests- by pushing FRBM targets forward by a few years. (We had suggested the same in our last Issue of The Finapolis- Alert: Economy on a MODIfication Mode). It is difficult to visualise outperformance by stock markets in such a backdrop. However, expectations of further stimulus by China (It is expected to cut rates to zero in 2016) could be supportive. But the Law of Diminishing Marginal Utility is bound to catch up for market returns from such steps. Unfortunately nothing seems to be looking good from the Indian market point of view - be it corporate performance, FII flows or government initiatives. The usual triggers like budget and monsoon can give a pop to the indices, but unlikely to give secular direction. FII flows would be dependent on global risk appetite which may pick up in 2016. Fixed income would remain attractive

mainly on government and corporate balance sheets. Post 2008, the Chinese thought process was probably to sustain growth at its earlier pace for a few years with large domestic investments till developed economies recovered enough to take the slack. Only the debt fuelled binge is nearing its logical end with developed

rest of the world. Collapsing commodity prices, slowing trade and spike in high yield bond yields are all pointing towards troubled times ahead. No doubt central bankers will try their best to rescue, but this time they may be low on ammunition. In 2016, the second round impact of

while any slippage in fiscal deficit would be short term negative, in the medium to long term, rate cut cycle is very much on. Though, the rate cuts are unlikely to result in demand revival as pass-through will continue to be muted. On the whole, I feel the New Year will be one of caution, rather than “risk on” for investors. F

Unfortunately nothing seems to be looking good from the Indian market point of view - be it corporate performance, FII flows or government initiatives

34 The Finapolis l JANUARY 2016

FACE TO FACE ‘Budget and Bills to decide India’s fiscal future’ Rakesh Shinde, AVP, Institutional Research, Bonanza Portfolio Ltd tells The Finapolis about his outlook on markets, key economic events to watch out for in 2016, his expectations from RBI policy and new emerging sectors to invest for long term. How do you see India’s equity market and economy performance in the new calendar year?

Rakesh Shinde, AVP, Institutional Research, Bonanza Portfolio Ltd

The manufacturing activity in India will pick up, thanks to the ease of interest rate and governments efforts on the “Make in India” initiative. The upcoming 7th pay commission will also bring in some demand, consumption and saving which would further bolster the GDP growth

Rakesh Shinde: The equity market in the new calendar year will see a good run as the government’s effort in last 1.5 years will start bearing fruits. The economic activity will also see an uptick backed by lower commodity prices, comfortable inflation level and lower interest rates. We expect the new MCLR guidelines by RBI will help in lowering interest rates further coupled with better transmission of rates which would in-turn release cash flow pressure on corporate and improve their performance. We expect economy to clock 7.6% GDP growth rate in FY16. Further, 7th pay commission will boost consumer spending in a big way but at the same time, the government needs to address fiscal deficit from FY17 onwards. Which key events in India and global markets are to watch out for in 2016? RS: In the next year, on domestic front, ‘budget’ will be the key event followed by some major bills like Goods and Services Tax (GST), Land Bill, Bankruptcy Code to be presented in the Parliament next year for approval. On the global front, the Fed policy on interest rate will continue to gather attention as the pace of raising interest rate will be watched closely along with how growth spans out in key economies like US, Europe and China.

How do you see India’s growth versus China’s? Which sectors are going to be the major contributors in India’s growth? RS: India may continue to outshine other emerging economies in terms of GDP growth rate. In case of China, I believe it will continue to grow below 7% as it will take time from investment and export led growth model to consumption led model. Whereas in case of India, GDP will continue to grow above 7.5% backed by major contribution from service and manufacturing sector. The manufacturing activity in India will pick up, thanks to the ease of interest rate and governments efforts on the “Make in India” initiative. The upcoming 7th pay commission will also bring in some demand, consumption and saving which would further bolster the GDP growth. Naturally the corporate performance of India Inc. and how they manage through these times will determine the course of the stock markets. When do you expect next rate cut from RBI and which factors will play an important role to influence decision of rate cut? RS: I think RBI will continue its stance of status quo in its next bi-monthly policy statement which is in February 2016. This is mainly because RBI would prefer to wait for the budget to see the government’s plan on expenditure and income along with its effort to support growth. Post budget monetary policy

JANUARY 2016 l The Finapolis

FACE TO FACE in April 16 (Q1FY17), we can expect further easing of rate by RBI, provided inflation remains under RBI’s comfort zone. Further, upcoming 7th pay commission effect on inflation and bank transmission on rates (RBI has done 125 bps rate cut in CY15 against which banks had only passed on 60 bps) would also be the key factor in deciding rate cut decision. What are the new emerging sectors to invest for long term and why? RS: I believe that the e-commerce industry will be the new emerging sector to invest in long term. India’s e-commerce market was worth about $3.8 bn in 2009, it went up to $12.6 bn in 2013. In 2013, the e-retail segment was worth US$2.3 bn. About 70% of India’s e-commerce market is travel related. According to Google India, there were 35 mn online shoppers in India in 2014 Q1 and is expected to cross 100 mn mark by end of year 2016. Electronics and Apparel are the biggest categories in terms of sales. India has an internet user base of about 375 million (30% of population) as of Q2 of 2015. Despite being the second largest user base in world, only behind China (650 mn, 48% of population), the penetration of e-commerce is low compared to markets like the United States (266 M, 84%), or France (54 M, 81%), but is growing at an unprecedented rate, adding around 6 mn (0.5% of population) new entrants every month. M-Commerce is where the action is shifting to. The industry consensus is that growth is at an inflection point. In India, cash on delivery is the most preferred payment method, accumulating 75% of the e-retail activities. Demand for international consumer products (including long-tail items) is growing much faster than in-country supply from authorised distributors and e-commerce offerings. As of Q1 2015, six Indian e-commerce companies have managed to achieve billion-dollar valuations namely Flipkart, Snapdeal, InMobi, Quikr, OlaCabs and Paytm. Looking at above numbers and penetration lev-

els it will be prudent to invest in selected e-commerce companies for long-term. Analysts are expecting GDP at around 7.5% in current financial year. However, why is it that the growth of the corporate sector is not commensurate with this? RS: The corporate sector is already saddled with heavy interest burden, project delays, project clearance etc. Further, most of the corporates are running businesses at under capacity. I expect with interest rate easing, faster government clearance and pickup in demand these corporate will soon start participating in growth. In what range is the rupee expected to settle against US dollar? And which sectors will be affected due to the rupee depreciation?

RS: The rupee will continue to depreciate further against dollar. Overall, dollar is becoming stronger against all major currencies in the world, which is evidently seen from the US dollar index touching 100 levels. This is mainly because of the US economy that gained traction and with recent FED move to raise interest rate it will further gain strength. I expect the rupee depreciation to have a positive effect on Indian IT and Pharma industry along with other major export oriented industries. For CY2016 we expect USD-INR pair to be trading around 66-68 levels. In case of global volatility, it may even touch 70. Is it good time to start accumulating gold at current price? RS: I don’t expect gold to start performing in the coming year. Worldwide developed economies are now stabilized and some economies like the US have started growing at a decent pace. So, according to me “equities” will remain in flavor in the years to come. Overall commodities are down and trapped in over supply with limited demand, I think it will take time to come back on track. F

I expect the rupee depreciation to have a positive effect on Indian IT and Pharma industry along with other major export oriented industries. For CY2016 we expect USD-INR pair to be trading around 66-68 levels. In case of global volatility, it may even touch 70

36 The Finapolis l JANUARY 2016

CURRENCY RUPEE OUTLOOK

Road Ahead for Rupee in 2016 How the Indian currency fares when compared to the Dollar, Pound, Euro and Yen By Rakesh Chelapareddy

n the last five issues, we have focussed

in the month of December was the US

well the FED has prepared the markets

on the intricacies of currency trading in India and how an investor would be able to invest in one of the fastest growing segments in financial markets. Let us now shift our focus on to actual market conditions and what events have been moving the markets in the recent times. One of the major events that unfolded

FEDâ&#x20AC;&#x2122;s interest rate decision, wherein they have increased the base rate by 25 basis points and in the accompanying statement and press conference, US FED chairperson Janet Yellen has signalled that the future course of interest rate hikes would be gradual. Markets have reacted in a positive way, which demonstrates how

for an impending rate hike. This move has removed uncer tainty, helping emerging markets like India, which have been under pressure in the run up to the FED hike.

Answering the BIG Question, what next? The key theme for the currency markets

JANUARY 2016 l The Finapolis

CURRENCY going into 2016 would be the policy divergence among major developed economies and continued pain for emerging economy currencies. With the exception of the Bank of England, most of the major central banks have remained dovish and are expected to continue with an accommodative monetary policy in the next year. US on the other hand, is expected to hike interest rates at least twice in 2016 and another two times in 2017, taking the target rate to 1.5% with the US inflation being in a target rate of 1-2%. Taking this into prospective, we imagine the following scenario’s to unfold in the coming years.

Indian Rupee against the US dollar Indian rupee has been under pressure for most of 2015, losing close to 7% against the US dollar and hovering around the 67.00/$ level. Indian economy is in a better place as compared to its peers and as compared to itself in 2013 when it plunged to 69.22/$ during the US taper tantrum episode. That being said, it continues to be vulnerable to the overall US dollar strength and global markets’ volatility going into 2016. Sentiment of global investors’ towards India has been positive and is likely to support the investment activity in India and we can expect buying interest for Indian equities and bonds after a brief correction and this could support the Rupee in the long run. In a nutshell, rupee should be seeing new lows beyond the 2013 level but it is likely to consolidate in the 64-66/$ range.

Indian Rupee against the Euro Looking at individual currencies, Rupee is likely to appreciate the most against the Euro, if the later remains as a funding currency for global investments. 2015 being a pivotal year for the European central bank with fruits of their quantitative easing program blossoming as key metrics in the European economy have shown improvement in the last few months. With the European central bank fighting to keep its currency depreciated and do “whatever it takes” to achieve its target inflation rate of 2%, we can expect further

Indian Rupee performance in 2015 against major currencies Currency

Direction

% change

Expectation for 2016

US DOLLAR

Depreciated

6.84

Depreciate

EURO

Appreciated

14.63

Appreciate

POUND

Appreciated

2.41

Appreciate

YEN

Appreciated

7.65

Appreciate

Indian rupee has appreciated close to 15% against the Euro in this year and the trend is likely to continue in 2016 as well correction in the euro. Indian rupee has appreciated close to 15% against the Euro in this year and the trend is likely to continue in 2016 as well.

to a huge sell off in the British currency. Indian rupee has appreciated against the British pound by 2.5% in the year 2015 and the trend is likely to continue.

Indian Rupee against the British Pound

Indian Rupee against the Japanese YEN

British pound comes at a distinct second in the currency race this year and is expected to come out of its accommodative monetary policy in the second half of 2016. Economic performance of the Great British pound has been encouraging and has led to speculation in the markets that the Bank of England could be raising its interest rates that remain close to zero, even before the FED. However, a dovish policy outlook in the month of August from the Bank of England, led to continued depreciation of the British currency. Possibility of further depreciation remains high and key risk that would need to be monitored would be the proposed referendum which would decide if the UK would continue to be part for the European Union. An exit from the EU, could lead

Japan has initiated its own version of quantitative easing, named as Abenomics. The objective was to double the monetary base and to achieve an inflation target of 2%. The results have been mixed and as per the latest statement from the Bank of Japan, achieving the 2% inflation target could take longer than expected. Direction for the Japanese currency depends on how aggressively the Japanese central bank acts to achieve its inflation targets and the overall sentiment in the global markets. Demand for the Japanese currency shoots up during times of uncertainty and could add to the troubles of its central bank. Indian rupee has appreciated against the Yen by 7.65% in this year and we can expect further appreciation of the Indian rupee going into 2016. F

Key economic indicators to be watched out in 2016 1. Pace of US interest rate hike in 2016 and the monetary policy divergence among major economies. 2. Commodity prices (crude oil and metals) and global demand (especially from China). 3. Britain referendum for staying in the European Union. 4. Progress of the Quantitative easing programs of Japan and Europe. 5. Ability of the Indian government to roll out the much needed reforms.

38 The Finapolis l JANUARY 2016

GOAL SETTING FOR CHILDREN SAVING MONEY

5 Ways to Meet 3 Financial Goals for Your Child Depending on your child’s age and the nearest milestone year, choose what works best for you. Some sound advice from a finance professional By A V Suresh

ducation and marriage are among the most important goals for children and achieving these becomes the priority for any parent. The question is how to go about achieving these most important goals? Which is the best strategy? Let us first look at the products that you may consider in the process. Then we can develop a strategy with these products in mind.

1. Child Plans Child plans are usually a mix of insurance and investment. Most of the bigger companies such as HDFC, ICICI, SBI, etc offer such plans. Some features of these plans include lump sum payout at maturity, money back after specified time period, waiver of the premium in case of death of parent, etc. A popular plan from HDFC – Youngstar Udaan promises a maturity amount of Rs 6.25 lakh upon paying Rs 2,000 every month for 15 years. This is close to 6.75% p.a returns. The lower returns on child plans are mainly due to the various charges involved such as mortality, allocation, etc.

2. Equity Mutual Funds They invest in stocks of various companies as per the strategy devised by the fund manager. Historically, they have returned close to 10-12% p.a average returns in the long run. They provide multiple options in this category – large cap, mid cap, multi cap, sectoral, etc. They charge anywhere between 1.5-3% p.a as part of

annual maintenance charges. They are tax free if held for at least one year.

3. Debt Mutual Funds They invest in short, medium and long term government securities, commercial papers, T-bills, etc. Time period of their investment in these securities varies from one day to three years as per the objective of the fund. They are relatively safer form of investment and also come in varieties such as liquid funds, ultra short term, Gilt, etc. Liquid funds are an alternative to savings account, with better returns but similar liquidity. They are taxed at 10% without indexation or 20% with indexation if held for more than one year. Indexation is a tech-

nique to adjust income payments by means of a price Index , in order to maintain the purchasing power of the public after inflation. If held for less than one year, the gains are added to income and taxed accordingly. Typical debt funds offer returns of 6-8% p.a.

4. Public Provident Fund (PPF) It is a post office instrument with investment tenure of 15 years. It is one of the very few EEE (Exempt, Exempt and Exempt) products which offer tax deduction upon investment, tax exemption on interest as well as maturity. Currently, the interest rate on PPF is 8.7% p.a. Partial withdrawal facility is also available after a specified period.

JANUARY 2016 l The Finapolis

GOAL SETTING FOR CHILDREN 5. Fixed Deposits

It does not need much introduction. It is one of the most popular investment products in the country. Currently, FDs offer 8-9% p.a interest. However, interest on these is taxable as per the individual tax slab.

Why do people prefer child plans? The word ‘child’ has a lot to do with this. When emotion takes over, logic dies. The name strikes a chord with parents. Apart from this, another reason for purchasing them is the fear of losing out on capital or not being able to generate guaranteed returns through other instruments. However, if the goals are more than 10 years away, the risks associated with equity related instruments also would fade away by all means. We shall discuss three major goals and expenses here for children 1. Primary or Secondary Education (child age 1 year) – 5 years investment tenure – Rs 1.5 lakh (future value) 2. Higher Education (child age 5 year) – 10 years investment tenure– Rs 9 lakh (future value) 3. Marriage (child age 10 year) – 15 years investment tenure – Rs 35 lakh (future value) Let us now look at the possible strategy that can be used for achieving these goals.

Goal 1 – Primary or Secondary Education In order to reach the above said goal, one has to invest Rs 2,000 per month or a lump sum amount of Rs 1 lakh for five years. Two avenues that can be chosen in this case are: a. Debt Funds – The monthly SIP can be started or a lump sum invested in medium term debt funds. b. Fixed Deposits – Lump sum can be invested in any five year bank fixed deposit which yields at least 8% p.a. It also offers a tax deduction for the invested amount.

Goal 2 – Higher Education To reach the goal amount of Rs 9 lakh after 10 years, one needs to invest about Rs 4,000 every month or Rs 4 lakh as lump sum. The following options can be consid-

ered in this case: a. Balanced Funds – SIP can be started in equity oriented balanced funds, which have slight exposure to equity and rest in debt. The debt part provides safety. b. Large cap Funds - SIP can be started in large cap funds which have most of the exposure in large cap stocks. This avenue is slightly aggressive compared with the former i.e. balanced category since there is no exposure of debt here. A combination of both of these could also be used with half of the amount in each.

Goal 3 – Marriage of the child In order to reach the goal of Rs 35 lakh after 15 years, one needs to invest Rs 6,000 per month or a lump sum of Rs 6 lakh. Following options can be considered for this goal: a. Large and Mid cap Funds – SIPs can be started in a combo of large as well as midcap funds. Mid cap funds offer potential of higher returns and large

cap funds offer stability. b. PPF – Monthly investment could be done in PPF. Since PPF offers slightly lesser returns compared with mutual funds, Rs 9000 needs to be invested if this product alone is chosen. For convenience, investment of Rs 3,500 can be split in a large cap and mid cap funds. Rs 3,000 could be invested in PPF every month.

Final Word As stated earlier, never buy products just because there is the name ‘child’ in it. Take advice from professionals or work on your own to chart out the plan for these crucial goals. Review the goals and investments once in a year and reshuffle investments only if needed. Most importantly, spend time on knowing in detail about the products before you choose to invest as per your needs. Here is the performance of top 5 large cap funds, mid cap funds and balanced funds in the past few years. This can be used for selection of funds for the above stated goals. F

Performance of top 5 large cap funds, mid cap funds and balanced funds Large cap Funds Name of the Fund Birla SL Frontline Equity Fund(G) Reliance Growth Fund(G) HDFC Equity Fund(G) L&T Equity Fund(G) HDFC Top 200 Fund(G)

1 Year 2.4424 8.1799 -3.0307 1.6084 -4.1506

Returns (%)* 3 Years 5 Years 16.4553 10.8157 16.6022 9.8823 14.7566 8.2773 15.8253 9.6023 12.5430 7.4714

10 Years 16.6217 15.4790 15.2881 15.1064 15.0229

Mid cap Funds Name of the Fund IDFC Premier Equity Fund-Reg(G) Sundaram Select Midcap(G) ICICI Pru Value Discovery Fund-Reg(G) Sundaram S.M.I.L.E Fund(G) Canara Rob Emerg Eq Fund-Reg(G)

1 Year 10.0906 14.7095 8.5225 14.3120 16.0487

Returns (%)* 3 Years 5 Years 21.4306 16.0634 25.5645 16.4170 25.2625 17.3291 28.3762 15.7818 30.8834 21.4971

10 Years 21.8002 19.7524 18.3463 17.5853 17.0052

Balanced Funds Name of the Fund Tata Balanced Fund(G) HDFC Balanced Fund(G) Canara Rob Balance Scheme-Reg(G) Birla SL '95 Fund(G) Reliance Reg Savings Fund-Balanced Plan(G)

1 Year 8.2718 5.3363 8.3317 4.7981 9.8759

Returns (%)* 3 Years 5 Years 18.8752 14.4027 18.8472 13.6577 16.6723 12.8840 17.1654 11.7323 16.6563 11.4292

10 Years 16.4333 15.4691 15.0928 15.0851 14.7500

*as on 17th Dec 15. Source: ACE MF

40 The Finapolis l JANUARY 2016

INDIA WEALTH REPORT

The Indian HNIs are Making Hay In FY15, the total wealth held by individuals in India has grown by 8.9% to Rs 280 lakh crore. Individual Wealth in Financial Assets grew by 19% while that in Physical Assets fell by 2.3% By Varun Saxena

or a nation obsessed with gold and real estate, the latest annual India Wealth Report 2015 released by Karvy Private Wealth predicts an interesting trend for the future. To start off, the India Wealth Report provides a comprehensive perspective of the wealth held by individuals in India, presents an in-depth analysis of the avenues of investments as well as the expected pattern of future investments. Based on extensive research, the report provides an annual “wealth” update for all Indian individuals. One can look at this pattern of where Indians invest and compare how one is individually invested and where one should make further investments based on their individual goals and risk profile. India has been considered as the ‘Next Big Emerging Economy’ with its GDP expected to outpace that of China for the next decade, due to the changing positive dynamics within India. While expectations from the new Government are high and things don’t seem to be moving on the ground, nevertheless India has grown by 7.3% in FY15 and is expected to grow at similar levels in FY16, one of the fastest in the world. This growth is expected to continue in coming years and provides an opportunity for everyone to grow their wealth.

surance, mutual funds, provident fund, investments through post offices, pension funds and cash, High net worth individuals focused on alternative assets such as private equity, high yield debt instruments, hedge funds, structured products to name a few. In FY15, Individual Wealth in Financial Assets grew by 19% while that in Physical Assets fell by 2.3%. The individ-

The total wealth held by individuals in India has grown by 8.9% to Rs 280 lakh crore. Now the first question is where do people hold this wealth? This wealth is held in physical assets such as real estate, gold, silver, diamond, platinum or in financial assets such as direct equity/ stocks, bank accounts and deposits, in-

ual wealth in financial assets has increased from Rs 134.7 lakh crore in FY14 to Rs 160.5 lakh crore (Refer Table 1) and is expected to double to Rs 326 lakh crore in the next five years. The physical assets are expected to grow at a slower rate of 4.4% per annum for the next five years. Direct equity has been the flavor of

Financial Assets

Physical Assets

The individual wealth in financial assets has increased from Rs 134.7 lakh crore in FY14 to Rs 160.5 lakh crore and is expected to double to Rs 326 lakh crore in the next five years. The physical assets are expected to grow at a slower rate of 4.4% per annum for the next five years

FY15 becoming the largest asset class of investments with a growth of 29% (Rs 34,39,861 crore) over last year overtaking fixed deposits and bonds (Refer Table 2). While there may be short term blips in the stock market, the upward trend in direct equity is forecasted to continue with around a 20% compounded annual growth rate over the next five years. Fixed deposit and bonds managed to be

Table 1: Total individual wealth in India 2015 Asset Type

Amount (Rs Cr.) FY15 Proportion (%)

Financial Assets

1,60,55,686

57.25%

Physical Assets

1,19,89,287

42.75%

Total

2,80,44,973

100%

JANUARY 2016 l The Finapolis

INDIA WEALTH REPORT Table 2: Classification of Individual Wealth in India based on Financial Assets Asset Type

Amount (Rs Cr.)

Growth % compared to last year

FY15 Proportion

Direct Equity

34,39,861

29.02

21.4%

Fixed Deposits and bonds

33,26,429

13.10

20.7%

Insurance

23,59,790

16.85

14.7%

Savings Deposits

19,90,249

22.20

12.4%

Cash

14,48,320

11.33

9.0%

Provident Fund

9,24,026

25.53

5.8%

NRI Deposits

7,20,997

15.85

4.5%

Small Savings

5,78,990

0.02

3.6%

Mutual Fund

5,52,325

40.49

3.4%

Current Deposits

3,42,785

11.25

2.1%

Pension Fund

3,15,915

30.96

2.0%

Alternate Assets

41,960

76.85

0.3%

International Assets

14,040

10.91

0.1%

Total Financial Assets

1,60,55,686

19.19

100%

the second largest investment choice with a YoY growth of 13.10% (Rs 33,26,429 crore) and insurance retained the third position with a YoY growth of 16.85% (Rs 23,59,790 crore). While one looks at the above table, it is heartening to see the high growth rate over the last year among all financial instruments available to investors. Small savings which are investments through post offices was the only asset with hardly any growth, broadly owing to the increasing efforts of financial inclusion of the central government like Jan Dhan Yojna and also increase of penetration of banks in rural India. It is also noteworthy that there is a trend reversal this year of the new money being invested by individuals. For the last many years post the 2008 financial crisis, between 60-65% of fresh money being invested used to go into physical assets, predominantly real estate and gold. The balance 35-40% was in financial assets. Interestingly last year, we have seen that change completely and about 54% of fresh money is now being invested in financial assets and instruments. Physical assets on the other hand saw subdued interest with the wealth held by

Table 3: Classification of Individual Wealth in India - Physical Assets Asset Type

Amount (Rs Cr.)

Gold

57,15,605

-8.60

47.67%

Real Estate

52,85,577

4.89

44.09%

Diamond

7,98,934

2.81

6.66%

Silver

1,84,472

-6.04

1.54%

4,698

-17.25

0.04%

1,19,89,287

-2.30

100%

Platinum Total Physical Assets

YoY change Proportion (%)

individuals in physical assets reducing marginally in FY15, on account of reduction in prices of gold and precious metals

and gems and also subdued activity in the real estate sector (Refer Table 3). One should note that the wealth in real estate is excluding the primary residences as that is not usually considered as an investment. Physical assets are expected to grow at a slower rate of 4.4% CAGR for the next five years to reach a level of Rs 148 lakh crore. It is also interesting to understand how India compares to the rest of the world in terms of assets in which wealth is held. In assets like debt and real estate, individual wealth in India is in line with the global proportions. However, with faster growth in equities and slower growth in gold, the coming decade is likely to witness a trend reversal between equity and alternate assets leading to India broadly being in line with the global proportions in all asset classes. (Refer Table 4) While the numbers mentioned in the article may surprise, as the way Indian Individuals cumulatively invest may be very different as compared to how you individually invest, it is also important to understand that each individual may have a different goal and risk profile basis which one would tend to invest. While the report gives trends, it is suggested that one should always take professional help to have a balanced portfolio of both financial and physical assets. The trend for the next five years clearly puts focus on the more liquid and less emotional financial assets to grow your wealth. Within financial assets, mutual funds for every investor and alternative assets for HNIs are expected to grow at the fastest rate. To get a better detailed glimpse of the report, you could download a copy from www.karvywealth.com. F

Table 4: Classification of Individual Wealth in India based on Physical Assets Indian Individual Wealth (Rs Cr.)

Indian Wealth Proportion

Proportion Globally

Equity

44,45,696

16%

26.8%

Debt (Including cash)

1,15,53,990

41%

42.6%

Alternate Assets (Including gold and other precious metals and gems)

67,59,710

24%

13%

Real Estate

52,85,577

19%

17.6%

2,80,44,973

100%

100.0%

Asset Class

Total

42 The Finapolis l JANUARY 2016

BORROWING EASY DEBT

Good Boys can Get Pre-Approved Loans

If youâ&#x20AC;&#x2122;ve been paying off your loans promptly and have a clean credit record, chances are your bank could give you a loan with no collaterals. But the question is, should you take? By Arvind Rao

run had been toying with the idea of buying his first car in the New Year over the last one week. He was in for a pleasant surprise when last

Monday he got a call from the bank (where he holds his salary account) with the executive on the other end stating that he was eligible for a pre-approved car loan of upto Rs 5 lakh. Arun felt as though Santa Claus had paid special attention to his wishes and decided to grant one by way of a bank loan to fund his new car.

What are pre-approved loans? The call from the bank, which Arun felt was special, is actually a routine gimmick

Pre-approved loans can be categorised as either secured or unsecured loans. Secured loans relate to car or home loans, whereas unsecured are mainly personal

deployed by banks to sell pre-approved loans to borrowers, who may need credit. A pre-approved loan is usually offered by banks to people, who have shown a clean credit record either with other institutions or have demonstrated an excellent track record (read as early closure of a loan) of repayment with the same institution.

loans or credit cards. These loans are not different from any other loans in form, the only thing that differentiates them is the process involved. In case of such loans, the lender has already reviewed the first-level information like the borrowerâ&#x20AC;&#x2122;s income, bank transactions in case of a salary account,

JANUARY 2016 l The Finapolis

BORROWING payment history in relation to loans taken previously, CIBIL score and decided to prefer the prospective borrower over others for granting a loan. Such pre-approved loans also come with a certain time period within which the prospective borrower has to take a decision of availing the loan.

Beware of cold sales call for pre-approved loans

Documentations involved A pre-approved loan does not imply that the borrower need not submit any documentation required in support of the loan. Such loans should be regarded purely as offers for loans made by banks to prospective borrowers, the sanctions for which are purely subject to submission of necessary documents by the borrowers and successful verification of the same by the bank. For secured loans, the banks would also make necessary verifications with regard to the asset valuation and sanction the loan only if all the criteria with regard to such loans are met. Simply put, a pre-approved loan is by no means a guaranteed sanction of the loan. There have been instances recorded where on the basis of discrepancies observed in documents; banks have refused sanction of such loans. On the borrowerâ&#x20AC;&#x2122;s side, it is equally necessary for him / her to accept the terms and conditions of the offer made by the bank.

Costs and interest rates Such loans may have lower interest rates as compared to ordinary loans, on account of a cleaner credit profile observed by the bank. All other incidental costs like processing fees, etc in relation to the loan remain the same as it would apply for other loans.

Advantages of these loans Lower interest rates on these loans help borrowers as secured loans are typically longer tenure loans; Quicker loan processing â&#x20AC;&#x201C; as banks have most of the required information necessary to profile the borrower, the turnaround time taken for granting the loan sanction is faster; In-principle loan sanction limits (es-

A pre-approved loan is by no means a guaranteed sanction of the loan. There have been instances recorded where on the basis of discrepancies observed in documents; banks have refused sanction of such loans. On the borrowerâ&#x20AC;&#x2122;s side, it is equally necessary for him / her to accept the terms and conditions of the offer made by the bank pecially for home loans) works good for borrowers who have not yet initiated a property purchase but will get a fair idea of their borrowing capacity; With a pre-approved loan letter in hand, the borrower can strike better deals with developers when looking to buy a home, as the latter would be sure of an early closure of the deal.

Disadvantages Offers for these loans may tempt the borrowers to undertake certain purchases based on impulse and easy availability of credit, which could have

The author is a Proprietor at Arvind Rao & Associates, a chartered accountancy firm

been otherwise avoided; Such loans come with a fixed time frame, in case the purchase decision is deferred beyond the stipulated time, the borrower may lose out on the beneficial interest rate offered by the banks; To conclude, even though a pre-approved loan comes loaded with benefits, bor rowers should do a thorough need-analysis before falling in for them. Lastly, if such offers come from a bank other than their preferred bank, they could cross-check if they can get better deals with their preferred banks before they bite on the offer by the rival. F

44 The Finapolis l JANUARY 2016

CURRENCY WAR YUAN DEVELOPMENTS

How China’s Yuan Changes India’s Yin and Yang

A falling Yuan is not good news for India. This may cause not only further dent in the country’s exports, but also keep key industries and the rupee vulnerable. A look at the short term and long term effects of the currency dynamics By Kiran Nanda

he International Monetary Fund will add the Chinese Yuan (Renminbi) to its elite group of reserve currencies—the dollar, euro, pound and yen effective from October 2016. This move signifies a symbolic vote of confidence for the world’s second biggest economy. Though the impact of Yuan developments on the world as well

as Indian Economy will get revealed only over time, as of now the perception is it will give rise to both some short term adverse impact and also emergence of fresh opportunities on the global firmament. If Indian authorities are able to frame the country’s economic policies appropriately and industry acts agile to take full advantage of the evolving opportunities,

there could be more pluses than minuses for the Indian economy and it’s Industry.

Recent Yuan related developments  China stunned the world’s financial markets by devaluing the Yuan as a result of which the currency hit a fouryear low. Though the People’s Bank of China (PBoC) said this move was a

JANUARY 2016 l The Finapolis

CURRENCY WAR “one-off depreciation”, the rapid drop will be an influx of Chinese goods into in the value of China’s currency dealt India, which will result in widening the a blow to the appetite for risky assets already rising trade deficit with China. amidst concerns that China had em Weaker rupee can also hit fund raising barked on a damaging and a long drawn by corporates via ECB route. currency war. While the devaluation is  China’s recent developments have creaimed at boosting China’s exports, it is ated new risk in global financial marbound to have a direct impact on econkets which could prolong the West’s omies including India competing with slowdown. China on that front.  On a welcome note, in the joint state The intent is to effectively migrate the ment between India and China during PM Narendra Modi (L) and Chinese President Xi Jinping (R) Yuan to a market-determined exchange Prime Minister Narendra Modi’s visit rate. It is no secret that Chito China in May 2015, it was China’s economy is slowing down as its na wishes to become first agreed that both sides will among equals as a supertake necessary measures to domestic GDP is more aligned to power. China’s endgame remove impediments in the consumption, reducing the investment may be to knock the U.S. path of bilateral trade and opdollar off its perch as the timally exploit the present and component possibly by reducing the international reserve curpotential complementarities share of export sector rency. But almost all global in identified sectors including commodities are currently Indian pharmaceuticals, Inditraded in dollars. It will not be easy for sociation of Southeast Asian Nations an IT services, tourism, textiles and China. (ASEAN), Australia, Brazil, Russia, agro-products. Both sides resolved to  China’s economy is slowing down as its South Korea and South Africa, in partake joint measures to alleviate the domestic GDP is more aligned to conticular — a weakening Yuan will put skewed bilateral trade so as to realize sumption, reducing the investment pressure on their currencies to either its sustainability. component possibly by reducing the depreciate or lose market share. India  The impact of the Yuan devaluation will share of export sector. Questions arise will have to face — increased imports depend on the time horizon one takes. whether China will clock growth rates and competition from these countries The short term impact can be negative in the ballpark of 7%, or whether a in third world country export markets in some sectors like tyres, pharmaceuharder landing is due. more so when Indian rupee remains ticals, textile and capital goods due to a relatively overvalued. sudden change in terms of trade and  India and China compete in almost all fear of dumping. However, in the long major export markets including the EU run there may not be material impact A falling yuan is not good news for India. and the US for selling apparels, steel, particularly in services considering This may cause not only further dent in gems and jewellery and organic chemthat China is dismantling the state mothe country’s exports, but also keep key icals. Hence, any slide in Yuan against nopoly over services. India, in any case, industries and the rupee vulnerable. dollar will worsen India’s export comhas all options at its disposal under the  While Indian economy is already strugpetitiveness vis-à-vis China. WTO frame-work to tide over the short gling with legacy issues like infrastruc India’s exports of cotton yarn, copper, run impact. ture and getting key legislations passed, mineral fuels and organic chemicals,  Government has been taking steps to a loss in currency competitiveness plastics and mechanical appliances to promote rupee globally and increase its against the Yuan could further hurt its China will become expensive with Yucompetitiveness vis-a-vis other currenailing exports. India’s major export an’s weakening if rupee doesn’t decline cies. However, there is no definitive items to China consist primarily of to match Yuan’s decline. roadmap set for internationalisation of

Implications for Indian economy and industry

commodities like cotton, copper and mineral fuels which alone constitute more than 45% of the total exports. India’s major imports from China are electrical machinery and nuclear appliances, forming 45% of total imports.  Given the strong trade linkage of China with other major economies — As-

 A low cost of Chinese goods can also exacerbate the problem of dumping into India from China. Tire manufacturers, steel industry, organic chemicals and petrochemicals industry have been already affected under the increasing dumping cases from China as lower currency incentivizes its exports. There

the Rupee since it would require full capital account convertibility.

Some of these steps taken are— *RBI in consultation with the government has recently put in place a framework for issuance of rupee denominated bonds overseas by Indian corporates.

46 The Finapolis l JANUARY 2016

CURRENCY WAR *In addition, non-residents are permitted to hedge the rupee risk of their exports and imports to and from India and loans denominated in Indian rupees with Indian authorised dealer bank onshore. *Standing Council of Experts on Indian Financial Sector has submitted its first report recommending policy proposals for improving the international competitiveness of currency, equity and commodity derivatives markets of India through a host of market micro-structure, regulatory and taxation reforms. The report has been circulated to all financial sector regulators and ministries concerned to examine and take necessary action to improve international competitiveness of Indian markets.

Some Comments: Recent developments in Yuan seem to have brought back memories of the 1997 Asian crisis when a similar set of conditions prevailed

 Many people think that Yuan’s inclusion in IMF basket of reserve currency will increase its demand and check its slide. But the fact is that most traded goods and services are priced in USD and not SDRs. Therefore, inclusion of Chinese Yuan will not make much difference to the demand for Chinese currency, at least, in the short term. Hence, the down side risks to Yuan remains. In case Yuan goes down further to 7 Yuan a Dollar, it can seriously complicate things for Indian businesses and policy-makers. (At presents 1 US Dollar equals 6.48 Chinese Yuan).  Faced with excess capacities and sluggish demand, Chinese companies cut prices for the 45th month in a row, and need cheaper Yuan to help them become competitive. With more FED hikes expected in the future, the US dollar will strengthen. At the moment, Yuan has a de facto peg with USD. If China continues to peg the Yuan to USD, the cost of maintaining the peg will be huge.

eign currency debt and as their domestic bonds being lapped up by investors in the Western world they are stuck with extremely low interest rates.  About 16% of foreign holdings of EM government debt, on an average, were held by foreign non-banks (i.e. foreign asset managers) in 2008. By end 2014, this share increased to 23%.  Recent developments in Yuan seem to have brought back memories of the 1997 Asian crisis when a similar set of conditions prevailed. This has also kindled threat of a contagion that could spread to the global financial system as a whole. Other development-Investors have started revisiting their forecasts for both China and global growth.  As China was shocked by the global reaction to its currency devaluation that

 In November, China witnessed capital outflows of $87 billion. Its accumulated forex reserves are down to $3.44 trillion. Total capital outflows from China can hit $1 trillion by year-end.  Recent Yuan moves have exposed the vulnerability of a number of the Asian economies with massive stocks of for-

it may keep the Yuan on a tight leash in the near-term to avoid a currency war leading to a global financial crisis. No wonder, internal calls for the Yuan to weaken by up to 10% since the August 11 devaluation seem to have faded.  It is important to note that, despite China’s massive gross domestic product

and trade volume, the Renminbi’s share in the global foreign-exchange market remains negligible. The process of internationalizing the Renminbi is far from complete. Given this, the IMF could easily have rejected the Renminbi’s bid for inclusion in the SDR basket, as it did five years ago.

Concluding Observations In conclusion, the weakening Yuan wave will exert a differential impact on different sectors. There will also be greater currency volatility which will have to be faced by India Inc. in addition to continuing sluggish global demand. Corporates can take advantage from the currency volatility. For Indian corporates that are having sales in rupees, there debt in dollar may see their rupee cost of debt servicing going up sharply. At present, more than half of corporate Forex exposure remains unhedged. In addition policymakers may have to confront a serious dilemma-whether to further depreciate the Rupee for boosting exports and safeguarding domestic market from cheaper imports or instead increase interest rate thereby supporting the rupee. F

JANUARY 2016 l The Finapolis

by invite

BALWANT JAIN

Be Aware About The Strings Attached With Tax Benefits u/s 80C

o now almost everybody is taking stock of the balance amount out of the eligible limit of Rs 1.5 lakh which one needs to invest to avail the tax benefit under Section 80C. These benefits come with certain some strings attached to it. Let us discuss those strings.

Life insurance premium You can claim deduction for insurance premium paid for policy taken on your own life, spouse or children, dependent or independent. However, children cannot claim tax benefits on insurance premium paid for their parents. A Hindu Undivided Family (HUF) can claim the tax benefits for premium paid on policy on life of any of its members. Any premium paid in excess of 10% of sum assured is not eligible for tax rebate. Moreover in case premium payable for any of the year exceeds 10% of the sum assured, the maturity proceeds received (except on death), shall be fully taxable because exemption under Section 10(10) (d) is not available. In case you terminate or let the policy lapse before completion of two years, tax benefits claimed in earlier years shall be added back to income of current year.

Education expenses Tax benefits in respect of tuition fee can only be claimed for two children that too for full time education in India. If you have more than two children, the deduction in respect of other children cannot be claimed by you, but can be claimed by your spouse if she is also a tax payer.

Home loan repayment Tax benefit for principal repayment of loan can only be claimed in respect of money borrowed for purchase or construction of any number of residential houses which may be self-occupied or let out. The same is not available for princi-

Tax Benefits

u/s 80C In case you terminate or let the policy lapse before completion of two years, tax benefits claimed in earlier years shall be added back to income of current year pal repayment of loan taken for a commercial property though deduction under Section 24b for interest can be claimed for such property. The deduction can only be claimed if the loan is taken from specified financial institutions like banks and housing finance companies or entities like your employer which is a public limited company, central government or state government or board, corporation, university established by law. In case you transfer this house within five years from the end of the financial year in which possession is taken, the tax rebates allowed in earlier years shall be reversed and added to your income in the year in which the property is transferred.

PPF account contributions For Public Provident Fund (PPF) you can contribute to the account of yourself,

your spouse or your children and claim tax benefit. Though you cannot open a PPF account in the name of HUF, it can claim the benefit for contribution made to account of any of its members. Since gift to your child and spouse is exempt under Section 56(1) and clubbing provisions will not have impact because interest on PPF is exempt, you can effectively transfer your assets to your spouse as well as help your child build a corpus for future while saving taxes at the same time. The PPF account generally has tenure of 15 years when you can get the full money. However, partial loan and withdrawals are allowed before completion of the tenure.

Deposits under Senior Citizen Scheme and Tax Saving Fixed Deposits Individual above 60 years of age can claim tax benefits by contributing in senior citizen savings scheme, whereas any one can deposit in tax saving bank fixed deposits. Both the investments have lock-in period of five year and if withdrawn before that it becomes taxable when you withdraw it if tax benefits have been claimed earlier. However, any money received on closure of the account due to death is exempt.

ELSS contributions Contributions in equity linked savings schemes (ELSS) are eligible for tax benefits under section 80C. These schemes have lock in period of three years before which you cannot redeem but effectively you may have to hold them for a longer period if equity market is not in good shape when you complete the lock in period, to obtain good returns. It is the only investment product with minimum holding period requirement. In case the investment was made through Systematic Investment Plan, this limit of three years will apply to each contribution. F

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

48 The Finapolis l JANUARY 2016

by invite NAVEEN KUKREJA

Top Up Loans, Definitely A Blessing

n August 2015, Hitesh took a home loan for Rs 50 lakh for buying land and constructing a house. Once the construction began, he realised he had underestimated the expenditure and his loan amount would be inadequate. While Hitesh was contemplating possible solutions to address his concern, one of his friends recommended him to take a top up loan. So, is it wise to consider top-up loans? Let’s understand what it entails:

Features of top up loans Top up loans are an extension of your existing home loans and come with their own set of added advantages: 1. Use of loan amount: One of the biggest advantages of top-up loans is that lenders do not control how you use the loan proceeds. You can use these loans to finance your personal needs (other than for speculative purposes), such as higher education, business requirements, vacation, child’s marriage, buying consumer durables, refurbishing your home or even for buying a car. 2. Loan tenure: The duration of top-up loans is usually the same as the outstanding tenure of your home loan. HDFC offers top up loans for a maximum term of 15 years while L&T Housing Finance offers tenure of up to 20 years. 3. Cheaper than other loans: As top-up loans have low interest rates and processing fees, they are better than several other loan types, such as personal loans and car loans. You can even use the loan amount to fund your education but in that case you will not be eligible for tax deductions under Section 80E. Moreover, as top-up loans are considerably cheaper, you can use them to pay off your other costlier debts. 4. Tax benefits: If you use your top up loan for your home renovation or other property related expenditure, the interest paid will qualify for deductions under Section 24b.

What do lenders consider?

The maximum loan amount you can get is not specific and varies across lenders. For instance, HDFC’s maximum top up loan is the original sanctioned loan amount or Rs 35 lakh, whichever is lower. The bank also considers that the total of top-up loan amount and outstanding home balance does not exceed 75% of the property value. In case of SBI, the maximum top-up loan amount offered is Rs 3 crore. The permissible top-up loan amount is 75% of the market value of the property after deducting the outstanding home loan balance.

Availing top-ups is very easy as you don’t have to go for a fresh spate of documentation and other legalities. All that you would have to do is approach your existing lender, who will consider your past repayment record, market value of your property, outstanding balance on your home loan and your repayment capacity. Also, banks require you to have paid your home loan EMIs for at least six to twelve months before applying. Thus, if you have been a good home loan borrower and have been regularly paying off your EMIs, top-up loans are your best option for further financing requirements. F

The author is Managing Director, Paisabazaar.com

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50 The Finapolis l JANUARY 2016

STAT DOSSIER All figures as on December 23, 2015

Indian Indices: Performance Close Dec 23, 2015

Close Nov 30, 2015

Return (%)

Return 6 M (%)

Return 12 M (%)

PE Ratio

25850.30

26145.67

-1.13

-6.82

-5.03

19.62

Nifty

7865.95

7935.25

-0.87

-5.98

-3.83

20.62

BSE 500

10516.26

10580.88

-0.61

-3.32

-0.10

22.72

BSE Auto

18213.95

18964.36

-3.96

-1.93

-1.08

23.21

BSE Bankex

19286.71

19916.30

-3.16

-8.74

-9.52

15.24

BSE Capital Goods

14164.86

14587.44

-2.90

-18.08

-5.50

778.91

BSE Consumer Durables

12118.79

12466.01

-2.79

14.01

27.67

33.64

BSE Oil & Gas

9431.63

9328.39

1.11

-4.40

-4.23

11.86

BSE Metal

7351.10

7118.40

3.27

-20.80

-29.48

BSE Realty

1335.26

1343.89

-0.64

-5.64

-12.35

34.21

6751.13

6881.75

-1.90

-12.19

-16.45

11.55

1911.15

1901.85

0.49

-5.21

-5.50

73.45

5996.40

5942.80

0.90

-0.25

4.88

20.97

Sensex

BSE PSU BSE Power BSE Teck

Global Indices: Performance Close Dec 23, 2015

Close Nov 30, 2015

Return (%)

Return 6 M (%)

Return 12 M (%)

PE Ratio

MSCI World Index

1671.51

1694.40

-1.35

-6.39

-3.17

19.00

MSCI Asia Pacific Ex Japan

410.15

410.97

-0.20

-16.27

-11.34

12.22

22040.59

21996.42

0.20

-19.22

-5.19

9.73

Singapore Straits Times (STI)

2863.65

2855.94

0.27

-14.13

-14.00

13.31

S. Korea

1999.22

1991.97

0.36

-4.55

2.26

13.49

18789.69

19747.47

-4.85

-9.71

6.55

19.58

Dow Jones

17602.61

17719.92

-0.66

-2.02

-2.37

15.71

S&P 500

2064.29

2080.41

-0.77

-2.10

-0.84

18.45

NASDAQ

5045.93

5108.67

-1.23

-1.49

5.71

31.59

44014.93

45120.36

-2.45

-18.25

-13.51

25.56

FTSE-100

6240.98

6058.54

3.01

-8.68

-5.44

27.97

DAX 30

10727.64

11382.23

-5.75

-6.48

8.12

22.91

CAC 40

4674.53

4957.60

-5.71

-7.75

8.35

21.34

ASIA Hang Seng

Nikkei 225 AMERICA

Brazil Bovespa EUROPE

JANUARY 2016 l The Finapolis

STAT DOSSIER All figures as on December 23, 2015

December International Commodity Futures Price Trends Dec 23, 2015

Nov 30, 2015

% Change

52 Week High

% Change from 52 Week High

52 Week Low

% Change from 52 Week Low

LME Lead 3 Month ($/t)

1732.50

1647.00

5.19%

2162.50

-19.88%

1551.50

11.67%

LME Zinc 3 Month ($/t)

1555.00

1563.00

-0.51%

2404.50

-35.33%

1474.00

5.50%

8670.00

8900.00

-2.58%

15677.00

-44.70%

8145.00

6.45%

14.28

14.05

1.62%

18.51

-22.85%

13.64

4.71%

4720.00

4586.00

2.92%

6481.00

-27.17%

4443.50

6.22%

37.50

41.65

-9.96%

62.58

-40.08%

33.98

10.36%

1536.00

1446.00

6.22%

1978.25

-22.36%

1432.50

7.23%

15.15

14.93

1.47%

16.16

-6.25%

10.13

49.56%

1069.40

1065.80

0.34%

1307.80

-18.23%

1046.20

2.22%

30.52

29.10

4.88%

35.29

-13.52%

25.38

20.25%

ICE Coffee (cents/lb)

120.95

116.90

3.46%

184.90

-34.59%

111.60

8.38%

ICE Cotton (cents/lb)

62.77

61.30

2.40%

68.30

-8.10%

57.05

10.03%

413.80

403.00

2.68%

422.00

-1.94%

329.00

25.78%

1.98

2.24

-11.28%

3.35

-40.84%

1.68

17.76%

881.75

881.00

0.09%

1061.75

-16.95%

844.25

4.44%

CBOT Corn (cents/bushel)

365.50

365.00

0.14%

438.75

-16.70%

346.50

5.48%

CBOT CORN

365.50

365.00

0.14%

438.75

-16.70%

346.50

5.48%

CBOT Soy Meal ($/t)

272.40

284.60

-4.29%

387.90

-29.78%

266.40

2.25%

CBOT Wheat (cents/bushel)

469.50

460.00

2.07%

639.75

-26.61%

451.25

4.04%

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) CBOT Soy Oil (cents/lb)

LIFFE Sugar (S/t) Nymex Natural Gas ($/mmbtu) CBOT Soybean (cents/bushel)

Commodities: December Gainers and Losers (%) MCX

NCDEX

Lead, 6.0% Copper 4.5% Cardamom 1.2% Cotton - 0.1%

Turmeric 8.2%

Aluminum 5.1%

Wheat 2.4%

Silver, 2.2%

Soy Oil 0.2%

Gold, 0.0%

Soybean - 0.3%

Zinc, -1.0%

RM Seed - 3.6%

Mentha Oil - 2.0% Crude Oil - 11.0%

Barley - 5.1%

Nickel, -2.7% Natural Gas - 14.3%

Jeera -7.7%

The Finapolis l JANUARY 2016

STAT DOSSIER All figures as on December 23, 2015

NIFTY TOP

Company

Dec 23, 2015

TATA Steel

Nov 30, 2015

264.45

Hindalco Industries

(%) Change

229.60

15.18

83.90

77.05

8.89

Sun Pharma

790.40

729.65

8.33

Hindustan Unilever

863.25

808.45

6.78

NTPC

139.00

130.90

6.19

Company

Dec 23, 2015

Nov 30, 2015

(%) Change

Punjab National Bank

121.30

144.75

-16.20

Bank of Baroda

158.55

179.90

-11.87

TATA Motors

378.45

423.25

-10.58

47.95

53.05

-9.61

229.65

250.20

-8.21

IDFC State Bank Of India

NIFTY MOVEMENT

NIFTY BOTTOM

CNX-MIDCAP MOVEMENT 14150

8970 8725

13750

8480

13350

8235

12950

7990

12550

7745

12150

7500 Dec-14

11750 Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

BSE BANKEX

Mar-15

Jun-15

Sep-15

Dec-15

BSE CAPITAL GOODS Loss in NYMEX Crude Oil price.

18615

23600 22650

17800

21700

16985

20750

16170

19800

15355

18850

14540

17900 Dec-14

13725 Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

DOW JONES

Mar-15

Jun-15

Sep-15

Dec-15

Mar-15

Jun-15

Sep-15

Dec-15

HANG SENG

18355

28500

17905

27150

17455

25800

17005

24450

16555

23100

16105

21750

15655 Dec-14

20400 Dec-14

Mar-15

10%

Jun-15

Sep-15

Dec-15

Crude prices tested their multi year low levels after OPEC mentioned of continuing their current levels of production and US interest rate hike event.

JANUARY 2016 l The Finapolis

STAT DOSSIER CURRENCY

ENERGY

Rupee Movement

Brent Crude (US$/bbl)

67.00

78.50

66.05

71.25

65.10

64.00

64.15

56.75

63.20

49.50

62.25

42.25

61.30 Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

35.00 Dec-14

Mar-15

Jun-15

11%

Sep-15

Dec-15

Loss in NYMEX Natural Gas.

METALS Gold (US$/OZ)

Silver (US$/OZ)

1310

18.450

1265

17.625

1220

16.800

1175

15.975

1130

15.150

1085

14.325

1040 Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

13.500 Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

ECONOMY

Real GDP Growth

Oct-15

Sep-15

Jul-15

Aug-15

Jun-15

Apr-15

May-15

Mar-15

Jan-15

Feb-15

Dec-14

Oct-14

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

Nov-15

Oct-15

Sep-15

IIP (%) Aug-15

Jun-15

Jul-15

May-15

Apr-15

Mar-15

Feb-15

Jan-15

Dec-14

0.0 -1.0 -2.0 -3.0 -4.0 -5.0

Nov-14

Inflation (%)

FII vs. MF (Rs cr) 20000

12000 10000 8000 6000 4000 2000 0

10000 0 -10000 -20000

Prior (%)

FII Latest (%) DII (RHS)

7.25 6.25 4.00 21.50

6.75 5.75 4.00 21.50

Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15

Repo Reverse Repo Cash Reserve Ratio SLR

10-year bond yield (%) 8.01 7.93 7.84 7.76 7.67 7.59 7.50 Dec-14

7.25 6.75

Jun-15

Sep-15

6% Gain in LME Aluminum. Smelters in China pledged cutting their capacity by another 500,000 tonnes before year end, which just supported with hike in prices

RBI Monetary Data Prior (%)

Mar-15

Prices slumped to almost all time low levels due to lower HDD count and mild weather forecast over the United States region. Inventory withdrawals were not up to the mark suggestive less consumption

Dec-15

Repo

Latest (%)

6.25 5.75

Reverse Repo

21.50 21.50

4.00 4.00

Cash Reserve Ratio

SLR

All figures as on December 23, 2015

54 The Finapolis l JANUARY 2016

STAT DOSSIER Performance of Mutual Funds Equity Diversified

ELSS

Mutual Fund Scheme

NAV

1 yr 2 yr 3 yr

Mutual Fund Scheme

NAV

1 yr 2 yr 3 yr

Reliance Small Cap - Direct (G)

28.17

18.7

53.1 36.8

Axis Long Term Equity - Direct (G)

31.30

9.0 34.6

27.7

Reliance Small Cap Fund (G)

27.55

17.7

51.8 36.7

Axis Long Term Equity Fund (G)

30.19

7.8 32.8

27.1

ICICI Pru Exp&Other Services-RP (G)

47.35

18.4

32.1 36.3

ICICI Pru RIGHT Fund (G)

29.48

3.5 29.3 24.5

DSP-BR Micro Cap Fund - RP (G)

43.65

22.4

57.2 36.2

Reliance Tax Saver (ELSS) (G)

44.98

-1.1 34.0 23.0

DSP-BR Micro Cap Fund - Direct (G)

44.53

23.3 58.3 36.0

Reliance Tax Saver(ELSS)-Dir (G)

45.90 -0.4 34.9 22.6

ICICI Pru Exp&Other Services-DP (G)

48.22

19.1 32.9 35.6

Birla SL Tax Relief 96 (G)

Franklin (I) Smaller Co -Direct (G)

40.76

13.2 45.4 33.3

Franklin (I) Smaller Cos (G)

39.55

11.4 43.5 32.9

Can Robeco Emerg-Equities (G)

62.55

15.3 49.8 32.2

Mirae Emerging Bluechip Fund (G)

31.44

15.6 44.8 32.0

Mirae Emerging Bluechip -Direct (G)

32.41

16.7 46.3 31.9

Can Robeco Emer-Equities-Direct (G)

64.10

16.2

51.0 31.7

21.54

10.7 29.8 22.5

Birla SL Tax Relief 96-Direct (G)

22.04

11.5 30.6 22.3

SBI Tax Advantage Sr-2 (G)

22.66

4.4 32.3 22.3

Religare Invesco Tax Plan - DP (G)

36.41

9.2 29.9 22.2

Religare Invesco Tax Plan (G)

35.03

7.3 27.9

21.8

Birla Sun Life Tax Plan-Direct (G)

27.92

10.8 29.7

21.5

Birla Sun Life Tax Plan (G)

27.18

9.7 28.5

21.5

SBI Tax Advantage Sr-1 (G)

22.40

7.0

21.4

BNP Paribas Long Term Equity (G)

29.35

7.8 28.0 20.8

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

39.24 10.0 24.5 20.6

SBI Magnum Midcap Fund (G)

60.94

17.2 40.4 31.0

UTI Mid Cap (G)

79.56

8.1 42.9 31.0

81.21

9.0 44.0 30.6

Birla SL (I) Opportunities (G)

116.21

15.6 33.6 30.4

Birla SL Opportunities -Direct (G)

118.29

16.6 34.5 30.3

SBI Midcap Fund - Direct (G)

62.29

18.4

Birla SL Pure Value Fund (G)

39.27

5.0 44.6 30.0

Birla SL Pure Value - Direct (G)

40.16

6.0 45.8 29.6

Sundaram SMILE Fund (G)

72.74

11.3

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

19.92

12.1 43.5 29.0

Mutual Fund Scheme

Franklin Build India - Direct (G)

29.22

5.4 42.3 29.0

JPMorgan (I) Mid and Small Cap (G)

19.27

10.8

L&T Midcap Fund (G)

89.25

12.0 42.0 28.8

Franklin Build India Fund (G)

28.34

3.8 40.6 28.8

Tata Mid Cap Growth - Direct (G)

104.89

Sundaram SMILE Fund -Direct (G)

73.82

UTI Mid Cap - Direct (G)

Tata Mid Cap Growth Fund (G) L&T Midcap Fund -Direct (G)

102.48 91.33

41.6 30.2

Franklin (I) Tax Shield -Direct (G)

424.54

31.5

6.7 28.7 20.5

Franklin India Tax Shield (G)

415.27

5.8

27.7 20.5

ICICI Pru LT Equity (Tax Svng)-G

271.40

5.2 25.5 20.2

IDFC Tax Advantage (ELSS)-RP (G)

38.12

8.5 22.8

19.9

BNP Paribas Long Term Eq-DP (G)

29.67

8.5 28.5

19.8

NAV

1 yr 2 yr

3 yr

ICICI Pru Bkg & Fin Serv-RP(G)

34.64

-6.4 25.7

15.4

ICICI Pru Bkg&Fin Serv -Dir (G)

35.53

-5.4 26.9

14.8

165.58

-5.1 24.4

12.0

Religare Invesco Banking - Dir (G)

33.70

-- 25.2

11.7

12.6 42.3 28.4

Religare Invesco Banking - RP (G)

32.40

11.7 52.3 28.4 11.6

51.4 29.3

41.8 28.9

41.1 28.4

13.0 43.2 28.3

Equity (Banking)

Reliance Banking Fund (G)

-1.9

23.1

11.3

Reliance Banking Fund - Direct (G) 168.05

-4.5 25.3

11.0

Sundaram Fin-Serv. Opp.-RP (G)

26.37

-8.0 20.2

8.7

UTI Banking Sector (G)

60.97

-10.1 20.7

8.4

Source: moneycontrol.com; Note: All returns are annualized and expressed in percentage; all NAVs as on December 23, 2015

JANUARY 2016 l The Finapolis

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

Equity (Tech) 1 yr 2 yr 3 yr

Mutual Fund Scheme

74.36

4.0

ICICI Pru Technology - Direct (G)

42.28

7.0

15.6 29.0

ICICI Pru FMCG Fund (G)

158.41

4.1

ICICI Pru Tech. Fund (G)

41.36

6.0

14.7 28.9

ICICI Pru FMCG Fund - Direct (G)

161.40

SBI IT Fund - Direct (G)

48.03

SBI FMCG Fund - Direct (G)

76.63

SBI FMCG Fund (G)

NAV

17.4

13.9

17.3 14.4

4.9 18.0 14.9 5.1 18.4

15.3

Equity (Pharma) Mutual Fund Scheme

NAV

1 yr 2 yr 3 yr

SBI Pharma Fund - Direct (G)

154.89 32.9 42.5 36.5

SBI Pharma Fund (G)

150.48

Reliance Pharma Fund - Direct (G)

152.76 23.5 34.9 29.8

Reliance Pharma Fund (G)

149.39 22.5 33.8 29.2

31.2 41.0 35.9

UTI Pharma & Health - Direct (G)

96.14

15.3 27.6 26.3

UTI Pharma & Health (G)

93.81 14.3 26.5 25.5

Balanced Mutual Fund Scheme L&T India Prudence Fund -Dir (G)

NAV

1 yr 2 yr 3 yr

20.29

11.9 27.3 20.3

L&T India Prudence Fund (G)

19.73

SBI Magnum Balanced Fund (G)

96.13

HDFC Balanced Fund - Direct (G)

10.7

26.1 20.2

8.6 24.2 20.0

NAV

Birla SL New Millennium-Dir (G)

1 yr 2 yr 3 yr

6.0 16.5 27.8

37.17 14.0

17.5 27.0

Birla SL New Millennium (G)

36.38

13.2 16.5 26.4

DSP-BR Technology.Com -Dir (G)

56.66

12.2

17.9 24.5

DSP-BR Technology.Com -RP (G)

55.76

11.6

17.3 24.4

Franklin Infotech Fund -Direct (G)

115.49

6.3

11.4 23.6

Miscellaneous Mutual Fund Scheme

NAV

1 yr

2 yr

3 yr

UTI Transport & Logistics (G)

86.38

6.2

47.0

39.2

UTI Transport&Logistics -Dir (G)

88.64

7.3

48.4 39.0

Birla Sun Life Buy India (G)

96.52

16.5

35.9 25.6

Birla SL Buy India -Direct (G)

98.15

17.2

36.7 25.3

Reliance Media & Enter. -Dir (G)

59.19

10.0

24.7

14.3

Reliance Media & Entertain (G)

57.90

9.2

23.8

14.2

JM Basic Fund (G)

20.68

4.8

25.2

13.5

21.24

6.4

26.6

13.3

Religare Invesco PSU Equity (G) 13.66

3.7

26.2

11.0

JM Basic Fund -Direct (G)

110.38

5.9 26.0

19.7

108.09

4.8 25.0

19.6

Tata Balanced Fund - Regular (G)

167.63

7.9 26.3

19.5

SBI Balanced Fund - Direct (G)

98.25

9.7 25.2

19.4

Mutual Fund Scheme

Tata Balanced Fund - Direct (G)

170.46

8.3 27.0

19.4

DWS Equity Income Fund - Dir (G)

26.06

14.9

14.6

11.4

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

20.35

5.9 26.0

18.9

Tata MIP Plus Fund - Direct (G)

25.38

14.7

17.3

L&T India Eq and Gold Fund (G)

19.83

4.9 24.9

18.6

Tata MIP Plus Fund (G)

24.80

13.8

16.2

12.1

HDFC Childrens Gift - Direct (Inv)

84.78

4.5

21.7

18.6

DWS Equity Income Fund (G)

25.29

13.5

13.4 10.4

HDFC Balanced Fund (G)

MIP NAV

1 yr 2 yr 3 yr

Franklin India Bal Fund-DP (G)

91.81

7.5 25.2

18.5

SBI Magnum MIP Floater -Direct (G)

21.76 10.9

14.2

HDFC Childrens Gift (Inv)

83.16

3.8 20.9

18.4

ICICI Prudential Reg Income-Dir (G)

14.91

10.2

12.6

9.3

ICICI Pru Balanced Fund (G)

91.46

3.3

21.9

18.4

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

16.56

10.2

10.2 10.0

Franklin India Balanced Fund (G)

89.76

6.3

24.1

18.3

SBI Magnum MIP - Floater (G)

21.41 10.0

13.4

Source: moneycontrol.com; Note: All returns are annualized and expressed in percentage; all NAVs as on December 23, 2015

11.8

56 The Finapolis l JANUARY 2016

FUND REPORT CARD Axis LT Equity Fund (G)

Scheme Performance as on Dec 23, 2015 Period

Fund Objective/Mission The investment objective of the scheme is to generate income and long-term capital appreciation from a diversified portfolio of predominantly equity and equityrelated securities.

B'mark

Rank

3 Months

-0.80

0.92

46/(54)

6 Months

-1.71

-4.74

22/(54)

1 Year

Fund House Details AMC Name: Website:

Returns

Axis Asset Management Company www.axismf.com

7.02

-1.68

14/(50)

3 Years

27.01

11.70

1/(48)

5 Years

18.91

6.19

2/(46)

20.27

7.44

Since Inception

SIP Details: Invested Rs 5000 Every Month

Financial Details AUM As On (November 30, 2015) NAV As On (December 23, 2015) Min Investment (in Rs.) Lumpsum SIP NAV (52WeekHigh){August 19, 2015} NAV (52WeekLow){December 24, 2014}

Period

6497.30 30.19 500 500 32.84 27.99

Total Invest (`)

1 Year

60,000

58,991

57,567

1,80,000

2,64,659

2,11,195

5 Years

3,00,000

5,53,587

3,95,779

Fund Structure

Scheme

Open ended scheme

Launch Date

December 29, 2009

Fund Manager

Jinesh Gopani

Bench Mark

S&P BSE 200

Max.Entry Load(%)

Max.Exit Load(%)

Bench mark

3 Years

10 Years

Investment Information

Scheme (`)

Total Stocks

Total Sectors

P/E Ratio

38.49

P/B Ratio

8.30

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

Top 10 Companies

100930.99

Volatility Measures Fama

0.04

Beta

0.82

Std Dev

0.95

Sharpe

0.01

Top 10 Sector Wise Holding

Name

(%)

Industry Name

(%)

HDFC Bank

8.2



Bank - Private

15.5



Kotak Mahindra Bank

7.3



IT - Software

12.0



Tata Consultancy Services

6.2



Pharmaceuticals & Drugs

10.6



Housing Development Finance Corporation

5.3



Finance - Housing

7.6



Sun Pharmaceutical Industries

4.6



Auto Ancillary

6.9



Tech Mahindra

4.1



Consumer Durables - Domestic Appliances

5.5



Pidilite Industries

3.9



Finance - NBFC

4.9



Maruti Suzuki India

3.9



Chemicals

3.9



TTK Prestige

3.4



Automobiles - Passenger Cars

3.9



Motherson Sumi Systems

3.2



Diesel Engines

2.9



5 Years History Financial Year

2014-15

2013-14

2012-13

2011-12

2010-11

NAV in ` (as on 31st March)

31.06

19.17

14.16

12.51

12.42

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

4907

1173

539

177

Returns(%)

63.19

35.15

11.98

0.78

13.47

CNX NIFTY Returns(%)

26.33

17.53

6.86

-9.11

10.27

3/(53)

1/(51)

2/(49)

4/(48)

Category Rank Latest As on 31 March, 15

5/(46) Source: ACEMF

JANUARY 2016 l The Finapolis

FUND REPORT CARD SBI Pharma Fund-Reg (G)

Scheme Performance as on Dec 23, 2015 Period

Fund Objective/Mission To provide the investors maximum growth opportunity through equity investrments in stocks of growth oriented sectors.

Fund House Details AMC Name: Website:

SBI Funds Management www.sbimf.com

Returns

B'mark

Rank

3 Months

1.13

-4.41

36/(53)

6 Months

9.25

2.80

8/(49)

1 Year

30.22

15.13

2/(51)

3 Years

36.34

27.47

1/(46)

5 Years

27.27

20.73

1/(43)

Since Inception

19.10

16.59

SIP Details: Invested Rs 5000 Every Month

Financial Details

Period

AUM As On (November 30, 2015) 877.39 NAV As On (December 23, 2015) 150.48 Min Investment (in Rs.) Lumpsum 5000 SIP NAV (52WeekHigh){October 23, 2015} 155.73 NAV (52WeekLow){December 24, 2014} 114.70

Total Invest (`)

1 Year

Investment Information

Scheme (`)

Bench mark

60,000

63.973

59.710

3 Years

1,80,000

2,98,882

2,59,989

5 Years

3,00,000

6,72,055

5,67,554

10 Years

6,00,000

21,00,506

18,55,679

Fund Structure

Scheme

Open ended scheme

Launch Date

July 14, 1999

Fund Manager

Tanmaya Desai

Bench Mark

S&P BSE Health Care

Max.Entry Load(%)

Max.Exit Load(%)

Total Stocks

Total Sectors

P/E Ratio

45.94

P/B Ratio

7.30

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

Top 10 Companies

58612.60

Top 10 Sector Wise Holding

Name

(%)

Sun Pharmaceutical Industries

18.7



Strides Shasun

10.7



Lupin

10.2



Aurobindo Pharma

9.4



Divis Laboratories

9.0



Cipla

8.5



CBLO

6.4



Torrent Pharmaceuticals

5.0



Natco Pharma

4.9



Sequent Scientific

4.8



Industry Name

(%)

Pharmaceuticals & Drugs

93.4



Other

6.6



Cash and Cash Equivalents

0.1



Volatility Measures Fama

0.13

Std Dev

1.35

Beta

0.86

Sharpe

0.07

5 Years History Financial Year

2014-15

2013-14

2012-13

2011-12

2010-11

180.42

102.43

75.65

61.86

56.40

467

218

Returns(%)

76.20

33.66

22.91

9.42

13.68

CNX NIFTY Returns(%)

26.33

17.53

6.86

-9.11

10.27

3/(55)

3/(51)

4/(51)

5/(56)

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

Category Rank Latest As on 31 March, 15

13/(57) Source: ACEMF

58 The Finapolis l JANUARY 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

Realign Loan and Insurance on Priority We discuss the case of a nuclear family with short-term and long-term financial goals By Hiral Thanawala

Financial Goals of the Family The goals for Naveneet’s family include building corpus for down payment of house purchase in three years and creating a retirement fund. Financial advisor Pankaaj Maalde analyses his monthly cash flow, existing investments and future goals. He first analyses his current insurance portfolio and gives recommendation on necessary changes required.

Navneet’s Smart Moves Seeking financial advice Maintaining contingency fund Buying an online term plan Buying separate health insurance And Poor Decisions Ignoring disability insurance

“I want advice from a financial expert to purchase my own house in three years and build a corpus for my retirement”– Navneet Kumar Navneet Kumar is a 35-year-old private employee living in Trivandrum. He lives in a rental house with wife Sweta, 35. His monthly income is Rs 65,250. Of this, a big chunk goes towards household expenses Rs 29,433 (includes house rent Rs 12,756). Additional, Rs 10,091 goes towards EMI for car loan, Rs 6,708 for insurance premiums and Rs 12,000 goes into investments.

Opting for Car loan and depositing fund in FDs Not prioritising the goals Investments are not aligned with future goals

Analysing Life Insurance Portfolio Navneet has two Unit Linked Insurance Plans (ULIPs) i.e. Aviva Freedom Life and ICICI Life Time Super Pension. He also

JANUARY 2016 l The Finapolis

Money Chat holds one online term plan from HDFC with life cover of Rs 50 lakh. Currently, Navneet is adequately covered under life insurance. However, a chunk of his savings goes towards paying the premium of insurance policies. At present, he pays an annual premium of Rs 72,000. Analysing his insurance portfolio, Pankaaj recommends continuing the online term plan from HDFC which has a life cover of Rs 50 lakh and ICICI Pru Pension Plan. He, however, advises to surrender the Aviva ULIP plan immediately due to high on-going charges which reduces the return in long term.

Navneet’s current income and expense analysis Naveneet’s Income

65,250

INFLOW

Total monthly income

OUTFLOW

Asset Allocation Existing

BANK

Debt 11% % ity 7 Equ Real Estate 82%

Recommended*

Total monthly expenses

Household expenses

Loan EMI

Insurance premium

Investment

Surplus

29,433

10,091

6,708

12,000

7,018

5,667

30,000

150

Current:

Recommended: 29,433

policy will cost around Rs 14,000 p.a. Pankaaj also suggests buying critical

illness and accident disability insurance policies with sum assurance of Rs 25

Networth of Navneet’s

Equity 25%

Asset Debt 75%

*Note: Recommended investment is for 3 years to achieve house purchase goal

Health and Disability Insurance Planning As for health insurance, Navneet has bought Reliance Health Gain, insurance policy from Reliance General Insurance with a cover for Rs 6 lakh. The policy bought has permanent exclusions of few common ailments like cataract, gout, hernia, kidney stone which is normally not seen in other health insurance policies. Due to this exclusions, Pankaaj advises to port to other insurer who does not have such restrictive conditions. He advises Navneet to increase the cover from Rs 6 lakh to Rs 10 lakh. This change in health insurance

Current Value (Rs) Investment Assets

Cash and Equivalents

125,000

Fixed Deposits

350,000

Employees' Provident Fund

350,000

Public Provident Fund

18,000

Recurring Deposits

30,000

National Pension Scheme

78,000

Equity Mutual Funds

9,500

Insurance - ULIP Fund Value

580,000

Residential plot

1,000,000

Agricultural land

6,000,000

Total Assets (rounded off)

85.41 lakh Less (-)

Liabilities

Current Value (Rs)

Car Loan

4 lakh

Net Worth (rounded off)

81.41 lakh

60 The Finapolis l JANUARY 2016

Money Chat Contingency Fund

Funds needed to achieve goals

Home Purchase

Retirement

Time to achieve (years)

Future value of cost (Rs)

2.10 lakh

Time to achieve Future value (years) of cost (Rs) 3

53.25 lakh

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

5.70 Crore

Resources utilised ULIP and Recurring deposit

Monthly investments required (Rs) -

Monthly investments required (Rs) 25% Self funding and 30,000 (for self Aviva ULIP plan funding) Resources utilised

Resources utilised

Monthly investments required (Rs)

ICICI Pru Pension Plan, Agricultural land, PPF, EPF

Total investible surplus needed

Assumptions

30,000

Inflation rate = 8% Returns on equity fund = 9% p.a., Real estate (plot) = 8% p.a., Debt fund/PPF/EPF = 8% p.a. and Ultra short term fund = 6% p.a.

lakh each. This will incur an additional cost of Rs 12,000 p.a. approximately but will ensure a cover for any uncertainty in future.

Analysing Loan Portfolio Navneet has a car loan of Rs 4 lakh with an interest rate of 10.25%. He pays an EMI of Rs 10,091 to the bank. This is one of the major cash outflow from his income. Pankaaj advises that Navneet repays the entire loan from his existing fixed deposit which earns him 7% returns post tax deduction. By repaying personal loan with high interest he will become debt free. This will increase his monthly surplus and the amount saved can be invested in assets with better returns to build the desired corpus for future goals.

The Road Ahead Having taken care of insurance requirements and becoming debt free, Navneet can start planning for his financial goals. The first goal is to set

aside six months of expenses as a contingency fund. This amount will take care of any unforeseen expenses for his family. For this, Pankaaj aligns Rs 2 lakh from surrender value of Aviva ULIP

plan and Rs 30,000 of recurring deposit (RD). He suggests surrendering the Aviva ULIP plan and stop further investments in RD. This will create surplus funds to invest for house purchase

Table 1: Working for house purchase goal Particulars

Working

Current value of house to purchase (Rs)

4,000,000

Growth rate Current age (years) Goal required at age (years) Future value of house (Rs) Self funding (down-payment) Total funding from assets utilized (partial amount from Aviva ULIP plan) Investment rate of return

10% 35 38 5,325,000 25% 9.00%

Monthly investment required for down-payment (Rs)

30,000

Loan Funding Interest rate (approx assumed) Tenure (years) EMI (Rs)

75% 9.50% 25 37,300

1,325,000 130,00

4,000,000

JANUARY 2016 l The Finapolis

Money Chat

goal. He recommends investing in ultra short term funds with amount from Aviva ULIP plan and RD. Buying a house is the top priority for Navneet. He plans to buy a house for the total cost of Rs 40 lakh in present value after three years. Out of which 75% will be from bank as home loan and remaining 25% self funding. Pankaaj did the working to achieve house purchase goal for Navneet as explained in the table 1.

EXPERT TAKE

Pankaaj Maalde Certified Financial Planner

 Invest the part of Aviva ULIP (Rs 1 lakh) from surrender value in equity income plan of mutual fund for three

vesting same amount in recurring deposit or arbitrage fund for one year.  For the balance amount of Rs 40 lakh in house purchase, opt for a home loan. Assuming rate of interest at

years time. This investment is expected to grow at 9% and value of investment at a time of house purchase will be Rs 1.30 lakh.  Build a corpus for self funding (25% down payment). Invest Rs 30,000 per month in equity income fund for two years. Then in third year, consider in-

9.50% EMI would be Rs 37,300 as explained in table. To pay this monthly EMI, use surplus of Rs 30,000 from current house purchase down payment goal and savings from rental expenses.  Align ICICI Prudential Pension Plan, Agricultural land, PPF and EPF which promise a corpus of Rs 41.11 lakh, Rs 4.11

Pankaaj advises

crore, Rs 1.23 lakh and Rs 1.18 crore respectively after 25 years i.e. at the retirement age of 60 years. No additional investment is required to build the desired corpus for retirement which is Rs 5.70 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 35,000 per month in present value at 8% inflation.  Review the real estate investment periodically since major investment is into this asset to build retirement corpus.  Shift the fund from balanced fund to 100% equity fund in ICICI Pension plan as the goal is long term and to continue investing Rs 1,000 p.a. in PPF account.

Concluding Remark Navneet should review the plan, rebalance his portfolio periodically and take corrective actions for insurance policies as discussed. F

62 The Finapolis l JANUARY 2016

ETCETERA

Nirvana and the Art of Financial Planning Financial planning philosophy is about making small investments in a disciplined manner over a long period of time. Time is responsible for compounding one’s wealth and due to this compounding effect, even a small sum invested regularly can result in massive wealth creations By Dharmendra Satapathy

eing a winner in life has very little to do with earning more money. Winning is an emotional state of the mind. Winning is a feeling of ‘exuberance’ because of ‘value creation’ that changes lives of people making them better. Winning is also providing happiness to people around us. Winning is like starting a com-

pany from scratch and making it into a huge brand. Winning is moving people like a beautiful dancer or a singer would move his or her audience. Choosing a profession that brings joy to us is therefore the most fulfilling criterion for happiness. A profession should be nothing other than an expression of one’s passion. In other worlds, “get paid for being happy”. Only

a leader understands this and therefore it is vital for us to be good leaders and to create leaders for the next generation. Winning in financial planning is helping people achieve their goals like education, marriage, retirement and making a career. Winning is helping others become winners. Winning is earning a name for oneself for improving the world around

MR. TIMER

MR. LAZY

MR. PLANNER

JANUARY 2016 l The Finapolis

ETCETERA us by way of contributing to larger causMONEY on hand. All the people who step es like climate change, poverty alleviainto their careers after college are well tion, water management, education, poised to create wealth whatever be their health management etc. income because they all have TIME. It is important to understand that MONEY at the RIGHT TIME is yet anmoney is the fuel for the car but at the other Financial Planning Philosophy. It same time one must also understand it is is more important that the right amount the car that makes us move. It is important of money is available to pay for one’s edto understand here that we get motivated ucation expenses rather than having by the car and not by the fuel even though many times that amount at a time when the fuel is vital. the age for getting educated has long Similarly, in our lives MONEY is like passed. Similarly right amount of money the fuel while GOALS is like the car. So for marriage is more important than crein other words MONEY ating many times this is only a means to an amount at a time when If you delay investing by five years, in all END and not the END in marriageable age has probability your wealth would reduce by 50%. itself. This is the vision long passed. “Money at of Financial planning or the right time” is the This is the REGRET OF 5 Life planning. There is a ‘mantra’ and not “money dif ference between for the sake of money”. managing wealth and being wealthy. a good life provided they start their inIf people set targets only based on Many times the lust for MONEY makes vestment journey early and allow TIME money, their mind will get conquered us blind to the passage of time. At times to play out its magic. either by greed or fear. Life will die withone gets so obsessed with MONEY that For example, if you were to invest regin their soul. everything else seems insignificant. For ularly for 15 years to create a corpus of One can be a winner in life by setting example many a times, people’s joy Rs 1 crore, then you would experience, LIFE goals and not MONEY goals. To be knows no bounds when their MONEY ‘THE MAGIC OF 15’, which means that a winner in life having the right amount multiplies several times. They are so exin the subsequent 5 years (from the 15th of resources at the right time is more cited at the creation of WEALTH that year to the 20th year) you would accumuimportant. The operative word is ‘right’. they lose track of the TIME it has taken late an additional Rs 1 crore or even more A little more is quite healthy but aiming to make that WEALTH. They don’t look assuming the same rate of return in the for a lot more will divert focus from the at life as a journey but instead have only subsequent five years. Similarly if you other goals that dot the journey and make MONEY as their GOAL. delay investing by five years, in all probone obsessed with money. Financial Planning Philosophy on the ability your wealth would reduce by 50%. In a car race, not having the right other hand looks at MONEY as a means This is the REGRET OF 5. quantity and quality of fuel to provide to achieve one’s life goals within a speciThe opportunity of creating wealth is the crucial acceleration can make you a fied time period. Financial planning phimore a function of TIME on hand than loser even though you own a better car. losophy considers the significance of ‘Power’ at the right time is what matters Regret of 5 Years TIME and that is the major difference and not ‘Power’ in isolation. between discipline and a disorganised Hence as a financial advisor we should Particulars Mr Planner Mr Lazy ways of amassing wealth. In Financial look upon ourselves as ‘change agents’ Monthly SIP Amount (Rs) 25,000 25,000 Planning Philosophy, TIME, is most sighaving the passion to change the course nificant. Financial Planning Philosophy of the lives of our customers by making Yearly SIP Rate of Return 14 14 is about making small investments in a them achieve their LIFE goals. (%) disciplined manner over a long period of time. TIME is responsible for compounding one’s wealth and due to this compounding effect, even a small sum invested regularly can result in massive wealth creation. According to the Financial Planning Principle, everybody can have

Investment Tenure (Yrs)

Future Value (Rs in Lakhs)

1,373

674

Cost of procrastination for differing investment by 5 years (Rs in Lakhs)

Dharmendra Satapathy is the Founder Director, Next Level Education

699

This is quite distinct from helping them to just create WEALTH FOR THE SAKE OF MONEY. Financial Planning is as much a PHILOSOPHY as it is a SCIENCE. Remember that ‘money’ is the fuel and ‘goal’ is the car. F

64 The Finapolis l JANUARY 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 Insurance for senior citizens My parents have a Mediclaim policy of Rs 1 lakh sum insured. They both are senior citizens. At this age, is it recommended to have a separate senior citizen plan for them or I should opt for top up insurance policy? - Ramesh Kumar, Mumbai I assume that both the parents are of the same age and they have a family floater of Rs 1 lakh of sum assured for the two of them. At this age, a sum assured of Rs 1 lakh is rather low for the two of them. I would recommend a family floater of at least Rs 3 lakh for them. For the purpose of convenience of purchase and claims, it is better to upgrade the existing policy rather than a top-up plan. Upgrade the existing policy to a higher sum assured – if you are happy with the current policy’s terms and service provided. This assumes that they both have similar health conditions. If there is a large disparity between the two of them in this regard, you may take separate health policies for them.

Tax Saving Can I claim tax benefit under section 80C for monthly medical expenses incurred on buying medicines for my parents (both senior citizens)? If yes, what’s the cap or upper limit defined by tax laws? – Murtuza Kapadia, Hyderabad Section 80C does not relate to medical expenses, but to specified investments or expenses incurred with a maximum limit of Rs 1.5 lakh. There is no specific tax exemption available for monthly medicine expenses. Section 80DDB deals with medical treatment of specified ailments of dependents and gives exemption up to Rs 40,000 (Rs 60,000 if dependent is more than 60 years of age, and Rs 80,000 if more than 80 years of age). There is an exemption of Rs 15,000 for medical insurance premium of parents under Section 80D. Sections 80DD and 80U also pertain to medical expenses, but they give exemption for specified disabilities and not general medicine related expenses as in your case. Life Insurance and investment My advisor recommends surrendering traditional plans which I have been holding for the last four years. While inquiring with an insurer, I learnt that surrender charges and penalty will be applicable for early withdrawal. Is it advisable to withdraw the amount from insurance policies by bearing losses and invest that amount in diversified mutual fund schemes? For life cover he has suggested to buy an online term plan. – Rohit Saxena, Pune This is always a tricky situation. Traditional insurance plans have poor returns and will always lag behind inflation rates in the country, thus making your investment lose their purchasing power over a period of time. However, getting out of them could be costly and you must be prepared to lose. I would say the thumb rule would be – if you’ve paid

JANUARY 2016 l The Finapolis

PERSONAL FINANCE ADVISOR very few premiums, it is better to take a one-time hit by getting out rather than take continuous hits on your money for all your future premiums – the premise is that you should not throw more good money after bad; if you are in the last legs of your premium paying term, it is better to grit your teeth and continue with the policy; and you’re somewhere in the middle, make your policy ‘paid-up’, not pay any future premiums and get your money back at maturity. Of course, your sum assured will get reduced proportional to the premium paid by you in the last option, but then traditional plans never have any great sum assured anyway. Your advisor has recommended rightly to you to go in for online term plan for meeting your insurance needs.

fund scheme and a normal balanced scheme, except a psychological tagging that the money invested is for your child and you should not disturb it for any other purpose. All the existing children schemes with some track record are balanced schemes. If you are comfortable with it and the time-frame for investment for your child is more than five years, good equity diversified schemes may give better returns. Remember that all existing children mutual fund schemes have equity component ranging from about 25% to 65%. It could be counted as a pros since you should invest in equity if your time-frame for investment is large. You may also count the same as a cons if you are risk averse.

Investment plan for children There are a few Asset Management Companies offering children mutual fund schemes. Is it advisable to invest in such schemes or I should opt for diversified or balanced mutual fund schemes to build a corpus for my child education and marriage expenses? What are pros and cons of investing in children mutual fund schemes? – Gaurav Shah, Jaipur

Mutual Fund My father had invested money in an equity scheme of a fund house which has merged with another. Please explain what would have happened to our investments? Officially I haven’t received any statement from the Asset Management Company after it got merged. How I can get back the information on units we now hold in particular scheme/invested amount with growth? – Umama Bhaigora, Bangalore

Frankly, there is no difference between a children mutual

Please contact your original fund house, new fund house as

also the RTAs (Registrar & Transfer Agents) who were managing their paperwork on their customer care and Registered Office through phone and email. This contact information is easily available on internet. They would let you know the procedure on how to go ahead. In most of the cases, the switch to the new schemes is automatic and information is sent to all investors – you may not have received the information due to an address change, non-functional email ID or phone number. Anyway, it does not matter and there is nothing to worry as your money would be fully intact in any case. In case you have engaged a financial planner, he/she would be easily doing it for you. Credit Cards My credit card company gives reward points while using it for any transactions. Please explain how does reward point calculations work and how I can take an advantage of this reward points which are credited? – Anusha Rao, Kerala To promote their cards, each credit card company offers rewards in the form of reward points to its customers. These

rewards are funded by what is called as interchange which is the transaction fees charged by the bank from the merchant where the credit card is used. Usually it is 2–3 % of every transaction. There are two important aspects that one should be aware of - the number of points earned per amount spent, and the rupee value of a reward point. So, you may earn 1 reward point for every Rs 150 spent while each reward point could itself be worth 20 paise. You multiply the two and you will get a metric which you can use to compare credit cards from different companies. Thus in this example, you get about 13 paise worth of goodies for every Rs 100 spent as rewards. This is a nice way to compare the rewards being used by different credit card companies since you reduce each scheme to what you get for every Rs 100 spent by you. The reward points can be redeemed for their equivalent rupee value through the credit card company. Usually this facility is provided online for you where the reward points for various goodies is listed and you can opt to swap your points for an appropriate item. F

66 The Finapolis l JANUARY 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

Section 80G: Donate and Benefit

or most tax payers, income tax is all about Section 80C. Not many know

employee and the donation receipt is in the name of the employer, deduction

about another important Section called 80G which can serve as a good tax saving option.

can be claimed through a certificate provided by the employer in this regard. However, in other cases where donation was not through the salary, you need to provide a proof of payment made to the institution. A stamped receipt received from the institution needs to be produced with details such as name and address of institution, donor name, amount, registration details.

What is it? The deduction to certain funds and charitable institutions is allowed to any taxpayer on the qualifying amount that is limited to 10 per cent of gross total income of the assessee reduced by income deducted under any section. In other words, your donations can be used to save tax for you.

What is the maximum eligible deduction under this section? The eligibility of deduction depends on the institution where donations are made. The deduction can be either of the following – 100% of the contribution, 50% of the contribution or maximum limit of

What are the conditions to claim deduction? 10% of the adjusted gross total income with similar 100% or 50% contributions allowed.

How to claim deduction? In cases where donation amount has been deducted from the salary of

Deductions u/s 80G can be claimed only if the payments have been made through cheque/net banking. Any payments made in cash or kind (such as clothes, furniture, etc) will not qualify for tax deduction under this section. So, what’s the delay? Make generous donations and get tax deductions. F

What are the institutions allowing these deductions? 100% Deduction

PM National Relief Fund

National Sports Fund

50% Deduction

10% of Adjusted Gross Total Income 100% Deduction

50% Deduction

Jawaharlal Nehru Memorial Fund

Any Govt or approved local authority which promotes Family Planning

Any Govt or approved local authority for purpose other than promoting Family Planning

PM Drought Relief Fund

Amount paid by a company to Indian Olympic Association for promoting sports and games

An authority which satisfies the need for housing accommodation or similar purpose.

National Cultural Fund

National Children’s Fund

Corporation established by Central or State Govt for promoting interests of minorities.

Fund for Technology Development and Application

Indira Gandhi Memorial Fund

Any religious place notified by Central Govt.

National Illness Assistance Fund Rajiv Gandhi Foundation Note: For the detailed list of institutions, please refer to http://80g.in/

Published on 1st January 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