SUCHETA DALAL ON:

SEBI COMMITTEE AUSTRALIAN LAW FIRM FD HOLDERS PLIGHT:

CONFIRMS NSE LAPSES TO HELP PACL INVESTORS NO RESPITE IN SIGHT
Personal Finance Magazine 12 May 2016 Rs 45

Pages 68 (SUBSCRIBER COPY NOT FOR RESALE) www.moneylife.in

INSURANCE

Real-life examples of proposal rejections

12 ways you can improve you chances
of getting insurance

VALUE STOCKS:
The Toughest Part of
Investing Page 46

STOCKS

Sanghvi Movers: Winner Tailwinds for Ceat: On the WiproDisappoints Manipulation:

of Core Sector Growth Ceramic Tiles? Right Track? Again SAR Auto Products

Cover Page_266.indd 1 22-04-2016 17:59:08

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Advertisements.indd 2 18-04-2016 19:05:57

Advertisements.indd 4 18-04-2016 19:06:37
 ISSUE CONTENTS
12 May 2016

Insurance Denied

D enial of insurance claims is well known,

but denial of insurance proposal, to
prevent you from getting life, health or personal
accident policy, is also a reality. Insurers may
deny you a policy under the garb of their right
to underwrite. Worse, you have to declare your
prior rejection, postponement, premium-loading
offer or modification to the policy offered. It
puts you in a bind. In our Cover Story, Raj
Pradhan highlights numerous real-life examples
to help you know what you can expect during
insurance purchase. He suggests some steps
that you can take to improve your chances of

32 Cover Story
getting a proposal accepted.
We have often read about senior citizens
being sold toxic financial products. Retirees are
unaware of the risks. R Balakrishnan, on
page 26, writes about the mistakes retirees Insurance Denied
make and what they can do to avoid losing Buying insurance may seem easy, considering the many cold
their lifes savings. Once the money is invested calls we receive. Raj Pradhan lists the difficulties in getting
insurance policy for life, health and personal accident. Read
in the wrong financial products, consumers
real-life examples of your proposal rejections and how you can
find it impossible to get back their hard-earned improve you chances of getting insurance
money. In the Crosshairs column, Sucheta
highlights two such problems. Her first piece
shows how PACL owners are doing fine in
Australia while depositors struggle to get
the attention of regulator and investigators.
12 Your Money
Government Employees May Be Able To Invest up to
50% in Equities through NPS
Then there are the holders of corporate fixed
IRDAI Asks Insurers Not To Depend on Banks for
deposits. Even after Moneylife Foundation Selling Life Insurance Policies
highlighted the plight of over 1,100 savers who I-T E-filing Appeal System Activated
are struggling to get back their deposits from Long-term Two-wheeler Insurance Policy Launched
companies such as Helios & Matheson, Elder Government Backtracks on EPF Issue
Pharmaceuticals and Jaiprakash Associates,
government officials are showing no urgency to

14
tackle the issue. MONEYLIFE
The Securities & Exchange Board of Indias
(SEBIs) technical advisory committee (TAC) QUIZ
has now conclusively shown that the National
Stock Exchanges (NSEs) systems allowed
certain entities to make huge profits by giving
them faster access. Last year, the NSE tried to
silence us by filing a Rs100-crore defamation
18 Class Action in Australia
Unsecured, Not Fixed
suit against Moneylife, when we published
a whistleblowers report on it. Sucheta, in

20 Different Strokes
Different Strokes, highlights TACs findings on
the serious lapses on the part of the NSE and
its recommendation that SEBI take immediate TAC Report Proves Systemic Lapses at the NSE
action. Will it? Or will it let the wrongdoers,
inside and outside the NSE, get away? Disclaimer: Moneylife has a policy of not allowing its editorial staff to
buy and sell stocks that are written about in the magazine. All personal
transactions in individual stocks are subjected to internal disclosure rules.
MONEYLIFE | 12 May 2016 | 4

Content.indd 2 22-04-2016 17:14:01

Moneylife Foundation AD.indd 1 22-04-2016 17:38:15
 CONTENTS
FUND POINTERS INSURANCE HEALTH

22 Why Did Investors Pull

out Their Money from 30 Insurance
Trends 56 Pain Responds to
Exercise and Not Rest!
these Schemes? Regulations Is it possible to get rid of pain without
Hot and Cold Stocks of Fund Poor Compliance of Ombudsman a pain-killer pill and no rest?
Managers Awards under Scanner
Motor Insurance Pulse Beat: Medical developments
ICICI Lombard Refuses TP Cover in from around the world
Amritsar
FIXED INCOME
LEGALLY SPEAKING
Fine Print

25 Bank FD and Savings

Interest under Tax VALUE STOCKS 59 India Infoline Penalised
for Illegal Trading
Scrutiny
Bond Yields Lower
G-Sec Yields Are Down 46 Toughest
Investing
Part of Consumer forums compensate
investor for losses in a landmark
judgement
You need a very definitive guide for
selling, Benjamin Graham had said. YOU BE THE JUDGE
STOCKS There is very little discussion on this

26 Smart Money
8 Mistakes Retirees Make
EARNING CURVE 60 ToNotSwear or
To Swear?
Why, when and where? Does this

50
Retirees are easy targets for
sellers of financial products and Tech Bubble constitute a criminal liability?
fraudsters. They must acquire
basic financial knowledge for
Bursting?
their own safety Prem Watsa believes that speculation
in private high-tech companies has
41 Stock Watch ended with a thud

Sanghvi Movers: Winner of Core USEFUL APPS

Sector Growth
Sanghvi Movers earns a modest
return on capital and has the
largest share of the cranes
52 BurnNote: Delete
Message Automatically
business

Tailwinds for Tiles?

Addictive Dots: Connect and Earn
Points
StayFocusd: Limit the Time You
61 Management Quality
through Numbers
Waste How to judge
Low input costs, strong
management
man
outsourcing linkages and
quality before
qua
government policies may keep TECHNOLOGY: MOBILE
buying stocks
buy
the tiles sector growing

On the Right Track

Changed product mix and
53 How To Create
Strong Passwords BEYOND MONEY

capacity expansion may sustain

growth
No password
is 100%
secure. But
you can
66 AnRuralExperiment
Reshaping
in
Wipro Disappoints make one Manavlok mobilises rural men and
These equity schemes are that is really women to become beneficiaries by
hard to crack putting in equal time and energy in
incurring opportunity cost the current Marathwada drought

Market Manipulation: SAR Auto

Products
TAX HELPLINE DEPARTMENTS
Market Trend: Bullls Getting Readers Response ........... 8
Bolder
54 Queries at Moneylife
Foundations Tax Helpline
Book Review ....................62
Money Facts ....................64

Content.indd 4 22-04-2016 17:17:21

Advertisements.indd 3 18-04-2016 19:06:19
 Volume 11, Issue 6
29 April 12 May 2016
Debashis Basu
Editor & Publisher
editor@moneylife.in
Sucheta Dalal
Managing Editor
sucheta@moneylife.in
Editorial Consultant
Dr Nita Mukherjee
nitamuk@gmail.com
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MONEYLIFE | 12 May 2016 | 8
Letters.indd 2
AUDIT OF COOPERATIVE SOCIETIES
I have been a regular reader and, regrettably,
sporadic subscriber to Moneylife magazine for
over five years. It carries a plethora of useful
information. I am also an avid watcher of the
Moneylife videos available on YouTube. So,
Mutual Fund investments
thanks for the useful work being done by the are subject to market risks,
read all scheme related
Moneylife team. documents carefully.
One area where I have not found enough material
is about the rights of the members of a cooperative
housing society (CHS) to seek information Write to
from the statutory auditors regarding the audit the Editor!
conducted by them. Using various provisions of
the laws, these guys (it appears to me) are hand-
WIN
a prize
in-glove with the members of CHS and help them
cover the misdeeds. Considering that most of us
now live in CHSs, it would be extremely useful
to carry a series on the rights of the members
of CHS to demand information from the CAs
(chartered accountants). It would also be useful
to know what the CAs required to check before
they certify the accounts presented to them.
I look forward to coverage of this issue in
coming issues of Moneylife.
Brijesh Gupta, online comment
Thank you for your suggestions. Meanwhile, you may like ikee to check
lik k outt
check
heck
the queries and replies that are provided by Moneylife Foundations
legal resource centre at lrc.moneylife.in Issues relating to cooperative
housing societies are extensively covered there. The Foundation also
runs a free counselling session from 5pm to 7pm every Tuesday by
Shirish Shanbagh which is extremely popular. You may want to attend
that too. Editor
BLOW TO COMMON MEN?
This is with regard to the column Fixed Income Are PPF, SCSS,
Sukanya Samridhi Still Worthwhile? (Moneylife, issue dated 14 April
21-04-2016 19:40:38
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Donate Ad.indd 1 22-04-2016 17:37:30

 LETTERS

Concept of Service?
the
Best
letter
T his is with regard to Go
for Bank FD or RD? Long
offered me tea,
lip-service and
ago, I had an FD (fixed deposit) conveniently forgot!
Mutual Fund investments
with a prominent private sector Mera Bharat Mahan. are subject to market risks,
read all scheme related
bank. On every maturity amount, The concept of documents carefully.
they would pay one paisa less. service is alien to us
With all-India maturity/ renewals,
it would amount to quite a
Indians. My friend,
a branch manager in Congratulations
sum. When I pointed it out, they took cover saying a nationalised bank, NDDesai
system set-up. Why not correct it? No answer. wanted to migrate to
I asked them why not give one paisa more to USA. While he was
YOU WIN A
PERSONALISED
FD-holders? They were caught in their own web. there, he submitted the CLOCK
I even wrote to the managing director. He was too papers to the relevant
lofty to reply to a commoner, especially when caught office and asked for
on the wrong foot. Most big-wigs are arrogant. They a receipt. The lady
think it is infra-dig to attend to a common man. expressed shock and
Banks mean trust and credibility. But it seems to be said come tomorrow
so only in books. at 9am. On the dot,
Banks say that the effective date will be from the she handed over the ND Desai

realisation of cheque for investment. Fine. But while completed papers

paying interest, the banks pay by cheque posted, and she wished
resulting in 4-5 days delay for credit. It is not done him good luck.
on the due date in the investors account. They boast If such a thing
of technology. Why not make instant payment on ever happens in
due date by ECS (electronic clearing service), NEFT India, even in the 21st century-level
tury
y-l
-le
lev
evel
evel
el o
off te
technology,
chno
ch hno
nollo
logy,
logy
gy, it
gy
(national electronic funds transfer), etc? would be a miracle.
I had approached an association or two. They ND Desai, by email

2016).The cut in interest on small savings schemes
(SSS)Public Provident Fund (PPF), National Savings
Certificates, etc, is a blow, especially to
senior citizens. With changed times and
continuing inflationary trend, the real
worth of the rupee is falling every day.
Since the share market is not for common
people, and especially senior citizens, the
easiest mode for investment are the post-
office savings schemes as well as PPF and
bank fixed deposits (FDs) (on which also
the interest rates are too low, compared to
earlier years). The one reason on the part
of the government to cut down interest
rates on SSS is to make interest rates more
favourable to banks term deposits. This plea
is not acceptable, especially for senior citizens. Even the
additional interest of 0.05% for senior citizens in bank
FDs does not offer reasonable returns on which senior
citizens can live. SSSs are ideal for those who do not
wish to take the risk of market fluctuationsnet asset
value (NAV)-based investments, especially
for older people (senior citizens). To
safeguard returns of senior citizens, interest
rates applicable to them should never be
lowered; instead a much higher rate, say,
of 12% must be guaranteed on all of
their investments in SSS, PPF, and bank
FDs, etc. The change in rate of interest
on PPF must be applicable to new PPF
accounts only and not to existing PPF /
investments already made in PPF, as it is
done in the case of FDs with banks.
Mahesh Kapasi, by email
EVIDENCE-BASED INVESTORS NEEDED!
This is with regard to Investing as per Beliefs Vs
Investing as per Data by Debashis Basu. We have
got to break away from the value religion and we
should be evidence-based investors. I think there are

MONEYLIFE | 12 May 2016 | 10

Letters.indd 4 21-04-2016 19:41:31

 LETTERS

reasons why momentum works and the reasons are
precisely the same as why value works. Based on
my research, the evidence is pretty clear. Buy cheap
(value) and buy strong (momentum). The rest is just
a waste of time, if you are a long-term investor. Just
be an evidenced-based investor and put in hard-coded
rules that essentially prevent overconfidence and a
belief in stories. A simple asset allocation model, using
both value and momentum, combined with a simple
trend-following overlay, invests in equities only during
sustained market uptrends and avoids all major bear
markets.
Sanjay Saxena, online comment
by Bapoo Malcolm. Can we inculcate better value
systems, healthy attitudes towards womenamong
individuals, families, relatives and friends? Punishments
have never deterred criminals; good values and fear
have deterred persons doing wrong. Brutal reactionary
laws have created rape and murder as a new challenge
for society. Can we get better media representations
of women in TV, Internet and newspapers? Women
should themselves take this onus. Earlier, there was one
cabaret in every film; but now heroines are scantily
clad in entire movies with heroes too doing the same.
God also cannot bless us, if we lose our guiding lines.
Mahesh S Bhatt, online comment

WHY NOT FOCUS ON STRENGTHS ONLY? ALERTS ABOUT EPIDEMICS ARE

This is with regard to Patanjali: Emulating MNCs
or Propagating Ayurveda? by Sucheta Dalal. Yes,
Patanjali is gradually diverting from its path. Patanjali
was better and is still good as long as it focuses
on Ayurvedic and healthy products. But since this
marketing ghost entered, all products have new
packaging with fake massages instead of showing
Ayurvedic gains.
Just compare Dant Kantis previous and current
packaging with its pompous message like MNCs
fights germs, white teeth, 24-hour protection, etc.
MNCs fooled Indians with crass marketing with no
actual details of effects of their product composition.
Why is Patanjali doing the same? We wanted an Indian
brand close to the nature with simple meaningful
messages. Why the sudden craze to emulate MNCs
with new packaging and with higher costs? Why is
there so much of added sugar in biscuits? Patanjalis
products like noodles and honey failed for export
quality check with added antibiotics just like other
MNCs. Why not focus on what its strength are? These
are really disheartening signals from Patanjali.
Prashant Naikwade, online comment
GOD ALSO CANNOT BLESS US!
This is with regard to Should Rapists Be Hanged?
IMPORTANT
This is with regard to The Epidemic that Wasnt by
Prof BM Hegde. The one good point in this article is
the recommendation to give mosquito nets to people
who live in mosquito-infested areas. It is strange that
the article blames organisations like the WHO (World
Health Organisation) for giving alerts about possible
epidemics. As the writer should know, it is better to
provide warnings of possible epidemics than try to stop
the spread of one that is already in progress. Then,
the author would blame the organisation for sitting by
doing nothing, while the epidemic caused havoc.
WHO can only announce alerts and report the
possibility that something may happen. So, if it does
not happen, should we blame WHO or should we
thank it for alerting countries to take precautionary
steps and stopping the infection from spreading and
becoming an epidemic? This article reminds me of
the argument my mother used to have with me. If
her blood tests did not show any abnormality, she
believed that her money was wasted and she had
been defrauded. She had been raised with the practice
in India that one only gets a test done after one has
become ill. The idea of preventive medicine was novel
to her, as it seems to be for this author.
Meenal Mamdani, online comment

Letters:
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emailed to editor@moneylife.
in or can be posted to: The Editor,
Moneylife Magazine, Unit No. 316,
3rd Floor, Hind Service Industries,
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11 | 12 May 2016 | MONEYLIFE

Letters.indd 5 21-04-2016 19:42:03

 Your Money
RETIREMENT TAX

Government Employees May I-T E-filing Appeal

System Activated
Be Able To Invest up to 50% in
Equities through NPS I ncome-tax (I-T) department
activated the Aadhaar and
netbanking-based e-filing

G
overnment employees
may soon be able to
invest up to 50% of their
contribution in a pension fund
in the equity market, from the
current limit of 15%, Indias
pension fund regulator said. It is
under governments consideration.
LIFE INSURANCE
We have sent a proposal to the
government to give the government
employees an option to invest up
to 50% in equities, Pension Fund
Regulatory and Development
Authority (PFRDA) chairman
Hemant Contractor told reporters
on the sidelines of a pension fund
conference. He said PFRDA is also
pushing for giving government
subscribers the choice of selecting
their pension fund manager. The
number of government subscribers
currently stands at nearly 4.5
million, accounting for 44% of
the total pension fund subscribers.
PFRDA is also deliberating on
guidelines for allowing 2% of the
government pension moneys to flow
into alternative investment funds
(AIFs) every year, he said.
verification system for taxpayers
to file their first appeal before a
tax ocer, on the lines of online
ITR filing. To reduce the interface
between tax ocials and the
taxpayer, the department has
operationalised the facility on its
ocial e-filing portal. One EVC
can be used to validate one form
of the assessee irrespective of
the assessment year. The EVC will
be stored against the assessee
PAN along with other verification
details. The EVC will be valid for 72
hours or as otherwise specified, a
notification said.
VEHICLE INSURANCE
Long-term Two-wheeler
Insurance Policy Launched

IRDAI Asks Insurers Not To Depend on Banks

B ajaj Allianz General Insurance has
launched a long-term two-wheeler
package policy. Two-wheelers can be
for Selling Life Insurance Policies insured for up to three consecutive
years under this policy. The insured do

B anks are now playing a predominant

role in distributing policies of
private insurers. Insurance regulator
not have to renew the contract every
year as they get one policy certificate
for a maximum of three years of cover.
IRDAI (Insurance Regulatory and The policy allows refund of premium
Development Authority of India) has with cancellation of policy, even if a
warned life insurance companies against claim for partial loss is filed during the
overdependence on banks for selling policy period. Under the policy terms,
life insurance policies. The fear in the there is 24x7 roadside assistance
insurance industry is that if RBI (Reserve service. This service will be offered
Bank of India) asks banks to refrain from selling insurance, sales of insurers complimentary to women customers
dependent on banks would be hit. Bancassurance fears were discussed by IRDAI during the first year. The insured can
with chief executive ocers of life insurance companies at a special meeting. save on paying higher premia due to
IRDAI also made it clear to the insurance industry that they would not have the annual third-party motor premium
freedom to increase commission for selling life insurance policies. hikes.

MONEYLIFE | 12 May 2016 | 12

Your Money.indd 2 22-04-2016 11:56:51

 MONEYLIFE
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 Your Money
RETIREMENT

Government Backtracks on EPF Issue August. Mr Dattatreya had also relaxed the
withdrawal norms; now a subscriber can

T he government once again, flip-flopped

on its policies, relating to retirement
and pension products. There is a clear
disconnect between the governments
policies and the concerns of savers. Similar
was the flip-flop seen after the budget
on the proposal to tax the employees
provident fund (EPF) corpus on withdrawal.
The government faced another backlash
for the restrictions on the withdrawal of the
EPF corpus before retirement.
The ministry of labour and employment
introduced four changes to the EPF
withdrawal process effective 10 February
2016. These included, retirement age
increased from the current 55 years to 58
years, withdrawal of EPF balance only
when you reach the age of 57 years and
restriction on withdrawal of employers
contribution to EPF before 58 years.
However, after
the backlash of
trade unions, the
labour secretary,
Shankar Agarwal,
announced the
withdrawal of the
10th February notification.
This withdrawal was announced
just hours after labour minister Bandaru
Dattatreya had announced the 10th
February notification will be deferred to 1st
withdraw his or her entire savings for the
purpose of housing, treatment of himself/
herself or family members suffering from
certain illnessess, marriage of children as
well as professional education of children.
When the finance minister announced the
Budget for FY16-17, he stated the need
to bring parity among pension products,
and proposed taxation of the EPF corpus
on withdrawal, similar to the National
Pension System. However, this led to a
huge backlash and the government had to
roll-back the proposal. Will the government
take the opinion of financial consumers
before introducing policies which affect the
life-savings of a person?

Moneylife

MONEYLIFE
Quiz no

231
QUIZ Answer
Correctly! Win
Another quiz to tease your brain. The answers are in this a personalised
sed
very issue. The winner will be chosen by a lucky draw clock with an G Balakrishnan

from correct entries and answers published in the issue Mutual Fund investmentnt
investments are quote!
dated 9th June. Send in your answers to quiz@moneylife. subject to market risks,
read all scheme related
in with the Quiz no., name, address & telephone number documents carefully.
before 18 May 2016.

1. What was the value of investments pulled out by investors 5. What was the religion of Professor John Yudkins
from equity mutual fund schemes, in March 2016? parents?
a. Rs4,085 crore b. Rs13,250 crore a. Christianity b. Jewish
c. Rs17,451 crore d. Rs3,381 crore c. Islam d. Atheism

2. What was the outflow from arbitrage equity schemes in 6. Of which software product is StayFocusd an extension?
March 2016? a. Google Chrome b. Internet Explorer
a. Rs3,876 crore b. Rs3,381 crore c. Microsoft Windows d. Microsoft Office
c. Rs13,250 crore d. Rs17,451 crore
7. On which of the following stock exchanges was SAR Auto
3. In how many stocks did 193 equity diversified mutual fund Products not listed?
schemes trade, in March 2016? a. Ahmedabad b. Vadodara
a. 500 stocks b. 495 stocks c. Pune d. Mumbai
c. 450 stocks d. 400 stocks
8. Which is the form in which income-tax deducted at source
4. In which part of USA was Wesley Gray raised? is reflected?
a. Chicago b. Colorado a. Form 26AS b. Form 16-A
c. Washington DC d. New York c. Form 15-H d. Form 14-G

In all, 21 readers got all the answers right last time.

The answers to Moneylife Quiz-229 are: 1- c. Rs20,000 crore
The winner of Quiz-229 is G Balakrishnan from
Perumbavoor (Kerala). Congrats! You win a 2- c. 17 schemes 3- a. Four schemes 4- c. Wallace Stevens
personalised clock with an investment quote! 5- d. Beta 6- c. 207 7- a. Rs49,500 8- a. 2005

MONEYLIFE | 12 May 2016 | 14

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 www.moneylife.in
Exclusive news & views with a big dierence

MCA services down, Twitter, Nirmala Sitharaman, the minister

entrepreneurs cant
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The webpage of the ministry of
corporate aairs (MCA) for new company
registration is down since 25 March 2016.
This is in contrast with the Narendra
Modi governments promise to help
entrepreneurs to register a new company
within three minutes, with just a single
of state for commerce and industry, asked
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on the issue, to contact joint secretary
KVR Murthy of MCA.
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Moneylife Impact: Ministry asks SFIO to look into ML FOUNDATION

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 CROSSHAIRs
Class Action in Australia
Holds out hope for PACL victims
A
n Australian law firm, Piper Alderman, has
offered to file a civil action suit to recover over
AU$170 million transferred overseas by Nirmal
Bhangoo, the alleged mastermind of the mammoth
Rs49,100 crore ponzi scheme that has duped over 50
million Indians over a 25-year period. These investors
were sold fractions of land in projects being developed
by two Pearls group companiesPearls Agrotech
Corporation Ltd (PACL) and Pearls Golden Forest
Ltd (PGFL). An extensive investigation in Australia by
Sheraton Mirage Resort, Australia, now controlled by Pearls. Out of
reach of the long arm of Indian laws?
investigator Niall Coburn and the local media there
has uncovered transfer of at least AU$170 million to
companies in Australia, Hong Kong and Singapore
that are directly or indirectly controlled by Nirmal
Bhangoo, founder and brain behind the Pearls
group.
Many Indian investors, angry with the slow
investigation and unexplained delay in freezing and
MONEYLIFE | 12
27 May
November
2016 2014
| 18 | 14
Crosshair.indd 2
Exclusive news, the stories behind the
headlines and the truth between the
lines by Sucheta Dalal
recovering their money, have formed two associations
representing over 60,000 people duped by Pearls and
are attempting civil action in Australia to get back
their money. They are PACL Employees and Customers
Protection Forum and the Janlok Prathishtan Sanghata
Committee (India).
The associations hired Temple Law and Nayak
Associates to handle their case. These lawyers, in
turn, approached Niall Coburn and Piper Alderman
to pursue the class action in Australia to recover
their funds. On 2 February 2016, based on an order
of the Supreme Court of India (SC), the Securities &
Exchange Board of India (SEBI) had constituted a
committee headed by Justice RM Lodha to oversee the
liquidation and sale of Pearls groups assets and refund
of money to investors at the earliest, preferably within
six months from the date of the order.
Hence, Piper Alderman, the law firm, has written
to Justice Lodha and the SEBI chairman, offering to
file cross-border proceedings in Australia to bring
overseas assets under control, liquidate them and
get back investors money. The law firms letter says
that Niall Coburn, who has been investigating PACL
assets in Australia for two months, has traced assets of
around $170 million and there may be more assets
held in complex structures. It provides an extensive
list of assets that have been traced in Australia
through their investigation, explains the connection
with Mr Bhangoos family and even provides a chart
of the group and its linkages. These include AU$100
million in properties such as Sheraton Mirage Resort
(Sheraton) on the Gold Coast through a company
called Pearls Australasia Mirage 1 Pty Ltd incorporated
in October 2009, Pearls Infrastructure Projects Limited
and several homes and properties that are connected
through Nirmal Bhangoos children.
Worryingly, Piper Alderman says that these foreign
assets are not under receivership in India and can
be dissipated during the slow investigation. In fact,
the Sheraton is already listed for sale. Shockingly, it
21-04-2016 20:46:24
 says that the Indian government has not even filed
applications to preserve the investor funds in other
jurisdictions, such as Australia, Singapore and Hong
Kong.
An international class action of this type, with
approval from the regulator, has never been attempted
before. Even if the Australian legal process is swift and
enables recovery of assets, the government will have to
evolve a mechanism to distribute the money among an
estimated 50 million investors. The task is humungous
and SEBI is still in the process of collating investor
data with proof of investment. It is, however, unclear
why the government is not invoking the draconian
provisions of the Prevention of Money Laundering
Act or acting swiftly to preserve the overseas assets of
Nirmal Bhangoos family.
Meanwhile, the Pearls group, which has been
adept at gaming the legal system for over 20 years, has
already enlisted a phalanx of expensive and influential
lawyers to continue its fight. There are also dark
rumours about powerful people trying to derail action
against the group. It is also curious that the PACL
scam has evoked little interest in the Indian media,
despite the massive sum involved; it is the Australian
press that unearthed the massive transfer of funds
and assets owned abroad. Will the Lodha committee
really succeed in getting investors even a part of their
investment back? Or will this be another lackadaisical
pursuit that yields no result?
Unsecured, Not Fixed
Depositors struggle continues
T
he bad news for those who invest their lifes
savings in unsecured corporate fixed deposits
(FDs) is that the government doesnt really care
about their plight. On 10 February 2016, Moneylife
Foundation sent a compendium of 1,596 complaints
representing the savings of over 1,138 investors, mainly
senior citizens, to the ministry of corporate affairs
(MCA). There is neither a response to, nor a formal
acknowledgement of, our memorandum. It is our Right
to Information query that led to four responses. In
every one of them, MCA had merely acted as a post-
office and forwarded the query to regional offices for
necessary examination and incorporation of findings
thereof in investigation report.
So complaints against Jaiprakash Associates have
been forwarded to Kanpur; those against Unitech Ltd
to MCAs regional director, north and complaints about
Plethico Pharmaceuticals to regional director, north
west. Only in case of Helios & Matheson (H&M),
which has raised Rs55.25 crore from 6,540 depositors
across India, was the complaint directed to the Serious
Crosshair.indd 3
Fraud Investigation Office (SFIO). Here, again, the only
instruction is only for examination and incorporation
into its court-ordered investigation.
Finally, we have yet to hear what happened to the
complaints against Elder Pharmaceuticals and Bilcare
Ltd which were listed as companies with the highest
number of complaints from investors. A dozen or more
squiggles on a copy of the memorandum indicate the
number of eyes that have perused, at least the front
page, but none has found it fit to order action that
would lead to refund of investors money.
In fact, a simple and effective action is possible even
under the new Companies Act 2013 which clearly says
that Deposits accepted before commencement of the
new Act have to be refunded within a period of one
year or on becoming due which ever is earlier. Had
MCA been concerned, immediate refunds could have
been ordered under this Section, to turn the heat on
companies. After all, most investors listed by us have
been running from pillar-to-post and have already filed
complaints with MCA, company law board and every
regulator they could think of. Less than 2% of the
complaints get resolved.
Moneylife Foundation has now been advised
that the next course of collective action may be to
approach the National Consumers Disputes Redressal
Commission (NCDRC) or a class action. This would
require investors to cross the threshold of a collective
loss of at least Rs1 crore and for the court to be
convinced that these are consumers of financial services
who have been cheated. For starters, those trying to
get their money back from Helios & Matheson, Elder
Pharmaceuticals, Jaiprakash Associates, Unitech,
Plethico Pharmaceuticals and Bilcare can send us
details online here: https://www.surveymonkey.com/r/
Corp_FD. But the battle is a long one and the outcome
uncertain; so sensible investors would do well to follow
Moneylifes advice in future: It is not worth risking
your hard-earned savings for a slightly higher interest
rate.
19 | 12 May 2016 | MONEYLIFE
21-04-2016 20:48:39
 DIFFERENT STROKES SUCHETA DALAL

TAC Report Proves Systemic

Lapses at the NSE
Will SEBI act on the expert committees report?

T
he powerful technical advisory committee (TAC) intention was to bring the truth before the people through
of the Securities & Exchange Board of India (SEBI) proper investigation.
conducted a detailed investigation of the National Before we go into TACs findings, let me explain what
Stock Exchanges (NSE) high frequency trading (HFT) and HFT, or algo trading, is. These are automated trades
vindicated the contentions of an anonymous whistleblower conducted at millisecond or microsecond speeds throughout
who wrote three letters on how the Exchanges trading the day by computer programs developed to process market
systems gave better access to certain entities allowing them data. They buy and sell large quantities of securities, based
to make huge profits. on price patterns without human
TACs investigation team intervention, making huge profits
prepared a detailed report and from wafer-thin margin on massive
discussion of its findings and volumes. It is these that explain the
follow-up have been extensively massive froth of trading turnover
reported by The Mint and running into over Rs1 lakh crore
Bloomberg. Moneylife too has every day.
perused a copy of the findings With this background, we will
discussed by TAC at SEBI. But let the findings of SEBIs TAC speak
before we proceed further, a for themselves. TAC, chaired by
quick recap of the issue. Readers Dr Ashok Jhunjhunwala, met on
of Moneylife know that the 15 March 2016 to discuss a report
NSE has filed a Rs100-crore submitted by Prof Om Damani
defamation suit against us for who was entrusted with the task
bringing the contents of the letter The expert panel report of investigating the whistleblowers
to public attention sometime in letters. TAC recorded its thanks to
says that it is plausible that
June 2015. A notice of motion Prof Damani for his outstanding
to gag us until the suit comes up
OPG and some other brokers efforts and also noted that his
for hearing was, however, shot
were given preferential project team of IIT-Bombay had
down by Justice Gautam Patel access to back-up servers... undertaken a data analysis that
of the Bombay High Court, who OPG gained materially by was in the nature of a forensic
also ordered the NSE to pay Rs50 exploiting the system audit. It then took note of the
lakh as penalty mainly to two following findings confirmed from
hospitals in Mumbai. Unknown to us, the whistleblower the whistleblowers letter.
sent a second letter to SEBI in August 2015 detailing how 1. Technical details about how brokers could get advantage
it can verify his allegations of how NSEs systems were in connecting to the NSEs servers because the Exchange
compromised. SEBI kept mum about this even as it watched had no load balancers and randomisers in its systems
the outcome of NSEs defamation charge against us. architecture.
In October 2015, the whistleblower sent me a 2. That OPG Securities, a brokerage firm mentioned in
third letter which would prove his charge that certain the first letter, had, indeed, tried to exploit loopholes
influential entities managed to rake in huge profits through and it is plausible that OPG and some other brokers
preferential access. This was sent only to me, but had were given preferential access to back-up servers. More
explosive information on a dark fiber link between the importantly, that OPG gained materially by exploiting
NSE and the Bombay Stock Exchange (BSE) which allowed the system. In this connection, it further said that while
a huge advantage to a third entity. We decided to share it has studied data and submissions from the NSE, It is
the letter with SEBI and the finance ministry, since our not possible from the data available alone to investigate

MONEYLIFE | 12 May 2016 | 20

DIFFERENT STROKES.indd 2 21-04-2016 20:40:18

 DIFFERENT STROKES SUCHETA DALAL

and determine the extent of collusion of NSE officials and OPG.

with OPG/ others. We are delighted that a full investigation by TAC
3. The team also found that OPGs ability to happily has brought some larger issues to attention which the
exploit the system ended when the system architecture committee plans to discuss, review and examine in future.
changed. The committee agreed that OPG Securities First is the all-important issue of how to build capacity
was able to exploit the architecture to gain undue within SEBI to proactively detect wrongdoing/ system abuse
and unfair advantage and NSE failed to prevent such at the brokers end and inside stock exchanges. Secondly,
manipulative practices by OPG. whether the fibre connectivity between two co-location
4. The team found that the architecture of NSE with facility provides any unfair advantage to the brokers vis-
respect to dissemination of Tick-by-Tick (TBT) through -vis retail players/ investors. In fact, regulators around
TCP/IP was prone to manipulation/abuse. When SEBI the world are debating the second issue of how automation
requested NSE to investigate this, NSE claimed that their has made retail investors as well as institutional investors
architecture could not be, and has not been, misused. outside the HFT group into second-class investors. But,
In spite of NSE not providing adequate details on so far, hapless and disaggregated investors have been
the issue, the available data losing the battle because they do
was examined and the report not have a powerful and united
conclusively shows that OPG voice. TAC plans to go deep into
consistently logged in to the the larger issue of the robustness
servers with better hardware of the architecture of NSE and BSE
specifications. It also finds and whether randomisation needs
that information on back-up to be introduced as well as SEBIs
servers was not transparently policy with regard to co-location
communicated to all brokers and algorithmic trading, its impact
in 2011-12 and earlier. and the actions that are required.
5. From the third letter, it was As always, we have emailed
confirmed that the staff of SEBI chairman and NSEs top
Sampark Infotainment, visited brass as well as several members of
NSE on multiple occasions for the NSEs board of directors, but
laying fibre cables, installation, have received no reply to findings
etc, on behalf of Ways2Wealth of the TAC. The responses from
and GKN. The whistleblower The panel suggested that OPG Securities and Ways2Wealth
had contended that Sampark SEBI should constitute a team are already in the public domain;
had provided a dark fibre of people with appropriate the former has denied the findings.
link to Ways2wealth, giving background to investigate the Interestingly, after details of
better access. Here is what collusion aspect between NSE SEBIs findings were published
the TAC-commissioned report by various media entities, the
officials and OPG Securities...
says, With regard to the issue Association of National Exchange
of dark fibre, the Committee Members of India (ANMI), which
was of the view that in violation of its own policy on represents 900 members, is understood to have told the
allowing only ISPs, NSE allowed non-ISPs like Sampark, news agency Bloomberg that it plans to take up the issue
to lay fibre in its premises for various members. with the regulator.
6. The report further said that NSE had violated norms Clearly, the battle to get at the truth is far from over.
of fair access and allowed some brokers to benefit. Also, NSEs defamation case against us and appeal against Justice
when the complaint was made to NSE, its management Gautam Patels order persists. Let us not forget that the
had dismissed it and did not initiate any steps to check finance ministry as well as the Standing Committee of
the possibility of any collusion with the staff of NSE. Parliament have asked SEBI for a copy of TACs report.
TAC did not stop at merely accepting the report. It It remains to be seen if they initiate any action.
says, SEBI may initiate immediate action for lapses on
the part of NSE and exploitations made by OPG under
the guidance of the Committee, and that SEBI should Sucheta Dalal is the managing editor of Moneylife. She was
constitute a team of people with appropriate background awarded the Padma Shri in 2006 for her outstanding contribution
to investigate the collusion aspect between NSE officials to journalism. She can be reached at sucheta@moneylife.in

21 | 12 May 2016 | MONEYLIFE

DIFFERENT STROKES.indd 3 21-04-2016 20:45:32

 MUTUAL FUNDS POINTERS

an exodus of Rs790, saw its AUMs

Why Did Investors Pull decline by 90% to Rs78 crore in March
2016 from Rs780 crore in February
out Their Money from 2016. What led to this huge outflow?
Dividend-stripping.

these Schemes? High net worth investors use

dividend-stripping to reduce tax on
capital gains from other investments.
A few schemes suffered a massive exodus of money in March The dividend paid is tax-free and
2016. Bulk of the outflows were probably due to dividend- the NAV reduces by the amount of
stripping dividend paid. The investor then shows
the reduction in NAV as capital loss to

I
n March 2016, investors pulled crore), Franklin India Prima Plus be adjusted against capital gains from
out as much as Rs4,085 crore from (Rs315 crore), Birla Sun Life Frontline other investments. This adjustment is
equity mutual fund schemes. While Equity (Rs260 crore), ICICI Prudential allowed only if the units are purchased
sales of equity mutual fund schemes Value Discovery (Rs164 crore), ICICI three months earlier or held for 270
brought in Rs13,366 crore, as much Prudential Focused Bluechip Equity days after the dividend payment.
as Rs17,451 crore was redeemed by (Rs138 crore) and SBI Magnum In May 2015, Reliance Quant
investors. These were the highest ever Global 94 (Rs111 crore). Most of these Plus had AUM of just Rs36 crore.
redemptions recorded in a month. schemes have attracted investors based In June 2015, the AUM shot up to
The previous highest redemptions on their past performance. Schemes Rs1,378 crore. In the same month,
were reported in September 2010, which have delivered robust returns the scheme announced a dividend of
when as much as Rs13,250 crore was in the past are rewarded with equally Rs4.2 per unit. Over the period, the
redeemed from equity schemes. We strong inflows from investors. AUM gradually declined and, in March
take a look at schemes which faced There were as many as 11 schemes 2016, as much as Rs790 crore was
the highest redemption pressure and which saw their AUMs decline by over redeemed.
which schemes saw their assets grow, Rs100 crore. The five schemes with There were a few other schemes
in March 2016. the highest outflows were: Reliance which reported a sharp decline in
We analyse the growth in assets Quant Plus (Rs790 crore), Religare AUMs. Religare Invesco Contra
under management (AUM) over the Invesco Contra (Rs667 crore), suffered a 75% decline in AUM to
net asset value (NAV) growth of the JM Equity (Rs347 crore), Sundaram Rs195 crore from Rs768 crore over the
scheme. For example, in February Rural India (Rs340 crore) and Reliance same period. Other schemes which saw
2016, if we assume that the AUM of Focused Large Cap (Rs272 crore). their AUMs decline to less half their
a scheme was Rs100 and the NAV Reliance Quant Plus, which reported AUM of February 2016 were: Religare
was Rs10/unit and, in March 2016,
the AUM grows to Rs125 crore and
NAV is Rs11/unit, the net inflow will High Outflows an Outcome of Dividend Stripping?
be approximately Rs15 crore. The Equity Diversified AUM Feb-16 AUM Mar-16 NAV Net Flows
Schemes (Rs Cr) (Rs Cr) Growth (Rs Cr)
additional Rs10 crore in the AUM is
from NAV growth. Based on this, out SBI Bluechip 4,050 5,124 10% 680.70
of the 189 equity diversified schemes, Franklin India Prima Plus 6,048 7,021 11% 314.80
around 89 schemes, or 47%, reported Birla Sun Life Frontline Equity 9,434 10,684 10% 260.20
net inflows totalling Rs3,381 crore.
ICICI Pru Value Discovery 9,925 11,224 11% 164.30
The remaining 100 schemes saw their
ICICI Pru Focused Bluechip Eq 8,884 9,965 11% 138.30
AUMs decline. The consolidated
AUMs of these schemes declined by Reliance Focused Large Cap 1,120 967 11% (271.70)
Rs4,800 crore. Other equity schemes, Sundaram Rural India 449 161 12% (340.10)
including arbitrage schemes, reported JM Equity 830 562 9% (346.90)
a net outflow of Rs3,372 crore. Religare Invesco Contra 768 196 12% (667.40)
As many as six schemes saw their
Reliance Quant Plus 781 79 11% (790.30)
AUMs grow by Rs100 crore or more.
These were: SBI Bluechip (Rs681

MONEYLIFE | 12 May 2016 | 22

Fund Pointer.indd 2 22-04-2016 12:30:39

 MUTUAL FUNDS POINTERS

an inflow, as many as 26 were equity

No Interest in Arbitrage Schemes? linked savings schemes (ELSSs). Being
Arbitrage Schemes* AUM Feb-16 AUM Mar-16 NAV Net Flows
the last month of the financial year,
(Rs Cr) (Rs Cr) Growth (Rs Cr) ELSSs reported a net inflow of nearly
ICICI Pru Balanced Advantage 10,128 11,021 8.09% 72.70 Rs1,000 crore. Savers usually rush in
to invest in tax-saving schemes in the
SBI Equity Savings 184 201 4.90% 7.30
last quarter of the financial year.
HDFC Equity Savings 127 136 6.21% 2.00 Among the ELSSs, Axis Long
DHFL Pramerica Eq Income 36 38 2.53% 0.60 Term Equity (Rs622 crore), Reliance
L&T Equity Savings 59 61 3.53% (0.40) Tax Saver (Rs164 crore) and ICICI
Kotak Equity Arbitrage 4,278 3,939 0.77% (372.10) Prudential Long Term Equity (Rs117
crore) attracted over Rs100 crore each.
IDFC Arbitrage 2,862 2,497 0.72% (385.90)
Axis Long Term Equity has not only
ICICI Pru Equity - Arbitrage 3,583 3,102 0.74% (507.10) performed well as an ELSS but, over
JM Arbitrage Advantage 2,538 1,846 0.72% (710.70) the past year, it has outperformed
HDFC Arbitrage 2,583 1,812 0.73% (789.50) most schemes of the equity diversified
*Including schemes which invest a part of the portfolio in arbitrage opportunities category. As investors chase star
performers, it is not surprising to see
a high inflow of assets in such schemes.
Invesco Business Leaders, Sundaram As a percentage of their initial corpus, This was the highest monthly inflow
Rural India and Indiabulls Blue the outflow ranged between 10%- after SBI Bluechip.
Chip. 30% for the schemes. Among the four Among the schemes that reported
In October 2015, Indiabulls Blue schemes that reported an inflow was an outflow were: Sundaram Financial
Chip saw its AUM jump to Rs458 ICICI Prudential Balanced Advantage Services Opportunities (Rs342 crore),
crore from Rs32 crore in September which reported a net inflow of Rs73 Birla Sun Life Index, (Rs187 crore)
2015. The scheme declared a dividend crore. The other three schemes reported and SBI Magnum Tax Gain Scheme
of Rs1.90 in March 2016. Similarly, an inflow of under Rs10 crore. 93 (Rs154 crore).
Religare Invesco Contra and Religare Among the other category of equity As it can be seen from our analysis,
Invesco Business Leaders reported a schemes, which include tax-savings a bulk of the inflows and outflows is
substantial increase in AUMs (of over schemes, sector schemes and index limited to only a few schemes. Strong
Rs200 crore each) in October 2015 schemes, around 50 schemes (out of the inflows or outflows may not always
and August 2015, respectively. The 113) reported a net outflow. Among be related to scheme performance or
schemes paid a dividend of Rs1.90 per the remaining schemes which reported the market.
unit and Rs2.65 per unit, respectively,
in March 2016.
But it was not just equity diversified Strong Inflows Seen in Tax-saving Schemes
schemes, even most arbitrage schemes, Other Equity Schemes AUM Feb-16 AUM Mar-16 NAV Net Flows
too, faced strong redemptions. This (Rs Cr) (Rs Cr) Growth (Rs Cr)
category of equity schemes reported a Axis Long Term Equity 6,677 7,818 7.77% 622.20
consolidated outflow of Rs3,876 crore
Reliance Tax Saver 3,920 4,646 14.33% 164.40
in March 2016.
Out of the 29 arbitrage schemes, ICICI Pru Long Term Equity 2,548 2,879 8.40% 116.90
25 schemes reported a net outflow. Franklin India Taxshield 1,700 1,981 10.82% 97.30
Of these, nine schemes reported a net Birla Sun Life MNC 2,766 3,101 9.93% 79.70
outflow of over Rs100 crore each. HDFC Taxsaver 4,018 4,543 14.44% (55.50)
Among these were schemes such
Reliance Banking 1,753 1,931 13.93% (66.30)
as HDFC Arbitrage, JM Arbitrage
Advantage, ICICI Prudential Equity SBI Magnum Tax Gain 93 4,094 4,361 10.25% (153.50)
Arbitrage, IDFC Arbitrage, Kotak Birla Sun Life Index 418 276 10.96% (187.30)
Equity Arbitrage and Reliance Sundaram Financial Services 401 124 16.37% (342.00)
Arbitrage Advantage which reported Opportunities
an outflow of over Rs300 crore each.

23 | 12 May 2016 | MONEYLIFE

Fund Pointer.indd 3 22-04-2016 12:30:55

 MUTUAL FUNDS POINTERS

Frontline Equity (Rs50 crore), ICICI Prudential Top 100

Hot and Cold (Rs35 crore) and Birla Sun Life Equity (Rs28 crore).
Reliance Quant Plus sold 445,000 shares of the pharma
Stocks of Fund stock worth about Rs23 crore.
Axis Banks shares were in demand from 30 schemes.

Managers The top buyers from DSP BlackRock MF, namely, DSP
BlackRock Top 100 Equity, DSP BlackRock Equity, DSP
BlackRock Focus 25 and DSP BlackRock Opportunities,
picked up shares worth Rs200 crore in March 2016. Among
In March 2016, Container Corporation was in the few sellers were: Religare Invesco Contra (Rs35 crore)
demand while Reliance Industries was on the ICICI Prudential Multicap (Rs38 crore) and Reliance Quant
selling list Plus (Rs54 crore).

I
n March 2016, 193 equity diversified mutual fund
schemes traded in as many as 495 stocks. For about
228 stocks, the holding remained unchanged in their
portfolio reported for March compared to their February
2016 portfolio disclosure. We take a look at the top stocks
bought and sold by equity schemes in March 2016.
In terms of value, the top 10 stocks bought by equity
mutual funds were: Container Corporation of India, Cipla,
Axis Bank, Dabur, GlaxoSmithKline Consumer Healthcare,
Bajaj Auto, Bajaj Finserv, State Bank of India, Lupin and
Century Textiles & Industries. Equity schemes reduced their
holdings in Reliance Industries, Coal India, Infosys, Bharti
Airtel, ITC, Maruti Suzuki, Larsen & Toubro, Power Grid
Corporation of India, Bharat Petroleum Corporation and
Tata Consultancy Services.
As many as 3.2 million shares of Container Corporation
of India(CCIL), worth Rs383 crore, were bought by equity
funds in March 2016. ICICI Mutual Fund was the top
buyer of the stock; six schemes of the fund house added
shares to their portfolio. ICICI Prudential Value Discovery
picked up 1.48 million shares while ICICI Prudential
Focused Bluechip Equity picked up 605,892 shares of the
stock. Two schemes sold shares of the stocks. HDFC Top
200 sold 70,000 shares of CCIL.
Schemes that bought shares of Cipla were: ICICI
Prudential Dynamic Plan (Rs130 crore), ICICI Prudential
Focused Bluechip Equity (Rs65 crore), Birla Sun Life
Giving Up on Reliance?
Among the stocks that equity schemes reduced their holding
in was Reliance Industries37 schemes sold shares worth
Rs770 crore of the stock, while about 16 schemes added
shares worth Rs140 crore. Among the top sellers were: Axis
Equity (Rs105 crore), Reliance Quant Plus (Rs85 crore),
HDFC Equity (Rs80 crore), ICICI Prudential Dynamic
Plan (Rs70 crore) and Reliance Equity Opportunities
(Rs40 crore). Schemes which bought the stock included
SBI Bluechip (Rs50 crore), Kotak Select Focus (Rs40 crore)
and L&T Equity (Rs20 crore).
As many as 30 schemes sold shares of Coal India
worth Rs425 crore, while only five schemes added shares
of the stock. Among the top sellers were: HDFC Top 200
(Rs110 crore), Birla Sun Life Frontline Equity (Rs43 crore),
Reliance Vision (Rs35 crore), ICICI Prudential Multicap
(Rs31 crore) and DSP BlackRock Top 100 Equity (Rs27
crore). The buyers included SBI Contra (Rs18 crore) and
PPFAS Long Term Value (Rs8 crore).
Shares of Infosys worth Rs485 crore were sold by 26
schemes, while another 27 schemes bought shares worth
Rs100 crore. Among the top sellers were: ICICI Prudential
Dynamic Plan (Rs70 crore), Reliance Quant Plus (Rs60
crore), HDFC Equity (Rs50 crore), Religare Invesco Contra
(Rs48 crore) and HDFC Top 200 (Rs45 crore). Among the
buyers were DSP BlackRock Focus 25 (Rs20 crore) and
Motilal Oswal MOSt Focused Multicap 35 (Rs15 crore).

Hot Stocks Cold Stocks

Number of Schemes Value Number of Schemes Value
Company Name (Rs Cr) Company Name (Rs Cr)
Bought Sold Bought Sold
CCIL 13 2 382.90 Reliance Industries 16 37 (628.14)
Cipla 20 7 344.66 Coal India 5 30 (391.81)
Axis Bank 30 21 152.08 Infosys 27 26 (385.99)
Dabur India 6 2 149.98 Bharti Airtel 6 15 (246.37)
GSK Healthcare 8 3 129.41 ITC 27 25 (231.61)

MONEYLIFE |12 May 2016 | 24

Fund Pointer.indd 4 22-04-2016 12:20:59

 FIXED INCOME

the bank FD interest just because

Bank FD and Savings Interest there is no TDS.
under Tax Scrutiny Another avenue for under-
reporting of bank interest is that on
Make sure you dont fall foul of the IT department savings account balances. As there
is no TDS for any amount interest

T
he income-tax (I-T)
department is keen to have
taxpayers declare all the
interest they earn. Tax-deducted-
at-source (TDS) gets reflected in
Form 26AS which helps the I-T
department to know the interest
amount on bank fixed deposits
(FD). If the taxpayer falls in the
tax bracket of more than 10%, the
returns should reflect the additional
tax payment. But what if there is no
TDS due to the interest being less
than Rs10,000 in the financial year
for that bank (across all branches)?
You need to still report the interest
and pay tax; but the taxpayer may
intentionally or unintentionally not
add such interest.
For example, if interest on bank
FDs earned in a financial year is
Rs9,000, there is no TDS. If you
are in the 10% tax bracket, you
need to add the interest in your tax
returns and pay Rs900 as taxes.
The I-T department has found
that such interest is, often, not
reported and is warning taxpayers
to properly report it. A good reason
to do so is that banks send the
details of earned interest to the I-T
department, irrespective of whether
tax is deducted at source or not. So,
your tax return may be opened for
scrutiny if you continue to ignore
on savings account, taxpayers may
not be keen to report it. With the
revised tax forms since last year
(FY14-15), which require listing
of all the banks (IFSC code and
account number) where you have
savings account, current or cash
credit account, it will be easier
for the I-T department to check
under-reporting of savings account
interest. Section 80TTA allows
savings account interest up to
Rs10,000 in one financial year to
be exempt from tax. But it is not
applicable for bank FD interest
which is fully taxable. It means that
if you have an average balance of
Rs2.5 lakh in your savings account
during a financial year (on which
most banks give interest @4%pa),
the interest would be tax free. This
average would be lower, if you had
savings account with banks offering
higher interest rates.

Bond Yields Are Down G-Sec Yields Are Down

B ond yields have headed down in the past fortnight. You can expect to get around
7.5%-7.75% for AAA rated bonds and around 9% for lower than AAA rated
bonds. T he 10-year benchmark G-Sec
yield fell by five bais points
(bps) in the past fortnight to end
Issuer Maturity Next Last Yield ISIN Rating at 7.41% on 18th April. According
Date Coupon (%) to Nomura, Indias trade deficit
Power Fin 8.4 5% 10 Aug-20 10 Aug-16 7.99 INE134E08HQ7 CRISIL AAA narrowed to a five-year low of
US$5.1bn in March from US$6.5bn
REC 8.70% 01 Feb-18 01 Feb-17 7.65 INE020B08815 CRISIL AAA in February, beating expectations.
IRFC Ltd 7.83% 22 Jan-17 22 Jan-17 7.50 INE053F07751 CRISIL AAA Imports contracted 21.6% y-o-y,
NSE data as of last trade date of 18 April 2016 as gold imports slowed due to the
IndiaBulls Housing Fin 10% 19 Mar-23 19 Mar-17 9.08 INE148I07241 ICRA AA+ jewellers strike. Overall, Indias
Mahanagar Telephone 19 Nov-24 19 Nov-16 8.12 INE153A08048 CARE AAA trade deficit narrowed in FY15-
Nigam 8.24% (structured 16, owing to lower commodity
obligation) imports. We expect the current
Power Grid Corp 8.85% 19 Oct-18 19 Oct-16 7.65 INE752E07KD0 CRISIL AAA account deficit to narrow to 0.9%
BSE data as of last trade date of 18 April 2016 of GDP in FY-1516 from 1.3% in
FY14-15, says the report.

25 | 12 May 2016 | MONEYLIFE

Fixed Income.indd 1 20-04-2016 20:36:55

 SMART MONEY R BALAKRISHNAN
8 Mistakes Retirees Make
Retirees are easy targets for sellers of financial products and fraudsters. They
must acquire basic financial knowledge for their own safety
W
hile Americans are notorious for poor long-
term savings, I am sure that the plight of senior
citizens living exclusively on their own savings
is not too good either. Retirement just happens. Retirement
means the loss of your earning and perhaps trying to
live on your savings and, often, a reduced lifestyle with
the prospect of unplanned medical emergencies looming
ahead. But, in that country, the State provides a lot of
social security in sunset years.
In India, things are worse as the State takes no such
responsibilitynot even for those who have paid their
taxes throughout their working lives. I also think that
there is a lot of foolishness and naivet on the part of
the just-retired or about-to-retire folks, when it comes to
matters of money. Senior citizens are either very nave or
very aggressive as investors and savers. I have seen highly
educated senior citizens take risks with their lifes savings,
without understanding the risk. Often, they also do not
understand the financial products suitable for them.
I have come across so many cases where retirees have
lost small fortunes. Fixed deposits (FDs) with unknown
companies because a relative or a friend recommended it
are among the most common cause of such self-afflicted
pecuniary. For example, Subhiksha group company,
Viswapriya, or PACL or so many schemes where they
think they will get higher returns than on bank FDs or
on safe FDs with a rock-solid Sundaram Finance (once
MONEYLIFE | 12 May 2016 | 26
column_Balakrishnan.indd 2
a hot-favourite with savers in south India. The company
would reach its legal limits and come out with ads saying
they cannot accept more deposits!). After interacting with
so many of them, I think the primary reasons are:
1. Secrecy in Matters of Money. They do not want to
tell anyone, or talk to anyone, about how much they have,
where they have parked it, etc. Secrecy is an obsession with
them. I know of several senior citizens who have lost big
money in various schemes. They all know me well and
know about me. However, they have never mentioned it
to me or wanted to discuss personal investments with me.
This penchant for secrecy makes them easy prey for the
hustlers of financial products.
2. Reluctance To Understand Financial Products. In
many cases, innumeracy blinds them totally to everything.
They do not even bother to find out anything about
the company or the outfit before they write out their
cheque. For example, I asked someone who had invested
in Viswapriya whether he knew who its promoter or
owner was. He did not. Then, I asked him whether he
knew about Subhiksha. He did. I asked him who was
its owner and he knew the name, the background, etc.
When I told him that Viswapriyas owner/promoter was
the same, he was flabbergasted. I told him to pull out the
form for FD that he had filled up and showed him the
names of the directors. Obviously, he had not bothered
to read all that. He was more concerned with the higher
rate of interest that was available.
3. Attempts To Avoid TDS. This leads many people to
put in amounts below the TDS (tax deducted at source)
threshold (around Rs50,000) in too many companies. In
this attempt, they run out of good companies and are easy
meat for brokers and agents who peddle FDs of companies
like JP Associates, Helios & Matheson, etc. Many I know
have 15 to 20 companies FDs! The vicarious pleasure of
cheating on the taxman has caused losses to so many. And,
now, they worry more because someone, somewhere got
an I-T (income-tax) notice about interest receipts. They
do not realise that in this information age technology
digs out information from the deepest trenches. They are
still cocooned in their mindset of having a second bank
account hidden away from the taxman.
4. Operate in Single Names. Another common mistake
I see is that many senior citizens still operate their
investments in single names. A joint account-holder is
16-04-2016 18:00:51
 SMART MONEY R BALAKRISHNAN
an absolute must, irrespective of age, more so if you are
closer to God than the rest. And they do not seem to have
even a nomination in place.
5. Fear of Equities. A common feature I note amongst
a lot of senior citizens is fear of equities. They do not
want to consider even equity mutual funds. Even when
they know that they are in good health, have just crossed
the age of 60 and have many years to look forward to,
they are blinkered. Only fixed-income investments appeal
to themfixed deposits, bank deposits, chit funds or
ponzis recommended by friends. They have not bothered
to understand equity and will not go to an adviser or a
friend to try and decipher this animal called equity. So,
they miss out on the one investment that could help them
to protect themselves against inflation. On the other hand,
I also come across some innocent (?) senior citizens who
blindly trust their private bank relationship manager and
have ended up with a bunch of (T)ULIPs. Once they are
bitten, they become sceptical about everything and go into
the security of bank FDs, with the occasional rush of blood
to their head which pushes them to exotica.
6. IPO Memories. Most of them grew up in an era where
the IPO (initial public offering) game was like a national
lottery. They still get their urge to apply in the IPOs; but,
luckily, many of them are scared by the free pricing. They
still think of premium as highway robbery. Most of them
have not bothered to try and understand investment basics
even after retirement when they have enough time.
7. No Advance Planning. Retirement is not planned or
given any attention until it actually happens. No one seems
to have given any thought to the fact that they would cease
to get a regular pay cheque and that they have a lifetime
of spending ahead of them. It seems to be a binary option.
Either they have enough wealth or they are dependent on
their children for their future daily bread. Thus, they take
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ey liife
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column_Balakrishnan.indd 3
each day as it comes, without concern for their spouse or
their children. I know, it sounds harsh; but an unplanned
retirement is very cruel on your spouse. And, in todays
world, you should not be a burden on your children who
are already stressed out about the future of their children.
8. Spouses Remain Dependent. In all cases, spouses
are kept out of the decision-making regarding all matters
relating to money. The typical homemaker spouse never
bothers with where the money is, which bank, etc, and
is totally dependent on someone to handle the money.
Should the earning spouse, who has retired, depart this
world, the homemaker spouse is all at sea and is easy prey
for scamsters. So, all you retired folks out there, please
take some time out everyday and FORCE your spouse to
understand what the financial resources are and how to
access them, should something happen to you. Unless you
do this, please understand that, after you, your spouse
is going to be at the mercy of someone for finance, even
if you may have provided for her. Making and saving
money alone does not complete your task. Informing
and educating your spouse about it is equally important.
All the observations are based on specific instances I
have come across. We do not have a senior-citizen-friendly
ecosystem. So, we have to create it on our own. Start from
scratch, if you have to. Use the Internet. Start reading
financial magazines/financial papers, just to get a drift of
things. Understand inflation which is the biggest enemy
of the retired. Financial knowledge can make things easier
for you and make your rupee work better. And, remember,
you are alone in this. You are easy target for insurance
salesmen and other fraudsters. They will find you as the
soft target for meeting their goals. In the process of meeting
their goals, they will empty your pockets.
The author can be reached at balakrishnanr@gmail.com
htm
ml to avail this offer
27 | 12 May 2016 | MONEYLIFE
16-04-2016 18:01:25
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INSURANCE TRENDS
New products, regulations, features and options,
interpreted from your perspective
R e g u l a t i o ns
Poor Compliance
of Ombudsman
Awards under
Scanner
IRDAI wants monthly
reporting of pending
compliance
G etting an award in your favour
at ombudsman hearing for a
case may seem to be end of your
struggle in making an insurance
company pay your claim or redress
any other grievance. But it may not
be the end of your agony as the
insurer may just sit on the award
and keep procrastinating on the
payment. Moneylife Foundation
held an open house discussion with
AK Dasgupta, Mumbai insurance
ombudsman on 27 September 2014.
Fine Print
Birla Pension Plan Mis-selling
to Senior Citizens
B irla Pension Plan is a scam
targeting senior citizens
with the pitch of being selected
for the pension plan. The email
gives a proper logo of the
insurer along with registered
MONEYLIFE | 12 May 2016 | 30
Insurance.indd 2
The Cover Story based on the
discussion (http://www.moneylife.in/
article/learn-from-others-insurance-
mistakes/39133.html) raised an
important point. The insurer has
to comply with the award in 15
days (however, several consumers
complained to the ombudsman that
this does not happen in practice).
A Moneylife reader complained,
in May 2015, that the Delhi
ombudsmans award, dated
2 December 2014, under which
HDFC Life was supposed to cancel
the policy, and refund all the
premiums paid, was not complied
with. It was a classic case of an
insurer being lax about compliance
with an inexplicable delay of six
months. Moneylife took the case
to HDFC Life which replied: On
receipt of Ombudsman copy (sic),
we have initiated the process of
refunding the amount. Customer
will receive the cheque within seven
working days. It is unlikely that
office address, even though it is in
poorly-worded English. For Rs2
lakh one-time premium, there will
be monthly pension of Rs3,000
for whole life and refund of the
purchase price to the nominee.
It also offers Rs2 lakh health
insurance benefits and Rs4 lakh
accidental cover. Interestingly, Birla
SunLife has neither denied nor
accepted the product offering.
Ombudsman award copy can take
six months to reach the insurer
and, hence, its not difficult to guess
where the delay happened. Our
prodding prompted the insurer to
comply quickly.
Insurance Regulatory and
Development Authority of India
(IRDAI) seems to have woken up to
the lapses by insurers in complying
with the ombudsmans awards. It is
unfortunate that the regulator had
to crack the whip on insurers who
should not keep the ombudsman
awards pending as such decision is
binding on the insurer. Inordinate
delay reduces the trust in the
insurance companies, especially
since so few complain, and fewer,
win an award.
IRDAI has directed companies
to furnish details of cases pending
for compliance for the past three
years. IRDAI has been receiving
feedback from ombudsmans
offices bringing to its notice the
unwarranted delay from insurers
to implement the awards of the
insurance ombudsman. IRDAI
has also told the insurers that
complaints have been received
from the aggrieved policyholders.
IRDAI had asked insurers to give a
list of ombudsman awards that are
pending for compliance for the past
three years (2013-14, 2014-15 and
2015-16) by 7 April 2016. Insurers
will also have to file monthly
Telenors Free Life Insurance up
to Rs50,000
M obile operator Telenor is
offering free life insurance
up to Rs50,000 from Shriram Life
to its mobile customers. For this,
the customer is required to do a
predetermined minimum recharge
every month. The insurance amount
is 100 times the recharge value.
If the total recharges done in a
22-04-2016 15:31:50
 INSURANCE TRENDS
statement on status of ombudsman
cases and status of court cases. All
this bureaucratic work could have
been avoided with some exemplary
punishment. A hefty fine and the
wide publicity it would get can
straighten up the insurers. IRDAI
has asked insurers to ensure that
orders of judicial and quasi-judicial
bodies should be complied within
the timeframe stipulated in the
order or award. In cases where
timeframe is not specified, the
order/award should be complied
within 60 days.
Mo t o r I n s uranc e
ICICI Lombard
Refuses TP Cover
in Amritsar
Private vehicle is denied.
What chances for
commercial ones?
I CICI Lombards Amritsar office
refused stand-alone third-party
(TP) car insurance for a private
vehicle. If a private vehicle is
refused TP cover then what chance
does commercial vehicle with
higher loss ratio have to get stand-
alone TP cover? The consumer
was told that insurer has stopped
giving stand-alone TP cover since
month amount to a total of Rs500,
the cover will be Rs50,000. The
minimum recharge level to get
cover is Rs50 per month which will
give a cover of Rs5,000. The sum
insured for the current month is
determined by the recharges done
in the past month. It will help the
operator to get business of the
required recharge every month. Life
insurance should not be the reason
Insurance.indd 3
January 2016 from Amritsar office.
According to ICICI Lombard,
Please note that we have sold
45,993 stand-alone TP policies
between January 2016 and March
2016 amounting to premium of
Rs47 crore. In terms of zonal share,
West accounted for 51%, followed
by South at 22%, North at 18%
and East zone at 9%. With regard
to your query on city specific data,
we are not in a position to provide
the same due to confidentiality
issues.
ICICI Lombard may be doing
the same at other locations too.
Overall, north India has higher TP
claims than south India and, hence,
more difficulty in getting stand-
alone TP cover. It means that the
insurer may be trying to analyse the
TP claims from different locations
and then deciding whether to allow
consumer to buy TP cover or to
make it difficult to buy.
In the previous issue, we wrote
that IRDAI is trying to make it
to move to Telenor; better tariff
plan or better coverage should be
the reason.
DHFL Pramerica Life Penalised
Rs15 Lakh
I RDAI has imposed Rs15 lakh
fine on DHFL Pramerica Life
Insurance Company for violation
of guidelines on outsourcing norms
for corporate agents licensing. The
difficult for insurers to refuse
covering TP motor risk and even
wanting insurers to sell TP cover
online. But is it really working?
ICICI Lombards example shows
that the ground reality is different
from what IRDAI is trying to
implement. IRDAI needs to find if
ICICI Lombard issued any stand-
alone TP cover from Amritsar
office between January-March
2016 to ascertain if the insurer is
violating IRDAI guidelines. Similar
checks needs to be done with other
insurers to see if any location
specific disallowance is made for
stand-alone TP cover. Just checking
the overall business underwritten
for stand-alone TP or getting zone-
wise TP business will not give the
full picture. Insurers are always
a step ahead in trying to prevent
losses which may entail denial of
underwriting.
There is a need to ensure that
vehicles do not skip the mandated
TP cover. It is unbelievable that
55% of vehicles running on Indian
roads are uninsured. If insurers are
making it difficult to buy stand-
alone TP, then it is one of the
reasons for such high number of
uninsured vehicles in India. IRDAI
needs to make stand-alone TP
cover easily available for private
as well as commercial vehicles. TP
cover premium is under tariff and
mandatory in India.
insurer entered into outsourcing
agreement with entities owned
or related to individual agents,
which is a violation of the
corporate agency guidelines. It
resulted in additional payment
being made under the pretence
of service-level agreements.
IRDAI has told the insurer to be
careful in future and not enter
into such agreements.
31 | 12 May 2016 | MONEYLIFE
22-04-2016 15:32:17
 COVER STORY

INSURANCE

Buying insurance may seem easy, considering the

many cold calls we receive. Raj Pradhan lists the
difficulties in getting insurance policy for life, health
and personal accident. Read real-life examples of
your proposal rejections and how you can improve
you chances of getting insurance

B
uying a term plan or mediclaim is easy for the
young and healthy. With age or health issues,
the chances of getting an insurance policy
drop steeply. The insurer would rather lose
the a customer than underwrite something
risky. Insurers even say that it is easy to get a lot of bad
business; but they gain little by taking additional risks. If
the risk is a little beyond their tolerance level, they will
reject the proposal rather than offer the policy at a higher
premium (loading). If you apply to another insurer, you
have to make a declaration about the rejection which
shows as a blot on your record.
Life insurers are even postponing the underwriting
by six months which is even more frustrating for the
potential customer. They will get a full refund, but go
through an unhappy experience. The insurer may not
give any written report that explains the reasons for
rejection, but a testing centre, or the insurers own call
centre, may sometimes tell you the reason. It is possible
that if you independently do the medical tests, you may
find nothing wrong which will lead to doubts about
insurers tests. The postponement of underwriting,
instead of offering a policy with increased premium,
leaves customers hanging.
You may be under the illusion that applying for a
high sum assured of Rs1 crore to Rs3 crore term plan will
fetch you special treatment by the insurer. Term plans
are more difficult to get than insurance-cum-investment
products. The higher the cover sought, the higher will be
the scrutiny of the proposal for underwriting. In India,
underwriting, at the proposal stage, is often coupled
with underwriting at the claim stage. It means that at
the time of the claim, the insurer may recheck everything
to ensure that proposal was made in utmost good faith.
Even when there is a claim after several years, it can give
an opportunity to the insurer to scrutinise the proposal

MONEYLIFE | 12 May 2016 | 32

Cover Story.indd 2 22-04-2016 16:52:27

 COVER STORY

form to find flaws which can lead to claims rejection. Where medical tests are indicated due to declaration of
Luckily, Section 45 of the Insurance Amendment Bill medical history/pre-existing illness or age higher than 50
states that a policy cannot be called into question after years, rejections can shoot up to 25%.
three years of being issued. Insurers will find it almost
impossible to repudiate claims after three policy years due Real-life Rejections for Strange Reasons
to this suggested change. It puts the onus on the insurer Given below are some real-life cases, as first person
to do proper checks at the time of underwriting. There is accounts, that Moneylife has come across where the
a need for robust underwriting process so that all issues reason for rejection is not clear. The only option a
are flagged before the policy inception. The insurer will consumer has is trying with other insurers as every insurer
have three years to raise any objections regarding the has different underwriting rules. One insurer may accept
declarations by the insured. The Amendment should be a case which has been rejected by another insurer. Risk
a welcome change for genuine policyholders. It will not tolerance among insurers varies, for different medical
allow insurers to reject a claim after three years under conditions.
the garb of any misrepresentation, mis-statement or non-
disclosure while buying the policy. Life Insurance
But insurers are under no such pressure for health Case 1: I applied to HDFC Life Click2Protect Plus plan
insurance which needs renewal after one or two years. for Rs3 crore. I went through the medical tests and
So, health insurance claims after three years with the submitted all the documents asked for. After almost a
insurer can still be rejected if there is any issue with month, I called them and I was told that the policy is
the proposal. Buying health insurance at an older age postponed for six months. I have received no other
is diffi cult. Insurers are supposed to allow entry into intimation so far from HDFC Life. The reason that the
regular mediclaim policy till age 65 years, but the right call centre agent gave was TMT (tread mill text). Now, I
to underwrite still rules. Some insurers just do not am not sure what to make of this. The process, in itself,
entertain senior citizens trying to buy mediclaim. They was quite a pain with the number of emails and calls
may have senior citizen mediclaim product in their that I received, despite submitting all documents online
portfolio, but are they really selling it? Also, dont think in one shot. Every email referred to some requirement
that a top-up/super top-up is easier to buy. that had already been met. The
In fact, since insurers dont information from HDFC Life
share the underwriting during the process was quite poor.
formula to accept or I was kept absolutely clueless
reject a case, one is about where things were stuck.
completely in the dark. Based on the doubt that they had
Insurance companies say planted in my mind, I underwent
that they do not have the a thorough health check-up (and
luxury of a good mix of additional tests) and every report
healthy and less healthy has come absolutely clean.
population. When more HDFC Life has only added a
and more young and black spot to all my future
healthy buy insurance, insurance applications now, for
insurers will have a no fault of mine.
balanced portfolio which Case 2: I am told that due to
can help insurers take more high ESR count, the policy has
risks and accept more cases, been postponed for six months.
instead of having strict rules HDFC Life is not sharing with
of rejection. Until then, pure me the medical report. They
insurance products will be are saying that it is given
: "H D FC Li fe has only
tough to get if you are a eA ds e after the policy is issued.
y beyond th ture insuranc
risky prospect. According to Realit a black spot to all my fu mine." How does one confirm the
added w , fo r no fault of
one insurance official, there ns no higher level of ESR? I dont
applicatio
can be 1%-2% rejections of know whether there was any problem in it. They
even proposals received from the young and healthy have refunded the full amount. I would also like to see
with no adverse declarations in the proposal form. the medical report. The sum assured was Rs1 crore.

33 | 12 May 2016 | MONEYLIFE

Cover Story.indd 3 22-04-2016 16:57:39

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 COVER STORY

Incompletely filled proposal forms, absence of

documents, out of range BMI, adverse current
medical ailments or history are among the main
reasons for rejection of insurance proposals

Shreeraj Deshpande, head of health insurance, Future Generali India

Case 3: I applied for LIC eTerm in June 2015. After a
slow response and going through medical tests twice, the
proposal has been postponed. No reason was given to
me; but talking to an LIC employee, gave a clue that it
was rejected due to change in haemoglobin levels during
two medical tests. Now what should I do? Should I go
for some other companys plan or wait for six months
as suggested by LIC? LIC did not share the reports.
No rejection letter was given; the mail just mentioned
postponing for six months. They asked whether I had
gone for any medical treatment between the two tests.
I emailed them stating clearly that I did not go through
any medical treatment. Just after the first tests, LIC asked
me to submit an independent test for BP and submit a
questionnaire for hypertension which I sent them. My
physician told me that since my BMI(body mass index) is
slight higher, the BP reading is bit high (it was 150/100);
I dont have any medical condition.
Super Top-up
Case 4: I had applied for L&T Super top-up insurance
of Rs20 lakh with deductible of Rs5 lakh. I had declared
my pre-existing diseases and also stated my one-year
old son was hospitalised because of typhoid infection.
My son is out of hospital and hale and hearty but my
insurance was rejected giving the reason of my sons
hospitalisation! Can they do that or was I too honest in
declaration?
Critical Illness
Case 5: Max Bupa call centre personnel asked for my
familys medical history. I reported three things, knowing
that honesty is the best policy. A) My mother is on
medication for about five years for heart palpitation. So,
I said yes for this question. B) I have been advised to
take Tonact tablet for 45 days since my cholesterol was
high when I went for master health check-up through
my employer-provided health insurance. I took the tablet
and it came back to normal; that was about a year ago.
So I said yes for this question too. C) My wife went
through Caesarean Section when we had our first child.
For this, the caller said its normal. He then articulated
the decision. Since I have answered two questions as
Yes, I cannot avail critical illness (CI) cover from Max
Bupa. However, my wife was given CI cover which I
accepted.
Super Top-up Converted to Mediclaim
Case 6: I have approached Apollo Munich for their
Super Optima Top Up with a sum assured of Rs10
lakh and deductible of Rs7 lakh. I am a 48year-old
NRI (non-resident Indian) with sound health. The
declaration I made was for my continuous medication for
hypothyroidism detected 32 years back; I am on 75mg of
thyroxin. I had produced all my latest medical reports
to assess my medical status. Now, Apollo Munich has
rejected my policy and the agent does not know why. Am
I not entitled for health insurance policy even after all
disclosures? I am meeting all the criteria and also ready
to undergo their medical testing.
Mediclaim
Case 7: I am trying to buy mediclaim for my senior citizen
father. I visited the local office of United India Insurance
(UII). They refused to give a quote stating that they are
not issuing senior citizen mediclaim to new applicants. I
told them it is there on website. They said yes but they
are not issuing; only renewing existing ones. It looks like
it is at the discretion of the local office. I will try to visit
another UII office in Pune.
National Varishtha gave a quote of Rs9,784 for
Rs1 lakh SI and Rs2 lakh critical illness cover. The only
problem with this plan is that SI remains constant forever.
With ever-increasing medical costs, Rs1 lakh cover
wont be sufficient a few years down the line. Besides,
medical tests have to be done at ones own cost. New
India Assurance Senior Citizen policy has a maximum
coverage of Rs1.5 lakh.
It seems like most of the government insurers are
reluctant to give a policy to senior citizens. New India
Assurances personnel said that it seems difficult to
get approved. On persuasion, he asked me to meet the

MONEYLIFE | 12 May 2016 | 36

Cover Story.indd 4 22-04-2016 16:54:02

 COVER STORY
Proposal can be rejected due to medical
adversity, financial ineligibility for applied cover,
lack of insurable interest or moral hazard
Pawan Mahajan, head of underwriting, Bajaj Allianz Life Insurance
branch manager who also said same thing. He asked for
medical tests (13 of them) based on which they would
decide. But another precondition he put is that I should
also buy my family insurance from them. He asked me
why I was buying my fathers insurance from them and
mine from a private insurer.
Case 8: I tried to purchase L&T Medisure Classic
Individual Health Policy for my younger sibling who
has a hearing problem in one ear. I declared the medical
condition in the proposal form and they asked me to
send the scanned medical record which I sent. But the
proposal was declined stating reason deafness in one ear
and head injury. As far as we know, there was no head
injury; other than ear problem, my sibling is perfectly
fine. What should we do? Should we opt for some other
companys plan?
Case 9: I wish to take a health insurance policy for my
mother (66), my wife (31) and myself (40yrs). Last year, I
had applied for L&T Health Insurance but they rejected
the application stating that my mother was operated for
otosclerosis half a decade ago! Just for your information,
otosclerosis is a micro-surgery to fix a tiny bone issue
in the ear and is a once-in-a-lifetime surgery with no
side-effects or recurring effects and does not require
any kind of ongoing medication/treatment. Every other
parameter in my mothers medicals was perfect (BP
normal, no diabetes, no heart ailment). Her reports are
better than most younger people! Despite this, without
even understanding the implications of otosclerosis,
they simply rejected the application. Its like refusing
to insure someone because one has had a cataract
removal surgery! I really wanted to take the matter up
with IRDAI (Insurance Regulatory and Development
Authority of India) for rejecting the application without
sufficient cause; but I was too busy to enter into a long-
drawn battle. Thereafter, I am discouraged to apply with
another insurer again.
Case 10: I am 27 years old and my health insurance
application (Religare) was rejected. I was operated in my
left eye four years back and I have glaucoma for which
eye-drops are needed. What do I do now? Apply to all
Cover Story.indd 5
other companies till I get somewhere? I need a health
insurance; I have a basic corporate health insurance.
Diabetes Plan (Mediclaim)
Case 11: A proposal was made for a lady of 40 years
with diabetes. The diabetes is being controlled through
medication and is not insulin dependent. We had
shortlisted Apollo Munichs Diabetes plan and, after
all disclosures, done the medical test. However, the
policy request has been rejected due to supposedly high
albumin in the urine which is generally the case with
most diabetics and, hence, it does not make sense.
Personal Accident
Case 12: I applied for a personal accident (PA) policy
with Apollo Munich. I had voluntarily disclosed that I
was involved in paragliding and mountaineering. They
declined my application. What are my options? The
application of my spouse went through. I have not
pursued paragliding and /or mountaineering for almost
eight years now and dont see myself doing it in future.
I am OK with exclusion being there for paragliding and
mountaineering in the PA policy.
Moneylife took the case to Apollo Munich for
underwriting. The applicant had to give a declaration
that he is no longer involved in paragliding and
mountaineering and, only after that, they have issued the
PA policy.
Reasons of Proposal Rejection
According to Shreeraj Deshpande, head of health
insurance, Future Generali India Insurance,
Incompletely filled proposal forms are one of the major
reasons. However, lack of submission of documents,
for example, income proofs in case of personal accident
policies are also reasons for rejection. Other reasons for
rejection include BMI (body mass index) not falling in
acceptable range, adverse medical ailments in existence
or history, etc.
Pawan Mahajan, head of underwriting, Bajaj Allianz
Life Insurance, says, Proposal can be rejected due to
37 | 12 May 2016 | MONEYLIFE
22-04-2016 16:54:42
 COVER STORY
12 Ways To Reduce Your Chances of
Getting Rejected
I f you are serious about getting an adequate term
plan or health insurance, you need to take a few
steps to ensure that your proposal is not rejected.
There are some things that are not in your hand while
there are things which you can change. Health is
wealth is not just a clich. If you have a clean record
of no hospitalisation, no past claims, no pre-existing
diseases (PED), no family history of diseases, no
issues with medical tests, etc, then your chances of
getting an insurance policy improve, even when you
are not so young.
1. Zero-defect Proposal Form: Proposal forms have
to be fi lled completely with correct details. Previous
medical details about illness/injury, any disability or
deformity have to be mentioned. At the time of claim,
non-disclosure of such material facts may result in
repudiation of the claim or, in extreme conditions, may
result in policy cancellation. It is, thus, very important
to have all disclosures done correctly. If you answer all
the questions of the proposal form honestly, the utmost
good faith portion is almost covered. A few common
errors are about non-disclosure of previous policy
details with other insurers, non-disclosure of
complete health history and medication n for workers in underground mines, jockey,
undertaken, incorrect income details, s,
etc.
2. Age and Fitness: Age, personal al
habits, lifestyle, past medical history,y,
family medical history, current health h hhealth insurance underwriting too.
status, BMI, blood pressure, etc, impact ct
the chances of getting a policy. If you are
less than 45 years of age and in good shape,
hape,
you have a good chance of getting a term rm plan
and mediclaim. If you have fitness issues which can
be handled, it is better to tackle them before you apply
for insurance policy. Regular exercise will go a long
way to get better premium rates or even change the
decision from rejection to acceptance of the proposal.
3. Your Lifestyle: If you are a non-smoker, you will
get better rates for an online term plan. If you are a
smoker, you will pay approximately 50% higher
premium. If you have given up smoking and drinking,
MONEYLIFE | 12 May 2016 | 38
Cover Story.indd 6
it may help. Every insurer uses different criteria to
determine how many years after you give up smoking you
will be eligible for a non-smoker policy. For example,
if the insurers criteria for non-smoker premium rates
say that you have to completely give up smoking for a
minimum three years, you should try to achieve it if you
want to benefit from lower rates.
4. Lifestyle Diseases: With the rise in lifestyle diseases
like diabetes, cancer, heart disease, stroke, liver disease,
etc, buying insurance (life and health) becomes all the
more important. If you have any of these major diseases,
buying a policy can be very difficult. If you have any
minor health issues, think about it as a wake-up call.
5. Nature of Work: This matters a lot for a PA policy
which classifies a persons occupation in categories of
low, medium and high risk. If the job profile is high-
risk, the premium can be double of what a person
with standard (low) risk occupation will pay. Risk
level I is for administrative, managing functions,
doctors, lawyers, architects, teachers, etc. Risk level
II is for manual labour, mechanic, machine operator,
paid driver, builder, contractor, etc. Risk level III is
fo
circus performers, hunters, mountaineers,
ci
installation of high-tension supply, etc. Some
in
premium PA products with high cover may
pr
bbe offered only to risk level I. Occupation
aand nature of work does impact life and
6. Financial Status: Better financial status
will get
g you higher insurance cover. The main
reason ffor low premium for online term plans is
the expected mortality of the targeted segment. Insurers
expect net-savvy, financially-secure individuals to lead
a healthy lifestyle and also to have access to better
hospitals. Educated, net-savvy people are also supposed
to understand the importance of proper declaration of
medical conditions as well as giving correct information
in the proposal form. There have been studies of mortality
experience among different groups within the same
organisation and it has been observed that mortality rate
for employees with lower rank is sometimes as much as
22-04-2016 16:55:15
 COVER STORY

four times the mortality rate of higher-ranked employees.

Customer segmentation makes a huge difference in the 10. Need Intermediary Help? If you need an
premiums offered by insurers. intermediary for help during claims, then choose
wisely and verify from the insurer what proposal
7. Medical Tests: If you are aware of medical conditions they received. Check your policy documents to verify
which can be corrected (e.g., haemoglobin cholesterol your PED is shown. Remember, there have been cases
levels in the blood), it is better to get the investigations when intermediaries have fraudulently removed the
done on your own before placing a proposal with an health conditions declaration page and replaced it
insurer. If you are diabetic, the chances of getting a policy with a blank declaration to ensure that the policy is
reduce, even though few insurers are especially offering underwritten.They do not want the insurer to reject
diabetes policy (mediclaim). The insurers are looking for the proposal based on adverse health conditions. They
strict criteria when underwriting diabetic. If diabetes is in earn a commission only when a policy is underwritten.
initial stages or in control, the chances of underwriting The policy is worthless and, tragically, this may be
improve. Do your own tests before you allow insurers to found after several years, a when claim arises.
do their testing.
11. Previous Proposals Matter: The proposal
8. Declaration: Stick to the questions for any material form can have questions like: Has any proposal/
declaration. If the questions seem vague, avoid the reinstatement for life or health insurance ever been
insurer, if possible. Answer in utmost good faith without refused, modified, postponed or offered with extra
declaring the aberrations. If you premium (reason, month, year
smoked or drank only a couple and name of the insurance
of times in your life, there are If you are aware of medical company)? So, any denial,
no need to declare it. At the conditions which can be postponement, modification,
same time, medical tests is not a corrected (e.g., haemoglobin, additional premium for
substitute for utmost good faith cholesterol levels in the previously applied proposal
declaration. It cannot discover all blood), it is better to get the will have to be disclosed;
your health conditions and, hence, investigations done on your hence, it can impact your
the proposal form declaration is own before placing a proposal current application. Relying
critical. There are products which with an insurer on an intermediary to get you
depend solely on the declaration. the answer will not work.
Preference should be given to If the decision-maker in an
medical tests; but if the insurer decides that there is no insurance company feels that there are slim chances
need for it, you have no option if you wish to go with of underwriting, pay heed. There is no way you can
that insurer. force an insurer to underwrite; hence, cut your losses
by going to another insurer. Oral rejection for an
9. Avoid Intermediary, if Possible: A do-it-yourself informal proposal is better as it does not go on your
approach works well and can even help avoid any fraud record. Future proposals need to declare all the insurer
or mistakes an intermediary may make. Ensure that you rejections, which is a negative, and reduces chances of
get a copy of the proposal received by the insurer. Just underwriting with another insurer. You will end up
keeping a copy of the proposal you submitted is not only hurting your chances of getting a policy. Informal
enough; what the insurer received is more important. rejection is better than a formal one.
People trust intermediaries blindly which can leave them
high and dry. 12. Choice for Medical Tests Centre: From the
An intermediary cannot genuinely influence empanelled testing centres of the insurer, choose the
insurance company to give you a policy. If you are one with a better trust factor. Testing centres have
educated enough to buy on your own, you may want to different levels of accuracy if there are some false
buy directly from the insurer. You should buy it online positive results. False negative can also be an issue, as
from insurer website, if available, as it reduces chances it means that there is no medical condition shown in
of discrepancy in the proposal form. Avoid buying from the report when it is present. If the insurer discovers
Policybazaar.com. the medical condition, it can have an adverse impact.

39 | 12 May 2016 | MONEYLIFE

Cover Story.indd 7 22-04-2016 16:56:22

 COVER STORY

Insurance as a concept is designed to cover

uncertainties and potential problems that are
not known. One should take an insurance to get
covered from future health problems

Mukesh Kumar, ED, HDFC ERGO

medical adversity, financial ineligibility for applied cover,
lack of insurable interest or moral hazard.
According to Mukesh Kumar, ED, HDFC ERGO,
An insurance proposal could be rejected if the applicant
presents a clear risk. For instance, if an applicant is
suffering from a known chronic or terminal health
condition, then his application will be certainly rejected,
as insurance protects policyholder against an unknown
risk, not the known one. Insurance as a concept is
designed to cover uncertainties and potential problems
that are not known. One should take a health insurance
policy to get covered from future health problems.
People should not look for cover after a health problem
is discovered; covering such conditions would be against
the ethics and economics of insurance business. The ideal
time to take a health insurance is when one is healthy
and fit; to make sure they get covered for any long-term
medical issues. An early start is a wiser decision.
Reasons of Proposal Postponement
Pregnant women are advised to propose again after
six months of delivery, as per Future Generali. Also,
proposals of individuals with recent major surgery
may lead to postponement of proposal underwriting.
According to Bajaj Allianz, postponement is normally
done for medical conditions which are uncontrolled
but can be brought within control by proper treatment
like diabetes, hypertension, some sort of infection, etc.
Postponement period normally varies between three
months to one year.
According to HDFC ERGO, if there are adversities
which are ongoing the person can be covered later on. For
instance, someone is currently hospitalised for an acute
gastro-intestinal infection the policy, may be postponed
for the time being and he can apply for insurance after
full recovery.
Rejection Due to Health Conditions (Cancer,
Diabetes)
Proposals with pre-existing major ailments like cancer,
uncontrolled chronic conditions and pre-existing
critical illnesses could be reasons of rejection, as per
Future Generali. Cancer survivors would be specifically
evaluated depending on what type of cancer it was, at
what stage was it diagnosed, chances of recurrence,
period elapsed after recovery, results of screening tests,
etc. In case of diabetes, Future Genrali goes by the
current pathology reports.
For Bajaj Allianz Life, a health condition is evaluated
on the basis of type of adversity, treatment taken, current
health status, correlation between different adversities
and their ultimate effect on longevity of the life proposed.
For cancer survivors, it asks for complete medical history
like type of cancer, treatment taken, period of record,
follow-up and current status. Often, insurance is denied
to cancer survivors. Even if insurance cover is offered,
it is with re-insurers opinion and high medical loading.
When it comes to a case of diabetes, insurance cover can
be offered with slight medical loading if diabetes is within
control. HDFC ERGOs opinion is that any proposal that
has a clear and present risk will be rejected by all insurers.
They may still take the case with a limitation that any
claim on account of a particular pre-existing condition
may not be settled. Each case comes with its own set of
subjective medical history and conditions. We scrutinise
every case diligently and arrive at decisions. We may not
be able to comment specifically for critical diseases, e.g.,
cancer as each case is peculiar and has to be analysed
in detail before taking any decision. However chronic
ailments like hypertension or diabetes may be evaluated
on the basis of controls and accepted with loading.
Denial of insurance proposal is a reality often faced
by customers. Insurance is a business of risk handling;
the higher the risk perceived by the insurer, the higher
will be the premium or the higher the chances of
proposal rejection. If you present yourself favourably,
based on the steps suggested in the article, your chances
of getting a policy improve. Insurers are only looking for
an answer to How risky is this proposal? They dont
want to suffer losses from underwriting your policy.
Build your case with positives so that the insurer wants
to do business with you.

MONEYLIFE | 12 May 2016 | 40

Cover Story.indd 8 22-04-2016 17:06:15

 StockWatch
A section on stocks and sectors that catch our eye

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OP: operating profit, OPM: operating profit margin, RoNW: return on net worth

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and operating cranes, SML is a winner. Its average
operating margin is as high as 65% and low-cost
competitors, if any, are yet to catch up with it.
quarterly sales were Rs134.03 crore (Rs86.71 crore)
and its quarterly operating profit was Rs89.34 crore
(Rs50.61 crore). For the year ended March 2015,
SMLs annual sales were Rs308.23 crore (Rs244.37
crore) and its annual net profit was Rs8.06 crore (loss
of Rs14.5 crore).
SMLs shareholding pattern includes 46.88% shares
with promoters while 24.82% is with the general
public. Foreign institutional investors hold 4.92% and
Indian institutions hold 23.38%. The face value of the
SML share is Rs2 and its book value is Rs151.17. SML
is regular in its repayment obligations with banks. It
has received ICRA A+ as credit rating for long-term
loans, which indicates adequate degree of safety in

41 | 12 May 2016 | MONEYLIFE

StockWatch.indd 2 22-04-2016 17:35:47

 STOCK WATCH

respect of bank loan profile, and ICRA A1 for its

short-term loans. Declining Debt, Robust Free Cash Flows
SMLs operations involve significant outgo in
foreign exchange without any avenue for exports. (Rs crore) Debt Equity Ratio

Hence, volatility of the rupee against the US dollar 250 1.20

in the currency market could adversely affect its

operational costs. The company is hoping that the 150
0.80
Central governments emphasis on renewable energy,
more particularly on wind power generation and solar 50

energy, would increase the demand for the crane rental 0.40
-50
business that will enhance its revenue streams. It is also
hopeful of higher business coming from projects in
-150 10-11 11-12 12-13 13-14 14-15 0
refinery and gas, cement, power and steel sector.
Free cash flow Debt Equity Ratio
Over the past five quarters, SMLs average growth
in quarterly sales was 76% and average growth in
quarterly operating profit was 129%. Valuation is for FY12-13. The SML share price fell from a 52-week
low. The market-capitalisation of SML is 2.61 times high of Rs408 on 12 August 2015 to its 52-week low
it sales and 3.87 times its operating profit. The return of Rs255 on 24 February 2016. The stock was trading
on net worth (RoNW) is 14% computed on the basis at around Rs301 on 21 April 2016.
of trailing quarterly net profit. Its debt-equity ratio is The Indian economy has remained sluggish for a
0.51 and return on capital employed (RoCE) is 20% long time but is now seeing signs of revival. Any core
computed on the basis of four-quarter trailing EBIT sector growth, which is long overdue, will generate
(earnings before interest and tax). demand for cranes in which SML has a competitive
SML distributed dividends of 150% (interim advantage and a large market share. SML could be a
dividend) for FY15-16, 25% for FY14-15 and 50% big winner if core sector growth is sustained.

Tailwinds for Tiles?

Low input costs, strong outsourcing
linkages and government policies may
keep the tiles sector growing

T
he tiles sector has been doing well for the past
few years, thanks to three key factors which
will not disappear soon. One, the organised
tiles sector has been following the joint venture (JV)
model which has emerged as a key advantage for this
sector. This helps the organised players, like Kajaria
Ceramics and Somany Ceramics, expand their sales investment remains relatively low, enabling well-run
without investing in assets. This model ensures that companies enjoy high return on capital. The JV model

Exits & Returns from Erstwhile Street Beat Stocks: We continue to monitor stocks featured in the erstwhile Street Beat section. We will suggest an exit
when they are no longer undervalued or not performing as per expectations. Keep an eye on this space. | 42% Return: Our recommendation has so far
fetched 42% average annualised return since January 2012, based on booked profit and open positions of more than one year.

Disclaimer: None of the stock information presented constitutes a recommendation or a solicitation of any offer to buy or sell any securities. Information presented is general in nature that does not take into
account your individual circumstances, financial situation or needs Although information has been obtained from and is based on sources we believe to be reliable, we do not guarantee its accuracy and the
information may be incomplete or condensed. All opinions and estimates constitute our judgement as on the date of the report and are subject to change without notice. Past performance is no indication of future
results. Investors must do their own research before acting on them. Data Source: Centre for Monitoring Indian Economys Prowess database.

Those who have subscribed to the stockletters should only follow the stocks recommended there.

MONEYLIFE | 12 May 2016 | 42

StockWatch.indd 3 22-04-2016 17:36:23

 STOCK WATCH

also frees the organised players to focus on marketing

and building brands. This JV model has enabled Organised Sector Is Gaining Market Share
organised players to capture market share from the 100
unorganised players. In value and volume terms, the
share of organised players has increased over the years. 80
According to Edelweiss, a broking company, the share
of organised players was merely 40% in FY07-08. This 60

increased to 51% in FY14-15.

40
The second positive factor for the tiles sector is that
gas prices have reduced in the recent past, leading to
20
reduction in costs. Power & fuel costs account for a
significant proportion of the overall costs for the tiles 0
sector. Many tiles suppliers have entered into long-term Year 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15
agreements with Gas Authority of India Ltd (GAIL) Organised Urorganised
and other suppliers.
The third favourable factor is growth prospects.
As India prospers, there is huge potential for the ministry had imposed a provisional anti-dumping duty
growth of the tiles sector. India is urbanising and the of $1.37 per sqm (sqaure metres) on certain vitrified/
governments infrastructure push, such as for 100 smart porcelain tiles from China in early April 2016. This
cities and Swachh Bharat Abhiyaan, would be the key duty will be valid for a period of six months. The
drivers for the tiles industry. Nearly two-thirds of the major players are Kajaria Ceramics, Somany Ceramics,
rural population lives in households with mud flooring Asian Granito, Nitco and H&R Johnson (unlisted).
which, over the years, would slowly shift to using tiles, Among them, Kajaria Ceramics has the highest market
as disposable incomes grow. share, is the most efficient and has been the highest
Cheap Chinese tiles are a threat. The finance value creator.

On the Right Track? share in two-wheelers segmentjumping to around

27% from 8% in FY10-11. Its market share in utility
vehicles (UV) segment is currently at 15% and in
Changed product mix and capacity
passenger vehicles segment at 7%. In FY10-11, its
expansion may sustain growth market share in these segments was negligible.
Ceat plans to expand its capacity to 1,020tpd

C
eat, the Mumbai-based tyre producing firm, has
been a great wealth-creator over the past three
years. From just around Rs100 in September
2013, the stock is now quoting at around Rs1,150, a
humungous rally of 1,000% in less than three years.
The rally was primarily based on valuation expansion.
Since September 2014, the stock has recorded single-
digit sales growth. Sales growth over the past five
quarters has been -1%. It has done better with
profits, thanks to falling rubber prices. The valuation
expansion is on expectations of better growth and
profitability. Ceat has shifted
its focus towards two-
wheeler and four-wheeler
tyre segments which
are more profitable.
According to a research
report by Religare, Ceat
has raised its market
(tonnes per day) by FY17-18 from 740tpd with
a thrust on passenger vehicles, two-wheelers and
specialty tyres. It has recently commissioned a new unit
at its manufacturing plant at Buti Bori near Nagpur
(Maharashtra). This will enhance the installed capacity
of the plant by 15 metric tonnes per day (MTD). The
full expansion project of 120MTD is expected to be
commissioned, in phases, by the end of FY17-18.
Ceat has been named the exclusive distributor for the
premium tyre manufacturer, Pirelli, in India. This will
help in expanding its product offerings to the premium
segment. It will also help
improve its brand image.
Ceat has been in a
sweet spot, cost-wise.
The tyre industry is
raw material-intensive
with raw material costs
(natural rubber and crude

43 | 12 May 2016 | MONEYLIFE

StockWatch.indd 4 22-04-2016 17:25:28

 STOCK WATCH

oil derivatives) accounting for around 60% of sales.

Natural rubber as well as crude oil prices have gone Comparison between Tyre Manufacturers
down significantly in the past few years which has Company Sales Profit P/E Market
benefited the tyre industry. However, natural rubber Name Growth* Growth* Ratio Share
prices have surged, hitting a one-year high of Rs133/kg Apollo Tyres -4.7% 25.6% 7.5 12%
on 19 April 2016. It may not be as smooth a ride for JK Tyre & Inds -0.5% 45.0% 4.3 13%
tyre companies in future. MRF 4.6% 48.6% 9.5 29%
Due to the imposition of anti-dumping duty in USA TVS Srichakra 12.3% 111.0% 10.7 4%
on Chinese tyres and weak domestic demand in China,
Ceat Tyre 2.7% 32.1% 10.6 12%
Chinese tyres have been diverted to India, though *
Based on average growth for the past eight quarters
the use of Chinese tyres is limited to the replacement
market. Tyre industry in India is now concentrated
among four key playersMRF, Apollo Tyres, JK Tyres MRF, Apollo Tyres, Balkrishna Industries, JK Tyre &
and Ceat. These players account for around 70% of Industries and TVS Srichakra, too, are trading at lower
the market share. Ceats share is around 12%. P/E multiples.
The companys return on capital employed (RoCE) On 31 March 2012, the company had a high debt-
is a healthy 29%. Its price-to-earnings (P/E) ratio stood equity ratio of 1.62. It reduced its debt from Rs1,020
at a little more than 10 times its trailing 12-month crore on 31 March 2014 to Rs626 crore on 31 March
earnings. Globally, tyre companies are known to trade 2015. On 31 March 2015, the debt-equity ratio stood
at low P/E multiples. Its Indian counterparts, like at 0.37another reason for valuation expansion.

Wipro Disappoints Perpetual Low Growth

20%
These equity schemes are incurring
opportunity cost
10%

W
ipro has been a laggard among the large-cap
0%
information technology (IT) companies over
the past few years. Its Q4FY15-16 results
also disappointed with poor growth. It reported poor -10%
revenue growth of 4.59% on a quarter-on-quarter Jun-13 Dec-14 Mar-16

(q-o-q) basis. Its corresponding net profit declined by
2%. Not only the results, but the guidance from the
company was also muteda 1%-3% q-o-q growth.
Top 10 Schemes Holding Wipro
Scheme Name
Franklin Infotech
ICICI Prude ntial Technology
ICICI Prudential - Series 3
ICICI Prudential Value - Series 4
ICICI Prudential Exports and Other Services
Tata Digital India
ICICI Prudential Indo Asia Equity
ICICI Prudential Growth - Series 7
LIC Nomura MF Diversified Equity - Series 2
ICICI Prudential Value - Series 6
Revenue Growth (%) Profit Growth (%)
The Street did not react kindly to this development;
the stock declined a little over 7% on the day of the
results. Brokerage firms like Credit Suisse and Morgan
% of Net Assets Stanley have downgraded the stock, given weak March
9.24% quarter earnings.
7.31% Wipro has delivered a measly 21% return in the
past five years, while its peers like Infosys, HCL
6.84%
Technologies and Tata Consultancy Services have
6.70%
delivered far better returns during the corresponding
5.94% period. This lack of growth has resulted in its poor
5.54% stock price performance. The chart above shows the
5.11% revenue and net profit growth for Wipro in the past
4.89% 12 quarters. The poor performance of the stock would
4.63% be for frustrating for investors and mutual funds
4.48% schemes which have invested in it. They are losing the
opportunity to gain from better-performing stocks.

MONEYLIFE | 12 May 2016 | 44

StockWatch.indd 5 22-04-2016 17:25:54

 STOCK WATCH

UN UOTED
STORIES OF PRICE MANIPULATION

SAR Auto Products (Rs169) its poor financials, the stock rocketed
(Rs)
on the BSE by 1737%, or nearly 19

S AR Auto Products, an auto-

components manufacturer, got
listed on the Bombay Stock Exchange
250

(BSE) in March 2015. It used to be
listed on the regional exchanges of
Ahmedabad, Vadodara and Pune. As
per its annual report for 2015, SAR
Auto, which achieved a turnover
of Rs2.21 crore in FY14-15 with a
production of 43,156 parts, has just
four employees on its payroll. Nearly
half the revenue is derived from
export sales. In the same financial
year, out of Rs28.81 lakh paid as
salary and wages, Rs22.17 lakh was
the remuneration of the two directors
(promoters) and Rs6.63 lakh was
200
times, to Rs241 on 16 October 2015
from Rs13.12 on 5 March 2015. From
there, the stock fell to Rs138 on
150
14 December 2015, down 43% from
peak. Despite this fall, the stock is still
100 up 1302%, at Rs184 on 20 April 2016,
from its listing date in March 2015. This
50
1302% pump-&-dump operation did not go
unnoticed. In March 2015, BSE sought
0
a clarification, to which SAR Auto
Mar-15 Sep-15 Apr-16
replied that the management is not
doing any internal activities and that
paid as employee salaries. SAR Auto the price increase of shares is market
reported a net loss of Rs3.18 crore in driven. On 31 December 2015, there
14-15. For the past nine-months ended were just 597 public shareholders.
December 2015, revenue was Rs2.09 Will the BSE do something more than
crore and profit was Rs42 lakh. Despite seeking clarifications?

MARKET TREND

Bulls Getting Bolder that they should be positioned for a

blast-off. Well, we dont know about
Though valuation is expensive that because we have no crystal ball
to gaze into. However, we respect the

L ast fortnight, I had suggested that the market

seemed to be under pressure, setting up for
a bout of rally after a short decline. However, the
market did not wait for a dip; it rallied immediately
for about six days, punctuated by several holidays in
ensex made a high
between. On 22 April 2016, the Sensex
of 26,080 and fell. The continuing rally, following the
low on the Budget day, has now been running
for eight weeks. Inflows by foreign n
institutional investors (FIIs) have
slowed down but positive news
flows continue. Global markets
are strong.
The rally off the lows has been n
extremely strong and worth taking g note of. Time-
wise, the market has been down by more than a year
now. It appears that large investors h l d d
have concluded
that the worst for the Indian economy is over and
price action of collective investors. If the
Sensex closes above 25,850 in April, it would mean a
close above the 10-month moving average for the first
time since last July. While this does not automatically
mean that a bull market will follow, it means that,
barring some hug hugely negative news, investors are
positioned to buy rather than sell. It also means that
any dip fr from now on could be a time to buy
rather than a confirmation that
another round of selling has begun.
What worries us is valuation. It
is unlikely that a major bull market
star from an index valuation of 22.
starts
But market indices are constantly being
shuff
shuffled and higher valuation stocks are
getting included in the indices. The market
l ti
valuation off today
t d is less comparable with that of
previous years. Debashis Basu

45 | 12 May 2016 | MONEYLIFE

StockWatch.indd 6 22-04-2016 17:26:15

 VALUE STOCKS DEBASHIS BASU
Toughest Part of Investing
You need a very definitive guide for selling, Benjamin Graham had said. There
is very little discussion on this
M
arket practitioners of all kinds are constantly
engaged in creating frameworks for how to
buy stocks. There is serious analysis going on
everywhere regarding valuation, earnings growth, price
momentum, management quality, sector prospects, at the
micro level; and interest rates, economic growth, inflation,
policy changes, at the macro levelall with the objective
of finding a formula or approach that tells us which stocks
to buy, in order to reap great long-term returns.
Thanks to social media and ease of setting up blogs,
many such analyses are available for free as well. Letters,
comments and articles by accomplished investors like Prem
Watsa, Howard Marks, Jeremy Grantham, etc, are also
available on the Internet. A new investor seriously looking
for ways to educate herself had never had it so good.
However, all such discussions are centred on what to
buy. Every single blog, article, newsletter and interview
is about stock-picking. There is too little information on
when to sell. But buying a good stock is a childs play
compared to deciding when to sell it.
In our own testing lab, we have come up with at
least four different ways to buy
stocks that will fetch returns
that are far better than those
of average mutual funds.
In fact, even when market
valuation is expensive (as it is
now), it is easy to pick stocks
that will beat the market and
My favourite holding the mutual funds. Sticking to
period is forever a bunch of low-debt, high-
- Warren Buffett quality stocks, for a few years
or so, will do the job nicely.
But, having bought them, any investor will have to deal
with the issue of when to sell.
Of course, we all know what Warren Buffett has
famously said, My favourite holding period is forever.
But that works when you can buy a great stock at the
right price, and it just keeps going up.
How many such businesses are there? How many
investors can figure out a great business well in advance?
In fact, most of the stocks we buy are such that we cannot
hold them forever. We need a strategy to sell.
Buffetts guru, Benjaim Graham, is known as the
father of value investing. Buffett learnt from his ideas,
MONEYLIFE | 12 May 2016 | 46
Value Stocks.indd 2
modified them and is now
the second-richest man in the
world. Graham laid out clear
ideas on selecting stocks that
are going cheap.
But Graham has also
instructed us when to sell: Either sell once
Either sell once youre up youre up 50% or
50% or sell in two years, sell in two years,
whichever comes first. whichever comes
How would this strategy first - Benjaim Graham
have done? Wesley Gray and
Tobias Carlisle, in their book
Quantitative Value, calculated how well Grahams strategy
would have worked from 1976 to 2013.
Following Grahams strategyof buying stocks cheap
and selling them with the help of a predefined formula
would have fetched a US investor compounded annual rate
of return of 17.8% when the broader S&P500 fetched an
annualised return of 11%. This is stunning, since most
fund managers cannot beat the S&P500. Everybody knows
about Grahams strategy of buying. Have you ever heard
of anyone pointing to his selling strategy? There are three
ways in which a poor selling strategy will cost you dear.
1. We need to sell in order to prevent a stock from inflicting
large losses, when our analysis has gone wrong. After
all, Warren Buffetts famous two rules for investing
are: one, never lose money; and, two, never forget rule
number one. Large losses will drag down returns. We
need to prevent that.
2. We need to sell when the stock has not gone up which
inflicts huge opportunity cost. You need to decide early
enough to switch to a car that is moving fast rather
than continuing with your slow ride on a bullock cart.
3. Unless we sell, our profits are all on paper. Large
paper profits can suddenly disappear, if something
goes seriously wrong with the market or the stock.
Lets consider each of these issues. Suppose you had
bought a stock like IPCA Laboratories, a great wealth-
creator, which we had recommended in one of our
stockletters. In July 2014, IPCA got into problems with
US FDA over various violations. The stock fell sharply.
Stock experts saw it as an excellent opportunity to pick
a great stock at a cheaper price.
Indeed, by August 2015, IPCA had shot up and looked
22-04-2016 17:28:19
 VALUE STOCKS DEBASHIS BASU

this does not bother the fund managers who have placed
Maimed large bets on Reliance.
890
Over the past seven years that Reliance has struggled
IPCA Laboratories to generate any returns, a stock like Hindustan Lever has
810 gone up over 300%. As Warren Buffett said: Should
you find yourself in a chronically leaking boat, energy
730 devoted to changing vessels is likely to be more productive
than energy devoted to patching leaks. Indian mutual
650 fund managers are patiently waiting for the boat to fix
itself.
570
There are occasions when you profits go up in smoke
that is when the whole market and economy is crashing.
490
Jan-14 Feb-15 Apr-16 This is a rare event. It had happened in 2000-2001 and
again in 2008. It would be great if you could reduce your
exposure to stocks before such a crash.
all set to reward its believers. But the price drifted lower For this, you need to separate a normal bear market
and there was no earnings growth in sight. We exited the decline (which can last for months and the market goes
stock at a small loss. And then came a big blow. down by 20%-25%) and a crash. Unfortunately, we know
Global Fund (Geneva) announced that it would no a lot about normal bear market declines and very little
longer source anti-malarial drug (the mainstay of the about crashes.
company) from IPCA. We suggested an exit not only From the little that we know, a market valuation
because earnings growth did not pick up but because we (measured by price-earnings-ratio) of above 24, starts being
were incurring an opportunity costnot shifting to a car a danger zone. A P/E of around 28 sets up a crash-like
from bullock cart. condition and it may be a good idea to bring down your

Huge Opportunity Lost Equity Schemes exposure to RIL

1,145 Scheme Name % of Assets
HDFC Large Cap 8.89%
Principal Smart Equity 8.54%
1,020 Reliance Industries
Canara Robeco Large Cap 7.62%
Sundaram Select Focus 7.62%
895
Canara Robeco Equity Div 7.35%
HSBC Dynamic 6.85%
770
Birla Sun Life India Opp 6.78%
Indiabulls Blue Chip 6.69%
645 Reliance Quant Plus 6.66%
Apr-09 Oct-12 Apr-16
Reliance NRI Equity 6.61%

Reliance: The Endless Wait
Unfortunately, many fund managers are so careless about
managing your money that they get stuck on the bullock
cart for a very long time. Take a look at Reliance Industries
which is in the portfolio of 362 schemes. Despite huge
initiatives like retailing and telecom, the stock has gone
nowhere.
Indeed, it now appears that retailing can never make
much money for the company; it has been overrun by
the e-commerce revolution. It is anybodys guess how Jio
Telecom will perform in a highly competitive market. But
exposure to 25%. In a crash, even the strongest stocks go
down. Remember, in the 2008 crash, Asian Paints, one the
largest wealth-creators in India, had fallen by almost 50%.
Lastly, if you stick to fundamental analysis for picking
stocks, you will never hear of momentum. Momentum is
a dirty word for the buy-and-hold camp. But a careful
study of momentum can tell you well in advance whether
your stock is weakening and warn you that it is time to
sell. Indeed, a formula-driven buy-and-sell of momentum
stocks has beaten the market easily in the US. I will explain
momentum studies in a subsequent article.

47 | 12 May 2016 | MONEYLIFE

Value Stocks.indd 3 22-04-2016 17:28:40

 3 Long-term Stockletters
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Stockletter (MSSN) Ad Oct 15.indd 3 21-04-2016 19:45:53

 EARNING CURVE

Tech Bubble company whose shares are not traded, and are losing
money, is not easy. A case in point is Dropbox. In
December last year, T Rowe Price valued Dropbox at
Bursting? $9.4 per share, compared to $15.20 per share set by
Hartford Financial Services Group. This implies that it
was valued by more than 60% by Hartford. Another
Prem Watsa believes that speculation in problem with some of the high-tech companies is that
private high-tech companies has ended with they are loss-making, currently. Valuing them involves
a thud making too may assumptions about the future which
is uncertain. In a majority of the cases, the future

P
rem Watsa, chairman and chief executive of projections are way too optimistic.
Fairfax Financial Holdings, is known as the In India, too, money is being raised at lower
Warren Buffett of Canada. He has just issued valuations and layoffs have started. E-commerce major
the annual letter to his shareholders which Flipkart was in the news in February when Morgan
discusses a variety of current issues including private Stanley marked down the value of its holding by 27%,
high-tech companies such as Uber, Dropbox, Airbnb as disclosed in its regulatory filing. This implies it is
and so on. These companies command huge valuations valuing Flipkart at $11 billion from the earlier value
but are not making any money. Those that are valued of $15 billion. Similarly, online fashion retailer Jabong
at more than a billion dollars are called unicorns. His found no takers at a valuation of $100 million. This
letter to the shareholders states that the speculation in is merely 10% of the valuation of $ 1 billion which
private high-tech companies has ended with a thud. A it was seeking in 2014. There have been news reports
friend of mine said the new name for these companies that companies like Zomato, Snapdeal and CarDekho
is unicorpse as many of them cannot fund their losses have laid off hundreds of employees over the past eight
internally for more than a few months and now have months because they have little revenues and huge
almost no access to external funding. Some of these losses and new money is hard to come by.
companies are laying off employees. Money is being The fall in valuation in the private tech market
raised at lower valuations
aluations from previous rounds of comes in the wake of a sev severe rout of such companies
financing and thee cycle is now in reverse, states in the public market. MicrMicro-blogging site Twitters
Mr Watsa. stock, which touched a high of $73 in December
For instance, many private tech firms, like 2013, has fallen by a humongous 76% to
app-based cab companies
mpanies Uber, vacation $17.31, currently.
currently Social networking site
rental start up Airbnb,
rbnb, and cloud storage LinkedIn has fa fallen by 56% from its all-time
firm Dropbox, facedced mark-down in the high, while the stock of Yelp, a site that
value of investments
ents by T Rowe Price, a lists local businesses,
busin has crashed by 78%.
US investment firm.m. The average prices Other tech-based
tech-base companies, like Groupon,
paid for second-hand
hand stakes in venture Service Now an and Netsuite have also crashed;
capital funds are falling due to Groupon fell around
aro 60% from its highest
concerns about thehe real value price of $12.08 iin the past two years. But the
of the start-ups the
he funds worst is yet to come,
com said Mr Watsa. When it
have invested in. is all over, we w will not be surprised if most of
Most unlisted firms these stocks are down 90%!
are valued according
ding to However,
Howev there is another
conventional models
dels phenomenon
phenomen which is incompatible
of profitability/cash-
ash- with such outlook. Venture capital
flows. But one off the firms pos
posted their best fund-raising
problems with high-gh- quarter ssince the tech bubble, having
tech companies iss that raised $13
$1 billion in the first quarter
valuing them thuss is of 2016
2016. This was their best fund-
impossible. Valuingng a raising quarter since 2000 (Source:
Dow Jones
J VentureSource). Will
Premm Watsa, they try
tr to keep the unicorns
chairman
an & CEO
Fairfax Financial Holdings alive?

MONEYLIFE | 12 May 2016 | 50

Earning Curve.indd 2 22-04-2016 12:42:19

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MSSN - Unbiased.indd 1 20-11-2015 17:05:43

 USEFUL APPS YAZDI TANTRA
BurnNote: Delete Message
Automatically
M any a times, it so happens that you have to
communicate something private to a close friend/
family member. And you are
worried that it may fall into the
wrong hands. For example, in
an emergency, you need to send
your bank account number, or
your credit card number, to your
spouse. You may send it via
email, but there is a chance that,
after using that information, the
recipient does not delete it from the mailbox. Anyone having
access to that mailbox can then misuse that information.
BurnNote allows a user to send a message to someone
in such a manner that the message will be automatically
deleted after a predefined number of seconds, once it has
been read. So, if you have set it to 180 seconds, the message
will destruct itself 180 seconds after it has been read by
the recipient.
The implementation is simple. Go to BurnNote.com or
the BurnNote app, and fill up a simple registration form.
Now, you can compose a mail to anyone and define, say,
180 seconds after reading it, it should self-destruct. If you
want to be doubly sure, you can even create a password
for accessing the mail. The site will generate a link and
you can then copy-paste that link in your regular email.
The recipient just needs to click on that link, enter the
password (if any) and read the mail as desired. Once the
mail has been read, after 180 seconds, the link will be
inactive and no longer accessible to either the sender or the
receiver. BurnNote can also be made copy-resistant using
the Spotlight display option which limits how much of the
message is viewable at once.
In short, BurnNote puts you in total control of your
privacy. Maybe the US government should have used it for
their diplomatic cables! https://goo.gl/wGgP0j
Addictive Dots: Connect
and Earn Points
H ere, we have a simple game
of connecting the dots and
earning points, in the process.
Not at all complicated; but the
more you play it, the more you
may get addicted. You have been
warned!
MONEYLIFE | 12 May 2016 | 52
Tantra - column.indd 1
The game is all about connecting similar coloured
dots that appear on the screen and earn points! You get
60 seconds to do it. You can connect with your friends on
Facebook and Twitter and compare and brag about your
scores, if yours are higher! You can also prove that you are
better at Dots than your friends with the local multiplayer
mode. Simple, addictive fundifficult to find these days.
https://goo.gl/YqwDZP
StayFocusd: Limit the Time
You Waste
M any a times, when you are working, you tend to drift
awayto websites where your time gets drained.
You start by sitting down at the computer and swearing
you'll be productive. Youve checked your email, updated
your Facebook status, browsed the trending topics on
Twitter, read your RSS feeds, looked up your favourite
band on Wikipedia, Googled
yourself, and lost a weeks
pay playing online poker.
What you havent done is
WORK.
StayFocusd is a Chrome
extension which helps you
stay focused. It increases your
productivity by voluntarily
limiting the amount of time
that you can spend on time-
wasting websites. Once installed, you can add multiple
websites to the list of your time-wasting websites and also
define how much total time during the day you would
like to waste on such websites. Suppose you specify that
you wont spend more than an hour on such websites in a
day, once you cross that limit, your browser wont allow
you to go those websites any more, during the day! And,
if you wish to cheat/override for a particular day, it makes
it difficult enough.
It has some interesting tweaks, also worth exploring.
But the prime objective is to STAY FOCUSED!
http://www.stayfocusd.com/
Yazdi Tantra is a chartered accountant
by training, computer consultant by
profession, entrepreneur-developer by
hobby and trainer in his leisure time.
He is currently the vice-chairman of
Zoroastrian Co-operative Bank Ltd
and has been running a medium-sized computer
company ON-LYNE for the past 24 years.
22-04-2016 11:27:00
 TECHNOLOGY
How To Create
Strong Passwords
No password is 100% secure. But you can
make one that is really hard to crack, explains
Yogesh Sapkale
W
ith technological advances, almost
everything that you use is susceptible to
unauthorised usage which highlights the
importance of having robust passwords and personal
identification number (PIN) for everything, including
network accounts, online services, websites, ATMs,
credit cards and even the Wi-Fi connection. However,
being human (and lazy), we find it difficult to
create and remember robust passwords and end up
compromising our security. Many people are reluctant
even to create difficult passwords. However, creating
a good, robust and hard-to-crack
password is not rocket science
and can be done easily. To create
a good, robust password, you
must:
1. Choose a password that
doesnt contain a readable
word.
2. Mix upper- and lower-case
letters. Use a number or
symbol in the middle of the
word, not at the end. Dont
just use 1 or !, and dont
use symbols as replacements
for letters, such as @ for a
lowercase a. Its pass.
Simple, isnt it? However, some may still find it
difficult to create good passwords. So, here are some
simple and useful tips to create robust passwords.
Start with an original, but memorable, phrase
for example, Moneylife says know whats coming
or My first Maruti was a real lemon so I bought a
Toyota. The phrase can be anything; but make sure
its something you can remember easily without writing
it down. The best phrase to use is one in your mother
tongue. This will help you avoid using a guessable
English dictionary word.
Now, convert the simple, memorable phrase into
an acronym and use some numbers, symbols and
upper-lower case letters. The above-mentioned phrases
can be converted into MLskwc or mL@skWsC and
Technology.indd 1
M1stMwarlsIbaT!.
Using the same method, you can also create site-
specific passwords; for example, Its 45 degrees in
May, so I use Gmail can become i50dgiMsIuG
(50 is not the real temperature; its for the month
number multiplied by 10). Based on the phrase, you
can change your password almost every month; for
January, it becomes i10dgiJsIuG and for September,
its i90dgiSsIuG and so on.
For general sites, which do not affect you personally
or financially, use simple phrases to create passwords.
Reserve your strongest and most distinct passwords
for critical services like your bank account, your
computer and your personal e-mail.
Also, try to create a password that contains
minimum eight characters. For finance-related things,
make sure it is at least 13 characters long. Remember,
longer passwords make stronger passwords. There
are about 645 trillion combinations for eight
character passwords. For nine and 10 characters, the
combinations go to 45 quadrillion (a thousand trillion)
and 3 quintillion (a billion, billion) combinations.
This, in short, means that the cracker
or hacker will have to spend much
more time to crack your password.
For example, an eight character
password like the one abcd1234 can
be cracked instantly, while Abcd123$
takes around nine hours to crack.
The password Abcdefgh123456 will
take 10 million years to crack.
Adding a simple wild
character like & in this
password will take almost
16 billion years to crack,
says HowSecureIsMyPassword.net. (Please refrain
from entering your real password on this or any other
irrelevant site)
The PINs for ATM or debit and credit card can also
be created using the method given above. However,
since it contains just four numbers, you need to take
the help of the keyboard of an old mobile which has
numbers and letters (usually three-four) inscribed.
Using this method, and the root phrase Moneylife
says know whats coming you new PIN would be
6592 (using the digits corresponding to the first letter
of each word6 for Moneylife, 5 for know, 9 for
whats and 2 for coming). Do not use your or the
name of your family member, mobile number, date of
birth, or PAN number, in the password. Go and find a
memorable phrase, especially in your mother tongue,
and create a robust password of 13 characters.
53 | 12 May 2016 | MONEYLIFE
22-04-2016 12:16:28

Queries
At Moneylife Foundations
Ask tax-related questions at moneylife.in/taxhelp. Its free
Adjusting Rental
Income
F or some health and logistics
reasons, we have rented our
ownership flats and we are staying
at another place, on rent. We
receive Rs53,000 per month as
rent and we pay Rs50,000 every
month as rent. Now common sense
and logic tell us that we can adjust
rent received against rent paid and
our income from house property is
Rs3,000 per month. We are filing
our tax return accordingly. Are
we right in assuming this? Please
advise.
Ameet Patels Reply:
Unfortunately, the common sense
that you refer to does not apply
to the Income-tax
Act. Even if it did,
your assumption
is not correct.
For tax purposes,
when income
is computed, what is generally
deducted from it is an expense
incurred to earn that income. In
case of rental income, only a few
specified expenses are deductible.
Rent paid for a house that you live
in is not deductible from the rent
that you earn from your house.
The main reason for this is that
the rent expense paid by you is not
connected to the income that you
earn by way of rent from your own
MONEYLIFE | 12 May 2016 | 54
Tax Queries.indd 2
Tax Helpline
house. Therefore, you cannot take
your income to be only Rs3,000
per month for tax. Please take the
advice of a tax consultant and
understand how the income from
house property is to be computed
and also understand whether you
can claim a deduction under Section
80GG of the Income-tax Act for the
rent paid by you.
Capital Gain on House
I purchased a house in July 2011
for Rs50 lakh (Rs45.80 lakh as
loan) and I am selling it in July
2016 for Rs90 lakh. I still have to
repay about Rs40 lakh loan amount
which I will be closing. Is the
capital gain calculated on the total
value of Rs50 lakh or only on the
capital which I had invested (Rs4.2
lakh + stamp duty + brokerage +
registration). Second, if I re-invest
in property or capital gains bonds,
do I have to re-invest only the gains
or the entire sale proceeds?
Ameet Patels Reply: For the
purpose of computing capital
gains, what is relevant is the cost
of acquisition, not the source of
funds. In your case, the cost to be
taken into consideration for the
capital gains would be the purchase
price paid for the property (Rs50
lakh) + stamp duty + registration
fee + brokerage + legal fees. The
loan taken by you is only a source
Supported By
of money needed by you to pay for
the house. As regards investment in
capital gains bonds, it is the amount
of capital gains that is required to
be invested and not the entire sale
proceeds.
Tax on Equalisation
Transferred
F our children have inherited
(1) four distinct immoveable
properties (2) fixed deposits
(3) mutual funds (4) demat
accounts. Each of the financial
assets had a nominee for
convenience. The parents will
explicitly requires EQUAL division
of the inheritance. A registered
valuer has given an estimated value
to each of the four immoveable
properties. Based on the choice of
immoveable property, and after
attempting an equal division of the
financial assets, the net result is that
three of the children need to pay a
sum of money to the fourth child to
equalise the transfer.
Is this equalisation transfer
receipt tax-exempt in the hands
of the fourth child? Is there a
judgement or ruling to support this?
Is it taxable in the hands of the
fourth child? Is there a judgement
or ruling in support?
Nikhil Vadias Reply: We need
more details about your case.
Whether you have obtained
a probate or
this is a verbal
arrangement. What
is the document
executed and signed
by each legal heir,
etc. I believe, since it involves
immoveable properties, you need
to take professional help of a
chartered accountant who will be
able to guide after looking at each
document. If done properly, this
Inheritance Equalisation Receipt
will not be taxable.
16-04-2016 18:05:33
 Supported By

Moneylife Foundations

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OUR EXPERTS

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1 Every new query posted will be sent to our

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HOW IT 2 When we get the opinion/advice from our

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elp
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Also, this is only for individual taxpayers and small businesses.

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

 HEALTH BM HEGDE

Pain Responds to cubicle where the chair and the table are so close to each
other that there is hardly any leg space.
The aisle was on my left and in the aisle was a granite
Exercise and Not table. My left leg could easily get out of the cubicle while
my right leg was still inside the small leg space. In my

Rest! hurry, I didnt realise that and tried to move on. Naturally,
I was thrown forward on the left sidemy head hitting
the granite table and also my left forearm. Providentially,
Is it possible to get rid of pain without a pain- instead of my forehead hitting the hard granite table my
killer pill and no rest? chin hit it so hard that I had a big bump there along with
a painful swelling of the left forearm in the middle.

T
ake this as a case report, if you are one of those Eventually, when my right leg came out, my right
conventional scientists, or as my personal saga, if knee fell and hit the leg of the granite table, giving me a
you are an ordinary man like me. The conventional big swelling and severe pain the right knee joint. People
wisdom in medicine is that when you are injured, even started rushing to help me but I told them not to do any
if you are able to move about, you are asked to take rest such thing and I got up with difficulty myself and made my
lest the healing should take a longer time than needed. way slowly to the flight. In retrospect, I do not know how
This was believed to hold I made it. I must have been
for other illnesses also, say, a a sight for the Gods and the
heart attack. The latter ended co-passengers. Sitting in the
when General Eisenhower had plane was difficult but it was
a heart attack at the end of the just 25 minutes to Chennai
third year of his presidency. where I was headed.
For his doctors, Sam Levine I had no handbags and
and Paul Dudley White, it was walked slowly, without help,
a big dilemma. The General to the luggage carousel. The
was a very popular president Jet Airways boys helped me to
and had a sure chance of re- pick up my bag and I walked
election for a second term. out of the terminal using my
A year or so earlier, Nobel trolley bag as a crutch. I had
Laureate Bernard Lown had to go to our research centre
published the chair treatment for a meeting and seeing
idea after a heart attack patients which I did with some
which involved putting heart difficulty, but the pain and the
patients on a chair, against swelling were slowly getting
the prevailing orthodoxy of worse.
complete bed rest. We have a Varma Kalai
The presidents doctors specialist in our team, Suresh,
took a very bold stand who is very good. He came
that he should not only be in the evening when I had
mobilised early through chair treatment but also should finished my days work. He worked on me so well for nearly
run for the second term. History is a great teacher; he did an hour and half with his special oils and intelligent use
very well, got his second term and went on to live for many of the pressure points (102 in all) and I was a lot better at
more years. Early mobilisation after a heart attack and the end. The pain was 50% but the Varma point pressures
heart surgery became a mantra, since then. What of other were too painful to bear when applied. I was not sure if I
injuries? We still do not have clear guidelines and doctors would be able to sleep with all the pain. However, all went
take the safer route for themselves by asking patients to well and I had a good nights rest. The next morning, as
take rest after any injury. usual, I went for a walk with some difficulty but did not
I had a freak accident at the Bengaluru airport a couple cut down my walk time; I had my full quota. I went back
of weeks ago. I was, as usual, sitting and looking at my to work as usual and did whole days work going up and
emails when the announcement of my flight came on the down the stairs to see patients and to attend meetings. In
public address system. I got up from my seat in that small the evening, Suresh had another go at me; this time, it was

MONEYLIFE | 12 May 2016 | 56

BM Hegde.indd 2 20-04-2016 20:40:54

 HEALTH BM HEGDE
more painful than before. My pain disappeared almost
90% and I could walk freely. All the swelling had gone but
I could not fully bend my right knee to sit in vajra asana.
The following day, I was in Mangalore for my fathers
death anniversary celebrations. During the puja there, I
had to sit on the floor and get up at least 20 times. That
took a toll on my back muscles that had to contract
abnormally while sitting down with one knee
almost disabled. The back started hurting
so much that it was unbearable; but I went
on as usual and went to Udupi and many
other places by car in the following two
days before leaving for Delhi with the
backache in full intensity. I had a very
busy schedule in Delhi and had to go back
via Chennai where I had a lecture at IIT
Chennai. My friend, Suresh, had two
sittings with me and my backache has
almost come down 99%.
A week later, I was in Delhi and
was able to do all asanas normally as
well as take my usual one-hour walk.
I am writing this note at the India
International Centre, Delhi,
with all my pain gone for
good (I suppose, touch
wood!). In essence,
I did not take a
single pain-
killer pill and
had no rest
at all after the
Enrolled in a gym?
What about fiscal fitness?
Tone up your financial muscle
Once every fortnight
BM Hegde.indd 3
accident. My experience tells me that it would have taken
much longer for the pain to disappear, if I had taken rest
after the accident. I am wondering if early mobilisation
is a good idea in post-accident periods also. Will the
concerned people listen and do a larger study acceptable
to conventional thinkers? Interestingly, there is now a
rethink on our conventional reductionist large cohort
studies most of which have not delivered the goods. Even
the journal Science advocates one-for-one study in place
of large cohort studies. This is a one-on-one study, if you
like. I did not have to take any informed consent from the
patient, as I was the patient myself.
Knowledge advances, wrote Karl Popper, Not by
repeating known things but by refuting false dogmas.
How very true! Disease, rest and recovery need a fresh
look to see if we should change for the better. Having said
all that, I do not want the layman, a novice in the field, to
decide what exercise or rest that he needs with any pain as
s/he will not be able to assess what brought on the pain in
the first place. If you have your family doctor and discuss
the details with him, he will guide you. If you try on your
own and come to grief, do not blame me.
Exercise is done against ones wishes and maintained
only because the alternative is worse. George
A Sheehan
Professor Dr BM Hegde, a Padma
Bhushan awardee in 2010, is an MD,
PhD, FRCP (London, Edinburgh,
Glasgow & Dublin), FACC and FAMS.
He can be reached at hegdebm@gmail.com
For subscription offers that
are a steal, look for a form
elsewhere in this issue or our
website at www.moneylife.in
57 | 12 May 2016 | MONEYLIFE
20-04-2016 20:41:30
 HEALTH BM HEGDE
STRANGE
BEDFELLOWS
T here is a strange new
love between the
Amazon Forest loggers
MEDICAL DEVELOPMENTS FROM
mafia which has destroyed
the best part of Amazon for greed
and the greediest pharmaceutical
lobby in the US. Money and greed
for money could bring strange
bedfellows together! The pharma
lobby thinks that the Amazon
and such large forests will have to
be preserved because they could
harbour some of the most potent
drugs for the future, since the
chance of discovering something
new in the chemistry laboratory is
tough, dangerous and expensive.
They did taste blood with the
discovery of vincristine for cancer
treatment from Vinca Rosea
found there; we have it in India
abundantly. They have befriended
the forest mafia showing them that
these newfound treasures could
be much more lucrative compared
to simple timber. Strangely, they
also want to preserve some of the
forest-dwellers who have no contact University.
with the outside (civilised) world
as they could have some of the best
remedies for longevity and good
health!
CANCER AND
CHEMOTHERAPY
I n a survey done in 2013 in
the US, 75% of the doctors
MONEYLIFE | 12 May 2016 | 58
BM Hegde.indd 4
AROUND THE WORLD
said that they would not take
chemotherapy themselves! Sadly,
as reported by News Target,
Statistics on chemotherapy-caused
deaths are difficult to come by,
because hospitals and oncology
physicians always assign the blame
to cancer. How convenient that
iseven if the eventual cause of
death is infection that is caused
or aggravated by chemotherapy-
induced immune system weakness,
the official death diagnosis is
blamed on the cancer itself.
PURE, WHITE AND DEADLY
T his is the title of an interesting
book written by a professor
of nutrition at London, in the
1960s when I was a student there,
at the peak of the fat theory of
atherosclerosis, riding the crest of
its success wave. Professor John
Yudkin was a brilliant scientist who
came from a poor background as
his parents, both Jews, were thrown
out of Russia in the early part of the
last century. John had a small house
in one of the poorer localities in the
midlands in England. With great
difficulty, his parents managed to
send him to a grammar school as he
was very bright. John then earned
his scholarship to Cambridge and
there was no looking back. He
became a professor at the London
Since the end of World War II,
Europe slowly became prosperous
and people could buy good food
for themselves. So, in Europe,
consumption of fat went up, along
with so many other things, sugar
included. John found that the same
relationship holds good for sugar
consumption. He wrote a popular
book Pure, White and
Deadly which got him
so much publicity that it
attracted the wrath of his
colleagues who believed
that fat alone is the factor
behind obesity. He was forced to
retire.
The University did a smoke-
screen cover-up by giving him
a small room in an old unused
building in their campus to do his
research and replaced him by a
junior professor who was one of the
leaders in fat theory. John Yudkin
simply disappeared from the scene. I
have been writing and talking about
his book over the years and showing
how fallacious the fat theory was.
Now, I have been proven right and
the American bosses have done a
U-turn on the fat theory.
I used to think that such
suppression of facts occurs only
in India. My own University had
condemned me for opposing oral
polio drops for malnourished
children by going to the press
saying that I had forgotten my
medicine and no one should believe
me. They were better than the
London University but the disease
is prevalent all over the world! I
am happy to see that they are now
giving injectable polio vaccine in
India, a good 15 years after my
struggle to stop oral polio.
20-04-2016 20:42:03
 LEGALLY SPEAKING SD ISRANI
India Infoline
Penalised for
Illegal Trading
Consumer forums compensate investor for
losses in a landmark judgement
I
n recent years, another item has been added to the kitty
of investment instrumentstrading in commodities.
But commodity trading is pure speculation and many
investors have been victims of investing in instruments
of which they have no understanding and are misled
by market intermediaries. One such investor Joseph
Thomas was an employee in a private company and had
a middle-class background. India Infoline Ltd showed
him colourful brochures of commodities being traded and
was persuaded to invest in commodities trading by fancy
claims of enormous profits. Falling for some claims, Joseph
transferred certain amounts of
money to India Infoline, from
time to time. However, after some
time, India Infoline admitted that
most of the amount invested by
him was lost. He was forced to
file a complaint for deficiency
in service under the Consumer
Protection Act, before a district
forum.
According to Joseph, when
he used to enquire about the
profits from his investment, the
authorised representatives of India Infoline always informed
him that his money was reaping good profits. However,
in his complaint, Joseph stated that when he enquired
about his money, he was told that he would have to invest
additional sums whereby he would receive an additional
profit of Rs10,000 per month. In the meantime, he started
having fears about his investment; so he sought to check
his account. He was first told that there were server and
network problems in accessing the data. Then he was told
that the password was despatched to him by the registered
office in Mumbai; but he never received it. Even after a
month elapsed, the authorised representatives continued
to make the same excuses. Subsequently, he was told that
the officers dealing with his account had quit their jobs and
that he had to contact another officer designated for his
account. Unfortunately for Joseph, the designated officer
told him that the company itself had been cheated by those
Legally Speaking.indd 2
two former officers.
The investor pleaded before the district consumer forum
that the finance company had traded with his hard-earned
money without seeking his prior permission; that he was
never given the details of his account, despite several
requests; he also complained that the finance company
appointed people with no knowledge and expertise in the
area dealing with public money. He claimed that there was
no transparency and legality in the conduct of the affairs
of the finance company and its authorised representatives;
the password for his account was never given, despite
several requests; there was no reply to his legal notice and
also to his e-mail.
Therefore, the investor sought directions for refund
of Rs1,85,000 together with damages of Rs3,00,000 and
interest of 18%pa (per annum). However, the district forum
rejected his claim on the ground that he had himself given
the authority to India Infoline. He went in appeal before
the state commission which understood the matter in the
right perspective and reversed the order of the district
forum. India Infoline could not digest this and it took the
matter before the National Consumer Disputes Redressal
Commission (NCDRC).
NCDRC noted that, while
India Infoline claimed that
the investor was aware of the
investments made and the
transactions were done as per
his authorisation, the material
on record clearly showed that
the complainant was not in the
knowledge of the investments
made by India Infoline and its
representatives on his behalf
which was against the terms and
conditions of the agreement entered into and also the
authorisation letter. Consequently, NCDRC rejected the
petition (order pronounced on 7 April 2016) and refused
to interfere with the order passed by the state commission.
This case should hold a lesson for all investors not to get
carried away by alluring advertisements, glossy brochures,
snazzy offices and sweet-talking sales representatives
making a pitch for your valuable savings. It is also a good
judgement for thousands of others to refer to, if they have
been similarly cheated by brokers, since the market regulator
usually sides with the brokers, in most such cases.
SD Israni is a corporate lawyer & Fellow
of ICSI. Email: sdisrani@gmail.com
59 | 12 May 2016 | MONEYLIFE
22-04-2016 12:14:32
 YOU BE THE JUDGE BAPOO MALCOLM
To Swear or Not
To Swear?
Why, when and where? Does this constitute a
criminal liability?
W
hat does one say, as a reaction, to a sudden
catastrophe? Or to an unpleasant situation?
Oh! S ***! Bloody Hell! Damn it! Some or the torrent (of words, not of the water) was a few
might invoke more colourful words in the local lingo.
Does this constitute a criminal liability? Can words
import so much attention?
The law prohibits the use of certain derogatory
words. The Scheduled castes (SC) must not be referred
to by their birth, and punishment
is severe. It is so not only in India.
To address an American-African
a black, is politically correct.
But only a black can call another
black, a negro.
In India, that is Bharat,
to use a caste appellation is
punishable only when someone
from another (higher) caste
utters it. Intra-caste references
are not justiciable because all of
them must flow as gravity ordains
it, from a higher, to a lower, caste. One question
remains. With so many caste classifications, if say, xxx
is punishable when used by a non-SC person, would
the same be the case if xxx is said by a member of the
SC, but of a slightly higher denomination, to someone
lower down the pecking order? The use of expletives is
another matter. Bloody was considered profane, until
someone came up with its etymology. Its a short form
of Bless our Lady and Bless the Lord, they lamented.
Right or wrong, it has now found common usage. So,
unfortunately, has the f word in daily parlance, but
which still is, and will remain, verboten.
When problems arise, real or perceived, on the use
of objectionable non-bon-mots, we tap the most human
reaction of all. Pass a law. And that is exactly what the
American state of Michigan did, in 1897, along with a
caveat. Recognising that men being men, and that free
speech among friends should be unfettered, swear words
were geographically banned. The territorial jurisdiction
began within the vicinity of women and children.
Earshot was the amplitudinal limit. Seventy-five years
later, the infamous expletive deleted Watergate tapes
MONEYLIFE | 12 May 2016 | 60
You Be the Judge.indd 2
Nixonised profanity.
Hundred and one years passed. The law remained
on the statute books. By then, Timothy Boomer had
taken to canoeing. He selected a river, Rifle River. But
he selected the wrong state; Michigan. As canoes and
kayaks go, overturning is an occupational hazard. And
Timothy took a hazard hit.
OMG. Rifle River hath seen no fury as a canoeist
drenched. As water gushed out of his nose and ears,
along came a volley of expletivesclose to a mother
and her two children. Either the family was too near,
decibels too high. They heard; Timothy was booked.
You be the judge. Would you convict Timothy, wet and
forlorn? Or let him off?
Guilty as charged, said the jury. Timothy faced 90
days in jail. Luckily, he got off with a small fine and just
four days of social service. But
the black mark of a conviction
remained. He appealed. Judge
William Murphy, of Michigans
Court of Appeals, overturning,
stated:
Allowing a prosecution
where one utters insulting
language could possibly subject
a vast percentage of the populace
to a misdemeanour conviction.
We find it unquestionable that
[the law], as drafted, reaches
constitutionally protected speech, and it operates to
inhibit the exercise of First Amendment rights.
The American reliance on The First seems to
know no bounds. Thank God. But what of our
unconstitutional enforcement of forced speech? In
todays vitiated atmosphere, not saying something
invites the threat of decapitation. Silence is no longer
golden. It is, now, a cross too huge to bear. Like so
much else, Muteness is banned. Sound must prevail.
Sound-bytes, actually. Will each new dispensation
introduce a novel jingo-lingo? Why worry? No need for
optics to shout. In fact, visual (and mental) incapacity
should be a boon. As for Michigan, did it ever enforce
the law against any woman for seething within
audibility of other women? Gender bias, dammit!
Expletive deleted.
Bapoo Malcolm is a practising lawyer in
Mumbai. Please email your comments to
mail@moneylife.in
22-04-2016 12:59:13
 HANDHOLDING:
MSSN Benefit #11
One-on-one-Help Portfolio X-Ray

We are not agents, distributors, brokers or lead

generators; so, you get ethically correct advice

There are thousands of mutual fund schemes,

hundreds of insurance products, bank FDs,
corporate FDs, corporate bonds, over 3,000
actively traded stocks How is an average saver
supposed to choose? You have 5 options

Option1: Do nothing.

Option2: Rely on friends, relatives, neighbours, oce accountant, derived wisdom from social media
or the press/TV. (But do they know more than you? And how do you know that?)

Option3: Rely on relationship managers, insurance agents, distributors, wealth managers. (But you
are only a sales target for them)

Option4: Research insurance, mutual funds, markets, stocks, financial theories Become a financial
expert yourself. (Is this practical?)

Option 5: Choose Moneylife Smart Savers

A no-bias, no-conflict platform. Ask any confidential question about investments, insurance and taxes
and you get the right answer.

Subscription to Moneylife magazine is included in MSSN Premium Membership

About MSSN
MSSN is a SEBI-registered investment adviser and part of Moneylife, Indias most unbiased and
pro-investor research and information group. We run Indias best personal finance magazine,
Moneylife. We are not afraid to call a spade a spade. We are Indias only media company to have
set up a non-profit trust, Moneylife Foundation, which is now the largest savers and investors
association with more than 35,000 members. MSSN was set up to help investors and savers
make the right financial decisions and handhold them through the entire process.

MONEYLIFE
SMARTSAVERS
FIX YOUR FINANCES, FOREVER

www.savers.moneylife.in

MSSN Handholding.indd 1 20-11-2015 17:04:55

 BOOKS

DIY Financial Advisor different investment and trading approaches. The blog
posts of AA showcase the intellectual firepower of Gray.

A Great Tool for the This basic premise of DIY Financial Advisor: A Simple
Solution to Build and Protect Your Wealth is that you do

Serious Investor not need professional help to manage your investments.

The book has two clear parts. Part one questions the
societys reliance on expert opinion. Expert opinion on
How to allocate assets, manage risk and anything, other than hard sciences, has been proven to be
select stocks highly overrated, most spectacularly by Philip Tetlock in
his book Expert Political Judgement: How Good Is It?

W
esley Gray is a new star in investment analysis
with a very interesting background. He was
raised on a cattle ranch in Colorado (USA)
and graduated magna-cum-laude in economics from the
Wharton School of the University of Pennsylvania. He
enrolled at the University of Chicago but, in 2004, took a
four-year sabbatical to serve as an intelligence officer in the
United States Marine Corps.
He spent two years as an
intelligence officer in Asia and
then served in Haditha (Iraq) as
an embedded officer providing
advice and support to the Iraqi
Army. After leaving the army,
Gray wrote Embedded: A
Marine Corps Adviser Inside
the Iraqi Army, based on 1,000
pages of personal notes that he
took to share with his wife and
daughter, which came out in
April 2009.
In 2010, Gray obtained
both, an MBA and a PhD in
DIY FINANCIAL finance, from the University
ADVISOR of Chicagos Booth School of
WESLEY GRAY, JACK Business. In December 2012,
VOGEL, DAVID FOULKE he co-authored Quantitative
Wiley Value: A Practitioner's Guide
Pages 207; $34.95 to Automating Intelligent
Investment and Eliminating
Behavioral Errors (reviewed in Moneylife, Issue 21 March
2013). That book is a tour de force showcasing rigorous
tests on various value investing approaches. It proved that
buying stocks, which are ranked low in value and high
in returns, offers the best returns, an approach similar to
Joel Greenblatts whose book The Little Book that Beats
the Market has also been reviewed in Moneylife. Gray
and Carlisle claimed to have improved upon Greenblatts
approach. Gray is now an assistant professor of finance at
Drexel Universitys LeBow College of Business and runs
Alpha Architect (AA), a money management firm. AAs
work is striking in its methodological rigour of testing
How Can We Know? We have reviewed Tetlocks latest
book Superforecasting: The Art and Science of Prediction
(Moneylife, Issue 1 April 2016). Even in hard sciences, like
medicine and chemistry, Nobel Prize winners have been
proven wrong subsequently. In finance, they are wrong
more often than not, because experts are not disinterested
observers, but interested players, are prone to the same
biases that affect other humans and, often, rely on stories,
not facts. We can beat the experts and manage our own
investments quite nicely. What we need is an evidence-
based systematic decision-making process. Part Two of the
book outlines how to do it. According to Gray, individual
investors need to be aware of three things: asset allocation,
risk measures and security selection.
Asset Allocation: Asset allocation is simply spreading
your investments across different kinds of financial assets.
Experts go to great lengths to make asset allocation
complex by including different kinds of domestic and
international equities, a wide variety of fixed assets and
alternative asset classes. But Gray says simply staying
invested in bonds, stocks and real estate is good enough.
Risk Management: Managing risk is being aware of
significant price declines which can come from studying
price patterns, but is frowned upon by fundamental
analysts. Gray advocates using simple priced-based rules,
such as simple moving averages or time-series momentum
or, better still, combining both these which will reduce
losses and fetch the upside completely.
Security Selection: As mentioned, Gray and Carlisle had
already shown that the best results come from buying
stocks ranked low in value and high in returns. In this
book, he has also introduced the price momentum of
stocks as another important factor for security selection.
Grays studies show that combining value and momentum
can increase risk-adjusted returns.
This book is a terrific resource for the serious investor.
Gray has generously shared his research on what works,
including momentum, which is shunned by most
fundamental investing approaches. However, it will require
access to data, some deft Excel work and several hours of
study every weekend to stay on the ball. If you are up to
it, look no further. Debashis Basu

MONEYLIFE | 12 May 2016 | 62

Book Review.indd 2 22-04-2016 10:48:48

 Management Quality through Numbers
How to judge management quality before buying stocks
M
oneylife SmartSavers Investor Club
organised its fourth programme on
16th April with a session How To Assess
the Management Quality before Buying
Stocks. The session was conducted by Dr Vijay Malik
(whom Prof Sanjay Bakshi calls Dr Stock because he is
a qualified physician who can check the health of stocks)
shared his insights on how to figure out whether the
management is pro-shareholder or not, by looking through
the annual reports carefully. Dr Vijay Malik, a rigorous
stock-picker and a popular blogger, who spoke in public for
the first time, enlightened the audience with his quantitative
methods that help decipher whether the management is
trustworthy or not.
Judging the management quality is one of the most
critical decisions while buying y g a stock. It assumes great
significance for retail investors,
i as they have
absolutely no influence
influe on the companys
management. Whil
While it is common to come
across statements like
lik shareholders are part-
owners, this is not exactly true, pointed
out Dr Malik. R Retail investors cannot
act like part-owner
part-owners. They have no say in
the manageme
management. They are compelled
to accept whatever
w decisions are
taken b by the management.
This is why we must be
absolutely certain that the
abso
company whose stock
Dr Stock as Dr Vijay Malik we have picked is run
is popularly known
by a management that
Event.indd 2
has the best interests of shareholders in mind. While
everybody knows that management quality is paramount,
investors frequently overlook this aspect because they
do not have the right tools for such analysis. In his
presentation, lasting for almost one hour 45 minutes, Dr
Malik showed the audience how to search the Internet,
read annual reports and scan the filings made by companies
with the stock exchanges, to judge the management quality.
The session started with Debashis Basu, director of
Moneylife Smart Savers, giving a quick overview on how
management quality cannot be decided simply on the basis
of adverse news and events that may only have a short-
term impact. He gave real-life examples of managements
with questionable decisions turning out better performance
and so-called good managements ending up with mediocre
performance. Dr Vijay Malik, with a unique combination
MBBS, MBA, stock-picker and bikeralso explained
with real-life case studies how profits/cash-flows of a
company could be diverted to the promoters and related
parties, defrauding minority shareholders. Pointing
out that Equity investing is a faith in management,
Dr Vijay Malik emphasised throughout the presentation
that investors should run at the first sign of trouble.
The programme ended with a Q&A session between
Dr Malik, Mr Basu and an audience of more than 150,
moderated by Sucheta Dalal, director of Moneylife Smart
Savers. Dr Malik patiently answered questions concerning
pledging of shares, warrants, promoters holding and
contingent liabilities. The video of the programme is
available for Rs700. To get access, please write to support@
moneylife.in
63 | 12 May 2016 | MONEYLIFE
22-04-2016 17:53:02
 MONEY FACTS STOCKS

INDIAN MARKET TRENDS FUND FLOWS

The Nifty and the Sensex gained 5% each during the Foreigners: Foreign institutional investors were
fortnight ended 20 April 2016. The ML Mega-cap Index net buyers of equities in the fortnight (Rs1,957.10
gained 5%, while ML Large-cap Index, ML Mid-cap Index crore). They bought shares worth Rs25,121 crore.
and ML Small-cap Index rose 4% each. 1,000

Share Prices Index, October 2015=100 780 FII Net Investments

(Rs Crore)
140
560

340

120
120

-100
11 Apr-16 20 Apr-16
100
Indians: Domestic institutional investors were net
sellers of equities (Rs101.28 crore). They sold shares
worth Rs8,670.39 crore.
80 310
Oct-15 Jan-16 Apr-16

ML Large-cap ML Small-cap Nifty ML Micro-cap 185

ML Mid-cap ML Mega-cap Sensex
60

-65
Index 08-Apr 20-Apr +/-
DII Net Investments
ML Mega-cap Index 91.71 96.30 5% -190 (Rs Crore)
Nifty 7,555.20 7,914.75 5%
-315
Sensex 24,673.84 25,844.18 5% 11 Apr-16 20 Apr-16

ML Large-cap Index 94.84 99.00 4%

ML Mid-cap Index 96.38 100.39 4%
GLOBAL MARKET TRENDS
ML Small-cap Index 96.24 100.04 4% 19,900

ML Micro-cap Index 96.40 98.67 2% 18,900

Nikkei
Mega-cap Gainers/Losers 08-Apr 20-Apr Change 17,900

3M India 11,043.00 14,080.50 28% 16,900

Mangalore Refinery & Petrochemicals 71.65 66.10 -8% 15,900

Large-cap Gainers/Losers 08-Apr 20-Apr Change

14,900
Oct-15 Jan-16 Apr-16
Hitachi Home & Life Solutions 1,179.85 1,512.15 28%

Alstom India 642.50 617.60 -4% Nikkei and Bovespa advanced 7% each, Hang Seng
rose 4%, the FTSE and S&P 500 rose 3% each.
Mid-cap Gainers/Losers 08-Apr 20-Apr Change Shanghai Composite ended flat.
Maithan Alloys 121.80 187.85 54%
Index 08-Apr 20-Apr +/-
G M Breweries 948.30 784.55 -17%
Nikkei 15,822 16,907 7%
Small-cap Gainers/Losers 08-Apr 20-Apr Change
Bovespa 50,293 53,631 7%
Electrotherm 53.20 90.25 70% Hang Seng 20,370 21,236 4%

Mangalam Drugs & Organics 229.90 189.80 -17% FTSE 6,204 6,410 3%
S&P 500 2,048 2,102 3%
Micro-cap Gainers/Losers 08-Apr 20-Apr Change
NASDAQ Composite 4,851 4,948 2%
Porwal Auto Components 20.15 26.65 32%
Korean Composite 1,972 2,006 2%
Nicco Corp 0.50 0.40 -20% Taiwan Weighted 8,542 8,514 0%

(All Prices in Rs) Shanghai Composite 2,985 2,973 0%

MONEYLIFE | 12 May 2016 | 64

Money Fact.indd 2 22-04-2016 17:51:01

 MONEY FACTS STOCKS

Whats H T

Non-ferrous metals companies were in demand during the fortnight.
Hindalco Industries, National Aluminium, Hindustan Copper and Alicon
ML SECTORAL TRENDS
Stocks of non-ferrous metals
companies, farm & farm inputs
Castalloy advanced 16%, 14%, 13% and 10%, respectively.
companies, printing & publishing
companies and retail companies
Companies 08-Apr 20-Apr +/- advanced 11%, 9%, 9% and 9%,
ML Non-ferrous Metal Index Hindalco Industries 87.85 101.80 16%
respectively. Sugar companies stocks
ended flat and stocks of shipping
120 National Aluminium 38.85 44.20 14%
companies and airlines companies
Hindustan Copper 50.20 56.70 13% rose 1% each.
110
Alicon Castalloy 289.30 318.10 10%
ML Sectoral Trends

100 Hindustan Zinc 160.20 174.95 9% Odds 12% Glass 0%

Gravita India 24.20 26.10 8% Non-ferrous Metals 11% Sugar 0%

90 Arcotech 383.30 382.70 0% Farm & Farm Inputs 9% Airlines 1%

Printing & Publishing 9% Office Equipment 1%

Man Industries 73.30 71.85 -2%
80 Retail 9% Shipping 1%
Ram Ratna Wires 36.70 34.85 -5%
Oct-15 Jan-16 Apr-16
All Prices in Rs

URBAN INFLATION

Whats N T Combined inflation for urban

and rural areas fell marginally,
Sugar companies were punished. Thiru Arooran Sugars, Dharani Sugars & to 4.83% in March 2016, from
Chemicals, Rana Sugars and Kesar Enterprises and Sakthi Sugars declined 5.26% in February 2016. Inflation
13%, 12%, 12%, 11%, 11% and 11%, respectively.
in urban areas fell to 3.95% in
March, from 4.30% in February.
Companies 08-Apr 20-Apr +/-
Food inflation in urban areas fell
Thiru Arooran Sugars 75.00 65.05 -13% ML Sugar Index
to 3.98% in March, from 4.23%
Dharani Sugars 35.70 31.40 -12% 160 in February. In urban areas, prices
Rana Sugars 7.65 6.75 -12% of vegetables declined by 2.51%
Kesar Enterprises 45.45 40.35 -11% 140

Sakthi Sugars 42.95 38.40 -11% On a Decline?

KCP Sugar & Inds 29.60 26.60 -10% 120
5.00%
KM Sugar Mills 7.04 6.35 -10% Annual Change
100
Rajshree Sugars 53.25 48.90 -8%

Oudh Sugar Mills 84.85 78.05 -8%

3.50%
80
Parrys Sugar Inds 42.25 38.90 -8%
Oct-15 Jan-16 Apr-16
All Prices in Rs

2.00%
BULK DEALS Mar-15 Sep-15 Mar-16

Date Company Buyer Seller Rs Cr

since last year. Inflation related
11 Apr-16 Sun Pharmaceutical Genesis Emerging Markets LP Genesis Indian Investment 1,295.17
to fuel & power decreased to
12 Apr-16 Aksharchem Mrugesh Jaykrishna Family Paru Mrugesh Jaykrishna 14.94 0.35% in March, from 1.75% in
12 Apr-16 Asahi Songwon Colors Gokul M Jaykrishna Family Gokul Mrugesh Jaykrishna 8.10 February. Inflation for housing
increased to 5.31%. Inflation for
11 Apr-16 Gujarat Apollo Parth Rashmikant Patel Rashmikant H Patel HUF 2.04
clothing hovered around 4%; for
12 Apr-16 NGL Fine-Chem JSL Enterprises Uphar Homefin Pvt 1.04
miscellaneous items, it declined
12 Apr-16 Trend Electronics Nippon Investment and Finance Shree Dhoot Trading 0.59 to 3.08% in March from 3.53% in
13 Apr-16 Uni Abex Alloy Products Dhiren Shevantilal Shah Dhiren S Shah (HUF) 0.45
February.

65 | 12 May 2016 | MONEYLIFE

Money Fact.indd 3 22-04-2016 17:51:13

 BEYOND MONEY

An Experiment in for development rather than doling out money to them.

Rural Reshaping
Manavlok mobilises rural men and women
to become beneficiaries by putting in equal
time and energy in the current Marathwada
drought
Its work is not new nor of recent vintage. The thought
behind the organisation dates back to the early 1970s
when a young group of socialists began to seek solutions
to social and political problems of the rural community
and concluded that it can only be achieved with economic
change. In 1982, they established Manavlok as a voluntary
organisation for the socio-economic upliftment of the
rural poor.
Over the past 33 years, its activities have grown
considerably, but never strayed from the tenet that

H
ow many of us are unaffected by reports of the programmes should be based on the specific needs of
awful water shortage and widespread drought the people. Based in the Ambajogai Tehsil of Beed district,
across large parts of the country? Most people Manavlok works in 151 villages of Ambajogai, Majalgaon
are looking to do their bit, at least by contributing to and Kaij Tehsils.
genuine NGOs working to mitigate the plight of people Dr Dwarkadasji Lohiya laid the foundation of the
in this crisis and to find solutions for the future. Some, voluntary organisation when he was studying in an
Ayurvedic college in Nanded (Maharashtra). His close
association with marginal farmers, landless labourers
and traditional village artisans helped him understand
their problems and it led to his committed work with
Manavlok in the early stages, as the founder. The work
is continued by Aniket D Lohiya, his son.
In the past few months, drought relief and preparing
for the monsoon has been an important part of its ongoing
activities. It has started community kitchens in 11 of
the worst drought-hit villages to ensure one free meal
a day to the needy. In return, at least one member of
each family has to do voluntary work (shramdan) for
water conservation work in that particular village. Over
167,264 needy villagers had been provided meals until
31st March. This activity is sustained through donations from
people.
As a long-term water conservation activity, the project
like V Vaidyanathan, chairman of Capital First, chose to Revival of Holna River has been undertaken and over
hop on to a bus, visit the drought-hit areas, eat at the 7.5km of de-silting has been done already. The silt acts as
community kitchen and see for himself the work that was soil regenerator for nearby farms. The effort will directly
being done before contributing an undisclosed amount. benefit 12 villages through which the Holna River flows;
The NGO he visited is Manavlok, which stands other villages around this river will also indirectly benefit
for Marathwada Navnirman Lokayat. The current by increase in water table and moisture maintenance. A
Marathwada drought is among the most severe droughts major effort is also on in three villages to build bunds and
in recent years in Maharashtra; but the problems are not dig deep trenches to capture rainwater to percolate and
new. Manavlok, which works in Beed recharge the groundwater.
district, calls itself an experiment Other than this, Manavlok runs
in rural reshaping, which is what is 37 balwadis and conducts night study
truly required to bring about changes MANAVLOK programmes at 35 centres to help
that last beyond one drought year, Dhadpad, Post Box No - 23, Ring Road, students, especially school dropouts.
or are forgotten after a bountiful Taluq Ambajogai, District Beed Manavlok is also running a Master
monsoon. PIN 431517, Maharashtra. of Social Work College at Beed.
Manavlok has an interesting Mobile No: +91 9823030005 You can do your bit by joining
Phone: 02446 247217
approach to welfareit believes in these efforts or sending a donation to
E-mail: lohiya.aniket@gmail.com
providing people with the means admin@manavlok.org help people in their hour of need.
Fax: 91 02446 248888
Web: www.manavlok.org
MONEYLIFE | 12 May 2016 | 66

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