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30 Cover Story
read for investors in higher tax brackets who
are constantly trying to juggle safe investment
returns and save tax.
A year after demonetisation, Sucheta’s
Different Strokes column is about how hasty Where Do Smart Investors Park Their Money?
and coercive decisions are inflicting pain on Investors have put in more than Rs52,000 crore in these mutual
people and businesses. When government fund schemes. Are they good for you too? Debashis Basu and
Clinton Fernandes explain
officials do not accept mistakes, the chances of
repetition are high. In Crosshairs, she writes
about how Indian black money hoarders
seem to slip through Panama, Paradise and
demonetisation even when the government
12 Public Interest
– How To Eliminate Tedious TDS Errors
– Air Travel Travails
seems earnest in its crackdown. Is it time to try
– Madras High Court Order Protects the Dignity of
out-of-the-box ways to bring this money back? Retirees
Bala’s column, this time, is very interesting
as always; he has an interesting rule-of-thumb
for understanding overvaluation. He says use
the valuation based either on profit or balance
14 Your Money
– Government Says Home-buyers Can Seek Damages in
sheet, as the case may be, to measure your risk. Ongoing Projects
For example, for companies that are valued – Aadhaar Linking Compulsory for Life, Non-life
highly because of growth, compare the price-to- Insurance Policies: IRDAI
earnings ratio (P/E) and return on equity (RoE). – New Minimum Balance for HDFC Premium Customers
The bigger the gap between the P/E and the – Kasa Isles Welfare Association Bids for Completion of a
Part of Jaypee Infratech Project
RoE, the higher is the risk. On the other hand, – HDFC Bank Makes Online Transactions Free for RTGS
for most commodity companies, the farther and NEFT
away from book value + debt per share, the – Indians Working Abroad Will Also Be Covered under
higher is your risk. EPFO
From this issue, we welcome back Mehrab – Delay in 62% of Housing Projects in 50 Indian Cities
– Supreme Court Asks Banks, Telecom Companies Not To
Irani to our regular list of contributors, which Create Panic among Customers
will strengthen our personal finance coverage.
Also, don’t miss Prasanna’s fascinating coverage
of the shocking developments in the Supreme
Court about corruption charges, which the
mainstream media has kept rather quiet on.
16 MONEYLIFE
QUIZ
Debashis Basu 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 | 24 Nov-7 Dec 2017 | 4
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From Panama to Paradise –
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22 Different Strokes
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Women LEGALLY SPEAKING
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Prof Sanjay Bakshi Investing Traps & How To Avoid Them Rs.800
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Debashis Basu
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New Delhi
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Moneylife is printed and published by on announcing thousands of crores of projects
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Editor: Debashis Basu
Manoj Khare, by email
Appalling Reality
the
Best
letter
T his is with regard to
“Auditor, Regulator, Rater:
and Exchange
Board of India),
Can They Get Away with a PFRDA (Pension
Mutual Fund investments
Consent Plea?” by Sucheta Dalal. Fund Regulatory are subject to market risks,
read all scheme related
In the last paragraph, she has and Development documents carefully.
said, “...would make us seem like Authority), IRDAI
a banana republic.” As a senior
journalist, I suppose, she has used
(Insurance Regulatory
and Development Congratulations
all her wisdom and experience in the statement. If so, Authority of India), Sharad Shah
it is an appalling reality of India! TRAI (Telecom
All regulators, auditors, bankers, raters, SROs (self- Regulatory Authority
YOU WIN A
PERSONALISED
regulatory organisations), etc, make tall claims of of India), CBFC CLOCK
‘protecting small/ retail investor’ or in the name of (Central Board of
common man. But, in reality, all of them are for Film Certification),
‘chairs’, and the power/pelf that can be drawn from etc. They are all an
the chair, during their tenure and post-retirement. additional burden on
No one really cares for the common citizen and for the common citizens,
values/ethics! while they take them
Look around, and you will see that banks are the for a ride, generation Sharad Shah
‘fighting’ for ‘independence’ for over 100 years, India BAD DEBTS GROW!
continues to have most laws that were enacted during This is with regard to “Why It’s TimeTo Revisit Income
the very same British rule that they opposed. Our Tax on Individuals” by R Balakrishnan. A businessman
politicians have done the greatest disservice to the never invests anything from his pocket. Most of the
nation by not reviewing and overhauling these archaic businesses run on the money of the banks. Businessmen
laws of the British era and replacing them with laws get richer day-by-day and the banks get poorer as
more in tune with our times. bad debts grow. The common man, the bakra, the
India has the worst legal system (I refuse to call it a scapegoat, has to pay the taxes to run this drama. This
criminal justice system, as it doesn’t dispense justice) is our type of luxurious most liberal, socialist, secular,
among large countries in the world. Unless law democratic peoples’ republic.
enforcement is robust and the legal system delivers TC Shivswamy, online comment
prompt verdicts, instead of after decades, having more
laws has no meaning. Also, every single law is made ANXIOUSLY AWAITING THE VERDICT ON
with enough loopholes for protecting rogue politicians, AADHAAR
if and when they get caught. India’s legal system is The judgement on validity of Aadhaar is heading
sold-out to the rich and powerful, while millions of towards the slog overs and, definitely, towards a
poor and helpless people languish in jails well beyond nail-biting finish. In the meanwhile, a whole lot of
the period they would have served even on conviction. us, including Moneylife readers like me, are resisting
I don’t see any light at the end of the tunnel! attempts from numerous agencies to force us to link
Ramesh I, online comment up with Aadhaar. At the workplace, it was resisting
seeding of the PF (provident fund) account with vehicles dirty and filthy. They take a bath and ease
Aadhaar; with the bankers, it is a daily barrage of themselves in the open.
SMSs and emails pushing a link with Aadhaar; I-T The whole idea of swachch Bharat comes to naught
(income-tax) returns, a hurried filing before linking with commercial vehicles’ illegal parking. Not even a
Aadhaar and the PAN (permanent account number) single case of such violation—towing away or other
became mandatory; and, now, to handle the mobile legal measures—is ever seen on the records of the
operator’s pressure to link the number with Aadhaar. authorities concerned for violations of law. It is the
Not to forget, the mutual fund and insurance linking as duty of the government to provide enough parking
well. I can try and resist and ask my spaces. Parking, in fact, should be free for
wife to put up with this for a few all vehicles, as one-time parking charges
weeks; but it is a struggle to explain are collected at the time of buying a car!
the logic to my aged pension-earning Further, it is a fallacy that higher parking
parents who get stressed at the mere charges will help in solving parking
mention of a deadline. problems. A lot of black money is created
It is like they say in a Kenyan by the parking mafia at present—where
proverb, ‘when elephants fight, it is there are no authorised car parking
the grass that gets hurt’. The ordinary charges, this mafia collects it illegally. To
citizen is not at all given a thought control the parking mafia, authorities
by the heartless system. Anxiously must take suitable action and advertise in
awaiting a decision that impacts the media—newspapers, TV and FM radio,
lives of sava sau karod deshwasi. etc—giving a complete list of authorised
Rajaram, online comment parking sites and rates, until the whole
country is made free parking for all
DUTY OF GOVERNMENT TO vehicles!
PROVIDE ENOUGH PARKING SPACE M Kumar, by email
This is with reference to Your Money snippet,
“Roadside Parking in Specific Residential Areas in HOST FAMILY WAS GOOD
Delhi Will Be Paid Parking” (Moneylife, 13-26 October This is with reference to “Airbnb: Home Stays
2017). The idea of charging a fee for parking of cars Anywhere in the World” by Yazdi Tantra. My cousin,
in Delhi colonies is an abandoned thought; in March who travelled France for about 10 days, had booked
2017, it was, rightly, dropped. It is most absurd and accommodation through Airbnb. As I also travel
is not a viable solution. If parking attendants are regularly within and outside India, he suggested to
expected to manage the arrangement, it would only me that I try Airbnb. I booked Coorg/Karnataka;
add to the problems of residents’ security concerns. everything was as good as claimed/shown on the site.
In fact, commercial vehicles parked around colonies Again, I booked for Pune home-stay with the charge
and on roadsides must be charged; such vehicles just 25% of what I used to pay to any reasonably
should be towed away, rather than private vehicles. good three-star hotel. At both places, Coorg and Pune,
Commercial vehicles—like tempos, trucks—light the host family was cordial and saw to it that I was
vehicles’ drivers and attendants, often, collude and this comfortable.
results in petty crimes and makes whole area near such Bharat Gandhi, online comment
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HDFC Bank Makes Online Bank said a customer can avail one
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Delay in 62% of
Indians Working Abroad Will Also Be Housing Projects in
Covered under EPFO 50 Indian Cities
Moneylife
MONEYLIFE
Quiz no
272
QUIZ Answer
Correctly! Win
Another quiz to tease your brain. The answers are in a personalised
sed
this very issue. The winner will be chosen by a lucky clock with an Rajendra Phophalia
investmentnt
draw from correct entries and answers published in the Mutual Fund
investments are quote!
issue dated 4 January 2018. Send in your answers to subject to market risks,
read all scheme related
quiz@moneylife.in with the Quiz no., name, address & documents carefully.
telephone number before 13 December 2017.
1. In the Moneylife analysis of liquid mutual fund (MF) 5. How much are the assets under management (AUMs) of
schemes, what is the lowest TER (total expense ratio) for ICICI Prudential Liquid Scheme, according to the latest data
regular plan schemes? available?
a. 0.56% b. 0.78% a. Rs27,409 crore b. Rs27,964 crore
c. 0.19% d. 1.05% c. Rs27,998 crore d. Rs26,556 crore
2. Among liquid MF schemes in the Moneylife analysis, what is 6. Who is the author of the book, Mad Money Journey?
the highest TER (total expense ratio) for direct plan schemes? a. Amish Tripathi b. Rashmi Bansal
a. 0.19% b. 0.11% c. Mehrab Irani d. MG Parameswaran
c. 0.09% d. 0.78%
7. What is the meaning of voilà?
3. When was Republic TV launched? a. There it is b. It has vanished
a. 1 May 2017 b. 5 May 2017 c. Abracadabra d. End of magic show
c. 5 May 2016 d. 1 May 2015
8. Under which Section of the Income-tax Act can a revised
4. In which town of Gujarat was Mohitraj Prabhatsinh Rathod return be filed after an error is noticed?
a driver? a. Section 80-G b. Section 143(1)
a. Surat b. Valsad c. Section 80-D d. Section 6
c. Rajkot d. Junagadh
In all, 12 readers got all the answers right last time. The answers to Moneylife Quiz-270 are: • 1-d. Debt mutual fund
The winner of Quiz-270 is Rajendra Phophalia from schemes are free of risk • 2-b. Rs4,28,000 crore • 3-d. 63%
Jodhpur. Congrats! You win a personalised clock with • 4-b. London • 5-d. Section 80-G of the Income Tax Act • 6-a. Vishal
an investment quote! Sikka • 7-c. 1950 • 8-a. Dartmouth University
SAT quickly sets aside SEBI order on Gujarat CM Rupani for market manipulation; Rupani
had failed to reply to SEBI Notices
The Securities Appellate Tribunal (SAT) has set aside an order passed by the adjudicating officer of Securities and
Exchange Board of India (SEBI) against 22 entities for alleged manipulation in trading in Sarang Chemicals Ltd.
Pincon Spirits admits arrest of its chairman Monoranjan Roy, but mum on why it failed
to update the exchanges
Kolkata-based Pincon Spirits Ltd has admitted that its chairman Monoranjan Roy was arrested by the police on
2nd November from Bengaluru airport and is in the custody of Jaipur Police till 9 November 2017. The company gave this
clarification as sought by BSE, based on a news item published by Moneylife
RTI Empowerment: Patients are scarce at Pt Bhimsen Joshi Hospital in Mira Bhaindar,
finds activist Krishna Gupta
Probably for the first time, a Right to Information (RTI) activist has used the Section 2(j) of the RTI Act to conduct
a physical inspection of a public premise. The premises in question were that of the 100-bed Pandit Bhimsen Joshi
(Temba) Hospital, a new facility run by the Mira Bhaindar Municipal Corp (MBMC)
RTI exposes flaws un-calibrated speed guns used by Delhi traffic police
The next time you are accused of speeding, when you believe you are within the rules, you could well be right—no
matter what the reading on the speed guns used by the traffic police to catch you and impose a fine. When Delhi-based
Savyasachi Marwaha was intercepted and fined for speeding, even when he was driving his car at low speed, he decided
to get to the bottom of how the system worked.
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MONEYLIFE | 24
27Nov-7
November
Dec 2017
2014 | 20
14
I
t was, finally, the anniversary of the currency objections raised by industry associations to the oppressive
demonetisation that brought out some truths about the and punitive provisions in the statute were ignored as
source of the many goof-ups that put people through the Bill was rushed through parliament. Moneylife had
untold harassment. Ironically, the truth was told in a huge, published a Cover Story ( Moneylife 4-19 September 2013)
self-laudatory article that had the temerity to dismiss the on the implications of these brutal provisions. There is a
mistakes, as almost inconsequential. Before we go into it, lot worse in the Companies Act, 2013, which gives the
let’s look at a couple of issues, to put into perspective how government power to cripple company directors through
hasty decisions have thrown people and companies into fines and imprisonment.
turmoil. This is not limited to demonetisation (where new Let us return to the drastic decision to demonetise
rules and circulars were issued almost 84% of currency that first exposed
every day), or to the ill-prepared launch this regime’s penchant for rash
of the Goods and Services Tax (GST) and harsh decisions. The best that
where, again, the government is back- supporters of demonetisation can
peddling furiously, correcting mistakes claim is that the benefits will come
and trying to smoothen things after it later. The government argues that
is clear that business and industry was laundered money is now sitting in
hurting badly and struggling to cope. bank accounts and this leaves a trail
The haste to trap black money which it is unearthing. The decision
credited to bank accounts has led to a to de-register 200,000 shell companies
decision to disqualify 300,000 directors (a good and bold decision), and the
of companies merely for delayed filing foolish one to disqualify directors,
of annual accounts. This is a separate is a part of the attempt to bolt the
exercise from the decision to strike stable doors.
off 200,000 shell companies that the Whether it succeeds will depend
prime minister (PM) has mentioned A good chunk of the on whether the tax machinery is
in many of his speeches. Since this money credited to bank able to prevent this money from
has not made media headlines, the being withdrawn without paying tax
accounts will be quietly
government is in no hurry to find a or even paying just 33% like other
solution. Innumerable large, medium,
converted in connivance law-abiding taxpayers. Ultimately,
small and tiny companies are in deep with tax officials while a everything is in the hands of individual
turmoil along with a few lakh other few raids will keep up the tax assessing officers and, at this level,
companies where the disqualified façade of recovery anecdotal reports indicate that there
persons are directors. Company is no visible reduction in corruption
officials crowding registrar of companies’ (RoC) offices or the tendency to harass taxpayers.
are told that the government recognises the problem and We recently had the opportunity to listen to two bulge-
some palliative will be offered, but nobody knows when. bracket taxpayers, who are routinely harassed, despite
Meanwhile, companies are scrambling to find new paying tens of crores of rupees in tax. The first one said
directors to replace those who have been disqualified there is an improvement under this government—not
without so much of a warning or a show-cause notice. because there was no attempt to harass him, but because,
And, if any of our readers believes this is a criticism of when he yelled back and asked a senior tax official whether
this government’s functioning, it is. But let me also point he ‘seriously wanted to harass a law-abiding taxpayer?’,
out that these draconian provisions were pushed through the officer backed off. There is fear of action, he concludes.
in the Companies Act, 2013, piloted by Sachin Pilot, a The second one said he has no time or inclination to face
Wharton School (US) alumnus, when he was minister harassment and humiliation, despite paying full tax (I must
of corporate affairs under the terrible second term of mention here that there is no scope anymore to fudge tax
the United Progressive Alliance (UPA). Thousands of liability on income from investments). So his accountant
is allowed to make reasonable payments (bribes or speed drama about Rs500 and Rs1,000 being declared tools
money) that are routinely demanded. Clearly, a good of hoarding black money?
chunk of the money credited to bank accounts will be 2. Secondly, he claims, “lower denomination notes were
quietly converted in connivance with tax officials while a issued in plenty.” If that were true, why were 12 billion
few raids will keep up the façade of recovery. Senior tax pieces of lower denomination pieces pushed into the
officials tell us that this is happening already. market in a hurry only after public anger began to
This brings us back to whether blundering officials at mount?
the Reserve Bank of India (RBI) increased our hardship by 3. Had Mr Gandhi’s grand plan anticipated the large
botching up the implementation of demonetisation. In a gap between Rs100 and Rs2,000, creating a void in
jaw-dropping claim, R Gandhi, former deputy governor of denominations for daily transactions? If so, shouldn’t
the RBI who was in charge of the demonetisation exercise, the Rs200 note have been put into circulation before the
claims in an article in The Economic Times that large-scale demonetisation exercise, since it was unlikely to arouse
preparation preceded demonetisation and its “execution suspicion. Instead, Rs200 has been introduced last,
was to the script; and unanticipated almost as an afterthought and is still
mid-course corrections were minimal.” not available in sufficient numbers.
He also says that the many policy 4. Outrageously, Mr Gandhi writes:
reversals, course-corrections, etc, “Yet another blow to our plans was
were also part of the plan and even the public behaviour (or should I say
the misuse of Jan-Dhan accounts non-behaviour) relating to digital
(people being used as ‘money mules’ payments.” He had ‘factored’ that
to launder money) and corruption of with people’s cash vanishing overnight
bank officials was anticipated and and stringent limits on withdrawal,
factored in! In other words, if asked to people would switch to ‘RTGS/NEFT,
do it all over again, the same hardship, Internet and mobile banking. Since
or worse, will be inflicted on people, RBI does not speak to people, he is
because RBI thinks everything went In a jaw-dropping clueless about the fact that most of
as per plan. If some lives were lost, claim, R Gandhi, who these transactions need some learning
that was mere collateral damage. In was in charge of the and confidence level; while people
another media interview, he said, the demonetisation in RBI, did open PayTM and other e-wallets,
only thing he would do differently is claims that large-scale RBI itself did not put in place digital
to print more Rs500 notes (this was preparation preceded safety regulations until Moneylife
done by asking the RBI security press it and its “execution Foundation campaigned vociferously
at Mysuru to take up printing of Rs500 for it, long after the demonetisation
was to the script, and
after public anger began to explode). exercise was over. Does this indicate
The preposterousness of these claims
unanticipated mid-course meticulous planning?
requires some response. So here are a
corrections were minimal” 5. Mr Gandhi’s article omits
few quick points. uncomfortable issues that are still
1. Mr Gandhi explains that stocking 200,000 ATM unsettled. For instance, many non-resident Indians
machines with 2000-rupee notes was expected to (NRIs) and those who were not in the country in
increase the number of ‘touch points’ to withdraw November 2016 and deposited demonetised currency
money. But that didn’t happen when it was needed, in designated RBI branches are still waiting for their
did it? The biggest goof-up of failing to stock ATM money to be credited into their accounts. Why didn’t
machines, anticipating the need to calibrate each the plan consider this? Or is it okay for the State to
one physically for smaller size notes is probably the make ones hard-earned money worthless for things
biggest blunder in handling demonetisation. Mr Gandhi beyond their control?
dismisses this as a minor issue saying, “with the benefit Clearly, when a coercive State is in action, planning is
of hindsight, I wish we had handled it differently.” He not necessary; people are expected to put up with hardship
has also claimed elsewhere, that introduction of 2000- in the nation’s moral and ethical interest.
rupee note was irrespective of demonetisation and
RBI had even recommended introduction of notes of Sucheta Dalal is the managing editor of Moneylife. She was
Rs5,000 and Rs10,000 denominations. If so, doesn’t awarded the Padma Shri in 2006 for her outstanding contribution
it make you wonder about the timing, sequence and to journalism. She can be reached at sucheta@moneylife.in
We already have liquid schemes which have dropped from higher than those of their direct plans.
6% and are now delivering 5.5%. But there is another angle When it comes to liquid schemes, even a 0.25%
to liquid schemes. Imagine if one were to be careless about difference in returns can mean a lot. Individual investors
how one is investing and continues to invest via regular may initially find investing in direct plans tricky compared
plans. What would be the returns and can investing via to the normal distributor route. There are a few platforms
direct plans improve it? which charge an annual fee to purchase direct plans; but
Well, think of this. Does it make sense to pay a there is a free service-provider also, viz., MF Utilities. We
distributor 1% out of the 5%-6% you make on a category have shortlisted a few liquid schemes with low gap in
of investment which is low-effort and offers similar returns expense ratios of their regular and direct plans, coupled
across its category? Asset management companies have with good returns. You can park your surplus in any of
observed this and kept the difference in the expense these schemes’ regular plans through your mutual fund
ratios of regular and direct plans of liquid schemes at distributor. — Clinton Fernandes
Liquid Schemes
Scheme Name AUM (Rs Cr) Regular Plan TER (%) Returns (%)
1-year 3-year 5-year
Axis Liquid 20,503 0.12 6.60 7.49 8.03
Kotak Liquid 12,564 0.03 6.54 7.46 8.02
ICICI Prudential Liquid 31,633 0.24 6.54 7.47 8.04
DHFL Pramerica Insta Cash Plus 6,938 0.09 6.58 7.51 8.02
Kotak Floater 11,223 0.07 6.59 7.53 8.08
L&T Liquid 14,513 0.14 6.58 7.48 8.02
Tata Money Market 12,105 0.14 6.57 7.48 8.06
HSBC Cash 4,780 0.15 6.55 7.44 8.02
Invesco India Liquid 10,268 0.12 6.58 7.50 8.05
Reliance Liquid 27,343 0.19 6.57 7.48 8.04
AUM: assets under management as on 31 October 2017
B
ull markets show us as being very smart. All our In a bull market, what I will talk about is the rate
chosen stocks work out very well or at least the of earnings growth, the attractiveness of the sector and
majority of them. The change from one week to the justify a buy decision. The stock has moved up nearly
next is on the quantum of gain we see in our portfolio. five times in a year.
Good times call for temporary suspension of logic and work However, I take a deeper look and I see that the business
on improving our ‘hearing’ skills. We have to hear the name is contracting; debtors and sales are sometimes estimated
of the stock before the others. But, while we celebrate the numbers. The company has increased its total indebtedness
joys of a bull market, let me try and engage your attention more than proportionate with its sales growth. And,
with some mundane things going by my experience,
about investment analysis. it unlikely to be able to
At a recent get-together on keep the show going, at
balance sheet analyses, we this rate. What it means
were discussing the section is that the company will
on analysis of cash flow. constantly need cash more
I had cited examples than its sales growth, since
of companies that are it generates its revenue
apparently profitable, only by deploying more
but it takes some detailed fixed assets. So it has to
analysis to predict where reach a scale and size that
the company is headed. The is such that it can reduce
profit & loss and balance its incremental growth
sheet analysis has to take us to a size that is smaller
beyond the obvious. What than its realised profits.
happens is that in a bull Cash flows tell the story
run, even a bhangar, or kachra company looks like a great of ‘probable’ success or failure. When companies keep
company. There are similarities on the surface. But, deep accessing the markets frequently for raising money, the
inside, there are killer differences. Let me reproduce the probability of longevity is low. Unless the total leverage
‘What you see’ in a company that is in a ‘hot’ sector and keeps reducing, the risks continue to be very high. Of
is on the hi-speed price elevator in this market: course, one can always argue about a bright future, so
investing or not investing in the stock is a function of an
investor’s gullibility.
A Hot Stock FY15-16 FY16-17
Similarly, in this market, we see people looking at
EPS (Rs ) 20 26
the book value of the share and commenting on the
Share Price (Rs) 1,000 — replacement price. They conveniently forget the total
P/E 50 38 debt. Maybe, the assumption is that banks are not to be
Dividend Per Share (Rs) — 1.00 taken seriously. Recently, there was a discussion on old
9 Research Reports with Buy ‘brands’. In the marketplace, ‘brands’ and ‘virtual space’
seem to give the best valuations. So everyone is busy
trying to locate once-popular brands like BPL, Garden,
Maharajah, Kelvinator, etc, and place their bets on them.
FY17-18 FY18-19
Of course, it is imprudent to speak about the financials. It
EPS Forecast 31 40
is very unlikely that we will see old brands coming back.
One Year Ago Price (Rs) 226 At best, someone business rival may emerge as a ‘buyer’
Steady Upward Moving Curve No Jerks and simply kill the brand. These companies would have
a lot of debt, lost key people and need a lot of resources
to fight for space. You have to hope that there are others who have similar
As the bull market keeps rolling on, there is a constant thoughts and chase the stocks that you buy. We all probably
search for themes. Commodity plays become value and know how to board a running train. The more difficult
‘growth’ plays. And the action is far higher on the mid- part is knowing when to get off. There is no one who can
cap and small-cap space because this is where sketchy predict when the bull gets tired and the bear takes over.
information works best and it is easy to plant stories. No one can forecast which will be the proverbial ‘straw on
Mostly, these shares are illiquid and, very often, it is easy the camel’s back’. A bull market that ignores all warnings
to move prices. Thanks to social media, today, a large body may cool off for no reason and it does not take long for
of the unsuspecting public investors also are roped into panic among the weak and late buyers to set in. Further,
the ‘pump & dump’ game. The fixers never had it so easy. in a market where many buyers are leveraged, the leverage
Most of us lose our bearings in a acts as a panic accelerator when the
bull market. We forget that two and tide turns. And, when the selling
two is always four. The arithmetic of A simple rule for this starts, you will only see constant
investment returns does not change. lower circuits on the stocks that
Measuring returns is still a function
market: use either the seemed to defy gravity.
of what profits come in on invested valuation based on A simple rule for this market: use
money. It is not about some vague profit or the balance either the valuation based on profit
matrices like eyeballs, footfalls and or the balance sheet, as the case may
brand value. All of these have to,
sheet, to measure your be, to measure your risk. For most
finally, result in a single number that risk. The bigger the gap commodity companies, the farther
can be measured. It is not very wise between the P/E and away from book value + debt per
to compare equity with the way, share, the higher is your risk. For
say, a painting is valued. Going to
the RoE, the higher is companies that you buy because of
a cocktail party, you have the first the risk brands, use the price-to-earnings
two drinks, probably. After that, ratio (P/E). Measure the return on
it is the drinks that have you. Bull equity (RoE). The bigger the gap
markets are like that. Very often, you will find that you between the P/E and the RoE, the higher is the risk. And, as
have no idea of what stock you are going to buy, even a the P/E keeps crossing the RoE, the risk jumps higher. This
day in advance. There are hundreds of ideas that come is a simple back-of-the-envelope number and I use it when
and go and what you may, finally, act upon is a matter of I am tempted to trade in a market such as this. Preserving
circumstances or impulse. capital in this market should be the big motive, not search
When investment decisions violate processes, and for quick money, thanks to our newfound smartness.
are driven by thinking that ignores investment logic,
the outcome is dependent on luck and crowd behaviour. The author can be reached at balakrishnanr@gmail.com
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T
he thumb rule for investors, when it comes along with high level of liquidity and safety. As the name
to parking surplus funds for safety of capital, implies, they are highly liquid and can be redeemed
is to go for fixed deposits (FDs) or savings instantly. Liquid schemes offer more attractive returns
accounts of banks. For more flexibility and than savings account. Additionally, you can withdraw
liquidity, one may also use liquid schemes the money anytime you like without any penalty charges
which are a category of mutual fund (MF) schemes or exit-load. All these features are so well known to
that invest primarily in very short-term instruments investors that they blindly put their funds into these
like certifi cates of deposits, treasury bills, commercial schemes, without checking the tax implications on the
paper, term deposits and money-market instruments. gains.
The primary objective is to provide returns that are Liquid schemes are, of course, not invested in with
higher than interest on savings bank account balances a focus on the long term but more for their convenience
10,000
8,000
6,000
4,000
2,000
Kotak Equity
K IICICI Prudential E
Edelweiss HDFC
H Reliance Arbitrage
R
Arbitrage
A Equity - Arbitrage Arbitrage Arbitrage Advantage
and safety. But that does not mean liquid schemes are the price difference. So, if Reliance Industries Limited
the go-to category to park your surplus money, always. (RIL) is trading at Rs874.90 on the BSE (Bombay Stock
There’s another type of scheme, offering the same, or Exchange) and Rs876.10 on the NSE (National Stock
better, returns and safety similar to that of liquid schemes, Exchange), one just needs to buy on the BSE and sell on
with one exception, that is, you don’t pay tax on what the NSE and, thereby, make a risk-less profit of Rs1.20
you earn, if you hold the investment for a year. It does on this transaction. But, for this, you need to already
sound too good to be true which is why we will explain have the stock of RIL on your hands. In the US, you
the details of this amazing scheme category and why could have borrowed the stock but the Indian market
you should add it to your list. We are talking of ‘equity does not have a proper lending and borrowing facility.
arbitrage’ schemes. It does sound fancy and one might The second form of arbitrage, which is more relevant
turn a blind eye to it, but this category will help investors, in our context, is the cash-futures market arbitrage. Fund
especially those in the higher tax bracket, to earn the best managers look for differences in the price of a stock in
returns on their parked money while saving on tax. A the cash market and the futures market. For example, if a
lot of smart people have already figured this out. Take share of Ambuja Cement is currently trading at Rs1,761
a look at the chart above and see how the assets under in the cash market and Rs1,849 is the futures price (0.5%
management (AUMs) of some of the arbitrage schemes higher), they can buy shares of Ambuja at Rs1,761 and
have more than tripled in the past three years. sell a futures contract at Rs1,849, locking in a profit of
Let us get to know what these schemes do; how much Rs88 on this trade. At the end of the month, they sell off
returns one can make on average; and the possibility the Ambuja stock holding in the cash market and square-
of losing money. Arbitrage schemes practise arbitrage, off the futures contract, thereby, netting a profit. They do
or simply, “the simultaneous buying and selling of 12 such trades in a year; so the returns from the capital
securities, currency, or commodities in different markets allocated to these trades would be around 6%. But there
or in derivative forms in order to take advantage of are additional costs, such as brokerage and securities
differing prices for the same asset.” It is a way of trying transaction tax. Rajat Jain, chief investment officer
to make riskless guaranteed profits if one finds such of Principal Mutual Fund, explained why the ‘cash
opportunities. & futures’ combo is widely used for finding arbitrage
Arbitrage works in different ways but the basic opportunities. “Fund managers use stock futures as it is
principle remains the same, which is, finding price a deep and liquid market with low impact costs for most
differences in different markets for the same stock or futures.”
goods. For arbitrage to go as planned, the trader/manager
needs to be really quick in executing the transactions. The ‘Equity Savings Vs Arbitrage’ Debate
For the fi rst method, which is known as inter-market There are two categories of equity-oriented arbitrage
arbitrage, the price difference of a single stock on two schemes: pure arbitrage schemes and equity savings or
different stock exchanges is compared to cash in on income schemes. The objectives of both of these are
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somewhat similar, that is, both practise arbitrage, invest Arbitrage Schemes Vs Liquid Schemes
some portion in debt and money-markets and are equity- Now, we will compare the performance of arbitrage
oriented. But they are not in the same category. Mr Jain schemes with liquid schemes and figure out which one
explains the difference between the two: “Equity savings has performed better.
scheme has an asset allocation in which the pure or
unhedged equity component can go up to 30% of the
portfolio. However, the scheme also adds arbitraged
Performance
equity positions so that the gross equity exposure is Liquid Schemes 5-year Returns (%) Arbitrage Schemes
above 65%. As against this, in the pure arbitrage scheme, Escorts Liquid 8.4 7.6 ICICI Prudential
there is no unhedged equity and all equity exposure is Equity - Arbitrage
hedged.” Principal Money 8.3 7.5 Kotak Equity
Manager Arbitrage
Equity savings schemes, are therefore, a mix of pure
equity schemes and arbitrage schemes. Which of the two Essel Liquid Fund 8.2 7.4 Reliance Arbitrage
Advantage
is better? Are there any advantages to investing in equity
savings schemes over arbitrage schemes? Aditya Birla Sun 8.1 7.3 IDFC Arbitrage
Life Floating Rate
JM High Liquidity 8.1 7.2 JM Arbitrage
10-year Returns Advantage
Indiabulls Liquid 8.1 7.2 SBI Arbitrage
20% Opportunities
15% Aditya Birla Sun 8.1 7.0 IDFC Arbitrage Plus
Life Cash Plus
10%
Kotak Floater - ST 8.1 7.0 Invesco India
5% Arbitrage
Baroda Pioneer 8.1 6.9 HDFC Arbitrage
0%
Liquid - A
-5%
31 Oct-08 30 Apr-13 31 Oct-17
Observations: Both the categories are offering good
EEquity Savings EEquity Arbitrage
returns ranging between 7% and 8% approximately.
Compared to savings account interest rate of 4%, both
are definitely better. However, they are just about as
The chart above, of 10-year returns, shows that good as the average bank FD rates over the past five
returns on equity savings scheme are volatile compared years. In some cases, they are worse. But they have better
to those on pure arbitrage schemes. The returns of equity features like liquidity, ease of purchase and redemption,
savings schemes can be compared to hybrid schemes as lower risk and flexibility. If you notice, liquid schemes
both have an equal exposure to the riskier equities and have generated higher returns than arbitrage schemes
safer debt or arbitrage opportunities. Now that this mentioned here. The average returns by arbitrage
difference is out of the way, we can compare the returns schemes were 7.2%. Compare this with the 41 liquid
of pure arbitrage schemes with those of liquid schemes. schemes available in the market, which delivered an
average 7.9% in the past five years. Looking at the
numbers, liquid schemes appear to be a clear winner,
Methodology but not for everyone. Returns have to be measured post-
less than one year, and tax exempt if held for more than money to liquid schemes for safety, flexibility and
a year. So how much returns do arbitrage schemes earn liquidity. Past returns data tell us that if your holding
over liquid schemes, if held for a year, after considering period is more than a year but less than three years, you
tax? The figures will surprise you. should ideally park your money in arbitrage schemes.
In the chart ‘Performance over 10 Years’, we have
Arbitrage Vs Liquid Schemes: Post-tax Returns compared the average yearly returns of arbitrage
As the chart below clearly shows, those in the 20% and schemes with liquid schemes to see how both moved over
30% tax bracket would have made 1%-2% more returns, the 10-year period ending 31 October 2017. One can
if they had invested in arbitrage schemes. Earning 7.9% see that there is a correlation in the direction of returns.
and paying a 30% tax, lowers the actual yield from liquid The returns have been trending lower as interest rates
decline. There are two factors that boost the returns
from arbitrage schemes: market volatility and rising
Post-tax Returns interest rates. Liquid schemes are influenced only by the
9%
trend in interest rate.
8%
Due to growing awareness of financial products
7%
among a section of investors, huge inflows have come
6%
into arbitrage schemes in the past five years. This has
made fund managers worry over the lack of arbitrage
5%
opportunities available in the market. Mr Jain states,
4%
“Clearly, if there is too much money behind arbitrage
3%
schemes, it would impact returns. While returns will
2%
moderate if there are many people doing arbitrage, they
1%
will not go below a particular threshold.”
0%
2014-15 2015-16 2016-17
Monthly Performance
Returns
1.6%
1.2%
0.8%
0.4%
0.0%
31 Jan-08 31 Mar-08 31 May-08 31 Jul-08 30 Sep-08 30 Nov-08 31 Jan-09 31 Mar-09
Kotak
K Equity Arbitrage JJM Arbitrage Advantage SSBI Arbitrage Opportunities IIDFC Arbitrage
IICICI Prudential Equity Arbitrage IInvesco India Arbitrage HDFC Arbitrage
H
opportunities in the market because of many more definitely expensive to maintain. There is a solution to
arbitrageurs. Returns generated by schemes are based this problem—direct plans of arbitrage schemes—and
on the efficiency of fund manager’s opportunity-spotting you can earn higher returns. The yearly expense ratio of
skills and the trade execution skill of his team. Of course, direct plans is 0.3%, on average. This minor difference
they have software that flags such mispricing the moment can add 0.25% to 0.7% to your yearly returns from
it occurs. But others have such these schemes.
software too and investors do have
to take into account the uncertainty There are additional Anomalies
of the arbitrage opportunity as a There are additional factors
hurdle in earning returns. For this
factors that you need to be that you need to be aware of,
reason, such schemes cannot assure aware of, while investing in while investing in arbitrage
returns; the returns totally, and arbitrage schemes. While schemes. While pure arbitrage
completely, depend on available schemes are available, do not
opportunity. pure arbitrage schemes get carried away by the word
3. Cost-of-carry: This is the are available, do not arbitrage. It may be misleading,
operational cost of entering and get carried away by the at times. Let us check the
maintaining a stock position. When investment objective of BNP
comparing it with liquid schemes, word arbitrage. It may be Paribas Enhanced Arbitrage
where transactions costs, if any, misleading, at times Fund. It says “The primary
occur only during the purchase of investment objective of the
the debt securities, with arbitrage scheme is to generate income
schemes, the cost-of-carry can include costs such as and capital appreciation by investing in a combination
brokerage, securities transaction tax (STT), interest of diversified portfolio of equity and equity related
cost on margin requirements for futures and short-term instruments, including use of equity derivatives strategies
capital gains tax on selling of the stock held in cash. These and arbitrage opportunities with exposure in debt and
costs reduce the actual returns on arbitrage schemes. fixed income instruments.”
4. High Expense Ratios: Arbitrage schemes suffer from Well, it is true that the scheme intends to exploit
very high expense ratios relative to liquid schemes. The arbitrage opportunities; but the main purpose of this
expense ratio for regular plans is, on average, 0.9% scheme is to generate capital appreciation by investing
a year. When you compare this with the expense ratio in equity securities. The whole purpose of getting risk-
of liquid schemes, which is usually in the range of free returns from arbitrage schemes is compromised with
0.1% to 0.3% for regular plans, arbitrage schemes are such schemes and, then, returns witness high volatility.
A
game-changing rule from the putting their hard-earned money and get back the money easily?
government has debarred for retirement funds. It should not There are practical difficulties.
non-resident Indians (NRIs) be assumed that PPF being tax- First, NRIs being abroad, may have
from investing in Public Provident free in India means that the NRIs difficulty in communicating with
Fund (PPF) and National Savings don’t pay tax abroad on their PPF the banks in India to convey their
Certificate (NSC) with effect from interest. Depending on their country decision whether to close the PPF
3 October 2017. Under the rule, of residence, they may have to or continue it with 4%pa interest.
PPF and NSC will yield only savings pay taxes on global income which Second, banks may take their own
account interest from time to close the PPF
the day the person account and may
becomes an NRI. even insist on NRIs
NSC investment by having to return to
NRIs will have to be India to close the
encashed, or deemed account, as this is not
to be encashed on the like a withdrawal on
day the status of the maturity.
resident changes to Third, unlike
non-resident. The PPF online FDs, there is
notification says that no online process
the account will be to close the PPF
‘deemed closed’ for account. It only
NRIs which experts means that instead
claim to mean that of the government
NRIs can freely withdraw the PPF includes PPF interest. seeing a mass outflow of PPF
corpus. If so, NRIs will have to Hopefully, NRIs will not be money, it has ensured for itself a
get out of PPF and NSC instead of subjected to PPF lock-in period huge profit by paying a measly
getting 4%pa (per annum) interest. of seven years which can then be 4%pa interest on the NRI
The government has announced followed by partial withdrawal. retirement money soaked up in PPF
the change without any notice Assuming NRIs are free to and NSC. Time will tell how far the
period to existing NRI investors withdraw the PPF corpus, will government’s tightening measures
in PPF and NSC who have been they be allowed to close the PPF adversely impact savers.
G-Sec Yields Up
Issuer Maturity Next Last Yield ISIN Rating
1
Date Coupon (%)
0-year benchmark G-Sec yield,
which sets the tone of the fixed- Sundaram Fin Ltd 7.47% 01 Sep-20 03 Sep-18 7.60 INE660A07PE0 CARE AA+
income market, has jumped by 13 REC Ltd 7.95% 12 Mar-27 30 Mar-18 7.58 INE020B08AH8
CRISIL AAA
basis points (bps) in the last fortnight (unsecured)
to end at 7.02% on 15th November. HDFC Ltd 7.20% 01 Sep-20 01 Aug-18 7.50 INE001A07QY3 CRISIL AAA
10 November 2033 7.43 Aditya Birla Fin Ltd 8.85% 22 Feb-19 22 Feb-18 7.65 INE860H07CJ8 CARE AA+
G-Sec yields on 15 November 2017 BSE data as of last trade date of 14 November 2017
*Annualised. Since 25 April 2014 *Annualised. Since January 2012 * Annualised. Since January 2012
For small-cap/ low-price stocks with Long-term value stocks. More of mid- Long-term value stocks. Usually large
big growth potential cap stocks to be held for 1 year or more companies are selected
• A shortlist of stocks to invest in • Weekly market view • Weekly market view
• Fundamental data we rely on • A shortlist of stocks to invest in • A shortlist of stocks to invest in
• Brief description of the companies • Fundamental data we rely on • Fundamental data we rely on
• Weekly updates on all stocks • Weekly updates on all stocks • Weekly updates on all stocks
Caution: The returns shown here are much higher than average.
Average annual rise in the Nifty/Sensex is likely to be 12%-14%
per annum over 10 years and more. Well-chosen stocks may
rise by 20%-22% per annum over five year and more.
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I
FB Agro, which manufactures and distributes grain disinfectants, chemical intermediates and personal-care
alcohol, distillers dried drain solubles (DDGS), products. The DDGS that it produces is sold as a value-
carbon dioxide (CO2), organic manure, alcoholic added organic ingredient for poultry, aqua, cattle and
beverages, aqua-feed and processed frozen shrimps for swine feed. In this segment, the company has clients
domestic and export markets, has performed well in like Godrej Agrovet and Suguna Foods. The carbon
the September 2017 quarter. Sales shot up 63%year-on- dioxide division produces food & industrial grade
year (y-o-y) from Rs273.44 crore to Rs446.22 crore. CO2 in bulk as well as in cylinders and is the approved
Operating profit jumped 49% y-o-y from Rs13.36 supplier for Coca Cola and Pepsi. It claims that it is the
crore to Rs19.88 crore, while net profit rose 29% y-o-y sole manufacturer and leading distributor of dry ice in
from Rs8.9 crore to eastern India.
Rs11.48 crore. This In FY16-17,
is in continuation of it operated the
last year’s excellent new plant for
performance when spirits, based on
revenues jumped ‘Eco Smart’ multi-
33% y-o-y, from pressure distillation
Rs621.3 crore to technology, for
Rs829 crore, though the first time with
net profit was up expanded capacity.
only 9% y-o-y from The DDGS capacity
Rs29 crore to Rs32 was also expanded
crore. The stock is trading close to its 52-week high of during FY16-17. IFB Agro claims that its distilleries
Rs757, at Rs679.8, at a price-to-earnings ratio (P/E) operated at an optimum capacity during the year.
of 20.70 and the company has a market-capitalisation However, this business faces competition due to the
of Rs623 crore. Thanks to the increased cash flow, commissioning of a new distillery of Globus Spirits
borrowings reduced from Rs49.63 crore in FY15-16 to during FY16-17. The spirit production in capacity
Rs42.95 crore in FY16-17. What is the source of the surplus states like Uttar Pradesh and Punjab also put
recent surge in profits and is it likely to continue? pressure on margins of the distillery business especially
West Bengal-based IFB Agro has two main business since they are brought into West Bengal, duty-free. IFB
segments: spirits, liquor and ‘spirituous beverages’ Agro, in its annual report, claimed that its earnings
is one and marine products is another. It is this, the before interest, tax and depreciation (EBITDA) margin
second business, which has now become the engine at the distilleries suffered due to significant increase in
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
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input costs and the cost increases could not be passed up in the financial results of the September 2017
on fully to the buyers due to competition. Even though quarter. Marine exports in FY16-17 jumped 64% due
IFB Agro is the largest manufacturer of IMIL in West to full functioning of its plant in Andhra Pradesh (It
Bengal with its four bottling plants, in FY16-17, this now has two plants—one in Kolkata and another in
segment managed a revenue growth of only 6%. IFB Andhra Pradesh, for processing its marine products.).
Agro claims that demonetisation impacted the sales of IFB Agro exports value-added premium black tiger
IMIL products in FY16-17. Revenue of IMIL business shrimps to countries such as France, Germany, Russia,
will also be impacted by the decision of the Supreme Italy, Thailand, Japan, Vietnam, USA, Canada and
Court to ban of sale of liquor within 500-metre radius Australia. IFB Agro's fresh catch range includes both,
of highways. ready-to-cook (RTC) and ready-to-fry (RTF), products
The real growth engine is seafood exports. The that are retailed in major towns across the country
global seafood market has grown steadily at a and also used by hotels, restaurants and caterers. The
compounded average growth rate (CAGR) of 4.1% net profit from the marine segment leapt 59% y-o-y
during the period 2014-16. The trade volumes are from Rs6.32 crore in the September 2016 quarter to
reported at $216 billion in the calendar year 2016. As Rs10.03 crore in September 2017 quarter. This more
per Food and Agriculture Association (FAO), estimates than compensated for the spirit and liquor segment’s
that seafood consumption in China, the Middle East, net profit growth of only 4% y-o-y from Rs9.19
East and South East Asia is increasing at a steady crore in the September 2016 quarter to Rs9.56 crore
pace because of income in September 2017
growth and expansion quarter. Revenue from
of the middle class.
Improving Results of Marine Segment the marine aqua-feed
Rs Cr
India is well positioned 12 business shot up 46%
to take advantage of in FY16-17; operating
increase in global seafood 10 margins remained flat,
consumption because 8 despite higher input costs
of our long coast line, and investments made
availability of raw 6 in Aquashops (retail
materials and idle land 4
venture of feed division
available for taking up to boost prawn farming
aquaculture in large 2 with scientific solutions).
scale. Total exports 0
The company expects a
of seafood from India Dec-16 Mar-17 Jun-17 Sep-17 revenue growth of 4% in
was 1.14 million metric FY17-18 in the domestic
tonnes (MT) in 2016-17 marine food business.
compared to 946,000MT in 2015-16 reporting, a jump Entry of new players in the aqua-feed business in
of 20% in volume terms. In value terms, exports were West Bengal may affect growth and margins, the
Rs37,871 crore in 2016-17 as against Rs30,420 crore company feels. It has also incorporated a wholly-
in 2015-16 -- an increase of 24%. owned subsidiary - IFB Agro Marine (FZE), in the
Shrimp continues to be the backbone of Indian Sharjah Airport International Free Zone, to establish
seafood exports and accounted for 38% in volume a marketing and trading outfit to explore untapped
terms of total seafood exports from the country in markets in countries of the Middle East and Eastern
FY16-17against 40% in the previous year. Total Europe.
shrimp exports were around 434,000MT in 2016- IFB Agro’s annual report said that it expects FY17-
17 compared to 373,868MT in 2015-16 in volume 18 will be challenging for all the verticals. It is taking
terms, while, in value terms, they were Rs24,415 crore into consideration a potential threat due to liquor
against Rs20,045 crore in 2015-16. The major export ban in selected states. IFB Agro also claims that a
market has been USA followed by Europe, Japan and recent notification by the government of West Bengal
South East Asia during 2016-17. Over 2011-15, the to convert the distribution of IMIL products under
shrimp culture industry registered CAGR of 25% and ‘Corporation Model’ wherein West Bengal government
has grown threefold from 151,465MT in 2010-11 will undertake wholesale distribution of Indian-
to 434,000MT in 2016-17. IFB Agro is taking full made foreign liquor (IMFL) may impact margins and
advantage of this growth opportunity. This shows volumes during 2017-18. For some strange reason,
the management has been overly pessimistic in its Chemical India Private Limited, its Indian subsidiary,
forecast of marine exports in the annual report which which together now own 64.97% of the capital. The
has just been released. Strangely, even as the company reason for the Shroff family selling their entire stake
was getting ready to report 59% growth in marine is not clear; but, surely, the future seems bright, with
segment in the September quarter, after a 20% growth strong manufacturing capabilities and the brand image
in the June quarter, and a 64% growth last year, the of Excel, while there will be synergy with the research
management feels that marine exports will continue and development capabilities of Sumitomo Chemical.
to be under margin pressure due to competitions from
South East Asian and Latin American countries. Also, Risk/Concern
that the high level of raw material prices and exchange Growth was muted over the past two financial years
fluctuations will continue to weigh on marine exports. but it has started picking up again. The agrochemicals
Does the management think that the growth of the past industry is highly correlated with the monsoon
few quarters is unsustainable? which was not good in the past two years; there
were drought-like situations in many parts of the
country. This led to sluggish growth in sales. Revenues
E x c e l C r o p C are grew at just 4.5% for FY14-15, fell by 13.2% in
FY15-16 and grew by 9.8% in FY16-17. Despite a
Better Growth strong brand image and vast distribution network
in the country, poor monsoon, lack of widespread
Prospects irrigation infrastructure in India and also inadequate
rainfall in countries like Brazil (to which it exports
Excel Crop Care is continuously adding new and reduced threat of cheap imports from China,
products to its portfolio and expanding manufacturing Excel Crop Care reported a jump in numbers for the
capacity at all its three plants in Bhavnagar and Gajod September 2017 quarter. High asset utilisation has
(Gujarat) and Silvasa (Dadra and Nagar Haveli). In increased operating margin from 15% in September
FY16-17 alone, the company introduced three new 2016 to 18.8% in September 2017. Sales grew by
products under herbicide and fungicides segment. 44.1% year-on-year (y-o-y); while operating profit
Moreover, all expansions are funded with internal grew at 80.2% y-o-y and net profit grew at 67.72%
accruals. As of FY16-17, there was no outstanding y-o-y. This can be seen in the graph below.
debt, either short-term or long-term. Excel is The return on assets is 14% and net profit to
also trying to increase the share of exports which capital employed ratio is a high 18%. The stock is
currently contributes 29% to its revenues. The size currently trading at a price-to-earnings (P/E) multiple
of opportunity is huge for Excel Crop Care, if the of 29.6x and market-capitalisation to sales ratio of 2.
management is successful in leveraging the brand of With ample rainfall this monsoon, there should not
its products, the company will capture an even larger be a shortage of water for winter crops as well. If the
market share. north-west monsoon also continues to be good, the
demand for company’s products will be steady. Hence,
Tailwinds one can expect to see similar results of good growth
With industry-wide tailwinds of good monsoon over the coming quarters.
lites (tempered glass); back-lites and side-lites are the commercial vehicles. In the following year, FY15-
glasses used in windows of the automobile. SGSI is 16, sales grew at a mere 6%; they fell by 12.3% in
heavily dependent on the automobile sector; hence, FY16-17. The major decline in the past financial year,
its growth is also in line with the automobile sector according to SGSI, is due to sharp fall in sales of three-
in India. SGSI has witnessed poor growth—of just wheelers, uncertainty pertaining to policy changes like
3.5%—over the past five years, except in FY14- norms of BS-IV emission standards. Another important
15, when the sales growth was 28% mainly due to factor was demonetisation which led to poor growth of
high sales growth of three-wheelers and light/heavy commercial vehicles in FY16-17.
A ma r a R a j a Bat t e ries Indian Ocean rim. The company gets one-third of its
revenue from the industrial segment and two-thirds
Will It Get Energised? from the automotive segment.
Revenues of Amara Raja increased only 6% year-
business showed impressive growth across segments. increases, thanks to demand growth. It achieved almost
Demand for the AmaronTM and PowerZoneTM full capacity utilisation in all it segments in the past
batteries was robust during the September 2017 quarter quarter. The four-wheeler segment ran on 90% capacity
in both, four-wheeler and two-wheeler segments, utilisation; additional capacity for 2.25 million units
helping further consolidation of market share. The was commissioned in Q2FY17-18 and another 2.25
volume and revenue growth in these two segments was million units capacity addition is planned for the next
in double digits. Tubular battery sales to the home quarter. The inverter segment, which has a capacity
UPS segment sustained growth momentum, driving of 8.9 million units per year, ran at 100% capacity
significant increase in utilisation. In the two-
volume. This increase wheeler segment, which
helped the company has a current capacity
to record very healthy of 11 million units per
capacity utilisation year, the company plans
during the quarter in capacity addition of
all product categories 4 million units in the
across automotive coming two quarters.
battery business. The During the analysts’
replacement battery conference call, the
segment also performed management announced
well in the September its focus and more
2017 quarter. Inverter aggressive approach
battery sales were good in the industrial
due to the summer. battery segment on
The industrial battery better product-mix
business recorded and exports. In the
significant growth in telecom segment, where
volumes over the previous year in all segments except performance was poor, it plans to increase value
telecom which continued to suffer disruptive changes, proposition for clients. The management also hopes
thanks to Relianc Jio. The good performance of the for some consolidation in the telecom segment by
automotive segment helped the company tide over the the end of this year. Lithium-ion batteries, which are
fall in margins and volumes of the telecom segment. used internationally by telecom companies (used only
Amara Raja’s performance has to be seen in the by Jio in India), is a great opportunity and will be a
light of continued surge in lead prices which have focus area for Amara Raja. While lithium batteries are
risen as much as 25% over the past 12 months. The more expensive than normal batteries, they are also
company has been able to offset the price pressure more durable. Another area in which the company sees
by a mix of cost management strategies and price scope is batteries for electric rickshaws (e-rickshaw)
and solar power. While the company has ventured into
these segments, it cannot gauge its market share as the
segment is mainly in the unorganised sector. While it
Quarterly Sales
Rs Cr
estimates 1 million e-rickshaws on the road at present,
1,500 the numbers are continuously increasing. At present,
the margins of Amara Raja in the e-rickshaw segment
are close to its margins in the four- and two-wheeler
1,450
segment. The management believes that consolidation
of the supply chain will provide great opportunity to
1,400 it in the e-rickshaw segment. The stock of Amara Raja
is trading at a price-to-earnings ratio (P/E) of 26.04 at
1,350 a market price of Rs734 per share. The share touched
its 52-week low of Rs 665.45 recently, on 7 November,
1,300
2017. In the short term, the stock will sparkle, if lead
Dec-16 Mar-17 Jun-17 Sep-17 prices come down; these are already showing signs of
weakness.
UN UOTED
STORIES OF PRICE MANIPULATION
Best Steel Logistics (Rs99) reserve & surplus of Rs0.54 crore. BSLL
(Rs) is growing by borrowing funds; as of
MARKET TREND
A Third Big Cheer for Bulls What led Moody’s to upgrade India
now? Well, the agency talks approvingly
O
n 24th October, after the market closed, the of the government’s reforms like
government announced that it would find a way to Goods and Services Tax (GST), bank
pump in Rs2.11 lakh crore into moribund public sector recapitalisation, demonetisation and the
banks. This was a big booster for the market. Then, on use of Aadhaar for direct benefit transfer in formalising
31st October, the World Bank announced that India the economy. While a better rating is always welcome,
has jumped 50 places in the ranking of Ease of Doing many observers are surprised that this has come at a time
Business. The market shot up again.. And then, just when when growth has sloweds down, farm loan waivers are
an overvalued market started drifting
ng lower, came another rampant and the government
g may not be able to meet
boost. On 16th November, in a surprise
rise move, its fiscal
fisc deficit target. In response to these
Moody’s Ratings upgraded India’s sovereign
overeign negatives, government bond yield had
bond rating from Baa3 to Baa2. Thee pushed past 7%, up 50 basis points
last time Moody’s upgraded India since
s August.
was in 2004 to Baa3, moving The equity market, of course, has
India to an ‘investment grade found
foun one more reason to be bullish,
destination’. Ratings below Baa3 aree junk status. The ignoring
igno some recent short-term data like
last rating upgrade for India by any major rating agency index
inde of industrial production at a low
was on 30 January 2007, when Standard
ndard & Poor’s 3.8% for September and manufacturing
upgraded India to BBB (-). Fitch, the other rating firm, Purchasing Managers’ Index down to 50.3 in October. In
had upgraded India to BBB(-) in August 2006 and has not terms of money flow, inflows into mutual funds remain
changed its rating since. The Indian government has been robust but fund houses have slowed down their net
asking for a rating upgrade for many years now. investment in stocks. — Debashis Basu
Judiciary in Turmoil
O
n Friday, 10th November, in what is a shockingly by the current CJI and a retired judge of the Orissa High
unconstitutional order, a five-judge bench of the Court.
Supreme Court (SC), hurriedly constituted and In September, the Central Bureau of Investigation (CBI)
headed by the Chief Justice of India (CJI) Dipak Misra, had arrested, and later released on bail, the retired High
annulled an order passed by another SC bench of Justice Court judge on charges of corruption and conspiring to
Jasti Chelameswar and Justice Abdul Nazeer. A brief settle a Supreme Court case. The writ petition contended
timeline of the story, as it unfolded, is as follows. that, because the CJI is a potential investigation target in
On the morning of 8th November, a writ petition by the matter, CBI, which reports to the executive, cannot
the committee for judicial accountability and be expected to handle the case as that would
reforms (CJAR) was mentioned before a mean the independence of judiciary would
bench headed by Justice Chelameswar, be greatly compromised.
the senior-most judge after the CJI, In the afternoon, it appears that
for urgent listing. the counsel for the petitioners
Usually, out-of-turn listings were told that by the registry
are obtained by mentioning of the Supreme Court that the
matters before the CJI, as CJI had directed the listing of
he/she (India has never had the petition before a bench
a ‘she’ as a CJI, yet…) is in headed by Justice AK Sikri
charge of the roster, i.e., on 10th November.
determines the composition This was somewhat
of various benches, the surprising for the
matters to be listed before petitioners, given that the
the various benches and the CJI was expected to recuse
dates on which such matters himself from the case and not
should be listed. even pass administrative orders
However, when the CJI heads such as listing before a particular
a Constitution bench, i.e., a bench of bench, etc.
five judges or more, urgent mentioning On the morning of 9th November,
is usually done before the senior advocate Dushyant
bench headed by the next Dave mentioned another
senior-most judge. writ petition with the
On this day, the CJI same cause of action, filed
was heading a five-judge by Kamini Jaiswal (she is
bench that was hearing an advocate-on-record in
the matter relating to the Supreme Court and a
the powers of the Delhi’s patron of CJAR!), before
lieutenant governor the bench comprising
under the Constitution Justice Chelameswar and
and, therefore, the Justice Nazeer.
mentioning before I n e x p l i c a b l y,
Justice Chelameswar was Justice Dipak Misra Prashant Bhusan it appears that the
normal, as he is the next senior-most judge. The bench advocates for the petitioners, Dushyant Dave and Prashant
headed by Justice Chelameswar ordered the matter to Bhushan, did not bring it to the notice of the bench that
come up before an appropriate bench on 10th November. the previous CJAR matter had been listed before another
This writ petition by CJAR had sought a court- bench on 10th November. This time round, the bench
monitored probe by a special investigation team (SIT) appears to have taken this as an urgent matter to be listed
headed by any former CJI into allegations pertaining to before itself on the same day at 12.45pm.
bribery and corruption in a medical college recognition The news reached the CJI and, astonishingly, the
matter which, at one point, was heard by a bench headed Constitution bench that he was heading rose abruptly at
12 noon, ostensibly for CJI to consider further steps in bench to, then, directly refer to a Constitution bench of its
the light of the developments before Justice Chelameswar’s choosing without making it as a recommendation to the
bench. At 12.45pm, Justice Chelameswar’s bench ordered CJI which would have clearly had its force. It was also,
that the petition be listed before a Constitution bench clearly, improper for the second petitioner not to have
consisting of the five senior-most judges of the Supreme the matter listed along with the CJAR petition before the
Court on Monday, 13th November. Justice Sikri’s bench on 10th November.
During the hearing, an officer of the registry also The order of Justice Sikri’s bench was also irregular in
handed over a letter, purportedly from the CJI, ordering allowing an oral impleadment of SCBA when its president
that all same-day urgent listings can only be mentioned mentioned it (without due authorisation from SCBA’s
before the CJI. Justice Chelameswar’s order also took note executive council being placed on the file), without hearing
of the letter and annexed that letter along with the order CJAR on that point. However, what was most shocking
to list on Monday. was the order passed by the bench led by the CJI on
On 10 th November, the CJAR matter came up 10th November.
before a bench comprising Justice AK Sikri and Justice The CJI is the first among equals. While he is the master
Ashok Bhushan which, without of the roster, one must not lose
tagging the matter with Ms sight of the fact that he cannot
Jaiswal’s petition, referred it be an appellate authority or a
to a Constitution bench. The Judicial propriety revisional authority over orders
bench headed by Justice Sikri demands that whenever passed by other puisne judges who
also allowed an oral request by are his equals. All Supreme Court
the president of the Supreme
another bench’s orders judges, including puisne judges,
Court Bar Association (SCBA), are sought to be recalled even have suo motu powers to
RS Suri to implead SCBA as a or reviewed on any take up matters for hearing, even
party respondent in the matter. when there is no formal petition.
Later in the day, at 3pm,
ground, it must include Further, judicial propriety
the CJAR petition was initially the judges that passed the demands that whenever another
listed before a seven-judge bench original order—unless it is bench’s orders are sought to
headed by the CJI and comprising be recalled or reviewed on any
also Justice AK Sikri, Justice
impossible to do ground, it must include the judges
AM Khanwilkar, Justice Arun that passed the original order—
Mishra, Justice Amitava Roy and unless it is impossible to do so
Justice Ashok Bhushan. At the last minute, Justice AK because of any of them having retired, etc. What happened
Sikri and Justice Ashok Bhushan were no longer on the in this case is, ostensibly, an unconstitutional assertion of
bench and, instead, a five-judge bench headed by the CJI the administrative precedence of CJI to annul a judicial
took up the case. order passed by a brother judge.
What followed was total chaos with the CJI seeking The Supreme Court is not only merely one branch of
opinions from advocates who were not representing any the State with the legislature and the executive being the
party in the case, and the advocate for the petitioner, others. It also is guardian of the Constitution itself, which is
Prashant Bhusan barely being heard. Additional solicitor- supreme; on its supremacy rests the legitimacy of all actions
general, PS Narasimha, representing the Union of India, of the State. Competing orders of Court No.1 and Court
RS Suri, president of SCBA, and several other advocates No.2 (of the Supreme Court), resembling an open power
were in favour of issuing contempt notices against Prashant tussle, have created a crisis of legitimacy and, therefore,
Bhushan and Ms Jaiswal and CJAR. However, the bench the authority of the Supreme Court. The Supreme Court
led by CJI was more intent on undoing the order of the will take time to heal.
bench led by Justice Chelameswar passed on 9th November.
Accordingly, the five-judge bench, shockingly, proceeded
to annul a judicial order passed by a different bench.
Conclusion: This is the story of a tragedy of errors by
everyone involved. It was clearly out of the norm for Justice A Delhi-based lawyer & a constitutional
Chelameswar’s bench to entertain the petition and not tag it law enthusiast and commentator.
along with the previous petition, when it was listed before @prasanna_s
another bench. It was also clearly out of the norm for that
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M
ost people do not know how to categorise fame on fractile graphical analysis. That paper earned him
Subramanain Swamy, teacher, economist, admission to Harvard and, in two years, Swamy had earned
mathematician, an expert on China and an his PhD. In an early class of Samuelson, Swamy interrupted
upright politician, in the habit of making ‘wild allegations’. Samuelson’s lecture to say, “You have one equation wrong,
Unlike most Indian leaders, he is highly educated. If he had so you will not be able to prove the theorem.” When Swamy
continued in academics, he would have perhaps been a corrected the mistake, Samuelson said: “See me after the
candidate for the Nobel Prize. Swamy was among the four class.” When Swamy saw him, he told him: “I think you and
favourite students of Paul Samuelson; three of them have I should write a joint paper some day.” Some 10 years later,
got the Nobel. But Swamy left academics after 10 years Swamy co-authored a famous paper with Samuelson on the
and has been a full-time politician for the past 35 years. He "Theory of Index Numbers".
is also one of the rare leaders As his fame spread in the academic world, Amartya
whose name has never been Sen invited him to join the faculty of the Delhi School of
dragged into any scam or Economics. But, by then, Swamy was developing strong
even minor transgression. ideological positions. He believed that India needed a
Finally, he has shown how free market for economic growth, a nuclear bomb to
effectively one can use the strengthen and establish its position in the world and open
justice system in the public up relations with Israel.
interest. As Roxna Swamy, his wife and steadfast supporter all
A combination of these years through the ordeal under Emergency, many
such rare brilliance and court cases and nasty physical attacks by Jayalalitha’s
honesty ought to have goons, writes in her memoir: “Swamy started out in India
made him India’s most in 1968-1969 with the best of intentions. He really simply
effective politician, with an wanted to write his research papers and enlighten his
opportunity to change the extremely bright and focused students.” In 1968 summer,
lives of millions. And, yet, he in one of his lectures, Swamy advanced a startling new
EVOLVING WITH has been a minister only once thesis: with the infrastructure already developed, India
SUBRAMANIAN SWAMY (in the ramshackle Chandra could produce an atom bomb and delivery system for just
ROXNA SWAMY Shekhar government of a few lakh rupees.
Roxna Swamy 1990) and remained out of This caught the attention of the Hindu right wing
Pages264; Rs699 power ever since. Even after party, the Jan Sangh, which invited Swamy to address
the Bhartiya Janata Party their parliamentary party. Swamy talked about the need
(BJP) came to power, Swamy has only been made a Rajya for a Hindu renaissance and the correct dating of historical
Sabha member and that, too, after more than two years events and records, the need for a market economy,
of waiting. normalising relations with Israel and so on. “Perhaps his
All this is a very long way from the day when, armed speeches were too successful for his own good,” writes
with a Master’s in mathematical statistics from the Indian Roxna in Evolving with Subramanian Swamy. “They
Statistical Institute (ISI), Kolkata, he first met Samuelson in convinced an appalled Delhi University Establishment that
his office in September 1962, wanting to join his advanced Swamy could lead a thought revolution… hurriedly, the
mathematical economics course at the Massachusetts Chair in Chinese Economics created at Delhi University
Institute of Technology. Samuelson used to select only 20 for Swamy, which Amartya Sen had promised Swamy ‘is
students from among about 200 applicants. being dusted and got ready for you’, was withdrawn.”
Swamy was already a bit of a sensation in the academic Swamy, with his impeccable academic credentials,
world because, as a student at ISI, he had published a became Professor of Economics at the IIT, Delhi. Soon,
research paper in the world’s then most prestigious journal the students, the Employees Union and the lower faculty
Econometrica, demolishing PC Mahalanobis’ claim to staff were at Swamy’s doorstep, pouring their grievances
M
any mobile subscribers are now on to the on all handsets. Open phone dial, press *#*#4636#*#*.
fastest fourth-generation (4G) networks; and, This will open a menu for phone information. Here you
yet, everyone still dreams of superfast speeds can set your preferred network type to ‘LTE only’ for
as promised by the operators. Another complaint of 4G. When ‘LTE’ or ‘4G’ is displayed next to network
most 4G users is about how fast their data-pack gets signal, run the ping test. If both IPV4 and IPV6 tests are
consumed even when they have hardly used Internet passed, then you are on 4G network. But do remember,
on their mobile handsets. A 4G system must provide keeping the mobile on LTE only mode may make it
capabilities like mobile web access, IP telephony, gaming inaccessible where there is no 4G network from your
services, high-definition mobile TV, video conferencing, operator. You can also try setting your network on
and 3D television, as defined by the International ‘LTE’ mode under mobile network in general settings.
Telecommunications Union (ITU). But most mobile handsets provide
According to the standard defined only ‘preferred’ or ‘auto’ mode for
by ITU, a 4G network should be 4G/3G and 2G and, in that case,
capable of a download speed of you will have no choice.
100 megabits per second (Mbps) You may also want to check
for long term evolution (LTE) and the access point network (APN)
150Mbps, for LTE-Advanced and setting under mobile networks. If
upload speed of up to 50Mbps. you are not sure about any settings,
But, again, these are just simply tap the menu icon and set
standards and, if you ask your APN to default. Another issue faced
mobile service-provider, he can give by mobile subscribers is about the
you many excuses. These include, speed with which their data-pack
network coverage (I still am unable to understand what gets consumed. In some cases, background apps (not
exactly this means), higher number of users, number of visible but still running) continue to consume data.
apps, especially heavy data consuming apps like music You may think that by touching back button or screen,
or video streaming used simultaneously by multiple you have closed the app. But it may still be working in
users, and the distance between the user and base trans- the background and sending and receiving messages.
receiver station or node (tower). Interestingly, many of those who complained about fast
The coexistence of competing mobile data consumption were found to have enabled ‘auto
telecommunications standards can also contribute to download’ for images, audio files and videos in their
technological complexity and consumer confusion. As WhatsApp. So check,
mentioned above, at present, service-providers are only if the same is your
selling 4G SIM cards. However, the service-providers case and disable
guarantee no speed whatsoever. When confronted, auto download.
they provide several explanations. And, as expected, Do check mobile
not all consumers can even understand these technical data usage of each
terms, except that there is a huge load of users on app installed on
the network. But this is all bluff. The main reason is your mobile handset.
telecom operators still use the old network and keep This setting is under
automatically switching users. For example, if you networks or mobile
are paying for 4G, then everywhere on the operator’s networks. Disable background data for apps that you
network, you must get 4G coverage. But, in practice, think are consuming more data than required. Social
you are often switched to 2G (denoted by ‘E’) or 3G media apps, like Facebook and Twitter, would remain
(H+). This explains why users can never use the 4G data active in the background even if you are not using them.
network to its full potential. So disable these apps as well restrict use of YouTube or
Here is a simple trick; but this code may not work any other video and audio streaming apps.
-1,270
110
-2,560
100
-3,850
6 Nov-17 15 Nov-17
-20
Index 3 Nov 15 Nov +/-
ML Mega-cap Index 111.53 111.05 0% -1,060
ML Small-cap Index 103.26 101.61 -2%
-2,100
ML Large-cap Index 113.48 111.56 -2% 6 Nov-17 15 Nov-17
ML Mid-cap Index 117.65 114.90 -2%
Sensex 33,685.56 32,760.44 -3% GLOBAL MARKET TRENDS
7,600
ML Micro-cap Index 93.69 90.79 -3%
FISTE
Nifty 10,452.50 10,118.05 -3% 7,480
Reliance Communications 16.90 10.15 -40% Bovespa declined 4%, while Nikkei and the FTSE fell
2% each. Shanghai Composite and Hang Seng rose
Mid-cap Gainers/Losers 3 Nov 15 Nov Change
1% each, while NASDAQ Composite fell 1%.
Soril Infra Resources 167.35 284.50 70%
Index 3 Nov 15 Nov + / (-)
Tata Teleservices (Maharashtra) 9.98 7.35 -26% Shanghai Composite 3,372 3,403 1%
Stocks of software & IT (information technology) services companies were
in demand during the fortnight. Vakrangee, L&T Infotech, Polaris Consulting
Shares of office equipment
companies and garment companies
advanced 6% and 4%, respectively.
amd Zen Technologies advanced 22%, 18%, 14% and 13%, respectively. Shares of software & IT services
companies and trading companies
Companies 3 Nov 15 Nov +/- rose 3% each. Stocks of telecom
services companies declined 10%,
ML Software & IT Serv Index Vakrangee 527.45 645.45 22%
while stocks of steel companies
Nucleus Software 350.15 414.75 18%
110
fell 8%.
L&T Infotech 816.60 961.15 18%
N T
Combined inflation for urban
What’s and rural areas in October 2017
rose to 3.58% from 3.28% in
Stocks of telecom services companies were punished. Reliance September 2017. Inflation in rural
Communications, Tata Teleservices (Maharashtra), GTL , Idea Cellular and areas rose to 3.36% in October
Suyog Telematics declined 40%, 26%, 14%, 12% and 10%, respectively. 2017 from 3.15% in September
2017. Food & beverages inflation
Companies 3 Nov 15 Nov +/- rose to 2.18% in October 2017
Reliance Comm 16.90 10.15 -40%
ML Telecom Services Index from 1.75% in September 2017 in
rural areas. Milk & milk products
130
Tata Teleservices 9.98 7.35 -26% inflation increased to 4.04% in
GTL 16.10 13.85 -14%