SUCHETA DALAL ON:

NEED HOLISTIC APPROACH TELGI DEAD, HAVE FAKE

FOR GRIEVANCE REDRESS STAMPS STOPPED?
Personal Finance Magazine 10 November-23 November 2017 Rs 45

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

NRIs have suddenly been barred from

PPF, NSC, post-office deposits. Resident
Indians are barred from many other
financial products depending on various
eligibility criteria. Avoid trouble, know
about these product rules

STOCKS
Innovative Tech Pack Oberoi Realty Ganesh Benzoplast Shree Pushkar Chemicals

Cover Page_306.indd 1 03-11-2017 19:02:33

Advertisements.indd 4 01-11-2017 15:19:01
Advertisements.indd 5 02-11-2017 14:36:21
 ISSUE CONTENTS
10-23 Nov 2017

Dont Go Where You are

Unwelcome

A s we were finishing this issue, a game-

changing rule has debarred non-resident
Indians (NRIs) from investing in public
provident fund (PPF), national savings
certificates (NSCs) and post-office deposits. All
these products will only pay savings account
interest rate from the day one becomes an NRI.
The notification says that NRIs accounts would
be deemed closed which means that NRIs can
freely withdraw their PPF corpus. It will have
to be seen if NRIs PPF accounts are, indeed,
closed immediately. Hopefully, NRIs will not be

30 Cover Story
subjected to PPF lock-in period of seven years
after which partial withdrawal is allowed.
Similarly, there are products which could
pose problems for resident Indians. Raj Pradhan
has given a real-life case of alleged violation Dont Invest Where You Are Not Welcome
in post-office monthly income scheme limit PPF, NSC post-office deposits have just made NRIs persona
which led to an interest recovery notice. If you non grata for investment. You have to be eligible to invest in a
financial product. Raj Pradhan gives examples of violations of
think you are ineligible for a certain investment eligibility or investment limit which can inflict heavy losses. Be
product, or unsure about the allowed safe with your savings and investments by following rules
investment limit, play safe and dont invest
where you are not welcome. The Cover Story
has comprehensive details of such investments.
Sucheta, in her Different Strokes column,
recounts the monumental scam of fake stamp
12 Public Interest
Bank Recap: Another Half Step
paper run by mastermind Abdul Karim Telgi

14 Your Money
who died in jail on the 23rd October this year.
Barely had the Telgi scam been discovered
in early 2000, than another scam was being
Another Exchange-traded Fund from the Government
hatched in 2006-07 at the Stock Holding PPF Account Will Be Closed, NSCs Encashed if Holder
Corporation of India Ltd in which a Cabinet Turns NRI
minister was, perhaps, directly involved. This Government Permits Banks To Sell More Small Savings
was the e-stamping scam, exposing which cost Schemes
Sucheta her columns in the Indian Express and SC: Future Prospect of a Road Accident Victim Would
Be Considered
Financial Express. Most of those connected with Madras HC Directs IRDAI To Increase Accident Cover
paper and e-stamping scams got away. Dont for Victims
miss the glimpses from these two fascinating Unitech Asked To Pay Flat-buyer Rs50 Lakh: NCDRC
episodes. Prime minister Narendra Modi Ruling
has just spoken out about strong consumer Woman Petitioner Allowed To File Income-tax Return
without Aadhaar by Madras HC
protection. Suchetas Crosshairs piece focuses
on the governments ham-handed consumer
protection efforts and suggests what needs to be
done. A must-read for policy-makers, based as
it is on first-hand knowledge of consumer issues
gained by Moneylife Foundation.
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 | 10-23 Nov 2017 | 4

Content.indd 2 03-11-2017 18:18:02

Advertisements.indd 3 30-10-2017 15:22:01
 CONTENTS
20 TAX / FIXED INCOME PULSE BEAT

Why a New Consumer

Protection Law Alone Is Not
Enough
29 Bajaj Finance FD Is
Offering 7.85%. Is it 59 Fatty
Sugar
Liver Worsened by
Worth Considering? Any Amount of Walking Is
G-Sec Yields Up Beneficial

22 Different Strokes
Telgi Dead, E-stamping Still
Unchecked INSURANCE
LEGALLY SPEAKING

40 Insurance
Trends
60 What Is the Remedy
When a Consumer
FUND POINTERS
Forums Order Is Not
Regulation
Complied With?
24 Does Investing in Too
Many Stocks Lower
Life Insurers Will No Longer
Be Able To Manipulate Claims
Settlement Data in Ads
Returns? Mediclaim To Cover Mental
Ailments May Become a Reality?
Redressal
Consumer Redressal Forum Pulls
FUND FACTS Up IRDAI and Max Life

28 Best & Worst Mutual

Fund Schemes CIVIC ISSUES
TECHNOLOGY

xSTOCKS
54 Rajasthan
s Gag Law:
Why It Needs To Be 61 Technology: The One-
way Addiction
Opposed Strongly
26 Smart Money
5 Things To Examine for TAX HELPLINE
Infrastructure Stocks

46 Stock Watch 56 Queries at Moneylife

Foundations Tax Helpline
Innovative Tech Pack: Equity
Dilution and Debt May Be a PS
Drag xUSEFUL APPS
Oberoi Realty: Will Strong
Earnings Continue? 58 Myto AllJIO:JioGatewayy 66 Sahara Tries a
Comeback!
Services
Ganesh Benzoplast: Value in
Demerger
Insight Timer: Get
Help for Stress,
Sleep or Anxiety
Shree Pushkar Chemicals:
Steady Growth
Google Maps: Realty Blues: Unitech and DSK
Know Where You
Were on a Given
Market Manipulation: Toyam Date
Industries

AccuBattery:
DEPARTMENTS
Accurately Monitor Readers Response ........... 8
Market Trend: No Margin for Your Battery
Error at the Current Valuation Book Review ....................62
Money Facts ....................64

Content.indd 4 03-11-2017 18:29:18

Advertisements.indd 1 30-10-2017 15:20:39
 Volume 12, Issue 20
10 November23 November 2017

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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BE A GOOD AND HONEST CITIZEN
This is with regard to the Cover Story Ensure
Your Assets Dont Fall under the Benami Act,
by Raj Pradhan (Moneylife, 13-26 October
2017). Raj Pradhan has covered all the aspects
of Benami Property very well in his extensive Mutual Fund investments
are subject to market risks,
read all scheme related
article. Many ignorant taxpayers act genuinely documents carefully.
and without any intention to defraud the law
while gifting something to their dear ones; or while
investing money in fixed deposits (FDs), shares,
property, etc, in the names of their spouse or Write to
children. Now the income-tax department has the the Editor!
complete kundali of every PAN (permanent account
number)-holder, we should all come clean. An
WIN
a prize
age-old question may be raised on why a certain
class of the people in India is still out of the wrath
of this Act, when big announcements were made
immediately after demonetisation to catch the
culprits in Benami transactions? Agreed; but
can we not be good and honest citizens to mark
ourselves as people with difference? May I
suggest that Raj Pradhan prepares FAQs with
examples? This will help even the layman.
Abhay Datar, by email
BRAVO MONEYLIFE!
This is with regard to Auditor, Regulator, Rater: Can nT They
heyy Ge
he Gett Aw
Away
with a Consent Plea? by Sucheta Dalal (Moneylife, 27 Oct-9 Nov
2017). Bravo Moneylife! It is a brilliant piece. The rot in the system
is complete as the three examples indicate. The question is: What does
the law-abiding ordinary citizen of India do? How can we support
your cause to strengthen our framework amidst these institutional
ruins?
R Narayan, by email

MONEYLIFE | 1023 Nov 2017 | 8

Letters.indd 2 30-10-2017 17:16:54

 MONEYLIFE
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 LETTERS

Fasting Is the Real Detox

the
Best
letter
I have read with great interest
the Fasting for Health
damaged tissues.
Fasting can benefit
(Moneylife, 27 Oct-9 Nov 2017). people suffering
Mutual Fund investments
I would like to thank Moneylife from a wide range are subject to market risks,
read all scheme related
for bringing out this topic for the of ailments ranging documents carefully.
benefit of all their readers. from obesity to cancer.
Every major religion in the
world advises some kind of
Numerous examples
of extended fasts for Congratulations
fasting. Fasting is a natural occurrence for any living over a year have been Gopalakrishnan TV
organism across the animal kingdom. An animal in published in scientific
the wild will be subjected to fasting due to cyclical literature (e.g., that of
YOU WIN A
PERSONALISED
availability of food. Angus Barbieri). CLOCK
No organism in its natural habitat is guaranteed a Those sitting on
steady supply of food daily. Our feeding system of the fence can try
breakfast, lunch and dinner comes from convenience intermittent fasting.
following the industrial revolution. Throw in the This generally involves
culture of snacking that were promoted by the a five- to eight-hour
processed food industry and we have a problem of feeding window,
overfeeding. The facts, such as breakfast is the most typically, from 12pm Ankur Bamne

important meal of the day, was pushed by the cereal to 8pm followed by
industry long back in the US. Many of the myths total fast. Water,
related to nutrition, like inadequate protein intake, black coffee or
were seeded by the meat industry. So, our basic green tea are
understanding of food and nutrition is flawed as allowed during the
there is a clear conflict of interest. fasting interval.
Food gives us energy, but it also requires energy to In this fast-paced world with irregular meal timings
digest, absorb and assimilate the nutrients. The cost and processed calorie-rich food, fasting makes
of energy production is the formation of free radicals perfect sense. It is the simplest step one can take to
which cause collateral damage to the body if not dramatically improve ones health. Fasting is the real
neutralised by anti-oxidants. detox. And it is much easier than it sounds! Give it
Fasting reduces this energy consumption and lets the a try.
body heal by diverting the bodily functions to repair Ankur Bamne, online comment

RIGHT THING
This is with regard to Why SEBI Is Trying to
Standardise Mutual Fund Classification (Moneylife,
27 Oct-9 Nov 2017. This is a case of better late than
never (sorry). SEBI is doing the right thing.
Pushpesh Kumar Sharma, online comment
LOTS OF GUTS AND CONFIDENCE NEEDED
This is with regard to Why Its Time to Revisit Income
Tax on Individuals by R Balakrishnan (Moneylife,
13-28 October 2017). It is a good suggestion worth
serious consideration. Income-tax (I-T) can be
completely eliminated for individuals.
Instead, the government can think of having some
transaction tax or suitably adjust the GST (goods
and services tax) to make up for the revenue loss.
Making individuals to file returns and maintaining a
department exclusively to scrutinise and be after the
individuals and running after small evaders of tax are
all administratively inconvenient and the gains do not
match the efforts. The data collection on goods and
services should drastically improve in the country and
there should not be any scope for leakage.
The I-T department, which is concentrating on
individual tax, can be wound up and its personnel
can very well be used to identify the leakages of
revenues taking place in various institutions and
business establishments through ingenious methods and
wrongdoing. The removal of I-T will give such a boost
to the economy and the government can be sure to win

MONEYLIFE | 1023 Nov 2017 | 10

Letters.indd 4 30-10-2017 17:17:30

 LETTERS

in the next elections. are dutybound to come up with a list of changes.

The inequality of income and wealth seen in the V Ramesh, online comment
country can be gradually minimised by enhancing
the governance standards and with the support of CHANGE THE CULTURE
individual taxpayers from all walks of life. No doubt, This is with regard to End This Obsequious Protocol
this requires lots of guts and confidence. Now! (Moneylife, 13-28 October 2017). This is all
Gopalakrishnan TV, online comment along the hierarchy and not just top management. This
is what we Indians have converted our culture into.
CHILDREN WITH GOOD VALUES This has to be changed at the school and college level.
This is with regard to Rise of Revenge Society has to take this initiative to
Porn in India by Prashant Mali condemn such cultural aberration. A
(Moneylife, 13-28 October 2017). person must be known by his work and
Such cases are on the rise and are not his ability to lick the boots of his
more reflective of the breakdown of seniors.
our value systems, beginning with the Dharam Singh, online comment
family. Most youngsters who fall for
illicit relationships do so out of lack SUSPICIONS NOT
of adequate affection from within the UNFOUNDED!
family. Hence, we should focus on the This is with regard to Jan Dhan
well-being of family as an institution. Accounts: Who Do They Serve?
A dysfunctional family leads to a (Moneylife, 13-28 October 2017). I
dysfunctional society, leading to many understand from my interaction with
crimes which are preventable. Its a pity some bank executives that Jan Dhan
that materialism and Westernisation scheme may, ultimately, turn out to
have made people ignore the upbringing be a big fraud. This article shows
of their children with good values which that my suspicions may really not be
alone would make them strong in adverse situations. unfounded.
Ramesh I, online comment A Banerjee, online comment

DUTY BOUND TO COME UP WITH CHANGES MORAL OBLIGATION OF GOVERNMENT

This is with regard to 7 Flaws That Have Killed
the Kotak Committee Report by Sucheta Dalal
(Moneylife, 27 Oct-9 Nov 2017). The question that has
not been raised is: Why was this committee appointed
in the first place? What instances of poor corporate
governance did the Securities and Exchange Board of
India (SEBI) identify and ask the committee to address?
It has become fashionable to appoint committees
periodically. A committee, particularly a high-powered
one, is not going to say everything is hunky-dory. They
This is with regard to Now, Get Ready To Pay Up
Digital Cess for Cyber Protection. The government
should understand that they have a moral obligation
to provide certain services as part of the fundamental
rights to citizens. The government should not charge
for cyber-security. If such harebrained schemes
continue, the day is not far when we will be asked
to put a national security cess for the upkeep of our
borders.
Sanjay Sinvhal, online comment

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11 | 1023 Nov 2017 | MONEYLIFE

Letters.indd 5 30-10-2017 17:17:51

 Public Interest
Bank Recap: Another Half Step
O
n 24th October, the ministry
of finance announced a bank
recapitalisation programme
that would put Rs2.11 lakh crore
into public sector banks (PSBs). Of
this, banks will get Rs18,000 crore
directly from the government under
the Indradhanush programme; they
will raise Rs58,000 crore from the
market and the government will
pump in Rs1.35 lakh crore through
recapitalisation bonds. The rating
agencies, business community,
fund managers and analysts have
all heaved a sigh of relief that the
heavy weight bad loans have been
lifted from the PSBs which had been
caught in a vicious cycle. PSBs have
accumulated close to Rs10 lakh
crore of bad loans, or 12% of their
loans & advances. They have no
incentives to go after the defaulters.
The government, that is, the ministry
of finance, does not have the time
and resources to go after banks
which they part-own and fully
control. If PSBs write off these loans,
their net worth would be wiped out
and they would not have been able
to make fresh loans which, in turn,
would mean poor economic growth.
Poor growth would mean more bad
loans.
To break this vicious cycle,
the government has announced a
recapitalisation plan. Unfortunately,
not only are the details of the bailout
package unclear, there are no strings
attached to it either. Such bailouts
have been attempted earlier too;
they give temporary relief to PCBs
at the cost of taxpayers but the
core operations, characterised by
corruption and inefficiency, remain
the same and go on to generate
more bad loans. The absence of any
conditions attached to the bank
bailout is a surprising omission
MONEYLIFE | 10-23 Nov 2017 | 12
Public Interest.indd 2
in a series of ineffectual steps the appointments, setting up a Bank
government is taking to revive PSBs. Boards Bureau (BBB), pumping in
People had expected this government more capital, reducing bad loans,
to make fundamental changes empowering the management,
in the way PSBs operate; their improving accountability and better
expectations have been belied. governance. Indradhanush did
Fixing the PSB mess was perhaps not work either. The government
a priority for the prime minister has done a few things that
Narendra Modi in 2015; just seven were easy to do, but have little
months after he assumed power, the connection to the core problems
finance ministry organised a two-
day retreat branded Gyan Sangam
in Pune on 2-3 January 2014. The
gathering included the whos who of
banking: heads of all public sector
banks and financial institutions, the
finance minister, Raghuram Rajan,
the then governor of the Reserve
Bank of India (RBI), the then
minister of state for finance Jayant
Sinha, and top officials of the finance
ministry, including the finance
secretary and financial services
secretary. Mr Modi interacted with
bankers on the second day of the
retreat, in an attempt to achieve
a broad consensus on what has
gone wrong and what should be
done both by banks as well as
by the government to improve
and consolidate the position
of PSBs. Foreign consultants
made long presentations. Finally,
nothing came of it. A second Gyan that beset PSBs: one, some top-level
Sangam was held the next year, appointments, two, more capital
but it was a damp squib. Far from and three, setting up BBB. Four
becoming competitive, profitable other components of Indradhanush
and customer-friendly, PSBs sank remained on paper: reducing bad
further in the morass of bad loans loans, empowering managements,
as they were kept busy with opening improving accountability and better
Jan-Dhan accounts and, later, governance. These objectives have
demonetisation. Many remained been discussed and debated by many
headless for a long stretch. committees in the past.
Then, on the eve of Independence
Day in 2016, the government No Accountability Fixed So Far
launched Indradhanush, a seven- Even as more capital is injected into
point programme to rejuvenate PSBs, shouldnt someone be held
PSBs. The plan covered better senior accountable for the huge mess?
02-11-2017 20:48:17
 RBIs role involves framing banking
policies, implementation of plans,
banking supervision and senior
appointments. It receives scores
of reports from banks, conducts
regular inspections and nominates
directors to bank boards. Despite
this, PSBs are in a mess. What
has RBI done with the reports
that banks are asked to submit?
Did its inspections report nothing
suspicious about the dubious loans
that turned bad? What role did the
RBI-nominated directors play even
as banks kept lending recklessly?
Who in RBI is responsible and
accountable for all this? If no one is
accountable, how do we make RBI
primarily accountable as the banking
regulator?
Then come the banks. The
spread between the average deposit
rates and average lending rates
(known as spread) in India is one
of the highest in the world, making
banking a highly profitable business.
If banking is a profitable business,
why do PSBs need such repeated
Public Interest.indd 3
bailouts? The average ratio of bad
loans to advances of PSBs is 10%
while the average ratio of bad loans
to advances of the five largest private
sector banks is 1.5%. Why are
bad loans six times higher in PSBs?
From the RBI governor to bank
officials and ministers, everyone says
that India needs better bankruptcy
laws (we now have it). Why were
operations and profits of private
sector banks not badly hampered
because of weak bankruptcy laws?
Bankers are supposed to be cautious
people. Indeed, small businessmen
tell us that it is very difficult to
borrow from banks, without
offering collaterals and personal
guarantees that are several times the
size of loan. Banks also arm-twist
businessmen to buy life insurance if
they want a loan. If bankers did their
due diligence correctly and acquired
collaterals and guarantees in excess
of the loan, why is recovery so
difficult when the loan goes bad? If
loans have gone bad on such a large
scale, is it correct to conclude that
banks have not done the basic job of
lending and appraisal correctly? The
inescapable conclusion is that behind
the colossal bad loans lies corruption
and gross inefficiency. But how many
bankers have been held accountable
for this?
The Solution
Lending by PSBs is fundamentally
flawed. If the government continues
to control these banks, how can
we reward exceptional bankers
and punish the corrupt and
inefficient ones? The Narendra
Modi government came to power
in May 2014. The same month, the
PJ Nayak committee (Committee
to Review Governance of Boards
of Banks in India) submitted its
report to RBI. The report was
widely hailed as a fine roadmap
for PSB reform. Sadly, the current
government has not picked up
anything much from that report.
The core problem with PSBs, as the
Nayak committee saw it, is this:
Governance difficulties in public
sector banks arise from several
externally imposed constraints.
These include dual regulation, by the
Finance Ministry in addition to RBI;
board constitution; significant and
widening compensation differences
with private sector banks; external
vigilance enforcement through the
CVC and CBI
The solution suggested by the
committee was: If the Government
stake in these banks were to reduce
to less than 50 percent, together
with certain other executive
measures taken, all these external
constraints would disappear. This
would be a beneficial trade-off
for the Government because it
would continue to be the dominant
shareholder and, without its control
in banks diminishing, it would
create the conditions for its banks
to compete more successfully. It is a
fundamental irony that presently the
Government disadvantages the very
banks it has invested in.
Every solution thought by the
government, skirts this core problem
and does not come anywhere
near this elegant solution. Each
government has been conceited
enough think that it can set things
right. Instead of trying to set things
right, we should have a system
that automatically prevents wrong
things from happening. This is
precisely why the Nayak committee
had suggested that the government
bring down its stake which
would eliminate a host of issues
automatically. Quite the opposite
has happened againgovernment
stakes are going up in the process
of recapitalisation, without any
strings attached. Debashsis
Basu
13 | 10-23 Nov 2017 | MONEYLIFE
02-11-2017 20:49:02
 Your Money
MUTUAL FUNDS
Another Exchange-traded Fund
from the Government
B harat 22-ETF is the second
ETF (exchange traded fund)
launched by the finance ministry
after the CPSE (Central Public
Sector Enterprises) ETF. The
government plans to raise
Rs8,000 crore from the new ETF
to meet its ambitious Rs72,500-
crore disinvestment target for the
current fiscal. ETFs are passively
managed funds, which give
exposure to a well-diversified
portfolio of stocks similar to
mutual funds, but with the
exception that ETFs can be traded like
shares on a recognised stock exchange
and have a very low expense ratio. The
ETF will comprise 22 companies:
RETIREMENT
PPF Account Will Be Closed, NSCs
Encashed if Holder Turns NRI
A mending rules on post-oce
savings schemes, like the National
Savings Certificates (NSC) and Public
Provident Fund (PPF), the government
has notified that such
accounts would be closed
prior to maturity in case
of holders changing
their personal status to
become non-resident
Indians (NRIs). The
amended rules were
notified in the ocial gazette earlier in
October 2017. The amendment to the
PPF Scheme, 1968, says: If a resident,
who opened an account under this
scheme, subsequently becomes a
non-resident during the currency of the
MONEYLIFE | 10-23 Nov 2017 | 14
Your Money.indd 2
Public Sector Units: SBI (8.6%),
ONGC (5.3%), IOCL (4.4%), BPCL
(4.4%), NALCO (4.4%), Coal India
(3.3%), Bank of Baroda (1.4%) and
Indian Bank (0.2%).
Central Public Sector Units: PGCIL
(7.9%), NTPC (6.7%), GAIL (3.7%),
maturity period, the account shall be
deemed to be closed with eect from
the day he becomes non-resident. The
interest payable would be up to the date
of the account closure,
it said. A separate
notification on NSCs
said in case of a similar
change of status of the
certificate-holder before
the maturity period,
The certificate will be
encashed, or deemed to be encashed on
the day he becomes non-resident, and
interest will be paid accordingly. NRIs
are not allowed to invest in NSCs, PPF,
monthly income schemes and other time
deposits oered by the post-oce.
Bharat Electronics (3.3%), Engineers
India (1.5%), NHPC (1.2%), NBCC
(0.6%), NLC India (0.3%) and SJVNL
(0.2%).
Strategic Holdings of the Government:
Larsen & Toubro (17.1%), ITC
(15.2%) and Axis Bank (7.7%).
Shares of L&T, ITC and SBI
aggregate 40% of the ETFs portfolio;
any sharp variation in their prices will
affect the ETFs prices to some
degree.
ICICI Prudential Mutual
Fund will manage Bharat
22-ETF. Subscription for retail
investors would open on
15th November and continue
till 17th November. An upfront
discount of 3% would be offered
to all categories of investors.
Minimum investment in the
public offer of the ETF is Rs5,000
and one requires a trading and demat
account to purchase these units. There
is no exit-load.
FIXED INCOME
Government Permits Banks
To Sell More Small Savings
Schemes
T o encourage household
savings, government has
allowed banks, including top
three private sector lenders
(ICICI Bank, HDFC Bank and
Axis Bank), to accept deposits
under various small savings
schemes. According to a recent
government notification, banks
can also sell National Savings
Time Deposit Scheme 1981,
National Savings (Monthly
Income Account) Scheme 1987,
National Savings Recurring
Deposit Scheme 1981 and NSC
VIII issue. Until now, most of the
small savings schemes were sold
through post-offices.
03-11-2017 14:51:37
 OTHER INSURANCE CONSUMER PROTECTION

SC: Future Prospect of a Road Unitech Asked To Pay

Flat-buyer Rs50 Lakh:
Accident Victim Would Be Considered NCDRC Ruling

I n a path-breaking verdict, the

Supreme Court held that future
prospect of a person killed in a
road accident would be considered
while awarding compensation to the
dependents and laid down standard
criteria for computation of such
claims, according to a report in The
Economic Times.
A five-judge Constitution Bench,
headed by
Chief Justice
Dipak Misra,
was faced with
a vexatious
question
whether
dependents of
a road accident
victim, who
was either
self- employed or working on a fixed
salary in private or unorganised sector,
can get enhanced compensation after
addition of certain percentage of the
salary drawn by the deceased under
the head of future prospect.
Madras HC Directs IRDAI To Increase
Accident Cover for Victims
Accepting the principle of
standardisation, SC said, While
determining the income, an addition of
50% of actual salary to the income of
the deceased towards future prospects,
where the deceased had a permanent
job and was below the age of 40 years,
should be made. The addition should
be 30%, if the age of the deceased was
between 40 to 50 years. In case the
deceased was
between the
age of 50 to
60 years, the
addition should
be 15%. Actual
salary should
be read as
actual salary
less tax.
The
Bench fixed the percentage of salary
or income of a self-employed and
a person working in private sector
which would be computed under the
head of future prospect for granting
compensation to the dependents.
A complainant to NCDRC (National
Consumer Disputes Redressal
Commission,) Manish Sharma, had
alleged that he had booked a flat, in
a housing project which was being
developed by Unitech in Greater
Noida. It was alleged that despite the
complainant having paid more than
Rs50 lakh, the real estate developer
had failed to give possession of the
flat even after nearly four years.
NCDRC, on 24 October 2017,
directed Unitech Reliable Projects
Private Limited to compensate a flat-
buyer by paying a sum of Rs50 lakh,
after it failed to deliver the possession
of the flat within the stipulated time.
Holding the developers guilty of
deficiency in services, NCDRC said,
It is evident from the allotment
letter of 2010 that the opposite
party was required to deliver the
possession of the subject flat within
36 months, which would be by the
end of November 2013. Undisputedly,

T he Madras High Court directed the Insurance Regulatory Development Authority

of India (IRDAI) to enhance compulsory personal accident cover from Rs1 lakh to
not less than Rs15 lakh, enabling vehicle-owners paying premium to get adequate
Unitech has failed to fulfil its promise
although the complainant had paid
almost 90% of the consideration
compensation in the event of death or bodily injury. A division bench, comprising amount. Unitech cannot take
justices R Subbiah and A D Jagadish Chandira, gave the order while allowing an appeal advantage of its own wrong and
by United India Insurance Co Ltd, Neyveli. utilise the money received by them
Fifteen years had lapsed since IRDAI decided on the issue, and medical by unfair trade practice for inordinate
treatment costs had sky-rocketed, the judges said and directed IRDAI to enhance period, added NCDRC. Directing
the compulsory personal accident cover from the existing Rs1 lakh to not less than the developers to refund the entire
Rs15,00,000. The bench directed IRDAI to consult all stakeholders before enhancing amount with interest of 10%, an
the premium for getting compensation under the compulsory personal accident additional compensation of Rs10,000
cover. The judges also directed IRDAI to undertake and complete such an exercise has been awarded to the complainant
within six months from the date of receipt of a copy of the judgement. towards litigation costs.

15 | 10-23 Nov 2017 | MONEYLIFE

Your Money.indd 3 03-11-2017 14:51:03

 Your Money
TAX with I-T returns.
In his interim ruling, Justice
Woman Petitioner Allowed To File Income- Sivagnanam said: I am inclined to
grant a similar relief, since today
tax Return without Aadhaar by Madras HC being the last day for filing income-
tax returns. If the returns are filed

A s the law mandating linking

income-tax (I-T) returns with
Aadhaar is yet to be put to the litmus
test by the Supreme Court, the Madras
High Court allowed a petitioner to file
her I-T returns without quoting her
Aadhaar number.
Justice TS Sivagnanam, passed
the interim order on a plea moved by
Preethi Mohan. She had moved the
plea relying upon the apex courts
decision in Binoy Viswam Vs Union
of India, in which the court had
imposed a partial stay on operation of
Section 139AA of the Income-Tax Act
which mandates linkage of Aadhaar
belatedly and if ultimately, the matter
decided by the Constitution Bench
of Supreme Court is against the
petitioner, then she may be liable
to pay interest for belated payment
of tax. Accordingly , there will be an
interim direction to the income-tax
department to permit the petitioner
to file her returns for the assessment
year 2017-18 either manually or
through appropriate e-filing facility
without insisting for Aadhaar number,
he said.

Moneylife

MONEYLIFE
Quiz no

271
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 Ranganath Muthu

investmentnt
draw from correct entries and answers published in the Mutual Fund
investments are quote!
issue dated 21 December 2017. 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 29 November 2017.
1. Who said, Wide diversification is only required when 5. How much was the highest daily volatility in under-
investors do not understand what they are doing? diversified large-cap mutual fund schemes, in the past five
a. Peter Drucker b. Michael Porter years?
c. Warren Buffett d. Dan Denning a. 0.99% b. 0.91%
c. 0.92% d. 0.96%
2. Under which Section of the Criminal Procedure Code are
public servants protected which prevents them from being 6. In which field of medicine/health does the mobile app
prosecuted without government sanction? Insight Timer help?
a. Section 80-G b. Section 80-D a. Pain killer b. Meditation
c. Section 197 d. Section 213 c. Impotency d. Time management for the busy

3. By which magazine was Oberoi Realty awarded the Real 7. What is the name of the chief technology officer of IBM
Estate Company of the Year? Resilient?
a. Construction World b. Construction Week India a. Buck Rogers b. Thomas J Watson
c. Accommodation Times d. Realty Plus c. Bruce Schneier d. Ginni Rometty

4. Who is the promoter of the Unitech group currently facing 8. In which part of Uttaranchal does Innovative Tech Pack Ltd
legal action? have a manufacturing facility?
a. Subrata Roy b. Vijay Mallya a. Rudrapur b. Ranipur
c. Sanjay Chandra d. Deepak Kulkarni c. Roorkee d. Pithoragarh

In all, 11 readers got all the answers right last time. The answers to Moneylife Quiz-269 are: 1-a. Germany
The winner of Quiz-269 is Ranganath Muthu from 2-c. October 2010 3-c. 39.3% 4-b. Circulating library for books
Chennai. Congrats! You win a personalised clock with 5-b. Surendra Kumar Hooda 6-d. Ashwini Lohani 7-a. Rs5,000
an investment quote! 8-d. November 2016

MONEYLIFE | 10-23 Nov 2017 | 16

Your Money.indd 4 03-11-2017 14:48:14

 www.moneylife.in
News & views with a big dierence
RComs retail mobile
business is dead but
nobody wants to say
so, while Vodafone and
Airtel lure its customers
Reliance Communications Ltd
(RCom), once upon a time the flagship of
Anil Dhirubhai Ambani Reliance group,
has reportedly closed its mobile retail
business leaving millions of subscribers
in the lurch. However, nobody, including and even department of telecom (DoT) is
the company, stock exchanges, market ready to say anything ocially on RComs
regulator SEBI, telecom regulator TRAI closure of mobile business. Another
Special Court asks SEBI to issue an
advertisement seeking appearance
of Ketan Parekh
In a surprise action, the Special Court has asked
the Securities and Exchange Board of India
(SEBI) to issue an advertisement/ proclamation
seeking appearance of Ketan Parekh,the prime
accused in the securities scam of 2000-2001.
The advertisement/ proclamation has taken the
market by surprise since many believed that
Mr Parekh was now free to trade, having
completed the 14-year ban imposed by SEBI. He
is director of Panther Fincap and Management
Services Ltd
RBI doesnt have information on
illegal trading, dealing in virtual
currencies, reveals RTI reply
While maintaining that it has not issued any
licence or authorisation to any company to trade
in virtual currencies, like Bitcoin, the Reserve
Bank of India has no information about entities
dealing in illegal trading, investing and exchange
of virtual currencies, reveals a reply received
under the Right to Information (RTI) Act
EXCLUSIVE VIEWS
Do you have a
problem with your
credit card bill
statements?
Vinita Deshmukh
For the latest news, exclusives and reports on our activities
twitter.com/MoneylifeIndia http://www.facebook.com/moneylife.in
Web Content.indd 1
surprising aspect is the advertisement
from Bharti Airtel and Vodafone wooing
RCom subscribers to switch to their
network.
As per RComs debt restructuring
plan, it would convert its debt of about
Rs7,000 crore into equity. Promoters
will reduce their stake to 26% from 59%.
Mukesh Ambani-led Reliance Jio is likely
to bid for assets of RCom. Quoting Puneet
Garg, executive director of RCom, the
reports says, They [Jio] do not want to
deal directly but have shown interest
in bidding for many of our assets in a
transparent manner.
DSK Defaults: Pune Police finally
register FIR against DS Kulkarni and
his wife Hemanti
After several months and innumerable
complaints, the Pune Police has finally registered
a first information report (FIR) against Deepak
Sakharam (DS) Kulkarni, and his wife Hemanti,
under the Maharashtra Protection of Investors
and Depositors Act (MPID)
How is a Khadi Gramodyog
Gandhihaat all cash and no GST?
How is the implementation of goods and
services tax (GST) and the much touted push
towards digital payments that began after
demonetisation working on the ground? In
Ahmedabad, Sanjay Shirodkar, a Pune-based
activist, visited a khadi gramodyog store on
27 October 2017, to buy some clothes. The
store, using Gandhijis name, demands cash
payments only and has a completely dodgy
system of billing and reporting the goods.
Mr Shirodkar also found that the Gramodyog
Gandhihaat Ashram Bhandar, located opposite
the Gandhi Ashram, refuses to accept digital
payments.
On issues that matter to you
Improving BEST: High School Stress
Making city in the US
transportation Jayant Kadambi
profitable
Rahul Deodhar
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03-11-2017 14:45:32
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 CROSSHAIRs
Why a New Consumer Protection Law
Alone Is Not Enough
A
t an international conference on 26th October,
prime minister (PM) Narendra Modi spoke
passionately about a stringent new law that will
empower consumers, lower the cost of redress and take
into account the business practices prevalent in India.
Noted consumer activist Pradeep Mehta, secretary
general of Consumer Unity Trust (CUTS), Jaipur, who
attended the conference, says that the PM spoke on
consumer protection for 50 minutes as against the
scheduled 17-20 minute allocated. Mr Modi said that
the legislation would show how seriously we take the
needs of our citizens and how we strive hard to solve
their problems. What was music to my ears, says
Mr Mehta, was the PMs thrust on the fact that
promoting consumer interest (welfare) is as vital as
consumer protection. Over the past several years,
Moneylife has repeatedly shown how financial
regulators, including a Reserve Bank of India governor
with a rock-star like popularity, do not even speak
about consumer/investor/depositor/ issues, let alone
engage with them directly. So it is heartening to hear
the PM speak about this.
The Consumer Protection Bill, 2016, which replaces
the 1986 statute (with its many amendments), has
been in the works for a while now. Despite several
amendments, the legislation is due for a major overhaul
to align it with changing consumer profiles, products,
market needs and multiple delivery mechanisms.
The new legislation provides for a consumer redress
authority, which is, reportedly, along the lines of
the US Federal Trade Commission. It will introduce
the concept of product liability and will permit
resolution through mediation cells for faster redress.
It also proposes to tighten action against misleading
advertisements. Several amendments suggested
MONEYLIFE | 10-23
27 November
Nov 2017
2014
| 20
| 14
Crosshair.indd 2
Exclusive news, the stories behind the
headlines and the truth between the
lines by Sucheta Dalal
to the draft legislation are in the process of being
incorporated in the final draft and the final bill, going
by the PMs speech, will be introduced in parliament
shortly. While these actions are highly encouraging,
they still do not provide a holistic approach to
effective regulation or redress of public and consumer
grievances. Allow me to flag three important issues.
First, the government has, probably, gathered a
vast body of information from pgportal.gov.in (a
centralised public grievance monitoring system under
the department of administrative reforms and public
grievances), a grievance redress initiative, which,
I learn is directly overseen by the prime ministers
office (PMO). This was so effective in the initial days
that Moneylife Foundation had begun to recommend
it as the go-to place for every possible complaint
against public and private organisations, utilities and
government departments. Veeresh Malik, a Right to
Information (RTI) activist, is among those who had
found pgportal more effective than filing RTI, for a
time. He has filed over 1,000 public grievances for
himself and others across ministries.
Mr Malik says that in the past year, pgportal
has deteriorated because of a huge resistance from
various ministries and nil fear of action for failure
to redress grievances. Organisations have become
adept at evasive tactics and finding ways to close
grievances without explanation. He says that, barring
exceptions such as the railways, finance, road,
transport, NHAI (National Highway Authority of
India) and Central tax authorities, the rest provide
call-centre-like responses to complaints. A detailed
analysis of the massive, centralised data generated by
pgportal should be a goldmine of information on the
pain-points for consumers and help the government
03-11-2017 18:14:12
 introduce administrative reforms in public interest.
More importantly, the learning should be part of the
new consumer legislation that is still being drafted, so
that accountability and liability of manufacturers and
service-providers is fixed upfront to reduce complaints.
Secondly, online sellers are part of the vast new
marketplaces whose conduct needs to be addressed. If
the proposed consumer protection authority plans to
introduce stringent product liability provisions, making
manufacturers responsible for product quality and
usage, then how much more strict should the law be
on fake and counterfeit products sold online through
e-commerce portals? A few months ago, I wrote about
how a senior Amazon executive brazened it out before
senior consumer ministry officials when cornered over
such sales. The global giant, which advertises that you
shop on apni dukaan, suddenly claimed that it was
a virtual haat or marketplace and not accountable
for what is palmed off to trusting consumers by
various sellers. Amazons
argument about not being
allowed into retailing in
India does not wash with
us consumers. But the
government also needs to
make up its mindhold
Amazon and other sellers
accountable or just open
up the consumer retail
business to foreigners. It
cannot turn a blind eye to
consumers being cheated.
Thirdly, the proposed
Consumer Protection
Authority will be (CPA)
empowered to initiate
suo moto investigation,
class action and order product recall and penalties,
which could include cancellation of licences, without
waiting for consumer complaints. Most countries
have given these powers to regulatory organisations,
like the Competition Commission of India (CCI), but
India has chosen to keep it out. CCIs mandate, says
its website, is to ensure that the Common Man or
Aam Aadmi has access to the broadest range of goods
and services at the most competitive prices. Many of
its advocacy and anti-trust actions do redress issues
faced by consumers and will overlap with CPA and
other regulators. CCI is already in a turf battle with the
telecom regulator.
A similar Financial Redress Authority (FRA)
has been recommended to redress grievances that
ought to be handled by our four financial regulators
(banking, insurance, pensions and capital markets).
Another big chunk is real-estate related complaints
that should primarily be redressed by the Real Estate
Crosshair.indd 3
Regulatory Authority. The irony is that financial,
telecom and realty consumers have had a better stab
at getting redress or justice only through the consumer
courts, while sector regulators have operated as rule-
making bureaucracies. Even after FRA is set up,
people can continue to approach consumer courts and
civil courts in these sectors. FRA already promises
to be an expensive and giant bureaucracy with a
consumer advisory council and possibility of closing
complaints through mediation. The cost of all these
new government authorities is, eventually, borne
by the consumer and taxpayers in the form of fees,
cess or higher taxes. Having created a series of sector
regulators over the past 25 years since economic
liberalisation, we seem set to create a multiple
grievance redress bodies in the coming years, without
learning any lessons from the past. We need a single,
powerful, grievance redress authority rather than set
the stage for new turf battles or create sinecures for
retiring bureaucrats. This
body could be a part of the
CCI and made accountable
to parliament.
An important
suggestion by the Financial
Services Legislative
Reforms Commission
(FSLRC), which promoted
the FRA idea, was to create
a feedback loop, where
consumer complaints
data makes it possible
to identify hotspots
of consumer grievances
and forms the basis of
modifying regulation
and supervision framing/
amending subordinate legislation. Such data should
have been available through pgportal.in, but we have
not heard of it being mined. The public grievance
portal ought to be merged into the single consumer
and public grievance redress authority which is suitably
empowered and has the ability to gather and analyse
data to reduce areas of friction for consumers. Even if
the government is not interested in FRA, the feedback
loop idea should not get buried.
In the final analysis, fair competition or effective
deterrence through strict penalties are the best ways to
protect consumer interest. It is unclear how this would
work if there are multiple authorities with overlapping
jurisdiction. Changing this into a single authority
to ensure effective grievance redress would require
very bold action and the ability to overcome strong
bureaucratic resistance. Will the Modi government,
which takes pride in its ability to take bold decisions,
give it a shot?
21 | 10-23 Nov 2017 | MONEYLIFE
03-11-2017 18:14:30
 DIFFERENT STROKES SUCHETA DALAL

Telgi Dead, E-stamping Still

Unchecked

W
hen powerful people collude to infiltrate and from security presses) but printed by counterfeiters; it was
compromise institutions responsible for the hard for a layperson to know the difference. No.3 was a
highest level of security, the investigation tends fully counterfeit stamp on non-security paper. No.4 was
to drag and be buried or is limited to one big scapegoat. the most outrageous; these were used stamps removed from
But the scam never endsit just acquires a new shape and transfer deeds submitted to share transfer departments of
modus operandi, since scamsters are always way ahead companies. Only the staff of large brokers knew the last
of regulators in mastering new technology, identifying part of the racket since they recycled stamps in connivance
regulatory gaps to seize money-making opportunities with company officials.
by striking deals with corrupt This man was making the
officials. And so it is with the fake rounds of several newspaper
stamp paper scam of the 1990s. offices; and, although we were
Abdul Karim Telgi, a school fascinated, it was hard to prove;
dropout from Belagavi, was thrust but the scam slowly became
on the nation as the kingpin of public. Only later did we discover
the scam; he was ostensibly the how well-oiled and widespread it
man who managed to infiltrate the was, with patronage by powerful
high-security government printing politicians, bureaucrats and
press to obtain discarded machines police officials. They ensured that
on which to print fake stamps. Telgi wasnt arrested even after
He had also created a source for 27 cases were registered against
obtaining genuine security paper him between 1991 and 1995.
on which to print the fakes and He was arrested only in 2001
also stitched together a network and, eventually, had 48 cases
of powerful politicians and police registered against him with 20
officials who helped it thrive and Senior police officials say that convictions. The trials were quick
grow, for a price. the Telgi scam was unearthed because Telgi used to plead guilty
On 23 October 2017, Telgi only because two factions without contest in most cases; he
died at the Victoria Hospital, among the police fought over did not squeal and many of those
Bengaluru, from multiple the spoils of the scam arrested in the scam were slowly
organ failure, while serving out discharged. A deliberate shortage
concurrent jail sentences. The of stamps and stamp paper, with a
media, dutifully, noted the event with perfunctory coverage, limited number of stamp vendors, allowed fake stamp and
but has the stamp duty and fake stamp racket really ended? dated stamp paper racket to flourish and it soon spread
Well, judge for yourself. across several states.
In the 1990s, when I worked at The Economic Times, Senior police officials say that the scam was unearthed
an agitated individual in a polyester safari suit burst only because two factions among the police fought over
into our office to get us to investigate the fake stamp the spoils of the scam. A public interest litigation (PIL) by
racket prevalent in the stock market. Affixing of revenue noted social activist, Anna Hazare, and the court orders
stamps on transfer deeds that accompanied physical share that followed, finally, led to a special investigation team
certificates was mandatory those days. Our man snapped (SIT) being constituted in 2001. Serious investigation by
open a plastic-moulded briefcase to show us sheets of SIT, finally, put many high-profile police officers, including
stamps that were of four kinds. They were coded No.1, a former police commissioner of Mumbai behind bars.
No.2, No.3 and No.4 and priced in descending order, he While the Telgi scam investigation was raging, the
said. No.1 was the genuine stamp printed at our security government came up with the idea of e-stamping, as a
presses; No.2 was on genuine security paper (purloined clean, transparent and electronic replacement for physical

MONEYLIFE | 10-23 Nov 2017 | 22

DIFFERENT STROKES.indd 2 03-11-2017 18:06:22

 DIFFERENT STROKES SUCHETA DALAL

stamps that were susceptible to counterfeiting. The size linked company of Singapore. However, the legal document
of the business was estimated at Rs50,000 crore those was actually a contract between Crimson Logic and Unitec
days. Such is Indian ingenuity that the Stock Holding Value Solutions. A nice chunk of the money paid out
Corporation of India Limited (SHCIL) designed an to Crimson Logic was to be retained by Unitech Value
e-scam at the very initiation of the new system. I worked Solutions, which was 80% owned and controlled by
extensively on unravelling this scam while writing for the Jayaraman Iyer and S Ramanathan and their friends. In
Indian Express, with the help of whistle-blowers inside fact, the skimming had already begun when I was stopped
the organisation. Indias top public sector banks and from writing about it. SHCIL was flying so high those days
institutions had come together to set up SHCIL. It was a that it expected to sign e-stamping deals with Myanmar,
custodian for dematerialised shares of large institutions. Bangladesh and Bhutan and other neighbouring countries.
Once e-stamping was announced, it bagged the mandate Thanks to that exposure, which lost me my columns in the
to become the central record-keeping agency. Indian Express group, e-stamping was no longer touted
At the centre of the scam as the perfect
were R Jayaraman At the centre of the alternative. So we
Iyer, chairman and e-stamping scam were continue to have
managing director R Jayaraman Iyer, chairman physical stamp
of SHCIL, and and managing director of paper, stamps and
S Ramanathan, his SHCIL, and S Ramanathan, franking, along
deputy and CEO his deputy and CEO of with e-stamping
of SHCIL Services SHCIL Services Ltd (SSL). even today.
Ltd (SSL), a fully- This scam
As in the Telgi scam,
owned subsidiary.. happened because
they co-opted extremely
As in the Telgii SHCIL had no
scam, Mr Iyer and d
powerful people, probably clear regulatory
Mr Ramanathan n iincluding a Cabinet minister. oversight and
co-opted extremely y We wrote a whole cover the fraudsters
powerful people le story on this scam managed to
(regulators and the he co-opt anyone
police) in India and who would have objected. At the same time, it conducted
abroad, probably including a Cabinet minister. That is why a witch-hunt against suspected whistle-blowers until
my writing in the newspaper was abruptly stoppedeven everybody eventually clammed up. Even today, it is unclear
though prime minister Manmohan Singh had ordered the who regulates, inspects and oversees large e-networks
removal of the Jayaraman Iyer-Ramanathan duo and asked like these which handle our tax information, e-stamping,
IDBI Bank, the lead promoter of SHCIL, to take charge. corporate filings, etc. As recently as last week, I have
The SHCIL scam was audacious and elaborate. Under received anonymous alerts with regard to SHCIL. Many
the benign watch of its regulator, the Securities & Exchange officials, who colluded with the dubious-duo, remain in
Board of India (SEBI) and, despite a powerful board of top positions at the organisation.
bank chiefs, SHCIL began diluting the shareholding of SSL The e-stamping scam is a prime example of how
until it had sold 76% of its equity to private and foreign technology can be manipulated for illegal gains and it
entities. This was like stealing a quasi-government company will remain hidden for a long time, unless somebody at
from under the nose of powerful banks and institutions, the core of operations blows the whistle. Sadly, no lessons
such as LIC, ICICI, IDBI, IFCI and others, who were on have been learnt about the dangers of technology. Those
the SHCIL board. In all these years, the market regulator, of us who are aware about the past are fighting a pitched
which keeps inventing new regulations, compliances and battle opposing the linking of bank accounts to a biometric
disclosures to ensure good governance, has never, ever, identifier which will allow even greater manipulation and
questioned these board directors who allowed a whole damage. It is a pity that this government is disinclined to
subsidiary company to be hijacked under their watch. hear views or opinions contrary to its once-stated beliefs.
SSL went on to create layers of subsidiaries, including
a Singapore-based entity called Unitec Value Solutions
PTE Ltd. Sucheta Dalal is the managing editor of Moneylife. She was
The e-stamping contract was ostensibly signed between awarded the Padma Shri in 2006 for her outstanding contribution
SHCIL and Crimson Logic PTE Ltd, a reputed government- to journalism. She can be reached at sucheta@moneylife.in

23 | 10-23 Nov 2017 | MONEYLIFE

DIFFERENT STROKES.indd 3 03-11-2017 18:06:48

 MUTUAL FUNDS POINTERS

Does Investing in Too Many Stocks

Lower Returns?
W
e have heard that one must diversify ones as Warren Buffett quoted, Wide diversification is only
investments, but should avoid going overboard required when investors do not understand what they are
with it, as it lowers performance. One of the doing. So does the number of stocks in a mutual fund
perennial questions in the minds of equity investors is schemes portfolio really affect returns? We will find out.
about the optimum size of a portfolio or how many stocks For this analysis, we have compared the performance
should one hold in ones portfolio. Put another way, should of over-diversified and under-diversified large-, mid- and
you have a concentrated or a diverse portfolio? There are multi-cap schemes. Schemes which have held, on average,
lots of arguments for and against each option. Too few more than 90% in equity assets in the past five years are
stocks make the portfolio considered.
risky. So, academics advise
you to diversify; the Large-Cap Schemes
advice is summed up in a As one can see from the
statement like Dont keep table alongside, the more
all your eggs in the same diversified the scheme,
basket. There is no free the higher the returns
lunch in financial markets generated. These five
but diversification comes over-diversified schemes
closest to something like a beat not only their under-
free lunch. However, most diversified counterparts,
successful investors say but even outperformed the
no to this free lunch; they category average returns.
run highly concentrated Large-Cap Schemes The underlying reason for
portfolios. Scheme Number 3-year 5-year Volatility better returns could be
of Scrips Returns Returns (Daily)
This is why most of that, with more freedom
us choose well-diversified Over-Diversified in choosing stocks, they
mutual fund schemes as we Aditya Birla Sun 73 12.8 17.3 0.89% could take higher risks by
get exposure to a portfolio Life Frontline betting a small percent of
Equity
of many stocks. But we have the total assets by investing
equity schemes that have the Aditya Birla Sun 66 12.7 17.5 0.90% in neglected stocks or
Life Top 100
freedom to buy as many turnaround stories. Due
different stocks as they Edelweiss Large 63 10.3 14.9 0.86% to this freedom, their risk-
Cap Advantage
want. That is why some reward ratio is high and,
equity schemes will hold SBI Bluechip 51 13.2 17.9 0.84% if any one stock dips, the
as many as 85 companies ICICI Prudential 48 11.7 15.9 0.88% overall returns wont dip
Focused
scrips while some hold just proportionately. That
Bluechip
15 scrips. Asset management doesnt mean quality is
Under-Diversified
companies (AMCs) also neglected. It just means
try different strategies Reliance Quant 18 7.8 11.7 0.96% that there is more room for
Plus
and investment styles to testing different strategies
deliver the best returns; Sahara Super 20 22 7.5 10.4 0.91% without distorting the
one such style is keeping ICICI Prudential 22 7.8 13.4 0.92% broader goal. On the other
a limit on the number of Select Large Cap hand, having a limited set
scrips they would hold Reliance Focused 26 10.9 14.7 0.99% of stocks, such as 20 or
in their portfolio. Over- Large Cap 25, means stock selection
diversification has been seen HDFC Large Cap 28 6.9 11.0 0.90% becomes the highest
as a sign of low confidence The average return of large cap schemes in this period was 14.3% priority and one bad news
in what one is investing in, or quarterly result from a

MONEYLIFE | 10-23 Nov 2017 | 24

Fund Pointer.indd 2 03-11-2017 16:11:38

 MUTUAL FUNDS POINTERS

company will show up in returns for five years. A

the returns immediately. Mid-Cap Schemes look at the portfolio of this
The daily standard scheme showed the winning
Scheme Number 3-year 5-year Volatility
deviation (refer column: of Scrips Returns Returns bets that are still part of the
volatility) of these schemes schemes portfolio: Relaxo
Over-Diversified
shows that the difference is Footwear (358%), KCP ltd
UTI Mid Cap 84 14.20 24.82 0.96%
minimal; but this minute (332%) and Graphite India
difference on a daily basis HDFC Mid-Cap 72 18.31 24.07 0.87% (332%), among others.
Opportunities
creates a huge difference in Excluding the outlier SBI
the returns at the end of the Principal 65 21.21 26.03 1.01% scheme, the conclusion
Emerging
year. This does show that a Bluechip would be that, again, over-
portfolio of limited number diversification works for
L&T Midcap 64 21.93 26.91 0.90%
of large-cap stocks tends mid-cap schemes as well.
Edelweiss Mid 63 18.58 24.77 0.94%
to be more volatile and This is a no-brainer since
and Small Cap
underperforming than a most of the mid-cap schemes
Under-Diversified
portfolio with many stocks. had, on average, 53 stocks
Apart from the number of SBI Emerging 24 13.41 17.97 0.79% in their portfolio.
Businesses
scrips held by a scheme,
the fundamental drivers of SBI Small & 28 25.97 30.88 0.98% Multi-Cap Schemes
Midcap
the companies also matter. In case of multi-cap
Buying three large-cap Baroda Pioneer 31 3.23 6.12 1.20% schemes, the picture is
Mid cap
equity schemes instead of cloudyas there seems to
The average return of mid-cap schemes in this period was 23.8%
one, for example, doesn't be no correlation between
add a lot of diversity. the number of scrips
and returns. The reason
Mid-Cap Schemes Multi-Cap Schemes could be diversification
Even for the purpose of Scheme Number 3-year 5-year Volatility across different size of
our analysis, the number of Scrips Returns Returns companies which makes
of under-diversified equity Over-Diversified every scheme unique due
mid-cap schemes is quite L&T India Value 73 19.30 24.52 1.02% to its unique portfolio.
low. The three schemes DSP BlackRock 66 16.19 19.33 0.96% A scheme which creates
that had a limited number Opportunities a portfolio more tilted
of scrips, compared to HDFC Top 200 66 9.78 14.94 1.07% towards mid- and small-
their peers, showed a mix cap stocks would probably
Aditya Birla Sun 64 16.92 21.17 0.94%
performance, without any Life Equity fetch higher returns.
specific pattern. Instead, UTI Equity 64 10.06 15.28 0.86%
Multi-cap portfolios are
it showed similarity with hard to evaluate with such
Under-Diversified
the other group, that is, the straightforward metrics;
over-diversified group. This JM Core 11 11 18.55 19.78 1.28% as a result, a broader and
set delivered above-average Invesco India 18 11.80 15.69 0.73% deeper look at each schemes
performance among the Dynamic Equity historical returns and stock
mid-cap category of equity Escorts High 21 22.05 22.04 0.90% selection would be required
Yield Equity
schemes. So, you can choose to judge their quality. Multi-
to invest in a focused mid- Escorts Leading 22 18.04 21.48 0.91% cap schemes are, indeed,
Sectors
cap scheme which invests risky as there is no control
in a limited set of scrips, Templeton India 23 13.51 17.27 0.90% over the categories of stocks
Growth
but the chances of getting that are in the portfolio and
The average return of multi-cap schemes in this period was 16.5%.
higher returns will be a shot how theyll turn out. An
in the dark. ideal approach seems to be
We were surprised at the performance of SBI Small that one should invest in a bunch of well-diversified large-
& Midcap Scheme, with a limited set of only 28 stocks, cap and mid-cap schemes. As Peter Lynch correctly said,
which has managed to rake in very high above-average Know what you own, and know why you own it.

25 | 10-23 Nov 2017 | MONEYLIFE

Fund Pointer.indd 3 03-11-2017 16:12:30

 SMART MONEY R BALAKRISHNAN
5 Things To Examine for
Infrastructure Stocks
I
nfrastructure sector is hot right now, in the stock
markets. Of course, it is still not as rosy as in the
heady days of 2007 and 2008, when every contracting
company was the darling of the markets. Now, there seems
to be a gradual re-emergence of the sector and many
infrastructure stocks seem to be in favour. However, my
view is that investing in companies in this sector is an
act of belief and hope. Belief in the numbers as they are
presented and hope that the numbers will get better and
bigger. By nature, these companies are in the business of
execution of projects, where completion takes a long time.
It could be from a few months to over a couple of years
or more. It could be a simple road project or a complex
bridge. Since revenues accrue over more than 12 months
for most jobs, infrastructure companies need to follow
a different kind of accounting system.
There are two ways to account for a job contract.
One is to wait till the
entire project is handed
over and raise the final
invoice. This would
mean that sales are
lumpy and there is a
high degree of volatility
in the sales numbers
from year to year. So,
this process is usually
not followed. The
other one is the method
being followed by most
companies, where
they book revenues on the basis of various stages of
completion, taking into account the expenditure incurred
on a work-in-progress basis in terms of labour, material
and overheads. Thus, in a way, this smoothens out the
revenue numbers and reflects the economic activity that
the firm was engaged in during the year.
When you look at the revenues of infrastructure
companies, you need to implicitly have some faith that the
income booked is right for each project being executed and
that the client will accept them in full and pay as per the
billing. The auditor relies on some bases and certifications
that the management gives. So, to start with, the top-line
itself is built on faith and good intentions. I would be very
happy if the Institute of Chartered Accountants of India
MONEYLIFE | 10-23 Nov 2017 | 26
column_Balakrishnan.indd 2
can consider asking companies to give us a break-up of
revenue numbers (in such industries or where revenue
is based on part completion methods) between the actual
billed numbers and the revenue that corresponds to sale-
in-progress. This will help us get some idea about the
health of a company.
As a corollary, the receivables in a contracting company
include some guesstimated revenues that have yet to be
billed and accepted by a client. Even the receivables include
billed and unbilled amounts. Here, again, the accounting
principles do not disclose anything about the details. In
terms of cash flows, a contracting company is constantly
under stress. It gets progressive payments till it completes
the work and then there is normally some retention money
that is released much after the completion of the contract.
The other characteristic is that the contractor has
a constant investment in fixed assets (machineries) to
meet the execution
needs of the contract.
Hence, it is important
that there is constant
workflow to ensure that
men and machines do
not remain idle. In fact,
after the 2008 boom,
infrastructure companies
that were leveraged to
the hilt, have now landed
up in insolvency courts
as they ran out of work
and cash flow to repay
the debts acquired in the good days.
Thus, in the early years, all infrastructure companies
are constantly short of capital. Dilution of equity in good
times, accompanied by leverage, is taking place constantly.
For many aggressive companies, I notice that dilution
is also accompanied by increasing leverage. Companies
need to reach an age and size where they grow and the
leverage starts to reduce. Until then, there is extremely
high risk. Today, there are a few good companies in the
infrastructure sector that are witnessing investor interest.
Here, it is important to pay attention to the cash flows
and the extent of promoter holding. I would like to see
promoter holding large enough to ensure that a few rounds
of dilution still ensure a comfortable majority for the
30-10-2017 15:22:48
 SMART MONEY R BALAKRISHNAN

promoter. In India, contracting is still a personalised
business, needing push and pull. This is a business with
definite shades of grey and, to that extent, do not look
for high standards of governance.
The accounting standards for the industry are not very
transparent and disclosure does not amount to much.
We will have things like intangible capital expenditure
(a term that includes things like buying toll rights) and
intangible work-in-progress. Even drawing a cash flow
is no guarantee that it has captured all the transactions
in the right way. I have seen high-flying infrastructure
companies struggle with their cash flows. I find it hard to
believe their revenue statements in their entirety.
Compliance costs for these businesses are high.
Further, they are constantly in the limelight, often for the
wrong reasons. Litigation is a common business feature
and disputes about the nature of work and revenues
collectible are not uncommon. There are also complexities
in organising finance, with leverage often being off
balance sheet, in the form of leasing and hire-purchase
arrangements. While this sector is certainly poised to do
well, I would pay special attention to a few points, while
looking to invest in this sector. Some of them are:
1. Cash Flows: A high level of reliance on the cash flow
analysis is called for. Not just the gross cash from
operations (profit after tax plus depreciation minus
dividend) but also on the cash that goes into financing
incremental working capital and capital expenditure;
2. Financing: A study of growth vs increase in external
financing is important to figure out whether the
company can depend more on equity dilution and
keep bringing the leverage down. If the leverage keeps
increasing, I would rather keep away. When the crunch
comes, the markets may not be kind to capital raising
and the pressures to repay debt is relentless;
3. Tax Payout: I like to see the income-tax payout being
as close to the corporate rate of taxation. There are
companies which aggressively plan on using deferred
taxation, but it cascades into one big crisis when the
growth slips, or there is one bad year. So, the lower
the rate of effective income-tax, the higher is the cash
flow risk;
4. Accounting: I would like to see if we can easily
understand the annual accounts. It is common for
most of them to have dozens of subsidiaries (often,
one for each project), special purpose vehicles, joint
ventures with other players, minority interests, etc. I
would like to see the related parties business that is
disclosed. The higher the quantum of business with
related parties, the higher is my level of discomfort;
5. Real Estate: One useful thing to study is the composition
of the fixed assets. I have seen that there is a general
temptation for most promoters to invest in real estate.
Given the scarcity of cash for business, this is one
diversification that generally backfires.
Before you buy stocks of infrastructure companies,
please make it a point to read the annual reports, find out
a bit more about the contractors, the nature of works they
have executed so far and the cash flow. And remember
one thing. A company in this sector has value only as long
as it is in active business and has people and machines.
Once it falters and goes under, there is generally no value
that is left to carry forward. The only assets would be
machineries that are used in construction and while their
resale values are generally good, those companies will not
have any other salvage value. So, I think, it is pointless to
dig into the graveyard of dead companies and buy them
because they are cheap.
The author can be reached at balakrishnanr@gmail.com

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I never have any problems with banks, credit-cards or insurance companies

I always invest on the basis of tips from friends and brokers

For subscription offers
Finance bores me to tears that are a steal, look for
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27 | 10-23 Nov 2017 | MONEYLIFE

column_Balakrishnan.indd 3 30-10-2017 15:23:06

 MUTUAL FUNDS FUND FACTS

Best & Worst Mutual Fund Schemes

The best# three and the worst three schemes over the past three years ranked by their
quarterly rolling returns. Premium members get access to a more refined list of top
schemes by logging in to Moneylife Advisory - advisor.moneylife.in
Equity Schemes (Quarterly Rolling Returns)
Large Cap (Category Avg: 3.64%, Sensex: 2.03%) Launch Corpus Avg. Quarterly 1-Year 3-Years** Exp
Date (Rs Crore)* Rolling Returns Ratio
Aditya Birla Sun Life Pure Value 27-Mar-08 1700.67 5.72% 33.76% 22.87% 2.42%
L&T India Value 08-Jan-10 5451.08 5.53% 24.33% 22.12% 2.01%
Tata Equity P/E 29-Jun-04 1815.18 5.29% 30.06% 21.15% 2.27%
ICICI Prudential Select Large Cap 28-May-09 640.10 2.80% 14.65% 11.20% 2.68%
Taurus Bonanza 04-Aug-95 113.11 2.73% 14.84% 10.91% 2.67%
HDFC Large Cap 18-Feb-94 1234.90 2.41% 20.35% 9.64% 2.20%
Multi-cap (Category Avg: 3.72%, BSE 200: 2.98%)
Motilal Oswal MOSt Focused Multicap 35 28-Apr-14 9178.99 6.33% 26.02% 25.33% 2.08%
Aditya Birla Sun Life Advantage 24-Feb-95 4499.09 5.35% 23.77% 21.40% 2.28%
Kotak Select Focus 11-Sep-09 13947.10 4.90% 22.65% 19.61% 1.97%
Union Equity 10-Jun-11 197.15 2.03% 13.30% 8.12% 2.69%
Tata Regular Saving Equity 23-Jul-97 210.74 1.85% 5.89% 7.38% 1.76%
UTI Wealth Builder 17-Dec-08 962.86 1.74% 11.66% 6.97% 2.54%
Mid-and Small-cap (Category Avg: 5.52%, Nifty Midcap 100: 6.81%)
SBI Small & Midcap 09-Sep-09 762.10 7.67% 32.65% 30.68% 2.35%
Mirae Asset Emerging Bluechip 09-Jul-10 4427.79 6.85% 27.62% 27.39% 2.42%
Reliance Small Cap 16-Sep-10 4545.72 6.82% 32.58% 27.27% 2.02%
Axis Midcap 18-Feb-11 1223.94 3.98% 17.95% 15.92% 2.19%
DHFL Pramerica Midcap Opportunities 02-Dec-13 139.34 3.87% 14.42% 15.49% 2.53%
Union Small and Midcap 10-Jun-14 242.42 3.52% 17.11% 14.07% 2.67%

Debt Schemes
Income (Category Avg: 2.29%, Crisil Composite Bond: 2.50%)
ICICI Prudential Long Term Plan 20-Jan-10 3449.46 2.78% 8.18% 11.14% 1.26%
DHFL Pramerica Dynamic Bond 12-Jan-12 188.66 2.61% 9.71% 10.46% 1.69%
ICICI Prudential Income 09-Jul-98 2230.59 2.58% 7.06% 10.33% 1.46%
L&T Triple Ace Bond 31-Mar-97 506.89 1.95% 3.83% 7.78% 1.03%
DHFL Pramerica Premier Bond 21-Jan-03 1293.33 1.91% 6.17% 7.64% 1.40%
Invesco India Bank Debt 29-Dec-12 110.52 1.70% 5.91% 6.79% 0.65%
Liquid (Category Avg: 1.86%, Crisil Liquid Index: 1.87%)
Escorts Liquid Plan 03-Oct-05 183.73 1.97% 6.81% 7.89% 0.90%
Indiabulls Liquid 25-Oct-11 5120.77 1.92% 6.81% 7.68% 0.22%
JM High Liquidity 31-Dec-97 3186.69 1.91% 6.80% 7.64% 0.18%
Reliance Liquid Fund - Cash Plan 07-Dec-01 5414.83 1.71% 5.80% 6.82% 1.04%
HDFC Cash Mgmt Fund - Call Plan 06-Feb-02 100.74 1.65% 5.92% 6.60% 0.31%
L&T Cash 27-Nov-06 482.39 1.63% 5.40% 6.51% 0.78%
# Please note the table represents a comparative performance of mutual fund schemes over a three-year period and it is not a recommendation; * Latest quarter average
assets under management; We have only considered schemes having a corpus above Rs100 crore. **Annually compounded

MONEYLIFE |10-23 Nov 2017 | 28

Fund Facts.indd 2 02-11-2017 20:42:08

 TAX/ FIXED INCOME

Bajaj Finance FD Is Offering 7.85%. Is it

Worth Considering?

L
arge scheduled commercial
banks are offering interest
rate of 6.25% to 6.75% on
fixed deposits (FDs) for one year.
You can get 7% to 7.3% with
smaller scheduled commercial
banks. If you want interest rate of
higher than 7.3%, you may need to
explore options with small finance
banks (earlier non-banking finance
companyNBFC) licensed by the
Reserve Bank of India (RBI) or
corporate fixed deposits.
Bajaj Finance is offering a
maximum interest rate of 7.85%
on FDs between three- to five-year
tenures (36 to 60 months). Senior
citizens will get 8.1%, while Bajaj
group employees will get 7.95%.
Bajaj Finance FDs have a credit
rating from ICRA of MAAA (stable)
and from CRISIL of FAAA/stable.
A corporate FD is less secured
and there are higher chances of
default than FDs from scheduled
commercial banks; hence, it is better
to avoid it or put a small amount
only in high-rated corporate FDs.
are many examples of corporates
turning sick which lead to difficulty
in getting your principal back. Even
well-known companies can default
on FD repayment. Unitech Ltd,
Ansal Properties and Infrastructure
Ltd, DSK Group, Jaypee Infratech,
EduTech Ltd, Helios and Matheson
and Elder Pharmaceuticals are a
few examples. Of course, after
the Companies Act, 2013, it
Corporate deposits are not has become tougher for weak
backed by deposit guarantee. There companies to offer fixed deposits.
Axis Bank FD Offering Apollo Munich Group
Easy Cash Insurance
M arketing emails of Axis Bank are pitching for FDs through Axis
Mobile App or Axis Internet Banking, offering complimentary
easy cash insurance cover for hospitalisation from Apollo Munich. The
groups easy cash insurance cover has daily cash limit of Rs500 for up
to 15 days of hospitalisation. The daily cash limit doubles in case of
hospital admission to ICU. To avail the offer, you must book an FD
of Rs1 lakh or more for 12 months or more. One-year Axis Bank FD
is currently offering 6.75%. The maximum FD interest is 6.85% for a
term of 17 months to less than 18 months.

G-Sec Yields Up
Issuer Maturity Next Last Yield ISIN Rating

T
Date Coupon (%)
he 10-year benchmark G-Sec yield,
which sets the tone of the fixed- Dewan Hsg Fin 9.30% 16 Aug-26 16 Aug-18 8.59 INE202B07HV0 CARE AAA
income market, has jumped by 14 CRISIL AAA
basis points (bps) in the last fortnight HDFC Bank 7.95% 21 Sep-26 21 Sep-18 7.66 INE040A08369 (senior
unsecured)
to end at 6.89% on 1st November.
Sundaram Fin Ltd 7.69% 23 Mar-20 23 Jan-18 7.65 INE660A07OM6 CARE AA+

NSE data as of last trade date of 1 November 2017

G-Sec Maturity Yield to
Tata Capital Fin Serv Ltd
Date Maturity 24 Dec-19 24 Dec-17 8.91 INE976I08110 CRISIL AA+
9.95%
19 December 2034 7.35
Tata Sons Ltd 8.25% 23 Mar-22 23 Mar-18 8.89 INE895D08790 ICRA AAA
28 November 2051 7.34
CRISIL AA+
State Bank of India 8.39% 31 Dec-00 25 Oct-18 8.31 INE062A08140
10 November 2033 7.34 (unsecured)

G-Sec yields on 1 November 2017 BSE data as of last trade date of 1 November 2017

29 | 10-23 Nov 2017 | MONEYLIFE

Fixed Income.indd 1 03-11-2017 14:44:17

 DONT INVEST WHERE
YOU ARE NOT WELCOME

PPF, NSC, post-office deposits have just made NRIs persona non grata for investment.
You have to be eligible to invest in a financial product. Raj Pradhan gives examples of
violations of eligibility or investment limit which can inflict heavy losses. Be safe with
your savings and investments by following rules

R
isk-averse investors want to avoid
equities. But is your investment in risk-
free investment avenues devoid of all risks?
What if you had violated rules by exceeding
the investment limit? Are you even eligible
for investment in a chosen financial product? Ignoring
the rules of the product, knowingly or inadvertently
can be disastrous. It may strike you at product maturity
which can put your gains in jeopardy. How do you find
out what you are eligible to invest in and not get a nasty
shock later? The first question to ask yourself is whether
you are eligible for investment. Second, is there any limit
for the investment? Third, are you putting your name in
the investment; if not, does is mean that you are violating
the amended Benami Act? If you are an Indian national
and resident of India, you should be eligible for financial
instruments in India unless there is any age eligibility like
financial products specifically for senior citizens.
An overseas citizens of India (OCIs)/persons of
Indian origin (PIOs) and non-resident Indians (NRIs) are
not eligible for specific investments in India, The latest
to join the list with recent amendment are PPF, NSC
and post-office deposits. The change makes the popular
option of PPF bad investment for current or future NRIs.
Even mutual fund investments are not allowed by many
asset management companies (AMCs) for residents/
persons of US and Canada. With falling interest rates,
there are better options than bank fixed deposits (FDs).

MONEYLIFE | 10-23 Nov 2017 | 30

Cover Story.indd 2 03-11-2017 19:11:37

 COVER STORY

But be aware of the product rules. Popular instruments, a long battle taken at different levels all the way up to
like public provident fund (PPF) and post-office monthly the directorate of public grievances (DPG), New Delhi. It
income scheme (POMIS), have investment limitation. shatters a strong belief that post-office deposits can be a
Violate it at your own peril. Investment limitation for trouble-free investment avenue. Here is the story.
PPF may be violated when parents invest Rs1.5 lakh in After exploring various fixed income schemes, I
own account as well as PPF for a child where they are the decided to invest in Post Office MISa six-year scheme
guardians. It is usually done out of ignorance and even with monthly interest payable @ 8%pa (per annum) and
banks may not guide properly. If the violation is noticed a bonus of 5% on maturity. I went to the Post Office
at maturity after 15 years, all the interest generated from (PO) and was guided to an authorised agent. He seemed
PPF account can create tax issues for you. to have a lot of influence with the officials there. The
POMIS is another product where postal employees as agent advised me to take the following actions:
well as authorised agents seem ignorant of the rules and 1. I opened an account in the names of myself, spouse
these are not easily accessible by investors. Contrary to and son (all adults) in February 2010 for Rs9 lakh.
popular belief, ELSS (equity linked savings scheme) and 2. I opened another account in the same names after a
NSC (national savings certificates) do not have any upper few days for Rs4.5 lakh.
limit on investments. But investments of only up to Rs1.5 I presented the passbook at the counter for maturity
lakh per year are allowed to be claimed as deductions payment after six years, but was told that the maturity
under Section 80C of the Income-tax (I-T) Act. date was one day later. I then requested them to check
The Benami Transactions the maturity date of the second
(Prohibition) Amended Act, investment which is when all
2016, is stringent. It is not just Public provident fund hell broke loose. The assistant
about property, but also includes and post-office monthly postmaster (AP) then wrote
movable, immovable, tangible, on the second passbook that
intangible, any right or interest, income scheme, have the investment exceeds the
legal documents, gold, financial investment limitations. prescribed limit. He also stated
securities and any other financial When parents invest that the excess interest paid, i.e.,
asset. You may be eligible for the difference between savings
investment and put money within Rs1.5 lakh in own interest and MIS interest would
the allowed limit. But what is the account as well as PPF be deducted from the principal
reason behind not putting your for a child where they are amount and no bonus would be
name in the investment? If these applicable.
questions lead to legal ways to the guardians, they are Being aggrieved, I took
reduce taxation for money from making a costly mistake up the matter with the senior
known sources or to benefit postmaster (SP) and had a
from any authentic scheme, the detailed discussion in the
financial transaction will not be treated as benami. Check presence of the AP when both of them confirmed that
if you are creating benami assets inadvertently (read our excess interest paid would be recovered as per their rules
Cover Storyhttp://tinyurl.com/ybzfdbwb). and that there were many similar cases in the past where
they had recovered the excess interest. They further
Post-office Monthly Income Scheme (POMIS) Joint advised me to close the second account immediately
Account Limit but I decided against it. The next day, I visited the post
Here is his fascinating story from a Moneylife reader office again and closed the first account and received, in
about how the senior officers in the postal department full, the principal amount together with bonus. I again
themselves may be unaware of the rules and end up met the SP together with the AP and registered a written
short-changing you, unless you are prepared for a long complaint about the second account. I brought to their
fight. The Post Office website states: Minimum Deposit attention the following published rules regarding MIS:
Maximum Deposit Single INR 1500/-INR 4.5 lakh, 1. Maximum investment is Rs9 lakh in joint deposit.
Joint INR 1500/-INR 9 lakh. An individual can invest An individual can invest maximum Rs4.5 lakh in
maximum INR 4.5 lakh in MIS (including his share MIS (including his share in joint accounts).
in joint accounts)." Here is a shocking case of how an 2. A joint account can be opened by two or three adults.
innocent investor was made to run from pillar to post for 3. All joint account-holders have equal share in each
safeguarding his own interest. It is a success story after joint account.

31 | 10-23 Nov 2017 | MONEYLIFE

Cover Story.indd 3 03-11-2017 16:27:50

 COVER STORY
My contention was that none of the joint-holders
exceeded the individual limit of Rs4.5 lakh and, hence,
we were entitled for the full payment against the second
account. The AP then produced an internal guidebook
which had interpreted that three adults can jointly invest
only up to Rs9 lakh (i.e. Rs3 lakh each) and not Rs13.5
lakh (i.e., Rs4.5 lakh each). I, then, mentioned that the
public is neither aware nor interested in their guidebook
and is only concerned with what is publicly available.
I then sent detailed emails to chief postmaster general
(CPG) Maharashtra, deputy director general and assistant
postmaster general, in February 2016. A response was
received in the same month from the assistant director
(public grievance) office of CPG directing the officials
to resolve the issue. I immediately met the SP and AP
and had a detailed discussion on the subject and they
continued to insist on deducting the excess interest paid
and pay the balance. I requested for a written justification
and also told them that, if need be, I would go up to the
ministry. I then went to
close the second account
and was pleasantly
surprised to receive the
full value, together with
bonus. An email from
the senior superintendent
of post (West) stated As
per report received from
Senior Postmaster H.O.
both the accounts are
closed and full payment
of interest and bonus
were made as per Rule 161 of POSB Volume 1. So far,
everything was fine.
I was, therefore, shocked to receive a letter, in
March 2016, from the SP, HO, stating that the matter
has been taken up with higher authorities for guidance.
Subsequently, I received a recovery notice dated April
2016 from the SP, HO, requesting me to refund Rs1.34
lakh towards excess payment of interest and bonus.
This notice was issued based on a letter received by the
PO from the senior superintendent of post office (West)
on the ground that the second account was irregularly
opened beyond the prescribed limit of Rs9 lakh for joint
account as per P.O.S.B. Manual Volume 1, Rule 161.
I then made an in-depth study of various government
circulars, court cases on the subject and then made a
detailed representation vide my letter dated May 2016
to the Senior Superintendent of Post and the Senior
Postmaster, HO, resulting in a series of letters being
exchanged between us. My contentions were:
1. Photocopy of PAN card of all investors were submitted
MONEYLIFE | 10-23 Nov 2017 | 32
Cover Story.indd 4
at the time of investment. Excess investment, if any,
could have been easily identified and intimated at
initial stage instead of closing stage.
2. Payment by post-office was made by Electronic
Clearing System for six long years. Was the
department sleeping?
3. Investment was made through an authorised agent
appointed by the postal department and, hence, the
department is liable. I highlighted the case of Union
of India & others Vs George Mathew & others on
26 February 2014 where the department lost the
case. The consumer court clearly stated that, for any
act of the agent, the principal is liable.
4. In Orissa High Court, Rajat Kumar Rath and
Another Vs Government of India and Ors on
15 September 1999, where the department lost the
case was identical to the present case.
5. All joint account-holders have equal share in each
joint account.
6. An individual can
invest maximum Rs4.5
lakh including his share
in joint accounts.
7. The Central
government has given
power of relaxation while
considering a case to deal
with a particular situation
in a just and equitable
manner. The rules are
beneficial in nature and
the object is to give relief
to a person who has acted in a bonafide manner.
The postal department (PD) rejected my contentions
and requested me to make immediate payment. I was
faced with two options, fight the case in a court of law,
which is expensive and time-consuming, or pay up. I then
came across a third alternative, namely, DPG, New Delhi.
I made an online detailed representation in November
2016. DPG acknowledged my representation and called
for an explanation from the PD. Since some of the points
mentioned by the PD were factually incorrect, I had to
send rejoinders. There were a series of explanations and
counter-explanations resulting in the PD re-examining
the case in depth and my grievance was resolved due to
the good office of the DPG.
The PD confirmed in their online reply, in May
2017, that the investment made by three persons on
two different dates were in order as the individual share
taking into consideration both the joint accounts did not
exceed the maximum limit of Rs4.5 lakh. The Mumbai
region was directed to stop recovery in this regard.
03-11-2017 16:29:16
 COVER STORY

Will the PD apply this rule in all the similar cases you become an NRI.
or will it continue to issue recovery notice to those in In short, NRIs are persona non grata for instruments
similar situation? Will the PD refund to investors from like PPF, NSC, POMIS and other time deposits offered
whom recovery was already made? The PD needs to be by the PO. The change for NSC can be managed by NRI
answerable based on a truly pro-consumer judgement especially due to feature of actual encashment when you
made by DPG . become NRI. The change for PPF is a nasty one due to
the lock-in period. Partial withdrawal for PPF is allowed
PPF Rules for NRIs and Minors after lock-in period of seven years. It can put NRIs under
PPF is a great tool to build a corpus for your children the lock to earn measly 4%. Hopefully, NRIs will be
and spouse. Apart from the interest on PPF being tax- allowed to withdraw PPF corpus (encashment) without
exempt, a PPF account cannot be attached by any court any restriction instead of being forced to continue with
order or decree, but it can be attached by the I-T and 4%pa interest. It will have to be seen how it works in
estate duty authorities. The current interest rate on PPF reality due to confusion of the rule change mentioning
is 7.8%pa. 'deemed closed'.
Multiple PPFs: An individual can open only one account Those who will become NRI in future will also be
in his name either in a PO or a bank and he has to declare at a disadvantage. The PPF change for NRIs to earn
this in the application form for opening the account. half of what resident PPF account will invite backlash
However, if by mistake two accounts are opened, the from investors. PPF is no longer the good, old scheme
second account will not fetch suggested for investment. If
any interest, unless the two PPF you had inadvertently opened
accounts are merged. NRIs are persona non an account after becoming an
PPF for NRI, OCI/PIO: NRIs, grata for PPF, NSC, POMIS NRI, it is best to close it before
including OCI/PIO, are not it comes to the attention of
eligible to open new PPF and other time deposits. the concerned authorities in
accounts. If you are moving out Hopefully, NRIs will be India. Similarly, if you have not
of India, advisors used to suggest allowed to withdraw PPF updated the account status to
opening a PPF account before NRI after moving abroad, then
you leave India as PPF opened corpus (encashment) make the necessary change even
before you became an NRI can without any restriction if it means getting lower interest
be continued for investment till instead of being forced to of 4%pa. If you are planning to
maturity. The suggestion is no become NRI in future, then it is
longer valid with the new rules. continue with a measly best to avoid investment in PPF.
Government has notified 4%pa interest Maximum Financial Year Limit:
new rules for PPF, NSC and PO The maximum amount that can
deposits specifically for NRI be deposited in a PPF account in
investors. The amendment to the PPF Scheme, 1968, a given financial year is Rs1.5 lakh which is eligible for
says: If a resident who opened an account under this tax deduction under Section 80C. You can open a PPF
scheme, subsequently becomes a non-resident during account in your own name or on behalf of a minor of
the currency of the maturity period, the account shall be whom you are the guardian. This is the combined limit
deemed to be closed with effect from the day he becomes of self and minor account. If the contribution exceeds
non-resident. the limit of Rs1.5 lakh, the additional money will not be
A separate notification on NSCs says that in case of eligible for any tax deduction or generate any interest.
change of status to NRI before the maturity period, the PPF for Spouse and Minor Child: Ensure that the total
certificate will be encashed, or deemed to be encashed on investment in your PPF and the minor childs PPF account
the day he becomes non-resident and interest will be (for whom you are the guardian) does not exceed Rs1.5
paid accordingly. lakh in a financial year. Your contribution to the childs
Once you become NRI, you will no longer be eligible PPF account will be deemed as a gift and clubbing
for current rate of 7.8% for PPF and NSC. The deemed provisions under Section 64 would apply. But since
closed PPF account and deemed to be encashed NSC will the interest on PPF is tax-exempt, it does not matter.
earn a measly post-office savings account rate (currently Our Cover Story on investment in name of spouse and
4%) till the maturity date of the account. It means the children (http://tinyurl.com/y8nljylz) explains the rules
return from PPF and NSC will nearly halve from the day to follow.

33 | 10-23 Nov 2017 | MONEYLIFE

Cover Story.indd 5 03-11-2017 16:29:45

 MONEYLIFE
ADVISORY
FIX YOUR FINANCES, FOREVER

Finally, Fix Your

Finances, Forever
Actionable advice on investment that works.
Plus continuous one-on-one online support

No Bias, No Conflict of Interest

advisor.moneylife.in
MAS is a SEBI-registered investment adviser and part of Moneylife,
Indias most unbiased and pro-investor research and information group.

Subscription to Moneylife magazine is included in MAS Premium Membership

MSSN GB Ad_invest.indd 2 15-12-2016 18:28:46

 MONEYLIFE
ADVISORY
FIX YOUR FINANCES, FOREVER

Finally, Fix Your

Finances, Forever
Actionable advice on investment that works.
Plus continuous one-on-one online support

No Bias, No Conflict of Interest

advisor.moneylife.in
MAS is a SEBI-registered investment adviser and part of Moneylife,
Indias most unbiased and pro-investor research and information group.

Subscription to Moneylife magazine is included in MAS Premium Membership

MSSN GB Ad_invest.indd 2 15-12-2016 18:28:46

 COVER STORY

If you have a couple of minor children, open a It is clear that that the total investment in your PPF
PPF account for one minor with you as the guardian and the minor childs PPF account (for whom you are
and other minor childs PPF account with your spouse guardian) should not exceed Rs1.50 lakh in a financial
as guardian. You can also deposit the money in your year. The Reserve Bank of India (RBI) does not tamper
spouses PPF account. Ensure that the total investment with the wordings of the original PPF Act, 1968. For
in your spouses and minor childs PPF account (for example, the RBI order of 13 August 2014 states: In
whom s/he is the guardian) does not exceed Rs1.5 lakh paragraph 3, in sub-paragraph (1), for the letters and
in a fi nancial year. If the home-maker spouse has other figures Rs1,00,000, the letters and figures Rs1,50,000
sources of income, then Section 80C tax benefit can shall be substituted.
certainly be availed. If the spouse has no other source of Another misgiving about a minor's PPF account
income, no Section 80C benefit accrues, but the clubbing is about whether it is even permissible. The RBI order
of interest with your income will not be applicable as dated 29 March 2010 clarifies: In view of complaints
interest on PPF is tax-exempt. being received about non-opening of accounts for
There is much confusion about whether one can minor by some Agency banks, it is reiterated that as per
invest Rs1.50 lakh in ones own PPF account and another Rule 3 (1) of PPF Scheme, 1968, an individual may, on
Rs1.50 lakh in a minors account. Many financial his own behalf or on behalf of a minor, of whom he is the
planners, bank personnel and several tax websites will guardian, subscribe to the Public Provident Fund. It is
tell you that you can do it. They incorrectly claim, An reiterated that as clarified, vide Ministry of Finance letter
individual can open a Public F.7/34/88/-NS II dated November
Provident Fund Account in his 17, 1989, either father or mother
own name. He can also open an If you have a couple of can open a PPF account on
additional account on behalf of minor children, open behalf of his/her minor child
a minor of whom he is guardian. but not both. You are advised
He can subscribe for amount not a PPF account for one to reiterate these instructions to
more than Rs1.5 lakh in a year minor with you as the your branches operating the PPF
in each of his account. guardian and other minor Scheme.
How Banks Can Mislead
You: Even the PPF account- childs PPF account with Sukanya Samriddhi Yojana
opening form of some banks your spouse as guardian. Exclusion for NRI, OCI/PIO:
can mislead you with statements You can also deposit the Sukanya Samriddhi Yojana (SSY)
like: Ceiling of Rs1.50 lakh is for those investing for the long
in a fi nancial year in each of money in your spouses term and keen to save for the girl
the following types of Public PPF account child. It can be opened any time
Provident Fund Account after the birth of a girl until she
Individual Self Account and turns 10, with a minimum deposit
Account(s) on behalf of minor(s) of whom I am the of Rs1,000. A maximum of Rs1.5 lakh can be deposited
guardian. during a financial year. The account can be opened in any
What these banks have done is to use only a part of post office or authorised branch of commercial banks.
the original text of the government notification which The current rate of interest is 8.3%pa. But, remember,
leads to a completely erroneous meaning. The original the term is 21 years or till the time daughter gets married
wordings are: Ceiling of Rs1.50 lakh in a financial year after she turns 18 years.
in each of the following types of Public Provident Fund Tax Benefits under SSY: The investments made in SSY
Account: A. Individual Self Account and Account(s) on will be eligible for deduction under Section 80C of the
behalf of minor(s) of whom I am the guardian B. Hindu I-T Act. The interest accruing on deposits is exempt from
Undivided Family Account C. Association of Persons income-tax. The withdrawal from the scheme will be
account as applicable in the State of Goa and Union exempt from tax.
Territories of Dadra and Nagar Haveli and Daman and NRI and OCI/PIO Exclusion: The new rules for SSY
Diu. The PPF Act, 1968, clearly states the following: issued by the finance ministry in March 2016 exclude
Any individual may, on his own behalf or on behalf of NRIs and OCIs/PIOs. SSY will allow investment only if
a minor, of whom he is the guardian, subscribe to the the girl child is a resident Indian citizen. It is possible
Fund in such manner and subject to such maximum and that the SSY account was opened when you and your
minimum limits as may be specified in the Scheme. daughter were resident Indian citizens. But if your, or

MONEYLIFE | 10-23 Nov 2017 | 36

Cover Story.indd 6 03-11-2017 16:30:37

 COVER STORY

your daughters, status has changed to NRI, or she has and five-year tax-saver FDs, the account is beneficial for
taken citizenship of another country, no interest shall be senior citizens in the zero- or low-tax bracket.
paid from the date of changed citizenship or residential
status and the account shall be considered closed. It is a Mutual Funds FATCA for US/Canada Person/Resident
tough rule for existing and future NRIs and OCIs. If you have a financial interest in India and happen to
Change in Residential Status: If the residential status be a resident of US/Canada, or you are a person from
changes, the parent or guardian must report it within US/Canada residing in India, you need to be aware
one month to the bank/PO. If it is not done, interest of the implications of FATCA (Foreign Account Tax
credited to the account after the change of resident status Compliance Act). India and USA have entered into
or citizenship will be returned to the government and the an inter-governmental agreement (IGA) in July 2015
SSY fund value will be returned to the account-holder. which provides that the Indian financial institutions
Making such strict rules will be a turn-off for investors (FIs), including mutual funds, will provide the necessary
who may be moving out of India in future. They may information to the Indian tax authorities which will then
just not want to risk their investment and not open the be transmitted to US Internal Revenue Service (IRS)
account. periodically.
FATCA is part of a comprehensive USA anti-tax-
SCSS Age and Investment Limit evasion global reporting regime designed to locate
Senior Citizens Savings Scheme (SCSS) is a good fixed- income and assets held by persons from USA in offshore
income product that offers tax- accounts (either directly or
saving as well. An SCSS account indirectly through ownership of
can be opened by an individual If you have a financial foreign entities) and ensure that
who has reached 60 years of interest in India and they are reported to the revenue
age on the date of opening authorities. It is a step towards
of the account. It can also be happen to be a resident transparent taxation between
opened by a person of age 55 of US/Canada, or you these two countries which came
years or above (but less than 60 are a person from US/ into effect on 30 September
years) within one month of the 2015. Once you declare your
receipt of retirement benefits Canada residing in India, US/Canada status to Indian MF
from voluntary retirement you need to be aware of and fill FATCA declaration,
scheme/superannuation; but the implications of FATCA some AMCs may not allow
the investment should not future investment. (Read our
exceed the retirement benefits. (Foreign Account Tax Cover Story - http://tinyurl.com/
A notifi cation from the ministry Compliance Act) yar7hbdq)
of finance dated 3 October 2017
states that the minimum age What NRIs Need To Know
limit for investing in SCSS for retired defence personnel 1. Reason for stopping acceptance applications from US
(excluding civilian defence employees) has now been and Canadian residents is not because of FATCA.
fixed at 50 years. Till now, they were allowed to invest in 2. For selling any investment products/ schemes in US
SCSS irrespective of when they retired. & Canada or to US and Canadian residents/person,
The maximum amount that can be deposited is Rs15 a scheme needs to be registered US Securities and
lakh. The current interest rate is 8.3%pa. It is a good rate, Exchange Commission. Registering the scheme with
since the bank FD rate for senior citizens is 6.5%-7.5% US SEC will require more reporting and compliance.
for fi ve years, depending on the bank. SCSS investment 3. UTI, Birla, Reliance, Sundaram, PPFAS (Parag Parikh
qualifi es for Section 80C deduction, but the interest is Financial Advisory Services), DHFL Pramerica,
fully taxable. The interest is paid every quarter; there is Canara Robeco, SBI Mutual and L&T Mutual
no option of cumulative interest. Also, tax is deducted at Funds were supposed to accept investments from
source unless you submit Form 15. US/Canadian residents/persons. You will need to
SCSS locks-in your investment for five years. Banks reconfirm if it is still valid.
offer an exit option after one year, with penalty. When 4. Reports quoting financial planners saying that these
the deposit matures after five years, the depositor may AMCs have the approval to accept investments
extend the account for a further period of three years. from those in US and Canada may not be correct.
Even though the interest is taxable, like on regular FDs 5. The truth is that none of the Indian AMCs is registered

37 | 10-23 Nov 2017 | MONEYLIFE

Cover Story.indd 7 03-11-2017 16:30:58

 COVER STORY

with US SEC or Canadian securities regulator. the responsibility of the customer to provide correct
6. The AMCs which accept investment from US/Canada information. According to industry sources, While
resident/person have updated their statement of there may not be cross-checks, wrong declaration may
additional information document or addendum get noticed based on different kinds of data which are
to give clarifications to investors. Most of them also available. The implications of wrong declaration can be
mandate a signed declaration from these investors disastrous. Why would you be so desperate for mutual
which means investors cannot feign ignorance later. If fund investment with incorrect declaration about your
the solution were so simple (i.e., take a declaration), profile? Why put your investment at risk?
why did AMCs stop accepting investment from them Here are HDFC Mutual Funds website contents on
in 2013-14? this subject, which are similar to what many other AMCs
7. The issue is mainly for the AMCs (not for investors) have, to safeguard themselves: ... I/We hereby confirm
to examine whether acceptance of subscriptions that I/We am/are not giving a false confirmation and/or
from US-based persons triggers any registration disguising my/our country of residence. I/We agree and
or reporting requirements under SEC regulations, acknowledge that HDFC Mutual Fund/HDFC Asset
even though the subscription is by way of a reverse- Management Company Limited (HDFC AMC) is relying
solicitation, i.e., investor upon my/our confirmation and
approaches the AMC for in no event shall the directors,
subscription and is not based It is the responsibility of officers, employees, trustees,
on any solicitation through the customer to provide agents of HDFC AMC associate/
marketing mails, calls, or in- group companies be liable for
person meetings. correct information. any direct, indirect, incidental
8. Many AMCs believe Wrong declaration can or consequential damages
they should not accept get noticed because arising out of false confi rmation
funds from US/ Canadian provided herein.
residents/ persons, unless different kinds of data What You Are Made To
they are registered with SEC can be connected to Accept: AMCs and registrar
and Canadian securities deciper discrepancies. and transfer agents (RTAs)
regulator. ask for FATCA declaration
Faking FATCA? What if The implications can be compliance with a threat to
customers from US & Canada disastrous block further transactions
give a wrong declaration of tax if the required information
residence, citizenship, etc? Most is not provided. Here is a
of customers from US and Canada have Indian names, valid complaint made by a Moneylife subscriber.
Indian address (maybe of parents) to show, PAN, KYC I went to the banks website and filled up
done, etc; hence, it is easy to fake it. What will be the everything. The final confirmation step required me to
impact of faking it on customers and AMCs? Are any accept the declaration authorising the Fund/AMC/RTA
cross-checks done by Karvy/CAMS/AMC, or is the to withhold and pay out any sums from your account
FATCA declaration accepted without any questions or close and suspend your account(s) without any
asked? AMCs are relying on self-declaration. All forms obligation of advising me of the same. This is crazy. Is
contain suitable disclaimers in this regard and it is there any recourse or a form that does not give such

MONEYLIFE | 10-23 Nov 2017 | 38

Cover Story.indd 8 03-11-2017 16:31:24

 COVER STORY

sweeping powers? I have an email threatening to freeze across the world share the basic information of their US-
my mutual funds if I do not comply! based clients.
The Moneylife subscriber certainly has a point about Indians (OCI/PIO or NRI) residing in the US may
the clause. But what is the solution? Banks/AMCs will come back to India. Many of them continue their NRE
point to SEBI (Securities and Exchange Board of India)/ account to avoid paying taxes in India. It is violation
RBI (Reserve Bank of India) who will point to CBDT of FEMA (Foreign Exchange Management Act). As
(Central Board of Direct Taxes) who will point to an Indian resident taxpayer, you can no longer hold
government who will point to US IRS. FATCA is named NRO/NRE accounts; all your bank accounts should be
FATCA for a reason. It is a masterstroke by IRS of the US resident accounts. Similarly, resident Indians moving out
to catch a large number of US residents and non-residents of India may not convert their resident account to NRO
(staying in India) still evading taxes. It can also impact accounts due to lethargy or to avoid 30% TDS. It is also
those who are paying taxes, but still not compliant. Today, a violation of FEMA.
it is not just about taxation but about compliance. If The violation can happen not just for bank accounts,
foreign accounts are not made transparent to the country but also for mutual fund, demat and any other financial
you are supposed to provide the information to, there accounts. Resident Indians moving out of India should
can be hefty penalties which can convert resident demat account
even take away everything from to NRO non-PIS (portfolio
the account and ask for more. Indians (OCI/PIO or NRI) investment scheme) demat.
It is not just US, but also India residing in the US may Open new demat non-PIS to
which is doing it. FATCA is the transfer resident to non-resident
IRSs way and the Black Money come back to India. Many holdings. You can sell from
Act is the Indian way of ensuring of them continue with non-PIS demat when you are an
declaration of foreign accounts. their NRE bank account NRI. But if you wish to buy new
People putting money in Panama stocks, you need to open another
and other tax havens may get to avoid paying taxes account called PIS demat account
away, but those genuinely paying in India. It is violation (NRE or NRO).
taxes can be harassed if they do of FEMA. All your bank NRIs can purchase up
not declare a foreign account to a maximum of 5% of the
which may have been opened accounts should be paid-up capital of a company
several years ago when they were resident accounts and maximum of 5% of paid-
an NRI. A genuine account can up value of each series of
be put under stringent law to label debentures. In addition to these,
the money as black even if it were hard-earned money. NRIs, collectively, can hold up to a maximum of 10%
But what is the solution? For a Indian resident having of such holding or any higher percentage so permitted
nothing to do with another country, FATCA declaration in respect of any particular company. Shares/debentures
is simple and nothing to worry about even though the acquired through primary market are excluded for the
wording of the clauses seem ominous. The worry is only purpose of above limits. If you move back to India as
for those who are going to lie in the declaration. If such a resident, PIS and non-PIS demat accounts need to be
ominous clauses were not there, evaders would lie if they converted to resident demat accounts.
have not declared the account to US IRS. Pension Fund Regulatory and Development Authority
(PFRDA) has increased the maximum entry age for
Banking, Demat Violation for Resident vs NRI Accounts National Pension System (NPS) for private sector from
Take the example of NRE (non-resident external) bank 70 years. Be careful about your investment products.
account which gives tax-free interest in India but the There are regulations in place which can bite you for any
interest is taxable in the US. Many investors did not violation.
disclose such interest in the US tax returns, since it was Getting into trouble when the product matures means
easy to hide because there was no reporting mechanism that all the interest/gains generated over the years can
from Indian institutions to the US government. So, be at risk. You may have signed terms and conditions
Indians, who were US residents/persons, thought that which can even put your principal in dispute if you had
the US government will not know about their assets and knowingly made a wrong declaration to make yourself
income arising from India. Hence, FATCA was passed eligible for investment. Be safe with your money rather
in US in 2010 to make sure that the financial companies than violate rules.

39 | 10-23 Nov 2017 | MONEYLIFE

Cover Story.indd 9 03-11-2017 16:31:46


INSURANCE TRENDS
New products, regulations, features and options,
interpreted from your perspective
Regulation
Life Insurers
Will No Longer
Be Able To
Manipulate
Claims Settlement
Data in Ads
T he Insurance Regulatory and
Development Authority of
India (IRDAI) has recently issued
a circular directing life insurance
companies to follow a standard
practice while communicating death
claims data in their advertisements.
The circular states: It has been
observed that insurers are following
different methods to arrive at death
claims paid data (i.e., death claims
paid ratios), while publishing
them in insurance advertisements
[as defined in IRDA (Insurance
Advertisements and Disclosure)
Regulation, 2000]. In order to have
uniformity across the industry,
instructions are hereby given to
the life insurers to use/publish only
annual figures of death claims paid
ratios, based on the number of
policies alone.
The circular also states: If
an insurance advertisement
contains death claims paid ratio,
then the data for individual
and group polices shall not be
clubbed together. The insurance
MONEYLIFE | 10-23 Nov 2017 | 40
Insurance.indd 2
advertisements for group products
shall reflect only group death claims
paid ratio and individual products
shall reflect only individual
death claims paid ratio. In case
of advertisements promoting the
companys brand without reference
to products, only individual death
claims paid ratio shall be used.
Are advertisements with annual
figures of claims settlement numbers
with standard practice enough to
help the existing policyholders
or potential customers take a
decision? There are three major
flaws that will continue leading to
misleading advertisements. First,
the disclosures on claims settlement
do not mandate separate reporting
based on the types of policies
endowment, money-back, whole-
life, unit-linked insurance plans
(ULIP) or term insurance plans.
There are differences in the
medical and financial underwriting
Insurance Company
LIC
Max Life
Tata AIA Life
ICICI Pru Life
Aegon Life
HDFC Life
Reliance Life
SBI Life
Insurers with top-8 claims settlement ratio (by no. of policies)
of these plans. Term plans have
low premium compared to the sum
assured offered, since it is a pure
risk cover product. It is often stated
that claims rejection for term plans
is higher than those of other life
insurance products. How can it be
validated unless IRDAI mandates
insurance companies to make the
disclosures? Insurers do not make
data on term plan claims settlement
public.
Second, the benefit amount
rejection for some insurers is higher
compared to claims rejection
calculated for the number of
policies. It is correlated to the
term plan possibly having higher
claims rejection than those of other
products. With private insurers, the
difference between death claims
benefit rejection versus number of
claims rejection is more than three
times, in many cases. So, it is better
to judge the claims rejection ratio
with respect to benefit amount,
rather than only on the number of
claims rejected.
In 2015-16, HDFC Life ranked
fifth among private insurers with
claims settlement (by the number
of policies) of 95.02%; but it fared
worse on claims settlement (by
benefit amount) at a mere 69.41%.
It translates into high claims
rejection (benefit amount). HDFC
Life claims rejection (number of
Claims Settlement Ratio Claims Settlement Ratio
(by no. of policies) (by benefit amount)
98.33% 95.59%
96.95% 93.19%
96.80% 94.24%
96.20% 88.07%
95.31% 94.16%
95.02% 69.41%
93.82% 82.57%
93.39% 83.05%
02-11-2017 14:38:32
 INSURANCE TRENDS
policies) is 4.34% while claims
rejection (benefit amount) is a
whopping 24.29%. High benefit
amount rejection is certainly a
worry.
Third, claims settlement and
rejection ratios have to be looked
at from the viewpoint that life
insurance companies, which began
operations recently, are bound to
have lower settlement and higher
pending claims. Any death claim
within three years of policy issuance
gets scrutinised for its veracity.
There is possibility of claim
repudiation in case of a fraudulent
claim or misrepresentation in
the proposal form. The claims
settlement and rejection data of
newer insurance companies cannot
be directly compared with insurers
in existence for a decade or more.
Regulation
Mediclaim To
Cover Mental
Ailments May
Become a Reality?
A Moneylife reader complained
about the difficulty in
obtaining any medical insurance
cover for his mother who was
suffering from
schizophrenia.
Even if a
customer
agrees to have
permanent
exclusion
for the pre-
existing mental
ailment, the
insurance
company refuses to offer mediclaim
policy to cover anything other than
mental ailment. The insurance
company makes outright rejection
of the proposal under the garb
Insurance.indd 3
of right to underwrite. Some
customers with a mental ailment
may buy mediclaim without
disclosing the ailment in the
proposal form. This can give the
insurance company a chance to
reject any future claim if it finds
about the pre-existing condition
which can make the mediclaim
purchase and premium payment for
years worthless.
Permanent exclusion for
mental ailments in mediclaim
policy, and even refusal to
underwrite those with mental
ailments, has been due to insurers
concerns of adverse-selection,
underwriting and disclosures.
Just like mental illnesses, there
are other disadvantaged persons
who are rejected during proposal
underwriting. IRDAI has not taken
strong steps to make insurance
companies underwrite for the
disadvantaged persons. Persons
with disabilities, including those
who are blind or having low vision,
can be discriminated when buying
insurance. HIV-positive people also
find it difficult to get life or health
insurance.
Mental Healthcare Act 2017
can prompt IRDAI and insurance
companies to provide cover to
those with mental ailments under
health insurance policies. The Act
states, Every
insurer shall
make provision
for medical
insurance for
treatment of
mental illness
on the same
basis as is
available for
treatment of
physical illness. It remains to be
seen how the Act works on the
ground and the steps IRDAI takes
for compliance with the Act. The
policies will, obviously, come at
a price, but can help those with
mental ailments to have health
insurance.
Redressal
Consumer
Redressal Forum
Pulls Up IRDAI
and Max Life
C hennai Consumer Redressal
Forum has pulled up IRDAI
and asked Max Life to pay
compensation to a senior citizen
for not taking appropriate action
on a complaint he had filed. The
policyholder informed the Forum
that he paid Rs20,000 in February
2009 to purchase a unit-linked
insurance plan (ULIP) from Max
Life. The insurance company should
have sent him a copy of the original
policy document within 15 days of
receiving the premium but it did
not do so for nearly two years. The
policyholder continued to pay the
premium for next two years (2010
and 2011).
The policyholder was informed
in February 2012 that the policy
had lapsed due to premium
payment default. He asked the
Chennai office of the insurer as
well as IRDAI for a refund but did
not succeed. So, he approached
the Forum. The insurer stated
that it had dispatched the policy
after receiving the premium, but
could not provide a proof of the
despatch. The Forum asked the
insurer to pay the policyholder
Rs44,554 along with 9% interest
and Rs25,000 for mental agony and
Rs5,000 as expenses. It is unusual
and commendable that the Forum
summoned the IRDAI chairman
in person for the case. Hopefully,
it will force IRDAI to improve its
grievance handling system.
41 | 10-23 Nov 2017 | MONEYLIFE
02-11-2017 14:38:59
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 StockWatch Stocks and sectors that catch our eye

I nnova t i ve T e c h P ac k to Rs102.9 crore in FY16-17. The he operating margin

for FY16-17 was 25.5% while net profit margin
Equity Dilution and was 8.8%. In the past two years,, the compan
company has
been investing heavily in fixed assetss tto increase
Debt May Be a Drag its production capacity (data on exact capacity is
not available). The company is looking to fund its

I
nnovative Tech Pack Ltd (ITPL) is a manufacturer expansion plans of Rs150 crore through corporate
of plastic packaging products, with manufacturing debt, foreign currency convertible bonds (FCCBs) or
facilities located at Rudrapur (Uttranchal), Baddi qualified institutional placement (QIP). This will dilute
(Himachal Pradesh), Guwahati and Tejpur (Assam). the current equity heavily to almost twice the current
ITPL is dominant in the northern part of the country size, when FCCBs are converted or when new equity
and expects to establish a presence in southern India shares are issued for QIP. At present, the company
as well. ITPL manufactures polyethylene terephthalate has outstanding long-term plus short-term borrowing
(PET), polypropylene (PP) P) and of approximately Rs32.4 cr crore. The current market-
high density polyethylenee capitalisation of company iis approximately
(HDPE) plastic containerss Rs180 crore.
used widely in fast moving ng The revenue
r growth in the past
consumer goods (FMCG)) six quarters
quar has been very erratic.
segment, personal hygienee Also, given
g that sales growth has
and liquor products. been erratic,
er we are mystified
These plastic compounds by the sudden massive
have various benefits as margin expansion since
they can be recycled into June 2016. The products
basic monomers; they aree ITPL makes compete
lighter in weight that is with other vendors and
about one-tenth the weight ht we dont see that it has
of glass, are durable and any substantial edge over
prevent loss in transit. others. Large personal-care
ITPL's present customer and consumer products
base includes Dabur India, Perfetti companies relentlessly squeeze suppliers;
Van Melle India, Heinz India, Patanjali Ayurvedic, so it is difficult to decipher how ITPLs margins could
Mother Dairy, Emami, Cadila Pharmaceuticals, Bisleri, have increased so much. In the annual report for
Glenmark, Marico, etc. ITPL is currently adding FY16-17, the management says that this increase in
new customers in personal hygiene products, food & margins is due to economies of scale and efficiencies
beverages and confectionaries, to diversify its customer in productivity, power and labour cost. Another
base. irregularity found in the company is that they have not
For the past five years, revenue has grown at an paid any taxes for three consecutive years from FY12-
average rate of 17% from Rs61.4 crore in FY12-13 13 to FY14-15, in spite of reporting profits before tax.

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 | 10-23 Nov 2017 | 46

StockWatch.indd 2 03-11-2017 18:08:35

 STOCK WATCH
Apart from equity dilution, there are some other
concerns as well. For instance, the date on Form-
MGT-9 (that is, extract of annual return) has not
changed in the FY15-16 annual report which is copy
pasted from the previous years. This shows the
carelessness of the auditors and management. Further,
under non-current investments, the company has an
unquoted investment in Innovative Containers Pvt
Ltd where the number of equity shares mentioned is
incorrect. The value of investment is Rs3,55,00,000
with face value of Rs10 per share which makes the
number of shares 35,50,000; but the number of shares
mentioned are 3,55,50,000. The promoter has also
issued 6,00,000 convertible share warrants to himself
at a price of Rs33.37 per share on 10 November 2016
when the price of the share was around Rs55. This also
raises questions on corporate governance practices of
the company.
Another corporate governance issue found with the
company is about its directorsAtul Nripraj Barar
and Anil Kulbhushan Barar. We have mentioned in
our Cover Story Stock Manipulation Moneylife, 23
August 2012) that Anil Barar and Atul Barar were both
directors of Barar Industries which had been pulled
up for default of dues and had to be wound up finally.
ITPL was pulled up by the Bombay Stock Exchange
(BSE) for not submitting its shareholding pattern and
O b e r o i R e alt y
Will Strong Earnings
Continue?
O beroi Realty is a real estate company based in
Mumbai. It has developed over 39 projects at
strategic locations across Mumbai, aggregating about
9.18 million square feet of space. With another 21.98
million square feet in the making, it is an aggressive
player in the real estate market. The company claims,
on its website, that all its upcoming projects are
certified by the Real Estate Regulatory Authority
(RERA). Recently, Oberoi Realty was selected as the
successful bidder by GlaxoSmithKline Pharmaceuticals
for land measuring approximately 60 acres located at
Thane, Maharashtra. The companys bid for purchase
of the said land was for a consideration of Rs555
crore. This is a great acquisition by the company which
will increase its portfolio considerably. Vikas Oberoi,
chairman & managing director, was recognised as
Indias Top Builders of 2017 by Construction World Earnings per share of the company increased from
StockWatch.indd 3
Sales Growth
30%
25%
20%
15%
10%
5%
0%
Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
corporate governance report. It was also suspended
from trading for not complying with the listing
agreement. Between August 2010 and March 2012, the
stock price had rocketed 4487% on very erratic sales.
The stock price plunged nearly 75% in the next four
months.
The stock may not do well over the medium term
as there will, probably, be a lot of equity dilution and
the company will also raise more debt. The share is
currently trading at a price-to-earnings (P/E) multiple of
17, which is fair, given the net margin and debt:equity
ratio of 1.1, which is going to increase further.
Architect and Builder Award. The company also was
awarded the Real Estate Company of the Year by
Construction Week India.
The companys performance improved in the
September 2017 quarter. Sales increased 20% year-on-
year (y-o-y) from Rs252 crore in the September 2016
quarter to Rs304 crore in the September 2017 quarter.
Operating profit increased 30% y-o-y from Rs125.8
crore to Rs163.8 crore in the September 2017 quarter.
Operating margin increased from 49.94% in the
September 2016 quarter to 53.95% in the September
2017 quarter. Net profit of the company increased
25% y-o-y from Rs84 crore in the September 2016
quarter to Rs104.32 crore in the September 2017
quarter. Revenue of the real estate segment increased
23% y-o-y to Rs274 crore in the September 2017
quarter and for the hospitality segment, comprising
the Westin Mumbai Garden City Hotels revenue,
dropped 1% y-o-y to Rs29.2 crore in the September
2017 quarter. The share of the hospitality segment
in the revenue decreased from 12% in the September
2016 quarter to 10% in the September 2017 quarter.
47 | 10-23 Nov 2017 | MONEYLIFE
03-11-2017 18:09:42
 STOCK WATCH

The cash flows of the company are intriguing.

From the investor presentations on the Oberoi Realty
website, we have got the following data:

Cash flow data as provided by the

company at its investor presentation
H1FY16- Q3FY16- Q4FY16- FY16-17
17 Rs Cr 17 Rs Cr 17 Rs Cr Rs Cr
Operating -40.64 129.94 79.88 173.53
Cash Flow
Investing -423.19 -84.76 -263.74 -543.74
Cash Flow
Financing 375.65 -37.7 4.81 335.56
Cash Flow
Rs2.46 in the September 2016 quarter to Rs3.07 in the
September 2017 quarter. Oberoi Realty is trading at
a price-to-earnings ratio (P/E) of 41.28% at a market The figures for H1FY16-17, Q3FY16-17 and
price of Rs464.75 per share. The short-term borrowing Q4FY16-17 do not add up to the full year
of the company increased substantially for the half year FY16-17 amounts as per the presentation. We asked
ended in September 2017. The short term borrowing for an explanation of the cash flow for FY16-17
was Rs107.08 crore in H1FY16 and Rs337.89 crore from the company and, over a telephone call the
in H1FY17-18. The cash and bank balance reduced company representative attributed the difference
substantially from Rs298.12 crore in H1FY16-17 to due to revised calculations as per Ind-AS (India's
Rs69.35 crore in H1FY17-18. Accounting Standard). Another point that caught
At the investor presentation for the September our attention was the EBITDA margins for the
2017 quarter results, the company listed its completed investment properties. As per the analyst presentation
investment projects asOberoi Mall, Commerz, for Q2FY17-18, two investment propertiesOberoi
Commerz TWO and The Westin Mumbai Garden City. Mall and Commerzhad EBITDA Margins of 93.37%
In Oberoi Mall, the revenue per square feet (rpsf)/ and 98.98%, respectively. We contacted the company

Difference between total of 4 quarters and financial year

H1FY16-17 RsCr Q3FY16-17 RsCr Q4FY17 RsCr FY16-17 (Adding H1, FY16-17 (as per
Q3 and Q4) RsCr the presentation)
RsCr
Operating Cash Flows -40.64 129.94 79.88 169.18 173.53
Investing Cash Flows -423.19 -84.76 -263.74 -771.69 -543.74
Financing Cash Flows 375.65 -37.7 4.81 342.76 335.56

month on area leased remained the same as in the
September 2016 quarter, at Rs164. In Commerz, the
rpsf/month on area leased increased from Rs140 in the
September 2016 quarter to Rs142 in the September
2017 quarter. In Commerz Two, the rpsf/month on
area leased increased from Rs125 in the September
2016 quarter to Rs130 in the September 2017 quarter.
The company has eight residential projects from which
revenue of Rs205.16 crore has been recognised in the
September 2017 quarter. The promoter shareholding
changed from 72.54% in the September 2016 quarter
to 72.49% in the September 2017 quarter.
to get a better understanding of how it calculates the
EBITDA margin because it seems that there is virtually
no cost of running these facilities. The explanation
provided orally was that the construction expense was
accounted for as capital expenditure and the other
expenses were divided and allocated to individual units/
shops in the commercial premises and hence low. No
written communication or explanation was provided
by the company. The question remains about how the
company pays for maintenance expenses and why its
quantum is low so as to yield such a high EBITDA
margin.

MONEYLIFE | 10-23 Nov 2017 | 48

StockWatch.indd 4 03-11-2017 18:10:34

 STOCK WATCH

G A N E S H B E N Z OPL AS T terminal and iodised salt at high premium in 1995. Out

of GBL's total project outlay of Rs198 crore, only Rs2
Value in Demerger crore was debt and Rs196 crore was equity. In the days
of frenzied initial public offerings, GBL's issue of fully

G anesh Benzoplast Ltd (GBL) has two businesses:

one is chemicals and the other is liquid storage
facilities and cargo handling. The chemicals division
makes food preservatives, lubricant additives and
specialty chemicals and markets its products through
distributors in Africa, North America, North Europe,
Australia and the Middle East, apart from supplying
in the domestic market. This division makes losses and
contributes 38% to GBLs revenue. The liquid storage
terminal and cargo handling facilities (LST) segment is
catching the attention of smart investors because
it is highly profitable and a cash-
h-
generating machine.
LST provides storage tanks
which are leased out for storing g
liquid chemicals, acids, phenol,
oil products, petrochemicals,
molasses and edible oils. GBL
has three such facilities located
at Jawaharlal Nehru Port Trust
(JNPT) (Navi Mumbai), Goa and nd
Cochin with a combined storagee
capacity of 300,000 kilolitres. Th
These ffacilities
ili i
require specialised infrastructure at port terminals such
as fire-fighting equipment, pipelines, transit storage
and handling, etc. GBL recently added more capacity
at JNPT and also received the necessary approvals
for its commercial usage. The company is planning
to increase capacity at its Cochin facility as well.
Moreover, GBL has plans to set up liquefied petroleum
gas (LPG) terminal at its Goa facility for which it has
already received regulatory approvals. This facility will
take two years to come up. At present, the company
is operating at 100% capacity utilisation at JNPT
and 80% capacity utilisation at Goa and Cochin. In
the LST segment, GBL is consistently reporting an
convertible debentures of Rs170 each was subscribed.
Greedy foreign institutional investors too took firm
allotment of these debentures at a premium of Rs210
per debenture.
What helped GBL was the support of domestic
institutional investors like Unit Trust of India which
were used as dumping ground by promoters and
brokers. For instance, the Deepak Parekh committee,
and later the Tarapore Committee, which went into
the collapse of UTI, came out with some sordid details
recklessly put retail savers money
of how UTI reckle
defaulting companies like Essar Oil,
in defaultin
Malvika Steel and Usha Ispat, Prag
Malv
Bosimi Synthetics, etc. The reports
B
iindicated how UTI was raped
bby a large collusive cartel of
brokers and shady businessmen
b
which caused huge losses to
w
the exchequer and taxpayers.
th
Dishonourably mentioned in
D
this list of companies was Ganesh
thi
Benzoplast. The stock collapsed
Benz
ffrom a hi
highly
hl rigged up price of Rs190 in
December 1994 all the way to Rs0.86 in March 2004.
But the company survived, thanks to haircuts
taken by banks. And, then, as has happened with
many second- or third-generation business families,
the floundering operations of GBL have been turned
around through a combination of luck, time and hard
work. Rishi Pilani (son of promoter Ramesh Pilani)
joined the company in 2006 as the managing director
LST Segment (Rs Crore)
80 60%

operating margin of around 45% with slow revenue 70

50%
growth; as can be seen in the graph. 60
40%
50
Shady Background 40 30%
GBL has been a poorly run company which 30
20%
went nearly bankrupt. The companys reputation 20
was terrible. Companies like GBL thrived in an 10
10%
environment of poor research, poor regulation and 0 0%
rampant corruption. GBL was a monopoly producer Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
of benzoate plasticisersa compound used to enhance
Revenue Operating Profit Operating Profit Margin
the properties of PVC. GBL took full advantage of its
past performance to fund diversification into chemicals

49| 10-23 Nov 2017 | MONEYLIFE

StockWatch.indd 5 03-11-2017 18:11:28

 STOCK WATCH

and became chairman of the board in 2014. Given the
expansion projects the management has planned, and
looking at recent past performance, shareholders hope
that the company might be able to successfully turn
around completely. In a media interview, Rishi Pilani
spoke of his plans to demerge the current company into
two separate entities, viz., chemicals and LST. There
is no official announcement as yet about the demerger
but this could potentially unlock the value for the LST
business.
On the financial side, the net worth of the company
is negative at present but GBL expects the business to
have a positive net worth by the end of the current
financial year. Negative reserves of Rs90 crore in
FY12-13 have come down to Rs29 crore for FY16-17;
borrowing has reduced from Rs280 crore in FY12-13
to Rs180 crore in FY16-17. Revenue growth has been
flat for the past four years, but we can expect to see
growth as the expansion plan at JNPT is completed
and there will be more capacity expansion in the
future. Revenues for the September 2017 quarter have
jumped 63% year-on-year (y-o-y) and 8% quarter-
on-quarter (q-o-q), from Rs24 crore in September
2016 and Rs36 crore in June 2017 to Rs38 crore in
September 2017. The stock is currently trading at a
price-to-earnings (P/E) multiple of 24x, which might
look expensive, but, given the possibility of demerger
and a successful turnaround, it could be a value creator,
provided the management stays the course and does
not try some new shenanigans.

S h r e e P u s hkar C he m ic al s over 8,900TPA, is a zero-effluent plant as the company

recycles effluents thus increasing cost-efficiency.
Steady Growth The fertiliser divisions capacities include: single
superphosphate (commissioned commercial production

S hree Pushkar Chemicals and Fertilisers (SPCF)

manufactures chemicals, dye
intermediates, dyestuff, fertilisers,
in February 2016 with 100,000TPA), nitrogen
phosphorus potassium
(commissioned commercial
etc, from its plant located at Lote production in September
Parshuram (Ratnagiri, Maharashtra). 2016 with 20,000TPA),
SPCF started as a gamma acid sulphate of potash
manufacturing company in 2001 (10,000TPA) and soil
and has been integrating backwards conditioner (12,000TPA).
as well as forwards. The company In manufacturing of
got listed in FY15-16 and has used sulphate of potash,
the initial public offering (IPO) hydrochloric acid is
money towards expanding capacity generated which is used
for dyestuff and dye intermediates. in production of calcium
It has also expanded manufacturing capacity through chloride. So the company has set up granular calcium
internal accruals and added new products in fertilisers.
SPCF is jointly run by Punit Makharia (chairman
and managing director) and Gautam Makharia (joint Higher Value Added Products
managing director). Punit Makharia has experience of
over 45 years in this industry and Gautam Makharia 64.4 81.2 76.4 88.9 78.0
has experience of over 15 years. They have expanded 4.1% 9.1% 17.5% 18.7% 20.5%
the business, growing existing lines and adding new
products to the portfolio. At present, the company
has four plants located in close proximity at Lote 73.5% 68.2% 58.0% 56.3% 57.6%
Parshuram.
The dyestuff plant (end application is textiles),
which manufactures reactive dyes, has a capacity
for 3,000 tonnes per annum (TPA); the company is 16.1% 16.5% 19.5% 21.3% 17.6%
looking forward to doubling the existing capacity to 6.1% 6.2% 5.0% 3.8% 4.3%
Q1FY16-17 Q2FY16-17 Q3FY16-17 Q4FY16-17 Q1FY17-18
6,000TPA. The key raw materials used in dyestuffs are
also manufactured in-house as dye intermediates. The Dyes Dyes Intermediates Fertiliser Others
dye intermediates plant, with an installed capacity for

MONEYLIFE | 10-23 Nov 2017 | 50

StockWatch.indd 6 03-11-2017 18:12:20

 STOCK WATCH

reactive dyes. to 6,000TPA and, sulphate of potash to

Cash Flow from Operating Activity (Rs Crore)
55
45
35
25
15
5 a healthy rate. The September quarter results are yet
Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
chloride manufacturing in February 2016 (6,500TPA).
As per the management, dyestuff is a high-margin
business and the company is constantly trying to
increase its share in revenue. This is evident in the
graph. SPCF has marketing tie-ups for some of its
fertiliser products and chemicals which reduces the
marketing cost of the company and helps regular sales.
The future outlook looks strong. Management has
delivered good results and has a well-planned strategy
for the future. According to its investor presentation,
the company is going to double its capacity for
20,000TPA. Within the dyestuff segment, it is looking
forward to exports as well which will give volume
growth to this segment. The opportunity for auxiliary
textiles chemicals is large and the management has
already begun test marketing these chemicals and set
up a plant for these in the current financial year. With
dyestuffs and auxiliary textiles chemicals, the company
has a vision to become the complete solution provider
to the textiles industry. SPCF has an established
clientele, like Atul Ltd, DCM Shriram, Vinati Organics
Ltd, Meghmani Dyes and Intermediaries Ltd, etc.
On the financial front, the company is growing at
to be published; but, for quarter ending June 2017,
revenue grew at 23.5% year-on-year (y-o-y) from
Rs63 crore in June 2015 to Rs78 crore in June 2016,
while operating profit grew at 30.7% from Rs10
crore in June 2016 to Rs13 crore in June 2017. The
operating margin and net margin were 17.6% and
9.7%, respectively. The net profit to capital employed
ratio is 16%. The company has a market-capitalisation
of Rs800 crore. Given the size of opportunity and
execution by management till date, we can expect it to
keep growing and foraying into new products which
will bring in additional revenue growth. If the company
keeps on the growth trajectory, the stock may do well
over the coming years.

Toyam Industries (Rs5)

(Rs)

T oyam Industries was originally

incorporated as Chetram Balkrishan
Limited and later changed its name to
12

10
0

Ojas Asset Reconstruction Company 8

626%
Limited before it was rechristened
6
Toyam Industries in December
2016. The penultimate renaming
was designed to reflect its changed UN UOTED
STORIES OF PRICE MANIPULATION
4

2
businessfrom securitisation and
0
asset reconstruction
14 Feb-17 14 Jun-17 14 Oct-17
to general business
and trading activities.
Further, in April 2017, though the company claims it is has
the company decided multiple servicessports, gaming,
to expand and diversify merchandise, fitness, healthy foods
its business to all kinds and beverages, investments and
of activities related to consultancyits website provides
sports, fitness, fashion, no substantial information about
films, entertainment or the businesses, clients or any other
any other genre. The important data. The company claims it
surprising part is that, is launching an integrated fight league

51 | 10-23 Nov 2017 | MONEYLIFE

StockWatch.indd 7 03-11-2017 18:59:33

 STOCK WATCH

platform in India, registered as "K1L
Kumite 1 League". The company had
announced that it is launching its K1L
series of products and services by
opening a sports cafe in July 2017 in
Mumbai. On its website, the company
claims it has trained over 35,000
women students in self-defence at
its KIL training facility. However, it is
perplexing that no details have been
provided on the website of the kind
of training, nor proof off the training
having taken place, nor annual reports.
The company gives vague explanations
in its services provided section on the
website. Here are a few screenshots
which are quite bizarre.
Apparently, Toyams promoters
dont have much faith in the
company. They have an extremely low
shareholding of 4.71%. The company
has a market-capitalisation of Rs127
crore.
crore The sales of the company
grew 1366% year-on-year (y-o-y), from
Rs0.44 crore in the June 2016 quarter
Rs6.45 crore in the June 2017 quarter
while the net profit fell 94% y-o-y from
Rs0.32 crore in the June 2016 quarter
to Rs0.02 crore in the June 2017
quarter. The most amazing aspect is
its stock price which rose 626%from
Rs1.31 on 14 February 2017 to Rs9.51
on 27 October 2017.

MARKET TREND

No Margin for Error at the except for the corporate lenders, and
the aggregate free float profit growth
Current Valuation has been around 5.6% YoY. While the
brokerage believes that given the positive

Tpast weeks, thanks to two important impulses in two

he equity markets have made further gains in the
successive weeks. One, a recapitalisation plan of Rs2.11
lakh crore for public sector banks (PSBs); and two, a jump
in Indias position in World Banks Ease of Doing Business
rank from 130 to 100. The Sensex, which closed at 32,390
on 19th October, was up by 1,295 points, closing at
33,685 on 3rd November. The bullishness is
pervasive. Money is gushing into mutual
funds and foreign institutional investors
have closed October with a positive
net inflow after two months of intense
selling. What can go wrong?
ICICI Securities poses the right question
on in a recent
research report: Has the market jumped the gun on
d th
growth outlook? According to the report, investors are
anticipating earnings growth to recover at a robust pace
and, given the current valuations, there is no margin for
error on that front. So far, 21 Nifty companies (free float
weight of 54.5%) have declared their Q2FY18 results,
which have been largely been in line with expectations
momentum in stocks, favourable base effect
due to demonetisation in Q3FY18 and robust domestic
flows, equity markets could remain elevated in the short
term. Our view of valuations indicates that the odds are
against high performance for stocks from current levels
if growth belies exexpectations in the short term, which
remains our
ou base case given the weak investment
cycle, slow export growth and recent
slowdown seen in private consumption
expenditure.
e The killer: cyclically-
adjusted
adj price-to-earnings ratio (P/E) is at
its highest level since 2008 and the market-
cap/gross
cap domestic product ratio is at its
highest
high since 2010.
Investors,
I t off course, are in no mood to listen to this.
Money is pouring into stories that are half-credible
whether in commodities, small-caps or anything that is
showing even a semblance of growth. The million-dollar
question is whether earnings will catch up or prices will
come down. Or will something else emerge?
Debashis Basu

MONEYLIFE | 10-23 Nov 2017 | 52

StockWatch.indd 8 03-11-2017 19:00:02

 UNBIASED INFORMATION:
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 CIVIC ISSUES PRASANNA S
Rajasthans Gag Law: Why It Needs
To Be Opposed Strongly
T
he Rajasthan government, in September 2017, issued
an ordinance that dealt a body blow to the cause
of transparency and accountability in governance.
Ironically enough, the same state saw the birth of the right
to information movement in India!
The ordinance bars investigation of current and former
public servants, including judges and magistrates, for
allegations of corruption, or any other offence arising out
of acts done, or purported to be done, in the discharge
of their official duties, without a prior sanction from the
state government. It is worth noting that public servants
are already under the protection of Section 197 of the
criminal procedure code (CrPC) which provides that
they cannot be prosecuted without
government sanction. This ordinance
goes a step further and requires prior
sanction even to start an investigation
or even report it. This means that
prior sanction is required at two
stagesfirst, before investigation
and, once again, before prosecution.
The ordinance further made it a
criminal offence, punishable by up
to two years of imprisonment, to
publish the identity or other particulars of such a public
servant until a sanction for investigation is accorded. The
government gave itself 180 days to make up its mind on
according sanction for investigation in each case.
This law has, justifiably, received much criticism
for being pro-corruption and against media freedom.
The Editors Guild of India described it as a pernicious
instrument to harass the media, hide wrongful acts by
government servants and drastically curb the freedom of
the press guaranteed by the constitution of India. A public
interest litigation (PIL) has been filed in the Rajasthan
High Court challenging the ordinance on various grounds,
including it being malafide. The petitioners have argued
that it imposed an unconstitutionally atrocious prior
restraint on the press and that it made the process of
investigating allegations of corruption almost completely
ineffective and quite certainly making it a constitutional
and a moral disgrace.
However, another aspect that has, perhaps, not received
as much attention, is the fact that the law was issued as an
ordinance and that the Central government had accorded
assent to such an ordinance. The rule in our democracy is
that the legislature, being the house elected by the people,
MONEYLIFE | 10-23 Nov 2017 | 54
Prasanna - column.indd 1
represents public will and, therefore, makes the law; and the
executive enforces or implements the law. The device of an
ordinance is an exception to this rule. It is promulgated by
the executive, when the legislature is not in session, but has
the force of law, like any other law made by the legislature.
Articles 123 and 213 of the Indian Constitution empower
the president of India (i.e., Central government) and the
governors of states (i.e., state governments), respectively,
to promulgate ordinances. Every ordinance has to be
ratified within six months or before the conclusion of the
next session of the legislature, whichever is earlier, failing
which it loses the force of law. An ordinance, not being
a legislation that has the backing of the public will, can
only be issued when circumstances
are so exceptional and emergent that
it would be imprudent to wait for
the next session of the legislature
to introduce and pass the law. This
particular ordinance also required
an assent by the president in terms
of clause (1) of Article 213 of the
Indian Constitution because it was
amending a Central law as applicable
to Rajasthan.
Neither the Central government nor the state
government have so far explained why it was necessary
to employ the device of an ordinance in this case. Use of
such extraordinary powers under the Constitution, when
the underlying facts do not justify the use of such powers,
is a fraud on the Constitution. It has also now become
fashionable to use the money bill route to pass legislation
at the Central level, completely bypassing the Rajya Sabha,
a crucial federalist constituent in the legislative process.
The Aadhaar Act (2016) and the Finance Act (2017) could
not, and should not, have been passed as money bills, and,
a challenge on that is pending before the Supreme Court.
Such abuse of legislative devices under the Constitution
deserves condemnation at least in equal measure to the
outrage that is usually triggered by what is called judicial
overreach, when the judiciary, occasionally, attempts to
keep the executive in check.
A Delhi-based lawyer & a constitutional
law enthusiast and commentator.
@prasanna_s
03-11-2017 19:01:00
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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
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MSSN Handholding.indd 1 15-12-2016 18:07:06


Queries
At Moneylife Foundations
Ask tax-related questions at moneylife.in/taxhelp. Its free
Buying and Selling IPOs
I will apply for initial public
offering (IPO) online and the
same amount will be added and
deleted from my account every
month as I will buy and sell
immediately. Please confirm whether
it will come under taxation. If so,
what I should do?
Nikhil Vadias Reply:
Your transaction will be treated
as capital gains or income from
business or profession, based
on your choice.
However, you will
not be able to change
that every year. It is
advisable to treat it as
capital gains since tax rate is lower.
Loan from Relative for Home
I wish to book a house under the
Pradhan Mantri Awas Yojana
(PMAY). I am applying for a
bank loan of Rs15 lakh and also
expecting Rs5 lakh as a loan from
a relative of mine. How I can
project this loan amount /help from
relative in my income-tax or will
I be charged any income-tax on
this amount of Rs5 lakh from my
relative?
Nikhil Vadias Reply:
If the relative is covered by
definition of Section 56 (2) of the
Income-tax (I-T) Act, it will not be
MONEYLIFE | 10-23 Nov 2017 | 56
Tax Queries.indd 2
Tax Helpline
treated as income, else the gift will
be treated as income. A relative
means: spouse, brother, sister and
any lineal ascendant or descendant
of the individual or spouse of the
individual.
Tax on Agricultural Income
A gricultural income is exempted
under Section 10(1) of the I-T
Act. If agricultural income exceeds
Rs5,000, an individual can file
income-tax return (ITR) in Form
2. I want to file ITR2. My net
income, after expenses, is Rs1.80
lakh. However, I cannot find actual
income before expenses. How much
expense can I fill in the ITR so
that my gross total income can be
calculated easily?
Ameet Patels Reply:
Presuming that you have taken
proper advice and ITR2 is the
correct Form that you have to fill
up, you need to refer
to Schedule EI in
the Form. Here, you
have to give details of
your exempt income
including agricultural income. The
format requires you to provide gross
income and the expenses incurred.
There is no rule laid down which
tell us that the expenses have to be
a certain percentage of the gross
income. Therefore, nobody can
tell you what amount to mention
as gross income and as expenses.
Supported By
You will need to maintain proper
records to justify the amounts that
you mention. There cannot be any
guesswork involved here.
Tax Rebate for
Government Employee
I am a government employee and
live in accommodation provided
by the government. I pay 30%
house rent allowance from my
salary. Can I take tax rebate on a
home loan?
Ameya Kuntes Reply:
In case of government employees,
as I understand it, as
per the governments
employment rules,
the standard rent
licence charge is
reduced from the
salary. This is towards the value of
accommodation perquisite provided
by the employer, i.e., government.
This deduction (as per government
service rules) cannot be reduced as
tax rebate in the home loan.
Tax on Office Expenses
I received some funds from my
company for branch expenditure
in my accounts. This is over and
above my salary amount. Please
guide me about the document I
should collect from the employer to
avoid income-tax.
Subodh V Shahs Reply:
You should take a note / letter from
your company stating
that the said amount
has been transferred
to your account for
the purpose of branch
expenses on behalf of the company
and, later, you will be submitting an
expense report. This should suffice
to explain the transactions for
taxation purpose.
03-11-2017 17:01:03
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MONEYLIFE | 10-23 Nov 2017 | 58
Tantra - column.indd 1
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charge your device to only 80%. AccuBattery measures the
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battery your device is using and know how long you can
use your device when its active or in standby mode. You
can also find out how much power each
app uses. Stats include charging time
and optimum battery capacity. It allows
you to see how much wear your battery
sustains with each charge session. You
can even look up the discharge speed
(paid) professional version, has real-time
CPU (central processing unit) and power usage overlay
for spotting battery draining processes and has no ads,
besides having many more features. In short, the app is
designed to keep your battery in the best shape possible!
Android: https://goo.gl/LMh9n3
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.
03-11-2017 18:37:34
 FATTY LIVER WORSENED BY
SUGAR
F atty liver disease affects
one out of every two adults
in the Western world. Fatty
liver disease is the presence
of hepatic steatosis, that is, fat
deposited in the liver. There are
two main types of fatty liver
disease: non-alcoholic fatty liver
disease (NAFLD) and alcoholic
fatty liver disease. Alcoholic fatty
liver disease comes from excessive
alcohol consumption. NAFLD is
the most common liver disorder
in Western industrialised countries
(10%-46% in the US). It could
be the cause for obesity, type-2
diabetes, dyslipidaemia, male sex
and metabolic syndrome.
A recent paper in British
Medical Journal argues that data
from animal and human studies
implicate added sugars (e.g.,
sucrose and high-fructose corn
syrup) in the development of fatty
OBESITY IN THE US
Obesity in US adults has almost
trebled over half a century
40%
38.2%
20%
13.4%
0%
1962
Source: National Health and Nutrition Examination Survey
The National Bureau of Economic
Research reports the estimated annual
healthcare costs of obesity-related
illness to be nearly 21% of annual
medical spending in the US
liver disease and its consequences.
Added fructose in particular, as a
component of added sugars, may
pose the greatest risk for fatty
liver disease. The paper Added
Fructose as a Principal Driver of
Non-Alcoholic Fatty Liver Disease:
A Public Health Crisis, by James
Health.indd 3
MEDICAL DEVELOPMENTS FROM
AROUND THE WORLD
J DiNicolantonio, Ashwin M as their only form of moderate-
Subramonian and James H OKeefe, vigorous physical activity.
argues that considering that there is After correcting for risk factors
no requirement for added sugars in such as smoking, obesity and
the diet, dietary guidelines should
recommend reducing the intake of
added sugars to just 5% of total
calories to decrease the prevalence
of fatty liver disease and its related
consequences.
ANY AMOUNT OF WALKING
IS BENEFICIAL
U S public health guidelines
recommend that adults
should do at least 150 minutes of
moderate walking or 75 minutes of
vigorous-intensity physical activity
per week. But surveys show only
half of US adults are able to meet
this norm. However, a
study in American Journal
of Preventive Medicine
says that regular walking,
even if not meeting this
minimum recommended
level, can lead to lower
mortality compared to
inactivity. Walking has been
associated with lower risk
of heart disease, diabetes
2014
and breast and colon
cancers. While several
studies have linked overall
moderate-vigorous physical
activity to a reduced risk of
death, relatively few have
examined associations with
walking specifically. To learn more,
investigators led by Alpa Patel
(PhD), looked at data from nearly
140,000 participants in the Cancer
Prevention Study II Nutrition
Cohort. A small percentage (6%-
7%) in the study reported no
moderate to vigorous intensity
physical activity at
baseline. Among
the rest, about
95% reported
some walking, and
nearly half walked
chronic conditions, the study found
walking-only for less than two
hours per week was associated
with lower all-cause mortality
compared to no activity. Meeting
one to two times the minimum
recommendation (2.5-5 hours/
week) through walking-only
was associated with 20% lower
mortality risk. Results for those
exceeding recommendations
through walking-only were similar
to those who met recommendations.
Walking-only was most strongly
associated with respiratory disease
mortality, with approximately 35%
lower risk comparing more than 6
hours/week of walking to the least
active group. Walking-only was
also associated with about 20%
less risk of cardiovascular disease
mortality and with about 9% less
risk of cancer mortality. With the
near doubling of adults aged 65 and
older expected by 2030, clinicians
should encourage patients to walk
even if less than the recommended
amount, especially as they age, for
health and longevity, suggest the
study.
59 | 10-23 Nov 2017 | MONEYLIFE
03-11-2017 16:46:16
 LEGALLY SPEAKING SD ISRANI
What Is the Remedy When a Consumer
Forums Order Is Not Complied With?
I
t is an accepted fact that consumers in India do not
have a voice. In fact, it will not be an exaggeration to
say that consumers are a neglected lot and nobody
bothers about protecting their interest. Although we have
a Consumer Protection Act (COPRA), even the prime
minister (PM) has recently announced that the government
plans to enact a more stringent law along with setting up
a consumer protection authority (CPA).
Consumers, who had booked apartments in proposed
or under-construction buildings, have been the biggest
sufferers. Housing is a basic need and the average person
is easily swayed by glossy advertisements and beautiful
presentations by over-smart builders. Thousands of
consumers, who have invested their precious savings or
taken bank loans to book apartments, have been left high
and dry with no possession
in sight, years after the
projects were scheduled to
be completed. Moreover, the
only remedy available used
to be to approach civil courts
which was a tedious, time-
consuming and costly affair.
In such a scenario,
COPRA offered simple,
speedy and cost-effective
recourse against errant
builders. But it has not been
easy for consumers. Builders
start by challenging the jurisdiction of COPRA, even
though it is a well-settled law that an aggrieved consumer
can approach the consumer fora for seeking relief against
builders. They also appeal against favourable orders and
drag matters to the National Consumer Disputes Redressal
Commission (NCDRC) and the Supreme Court.
What can a consumer do if the builder ignores, or fails
to comply with, a consumer courts order directing a refund
or imposing damages on a builder? Smita Kawale and her
husband Shivajirao Kawale of Gulbarga faced exactly this
problem. They won a favourable order against a builder
who failed to deliver their apartment. The builder was
directed to refund Rs25 lakh to them, along with interest,
compensation and legal cost. Instead of paying up, the
builder tried every possible trick to deny the consumers
their due.
In such a case, COPRA offers a specific remedy and
empowers the consumer to approach the specific forum
MONEYLIFE | 10-23 Nov 2017 | 60
Legally Speaking.indd 2
from which she has obtained a favourable order, and make
an application for recovery of dues from the other party.
Section 25 of COPRA empowers the consumer forum to
issue a certificate asking the district collector to recover
the amount from the person concerned in the same manner
as arrears of land revenue.
In the Kawales case, the builder against whom the
complaint was filed was a private limited company. The
person in charge pleaded that he was no longer a director
of the company and cannot be asked to pay the amount.
In this case, the state commission issued a recovery
certificate to be enforced by the collector, Pune, to recover
the amount from the company and/or its director. The
builder challenged the order and dragged the matter to
NCDRC He contended that it was a well-settled law
that the company as a legal
entity is distinct from its
shareholders and directors;
therefore, there could be no
recovery proceeding against
him and he could not be made
liable to pay up.
NCDRC considered the
evidence before it and upheld
the recovery order passed
by the state commission
and confirmed that it was
the duty of the collector,
Pune, to ensure recovery. It
disagreed with the builders contention that the directors of
a company are not responsible for payment of the amounts
in question. It also observed that the directors represented
the top management of a company and are in a position to
influence the decision taken by the said company. (Vasant
Janardan Aher, additional director of Sawali Home Makers
Private Limited, Pune v/s Smita Shivajirao Kawale Order
was passed on 17 October 2017).
With the PM promising a CPA and a more stringent
consumer protection law, hopefully, travails like those of
the Kalwes will become a thing of the past.
SD Israni is a corporate lawyer & Fellow
of ICSI. Email: sdisrani@gmail.com
01-11-2017 16:57:42
 TECHNOLOGY
Technology: The One-way Addiction
We need to learn the art of disconnecting from the ever-increasing addiction of remaining
online 24x7. This will help in the long run, advises Yogesh Sapkale
F
ire was one of the best inventions by humankind.
Despite the risks associated with it, fire has
proven to be a boon for us. Similarly, new-age
technologies, like the Internet, are proving to be great
levellers because they treat all users as equal. However,
several applications associated with the Internet are
turning out to be nuisance. Now tech companies are
under fire for creating problems instead of solving
them, says a report in The New York Times. Social
media might have originally promised liberation, but
it proved an even more useful tool for stoking anger.
The manipulation was so efficient and so lacking in
transparency that the companies themselves barely
noticed it was happening. Tech companies have accrued
a tremendous amount of power and influence... the
Internet long ago became
a business, which means
the companies first
imperative is to do right
by their stockholders.
As I pointed out in my
previous article, we, the
users of this technology,
especially Internet and
Internet of Things (IoT),
are now more like a
product than consumers
for the developers and
service-providers. What
is more dangerous is the spread of IoT devices, like
cameras, watches, house-cleaning robots or smart
refrigerators, etc. Not only are these encroaching on
our lives, but could also make it us more vulnerable in
terms of safety and security. Explaining these aspects,
Bruce Schneier, chief technology officer of IBM Resilient,
in his blogpost, says, Markets, as we have repeatedly
learned over the past century, are terrible mechanisms
for improving the safety of products and services. It was
true for automobile, food, restaurant, airplane, fire, and
financial-instrument safety. The reasons are complicated,
but basically, sellers do not compete on safety features
because buyers cannot efficiently differentiate products
based on safety considerations. The race-to-the-bottom
mechanism that markets use to minimise prices also
minimises quality. Without government intervention, the
IoT remains dangerously insecure.
Technology.indd 1
For example, many mobile phones run on Android.
Yet, some, like those from Samsung, come preloaded
with software (bloatware) installed by the manufacturer,
which the user may not even need. Other phones may
have plain Android installed. Both run fine; but the
user may not know, or may be uninterested in, the
security level of any of the mobiles. Unfortunately,
even governments, except a few from Europe, are least
interested in reining in the spread and, thus, dangers of
Internet and IoT devices. In June 2017, the European
Union levied a fine of $2.7 billion on Google, for putting
its own products above those of its rivals in the searches.
Germany has a new law that penalises websites for not
taking down hate speeches. As far as India is concerned,
the less said, the better. It is really shocking, but true,
that in a country that
recognises right to privacy
as fundamental right, there
is no protection available
for citizens from threats
and coercions originating
from the cyberspace and
even from government
departments.
So what is the
solution? One could be to
disconnect (from Internet)
to remain sane and sober.
According to a report
from the union ministry of health and family welfare,
there is an alarming rise in new disorders that occur
due to heavy usage of Internet and social media. This
report is based on a survey conducted over six months
and shows Mumbai, Kolkata and Bengaluru as the
top-3 cities where people require psychiatric help. Some
may argue that disconnecting from the Internet is not
possible anymore. If not all the time, you can at least cut
down the time you spend online. Start by putting mobile
phones in do-not-disturb or privacy mode while
sleeping. Minimise use of social media, like Facebook,
WhatsApp or Twitter, especially from mobile devices.
Remember, material things are meant and created
for us. We, humans, are not created for materialistic
things. Mobile phones were invented for us as a tool for
communication. We were not invented for mobiles or
any other device that turns us into an addict.
61 | 10-23 Nov 2017 | MONEYLIFE
30-10-2017 15:28:40
 BOOKS

THE MONEY FORMULA Quantitative finance started to become mainstream

when option pricing theory was published in 1973 that came

Quants with a out of the academicians desire to reduce the complexities

of the financial markets to neat formulae. The advent of

Conscience computers enhanced the appeal of mathematical finance

by making the calculations easier while allowing traders
to trade faster and faster. It is another matter that these

A
bout 40 pages into The Money Formula, by Paul developments have made markets more interconnected
Wilmott and David Orrell, you start wondering and dangerous, leading to such things as flash crash and
why would someone write another book on global financial crash.
investments that forces us to read about all the characters This book is a witty survey of the world of quantitative
and theories connected to the world of investingfrom finance. Paul Wilmott is one of the foremost names in this
Isaac Newton (who lost money in the South Sea Bubble, specialised field. He studied mathematics at Oxford, did
the earliest market crash), to John Laws monetary gamble a DPhil in fluid mechanics and now has a small business
with the French exchequer, to Loius Bacheliers thesis at running a distance-learning course in mathematical finance,
the turn of the previous century on speculation, to the wilmott.com, a thriving website for quant community. He
Chicago School in the second half of the 20th century also runs a recruitment agency for quants and founded
which spun its theoretically elegant but completely useless the journal Applied Mathematical Finance. David Orrell
efficient market theory, to is a Canadian writer and a mathematician.
modern portfolio theory The book is divided into 10 chapters. The initial
(MPT) of Harry Markowitz, chapters describe the run up to todays quantitative finance;
etc. I have comes across it then gets into the core of the quant world: what quants
dozens of books which take do, what is wrong with the models and how the financial
us through this obligatory system has been abused. The final chapter deals with
tour before coming the to systemic threat. But the threat is not only from models and
point. Perhaps, since the computers and bottom-line-driven hedge funds. The threat
field of investment theory is also ominously from within which this story will prove.
is small and circumscribed In 2010, Paul was contacted by the UK treasury
(in the words of Dr William department worried about high-frequency trading (HFT)
Bernstein, a neurologist and (the flash crash had just happened in the US). He made
an outstanding writer on six key points. At the meetings, various solutions were
investing)! discussed. One of them was to apply circuit-breakers
THE MONEY FORMULA It is well known that the to stop the market if the price crashed below a certain
PAUL WILMOTT & biggest influence on modern level. Paul objected to this idea saying that hedge funds,
DAVID ORRELL finance has come from the surely, would find a way to game the system. A year went
John Wiley & Sons Chicago Schools efficient by and Paul assumed that this was just how committees
Pages264; Rs1,281 market hypothesis (EMH), workedinefficiently and slowly. But then he got curious
MPT, capital asset pricing and sent a follow-up query. Another meeting followed.
model and valuation of options. All these theories are The committee members explained to Paul that he was
mathematically beautiful because what lies beneath them seen as too academic.
are neat assumptions: investors have access to the same The incredibly charming civil servants found a way
information; they act in a rational manner and drive prices to dump him from the committee. In 2012, the final report
to an equilibrium between supply and demand. It is also came out. To put it briefly, write the authors, the finding
well known now that these assumptions are balderdash. of the experts was that everything is fine. High-frequency
Investors suffer from biases. Charlie Munger, Warren and computer trading are nothing but good for everyone.
Buffetts partner, last listed 24 types of irrationality that Nine proposals had been made for pruning the impact
all of us suffer from. It is these biases that drive prices and of HFT, seven were deemed unnecessary or problematic.
create volatility not rational people acting on self-interest Of the remaining two, one stood out. The experts were
driving prices to equilibrium. Investors hate losses more in agreement that circuit breakers were a good idea.
than they love their gains; this is why they hold on to poorly The industry had managed to influence the treasury to
performing stocks. They go wild with exuberance in a bull see things their way by getting the officials to weed out
market and are engulfed with pessimism in a bear market. people like Paul from the committee. Debashis Basu

MONEYLIFE | 10-23 Nov 2017 | 62

Book Review.indd 2 03-11-2017 16:13:18

 24 YEARS OF THE SCAM:
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Scam Ad.indd 1
During discussions that night, Subba Rao called
R Sinha, chief general manager (vigilance). They
discussed the course of action and then planned
to go to the Chairman, Maneck N Goiporias
house. But they were told that Goiporia was out
meeting
eeting somebody and would return only after
10 pm.
m. It was then that Khemani and Subba Rao
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roke open Sitaramans drawer. It was a
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Harshad was just an onlooker. But he had a
burning desire to get in and do deals. He cajoled
the doorman and stepped in to watch how the
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That afternoon a new chapter began in the life of
Harshad Mehta. A totally unfamiliar world that
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21-10-2016 18:07:06
 MONEY FACTS STOCKS

INDIAN MARKET TRENDS FUND FLOWS

The Sensex and the Nifty rose 3% each during the fortnight Foreigners: Foreign institutional investors were net
ended 1st November. ML Large-cap Index, ML Mega-cap buyers of equities (Rs1,498.10 crore). They bought
Index and ML Mid-cap Index advanced 3% each, while ML shares worth Rs57,474.81 crore.
Small-cap Index rose 2%.
3,590

Share Prices Index, May 2017=100 2,610

120 FII Net Investments

1,630 (Rs Crore)

650
110

-330

100
-1,310
23 Oct-17 1 Nov-17

90 Indians: Domestic institutional investors too were

net buyers of equities (Rs 346.13 crore). They
bought shares worth Rs37,660.30 crore.
80 600
May-17 Aug-17 Nov-17

345
DII Net Investments
ML Large-cap ML Small-cap Nifty ML Micro-cap (Rs Crore)
ML Mid-cap ML Mega-cap Sensex
90

-165
Index 19 Oct 1 Nov +/-
Sensex 32,389.96 33,600.27 4% -420
ML Mid-cap Index 112.72 116.27 3%
-675
Nifty 10,146.55 10,440.50 3% 23 Oct-17 1 Nov-17
ML Large-cap Index 106.99 110.08 3%
ML Mega-cap Index 108.27 111.06 3% GLOBAL MARKET TRENDS
77,000
ML Small-cap Index 104.64 106.53 2%
Bovespa
ML Micro-cap Index 96.53 97.62 1% 73,800

Mega-cap Gainers/Losers 19 Oct 1 Nov Change 70,600

Punjab National Bank 129.60 198.90 53%

67,400

Yes Bank 358.05 318.80 -11%

64,200

Large-cap Gainers/Losers 19 Oct 1 Nov Change

61,000
HEG 1,252.10 1,718.10 37% May-17 Aug-17 Nov-17

Can Fin Homes 537.55 470.90 -12% NASDAQ Composite and Hang Seng rose 2% each,
while Taiwan Weighted and the FTSE ended flat.
Mid-cap Gainers/Losers 19 Oct 1 Nov Change
Bovespa declined 3%, while Nikkei advanced 5%.
Butterfly Gandhimathi Appliances 244.75 363.70 49%
Index 19 Oct 1 Nov + / (-)
Diamond Power Infrastructure 23.20 18.65 -20%
Nikkei 21,449 22,420 5%
Small-cap Gainers/Losers 19 Oct 1 Nov Change
Korean Composite 2,473 2,556 3%
Consolidated Construction Consortium 5.36 9.36 75% NASDAQ Composite 6,605 6,717 2%

Gyscoal Alloys 10.82 7.90 -27% Hang Seng 28,159 28,594 2%

Shanghai Composite 3,370 3,396 1%
Micro-cap Gainers/Losers 19 Oct 1 Nov Change
S&P 500 2,562 2,579 1%
Hindustan Dorr-Oliver 3.35 5.50 64% Taiwan Weighted 10,760 10,806 0%
Parabolic Drugs 11.35 9.37 -17% FTSE 7,523 7,488 0%

(All Prices in Rs) Bovespa 76,283 73,824 -3%

MONEYLIFE | 10-23 Nov 2017 | 64

Money Fact.indd 2 03-11-2017 16:05:38

 MONEY FACTS STOCKS

Whats H T ML SECTORAL TRENDS

Oil & gas companies were in demand during the fortnight. Selan
Exploration Technology, Oil & Natural Gas Corp, Oil India, GAIL (India) and
Shares of oil & gas companies
advanced 10%, while shares of
lifestyle & leisure companies,
Hindustan Oil advanced 26%, 11%, 9%, 8% and 7%, respectively. banking companies and real estate
companies went up by 9% each.
Companies 19 Oct 1 Nov +/- Stocks of petrochemicals companies,
retail companies and building
ML Oil & Gas Index Selan Exploration 189.75 239.95 26% materials companies fell 2% each.
110
Oil & Natural Gas 172.15 191.00 11%
105 ML Sectoral Trends
Oil India 340.75 370.30 9%
Trading 10% Petrochemicals -2%
100
GAIL (India) 433.25 468.10 8% Oil & Gas 10% Retail -2%

95 Lifestyle & Leisure 9% Building Material -2%

Hindustan Oil 90.10 96.25 7%
Banks 9% Healthcare 0%
90
Tide Water Oil Co 6239.65 6482.00 4% Real Estate 9% Education 0%

85 Indraprastha Gas 1557.10 1583.10 2%

May-17 Aug-17 Nov-17
All Prices in Rs
FOOD INFLATION

Combined food inflation fell

Whats N T to 1.76% in September 2017

compared with 1.96% that
prevailed in August 2017. For
Financial services companies were punished. Can Fin Homes, LIC Housing rural areas and urban areas, food
Finance, Indiabulls Housing Finance, Motilal Oswal Financial Services and inflation in September 2017 was
Muthoot Capital declined 12%, 10%, 9%, 7% and 6%, respectively. 1.82% and 1.69%, respectively,
while, in August 2017, it was
Companies 19 Oct 1 Nov +/-
1.88% and 2.11%, respectively.
Can Fin Homes 537.55 470.90 -12% ML Financial Service Index For rural areas, inflation for milk
LIC Housing Finance 663.05 598.50 -10% 120 and milk products rose to 3.47%
Onelife Capital 31.65 28.70 -9%
115 Inching Up?
Indiabulls Housing 1,362.45 1,245.60 -9%
4.50%
Motilal Oswal 1,480.75 1,379.85 -7% 110

Muthoot Capital 669.45 630.95 -6%

105
2.50%
GIC Housing 509.55 482.30 -5%

Bajaj Finserv 5,306.10 5,022.60 -5% 100

Geojit Financial 135.35 128.20 -5% 0.05%

95
Multi Commodity 1,096.70 1,044.65 -5%
May-17 Aug-17 Nov-17
All Prices in Rs -1.50%
Sep-16 Mar-17 Sep-17
BULK DEALS
in September 2017 from 3.03%
Date Company Buyer Seller Rs Cr in August 2017. For urban areas,
01 Nov-17 OCL India Maj Textiles Pvt Shreevallabh Textile Pvt 183.94
milk and milk products inflation
was at 4.60% in September 2017
01 Nov-17 Emami Paper Mills Ganpati Industrial Pvt Niraj Jalan 5.11 marginally lower from 4.61%
23 Oct-17 Mold-Tek Technologies NG Industries Uno Metals 1.64 in August 2017. For rural areas,
vegetables inflation fell to 3.48%
30 Oct-17 RCI Industries Technologies Bon Lon Securities Geetha Jain 1.27
in September from 3.95% in
30 Oct-17 BC Power Controls Worldwide Excellent Trade Pvt Geetha Jain 0.54 August 2017. For urban areas,
vegetables inflation fell to 5.10%
30 Oct-17 Comfort Commotrade Siva Balan Jaipal Siva Balan Jaipal 0.17
in September 2017 from 10.04%
30 Oct-17 Milgray Finance Investment Sanjay Rambrian Gupta Bhagavati Prasad Joshi 0.01 in August 2017.

65 | 10-23 Nov 2017 | MONEYLIFE

Money Fact.indd 3 03-11-2017 16:05:58

 PS
Sahara Tries a Comeback!
T he Sahara Pariwar, probably
Indias biggest money circulation
scheme, is storming back into its core
business of raising deposits even as
regulators struggle to sell its
assets. Last week, the groups
patriarch, Subrata Roy, was
on an 18-city tour including
Ahmedabad, Vadodara, Jaipur,
Ranchi, Nagpur, Guwahati,
Hyderabad, etc, to pump up his
depositor and agent base in a
blitz of publicity which included
plastering the city with hoardings to
welcome him with the reverential
pre-fix Param Pujyania!
Sahara executives give a positive
spin to his two years in jail pointing
out that he paid the Securities and
Exchange Board of India (SEBI) and
did not run away from the country (in
an obvious reference to Formula One
partner Vijay Mallya). While Mr Roy
was touring north India, SEBI was
Realty Blues: Unitech and DSK
T he case of Sanjay Chandra, promoter
of the Unitech group, once the
leading realty developer of Gurugram,
is going the way of Subrata Roy of the
Sahara group. On 30th October, a three-
member bench of the SC, headed by the
chief justice, denied him interim bail and
ordered that he will remain in custody
until the firm deposits Rs750 crore for
bail by December. Like with Subrata
Roy, the Court has allowed him the use
of video conferencing facilities and daily
meetings with his lawyers, if required, in
jail to negotiate a possible sale of his assets
to meet the interim bail condition. This
once high-flying group has to refund over
Rs2,000 crore to hapless home-buyers,
who have been running from pillar to post
for several years. Unitech failed to deliver
around 17,000 flats after collecting over
Rs7,800 crore as advance payment.
MONEYLIFE | 10-23 Nov 2017 | 66
PS.indd 1
in the Supreme Court (SC) battling a
contempt petition against the group
for obstructing the sale of the lush
Amby Valley, a spectacular weekend
retreat near Mumbai frequented by the
rich and famous. The SC had ordered
two realty companies of the Sahara
group to refund over Rs24,000 crore
with 15% interest in August 2012.
Sahara presents the image of
company wronged by SEBI, despite
paying up large sums of money-
Rs19,000 crore by its accounts. The
issue of its non-existent/fictitious
investors (SEBI has found claimants
Meanwhile, the Pune police have,
finally, registered a first information report
(FIR) against the smooth-talking Deepak
Kulkarni, promoter of DSK Developers
Limited (DSKDL), on 29th October. For
nearly a year, Mr Kulkarni and his wife
have been spinning yarns to depositors
and home-buyers crowding his office
about repaying them or delivering on
apartments long overdue. During this
time, information about diversion of funds,
mortgaging the same land with multiple
lenders, raising public deposits through
for only Rs64 crore, despite huge
effort) is also being spun as SEBIs
unwilling to verify investors; it claims
the income-tax department had no
issue with its interest payments and
tax deduction at source between
2009 and 2013. Meanwhile,
at the end of October, the SC
also dismissed Sahara Mutual
Funds plea against SEBI
cancelling its mutual fund
licence on the grounds that it
was not fit and proper.
And yet, the Sahara
supremo is telling people on
his expensive Bharat darshan that
the group is set to bounce back. The
question is: Bounce back with what
business? Media reports say that he
is looking at media, online education,
hospitals and maybe even a comeback
into aviation. These are highly-
regulated businesses and it is unclear
whether the plans are mere spin-
doctoring by the audacious group.
Sucheta Dalal
dummy companies, without regulatory
clearances, etc, was ferreted out by social
activist Vijay Kumbhar working with
DSKDLs victims.
Mr Kulkarnis line to investors was
simple: all businesses face rough times
and having him locked up only guarantees
that they never receive their money. This
is, indeed, true in the Indian context,
where businesses are killed by ham-
handed police action, and whatever
survives is lost in expensive litigation that
drags on for decades. Interestingly, while
the Pune police have registered an FIR,
there is no move to arrest Mr Kulkarni,
as has happened with other developers.
Apparently, the police are also sold
on his arguments, but it remains to be
seen if home-buyers and depositors get
their money back. At last count, 8,000
depositors were agitating to get back just
under Rs500 crore invested with DSKDL.
SD
02-11-2017 20:31:42
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 REGISTERED WITH THE RNI UNDER NO. MAHENG/2006/16653. Postal Registration No: MCW/184/2015-2017. POSTED AT PATRIKA
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